SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

               ANNUAL REPORT FILED PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                                 NEW CF&I, INC.
          (Exact name of registrant as specified in its charter)
          Delaware                       02-20781              93-1086900
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(State or other jurisdiction of   (Commission File Number)    (IRS Employer
 incorporation or organization)                           Identification Number)

   1000 Broadway Building, Suite 2200, Portland, Oregon          97205         
-------------------------------------------------------------------------------
      (Address of principal executive offices)                (Zip Code)
                                 (503) 223-9228
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             (Registrant's telephone number, including area code)

                                CF&I STEEL, L.P.
             (Exact name of registrant as specified in its charter)
             Delaware                   02-20779              93-1103440
-------------------------------------------------------------------------------
(State or other jurisdiction of  (Commission File Number)     (IRS Employer
 incorporation or organization)                          Identification Number)

   1000 Broadway Building, Suite 2200, Portland, Oregon         97205
-------------------------------------------------------------------------------
     (Address of principal executive offices)                (Zip Code)
                                 (503) 223-9228
-------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
     Title of each class                  Name of exchange on which registered
     -------------------                  ------------------------------------
     Guarantees of 11% First                    New York Stock Exchange
     Mortgage Notes due 2003

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      None

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

      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
                                                                  ---     ---

      State the aggregate market value of the voting stock held by
non-affiliates of the registrant.
                                 Not Applicable

      Indicate the number of shares outstanding of each of the registrant's 
classes of stock as of January 31, 1998:

                                 NEW CF&I, INC.
                                 --------------

      COMMON STOCK, $1 PAR VALUE                           200
      --------------------------            --------------------------------
            (Title of Class)                  (Number of shares outstanding)
                      DOCUMENTS INCORPORATED BY REFERENCE:

      Proxy statement for Oregon Steel Mills, Inc. Annual Meeting of
Stockholders to be held April 30, 1998 is incorporated by reference into Part
III of this report.



<PAGE>

                                 NEW CF&I, INC.
                                CF&I STEEL, L.P.

                                TABLE OF CONTENTS
                                                                          PAGE
                                                                          ----
PART I

ITEM 1.   BUSINESS...................................................       1
              General.................................................      1

              Capital Improvement Program.............................      1
              Products................................................      2

              Raw Materials ..........................................      3
              Marketing and Customers.................................      3
              Competition and Other Market Factors....................      4
              Environmental Matters...................................      5
              Labor Dispute...........................................      6
              Employees...............................................      6

ITEM 2.   PROPERTIES..................................................      7

ITEM 3.   LEGAL PROCEEDINGS...........................................      7

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........      8
              Executive Officers of the Registrant....................      8

PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND
              RELATED STOCKHOLDER MATTERS.............................      9

ITEM 6.   SELECTED FINANCIAL DATA.....................................      9

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
              FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........     10

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
              MARKET RISK.............................................     14

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................     15

ITEM 9.   DISAGREEMENTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE....................................     46

PART III

ITEMS 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
and 11.       AND EXECUTIVE COMPENSATION..............................     47

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
              AND MANAGEMENT..........................................     49

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............     49

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
              REPORTS ON FORM 8-K.....................................     50

                                     

<PAGE>



                                     PART I
ITEM 1.  BUSINESS

GENERAL

       New CF&I, Inc. ("Company") was incorporated in the State of Delaware on
May 5, 1992. On March 3, 1993, the Company acquired for $22.2 million a 95.2
percent interest in a newly formed limited partnership, CF&I Steel, L.P. ("CF&I"
or "Partnership"), a Delaware limited partnership. The remaining 4.8 percent
interest was owned by the Pension Benefit Guaranty Corporation ("PBGC"). In
1997, Oregon Steel Mills, Inc. ("Oregon Steel") purchased the 4.8 percent
interest owned by the PBGC. The Company purchased the railroad business assets
and CF&I purchased substantially all of the steelmaking, fabricating, and metals
assets of CF&I Steel Corporation for $113.1 million. These assets are located in
Pueblo, Colorado ("Pueblo Mill"). The Pueblo Mill is a steel minimill which
produces long-length, standard and head-hardened steel rails, seamless oil
country tubular goods ("seamless pipe"), wire rod, and bar products. The Pueblo
Mill has melting capacity of approximately 1.2 million tons and finishing
capacity of approximately 1.2 million tons.  In January 1998, CF&I assumed the
trade name of Rocky Mountain Steel Mills ("RMSM").

       In August of 1994, the Company sold a 10 percent equity interest in the
Company to a wholly-owned subsidiary of Nippon Steel Corporation ("Nippon"). In
connection with that sale, Nippon agreed to license to the Company a proprietary
technology for producing deep head-hardened ("DHH") rail products as well as to
provide certain production equipment to produce DHH rail. The Company received a
cash payment of $16.8 million in connection with that transaction. In November
1995, Oregon Steel sold a 3 percent equity interest in the Company to two
companies of the Nissho Iwai Group ("Nissho Iwai"), a Japanese trading company.
In connection with that sale, Nissho Iwai agreed to promote the international
sale of certain steel products produced by CF&I and Oregon Steel. Oregon Steel
owns the remaining 87 percent of the Company.

CAPITAL IMPROVEMENT PROGRAM

       As part of its strategy in acquiring CF&I in March 1993, the Company
anticipated making significant capital additions to the Pueblo Mill. Shortly
after its acquisition in 1993, the Company began a series of major capital
improvements at the Pueblo Mill designed to increase yields, improve
productivity and quality and expand the Company's ability to offer specialty rod
and bar products. With the installation of in-line rail head-hardening
capability in 1996, all capital improvements are now complete. The primary
components of the capital improvements at the Pueblo Mill are outlined below.

      STEELMAKING. The Company installed a ladle refining furnace and a vacuum
degassing facility and upgraded both continuous casters. During 1995, the
Company eliminated ingot casting and replaced it with more efficient continuous
casting methods which allow the Company to cast directly into blooms. As a
result, the Company estimates that it has expanded the steelmaking capacity at
the Pueblo Mill to approximately 1.2 million tons of hot metal annually from
approximately 900,000 tons of hot metal annually at the time of acquisition.

      ROD AND BAR MILL. At the time of the acquisition of CF&I, the rod and bar
mills at the Pueblo Mill were relatively old and located in separate facilities
which resulted in significant costs as the Company shifted production between
them in response to market conditions. In the third quarter of 1995, the Company
commenced operation of a new combination rod and bar mill with a new reheat
furnace and a high-speed rod train capable of producing commodity and specialty
grades of rod and bar products. Depending on product mix, the new combined
facility has a capacity of up to 600,000 tons per year. These improvements
should enable the Company to produce a wider range of high margin specialty
products, such as high-carbon rod, merchant bar and other specialty bar
products, and larger rod coil sizes which the Company believes are preferred by
many of its customers.

      RAIL MANUFACTURING. At the time of the Company's acquisition of CF&I,
rails were produced by ingot casting using energy-intensive processes with
significant yield losses as the ingots were reheated, reduced to blooms and then
rolled into rails. Continuous casting has increased rail yields and decreased
rail manufacturing costs. In 1996 the Company enhanced its existing 450,000 tons
of annual railmaking capacity through the addition of equipment capable of
producing DHH rail. Rail produced using this 

                                       1
<PAGE>

technology is considered by many rail customers to be more durable and higher
quality rail than that produced with former techniques. As a result of these
improvements, the Company believes it can provide a functionally superior, 
higher margin product.

PRODUCTS

       The following chart identifies the Company's principal products and the
primary markets for those products.

                        Products                         Markets
                        --------                         -------

                        Rail                             Rail transportation

                        Wire rod                         Durable goods
                                                         Capital equipment

                        Bar products                     Construction
                                                         Durable goods
                                                         Capital equipment

                        Seamless pipe                    Oil and gas producers
                                                         Gas transmission



       The following table sets forth for the periods indicated the tonnage
shipped and the Company's total shipments by product class.

                                                    TONS SHIPPED
                                       -------------------------------------
              PRODUCT                     1997          1996         1995
                                          ----          ----         ----

     Rail                               350,200        287,700      240,700
     Rod, Bar and Wire*                 409,200        392,600      271,300
     Seamless Pipe                      120,200        151,200      116,100
     Semifinished                        28,000         61,700       12,100
                                        -------        -------      -------
          Total Company                 907,600        893,200      640,200
                                        =======        =======      =======

*The Company sold its wire products production facility in June 1997.

       RAIL. The Company produces conventional, premium and head-hardened rail
at its Pueblo Mill. The Pueblo Mill is the sole manufacturer of rail west of the
Mississippi River and one of only two rail manufacturers in the United States.
Rails are manufactured in the five most popular rail weights (115 lb/yard
through 136 lb/yard), in 39 and 80 foot lengths as well as quarter mile welded
strings. The primary customers for the Pueblo Mill's rail are the major western
railroads. Rail is also sold directly to rail contractors, transit districts and
short-line railroads.

       As part of its capital improvement program, the Company improved its rail
manufacturing facilities to include the production of in-line head-hardened and
other premium rail. The installation of the in-line head-hardening process was
completed in the third quarter of 1996. In-line head-hardened rail is produced
through a proprietary finishing technology. The Company has licensed the
technology (known as deep head-hardened or DHH technology) from Nippon in
connection with Nippon's investment in the Company. In 1997 the Company produced
approximately 53,300 tons of head-hardened product using the DHH technology. The
in-line DHH technology allows the Company to produce head-hardened product up to
the capacity of the rail facility. Rail produced using the improved in-line
technology is considered by many rail customers to be more durable and of higher
quality than rail produced with existing off-line techniques. During 1997, the
Pueblo Mill began a rail dock expansion project. When completed in early 1998,
the rail mill capacity will have been increased from 450,000 tons to over
500,000 tons.

                                     2
<PAGE>


       ROD AND BAR PRODUCTS. The Company's rod and bar mill is able to produce
coils of up to 6,000 pounds. The improved steel quality and finishing
capabilities allow the Company to manufacture rods up to 1" in diameter, and to
manufacture a variety of high-carbon rod products such as those used for spring
wire, wire rope, tire bead and tire cord.  The Company produces several sizes
of coiled rebar in the most popular grades for the reinforcement of concrete 
products.

       SEAMLESS PIPE. Seamless pipe produced at the Pueblo Mill consists of
seamless casing, coupling stock and standard and line pipe. Seamless pipe casing
is used as a structural retainer for the walls of oil or gas wells. Standard and
line pipe are used to transport liquids and gases both above and underground.
The Company's seamless pipe mill is equipped to produce the most widely used
sizes of seamless pipe (7" outside diameter through 10-3/4" outside diameter) in
all standard lengths. The Company's production capability includes both carbon
and high quality, high strength (heat-treated) tubular products. The Company
also sells semifinished seamless pipe (known as "green tubes") for processing
and finishing by others.

RAW MATERIALS

       The Company's principal raw material for the Pueblo Mill is ferrous scrap
metal derived from, among other sources, junked automobiles, railroad cars and
railroad track materials and demolition scrap from obsolete structures,
containers and machines. In addition, hot briquetted iron ("HBI") and pig iron
(together "alternative metallics") can substitute for a limited portion of the
scrap used in minimill steel production, although the sources and availability
of alternative metallics are substantially more limited than those of scrap. The
purchase prices for scrap and alternative metallics are subject to market forces
largely beyond the control of the Company including demand by domestic and
foreign steel producers, freight costs, speculation by scrap brokers and other
conditions. The cost of scrap and alternative metallics to the Company can vary
significantly, and the Company's product prices often cannot be adjusted,
especially in the short-term, to recover the costs of increases in scrap and
alternative metallics prices.

       The long-term demand for steel scrap and its importance to the domestic
steel industry may be expected to increase as steelmakers continue to expand
scrap-based electric and furnace capacity. For the foreseeable future, however,
the Company believes that supplies of steel scrap will continue to be available
in sufficient quantities at competitive prices. In addition, a number of
technologies exist for the processing of iron ore into forms which may be
substituted for steel scrap in electric arc furnace-based steelmaking. Such
forms include direct-reduced iron, iron carbide, and hot-briquetted iron. While
such forms may not be cost competitive with steel scrap at present, a sustained
increase in the price of steel scrap could result in increased implementation of
these alternative technologies.

       To reduce the effects of scrap price volatility and improve access to
high-quality raw materials, the Company is seeking to decrease its dependence on
steel scrap as an input for the production process by utilizing alternative
metallics. The Company has successfully integrated alternative metallics into
the production process as a low residual scrap substitute. The Company typically
purchases alternative metallics on a contract basis (whereas scrap is typically
purchased on the spot market), which limits the effects of price fluctuations
experienced in the scrap market. To date, the Company has purchased
substantially all of the HBI it has used from a single source, but it has no
long-term contracts for material amounts of HBI, and there is no assurance that
it will be able to obtain significant quantities of HBI in the future. Pig iron
is purchased from a variety of international producers.

MARKETING AND CUSTOMERS

       Steel products are sold by the Company principally through its own sales
organization. In addition to selling to customers who consume steel products
directly, the Company sells steel products to steel service centers,
distributors, processors and converters.

       The sales force is organized by product line. The Company has separate
sales people for seamless pipe, rod and bar, and rail products. Most of the
Company's sales are initiated by contacts between sales representatives and
customers. Accordingly, the Company does not incur substantial advertising or
other promotional expenses for the sale of its products. In 1997, the Company 
derived

                                       3
<PAGE>



17.2, 12.9 and 10.8 percent of its sales from Burlington Northern Santa Fe
Railway Company, Union Pacific Railroad Company, and Davis Wire Corporation,
respectively.  Except for contracts entered into from time to time to supply
rail to significant projects and one long-term rod price agreement, the Company
does not have any significant ongoing contracts with customers to purchase steel
products, and orders placed with the Company generally are cancelable by the
customer prior to production.

       The Company does not have a general policy permitting return of purchased
steel products except for product defects. The Company does not routinely offer
extended payment terms to its customers.

       The business is generally not subject to significant seasonal trends. The
Company does not have material contracts with the United States Government and
does not have any contracts subject to renegotiation.

       The primary customers for the rail are the major western railroads. Rail
is also sold directly to rail distributors, transit districts and short-line
railroads. The Company believes its proximity to western rail markets benefits
the Company's marketing efforts.

       Seamless pipe is sold primarily through distributors to a large number of
oil exploration and production companies. Sales of standard and line pipe are
made both through distributors and directly to oil and gas transmission and
production companies. The market for the Company's seamless pipe product is
primarily domestic and focused in the western and southwestern United States.
The demand for this product is determined in large part by the number and
drilling depths of the oil and gas drilling rigs working in the United States.

       The Company sells its bar products (primarily reinforcing bar) to
fabricators and distributors. The majority of its customers are located within
Colorado and the western U.S.

       The Company's wire rod products are sold primarily to wire drawers
ranging in location from the Midwest to the West Coast. The demand for wire rod
is dependent upon a wide variety of markets, including agricultural,
construction and the durable goods segments. The Company entered the high carbon
rod market during 1995 as a direct result of the investment in the new rolling
facility and continues to increase its participation in the higher margin,
high-carbon rod market.

COMPETITION AND OTHER MARKET FACTORS

       The steel industry is cyclical in nature, and the domestic steel industry
has been adversely affected in recent years by high levels of steel imports,
worldwide production overcapacity and other factors. The Company also is subject
to industry trends and conditions, such as the presence or absence of sustained
economic growth and construction activity, currency exchange rates and other
factors. The Company is particularly sensitive to trends in the oil and gas,
construction, rail transportation, and agriculture, as these industries are
significant markets for the Company's products.

