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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington 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, 2005                                       
|                                                                                         |                                                                                           
|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                                                                             |  | 94-0506370                         
|------------------------------------------------------------------------------------ |  | -----------------------------------
|                                                                                     |  |                                    
|(State or   other jurisdiction of incorporation or organization)                     |  | (IRS   Employer Identification No.)
|                                                                                     |  |                                    
|1000 S.W. Broadway, Suite 2200, Portland, Oregon                                     |  | 97205                              
|                                                                                     |  |                                    
|(Address   of principal executive offices)                                           |  | (Zip Code)                         
|                                                                                     |  |                                    
|(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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

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

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 |  | 35,484,489                                             
|---------------------------- |  | -------------------------------------------------------
|                             |  |                                                        
|Class                        |  | Number of   Shares Outstanding   (as of August 1, 2005)
|                             |  |                                                        

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OREGON STEEL MILLS, INC.

TABLE OF CONTENTS

|PART I.    FINANCIAL INFORMATION | 3         
|-------------------------------- | ----------
|                                 |           
|                                 | Item 1.   
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|                                 | Item 2.   
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|                                 | Item 3.   
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|                                 | Item 4.   
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|PART II.    OTHER INFORMATION    | 41        
|                                 |           
|                                 | Item 1.   
|                                 |           
|                                 | Item 4.   
|                                 |           
|                                 | Item 6.   
|                                 |           
|                                 | SIGNATURES

2



PART I.    FINANCIAL INFORMATIONItem 1.  Financial Statements

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

|                                                                                                                      |  | June 30,   2005 |           | December   31,   2004 |  
|--------------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | --------------------- | -
|                                                                                                                      |  |                 |           |                       |  
|                                                                                                                      |  | (Unaudited)     |           |                       |  
|ASSETS                                                                                                                |  |                 |           |                       |  
|Current   assets:                                                                                                     |  |                 |           |                       |  
|Cash and cash equivalents, including restricted cash of $23,250 and   none                                            |  | $               | 70,876    |                       | $
|Short-term investments                                                                                                |  |                 | 38,850    |                       |  
|Trade accounts receivable, less allowance for doubtful accounts of   $1,224 and $4,660                                |  |                 | 110,050   |                       |  
|Inventories                                                                                                           |  |                 | 336,053   |                       |  
|Deferred income taxes                                                                                                 |  |                 | 7,294     |                       |  
|Other                                                                                                                 |  |                 | 12,726    |                       |  
|Assets held for sale                                                                                                  |  |                 | 28,322    |                       |  
|                                                                                                                      |  |                 |           |                       |  
|Total current assets                                                                                                  |  |                 | 604,171   |                       |  
|                                                                                                                      |  |                 |           |                       |  
|Property,   plant and equipment:                                                                                      |  |                 |           |                       |  
|Land and improvements                                                                                                 |  |                 | 21,086    |                       |  
|Buildings                                                                                                             |  |                 | 56,444    |                       |  
|Machinery and equipment                                                                                               |  |                 | 798,895   |                       |  
|Construction in progress                                                                                              |  |                 | 30,334    |                       |  
|                                                                                                                      |  |                 |           |                       |  
|                                                                                                                      |  |                 | 906,759   |                       |  
|Accumulated depreciation                                                                                              |  |                 | (445,528  | )                     |  
|                                                                                                                      |  |                 |           |                       |  
|Net property, plant and equipment                                                                                     |  |                 | 461,231   |                       |  
|                                                                                                                      |  |                 |           |                       |  
|Goodwill                                                                                                              |  |                 | 3,042     |                       |  
|Intangibles,   net                                                                                                    |  |                 | 33,314    |                       |  
|Other assets                                                                                                          |  |                 | 9,663     |                       |  
|                                                                                                                      |  |                 |           |                       |  
|TOTAL ASSETS                                                                                                          |  | $               | 1,111,421 |                       | $
|                                                                                                                      |  |                 |           |                       |  
|LIABILITIES                                                                                                           |  |                 |           |                       |  
|Current   liabilities:                                                                                                |  |                 |           |                       |  
|Current portion of long-term debt                                                                                     |  | $               | 10,201    |                       | $
|Accounts payable                                                                                                      |  |                 | 65,036    |                       |  
|Accrued expenses                                                                                                      |  |                 | 69,513    |                       |  
|Liabilities related to assets held for sale                                                                           |  |                 | 1,010     |                       |  
|                                                                                                                      |  |                 |           |                       |  
|Total current liabilities                                                                                             |  |                 | 145,760   |                       |  
|Long-term   debt                                                                                                      |  |                 | 316,352   |                       |  
|Deferred   employee benefits                                                                                          |  |                 | 82,456    |                       |  
|Environmental   liability                                                                                             |  |                 | 26,643    |                       |  
|Deferred   income taxes                                                                                               |  |                 | 30,254    |                       |  
|Other   long-term liabilities                                                                                         |  |                 | 245       |                       |  
|                                                                                                                      |  |                 |           |                       |  
|Total liabilities                                                                                                     |  |                 | 601,710   |                       |  
|                                                                                                                      |  |                 |           |                       |  
|Minority   interests                                                                                                  |  |                 | 13,381    |                       |  
|                                                                                                                      |  |                 |           |                       |  
|Commitments   and contingencies (Note 10)                                                                             |  |                 |           |                       |  
|STOCKHOLDERS EQUITY                                                                                                  |  |                 |           |                       |  
|Preferred   stock, par value $.01 per share, 1,000 shares authorized; none issued                                     |  |                 |          |                       |  
|Common   stock, par value $.01 per share; 45,000 shares authorized; 35,456 and 35,338   shares issued and outstanding |  |                 | 355       |                       |  
|Additional   paid-in capital                                                                                          |  |                 | 360,892   |                       |  
|Retained   earnings                                                                                                   |  |                 | 147,091   |                       |  
|Accumulated   other comprehensive loss:                                                                               |  |                 |           |                       |  
|Cumulative foreign currency translation adjustment                                                                    |  |                 | (1,221    | )                     |  
|Minimum pension liability                                                                                             |  |                 | (10,787   | )                     |  
|                                                                                                                      |  |                 |           |                       |  
|Total stockholders equity                                                                                            |  |                 | 496,330   |                       |  
|                                                                                                                      |  |                 |           |                       |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                            |  | $               | 1,111,421 |                       | $
|                                                                                                                      |  |                 |           |                       |  

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

3



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

|                                                                           |  | Three   Months Ended   June 30, |         | Six Months   Ended   June 30, |  
|-------------------------------------------------------------------------- |  | ------------------------------- | ------- | ----------------------------- | -
|                                                                           |  |                                 |         |                               |  
|                                                                           |  | 2005                            |         | 2004                          |  
|                                                                           |  |                                 |         |                               |  
|Sales:                                                                     |  |                                 |         |                               |  
|Product sales                                                              |  | $                               | 321,531 |                               | $
|Freight                                                                    |  |                                 | 13,428  |                               |  
|                                                                           |  |                                 |         |                               |  
|                                                                           |  |                                 | 334,959 |                               |  
|Costs and expenses:                                                        |  |                                 |         |                               |  
|Cost of sales                                                              |  |                                 | 264,228 |                               |  
|Labor dispute settlement charges (Note 10)                                 |  |                                 |        |                               |  
|Selling, general and administrative expenses                               |  |                                 | 12,264  |                               |  
|Incentive compensation                                                     |  |                                 | 4,672   |                               |  
|Gain on disposal of assets                                                 |  |                                 | (212    | )                             |  
|                                                                           |  |                                 |         |                               |  
|                                                                           |  |                                 | 280,952 |                               |  
|                                                                           |  |                                 |         |                               |  
|Operating income                                                           |  |                                 | 54,007  |                               |  
|Other income (expense):                                                    |  |                                 |         |                               |  
|Interest expense                                                           |  |                                 | (8,326  | )                             |  
|Minority interests                                                         |  |                                 | (1,176  | )                             |  
|Other income                                                               |  |                                 | 1,854   |                               |  
|                                                                           |  |                                 |         |                               |  
|Income before income taxes                                                 |  |                                 | 46,359  |                               |  
|Income tax benefit (expense)                                               |  |                                 | (17,934 | )                             |  
|                                                                           |  |                                 |         |                               |  
|Net income                                                                 |  | $                               | 28,425  |                               | $
|                                                                           |  |                                 |         |                               |  
|Basic income   per share                                                   |  | $                               | 0.80    |                               | $
|Diluted   income per share                                                 |  | $                               | 0.80    |                               | $
|Weighted   average common shares and common share equivalents outstanding: |  |                                 |         |                               |  
|Basic                                                                      |  |                                 | 35,439  |                               |  
|Diluted                                                                    |  |                                 | 35,750  |                               |  

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

4



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

|                                                                                           |  | Six Months   Ended   June 30, |         
|------------------------------------------------------------------------------------------ |  | ----------------------------- | --------
|                                                                                           |  |                               |         
|                                                                                           |  | 2005                          |         
|                                                                                           |  |                               |         
|Cash flows   from operating activities:                                                    |  |                               |         
|Net income                                                                                 |  | $                             | 56,775  
|Adjustments to reconcile net income to net cash provided by operating   activities:        |  |                               |         
|Depreciation and amortization                                                              |  |                               | 19,445  
|Tax benefit on employee stock option plans                                                 |  |                               | 748     
|Deferred income taxes                                                                      |  |                               | 20,005  
|Gain on disposal of assets                                                                 |  |                               | (299    
|Loss on repurchase of 10% First Mortgage Notes                                             |  |                               | 211     
|Stock compensation expense                                                                 |  |                               | 591     
|Minority interests                                                                         |  |                               | 4,252   
|Other, net                                                                                 |  |                               | (102    
|Changes in current assets and liabilities:                                                 |  |                               |         
|Trade accounts receivables                                                                 |  |                               | 8,902   
|Inventories                                                                                |  |                               | (100,619
|Operating liabilities                                                                      |  |                               | (7,621  
|Labor dispute settlement charges (Note 10)                                                 |  |                               |        
|Other                                                                                      |  |                               | 1,111   
|                                                                                           |  |                               |         
|Net cash provided by operating activities                                                  |  |                               | 3,399   
|                                                                                           |  |                               |         
|Cash flows   from investing activities:                                                    |  |                               |         
|Purchases of short-term investments                                                        |  |                               | (64,592 
|Sales and maturities of short-term investments                                             |  |                               | 85,841  
|Additions to property, plant and equipment                                                 |  |                               | (23,000 
|Proceeds from disposal of property and equipment                                           |  |                               | 345     
|Investment in Camrose Pipe Company                                                         |  |                               | (18,603 
|Other, net                                                                                 |  |                               | 10      
|                                                                                           |  |                               |         
|Net cash used by investing activities                                                      |  |                               | (19,999 
|                                                                                           |  |                               |         
|Cash flows   from financing activities:                                                    |  |                               |         
|Net borrowings under Canadian bank revolving loan facility                                 |  |                               | 13,517  
|Proceeds from bank debt                                                                    |  |                               |        
|Payments on bank and long-term debt                                                        |  |                               | (1,440  
|Proceeds from issuance of common stock                                                     |  |                               | 553     
|Repurchase of 10% First Mortgage Notes                                                     |  |                               | (2,173  
|                                                                                           |  |                               |         
|Net cash provided by financing activities                                                  |  |                               | 10,457  
|                                                                                           |  |                               |         
|Effects of   foreign currency exchange rate changes on cash                                |  |                               | (7      
|                                                                                           |  |                               |         
|Net increase   (decrease) in cash and cash equivalents                                     |  |                               | (6,150  
|Cash and   cash equivalents at the beginning of period                                     |  |                               | 77,026  
|                                                                                           |  |                               |         
|Cash and   cash equivalents at the end of period                                           |  | $                             | 70,876  
|                                                                                           |  |                               |         
|Supplemental   disclosures of cash flow information:                                       |  |                               |         
|Cash paid for:                                                                             |  |                               |         
|Interest                                                                                   |  | $                             | 16,325  
|Income taxes                                                                               |  | $                             | 13,557  
|Non-cash activities:                                                                       |  |                               |         
|See Note 11 for a   description of the non-cash consolidation of Oregon Feralloy Partners. |  |                               |         

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 Camrose Pipe Company (Camrose); a 60 percent interest in Oregon Feralloy Partners (OFP) and 87 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 unaudited financial statements include estimates and other adjustments, consisting of normal recurring accruals and other charges as described in Note 10 to the Consolidated Financial Statements, Contingencies  Labor Matters  CF&I Labor Dispute Settlement  Accounting which, in the opinion of management, are necessary for a fair presentation of the interim periods.  Results for an interim period are not necessarily indicative of results for a full year.  Reference should be made to the Companys 2004 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.  SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  The Company is in the process of assessing the impact of adopting this new standard.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29.  The guidance in Accounting Principles Board (APB) Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.  The guidance in APB Opinion No. 29, however, included certain exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  SFAS No.
153 is effective for nonmonetary asset exchanges in fiscal periods beginning after June 15, 2005.  The Company does not believe that the adoption of SFAS No. 153 will have a material impact on the Consolidated Financial Statements.

