---

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington DC  20549

FORM 10-Q

|x                                                 | QUARTERLY   REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|------------------------------------------------- | ------------------------------------------------------------------------------------------
|                                                  |                                                                                           
|For the quarterly period   ended    June 30, 2006
|                                                  |                                                                                           
|OR                                               
|                                                  |                                                                                           
|o                                                 | TRANSITION   REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number     1-9887

|OREGON   STEEL MILLS, INC.                                                          
|------------------------------------------------------------------------------------
|                                                                                    
|(Exact   name of registrant as specified in its charter)                            
|                                                                                    
|Delaware                                                                            
|                                                                                    
|(State or   other jurisdiction of   incorporation or organization)                  
|                                                                                    
|1000 S.W. Broadway, Suite 2200, Portland,   Oregon                                  
|                                                                                    
|(Address   of principal executive offices)                                          
|                                                                                    
|(503) 223-9228                                                                      
|                                                                                    
|(Registrants   telephone number, including area code)                              
|                                                                                    
|                                                                                    
|                                                                                    
|(Former   name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 | o | 
| | --- | - |  | -- | - | 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.  (Check one):

|Large   accelerated filer
o | Accelerated   Filer
x | Non-accelerated   filer
o
|--------------------------- | --------------------- | -------------------------

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

| | Yes | o |  | No | x | 
| | --- | - |  | -- | - | 

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:

|Common Stock, $.01 Par Value |  | 35,811,181                                            
|---------------------------- |  | ------------------------------------------------------
|                             |  |                                                       
|Class                        |  | Number of   Shares Outstanding   (as of July 24, 2006)
|                             |  |                                                       
|                            



OREGON STEEL MILLS, INC.

TABLE OF CONTENTS

|PART I.  | FINANCIAL INFORMATION                                                                               |  | 3 
|-------- | --------------------------------------------------------------------------------------------------- |  | --
|         |                                                                                                     |  |   
|         | Item 1.     Financial Statements                                                                    |  | 3 
|         |                                                                                                     |  |   
|         | Consolidated Financial Statements of Oregon Steel Mills, Inc.                                       |  | 3 
|         |                                                                                                     |  |   
|         | Notes to Consolidated Financial Statements                                                          |  | 6 
|         |                                                                                                     |  |   
|         | Consolidated Financial Statements of New CF&I, Inc.                                                 |  | 18
|         |                                                                                                     |  |   
|         | Notes to Consolidated Financial Statements                                                          |  | 21
|         |                                                                                                     |  |   
|         | Financial Statements of CF&I Steel, L.P.                                                            |  | 26
|         |                                                                                                     |  |   
|         | Notes to Financial Statements                                                                       |  | 29
|         |                                                                                                     |  |   
|         | Item 2.     Managements Discussion and   Analysis of Financial Condition and Results of Operations |  | 33
|         |                                                                                                     |  |   
|         | Item 3.     Quantitative and Qualitative   Disclosures About Market Risk                            |  | 38
|         |                                                                                                     |  |   
|         | Item 4.     Controls and Procedures                                                                 |  | 38
|         |                                                                                                     |  |   
|PART II. | OTHER INFORMATION                                                                                   |  | 39
|         |                                                                                                     |  |   
|         | Item 1.     Legal Proceedings                                                                       |  | 39
|         |                                                                                                     |  |   
|         | Item 1A.  Risk Factors                                                                              |  | 39
|         |                                                                                                     |  |   
|         | Item 6.     Exhibits                                                                                |  | 40
|         |                                                                                                     |  |   
|         | SIGNATURES                                                                                          |  | 41

2



PART I.    FINANCIAL INFORMATION

Item 1.  Financial Statements

OREGON STEEL MILLS, INC. CONSOLIDATED BALANCE SHEETS (In thousands except per share amounts)

|                                                                                                                    |  | June 30,   2006 |           | December 31,   2005 |  
|------------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | ------------------- | -
|                                                                                                                    |  |                 |           |                     |  
|                                                                                                                    |  | (Unaudited)     |           |                     |  
|ASSETS                                                                                                              |  |                 |           |                     |  
|Current   assets:                                                                                                   |  |                 |           |                     |  
|Cash and cash equivalents                                                                                           |  | $               | 82,564    |                     | $
|Cash and cash equivalents  restricted                                                                              |  |                 | 4,896     |                     |  
|Short-term investments                                                                                              |  |                 | 190,373   |                     |  
|Trade accounts receivable, less allowance for doubtful accounts of   $359 and $996                                  |  |                 | 141,721   |                     |  
|Inventories                                                                                                         |  |                 | 307,233   |                     |  
|Deferred income taxes                                                                                               |  |                 | 3,787     |                     |  
|Other                                                                                                               |  |                 | 27,927    |                     |  
|                                                                                                                    |  |                 |           |                     |  
|Total current assets                                                                                                |  |                 | 758,501   |                     |  
|                                                                                                                    |  |                 |           |                     |  
|Property,   plant and equipment:                                                                                    |  |                 |           |                     |  
|Land and improvements                                                                                               |  |                 | 22,468    |                     |  
|Buildings                                                                                                           |  |                 | 69,736    |                     |  
|Machinery and equipment                                                                                             |  |                 | 839,322   |                     |  
|Construction in progress                                                                                            |  |                 | 65,716    |                     |  
|                                                                                                                    |  |                 |           |                     |  
|                                                                                                                    |  |                 | 997,242   |                     |  
|Accumulated depreciation                                                                                            |  |                 | (471,871  | )                   |  
|                                                                                                                    |  |                 |           |                     |  
|Net property, plant and equipment                                                                                   |  |                 | 525,371   |                     |  
|                                                                                                                    |  |                 |           |                     |  
|Goodwill                                                                                                            |  |                 | 4,458     |                     |  
|Intangibles,   net                                                                                                  |  |                 | 30,396    |                     |  
|Other assets                                                                                                        |  |                 | 1,180     |                     |  
|                                                                                                                    |  |                 |           |                     |  
|TOTAL ASSETS                                                                                                        |  | $               | 1,319,906 |                     | $
|                                                                                                                    |  |                 |           |                     |  
|LIABILITIES                                                                                                         |  |                 |           |                     |  
|Current   liabilities:                                                                                              |  |                 |           |                     |  
|Current portion of long-term debt                                                                                   |  | $               | 2,043     |                     | $
|Short-term debt                                                                                                     |  |                 | 305,893   |                     |  
|Accounts payable                                                                                                    |  |                 | 90,466    |                     |  
|Accrued expenses                                                                                                    |  |                 | 109,249   |                     |  
|                                                                                                                    |  |                 |           |                     |  
|Total current liabilities                                                                                           |  |                 | 507,651   |                     |  
|Long-term   debt                                                                                                    |  |                 | 6,525     |                     |  
|Deferred   employee benefits                                                                                        |  |                 | 73,327    |                     |  
|Environmental   liability                                                                                           |  |                 | 26,445    |                     |  
|Deferred   income taxes                                                                                             |  |                 | 56,109    |                     |  
|Other   long-term liabilities                                                                                       |  |                 | 225       |                     |  
|                                                                                                                    |  |                 |           |                     |  
|Total liabilities                                                                                                   |  |                 | 670,282   |                     |  
|                                                                                                                    |  |                 |           |                     |  
|Minority   interests                                                                                                |  |                 | 14,944    |                     |  
|                                                                                                                    |  |                 |           |                     |  
|Commitments   and contingencies (Note 10)                                                                           |  |                 |           |                     |  
|STOCKHOLDERS EQUITY                                                                                                |  |                 |           |                     |  
|Capital   stock:                                                                                                    |  |                 |           |                     |  
|Preferred stock, par value $.01 per share, 1,000 shares authorized;   none issued                                   |  |                 |          |                     |  
|Common stock, par value $.01 per share, 45,000 shares authorized;   35,811 and 35,714 shares issued and outstanding |  |                 | 358       |                     |  
|Additional   paid-in capital                                                                                        |  |                 | 367,687   |                     |  
|Retained   earnings                                                                                                 |  |                 | 277,598   |                     |  
|Accumulated   other comprehensive income (loss):                                                                    |  |                 |           |                     |  
|Cumulative foreign currency translation adjustment                                                                  |  |                 | 2,795     |                     |  
|Minimum pension liability                                                                                           |  |                 | (13,758   | )                   |  
|                                                                                                                    |  |                 |           |                     |  
|Total stockholders equity                                                                                          |  |                 | 634,680   |                     |  
|                                                                                                                    |  |                 |           |                     |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                          |  | $               | 1,319,906 |                     | $
|                                                                                                                    |  |                 |           |                     |  

The accompanying notes are an integral part of the Consolidated Financial Statements.

3



OREGON STEEL MILLS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) (Unaudited)

|                                                                           |  | Three Months Ended   June 30, |         | Six Months Ended   June 30, |  
|-------------------------------------------------------------------------- |  | ----------------------------- | ------- | --------------------------- | -
|                                                                           |  |                               |         |                             |  
|                                                                           |  | 2006                          |         | 2005                        |  
|                                                                           |  |                               |         |                             |  
|Sales:                                                                     |  |                               |         |                             |  
|Product sales                                                              |  | $                             | 336,368 |                             | $
|Freight                                                                    |  |                               | 13,221  |                             |  
|                                                                           |  |                               |         |                             |  
|                                                                           |  |                               | 349,589 |                             |  
|Costs and expenses:                                                        |  |                               |         |                             |  
|Cost of sales                                                              |  |                               | 259,587 |                             |  
|Selling, general and administrative expenses                               |  |                               | 19,641  |                             |  
|Gain on disposal of assets                                                 |  |                               | (205    | )                           |  
|                                                                           |  |                               |         |                             |  
|                                                                           |  |                               | 279,023 |                             |  
|                                                                           |  |                               |         |                             |  
|Operating income                                                           |  |                               | 70,566  |                             |  
|Other income (expense):                                                    |  |                               |         |                             |  
|Interest expense, net                                                      |  |                               | (6,771  | )                           |  
|Minority interests                                                         |  |                               | (2,078  | )                           |  
|Other income, net                                                          |  |                               | 3,339   |                             |  
|                                                                           |  |                               |         |                             |  
|Income before income taxes                                                 |  |                               | 65,056  |                             |  
|Income tax expense                                                         |  |                               | (21,120 | )                           |  
|                                                                           |  |                               |         |                             |  
|Net income                                                                 |  | $                             | 43,936  |                             | $
|                                                                           |  |                               |         |                             |  
|Basic   earnings per share                                                 |  | $                             | 1.23    |                             | $
|Diluted   earnings per share                                               |  | $                             | 1.22    |                             | $
|Weighted   average common shares and common share equivalents outstanding: |  |                               |         |                             |  
|Basic                                                                      |  |                               | 35,781  |                             |  
|Diluted                                                                    |  |                               | 36,031  |                             |  

The accompanying notes are an integral part of the Consolidated Financial Statements.

4



OREGON STEEL MILLS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited)

|                                                                                    |  | Six Months Ended   June 30, |         
|----------------------------------------------------------------------------------- |  | --------------------------- | --------
|                                                                                    |  |                             |         
|                                                                                    |  | 2006                        |         
|                                                                                    |  |                             |         
|Cash flows   from operating activities:                                             |  |                             |         
|Net income                                                                          |  | $                           | 77,287  
|Adjustments to reconcile net income to net cash provided by operating   activities: |  |                             |         
|Depreciation and amortization                                                       |  |                             | 21,738  
|Tax benefit on employee stock option plans                                          |  |                             | (1,505  
|Deferred income taxes                                                               |  |                             | 11,186  
|Gain on disposal of assets                                                          |  |                             | (372    
|Stock compensation expense                                                          |  |                             | 2,421   
|Minority interests                                                                  |  |                             | 3,075   
|Other, net                                                                          |  |                             | 6,490   
|Changes in current assets and liabilities:                                          |  |                             |         
|Trade accounts receivables                                                          |  |                             | (3,265  
|Inventories                                                                         |  |                             | (5,687  
|Operating liabilities                                                               |  |                             | 31,958  
|Other                                                                               |  |                             | (6,989  
|                                                                                    |  |                             |         
|Net cash provided by operating activities                                           |  |                             | 136,337 
|                                                                                    |  |                             |         
|Cash flows   from investing activities:                                             |  |                             |         
|Purchases of short-term investments                                                 |  |                             | (338,918
|Sales and maturities of short-term investments                                      |  |                             | 251,750 
|Additions to property, plant and equipment                                          |  |                             | (43,976 
|Proceeds from disposal of property, plant and equipment                             |  |                             | 1,125   
|Investment in Camrose Pipe Company                                                  |  |                             |        
|Other, net                                                                          |  |                             | 95      
|                                                                                    |  |                             |         
|Net cash used by investing activities                                               |  |                             | (129,924
|                                                                                    |  |                             |         
|Cash flows   from financing activities:                                             |  |                             |         
|Payments on bank and long-term debt                                                 |  |                             | (1,022  
|Decrease (increase) in restricted cash and cash equivalents                         |  |                             | 17,156  
|Proceeds from common stock issued under stock options                               |  |                             | 689     
|Excess tax benefit on employee stock option plans                                   |  |                             | 1,505   
|Net borrowings under Canadian bank revolving loan facility                          |  |                             | 4,838   
|Repurchase of 10% First Mortgage Notes due 2009                                     |  |                             |        
|                                                                                    |  |                             |         
|Net cash provided (used) by financing activities                                    |  |                             | 23,166  
|                                                                                    |  |                             |         
|Effects of   foreign currency exchange rate changes on cash                         |  |                             | 72      
|                                                                                    |  |                             |         
|Net increase   (decrease) in cash and cash equivalents                              |  |                             | 29,651  
|Cash and   cash equivalents at the beginning of period                              |  |                             | 52,913  
|                                                                                    |  |                             |         
|Cash and   cash equivalents at the end of period                                    |  | $                           | 82,564  
|                                                                                    |  |                             |         
|Supplemental   disclosures of cash flow information:                                |  |                             |         
|Cash paid for:                                                                      |  |                             |         
|Interest                                                                            |  | $                           | 15,521  
|Income taxes                                                                        |  | $                           | 31,154  

The accompanying notes are an integral part of the Consolidated Financial Statements.

5



OREGON STEEL MILLS, INC. Notes to Consolidated Financial Statements (Unaudited)

1.       Basis of Presentation

The Consolidated Financial Statements include all wholly owned and those majority owned subsidiaries over which Oregon Steel Mills, Inc. (Company) exerts management control.  Non-controlled subsidiaries and affiliates are accounted for using the equity method.  Material wholly owned and majority owned subsidiaries of the Company are wholly owned Camrose Pipe Corporation (CPC), which does business as Columbia Structural Tubing (CST) and which, through ownership in another corporation, holds a 100 percent interest in the Camrose Pipe Company (Camrose); a 60 percent interest in Oregon Feralloy Partners (OFP) and 90 percent owned New CF&I, Inc. (New CF&I), which owns a 95.2 percent interest in CF&I Steel, L.P. (CF&I).  The Company also directly owns an additional 4.3 percent interest in
CF&I.  In January 1998, CF&I assumed the trade name Rocky Mountain Steel Mills (RMSM).  New CF&I owns a 100 percent interest in the Colorado and Wyoming Railway Company.  All significant intercompany balances and transactions have been eliminated.

The unaudited Consolidated Financial Statements include estimates and other adjustments, consisting of normal recurring accruals and other charges.  Results for an interim period are not necessarily indicative of results for a full year.  Reference should be made to the Companys 2005 Annual Report on Form 10-K for additional disclosures including a summary of significant accounting policies.

Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 151, Inventory Costs, an Amendment of ARB No. 43, Chapter 4.  SFAS No. 151 amends Accounting Research Bulletin 43, Chapter 4, to clarify that the abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) be recognized as current period charges.  It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  The Company adopted this standard on January 1, 2006, and it did not have an impact on the Consolidated Financial Statements.