       Competition within the steel industry is intense. The Company competes
primarily on the basis of product quality, price and responsiveness to customer
needs. Many of the Company's competitors are larger and have substantially
greater capital resources, more modern technology and lower labor and raw
material costs than the Company. In addition, a new minimill in Arizona and an
upgraded minimill in Oregon have commenced production of rod and bar products. 
The Company expects increased competition as these competitors increase
production. Moreover, U.S. steel producers have historically faced significant
competition from foreign producers. The highly competitive nature of the
industry, combined with excess production capacity in some products, may in
the future exert downward pressure on prices for certain of the Company's
products. 

       The majority of current rail requirements in the United States revolves
primarily around replacement rail for existing rail lines. However, some new
lines are being constructed in heavy traffic areas of the United States. Imports
have been a significant factor in the domestic premium rail market in recent
years. The Company's capital expenditure program at CF&I provided the rail
production facilities with continuous cast steel capability and in-line
head-hardening rail capabilities necessary to compete with other producers.
Pennsylvania Steel Technologies is the only other domestic rail producer.


                                       4
<PAGE>

       The Company's primary competitors in seamless pipe include a number of
domestic and foreign manufacturers. The Company has the flexibility to produce
relatively small volumes of specified products on short notice in response to
customer requirements. Principal domestic competitors include U.S. Steel
Corporation, Lone Star Steel and North Star Steel.

       The competition in bar products include a group of minimills that have a
geographical location close to the intermountain market. The Company's market
for wire rod is considered to encompass the western United States. Domestic rod
competitors include GS Technologies, North Star Steel, Cascade Steel Rolling
Mills, Keystone Steel and Wire and Northwestern Steel & Wire.

ENVIRONMENTAL MATTERS

       The Company is subject to federal, state and local environmental laws and
regulations concerning, among other things, waste water, air emissions, toxic
use reduction and hazardous material disposal. The Pueblo Mill is classified in
the same manner as other similar steel mills in the industry, as generating
hazardous waste materials because the melting operation produces dust that
contains heavy metals ("EAF" dust). This dust, which constitutes the largest
waste stream generated at these facilities, is managed in accordance with
applicable laws and regulations.

       At December 31, 1997, the Company had accrued a reserve of $35.0 million
for environmental remediation at the Pueblo Mill. This reserve is based upon a
range of estimated remediation costs of $23.1 million to $43.6 million. The
Company's estimate of this environmental reserve was based on two remediation
investigations conducted by independent environmental engineering consultants.
The reserve includes costs for Resource Conservation and Recovery Act facility
investigation, corrective measures study, remedial action, and operation and
maintenance of the remedial actions taken. The State of Colorado has issued a
postclosure permit for historic hazardous waste units at the Pueblo Mill. As
part of the postclosure permit requirements, CF&I must conduct a corrective
action program for the 82 solid waste management units at the facility and
continue to address projects on the prioritized corrective action schedule
which substantially reflects a straight-line rate of expenditure over 30 years.
The State of Colorado has indicated that the schedule for corrective action
could be accelerated if new data indicated a greater threat to the environment
than is currently known to exist. The Company believes the reserve is adequate
to cover the remediation costs.

       The Clean Air Act Amendments of 1990 imposed new responsibilities on many
industrial sources of air emissions, including the plant owned by the Company.
The Company cannot determine the exact financial impact of the new law because
Congress is continuing to modify it. The impact will depend on a number of
site-specific factors, including the quality of the air in the geographical area
in which a plant is located, rules to be adopted by each state to implement the
law and future Environmental Protection Agency rules specifying the content of
state implementation plans. The Company anticipates that it will be required to
make additional expenditures, and will be required to pay higher fees to
governmental agencies as a result of the new law and future laws regulating air
emissions. In addition, the monitoring and reporting requirements of the new law
have subjected and will subject all air emissions to increased regulatory
scrutiny. The Company submitted an application for a permit under Title V of the
Clean Air Act for the Pueblo Mill in 1995. The Company has budgeted capital
expenditures to comply with Title V requirements in the amount of $9.5 million
over a two-year period beginning in 1997.

       The Company's future expenditures for installation of and improvements to
environmental control facilities, remediation of environmental conditions
existing at its properties and other similar matters are difficult to predict
accurately. Environmental legislation and regulations and related administrative
policies have changed rapidly in recent years. It is likely that the Company
will be subject to increasingly stringent environmental standards in the future
(including those under the Clean Air Act Amendments of 1990, the Clean Water Act
Amendments of 1990 stormwater permit program and toxic use reduction programs)
and will be required to make additional expenditures, which could be
significant, relating to environmental matters on an ongoing basis. Furthermore,
although the Company has established certain reserves for environmental
remediation as described above, there is no assurance regarding the cost of
remedial measures that might eventually be required by environmental authorities
or that additional environmental hazards, requiring further remedial
expenditures, might not be asserted by such authorities or private parties.
Accordingly, the costs of remedial measures may exceed the amounts reserved. 
There is no assurance that expenditures or proceedings of the nature
described above, or 

                                       5
<PAGE>

other expenditures or liabilities resulting from hazardous substances located 
on the Company's property or used or generated in the conduct of its business,
or resulting from circumstances, actions, proceedings or claims relating to
environmental matters, will not have a material adverse effect on the 
consolidated financial condition of the Company.

LABOR DISPUTE

       The labor contract at CF&I expired on September 30, 1997. After a brief
contract extension intended to help facilitate a possible agreement, on October
3, 1997 the United Steel Workers of America ("Union"), initiated a strike for
approximately 1,060 bargaining unit employees. The parties failed to reach final
agreement on a new labor contract due to differences on economic issues. As a
result of contingency planning, the Company was able to avoid complete
suspension of operations at the Pueblo Mill by utilizing a combination of
permanent replacement workers, striking employees who returned to work and
salaried employees.

       By December 1997, the Company had sufficient permanent replacement
employees necessary to reach full production capacity. At the end of December,
the Pueblo Mill was operating at approximately 65% of capacity and is expected
to reach full production during the first half of 1998. As a result of
weathering the strike and successfully resuming operations, the Company 
believes it can return to full production with fewer workers than before the 
strike.

       On December 30, 1997 the Union called off the strike and made an
unconditional offer to return to work. At the time of this offer, only a few
vacancies existed at the Pueblo Mill. As of the end of January 1998, 30 former
striking employees had returned to work as a result of their unconditional
offer. Approximately 920 former striking workers remain unreinstated
("Unreinstated Employees").

       As a result of the labor dispute, both the Company and the Union have
filed unfair labor practice charges with the National Labor Relations Board
("NLRB"). On February 24, 1998, the Regional Director of the NLRB Denver office
informed the parties that he would issue complaints against both the Company and
the Union. The Union will be charged with engaging in numerous incidents of
picket line violence, and threats and intimidation of replacement workers. The
complaint against the Company, which was issued on February 27, 1998, alleges
violations of several provisions of the National Labor Relations Act. The
Company not only denies the allegations, but rather believes that both the facts
and the law fully support its contention that the strike was economic in nature
and that it was not obligated to displace the properly hired permanent
replacement employees. Ultimate determination of the issue may well require
action by an appropriate United States Court of Appeals. In the event there is
an adverse determination of these issues, Unreinstated Employees could be
entitled to back pay from the date of the Union's unconditional offer to return
to work through the date of the adverse determination ("Backpay Liability"). The
number of Unreinstated Employees entitled to back pay would probably be limited
to the number of replacement workers, currently approximately 600 workers.
However, the Union might assert that all Unreinstated Employees could be
entitled to back pay. Back pay is generally measured by the quarterly earnings
of those working less interim wages earned elsewhere by the Unreinstated
Employees. In addition, each Unreinstated Employee has a duty to take reasonable
steps to mitigate the Backpay Liability by seeking employment elsewhere that has
comparable demands and compensation. It is not presently possible to estimate
the extent to which interim earnings and failure to mitigate the Backpay
Liability would affect the cost of an adverse determination.

EMPLOYEES

       As of December 31, 1997, the Company had 984 full-time employees.
Approximately 90 employees work under collective bargaining agreements with
several unions, including the United Steelworkers of America. An additional 709
employees work under collective bargaining agreements with the Union which
expired September 30, 1997. The Company and the Union were unable to agree on
terms for a new labor agreement. See "Business-Labor Dispute". The Company has
a profit participation plan for its employees which permits eligible employees
to share in the pretax profits of CF&I.

                                       6

<PAGE>


ITEM 2.  PROPERTIES

       The Pueblo Mill is located in Pueblo, Colorado on approximately 570
acres. The operating facilities principally consist of two electric arc furnaces
for production of all raw steel, a ladle refining furnace and vacuum degassing
system, two 6-strand continuous round casters for producing semifinished steel,
and three finishing mills for conversion of semifinished steel to a finished
steel product. These finishing mills consist of a rail mill, seamless tube mill,
and a rod and bar mill.

       At December 31, 1997, the Company had the following nominal capacities
which are affected by product mix:


                                               PRODUCTION         PRODUCTION
                                                CAPACITY             1997
                                                 (TONS)             (TONS)
                                               ----------         ----------
                   Melting..................... 1,200,000           952,200
                   Finishing Mill.............. 1,200,000           866,100
                   .


       Borrowing requirements for capital expenditures and other cash needs,
both short-term and long-term, are provided through a loan from Oregon Steel. On
June 19, 1996, Oregon Steel completed a public offering of $235 million
principal amount of 11% First Mortgage Notes due 2003 ("Notes"). The Company and
CF&I have guaranteed the obligations of Oregon Steel under the Notes. The Notes
and guarantees are secured by a lien on substantially all of the property, plant
and equipment of the Company and CF&I. (See Note 12 to the Company's
Consolidated Financial Statements.)

ITEM 3.  LEGAL PROCEEDINGS

      The Company is a party to two pending OSHA proceedings. In May 1997 the
Occupational Safety & Health Administration ("OSHA") issued a citation alleging
violations of various provisions of applicable safety codes at the Pueblo Mill.
The citation seeks total penalties of $1,115,500. On August 13, 1997, OSHA filed
a complaint which initiated a proceeding on the citation before the Occupational
Safety and Health Review Commission ("Commission"). In October 1997, OSHA issued
a second citation to the Company and on December 26, 1997 it filed a complaint
on that citation before the Commission seeking penalties of $72,500. The
complaints allege that some of the violations are willful or repeat violations
and that the remainder are serious. The Company has appealed the citations.
Although the Company believes that the final out-come of the proceedings will
not have a material adverse effect on the Company, the Company's appeal may be
unsuccessful in whole or in part and it may be required to pay all or a portion
of the assessed penalties.

      The Company is also party to various claims, disputes, legal actions and
other proceedings involving contracts, employment and various other matters. In
the opinion of management, the outcome of these matters should not have a
material adverse effect on the consolidated financial condition of the Company.

      The Company maintains insurance against various risks, including certain
types of product liability. The Company does not maintain insurance against
liability arising out of waste disposal, other environmental matters or
earthquake damage because of the high cost of such insurance. There is no
assurance that insurance currently carried by the Company, including product
liability insurance, will be available in the future at reasonable rates or at
all.


                                       7

<PAGE>


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

      No matters were voted upon during the fourth quarter of 1997.


                      EXECUTIVE OFFICERS OF THE REGISTRANT

      Officers are elected by the Board of Directors of the Company to serve for
a period ending with the next succeeding annual meeting of the Board of
Directors held immediately after the annual meeting of stockholders.
The Partnership has no independent executive officers.

      The name of each executive officer of the Company, age as of February 1,
1998, and position(s) and office(s) and all other positions and offices held by
each executive officer are as follows:

                                                                       ASSUMED
                                                                       PRESENT
                                                                      EXECUTIVE
NAME                    AGE      POSITIONS                             POSITION
----                    ----     ---------                            ---------
Thomas B. Boklund        58      Chairman of the Board of            March 1993
                                    Directors and                        
                                    Chief Executive Officer           

Joe E. Corvin            53      President and                       April 1997
                                    Chief Operating Officer          


L. Ray Adams             47      Vice President of Finance           April 1994
                                    and Chief Financial Officer

Michael D. Buckentin     37      Vice President, General Manager     April 1997

James E. Dionisio        47      Vice President of Sales          November 1995
                                    and Marketing                 

Christopher D. Cassard   44      Corporate Controller                April 1997

LaNelle F. Lee           60      Secretary                           April 1994

Jeff Stewart             36      Treasurer                           April 1997

      Each of the executive officers named above has been employed by CF&I or
Oregon Steel in an executive or managerial role for at least five years, except
Mr. Dionisio. Mr. Dionisio joined CF&I in March 1993 as Sales Manager - Tubular
Products. From 1984 to February 1993, he was Sales Manager - Tubular Products
for CF&I Steel Corporation.

                                       8
<PAGE>

                                                              

                                     PART II

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

      Neither the Company's common stock nor CF&I's partnership interests are
publicly traded. At December 31, 1997, the number of the Company's stockholders
of record was four. No dividends have been paid on the common stock.

ITEM 6.      SELECTED FINANCIAL DATA

      The financial data included in the table have been selected by the Company
and have been derived from the consolidated financial statements for those
years.

<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31,
                                               --------------------------------------------------------------------------- 
                                                1997             1996             1995             1994            1993(1)
                                               -----             -----            ----            -----            -------
<S>                                           <C>              <C>             <C>               <C>              <C>  
 INCOME STATEMENT DATA:
 Sales                                        $402,295         $393,696        $303,003          $339,474         $264,658
 Cost of sales                                 366,641          361,465         279,099           314,966          241,381
 Selling, general and administrative
      expenses                                  23,800           17,600          17,159            16,625           12,515
 Profit participation                            1,331              275             449                 -              477
                                              --------         --------        ---------         --------         --------

           Operating income                     10,523           14,356           6,296             7,883           10,285
 Other expense, net                            (23,566)         (22,144)        (11,436)           (3,051)          (4,595)
 Minority interests                                882              607             497                 6             (139)
 Income tax benefit (expense)                    4,529            2,729           5,066            (2,125)          (2,123)
                                              --------         --------        --------          --------         --------  
          Net income (loss)                   $ (7,632)        $ (4,452)       $    423          $  2,713         $  3,428
                                              ========         ========        ========          ========         ========

 BALANCE SHEET DATA (AT DECEMBER 31):
 Working capital                              $ 14,906         $ 49,210        $ 47,504          $ 36,327         $ 28,660
 Total assets                                  364,087          388,062         392,268           329,325          194,701
 Current liabilities                            70,894           57,809          74,712            75,825           69,462
 Long-term debt                                220,387          250,416         232,416           167,471           59,787
 Total stockholders' equity                     11,063           18,695          23,168            27,785           25,373

 OTHER DATA:
 Depreciation and amortization                $ 13,573         $ 12,931        $  8,302          $  3,723         $  2,689
 Capital expenditures                         $ 12,846         $ 35,060        $ 61,406          $111,634         $ 15,620
 Total tonnage sold                            907,600          893,200         640,200           765,600          624,700

 Operating margin                                 2.6%             3.6%            2.1%              2.3%             3.9%
 Operating income per ton sold                     $12              $16             $10               $10              $16
</TABLE>
<PAGE>


(1)  Represents activity from the March 3, 1993 acquisition date to December 31,
     1993.


                                       9

<PAGE>


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

General
-------

      The following information contains forward-looking statements which are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to risks and
uncertainties and actual results could differ materially from those projected.
Such risks and uncertainties include, but are not limited to, general business
and economic conditions; competitive products and pricing, as well as
fluctuations in demand; potential equipment malfunction, work stoppages, and
plant construction and repair delays.

