NEW CF&I INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
NEW CF&I, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-20781 93-1086900
- -------------------------------------------------------------------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification Number)

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

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

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the registrant's
classes of stock as of January 31, 1997:

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

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

Proxy statement for Oregon Steel Mills, Inc. Annual Meeting of
Stockholders to be held April 29, 1997 is incorporated by reference into Part
III of this report.

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

TABLE OF CONTENTS
PAGE
----
PART I

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

Capital Improvement Program........................ 1
Products........................................... 2
Raw Materials ..................................... 3
Marketing and Customers............................ 3
Competition and Other Market Factors............... 4
Environmental Matters.............................. 5
Employees.......................................... 6

ITEM 2. PROPERTIES............................................. 6

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.... 7
Executive Officers of the Registrant............... 7

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS......................... 8

ITEM 6. SELECTED FINANCIAL DATA................................. 8

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....... 9

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

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................... 42

PART III

ITEMS 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
and 11. AND EXECUTIVE COMPENSATION......................... 43

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT..................................... 45

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......... 45

PART IV

ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K................................ 46

PART I

ITEM 1. BUSINESS

GENERAL

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

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

CAPITAL IMPROVEMENT PROGRAM

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

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

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

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

1

produced with former techniques. As a result of these improvements, the Company
believes it can provide a functionally superior, higher margin product.

PRODUCTS

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

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

Rail Rail transportation

Wire rod Durable goods
Capital equipment

Bar products Construction
Durable goods
Capital equipment

Wire products Agriculture
Construction

Seamless pipe Oil and gas producers
Gas transmission

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

TONS SHIPPED
-----------------------------------------------
PRODUCT 1996 1995 1994
----------------------------------------------

Rail 287,700 240,700 250,500
Rod, Bar and Wire 392,600 271,300 379,300
Seamless Pipe 151,200 116,100 130,000
Semifinished 61,700 12,100 5,800
------- ------- -------
Total Company 893,200 640,200 765,600
======= ======= =======

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

As part of its capital improvement program, the Company improved its rail
manufacturing facilities to include the production of in-line head-hardened and
other premium rail. The installation of the in-line head-hardening process was
completed in the third quarter of 1996. In-line head-hardened rail is produced
through a proprietary finishing technology. The Company has licensed the
technology (known as deep head-hardened or DHH technology) from Nippon in
connection with Nippon's investment in the Company. In 1996 the Company produced
approximately 23,500 tons of head-hardened product using the DHH technology. The
in-line DHH technology allows the Company to produce up to 450,000 tons (the
capacity of the rail facility) of head-hardened product. Rail produced using the
improved in-line technology is considered by many rail customers to be more
durable and of higher quality than rail produced with existing off-line
techniques.

ROD PRODUCTS. The Company historically produced a narrow range of
generally low-carbon rod products at the Pueblo Mill in diameters ranging
primarily from 7/32" to 9/16". The Company's rod products were sold principally
to wire drawers in the midwestern and western states. Typical end uses

2

included a variety of construction and agricultural applications such as nails,
bailing wire and chain-link and woven wire fencing.

The Company's new rod and bar mill has enabled the Company to increase
its rod product offerings. With the old rod and bar mills, the Company was
limited to a 1,100 pound coil size. With the new rod and bar mill, the Company
is able to produce coils of up to 6,000 pounds. The improved steel quality and
finishing capabilities allow the Company to manufacture rods up to 1" in
diameter and, over time, the Company expects to manufacture a variety of
high-carbon rod products such as those used for spring wire, wire rope, tire
bead and tire cord.

BAR PRODUCTS. Historically, most of the bar products sold by the Company
have been various grades of concrete reinforcing bar, ranging from 3/8" to
1-3/8" in diameter. With the new rod and bar mill, the Company expects to
manufacture a broader assortment of higher margin bar products, including
merchant quality bar for use in machinery and equipment and small structural
uses and special quality bar for cold drawing, hand tools and other forged
applications.

WIRE PRODUCTS. The Company draws wire and produces various wire products
at its Pueblo Mill. These are principally low carbon wires for uses such as
fencing, bailing wire and wire nails.

SEAMLESS PIPE. Seamless pipe produced at the Pueblo Mill consists of
seamless casing, coupling stock and standard and line pipe. Seamless pipe casing
is used as a structural retainer for the walls of oil or gas wells. Standard and
line pipe are used to transport liquids and gases both above and underground.
The Company's seamless pipe mill is equipped to produce the most widely used
sizes of seamless pipe (2-3/8" outside diameter through 10-3/4" outside
diameter) in all standard lengths. The Company's production capability includes
both carbon and high quality, high strength (heat-treated) tubular products. The
Company also sells semifinished seamless pipe (known as "green tubes") for
processing and finishing by others.

RAW MATERIALS

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

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

MARKETING AND CUSTOMERS

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

3

The sales force is organized by product line. The Company has separate
sales people for seamless pipe, rod and bar, rail and wire products. As of
December 31, 1996, the Company employed 22 sales representatives. Most of the
Company's sales are initiated by contacts between sales representatives and
customers. Accordingly, the Company does not incur substantial advertising or
other promotional expenses for the sale of its products. In 1996, the Company
derived 13.5 percent of its sales from one customer. Except for contracts
entered into from time to time to supply rail to significant projects, the
Company does not have any significant ongoing contracts with customers to
purchase steel products, and orders placed with the Company generally are
cancelable by the customer prior to production.

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

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

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

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

During 1996 the Company sold its bar products (primarily reinforcing bar)
to fabricators and distributors. The majority of its customers are regional,
located within Colorado. Incremental costs for transportation limit the
Company's ability to ship the product out of the region and surrounding states.
Some merchant and special bar quality product was also shipped during 1996, as
the new rod and bar facility has provided the ability to provide certain new
products.

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

Sales of wire products are made to a large number and wide variety of
customers in the western United States. The customers are primarily in the
distribution of agricultural and construction products.

COMPETITION AND OTHER MARKET FACTORS

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

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

4

the future exert downward pressure on prices for certain of the Company's
products. There is no assurance that the Company will be able to compete
effectively in the future.

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

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

The competition in bar products include a group of minimills that have a
geographical location close to the intermountain market. The Company's market
for wire rod is considered to encompass the western United States. Domestic rod
competitors include GS Technologies, North Star Steel, Cascade Steel Rolling
Mills, Keystone Steel and Wire and Northwestern Steel & Wire. The Company's
market for wire products is considered to be west of the Mississippi River. The
Company's wire facilities are mainly suited to products for the agricultural and
construction markets. Domestic wire competitors include Keystone Steel and Wire,
Northwestern Steel and Wire, Davis Wire and Tree Island Steel.

ENVIRONMENTAL MATTERS

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

At December 31, 1996, the Company had accrued a reserve of $35.1 million
for environmental remediation at the Pueblo Mill. This reserve is based upon a
range of estimated remediation costs of $23.1 million to $43.6 million. The
Company's estimate of this environmental reserve was based on two remediation
investigations conducted by independent environmental engineering consultants.
The reserve includes costs for Resource Conservation and Recovery Act facility
investigation, corrective measures study, remedial action, and operation and
maintenance of the remedial actions taken. The State of Colorado has issued a
postclosure permit for historic hazardous waste units at the Pueblo Mill. As
part of the postclosure permit requirements, CF&I must conduct a corrective
action program for the 82 solid waste management units at the facility. At
December 31, 1996, the Company has completed corrective action on three solid
waste management units and continues to address projects on the prioritized
corrective action schedule which substantially reflects a straight-line rate of
expenditure over 30 years. The State of Colorado has indicated that the schedule
for corrective action could be accelerated if new data indicated a greater
threat to the environment than is currently known to exist. The Company believes
the reserve is adequate to cover the remediation costs.

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

5

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

EMPLOYEES

As of December 31, 1996, the Company had 1,458 full-time employees.
Approximately 1,260 employees work under collective bargaining agreements with
several unions, principally the United Steelworkers of America ("USWA"). The
USWA contract was negotiated in March 1993 and will expire in September 1997.
The contract provides for scheduled annual cost of living pay increases during
the life of the contract. The Company believes it has a good relationship with
its employees.

The Company also has a profit participation plan for its employees which
permits eligible employees to share in the pretax profits of the Company.