Effective January 1, 2006, the Company adopted SFAS No. 123R (revised 2004), Share-Based Payment, which requires all share-based payments to employees, including grants of employee stock options, be recognized in the income statement based on their fair values.  The Company incurs expense over the vesting period for all outstanding unvested stock options as well as future grants of stock options, if any.  In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (SAB 107) related to SFAS No. 123R.  The Company has applied the provisions of SAB 107 in its adoption of SFAS No. 123R.  See Note 2 to the Consolidated Financial Statements, Stock-Based Compensation for information regarding the Companys adoption of SFAS No. 123R.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces Accounting Principles Board (APB) Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements and requires the retrospective application to prior periods financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.  The retrospective application of the change would be limited to the direct effects of the change, and indirect effects would be recognized in the period of the accounting change.  The Company adopted this standard on January 1, 2006, and it did not have an impact on the Consolidated Financial Statements.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109(FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognize in its financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 will be effective as of the beginning of the Companys 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on the Consolidated Financial Statements.

6



Reclassifications

Certain reclassifications have been made in the prior period to conform to the current period presentation.  The Company has reclassified incentive compensation between cost of sales and selling, general and administrative expenses.

The reclassifications made to the prior period do not affect operating income as previously reported.

2.        Stock-Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123R which revises SFAS No. 123, Accounting for Stock-Based Compensation,supersedes APB Opinion No. 25, Accounting for Stock Issued to Employeesand amends SFAS No. 95, Statement of Cash Flows.SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.  The Company adopted SFAS No. 123R using the modified prospective method, which applies to all new awards and awards modified, repurchased or cancelled on or after January 1, 2006.  Under the modified prospective method, financial statements of prior interim periods and fiscal years are not restated.

Under SFAS No. 123R, compensation expense of $1.3 million and $2.5 million, respectively, was recorded to selling, general and administrative expense for the three and six months ended June 30, 2006, and a deferred tax benefit of $0.5 million and $1.0 million, respectively, was recognized for those same periods.  This resulted in a decrease of $0.8 million and $1.5 million, respectively, in net income for the three and six months ended June 30, 2006, and a decrease in basic and diluted earnings per share of $0.02 per share and $0.04 per share, respectively, for those same periods.

Prior to January 1, 2006, the Company accounted for its stock option plans using the intrinsic method in accordance with APB Opinion No. 25 and related interpretations.  No stock-based compensation expense was reflected in net income from the stock options plans, as all options granted under these plans had exercise prices equal to the market value of the underlying common stock at the date of grant.

The following table illustrates the effect on net income and earnings per share as if a fair value method described in SFAS No. 123, as amended, had been applied to the Companys stock-based compensation plans for the three and six months ended June 30, 2005:

|                                                                                                                                       |  | Three   Months Ended   June 30, 2005       |        | Six Months   Ended   June 30, 2005 |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------ | ------ | ---------------------------------- | -
|                                                                                                                                       |  |                                            |        |                                    |  
|                                                                                                                                       |  | (In   thousands, except per share amounts) |       
|Net income,   as reported                                                                                                              |  | $                                          | 28,425 |                                    | $
|Add:  total stock-based compensation expense   included in reported net income, net of related tax effects                             |  |                                            | 363    |                                    |  
|Deduct:   total stock-based compensation expense determined under fair value based   method for all awards, net of related tax effects |  |                                            | (436   | )                                  |  
|                                                                                                                                       |  |                                            |        |                                    |  
|Pro forma   net income                                                                                                                 |  | $                                          | 28,352 |                                    | $
|                                                                                                                                       |  |                                            |        |                                    |  
|Income per share:                                                                                                                      |  |                                            |        |                                    |  
|Basic  as reported                                                                                                                    |  | $                                          | 0.80   |                                    | $
|Basic  pro forma                                                                                                                      |  | $                                          | 0.80   |                                    | $
|Diluted  as reported                                                                                                                  |  | $                                          | 0.80   |                                    | $
|Diluted  pro forma                                                                                                                    |  | $                                          | 0.79   |                                    | $

Stock Options

The Company maintains a Non-Qualified Stock Option Plan (Plan), effective January 1, 2000.  As of June 30, 2006, the Company has granted options to purchase shares to certain senior management employees under the provisions of the Plan.  The exercise price is the fair value per share on the date of grant.  The term of each option is 10 years from grant date.  Depending upon the particular grant, options vest under one of two schedules: 1) one-half of the options granted vest immediately upon the grant, and the remaining one-half vest ratably over a three-year period or 2) options vest ratably over a three-year period starting with the first year anniversary after the grant date. At June 30, 2006, there were 77,000 shares reserved for future issuance under the Plan.

7



The Company also maintains a Non-Employee Director Stock Option Plan (Director Plan), effective April 26, 2002.  As of June 30, 2006, the Company has granted options to purchase 60,000 shares of its common stock to individuals who are non-employee directors under the provisions of the Director Plan at fair market value on the date of the grant.  Options vest over a three-year annual graded schedule from their grant date and expire no later than ten years from the date of the grant.  At June 30, 2006, there were 90,000 shares reserved for future issuance under the Director Plan.

Under SFAS No. 123R, the Company continues to use the Black-Scholes option-pricing model to estimate the fair value of its stock options.  The Company did not award options during the three and six months ended June 30, 2006 and did not award options during the corresponding periods in 2005.  Stock options were last awarded during 2004.  The assumptions used as inputs for the Black-Scholes option-pricing model for the 2004 awards, which are not fully vested at June 30, 2006, include:  (1) an annualized dividend yield of 0%, (2) expected volatility of 71.5%, based on historical stock prices for a twelve-month period, (3) a 4.1% risk-free rate of return, based on the U.S. Treasury bond rate with maturity period equaling the options expected term and (4) an expected option term of seven years, based on the average life and vesting period of options.

A summary of stock option activity as of June 30, 2006 is as follows:

|Summary Details for Stock Options |  | Shares |         | Weighted   Average   Exercise   Price |   | Weighted   AverageRemainingContractualTerm(Years) |  | Aggregate   Intrinsic Value   (In thousands) |     
|--------------------------------- |  | ------ | ------- | ------------------------------------- | - | ------------------------------------------------- |  | -------------------------------------------- | ----
|                                  |  |        |         |                                       |   |                                                   |  |                                              |     
|Outstanding   at January 1, 2006  |  |        | 258,415 |                                       | $ | 7.63                                              |  |                                              | 8.02
|Granted                           |  |        |        |                                       |   |                                                  |  |                                              |    
|Exercised                         |  |        | (93,837 | )                                     |   | 7.34                                              |  |                                              |    
|Terminated                        |  |        |        |                                       |   |                                                  |  |                                              |    
|Outstanding   at June 30, 2006    |  |        | 164,578 |                                       |   | 7.79                                              |  |                                              | 7.65
|Exercisable   at June 30, 2006    |  |        | 60,418  |                                       | $ | 7.36                                              |  |                                              | 7.32

The total intrinsic value of stock options exercised during the three and six months ended June 30, 2006 is $3.5 million and $4.0 million, respectively.  The total intrinsic value of stock options exercised was $0.3 million and $2.0 million, respectively, for the corresponding periods in 2005.  For the three and six months ended June 30, 2006, cash received from the exercise of stock options is $0.6 million and $0.7 million, respectively, and was $0.2 million and $0.6 million, respectively, for the three and six months ended June 30, 2005.  For the three and six months ended June 30, 2006, the tax benefit realized for the tax deductions from the exercise of options is $1.3 million and $1.5 million, respectively, and was $0.1 million and $0.7 million, respectively, for the corresponding periods in 2005.

The following summarizes the activity of the Companys stock options that had not vested as of June 30, 2006:

|Summary Details for Nonvested Stock Options |  | Shares |          | Weighted   Average   Grant Date   Fair Value |  
|------------------------------------------- |  | ------ | -------- | -------------------------------------------- | -
|                                            |  |        |          |                                              |  
|Nonvested at   January 1, 2006              |  |        | 213,330  |                                              | $
|Granted                                     |  |        |         |                                              |  
|Vested                                      |  |        | (109,170 | )                                            |  
|Terminated                                  |  |        |         |                                              |  
|Nonvested at   June 30, 2006                |  |        | 104,160  |                                              | $

As of June 30, 2006, there was $0.5 million of total unrecognized compensation cost related to nonvested stock options.  That cost is expected to be recognized over a weighted-average period of 0.83 years.  The total fair value of stock options vested during both the three and six-month periods ended June 30, 2006 is $5.5 million.  The total fair value of stock options vested was $2.0 million for both the three and six months ended June 30, 2005.

8



The Company fulfills its obligations resulting from the stock-based compensation plans by issuing shares from authorized but unissued shares.

Long-Term Incentive Plan

On April 28, 2005, the Company adopted the 2005 Long-Term Incentive Plan (LTIP).  The LTIP authorizes the Board of Directors to award various types of stock-based compensation arrangements including stock options, stock appreciation rights, restricted stock, performance awards, and other stock unit awards.  A total of 500,000 shares of the Companys $.01 par value common stock are issuable under the LTIP.  The awards are earned over a three-year period and are based on the Company achieving goals within two defined performance categories.  The performance categories used to determine how many awards ultimately will be earned are (1) the Companys total shareholder return (TSR) relative to the TSR of the selected industry peer group (Market Condition) and (2) the three-year average earnings before interest, taxes, depreciation and
amortization (EBITDA) per ton shipped (Performance Condition).  The minimum payout for the Market Condition is 0.25 times the program goal and is achieved if the Companys TSR is in the twenty-fifth percentile of its industry peer group, while the maximum payout is 2.0 times the program goal and is achieved if the Companys TSR is in the seventy-fifth percentile.  Under the Performance Condition for the 2005 grant, achieving an EBITDA per ton of $63 results in a minimum payout of 0.25 times the program goal, while achieving $94 results in a maximum payout of 2.0 times the program goal.  For the 2006 grant, achieving an EBITDA per ton of $79 results in a minimum payout of 0.25 times the program goal, while achieving $114 results in a maximum payout of 2.0 times the program goal.  One-half of the total awards are earned based on the Market Condition and one-half are earned based on the Performance Condition.  All awards will be paid 60% in cash
and 40% in Company common stock.

In 2005, approximately 208,000 performance awards were granted to compensate certain executives and management personnel over a three-year service period beginning January 1, 2005.  During the quarter ended June 30, 2006, approximately 167,000 performance awards were granted to compensate certain executives and management personnel over a three-year service period beginning January 1, 2006.  The forfeiture rate for the awards is estimated to be zero due to performance to date and expected performance through December 31, 2008.

The grant date fair value of the share-settled performance awards earned under the Performance Condition is equal to the stock closing price on the date of grant. The grant date fair value of the share-settled performance awards earned under the Market Condition is based on the stock closing price on the date of grant and is determined by an independent third party using a simulation analysis known as the Monte Carlo model using the following assumptions:



|Monte Carlo Model Assumptions |  | 2006   Awards |                | 2005   Awards | 
|----------------------------- |  | ------------- | -------------- | ------------- | 
|                              |  |               |                |               | 
|Dividend   yield              |  |               | 0              | %             | 
|Volatility                    |  |               | 67.7           | %             | 
|Risk-free   rate of return    |  |               | 4.9            | %             | 
|Expected   term (in years)    |  |               | 3              |               | 
|Grant date                    |  |               | April 27, 2006 |               | 

Volatility is based on annualized historical volatility for the last three years, the risk-free rate of return is based on the three-year Constant Maturity Treasury Rate and the expected term is equal to the vesting period.

The cash-settled performance awards will be paid at an amount equal to the closing price of the Companys stock on the last day of each three-year service period.  These cash-settled awards are remeasured to fair value at each future reporting date.  There is no exercise price associated with the performance awards.  Expense for all performance awards is classified as selling, general and administrative expenses in the Consolidated Statements of Income and is recorded on a straight-line basis from the grant date through the ending service date.

Also, in conjunction with the LTIP, approximately 4,000 and 13,000 shares, respectively, of restricted stock (Restricted Stock) were awarded on April 27, 2006 and April 28, 2005.  The Restricted Stock was awarded to non-employee directors with the shares vesting annually in equal parts over a service period of three years.  The grant date fair value of the Restricted Stock is equal to the grant date closing stock price, which was $48.18 per share for the 2006 awards and $15.08 per share for the 2005 awards.  This expense is classified as selling, general and administrative expenses in the Companys Consolidated Statement of Income and is recorded on a straight-line basis from the grant date through the ending service date.  As of June 30, 2006, only one participant has forfeited Restricted Stock shares due to retirement.  The Company considers this an uncommon
event and estimates the forfeiture rate to be zero due to performance to date and expected performance through December 31, 2008.

9



The Companys
LTIP awards are considered nonvested share awards as defined under SFAS No.
123R.  A summary of nonvested activity as of June 30, 2006 is as follows:

|Summary Details for LTIP       |  | Shares |         | Weighted   AverageGrant DateFair Value |  
|------------------------------ |  | ------ | ------- | -------------------------------------- | -
|                               |  |        |         |                                        |  
|Nonvested at   January 1, 2006 |  |        | 208,206 |                                        | $
|Granted                        |  |        | 167,282 |                                        |  
|Vested                         |  |        |        |                                        |  
|Terminated                     |  |        |        |                                        |  
|Nonvested at   June 30, 2006   |  |        | 375,488 |                                        | $

The Companys
Restricted Stock awards are also considered nonvested share awards.  A
summary of nonvested activity as of June 30, 2006 is as follows:

|Summary Details for Restricted Stock |  | Shares |        | WeightedAverageGrant DateFair Value |  
|------------------------------------ |  | ------ | ------ | ----------------------------------- | -
|                                     |  |        |        |                                     |  
|Nonvested at   January 1, 2006       |  |        | 12,976 |                                     | $
|Granted                              |  |        | 3,605  |                                     |  
|Vested                               |  |        | (3,787 | )                                   |  
|Terminated                           |  |        | (1,622 | )                                   |  
|Nonvested at   June 30, 2006         |  |        | 11,172 |                                     | $

As of June 30, 2006, there was $9.0 million of total unrecognized compensation cost related to nonvested LTIP and Restricted Stock.  That cost is expected to be recognized over a weighted-average period of 2.51 years.  No LTIP awards vested during the three and six-month periods ended June 30, 2006 and 2005.  The total fair value of Restricted Stock vested is $0.2 million for both the three and six months ended June 30, 2006.  No Restricted Stock vested during the three and six-month periods ended June 30, 2005.

3.       Inventories

Inventories are stated at the lower of manufacturing cost or market value with manufacturing cost determined under the average cost method.  The components of inventories are as follows:

|                                |  | June 30,   2006 |         | December 31,   2005 |  
|------------------------------- |  | --------------- | ------- | ------------------- | -
|                                |  |                 |         |                     |  
|                                |  | (In thousands)  |        
|Raw   materials                 |  | $               | 20,247  |                     | $
|Semi-finished   product         |  |                 | 157,423 |                     |  
|Finished   product              |  |                 | 96,064  |                     |  
|Stores and   operating supplies |  |                 | 33,499  |                     |  
|                                |  |                 |         |                     |  
|Total inventories               |  | $               | 307,233 |                     | $
|                                |  |                 |         |                     |  

Semi-finished product includes Company manufactured and purchased steel plate and coil that will be converted into finished welded pipe or structural tubing product by the Company.

