<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-K
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the fiscal year ended December 31, 2001

                                       or

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from              to
                                    ------------    ------------

                        Commission File Number: 333-79587

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

                        CALIFORNIA STEEL INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

             Delaware                                        33-0051150
  (State or other jurisdiction                            (I.R.S. Employer
of incorporation or organization)                        Identification No.)

       14000 San Bernardino Avenue
           Fontana, California                                  92335
(Address of principal executive offices)                     (Zip code)

                                 (909) 350-6200
              (Registrant's telephone number, including area code)

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

           Securities Registered Pursuant to Section 12(b) of the Act:

                                                     Name of Each Exchange
                                                     ---------------------
     Title of Each Class:                            on Which Registered:
     -------------------                             --------------------
            None                                             None

           Securities registered pursuant to Section 12(g) of the Act:

                                      None
                                (Title of Class)

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

     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 [_]

     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]

     As of March 20, 2002, there were 1,000 shares of the registrant's common
stock, no par value, outstanding.
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.

                       INDEX TO ANNUAL REPORT ON FORM 10-K

                   For The Fiscal Year Ended December 31, 2001

<TABLE>
<CAPTION>
                                                                                                      Page
                                                                                                      ----
<S>        <C>                                                                                         <C>
PART I.

Item 1.    Business................................................................................     1

Item 2.    Properties..............................................................................    10

Item 3.    Legal Proceedings.......................................................................    10

Item 4.    Submission of Matters to a Vote of Security Holders.....................................    10

PART II.

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters...................    11

Item 6.    Selected Financial Data.................................................................    11

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations...    12

Item 7A.   Quantitative and Qualitative Disclosures about Market Risk..............................    17

Item 8.    Consolidated Financial Statements and Supplementary Data................................    18

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....    18

PART III

Item 10.   Directors and Executive Officers of the Registrant......................................    19

Item 11.   Executive Compensation..................................................................    20

Item 12.   Security Ownership of Certain Beneficial Owners and Management..........................    24

Item 13.   Certain Relationships and Related Transactions..........................................    24

PART IV

Item 14.   Exhibits, Financial Statement Schedule, and Reports on Form 8-K.........................    26
</TABLE>
<PAGE>

                                     PART I

Item 1. Business

     Statements of our belief in this section are based on our own internal
studies or research, estimates of members of our senior sales management team,
our knowledge of the industry or other information we have internally compiled.

Introduction

     We believe we are the leading producer of flat rolled steel in the western
United States based on tonnage billed. We produce the widest range of flat
rolled steel products in the region, including hot rolled, cold rolled and
galvanized coil and sheet. We also produce electric resistance weld pipe. Unlike
integrated steel mills and mini-mills, we do not manufacture steel. Rather, we
process steel slab manufactured by third parties. Our principal market consists
of the 11 states located west of the Rocky Mountains. We have four main
competitors located in the western United States. Steel products are also
supplied to the western United States via imports from foreign companies and
from domestic suppliers. We believe our slab-based business model, breadth of
products, non-union work environment, southern California location and
long-standing customer relationships provide us with significant advantages over
our competition.

Industry Overview

     The steel industry is highly cyclical in nature. It is influenced by a
combination of factors including periods of economic growth or recession,
strength or weakness of the U.S. dollar, worldwide production capacity, levels
of steel imports and tariffs. Other factors including the failure to adapt to
technological change, plant inefficiencies, high labor costs and fluctuating
energy costs have affected the industry. Steel, regardless of product type,
responds to forces of supply and demand, and prices have been volatile and have
fluctuated in reaction to general and industry-specific economic conditions.

     There are generally two types of steel producers: "integrated mills" and
"mini-mills." Steel manufacturing by an integrated producer includes ironmaking
from raw materials, like iron ore and coal in a blast furnace, followed by
steelmaking, slab making, reheating and further rolling into coil or other
shapes. A mini-mill is generally a smaller volume steel producer that uses an
electric arc furnace rather than a blast furnace to create steel from ferrous
scrap metal. Mini-mills typically service regional markets.

     Unlike integrated steel mills and mini-mills, we do not manufacture steel.
Rather, we process steel slab manufactured by third parties. As a result, we do
not have the fixed costs associated with the manufacturing of steel.
Historically, raw material costs comprise approximately 70% of our cost of goods
sold. We believe we are the largest importer and the second largest purchaser of
steel slab in the world. Our purchasing power provides us with the ability to
negotiate favorable terms and conditions for steel slab from low cost and high
quality producers throughout the world. Prices of our flat rolled steel products
have historically experienced a close correlation to the prices of steel slab.
Although we remain subject to the cyclicality inherent in the steel industry, we
believe this correlation, combined with our slab-based business model, provides
us with operating margins that are more consistent than those of a typical flat
rolled steel producer.

Recent Industry Conditions

     During 2001 the domestic steel industry suffered from excess supply and
depressed prices that have reached 20-year lows. This situation began in 1998
with a sustained surge of foreign steel into the U.S. market. Import levels
remained at extraordinarily high levels in 1999, 2000 and through much of 2001.
Prices have dropped to levels that are unsustainable and, combined with a
weakening economy, forced more than 30 steel industry firms into bankruptcy.

     On June 5, 2001, President Bush announced an initiative to address the
problems facing the U.S. steel industry and global over capacity. The proposal
contained three elements: (1) initiate a Section 201 investigation, (2) begin
negotiations with trading partners in order to eliminate ineffective excess
steelmaking capacity; and (3) enter into negotiations on the rules governing
steel trade, and eliminate market distorting subsidies. On October 22, 2001, the
International Trade Commission determined that the domestic steel industry was
being injured by imports of foreign produced steel. On December 7, 2001, the
International Trade Commission recommended a strong tariff-based remedy for flat
rolled steel products, and a majority of the commissioners recommended a tariff
rate quota for steel slabs.

                                       1
<PAGE>

     Pursuant to his authority under Section 201 of the Trade Act of 1974,
President Bush on March 5, 2002 announced that slab imports for all countries
other than Canada and Mexico will be subject to a tariff-rate quota ("TRQ"). The
TRQ will exempt the first 5.4 million tons of imported slab from tariffs;
imports above that level will face the same tariffs that are imposed on finished
flat-rolled products. The exemption will increase to 5.9 million tons in year
two, and 6.4 million tons in year three. President Bush imposed tariffs of 30
percent on imports of plate and hot-rolled, cold-rolled, and coated flat-rolled
products from all countries other than Canada and Mexico. The tariffs will
decrease to 24 percent in year two, and 18 percent in year three.

     We believe the President's decision allows us to continue operating our
slab based business model without modification and that the TRQ on imported slab
should provide sufficient quantities of imported slab for traditional merchant
slab consumers. However, there can be no assurances that others steel firms will
modify their business models and begin importing large quantities of steel slabs
thereby reducing the existing TRQ available for traditional merchant slab
consumers. Further, we believe the tariffs imposed on finished flat-rolled
products may create opportunities for prices to rise during the time tariffs are
in place. However, there can be no assurances that domestic steel prices will be
affected by the tariffs on imported flat-rolled products.

Products and Customers

     Our principal product lines are hot rolled coil and sheet, cold rolled coil
and sheet, galvanized coil and sheet and electric resistance weld (ERW) pipe.
The following table sets forth our billed tons by product category as a
percentage of total shipments for the periods indicated:

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                                  -----------------------
                                                        2001      2000     1999     1998     1997
                                                       ------   -------   ------   ------   ------

<S>                                                    <C>       <C>       <C>      <C>      <C>
Hot rolled coil and sheet ..........................     45.3%     40.7%    47.3%    52.1%    58.0%
Cold rolled coil and sheet .........................     13.9%     16.1%    15.9%    15.1%    12.0%
Galvanized coil and sheet ..........................     34.2%     35.6%    29.7%    24.4%    21.8%
ERW pipe ...........................................      6.6%      7.6%     7.1%     8.4%     8.2%
                                                       ------   -------   ------   ------   ------
     Total .........................................      100%      100%     100%     100%     100%
                                                       ------   -------   ------   ------   ------
Total tons billed, excluding scrap (in thousands) ..    1,828     1,753    1,803    1,614    1,625
                                                       ======   =======   ======   ======   ======
</TABLE>

     The western U.S. steel market is comprised of many consumers typically
requiring small order sizes with a wide variety of metallurgical qualities and
specifications. In contrast, the majority of other U.S. steel markets primarily
depend on heavy-tonnage steel consumers like the automotive and durable goods
manufacturing industries. We believe that the western United States' smaller and
more diverse customer base helps balance pricing power between the consumer and
the supplier. Instead of competing solely on price, we believe we benefit from
having customers that place greater value on our competitive strengths,
including integrated service, timeliness of delivery and ability to meet unique
customer needs. We believe that we benefit from our strategic location in
Fontana, California.

     We have approximately 300 active customers, with no single customer
accounting for more than 6% of our 2001 net sales. Our customers include service
and processing centers, construction and building material companies, roofing
and decking manufacturers, structural tubing concerns, oil and gas producers and
distributors, wheel and rim manufacturers, packaging and container companies as
well as various customers in other industries.