ITEM 2. PROPERTIES

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

At December 31, 1996, the Company had the following nominal capacities
which are affected by product mix:

PRODUCTION PRODUCTION
CAPACITY 1996
(TONS) (TONS)
---------- ----------

Melting........................ 1,200,000 937,900
Finishing Mill................. 1,200,000 802,800

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

6

ITEM 3. LEGAL PROCEEDINGS

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

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

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

No matters were voted upon during the fourth quarter of 1996.

EXECUTIVE OFFICERS OF THE REGISTRANT

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

The name of each executive officer of the Company, age as of February 1,
1997, and position(s) and office(s) and all other positions and offices held by
each executive officer are as follows:

ASSUMED
PRESENT
EXECUTIVE
NAME AGE POSITIONS POSITION
- ---- --- --------- --------

Thomas B. Boklund 57 Chairman of the Board of Directors March 1993
Chief Executive Officer and President

L. Ray Adams 46 Vice President of Finance April 1994
and Chief Financial Officer

Jim Dionisio 46 Vice President of Sales and Marketing November 1995

LaNelle F. Lee 59 Secretary April 1994

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

7

PART II

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

Neither the Company's common stock nor CF&I's partnership interests are
publicly traded. At December 31, 1996, the number of the Company's stockholders
of record was three. No dividends have been paid on the common stock.

ITEM 6. SELECTED FINANCIAL DATA

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

YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993 (FN1)
------ ------ ------ -----------
(IN THOUSANDS, EXCEPT TON AND PER TON AMOUNTS)

INCOME STATEMENT DATA:
Sales $ 393,696 $ 303,003 $ 339,474 $ 264,658
Cost of sales 361,465 279,099 314,966 241,381
Selling, general and administrative
expenses 17,600 17,159 16,625 12,515
Profit participation 275 449 - 477
Operating income 14,356 6,296 7,883 10,285
Other expense, net (22,144) (11,436) (3,051) (4,595)
Minority interests 607 497 6 (139)
Income tax benefit (expense) 2,729 5,066 (2,125) (2,123)
--------- --------- --------- ---------
Net income (loss) $ (4,452) $ 423 $ 2,713 $ 3,428
========= ========= ========= =========
BALANCE SHEET DATA (AT DECEMBER 31):
Working capital $ 49,210 $ 47,504 $ 36,327 $ 28,660
Total assets 388,062 392,268 329,325 194,701
Current liabilities 57,809 74,712 75,825 69,462
Long-term debt 250,416 232,416 167,471 59,787
Total stockholders' equity 18,695 23,168 27,785 25,373

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

Operating margin 3.6% 2.1% 2.3% 3.9%
Operating income per ton sold $16 $10 $10 $16

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

(FN1) Represents activity from the March 3, 1993, acquisition date to
December 31, 1993.

8

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

General
- -------

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

CF&I purchased the Pueblo Mill and related assets in March 1993. The Pueblo
Mill has melting and finishing capacity of approximately 1.2 million tons per
year. In 1996, 1995 and 1994 the Pueblo Mill shipped 893,200, 640,200, and
765,600 tons, respectively, and generated revenues of $393.7 million, $303.0
million, and $339.5 million, respectively. In August 1994 the Company sold a 10
percent equity interest in the Company to Nippon. In connection with that sale,
Nippon agreed to license to the Company its proprietary technology for producing
DHH products as well as to provide certain production equipment to produce DHH
rail. In November 1995 Oregon Steel Mills, Inc. sold a 3 percent equity interest
in the Company to Nissho Iwai. In connection with that sale, Nissho Iwai agreed
to promote the international sale of certain steel products produced by CF&I and
Oregon Steel.

In addition to its ownership interest in CF&I, the Company owns Colorado &
Wyoming Railway Company, a short-line railroad, serving principally the Pueblo
Mill. For the years ended December 31, 1996, 1995 and 1994, sales of CF&I were
98.8 percent, 99.0 percent and 99.9 percent, respectively, of the consolidated
sales of the Company. For the years ended December 31, 1996, 1995 and 1994, cost
of sales of CF&I were 99.0 percent, 99.4 percent and 100.2 percent,
respectively, of the consolidated cost of sales of the Company.

9

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

YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------- ------- -------
INCOME STATEMENT DATA:
Sales 100.0 100.0% 100.0%
Cost of sales 91.8 92.1(FN1) 92.8(FN2)
---- ----- -----
Gross profit 8.2 7.9 7.2
Selling, general and administrative expenses 4.5 5.7 4.9
Profit participation expense .1 .1 -
Operating income 3.6 2.1 2.3
Interest and dividend income - - .1(FN2)
Interest expense (5.8) (4.0) (1.1)
Other income, net .2 .1 .1
Minority interests .2 .2 -
---- ---- ----
Income (loss) before income taxes (1.8) (1.6) 1.4
Income tax (expense) benefit .7 1.7 (.6)
---- ---- ----
Net income (loss) (1.1)% .1% .8%
===== ==== ====
BALANCE SHEET DATA:
Current ratio 1.9:1 1.6:1 1.5:1
Long-term debt as a percentage of capitalization 93.1% 90.9% 85.8%

(FN1)Sales for 1995 include approximately $4.0 million of insurance proceeds
received as reimbursement of lost profits resulting from lost production
and start-up delays at CF&I's rod and bar mill caused by an explosion in
the third quarter of 1994. In 1995 revenues of $26.0 million and costs of
$26.7 million were capitalized during construction of the rod and bar mill
at the Pueblo Mill prior to placement of the mill in service on August 1,
1995.

(FN2)In the fourth quarter of 1994, CF&I received property tax refunds totaling
approximately $535,000 related to prior years for the over-assessment of
the Pueblo Mill. This refund reduced 1994 cost of sales and increased 1994
interest income.

10

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

YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
------ ------ ------
TONNAGE SOLD:

Rail 287,700 240,700 250,500
Rod/Bar/Wire 392,600 271,300 379,300
Seamless Pipe 151,200 116,100 130,000
Semifinished 61,700 12,100 5,800
--------- --------- ---------
Total 893,200 640,200 765,600
========= ========= =========

Sales (in thousands) $ 393,696 $ 303,003 $ 339,474
Average price per ton sold $ 441 $ 467 (1) $ 443
Operating income per ton sold $ 16 $ 10 (2) $ 10
Operating margin 3.6% 2.1%(2) 2.3%

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

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

COMPARISON OF 1996 TO 1995

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

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

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

11

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

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

INTEREST EXPENSE. Total interest costs for 1996 were $25.0 million, an
increase of $7.6 million compared to 1995. The higher interest cost is primarily
the result of additional debt incurred to fund the capital improvement program,
combined with increased interest rates. Of the $24.9 million of interest cost in
1996, $2.2 million was capitalized as part of construction in progress.

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

COMPARISON OF 1995 TO 1994

SALES. Sales in 1995 of $303.0 million declined 10.7 percent from sales of
$339.5 million in 1994. In 1995, sales included proceeds from an insurance
settlement of approximately $4.0 million as reimbursement of lost profits
resulting from lost production and start-up delays at the Pueblo Mill caused by
an explosion that occurred in the third quarter of 1994. Tons sold decreased
16.4 percent to 640,200 tons in 1995 from 765,600 tons in 1994. Selling prices
in 1995 averaged $467 per ton versus $443 per ton in 1994. Of the $36.5 million
sales decrease, $55.6 million was the result of volume decreases, offset in part
by $15.1 million from higher average selling prices and approximately $4.0
million from the proceeds of the insurance settlement.

The decrease in sales and shipments was primarily the result of reduced rod
and bar shipments. Rod and bar shipments were negatively impacted by
difficulties relating to the start-up of the new combination rod and bar mill
which resulted in production delays and reduced production. In addition, certain
rod and bar costs, net of sales, were capitalized through July 31, 1995. Thus,
the Company's income statement for 1995 did not reflect $26.0 million from the
sale of 78,700 tons of rod and bar mill products, nor did it reflect $26.7
million for the cost of those sales. The Company began recognizing all revenues
and costs associated with the new rod and bar mill in August 1995.