10



4.       Comprehensive Income

|                                          |  | Three Months Ended   June 30, |        | Six Months Ended    June 30, |  
|----------------------------------------- |  | ----------------------------- | ------ | ---------------------------- | -
|                                          |  |                               |        |                              |  
|                                          |  | 2006                          |        | 2005                         |  
|                                          |  |                               |        |                              |  
|                                          |  | (In thousands)                |        | (In thousands)               |  
|Net income                                |  | $                             | 43,936 |                              | $
|Foreign   currency translation adjustment |  |                               | 2,308  |                              |  
|                                          |  |                               |        |                              |  
|Comprehensive   income                    |  | $                             | 46,244 |                              | $
|                                          |  |                               |        |                              |  

5.       Debt, Financing Arrangements and Liquidity

Debt balances are as follows:

|                                                                      |  | June 30,   2006 |          | December 31,   2005 |  
|--------------------------------------------------------------------- |  | --------------- | -------- | ------------------- | -
|                                                                      |  |                 |          |                     |  
|                                                                      |  | (In thousands)  |         
|10% First   Mortgage Notes due 2009                                   |  | $               | 303,000  |                     | $
|Less:   Unamortized discount on 10% Notes                             |  |                 | (1,945   | )                   |  
|OFP Term   Loan                                                       |  |                 | 5,077    |                     |  
|Canadian Bank   Revolving Facility                                    |  |                 | 4,838    |                     |  
|CPC Mortgage   Loan                                                   |  |                 | 3,491    |                     |  
|                                                                      |  |                 |          |                     |  
|Total debt outstanding                                                |  | $               | 314,461  |                     | $
|Less:   Current portion of 10% Notes and current unamortized discount |  |                 | (301,055 | )                   |  
|Current portion of Canadian Bank Revolving Facility                   |  |                 | (4,838   | )                   |  
|Current portion of OFP Term Loan                                      |  |                 | (2,000   | )                   |  
|Current portion of CPC Mortgage Loan                                  |  |                 | (43      | )                   |  
|                                                                      |  |                 |          |                     |  
|Non-current maturity of long-term debt                                |  | $               | 6,525    |                     | $
|                                                                      |  |                 |          |                     |  

On July 15, 2002, the Company issued $305.0 million of 10% First Mortgage Notes due 2009 (10% Notes) at a discount of 98.772% and an interest rate of 10.0%.  Interest is payable on January 15 and July 15 of each year.  The 10% Notes are secured by a lien on substantially all of the property, plant and equipment, and certain other assets of the Company (exclusive of CPC and OFP), excluding accounts receivable, inventory, and certain other assets.  The Indenture under which the 10% Notes were issued contains restrictions (except for CPC and OFP) on new indebtedness and various types of disbursements, including dividends, based on the cumulative amount of the Companys net income, as defined.  New CF&I and CF&I (collectively, the Guarantors) guarantee the obligations of the 10% Notes, and those guarantees are secured by a lien on substantially all of
the property, plant and equipment and certain other assets of the Guarantors, excluding accounts receivable, inventory, and certain other assets.  At any time on or after July 15, 2006, the 10% Notes are redeemable at the option of the Company.  On July 17, 2006, the Company completed the redemption of all of the outstanding 10% Notes as of July 15, 2006.  The completion of the redemption terminates substantially all of the Companys and the Guarantors obligations under the indenture and related documents, including the restrictions and liens noted herein.  See Note 12 to the Consolidated Financial Statements, Subsequent Events.

On June 6, 2006, the Company, New CF&I, CF&I, and Colorado and Wyoming Railway Company entered into a five-year, $175.0 million revolving credit facility (Credit Facility), with a $35 million sublimit letter of credit facility.  At June 30, 2006, $9.6 million was restricted under outstanding letters of credit and $165.4 million was available for use.  Amounts under the Credit Facility bear interest based on either (1) the prime rate plus a margin ranging from zero to 0.25% or (2) the LIBOR rate plus a margin ranging from 0.875% to 1.125%.  As of June 30, 2006, there was no outstanding balance due under the Credit Facility.  Annual commitment fees range from 0.125% to 0.25% of the unused portion of the Credit Facility.  The margins and unused commitment fees will be subject to adjustment within the ranges discussed above based on average borrowing
availability.  The Credit Facility contains various restrictive covenants, including a financial covenant for a minimum fixed charge coverage ratio and a restriction on the payment of dividends.  The Credit Facility limits the payment of dividends (and other specified restricted payments) to an aggregate total of $50 million plus 25% cumulative net income and 100% of stock issuance proceeds and  minus 100% of cumulative net loss.  The Credit Facility is secured by a lien on inventory and accounts receivable.  See Exhibit 10.1 to this Form 10-Q.

11



As of June 30, 2006, the Company had $4.9 million of restricted cash as collateral supporting $4.7 million of letters of credit associated with a letter of credit facility with U.S. Bank National Association.  This facility was terminated as of July 14, 2006 in connection with the new Credit Facility.

On March 29, 2000, OFP entered into a seven-year $14.0 million loan agreement for the purchase of certain processing assets and for the construction of a processing facility.  Amounts outstanding under the loan agreement bear interest based on the LIBOR rate plus a margin ranging from 1.25% to 3.00%, and as of June 30, 2006, there was $5.1 million of principal outstanding of which $2.0 million was classified as current.  The loan is secured by all the assets of OFP. The loan agreement contains various restrictive covenants including a minimum tangible net worth amount, a minimum debt service coverage ratio, and a specified amount of insurance coverage.  Principal payments required on the loan are $0.5 million per quarter but can be accelerated for excess cash flows, as defined.  Excess cash flows generated in 2004 resulted in $0.4 million of additional principal payments paid in
2005.  No accelerated payments are expected during 2006.  The creditors of OFP have no recourse to the general credit of the Company.

On September 17, 2004, CPC entered into a ten-year loan agreement related to an undivided 50% interest as tenants in common in a warehouse under a co-tenancy agreement.  CPCs share of the debt is $3.5 million.  Amounts outstanding under the loan agreement bear interest at a rate of 6.57%.  As of June 30, 2006, CPCs share of the principal outstanding was $3.5 million of which $43,000 was classified as current.  The loan is secured by the warehouse and contains various restrictive covenants on CPC including minimum income and cash flow requirements, a minimum debt service coverage amount and limitations on incurring new or additional debt obligations other than as allowed by the loan agreement.

Camrose maintains a CAD $15.0 million revolving credit facility with a Canadian bank, the proceeds of which may be used for working capital and general business purposes of Camrose.  Amounts under the facility bear interest based on the Canadian prime rate.  The facility is collateralized by substantially all of the assets of Camrose, and borrowings under this facility are limited to an amount equal to the sum of the product of specified advance rates and Camroses eligible trade accounts receivable and inventories. The credit facility contains various restrictive covenants including a minimum tangible net worth amount. This facility expires in September 2006.  The average interest rate for the facility was 5.78% and 5.52%, respectively, for the three and six months ended June 30, 2006.  Camrose pays annual commitment fees up to 0.25% of the unused portion of the credit
line.  At June 30, 2006, there was $4.8 million due under the credit facility.

As of June 30, 2006, principal payments on debt are due as follows (in thousands):

|2006                  |  | $ | 308,859 | 
|--------------------- |  | - | ------- | 
|2007                  |  |   | 4,122   | 
|2008                  |  |   | 47      | 
|2009                  |  |   | 51      | 
|2010                  |  |   | 54      | 
|2011                  |  |   | 58      | 
|2012 and   thereafter |  |   | 3,215   | 
|                      |  |   |         | 
|                      |  | $ | 316,406 | 
|                      |  |   |         | 

6.       Income Taxes

The effective income tax expense rates are 32.5% and 34.2%, respectively, for the three and six months ended June 30, 2006, as compared to tax expense rates of 38.7% and 37.4% in the corresponding periods in 2005.  The effective income tax rates for the three and six months ended June 30, 2006 varied from the combined state and federal statutory rates principally because the Company reversed the remaining valuation allowance, established in 2003, for certain state net operating losses and state tax credits.  The combined state and federal statutory rate was also reduced in the three and six months ended June 30, 2006 by tax benefits tied to export sales and domestic manufacturing.  The effective income tax rates for the three and six months ended June 30, 2005 varied from the combined state and federal statutory rates principally because the Company recorded tax benefits associated with
export sales.

SFAS No. 109, Accounting for Income Taxes, requires that tax benefits for federal and state net operating loss carry-forwards, state tax credits, and alternative minimum tax credits each be recorded as an asset to the extent that management assesses the utilization of such assets to be more likely than not; otherwise, a valuation allowance is required to be recorded.  Based on this guidance, the Company reduced the valuation allowance by $4.0 million for both

12



the three and six months ended June 30, 2006, because improved earnings reduced the uncertainty surrounding valuation allowances created in 2003.  For the three and six months ended June 30, 2005, the Company increased the valuation allowance by $0.5 million and $0.3 million, respectively, due to the uncertainty regarding the realization of deferred tax assets.  As of June 30, 2006, the Company does not have a valuation allowance recorded against its deferred tax assets.

The Company will continue to evaluate the need for valuation allowances in the future.  Changes in estimated future taxable income and other underlying factors may lead to adjustments to the valuation allowances.

7.       Net Income Per Share

The Company calculates earnings per share in accordance with SFAS No. 128, Earnings per Share.  SFAS No. 128 requires the presentation of basic earnings per share and diluted earnings per share.  Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average number of shares of common stock outstanding.  For purposes of calculating diluted earnings per share, the denominator includes both the weighted average number of shares of common stock outstanding and the number of dilutive common stock equivalents such as stock options, performance shares and restricted stock awards, as determined using the treasury stock method.

Basic and diluted net income per share is as follows:

|                                                                  |  | Three   Months Ended   June 30,          |        | Six Months   Ended   June 30, |  
|----------------------------------------------------------------- |  | ---------------------------------------- | ------ | ----------------------------- | -
|                                                                  |  |                                          |        |                               |  
|                                                                  |  | 2006                                     |        | 2005                          |  
|                                                                  |  |                                          |        |                               |  
|                                                                  |  | (In thousands, except per share amounts) |       
|Basic   weighted average shares outstanding                       |  |                                          | 35,781 |                               |  
|Dilutive   effect of stock-based compensation awards              |  |                                          | 250    |                               |  
|                                                                  |  |                                          |        |                               |  
|Weighted   average number of shares outstanding assuming dilution |  |                                          | 36,031 |                               |  
|                                                                  |  |                                          |        |                               |  
|Net income                                                        |  | $                                        | 43,936 |                               | $
|                                                                  |  |                                          |        |                               |  
|Basic income   per share:                                         |  | $                                        | 1.23   |                               | $
|Diluted   income per share:                                       |  | $                                        | 1.22   |                               | $

8.       Employee Benefit Plans

The Company
has noncontributory defined benefit pension plans, certain postretirement health
care and life insurance benefit plans and supplemental retirement plans that
cover nearly all of its eligible domestic employees.Certain
employees are no longer eligible to participate in the defined benefit plans if
they were hired after September 1, 2005.  Those employees are instead
enrolled in an employer funded defined contribution plan equal to three percent
of annual wages.  The new defined contribution plan is funded annually, and
participants benefits vest after five years of service.  The Company
also offers qualified Thrift 401(k) plans to all of its eligible domestic
employees.  The Company also has noncontributory defined benefit pension
plans and a postretirement medical plan covering all of its eligible Camrose
employees.

13



Components of net periodic benefit cost related to the defined benefit pension plans, including supplemental employee retirement plans, are as follows:

|                                                  |  | Defined Benefit Pension Plans |       
|------------------------------------------------- |  | ----------------------------- | ------
|                                                  |  |                               |       
|                                                  |  | Three Months Ended   June 30, |       
|                                                  |  |                               |       
|                                                  |  | 2006                          |       
|                                                  |  |                               |       
|                                                  |  | (In thousands)                |       
|Service cost                                      |  | $                             | 1,311 
|Interest   cost                                   |  |                               | 2,481 
|Expected   return on plan assets                  |  |                               | (2,535
|Amortization   of unrecognized net loss           |  |                               | 324   
|Amortization   of unrecognized prior service cost |  |                               | 620   
|                                                  |  |                               |       
|Total net periodic benefit cost                   |  | $                             | 2,201 
|                                                  |  |                               |       

Components of net periodic benefit cost related to the postretirement health care and life insurance benefit plans are as follows:

|                                                    |  | Other Benefit Plans           |      
|--------------------------------------------------- |  | ----------------------------- | -----
|                                                    |  |                               |      
|                                                    |  | Three Months Ended   June 30, |      
|                                                    |  |                               |      
|                                                    |  | 2006                          |      
|                                                    |  |                               |      
|                                                    |  | (In thousands)                |      
|Service cost                                        |  | $                             | 241  
|Interest   cost                                     |  |                               | 535  
|Amortization   of unrecognized net loss             |  |                               | 69   
|Amortization   of unrecognized net transition asset |  |                               | 49   
|Amortization   of unrecognized prior service cost   |  |                               | 185  
|                                                    |  |                               |      
|Total net periodic benefit cost                     |  | $                             | 1,079
|                                                    |  |                               |      

The Company made contributions of $8.4 million and $12.8 million, respectively, to its pension plans for the three and six months ended June 30, 2006.  Contributions of $3.0 million and $7.1 million were made during both the three and six months ended June 30, 2005, respectively.  The Company expects to make additional contributions of $8.8 million in 2006.

9.       Concentrations

The Companys Portland, Oregon steel mill (Portland Mill) purchases steel slab from a number of foreign producers.  Any interruption or reduction in the supply of steel slab may make it difficult or impossible to satisfy customers delivery requirements, which could have a material adverse effect on the Companys results of operations.  In 2005, the Company had four primary suppliers of steel slab.  These companies will continue to be major suppliers of steel slab to the company in 2006.  The Company does not maintain long-term purchasing contracts with any of its slab suppliers.  Most of the steel slabs the Company purchases are delivered by ship.  Any disruption to port operations, including those caused by a labor dispute or terrorism, could materially impact the supply or the cost of steel slabs, which could have a material adverse effect on the



Companys production, sales levels and profitability.

10.     Contingencies

Environmental

All material environmental remediation liabilities for non-capital expenditures, which are probable and estimable, are recorded in the Consolidated Financial Statements based on current technologies and current environmental standards at the time of evaluation.  Adjustments are made when additional information is available that suggests different remediation methods or periods may be required and affect the total cost.  The best estimate of the probable cost within a range is recorded; however, if there is no best estimate, the low end of the range is recorded and the range is disclosed.

14



Oregon Steel Division

In May 2000, the
Company entered into a Voluntary Clean-up Agreement with the Oregon Department
of Environmental Quality (DEQ) committing the Company to conduct an
investigation of whether, and to what extent, past or present operations at the
Companys Portland Mill may have affected sediment quality in the
Willamette River.  Based on preliminary findings, the Company is conducting
a full remedial investigation (RI), including areas of investigation
throughout the Portland Mill, and has committed to implement source control if
required.  The Companys best estimate for costs of the RI study is
approximately $0.3 million over the next two years.  Accordingly, the
Company has accrued a liability of $0.3 million as of June 30, 2006. The Company
has also recorded a $0.3 million receivable for insurance proceeds that are
expected to cover these costs because the Companys insurer is defending
this matter, subject to a standard reservation of rights, and is paying these
costs as incurred.  Based upon the results of the RI, the DEQ may require
the Company to incur costs associated with additional phases of investigation,
remedial action or implementation of source controls, which could have a
material adverse effect on the Companys results of operations because it
may cause costs to exceed available insurance or because insurance may not cover
those particular costs.  The Company is unable at this time to determine if
the likelihood of any further unfavorable outcome or loss is either probable or
remote, or to estimate a dollar amount range for a potential loss.  It is
probable that the DEQ will require the Company to perform some stabilization of
the riverbank and other limited source control on the Portland Mill property;
however, the Company and the DEQ have not come to terms as to the entire scope
of work at this time.  The Companys estimate of these costs related
to riverbank stabilization and limited source control is expected to be capital
in nature and not material to the Companys Consolidated Financial
Statements.