     We do not actively pursue sales in foreign markets and we make foreign
sales only when they are economically advantageous to us. In 2001, we sold
approximately 26,400 tons of steel product to customers in Mexico and Canada,
which represented approximately 1.4% of our total 2001 tons billed.

     Hot rolled coil and sheet is our largest product category as measured by
tons billed per year. Our customers use hot rolled steel for a variety of
manufacturing applications, including the production of spiral weld pipe,
shipping containers, automobile wheels and rims, strapping, tubing and a variety
of construction related products. In 2001, we directed approximately 45.7% of
our hot rolled production to outside sales and we further processed
approximately 54.3% internally for our own higher-margin, value added product
needs.

     Cold rolled coil and sheet are used in exposed steel applications where
high surface quality is important. Typically, cold rolled material is coated or
painted. Applications for our cold rolled products include electronic cabinetry,
lighting fixtures, metal office furniture, water heaters, container
manufacturers, tubing, appliances, galvanized containers and a variety of
construction

                                       2
<PAGE>

related products. In 2001, we directed approximately 29.9% of our cold rolled
production to outside sales and we further processed approximately 70.1%
internally for our own higher-margin, value added product needs.

     Galvanized coil and sheet is produced by adding a coating of zinc to cold
rolled steel, and in some instances, to hot rolled steel, for additional
corrosion resistance. We believe we offer the broadest range of thicknesses,
widths and coatings of galvanized products in the western U.S. market.
Applications for our galvanized coil product include tubing, drums, tanks,
culvert and a variety of construction related products.

     We supply ERW pipe with diameters ranging from 4.5" to 16.0" in the western
U.S. markets. The principal end-users of our ERW pipe production are oil and gas
transmission companies. We also sell standard pipe to industrial accounts for
load bearing and low-pressure applications.

Operations

     We initially began operations in 1984 utilizing certain purchased assets
from the former Kaiser Steel Corporation. Based on a business model that
depended on the purchase of semi-finished steel slab from third party vendors,
we were the first company in the United States to operate steel rolling mills
without a dedicated source of slab feedstock. Significant business success and
market acceptance of our slab based business model encouraged us to consider a
modernization program designed to increase production and improve our product
mix.

Modernization Program

     In 1999, we completed a six-year modernization program encompassing capital
expenditures of approximately $250.0 million. We believe that these investments
have strengthened our competitive position by reducing operating costs,
broadening our product line, improving product quality and significantly
increasing our throughput capacity of flat rolled steel products. Since the
completion of our modernization program, we have continued to make selective
investments designed to keep our facilities competitive or reduce operating
costs.

                                       3
<PAGE>

     The following table describes the primary investments made under our
modernization program:

<TABLE>
<CAPTION>
     Major Investment         Amount       Completion             Benefit
     ----------------         ------       ----------             -------
                           (in millions)
<S>                            <C>              <C>       <C>
Continuous pickling
   line...................     $68              1994      .     Replaced two pickling lines and increased
                                                                annual continuous pickling capacity from
                                                                780,000 to 1.2 million tons

                                                          .     Increased overall efficiency, productivity and
                                                                product quality

Five-stand cold rolling
   mill modernization.....     $64              1997      .     Revamped five-stand cold rolling mill and
                                                                increased throughput capacity and improved
                                                                overall product quality

                                                          .     Increased maximum width of coils produced
                                                                from 42" to 62", allowing for a
                                                                commensurate increase in coil weight from
                                                                18 to 35 tons (increased width matches width
                                                                capacity on new continuous pickling line)

Reheat furnace............     $28              1997      .     Walking beam furnace substantially replaced
                                                                3 pusher furnaces

                                                          .     Reduced emissions from reheating process
                                                                and decreased energy costs

Second continuous
   galvanizing line.......     $73              1998      .     Increased annual capacity from 375,000 to
                                                                550,000 tons

                                                          .     Provided ability to produce a broader product
                                                                range (we believe the widest range in the
                                                                western United States)

                                                          .     Improved efficiency by allowing each
                                                                galvanizing line to focus on either high or low
                                                                gauge product

                                                          .     Investment includes a capital expenditure of
                                                                $38.5 million and an operating lease of $34.5
                                                                million

Coil handling system......     $14              1999      .     Reduced hot coil cooling times from 3 days to
                                                                6-8 hours

                                                          .     Improved product quality and efficiency by
                                                                eliminating manual coil handling process
</TABLE>

                                       4
<PAGE>

     The benefits of our modernization program were evident in 2000. For the
first time in our history, higher-margin, valued added products exceeded 51% of
our total products sold. Production efficiencies continue to be gained through
improved operating and maintenance practices, targeted capital investments and
enhanced production planning and quality control procedures. We believe the
success of our modernization program contributes to our being a low cost
producer of flat rolled steel products.

Hot Strip Rolling and Finishing Mills

     We produce hot rolled coil and sheet from slab in our hot strip mill. A
walking beam furnace reheats slab, directs it to a multi-stand rolling mill to
reduce thickness and rolls it into coil. Equipped with an automatic gauge
control system and technologically advanced computer controls, the hot strip
mill currently possesses a throughput capacity of over 1.7 million tons annually
and can produce hot rolled coil in gauges from 0.053" to 0.750".

     The hot strip mill facility is primarily composed of the following:

     .    a walking beam furnace with a capacity of 6,480 tons of slab per day;
          and

     .    the 86" mill which consists of five roughing stands, a scale breaker,
          six finishing stands and two downcoilers.

     In addition, the hot strip finishing lines are composed of the following:

     .    an 80" coil slitter line that can trim product up to 0.375" in
          thickness and can be easily adjusted to meet a variety of
          customer-specified widths;

     .    one shear line using a synchronized flying shear;

     .    a skin pass line that uses one 2-hi mill with 32" diameter x 86" rolls
          which is used for surface improvements; and

     .    a build-up line that is used to increase coil sizes to customers
          specifications.

Continuous Pickle Line

     We can further process hot rolled coil on the 62-inch continuous pickle
line for direct sales to our customers or for our own cold rolling and
galvanizing production. The continuous pickle line is a conventional horizontal
design with a coil entry section, welder, hot water preheat tanks, acid tanks,
water rinse, dryer, looper, side trimmer, coiler, oiling equipment and scale.
The line, which was installed in 1994, can currently yield up to approximately
1.2 million tons per year.

Cold Rolled Mill

     Cold rolled sheet is hot rolled steel that has been further processed
through the continuous pickle line and then successively passed through a
rolling mill without reheating until the desired gauge and other physical
properties have been achieved. Cold rolling reduces gauge and hardens the steel
and, when further processed through an annealing furnace and temper mill,
improves uniformity, ductility and formability. Cold rolling can also impart
various surface finishes and textures. Cold rolled steel is used in applications
that demand higher quality or finish. The thinner coil is usually annealed to
increase ductility, while some coil is cut into sheet.

     The cold rolled facility, with a current annual finished capacity of
approximately 1.0 million tons, includes the following:

     .    a five-stand reduction mill;

     .    an electrolytic cleaning line; and

     .    twenty hydrogen annealing bases.

     The five-stand reduction mill reduces pickled steel strip from a gauge
range of 0.075" to 0.225" to a range of 0.010" to 0.172" in thickness, with a
maximum width of 60". The five-stand reduction mill was completely revamped in
1997. After cold

                                       5
<PAGE>

reduction, coil is cleaned in a 200 feet to 1,000 feet per minute electrolytic
cleaning line, producing smut-free steel which is then batch annealed before
final production in the 60" temper mill, where the steel is tempered to
specified finish and gauge.

     In 2001, we completed a capital investment project that replaced our
existing Hydrogen/Nitrogen gas annealing units with twenty, state of the art,
Hydrogen Annealing units. Hydrogen annealing is a process that heats steel coils
to annealing temperatures in a pure Hydrogen atmosphere, in comparison to the
previous batch annealing process which used a Hydrogen/Nitrogen mixed gas (HNx)
atmosphere. Hydrogen annealing provides higher productivity, improved product
quality, and a reduction in utilities consumption compared to HNx annealing. The
new annealing facility has an annual capacity of 360,000 tons of cold rolled
annealed product per year.

Galvanizing Mills

     Galvanized coil and sheet represent our highest value added products,
requiring the greatest degree of processing and quality controls. We produce
galvanized sheet by taking cold rolled coils, and in some instances, hot rolled
coils, heating it in an annealing furnace and dipping the coil, while still hot,
into a pot of molten zinc. As the coil leaves the pot, coating controls insure
product specifications match customer requirements. The steel's corrosion
resistance makes it ideal for applications like air conditioning units, air
ducts, metal ties, studs, siding, decking, roofing and culverts.