     CF&I purchased the Pueblo Mill and related assets in March 1993. The Pueblo
Mill has melting and finishing capacity of approximately 1.2 million tons per
year. In 1997, 1996 and 1995 the Pueblo Mill shipped 907,600, 893,200 and
640,200 tons, respectively, and generated revenues of $402.3 million, $393.7
million and $303.0 million, respectively. In August 1994 the Company sold a 10
percent equity interest in the Company to Nippon. In connection with that sale,
Nippon agreed to license to the Company its proprietary technology for producing
DHH products as well as to provide certain production equipment to produce DHH
rail. In November 1995 Oregon Steel Mills, Inc. sold a 3 percent equity interest
in the Company to Nissho Iwai. In connection with that sale, Nissho Iwai agreed
to promote the international sale of certain steel products produced by CF&I and
Oregon Steel.

      In addition to its ownership interest in CF&I, the Company owns Colorado &
Wyoming Railway Company, a short-line railroad, serving principally the Pueblo
Mill. For the years ended December 31, 1997, 1996 and 1995, sales of CF&I were
98.5 percent, 98.8 percent and 99.0 percent, respectively, of the consolidated
sales of the Company. For the years ended December 31, 1997, 1996 and 1995, cost
of sales of CF&I were 98.6 percent, 99.0 percent and 99.4 percent, respectively,
of the consolidated cost of sales of the Company.

      The following table sets forth for the Company, for the periods indicated,
the percentages of sales represented by selected income statement items and
information regarding selected balance sheet data:

                                              YEAR ENDED DECEMBER 31,
                                      -----------------------------------
                                        1997           1996         1995
                                        ----           ----         ----
INCOME STATEMENT DATA:
Sales                                 100.0%         100.0%        100.0%
Cost of sales                          91.2           91.8          92.1
                                     ------          -----         -----
Gross profit                            8.8            8.2           7.9
Selling, general
   and administrative expenses          5.9            4.5           5.7
Profit participation expense             .3             .1            .1
                                          -              -             -
     Operating income                   2.6            3.6           2.1
Interest and dividend income         ------          -----         -----
Interest expense                       (6.4)          (5.8)         (4.0)
Other income, net                        .6             .2            .1
Minority interests                       .2             .2            .2
                                     ------          -----         -----
     Loss before income taxes          (3.0)          (1.8)         (1.6)
Income tax benefit                      1.1             .7           1.7
                                     ------          -----         -----
     Net income (loss)                 (1.9)%         (1.1)%          .1%
                                     ======          =====         =====

BALANCE SHEET DATA:
Current ratio                         1.2:1          1.9:1         1.6:1
Long-term debt as a percentage
    of capitalization                  95.2%          93.1%         90.9%



                                       10
<PAGE>


     The following table sets forth for the Company, for the periods indicated,
tonnage sold, sales, average price per ton sold and other data.

                                                YEARS ENDED DECEMBER 31,
                                    ----------------------------------------
                                      1997              1996          1995
                                      ----              ----          ----
TONNAGE SOLD:

Rail                                 350,200          287,700        240,700
Rod, Bar and Wire                    409,200          392,600        271,300
Seamless Pipe                        120,200          151,200        116,100
Semifinished                          28,000           61,700         12,100
                                     -------          -------        -------
        Total                        907,600          893,200        640,200
                                     =======          =======        =======

Sales (in thousands)                $402,295 (1)     $393,696       $303,003 (3)
Average price per ton sold          $    440 (2)     $    441       $    467 (4)
Operating income per ton sold       $     12         $     16       $     10
Operating margin                         2.6%             3.6%           2.1%


(1)  Includes insurance proceeds of approximately $2.5 million as reimbursement
     of lost profits resulting from lost production during the third and fourth
     quarters of 1996 related to the failure of one of the power transformers
     servicing the Company.

(2)  Excludes proceeds from the insurance settlement referred to in note
     (1) above.

(3)  Includes insurance proceeds of approximately $4.0 million as reimbursement
     of lost profits resulting from lost production and start-up delays at
     CF&I's rod and bar mill caused by an explosion in the third quarter of
     1994. In 1995, revenues of $26.0 million and costs of $26.7 million were
     capitalized during construction of the rod and bar mill at the Pueblo Mill
     prior to placement of the mill in service on August 1, 1995.

(4)  Excludes proceeds from the insurance settlement referred to in note 
     (3) above.


      CF&I's labor contract expired on September 30, 1997. After a brief
contract extension intended to help facilitate a possible contract, on October
3, 1997 the Union initiated a strike. See Part I "Business - Labor Dispute". 
The Company began to ramp its operations back up in mid-October 1997 with
management and replacement workers. Fourth quarter 1997 sales, shipment levels
and cost of operations were negatively impacted by reduced production levels 
and costs specifically related to the strike. Company sales in the fourth
quarter of 1997 of $53.4 million decreased 42.9 percent from sales of $93.5 
million in the fourth quarter of 1996.  Company shipments decreased 38.6 percent
to 123,900 tons in the fourth quarter of 1997 from 201,800 tons in the fourth 
quarter of 1996.  The Company's sales and shipments for the nine month period
ended September 30, 1997 were $348.9 million and 783,700 tons, respectively,
compared to $300.2 million and 691,400 tons, respectively, for the comparable 
1996 period. The Company's average selling price in the fourth quarter of 1997
was $431 per ton versus $463 per ton in the fourth quarter of 1996.  The
decrease in average selling price for the fourth quarter of 1997 is primarily
due to a shift in product mix.  The Company had reduced production and shipments
of rail and seamless pipe as a result of the strike. In addition, the Company
sold its wire producing assets in the second quarter of 1997. Rail, seamless
pipe and wire products generally have higher selling prices per ton than other
finished products sold by the Company. 

     Gross profits as a percentage of sales for the fourth quarter of 1997 were
a negative 24.0 percent compared to 0.5 percent (excluding insurance proceeds)
for the fourth quarter of 1996.  Gross profit margin for the nine month periods
ended September 30, 1997 and September 30, 1996 were 13.3 percent (excluding
insurance proceeds) and 9.1 percent, respectively.  As noted above, gross 
profit margin for the fourth quarter of 1997 was negatively impacted by the
strike.

                                       11
<PAGE>



     At the end of December, the Pueblo Mill was operating at 65 percent 
of capacity and is expected to reach full production during the first half of
1998. As a result of successfully resuming operations with a replacement
workforce, the Company believes it can return to full production with fewer
workers than before the strike.

COMPARISON OF 1997 TO 1996

     SALES. Sales in 1997 of $402.3 million increased 2.2 percent from sales of
$393.7 million in 1996. Shipments increased 1.6 percent to 907,600 tons in 1997
from 893,200 tons in 1996. Selling prices in 1997 were $440 per ton versus $441
per ton in 1996. Of the $8.6 million sales increase, $6.3 million was the result
of volume increases and $2.5 million was the result of insurance proceeds,
offset by $200,000 resulting from lower average selling prices.

     The increase in sales and shipments was primarily due to increased
shipments of rail and rod products offset, in part, by decreased shipments of
seamless pipe and semifinished products. The lower average selling price in 1997
was due to decreased shipments of seamless pipe products, and increased 
shipments of rod products.  Rod products have a generally lower selling price
per ton than other finished products sold by the Company.

     GROSS PROFIT. Gross profit as a percentage of sales for 1997 was 8.9
percent compared to 8.2 percent for 1996. Gross profit margins were positively
impacted by increased rail shipments and higher seamless pipe prices as well as
reduced semifinished shipments which have a generally lower gross margin. In
spite of the labor dispute, gross profit was also positively impacted by lower
costs due to increased steel production and improved operating efficiencies. 
Gross profit was negatively affected by the higher amount of rod shipments
which have a generally lower gross margin per ton than other finished products.

     SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for 1997 increased $6.2 million or 35.2 percent compared to 1996 and
increased as a percentage of sales from 4.5 percent in 1996 to 5.9 percent in
1997. The increase was due to costs specifically related to the labor dispute
with the Union.

     PROFIT PARTICIPATION. Profit participation plan expense was $1.3 million
for 1997 compared to $275,000 for 1996. The increase in profit participation
reflects the increase in profitability of the Company during the first nine
months of 1997 compared to the corresponding 1996 period.

     INTEREST EXPENSE. Total interest cost for 1997 was $26.2 million, an
increase of $1.2 million compared to 1996. The higher interest cost is the
result of higher interest rates. Of the $26.2 million of interest cost in 1997,
$435,000 was capitalized as part of construction in progress.

     INCOME TAX EXPENSE. The Company's effective income tax rate for state and
federal taxes was a benefit of 37.2 percent for 1997 compared to a benefit of
38.0 percent for 1996. The effective tax rate for both periods varied from the
combined state and federal statutory rate due to earned state tax credits.


COMPARISON OF 1996 TO 1995

     SALES. Sales in 1996 of $393.7 million increased 29.9 percent from sales of
$303.0 million in 1995. Shipments increased 39.5 percent to 893,200 tons in 1996
from 640,200 tons in 1995. Average selling prices decreased $26 to $441 per ton
for 1996 compared to 1995. Of the $90.7 million sales increase, $118.2 million
was the result of volume increases, offset by $23.5 million from lower average
selling prices and by $4.0 million of 1995 insurance proceeds not recurring in
1996.

     The increase in sales and shipments was primarily due to increased
shipments of rail, rod and bar, seamless pipe and semifinished products in 1996.
Rod and bar shipments were 332,700 tons in 1996, compared to 208,100 tons in 
1995. The lower average selling price in 1996 was due to increased shipments of
rod and bar and semifinished products, which have a generally lower selling
price per ton than the other products sold by the Company.

                                       12
<PAGE>


     GROSS PROFIT. Gross profit as a percentage of sales for 1996 was 8.2
percent compared to 7.9 percent for 1995. Gross profit margins were positively
impacted by increased shipments of rail and seamless pipe products which have
the highest gross profit margins of any of the Company's products. The gross
profit improvement was partially offset by higher costs and reduced shipments
due to an outage of the ladle refining furnace during June 1996 as a result of a
mechanical failure and by the loss of the use of one of the two main
transformers that supply electricity to the melt shop during the fourth quarter
of 1996. As a result, steel production volume was significantly affected,
limiting availability of steel to the finishing mills, particularly the rod and
bar mill. The outages resulted in low operating efficiencies, increased costs
and lost sales opportunities. The Company estimates that the transformer outage
negatively affected operating income by approximately $2 million net of
insurance proceeds.

      SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for 1996 increased $441,000 or 2.6 percent compared to 1995, but
decreased as a percentage of sales from 5.7 percent in 1995 to 4.5 percent in
1996. The percentage decrease was due to cost controls and increased sales in
1996.

     PROFIT  PARTICIPATION.  Profit participation plan expense was $275,000
for 1996 compared to $449,000 for 1995.  The decrease reflects the decreased 
profitability of the Company in 1996.

      INTEREST EXPENSE. Total interest costs for 1996 were $25.0 million, an
increase of $7.6 million compared to 1995. The higher interest cost is primarily
the result of additional debt incurred to fund the capital improvement program,
combined with increased interest rates. Of the $25.0 million of interest cost in
1996, $2.2 million was capitalized as part of construction in progress.

      INCOME TAXES. The Company's effective income tax rate for state and
federal taxes was a benefit of 38.0 percent for 1996 compared to a benefit of
109.1 percent for 1995. The effective tax rate for both periods varied from the
combined state and federal statutory rates due to earned state tax credits,
including a 1995 net tax benefit of $2.5 million related to enterprise zone
credits for eligible completed capital projects at the Pueblo Mill.

LIQUIDITY AND CAPITAL RESOURCES

      Cash flow provided from operations was $35.6 million compared to $15.3
million cash provided in 1996. The major items affecting this $20.3 million
increase was a smaller increase in deferred tax assets ($1.2 million), a
decrease in accounts receivable versus an increase in 1996 ($15.7 million), an 
increase in accounts payable versus a decrease in 1996 ($8.9 million) and a 
larger increase in accrued expenses ($9.3 million). These cash increases were
partially offset by a larger net loss in 1997 ($3.2 million) and a smaller
decrease in inventories ($10.9 million).

      Since its acquisition by Oregon Steel in March 1993, CF&I has required
substantial amounts of cash to fund its operations and capital expenditures.
Borrowing requirements for capital expenditures and other cash needs, both
short-term and long-term, are provided through a loan from Oregon Steel. As of
December 31, 1997, $182.2 million of aggregate principal amount of the loan was
outstanding, all of which was classified as long-term. The loan includes
interest on the daily amount outstanding at the rate of 11.64 percent. The
principal is due on demand or, if no demand is made, due December 31, 2002.
Interest on the principal amount of the loan is payable monthly. Because the
loan from Oregon Steel is due on demand, the applicable interest rate is
effectively subject to renegotiation at any time, and there is no assurance the
interest rate will not be materially increased in the future. In addition,
Oregon Steel is not required to provide financing to the Company and, although
no repayments are expected in 1998, it may in any event demand repayment of the
loan at any time. If Oregon Steel were to demand repayment of the loan, it is
unlikely that the Company would be able to obtain from external sources
financing necessary to repay the loan or to fund its capital expenditures and
other cash needs. Failure to obtain alternative financing would have a material
adverse effect on the Company and CF&I. If the Company were able to obtain the
necessary financing, it is likely that such financing would be at interest rates
and on terms substantially less favorable to the Company than those provided by
Oregon Steel.

                                       13
<PAGE>



      Term debt of $67.5 million was incurred by CF&I as part of the purchase
price of the Pueblo Mill on March 3, 1993. This debt is without stated 
collateral and is payable over 10 years with interest at 9.5 percent. As of
December 31, 1997, the outstanding balance on the debt was $45.6 million, of
which $38.2 million was classified as long-term.

      Oregon Steel has outstanding $235 million principal amount of 11% First
Mortgage Notes due 2003. The Company and CF&I have guaranteed the obligations
of Oregon Steel under the Notes, and those guarantees are secured by a lien on
substantially all of the property, plant and equipment and certain other assets
of the Company and CF&I.

      Oregon Steel maintains a $125 million credit agreement with a group of
banks which is guaranteed by the Company and CF&I and collateralized, in part,
by substantially all of the Company's and CF&I's inventory and accounts
receivable.

      During 1997, the Company expended approximately $12.4 million, excluding
capitalized interest, on its capital program.

      The Company expects that anticipated needs for working capital and capital
expenditures will be met from funds generated from operations and available
borrowing from Oregon Steel.

      YEAR 2000 ISSUES. As the year 2000 approaches, the Company recognizes the
need to ensure its operations will not be adversely impacted by Year 2000
software failures. The Company is addressing this issue to ensure the
availability and integrity of its financial systems and the reliability of its
operational systems. The Company has made and will continue to make certain
investments in its information systems and software applications to ensure the
Company is Year 2000 compliant. Such work has not had, and is not anticipated
to have, a material effect on the financial position of the Company.

      IMPACT OF INFLATION. Inflation can be expected to have an effect on many
of the Company's operating costs and expenses. Due to worldwide competition in
the steel industry, the Company may not be able to pass through such increased
costs to its customers.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

    Not applicable.


                                       14

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of New CF&I, Inc.

    In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
New CF&I, Inc. and its subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.



PRICE WATERHOUSE LLP
Portland, Oregon
February 27, 1998


                                       15

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS


To the Stockholders of New CF&I, Inc:

      We have audited the accompanying consolidated balance sheet of New CF&I,
Inc. as of December 31, 1995 and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the year ended December 31,
1995. In addition, we have audited the 1995 financial statement schedule of New
CF&I, Inc. as listed in Item 14(a)(ii) of this Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.