In a related matter,
in December 2000, the Company received a general notice letter from the U.S.
Environmental Protection Agency (EPA), identifying it, along with 68
other entities, as a potentially responsible party (PRP) under the
Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) with respect to contamination in a portion of the
Willamette River that has been designated as the Portland Harbor Superfund
Site.  The letter advised the Company that it may be liable for costs
of RI and remedial action at the Portland Harbor Superfund Site (which
liability, under CERCLA, is joint and several with other PRPs) as well as for
natural resource damages that may be associated with any releases of
contaminants (principally at the Portland Mill site) for which the Company has
liability.  At this time, nine private and public entities have signed an
Administrative Order on Consent (AOC) to perform a remedial
investigation/feasibility study (RI/FS) of the Portland Harbor
Superfund Site under EPA oversight.  The RI/FS is expected to be completed
in 2009.  Although the Company did not sign the original AOC, the Company
is a member of the Lower Willamette Group, which is funding that investigation,
and the Company signed a Coordination and Cooperation Agreement with the EPA
that binds the Company to all terms of the AOC.  As a best estimate of the
Companys share of the remaining RI/FS costs, which are expected to be
incurred in the next three and a half years, the Company has accrued a liability
of $1.0 million as of June 30, 2006.  The Company has also recorded a $1.0
million receivable for insurance proceeds that are expected to cover these RI/FS
costs because the Companys insurer is defending this matter, subject to a
standard reservation of rights, and is paying these RI/FS costs as
incurred.  At the conclusion of the RI/FS, the EPA will issue a Record
of Decision setting forth any remedial action that it requires to be implemented
by identified PRPs.  The Company also intends to continue to work with
interested parties to assess natural resources damages at the Portland Harbor
Superfund Site.  The Company estimates its financial commitment in
connection with future natural resource damage assessment to be approximately
$0.7 million.  Based on this estimate, the Company has accrued a liability
of $0.7 million as of June 30, 2006.  The Company has also recorded a $0.7
million receivable for insurance proceeds that are expected to cover these costs
because the Companys insurer is defending this matter, subject to a
standard reservation of rights, and is paying these costs as incurred.  In
connection with these matters, the Company could incur additional costs
associated with investigation, remedial action, natural resource damage and
natural resource restoration, the costs of which may exceed available insurance
or which may not be covered by insurance, which therefore could have a material
adverse effect on the Companys results of operations.  The Company is
unable to estimate a dollar amount range for any related remedial action that
may be implemented by the EPA, or natural resource damages and restoration that
may be sought by federal, state and tribal natural resource trustees.

RMSM Division

In October 1995,
CF&I and the Colorado Department of Public Health and Environment
(CDPHE) finalized a postclosure permit for hazardous waste units at
CF&Is Pueblo Mill.  As part of the postclosure permit
requirements, CF&I must conduct a corrective action program for the 82 solid
waste management units (SWMU) at the facility and continue to
address projects on a prioritized corrective action schedule over 30
years.  The State of Colorado mandated that the schedule for corrective
action could be accelerated if new data indicated a greater threat existed to
the environment than was currently believed to exist.  At June 30, 2006,
there were 59 SWMUs that still required remediation.  At June 30,
2006, the total accrued liability for all remaining SWMUs was $25.5
million, of which $23.5 million was classified as non-current on the
Companys Consolidated Balance Sheet.

15



The CDPHE inspected
the Pueblo Mill in 1999 for possible environmental violations, and in the fourth
quarter of 1999 issued a Compliance Advisory indicating that air quality
regulations had been violated, which was followed by the filing of a judicial
enforcement action (Action) in the second quarter of 2000.  In
March 2002, CF&I and CDPHE reached a settlement of the Action, which was
approved by the court (the State Consent Decree).  CF&I has
paid all penalties associated with that settlement, and was also required to
convert to the new single New Source Performance Standards Subpart AAa compliant
furnace.  The new furnace installation was completed in the fourth quarter
of 2005.

Beginning in May
2005, the CDPHE notified CF&I of subsequent violations of the State Consent
Decree, which included violations of opacity standards, violations of minimum
intervals between tapping operations at CF&Is furnaces, and failure to
perform yearly relative accuracy tests for the Quality Assurance/Quality Control
ultrasonic flow monitors.  In October 2005, a settlement was reached
between CF&I and the CDPHE and included penalties for all violations with
the State Consent Decree through the settlement date.  The settlement
provided for CF&I to pay $0.2 million in penalties, fund approximately $0.8
million in supplemental environmental projects (SEPs), pay
approximately $0.1 million in consulting services and make certain capital
improvements expected to cost $0.7 million.  At June 30, 2006, CF&I had
paid $0.2 million, $0.3 million and $0.1 million of the penalties, SEPs
and consulting services, respectively.  During June 2006, the CDPHE agreed
that $0.1 million of the SEPs would be spent as capital improvements at
CF&I.  The accrual and expense related to that portion of the
SEPs was reversed during the three months ended June 30, 2006.  Other
than the capital improvements, CF&Is accrued expenses include all
unpaid settlement amounts at June 30, 2006.

Purchase Commitments

On April 3, 2006,
the Company terminated an agreement to purchase a base amount of oxygen produced
from a facility located at the Companys Portland Mill.  The oxygen
facility is owned and operated by an independent third party.  In
accordance with the agreement, the Company incurred a contract termination cost
of $3.6 million, which was paid during the second quarter of 2006 and is
included in cost of sales for both the three and six months ended June 30,
2006.  Prior to terminating the agreement, the Company paid a monthly base
charge of approximately $145,000 per month.

A similar contract
to purchase oxygen for the Pueblo Mill was entered into on February 2, 1993 by
CF&I, and expires in February 2013.  The agreement specifies that
CF&I will pay a base monthly charge that is adjusted annually based upon a
percentage change in the Producer Price Index.  The monthly base charge at
June 30, 2006 was $0.1 million.

The Company is
obligated to supply a quantity of steel coil for processing through the OFP
temper mill and a cut-to-length facility of not less than 15,000 tons per
month.  If at the end of each calendar quarter, the twelve month rolling
average of steel coil actually supplied for processing is less than 15,000 tons
and OFP operates at less than breakeven (as defined in the Joint Venture
Agreement), then the Company is required to make a payment to OFP equal to the
shortfall.  At the end of each calendar year, the actual results are
compared to the shortfall payment made by the Company to OFP. If the twelve
month calculation results in a shortfall payment that is less than the amount
paid by the Company, then the Company is owed a refund for the difference. The
Companys Consolidated Financial Statements include a net charge of $0.1
million and $0.2 million, respectively, related to the shortfall for the three
and six months ended June 30, 2005, respectively.  There was no shortfall
for the three and six months ended June 30, 2006.

In March 2005, the
Company entered into an agreement to purchase the manufacturing equipment for
the Companys new spiral weld large diameter line pipe mill, which will be
located at the Companys Portland Mill.  The agreement, as amended,
specifies that the Company will pay approximately $13.8 million for the delivery
and installation of the machinery, which will be paid in installments as certain
performance milestones are reached by the vendor.  At June 30, 2006, the
Company had paid $12.1 million of this commitment.  The construction of the
spiral weld mill is expected to be completed in August of 2006.

Other Agreements

On January 15, 2004,
the Company announced a tentative agreement to settle the labor dispute between
the United Steelworkers of America and CF&I that had been ongoing since
October 1997, and on September 10, 2004 the settlement was finalized and became
effective (the Settlement).  Beginning on the effective date of
the Settlement, the Settlement included a ten year profit participation
obligation (Back Pay Profit Sharing Obligation or BPPSO)
consisting of 25% of CF&Is quarterly profit, as defined, for years
2004 and 2007 through 2013, and 30% for years 2005 and 2006, not to exceed $3.0
million per year for 2004 through 2008 and $4.0 million per year for 2009
through 2013; these cap amounts are subject to a carryforward/carryback
provision described in the Settlement documents.  The Company recorded
charges of $0.0 million and $3.2 million, respectively, for the three and
six months ended June 30, 2006 and charges of $0.0 million and $3.4 million, respectively, for  the three
and six months ended June 30, 2005 for the BPPSO and related payroll taxes,
which were classified as selling, general and administrative expenses.

16



During the first quarter ended March 31, 2006, the Company entered into a contract with an independent third party for the production of pipe.  Per the contract, the Company must produce approximately 700,000 tons of pipe, with delivery in accordance with dates stipulated in the contract.  Shipments are expected to begin during the fourth quarter of 2006.  If volumes are not met, the Company may be charged damages up to $1.0 million per day, with a total limit on damages of $20.0 million.  Production on this contract is expected to start in the third quarter of 2006.

During the first quarter ended March 31, 2006, CF&I entered into an agreement to produce seamless pipe for an independent third party.  Per the agreement, CF&I will produce a minimum of 4,000 tons per month, but not more than 15,000 tons per month.  The agreement expires December 31, 2007, unless both parties agree to renew the agreement for successive one-year terms thereafter, and starting on January 1, 2007, either party may terminate the contract upon ninety days notice.  As of June 30, 2006, the Company had met the minimum production requirements.

Contracts With Key Employees

The Company has agreements with certain officers, which provide for severance compensation in the event that their employment with the Company is terminated subsequent to a defined change in control of the Company.

Other Contingencies

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

The CPC loan of $3.5 million as of June 30, 2006 was entered into for an undivided 50% interest as tenants in common in a warehouse under a co-tenancy agreement.  The Company is not a guarantor for CPCs co-tenants share; however, CPC is a co-borrower and is jointly and severally liable in the event of default by the other co-tenant or its respective guarantors.  The co-tenants share of the loan was $3.5 million as of June 30, 2006.  Two owners of the co-tenant are personal guarantors of the entire loan.  The Company believes that the co-tenant has sufficient liquidity to pay its share of the loan.

11.     Investment in Camrose Pipe Mill and Goodwill

On March 30, 2005, the Company, through a wholly owned subsidiary, purchased the 40 percent partnership interest in Camrose previously owned by a subsidiary of Stelco, Inc., and the Company now indirectly owns 100 percent of Camrose.  The Company has recorded the acquisition in accordance with SFAS No. 141, Business Combinations.  The purchase price, including acquisition related costs, was $18.6 million.  There are no contingent payments or any other material future obligations related to the acquisition.   The Company completed the purchase price allocation and recorded goodwill totaling $3.9 million in 2005.  The allocation included increases to the fair value of inventory and property, plant and equipment.  The Company also recorded the fair value of customer backlog specific to significant sales orders outstanding at the date of acquisition. 



In addition, the Company increased deferred employee liabilities for Camroses defined benefit pension and postretirement health care plans.  All minority interest associated with Camrose has been eliminated from the Companys Consolidated Balance Sheet.

12.     Subsequent Events

On July 17,
2006, the Company completed the redemption of all of its outstanding 10% Notes
as of July 15, 2006, using approximately $270.5 million of available cash and
short term investments and approximately $65.0 million in borrowings under the
new Credit Facility.  The redemption amount was $335.5 million, which
includes the principal, accrued and unpaid interest and the Notes call premium.
In connection with the redemption of the Notes, the company will record a charge
of $21.1 million in the third quarter of 2006. The charge consists of
approximately $15.1 million for the Notes call premium and $6 million for
deferred financing costs and other costs related to the original issuance of
the Notes.  The completion of the redemption terminates substantially all
of the obligations under the indenture and related documents, including the
restrictions and liens.

17



NEW CF&I, INC.CONSOLIDATED BALANCE SHEETS (In thousands except per share and share amounts)

|                                                                                                     |  | June 30,   2006 |          | December 31,   2005 |  
|---------------------------------------------------------------------------------------------------- |  | --------------- | -------- | ------------------- | -
|                                                                                                     |  |                 |          |                     |  
|                                                                                                     |  | (Unaudited)     |          |                     |  
|ASSETS                                                                                               |  |                 |          |                     |  
|Current   assets:                                                                                    |  |                 |          |                     |  
|Cash and cash equivalents                                                                            |  | $               | 1        |                     | $
|Trade accounts receivable, less allowance for doubtful accounts of   $226 and $472                   |  |                 | 75,026   |                     |  
|Inventories                                                                                          |  |                 | 52,465   |                     |  
|Deferred income taxes                                                                                |  |                 | 2,601    |                     |  
|Other                                                                                                |  |                 | 3,666    |                     |  
|                                                                                                     |  |                 |          |                     |  
|Total current assets                                                                                 |  |                 | 133,759  |                     |  
|                                                                                                     |  |                 |          |                     |  
|Property,   plant and equipment:                                                                     |  |                 |          |                     |  
|Land and improvements                                                                                |  |                 | 3,301    |                     |  
|Buildings                                                                                            |  |                 | 20,006   |                     |  
|Machinery and equipment                                                                              |  |                 | 304,897  |                     |  
|Construction in progress                                                                             |  |                 | 5,363    |                     |  
|                                                                                                     |  |                 |          |                     |  
|                                                                                                     |  |                 | 333,567  |                     |  
|Accumulated depreciation                                                                             |  |                 | (168,460 | )                   |  
|                                                                                                     |  |                 |          |                     |  
|Net property, plant and equipment                                                                    |  |                 | 165,107  |                     |  
|                                                                                                     |  |                 |          |                     |  
|Intangibles,   net                                                                                   |  |                 | 29,851   |                     |  
|Non-current   deferred income taxes                                                                  |  |                 | 36,447   |                     |  
|Minority   interest                                                                                  |  |                 | 4,226    |                     |  
|                                                                                                     |  |                 |          |                     |  
|TOTAL ASSETS                                                                                         |  | $               | 369,390  |                     | $
|                                                                                                     |  |                 |          |                     |  
|LIABILITIES                                                                                          |  |                 |          |                     |  
|Current   liabilities:                                                                               |  |                 |          |                     |  
|Accounts payable                                                                                     |  | $               | 26,928   |                     | $
|Accrued expenses                                                                                     |  |                 | 34,874   |                     |  
|                                                                                                     |  |                 |          |                     |  
|Total current liabilities                                                                            |  |                 | 61,802   |                     |  
|Long-term   debt - Oregon Steel Mills, Inc.                                                          |  |                 | 254,670  |                     |  
|Environmental   liability                                                                            |  |                 | 25,079   |                     |  
|Deferred   employee benefits                                                                         |  |                 | 38,323   |                     |  
|                                                                                                     |  |                 |          |                     |  
|Total liabilities                                                                                    |  |                 | 379,874  |                     |  
|                                                                                                     |  |                 |          |                     |  
|Redeemable   common stock, 20 shares issued and outstanding                                          |  |                 | 16,800   |                     |  
|                                                                                                     |  |                 |          |                     |  
|Commitments   and contingencies (Note 4)                                                             |  |                 |          |                     |  
|STOCKHOLDERS DEFICIT                                                                                |  |                 |          |                     |  
|Common   stock, par value $1 per share, 1,000 shares authorized; 200 shares issued and   outstanding |  |                 | 1        |                     |  
|Additional   paid-in capital                                                                         |  |                 | 19,931   |                     |  
|Accumulated   deficit                                                                                |  |                 | (41,678  | )                   |  
|Accumulated   other comprehensive loss:                                                              |  |                 |          |                     |  
|Minimum pension liability                                                                            |  |                 | (5,538   | )                   |  
|                                                                                                     |  |                 |          |                     |  
|Total stockholders deficit                                                                          |  |                 | (27,284  | )                   |  
|                                                                                                     |  |                 |          |                     |  
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT                                                          |  | $               | 369,390  |                     | $
|                                                                                                     |  |                 |          |                     |  

The accompanying notes are an integral part of the Consolidated Financial Statements.

18



NEW CF&I, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands) (Unaudited)

|                                             |  | Three Months Ended   June 30, |         | Six Months Ended   June 30, |  
|-------------------------------------------- |  | ----------------------------- | ------- | --------------------------- | -
|                                             |  |                               |         |                             |  
|                                             |  | 2006                          |         | 2005                        |  
|                                             |  |                               |         |                             |  
|Sales:                                       |  |                               |         |                             |  
|Product sales                                |  | $                             | 153,227 |                             | $
|Freight                                      |  |                               | 4,522   |                             |  
|                                             |  |                               |         |                             |  
|                                             |  |                               | 157,749 |                             |  
|Costs and expenses:                          |  |                               |         |                             |  
|Cost of sales                                |  |                               | 116,305 |                             |  
|Selling, general and administrative expenses |  |                               | 6,473   |                             |  
|Loss (gain) on disposal of assets            |  |                               | (104    | )                           |  
|                                             |  |                               |         |                             |  
|                                             |  |                               | 122,674 |                             |  
|                                             |  |                               |         |                             |  
|Operating income                             |  |                               | 35,075  |                             |  
|Other income (expense):                      |  |                               |         |                             |  
|Interest expense, net                        |  |                               | (6,703  | )                           |  
|Minority interests                           |  |                               | (1,184  | )                           |  
|Other income, net                            |  |                               | 67      |                             |  
|                                             |  |                               |         |                             |  
|Income before income taxes                   |  |                               | 27,255  |                             |  
|Income tax expense                           |  |                               | (7,312  | )                           |  
|                                             |  |                               |         |                             |  
|Net income                                   |  | $                             | 19,943  |                             | $
|                                             |  |                               |         |                             |  

The accompanying notes are an integral part of the Consolidated Financial Statements.