GROSS PROFIT. Gross profit as a percentage of sales for 1995 was 7.9
percent, compared to 7.2 percent for 1994. Gross profit margins were positively
impacted by higher selling prices for most products, offset by a 7.5 percent
increase in the cost of scrap and other metallics. Gross profit margin, as in
1994, continued to be negatively affected by high costs and lower volumes
relating to the completion and start-up of a portion of the equipment upgrades
at the rod and bar mill which were part of the capital improvement program at
the Pueblo Mill. Gross profits for 1995 were positively impacted compared to
1994 due to approximately $4.0 million received from CF&I's business
interruption insurance carrier in the second quarter of 1995 for reimbursement
of lost profits.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for 1995 increased $534,000 or 3.2 percent compared with 1994, and
increased as a percentage of sales from 4.9 percent in 1994 to 5.7 percent in
1995. The increase as a percentage of sales is primarily due to reduced sales of
rod and bar products for the reasons noted above.

12

PROFIT PARTICIPATION. Profit participation plan expense was $449,000
for 1995 compared to no expense for 1994.

INTEREST EXPENSE. Total interest costs for 1995 were $17.4 million, an
increase of $7.2 million compared to 1994. This increase was primarily related
to interest on debt incurred to fund the capital improvement program. Of the
$17.4 million of interest cost in 1995, $5.5 million was capitalized as part of
construction in progress.

INCOME TAX EXPENSE. The Company's effective income tax rate for state and
federal taxes was a benefit of 109.1 percent for 1995 compared to an expense of
43.9 percent for 1994. The effective tax rate for 1995 varied from the combined
state and federal statutory rates due to earned state tax credits, including a
net tax benefit of $2.5 million related to enterprise zone credits for eligible
completed capital projects at the Pueblo Mill.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow provided from operations was $15.3 million compared to $3.5
million cash used in 1995. The major items affecting this $18.8 million increase
were increased depreciation and amortization ($4.6 million), a lower decrease in
deferred income tax liability ($2.0 million), and a decrease in inventories
versus an increase in 1995 ($26.3 million). These cash increases were partially
offset by a net loss versus net income in 1995 ($4.9 million) and a larger
decrease in accounts payable ($4.2 million).

Since its acquisition by Oregon Steel in March 1993, CF&I has required
substantial amounts of cash to fund its operations and capital expenditures.
Borrowing requirements for capital expenditures and other cash needs, both
short-term and long-term, are provided through a loan from Oregon Steel. As of
December 31, 1996, $205.7 million of aggregate principal amount of the loan was
outstanding, all of which was classified as long-term. The loan includes
interest on the daily amount outstanding at the rate of 11.64 percent. The
principal is due on demand or, if no demand is made, due December 31, 2002.
Interest on the principal amount of the loan is payable monthly. Because the
loan from Oregon Steel is due on demand, the applicable interest rate is
effectively subject to renegotiation at any time, and there is no assurance the
interest rate will not be materially increased in the future. In addition,
Oregon Steel is not required to provide financing to the Company and, although
no repayments are expected in 1997, it may in any event demand repayment of
the loan at any time. If Oregon Steel were to demand repayment of the loan, it
is unlikely that the Company would be able to obtain from external sources
financing necessary to repay the loan or to fund its capital expenditures and
other cash needs. Failure to obtain alternative financing would have a material
adverse effect on the Company and CF&I. If the Company were able to obtain the
necessary financing, it is likely that such financing would be at interest rates
and on terms substantially less favorable to the Company than those provided by
Oregon Steel.

Term debt of $67.5 million was incurred by CF&I as part of the purchase
price of the Pueblo Mill on March 3, 1993. This debt is uncollateralized and is
payable over 10 years with interest at 9.5 percent. As of December 31, 1996, the
outstanding balance on the debt was $51.3 million, of which $44.7 million was
classified as long-term.

On June 19, 1996, Oregon Steel completed a public offering of $235 million
principal amount of 11% First Mortgage Notes due 2003. The Company and CF&I have
guaranteed the obligations of Oregon Steel under the Notes, and those guarantees
are secured by a lien on substantially all of the property, plant and equipment
and certain other assets of the Company and CF&I.

13

Concurrent with the Notes offering, Oregon Steel entered into an amendment
of their existing credit agreement ("Amended Credit Agreement"). The $125
million Amended Credit Agreement is guaranteed by the Company and CF&I and
collateralized, in part, by substantially all of the Company's and CF&I's
inventory and accounts receivable.

During 1996, the Company expended approximately $32.9 million, excluding
capitalized interest, on its capital program.

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

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

14

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
New CF&I, Inc. and its subsidiaries at December 31, 1996, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Portland, Oregon
January 17, 1997

15

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

ASSETS

DECEMBER 31,
---------------------------------------------
1996 1995 1994
---- ---- ----

Current assets:
Cash and cash equivalents $ 3 $ - $ 481
Trade accounts receivable, less allowance
for doubtful accounts of $455, $518
and $592 49,380 45,904 44,195
Inventories 50,577 70,249 63,617
Deferred tax asset 5,014 5,007 3,019
Other 2,045 1,056 840
-------- -------- --------
Total current assets 107,019 122,216 112,152
-------- -------- --------
Property, plant and equipment:
Land and improvements 3,530 3,530 3,558
Buildings 6,043 5,867 5,872
Machinery and equipment 236,566 188,726 42,952
Construction in progress 4,011 31,586 117,998
-------- -------- --------
250,150 229,709 170,380
Accumulated depreciation (22,996) (11,124) (4,047)
-------- -------- --------
227,154 218,585 166,333
-------- -------- --------
Cost in excess of net assets acquired, net 36,962 37,983 39,002
Other assets 16,927 13,484 11,838
-------- -------- --------
$388,062 $392,268 $329,325
======== ======== ========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 6,574 $ 4,576 $ 5,302
Accounts payable 33,892 53,867 56,563
Accrued expenses 17,343 16,269 13,960
-------- -------- --------
Total current liabilities 57,809 74,712 75,825
Long-term debt 44,716 50,666 54,771
Long-term debt -- Oregon Steel Mills, Inc. 205,700 181,750 112,700
Environmental liability 33,243 34,157 34,225
Deferred employee benefits 6,069 5,388 4,689
Deferred income taxes - - 1,446
-------- -------- --------
347,537 346,673 283,656
-------- -------- --------
Minority interests (10) 587 1,084
--------- -------- --------
Redeemable common stock, 26, 26 and
20 shares issued and outstanding (Note 7) 21,840 21,840 16,800
-------- -------- --------

Commitments and contingencies (Note 12)

STOCKHOLDERS' EQUITY
Common stock, par value $1 per share,
1,000 shares authorized; 174, 174
and 180 shares issued and outstanding 1 1 1
Additional paid-in capital 16,603 16,603 21,643
Retained earnings 2,091 6,564 6,141
--------- -------- --------
18,695 23,168 27,785
--------- -------- --------
$ 388,062 $392,268 $329,325
========= ======== ========

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

16

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

FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------

Sales $ 393,696 $ 303,003 $ 339,474
--------- --------- ---------
Costs and expenses:
Cost of sales 361,465 279,099 314,966
Selling, general and administrative 17,600 17,159 16,625
Profit participation 275 449 -
--------- --------- ---------
379,340 296,707 331,591
--------- --------- ---------
Operating income 14,356 6,296 7,883

Other income (expense):
Interest and dividend income 38 48 346
Interest expense (22,803) (11,923) (3,586)
Minority interests 607 497 6
Other, net 621 439 189
--------- --------- ---------
(Loss) income before income taxes (7,181) (4,643) 4,838
Income tax benefit (expense) 2,729 5,066 (2,125)
--------- --------- ---------
Net income (loss) $ (4,452) $ 423 $ 2,713
========= ========= =========

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

17

NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS EXCEPT SHARES)

MINIMUM
ADDITIONAL PENSION
COMMON STOCK
--------------------
PAID-IN RETAINED LIABILITY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
--------- ------- ----------- -------- ---------- --------

Balances, December 31, 1993 100 $ 1 $22,241 $ 3,428 $ (297) $ 25,373

Net income 2,713 2,713
Purchase price adjustment (598) (598)
Stock dividend 80
Minimum pension liability
adjustment 297 297
-------- -------- ------- ------- ------- --------
Balances, December 31, 1994 180 1 21,643 6,141 - 27,785
Net income 423 423
Sale of common stock by
Oregon Steel Mills, Inc. (6) (5,040) (5,040)
-------- -------- ------- ------- ------- --------
Balances, December 31, 1995 174 1 16,603 6,564 - 23,168
Net loss (4,452) (4,452)
Other (21) (21)
-------- -------- ------- ------- ------- --------
Balances, December 31, 1996 174 $ 1 $16,603 $ 2,091 $ - $ 18,695
======== ======== ======= ======= ======= ========