     With the addition of our second continuous galvanizing line that was placed
in production in August 1998, we believe that our galvanizing facilities can
produce the full range of coated steel. The combined theoretical capacity of our
galvanizing lines is approximately 550,000 tons per year. However, in 2001 we
achieved higher levels of productivity resulting in approximately 631,000 tons
of galvanized steel production. The first continuous galvanizing line is
horizontally configured and produces gauges from 0.012" to 0.174". The second
continuous galvanizing line is vertically configured and produces gauges from
0.010" to 0.060".

Electric Resistance Weld (ERW) Pipe Mill

     We produce ERW pipe by rollforming hot rolled skelp into a pipe shape,
welding the edges together with a high frequency welder, annealing the weld and
cutting the finished product to length on a continuous line. The ERW pipe may
then undergo additional testing and/or finishing operations like hydrotesting
and end beveling.

     The pipe mill produces pipe with outside diameters ranging from 4.5" to 16"
and wall thickness ranging from 0.156" to 0.375", with lengths available up to
63 feet without mid-weld. Process coating is available through local coating
applicators, one of whom lease space on our property. The ERW pipe mill has a
current capacity of approximately 150,000 tons per year.

Semi-Finished Steel Slab and Suppliers

     Steel slab is a semi-finished steel raw material in rectangular form and is
generally the first form taken by molten steel after it solidifies. The
principal users of steel slab are steel producers or processors that roll slab
into finished products like plate or coil.

     Historically, our raw material consumption costs have comprised
approximately 70% of our cost of goods sold. We are the largest importer and the
second largest purchaser of slab in the world. We purchase slab from a diverse
group of foreign suppliers to obtain high quality steel at low cost through
reliable sources. Our foreign vendors are located in Brazil, Mexico, Australia,
Japan, Russia, South Africa, China, and Venezuela.

     We typically make our slab purchases on a quarterly basis. As of December
31, 2001 we were committed, in the form of open purchase orders, to purchase
approximately $44 million in steel slabs. All of our 2001 slab purchases were
made on a quarterly basis and we expect to continue to negotiate slab prices and
volume with our traditional suppliers on a quarterly basis for our slab
purchases in 2002.

     Although we are not reliant on any one single vendor, in 2001, we purchased
approximately 17% of our slab from Ispat Mexicana de C. V. -Imexsa of Mexico and
approximately 49% of our slab from Companhia Siderurgica de Tubarao of Brazil.
Ispat Mexicana and Companhia Siderurgica de Tubarao are the only two steel
facilities in the world dedicated solely to the production of steel slab. Each
company currently does not possess production equipment beyond slab casting.

                                       6
<PAGE>

     We own 4% of the common stock of Companhia Siderurgica de Tubarao, which
represents 1.5% of the total equity interest in Companhia Siderurgica de
Tubarao. Companhia Siderurgica de Tubarao is a subsidiary of both Companhia Vale
do Rio Doce and Kawasaki Steel Corporation, our stockholders' parent companies.
All slab purchases with our parent or affiliated companies are negotiated on an
"arm's length" basis and in accordance with market conditions.

     We negotiate with a variety of shipping companies to deliver our slab
directly to the Port of Los Angeles. We also charter vessels from Seamar
Shipping Corporation, a subsidiary of Companhia Vale do Rio Doce. The vessels
are loaded following a specific stowage plan that we develop. The plan ensures
high productivity rates at both the loading and unloading sites. Our agents are
on site for the loading of each shipment. After unloading, the slab is
transported to our facility by rail using the services of Burlington Northern
Santa Fe Railroad and Union Pacific Rail Lines. In January 2001, we extended our
long-term contract with Burlington Northern Santa Fe Railroad through December
2013. This agreement provides us with transportation services at fixed rates and
ensures us a dedicated level of rail availability through the term of the
agreement. Additionally, Burlington Northern Santa Fe Railroad utilizes rail
cars designed specifically to transport steel slab. We believe this will greatly
improve the efficiency and safety of steel slab transportation through our
community.

     Under an agreement that we have entered into with our two shareholders, we
continuously purchase slabs from Companhia Siderurgica de Tubarao as raw
material for our operations according to basic terms and conditions agreed upon
from time to time. In addition, our stockholders have agreed to maintain the
existing contract between us and Companhia Siderurgica de Tubarao in accordance
with their respective terms and conditions.

     We believe that our integrated slab procurement system allows us to manage
our slab inventory levels, ensuring optimal tonnage levels as well as the slab
quality necessary to meet our customers' order specifications. As of December
2001 , we had what we believed to be firm backlog orders of approximately
240,000 tons. Based on our average sales price at that time, the backlog value
was approximately $83,000,000. As of December 2000, we had what we believed to
be firm backlog orders of approximately 120,000 tons. Based on our average sales
price at that time, the backlog value was approximately $48,000,000.

Marketing and Customer Service

     We believe that we provide the highest level of customer service and
product support in the western U.S. market. Our emphasis on customer service and
product quality has enabled us to establish long-standing relationships with our
customers. Our relationships with 90% of our top 30 customers extend beyond 10
years. We attribute this customer loyalty, in large part, to the successful
execution of our marketing strategies to provide a broad range of products; to
provide consistent service and reliable product availability; and to provide
ancillary, value added services.

     We are the only producer of flat rolled steel products located in the
western United States which can supply hot rolled, cold rolled and galvanized
coil and sheet. We also produce ERW pipe in diameters ranging from 4.5" to
16.0". We believe that we are well equipped to provide "one-stop shopping" for
our customers and we believe that this maximizes sales opportunities and
increases the convenience and value of the service we provide to customers. We
will continue to invest in the quality of our products across all product lines,
allowing us to market ourselves as a full-service provider of flat rolled steel
in the region.

     Our location in southern California not only gives us a significant freight
cost advantage over our competitors, but also allows us to provide a more
service-oriented approach to our customers. Our operating structure allows us to
respond quickly to changes in the timing of customer requirements, adjust
schedules, source stock inventory and meet specialized shipping needs. Our
ability to deliver made-to-order products in a timely manner allows our
customers to maximize their inventory turns and meet production targets. By
maintaining a regional focus, we believe that we can most effectively service
our customers and achieve our goal of increasing market share in higher margin
value added products.

     As part of our strategy to provide superior customer service, we offer our
customers ancillary services such as engineering and metallurgical advice. A
substantial portion of our customers are small to medium-sized businesses. As a
result, many do not have the resources to employ a sophisticated metallurgical
engineering staff. Our metallurgical engineers work with our customers on a
daily basis, often on site, providing advisory services focused on reducing
procurement costs and improving overall production efficiency. In addition to
ancillary services, we also provide "service center" like operations including
slitting, shearing, coating and single-billing for third party processing. We
believe that these value added services help to further differentiate us from
our competitors.

                                       7
<PAGE>

Competition

     The steel industry is cyclical in nature and highly competitive. We compete
with domestic and foreign steel producers on the basis of customer service,
product quality and price. The domestic steel industry has been adversely
affected in recent years by high levels of steel imports, worldwide production
overcapacity, increased domestic and international competition, rising energy
costs and other factors. We believe that the competitive landscape within the
steel industry will continue to evolve, especially as new technologies and
production methods are introduced. We believe that because of our slab-based
business model, breadth of products, non-union work environment, southern
California location and long-standing customer relationships, we are well
positioned to meet competitive threats. However, some of our competitors are
larger and may have substantially greater capital resources, more modern
technology and lower labor and raw material costs than us, as well as excess
production capacity in some products and could exert downward pressure on prices
for some of our products in the future.

     We are also subject to general economic trends and conditions, such as the
presence or absence of sustained economic growth and currency exchange rates. We
are particularly sensitive to trends in the construction, agriculture, oil and
gas and gas transmission industries, because these industries are significant
markets for our steel products. If there were a downturn in one or more of these
industries, our sales volume, prices, profitability and liquidity could be
adversely affected.

U.S. Competition

     We compete with western U.S. based producers of steel sheet products,
including steel processors, one integrated producer and, to a lesser extent,
service centers. Historically, high transportation costs have deterred
midwestern steel manufacturers from accessing the western U.S. market. However,
competition from midwestern steel manufacturers has increased dramatically over
the last twelve months as a lack of demand and increased competition in their
home markets has encouraged them to push excess production into the western
United States. Many of our competitors have invested in new plants and
equipment, that have improved their product quality and increased their
production efficiencies. In the hot rolled segment, our principal domestic
competitor is Geneva Steel, located in Provo, Utah. Geneva Steel suspended
operations in November, 2001 to conserve cash until more favorable market
conditions return. UPI, located in Pittsburg, California, is our principal
competitor in galvanized and cold rolled products. We also compete in the
galvanized market with Steelscape Inc. (formerly known as BHP Coated Steel
Corporation) with two facilities, one located in Kalama, Washington, and the
other in Rancho Cucamonga, California and MSC Pinole-Point Steel, located in
Richmond, California.

     We also compete with steel service and processing centers. Service and
processing centers serve as both our customers as well as competitors. Service
centers serve as wholesale distributors for a broad line of sheet products and
also provide value added services including slitting, shearing and coating.