      We conducted our audit 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 audit provides a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of New CF&I, Inc.
as of December 31, 1995, and its consolidated results of operations and cash
flows for the year ended December 31, 1995, in conformity with generally
accepted accounting principles. In addition, in our opinion, the 1995 financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.



COOPERS & LYBRAND, L.L.P.
Portland, Oregon
January 19, 1996


                                       16

<PAGE>

<TABLE>


                                                           NEW CF&I, INC.
                                                     CONSOLIDATED BALANCE SHEETS
                                        (IN THOUSANDS EXCEPT FOR PER SHARE AND SHARE AMOUNTS)
<CAPTION>

                                                               ASSETS
                                                                                                DECEMBER 31,
                                                                                  -----------------------------------   
                                                                                      1997         1996        1995
                                                                                  ---------    ---------    ---------
<S>                                                                               <C>          <C>          <C>   
Current assets:
   Cash and cash equivalents                                                      $       3    $       3    $       -
   Trade accounts receivable, less allowance
       for doubtful accounts of $1,011, $455
       and $518                                                                      37,165       49,380       45,904
   Inventories                                                                       41,842       50,577       70,249
   Deferred tax asset                                                                 4,290        5,014        5,007
   Other                                                                              2,500        2,045        1,056
                                                                                  ---------    ---------    ---------    
       Total current assets                                                          85,800      107,019      122,216
                                                                                  ---------    ---------    ---------    

Property, plant and equipment:
   Land and improvements                                                              3,635        3,530        3,530
   Buildings                                                                         15,710        6,043        5,867
   Machinery and equipment                                                          231,159      236,566      188,726
   Construction in progress                                                           7,302        4,011       31,586
                                                                                  ---------    ---------    ---------  
                                                                                    257,806      250,150      229,709
   Accumulated depreciation                                                         (34,485)     (22,996)     (11,124)
                                                                                  ---------    ---------    ---------  
                                                                                    223,321      227,154      218,585
                                                                                  ---------    ---------    ---------  
Cost in excess of net assets acquired, net                                           35,943       36,962       37,983
Other assets                                                                         19,023       16,927       13,484
                                                                                  ---------    ---------    ---------  
                                                                                  $ 364,087    $ 388,062    $ 392,268
                                                                                  =========    =========    =========  
                                                             LIABILITIES
Current liabilities:
   Current portion of long-term debt                                              $   7,373    $   6,574    $   4,576
   Accounts payable                                                                  36,728       33,892       53,867
   Accrued expenses                                                                  26,793       17,343       16,269
                                                                                  ---------    ---------    ---------   
       Total current liabilities                                                     70,894       57,809       74,712
Long-term debt                                                                       38,187       44,716       50,666
Long-term debt -- Oregon Steel Mills, Inc.                                          182,200      205,700      181,750
Environmental liability                                                              32,941       33,243       34,157
Deferred employee benefits                                                            6,643        6,069        5,388
                                                                                  ---------    ---------    ---------   
                                                                                    330,865      347,537      346,673
                                                                                  ----------    ---------    ---------  
Minority interests                                                                      319          (10)         587
                                                                                  ---------    ---------    ---------   
Redeemable common stock, 26 shares
    issued and outstanding (Note 7)                                                  21,840       21,840       21,840
                                                                                  ---------    ---------    ---------   

Commitments and contingencies (Note 12)

                                                        STOCKHOLDERS' EQUITY
Common stock, par value $1 per share,
   1,000 shares authorized; 174                                                           
   shares issued and outstanding                                                          1            1            1
Additional paid-in capital                                                           16,603       16,603       16,603
Retained earnings (accumulated deficit)                                              (5,541)       2,091        6,564
                                                                                  ---------    ---------    ---------   
                                                                                     11,063       18,695       23,168
                                                                                  ---------    ---------    ---------   
                                                                                  $ 364,087    $ 388,062    $ 392,268
                                                                                  =========    =========    =========   
</TABLE>
<PAGE>

                           The accompanying notes are an integral part of the
                           consolidated financial statements.

                                       17
<PAGE>



                                 NEW CF&I, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (IN THOUSANDS)

                                          FOR THE YEAR ENDED DECEMBER 31,
                                     --------------------------------------
                                       1997            1996          1995
                                     --------       ---------      --------
Sales                                $402,295       $ 393,696      $303,003
                                     --------       ---------      --------

Costs and expenses:
     Cost of sales                    366,641         361,465       279,099
     Selling, general and 
        administrative                 23,800          17,600        17,159
     Profit participation               1,331             275           449
                                     --------        --------      --------
                                      391,772         379,340       296,707
                                     --------        --------      --------
          Operating income             10,523          14,356         6,296

Other income (expense):
     Interest and dividend income          57              38            48
     Interest expense                 (25,790)        (22,803)      (11,923)
     Minority interests                   882             607           497
     Other, net                         2,167             621           439
                                     --------        --------       -------
         Loss before income taxes     (12,161)         (7,181)       (4,643)
Income tax benefit                      4,529           2,729         5,066
                                     --------        --------       -------
          Net income (loss)          $ (7,632)       $ (4,452)      $   423
                                     ========        ========       =======





             The accompanying notes are an integral part of the
             consolidated financial statements.

                                       18

<PAGE>
<TABLE>


                                                      NEW CF&I, INC.
                                CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                   FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                                               (IN THOUSANDS EXCEPT SHARES)

<CAPTION>

                                                                                       RETAINED
                                                                          ADDITIONAL   EARNINGS
                                                     COMMON STOCK          PAID-IN    (ACCUMULATED
                                                  --------------------
                                                   SHARES      AMOUNT      CAPITAL      DEFICIT)           TOTAL
                                                  -------     --------    ---------   ------------       --------
<S>                                               <C>         <C>          <C>         <C>               <C>   
Balances, December 31, 1994                           180     $     1      $21,643     $  6,141          $ 27,785
Net income                                                                                  423               423
Sale of common stock by
     Oregon Steel Mills, Inc.                          (6)                  (5,040)                        (5,040)
                                                  -------     -------      -------     --------          --------
Balances, December 31, 1995                           174           1       16,603        6,564            23,168
Net loss                                                                                 (4,452)           (4,452)
Other                                                                                       (21)              (21)
                                                  -------     -------      -------     --------          --------
Balances, December 31, 1996                           174           1       16,603        2,091            18,695
Net loss                                                                                 (7,632)           (7,632)
                                                  -------     -------      -------     --------          --------
Balances, December 31, 1997                           174     $     1      $16,603     $ (5,541)         $ 11,063
                                                  =======     =======      =======     ========          ========
</TABLE>



                           The accompanying notes are an integral part of the
                           consolidated financial statements.

                                       19

<PAGE>
<TABLE>



                                                      NEW CF&I, INC.
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (IN THOUSANDS)
<CAPTION>

                                                                                      FOR THE YEAR ENDED DECEMBER 31,
                                                                              --------------------------------------------
                                                                                1997               1996             1995
                                                                              ---------         ---------        ---------
<S>                                                                            <C>               <C>             <C> 

Cash flows from operating activities:
   Net income (loss)                                                           $ (7,632)         $ (4,452)       $     423
   Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
          Depreciation                                                           12,409            11,911            7,283
          Amortization                                                            1,164             1,020            1,019
          Deferred income taxes                                                  (1,352)           (2,565)          (4,601)
          Gain on sale of property, plant and equipment                          (3,017)             (620)            (438)
          Minority interest                                                         329              (596)            (497)
          Changes in current assets and liabilities:
              Trade accounts receivable                                          12,215            (3,476)          (1,709)
              Inventories                                                         8,735            19,672           (6,632)
              Accounts payable                                                    3,517            (5,427)          (1,194)
              Accrued expenses                                                   10,093               842            3,060
              Other                                                                (828)           (1,011)            (215)
                                                                               --------          --------        ---------
    NET CASH PROVIDED BY (USED IN)OPERATING
      ACTIVITIES                                                                 35,633            15,298           (3,501)
                                                                               --------          --------        ---------
Cash flows from investing activities:
    Additions to property, plant and equipment                                  (12,846)          (35,060)         (61,406)
    Proceeds from disposal of property, plant and equipment                       6,607               654              806
    Other, net                                                                     (164)             (887)            (599)
                                                                               --------          --------        ---------
    NET CASH USED BY INVESTING ACTIVITIES                                        (6,403)          (35,293)         (61,199)
                                                                               --------          --------        ---------
Cash flows from financing activities:
     Borrowings from Oregon Steel Mills, Inc.                                   190,789           224,330          171,050
     Payments to Oregon Steel Mills, Inc.                                      (214,289)         (200,380)        (102,000)
     Payment of long-term debt                                                   (5,730)           (3,952)          (4,831)
                                                                               --------         ---------        ---------
     NET CASH PROVIDED BY (USED IN)
        FINANCING ACTIVITIES                                                    (29,230)           19,998           64,219
                                                                               --------         ---------        ---------

Net increase (decrease) in cash and cash equivalents                                  -                 3             (481)
Cash and cash equivalents at beginning of year                                        3                 -              481
                                                                               --------         ---------        ---------
Cash and cash equivalents at end of year                                       $      3         $       3        $       -
                                                                               ========         =========        =========

Supplemental disclosures of cash flow information:
    Cash paid for:
         Interest                                                              $ 26,583         $  22,883        $  16,561
         Income tax paid to parent company                                     $      -         $     448        $       -

</TABLE>

                                  
<PAGE>

See Note 4 for additional supplemental disclosures of cash flow information.


          The accompanying notes are an integral part of the consolidated
          financial statements.

                                       20

<PAGE>


                                 NEW CF&I, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     NATURE OF OPERATIONS

      New CF&I, Inc. and subsidiaries ("Company") manufacture various specialty
and commodity steel products in Pueblo, Colorado. Principal markets are steel
service centers, steel fabricators, railroads, oil and gas producers and
distributors, and other industrial concerns, primarily in the United States west
of the Mississippi River. The Company also markets products outside North
America.

       New CF&I, Inc. was incorporated in the State of Delaware on May 5,
1992, as a wholly-owned subsidiary of Oregon Steel Mills, Inc. ("Oregon Steel"
or "Parent Company").

      On March 3, 1993, the Company (1) issued 100 shares of common stock to
Oregon Steel for $22.2 million (consisting of $7.3 million of cash, $3.1 million
of capitalized direct acquisition costs, 598,400 shares of Oregon Steel common
stock valued at $11.2 million to be issued ten years from March 3, 1993, and by
the delivery of warrants to purchase 100,000 shares of Oregon Steel's common
stock at $35 per share for five years, valued at $556,000) and, (2) as the
general partner, then acquired for $22.2 million a 95.2 percent interest in a
newly formed limited partnership, CF&I Steel, L.P. ("Partnership"). The
remaining 4.8 percent interest was acquired by the Pension Benefit Guaranty
Corporation ("Limited Partner"). On October 1, 1997, Oregon Steel purchased the
Limited Partner's 4.8 percent interest in the Partnership.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

      The consolidated financial statements include the 95.2 percent interest in
the Partnership and the Colorado & Wyoming Railway Company, a wholly-owned
subsidiary. All significant intercompany transactions and account balances have
been eliminated.

CASH AND CASH EQUIVALENTS

       Cash and cash equivalents include short-term securities which have an
original maturity date of 90 days or less.

CONCENTRATIONS OF CREDIT RISK

      Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. The Company places its cash in high credit quality
investments and limits the amount of credit exposure by any one financial
institution. At times, temporary cash investments may be in excess of the
Federal Deposit Insurance Corporation insurance limit. Management believes that
risk of loss on the Company's trade receivables is reduced by ongoing credit
evaluation of customer financial condition and requirements for collateral, such
as letters of credit and bank guarantees.

INVENTORIES

       Inventories are stated at the lower of average cost or market.

                                       21
<PAGE>


PROPERTY, PLANT AND EQUIPMENT

       Property, plant and equipment are stated at cost, including interest
capitalized during construction of $435,000, $2.2 million and $5.5 million in
1997, 1996 and 1995, respectively. Depreciation is determined using principally
the straight-line method and the units of production method over the estimated
useful lives of the assets. Maintenance and repairs are expensed as incurred and
costs of improvements are capitalized. Upon disposal, cost and accumulated
depreciation are removed from the accounts, and gains or losses are reflected in
income.

COSTS IN EXCESS OF NET ASSETS ACQUIRED

      The cost in excess of net assets acquired is amortized on a straight-line
basis over 40 years. Accumulated amortization was $4.9 million, $3.8 million and
$2.8 million in 1997, 1996 and 1995, respectively. The carrying value of costs
in excess of net assets acquired will be reviewed and adjusted if the facts and
circumstances suggest that they may be impaired.

OTHER ASSETS

        Included in other assets are water rights of approximately $11.2
million. These water rights include the rights to divert and use certain amounts
of water from various river systems for either industrial or agricultural use.

MAJOR CUSTOMERS

        In 1997, the Company derived 17.2, 12.9 and 10.8 percent of its sales
from three customers, respectively. In 1996, the Company derived 13.5 percent of
its sales from one customer.

TAXES ON INCOME

       Deferred income taxes reflect the differences between the financial
reporting and tax bases of assets and liabilities at year end based on enacted
tax laws and statutory tax rates. Tax credits are recognized as a reduction of
income tax expense in the year the credit arises. Income taxes are allocated in
accordance with a tax allocation agreement between Oregon Steel and the Company
which provides for taxes on a separate return basis. A consolidated tax return
is filed by Oregon Steel.

       State tax credits are accounted for using the flow-through method whereby
the credits reduce income taxes currently payable and the provision for income
taxes in the period earned. To the extent such credits are not currently
utilized on a separate return basis, deferred tax assets are recognized.

USE OF ESTIMATES

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

                                       22
<PAGE>


3.     INVENTORIES

       Inventories were as follows as of December 31:

                                            1997          1996          1995
                                          -------        -------       -------
                                                      (in thousands)

     Raw materials                        $15,051        $16,246       $16,480
     Semifinished product                  13,840         16,488        25,816
     Finished product                       3,868          8,245        20,012
     Stores and operating supplies          9,083          9,598         7,941
                                          -------        -------       -------
          Total inventory                 $41,842        $50,577       $70,249
                                          =======        =======       =======


4.   SUPPLEMENTAL CASH FLOW INFORMATION

      During 1997, 1996 and 1995, the Company acquired property, plant and
equipment for $586,000, $1.3 million and $15.8 million, respectively, which were
included in accounts payable at December 31, 1997, 1996 and 1995, respectively.

5.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable include book overdrafts of $6.4 million at December 31, 
1995, and retainage from  construction  projects of $6.6 million at December 31
1995.

     Accrued expenses include accrued vacation of $3.4 million, $3.5 million and
$3.6 million at December 31, 1997, 1996 and 1995, respectively. Accrued expenses
also include $4.0 million of deferred revenue at December 31, 1997.

6.   DEBT AND FINANCING ARRANGEMENTS

     Term debt of $67.5 million was incurred by CF&I as part of the purchase
price of the Pueblo Mill on March 3, 1993. This debt is without stated
collateral and is payable over 10 years at 9.5 percent. As of December 31, 1997,
the outstanding balance on the debt was $45.6 million, of which $38.2 million
was classified as long-term.

        Borrowing requirements for capital expenditures and working capital have
been provided through a revolving loan from Oregon Steel to the Partnership. The
loan includes interest on the daily amount outstanding at the rate of 11.64
percent. The principal is due on demand or, if no demand, due December 31, 2002,
but is not expected to be repaid in 1998. Interest on the principal amount of
the loan is paid on a monthly basis. See Note 11.