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

18

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

FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----

Net income (loss) $ (4,452) $ 423 $ 2,713
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 11,911 7,283 2,401
Amortization 1,020 1,019 1,322
Deferred income taxes (2,565) (4,601) 228
Other (620) (438) (189)
Minority interest (596) (497) (65)
Changes in current assets and liabilities:
Trade accounts receivable (3,476) (1,709) (415)
Inventories 19,672 (6,632) (16,458)
Accounts payable (5,427) (1,194) (1,324)
Accrued expenses 842 3,060 4,214
Other (1,011) (215) (578)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 15,298 (3,501) (8,151)
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (35,060) (61,406) (111,634)
Other, net (233) 207 53
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (35,293) (61,199) (111,581)
--------- --------- ---------

Cash flows from financing activities:
Borrowings under revolving loan agreement - - 25,000
Payments under revolving loan agreement - - (35,000)
Borrowings from Oregon Steel Mills, Inc. 224,330 171,050 142,000
Payments to Oregon Steel Mills, Inc. (200,380) (102,000) (29,300)
Payment of long-term debt (3,952) (4,831) (4,394)
Proceeds from issuance of common stock (Note 7) - - 16,800
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,998 64,219 115,106
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 3 (481) (4,626)
Cash and cash equivalents at beginning of year - 481 5,107
--------- --------- ---------
Cash and cash equivalents at end of year $ 3 $ - $ 481
========= ========= =========

Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 22,883 $ 16,561 $ 9,336
Income tax paid to parent company $ 448 $ - $ 5,193

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

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

19

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

1. NATURE OF OPERATIONS

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

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

CASH AND CASH EQUIVALENTS

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

CONCENTRATIONS OF CREDIT RISK

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

INVENTORIES

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

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost, including interest
capitalized during construction of $2.2 million, $5.5 million, and $6.6 million
in 1996, 1995 and 1994, respectively. Depreciation is determined utilizing
principally

20

the straight-line method over the estimated useful lives of the assets and the
units of production method. Maintenance and repairs are expensed as incurred
and costs of improvements are capitalized. Upon disposal, cost and accumulated
depreciation are removed from the accounts, and gains or losses are reflected
in income.

COSTS IN EXCESS OF NET ASSETS ACQUIRED

The cost in excess of net assets acquired is amortized on a straight-line
basis over 40 years. Accumulated amortization was $3.8 million, $2.8 million and
$1.8 million in 1996, 1995 and 1994, respectively. The carrying value of costs
in excess of net assets acquired will be reviewed if the facts and circumstances
suggest that it may be impaired.

OTHER ASSETS

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

MAJOR CUSTOMERS

In 1996, the Company derived 13.5 percent of its sales from one
customer.

TAXES ON INCOME

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

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

USE OF ESTIMATES

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

3. INVENTORIES

Inventories were as follows as of December 31 (in thousands):

1996 1995 1994
---- ---- ----
Raw materials $16,246 $16,480 $20,593
Semifinished product 16,488 25,816 11,659
Finished product 8,245 20,012 22,148
Stores and operating supplies 9,598 7,941 9,217
------- ------- -------
Total inventory $50,577 $70,249 $63,617
======= ======= =======

21

4. SUPPLEMENTAL CASH FLOW INFORMATION

During 1996, 1995 and 1994, the Company acquired property, plant and
equipment for $1.3 million, $15.8 million and $17.3 million, respectively, which
were included in accounts payable at December 31, 1996, 1995 and 1994,
respectively.

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable include book overdrafts of $6.4 million at December 31,
1995, and retainage from construction projects of $6.6 million and $9.1 million
at December 31, 1995 and 1994, respectively.

Accrued expenses include accrued vacation of $3.5 million, $3.6
million and $3.5 million at December 31, 1996, 1995 and 1994, respectively.

6. DEBT AND FINANCING ARRANGEMENTS

Term debt of $67.5 million was incurred by CF&I as part of the purchase
price of the Pueblo Mill on March 3, 1993. This debt is uncollateralized and is
payable over 10 years at 9.5 percent. As of December 31, 1996, the outstanding
balance on the debt was $51.3 million, of which $44.7 million was classified as
long-term.

Borrowing requirements for capital expenditures and working capital are
provided through a revolving loan from Oregon Steel to the Partnership. The loan
includes interest on the daily amount outstanding at the rate of 11.64 percent.
The principal is due on demand or, if no demand, due December 31, 2002, but is
not expected to be repaid in 1997. Interest on the principal amount of the loan
is paid on a monthly basis. See Note 11.

As of December 31, 1996, principal payments on long-term debt are due as
follows (in thousands):

1997 .............................................. $ 6,574
1998 .............................................. 6,529
1999 .............................................. 7,164
2000 .............................................. 7,861
2001 .............................................. 8,625
Thereafter.......................................... 220,237
--------
$256,990
========

7. SALES OF REDEEMABLE COMMON STOCK

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

In connection with the sale, the Company and Oregon Steel entered into
a stockholders' agreement with Nippon pursuant to which Nippon was granted a
right to sell, in certain circumstances, all, but not less than all, of its 10
percent equity interest in the Company back to the Company at the then fair
market. Those circumstances include, among other things, a change of control, as
defined, in the Company and certain changes involving the composition of the
board of directors of the Company, and the occurrence of certain other events
which are within the control of the Company and Oregon Steel. Oregon Steel also
agreed not to transfer voting control to the Company to

22

a non-affiliate except in circumstances where Nippon is offered the opportunity
to sell its interest in the Company to the transferee at the same per share
price obtained by Oregon Steel. The Company has also retained a right of first
refusal in the event that Nippon desires to transfer its interest in the Company
to a non-affiliate.

During the fourth quarter of 1995, Oregon Steel sold a 3 percent
equity interest in the Company to the Nissho Iwai Group ("Nissho Iwai") for
approximately $5 million cash under substantially the same terms and conditions
of the Nippon transaction. The sale to Nissho Iwai has been reflected as an
increase in redeemable common stock and a decrease to additional paid-in
capital.

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

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of the Company's financial instruments at
December 31 is as follows (in thousands):

1996 1995 1994
-------------------- ------------------- -------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
-------------------- ------------------- -------------------

Cash and cash equivalents $ 3 $ 3 $ - $ - $ 481 $ 481
Long-term debt, including
current portion 51,290 46,227 55,442 52,594 60,073 57,923
Long-term debt -
Oregon Steel Mills, Inc. 205,700 198,802 181,750 181,750 112,700 112,700

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

9. INCOME TAXES

The income tax benefit (expense) consists of the following:

1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Current:
Federal $ 214 $ 524 $(1,710)
State (50) (59) (187)
------- -------- -------
164 465 (1,897)
------- -------- -------
Deferred:
Federal 1,963 1,508 (798)
State 602 3,093 570
------- -------- -------
2,565 4,601 (228)
------- -------- -------
Income tax benefit (expense) $ 2,729 $ 5,066 $(2,125)
======== ======== =======

23

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

1996 1995 1994
---- ---- ----
(IN THOUSANDS)

Federal 35.0% 35.0% (35.0)%
State 8.1 68.6 (4.6)
Other (5.1) 5.5 (4.3)
---- ----- -----
38.0% 109.1% (43.9)%
==== ===== =====

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

1996 1995 1994
---- ---- ----
(IN THOUSANDS)

Net current deferred tax asset:
Assets:
Inventories $ 997 $ 2,473 $ 822
Accrued expenses 3,937 2,449 2,089
Accounts receivable 80 85 108
-------- -------- --------
Current deferred tax asset $ 5,014 $ 5,007 $ 3,019
======== ======== ========

Noncurrent deferred tax asset and liability:
Assets:
Environmental liability $ 12,915 $ 12,341 $ 12,673
Net operating loss carryforward 22,203 12,147 -
State tax credits 5,019 4,780 -
Alternative minimum tax 991 991 506
Other 2,643 7,072 5,819
-------- -------- --------
43,771 37,331 18,998
-------- -------- --------

Liabilities:
Property, plant and equipment 28,008 17,566 2,975
Costs in excess of net assets acquired 11,695 13,015 13,070
Other 343 5,583 4,399
-------- -------- --------
40,046 36,164 20,444
-------- -------- --------
Net noncurrent deferred tax asset (liability) $ 3,725 $ 1,167 $ (1,446)
======== ======== ========

At December 31, 1996, the Company had state tax credits of $5.1 million
related to enterprise zone credits for eligible completed capital projects,
expiring 2001 through 2008, which are available to reduce future income taxes
payable.