     Over the past 10 years, mini-mills have been transforming the competitive
environment of the U.S. steel industry. Mini-mills are generally smaller volume
steel producers that use ferrous scrap metal as their basic raw material and
serve regional markets. While no mini-mills in our market currently produce
significant amounts of flat rolled products, at least one mini-mill has
expressed an intention to construct facilities in the western U.S. to produce
hot rolled coil and sheet that might compete with products we manufacture.
Manufacturing techniques have allowed mini-mills to produce types of sheet
products that have traditionally been supplied by us or integrated producers. We
also face increasing competition from producers of materials such as aluminum,
composites, plastics and concrete that compete with steel in many markets.

Foreign Competition

     Foreign steel producers consistently compete in the western United States
steel market in all of our product categories. Since the fourth quarter of 1997,
we have experienced increased competition from importers primarily within the
hot rolled and cold rolled product sectors. Although imported steel has
relatively long lead times to reach the western U.S. market, economic and
currency dislocations in foreign markets encourage many importers to target the
United States with excess capacity at aggressive prices. Some foreign producers
benefit from low labor costs, weak local currencies and government subsidies..

     During 2001, the domestic steel industry suffered from excess supply and
depressed prices that have reached 20-year lows. This situation began in 1998
with a sustained surge of foreign steel into the U.S. market. Import levels
remained at extraordinarily high levels in 1999, 2000 and through much of 2001.
Prices have dropped to levels that are unsustainable and, combined with a
weakening economy, forced more than 30 steel industry firms into bankruptcy.

     On June 5, 2001, President Bush announced an initiative to address the
problems facing the U.S. steel industry and global over capacity. The proposal
contained three elements: (1) initiate a Section 201 investigation, (2) begin
negotiations with trading

                                       8
<PAGE>

partners in order to eliminate ineffective excess steelmaking capacity; and (3)
enter into negotiations on the rules governing steel trade, and eliminate market
distorting subsidies. On October 22, 2001, the International Trade Commission
determined that the domestic steel industry was being injured by imports of
foreign produced steel. On December 7, 2001, the International Trade Commission
recommended a strong tariff-based remedy for flat rolled steel products, and a
majority of the commissioners recommended a tariff rate quota for steel slabs.

     Pursuant to his authority under Section 201 of the Trade Act of 1974,
President Bush on March 5, 2002 announced that slab imports for all countries
other than Canada and Mexico will be subject to a tariff-rate quota ("TRQ"). The
TRQ will exempt the first 5.4 million tons of imported slab from tariffs;
imports above that level will face the same tariffs that are imposed on finished
flat-rolled products. The exemption will increase to 5.9 million tons in year
two, and 6.4 million tons in year three. President Bush imposed tariffs of 30
percent on imports of plate and hot-rolled, cold-rolled, and coated flat-rolled
products from all countries other than Canada and Mexico. The tariffs will
decrease to 24 percent in year two, and 18 percent in year three.

     We believe the President's decision allows us to continue operating our
slab based business model without modification and that the TRQ on imported slab
should provide sufficient quantities of imported slab for traditional merchant
slab consumers. However, there can be no assurances that others steel firms will
modify their business models and begin importing large quantities of steel slabs
thereby reducing the existing TRQ available for traditional merchant slab
consumers. Further, we believe the tariffs imposed on finished flat-rolled
products may create opportunities for prices to rise during the time tariffs are
in place. However, there can be no assurances that domestic steel prices will be
affected by the tariffs on imported flat-rolled products.

Employee Relations

     At December 31, 2001, we had 952 full-time employees. We have the largest
non-union workforce located at any one steel facility in the United States. We
provide our employees with supplemental work training and education programs.
Our officers also routinely discuss our business plan with them. We believe that
we have a good relationship with our employees.

Forward-Looking Statements

     Certain statements contained in this Form 10-K regard matters that are not
historical facts and are forward-looking statements (as such term is defined in
the rules promulgated pursuant to the Securities Act of 1933, as amended). Such
forward-looking statements include any statement that may predict, forecast,
indicate or imply future results, performance or achievements, and may contain
the words "anticipate," "believe," "should," "could," "estimate," "expect,"
"project," "imply," "intend," "foresee," "will be," "will continue," "will
likely result," and similar words and expressions. Such forward-looking
statements reflect our current views about future events, but are not guarantees
of future performance and are subject to risk, uncertainties and assumptions.
Such risks, uncertainties and assumptions include those specifically identified
in this Form 10-K and the following:

     .    our substantial indebtedness, interest expense and principal repayment
          obligations under our bank facility and 8.5% senior notes, which could
          limit our ability to use operating cash flow in our business other
          than for debt-servicing obligations, obtain additional financing and
          react to changing market and general economic conditions, and which
          increase our vulnerability to interest rate increases,

     .    because our board of directors is elected by our two stockholders,
          each of whom holds 50% of our stock, there is a possibility of
          deadlocks among our board of directors that could result in costly
          delays in making important business decisions and put us at a
          competitive disadvantage,

     .    competitive factors and pricing pressures,

     .    our ability to control costs and maintain quality,

     .    future expenditures for capital projects,

     .    volatility of energy costs as well as the viability of the electrical
          power distribution system within the state of California, and

     .    industry-wide market factors and general economic and business
          conditions.

                                       9
<PAGE>

     Our actual results could differ materially from those projected in these
forward-looking statements as a result of these risks, uncertainties and
assumptions, many of which are beyond our control.

Item 2. Properties

     We are located on approximately 450 acres in Fontana, California. Our
facilities are situated on approximately 115 acres of this space. The property
includes a 22 mile railroad system serviced by Burlington Northern Santa Fe and
Union Pacific rail lines.

Item 3. Legal Proceedings

     We are from time to time in the ordinary course of business, subject to
various pending or threatened legal actions. We believe that any ultimate
liability arising from pending or threatened legal actions should not have a
material adverse effect on our financial position, results of operations or
liquidity.

Environmental Matters

     Compliance with environmental laws and regulations is a significant factor
in our business. We are subject to various federal, state, and local
environmental laws and regulations concerning, among other things, air
emissions, waste water discharges and solid and hazardous waste disposal. We own
property and conduct or have conducted operations at properties that are
contaminated with hazardous materials and will require investigation and
remediation according to federal, state or local environmental laws and
regulations. Expenditures on environmental matters, including expenditures on
pollution control equipment and remediation activities, totaled approximately
$3.2 million in 1997, $2.3 million in 1998, $1.1 million in 1999, $0.9 million
in 2000 and $1.3 million in 2001. We plan to spend approximately $1.7 million in
2002, with the largest component representing investigation activities at our
Fontana site.

     In 1996, we entered into an Expedited Remedial Action Voluntary Enforceable
Agreement with the California Environmental Protection Agency, Department of
Toxic Substances Control. This agreement superseded a Voluntary and Enforceable
Agreement and Imminent and/or Substantial Endangerment Order issued by the
Department in 1992 and amended in 1994. According to the agreement, we are
conducting an investigation of potential soil contamination at approximately 28
areas of concern at our facility in Fontana, California. We are unable to
reasonably estimate the range of liability until completion of a remedial
feasibility study. The site investigation and remedial feasibility study is
expected to be completed in 2002. There can be no guarantee that these
expenditures will not have a material adverse effect on our financial condition
or results of operations. At December 31, 2001, we accrued $400,000 for the
remedial action feasibility study, which is expected to be completed during
2002.

Item 4. Submission of Matters to a Vote of Security Holders

     None.

                                      10
<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

     Not applicable.

Item 6. Selected Financial Data

     The selected consolidated financial information presented below as of and
for the fiscal years ended December 31, 2001, 2000, 1999, 1998, and 1997, has
been derived from our audited consolidated financial statements. Except for the
fiscal years ended December 31, 1997 and 1998, these consolidated financial
statements are contained elsewhere in this Form 10-K. The following selected
consolidated financial information is qualified by reference to, and should be
read in conjunction with the historical consolidated financial statements,
including notes accompanying them and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" found elsewhere in this Form
10-K.