19



NEW CF&I, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

|                                                                                           |  | Six Months Ended   June 30, |         
|------------------------------------------------------------------------------------------ |  | --------------------------- | --------
|                                                                                           |  |                             |         
|                                                                                           |  | 2006                        |         
|                                                                                           |  |                             |         
|Cash flows   from operating activities:                                                    |  |                             |         
|Net income                                                                                 |  | $                           | 27,938  
|Adjustments to reconcile net income to net cash provided (used) by   operating activities: |  |                             |         
|Depreciation and amortization                                                              |  |                             | 11,253  
|Deferred income taxes                                                                      |  |                             | 11,003  
|Loss (gain) on disposal of assets                                                          |  |                             | 98      
|Minority interests                                                                         |  |                             | 1,726   
|Other, net                                                                                 |  |                             | 3,919   
|Changes in current assets and liabilities:                                                 |  |                             |         
|Trade accounts receivable                                                                  |  |                             | (25,753 
|Inventories                                                                                |  |                             | 9,946   
|Accounts payable                                                                           |  |                             | 4,666   
|Accrued expenses                                                                           |  |                             | (5,177  
|Other                                                                                      |  |                             | (348    
|                                                                                           |  |                             |         
|Net cash provided (used) by operating activities                                           |  |                             | 39,271  
|                                                                                           |  |                             |         
|Cash flows   from investing activities:                                                    |  |                             |         
|Additions to property, plant and equipment                                                 |  |                             | (6,668  
|Proceeds from disposal of assets                                                           |  |                             | 396     
|                                                                                           |  |                             |         
|Net cash used by investing activities                                                      |  |                             | (6,272  
|                                                                                           |  |                             |         
|Cash flows   from financing activities:                                                    |  |                             |         
|Borrowings from Oregon Steel Mills, Inc.                                                   |  |                             | 102,294 
|Payments to Oregon Steel Mills, Inc.                                                       |  |                             | (135,293
|                                                                                           |  |                             |         
|Net cash provided (used) by financing activities                                           |  |                             | (32,999 
|                                                                                           |  |                             |         
|Net increase   in cash and cash equivalents                                                |  |                             |        
|Cash and   cash equivalents at the beginning of period                                     |  |                             | 1       
|                                                                                           |  |                             |         
|Cash and   cash equivalents at the end of period                                           |  | $                           | 1       
|                                                                                           |  |                             |         
|Supplemental   disclosures of cash flow information:                                       |  |                             |         
|Cash paid for:                                                                             |  |                             |         
|Interest                                                                                   |  | $                           | 14,352  

The accompanying notes are an integral part of the Consolidated Financial Statements.

20



NEW CF&I, INC.Notes to Consolidated Financial Statements(Unaudited)

|1. | Basis of   Presentation
|-- | -----------------------

The Consolidated Financial Statements include the accounts of New CF&I, Inc. and its subsidiaries (New CF&I).  New CF&I owns a 95.2 percent interest in CF&I Steel, L.P. (CF&I), which is one of New CF&Is principal subsidiaries.  Oregon Steel Mills, Inc. (Oregon Steel) holds a 90 percent ownership interest in New CF&I.  Oregon Steel also owns directly an additional 4.3 percent interest in CF&I.   In January 1998, CF&I assumed the trade name Rocky Mountain Steel Mills.  New CF&I also owns a 100 percent interest in the Colorado and Wyoming Railway Company, which is a short-line railroad servicing CF&I and third party customers.  All significant intercompany balances and transactions have been eliminated.

The unaudited Consolidated Financial Statements include estimates and other adjustments, consisting of normal recurring accruals and other charges.  Results for an interim period are not necessarily indicative of results for a full year.  Reference should be made to the Oregon Steel 2005 Form 10-K for additional New CF&I disclosures including a summary of significant accounting policies.

Recent Accounting Pronouncements

In November
2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 151,
Inventory Costs, and Amendment of ARB No. 43, Chapter
4.  SFAS No. 151 amends Accounting Research Bulletin 43, Chapter
4, to clarify that the abnormal amounts of idle facility expense, freight,
handling costs and wasted materials (spoilage) be recognized as current period
charges.  It also requires that allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of the production
facilities.  New CF&I adopted this standard on January 1, 2006 and it did not have an impact on the Consolidated Financial Statements.

In May 2005,
the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections, which replaces Accounting Principles Board Opinion No.
20, Accounting Changes and SFAS No. 3, Reporting
Accounting Changes in Interim Financial Statements and requires the
retrospective application to prior periods financial statements for
changes in accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change.  The
retrospective application of the change would be limited to the direct effects
of the change, and indirect effects would be recognized in the period of the
accounting change.  New CF&I adopted this standard on January 1, 2006
and it did not have an impact on the Consolidated Financial
Statements.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109(FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that New CF&I recognize in its financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of New CF&Is 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. New CF&I is currently evaluating the impact of adopting FIN 48 on the Consolidated Financial Statements.

Reclassifications

Certain reclassifications have been made in the prior period to conform to the current period presentation.  New CF&I has reclassified incentive compensation between cost of sales and selling, general and administrative expenses.

The reclassifications made to the prior period do not affect operating income as previously reported.

21



|2. | Inventories
|-- | -----------

Inventories are stated at the lower of manufacturing cost or market value with manufacturing cost determined under the average cost method.  The components of inventories are as follows:

|                                |  | June 30,   2006 |        | December 31,   2005 |  
|------------------------------- |  | --------------- | ------ | ------------------- | -
|                                |  |                 |        |                     |  
|                                |  | (In thousands)  |       
|Raw materials                   |  | $               | 20,134 |                     | $
|Semi-finished product           |  |                 | 12,780 |                     |  
|Finished product                |  |                 | 6,051  |                     |  
|Stores and operating   supplies |  |                 | 13,500 |                     |  
|                                |  |                 |        |                     |  
|Total   inventories             |  | $               | 52,465 |                     | $
|                                |  |                 |        |                     |  

|3. | Long-term   Debt
|-- | ----------------

Borrowing requirements for capital expenditures and working capital have been provided through three revolving loans from Oregon Steel to CF&I.  The loans include interest on the daily amount outstanding, paid monthly, at the rate of 10.65% per annum.  The principal is due on demand or on December 31, 2007 if no demand is made.

At June 30, 2006, principal payments on long-term debt were due as follows (in thousands):

|2007 |  | $ | 254,670 | 
|---- |  | - | ------- | 
|     |  |   |         | 

Oregon Steel is not required to provide financing to CF&I and, although the demand for repayment of the obligation is not expected before December 31, 2007, Oregon Steel may demand repayment of the loans at any time.  If Oregon Steel were to demand repayment of the loans, it is not likely that CF&I would be able to obtain the external financing necessary to repay the loans or to fund its capital expenditures and other cash needs and, if available, that such financing would be on terms satisfactory to CF&I.

|4.            | Contingencies
|------------- | -------------
|              |              
|Environmental

All material environmental remediation liabilities for non-capital expenditures, which are probable and estimable, are recorded in the Consolidated Financial Statements based on current technologies and current environmental standards at the time of evaluation.  Adjustments are made when additional information is available that suggests different remediation methods or periods may be required and affect the total cost.  The best estimate of the probable cost within a range is recorded; however, if there is no best estimate, the low end of the range is recorded and the range is disclosed.

In October 1995, CF&I and the Colorado Department of Public Health and Environment (CDPHE) finalized a postclosure permit for hazardous waste units at CF&Is Pueblo Mill.  As part of the postclosure permit requirements, CF&I must conduct a corrective action program for the 82 solid waste management units (SWMU) at the facility and continue to address projects on a prioritized corrective action schedule over 30 years.  The State of Colorado mandated that the schedule for corrective action could be accelerated if new data indicated a greater threat existed to the environment than was currently believed to exist.  At June 30, 2006, there were 59 SWMUs that still required remediation.  At June 30, 2006, the total accrued liability for all remaining SWMUs was $25.5 million, of which $23.5 million was classified as non-current on the New
CF&Is Consolidated Balance Sheet.

The CDPHE inspected the Pueblo Mill in 1999 for possible environmental violations, and in the fourth quarter of 1999 issued a Compliance Advisory indicating that air quality regulations had been violated, which was followed by the filing of a judicial enforcement action (Action) in the second quarter of 2000.  In March 2002, CF&I and CDPHE reached a settlement of the Action, which was approved by the court (the State Consent Decree).  CF&I has paid all penalties associated with that settlement, and was also required to convert to the new single New Source Performance Standards Subpart AAa compliant furnace.  The new furnace installation was completed in the fourth quarter of 2005.

Beginning in May 2005, the CDPHE notified CF&I of subsequent violations of the State Consent Decree, which included violations of opacity standards, violations of minimum intervals between tapping operations at CF&Is furnaces, and failure to perform yearly relative accuracy tests for the Quality Assurance/Quality Control ultrasonic flow monitors.  In October 2005, a settlement was reached between CF&I and the CDPHE and included penalties for all

22



violations with the State Consent Decree through the settlement date.  The settlement provided for CF&I to pay $0.2 million in penalties, fund approximately $0.8 million in supplemental environmental projects (SEPs), pay approximately $0.1 million in consulting services and make certain capital improvements expected to cost $0.7 million.  At June 30, 2006, CF&I had paid $0.2 million, $0.3 million and $0.1 million of the penalties, SEPs and consulting services, respectively.  During June 2006, the CDPHE agreed that $0.1 million of the SEPs would be spent as capital improvements at CF&I.  The accrual and expense related to that portion of the SEPs was reversed during the three months ended June 30, 2006.  Other than the capital improvements, CF&Is accrued expenses include all unpaid settlement amounts at June 30, 2006.

Purchase Commitments

A contract to purchase oxygen for the Pueblo Mill was entered into on February 2, 1993 by CF&I, and expires in February 2013.  The agreement specifies that CF&I will pay a base monthly charge that is adjusted annually based upon a percentage change in the Producer Price Index.  The monthly base charge at June 30, 2006 was $0.1 million.

Guarantees and Financing Arrangements

On July 15, 2002, Oregon Steel issued $305.0 million of 10% First Mortgage Notes due 2009 (10% Notes) at a discount of 98.772% and an interest rate of 10.0%.  Interest is payable on January 15 and July 15 of each year.  The 10% Notes are secured by a lien on substantially all of the property, plant and equipment, and certain other assets of Oregon Steel, excluding accounts receivable, inventory, and certain other assets.  As of June 30, 2006, Oregon Steel had outstanding $303.0 million of principal amount under the 10% Notes.  The Indenture under which the 10% Notes were issued contains restrictions on new indebtedness and various types of disbursements, including dividends, based on the cumulative amount of Oregon Steels net income, as defined.  New CF&I and CF&I (collectively, the Guarantors) guarantee the obligations of the 10% Notes, and
those guarantees are secured by a lien on substantially all of the property, plant and equipment and certain other assets of the Guarantors, excluding accounts receivable, inventory, and certain other assets.  Oregon Steel completed the redemption of all of the outstanding 10% Notes on July 17, 2006.  The completion of the redemption terminates substantially all of Oregon Steels and the Guarantors obligations under the indenture and related documents, including the restrictions and liens.  See Note 7 to the Consolidated Financial Statements, Subsequent Events.

Other Agreements

On January 15, 2004, CF&I announced a tentative agreement to settle the labor dispute between the United Steelworkers of America and CF&I that had been ongoing since October 1997, and on September 10, 2004 the settlement was finalized and became effective (the Settlement).  Beginning on the effective date of the Settlement, the Settlement included a ten year profit participation obligation (Back Pay Profit Sharing Obligation or BPPSO) consisting of 25% of CF&Is quarterly profit, as defined, for years 2004 and 2007 through 2013, and 30% for years 2005 and 2006, not to exceed $3.0 million per year for 2004 through 2008 and $4.0 million per year for 2009 through 2013; these cap amounts are subject to a carryforward/carryback provision described in the Settlement documents.  New CF&I recorded charges of $0.0 million and $3.2 million,
respectively, for the three and six months ended June 30, 2006 and charges of $0.0 million and $3.4 million, respectively, for the three and six months ended June 30, 2005 for the BPPSO and related payroll taxes, which were classified as selling, general and administrative expenses.

During the first quarter ended March 31, 2006, CF&I entered into an agreement to produce seamless pipe for an independent third party.  Per the agreement, CF&I will produce a minimum of 4,000 tons per month, but not more than 15,000 tons per month.  The agreement expires December 31, 2007, unless both parties agree to renew the agreement for successive one-year terms thereafter, and starting on January 1, 2007, either party may terminate the contract upon ninety days notice.  As of June 30, 2006 CF&I had met the minimum production requirements.

Other Contingencies

New CF&I is party to various other claims, disputes, legal actions and other proceedings involving contracts, employment and various other matters.  In the opinion of management, the outcome of these matters would not have a material adverse effect on the consolidated financial condition of New CF&I, its results of operations, and liquidity.

|**5.** | Income   Taxes
|------ | --------------

The effective income tax expense rates are 26.8% and 29.9%, respectively, for the three and six months ended June 30, 2006, as compared to tax expense rates of 40.8% and 38.1% in the corresponding periods in 2005.  The effective income tax rates for the three and six months ended June 30, 2006 varied from the combined state and federal statutory

23



rates principally because Oregon Steel reversed the remaining valuation allowance, established in 2003, for certain state net operating losses and state tax credits.  The combined state and federal statutory rate was also reduced in the three and six months ended June 30, 2006 by tax benefits tied to export sales and domestic manufacturing.  The effective income tax expense rates for the three and six months ended June 30, 2005 did not vary materially from the combined state and federal statutory rates.

Oregon Steel files its income tax return as part of a consolidated group, for which a formal tax allocation agreement exists.  As a subsidiary of Oregon Steel, New CF&I is included in the consolidated group and thus does not file a separate tax return.  Under the terms of the tax allocation agreement, each subsidiary of Oregon Steel is required to compute its separate tax liability as if it had filed a separate tax return and pay such amount to Oregon Steel.  Also, each subsidiary will be compensated by Oregon Steel to the extent that tax benefits generated by the subsidiary provided a benefit on a consolidated basis.  The tax allocation agreement provides that subsidiary compensation will occur only when the subsidiary contributing the loss could have utilized the loss if a separate tax return had been filed by the subsidiary.  Oregon Steel has no obligation to compensate a
subsidiary until the end of September following the year in which the subsidiary could have utilized the loss.  On this basis, New CF&I computes its stand alone tax assets and liabilities, and reflects such balances in its Consolidated Balance Sheets.

SFAS No. 109,
Accounting for Income Taxes, requires that tax benefits for
federal and state net operating loss carry-forwards, state tax credits, and
alternative minimum tax credits each be recorded as an asset to the extent that
management assesses the utilization of such assets to be more likely than
not; otherwise, a valuation allowance is required to be recorded. 
Based on this guidance, Oregon Steel reduced its valuation allowance in the
three and six months ended June 30, 2006 due to less uncertainty regarding the
utilization of certain state tax net operating losses and state tax
credits.  Oregon Steel increased the valuation allowance in the three and
six months ended June 30, 2005 due to uncertainty regarding the utilization of
state tax credits.  New CF&I has been allocated a $4.0 million
valuation allowance reduction for both the three and six months ended June 30,
2006 and a $0.2 million and $0.1 million valuation allowance reduction for the
three and six months ended June 30, 2005, respectively.  As of June 30,
2006, New CF&I does not have a valuation allowance recorded against its
deferred tax assets.

New CF&I will continue to evaluate the need for valuation allowances in the future.  Changes in estimated future taxable income and other underlying factors may lead to adjustments to the valuation allowances.

|6. | Employee   Benefit Plans
|-- | ------------------------

New CF&I has noncontributory defined benefit pension plans, postretirement health care and life insurance benefit plans that cover nearly all of its eligible employees.  Certain management employees are no longer eligible to participate in the defined benefit plans if they were hired after September 1, 2005.  Those employees are instead enrolled in an employer funded defined contribution plan equal to three percent of annual wages.  The new defined contribution plan is funded annually, and participants benefits vest after five years of service.  New CF&I also offers a qualified Thrift 401(k) plan to all of its employees.