At December 31, 1996, the Company has $65.1 million in federal net
operating loss carryforwards expiring in 2011 and 2012. In addition, the Company
has $62.8 million in state net operating loss caryforwards expiring in 2011 and
2012.

At December 31, 1996, 1995 and 1994, the Company included in accounts
payable amounts due to Oregon Steel of $286,000, $152,000 and $599,000,
respectively, related to income taxes.

The deferred tax asset for state tax credits and a related valuation
allowance previously recorded as of December 31, 1994 have been retroactively
reduced by $605,000, reflecting a reduction in state tax credits earned in 1994.

24

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

10. EMPLOYEE BENEFIT PLANS

PENSION PLANS

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

1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Service cost - benefits earned during the year $2,897 $2,754 $3,262
Interest cost on projected benefit obligations 698 438 201
Actual (return) loss on plan assets (976) (955) 70
Net amortization and deferral 328 577 (300)
------ ------ ------
$2,947 $2,814 $3,233
======= ====== ======

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

1996 1995 1994
---- ---- ----
(IN THOUSANDS)

Accumulated benefit obligations, including vested
benefits of $10,961, $7,834 and $4,280 $ 11,444 $ 8,239 $ 4,573
======== ======== ========
Projected benefit obligations $ 12,826 $ 9,336 $ 5,192
Plan assets at fair value 10,449 6,729 3,110
-------- -------- --------
Projected benefit obligation in excess of plan assets (2,377) (2,607) (2,082)
Unrecognized net loss 612 822 59
-------- -------- --------
Pension liability recognized in consolidated
balance sheet $ (1,765) $ (1,785) $ (2,023)
======== ======== ========

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

1996 1995 1994
---- ---- ----
Discount rate 7.5% 7.5% 8.5%
Rate of increase in future compensation levels 4.0% 4.0% 4.5%
Expected long-term rate of return on plan assets 8.8% 8.8% 8.8%

Plan assets are invested in common stock and bond funds at December 31,
1996. The plans do not invest in the stock of Oregon Steel or the Company.

25

POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS

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

1996 1995 1994
---- ---- ----
(IN THOUSANDS)

Accumulated postretirement benefit obligation:
Retirees $ 2,001 $ 1,014 $ 146
Fully eligible plan participants 3,410 3,869 1,387
Other active plan participants 2,967 3,008 5,080
------- ------- -------
$ 8,378 $ 7,891 $ 6.613
======= ======= =======
Accumulated postretirement benefit obligation in
excess of plan assets $(8,378) $(7,891) $(6,613)
Unrecognized net loss 2,208 2,422 2,002
------- ------- -------
Postretirement liability recognized in
consolidated balance sheet $(6,170) $(5,469) $(4,611)
======= ======= =======
Net periodic postretirement benefit costs include:
Service cost $ 158 $ 215 $ 197
Interest cost 584 561 335
Amortization of unrecognized net losses 142 142 9
------- ------- -------
Net periodic postretirement benefit cost $ 884 $ 918 $ 541
======= ======= =======

The obligations and costs for the retiree medical plan are not
dependent on changes in the cost of medical care. Retirees are covered under
plans providing fixed dollar benefits. The discount rate used in determining the
accumulated postretirement benefit obligation was 7.5 percent, 7.5 percent and
8.5 percent in 1996, 1995 and 1994, respectively.

PROFIT PARTICIPATION PLAN

The Company has a profit participation plan under which it distributes
quarterly to eligible employees 12 percent of its pretax income after
adjustments for certain nonoperating items. Each eligible employee receives a
share of the distribution based upon the level of the eligible employee's base
compensation compared with the total base compensation of all eligible employees
of the Company. Expense under the plan was $275,000 in 1996, $449,000 in 1995
and zero in 1994.

THRIFT PLANS

The Company has qualified thrift plans (401(k)) for eligible employees
under which the Company matches 25 percent of the first 4 percent of the
participant's deferred compensation. Company contribution expense in 1996, 1995
and 1994 was $417,000, $387,000 and $389,000, respectively.

26

11. RELATED PARTY TRANSACTIONS

OREGON STEEL MILLS, INC.

The Company pays administrative fees to Oregon Steel for services it
provides based on an allocation from Oregon Steel and reimburses Oregon Steel
for costs incurred on behalf of the Company. Oregon Steel's allocation is based
on the Company's percentage of Oregon Steel's consolidated sales, property,
plant and equipment and wages. Borrowing requirements for capital expenditures
and working capital are provided through loans from Oregon Steel.

1996 1995 1994
---- ---- ----
(IN THOUSANDS)

Oregon Steel administrative fees $ 3,139 $ 3,620 $ 3,523
Interest expense on notes payable to Oregon Steel 19,922 11,895 3,107
Notes payable to Oregon Steel at December 31 205,700 181,750 112,700
Accounts payable to Oregon Steel at December 31 4,992 4,454 4,083

NIPPON STEEL CORPORATION

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

1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Purchases from Nippon $2,914 $15,394 $ 2,046
Accounts payable to Nippon at December 31 - 2,252 -

12. COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL

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

In connection with the 1993 formation of the Partnership and the
acquisition of the Partnership interest by the Company, the Company accrued a
liability of $36.7 million for environmental remediation at the Pueblo,
Colorado, steel mill. The Company believed $36.7 million was the best estimate
from a range of $23.1 million to $43.6 million. The Company's estimate of this
liability was based on two remediation investigations conducted by independent
environmental engineering consultants. The accrual includes costs for the
Resource Conservation and Recovery Act facility investigation, a corrective
measures study, remedial action, and operation and maintenance associated with
the proposed remedial actions. In October 1995, the Partnership and the Colorado
Department of Public Health and Environment finalized a ten-year postclosure
permit. The permit contains a prioritized schedule for corrective actions to be
completed which is substantially reflective of a straight-line rate of
expenditure over 30 years. The State of Colorado stated that the schedule for
corrective action could be accelerated if new data indicated a greater threat to
the environment than is currently known to exist. At December 31, 1996, the
accrued liability was $35.1 million, of which $33.2 million was classified as
noncurrent in the consolidated balance sheet.

27

GUARANTEES

On June 19, 1996, Oregon Steel completed a public offering of $235
million principal amount of 11% First Mortgage Notes due 2003 ("Notes"). The
Company has guaranteed the obligations of Oregon Steel under the Notes, and
those guarantees are secured by a lien on substantially all the property, plant
and equipment and certain other assets of the Company, excluding accounts
receivable and inventory.

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

OTHER CONTINGENCIES

The Company, in the regular course of business, is involved in
investigations and claims by various regulatory agencies. The Company is also
engaged in various legal proceedings and claims incidental to its normal
business activities. Management of the Company does not believe that the
ultimate resolution of these investigations, claims and legal proceedings will
have a material effect on the Company.

13. UNUSUAL AND NONRECURRING ITEMS

FOURTH QUARTER ADJUSTMENTS

In September 1996, the Company lost the use of one of the two main
transformers that supply electricity to the melt shop, resulting in higher costs
and reduced shipments throughout the fourth quarter. The Company anticipates
recovery from its business interruption insurance carriers of a portion of its
excess costs and lost sales opportunities related to the transformer failure.
As of December 31, 1996, $4.5 million of recovery had been accrued as a
reduction of cost of sales of which $4 million had been received by the Company.
The eventual total claim amount is not yet determinable by the Company. Also,
the fourth quarter of 1996 was negatively impacted by approximately $3.5 million
of net adjustments primarily related to inventory.