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                         -------------------------------------------------------------
                                                           2001         2000         1999         1998          1997
                                                         --------     --------     --------     --------     ---------
                                                                            (dollars in thousands)
<S>                                                      <C>          <C>          <C>          <C>          <C>
Statement of Operations Data(1):
Net sales ..........................................     $640,390     $720,900     $687,050     $673,439     $722,458
Cost of sales ......................................      612,713      616,638      564,889      603,613      638,159
Gross profit .......................................       27,677      104,262      122,161       69,826       84,299
Selling, general and administrative expenses .......       23,350       32,185       29,946       28,626       27,088
Income from operations .............................        4,327       72,077       92,215       41,200       57,211
Interest expense, net ..............................      (16,316)     (18,756)     (16,345)     (16,954)     (13,977)
Income (loss) before income taxes ..................       (7,317)      56,138       77,027       26,816       44,316
Net income (loss) ..................................       (3,711)      34,845       46,847       19,800       28,792

EBITDA, as adjusted Data(2):
Income (loss) before income taxes ..................     $ (7,317)    $ 56,138     $ 77,027     $ 26,816     $ 44,316
Interest expense ...................................       16,316       18,756       16,345       16,954       13,977
Excluding (gain) loss of fixed assets ..............          802          (28)         (13)         308        1,054
Depreciation and amortization ......................       30,204       28,852       26,331       26,659       24,374
                                                         --------     --------     --------     --------     --------
EBITDA, as adjusted ................................     $ 40,005     $103,718     $119,690     $ 70,737     $ 83,721
                                                         --------     --------     --------     --------     --------
EBITDA, as adjusted margin .........................          6.2%        14.4%        17.4%        10.5%        11.6%

Other Data:
Operating margin ...................................          0.7%        10.0%        13.4%         6.1%         7.9%
Cash flows provided by operating activities ........       83,963       34,594       72,287       63,456       57,211
Cash flows used in investing activities ............      (14,753)     (33,936)     (37,321)     (49,335)     (57,954)
Cash flows (used in) provided by financing
   activities ......................................      (63,000)      (6,015)     (39,029)     (12,502)       1,067
Capital expenditures ...............................     $ 14,753     $ 33,995     $ 37,397     $ 49,354     $ 58,296
Total tons billed, excluding scrap (in thousands) ..        1,828        1,753        1,803        1,614        1,625
Number of employees at end of period ...............          952          973          952          976          945
Man hours per ton produced .........................         1.14         1.18         1.18         1.29          1.3

Selected Ratios:
Ratio of earnings to fixed charges(3) ..............          0.6x         3.8x         5.3x         2.3x         3.6x
Ratio of EBITDA, as adjusted to interest expense,
   net (4) .........................................          2.5x         5.5x         7.3x         4.2x         6.0x
</TABLE>

                                      11
<PAGE>

<TABLE>
<CAPTION>

                                                                           As of December 31,
                                                           ----------------------------------------------------
                                                             2001       2000       1999       1998       1997
                                                           --------   --------   --------   --------   --------
                                                                              (in thousands)
<S>                                                        <C>        <C>        <C>        <C>        <C>
Balance Sheet Data:
Cash and cash equivalents ..............................   $  8,752   $  2,542   $  7,899   $ 11,962   $ 10,343
Property, plant and equipment, net .....................    252,796    268,429    262,696    251,163    228,795
Total assets ...........................................    499,198    602,158    552,805    533,606    500,151
Total long-term debt including current portion and notes
   payable to banks ....................................    179,000    239,000    230,000    243,700    241,900
Total stockholders' equity(1) ..........................    230,198    236,909    217,079    190,272    184,774
</TABLE>

----------

(1)  During the fourth quarter of 1999, we changed our inventory costing method
     from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO)
     method. We believe that the accounting change was preferable primarily
     because under the then-existing economic environment of low inflation, the
     change to FIFO would result in a better measurement of operating results.
     All previously reported results have been restated to reflect the
     retroactive application of this accounting change as required by accounting
     principles generally accepted in the United States of America. The
     accounting change decreased net income for 1997 by $1,979,000, decreased
     net income for 1998 by $9,295,000 and decreased net income for 1999 by
     $6,276,000, net of applicable income taxes, due principally to the effect
     of LIFO allowance liquidations.

(2)  EBITDA, as adjusted represents income (loss) before income taxes, gain/loss
     on sale of fixed assets, plus net interest expense, depreciation and
     amortization. EBITDA, as adjusted is not intended to represent cash flows
     from operations, cash flows from investing or cash flows from financing
     activities as defined by accounting principles generally accepted in the
     United States of America and should not be considered as an alternative to
     cash flow or a measure of liquidity or as an alternative to net earnings
     (loss) as indicative of operating performance. EBITDA, as adjusted is
     included because we believe that investors find it a useful tool for
     measuring our ability to service our debt. EBITDA, as adjusted is not
     necessarily comparable to similarly titled measures reported by other
     companies.

(3)  For the purpose of determining the ratio of earnings to fixed charges,
     earnings represent income or loss before income taxes plus fixed charges
     and amortization of capitalized interest, minus capitalized interest. Fixed
     charges consist of interest expensed and capitalized, and an estimate of
     the interest within rental expense (which approximates less than 10% of
     rental expense).

(4)  Ratio of EBITDA as adjusted to interest expense, net represents EBITDA (2)
     above, divided by net interest expense.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

Introduction

     From our site in Fontana, California, we produce flat rolled steel
products: hot rolled, cold rolled, galvanized as well as ERW pipe, with a
current annual finished shipment capability of approximately 1.8 million tons.
We service a broad range of customers with applications that include pipe and
tubing, heating, ventilating and air conditioning, strapping, drums, steel
wheels, culverts and a variety of construction related products.

     In 1993, we began a modernization program of approximately $250.0 million
to be spent over a six year period. In 1999, we completed these capital
expenditures originally contemplated under our modernization program. In 2001,
we spent approximately $14.8 million on our new capital projects. We believe
these investments have strengthened our competitive position by reducing
operating costs, broadening our product line, improving product quality and
significantly increasing throughput capacity. Our tons billed in 2001 were
1,828,000 compared to 953,000 tons billed in 1992. Hot rolled tons billed in
2001 increased 338,000 tons and accounted for 38.7% of the volume gains during
this period. Cold rolled tons billed increased 114,000 tons, or 13.0%,
galvanized tons billed increased 372,000, or 42.5% and ERW pipe tons billed
increased 51,000 tons, or 5.8% of the volume gains during this period.

     We ship our products by truck and rail to manufacturers, contractors and
distributors primarily in the 11 states west of the Rocky Mountains. We
generally sell our products free on board (FOB), shipping point, and title is
passed when products are loaded for shipment. We recognize revenue from product
sales when products are shipped or delivered to the customer, depending on the
terms of the sale. For products shipped FOB, shipping point, revenue is
recognized at the time of shipment. For products shipped FOB destination,
revenue is recognized at the time of delivery. Our revenue is dependent on the
volume, product mix and sales prices of our products. General economic
conditions as well as the supply and demand of steel products

                                      12
<PAGE>

within our market influence sales prices. We generally set our sales prices
quarterly and we maintain no long-term sales agreements.

     Cost of goods sold consists primarily of raw materials, labor, natural gas,
electricity, depreciation and zinc costs. Raw material costs have historically
comprised approximately 70% of our cost of goods sold. Our slab consumption unit
cost in 2001 was lower compared to 2000, however, compared to 1999, our slab
consumption unit cost in 2001 was higher.

     We generally purchase steel slab in boatload quantities. Imported slab
arrives on chartered vessels in the Port of Los Angeles and is transported by
rail to our Fontana facility. We generally purchase steel slab on open
negotiated payment terms. Steel slab consumption costs include the FOB value of
steel slab, quality extras, ocean transportation, rail freight, duties,
unloading, insurance and handling costs. Historically, we negotiate slab FOB
prices quarterly and other rates through contracts of varying lengths. Our
purchasing power and extensive knowledge of the worldwide slab market continues
to provide us with the opportunity to negotiate with slab suppliers on terms
that we believe are favorable to us. We will continue to actively manage slab
procurement to minimize costs and may opportunistically purchase slab in the
future.

     We use zinc in the production of our galvanized products. We currently
purchase zinc from several suppliers. Zinc is purchased on a monthly basis and
is priced using a formula tied to the London Metals Exchange zinc index. In the
past, we have managed our purchase price of zinc by entering into contracts to
lock in favorable prices and may continue to do so in the future.

     As a result of electricity shortages occurring during the calendar year
2001, the state of California has directly participated in the supply of
electric power to local consumers. Concurrently, the State of California
dramatically increased the price consumers' pay for electricity supplied through
the State's major regulated utilities. In our case, utility supplied power rates
increased by more than 100% when compared to similar periods in 2000. In order
to mitigate the effects of the State's intervention, we are participating in the
Direct Access program whereby electricity customers can contract directly with
energy service providers, thereby bypassing the state of California procurement
system. Our agreement, as amended, is resulting in lower electricity costs
beginning in September 2001, through December 2002. The Public Utilities
Commission of the State of California (PUC) issued an order on September 20,
2001, suspending the ability of parties to enter into new Direct Access
contracts as of that date. Said order also indicates that the PUC is considering
several future actions regarding Direct Access, including potential exit fees.
The imposition of exit fees or further restrictions on the Direct Access program
by the PUC could significantly increase the cost of our electric service.

     We currently do not have backup generators or alternate sources of power in
the event of a blackout, and our current insurance does not provide coverage for
any damages we or our customers may suffer as a result of any interruption in
our power supply. Any such interruption in our ability to continue operations at
our facilities could harm our ability to retain existing customers and to obtain
new customers, and could result in lost revenue, any of which could
substantially harm our business and results of operations, profitability and
liquidity.