In December 2004, the FASB issued SFAS No. 123R (revised 2004), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation.  SFAS No. 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows.  Generally, the approach in Statement 123R is similar to the approach described in SFAS 123, however, SFAS 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. Once effective, pro forma disclosures currently provided in Note 2 to the Consolidated Financial Statements, Stock-Based Compensation,in lieu of recognition of stock compensation expense, will no longer be an alternative. The
Securities and Exchange Commission has amended the compliance dates originally established by SFAS No. 123R, and the adoption of this standard is required for fiscal years beginning after June 15, 2005. The Company is in the process of assessing the impact of adopting this new standard.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces 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.  SFAS No. 154 is effective for fiscal years beginning after December 31, 2005.  The Company does not believe that the adoption of SFAS No. 154 will have a material impact on the Consolidated Financial
Statements.

6



Reclassifications

Certain reclassifications have been made to the prior periods to conform to the current year presentation.  Such reclassifications do not affect results of operations as previously reported.

2.       Stock-Based Compensation

The Company
has two stock-based compensation plans to make awards of stock options to
officers, key employees and non-employee directors. The Company accounts for its
option plans under the recognition and measurement principles of APB Opinion No.
25, Accounting for Stock Issued to Employees, and related
interpretations.   No stock-based compensation cost is reflected in
net income from these 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.  Options have a term of ten years and generally vest over
one to three years from the date of the grant.

The Company did not award options during the three and six months ended June 30, 2005.  On April 29, 2004, the Company awarded options having a weighted average fair value of $5.66 per share, derived using the following assumptions:  (1) an annualized dividend yield of 0%, (2) common stock price volatility of 71.5%, (3) a 4.1% risk-free rate of return and (4) an expected option term of 7 years.

On April 28,
2005, the Company adopted the 2005 Long-Term Incentive Plan
(LTIP).  Under the LTIP, performance-based equity awards
(Performance Shares) are earned based on the Company achieving goals
within defined performance categories over a three-year period beginning January
1, 2005.  The performance categories used to determine how many Performance
Shares ultimately will be earned are (1) the Companys total shareholder
return (TSR) relative to the TSR of the selected industry peer group
and (2) the three-year average earnings before interest, taxes, depreciation and
amortization (EBITDA).  One half of the total Performance
Shares awarded are earned based on each performance category.  Earned
awards will be paid 60% in cash and 40% in Company common stock.  In
accordance with APB Opinion No. 25, the Company recorded compensation expense of
$0.6 million in the second quarter, which represents expense for the first six
months of the three-year performance period, and is based on the quoted market
price of the Companys stock at June 30, 2005.

Also in conjunction with the LTIP, shares of restricted common stock were awarded to non-employee directors with the shares vesting in equal parts over three years beginning April 28, 2005.  The Company recorded compensation expense of $11,000 in the second quarter, which represents expense for the first two months of the three-year vesting period.

The following table illustrates the effect on net income and earnings per share as if the Black-Scholes fair value method described in SFAS No. 123, Accounting for Stock-Based Compensation, as amended, had been applied to the Companys stock-based compensation plans.

|                                                                                                                                     |  | Three   Months Ended June 30,              |        | Six Months   Ended June 30, |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------ | ------ | --------------------------- | -
|                                                                                                                                     |  |                                            |        |                             |  
|                                                                                                                                     |  | 2005                                       |        | 2004                        |  
|                                                                                                                                     |  |                                            |        |                             |  
|                                                                                                                                     |  | (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   |                             | $

7



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,   2005  |         | December   31,   2004 |  
|------------------------------- |  | ---------------- | ------- | --------------------- | -
|                                |  |                  |         |                       |  
|                                |  | (In   thousands) |        
|Raw   materials                 |  | $                | 16,075  |                       | $
|Semi-finished   product         |  |                  | 203,768 |                       |  
|Finished   product              |  |                  | 86,567  |                       |  
|Stores and   operating supplies |  |                  | 29,643  |                       |  
|                                |  |                  |         |                       |  
|Total inventories               |  | $                | 336,053 |                       | $
|                                |  |                  |         |                       |  

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.

4.       Comprehensive Income

|                                          |  | Three   Months Ended June 30, |        | Six Months   Ended June 30, |  
|----------------------------------------- |  | ----------------------------- | ------ | --------------------------- | -
|                                          |  |                               |        |                             |  
|                                          |  | 2005                          |        | 2004                        |  
|                                          |  |                               |        |                             |  
|                                          |  | (In   thousands)              |        | (In   thousands)            |  
|Net income                                |  | $                             | 28,425 |                             | $
|Foreign   currency translation adjustment |  |                               | (678   | )                           |  
|                                          |  |                               |        |                             |  
|Comprehensive   income                    |  | $                             | 27,747 |                             | $
|                                          |  |                               |        |                             |  

5.       Debt, Financing Arrangements and Liquidity

Debt balances were as follows:

|                                                            |  | June 30,   2005  |         | December   31,   2004 |  
|----------------------------------------------------------- |  | ---------------- | ------- | --------------------- | -
|                                                            |  |                  |         |                       |  
|                                                            |  | (In   thousands) |        
|10% First   Mortgage Notes due 2009                         |  | $                | 303,000 |                       | $
|Less   unamortized discount on 10% Notes                    |  |                  | (2,480  | )                     |  
|OFP Term   Loan                                             |  |                  | 7,077   |                       |  
|CPC Mortgage   Loan                                         |  |                  | 3,532   |                       |  
|Camrose   Revolving Credit Facility                         |  |                  | 15,424  |                       |  
|                                                            |  |                  |         |                       |  
|Total debt outstanding                                      |  |                  | 326,553 |                       |  
|Less current   portion of OFP Term Loan                     |  |                  | (2,000  | )                     |  
|Less current   portion of CPC Mortgage Loan                 |  |                  | (40     | )                     |  
|Less current   portion of Camrose Revolving Credit Facility |  |                  | (8,161  | )                     |  
|                                                            |  |                  |         |                       |  
|Non-current maturity of long-term debt                      |  | $                | 316,352 |                       | $
|                                                            |  |                  |         |                       |  

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 will be redeemable at the option of the Company, in whole or in part at a set range of redemption prices.  If redeemed during the twelve-month period beginning July 15, 2006 the price is 105% of the principal amount, plus accrued and unpaid interest and any liquidated damages, as defined.  The redemption price adjusts to 102.5% and 100%, respectively, for the two subsequent twelve-month periods.

8



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,
2005, there was $7.1 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.  The creditors of OFP have no recourse to the general credit
of the Company.  Effective January 1, 2004, the Company included the OFP
loan balance in the consolidated balance sheet as a result of the adoption of
FIN 46R.  See Note 11 to the Consolidated Financial Statements,
Joint Venture and Adoption of FIN 46R  Consolidation of Variable
Interest Entities.

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, 2005, CPCs share of the principal outstanding was $3.5 million of which $40,000 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.

On March 29, 2005, the Company entered into a Letter of Credit Facility Agreement (Credit Agreement) with U.S. Bank National Association.  The Credit Agreement, as amended, provides for a maximum borrowing of $35.0 million for the sole purpose of issuing letters of credit and terminates on March 29, 2006.  Under the Credit Agreement, the Company agrees to pay an issuance fee of the greater of $100 or the face amount of a letter of credit multiplied by 0.125% and a fee, payable quarterly in arrears, at a rate of 0.50% per annum of the average aggregate undrawn face amount of all outstanding letters of credit during the preceding calendar quarter.  The Credit Agreement contains certain customary covenants for credit facilities of this type, such as provisions regarding compliance with laws, taxes, notice to issuers and financial information and will be secured by restricted
cash.  As of June 30, 2005, the Company had $23.3 million of restricted cash as collateral supporting $22.1 million of letters of credit associated with the Credit Agreement.

Camrose maintains a CDN $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 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. At June 30, 2005, there were no restricted amounts for outstanding letters of credit.  Camrose has subsequently agreed to amendments to its existing loan agreement with the Canadian bank to include a temporary credit facility for an additional
CDN $15.0 million.  Any amounts drawn on the temporary credit facility will bear interest at the prime rate and will have to be repaid in the third quarter of 2005.  All other terms of the temporary credit facility are consistent with the original credit facility.  As of June 30, 2005, the interest rate of this facility was 4.25%.  Camrose pays annual commitment fees of up to 0.25% of the unused portion of the credit line.  At June 30, 2005, there was a $15.4 million outstanding balance due under the credit facility.

As of June 30, 2005, principal payments on debt are due as follows (in thousands):

|2005                  |  | $ | 8,294   | 
|--------------------- |  | - | ------- | 
|2006                  |  |   | 10,202  | 
|2007                  |  |   | 4,122   | 
|2008                  |  |   | 48      | 
|2009                  |  |   | 303,051 | 
|2010                  |  |   | 55      | 
|2011 and   thereafter |  |   | 3,261   | 
|                      |  |   |         | 
|                      |  | $ | 329,033 | 
|                      |  |   |         | 

6.     Income Taxes

The effective income tax expense rate was 38.7% and 37.4%, for the three and six months ended June 30, 2005, respectively, as compared to a tax benefit rate of less than 1.0% in the corresponding periods in 2004. The effective income tax rate for the three and six months ended June 30, 2005 varied from the combined state and federal statutory rate principally because the Company recorded tax benefits associated with export sales.  The effective income tax rate for the three and six months ended June 30, 2004 varied from the combined state and federal statutory rate principally because the Company reversed a portion of the valuation allowance, established in 2003, for certain federal and state net operating loss carry-forwards, state tax credits and alternative minimum tax credits.

9



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 increased the valuation allowance by $0.5 million and $0.3 million for the three and six months ended June 30, 2005, respectively, because of the uncertainty regarding the utilization of additional state tax credits identified in 2005.  For the three and six months ended June 30, 2004, the Company decreased the valuation allowance established in 2003 by $7.3 million and $10.5 million, respectively, because improved earnings reduced the uncertainty surrounding
allowances pertaining to 2003.   At June 30, 2005, the valuation allowance for deferred assets was $8.3 million.

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 stock awards and restricted stock awards, as determined using the treasury stock method.

Shares used in calculating basic and diluted earnings per share for the three-month and six-month periods ended June 30 are as follows:

|                                                                  |  | Three   Months Ended June 30,              |        | Six Months   Ended June 30, |  
|----------------------------------------------------------------- |  | ------------------------------------------ | ------ | --------------------------- | -
|                                                                  |  |                                            |        |                             |  
|                                                                  |  | 2005                                       |        | 2004                        |  
|                                                                  |  |                                            |        |                             |  
|                                                                  |  | (In   thousands, except per share amounts) |       
|Basic   weighted average shares outstanding                       |  |                                            | 35,439 |                             |  
|Dilutive   effect of stock based compensation awards              |  |                                            | 311    |                             |  
|                                                                  |  |                                            |        |                             |  
|Weighted   average number of shares outstanding assuming dilution |  |                                            | 35,750 |                             |  
|                                                                  |  |                                            |        |                             |  
|Net income                                                        |  | $                                          | 28,425 |                             | $
|                                                                  |  |                                            |        |                             |  
|Basic income   per share:                                         |  | $                                          | 0.80   |                             | $
|Diluted   income per share:                                       |  | $                                          | 0.80   |                             | $

8.       Employee Benefit Plans

The Company has noncontributory defined benefit retirement plans, certain health care and life insurance benefits, and qualified Thrift (401(k)) plans covering all of its eligible domestic employees.  The Company also has noncontributory defined benefit retirement plans covering all of its eligible Camrose employees.

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

|                                                  |  | Defined   Benefit Retirement Plans |       
|------------------------------------------------- |  | ---------------------------------- | ------
|                                                  |  |                                    |       
|                                                  |  | Three Months   Ended June 30,      |       
|                                                  |  |                                    |       
|                                                  |  | 2005                               |       
|                                                  |  |                                    |       
|                                                  |  | (In   thousands)                   |       
|Service cost                                      |  | $                                  | 1,084 
|Interest   cost                                   |  |                                    | 2,321 
|Expected   return on plan assets                  |  |                                    | (2,050
|Amortization   of unrecognized net loss           |  |                                    | 235   
|Amortization   of unrecognized prior service cost |  |                                    | 622   
|                                                  |  |                                    |       
|Total net periodic benefit cost                   |  | $                                  | 2,212 
|                                                  |  |                                    |       

10



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

|                                                    |  | Other   Benefit Plans         |    
|--------------------------------------------------- |  | ----------------------------- | ---
|                                                    |  |                               |    
|                                                    |  | Three   Months Ended June 30, |    
|                                                    |  |                               |    
|                                                    |  | 2005                          |    
|                                                    |  |                               |    
|                                                    |  | (In   thousands)              |    
|                                                    |  |                               |    
|Service cost                                        |  | $                             | 152
|Interest   cost                                     |  |                               | 538
|Amortization   of unrecognized net loss             |  |                               | 76 
|Amortization   of unrecognized net transition asset |  |                               | 49 
|Amortization   of unrecognized prior service cost   |  |                               | 180
|                                                    |  |                               |    
|Total net periodic benefit cost                     |  | $                             | 995
|                                                    |  |                               |    

The Company made contributions of $2.5 million and $6.3 million, respectively, to its defined benefit retirement plans for the three and six months ended June 30, 2005.  Contributions of $2.2 million were made during both the three and six months ended June 30, 2004.  The Company expects to make additional contributions of $1.2 million in 2005.

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 2004, the Company had two major suppliers of steel slab.  It is expected that these companies, in addition to other foreign and domestic slab suppliers, will also be major suppliers of steel slab to the Company in 2005.  Most of the steel slabs the Company purchases are delivered by ship.  Any disruption to port operations, including those caused by a labor dispute involving longshoreman 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 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.