Components of net periodic benefit cost related to the defined benefit pension plans are as follows:

|                                                  |  | Defined Benefit Pension Plans |      
|------------------------------------------------- |  | ----------------------------- | -----
|                                                  |  |                               |      
|                                                  |  | Three Months Ended   June 30, |      
|                                                  |  |                               |      
|                                                  |  | 2006                          |      
|                                                  |  |                               |      
|                                                  |  | (In   thousands)              |      
|Service cost                                      |  | $                             | 648  
|Interest cost                                     |  |                               | 1,057
|Expected return on plan   assets                  |  |                               | (880 
|Amortization of   unrecognized net loss           |  |                               | 115  
|Amortization of   unrecognized prior service cost |  |                               | 609  
|                                                  |  |                               |      
|Total   net periodic benefit cost                 |  | $                             | 1,549
|                                                  |  |                               |      

24



Components of net periodic benefit cost related to the postretirement health care and life insurance benefit plans are as follows:

|                                                  |  | Other Benefit Plans           |    
|------------------------------------------------- |  | ----------------------------- | ---
|                                                  |  |                               |    
|                                                  |  | Three Months Ended   June 30, |    
|                                                  |  |                               |    
|                                                  |  | 2006                          |    
|                                                  |  |                               |    
|                                                  |  | (In thousands)                |    
|Service cost                                      |  | $                             | 60 
|Interest cost                                     |  |                               | 309
|Amortization of   unrecognized net loss           |  |                               | 69 
|Amortization of   unrecognized prior service cost |  |                               | 183
|                                                  |  |                               |    
|Total   net periodic benefit cost                 |  | $                             | 621
|                                                  |  |                               |    

New CF&I made contributions of $7.5 million and $11.3 million, respectively, to its pension plans for the three and six months ended June 30, 2006 and contributions of $2.2 million and $5.6 million, respectively, during the three and six months ended June 30, 2005.   New CF&I expects to make additional contributions of $8.1 million in 2006.

|7. | Subsequent   Events
|-- | -------------------

On July 17,
2006, Oregon Steel completed the redemption of all of its outstanding 10% Notes
as of July 15, 2006, which were guaranteed by New CF&I and CF&I, using a
combination of cash, short term investments, and borrowings under a new
revolving credit facility, which is not guaranteed by New CF&I and
CF&I.  The completion of the redemption terminates substantially all of
Oregon Steels and the Guarantors obligations under the indenture and
related documents, including the restrictions and liens.

25



CF&I STEEL, L.P. BALANCE SHEETS (In thousands)

|                                                                                  |  | June 30,   2006 |             | December 31,   2005 |  
|--------------------------------------------------------------------------------- |  | --------------- | ----------- | ------------------- | -
|                                                                                  |  |                 |             |                     |  
|                                                                                  |  |                 | (Unaudited) |                     |  
|ASSETS                                                                            |  |                 |             |                     |  
|Current assets:                                                                   |  |                 |             |                     |  
|Cash   and cash equivalents                                                       |  | $               |            |                     | $
|Trade accounts receivable, less allowance for doubtful   accounts of $38 and $348 |  |                 | 73,608      |                     |  
|Inventories                                                                       |  |                 | 52,189      |                     |  
|Other                                                                             |  |                 | 3,194       |                     |  
|                                                                                  |  |                 |             |                     |  
|Total   current assets                                                            |  |                 | 128,991     |                     |  
|                                                                                  |  |                 |             |                     |  
|Property, plant and   equipment:                                                  |  |                 |             |                     |  
|Land   and improvements                                                           |  |                 | 3,295       |                     |  
|Buildings                                                                         |  |                 | 18,613      |                     |  
|Machinery   and equipment                                                         |  |                 | 303,146     |                     |  
|Construction   in progress                                                        |  |                 | 5,363       |                     |  
|                                                                                  |  |                 |             |                     |  
|                                                                                  |  |                 | 330,417     |                     |  
|Accumulated   depreciation                                                        |  |                 | (165,750    | )                   |  
|                                                                                  |  |                 |             |                     |  
|Net   property, plant and equipment                                               |  |                 | 164,667     |                     |  
|                                                                                  |  |                 |             |                     |  
|Intangibles,   net                                                                |  |                 | 29,851      |                     |  
|                                                                                  |  |                 |             |                     |  
|TOTAL ASSETS                                                                      |  | $               | 323,509     |                     | $
|                                                                                  |  |                 |             |                     |  
|LIABILITIES                                                                       |  |                 |             |                     |  
|Current liabilities:                                                              |  |                 |             |                     |  
|Accounts   payable                                                                |  | $               | 40,026      |                     | $
|Accrued   expenses                                                                |  |                 | 34,318      |                     |  
|                                                                                  |  |                 |             |                     |  
|Total   current liabilities                                                       |  |                 | 74,344      |                     |  
|Long-term debt - Oregon   Steel Mills, Inc.                                       |  |                 | 254,670     |                     |  
|Long-term debt - New   CF&I, Inc.                                                 |  |                 | 21,756      |                     |  
|Environmental liability                                                           |  |                 | 25,079      |                     |  
|Deferred employee benefits                                                        |  |                 | 38,323      |                     |  
|                                                                                  |  |                 |             |                     |  
|Total   liabilities                                                               |  |                 | 414,172     |                     |  
|                                                                                  |  |                 |             |                     |  
|Commitments and   contingencies (Note 4)                                          |  |                 |             |                     |  
|PARTNERS DEFICIT                                                                 |  |                 |             |                     |  
|General partner                                                                   |  |                 | (86,311     | )                   |  
|Limited partners                                                                  |  |                 | (4,352      | )                   |  
|                                                                                  |  |                 |             |                     |  
|Total   partners deficit                                                         |  |                 | (90,663     | )                   |  
|                                                                                  |  |                 |             |                     |  
|TOTAL LIABILITIES AND PARTNERS DEFICIT                                           |  | $               | 323,509     |                     | $
|                                                                                  |  |                 |             |                     |  

The accompanying notes are an integral part of the Financial Statements.

26



CF&I STEEL, L.P. STATEMENTS OF INCOME (In thousands) (Unaudited)

|                                               |  | Three Months Ended   June 30, |         | Six Months Ended   June 30, |  
|---------------------------------------------- |  | ----------------------------- | ------- | --------------------------- | -
|                                               |  |                               |         |                             |  
|                                               |  | 2006                          |         | 2005                        |  
|                                               |  |                               |         |                             |  
|Sales:                                         |  |                               |         |                             |  
|Product   sales                                |  | $                             | 151,715 |                             | $
|Freight                                        |  |                               | 4,522   |                             |  
|                                               |  |                               |         |                             |  
|                                               |  |                               | 156,237 |                             |  
|Costs and   expenses:                          |  |                               |         |                             |  
|Cost   of sales                                |  |                               | 115,366 |                             |  
|Selling,   general and administrative expenses |  |                               | 6,418   |                             |  
|Loss   (gain) on disposal of assets            |  |                               | (104    | )                           |  
|                                               |  |                               |         |                             |  
|                                               |  |                               | 121,680 |                             |  
|                                               |  |                               |         |                             |  
|Operating   income                             |  |                               | 34,557  |                             |  
|Other   income (expense):                      |  |                               |         |                             |  
|Interest   expense, net                        |  |                               | (7,217  | )                           |  
|Other   income, net                            |  |                               | 67      |                             |  
|                                               |  |                               |         |                             |  
|Net   income                                   |  | $                             | 27,407  |                             | $
|                                               |  |                               |         |                             |  

The accompanying notes are an integral part of the Financial Statements.

27



CF&I STEEL, L.P. STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

|                                                                                           |  | Six Months Ended   June 30, |         
|------------------------------------------------------------------------------------------ |  | --------------------------- | --------
|                                                                                           |  |                             |         
|                                                                                           |  | 2006                        |         
|                                                                                           |  |                             |         
|Cash flows from operating   activities:                                                    |  |                             |         
|Net   income                                                                               |  | $                           | 39,934  
|Adjustments   to reconcile net income to net cash provided (used) by operating activities: |  |                             |         
|Depreciation   and amortization                                                            |  |                             | 11,197  
|Loss   (gain) on disposal of assets                                                        |  |                             | 98      
|Other                                                                                      |  |                             | 3,920   
|Changes   in current assets and liabilities:                                               |  |                             |         
|Trade   accounts receivable                                                                |  |                             | (25,500 
|Inventories                                                                                |  |                             | 9,844   
|Accounts   payable                                                                         |  |                             | 5,971   
|Accrued   expenses                                                                         |  |                             | (5,998  
|Other                                                                                      |  |                             | (189    
|                                                                                           |  |                             |         
|Net cash   provided (used) by operating activities                                         |  |                             | 39,277  
|                                                                                           |  |                             |         
|Cash flows from investing   activities:                                                    |  |                             |         
|Additions   to property, plant and equipment                                               |  |                             | (6,668  
|Proceeds   from disposal of assets                                                         |  |                             | 390     
|                                                                                           |  |                             |         
|Net cash   used by investing activities                                                    |  |                             | (6,278  
|                                                                                           |  |                             |         
|Cash flows from financing   activities:                                                    |  |                             |         
|Borrowings   from related parties                                                          |  |                             | 102,294 
|Payments   to related parties                                                              |  |                             | (135,293
|                                                                                           |  |                             |         
|Net cash   provided (used) by financing activities                                         |  |                             | (32,999 
|                                                                                           |  |                             |         
|Net increase in cash and   cash equivalents                                                |  |                             |        
|Cash and cash equivalents   at the beginning of period                                     |  |                             |        
|                                                                                           |  |                             |         
|Cash and cash equivalents   at the end of period                                           |  | $                           |        
|                                                                                           |  |                             |         
|Supplemental disclosures   of cash flow information:                                       |  |                             |         
|Cash   paid for:                                                                           |  |                             |         
|Interest                                                                                   |  | $                           | 14,352  

The accompanying notes are an integral part of the Financial Statements.

28



CF&I STEEL, L.P.Notes to Financial Statements(Unaudited)

|1. | Basis of   Presentation
|-- | -----------------------

The Financial Statements include the accounts of CF&I Steel, L.P. (CF&I).  Oregon Steel Mills, Inc. (Oregon Steel) owns a 90 percent interest in New CF&I, Inc. (New CF&I), which owns a 95.2 percent interest in CF&I.  Oregon Steel also owns directly an additional 4.3 percent interest in CF&I.  In January 1998, CF&I assumed the trade name of Rocky Mountain Steel Mills.

The unaudited Financial Statements include estimates and other adjustments, consisting of normal recurring accruals and other charges.  Results for an interim period are not necessarily indicative of results for a full year.  Reference should be made to the Oregon Steel 2005 Form 10-K for additional CF&I disclosures including a summary of significant accounting policies.

Recent Accounting Pronouncements

In November
2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 151,
Inventory Costs, an Amendment of ARB No. 43, Chapter 4. 
SFAS No. 151 amends Accounting Research Bulletin 43, Chapter 4, to clarify that
the abnormal amounts of idle facility expense, freight, handling costs and
wasted materials (spoilage) be recognized as current period charges.  It
also requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. 
CF&I adopted this standard on January 1, 2006 and it did not have an impact on the Financial Statements.

In May 2005,
the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections, which replaces Accounting Principles Board Opinion No.
20, Accounting Changes and SFAS No. 3, Reporting
Accounting Changes in Interim Financial Statements and requires the
retrospective application to prior periods financial statements for
changes in accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change.  The
retrospective application of the change would be limited to the direct effects
of the change, and indirect effects would be recognized in the period of the
accounting change.  CF&I adopted this standard on January 1, 2006 and
it did not have an impact on the Financial Statements.

Reclassifications

Certain reclassifications have been made in the prior period to conform to the current period presentation. CF&I has reclassified incentive compensation between cost of sales and selling, general and administrative expenses.

The reclassifications made to the prior period do not affect operating income as previously reported.

|2. | Inventories
|-- | -----------

Inventories are stated at the lower of manufacturing cost or market value with manufacturing cost determined under the average cost method.  The components of inventories are as follows:

|                                |  | June 30,   2006 |        | December 31,   2005 |  
|------------------------------- |  | --------------- | ------ | ------------------- | -
|                                |  |                 |        |                     |  
|                                |  | (In thousands)  |       
|Raw materials                   |  | $               | 20,134 |                     | $
|Semi-finished product           |  |                 | 12,780 |                     |  
|Finished product                |  |                 | 6,051  |                     |  
|Stores and operating   supplies |  |                 | 13,224 |                     |  
|                                |  |                 |        |                     |  
|Total   inventories             |  | $               | 52,189 |                     | $
|                                |  |                 |        |                     |  

|3. | Long-term   Debt
|-- | ----------------

Borrowing requirements for capital expenditures and working capital have been provided through three revolving loans from Oregon Steel to CF&I as well as three loans from New CF&I to CF&I.  The Oregon Steel loans include interest on the daily amount outstanding, paid monthly, at the rate of 10.65% per annum.  The principal is due on demand or on

29



December 31, 2007 if no demand is made.  The loans from New CF&I include interest on the daily amount outstanding at prime.  For the three and six months ended June 30, 2006, interest was calculated at a weighted average interest rate of 7.9% and 7.7%, respectively.  The principal on the New CF&I loans is due on demand; however, it is classified as long-term based on New CF&Is intent not to demand payment in 2007.

At June 30, 2006, principal payments on long-term debt were due as follows (in thousands):

|2007 |  | $ | 276,426 | 
|---- |  | - | ------- | 
|     |  |   |         | 

Oregon Steel and New CF&I are not required to provide financing to CF&I and, although the demand for repayment of the obligation in full is not expected before December 31, 2007, Oregon Steel and New CF&I may demand repayment of the loans at any time.  If Oregon Steel and New CF&I were to demand repayment of the loans, it is not likely that CF&I would be able to obtain the external financing necessary to repay the loans or to fund its capital expenditures and other cash needs and, if available, that such financing would be on terms satisfactory to CF&I.

|4.            | Contingencies
|------------- | -------------
|              |              
|Environmental

All material environmental remediation liabilities for non-capital expenditures, which are probable and estimable, are recorded in the Financial Statements based on current technologies and current environmental standards at the time of evaluation.  Adjustments are made when additional information is available that suggests different remediation methods or periods may be required and affect the total cost.  The best estimate of the probable cost within a range is recorded; however, if there is no best estimate, the low end of the range is recorded and the range is disclosed.

In October 1995, CF&I and the Colorado Department of Public Health and Environment (CDPHE) finalized a postclosure permit for hazardous waste units at CF&Is Pueblo Mill.  As part of the postclosure permit requirements, CF&I must conduct a corrective action program for the 82 solid waste management units (SWMU) at the facility and continue to address projects on a prioritized corrective action schedule over 30 years.  The State of Colorado mandated that the schedule for corrective action could be accelerated if new data indicated a greater threat existed to the environment than was currently believed to exist.  At June 30, 2006, there were 59 SWMUs that still required remediation.  At June 30, 2006, the total accrued liability for all remaining SWMUs was $25.5 million, of which $23.5 million was classified as non-current on
CF&Is Balance Sheet.

The CDPHE inspected the Pueblo Mill in 1999 for possible environmental violations, and in the fourth quarter of 1999 issued a Compliance Advisory indicating that air quality regulations had been violated, which was followed by the filing of a judicial enforcement action (Action) in the second quarter of 2000.  In March 2002, CF&I and CDPHE reached a settlement of the Action, which was approved by the court (the State Consent Decree).  CF&I has paid all penalties associated with that settlement, and was also required to convert to the new single New Source Performance Standards Subpart AAa compliant furnace.  The new furnace installation was completed in the fourth quarter of 2005.