     Historically, we have been exposed to market risks related to the
volatility of natural gas prices. We generally purchase natural gas on an annual
contract basis from a physical supplier active in the California market. The
price we normally pay for natural gas is based on the New York Mercantile
Exchange (NYMEX) natural gas commodity index, which is a commonly referenced
index in the industry for natural gas purchases, and an additional delivery cost
to the California border commonly known as the basis cost.

     During 2000, and continuing through much of the second quarter of 2001,
rising and volatile natural gas prices negatively affected our profitability. At
December 31, 2000, natural gas prices were approximately triple those of a year
earlier and in 2001 our average cost was approximately twice as much compared to
the average cost in 2000. Our average cost of natural gas in 2001 was $9.13 per
Million British Thermal Unit or MMBTU compared to our average cost of $4.93
MMBTU in 2000. Our natural gas costs escalated throughout 2000, peaking in
December, 2000, at approximately $11.60 per MMBTU. Additionally, we believe the
transportation cost of natural gas from wellhead to the state of California have
been influenced by the state's electricity crisis, further increasing the
overall cost of natural gas. In response to escalating prices we entered into a
series of natural gas purchase agreements to reduce our exposure to natural gas
price volatility derived from the NYMEX natural gas commodity index.

     Selling, general and administrative expenses consist primarily of sales and
labor, various administrative expenses, and shipping costs. In 2001, labor costs
comprise approximately 52% of our total selling, general and administrative
expenses compared to 45% in 2000 and 49% in 1999.

                                      13
<PAGE>

Results of Operations

                                                     Tons Billed
                                                     -----------
                                                 Year Ended December 31,
                                                 -----------------------
                                            2001           2000           1999
                                         ---------      ---------      ---------
Hot Rolled ........................        829,161        712,717        853,539
Cold Rolled .......................        253,465        282,418        287,371
Galvanized ........................        625,138        623,782        534,861
ERW pipe ..........................        120,607        134,177        127,599
                                         ---------      ---------      ---------
     Total (excluding scrap) ......      1,828,371      1,753,094      1,803,370
                                         =========      =========      =========

     During the fourth quarter of 1999, we changed our inventory costing method
from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO)
method. We believe that the accounting change was preferable primarily because
under the then-existing economic environment of low inflation, the change to
FIFO would result in a better measurement of operating results. All previously
reported results have been restated to reflect the retroactive application of
this accounting change as required by accounting principles generally accepted
in the United States of America. The accounting change decreased net income for
1999 by $6,276,000, net of applicable income taxes, due principally to the
effect of LIFO allowance liquidations.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     Net sales. For the year ended December 31, 2001 net sales were
$640,390,000. This was a $80,510,000, or 11.2% decrease from the $720,900,000
net sales generated for the year ended December 31, 2000. The year over year
decrease is attributable to a decrease in sales unit price and a lower value
added product mix partially offset by higher volumes. A decrease in our average
selling price reduced our net sales by approximately by $103,308,000. In 2001,
we sold more hot rolled and less cold rolled and galvanized steel as a
percentage of total products than in 2000. This change in our product mix
contributed a decrease of approximately $8,057,000 in net sales. Unit prices,
after adjusting for product mix, decreased year over year by approximately $57
per ton. In 2001, we sold 1,828,371 net tons compared to 1,753,094 net tons of
steel in 2000, excluding steel scrap, an increase of 75,277 net tons or 4.3%.
This 4.3% increase in tonnage sold resulted in a increase of approximately
$30,776,000 in net sales.

     Gross profit. Gross profit decreased $76,858,000, or 73.5%, from
$104,262,000 for the year ended December 31, 2000 to $27,677,000 for the year
ended December 31, 2001. Gross profit as a percentage of net sales decreased
from 14.5% in 2000 to 4.3% in 2001. Our gross profit decreased as a result of a
decrease in our selling price, change in product mix, and an increase in utility
costs, which was partially offset by a decrease in our slab cost.

     Selling, general and administrative (SG&A) expenses. Selling, general and
administrative expenses decreased $8,835,000, or 27.5%, from $32,185,000 for the
year ended December 31, 2000 to $23,350,000 for the year ended December 31,
2001. SG&A expenses as a percentage of net sales also decreased to 3.6% for the
year ended December 31, 2001, from 4.5% for year ended December 31, 2000.
Management performance compensation and all other administrative expenses
contributed to this decrease.

     Equity in income of affiliate. We maintain a 1.5% ownership interest in
Companhia Siderurgica de Tubarao, which is based on our ownership of 4.0% of its
common stock. Our investment in Companhia Siderurgica de Tubarao is accounted
for under the equity method of accounting. For the year ended December 31, 2001,
we recognized income of $1,274,000 from our investment in Companhia Siderurgica
de Tubarao, which consists of our pro-rata share of Companhia Siderurgica de
Tubarao's income, and $650,000 of amortized negative goodwill. Companhia
Siderurgica de Tubarao is a publicly traded Brazilian company engaged in the
production of steel slab. Approximately 90% of Companhia Siderurgica de
Tubarao's products are exported outside of Brazil and sold predominantly in U.S.
dollars. This high percentage of U.S. dollar denominated cash flow tends to
lessen the impact of market risks related to fluctuations in currency exchange
rates. For the year ended December 31, 2000, we recognized income of $2,229,000,
including amortization of negative goodwill, from our investment in Companhia
Siderurgica de Tubarao.

     Net Interest expense. Net interest expense decreased $2,440,000, or 13.0%,
from $18,756,000 for the year ended December 31, 2000 to $16,316,000 for the
year ended December 31, 2001. The decrease in interest expense in 2001 is
attributable to both, lower average loan balances and lower interest rates in
2001 compared to 2000. Interest expense figures are net of interest income and
capitalized interest of $621,000 in 2000 and $364,000 in 2001.

                                      14
<PAGE>

     Income tax expense (benefit). Income taxes decreased $24,899,000 from
$21,293,000 expense for the year ended December 31, 2000 to a $3,606,000 benefit
for the year ended December 31, 2001. The effective tax rate for 2000 was 37.9%
compared to an effective tax rate benefit of 49.3% in 2001. Income tax expense
benefit is net of state manufacturing investment credit of $1,886,000 in 2000
and $1,200,000 in 2001.

     Net income (loss). Net loss for the year ended December 31, 2001 was
$3,711,000. This was $38,556,000, or 110.7%, lower than the net income of
$34,845,000 for the year ended December 31, 2000.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

     Net sales. For the year ended December 31, 2000 net sales were
$720,900,000. This was a $33,850,000, or 4.9% increase from the $687,050,000 net
sales generated for the year ended December 31, 1999. The year over year
increase is attributable to an increase in sales unit price and a better product
mix partially offset by lower volume. In 2000, we sold 1,753,094 net tons
compared to 1,803,370 net tons of steel in 1999, excluding steel scrap, a
decrease of 50,276 net tons. This 2.8% decrease in tonnage sold resulted in a
decrease of approximately $18,974,000 in net sales. In 2000, we sold more cold
rolled and galvanized steel as a percentage of total products than in 1999. This
improved product mix contributed an additional $19,138,000 to net sales. Unit
prices, after adjusting for product mix, increased year over year impacting net
sales by approximately $35,967,000.

     Gross profit. Gross profit decreased $17,899,000, or 14.7%, from
$122,161,000 for the year ended December 31, 1999 to $104,262,000 for the year
ended December 31, 2000. Gross profit as a percentage of net sales decreased
from 17.8% in 1999 to 14.5% in 2000. Our gross profit decreased as a result of
(1) steel slab cost increases, (2) increases in utility (natural gas) costs, and
(3) lower sales volumes.

     Selling, general and administrative (SG&A) expenses. Selling, general and
administrative expenses increased $2,239,000, or 7.5%, from $29,946,000 for the
year ended December 31, 1999 to $32,185,000 for the year ended December 31,
2000. SG&A expenses as a percentage of net sales remained comparable at 4.5% and
4.4% for the years ended December 31, 2000 and 1999, respectively. Management
performance compensation was the largest single contributing factor to this
increase.

     Equity in income of affiliate. We maintain a 1.5% ownership interest in
Companhia Siderurgica de Tubarao, which is based on our ownership of 4.0% of its
common stock. Our investment in Companhia Siderurgica de Tubarao is accounted
for under the equity method of accounting. For the year ended December 31, 2000,
we recognized income of $909,000 from our investment in Companhia Siderurgica de
Tubarao, which consists of our pro-rata share of Companhia Siderurgica de
Tubarao's income, and $1,320,000 of amortized negative goodwill. Companhia
Siderurgica de Tubarao is a publicly traded Brazilian company engaged in the
production of steel slab. Approximately 90% of Companhia Siderurgica de
Tubarao's products are exported outside of Brazil and sold predominantly in U.S.
dollars. This high percentage of U.S. dollar denominated cash flow tends to
lessen the impact of market risks related to fluctuations in currency exchange
rates. For the year ended December 31, 1999, we recognized income of $75,000,
including amortization of negative goodwill, from our investment in Companhia
Siderurgica de Tubarao.