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 $0.8 million over the next two years. Accordingly, the Company has accrued a liability of $0.8 million as of June 30, 2005. The Company has also recorded a $0.8 million receivable for insurance proceeds that are expected to cover these RI costs because the
Companys insurer is defending this matter, subject to a standard reservation of rights, and is paying these RI 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.  It is probable that the DEQ will require the Company to perform some stabilization of some portion of the riverbank on the Portland Mill property; however, the cost of such stabilization cannot be estimated at this time.  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.

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 remedial investigation 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

11



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 2008.  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 to four years, the Company has accrued a liability of $0.9 million as of June 30, 2005.  The Company has also recorded a $0.9 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.  In addition, in June 2003, the Company signed a Funding and Participating Agreement whereby the Company, with nine other industrial and municipal parties, agreed to fund a joint effort with federal, state and tribal trustees to study potential natural resource damages in the Portland Harbor. The Company, along with eight of the nine other industrial and municipal parties, withdrew from the agreement, effective October 1, 2004, because of the inability to reach agreement with the trustees with respect to the assessment to be conducted. The Company intends to continue to work with interested parties to assess natural resources damages. The Company estimates its financial commitment in connection with future natural resource damage assessment to be approximately
$0.3 million.  Based on this estimate, the Company has accrued a liability of $0.3 million as of June 30, 2005.  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. 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 connection with the acquisition of the steelmaking and finishing facilities located in Pueblo, Colorado (Pueblo Mill), CF&I accrued a liability of $36.7 million for environmental remediation related to the prior owners operations.  CF&I believed this amount was the best estimate of costs from a range of $23.1 million to $43.6 million.  CF&Is estimate of this liability was based on two initial remediation investigations conducted by environmental engineering consultants, and included costs for the Resource Conservation and Recovery Act facility investigation, a corrective measures study, remedial action, and operation and maintenance associated with the proposed remedial actions.  In October 1995, CF&I and the Colorado Department of Public Health and Environment (CDPHE) finalized a postclosure permit for hazardous waste units at the
Pueblo Mill.  As part of the postclosure permit requirements, CF&I must conduct a corrective action program for the 82 solid waste management units (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.  In 2004, the Company contracted two environmental engineering consultants to conduct remediation investigations of the remaining SWMUs.  The cost estimates provided by the consultants for the SWMUs, for which remediation work had not already commenced, were $24.0 million and $25.0 million.  The Company determined the best estimate was the average of the two studies, or $24.5 million, which was $1.6 million more than previously accrued. At June 30, 2005, there were 60 SWMUs that still
required remediation.  At June 30, 2005, the total accrued liability for all remaining SWMUs was $24.8 million, of which $23.3 million was classified as non-current on the Company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).  The State Consent Decree provided for CF&I to pay $0.3 million in penalties, fund $1.5 million of community projects, and to pay approximately $0.4 million for consulting services, all of which have been paid as of June 30, 2005. CF&I is also required to make certain capital improvements expected to cost approximately $30.3 million, including converting to the new single New Source Performance Standards Subpart AAa (NSPS
AAa) compliant furnace discussed below.  The State Consent Decree provides that the two existing furnaces will be permanently shut down approximately 16 months after the issuance of a Prevention of Significant Deterioration (PSD) air permit.  The PSD permit was issued June 21, 2004.  CF&I anticipates completing the furnace capital improvements in October 2005.

In May 2000, the EPA issued a final determination that one of the two electric arc furnaces at the Pueblo Mill was subject to federal NSPS AA.  This determination was contrary to an earlier grandfather determination first made in 1996 by CDPHE.  CF&I appealed the EPA determination in the federal Tenth Circuit Court of Appeals. The issue has been resolved by entry of a Consent Decree on November 26, 2003, and the Tenth Circuit dismissed the appeal on December 10, 2003.  In that Consent Decree and overlapping with the commitments made to the CDPHE described above, CF&I committed to the conversion to the new single NSPS AAa compliant furnace (demonstrating full compliance 21 months after permit approval and expected to cost, with all related emission control improvements, approximately $30.3 million), and to pay approximately $0.5 million in penalties and fund certain
supplemental environmental projects valued at approximately $1.1 million, including the installation of certain pollution control equipment at the Pueblo Mill.  The above mentioned expenditures for supplemental environmental projects will

12



be both capital and non-capital
expenditures. As of June 30, 2005, the non-capital expenditures have been
paid.  Under this settlement and the settlement with the CDPHE, the Company
is subject to certain stipulated penalties if it fails to comply with the terms
of the settlement.  In March 2004, the CDPHE notified CF&I of alleged
violations of the State Consent Decree relating to opacity.  In June 2004,
the CDPHE assessed stipulated penalties of $0.3 million.  On July 26, 2004,
CF&I sought judicial review of the determination.  In August 2004, the
state filed its response and the case has been set for trial commencing in
November 2005.

Beginning in
May 2005, CF&I and the CDPHE exchanged a number of settlement proposals
dealing with the above and other alleged violations of the State Consent Decree. 
In July 2005, CF&I and the CDPHE continued to negotiate for a settlement of
all pending matters.  CF&I believes that it is probable that both
capital and non-capital expenditures will be incurred to settle all pending
matters with the CDPHE.  In addition to these penalties, the Company may in
the future incur additional penalties related to this matter.  To date,
such penalties have not been material to its results of operations and cash
flows; however, the Company cannot be assured that future penalties will not be
material.

In response to the CDPHE settlement and subsequent alleged violations and the resolution of the EPA action, CF&I expensed  $0.1 million and $0.3 million, respectively, for the three and six months ended June 30, 2005, and $0.1 million for both the three and six months ended June 30, 2004 for possible fines and non-capital related expenditures.  As of June 30, 2005, the remaining accrued liability was approximately $1.2 million.

In December 2001, the State of Colorado issued a Title V air emission permit to CF&I under the Clean Air Act Amendments (CAA) requiring that the furnace subject to the EPA action operate in compliance with NSPS AA standards.  The Title V permit has been modified several times and gives CF&I adequate time (at least 15 1/2 months after CDPHE issues the PSD permit) to convert to a single NSPS AAa compliant furnace. The decrease in steelmaking production during the furnace conversion period when both furnaces are expected to be shut down will be offset by increasing production prior to the conversion period by building up semi-finished steel inventory and, if necessary, purchasing semi-finished steel (billets) for conversion into rod products at spot market prices.  Pricing and availability of billets is subject to significant volatility.

Labor Matters

CF&I Labor Dispute Settlement

On January 15, 2004, the Company announced a tentative agreement to settle the labor dispute between the United Steelworkers of America (Union) and CF&I that had been ongoing since October 1997 and on September 10, 2004 the settlement was finalized and became effective (the Settlement). The Settlement resulted in the dismissal of all court actions between CF&I and the Union relating to the labor dispute and environmental matters and the conditional withdrawal of charges by the United States National Labor Relations Board. The Settlement also included the ratification of new five-year collective bargaining agreements and called for the establishment of a trust and on September 10, 2004, the Rocky Mountain Steel Mills  United Steelworkers of America Back Pay Trust (Trust) was established. As part of the tentative settlement the Company had originally planned
to issue four million shares of the Companys common stock to the Trust on behalf of CF&I.  On September 10, 2004, the parties agreed instead that the Trust would receive cash in an amount equal to the gross proceeds from the sale of four million shares of the Companys common stock in an underwritten stock offering.

The Settlement also included payment by CF&I of: (1) a cash contribution of $2,500 for each beneficiary, a total of $2.5 million and (2) beginning on the effective date of the Settlement, 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 beneficiaries are those individuals who (1) as of October 3, 1997 were employees of CF&I and represented by the Union, (2) as of December 31, 1997 had not separated, as defined, from CF&I and (3) are entitled to an allocation as defined in
the Trust. The Settlement, certain elements of which are effected through the new five-year collective bargaining agreements, also includes: (1) early retirement with immediate enhanced pension benefit where CF&I will offer bargaining unit employees an early retirement opportunity based on seniority until a maximum of 200 employees have accepted the offer, the benefit will include immediate and unreduced pension benefits for all years of service (including the period of the labor dispute) and for each year of service prior to March 3, 1993 (including service with predecessor companies) an additional monthly pension of $10, (2) pension credit for the period of the labor dispute whereby CF&I employees who went on strike will be given pension credit for both eligibility and pension benefit determination purposes for the period beginning October 3, 1997 and ending on the latest of said employees actual return to work, termination of employment, retirement or death, (3) pension credit for
service with predecessor companies whereby for retirements after January 1, 2004, effective January 2, 2006 for each year of service prior to March 3, 1978 (including service with predecessor companies), CF&I will provide an additional monthly benefit to employees of $12.50, and for retirements after January 1, 2006, effective January 2, 2008 for each year of service between March 3, 1978 and March 3, 1993 (including service with predecessor companies), CF&I will provide an additional monthly benefit of $12.50, and (4) individuals who are members of the bargaining units as of October 3, 1997 and who do not choose to elect or do not qualify for early retirement, will be immediately eligible to apply for and receive qualified long-term disability (LTD) benefits on a go forward basis, notwithstanding the date of the injury or illness, service requirements or any filing deadlines. The Settlement also includes the Companys agreement to nominate a director designated by the Union
on the Companys board of directors, and to a broad-based neutrality clause for certain of the Companys facilities in the future.

13



CF&I Labor Dispute Settlement  Accounting

The Company recorded charges of $31.1 million in 2003 related to the tentative Settlement obligation.  The charge consisted of (1) $23.2 million for the value of four million shares of the Companys common stock valued as of December 31, 2003, (2) the cash payment of $2.5 million noted above, and (3) $5.4 million accrual for the LTD benefits noted above.  As noted above, on September 10, 2004, the parties agreed that the Trust would receive cash in an amount equal to the gross proceeds from the sale of four million shares of the Companys common stock in an underwritten stock offering.  On September 29, 2004, the public offering price was established at $16.00 per share, and $64.0 million was paid to the Trust in the fourth quarter of 2004.  In 2004, the Company recorded a charge of $45.4 million ($7.0 million, $31.9 million, $4.5 million and $2.0 million for 2004 quarters
ended March 31, June 30, September 30 and December 31, respectively) related to the Settlement obligation consisting of (1) $40.8 million for the incremental change in value of the four million shares of the Companys common stock, (2) $8.9 million in retirement benefits for the 200 employees who accepted the early retirement benefits, which were partially offset by (3) a reduction of $4.3 million of the existing LTD accrual.  At June 30, 2005, $1.0 million was accrued for LTD benefits.  Beneficiaries have until September 2005 to claim LTD benefits and this accrual will continue to be adjusted as better claims information becomes available.  The Company recorded a charge for the BPPSO and related taxes of $3.4 million for both the three and six months ended June 30, 2005 and charges of $1.4 million and $3.0 million, respectively, for the corresponding periods in 2004.  The BPPSO charges were classified as selling, general and administrative expenses.

Purchase Commitments

Effective January 8, 1990, the Company entered into an agreement, which was subsequently amended on December 7, 1990 and again on April 3, 1991, 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.  The agreement expires in August 2011 and specifies that the Company 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, 2005 was approximately $0.1 million. In addition, the agreement does not currently provide benefit to the Companys operations as the Portland Mills melt shop is currently not in use. If the Company determines the melt shop will not reopen or decides to terminate the agreement, it will incur an expense for contract termination costs. The Company
estimates the cancellation and buyout costs could range from $3.0 million to $5.5 million, depending on the negotiation of the settlement. None of the future costs of the contract have been accrued in accordance with SFAS No. 146 Accounting for Costs Associated with Exit or Disposal Activities as the company has not effectively ceased its rights under the contract.

A separate 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, 2005 was $0.1 million.

The Company purchases electricity used at the Pueblo Mill from an independent third party under an agreement that expires in May 2008.  This commitment specifies that the Company will pay a minimum monthly charge of $33,000 per month.

In the second quarter of 2005, the Company entered into multiple agreements for the delivery and installation of certain machinery used in the construction of the new electric arc furnace at the Pueblo Mill.  The Company has agreed to pay a total of $11.2 million to a group of third parties, with ordinary payment terms due upon delivery or as services are rendered by the contracted vendors.  The construction of the electric arc furnace is expected to be completed in the fourth quarter of 2005.

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 $16.3 million for the delivery and installation of the machinery, which will be paid in installments as certain performance milestones are reached by the vendor.  The construction of the spiral weld mill is expected to be completed in the first quarter of 2006.

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.

14



The CPC loan of $3.5 million as of June 30, 2005 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, 2005.  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.     Joint Venture and Adoption of FIN 46R  Consolidation of Variable Interest Entities

In June 1999, a wholly-owned subsidiary of the Company and Feralloy Oregon Corporation (Feralloy) formed OFP to construct a temper mill and a cut-to-length (CTL) facility (Facility) with an annual stated capacity of 300,000 tons to process CTL plate from steel coil produced at the Companys Portland Mill. The Facility commenced operations in May 2001.  The Company has a 60% profit/loss interest and Feralloy, the managing partner, has a 40% profit/loss interest in OFP.  Each partner holds 50% voting rights as an owner of OFP.  The Company is not required to, nor does it currently anticipate it will, make other contributions of capital to fund operations of OFP.  However, the Company is obligated to supply a quantity of steel coil for processing through the Facility of not less than 15,000 tons per month.  In the event that the three 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 at the end of the three-month period 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 included 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, and $34,000 and $0.3 million, respectively, related to the shortfall for the three and six months ended June 30, 2004.