      As of December 31, 1997, principal payments on long-term debt are due as
follows (in thousands):

      1998  ....................................................    $  7,373
      1999  ....................................................       7,164
      2000  ....................................................       7,861
      2001  ....................................................       8,626
      2002  ....................................................     191,664
      Thereafter................................................       5,072
                                                                    --------
                                                                    $227,760
                                                                    ========

                                       23
<PAGE>


7.      SALES OF REDEEMABLE COMMON STOCK

          In June 1994, the Board of Directors approved an increase in the
Company's authorized $1 par value common stock from 100 to 1,000 shares and
declared an 80 percent stock dividend increasing Oregon Steel's holding of the
Company's common stock to 180 shares. In August 1994, the Company sold
additional common stock (10 percent equity interest) to Nippon Steel Corporation
("Nippon").

          In connection with the sale, the Company and Oregon Steel entered into
a stockholders' agreement with Nippon pursuant to which Nippon was granted a
right to sell, in certain circumstances, all, but not less than all, of its 10
percent equity interest in the Company back to the Company at the then fair
market value. Those circumstances include, among other things, a change of
control, as defined, in the Company and certain changes involving the
composition of the board of directors of the Company, and the occurrence of
certain other events which are within the control of the Company and Oregon
Steel. Oregon Steel also agreed not to transfer voting control of the Company to
a non-affiliate except in circumstances where Nippon is offered the opportunity
to sell its interest of the Company to the transferee at the same per share
price obtained by Oregon Steel. The Company has also retained a right of first
refusal in the event that Nippon desires to transfer its interest in the Company
to a non-affiliate.

          During the fourth quarter of 1995, Oregon Steel sold a 3 percent
equity interest in the Company to the Nissho Iwai Group ("Nissho Iwai") under
substantially the same terms and conditions of the Nippon transaction. The sale
to Nissho Iwai has been reflected as an increase in redeemable common stock and
a decrease to additional paid-in capital.

          The Company believes that it is not probable that the conditions which
would permit a stock redemption will occur.

8.      FAIR VALUE OF FINANCIAL INSTRUMENTS

          The estimated fair value of the Company's financial instruments at
December 31 is as follows:
<TABLE>
<CAPTION>


                                              1997                           1996                          1995
                                   ----------------------------    -------------------------    ---------------------------
                                      Carrying         Fair          Carrying        Fair        Carrying           Fair
                                       Amount         Value           Amount         Value        Amount           Value
                                   --------------- ------------    ------------- -----------    ------------- -------------
                                                                       (in thousands)
<S>                                 <C>            <C>             <C>             <C>            <C>            <C>

Cash and cash equivalents           $       3      $       3       $      3        $      3       $      -       $      -
Long-term debt, including
     current portion                   45,560         42,677         51,290          46,227         55,442         52,594
Long-term debt -
     Oregon Steel Mills, Inc.         182,200        180,763        205,700         198,802        181,750        181,750

</TABLE>
<PAGE>

     The carrying amount of cash and cash equivalents approximates fair value
due to their short maturity. The fair value of Long-term debt, including current
portion, and Long-term debt - Oregon Steel Mills, Inc. are estimated by
discounting future cash flows based on the Company's incremental borrowing rate
for similar types of borrowing arrangements.

                                       24

<PAGE>


9.    INCOME TAXES

        The income tax benefit consists of the following:

                             1997                 1996                1995
                          ---------              -------            --------
                                             (IN THOUSANDS)
Current:
     Federal               $(1,149)              $   851            $    524
     State                     (34)                  (50)                (59)
                           -------               -------            --------
                            (1,183)                  801                 465
                           -------               -------            --------

Deferred:
     Federal                 5,667                 1,326               1,508
     State                      45                   602               3,093
                           -------               -------            --------
                             5,712                 1,928               4,601
                           -------               -------            --------
Income tax benefit         $ 4,529               $ 2,729            $  5,066
                           =======               =======            ========

        A reconciliation of the statutory tax rate to the effective tax rate on
income before income taxes is as follows:

                             1997                  1996                1995
                            ------                ------              ------

Federal                      35.0%                 35.0%               35.0%
State                         3.4                   8.1                68.6
Other                        (1.2)                 (5.1)                5.5
                            -----                 -----               -----
                             37.2%                 38.0%              109.1%
                            =====                 =====               =====

      The components of the net deferred tax assets and liabilities as of
December 31 are as follows:

                                              1997         1996         1995
                                            -------      --------     --------
                                                      (IN THOUSANDS)
Net current deferred tax asset:
     Assets:
        Inventories                         $ 1,704       $   997      $ 2,473
        Accrued expenses                      2,266         3,937        2,449
        Accounts receivable                     320            80           85
                                            -------       -------      -------
Net current deferred tax asset              $ 4,290       $ 5,014      $ 5,007
                                            =======       =======      =======

Noncurrent deferred tax asset and
  liability:
      Assets:
          Environmental liability           $12,829       $12,915      $12,341
          Net operating loss
             carryforward                    33,512        22,203       12,147
          State tax credits                   4,891         5,019        4,780
          Alternative minimum tax               991           991          991
          Other                               2,507         2,643        7,072
                                            -------       -------      -------
                                             54,730        43,771       37,331
                                            -------       -------      -------

       Liabilities:
          Property, plant and equipment      36,230        28,008       17,566
          Costs in excess of net assets
             acquired                        11,642        11,695       13,015
          Other                               1,057           343        5,583
                                            -------       -------      -------
                                             48,929        40,046       36,164
                                            -------       -------      -------
Net noncurrent deferred tax asset           $ 5,801       $ 3,725      $ 1,167
                                            =======       =======      =======

                                       25
<PAGE>



        At December 31, 1997, the Company had state tax credits of $4.9 million
related to enterprise zone credits for eligible completed capital projects,
expiring 2001 through 2009, which are available to reduce future income taxes
payable.

        At December 31, 1997, the Company has $83.4 million in federal net
operating loss carryforwards expiring in 2011 and 2013. In addition, the Company
has $83.0 million in state net operating loss carryforwards expiring in 2011 and
2013.

        At December 31, 1997, 1996 and 1995, the Company included in accounts
payable amounts due to Oregon Steel of $914,000, $286,000 and $152,000,
respectively, related to income taxes.

         No valuation allowance has been established for deferred tax assets as
management believes it is more likely than not that future taxable income will
be sufficient to realize the benefit of net operating loss and state tax credit
carryforwards.


10.     EMPLOYEE BENEFIT PLANS

PENSION PLANS

         The Company has noncontributory defined benefit retirement plans
covering all of the eligible employees of the Company. The plans provide
benefits based on participants' years of service and compensation. The Company
funds at least the minimum annual contribution required by ERISA. Pension cost
included the following components:


                                                     1997       1996      1995
                                                  -------     ------    -------
                                                          (IN THOUSANDS)

Service cost - benefits earned during the year    $ 2,224     $2,897    $ 2,754
Interest cost on projected benefit obligations        997        698        438
Actual return on plan assets                       (2,072)      (976)      (955)
Net amortization and deferral                       1,018        328        577
                                                  -------     ------    -------
     Net pension cost                             $ 2,167     $2,947    $ 2,814
                                                  =======     ======    =======


        The following table sets forth the funded status of the plans and the
amount recognized in the Company's consolidated balance sheet as of December 31:

                                           1997         1996          1995
                                         -------       -------       -------
                                                   (IN THOUSANDS)
Accumulated benefit obligations,
     including vested benefits of
     $13,218, $10,961 and $7,834         $13,512       $11,444       $ 8,239
                                         =======       =======       =======
Projected benefit obligations            $15,631       $12,826       $ 9,336
Plan assets at fair value                 13,643        10,449         6,729
                                         -------       -------       -------
Projected benefit obligation in
     excess of plan assets                (1,988)       (2,377)       (2,607)
Unrecognized net (gain) loss                (230)          612           822
                                         -------      --------       -------
Pension liability recognized in
     consolidated balance sheet          $(2,218)      $(1,765)      $(1,785)
                                         =======       =======       =======

         Plan assets are invested in common stock and bond funds (56%),
marketable fixed income securities (41%) and insurance company contracts (3%)
at December 31, 1997.


                                       26
<PAGE>

        The following table sets forth the significant actuarial assumptions
for the Company's pension plans:

                                                      1997      1996      1995
                                                      ----      ----      ----
Discount rate                                         7.0%      7.5%      7.5%
Rate of increase in future compensation levels        4.0%      4.0%      4.0%
Expected long-term rate of return on plan assets      8.8%      8.8%      8.8%


POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS

        The Company provides certain health care and life insurance benefits for
substantially all of the retired employees. Employees are generally eligible for
benefits upon retirement and completion of a specified number of years of
service. The benefit plans are unfunded.

         The following table sets forth the status of the plans as of 
December 31:


                                                 1997         1996        1995
                                                 ----         ----        ----
                                                         (IN THOUSANDS)
Net periodic postretirement benefit
  costs include:
        Service cost                          $   116      $   158      $   215
        Interest cost                             577          584          561
        Amortization of unrecognized 
           net losses                              84          142          142
                                              -------      -------      -------
Net periodic postretirement benefit cost      $   777      $   884      $   918
                                              =======      =======      =======

Accumulated postretirement benefit
    obligation:
      Retirees                                $ 3,637      $ 2,001      $ 1,014
      Fully eligible plan participants          3,063        3,410        3,869
      Other active plan participants              603        2,967        3,008
                                              -------       ------      -------
                                              $ 7,303      $ 8,378      $ 7,891
                                              =======      =======      =======
Accumulated postretirement benefit
     obligation in excess of plan assets      $(7,303)     $(8,378)     $(7,891)
Unrecognized net loss                             559        2,208        2,422
                                              -------      -------      ------- 
Postretirement liability recognized in
      consolidated balance sheet              $(6,744)     $(6,170)     $(5,469)
                                              =======      =======      =======

         The obligations and costs for the retiree medical plan are not
dependent on changes in the cost of medical care. Retirees are covered under
plans providing fixed dollar benefits. The discount rate used in determining the
accumulated postretirement benefit obligation was 7.0 percent, 7.5 percent and
7.5 percent in 1997, 1996 and 1995, respectively.

                                       27
<PAGE>


PROFIT PARTICIPATION PLAN

         The Company has a profit participation plan under which it distributes
quarterly to eligible employees 12 percent of its pretax income after
adjustments for certain nonoperating items. Each eligible employee receives a
share of the distribution based upon the level of the eligible employee's base
compensation compared with the total base compensation of all eligible employees
of the Company. Expense under the plan was $1.3 million in 1997, $275,000 in
1996, and $449,000 in 1995.


THRIFT PLANS

        The Company has qualified thrift (401(k)) plans for eligible employees
under which the Company matches 25 percent of the first 4 percent of the
participant's deferred compensation. Company contribution expense in 1997, 1996
and 1995 was $269,000, $417,000 and $387,000, respectively.


11.     RELATED PARTY TRANSACTIONS

OREGON STEEL MILLS, INC.

        The Company pays administrative fees to Oregon Steel for services it
provides based on an allocation from Oregon Steel and reimburses Oregon Steel
for costs incurred on behalf of the Company.

                                            1997          1996           1995
                                         ---------     ---------      ---------
                                                      (IN THOUSANDS)

Oregon Steel administrative fees        $    4,196     $   3,139      $   3,620
Interest expense on notes payable
   to Oregon Steel                          21,691        19,922         11,895
Notes payable to Oregon Steel at 
   December 31                             182,200       205,700        181,750
Accounts payable to Oregon Steel
    at December 31                           7,676         4,992          4,454

NIPPON STEEL CORPORATION

        In 1994 the Partnership entered into an equipment supply agreement for
purchase of deep head-hardened ("DHH") rail equipment from Nippon. Additionally,
the Partnership pays royalties to Nippon based on sales of DHH rail. The
Partnership has made payments on the DHH rail equipment and paid certain license
and technical fees, and royalties.

                                                1997       1996        1995
                                              -------     ------      -------
                                                        (IN THOUSANDS)

Payments to Nippon for the year 
   ended December 31                          $   659     $2,914      $15,394
Accounts payable to Nippon at December 31         346          -        2,252


                                       28
<PAGE>



12.     COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL

        All material environmental remediation liabilities which are probable
and estimable are recorded in the financial statements based on current
technologies and current environmental standards. Adjustments are made when
additional information is available that may require different remediation
methods or periods, and ultimately affect the total cost. The best estimate of
the probable loss within a range is recorded. If there is no best estimate, the
low end of the range is recorded, and the range is disclosed.

        In connection with the 1993 formation of the Partnership and the
acquisition of the Partnership interest by the Company, the Company accrued a
liability of $36.7 million for environmental remediation at the Pueblo, Colorado
steel mill. The Company believed $36.7 million was the best estimate from a
range of $23.1 million to $43.6 million. The Company's estimate of this
liability was based on two remediation investigations conducted by independent
environmental engineering consultants. The accrual includes costs for the
Resource Conservation and Recovery Act facility investigation, a corrective
measures study, remedial action, and operation and maintenance associated with
the proposed remedial actions. In October 1995, the Partnership and the Colorado
Department of Public Health and Environment finalized a ten-year postclosure
permit. The permit contains a prioritized schedule for corrective actions to be
completed which is substantially reflective of a straight-line rate of
expenditure over 30 years. The State of Colorado stated that the schedule for
corrective action could be accelerated if new data indicated a greater threat to
the environment than is currently known to exist. At December 31, 1997, the
accrued liability was $35.0 million, of which $32.9 million was classified as
noncurrent in the consolidated balance sheet.

GUARANTEES

      Oregon Steel has outstanding $235 million principal amount of 11% First
Mortgage Notes ("Notes") due 2003. The Company has guaranteed the obligations of
Oregon Steel under the Notes, and those guarantees are secured by a lien on
substantially all the property, plant and equipment and certain other assets of
the Company, excluding accounts receivable and inventory.

        In addition, Oregon Steel maintains a $125 million credit agreement with
a group of banks which is collateralized, in part, by the accounts receivable
and inventory of the Company, and also guaranteed by the Company.

LABOR DISPUTE

       The labor contract of CF&I expired on September 30, 1997. After a brief
contract extension intended to help facilitate a possible agreement, on October
3, 1997 the United Steel Workers of America ("Union"), initiated a strike for
approximately 1,060 bargaining unit employees. The parties failed to reach final
agreement on a new labor contract due to differences on economic issues. As a
result of contingency planning, the Company was able to avoid complete
suspension of operations at the Pueblo Mill by utilizing a combination of
permanent replacement workers, striking employees who returned to work and
salaried employees.

       By December 1997, the Company had sufficient permanent replacement
employees necessary to reach full production capacity. At the end of December,
the Pueblo Mill was operating at approximately 65% of capacity and is expected
to reach full production during the first half of 1998. As a result of
weathering the strike and successfully resuming operations, the
Company believes it can return to full production with fewer workers than before
the strike.

       On December 30, 1997 the Union called off the strike and made an
unconditional offer to return to work. At the time of this offer, only a few
vacancies existed at the Pueblo Mill. As of the end of January

                                       29
<PAGE>

1998, 30 former striking employees had returned to work as a result of their 
unconditional offer. Approximately 920 former striking workers remain 
unreinstated ("Unreinstated Employees").