     Net Interest expense. Net interest expense increased $2,411,000, or 14.8%,
from $16,345,000 for the year ended December 31, 1999 to $18,756,000 for the
year ended December 31, 2000. The increase in interest expense in 2000 is
attributable to higher average loan balances and higher interest rates in 2000
compared to 1999. Interest expense figures are net of interest income and
capitalized interest of $1,046,000 in 1999 and $621,000 in 2000.

     Income taxes. Income taxes decreased $8,887,000 from $30,180,000 for the
year ended December 31, 1999 to $21,293,000 for the year ended December 31,
2000. The effective tax rate for 1999 was 39.2% compared to an effective tax
rate of 37.9% in 2000. Income tax expense is net of state manufacturing
investment credit of $1,050,000 in 1999 and $1,886,000 in 2000.

     Net income. Net income for the year ended December 31, 2000 was
$34,845,000. This was $12,002,000, or 25.6%, lower than the net income of
$46,847,000 for the year ended December 31, 1999

Liquidity and Capital Resources

     At December 31, 2001, we had $8,752,000 in cash and cash equivalents and
$63,068,000 available under our bank facility. During the year ended December
31, 2001, cash flows from operations generated $83,963,000, which consisted of a
$3,711,000 in net loss, $30,204,000 in depreciation and amortization expense and
a net cash flow increase of $57,699,000 due to changes in assets and
liabilities. Operating cash flow increased as a result of an $82,430,000 change
in inventories and an $8,461,000 change in accounts receivable. Operating cash
flow was decreased as a result of a $35,030,000 change in accounts payable and a
$3,918,000 change in deferred income taxes. Cash flows from investing activities
during the year ended December 31, 2001 consisted of $14,753,000 of capital
expenditures. Cash flows from financing activities during the year ended
December 31, 2001

                                      15
<PAGE>

consisted primarily of net repayments under our bank facility in the amount of
$60,000,000 and a dividend payment of $3,000,000.

     On March 10, 1999, we entered into a $130,000,000 five-year bank facility
of which $29,000,000 was outstanding as of December 31, 2001. The bank facility
is collateralized by cash, accounts receivable, inventory and other assets.
Subject to the satisfaction of customary conditions and a borrowing base,
advances under the bank facility may be made at any time prior to the bank
facility termination date. The termination date is the earlier to occur of March
10, 2004 or the date that is 60 days prior to the maturity of our 8.5% senior
notes. Advances may be used for working capital, capital expenditures and other
lawful corporate purposes, including the refinancing of existing debt.

     On April 6, 1999, we issued an aggregate of $150,000,000 of ten-year, 8.5%
senior unsecured notes. Interest is payable on the notes on April 1 and October
1 of each year. The notes are senior in right of payment to all of our
subordinated indebtedness and equal in right of payment to all of our existing
and future indebtedness that is not by its terms subordinated to the notes. We
may redeem the notes at any time after April 1, 2004. The indenture governing
the notes contains covenants that limit our ability to incur additional
indebtedness, pay dividends on, redeem or repurchase capital stock and make
investments, create liens, sell assets, sell capital stock of certain of our
subsidiaries, engage in transactions with affiliates and consolidate, merge or
transfer all or substantially all of our assets and the assets of certain of our
subsidiaries on a consolidated basis.

Commitments and Contingencies

     The following table represents a comprehensive list of the Company's
contractual obligations and commitments as of December 31, 2001:

<TABLE>
<CAPTION>
                                                      Payments Due by Period
                                                      ----------------------
                                                      (amounts in thousands)

                                      Total     2002      2003      2004     2005     2006    Thereafter
                                    --------   -------   ------   -------   ------   ------   ----------
<S>                                 <C>        <C>       <C>      <C>       <C>      <C>       <C>
Long Term Debt                      $179,000        --       --   $29,000       --       --    $150,000
Contractual Commitments             $ 44,000   $44,000       --        --       --       --
Operating Leases                    $ 35,608   $ 6,047   $4,014   $ 7,255   $2,843   $4,622    $ 10,827
                                    -------------------------------------------------------------------

Total Contractual Cash Obligation   $258,608   $50,047   $4,014   $36,255   $2,843   $4,622    $160,827
                                    ===================================================================
</TABLE>

     We anticipate that our primary liquidity requirements will be for working
capital, capital expenditures, debt service and the payment of dividends. We
believe that cash generated from operations and available borrowings under our
bank facility will be sufficient to enable us to meet our liquidity requirements
for fiscal 2002.

Critical Accounting Policies

     In December 2001, the Securities and Exchange Commission ("SEC") requested
that all registrants list their most "critical accounting policies" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The SEC indicated that a "critical accounting policy" is one which
is both important to the portrayal of the company's financial condition and
results of operations and requires management's most difficult, subjective or
complex judgements, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. We believe that our following
accounting policies fit this definition:

     Allowance for Doubtful Accounts. We have attempted to reserve for expected
credit losses based on our past experience with similar accounts receivable and
believe our reserves to be adequate. It is possible, however, that the accuracy
of our estimation process could be materially impacted as the composition of
this pool of accounts receivable changes over time. We continually review and
refine the estimation process to make it as reactive to these changes as
possible; however, we cannot guarantee that we will be able to accurately
estimate credit losses on these account receivable.

     Environmental reserve: Currently we are conducting an investigation of
potential soil contamination at approximately 28 areas of concern at our
facility in Fontana, California. We are unable to reasonable estimate the range
of liability until completion of a remedial feasibility study. The site
investigation and remedial feasibility study is expected to be completed in
2002. There can be no guarantee that these expenditures will not have a material
adverse effect on our financial condition, results of operations or liquidity.

                                      16
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

     We are exposed to market risks related to fluctuations in interest rates on
our senior notes and on our $130 million floating rate bank facility. During
fiscal year 2001, we did not use interest rate swaps or other types of
derivative financial instruments.

     For fixed rate debt like the senior notes, changes in interest rates
generally affect the fair value of the debt instrument. For variable rate debt
like our bank facility, changes in interest rates generally do not affect the
fair value of the debt, but do affect earnings and cash flow. We do not have an
obligation to repay our senior notes prior to maturity in 2009 and, as a result,
interest rate risk and changes in fair value should not have a significant
impact on us. We believe that the interest rate on the 8.5% senior notes
approximates the current rates available for similar types of financing and/or
quoted market prices for similar notes and as a result the carrying amount of
the 8.5% senior notes approximates fair value. The carrying value of the
floating rate bank facility approximates fair value as the interest rate is
variable and resets frequently. The bank facility bears interest at the
Eurodollar rate, which was 4.43% at December 31, 2001. We estimate that the
average amount of debt outstanding under the facility for fiscal year 2002 will
be $60.0 million. Therefore, a one percentage point increase in interest rates
would result in an increase in interest expense of $600,000 for the year.

     We do not believe that the future market rate risk related to the senior
notes and the floating rate bank facility will have a material impact on our
financial position, results of operations or liquidity.

     Historically, we have been exposed to market risks related to the
volatility of natural gas prices. We generally purchase natural gas on an annual
contract basis from a physical supplier active in the California market. The
price we normally pay for natural gas is based on the New York Mercantile
Exchange (NYMEX) natural gas commodity index, which is a commonly referenced
index in the industry for natural gas purchases, and an additional delivery cost
to the California border commonly known as the basis cost.

     During 2000 and continuing through much of the second quarter of 2001,
rising and volatile natural gas prices negatively affected our profitability. In
February, May and September of 2001, we entered into natural gas purchase
agreements to reduce our exposure to natural gas price volatility derived from
the NYMEX natural gas commodity index.

     As a result of electricity shortages occurring during the calendar year
2001, the state of California has directly participated in the supply of
electric power to local consumers. Concurrently, the State of California
dramatically increased the price consumers' pay for electricity supplied through
the State's major regulated utilities. In our case, utility supplied power rates
increased by more than 100% when compared to similar periods in 2000. In order
to mitigate the effects of the State's intervention, we are participating in the
Direct Access program whereby electricity customers can contract directly with
energy service providers, thereby bypassing the state of California procurement
system. We recently entered into an amended agreement with an energy services
provider which enhances our ability to purchase our power requirements at a
reduced rate. The agreement, as amended, is resulting in lower electricity costs
beginning in September 2001, through December 2002. The Public Utilities
Commission of the State of California (PUC) issued an order on September 20,
2001, suspending the ability of parties to enter into new Direct Access
contracts as of that date. Said order also indicates that the PUC is considering
several future actions regarding Direct Access, including potential exit fees.
The imposition of exit fees or further restrictions on the Direct Access program
by the PUC could significantly increase the cost of our electric service.

Recently Issued Accounting Standards

     In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations", (SFAS No. 141) and SFAS No. 142, "Goodwill and Other Intangible
Assets" (SFAS No. 142). SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations. SFAS No. 141 specifies
criteria that intangible assets acquired in a business combination must meet to
be recognized and reported separately from goodwill. SFAS No. 142 will require
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible
assets with estimable useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121 and subsequently, SFAS No. 144 after its adoption.