The Company adopted FIN 46R Consolidation of Variable Interest Entities on January 1, 2004, which resulted in the consolidation of OFPs operations. The cumulative impact of the adoption of this accounting standard on retained earnings was zero as the Company believes the fair value of OFP approximated its carrying value.  OFP primarily owns land improvements, a building, equipment and other operating assets, all of which are collateral for the outstanding bank debt of OFP.  The creditors of OFP have no recourse to the general credit of the Company.  The financial statement impact was to increase current assets by $1.7 million, increase net property, plant and equipment by $15.0 million, decrease other assets by $3.5 million, increase current liabilities by $3.4 million, increase long-term debt by $7.5 million (consisting of bank debt) and increase minority
interest by $2.3 million.

12.     Investment in Camrose Pipe Company

On March 30, 2005, Canadian National Steel, a wholly owned subsidiary of CPC, 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.   Due to the timing of the acquisition date, the Company had not finalized the purchase price allocation at March 31, 2005.  In the second quarter, the Company completed a preliminary purchase price allocation and recorded goodwill of $2.5 million.  The preliminary 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.  The customer backlog was included in other current assets due to the expected delivery terms for those orders.  In addition, the Company made a preliminary adjustment to deferred employee benefit liabilities.  The final allocation of the purchase price is expected to be made when additional information is available.  All minority interest associated with Camrose has been eliminated from the Companys consolidated balance sheet.

13.     Assets Held for Sale

In July 2004, the Company idled its Napa, California pipe mill (Napa mill).  In December 2004, the Company announced the permanent closure of the Napa mill and has engaged with third parties to market the pipe mill equipment and real estate.  The assets held for sale consist of land, buildings and machinery and equipment with net book value balances of $9.5 million, $3.3 million and $15.5 million, respectively.  The liabilities related to assets held for sale of $1.0 million consist of environmental reserves.  The Company believes the market value for these assets are in excess of book value at June 30, 2005 and that the assets will be sold in 2005.

15



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

|                                                                                                     |  | June 30,   2005 |          | December   31,   2004 |  
|---------------------------------------------------------------------------------------------------- |  | --------------- | -------- | --------------------- | -
|                                                                                                     |  |                 |          |                       |  
|                                                                                                     |  | (Unaudited)     |          |                       |  
|ASSETS                                                                                               |  |                 |          |                       |  
|Current   assets:                                                                                    |  |                 |          |                       |  
|Cash and cash equivalents                                                                            |  | $               | 1        |                       | $
|Trade accounts receivable, net of allowance for doubtful accounts of   $697 and $1,083               |  |                 | 47,094   |                       |  
|Inventories                                                                                          |  |                 | 106,539  |                       |  
|Deferred income taxes                                                                                |  |                 | 4,067    |                       |  
|Other                                                                                                |  |                 | 3,059    |                       |  
|                                                                                                     |  |                 |          |                       |  
|Total current assets                                                                                 |  |                 | 160,760  |                       |  
|                                                                                                     |  |                 |          |                       |  
|Property,   plant and equipment:                                                                     |  |                 |          |                       |  
|Land and improvements                                                                                |  |                 | 3,301    |                       |  
|Buildings                                                                                            |  |                 | 19,836   |                       |  
|Machinery and equipment                                                                              |  |                 | 274,905  |                       |  
|Construction in progress                                                                             |  |                 | 14,964   |                       |  
|                                                                                                     |  |                 |          |                       |  
|                                                                                                     |  |                 | 313,006  |                       |  
|Accumulated depreciation                                                                             |  |                 | (156,567 | )                     |  
|                                                                                                     |  |                 |          |                       |  
|Net property, plant and equipment                                                                    |  |                 | 156,439  |                       |  
|                                                                                                     |  |                 |          |                       |  
|Intangibles,   net                                                                                   |  |                 | 32,416   |                       |  
|Non-current   deferred income taxes                                                                  |  |                 | 44,403   |                       |  
|Minority   interest                                                                                  |  |                 | 6,147    |                       |  
|                                                                                                     |  |                 |          |                       |  
|TOTAL ASSETS                                                                                         |  | $               | 400,165  |                       | $
|                                                                                                     |  |                 |          |                       |  
|LIABILITIES                                                                                          |  |                 |          |                       |  
|Current   liabilities:                                                                               |  |                 |          |                       |  
|Accounts payable                                                                                     |  | $               | 21,294   |                       | $
|Accrued expenses                                                                                     |  |                 | 25,594   |                       |  
|                                                                                                     |  |                 |          |                       |  
|Total current liabilities                                                                            |  |                 | 46,888   |                       |  
|Long-term   debt - Oregon Steel Mills, Inc.                                                          |  |                 | 321,790  |                       |  
|Environmental   liability                                                                            |  |                 | 24,524   |                       |  
|Deferred   employee benefits                                                                         |  |                 | 50,128   |                       |  
|                                                                                                     |  |                 |          |                       |  
|Total liabilities                                                                                    |  |                 | 443,330  |                       |  
|                                                                                                     |  |                 |          |                       |  
|Redeemable   common stock, 26 shares issued and outstanding                                          |  |                 | 21,840   |                       |  
|                                                                                                     |  |                 |          |                       |  
|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                                                                         |  |                 | 16,603   |                       |  
|Accumulated   deficit                                                                                |  |                 | (77,937  | )                     |  
|Accumulated   other comprehensive loss:                                                              |  |                 |          |                       |  
|Minimum pension liability                                                                            |  |                 | (3,672   | )                     |  
|                                                                                                     |  |                 |          |                       |  
|Total stockholders deficit                                                                          |  |                 | (65,005  | )                     |  
|                                                                                                     |  |                 |          |                       |  
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT                                                          |  | $               | 400,165  |                       | $
|                                                                                                     |  |                 |          |                       |  

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

16



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

|                                             |  | Three   Months Ended June 30, |         | Six Months   Ended June 30, |  
|-------------------------------------------- |  | ----------------------------- | ------- | --------------------------- | -
|                                             |  |                               |         |                             |  
|                                             |  | 2005                          |         | 2004                        |  
|                                             |  |                               |         |                             |  
|Sales:                                       |  |                               |         |                             |  
|Product sales                                |  | $                             | 116,887 |                             | $
|Freight                                      |  |                               | 3,758   |                             |  
|                                             |  |                               |         |                             |  
|                                             |  |                               | 120,645 |                             |  
|Costs and expenses:                          |  |                               |         |                             |  
|Cost of sales                                |  |                               | 93,297  |                             |  
|Labor dispute settlement charges (Note 4)    |  |                               |        |                             |  
|Selling, general and administrative expenses |  |                               | 4,229   |                             |  
|Incentive compensation                       |  |                               | 1,999   |                             |  
|Gain on disposal of assets                   |  |                               | (212    | )                           |  
|                                             |  |                               |         |                             |  
|                                             |  |                               | 99,313  |                             |  
|                                             |  |                               |         |                             |  
|Operating income (loss)                      |  |                               | 21,332  |                             |  
|Other income (expense):                      |  |                               |         |                             |  
|Interest expense                             |  |                               | (7,726  | )                           |  
|Minority interests                           |  |                               | (533    | )                           |  
|Other income                                 |  |                               | 65      |                             |  
|                                             |  |                               |         |                             |  
|Income (loss) before income taxes            |  |                               | 13,138  |                             |  
|Income tax benefit (expense)                 |  |                               | (5,360  | )                           |  
|                                             |  |                               |         |                             |  
|Net income (loss)                            |  | $                             | 7,778   |                             | $
|                                             |  |                               |         |                             |  

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

17



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

|                                                                                       |  | Six Months   Ended   June 30, |         
|-------------------------------------------------------------------------------------- |  | ----------------------------- | --------
|                                                                                       |  |                               |         
|                                                                                       |  | 2005                          |         
|                                                                                       |  |                               |         
|Cash flows   from operating activities:                                                |  |                               |         
|Net income (loss)                                                                      |  | $                             | 14,865  
|Adjustments to reconcile net income (loss) to net cash used by   operating activities: |  |                               |         
|Depreciation and amortization                                                          |  |                               | 10,060  
|Deferred income taxes                                                                  |  |                               | 7,930   
|Gain on disposal of assets                                                             |  |                               | (299    
|Minority interests                                                                     |  |                               | 989     
|Other, net                                                                             |  |                               | 2,589   
|Changes in current assets and liabilities:                                             |  |                               |         
|Trade accounts receivable                                                              |  |                               | (451    
|Inventories                                                                            |  |                               | (35,599 
|Accounts payable                                                                       |  |                               | (19,119 
|Accrued expenses                                                                       |  |                               | (2,577  
|Other                                                                                  |  |                               | 317     
|                                                                                       |  |                               |         
|Net cash used by operating activities                                                  |  |                               | (21,295 
|                                                                                       |  |                               |         
|Cash flows   from investing activities:                                                |  |                               |         
|Additions to property, plant and equipment                                             |  |                               | (12,066 
|Proceeds from disposal of assets                                                       |  |                               | 300     
|                                                                                       |  |                               |         
|Net cash used by investing activities                                                  |  |                               | (11,766 
|                                                                                       |  |                               |         
|Cash flows   from financing activities:                                                |  |                               |         
|Borrowings from Oregon Steel Mills, Inc.                                               |  |                               | 141,594 
|Payments to Oregon Steel Mills, Inc.                                                   |  |                               | (108,533
|                                                                                       |  |                               |         
|Net cash provided by financing activities                                              |  |                               | 33,061  
|                                                                                       |  |                               |         
|Net decrease   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                                                                               |  | $                             | 15,058  

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

18



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 an 87 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. All significant intercompany balances and transactions have been eliminated.

The unaudited financial statements include estimates and other adjustments, consisting of normal recurring accruals and other charges, as described in Note 4 to the Consolidated Financial Statements, Contingencies  Labor Matters - CF&I Labor Dispute Settlement  Accounting which, in the opinion of management, are necessary for a fair presentation of the interim periods.  Results for an interim period are not necessarily indicative of results for a full year.  Reference should be made to the Oregon Steel 2004 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.  SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  New CF&I is in the process of assessing the impact of adopting this new standard.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29.  The guidance in Accounting Principles Board (APB) Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.  The guidance in APB Opinion No. 29, however, included certain exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  SFAS
No. 153 is effective for nonmonetary asset exchanges in fiscal periods beginning after June 15, 2005.  New CF&I does not believe that the adoption of SFAS No. 153 will have a material impact on the Consolidated Financial Statements.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces APB No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements and requires the retrospective application to prior periods financial statement 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.  SFAS No. 154 is effective for fiscal years beginning after December 31, 2005.  New CF&I does not believe that the adoption of SFAS No. 154 will have a material impact on the Consolidated Financial
Statements.

Reclassifications

Certain reclassifications have been made in prior periods to conform to the current year presentation.  Such reclassifications do not affect results of operations as previously reported.

19



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,   2005  |         | December   31,   2004 |  
|------------------------------- |  | ---------------- | ------- | --------------------- | -
|                                |  |                  |         |                       |  
|                                |  | (In   thousands) |        
|Raw   materials                 |  | $                | 16,001  |                       | $
|Semi-finished   product         |  |                  | 65,368  |                       |  
|Finished   product              |  |                  | 13,462  |                       |  
|Stores and   operating supplies |  |                  | 11,708  |                       |  
|                                |  |                  |         |                       |  
|Total inventories               |  | $                | 106,539 |                       | $
|                                |  |                  |         |                       |  

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, 2006 if no demand is made.

At June 30, 2005, principal payments on long-term debt were due as follows (in thousands):

|2006 |  | $ | 321,790 | 
|---- |  | - | ------- | 
|     |  |   |         | 

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, 2006, 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

In connection with the acquisition of the steelmaking and finishing facilities located in Pueblo, Colorado (Pueblo Mill), CF&I accrued a liability of $36.7 million for environmental remediation related to the prior owners operations.  CF&I believed this amount was the best estimate of costs from a range of $23.1 million to $43.6 million.  CF&Is estimate of this liability was based on two initial remediation investigations conducted by environmental engineering consultants, and included costs for the Resource Conservation and Recovery Act facility investigation, a corrective measures study, remedial action, and operation and maintenance associated with the proposed remedial actions.  In October 1995, CF&I and the Colorado Department of Public Health and Environment (CDPHE) finalized a postclosure permit for hazardous waste units at the
Pueblo Mill.  As part of the postclosure permit requirements, CF&I must conduct a corrective action program for the 82 solid waste management units (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.  In 2004, CF&I contracted two environmental engineering consultants to conduct remediation investigations of the remaining SWMUs.  The cost estimates provided by the consultants for the SWMUs, for which remediation work had not already commenced, were $24.0 million and $25.0 million.  CF&I determined the best estimate was the average of the two studies, or $24.5 million, which was $1.6 million more than previously accrued. At June 30, 2005, there were 60 SWMUs that still required
remediation.  At June 30, 2005, the total accrued liability for all remaining SWMUs was $24.8 million, of which $23.3 million was classified as non-current on 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).  The State Consent Decree provided for CF&I to pay $0.3 million in penalties, fund $1.5 million of community projects, and to pay approximately $0.4 million for consulting services, all of which have been paid as of June 30, 2005. CF&I is also required to make certain capital improvements expected to cost approximately $30.3 million, including converting to the new single New Source Performance Standards Subpart AAa (NSPS
AAa) compliant furnace discussed below.  The State Consent Decree provides that the two existing furnaces will be permanently shut down approximately 16 months after the issuance of a Prevention of Significant Deterioration (PSD) air permit.  The PSD permit was issued June 21, 2004.  CF&I anticipates completing the furnace capital improvements in October 2005.