Beginning in May 2005, the CDPHE notified CF&I of subsequent violations of the State Consent Decree, which included violations of opacity standards, violations of minimum intervals between tapping operations at CF&Is furnaces, and failure to perform yearly relative accuracy tests for the Quality Assurance/Quality Control ultrasonic flow monitors.  In October 2005, a settlement was reached between CF&I and the CDPHE and included penalties for all violations with the State Consent Decree through the settlement date.  The settlement provided for CF&I to pay $0.2 million in penalties, fund approximately $0.8 million in supplemental environmental projects (SEPs), pay approximately $0.1 million in consulting services and make certain capital improvements expected to cost $0.7 million.  At June 30, 2006, CF&I paid $0.2 million, $0.3 million and $0.1
million of the penalties, SEPs and consulting services, respectively.  During June 2006, the CDPHE agreed that $0.1 million of the SEPs would be spent as capital improvements at CF&I.  The accrual and expense related to that portion of the SEPs was reversed during the three months ended June 30, 2006.  Other than the capital improvements, CF&Is accrued expenses include all unpaid settlement amounts at June 30, 2006.

Purchase Commitments

A contract to purchase oxygen for the Pueblo Mill was entered into on February 2, 1993 by CF&I, and expires in February 2013.  The agreement specifies that CF&I will pay a base monthly charge that is adjusted annually based upon a percentage change in the Producer Price Index.  The monthly base charge at June 30, 2006 was $0.1 million.

30



Guarantees and Financing Arrangements

On July 15, 2002, Oregon Steel issued $305.0 million of 10% First Mortgage Notes due 2009 (10% Notes) at a discount of 98.772% and an interest rate of 10.0%.  Interest is payable on January 15 and July 15 of each year.  The 10% Notes are secured by a lien on substantially all of the property, plant and equipment, and certain other assets of Oregon Steel, excluding accounts receivable, inventory, and certain other assets.  As of June 30, 2006, Oregon Steel had outstanding $303.0 million of principal amount under the 10% Notes.  The Indenture under which the 10% Notes were issued contains restrictions on new indebtedness and various types of disbursements, including dividends, based on the cumulative amount of Oregon Steels net income, as defined.  New CF&I and CF&I (collectively, the Guarantors) guarantee the obligations of the 10% Notes, and
those guarantees are secured by a lien on substantially all of the property, plant and equipment and certain other assets of the Guarantors, excluding accounts receivable, inventory, and certain other assets.  Oregon Steel completed the redemption of all of the outstanding 10% Notes on July 17, 2006.  The completion of the redemption terminates substantially all of Oregon Steels and the Guarantors obligations under the indenture and related documents, including the restrictions and liens.  See Note 6 to the Financial Statements, Subsequent Events.

Other Agreements

On January
15, 2004, CF&I announced a tentative agreement to settle the labor
dispute between the United Steelworkers of America and CF&I that had been
ongoing since October 1997, and on September 10, 2004 the settlement was
finalized and became effective (the Settlement).  Beginning on
the effective date of the Settlement, the Settlement included a ten year profit
participation obligation (Back Pay Profit Sharing Obligation or
BPPSO) consisting of 25% of CF&Is quarterly profit, as
defined, for years 2004 and 2007 through 2013, and 30% for years 2005 and 2006,
not to exceed $3.0 million per year for 2004 through 2008 and $4.0 million per
year for 2009 through 2013; these cap amounts are subject to a carryforward/
carryback provision described in the Settlement documents.  CF&I
recorded charges of $0.0 million and $3.2 million, respectively, for the three
and six months ended June 30, 2006 and charges of $0.0 million and $3.4 million,
respectively, for the three and six months ended June 30, 2005 for the BPPSO and
related payroll taxes, which were classified as selling, general and
administrative expenses.

During the first quarter ended March 31, 2006, CF&I entered into an agreement to produce seamless pipe for an independent third party.  Per the agreement, CF&I will produce a minimum of 4,000 tons per month, but not more than 15,000 tons per month.  The agreement expires December 31, 2007, unless both parties agree to renew the agreement for successive one-year terms thereafter, and starting on January 1, 2007, either party may terminate the contract upon ninety days notice.  As of June 30, 2006 CF&I had met the minimum production requirements.

Other Contingencies

CF&I is
party to various other claims, disputes, legal actions and other proceedings
involving contracts, employment and various other matters.  In the opinion
of management, the outcome of these matters would not have a material adverse
effect on the financial condition of CF&I, its results of operations, and
liquidity.

5.       Employee Benefit Plans

CF&I has noncontributory defined benefit pension plans, postretirement health care and life insurance benefit plans that cover nearly all of its eligible employees.  Certain management employees are no longer eligible to participate in the defined benefit plans if they were hired after September 1, 2005.  Those employees are instead enrolled in an employer funded defined contribution plan equal to three percent of annual wages.  The new defined contribution plan is funded annually, and participants benefits vest after five years of service.  CF&I also offers a qualified Thrift 401(k) plan to all of its employees.

31



Components of net periodic benefit cost related to the defined benefit pension plans are as follows:

|                                                  |  | Defined Benefit Pension Plans |      
|------------------------------------------------- |  | ----------------------------- | -----
|                                                  |  |                               |      
|                                                  |  | Three Months Ended   June 30, |      
|                                                  |  |                               |      
|                                                  |  | 2006                          |      
|                                                  |  |                               |      
|                                                  |  | (In thousands)                |      
|Service cost                                      |  | $                             | 648  
|Interest   cost                                   |  |                               | 1,057
|Expected   return on plan assets                  |  |                               | (880 
|Amortization   of unrecognized net loss           |  |                               | 115  
|Amortization   of unrecognized prior service cost |  |                               | 609  
|                                                  |  |                               |      
|Total net periodic benefit cost                   |  | $                             | 1,549
|                                                  |  |                               |      

Components of net periodic benefit cost related to the postretirement health care and life insurance benefit plans are as follows:

|                                                |  | Other Benefit Plans                 |    
|----------------------------------------------- |  | ----------------------------------- | ---
|                                                |  |                                     |    
|                                                |  | Three Months Ended
        June 30, |    
|                                                |  |                                     |    
|                                                |  | 2006                                |    
|                                                |  |                                     |    
|                                                |  | (In thousands)                      |    
|Service cost                                    |  | $                                   | 60 
|Interest cost                                   |  |                                     | 309
|Amortization of unrecognized net loss           |  |                                     | 69 
|Amortization of unrecognized prior service cost |  |                                     | 183
|                                                |  |                                     |    
|Total net periodic benefit cost                 |  | $                                   | 621
|                                                |  |                                     |    

CF&I made contributions of $7.5 million and $11.3 million, respectively, to its pension plans for the three and six months ended June 30, 2006 and contributions of $2.2 million and $5.6 million, respectively, during the three and six months ended June 30, 2005.   CF&I expects to make additional contributions of $8.1 million in 2006.

6.       Subsequent Events

On July 17,
2006, Oregon Steel completed the redemption of all of its outstanding 10% Notes
as of July 15, 2006, which were guaranteed by New CF&I and CF&I, using a
combination of cash, short term investments, and borrowings under a new
revolving credit facility, which is not guaranteed by New CF&I and
CF&I.  The completion of the redemption terminates substantially all of
Oregon Steels and the Guarantors obligations under the indenture and
related documents, including the restrictions and liens.

32



Item 2.   Managements Discussion and Analysis of Financial Condition and Results of Operations

General

The following information contains forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Statements made in this report that are not statements of historical fact are forward-looking statements that are based on current expectations about Oregon Steel Mills, Inc.s (Company) business, and the assumptions underlying these forward-looking statements.  Forward-looking statements made in this report can be identified by forward-looking words such as, but not limited to, expect, anticipate, believe, intend, plan, seek, forecast, estimate, continue, may, will, would, could, likely, and similar expressions.  These forward-looking
statements are subject to risks and uncertainties and actual results could differ materially from those projected.  Specific risks and uncertainties include market demand, competitive factors, pricing, economic conditions, and other factors which are set forth in Risk Factors of Item 1A to the Companys Annual Report on Form 10-K for the year ended December 31, 2005.

Caution should be taken not to place undue reliance on the Companys forward-looking statements, which represent the Companys views only as of the date this report is filed.  The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Overview

The Consolidated Financial Statements include all wholly owned and those majority owned subsidiaries over which the Company exerts management control.  Non-controlled subsidiaries and affiliates are accounted for using the equity method.  Material wholly owned and majority owned subsidiaries of the Company are wholly owned Camrose Pipe Corporation (CPC), which does business as Columbia Structural Tubing (CST) and holds a 100 percent interest in the Camrose Pipe Company (Camrose); a 60 percent interest in Oregon Feralloy Partners (OFP); and 90 percent owned New CF&I, Inc. (New CF&I) which owns a 95.2 percent interest in CF&I Steel, L.P. (CF&I).  The Company also directly owns an additional 4.3 percent interest in CF&I.  In January 1998, CF&I assumed the trade name Rocky Mountain Steel Mills
(RMSM).  New CF&I owns a 100 percent interest in the Colorado and Wyoming Railway Company.  All significant inter-company balances and transactions have been eliminated.

The Company currently has two aggregated operating divisions known as the Oregon Steel Division and the RMSM Division.  The Oregon Steel Division is centered at the steel plate mill in Portland, Oregon (Portland Mill), which in addition to sales to third parties, supplies steel plate and coiled plate to the Companys structural tubing and welded pipe finishing facilities.  The Oregon Steel Division also produces large diameter line pipe and electric resistance welded (ERW) line pipe and casing at the Camrose Pipe Mill and structural tubing at its CST facility.  The Company is in the process of constructing a new spiral weld double submerged arc weld pipe making facility.  Construction is expected to be completed in August of 2006.  The RMSM Division consists of steelmaking and finishing facilities which produce rail, rod and bar and seamless pipe
products.  All manufacturing, as well as certain related operations, of the RMSM Division are located in Pueblo, Colorado.

Critical Accounting Policies and Estimates

The
Companys discussion and analysis of its financial condition and results of
operations are based upon its Consolidated Financial Statements, which have been
prepared in accordance with Generally Accepted Accounting Principles.  The
preparation of these Consolidated Financial Statements requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities.  On an on-going basis, the Company evaluates its
estimates.  The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances.  This provides a basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these estimates under
different assumptions or conditions, and these differences may be
material.  A description of the Companys critical accounting policies
and related estimates and judgments that affect the preparation of the
Consolidated Financial Statements is set forth in the Companys Annual
Report on Form 10-K for the year ended December 31, 2005, and there have been no
changes in critical accounting policies in the six months ended June 30, 2006,
with the exception of the adoption of SFAS No. 123R.   See Note 2 to the
Companys Consolidated Financial Statements. Stock-Based
Compensation, for disclosure of the effects of the adoption of this
statement.

33



2006 Outlook

For 2006, the Company expects to ship approximately 1.74 million tons of products and generate approximately $1.6 billion in sales.  In the Oregon Steel Division, the product mix is expected to consist of approximately 520,000 tons of plate and coil, 320,000 tons of welded pipe and 80,000 tons of structural tubing.  The RMSM Division expects to ship approximately 415,000 tons of rail, 325,000 tons of rod and bar products and 80,000 tons of seamless pipe.

Expected third quarter 2006 shipments, in tons, as compared to previous quarters are as follows:

|                              |  | ForecastQ3 2006 |         | ActualQ2 2006 |  | ActualQ3 2005 |  
|----------------------------- |  | --------------- | ------- | ------------- |  | ------------- | -
|                              |  |                 |         |               |  |               |  
|Plate and   coil              |  |                 | 210,000 |               |  | 211,100       |  
|Welded pipe   (1)             |  |                 | 82,000  |               |  | 31,600        |  
|Structural   tubing           |  |                 | 23,000  |               |  | 19,500        |  
|Less   shipment to affiliates |  |                 | (71,000 | )             |  | (78,400       | )
|Rail                          |  |                 | 108,000 |               |  | 110,600       |  
|Rod and bar                   |  |                 | 87,000  |               |  | 77,600        |  
|Seamless   pipe               |  |                 | 21,000  |               |  | 21,200        |  
|                              |  |                 |         |               |  |               |  
|Total                         |  |                 | 460,000 |               |  | 393,200       |  
|                              |  |                 |         |               |  |               |  

|                                                                       
|-----------------------------------------------------------------------
|(1)  Includes large diameter line pipe, ERW   line pipe and ERW casing.

Discussion and Analysis of Income(Information in tables in thousands except tons, per ton, and percentages)

|                              |  | Three Months Ended June 30, |         | Six Months Ended June 30, |  
|----------------------------- |  | --------------------------- | ------- | ------------------------- | -
|                              |  |                             |         |                           |  
|                              |  | 2006                        |         | 2005                      |  
|                              |  |                             |         |                           |  
|Sales                         |  |                             |         |                           |  
|Oregon Steel Division         |  | $                           | 191,840 |                           | $
|RMSM Division                 |  |                             | 157,749 |                           |  
|                              |  |                             |         |                           |  
|Consolidated                  |  | $                           | 349,589 |                           | $
|                              |  |                             |         |                           |  
|Tons sold                     |  |                             |         |                           |  
|Oregon Steel Division:        |  |                             |         |                           |  
|Plate   and Coil              |  |                             | 132,700 |                           |  
|Welded   Pipe                 |  |                             | 31,600  |                           |  
|Structural   Tubing           |  |                             | 19,500  |                           |  
|                              |  |                             |         |                           |  
|Total   Oregon Steel Division |  |                             | 183,800 |                           |  
|                              |  |                             |         |                           |  
|RMSM Division:                |  |                             |         |                           |  
|Rail                          |  |                             | 110,600 |                           |  
|Rod   and Bar                 |  |                             | 77,600  |                           |  
|Seamless   Pipe               |  |                             | 21,200  |                           |  
|                              |  |                             |         |                           |  
|Total   RMSM Division         |  |                             | 209,400 |                           |  
|                              |  |                             |         |                           |  
|Consolidated                  |  |                             | 393,200 |                           |  
|                              |  |                             |         |                           |  
|Sales price per ton           |  |                             |         |                           |  
|Oregon Steel Division         |  | $                           | 1,044   |                           | $
|RMSM Division                 |  | $                           | 753     |                           | $
|Consolidated                  |  | $                           | 889     |                           | $

34



Sales

The increases in consolidated tonnage shipments for the comparative three and six month periods are primarily due to increased shipments of plate and coil, structural tubing, rail and seamless pipe, partially offset by lower shipments of welded pipe and rod and bar products.  The Companys seamless pipe mill, which was idled in November of 2003, was restarted in December of 2005 and shipped 21,200 and 35,200 tons of seamless casing during the three and six months ended June 30, 2006, respectively.  The increase in sales was primarily due to the higher shipments noted above, the shipments of seamless pipe (the Companys highest averaged selling priced product) and higher average selling prices for ERW pipe, rail and rod and bar products, partially offset by lower average selling prices for plate products.

Gross Profit

|                      |  | Three Months Ended June 30, |        | Six Months Ended June 30, |  
|--------------------- |  | --------------------------- | ------ | ------------------------- | -
|                      |  |                             |        |                           |  
|                      |  | 2006                        |        | 2005                      |  
|                      |  |                             |        |                           |  
|Gross Profit          |  | $                           | 90,002 |                           | $
|Gross Profit   Margin |  |                             | 25.7   | %                         |  

The increase
in gross profit in the three months ended June 30, 2006 compared to the same
period in 2005 was primarily a result of higher average sales prices in the RMSM
Division combined with lower steel slab prices, partially offset by lower
volumes in the Oregon Steel Division.  The increase in gross profit in the
six months ended June 30, 2006 compared to the same period in 2005 was primarily
a result of the addition of seamless pipe, higher average sales prices in the
RMSM Division and higher volumes in the Oregon Steel Division, combined with
lower steel slab prices.  Gross margin as a percentage of sales for the
three and six months ended June 30, 2006 increased due primarily to an increase
in margins for all product lines, primarily as a result of the higher selling
prices noted above, particularly seamless pipe. The Companys gross profit
in the second quarter 2006 was negatively impacted by a $3.6 million charge
related to cancellation and buyout costs of a contract to supply oxygen to the
now closed melt shop at the Companys Portland, Oregon mill.