PROCEEDS FROM INSURANCE SETTLEMENT

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

28

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' equity and of cash flows present fairly, in
all material respects, the financial position of CF&I Steel, L.P. at December
31, 1996, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP
Portland, Oregon
January 17, 1997

29

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

ASSETS

DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----

Current assets:
Cash and cash equivalents $ - $ - $ 481
Trade accounts receivable, less allowance
for doubtful accounts of $455, $518
and $592 48,918 45,533 43,863
Inventories 50,414 70,087 63,440
Other 1,610 971 793
--------- --------- ---------
Total current assets 100,942 116,591 108,577
--------- --------- ---------

Property, plant and equipment:
Land and improvements 3,525 3,525 3,553
Buildings 5,936 5,760 5,760
Machinery and equipment 234,441 186,626 40,297
Construction in progress 4,011 31,586 117,998
--------- --------- ---------
247,913 227,497 167,608
Accumulated depreciation (22,225) (10,569) (3,581)
--------- --------- ---------
225,688 216,928 164,027
--------- --------- ---------
Cost in excess of net assets acquired, net 36,963 37,983 39,002
Other assets 13,202 12,317 11,838
--------- --------- ---------
$ 376,795 $ 383,819 $ 323,444
========= ========= =========

LIABILITIES

Current liabilities:
Current portion of long-term debt $ 6,574 $ 4,576 $ 5,302
Accounts payable 37,193 55,601 54,842
Accrued expenses 16,647 15,652 13,322
--------- --------- ---------
Total current liabilities 60,414 75,829 73,466
Long-term debt 44,716 50,666 54,771
Long-term debt - Oregon Steel Mills, Inc. 205,700 181,750 112,700
Long-term debt - New CF&I, Inc. 17,400 16,800 16,800
Environmental liability 33,243 34,157 34,225
Deferred employee benefits 6,069 5,388 4,689
--------- --------- ---------
367,542 364,590 296,651
--------- --------- ---------

Commitments and contingencies (Note 10)

PARTNERS'
EQUITY
Limited partner (10) 587 1,084
General partner 9,263 18,642 25,709
--------- --------- ---------
Total partners' equity 9,253 19,229 26,793
--------- --------- ---------
$ 376,795 $ 383,819 $ 323,444
========= ========= =========

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

30

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

FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
---- ---- ----

Sales $388,990 $300,060 $338,970
-------- -------- --------

Costs and expenses:
Cost of sales 357,914 277,452 315,518
Selling, general and
administrative 17,069 16,681 16,108
Profit participation 275 449 -
--------- ---------- -------
375,258 294,582 331,626
--------- ---------- -------
Operating income 13,732 5,478 7,344

Interest and dividend income 38 35 304
Interest expense (24,356) (13,518) (4,076)
Other, net 621 441 193
---------- ---------- ---------
Net income (loss) $ (9,965) $ (7,564) $ 3,765
========= ========= =========

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

31

CF&I STEEL, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)

GENERAL LIMITED
PARTNER PARTNER TOTAL
------- ------- -----
Balances, December 31, 1993 $23,431 $1,135 $24,566
Net income (loss) 3,771 (6) 3,765
Partner distributions (1,178) (59) (1,237)
Minimum pension liability adjustment 283 14 297
Purchase price adjustment (598) - (598)
------- ------ -------
Balances, December 31, 1994 25,709 1,084 26,793
Net loss (7,067) (497) (7,564)
------- ------ -------
Balances, December 31, 1995 18,642 587 19,229
Net loss (9,358) (607) (9,965)
Other (21) 10 (11)
------- ------ -------
Balances, December 31, 1996 $ 9,263 $ (10) $ 9,253
======= ====== =======

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

32

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

FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---- ---- ----

Cash flows from operating activities:
Net income (loss) $ (9,965) $ (7,564) $ 3,765
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 11,694 6,999 2,117
Amortization 1,020 1,019 1,322
Other (1,539) (440) (193)
Changes in current assets and liabilities:
Trade accounts receivable (3,385) (1,670) (512)
Inventories 19,673 (6,647) (16,470)
Accounts payable (3,861) 2,261 3,304
Accrued expenses 996 2,961 4,117
Other (638) (178) (591)
-------- --------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 13,995 (3,259) (3,141)
-------- --------- ---------

Cash flows from investing activities:
Additions to property, plant and equipment (35,035) (61,472) (111,442)
Other, net 442 31 53
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (34,593) (61,441) (111,389)
--------- --------- ---------

Cash flows from financing activities:
Borrowings under revolving loan agreement - - 25,000
Payments under revolving loan agreement - - (35,000)
Borrowings from related parties 224,930 171,050 158,800
Payments to related parties (200,380) (102,000) (29,300)
Payment of long-term debt (3,952) (4,831) (4,394)
Partner distributions - - (5,202)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,598 64,219 109,904
--------- --------- ---------

Net decrease in cash and cash equivalents - (481) (4,626)
Cash and cash equivalents at beginning of year - 481 5,107
--------- --------- ---------
Cash and cash equivalents at end of year $ - $ - $ 481
========= ========= =========

Supplemental disclosures of cash flow information:
Cash paid for interest $ 22,882 $ 16,561 $ 9,336
========= ========= =========

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

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

33

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

1. NATURE OF OPERATIONS

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

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

CONCENTRATIONS OF CREDIT RISK

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

INVENTORIES

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

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost, including interest
capitalized during construction of $2.2 million, $5.5 million and $6.6 million
in 1996, 1995 and 1994, respectively. Depreciation is determined utilizing
principally the straight-line method over the estimated useful lives of the
assets and the units of production method. Maintenance and repairs are expensed
as incurred and costs of improvement are capitalized. Upon disposal, cost and
accumulated depreciation are removed from the accounts, and gains or losses are
reflected in income.

34

COSTS IN EXCESS OF NET ASSETS ACQUIRED

The cost in excess of net assets acquired is amortized on a
straight-line basis over 40 years. Accumulated amortization was $3.8 million,
$2.8 million and $1.8 million in 1996, 1995 and 1994, respectively. The carrying
value of costs in excess of net assets acquired will be reviewed if the facts
and circumstances suggest that it may be impaired.

OTHER ASSETS

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

MAJOR CUSTOMERS

In 1996, the Partnership derived 13.7 percent of its sales from one
customer.

TAXES ON INCOME

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

At December 31, 1996, 1995 and 1994, the financial reporting basis of
the Partnership's assets and liabilities exceeded the tax basis by $72.4
million, $70.9 million and $38.9 million, respectively.

USE OF ESTIMATES

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

3. INVENTORIES

Inventories were as follows as of December 31 (in thousands):

1996 1995 1994
---- ----- ----

Raw materials $16,246 $16,480 $20,593
Semifinished product 16,488 25,816 11,659
Finished product 8,245 20,012 22,148
Stores and operating supplies 9,435 7,779 9,040
------- ------- -------
Total inventory $50,414 $70,087 $63,440
======= ======= =======

35

4. SUPPLEMENTAL CASH FLOW INFORMATION

During 1996, 1995 and 1994, the Partnership acquired property, plant
and equipment for $1.3 million, $15.8 million and $17.3 million, respectively,
which were included in accounts payable at December 31, 1996, 1995 and 1994,
respectively.

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable include book overdrafts of $6.2 million at December
31, 1995, and retainage from construction projects of $6.6 million and $9.1
million at December 31, 1995 and 1994, respectively.

Accrued expenses include accrued vacation of $3.3 million, $3.3
million and $3.2 million at December 31, 1996, 1995 and 1994, respectively.

6. DEBT AND FINANCING ARRANGEMENTS

Term debt of $67.5 million was incurred by CF&I as part of the purchase
price of the Pueblo Mill on March 3, 1993. This debt is uncollateralized and is
payable over 10 years with interest at 9.5 percent. As of December 31, 1996, the
outstanding balance on the debt was $51.3 million, of which $44.7 million was
classified as long-term.

Borrowing requirements for capital expenditures and working capital are
provided through revolving loans from Oregon Steel and the General Partner. The
loan from Oregon Steel includes interest on the daily amount outstanding at the
rate of 11.64 percent. The principal is due on demand or, if no demand, due on
December 31, 2002. The loan from the General Partner includes interest on the
daily amount outstanding at the rate of 8.25 percent. The principal is due on
demand or, if no demand, due on December 31, 2004. The loans are not expected to
be repaid in 1997. Interest on the loans is paid on a monthly basis. See Note 9.