20



In May 2000,
the EPA issued a final determination that one of the two electric arc furnaces
at the Pueblo Mill was subject to federal NSPS AA.  This determination was
contrary to an earlier grandfather determination first made in 1996
by CDPHE.  CF&I appealed the EPA determination in the federal Tenth
Circuit Court of Appeals. The issue has been resolved by entry of a Consent
Decree on November 26, 2003, and the Tenth Circuit dismissed the appeal on
December 10, 2003.  In that Consent Decree and overlapping with the
commitments made to the CDPHE described above, CF&I committed to the
conversion to the new single NSPS AAa compliant furnace (demonstrating full
compliance 21 months after permit approval and expected to cost, with all
related emission control improvements, approximately $30.3 million), and to pay
approximately $0.5 million in penalties and fund certain supplemental
environmental projects valued at approximately $1.1 million, including the
installation of certain pollution control equipment at the Pueblo Mill. 
The above mentioned expenditures for supplemental environmental projects will be
both capital and non-capital expenditures. As of June 30, 2005, the non-capital
expenditures have been paid.  Under this settlement and the settlement with
the CDPHE, CF&I is subject to certain stipulated penalties if it fails to
comply with the terms of the settlement.  In March 2004, the CDPHE notified
CF&I of alleged violations of the State Consent Decree relating to
opacity.  In June 2004, the CDPHE assessed stipulated penalties of $0.3
million.  On July 26, 2004, CF&I sought judicial review of the
determination.  In August 2004, the state filed its response and the case
has been set for trial commencing in November 2005.

Beginning in
May 2005, CF&I and the CDPHE exchanged a number of settlement proposals
dealing with the above and other alleged violations of the State Consent Decree. 
In July 2005, CF&I and the CDPHE continued to negotiate for a settlement of
all pending matters.  CF&I believes that it is probable that both
capital and non-capital expenditures will be incurred to settle all pending
matters with the CDPHE.  In addition to these penalties, CF&I may in
the future incur additional penalties related to this matter.  To date,
such penalties have not been material to its results of operations and cash
flows; however, CF&I cannot be assured that future penalties will not be
material.

In response to the CDPHE settlement and subsequent alleged violations and the resolution of the EPA action, CF&I expensed  $0.1 million and $0.3 million, respectively, for the three and six months ended June 30, 2005, and $0.1 million for both the three and six months ended June 30, 2004 for possible fines and non-capital related expenditures.  As of June 30, 2005, the remaining accrued liability was approximately $1.2 million.

In December 2001, the State of Colorado issued a Title V air emission permit to CF&I under the Clean Air Act Amendments (CAA) requiring that the furnace subject to the EPA action operate in compliance with NSPS AA standards.  The Title V permit has been modified several times and gives CF&I adequate time (at least 15 1/2 months after CDPHE issues the PSD permit) to convert to a single NSPS AAa compliant furnace. The decrease in steelmaking production during the furnace conversion period when both furnaces are expected to be shut down will be offset by increasing production prior to the conversion period by building up semi-finished steel inventory and, if necessary, purchasing semi-finished steel (billets) for conversion into rod products at spot market prices.  Pricing and availability of billets is subject to significant volatility.

Labor Matters

CF&I Labor Dispute Settlement

On January 15, 2004, CF&I announced a tentative agreement to settle the labor dispute between the United Steelworkers of America (Union) and CF&I that had been ongoing since October 1997 and on September 10, 2004 the settlement was finalized and became effective (the Settlement). The Settlement resulted in the dismissal of all court actions between CF&I and the Union relating to the labor dispute and environmental matters and the conditional withdrawal of charges by the United States National Labor Relations Board. The Settlement also included the ratification of new five-year collective bargaining agreements and called for the establishment of a trust and on September 10, 2004, the Rocky Mountain Steel Mills  United Steelworkers of America Back Pay Trust (Trust) was established. As part of the tentative settlement Oregon Steel had originally planned
to issue four million shares of Oregon Steels common stock to the Trust on behalf of CF&I.  On September 10, 2004, the parties agreed instead that the Trust would receive cash in an amount equal to the gross proceeds from the sale of four million shares of the Oregon Steels common stock in an underwritten stock offering.

The Settlement also included payment by CF&I of: (1) a cash contribution of $2,500 for each beneficiary, a total of $2.5 million and (2) beginning on the effective date of the Settlement, 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 beneficiaries are those individuals who (1) as of October 3, 1997 were employees of CF&I and represented by the Union, (2) as of December 31, 1997 had not separated, as defined, from CF&I and (3) are entitled to an allocation as defined in
the Trust. The Settlement, certain elements of which are effected through the new five-year collective bargaining agreements, also includes: (1) early retirement with immediate enhanced pension benefit where CF&I will offer bargaining unit employees an

21



early retirement opportunity based on seniority until a maximum of 200 employees have accepted the offer, the benefit will include immediate and unreduced pension benefits for all years of service (including the period of the labor dispute) and for each year of service prior to March 3, 1993 (including service with predecessor companies) an additional monthly pension of $10, (2) pension credit for the period of the labor dispute whereby CF&I employees who went on strike will be given pension credit for both eligibility and pension benefit determination purposes for the period beginning October 3, 1997 and ending on the latest of said employees actual return to work, termination of employment, retirement or death, (3) pension credit for service with predecessor companies whereby for retirements after January 1, 2004, effective January 2, 2006 for each year of service prior to March 3, 1978 (including service with predecessor companies), CF&I will
provide an additional monthly benefit to employees of $12.50, and for retirements after January 1, 2006, effective January 2, 2008 for each year of service between March 3, 1978 and March 3, 1993 (including service with predecessor companies), CF&I will provide an additional monthly benefit of $12.50, and (4) individuals who are members of the bargaining units as of October 3, 1997 and who do not choose to elect or do not qualify for early retirement, will be immediately eligible to apply for and receive qualified long-term disability (LTD) benefits on a go forward basis, notwithstanding the date of the injury or illness, service requirements or any filing deadlines. The Settlement also includes Oregon Steels agreement to nominate a director designated by the Union on Oregon Steels board of directors, and to a broad-based neutrality clause for certain of Oregon Steels facilities in the future.

CF&I Labor Dispute Settlement  Accounting

CF&I recorded charges of $31.1 million in 2003 related to the tentative Settlement obligation.  The charge consisted of (1) $23.2 million for the value of four million shares of the Oregon Steels common stock valued as of December 31, 2003, (2) the cash payment of $2.5 million noted above, and (3) $5.4 million accrual for the LTD benefits noted above.  As noted above, on September 10, 2004, the parties agreed that the Trust would receive cash in an amount equal to the gross proceeds from the sale of four million shares of the Oregon Steels common stock in an underwritten stock offering.  On September 29, 2004, the public offering price was established at $16.00 per share, and $64.0 million was paid to the Trust in the fourth quarter of 2004.  In 2004, CF&I recorded a charge of $45.4 million ($7.0 million, $31.9 million, $4.5 million and $2.0 million for 2004
quarters ended March 31, June 30, September 30 and December 31, respectively) related to the Settlement obligation consisting of (1) $40.8 million for the incremental change in value of the four million shares of Oregon Steels common stock, (2) $8.9 million in retirement benefits for the 200 employees who accepted the early retirement benefits, which were partially offset by (3) a reduction of $4.3 million of the existing LTD accrual.  At June 30, 2005, $1.0 million was accrued for LTD benefits.  Beneficiaries have until September 2005 to claim LTD benefits and this accrual will continue to be adjusted as better claims information becomes available.  CF&I recorded a charge for the BPPSO and related taxes of $3.4 million for both the three and six months ended June 30, 2005 and charges of $1.4 million and $3.0 million, respectively, for the corresponding periods in 2004.  The BPPSO charges were classified as selling, general and administrative expenses.

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, 2005 was $0.1 million.

CF&I purchases electricity used at the Pueblo Mill from an independent third party under an agreement that expires in May 2008.  This commitment specifies that CF&I will pay a minimum monthly charge of $33,000 per month.

In the second quarter of 2005, CF&I entered into multiple agreements for the delivery and installation of certain machinery used in the construction of the new electric arc furnace.  CF&I has agreed to pay a total of $11.2 million to a group of third parties, with ordinary payment terms due upon delivery or as services are rendered by the contracted vendors.  The construction of the electric arc furnace is expected to be completed in the fourth quarter of 2005.

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, 2005, 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.

22



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 were 40.8% and 38.1%, for the three and six months
ended June 30, 2005, respectively, as compared to tax benefit rates of 34.6% and
38.8% in the corresponding periods in 2004.  The effective income tax rates
for the three and six months ended June 30, 2005 did not vary materially from the combined state
and federal statutory rate.  The effective income tax rate for
the three and six months ended June 30, 2004 varied from the combined state and
federal statutory rate, principally because New CF&I reversed a portion of
the valuation allowance established in 2003 for certain federal and state net
operating loss carry-forwards, state tax credits and alternative minimum tax
credits.

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, New CF&I is required to compute a separate tax liability as if it had filed a separate tax return and shall pay such amount to Oregon Steel.  Also, New CF&I will be compensated by Oregon Steel to the extent that tax benefits generated by New CF&I provide a benefit on a consolidated basis.  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 increased the valuation allowance in the
three and six months ended June 30, 2005 due to uncertainty regarding the
utilization of certain state tax credits.  Oregon Steel reduced the valuation allowance in the
three and six months ended June 30, 2004 due to reduced uncertainty regarding
the realization of deferred tax assets.  New CF&I has been allocated a
$0.2 million and $0.1 million valuation allowance reduction for the three and
six months ended June 30, 2005, respectively, and a reduction of $3.6 million
and $4.5 million for the three and six months ended June 30, 2004,
respectively.  At June 30, 2005, the valuation allowance for deferred tax
assets was $7.8 million.

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 retirement plans, certain health care and life insurance benefits, and qualified Thrift (401(k)) plans covering all of its eligible employees.

Components of net periodic benefit cost related to the defined benefit retirement plans were as follows:

|                                                  |  | Defined   Benefit Retirement Plans |      
|------------------------------------------------- |  | ---------------------------------- | -----
|                                                  |  |                                    |      
|                                                  |  | Three   Months Ended June 30,      |      
|                                                  |  |                                    |      
|                                                  |  | 2005                               |      
|                                                  |  |                                    |      
|                                                  |  | (In   thousands)                   |      
|Service cost                                      |  | $                                  | 579  
|Interest   cost                                   |  |                                    | 1,001
|Expected   return on plan assets                  |  |                                    | (586 
|Amortization   of unrecognized net loss           |  |                                    | 38   
|Amortization   of unrecognized prior service cost |  |                                    | 609  
|                                                  |  |                                    |      
|Total net periodic benefit cost                   |  | $                                  | 1,641
|                                                  |  |                                    |      

23



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

|                                                  |  | Other   Benefit Plans         |    
|------------------------------------------------- |  | ----------------------------- | ---
|                                                  |  |                               |    
|                                                  |  | Three   Months Ended June 30, |    
|                                                  |  |                               |    
|                                                  |  | 2005                          |    
|                                                  |  |                               |    
|                                                  |  | (In   thousands)              |    
|Service cost                                      |  | $                             | 55 
|Interest   cost                                   |  |                               | 304
|Amortization   of unrecognized net loss           |  |                               | 54 
|Amortization   of unrecognized prior service cost |  |                               | 180
|                                                  |  |                               |    
|Total net periodic benefit cost                   |  | $                             | 593
|                                                  |  |                               |    

New CF&I made contributions of $2.2 million and $5.6 million, respectively, to its defined benefit retirement plans for the three and six months ended June 30, 2005.  Contributions of $1.1 million were made during both the three and six months ended June 30, 2004.  New CF&I expects to make additional contributions of $1.1 million in 2005.

