Oregon Steel Mills, Inc. reported net income of $28.4 million on sales of $335 million for the second quarter of 2005.

The $28.4 million net income ($.80 per diluted share on 35.7 million shares) compares to net income of $14.0 million ($.52 per diluted share on 26.8 million shares) for the second quarter of 2004. Second quarter 2004 results included a $31.9 million ($1.19 per diluted share) pretax charge related to settlement of a labor dispute at the company's majority-owned subsidiary, Rocky Mountain Steel Mills (RMSM). The labor dispute settlement was finalized during the third quarter of 2004. Also during the second quarter of 2004, the company’s effective income tax benefit rate was less than 1%, compared to an effective income tax rate of approximately 39% in the second quarter of 2005.

Second quarter 2005 net income was decreased by $.02 per diluted share as a result of purchase accounting adjustments related to the company's purchase of the 40% partnership interest in Camrose Pipe Co.

Sales of $335 million — the second highest sales in the company’s history — compare to 2004 second quarter sales of $281.8 million. Average sales price per ton was $882 (a quarterly record for the company), compared to $654 in the second quarter of 2004. The increases in sales and average sales price per ton were primarily due to higher average selling prices across all product lines, except for rod and bar, with the increase in sales partially offset by decreased shipments.

Total shipments were 379,600 tons, which compares to 2004 second quarter shipments of 431,000 tons. The decrease in shipments was primarily due to decreased shipments of plate and coil, structural tubing and rod and bar products, partially offset by higher shipments of welded pipe and rail products.

Operating income was $54 million (an average of $142 per ton). This compares to operating income for the second quarter of 2004 of $20.3 million, including the $31.9 million Settlement Charge noted above. Second quarter 2004 operating income before the Settlement Charge was $52.2 million (an average of $121 per ton).

Earnings before interest, taxes, depreciation and amortization (EBITDA) was $64.4 million, which compares to EBITDA for the second quarter of 2004 of $32.1 million ($64 million exclusive of the $31.9 million Settlement Charge). Increased operating income and EBITDA compared to the second quarter of 2004 reflects higher average selling prices partially offset by decreased volume and higher steel slab costs (up 30% from the second quarter of 2004) at the company's Oregon Steel Division. Average steel scrap cost at RMSM was $165 per ton compares to $166 per ton in the second quarter of 2004.

The company had an effective income tax rate of approximately 39%, which compares to an effective income tax benefit rate in the second quarter of 2004 of less than 1%. The effective income tax rate for the second quarter of 2004 varied from the combined state and federal statutory rate principally because the company reversed a portion of the valuation allowance ($7.3 million) established in 2003 due to less uncertainty regarding the realization of deferred tax assets. The company expects to have a more normalized effective income tax rate of approximately 37.5 percent throughout 2005.

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

As previously reported, the company is constructing a new spiral weld large diameter pipemaking facility at its Portland, Ore., rolling mill. The project will consist of two pipe mills with an annual capacity of approximately 170,000 tons, depending on product mix, capable of producing API certified large-diameter line pipe from 24 to 60 inches in diameter, in wall thickness of up to one inch and in lengths of up to 80 feet. The new mill is expected to start up during the first quarter of 2006. The company anticipates that it will begin taking orders for the new mill beginning in the fourth quarter of 2005.

Jim Declusin, the company's President and CEO, stated, "We expect that third quarter 2005 earnings will be below the amount realized in the second quarter due to continued unsettled conditions in the plate and rod markets, the flow-through of higher cost slab inventory purchased in prior quarters, and the equipment outages noted above. We anticipate that profitability will improve in the fourth quarter due to the restart of the equipment at the RMSM and Camrose mills, renewed large diameter pipe shipments and the resulting pull-through of plate at our Portland mill and significantly lower slab costs. Despite the weakness we foresee for the third quarter, we continue to believe that our full year results for 2005 operating income from continuing operations will be approximately the same as that realized in 2004, before the 2004 labor dispute settlement charges of $45.4 million."

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

Oregon Steel Mills, Inc. is organized into two divisions. The Oregon Steel Division produces steel plate, coil, welded pipe and structural tubing from plants located in Portland, Ore., and Camrose, Alta., Canada. The Rocky Mountain Steel Mills Division, located in Pueblo, Colo., produces steel rail, rod and bar, and seamless tubular products.