       As a result of the labor dispute, both the Company and the Union have
filed unfair labor practice charges with the National Labor Relations Board
("NLRB"). On February 24, 1998 the Regional Director of the NLRB Denver office
informed the parties that he would issue complaints against both the Company and
the Union. The Union will be charged with engaging in numerous incidents of
picket line violence, and threats and intimidation of replacement workers. The
complaint against the Company, which was issued on February 27, 1998, alleges
violations of several provisions of the National Labor Relations Act. The
Company not only denies the allegations, but rather believes that both the facts
and the law fully support its contention that the strike was economic in nature
and that it was not obligated to displace the properly hired permanent
replacement employees. Ultimate determination of the issue may well require
action by an appropriate United States Court of Appeals. In the event there is
an adverse determination of these issues, Unreinstated Employees could be
entitled to back pay from the date of the Union's unconditional offer to return
to work through the date of the adverse determination ("Backpay Liability"). The
number of Unreinstated Employees entitled to back pay would probably be limited
to the number of replacement workers, currently approximately 600 workers.
However, the Union might assert that all Unreinstated Employees could be
entitled to back pay. Back pay is generally measured by the quarterly earnings
of those working less interim wages earned elsewhere by the Unreinstated
Employees. In addition, each Unreinstated Employee has a duty to take reasonable
steps to mitigate the Backpay Liability by seeking employment elsewhere that has
comparable demands and compensation. It is not presently possible to estimate
the extent to which interim earnings and failure to mitigate the Backpay
Liability would affect the cost of an adverse determination.

OTHER CONTINGENCIES

       The Company is also party to various claims, disputes, legal actions
and other proceedings involving contracts, employment and various other matters.
In the opinion of management, the outcome of these matters should not have a
material adverse effect on the consolidated financial condition of the
Company.

13.     UNUSUAL AND NONRECURRING ITEMS

PROCEEDS FROM INSURANCE SETTLEMENT

         Sales for 1997 include approximately $2.5 million of insurance proceeds
as reimbursement of lost profits resulting from lost production during the third
and fourth quarters of 1996 related to the failure of one of the power
transformers servicing the Company. In total, the Company received $7 million in
insurance proceeds from this claim of which $4.5 million was recorded in 1996.

         Sales for 1995 include approximately $4 million of insurance proceeds
received as reimbursement of lost profits resulting from lost production and
delays at the Company's new rod and bar mill caused by an explosion that
occurred during the third quarter of 1994.

                                       30
<PAGE>



REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of CF&I Steel, L.P.

In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in partners' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of CF&I Steel, L.P. at
December 31, 1997 and 1996, and the results of its operations and its cash 
flows for the years then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.




PRICE WATERHOUSE LLP
Portland, Oregon
February 27, 1998


                                       31
<PAGE>


    REPORT OF INDEPENDENT ACCOUNTANTS


To the Partners of CF&I Steel, L.P.

      We have audited the accompanying balance sheet of CF&I Steel, L.P.
(Partnership) as of December 31, 1995 and the related statements of operations,
changes in Partners' equity (deficit) and cash flows for the year ended
December 31, 1995. In addition, we have audited the 1995 financial statement 
schedule of CF&I Steel, L.P. as listed in Item 14(a)(ii) of this Form 10-K.
These financial statements and financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to 
express an opinion on these financial statements and financial statement 
schedule based on our audit.

      We conducted our audit 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 audit provides a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CF&I Steel, L.P. as of
December 31, 1995, and its results of operations and its cash flows for the year
ended December 31, 1995, in conformity with generally accepted accounting
principles. In addition, in our opinion, the 1995 financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.



COOPERS & LYBRAND, L.L.P.
Portland, Oregon
January 19, 1996


                                       32


<PAGE>
<TABLE>




                                                          CF&I STEEL, L.P.
                                                           BALANCE SHEETS
                                                           (IN THOUSANDS)

                                                           ASSETS
<CAPTION>

                                                                                          DECEMBER 31,
                                                                             ----------------------------------
                                                                                1997        1996         1995
                                                                             --------    ---------     --------
<S>                                                                          <C>         <C>           <C>    

Current assets:
   Cash and cash equivalents                                                 $     --    $      --     $     --
   Trade accounts receivable, less allowance
       for doubtful accounts of $1,011, $455
       and $518                                                                36,652       48,918       45,533
   Inventories                                                                 41,666       50,414       70,087
   Other                                                                        2,350        1,610          971
                                                                             --------    ---------     --------    
       Total current assets                                                    80,668      100,942      116,591
                                                                             --------    ---------     --------   

Property, plant and equipment:
   Land and improvements                                                        3,629        3,525        3,525
   Buildings                                                                   15,604        5,936        5,760
   Machinery and equipment                                                    228,656      234,441      186,626
   Construction in progress                                                     7,302        4,011       31,586
                                                                             --------    ---------     --------   
                                                                              255,191      247,913      227,497
   Accumulated depreciation                                                   (33,488)     (22,225)     (10,569)
                                                                             --------    ---------     --------   
                                                                              221,703      225,688      216,928
                                                                             --------    ---------     --------   
Cost in excess of net assets acquired, net                                     35,943       36,963       37,983
Other assets                                                                   13,223       13,202       12,317
                                                                             --------    ---------     --------   
                                                                             $351,537    $ 376,795     $383,819
                                                                             ========    =========     ========


                                                        LIABILITIES

Current liabilities:
   Current portion of long-term debt                                         $  7,373     $  6,574     $  4,576
   Accounts payable                                                            41,489       37,193       55,601
   Accrued expenses                                                            25,973       16,647       15,652
                                                                             --------     --------     --------    
       Total current liabilities                                               74,835       60,414       75,829
Long-term debt                                                                 38,187       44,716       50,666
Long-term debt - Oregon Steel Mills, Inc.                                     182,200      205,700      181,750
Long-term debt - New CF&I, Inc.                                                21,756       17,400       16,800
Environmental liability                                                        32,941       33,243       34,157
Deferred employee benefits                                                      6,643        6,069        5,388
                                                                             --------     --------     --------   
                                                                              356,562      367,542      364,590
                                                                             --------     --------     -------- 

Commitments and contingencies (Note 10)

                                                          PARTNERS'
                                                      EQUITY (DEFICIT)
Limited  partner                                                                  319          (10)         587
General partner                                                                (5,344)       9,263       18,642
Total partners' equity (deficit)                                               (5,025)       9,253       19,229
                                                                             --------     --------     --------   
                                                                             $351,537     $376,795     $383,819
                                                                             ========     ========     ========
</TABLE>


               The accompanying notes are an integral part of the
               financial statements.

                                       33
<PAGE>


                                CF&I STEEL, L.P.
                            STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)




                                        FOR THE YEAR ENDED DECEMBER 31,
                                  -----------------------------------------
                                     1997           1996             1995
                                  --------        --------         --------
Sales                             $396,400        $388,990         $300,060
                                  --------        --------         --------

Costs and expenses:
     Cost of sales                 361,650         357,914          277,452
     Selling, general and
         administrative             23,257          17,069           16,681
     Profit participation            1,331             275              449
                                  --------       ---------         --------
                                   386,238         375,258          294,582
                                  --------       ---------         --------
     Operating income               10,162          13,732            5,478

Interest and dividend income            56              38               35
Interest expense                   (27,875)        (24,356)         (13,518)
Other, net                           2,168             621              441
                                  --------       ---------        ---------
     Net loss                     $(15,489)      $  (9,965)       $  (7,564)
                                  ========       =========        =========

               The accompanying notes are an integral part of the
               financial statements.

                                       34
<PAGE>


                                CF&I STEEL, L.P.
               STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                                 (IN THOUSANDS)



                                           GENERAL         LIMITED
                                           PARTNER         PARTNER       TOTAL
                                           -------        --------      -------
Balances, December 31, 1994                $25,709        $ 1,084       $26,793
Net loss                                    (7,067)          (497)       (7,564)
                                           -------        -------       -------
Balances, December 31, 1995                 18,642            587        19,229
Net loss                                    (9,358)          (607)       (9,965)
Other                                          (21)            10           (11)
                                           -------        -------       -------
Balances, December 31, 1996                  9,263            (10)        9,253
Net loss                                   (14,607)          (882)      (15,489)
Limited Partner purchase adjustment              -          1,211         1,211
                                           -------        -------       -------
Balances, December 31, 1997                $(5,344)       $   319       $(5,025)
                                           =======        =======       =======




               The accompanying notes are an integral part of the
               financial statements.

                                       35
<PAGE>
<TABLE>



                                                  CF&I STEEL, L.P.
                                              STATEMENTS OF CASH FLOWS
                                                   (IN THOUSANDS)
<CAPTION>

                                                                              FOR THE YEAR ENDED DECEMBER 31,
                                                                     ------------------------------------------
                                                                        1997            1996            1995
                                                                     --------        --------        ----------
<S>                                                                  <C>             <C>             <C>   

Cash flows from operating activities:
   Net loss                                                          $(15,489)       $ (9,965)       $  (7,564)
   Adjustments to reconcile net income to net cash
      provided by operating activities:
          Depreciation                                                 12,181          11,694            6,999
          Amortization                                                  1,165           1,020            1,019
          Gain on sale of property, plant and equipment                (3,017)         (1,539)            (440)
          Changes in current assets and liabilities:
              Trade accounts receivable                                12,266          (3,385)          (1,670)
              Inventories                                               8,748          19,673           (6,647)
              Accounts payable                                          4,978          (3,861)           2,261
              Accrued expenses                                          9,325             996            2,961
              Other                                                      (468)           (638)            (178)
                                                                     --------        --------        ---------
   NET CASH PROVIDED BY (USED IN)
       OPERATING ACTIVITIES                                            29,689          13,995           (3,259)
                                                                     --------        --------        ---------

Cash flows from investing activities:
    Additions to property, plant and equipment                        (11,258)        (35,035)         (61,472)
    Proceeds from disposal of property, plant and equipment             6,607             654              510
    Other, net                                                           (164)           (212)            (479)
                                                                     --------        --------        ---------
    NET CASH USED BY INVESTING ACTIVITIES                              (4,815)        (34,593)         (61,441)
                                                                     --------        --------        ---------

Cash flows from financing activities:
     Borrowings from related parties                                  195,145         224,930          171,050
     Payments to related parties                                     (214,289)       (200,380)        (102,000)
     Payment of long-term debt                                         (5,730)         (3,952)          (4,831)
                                                                     --------        --------        ---------
     NET CASH PROVIDED BY (USED IN)
        FINANCING ACTIVITIES                                          (24,874)         20,598           64,219
                                                                     --------        --------        ---------

Net decrease in cash and cash equivalents                                  --              --             (481)
Cash and cash equivalents at beginning of year                             --              --              481
                                                                     --------        --------        ---------
Cash and cash equivalents at end of year                             $     --        $     --        $      --
                                                                     ========        ========        =========

Supplemental disclosures of cash flow information:
    Cash paid for interest                                           $ 26,584        $ 22,882       $   16,561
                                                                     ========        ========       ==========
</TABLE>



See Note 4 for additional supplemental disclosures of cash flow information.




                            The accompanying notes are an integral part of the
                            financial statements.

                                       36
<PAGE>



                                CF&I STEEL, L.P.
                          NOTES TO FINANCIAL STATEMENTS


1.     NATURE OF OPERATIONS

       CF&I Steel, L.P. ("Partnership") manufactures various specialty and
commodity steel products in Pueblo, Colorado. Principal markets are steel
service centers, steel fabricators, railroads, oil and gas producers and
distributors, and other industrial concerns, primarily in the United States west
of the Mississippi River. The Partnership also markets products outside North
America.

       On March 3, 1993, the inception date of the Partnership's operations, New
CF&I, Inc. ("General Partner" or "Company"), a then wholly-owned subsidiary of
Oregon Steel Mills, Inc. ("Oregon Steel"), (1) issued 100 shares of common stock
to Oregon Steel for $22.2 million (consisting of $7.3 million of cash, $3.1
million of capitalized direct acquisition costs, 598,400 shares of Oregon Steel
common stock valued at $11.2 million to be issued ten years from March 3, 1993,
and by the delivery of warrants to purchase 100,000 shares of Oregon Steel's
common stock at $35 per share for five years, valued at $556,000) and (2) as the
general partner, then acquired for $22.2 million a 95.2 percent interest in the
Partnership. The remaining 4.8 percent interest was acquired by the Pension
Benefit Guaranty Corporation ("Limited Partner") with a capital contribution of
an asset valued at $1.2 million. On October 1, 1997, Oregon Steel purchased the
Limited Partner's 4.8 percent interest in the Partnership.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

        Cash and cash equivalents include short-term securities which have an
original maturity date of 90 days or less.

CONCENTRATIONS OF CREDIT RISK

        Financial instruments that potentially subject the Partnership to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. The Partnership places its cash in high credit quality
investments and limits the amount of credit exposure by any one financial
institution. At times, temporary cash investments may be in excess of the
Federal Deposit Insurance Corporation insurance limit. Management believes that
risk of loss on the Partnership's trade receivables is reduced by ongoing credit
evaluation of customer financial condition and requirements for collateral, such
as letters of credit and bank guarantees.

INVENTORIES

        Inventories are stated at the lower of average cost or market.

PROPERTY, PLANT AND EQUIPMENT

        Property, plant and equipment are stated at cost, including interest
capitalized during construction of $435,000, $2.2 million and $5.5 million in
1997, 1996 and 1995, respectively. Depreciation is determined using principally
the straight-line method and the units of production method over the estimated
useful lives of the assets. Maintenance and repairs are expensed as incurred and
costs of 

                                       37

<PAGE>

improvement are capitalized. Upon disposal, cost and accumulated
depreciation are removed from the accounts, and gains or losses are reflected in
income.

COSTS IN EXCESS OF NET ASSETS ACQUIRED

        The cost in excess of net assets acquired is amortized on a
straight-line basis over 40 years. Accumulated amortization was $4.9 million,
$3.8 million and $2.8 million in 1997, 1996 and 1995, respectively. The carrying
value of costs in excess of net assets acquired will be reviewed if the facts
and circumstances suggest that it may be impaired.

OTHER ASSETS

        Included in other assets are water rights of approximately $11.2
million. These water rights include the rights to divert and use certain amounts
of water from various river systems for either industrial or agricultural use.

MAJOR CUSTOMERS

        In 1997, the Partnership derived 17.5, 13.1 and 11.0 percent of its
sales from three customers, respectively. In 1996, the Partnership derived 13.7
percent of its sales from one customer.

TAXES ON INCOME

        The financial statements reflect no provision or liability for federal
or state income taxes. Taxable income or loss of the Partnership is allocated to
the partners.

USE OF ESTIMATES

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

3.      INVENTORIES

        Inventories were as follows as of December 31:

                                             1997           1996        1995
                                           -------        -------      -------
                                                       (in thousands)

          Raw materials                    $15,051        $16,246      $16,480
          Semifinished product              13,840         16,488       25,816
          Finished product                   3,868          8,245       20,012
          Stores and operating supplies      8,907          9,435        7,779
                                           -------        -------      -------
              Total inventory              $41,666        $50,414      $70,087
                                           =======        =======      =======

                                       38

<PAGE>

4.      SUPPLEMENTAL CASH FLOW INFORMATION

         During 1997, 1996 and 1995, the Partnership acquired property, plant
and equipment for $435,000, $1.3 million and $15.8 million, respectively, which
were included in accounts payable at December 31, 1997, 1996 and 1995,
respectively.

5.      ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable include book overdrafts of $6.2 million at December
31, 1995, and retainage from construction projects of $6.6 million at December
31, 1995.

         Accrued expenses include accrued vacation of $3.1 million, $3.3 million
and $3.3 million at December 31, 1997, 1996 and 1995, respectively. Accrued
expenses also include $4.0 million of deferred revenue at December 31, 1997.

6.      DEBT AND FINANCING ARRANGEMENTS

         Term debt of $67.5 million was incurred by CF&I as part of the purchase
price of the Pueblo Mill on March 3, 1993. This debt is without stated
collateral and is payable over 10 years with interest at 9.5 percent. As of
December 31, 1997, the outstanding balance on the debt was $45.6 million, of
which $38.2 million was classified as long-term.