24



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

|                                                                                     |  | June 30,   2005 |          | December   31,   2004 |  
|------------------------------------------------------------------------------------ |  | --------------- | -------- | --------------------- | -
|                                                                                     |  |                 |          |                       |  
|                                                                                     |  | (Unaudited)     |          |                       |  
|ASSETS                                                                               |  |                 |          |                       |  
|Current   assets:                                                                    |  |                 |          |                       |  
|Cash and cash equivalents                                                            |  | $               |         |                       | $
|Trade accounts receivable, less allowance for doubtful accounts of   $649 and $1,036 |  |                 | 45,697   |                       |  
|Inventories                                                                          |  |                 | 106,134  |                       |  
|Other                                                                                |  |                 | 2,696    |                       |  
|                                                                                     |  |                 |          |                       |  
|Total current assets                                                                 |  |                 | 154,527  |                       |  
|                                                                                     |  |                 |          |                       |  
|Property,   plant and equipment:                                                     |  |                 |          |                       |  
|Land and improvements                                                                |  |                 | 3,295    |                       |  
|Buildings                                                                            |  |                 | 18,443   |                       |  
|Machinery and equipment                                                              |  |                 | 271,410  |                       |  
|Construction in progress                                                             |  |                 | 14,965   |                       |  
|                                                                                     |  |                 |          |                       |  
|                                                                                     |  |                 | 308,113  |                       |  
|Accumulated depreciation                                                             |  |                 | (154,018 | )                     |  
|                                                                                     |  |                 |          |                       |  
|Net property, plant and equipment                                                    |  |                 | 154,095  |                       |  
|                                                                                     |  |                 |          |                       |  
|Intangibles, net                                                                     |  |                 | 32,416   |                       |  
|                                                                                     |  |                 |          |                       |  
|TOTAL ASSETS                                                                         |  | $               | 341,038  |                       | $
|                                                                                     |  |                 |          |                       |  
|LIABILITIES                                                                          |  |                 |          |                       |  
|Current   liabilities:                                                               |  |                 |          |                       |  
|Accounts payable                                                                     |  | $               | 32,916   |                       | $
|Accrued expenses                                                                     |  |                 | 25,068   |                       |  
|                                                                                     |  |                 |          |                       |  
|Total current liabilities                                                            |  |                 | 57,984   |                       |  
|Long-term   debt - Oregon Steel Mills, Inc.                                          |  |                 | 321,790  |                       |  
|Long-term   debt - New CF&I, Inc.                                                    |  |                 | 21,756   |                       |  
|Environmental   liability                                                            |  |                 | 24,524   |                       |  
|Deferred   employee benefits                                                         |  |                 | 50,107   |                       |  
|                                                                                     |  |                 |          |                       |  
|Total liabilities                                                                    |  |                 | 476,161  |                       |  
|                                                                                     |  |                 |          |                       |  
|Commitments   and contingencies (Note 4)                                             |  |                 |          |                       |  
|PARTNERS DEFICIT                                                                    |  |                 |          |                       |  
|General   partner                                                                    |  |                 | (128,637 | )                     |  
|Limited   partners                                                                   |  |                 | (6,486   | )                     |  
|                                                                                     |  |                 |          |                       |  
|Total partners deficit                                                              |  |                 | (135,123 | )                     |  
|                                                                                     |  |                 |          |                       |  
|TOTAL LIABILITIES AND PARTNERS DEFICIT                                              |  | $               | 341,038  |                       | $
|                                                                                     |  |                 |          |                       |  

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

25



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

|                                          |  | Three   Months Ended   June 30, |         | Six Months   Ended   June 30, |  
|----------------------------------------- |  | ------------------------------- | ------- | ----------------------------- | -
|                                          |  |                                 |         |                               |  
|                                          |  | 2005                            |         | 2004                          |  
|                                          |  |                                 |         |                               |  
|Sales:                                    |  |                                 |         |                               |  
|Product sales                             |  | $                               | 115,014 |                               | $
|Freight                                   |  |                                 | 3,758   |                               |  
|                                          |  |                                 |         |                               |  
|                                          |  |                                 | 118,772 |                               |  
|Costs and expenses:                       |  |                                 |         |                               |  
|Cost of sales                             |  |                                 | 92,451  |                               |  
|Labor dispute settlement charges (Note 4) |  |                                 |        |                               |  
|Selling, general and administrative       |  |                                 | 4,203   |                               |  
|Incentive compensation                    |  |                                 | 1,935   |                               |  
|Gain on disposal of assets                |  |                                 | (206    | )                             |  
|                                          |  |                                 |         |                               |  
|                                          |  |                                 | 98,383  |                               |  
|                                          |  |                                 |         |                               |  
|Operating income (loss)                   |  |                                 | 20,389  |                               |  
|Other income (expense):                   |  |                                 |         |                               |  
|Interest expense                          |  |                                 | (8,122  | )                             |  
|Other income                              |  |                                 | 65      |                               |  
|                                          |  |                                 |         |                               |  
|Net income (loss)                         |  | $                               | 12,332  |                               | $
|                                          |  |                                 |         |                               |  

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

26



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

|                                                                                       |  | Six Months   Ended   June 30, |         
|-------------------------------------------------------------------------------------- |  | ----------------------------- | --------
|                                                                                       |  |                               |         
|                                                                                       |  | 2005                          |         
|                                                                                       |  |                               |         
|Cash flows   from operating activities:                                                |  |                               |         
|Net income (loss)                                                                      |  | $                             | 22,891  
|Adjustments to reconcile net income (loss) to net cash used by   operating activities: |  |                               |         
|Depreciation and amortization                                                          |  |                               | 9,911   
|Gain on disposal of assets                                                             |  |                               | (287    
|Other                                                                                  |  |                               | 2,706   
|Changes in current assets and liabilities:                                             |  |                               |         
|Trade accounts receivable                                                              |  |                               | (383    
|Inventories                                                                            |  |                               | (35,510 
|Accounts payable                                                                       |  |                               | (17,242 
|Accrued expenses                                                                       |  |                               | (3,800  
|Other                                                                                  |  |                               | 433     
|                                                                                       |  |                               |         
|Net cash used by operating activities                                                  |  |                               | (21,281 
|                                                                                       |  |                               |         
|Cash flows   from investing activities:                                                |  |                               |         
|Additions to property, plant and equipment                                             |  |                               | (12,066 
|Proceeds from disposal of assets                                                       |  |                               | 287     
|                                                                                       |  |                               |         
|Net cash used by investing activities                                                  |  |                               | (11,779 
|                                                                                       |  |                               |         
|Cash flows   from financing activities:                                                |  |                               |         
|Borrowings from related parties                                                        |  |                               | 141,594 
|Payments to related parties                                                            |  |                               | (108,534
|                                                                                       |  |                               |         
|Net cash provided by financing activities                                              |  |                               | 33,060  
|                                                                                       |  |                               |         
|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                                                                               |  | $                             | 15,058  

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

27



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 an 87 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, as described in Note 4 to the Financial Statements, Contingencies  Labor Matters - CF&I Labor Dispute Settlement  Accountingwhich, in the opinion of management, are necessary for a fair presentation of the interim periods.  Results for an interim period are not necessarily indicative of results for a full year.  Reference should be made to the Oregon Steel 2004 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.  SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  CF&I is in the process of assessing the impact of adopting this new standard.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29.  The guidance in Accounting Principles Board (APB) Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.  The guidance in APB Opinion No. 29, however, included certain exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  SFAS No.
153 is effective for nonmonetary asset exchanges in fiscal periods beginning after June 15, 2005.  CF&I does not believe that the adoption of SFAS No. 153 will have a material impact on the Financial Statements.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which replaces APB No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements and requires the retrospective application to prior periods financial statement 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.  SFAS No. 154 is effective for fiscal years beginning after December 31, 2005.  CF&I does not believe that the adoption of SFAS No. 154 will have a material impact on the Financial Statements.

Reclassifications

Certain reclassifications have been made in prior periods to conform to the current year presentation.  Such reclassifications do not affect results of operations as previously reported.

28



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,   2005  |         | December   31,   2004 |  
|------------------------------- |  | ---------------- | ------- | --------------------- | -
|                                |  |                  |         |                       |  
|                                |  | (In   thousands) |        
|Raw   materials                 |  | $                | 16,001  |                       | $
|Semi-finished   product         |  |                  | 65,368  |                       |  
|Finished   product              |  |                  | 13,462  |                       |  
|Stores and   operating supplies |  |                  | 11,303  |                       |  
|                                |  |                  |         |                       |  
|Total inventories               |  | $                | 106,134 |                       | $
|                                |  |                  |         |                       |  

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 a loan
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 on the Oregon Steel loans is due on demand or on
December 31, 2006 if no demand is made.  The loan from New CF&I
includes interest on the daily amount outstanding at prime.  Interest was
calculated at a weighted average interest rate of 6.0% and 5.7%, respectively,
for the three and six months ended June 30, 2005.  The principal on the New
CF&I loan is due on demand; however, it is classified as long-term based on
New CF&Is intent not to demand payment in 2005.

At June 30, 2005, principal payments on long-term debt were due as follows (in thousands):

|2006 |  | $ | 343,546 | 
|---- |  | - | ------- | 
|     |  |   |         | 

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, 2006, 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

In connection with the acquisition of the steelmaking and finishing facilities located in Pueblo, Colorado (Pueblo Mill), CF&I accrued a liability of $36.7 million for environmental remediation related to the prior owners operations.  CF&I believed this amount was the best estimate of costs from a range of $23.1 million to $43.6 million.  CF&Is estimate of this liability was based on two initial remediation investigations conducted by environmental engineering consultants, and included costs for the Resource Conservation and Recovery Act facility investigation, a corrective measures study, remedial action, and operation and maintenance associated with the proposed remedial actions.  In October 1995, CF&I and the Colorado Department of Public Health and Environment (CDPHE) finalized a postclosure permit for hazardous waste units at the
Pueblo Mill.  As part of the postclosure permit requirements, CF&I must conduct a corrective action program for the 82 solid waste management units (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.  In 2004, CF&I contracted two environmental engineering consultants to conduct remediation investigations of the remaining SWMUs.  The cost estimates provided by the consultants for the SWMUs, for which remediation work had not already commenced, were $24.0 million and $25.0 million.  CF&I determined the best estimate was the average of the two studies, or $24.5 million, which was $1.6 million more than previously accrued. At June 30, 2005, there were 60 SWMUs that still required
remediation.  At June 30, 2005, the total accrued liability for all remaining SWMUs was $24.8 million, of which $23.3 million was classified as non-current on CF&Is balance sheet.

29



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).  The State Consent Decree provided for CF&I to pay $0.3 million in penalties, fund $1.5 million of community projects, and to pay approximately $0.4 million for consulting services, all of which have been paid as of June 30, 2005. CF&I is also required to make certain capital improvements expected to cost approximately $30.3 million, including converting to the new single New Source Performance Standards Subpart AAa (NSPS
AAa) compliant furnace discussed below.  The State Consent Decree provides that the two existing furnaces will be permanently shut down approximately 16 months after the issuance of a Prevention of Significant Deterioration (PSD) air permit.  The PSD permit was issued June 21, 2004.  CF&I anticipates completing the furnace capital improvements in October 2005.

In May 2000, the EPA issued a final
determination that one of the two electric arc furnaces at the Pueblo Mill was
subject to federal NSPS AA.  This determination was contrary to an earlier
grandfather determination first made in 1996 by CDPHE. 
CF&I appealed the EPA determination in the federal Tenth Circuit Court of
Appeals. The issue has been resolved by entry of a Consent Decree on November
26, 2003, and the Tenth Circuit dismissed the appeal on December 10, 2003. 
In that Consent Decree and overlapping with the commitments made to the CDPHE
described above, CF&I committed to the conversion to the new single NSPS AAa
compliant furnace (demonstrating full compliance 21 months after permit approval
and expected to cost, with all related emission control improvements,
approximately $30.3 million), and to pay approximately $0.5 million in penalties
and fund certain supplemental environmental projects valued at approximately
$1.1 million, including the installation of certain pollution control equipment
at the Pueblo Mill.  The above mentioned expenditures for supplemental
environmental projects will be both capital and non-capital expenditures. As of
June 30, 2005, the non-capital expenditures have been paid.  Under this
settlement and the settlement with the CDPHE, CF&I is subject to certain
stipulated penalties if it fails to comply with the terms of the
settlement.  In March 2004, the CDPHE notified CF&I of alleged
violations of the State Consent Decree relating to opacity.  In June 2004,
the CDPHE assessed stipulated penalties of $270,000.  On July 26, 2004,
CF&I sought judicial review of the determination.  In August 2004, the
state filed its response and the case has been set for trial commencing in
November 2005.

Beginning in
May 2005, CF&I and the CDPHE exchanged a number of settlement proposals
dealing with the above and other alleged violations of the State Consent Decree. 
In July 2005, CF&I and the CDPHE continued to negotiate for a settlement of
all pending matters.  CF&I believes that it is probable that both
capital and non-capital expenditures will be incurred to settle all pending
matters with the CDPHE.  In addition to these penalties, CF&I may in
the future incur additional penalties related to this matter.  To date,
such penalties have not been material to its results of operations and cash
flows; however, CF&I cannot be assured that future penalties will not be
material.

In response to the CDPHE settlement and subsequent alleged violations and the resolution of the EPA action, CF&I expensed  $0.1 million and $0.3 million, respectively, for the three and six months ended June 30, 2005, and $0.1 million for both the three and six months ended June 30, 2004 for possible fines and non-capital related expenditures.  As of June 30, 2005, the remaining accrued liability was approximately $1.2 million.

In December 2001, the State of Colorado issued a Title V air emission permit to CF&I under the Clean Air Act Amendments (CAA) requiring that the furnace subject to the EPA action operate in compliance with NSPS AA standards.  The Title V permit has been modified several times and gives CF&I adequate time (at least 15 1/2 months after CDPHE issues the PSD permit) to convert to a single NSPS AAa compliant furnace. The decrease in steelmaking production during the furnace conversion period when both furnaces are expected to be shut down will be offset by increasing production prior to the conversion period by building up semi-finished steel inventory and, if necessary, purchasing semi-finished steel (billets) for conversion into rod products at spot market prices.  Pricing and availability of billets is subject to significant volatility.