As of December 31, 1996, principal payments on long-term debt are due
as follows (in thousands):

1997................... $ 6,574
1998................... 6,529
1999................... 7,164
2000................... 7,861
2001................... 8,625
Thereafter............. 237,637
--------
$274,390
========

36

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of the Partnership's financial instruments at
December 31 is as follows (in thousands):

1996 1995 1994
----------------------- ------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------- ----------- ------------

Cash and cash equivalents $ - $ - $ - $ - $ 481 $ 481
Long-term debt, including
current portion 51,290 46,227 55,242 52,594 60,073 57,923
Long-term debt - Oregon Steel
Mills, Inc. 205,700 198,802 181,750 181,750 112,700 112,700
Long-term debt - New CF&I, Inc. 17,400 11,939 16,800 16,800 16,800 16,800

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

8. EMPLOYEE BENEFIT PLANS

PENSION PLANS

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

1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Service cost - benefits earned during the year $ 2,897 $ 2,754 $ 3,262
Interest cost on projected benefit obligations 698 438 201
Actual (return) loss on plan assets (976) (955) 70
Net amortization and deferral 328 577 (300)
------- ------- -------
$ 2,947 $ 2,814 $ 3,233
======= ======= =======

37

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

1996 1995 1994
---- ---- ----
(IN THOUSANDS)

Accumulated benefit obligations, including vested
benefits of $10,961, $7,834 and $4,280 $ 11,444 $ 8,239 $ 4,573
======== ======== ========
Projected benefit obligations $ 12,826 $ 9,336 $ 5,192
Plan assets at fair value 10,449 6,729 3,110
-------- -------- --------
Projected benefit obligation in excess of plan assets (2,377) (2,607) (2,082)
Unrecognized net loss 612 822 59
-------- -------- --------
Pension liability recognized in balance sheet $ (1,765) $ (1,785) $ (2,023)
======== ======== ========

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

1996 1995 1994
---- ---- ----
Discount rate 7.5% 7.5% 8.5%
Rate of increase in future compensation levels 4.0% 4.0% 4.5%
Expected long-term rate of return on plan assets 8.8% 8.8% 8.8%

Plan assets are invested in common stock and bond funds at December 31,
1996. The plans do not invest in the stock of Oregon Steel or the General
Partner.

POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS

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

1996 1995 1994
---- ---- ----
(IN THOUSANDS)

Accumulated postretirement benefit obligation:
Retirees $ 2,001 $ 1,014 $ 146
Fully eligible plan participants 3,410 3,869 1,387
Other active plan participants 2,967 3,008 5,080
------- ------- -------
$ 8,378 $ 7,891 $ 6.613
======= ======= =======
Accumulated postretirement benefit obligation in
excess of plan assets $(8,378) $(7,891) $(6,613)
Unrecognized net loss 2,208 2,422 2,002
------- ------- -------
Postretirement liability recognized in the balance sheets $(6,170) $(5,469) $(4,611)
======= ======= =======

Net periodic postretirement benefit costs include:
Service cost $ 158 $ 215 $ 197
Interest cost 584 561 335
Amortization of unrecognized net losses 142 142 9
------- ------- -------
Net periodic postretirement benefit cost $ 884 $ 918 $ 541
======= ======= =======

38

The obligations and costs for the retiree medical plan are not dependent on
changes in the cost of medical care. Retirees are covered under plans providing
fixed dollar benefits. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent, 7.5 percent and 8.5 percent
in 1996, 1995 and 1994, respectively.

PROFIT PARTICIPATION PLAN

The Partnership has a profit participation plan under which it distributes
quarterly to eligible employees 12 percent of its operating income after
adjustments for certain nonoperating items. Each eligible employee receives a
share of the distribution based upon the level of the eligible employee's base
compensation compared with the total base compensation of all eligible employees
of the Partnership. Expense under the plan was $275,000 in 1996, $449,000 in
1995 and zero in 1994.

THRIFT PLANS

The Partnership has qualified thrift plans (401(k)) for eligible employees
under which the Partnership matches 25 percent of the first 4 percent of the
participant's deferred compensation. Partnership contribution expense in 1996,
1995 and 1994 was $417,000, $387,000 and $389,000, respectively.

9. RELATED PARTY TRANSACTIONS

OREGON STEEL MILLS, INC.

The Partnership pays administrative fees to Oregon Steel for services it
provides based on an allocation from Oregon Steel and reimburses Oregon Steel
for costs incurred on behalf of the Partnership. Oregon Steel's allocation is
based on the Partnership's percentage of Oregon Steel's consolidated sales,
property, plant and equipment and wages. Borrowing requirements for capital
expenditures and working capital are provided through loans from Oregon Steel.

1996 1995 1994
---- ---- ----
(IN THOUSANDS)

Oregon Steel administrative fees $ 3,046 $ 3,548 $ 3,432
Interest expense on notes payable to Oregon Steel 21,476 11,895 3,107
Debt payable to Oregon Steel at December 31 205,700 181,750 112,700
Accounts payable to Oregon Steel at December 31 5,667 4,454 4,083

NEW CF&I, INC.

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

1996 1995 1994
---- ---- ----
(IN THOUSANDS)

Services from subsidiary of General Partner $ 4,416 $ 5,002 $ 7,200
Interest expense on notes payable to General Partner 1,553 1,503 490
Debt payable to General Partner at December 31 17,400 16,800 16,800
Accounts payable to General Partner at December 31 3,133 617 287
Interest payable on the debt at December 31 3,260 1,830 490

39

NIPPON STEEL CORPORATION

In August 1994, a wholly-owned subsidiary of Nippon Steel Corporation
("Nippon") purchased 10 percent ownership in the General Partner. In 1994 the
Partnership entered into an equipment supply agreement for purchase of deep
head-hardened ("DHH") rail equipment from Nippon. The Partnership has made
progress payments on the DHH rail equipment and paid certain license and
technical fees.

1996 1995 1994
-------- ------- ------
(IN THOUSANDS)

Purchases from Nippon.............................. $2,914 $15,394 $ 2,046
Accounts payable to Nippon at December 31.......... - 2,252 -

10. COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL

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

In connection with the 1993 formation of the Partnership and the
acquisition of the Partnership interest by the General Partner, the Partnership
accrued a liability of $36.7 million for environmental remediation at the
Pueblo, Colorado, steel mill. The Partnership believed $36.7 million was the
best estimate from a range of $23.1 million to $43.6 million. The estimate of
this liability was based on two separate remediation investigations conducted by
independent environmental engineering consultants. The accrual includes costs
for the Resource Conservation and Recovery Act facility investigation, a
corrective measures study, remedial action, and operation and maintenance
associated with the proposed remedial actions. In October 1995, the Partnership
and the Colorado Department of Public Health and Environment finalized a
postclosure permit. The permit contains a prioritized schedule for corrective
actions to be completed which is substantially reflective of a straight-line
rate of expenditure over 30 years. The State of Colorado stated that the
schedule for corrective action could be accelerated if new data indicated a
greater threat to the environment than is currently known to exist. At December
31, 1996, the accrued liability was $35.1 million, of which $33.2 million was
classified as noncurrent in the consolidated balance sheet.

GUARANTEES

On June 19, 1996, Oregon Steel completed a public offering of $235 million
principal amount of 11% First Mortgage Notes due 2003 ("Notes"). The Partnership
has guaranteed the obligations of Oregon Steel under the Notes, and those
guarantees are secured by substantially all the property, plant and equipment
and certain other assets of the Partnership, excluding accounts receivable and
inventory.

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

40

OTHER CONTINGENCIES

The Partnership, in the regular course of business, is involved in
investigations and claims by various regulatory agencies. The Partnership is
also engaged in various legal proceedings and claims incidental to its normal
business activities. Management of the Partnership does not believe that the
ultimate resolution of these investigations, claims and legal proceedings will
have a material effect on the Partnership.

11. UNUSUAL AND NONRECURRING ITEMS

FOURTH QUARTER ADJUSTMENTS

In September 1996, the Partnership lost the use of one of the two main
transformers that supply electricity to the melt shop, resulting in higher costs
and reduced shipments throughout the fourth quarter. The Partnership
anticipates recovery from its business interruption insurance carriers of a
portion of its excess costs and lost sales opportunities related to the
transformer failure. As of December 31, 1996, $4.5 million of recovery had been
recognized as a reduction of cost of sales of which $4 million had been received
by the Partnership. The eventual total claim amount is not yet determinable.
Also, the fourth quarter of 1996 was negatively impacted by approximately $3.5
million of net adjustments primarily related to inventory.

PROCEEDS FROM INSURANCE SETTLEMENT

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

41

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

42

PART III

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

The following table sets forth information with respect to each director of
New CF&I, Inc. including their names and ages as of February 15, 1997, business
experience during the past five years and directorships in other corporations.
Directors are elected each year at the annual stockholders meeting.