         Borrowing requirements for capital expenditures and working capital
have been provided through revolving loans from Oregon Steel and the General
Partner. The loan from Oregon Steel includes interest on the daily amount
outstanding at the rate of 11.64 percent. The principal is due on demand or, if
no demand, due on December 31, 2002. The loan from the General Partner includes
interest on the daily amount outstanding at the rate of 8.25 percent. The
principal is due on demand or, if no demand, due on December 31, 2004. The loans
are not expected to be repaid in 1998. Interest on the loans is paid on a
monthly basis. See Note 9.

         As of December 31, 1997, principal payments on long-term debt are due
as follows (in thousands):

                            1998                           $   7,373
                            1999                               7,164
                            2000                               7,861
                            2001                               8,626
                            2002                             191,664
                            Thereafter                        26,828
                                                           ---------
                                                           $ 249,516
                                                           =========
    
                                       39

<PAGE>



7.       FAIR VALUE OF FINANCIAL INSTRUMENTS

         The estimated fair value of the Partnership's financial instruments at
December 31 is as follows:
<TABLE>
<CAPTION>

                                                 1997                          1996                            1995
                                     -------------------------     --------------------------    -----------------------------
                                         CARRYING      FAIR         CARRYING         FAIR         CARRYING         FAIR
                                          AMOUNT       VALUE         AMOUNT          VALUE         AMOUNT          VALUE
                                     -------------- ----------     ------------   -----------    -----------    --------------
                                                                          (in thousands)
<S>                                   <C>            <C>            <C>            <C>            <C>            <C>

Long-term debt, including
     current portion                  $  45,560      $  42,677      $  51,290      $  46,227      $  55,242      $  52,594
Long-term debt - Oregon Steel
     Mills, Inc.                        182,200        180,676        205,700        198,802        181,750        181,750
Long-term debt - New CF&I,
     Inc.                                21,756         17,064         17,400         11,939         16,800         16,800
</TABLE>

         The fair value of Long-term debt, including current portion, Long-term
debt - Oregon Steel Mills, Inc. and Long-term debt - New CF&I, Inc. is estimated
by discounting future cash flows based on the Partnership's incremental
borrowing rate for similar types of borrowing arrangements.

 8.      EMPLOYEE BENEFIT PLANS

PENSION PLANS

         The Partnership has noncontributory defined benefit plans covering all
of the eligible employees. The plans provide benefits based on participants'
years of service and compensation. The Partnership funds at least the minimum
annual contribution required by ERISA. Pension cost included the following
components:


                                        1997          1996            1995
                                      -------        ------         -------
                                                  (IN THOUSANDS)
Service cost - benefits earned
    during the year                   $ 2,224        $2,897         $ 2,754
Interest cost on projected benefit
    obligations                           997           698             438
Actual return on plan assets           (2,072)         (976)           (955)
Net amortization and deferral           1,018           328             577
                                      -------        ------         -------
     Net pension cost                 $ 2,167        $2,947         $ 2,814
                                      =======        ======         =======


                                       40
<PAGE>



       The following table sets forth the funded status of the plans and the
amount recognized in the Partnership's balance sheet as of December 31:


                                              1997        1996        1995
                                             -------     -------     -------  
                                                     (IN THOUSANDS)
Accumulated benefit obligations, 
     including vested benefits 
     of $13,218, $10,961, and $7,834         $13,512     $11,444     $ 8,239
                                             =======     =======     =======
Projected benefit obligations                $15,631     $12,826     $ 9,336
Plan assets at fair value                     13,643      10,449       6,729
                                             -------     -------     -------
Projected benefit obligation in 
   excess of plan assets                      (1,988)     (2,377)     (2,607)
Unrecognized net (gain) loss                    (230)        612         822
                                             -------     -------     ------- 
Pension liability recognized 
   in balance sheet                          $(2,218)    $(1,765)    $(1,785)
                                             =======     =======     =======

       Plan assets are invested in common stock and bond funds (56%), marketable
fixed income securities (41%) and insurance company contracts (3%) at December
31, 1997.

       The following table sets forth the significant actuarial assumptions for
the Partnership's pension plans:

                                                        1997      1996    1995
                                                        ----      ----    ----
Discount rate                                           7.0%      7.5%    7.5%
Rate of increase in future compensation levels          4.0%      4.0%    4.0%
Expected long-term rate of return on plan assets        8.8%      8.8%    8.8%


POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS

        The Partnership provides certain health care and life insurance benefits
for substantially all of the retired employees. Employees are generally eligible
for benefits upon retirement and completion of a specified number of years of
service. The benefit plans are unfunded.

        The following table sets forth the status of the plans as of December
31:
<TABLE>
<CAPTION>


                                                                1997           1996           1995
                                                              --------       --------       --------
                                                                          (IN THOUSANDS)
<S>                                                            <C>            <C>            <C>    
Net periodic postretirement benefit
   costs include:
        Service cost                                           $   116        $   158        $   215
        Interest cost                                              577            584            561
        Amortization of unrecognized
           net losses                                               84            142            142
                                                               -------        -------        -------
Net periodic postretirement benefit cost                       $   777        $   884        $   918
                                                               =======        =======        =======

Accumulated postretirement benefit obligation:
      Retirees                                                 $ 3,637        $ 2,001        $ 1,014
      Fully eligible plan participants                           3,063          3,410          3,869
      Other active plan participants                               603          2,967          3,008
                                                               -------        -------        -------
                                                               $ 7,303        $ 8,378        $ 7,891
                                                               =======        =======        =======
Accumulated postretirement benefit obligation in
       excess of plan assets                                   $(7,303)       $(8,378)       $(7,891)
Unrecognized net loss                                              559          2,208          2,422
                                                               -------        -------        -------
Postretirement liability recognized in the balance sheets      $(6,744)       $(6,170)       $(5,469)
                                                               =======        =======        =======

</TABLE>
                                       41
<PAGE>



     The  obligations and costs for the retiree medical plan are not dependent
on changes in the cost of medical care.  Retirees are covered under plans
providing  fixed dollar  benefits.  The discount rate used in determining
the accumulated postretirement benefit obligation was 7.0 percent, 7.5 percent
and 7.5 percent in 1997, 1996 and 1995, respectively.

PROFIT PARTICIPATION PLAN

     The Partnership has a profit participation plan under which it distributes
quarterly to eligible employees 12 percent of its operating income after
adjustments for certain nonoperating items. Each eligible employee receives a
share of the distribution based upon the level of the eligible employee's base
compensation compared with the total base compensation of all eligible employees
of the Partnership. Expense under the plan was $1.3 million in 1997, $275,000 in
1996 and $449,000 in 1995.

THRIFT PLANS

     The Partnership has qualified thrift (401(k)) plans for eligible employees
under which the Partnership matches 25 percent of the first 4 percent of the
participant's deferred compensation. Partnership contribution expense in 1997,
1996 and 1995 was $269,000, $417,000 and $387,000, respectively.

9.   RELATED PARTY TRANSACTIONS

OREGON STEEL MILLS, INC.

        The Partnership pays administrative fees to Oregon Steel for services it
provides based on an allocation from Oregon Steel and reimburses Oregon Steel
for costs incurred on behalf of the Partnership. 

                                            1997          1996           1995
                                         ---------      --------      ---------
                                                      (IN THOUSANDS)

Oregon Steel administrative fees         $   4,103      $  3,046      $   3,548
Interest expense on notes payable to
   Oregon  Steel                            21,891        21,476         11,895
Debt payable to Oregon Steel at
   December 31                             182,200       205,700        181,750
Accounts payable to Oregon Steel at 
   December 31                               7,676         5,667          4,454


NEW CF&I, INC.

        The Partnership includes in costs of sales amounts related to
transportation services provided by a subsidiary of the General Partner.

                                             1997         1996         1995
                                           -------     --------      -------
                                                     (IN THOUSANDS)

Services from subsidiary of 
   General Partner                         $ 4,191     $  4,416      $ 5,002
Interest expense on notes payable to
   General Partner                           1,964        1,553        1,503
Debt payable to General Partner at 
   December 31                              21,756       17,400       16,800
Accounts payable to General Partner at
   December 31                               2,657        3,133          617
Interest payable on the debt at 
   December 31                               5,034        3,260        1,830

                                       42
<PAGE>

NIPPON STEEL CORPORATION

        In 1994 the Partnership entered into an equipment supply agreement for
purchase of deep head-hardened ("DHH") rail equipment from Nippon Steel
Corporation ("Nippon"). Additionally, the Partnership pays royalties to Nippon 
based on DHH rail sales. The Partnership has made payments on the DHH rail
equipment and paid certain license and technical fees, and royalties.

                                                  1997        1996        1995
                                                --------     ------     -------
                                                         (IN THOUSANDS)

     Payments to Nippon for the year ended
        December 31                             $    659     $2,914     $15,394
     Accounts payable to Nippon at 
        December 31                                  346          -       2,252



10.  COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL

     All material environmental remediation liabilities which are probable and
estimable are recorded in the financial statements based on current technologies
and current environmental standards. Adjustments are made when additional
information is available that may require different remediation methods or
periods, and ultimately affect the total cost. The best estimate of the probable
loss within a range is recorded. If there is no best estimate, the low end of
the range is recorded, and the range is disclosed.

     In connection with the 1993 formation of the Partnership and the
acquisition of the Partnership interest by the General Partner, the Partnership
accrued a liability of $36.7 million for environmental remediation at the
Pueblo, Colorado, steel mill. The Partnership believed $36.7 million was the
best estimate from a range of $23.1 million to $43.6 million. The estimate of
this liability was based on two separate remediation investigations conducted by
independent environmental engineering consultants. The accrual includes costs
for the Resource Conservation and Recovery Act facility investigation, a
corrective measures study, remedial action, and operation and maintenance
associated with the proposed remedial actions. In October 1995, the Partnership
and the Colorado Department of Public Health and Environment finalized a
postclosure permit. The permit contains a prioritized schedule for corrective
actions to be completed which is substantially reflective of a straight-line
rate of expenditure over 30 years. The State of Colorado stated that the
schedule for corrective action could be accelerated if new data indicated a
greater threat to the environment than is currently known to exist. At December
31, 1997, the accrued liability was $35.0 million, of which $32.9 million was
classified as noncurrent in the balance sheet.

GUARANTEES

     Oregon Steel has outstanding $235 million principal amount of 11% First
Mortgage Notes ("Notes") due 2003. The Partnership has guaranteed the
obligations of Oregon Steel under the Notes, and those guarantees are secured by
substantially all the property, plant and equipment and certain other assets of
the Partnership, excluding accounts receivable and inventory.

     In addition, Oregon Steel maintains a $125 million credit agreement with a
group of banks which is collateralized, in part, by the accounts receivable and
inventory of the Partnership, and also guaranteed by the Partnership.

                                       43
<PAGE>



LABOR DISPUTE

       The Partnership's labor contract expired on September 30, 1997. After a
brief contract extension intended to help facilitate a possible agreement, on
October 3, 1997 the United Steel Workers of America ("Union"), initiated a
strike for approximately 1,060 bargaining unit employees. The parties failed to
reach final agreement on a new labor contract due to differences on economic
issues. As a result of contingency planning, the Partnership was able to avoid
complete suspension of operations at the Pueblo Mill by utilizing a combination
of permanent replacement workers, striking employees who returned to work and
salaried employees.

       By December 1997, the Partnership had sufficient permanent replacement
employees necessary to reach full production capacity. At the end of December,
the Pueblo Mill was operating at approximately 65% of capacity and is expected
to reach full production during the first half of 1998. As a result of
weathering the strike and successfully resuming operations, the Partnership 
believes it can return to full production with fewer workers than before the
strike.

       On December 30, 1997 the Union called off the strike and made an
unconditional offer to return to work. At the time of this offer, only a few
vacancies existed at the Pueblo Mill. As of the end of January 1998, 30 former
striking employees had returned to work as a result of their unconditional
offer. Approximately 920 former striking workers remain unreinstated
("Unreinstated Employees").

       As a result of the labor dispute, both the Partnership and the Union have
filed unfair labor practice charges with the National Labor Relations Board
("NLRB"). On February 24, 1998, the Regional Director of the NLRB Denver office
informed the parties that he would issue complaints against both the Partnership
and the Union. The Union will be charged with engaging in numerous incidents of
picket line violence, and threats and intimidation of replacement workers. The
complaint against the Partnership, which was issued on February 27, 1998,
alleges violations of several provisions of the National Labor Relations Act. 
The Partnership not only denies the allegations, but rather believes that both
the facts and the law fully support its contention that the strike was economic
in nature and that it was not obligated to displace the properly hired permanent
replacement employees. Ultimate determination of the issue may well require
action by an appropriate United States Court of Appeals. In the event there is
an adverse determination of these issues, Unreinstated Employees could be
entitled to back pay from the date of the Union's unconditional offer to return
to work through the date of the adverse determination ("Backpay Liability"). The
number of Unreinstated Employees entitled to back pay would probably be limited
to the number of replacement workers, currently approximately 600 workers.
However, the Union might assert that all Unreinstated Employees could be
entitled to back pay. Back pay is generally measured by the quarterly earnings
of those working less interim wages earned elsewhere by the Unreinstated
Employees. In addition, each Unreinstated Employee has a duty to take reasonable
steps to mitigate the Backpay Liability by seeking employment elsewhere that has
comparable demands and compensation. It is not presently possible to estimate
the extent to which interim earnings and failure to mitigate the Backpay
Liability would affect the cost of an adverse determination.

OTHER CONTINGENCIES

     The Partnership is also party to various claims, disputes, legal actions
and other proceedings involving contracts, employment and various other matters.
In the opinion of management, the outcome of these matters should not have a
material adverse effect on the financial condition of the
Partnership.

                                       44
<PAGE>


11.  UNUSUAL AND NONRECURRING ITEMS

PROCEEDS FROM INSURANCE SETTLEMENT

     Sales for 1997 include approximately $2.5 million of insurance proceeds as
reimbursement of lost profits resulting from lost production during the third
and fourth quarters of 1996 related to the failure of one of the power
transformers servicing the Partnership. In total, the Partnership received $7
million of insurance proceeds from this claim of which $4.5 million was recorded
in 1996.

     Sales for 1995 include approximately $4 million of insurance proceeds
received as reimbursement of lost profits resulting from lost production and
start-up delays at the Partnership's new rod and bar mill caused by an explosion
that occurred during the third quarter 1994.


                                       45

<PAGE>

ITEM 9.   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      On July 25, 1996, the Company dismissed its prior independent accountants,
Coopers & Lybrand L.L.P. ("C&L") and engaged Price Waterhouse LLP ("PW") as the
independent accountants. The reports of C&L on the financial statements of the
Company for the two fiscal years preceding the dismissal contained no adverse
opinion or disclaimers of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle. The decision to dismiss C&L
and engage PW was approved by Oregon Steel's Audit Committee and ratified by the
entire Oregon Steel Board of Directors. During the two most recent fiscal years
and the subsequent interim periods preceding the dismissal, there were no
disagreements with C&L on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of C&L would have caused them
to make reference thereto in their report on the financial statements for such
years. During the two most recent fiscal years and subsequent interim periods,
there were no reportable events (as such term is defined in Item 304 (a)(1)(v)
of Regulation S-K).