Labor Matters

CF&I Labor Dispute Settlement

On January 15, 2004, CF&I announced a tentative agreement to settle the labor dispute between the United Steelworkers of America (Union) and CF&I that had been ongoing since October 1997 and on September 10, 2004 the settlement was finalized and became effective (the Settlement). The Settlement resulted in the dismissal of all court actions between CF&I and the Union relating to the labor dispute and environmental matters and the conditional withdrawal of charges by the United States National Labor Relations Board. The Settlement also included the ratification of new five-year collective bargaining agreements and called for the establishment of a trust and on September 10, 2004, the Rocky Mountain Steel Mills  United Steelworkers of America Back Pay Trust (Trust) was

30



established. As part of the tentative settlement Oregon Steel had originally planned to issue four million shares of Oregon Steels common stock to the Trust on behalf of CF&I.  On September 10, 2004, the parties agreed instead that the Trust would receive cash in an amount equal to the gross proceeds from the sale of four million shares of the Oregon Steels common stock in an underwritten stock offering.

The Settlement also included payment by CF&I of: (1) a cash contribution of $2,500 for each beneficiary, a total of $2.5 million and (2) beginning on the effective date of the Settlement, 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 beneficiaries are those individuals who (1) as of October 3, 1997 were employees of CF&I and represented by the Union, (2) as of December 31, 1997 had not separated, as defined, from CF&I and (3) are entitled to an allocation as defined in the
Trust. The Settlement, certain elements of which are effected through the new five-year collective bargaining agreements, also includes: (1) early retirement with immediate enhanced pension benefit where CF&I will offer bargaining unit employees an early retirement opportunity based on seniority until a maximum of 200 employees have accepted the offer, the benefit will include immediate and unreduced pension benefits for all years of service (including the period of the labor dispute) and for each year of service prior to March 3, 1993 (including service with predecessor companies) an additional monthly pension of $10, (2) pension credit for the period of the labor dispute whereby CF&I employees who went on strike will be given pension credit for both eligibility and pension benefit determination purposes for the period beginning October 3, 1997 and ending on the latest of said employees actual return to work, termination of employment, retirement or death, (3) pension credit for service
with predecessor companies whereby for retirements after January 1, 2004, effective January 2, 2006 for each year of service prior to March 3, 1978 (including service with predecessor companies), CF&I will provide an additional monthly benefit to employees of $12.50, and for retirements after January 1, 2006, effective January 2, 2008 for each year of service between March 3, 1978 and March 3, 1993 (including service with predecessor companies), CF&I will provide an additional monthly benefit of $12.50, and (4) individuals who are members of the bargaining units as of October 3, 1997 and who do not choose to elect or do not qualify for early retirement, will be immediately eligible to apply for and receive qualified long-term disability (LTD) benefits on a go forward basis, notwithstanding the date of the injury or illness, service requirements or any filing deadlines. The Settlement also includes Oregon Steels agreement to nominate a director designated by the Union on
Oregon Steels board of directors, and to a broad-based neutrality clause for certain of Oregon Steels facilities in the future.

CF&I Labor Dispute Settlement  Accounting

CF&I recorded charges of $31.1 million in 2003 related to the tentative Settlement obligation.  The charge consisted of (1) $23.2 million for the value of four million shares of the Oregon Steels common stock valued as of December 31, 2003, (2) the cash payment of $2.5 million noted above, and (3) $5.4 million accrual for the LTD benefits noted above.  As noted above, on September 10, 2004, the parties agreed that the Trust would receive cash in an amount equal to the gross proceeds from the sale of four million shares of the Oregon Steels common stock in an underwritten stock offering.  On September 29, 2004, the public offering price was established at $16.00 per share, and $64.0 million was paid to the Trust in the fourth quarter of 2004.  In 2004, CF&I recorded a charge of $45.4 million ($7.0 million, $31.9 million, $4.5 million and $2.0 million for 2004
quarters ended March 31, June 30, September 30 and December 31, respectively) related to the Settlement obligation consisting of (1) $40.8 million for the incremental change in value of the four million shares of Oregon Steels common stock, (2) $8.9 million in retirement benefits for the 200 employees who accepted the early retirement benefits, which were partially offset by (3) a reduction of $4.3 million of the existing LTD accrual.  At June 30, 2005, $1.0 million was accrued for LTD benefits.  Beneficiaries have until September 2005 to claim LTD benefits and this accrual will continue to be adjusted as better claims information becomes available.  CF&I recorded a charge for the BPPSO and related taxes of $3.4 million for both the three and six months ended June 30, 2005 and charges of $1.4 million and $3.0 million, respectively, for the corresponding periods in 2004.  The BPPSO charges were classified as selling, general and administrative expenses.

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, 2005 was $0.1 million.

CF&I purchases electricity used at the Pueblo Mill from an independent third party under an agreement that expires in May 2008.  This commitment specifies that CF&I will pay a minimum monthly charge of $33,000 per month.

31



In the second quarter of 2005, CF&I entered into multiple agreements for the delivery and installation of certain machinery used in the construction of the new electric arc furnace.  CF&I has agreed to pay a total of $11.2 million to a group of third parties, with ordinary payment terms due upon delivery or as services are rendered by the contracted vendors.  The construction of the electric arc furnace is expected to be completed in the fourth quarter of 2005.

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, 2005, 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.

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 consolidated financial condition of CF&I, its results of operations, and liquidity.

5.        Employee Benefit Plans

CF&I has noncontributory defined benefit retirement plans, certain health care and life insurance benefits, and qualified Thrift (401(k)) plans covering all of its eligible employees.

Components of net periodic benefit cost related to the defined benefit retirement plans were as follows:

|                                                  |  | Defined   Benefit Retirement Plans |      
|------------------------------------------------- |  | ---------------------------------- | -----
|                                                  |  |                                    |      
|                                                  |  | Three   Months Ended June 30,      |      
|                                                  |  |                                    |      
|                                                  |  | 2005                               |      
|                                                  |  |                                    |      
|                                                  |  | (In   thousands)                   |      
|Service cost                                      |  | $                                  | 579  
|Interest   cost                                   |  |                                    | 1,001
|Expected   return on plan assets                  |  |                                    | (586 
|Amortization   of unrecognized net loss           |  |                                    | 38   
|Amortization   of unrecognized prior service cost |  |                                    | 609  
|                                                  |  |                                    |      
|Total net periodic benefit cost                   |  | $                                  | 1,641
|                                                  |  |                                    |      

32



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

|                                                  |  | Other   Benefit Plans         |    
|------------------------------------------------- |  | ----------------------------- | ---
|                                                  |  |                               |    
|                                                  |  | Three   Months Ended June 30, |    
|                                                  |  |                               |    
|                                                  |  | 2005                          |    
|                                                  |  |                               |    
|                                                  |  | (In   thousands)              |    
|Service cost                                      |  | $                             | 55 
|Interest   cost                                   |  |                               | 304
|Amortization   of unrecognized net loss           |  |                               | 54 
|Amortization   of unrecognized prior service cost |  |                               | 180
|                                                  |  |                               |    
|Total net periodic benefit cost                   |  | $                             | 593
|                                                  |  |                               |    

CF&I made contributions of $2.2 million and $5.6 million, respectively, to its defined benefit retirement plans for the three and six months ended June 30, 2005.  Contributions of $1.1 million were made during both the three and six months ended June 30, 2004.  CF&I expects to make additional contributions of $1.1 million in 2005.

33



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.  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.  These risks and uncertainties include, but are not limited
to:

| | changes in   market supply and demand for steel, including the effect of changes in   general economic conditions and imports;                                                                                                                                   
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | actions by   the Companys domestic and foreign competitors;                                                                                                                                                                                                     
| | changes in   the availability and costs of steel scrap, steel scrap substitute materials,   steel slab and billets and other raw materials or supplies used by the   Company, as well as the availability and cost of electricity and other   utilities;         
| | downturns in   the industries the Company serves, including the rail transportation,   construction, capital equipment, oil and gas, and durable goods segments;                                                                                                 
| | the   Companys substantial indebtedness;                                                                                                                                                                                                                        
| | volatility   in interest rates and performance of investments in capital markets, both of   which have a significant effect on pension and postretirement benefit obligations   and expenses;                                                                    
| | unplanned   equipment failures and plant outages;                                                                                                                                                                                                                
| | dependence   on senior management and the inability to replace key executives, should they   leave;                                                                                                                                                              
| | costs of   environmental compliance and the impact of governmental regulations;                                                                                                                                                                                  
| | pending   environmental matters, including the risk that costs associated with such   matters may exceed the Companys expectations or available insurance   coverage, if any, and the risk that the Company may not be able to resolve   any matter as expected;
| | changes in   the Companys relationship with its workforce, including its unionized   employees; and                                                                                                                                                            
| | changes in   United States or foreign trade policies affecting steel imports or exports.                                                                                                                                                                         

Overview

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 Camrose Pipe Company (Camrose); a 60 percent interest in Oregon Feralloy Partners (OFP) and 87 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, 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s steel pipe mill in Napa, California is a large diameter steel line pipe mill and fabrication facility.  In July 2004, the Company idled the Napa pipe mill, and in December 2004, the Company announced the permanent closure of the Napa pipe mill and has contracted with third parties to market the pipe mill equipment and real estate. See Note 13 to the Companys Consolidated Financial Statements, Assets Held for Salefor further discussion.  The Oregon Steel Division also produces
large diameter line pipe and electric resistance welded (ERW) line pipe and casing at the Camrose pipe mill.  In October 2003, the Oregon Steel Division began production of structural tubing at its CST facility. The Company intends to construct a new spiral weld double submerged arc weld (DSAW) pipe mill for the construction of large diameter line pipe and plans to begin production in the first quarter of 2006.  The RMSM Division consists of the steelmaking and finishing facilities of the Pueblo mill, as well as certain related operations.

34



On January 15, 2004, the Company announced a tentative agreement to settle the labor dispute between the United Steelworkers of America (Union) and CF&I and, on September 10, 2004, the settlement was finalized and became effective.  The Company recorded charges of $31.1 million and $45.4 million related to the settlement in 2003 and 2004, respectively.  See Note 10 to the Companys Consolidated Financial Statements, Contingencies  Labor Matters  CF&I Labor Dispute Settlement - Accounting for a discussion of the accounting for the agreement.

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 (GAAP). The preparation of these 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, 2004.

2005 Outlook

As a result
of the new electric arc furnace installation at RMSM and the related equipment
outage, the Companys operating income is expected to be negatively
impacted by approximately $3.7 million in the third quarter of 2005 and $1
million in the fourth quarter of 2005. The installation of the new one furnace
operation is expected to reduce operating costs at RMSM by approximately $10
million per year.  In addition, beginning the second week in July 2005,
Camroses large diameter line pipe mill is expected to be out of service
for approximately 3 months for equipment upgrades that will allow Camrose to
make a heavier wall line pipe product. The Camrose mill is expected to restart
during the third week of October. The large diameter line pipe backlog at
Camrose is approximately five months or 80,000 tons.

For 2005, the Company expects to ship approximately 1.5 million tons of products and generate approximately $1.25 billion in sales.  In the Oregon Steel Division the product mix is expected to consist of approximately 480,000 tons of plate and coil, 190,000 tons of welded pipe and 60,000 tons of structural tubing. The Companys RMSM Division expects to ship approximately 410,000 tons and 380,000 tons of rail and rod and bar products, respectively.

35



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, |  
|--------------------------- |  | ----------------------------- | ------- | --------------------------- | -
|                            |  |                               |         |                             |  
|                            |  | 2005                          |         | 2004                        |  
|                            |  |                               |         |                             |  
|Sales                       |  |                               |         |                             |  
|Oregon Steel   Division     |  | $                             | 214,314 |                             | $
|RMSM   Division             |  |                               | 120,645 |                             |  
|                            |  |                               |         |                             |  
|Consolidated                |  | $                             | 334,959 |                             | $
|                            |  |                               |         |                             |  
|Tons sold                   |  |                               |         |                             |  
|Oregon Steel   Division:    |  |                               |         |                             |  
|Plate and Coil              |  |                               | 112,200 |                             |  
|Welded Pipe                 |  |                               | 66,900  |                             |  
|Structural Tubing           |  |                               | 13,700  |                             |  
|                            |  |                               |         |                             |  
|Total Oregon Steel Division |  |                               | 192,800 |                             |  
|                            |  |                               |         |                             |  
|RMSM   Division:            |  |                               |         |                             |  
|Rail                        |  |                               | 103,200 |                             |  
|Rod and Bar                 |  |                               | 83,600  |                             |  
|Seamless Pipe               |  |                               |        |                             |  
|                            |  |                               |         |                             |  
|Total RMSM Division         |  |                               | 186,800 |                             |  
|                            |  |                               |         |                             |  
|Consolidated                |  |                               | 379,600 |                             |  
|                            |  |                               |         |                             |  
|Sales price   per ton       |  |                               |         |                             |  
|Oregon Steel   Division     |  | $                             | 1,112   |                             | $
|RMSM   Division             |  | $                             | 646     |                             | $
|Consolidated                |  | $                             | 882     |                             | $

Sales

Sales for the three months ended June 30, 2005 increased 18.9% to $335.0 million as compared to sales of $281.8 million for the three months ended June 30, 2004.  Average sales price was $882 per ton in the second quarter of 2005 compared to $654 per ton in the second quarter of 2004.  The increase is primarily attributed to increased prices for plate, welded pipe and rail products.  The decrease in shipments was primarily due to decreased shipments of plate and coil, structural tubing and rod and bar products partially offset by higher shipments of welded pipe and rail products.  Shipments of plate and coil and rod and bar products decreased as customers managed inventory levels for those products.  Shipments on a specific line pipe order made during the second quarter drove the increase in volumes seen in welded pipe, while there was continued strong demand for rail products in
the second quarter.  Sales for the six months ended June 30, 2005 increased 18.1% to $630.9 million as compared to sales of $534.2 million for the comparable period in 2004.  Average sales price was $870 per ton in the first six months of 2005 compared to $588 per ton in the first six months of 2004.  The Company realized increased sales prices on all products during the first six months of 2005, as compared to the same period of 2004.  Shipments of plate and coil and rod and bar products decreased as customer managed inventory levels for those products during the first six months of 2005.