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

Thomas B. Boklund Mr. Boklund is the Chairman of the Board of Directors, Chief 57 1993
Executive Officer and President of the Company. He is also
the Chairman of the Board of Directors and Chief Executive
Officer of Oregon Steel Mills, Inc. He was Chief Operating
Officer of Oregon Steel from May 1982 to July 1985, became
Chief Executive Officer in August 1985, and Chairman of the
Board of Directors in February 1992. He also served as
President of Oregon Steel from May 1982 to February 1992,
and was reappointed as President from April 1994 to December
1996. He has been a director of Paragon Trade Brands, Inc.,
a manufacturer of private label infant disposable diapers,
since April 1993, and a director of Oregon Metallurgical
Corporation, an integrated manufacturer of titanium products,
since April 1996.

L. Ray Adams Mr. Adams is the Vice President of Finance and Chief 46 1993
Financial Officer of the Company. He served as a Director
of Colorado & Wyoming Railroad from March 1993 through
March 1994. He is also the Vice President of Finance and
Chief Financial Officer of Oregon Steel. He assumed this
position with Oregon Steel in April 1991.

Joe E. Corvin Mr. Corvin served as Senior Vice President of Manufacturing 51 1993
and Chief Operating Officer of the Company from March 1993
to August 1996. He is the President and Chief Operating
Officer of Oregon Steel. He was Vice President and General
Manager of Oregon Steel's Portland Steel Works from February
1992 to March 1994, served as Senior Vice President of Oregon
Steel from July 1996 to December 1996, and became President
and Chief Operating Officer of Oregon Steel in December 1996.

Keiichiro Shimakawa Mr. Shimakawa became the Executive Vice President, General 48 1996
Manager of Nippon Steel USA, Inc., Chicago Branch, in July
1996. He served as Executive Vice President of Nippon
Steel USA, Inc. from July 1994 to July 1996. He also served
as the Manager of Tin Plate Sales for the Sheet Sales
Department at Nippon Steel's head office in Tokyo, Japan,
from 1990 to July 1994.

43

The following table sets forth the compensation paid to or accrued by the
Company and its subsidiaries for the Chief Executive Officer and each of the
four most highly paid executive officers of the Company and its subsidiaries as
of December 31, 1996, and other individuals fitting such description, but not
employed as such as of December 31, 1996. The Chief Executive Officer and
certain other executive officers were paid by Oregon Steel. The compensation
information relating to the named executive officers of the Company who are also
named executives of Oregon Steel and Section 16 reporting compliance information
as set forth under the captions "Executive Compensation," "Defined Benefit
Retirement Plans," "Employment Contracts and Termination of Employment and
Change in Control Agreements," "Compensation Committee Interlocks and Insider
Participation," "Board Compensation Committee Report on Executive Compensation"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Oregon
Steel Mills, Inc. Proxy Statement for the 1997 Annual Meeting of Stockholders
are incorporated herein by reference. Executive officers of the Company are
listed on page 7 of this Form 10-K.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION(FN3) ALL OTHER COMPENSATION(3)
----------------------------------- -----------------------------
NAME AND THRIFT PLAN
PRINCIPAL POSITION YEAR SALARY BONUS(FN1) CONTRIBUTION(FN2) OTHER
------------------ ---- ------ ---------- ----------------- -----

Thomas B. Boklund
President and CEO

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

Peter Hyde 1996 $138,997 $ 868 $ - $ -
Vice President and 1995 100,500 1,046 - -
General Manager of 1994 94,988 - - -
CF&I Steel Works

Jim Colzani 1996 $ 40,002 $ - $433 $ 120,006 (FN5)
Vice President and 1995 160,008 1,660 693 43,006 (FN6)
General Manager of 1994 160,008 - 693 16,886 (FN6)
CF&I Steel Works (FN4)

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

(FN1) Amounts earned pursuant to the Company's Profit Participation Plan.

(FN2) Matching contributions made by the Company on behalf of the named
executive to the Company's Thrift Plan.

(FN3) Pension benefits accrued in 1996 are not included in this Summary
Compensation Table.

(FN4) Terminated his employment effective March 2, 1996.

(FN5) Represents amount paid as severance.

(FN6) Represents amount paid for relocation expenses and related reimbursement
of taxes paid.

44

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

45

PART IV

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

PAGE

(A) (i) FINANCIAL STATEMENTS:

NEW CF&I, INC.
Report of Independent Accountants - 1996.................................................. 15
Report of Independent Accountants - 1995 and 1994......................................... 47
Consolidated Balance Sheets at December 31, 1996, 1995 and 1994........................... 16
Consolidated Statements of Income for each of the three years
in the period ended December 31, 1996................................................ 17
Consolidated Statements of Changes in Stockholders' Equity for each of the
three years in the period ended December 31, 1996.................................... 18
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1996................................................ 19
Notes to Consolidated Financial Statements................................................ 20

CF&I STEEL, L.P.
Report of Independent Accountants - 1996.................................................. 29
Report of Independent Accountants - 1995 and 1994......................................... 48
Balance Sheets at December 31, 1996, 1995 and 1994........................................ 30
Statements of Operations for each of the three years
in the period ended December 31, 1996................................................ 31
Statements of Changes in Partners' Equity.................................................
for each of the three years in the period ended December 31, 1996.................... 32
Statements of Cash Flows for each of the three years
in the period ended December 31, 1996................................................ 33
Notes to Financial Statements............................................................. 34
(ii) Financial Statement Schedules for each of the three
years in the period ended December 31, 1996:
Schedule II - Valuation and Qualifying Accounts........................................... 49
Report of Independent Accountants ....................................................... 50
(iii) Exhibits: References made to the list on page 51 of the exhibits filed with this
report.
(B) No reports on Form 8-K were required to be filed by the Registrant during
the fourth quarter of the year ended December 31, 1996.

46

The Report of Independent Accountants applicable to the consolidated
financial statements and financial statement schedule for the years ended
December 31, 1995 and 1994 is set forth below:

REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of New CF&I, Inc.
and Subsidiaries as of December 31, 1993, 1994 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of New CF&I, Inc. and
Subsidiaries as of December 31, 1993, 1994 and 1995, and their consolidated
results of operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.

As discussed in Note 3 to the consolidated financial statements, the December
31, 1994 balance sheet has been restated to reflect the proceeds from the sale
of stock as redeemable common stock.

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

47

The Report of Independent Accountants applicable to the financial
statements and financial statement schedule for the years ended December 31,
1995 and 1994 is set forth below:

REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of CF&I Steel, L.P.
(Partnership) as of December 31, 1993, 1994 and 1995, and the related statements
of operations, changes in partners' equity and cash flows for the period March
3, 1993 (date of inception) through December 31, 1993 and for each of the two
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CF&I Steel, L.P. as of December
31, 1993, 1994 and 1995, and its results of operations and its cash flows for
the period March 3, 1993 (date of inception) through December 31, 1993 and for
each of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.

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

48

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

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

1996
----
Allowance for doubtful accounts $518 - - $ (63) $455
1995
----
Allowance for doubtful accounts $592 - - $ (74) $518
1994
----
Allowance for doubtful accounts $673 $181 - $ (262) $592

- ---------------
49

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

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

Our audits of the consolidated financial statements referred to in our reports
dated January 17, 1997 appearing on page 15 and 29 of the 1996 Annual Report on
Form 10-K of New CF&I, Inc. and CF&I Steel, L.P. also included an audit of the
Financial Statement Schedule listed in Item 14(a) of this Form 10-K for the year
ended December 31, 1996. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.

PRICE WATERHOUSE LLP
Portland, OR
January 17, 1997

50

LIST OF EXHIBITS

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

51

SIGNATURES

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

NEW CF&I, INC.

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

CF&I STEEL, L.P.

BY: NEW CF&I, INC.
GENERAL PARTNER

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

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

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

/s/ Thomas B. Boklund Principal Executive Officer and March 1, 1997
- ----------------------------
(Thomas B. Boklund) Director of New CF&I, Inc.

/s/ L. Ray Adams Principal Financial and Accounting Officer and March 1, 1997
- ----------------------------
(L. Ray Adams) Director of New CF&I, Inc.

/s/ Joe E. Corvin Director of New CF&I, Inc. March 1, 1997
- -----------------------
(Joe E. Corvin)

/s/ Keiichiro Shimakawa Director of New CF&I, Inc. March 1, 1997
- --------------------------------
(Keiichiro Shimakawa)

52