                                       46
<PAGE>





                                    PART III

ITEMS 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE
                      REGISTRANT AND EXECUTIVE COMPENSATION

     The following table sets forth information with respect to each director of
New CF&I, Inc. including their names and ages as of February 15, 1998, business
experience during the past five years and directorships in other corporations.
Directors are elected each year at the annual stockholders meeting.
<TABLE>
<CAPTION>

                                                PRINCIPAL OCCUPATION AND                                    DIRECTOR
            NAME                              CERTAIN OTHER DIRECTORSHIPS                       AGE           SINCE
            ----                              ---------------------------                       ---         --------

<S>                           <C>                                                               <C>         <C>  

Thomas B. Boklund             Mr.  Boklund is the Chairman of the Board of  Directors  and      58            1993
                              Chief  Executive  Officer  of the  Company.  He is also  the
                              Chairman  of the  Board of  Directors  and  Chief  Executive
                              Officer of Oregon Steel. He was Chief  Operating  Officer of
                              Oregon  Steel  from  May  1982 to July  1985,  became  Chief
                              Executive  Officer in August 1985, and Chairman of the Board
                              of Directors in February  1992.  He also served as President
                              of Oregon  Steel  from May 1982 to  February  1992,  and was
                              reappointed  as President  from April 1994 to December 1996.
                              He has been a director  of Paragon  Trade  Brands,  Inc.,  a
                              manufacturer  of private  label infant  disposable  diapers,
                              since  April 1993,  and a director  of Oregon  Metallurgical
                              Corporation,   an   integrated   manufacturer   of  titanium
                              products, since April 1996.

L. Ray Adams                  Mr.  Adams  is the  Vice  President  of  Finance  and  Chief      47            1993
                              Financial  Officer of the  Company.  He served as a Director
                              of  Colorado & Wyoming  Railroad  from  March  1993  through
                              March  1994.  He is also the Vice  President  of Finance and
                              Chief  Financial  Officer of Oregon  Steel.  He assumed this
                              position with Oregon Steel in April 1991.

Joe E. Corvin                 Mr. Corvin is the President and Chief  Operating  Officer of      52            1993
                              the  Company.   He  served  as  Senior  Vice   President  of
                              Manufacturing  and Chief  Operating  Officer of the  Company
                              from  March 1993 to August  1996.  He is the  President  and
                              Chief  Operating  Officer  of  Oregon  Steel.  He  was  Vice
                              President  and General  Manager of Oregon  Steel's  Portland
                              Steel  Works from  February  1992 to March  1994,  served as
                              Senior  Vice  President  of Oregon  Steel  from July 1996 to
                              December  1996,  and became  President  and Chief  Operating
                              Officer of Oregon Steel in December 1996.

Keiichiro Shimakawa           Mr. Shimakawa  became the Executive Vice President,  General      49            1996
                              Manager of Nippon Steel USA, Inc.,  Chicago Branch,  in July
                              1996.  He  served  as  Executive  Vice  President  of Nippon
                              Steel  USA,  Inc.  from  July  1994  to July  1996.  He also
                              served  as the  Manager  of Tin  Plate  Sales  for the Sheet
                              Sales  Department  at Nippon  Steel's  head office in Tokyo,
                              Japan, from 1990 to July 1994.

                                       47
</TABLE>

<PAGE>


      The following table sets forth the compensation paid to or accrued by the
Company and its subsidiaries for the Chief Executive Officer and each of the
four most highly paid executive officers of the Company and its subsidiaries as
of December 31, 1997, and other individuals fitting such description, but not
employed as such as of December 31, 1997. The Chief Executive Officer and
certain other executive officers were paid by Oregon Steel. The compensation
information relating to the named executive officers of the Company who are also
named executives of Oregon Steel and Section 16 reporting compliance information
as set forth under the captions "Executive Compensation," "Defined Benefit
Retirement Plans," "Employment Contracts and Termination of Employment and
Change in Control Arrangements," "Compensation Committee Interlocks and Insider
Participation," "Board Compensation Committee Report on Executive Compensation"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Oregon
Steel Mills, Inc. Proxy Statement for the 1998 Annual Meeting of Stockholders
are incorporated herein by reference. Executive officers of the Company are
listed on page 8 of this Form 10-K.
<TABLE>
<CAPTION>



                                            SUMMARY COMPENSATION TABLE

                                                                             
                                               ANNUAL COMPENSATION(3)             ALL OTHER COMPENSATION(3)
                                        ----------------------------------      -----------------------------
                NAME AND                                                          THRIFT PLAN
           PRINCIPAL POSITION           YEAR         SALARY       BONUS(1)      CONTRIBUTION(2)         OTHER
           ------------------           ----         ------       --------      ---------------         ----- 
     <S>                                <C>          <C>          <C>           <C>                     <C>    

     Thomas B. Boklund
     CEO

     Joe E. Corvin
     President and
        Chief Operating Officer

     L. Ray Adams
     Vice President of
        Finance and Chief
        Financial Officer

     Michael D. Buckentin               1997           169,526         5,919                1,600       1,409
     Vice President and
        General Manager

     James E. Dionisio                  1997           123,719         4,448                1,302
     Vice President of                  1996            93,840           596                  944
        Sales and Marketing             1995            81,957           804                  821
</TABLE>
<PAGE>

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

(1)  Amounts earned pursuant to the Company's Profit Participation Plan.

(2)  Matching contributions made by the Company on behalf of the named executive
     to the Company's Thrift Plan. 

(3)  Pension benefits accrued in 1997 are not included in this Summary
     Compensation Table.

                                       48

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT

    The equity of New CF&I, Inc. is held 87 percent by Oregon Steel, 10 percent
by Nippon and 3 percent by Nissho Iwai. New CF&I, Inc., as general partner, has
a 95.2 percent partnership interest in CF&I Steel L.P. Oregon Steel has a 4.8
percent partnership interest in CF&I Steel, L.P.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    For related party transactions, see Note 11 to the Company's consolidated
financial statements and Note 9 to CF&I's financial statements.

                                       49
<PAGE>

                                     PART IV

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

(A)   (i)   FINANCIAL STATEMENTS:
            NEW CF&I, INC.
            Report of Independent Accountants - 1997 and 1996............  15
            Report of Independent Accountants - 1995 ....................  16
            Consolidated Balance Sheets at December 31, 1997,
               1996 and 1995............................................   17
            Consolidated Statements of Income for each of the 
               three years in the period ended December 31, 1997........   18
            Consolidated Statements of Changes in Stockholders' 
               Equity for each of the three years in the period
               ended December 31, 1997..................................   19
            Consolidated Statements of Cash Flows for each of
               the three years in the period ended 
               December 31, 1997........................................   20
            Notes to Consolidated Financial Statements..................   21

            CF&I STEEL, L.P.
            Report of Independent Accountants - 1997 and 1996............  31
            Report of Independent Accountants - 1995.....................  32
            Balance Sheets at December 31, 1997, 1996 and 1995...........  33
            Statements of Operations for each of the three years
                 in the period ended December 31, 1997...................  34
            Statements of Changes in Partners' Equity (Deficit)
                 for each of the three years in the period ended
                 December 31, 1997......................................   35
            Statements of Cash Flows for each of the three years
                 in the period ended December 31, 1997..................   36
            Notes to Financial Statements...............................   37
      (ii)  Financial Statement Schedules for each of the three
                 years in the period ended December 31, 1997:
            Schedule II - Valuation and Qualifying Accounts.............   51
            Report of Independent Accountants  on Financial
               Statement Schedule ......................................   52
      (iii) Exhibits:  Reference is made to the list on page 53 of
               the exhibits filed with this report.
(B)         No reports on Form 8-K were required to be filed by
              the Registrant during the fourth quarter of the
              year ended December 31, 1997.

                                       50
<PAGE>
<TABLE>




                                                  NEW CF&I, INC.
                                                 CF&I STEEL, L.P.
                                  SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                          FOR THE YEAR ENDED DECEMBER 31
                                                  (IN THOUSANDS)
<CAPTION>

                                                                         COLUMN C
                                                                -------------------------
                                                COLUMN B        ADDITIONS                                           COLUMN E
                                               ----------                                                          ----------
                                               BALANCE AT       CHARGED TO       CHARGED                           BALANCE AT
COLUMN A                                        BEGINNING       COSTS AND        TO OTHER         COLUMN D           END OF
--------                                                                                          ---------                
CLASSIFICATION                                  OF PERIOD        EXPENSES        ACCOUNTS        DEDUCTIONS          PERIOD
--------------                                 ----------       ----------       --------        ----------        ----------
<S>                                            <C>              <C>              <C>             <C>               <C>  

     1997
     ----
Allowance for doubtful accounts                    $455            $820             -              $(264)            $1,011
     1996
     ----
Allowance for doubtful accounts                    $518               -             -              $ (63)            $  455
     1995
     ----
Allowance for doubtful accounts                    $592               -             -              $ (74)            $  518


</TABLE>



                                       51
<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE



To the Board of Directors of New CF&I, Inc.
and the Partners of CF&I Steel, L.P.

Our audits of the consolidated financial statements referred to in our reports
dated February 27, 1998 appearing on pages 15 and 31 of this Annual Report on
Form 10-K also included an audit of the Financial Statement Schedule listed in
Item 14(a)(ii) of this Form 10-K for the years ended December 31, 1997 and 1996.
In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.



PRICE WATERHOUSE LLP
Portland, Oregon
February 27, 1998

                                       52
<PAGE>



                                LIST OF EXHIBITS


  3.1    Certificate of Incorporation of New CF&I, Inc. (Filed as exhibit 3.1
         to Form S-1  Registration  Statement 333-02355 and incorporated by
         reference herein.)
  3.2    Amended and Restated Agreement of Limited Partnership of CF&I Steel,
         L.P. dated as of March 3, 1993, by and between New CF&I, Inc. and the 
         Pension  Benefit Guaranty Corporation.  (Filed as exhibit 28.1 to the
         Current Report on Form 8-K of Oregon Steel Mills, Inc. dated March 3,
         1993, and incorporated by reference herein.)
  3.3    Bylaws of New CF&I, Inc.  (Filed as exhibit 3.3 to Form S-1
         Registration Statement 333-02355 and incorporated by reference herein.)
  4.1    Indenture dated as of June 1, 1996 among Oregon Steel Mills, Inc.,
         as issuer; Chemical Bank, as trustee, and New CF&I, Inc. and CF&I
         Steel, L.P., as Guarantors, with respect to 11% First  Mortgage Notes
         due 2003.  (Filed as exhibit 4.1 to Form 10-Q dated June 30, 1996,
         and incorporated by reference herein.)
  4.2    Form of Deed of Trust, Assignment of Rents and Leases and Security
         Agreement.  (Filed as exhibit 4.2 to Amendment #1 to Form S-1
         Registration Statement 333-02355 and incorporated by reference herein.)
  4.3    Form of Security Agreement.  (Filed as exhibit 4.3 to Amendment #1 to
         Form S-1 Registration Statement 333-02355 and incorporated by
         reference herein.)
  4.4    Form of Intercreditor Agreement.  (Filed as exhibit 4.4 to Amendment #1
         to Form S-1 Registration Statement 333-02355 and incorporated by
         reference herein.)
  4.5    Form of Guarantee of First Mortgage Notes due 2003 (Filed as exhibit
         4.1 to Form 8-A of New CF&I, Inc. and CF&I Steel, L.P., filed on
         May 31, 1996, and incorporated by reference herein.)
  4.6    Form of Promissory Note.  (Filed as exhibit 4.2 to Form 8-A of CF&I
         Steel, L.P. filed on May 31, 1996 and incorporated by reference
         herein.)
 10.1    Asset Purchase Agreement dated as of March 3, 1993 among CF&I
         Steel Corporation, Denver Metals Company, Albuquerque Metals
         Company, CF&I Fabricators of Colorado, Inc., CF&I Fabricators
         of Utah, Inc., Pueblo Railroad Service Company, Pueblo Metals
         Company, Colorado & Utah Land Company, The Colorado and Wyoming
         Railway Company, William J. Westmark as trustee for the estate
         of The Colorado and Wyoming Railway Company, CF&I Steel, L.P.,
         New CF&I, Inc. and Oregon Steel Mills, Inc. (Filed as exhibit
         2.1 to the Current Report on Form 8-K of Oregon Steel Mills,
         Inc. dated March 3, 1993, and incorporated by reference
         herein.)
27.1     Financial Data Schedule of New CF&I, Inc.
27.2     Financial Data Schedule of CF&I Steel, L.P.
99.1     Amended and Restated Credit Agreement among Oregon Steel Mills, Inc.
         as the Borrower, Certain Commercial Lending Institutions as the
         Lenders, First Interstate Bank of Oregon, N.A. as the  Administrative
         Agent for the Lenders, The Bank of Nova Scotia as the Syndication
         Agent for the Lenders and First Interstate Bank of Oregon, N.A. and
         The Bank of Nova Scotia as the Managing  Agents for the Lenders.  
         (Filed as exhibit 10.0 to Form 10-Q dated June 30, 1996, and
         incorporated by reference herein.)
99.2     Second Amendment dated as of December 11, 1997 to the Credit
         Agreement dated June 12, 1996, among Oregon Steel Mills, Inc.,
         as Borrower, certain Commercial Lending Institutions as the
         Lenders, Wells Fargo Bank National Association, formerly known
         as First Interstate Bank of Oregon, N.A., as the Administrative
         Agent for the Lenders; the Bank of Nova Scotia, as the
         Syndication Agent for the Lenders, and Wells Fargo Bank
         National Association and the Bank of Nova Scotia, as the
         Managing Agents for the Lenders.
99.3     Third Amendment dated February 17, 1998 to the Credit Agreement
         dated June 12, 1996, among Oregon Steel Mills, Inc., as
         Borrower, certain Commercial Lending Institutions as the
         Lenders, Wells Fargo Bank National Association, formerly known
         as First Interstate Bank of Oregon, N.A., as the Administrative
         Agent for the Lenders; the Bank of Nova Scotia, as the
         Syndication Agent for the Lenders, and Wells Fargo Bank
         National Association and the Bank of Nova Scotia, as the
         Managing Agents for the Lenders.

                                       53
<PAGE>



                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.

                                         NEW CF&I, INC.

                                         BY    /S/ THOMAS B. BOKLUND
                                           -----------------------------------
                                           CHAIRMAN AND CHIEF EXECUTIVE OFFICER



                                         CF&I STEEL, L.P.

                                         BY:  NEW CF&I, INC.
                                              GENERAL PARTNER

                                         BY    /S/ THOMAS B. BOKLUND
                                           ------------------------------------
                                           CHAIRMAN AND CHIEF EXECUTIVE OFFICER

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following  persons on behalf of New CF&I, 
Inc. and CF&I Steel, L.P. in the following capacities on the dates indicated.

         SIGNATURE                               TITLE                 DATE
         ---------                               -----                 ----

  /s/ Thomas B. Boklund            Chairman of the Board,         March 1, 1998
----------------------------
                                   Chief Executive Officer and
    (Thomas B. Boklund)            Director of New CF&I, Inc.
                                   (Principal Executive Officer)

 /s/  Joe E. Corvin                President, Chief Operating     March 1, 1998
-----------------------
    (Joe E. Corvin)                Officer and Director of
                                   New CF&I, Inc.

 /s/  L. Ray Adams                 Vice President of Finance,     March 1, 1998
----------------------------
    (L. Ray Adams)                 Chief Financial Officer and
                                   Director of New CF&I, Inc.
                                   (Principal Financial Officer)

/s/ Christopher D. Cassard         Corporate Controller           March 1, 1998
---------------------------- 
   (Christopher D. Cassard)        of New CF&I, Inc.
                                   (Principal Accounting Officer)

 /s/  Keiichiro Shimakawa          Director of New CF&I, Inc.     March 1, 1998
---------------------------
    (Keiichiro Shimakawa)          

                                       54