Selling, General and Administrative Expenses

|                                               |  | Three Months Ended June 30, |        | Six Months Ended June 30, |  
|---------------------------------------------- |  | --------------------------- | ------ | ------------------------- | -
|                                               |  |                             |        |                           |  
|                                               |  | 2006                        |        | 2005                      |  
|                                               |  |                             |        |                           |  
|Selling,   General and Administrative Expenses |  | $                           | 19,641 |                           | $

The increase
in selling, general and administrative expenses for the three and six months
ended June 30, 2006 compared to the same periods in 2005 was the result of an
increase in incentive compensation of approximately $1.9 million and $3.5
million for the three and six months ended June 30, 2006, respectively. 
Incentive compensation for the three and six months ended June 30, 2006 includes
stock compensation expense of $1.3 million and $2.5 million, respectively. 
The Company formerly presented incentive compensation expense as a separate line
item on its financial statements.  These amounts have been reclassified
into cost of sales and selling, general and administrative expenses. In
addition, shipping costs increased in 2006 over 2005.

The Company
recorded charges of $3.2 million and $3.4 million for the six months ended June
30, 2006 and 2005, respectively, for the Back Pay Profit Sharing Obligation and
related payroll taxes.  See Note 10 to the Companys Consolidated
Financial Statements, Contingencies  Other
Agreements.

Interest Expense, net

|                        |  | Three Months Ended June 30, |       | Six Months Ended June 30, |  
|----------------------- |  | --------------------------- | ----- | ------------------------- | -
|                        |  |                             |       |                           |  
|                        |  | 2006                        |       | 2005                      |  
|                        |  |                             |       |                           |  
|Interest   Expense, net |  | $                           | 6,771 |                           | $

Interest expense for the three and six months ended June 30, 2006 decreased from the same periods in 2005 due to increased capitalized interest.  Substantially all of the Companys interest expense is related to the 10% First Mortgage Notes due 2009 (10% Notes) which were redeemed on as of July 15, 2006.  See Note 12 to the Companys Consolidated Financial Statements, Subsequent Events.

35



Income Tax Expense

|                     |  | Three Months Ended June 30, |        | Six Months Ended June 30, |  
|-------------------- |  | --------------------------- | ------ | ------------------------- | -
|                     |  |                             |        |                           |  
|                     |  | 2006                        |        | 2005                      |  
|                     |  |                             |        |                           |  
|Income Tax   Expense |  | $                           | 21,120 |                           | $

The effective income tax expense rates are 32.5% and 34.2%, respectively, for the three and six months ended June 30, 2006 as compared to effective income tax expense rates of 38.7% and 37.4%, respectively, for the three and six months ended June 30, 2005.  The effective income tax rates for 2006 varied from the combined state and federal statutory rates principally because the Company reversed the remaining valuation allowance, established in 2003, for certain state tax net operating losses and state tax credits.  The combined state and federal statutory rate was also reduced in the three and six months ended June 30, 2006 by tax benefits tied to export sales and domestic manufacturing.  Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes, requires that tax benefits for federal and state net operating loss carry-forwards, state tax credits,



and alternative minimum tax credits each be recorded as an asset to the extent that management assesses the utilization of such assets to be more likely than not; otherwise, a valuation allowance is required to be recorded.  Based on this guidance, the Company decreased the valuation allowance by $4.0 million during both the three and six months ended June 30, 2006, because the improved earnings reduced this uncertainty.  The Company will continue to evaluate the need for valuation allowances in the future.  Changes in estimated future taxable income and other underlying factors may lead to adjustments to the valuation allowances.  As of June 30, 2006, the Company does not have a valuation allowance recorded against its deferred tax assets.

Liquidity and Capital Resources

At June 30, 2006, the Companys liquidity, comprised of cash (excluding restricted cash and cash equivalents of $4.9 million), cash equivalents, and short-term investments totaled approximately $272.9 million.  At December 31, 2005, the Companys liquidity, comprised of cash (excluding restricted cash and cash equivalents of $22.1 million), cash equivalents, and short-term investments totaled approximately $156.2 million.

Net working capital at June 30, 2006 decreased $217.5 million compared to December 31, 2005, reflecting a $340.0 million increase in current liabilities   and a $122.5 million increase in current assets.  The increase in current liabilities at June 30, 2006 is primarily due to the reclassification of the Companys outstanding 10% Notes as current liabilities at June 30, 2006 as the Company had announced the intent to redeem all of the outstanding 10% Notes.  The Company redeemed the outstanding 10% Notes as of July 15, 2006.  See Note 12 to the Companys Consolidated Financial Statements, Subsequent Events.  Current liabilities also increased as a result of increased accounts payable and accrued expenses at June 30, 2006 as compared to June 30, 2005.  The increase in current assets was primarily a result of a $116.7 million increase in
cash and cash equivalents and short-term investments.

Additions in property, plant and equipment were $44.0 million at June 30, 2006, compared to $23.0 million at June 30, 2005.  Asset additions in the first two quarters of 2006 include continuing construction in progress of the new spiral weld mill, which is expected to be completed in August of 2006.  Depreciation and amortization for the three and six months ended June 30, 2006 was $10.9 million and $21.7 million, respectively, compared to $9.7 million and $19.4 million in the same periods in 2005.  For all of 2006, the Company anticipates that capital expenditures and depreciation and amortization will be approximately $92.5 million and $45.9 million, respectively.

On July 15, 2002, the Company issued $305.0 million of 10% First Mortgage Notes due 2009 at a discount of 98.772% and an interest rate of 10.0%.  Interest is payable on January 15 and July 15 of each year. The 10% Notes are secured by a lien on substantially all of the property, plant and equipment, and certain other assets of the Company (exclusive of CPC and OFP), excluding accounts receivable, inventory, and certain other assets.  The Indenture under which the 10% Notes were issued contains restrictions (except for CPC and OFP) on new indebtedness and various types of disbursements, including dividends, based on the cumulative amount of the Companys net income, as defined. New CF&I and CF&I (collectively, the Guarantors) guarantee the obligations of the 10% Notes, and those guarantees are secured by a lien on substantially all of the property, plant and equipment and



certain other assets of the Guarantors, excluding accounts receivable, inventory, and certain other assets.  At any time on or after July 15, 2006, the 10% Notes are redeemable at the option of the Company.  On July 17, 2006, the Company completed the redemption of the 10% Notes as of July 15, 2006.  The completion of the redemption terminates substantially all of the Companys and the Guarantors obligations under the Indenture and related documents, including the restrictions and liens noted herein.  See Note 12 to the Consolidated Financial Statements, Subsequent Events.

36



On June 6, 2006, Oregon Steel Mills, Inc., New CF&I, Inc., CF&I Steel, L.P., and Colorado and Wyoming Railway Company entered into a five-year, $175.0 million revolving credit facility (Credit Facility) with a $35 million sublimit letter of credit facility.  At June 30, 2006, $9.6 million was restricted under outstanding letters of credit and $165.4 million was available for use.  Amounts under the Credit Facility bear interest based on either (1) the prime rate plus a margin ranging from zero to 0.25% or (2) the LIBOR rate plus a margin ranging from 0.875% to 1.125%.  As of June 30, 2006, there was no outstanding balance due under the Credit Facility.  Annual commitment fees range from 0.125% to 0.25% of the unused portion of the Credit Facility.  The margins and unused commitment fees will be subject to adjustment within the ranges discussed above based on
average borrowing availability.  The Credit Facility contains various restrictive covenants, including a financial covenant for a minimum fixed charge coverage ratio and a restriction on the payment of dividends.  The Credit Facility limits the payment of dividends (and other specified restricted payments) to an aggregate total of $50 million plus 25% of cumulative net income and 100% of stock issuance proceeds and minus 100% of cumulative net loss.  The Credit Facility is secured by a lien on inventory and accounts receivable.

As of June
30, 2006, the Company had $4.9 million of restricted cash as collateral
supporting $4.7 million of letters of credit associated with a letter of credit
facility with U.S. Bank National Association.  This facility was terminated
as of July 14, 2006 in connection with the new Credit Facility.

On March 29, 2000, OFP entered into a seven-year $14.0 million loan agreement for the purchase of certain processing assets and for the construction of a processing facility.  Amounts outstanding under the loan agreement bear interest based on the LIBOR rate plus a margin ranging from 1.25% to 3.00% and, as of June 30, 2006, there was $5.1 million of principal outstanding of which $2.0 million was classified as current.  The loan is secured by all the assets of OFP.  The loan agreement contains various restrictive covenants including a minimum tangible net worth amount, a minimum debt service coverage ratio, and a specified amount of insurance coverage.  Principal payments required on the loan are $0.5 million per quarter but can be accelerated for excess cash flows, as defined.  Excess cash flows generated in 2004 resulted in $0.4 million of additional principal payments paid in
2005.  No accelerated payments are expected during 2006.  The creditors of OFP have no recourse to the general credit of the Company.

On September 17, 2004, CPC entered into a ten-year loan agreement related to an undivided 50% interest as tenants in common in a warehouse under a co-tenancy agreement.  CPCs share of the debt is $3.5 million.  Amounts outstanding under the loan agreement bear interest at a rate of 6.57%.  As of June 30, 2006, CPCs share of the principal outstanding was $3.5 million of which $43,000 was classified as current.  The loan is secured by the warehouse and contains various restrictive covenants on CPC including minimum income and cash flow requirements, a minimum debt service coverage amount and limitations on incurring new or additional debt obligations other than as allowed by the loan agreement.

Camrose maintains a CAD $15.0 million revolving credit facility with a Canadian bank, the proceeds of which may be used for working capital and general business purposes of Camrose.  Amounts under the facility bear interest based on the Canadian prime rate.  The facility is collateralized by substantially all of the assets of Camrose, and borrowings under this facility are limited to an amount equal to the sum of the product of specified advance rates and Camroses eligible trade accounts receivable and inventories.  The credit facility contains various restrictive covenants including a minimum tangible net worth amount.  This facility expires in September 2006.  The average interest rate for the facility was 5.78% and 5.52%, respectively, for the three and six months ended June 30, 2006.  Camrose pays annual commitment fees up to 0.25% of the unused portion of the
credit line.  At June 30, 2006, there was $4.8 million due under the credit facility.

As of June 30, 2006, principal payments on debt are due as follows (in thousands):

|2006                  |  | $ | 308,859 | 
|--------------------- |  | - | ------- | 
|2007                  |  |   | 4,122   | 
|2008                  |  |   | 47      | 
|2009                  |  |   | 51      | 
|2010                  |  |   | 54      | 
|2011                  |  |   | 58      | 
|2012 and   thereafter |  |   | 3,215   | 
|                      |  |   |         | 
|                      |  | $ | 316,406 | 
|                      |  |   |         | 

Due to the favorable net results for the first three and six months of 2006, the Company has been able to satisfy its needs for working capital and capital expenditures through operations and, in part, through its available cash on hand.  The Company believes that its anticipated needs for working capital and capital expenditures for the next twelve months will be met from cash on hand, from funds generated from operations, and if necessary, from the available credit facilities.

37



Off Balance Sheet Arrangements

Information on the Companys off balance sheet arrangements is disclosed in the contractual obligations table of the Companys 2005 Annual Report on Form 10-K, and there have been no material changes in the first two quarters of 2006.

Recent Accounting Pronouncements

In November
2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 151,
Inventory Costs, an Amendment of ARB No. 43, Chapter 4. 
SFAS No. 151 amends Accounting Research Bulletin 43, Chapter 4, to clarify that
the abnormal amounts of idle facility expense, freight, handling costs and
wasted materials (spoilage) be recognized as current period charges.  It
also requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. 
The Company adopted SFAS No.151 on January 1, 2006 with no impact on the
Consolidated Financial Statements.

Effective January 1, 2006, the Company adopted SFAS No. 123R (revised 2004), Share-Based Payment, which requires all share-based payments to employees, including grants of employee stock options, be recognized in the income statement based on their fair values.  The Company incurs expense over the vesting period for all outstanding unvested stock options as well as future grants of stock options, if any.  In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (SAB 107) related to SFAS No. 123R.  The Company has applied the provisions of SAB 107 in its adoption of SFAS No. 123R.  See Note 2 to the Consolidated Financial Statements, Stock-Based Compensation for information regarding the Companys adoption of SFAS No. 123R.

In May 2005,
the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections, which replaces Accounting Principles Board
(APB) Opinion No. 20, Accounting Changes and SFAS
No. 3, Reporting Accounting Changes in Interim Financial
Statements and requires the retrospective application to prior
periods financial statements for changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change.  The retrospective application of the
change would be limited to the direct effects of the change, and indirect
effects would be recognized in the period of the accounting change.  The
Company adopted this standard on January 1, 2006, and it did not have an
impact on the Consolidated Financial Statements.

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109(FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognize in its financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 will be effective as of the beginning of the Companys 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on the Consolidated Financial Statements.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

No material changes.

Item 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report.  Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Companys disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

38



Changes in Internal Control Over Financial Reporting

There
has been no change in our internal control over financial reporting that
occurred during the three months ended June 30, 2006, that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings

See Note 10 to the Companys Consolidated Financial Statements, Contingencies, for discussion of the environmental issues at the Portland Mill and RMSM.

The Company is a party to various other 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 tort liability arising from the sale of its products.  The Company does not maintain insurance against liability arising out of waste disposal or on-site remediation of environmental contamination because of the high cost of that coverage.  In addition, the Companys per claim deductible for workers compensation claims is $2 million due to the high cost of maintaining such insurance with a lower deductible.  There is no assurance that the insurance coverage carried by the Company will be available in the future at reasonable rates, if at all.

Item 1A.   Risk Factors

Information regarding risk factors appears in Item 1A of the Companys Annual Report on Form 10-K for the year ended December 31, 2005.  There have been no material changes for the three and six months ended June 30, 2006 from the risk factors disclosed in the 2005 Annual Report on Form 10-K.

39



Item 6.   Exhibits

|10.1 | Credit   Agreement, dated as of June 6, 2006, among the Company, New CF&I, Inc.,   CF&I Steel, L.P., Colorado and Wyoming Railway Company, as borrowers, and   General Electric Capital Corporation, as agent and lender.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                          
|10.2 | Oregon Steel   Mills, Inc. 2002 Non-Employee Directors Stock Option Plan, Amended March 23,   2006, Effective April 28, 2004                                                                                            
|     |                                                                                                                                                                                                                          
|31.1 | Certification   of Chief Executive Officer required by Rules 13a-14(a) and 15d-14(a) as   promulgated by the Securities and Exchange Commission and pursuant to Section   302 of the Sarbanes-Oxley Act of 2002.         
|     |                                                                                                                                                                                                                          
|31.2 | Certification   of Chief Financial Officer required by Rules 13a-14(a) and 15d-14(a) as   promulgated by the Securities and Exchange Commission and pursuant to Section   302 of the Sarbanes-Oxley Act of 2002.         
|     |                                                                                                                                                                                                                          
|32.1 | Certification   of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.   Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of   2002.                                     

40



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|                       |  | OREGON STEEL MILLS, INC.        
|---------------------- |  | --------------------------------
|                       | 
|                       | 
|Date:  July   28, 2006 |  | /s/  Robin A. Gantt             
|                       |  |                                 
|                       |  | Robin A.   Gantt                
|                       |  | Corporate   Controller          
|                       |  | (Principal   Accounting Officer)

41



OREGON STEEL MILLS, INC.

Exhibit Index

LIST OF EXHIBITS FILED WITH FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2006

|10.1 | Credit   Agreement, dated as of June 6, 2006, among the Company, New CF&I, Inc.,   CF&I Steel, L.P., Colorado and Wyoming Railway Company, as borrowers, and   General Electric Capital Corporation, as agent and lender.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                          
|10.2 | Oregon Steel   Mills, Inc. 2002 Non-Employee Directors Stock Option Plan, Amended March 23,   2006, Effective April 28, 2004.                                                                                           
|     |                                                                                                                                                                                                                          
|31.1 | Certification   of Chief Executive Officer required by Rules 13a-14(a) and 15d-14(a) as   promulgated by the Securities and Exchange Commission and pursuant to Section   302 of the Sarbanes-Oxley Act of 2002.         
|     |                                                                                                                                                                                                                          
|31.2 | Certification   of Chief Financial Officer required by Rules 13a-14(a) and 15d-14(a) as   promulgated by the Securities and Exchange Commission and pursuant to Section   302 of the Sarbanes-Oxley Act of 2002.         
|     |                                                                                                                                                                                                                          
|32.1 | Certification   of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.   Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of   2002.                                     

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