Gross Profit

|             |  | Three Months Ended June 30, |        | Six Months Ended June 30, |  
|------------ |  | --------------------------- | ------ | ------------------------- | -
|             |  |                             |        |                           |  
|             |  | 2005                        |        | 2004                      |  
|             |  |                             |        |                           |  
|Gross Profit |  | $                           | 70,731 |                           | $

In the second quarter of 2005, the Companys gross profit margin was 21.1% as compared to 24.5% for the comparable period of 2004.  The lower gross profit margin was attributed to decreased shipment volumes coupled with increased costs for steel slab, which more than offset the higher average sales prices.  The Companys gross profit margin was 23.2% for the six months ended June 30, 2005 compared to 20.0% for the comparable period of 2004.  The higher gross profit margin was primarily a result of higher average sales prices, for which a greater quarter over quarter increase was realized in the first quarter.  The higher sales prices were partially offset by lower shipment volumes and higher steel slab costs.

36



Selling, General and Administrative Expenses

|                                             |  | Three Months Ended June 30, |        | Six Months Ended June 30, |  
|-------------------------------------------- |  | --------------------------- | ------ | ------------------------- | -
|                                             |  |                             |        |                           |  
|                                             |  | 2005                        |        | 2004                      |  
|                                             |  |                             |        |                           |  
|Selling, General and Administrative Expenses |  | $                           | 12,264 |                           | $

Selling,
general and administrative expenses decreased for the three months ended June
30, 2005 as compared to 2004 primarily as a result of decreased quarterly
expense related to the ten-year profit participation obligation resulting from
the labor dispute settlement between the Union and CF&I.  The Company
did not record a charge for the Back Pay Profit Sharing Obligation (BPPSO) and
related payroll taxes in the three months ended June 30, 2005 as the entire
potential payout on 2005 earnings was achieved in the first quarter of
2005.  This compares to $1.4 million and $3.0 million in BPPSO related
charges recorded for the three and six months ended June 30, 2004,
respectively.  Selling, general and administrative expenses increased for
the six months ended June 30, 2005 as compared to the same period of 2004, also
primarily as a result of the timing of BPPSO charges as explained above. 
See Note 10 to the Companys Consolidated Financial Statements,
Contingencies  Labor Matters  CF&I Labor Dispute
Settlement - Accounting.

Incentive Compensation

|                       |  | Three Months Ended June 30, |       | Six Months Ended June 30, |  
|---------------------- |  | --------------------------- | ----- | ------------------------- | -
|                       |  |                             |       |                           |  
|                       |  | 2005                        |       | 2004                      |  
|                       |  |                             |       |                           |  
|Incentive Compensation |  | $                           | 4,672 |                           | $

Incentive compensation increased for the three and six months ended June 30, 2005 as compared to the same periods of 2004, due largely to higher operating income.  In addition, the Company recorded a charge of $0.6 million during both the three and six months ended June 30, 2005 for stock compensation expense recorded in connection with the Long-Term Incentive Plan (LTIP).  The LTIP was approved by shareholder vote in April 2005 and the second quarter charge represents the estimated expense for the first six months of 2005.  See Note 2 to the Companys Consolidated Financial Statements, Stock-Based Compensation.

Interest Expense

|                 |  | Three Months Ended June 30, |       | Six Months Ended June 30, |  
|---------------- |  | --------------------------- | ----- | ------------------------- | -
|                 |  |                             |       |                           |  
|                 |  | 2005                        |       | 2004                      |  
|                 |  |                             |       |                           |  
|Interest Expense |  | $                           | 8,326 |                           | $

Interest expense recorded for the three and six months ended June 30, 2005 was effectively the same as the same periods of the prior year. Substantially all of the Companys interest expense is related to the 10% First Mortgage Notes due in 2009.

37



Income Tax Expense (Benefit)

|                             |  | Three Months Ended June 30, |        | Six Months Ended June 30, |  
|---------------------------- |  | --------------------------- | ------ | ------------------------- | -
|                             |  |                             |        |                           |  
|                             |  | 2005                        |        | 2004                      |  
|                             |  |                             |        |                           |  
|Income Tax Expense (Benefit) |  | $                           | 17,934 |                           | $

The effective
income tax expense rate was 38.7% and 37.4%, respectively, for the three and six
months ended June 30, 2005, as compared to an effective income tax benefit rate
of less than 1.0% for the three and six months ended June 30, 2004.  The
effective income tax rate for 2005 varied from the combined state and federal
statutory rate principally because the Company recorded tax benefits associated
with export sales.  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 increased its valuation allowance by $0.5
and $0.3 million in the three and six months ended June 30, 2005, respectively,
because of the uncertainty regarding the utilization of certain state tax
credits.  The Company decreased the valuation allowance
by $7.3 million and $10.5 million in the three and six months ended June 30,
2004, respectively, because the improved earnings reduced the uncertainty
surrounding allowances pertaining to 2003.  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, 2005, the only
significant valuation allowance relates to the State of Colorado net operating
losses and credits.

38



Liquidity and Capital Resources

At June 30, 2005, the Companys liquidity, comprised of cash (including restricted cash of $23.3 million), cash equivalents, and short-term investments totaled approximately $109.7 million.  At December 31, 2004, the Companys liquidity comprised of cash, cash equivalents, short-term investments and funds available under its $65.0 million revolving credit facility ($45.1 million) totaled approximately $182.3 million.  The Company terminated the $65.0 million revolving credit facility on March 29, 2005 and replaced it with a new credit facility that, as amended, provides for a maximum borrowing of $35.0 million for the sole purpose of issuing letters of credit.  For further information see Note 5 to the Companys Consolidated Financial Statements, Debt, Financing Arrangements and Liquidity.

Net working capital at June 30, 2005 increased $69.4 million compared to December 31, 2004, substantially all of which was attributed to the $70.1 million increase in current assets as total current liabilities were effectively the same at the end of both periods. The increase in current assets was primarily due to an increase in inventory of $101.0 million, partially offset by a decrease in cash, cash equivalents and short-term investments of $27.4 million.  The increase in inventories is primarily due to (1) increased volume of higher cost steel slab, (2) increased volumes of plate (for conversion into large diameter line pipe) and large diameter pipe at Camrose and (3) the buildup of semi-finished inventory at RMSM in anticipation of the installation of the new electric arc furnace that is expected to occur during the third and fourth quarters of 2005.  The new furnace installation is
expected to take 45 days, during which time both furnaces at RMSM will not be operating.  The Company anticipates that year end inventories will be approximately $210 million.

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 will be redeemable at the option of the Company, in whole or in part at a set range of redemption prices.  If redeemed during the twelve-month period beginning July 15, 2006 the price is 105% of the principal amount, plus accrued and unpaid interest and any liquidated damages, as defined.  The redemption price adjusts to 102.5% and 100%, respectively, for the two subsequent twelve-month periods.

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,
2005, there was $7.1 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.  The creditors of OFP have no recourse to the general credit
of the Company.  Effective January 1, 2004, the Company included the OFP
loan balance in the consolidated balance sheet as a result of the adoption of
FIN 46R.  See Note 11 to the Consolidated Financial Statements,
Joint Venture and Adoption of FIN 46R  Consolidation of Variable
Interest Entities.

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, 2005, CPCs share of the principal outstanding was $3.5 million of which $40,000 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.

On March 29, 2005, the Company entered into a Letter of Credit Facility Agreement (Credit Agreement) with U.S. Bank National Association.  The Credit Agreement, as amended, provides for a maximum borrowing of $35.0 million for the sole purpose of issuing letters of credit and terminates on March 29, 2006.  Under the Credit Agreement, the Company agrees to pay an issuance fee of the greater of $100 or the face amount of a letter of credit multiplied by 0.125% and a fee, payable quarterly in arrears, at a rate of 0.50% per annum of the average aggregate undrawn face amount of all outstanding letters of credit during the preceding calendar quarter.  The Credit Agreement contains certain customary covenants for credit facilities of this type, such as provisions regarding compliance with laws, taxes, notice to issuers and financial information and will be secured by restricted
cash.  As of June 30, 2005, the Company had $23.3 million of restricted cash as collateral supporting $22.1 million of letters of credit associated with the Credit Agreement.

39



Camrose maintains a CDN $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 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. At June 30, 2005, there were no restricted amounts for outstanding letters of credit.  Camrose has subsequently agreed to amendments to its existing loan agreement with the Canadian bank to include a temporary credit facility for an additional
CDN $15.0 million.  Any amounts drawn on the temporary credit facility will bear interest at the prime rate and will have to be repaid in the third quarter of 2005.  All other terms of the temporary credit facility are consistent with the original credit facility.  As of June 30, 2005, the interest rate of this facility was 4.25%.  Camrose pays annual commitment fees of up to 0.25% of the unused portion of the credit line.  At June 30, 2005, there was a $15.4 million outstanding balance due under the credit facility.

As of June 30, 2005, principal payments on debt are due as follows (in thousands):

|2005                |  | $ | 8,294   | 
|------------------- |  | - | ------- | 
|2006                |  |   | 10,202  | 
|2007                |  |   | 4,122   | 
|2008                |  |   | 48      | 
|2009                |  |   | 303,051 | 
|2010                |  |   | 55      | 
|2011 and thereafter |  |   | 3,261   | 
|                    |  |   |         | 
|                    |  | $ | 329,033 | 
|                    |  |   |         | 

Due to the favorable net results for the first three and six months of 2005, 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 and from funds generated from operations.

Off Balance Sheet Arrangements

Information on the Companys off balance sheet arrangements is disclosed in the contractual obligations table of the Companys 2004 Form 10-K.

Item 3.          Quantitative and Qualitative Disclosures About Market Risk

No material changes.

Item 4.          Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of June 30, 2005, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and the Companys Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures.  Based on the evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

40



Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the three and six months ended June 30, 2005, 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 a discussion of the status of (a) the
environmental issues at the Portland mill and RMSM, and (b) the
settlement of the labor dispute at 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, on-site remediation of environmental contamination or earthquake damage to its Napa pipe mill and related properties because of the high cost of that coverage.  In addition, our per claim deductible for workers compensation claims is $1 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 4.          Submission of Matters to a Vote of Security Holders

The Company held its Annual Meeting of Stockholders on April 28, 2005.

The stockholders elected Harry Demorest, Stephen Reynolds and William Swindells as Class B directors, to serve until 2008.  All Class A and Class C directors continued in office after the meeting.  Demorest, Reynolds and Swindells were elected by a vote of 30,474,422 shares, 30,925,109 shares and 30,842,006 shares, respectively, and 1,074,279 shares, 623,592 shares and 706,695 shares, respectively, withheld authority to vote.

The
stockholders also voted on a proposal to approve the Oregon Steel Mills, Inc.
2005 Long-Term Incentive Plan.  The proposal was approved with a vote of
19,968,212 shares for, 2,600,970 shares against, 1,130,778 shares abstaining and
11,728,628 shares subject to broker
non-votes.

Item 6.          Exhibits

| | 3.1    | Bylaws of   the Company (as amended and restated).                                                                                                                                                                 
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                    
| | 10.1** | 2005 Long-Term   Incentive Plan.                                                                                                                                                                                   
| |        |                                                                                                                                                                                                                    
| | 10.2** | 2005 Program   for Executive Officers and Key Employees Under the 2005 Long-Term Incentive Plan.                                                                                                                   
| |        |                                                                                                                                                                                                                    
| | 10.3** | 2005   Non-Employee Director Equity Compensation Program Under the 2005 Long-Term   Incentive Plan.                                                                                                                
| |        |                                                                                                                                                                                                                    
| | 10.4   | First Amendment to Letter of Credit
Facility Agreement, dated as of June 15, 2005, between the Company and U.S. Bank
National Association.                                                                         
| |        |                                                                                                                                                                                                                    
| | 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.                               

|  
|--
|**

41



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:  August   9, 2005 |  | /s/ ROBIN A. GANTT              
|                        |  |                                 
|                        |  | Robin A.   Gantt                
|                        |  | Corporate   Controller          
|                        |  | (Principal   Accounting Officer)

42



OREGON STEEL MILLS, INC.

Exhibit Index

LIST OF EXHIBITS FILED WITH FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2005

| | 3.1    | Bylaws of   the Company (as amended and restated).                                                                                                                                                                 
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                    
| | 10.1** | 2005 Long-Term   Incentive Plan.                                                                                                                                                                                   
| |        |                                                                                                                                                                                                                    
| | 10.2** | 2005 Program   for Executive Officers and Key Employees Under the 2005 Long-Term Incentive   Plan.                                                                                                                 
| |        |                                                                                                                                                                                                                    
| | 10.3** | 2005   Non-Employee Director Equity Compensation Program Under the 2005 Long-Term   Incentive Plan.                                                                                                                
| |        |                                                                                                                                                                                                                    
| | 10.4   | First Amendment to Letter of Credit
Facility Agreement, dated as of June 15, 2005, between the Company and U.S. Bank
National Association.                                                                         
| |        |                                                                                                                                                                                                                    
| | 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.                               

|  
|--
|**

43