     The Company adopted the provisions of SFAS No. 141 as of July 1, 2001, the
impact of which was not material to us. SFAS No. 142 is effective January 1,
2002. Goodwill and intangible assets determined to have an indefinite useful
life acquired in a purchase business combination completed after June 30, 2001,
but before SFAS No. 142 is adopted in full, are not amortized. Goodwill and
intangible assets acquired in business combinations completed before July 1,
2001 continued to be amortized and tested for impairment prior to the full
adoption of SFAS No. 142. The adoption of SFAS No. 142 is not expected to have a
material impact on our consolidated financial position or consolidated results
of operations.

                                      17
<PAGE>

     In September, 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" (SFAS No. 143). SFAS No. 143 requires the Company to
record the fair value of an asset retirement obligation as a liability in the
period in which it incurs a legal obligation associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development and/or normal use of the assets. The Company also records a
corresponding asset which is depreciated over the life of the asset. Subsequent
to the initial measurement of the asset retirement obligation, the obligation
will be adjusted at the end of each period to reflect the passage of time and
changes in the estimated future cash flows underlying the obligation. The
Company is required to adopt SFAS No. 143 on January 1, 2003. The adoption of
SFAS No. 143 is not expected to have a material impact on our consolidated
financial position or consolidated results of operations.

     In October, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This Statement requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. SFAS No. 144 requires companies to separately
report discontinued operations and extends that reporting to a component of an
entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The Company is required to adopt SFAS No. 144 on January 1, 2002, and
supercedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of". The adoption of SFAS No. 144 is not
expected to have a material impact on our consolidated financial position or
consolidated results of operations.

Item 8. Consolidated Financial Statements and Supplementary Data

     The Consolidated Financial Statements required in response to this Item are
included under Item 14(a) of Part IV of this Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

     None.

                                      18
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

     The following table sets forth our Directors and executive officers as of
December 31, 2001. All Directors hold their positions until their terms expire
and until their respective successors are elected and qualified. Executive
officers are elected by and serve at the discretion of the Board of Directors
until their terms expire and their successors are duly chosen and qualified. As
a result of the resignation of Armando de Oliveira Santos Nero from the Board of
Directors in December, 2001, there is currently a vacancy on the Board.

<TABLE>
<CAPTION>
               Name                     Age                  Position
               ----                     ---                  --------

<S>                                     <C>   <C>
Tatsuhiko Hamamoto...................   61    Chairman of the Board of Directors
Francisco Povoa......................   52    Director
Toshihiro Kabasawa...................   47    Director
C. Lourenco Goncalves................   43    President and Chief Executive Officer
Vicente Wright.......................   49    Executive Vice President, Finance
James Wilson.........................   52    Vice President, Sales
Brett Guge...........................   47    Vice President, Administration and Corporate Secretary
Toshiyuki Tamai......................   51    Executive Vice President, Operations
</TABLE>

     Tatsuhiko Hamamoto has served as Chairman of the Board of Directors since
July 1998. From 1995 to 1998, Mr. Hamamoto was Corporate Auditor on the Board of
Kawasaki Steel Corporation. From 1993 to 1995, Mr. Hamamoto was Executive Vice
President of KLI, a leasing company. From 1990 to 1992, Mr. Hamamoto served as
Vice President, Technology and Finance at Armco Steel. From 1987 to 1989, Mr.
Hamamoto was General Manager of the Overseas Steel Business Department at
Kawasaki Steel Corporation and our Executive Vice President. He graduated from
Kobe University with a Bachelor of Arts Degree in Economics.

     Francisco Povoa has served as a Director since March 1998. He has worked at
Companhia Vale do Rio Doce since February 1972 and has held positions as
Superintendent of Technology, Mining Superintendent and General Manager of the
South System, Industrial Engineering General Manager. From 1991 to 1993, Mr.
Povoa served as the Executive Director of Rio Doce International in Brussels.
Since 1997, he has served as both the Chairman of the board of directors and the
President of Companhia Vale do Rio Doce's Employees Investment Club, a
shareholder of Companhia Vale do Rio Doce. He served as President of
SIBRA-Eletrosiderurgica Brasileira S.A. and Companhia Paulista de Ferro-Ligas, a
Brazilian manganese producer, from 1997 to 1998. He has served as a member of
the board of directors of Companhia Vale do Rio Doce since 1997, Societe
Europeenne D'Alliages Pour La Siderurgie (SEAS), a French ferro-alloy producer
since 1998, Nova Era Silicon, a Brazilian ferro-silicon company, since 1998, and
Companhia Vale do Rio Doce's pension fund since 1993. Mr. Povoa graduated from
Universidade Federal de Minas Gerais with a Mining Engineering Degree.

     Toshihiro Kabasawa has served as a Director since July 2000. He has been
employed by Kawasaki Steel Corporation since 1977 where he has held positions as
Human Development Manager, Organization & Systems Manager, Steel Business
Planning Manager, and Manager of Overseas Business in Corporate Planning
Department. He graduated from Tokyo University with a Bachelor's Degree in Law.

     C. Lourenco Goncalves has served as President and Chief Executive Officer
since March 1998. From 1981 to 1998, he was employed by Companhia Siderurgica
Nacional, the largest steel company in Brazil, where he held positions as a
Managing Director, General Superintendent of Volta Redonda Works, Hot Rolling
General Manager, Cold Rolling and Coated Products General Manager, Hot Strip
Mill Superintendent, Continuous Casting Superintendent and Quality Control
Manager. Mr. Goncalves graduated from the Federal University of Minas Gerais
State with a Master's Degree in Metallurgy.

     Vicente Wright has served as Executive Vice President, Finance since
February 1998. Mr. Wright was the Steel Division General Manager, from 1992 to
1998, and Iron Ore Sales General Manager from 1991 to 1992 of Companhia Vale do
Rio Doce. From 1987 to 1988, he served as Iron Ore Sales General Manager for Rio
Doce Asia Ltd., a subsidiary of Companhia Vale do Rio Doce. In 1986 and 1987, he
was the assistant to the President of California Steel Industries in charge of
slab procurement and all of its related logistics. From 1978 to 1986, Mr. Wright
served as Purchasing Executive and Slab Marketing Manager at Companhia
Siderurgica de Tubarao. Mr. Wright was a member of the Board of Directors of
Companhia Siderurgica Nacional, the largest steel company in Brazil, from 1993
to 1997, Acominas, a Brazilian steel mill, from 1994 to 1998, Siderar, an
Argentine

                                      19
<PAGE>

steel mill, from 1994 to 1997, Chairman of Nova Era Silicon, a Brazilian
ferro-silicon company mill, from 1994 to 1997 and SEAS from 1994 to 1998. He
graduated from Marquette University, Milwaukee, Wisconsin with a Bachelor's
Degree in Business Administration.

     James Wilson has served as Vice President, Sales since November 2000. He
has been employed by California Steel Industries since 1984 holding the
positions of Manager, Galvanized Products and Manager, Cold Rolled Products.
Prior to joining California Steel Industries, he worked in various segments of
the metals industry, including J.T. Ryerson & Sons, a service center, and in
manufacturing. He graduated from the University of California, Berkeley, with a
Bachelor of Science degree in Industrial Engineering.

     Brett Guge has served as Vice President, Administration and Corporate
Secretary since May 1997. From 1994 to 1997, he served as the Manager of
Administration of Gallatin Steel. From 1983 to 1994, he was employed by Alcoa
where he held positions as the Superintendent of Industrial Relations and
Employment, Supervisor of Employee Relations and Superintendent of Industrial
Relations and Training. Mr. Guge graduated from the University of Tennessee with
a Bachelor's Degree in Communications, and from Xavier University with a
Master's Degree in Business Administration.

     Toshiyuki Tamai has served as Executive Vice President, Operations since
July, 2001. He has been with CSI since 1995, previously holding positions as
Manager, Hot Strip Rolling and Finishing Operations and General Manager, Hot
Rolling and Tubular Products. He joined Kawasaki Steel Corporation in 1973,
where he served as Manager at the No. 2 Hot Strip Mill at Chiba Works. Prior to
joining CSI, he worked as Senior Staff Engineer at AK Steel, Middletown, Ohio.
Mr. Tamai graduated from Kyoto University with a Bachelor's Degree in Mechanical
Engineering.

Board Committees

     Our Board of Directors has a Compensation Committee and an Operations and
Finance Committee. The Compensation Committee is comprised of four members:
Director Tatsuhiko Hamamoto, Director Francisco Povoa, Mr. Yasutaka Kumeda of
Kawasaki Steel Corporation and Mr. Marcus Roger M.M. da Costa of Companhia Vale
do Rio Doce. The Compensation Committee met twice during 2001. The Compensation
Committee reviews compensation packages for our officers and prepares the
executive compensation proposal to the Board.

     The Operations and Finance Committee is comprised of four members including
Directors Toshihiro Kabasawa, Leonardo Moretzohn of Companhia Vale do Rio Doce,
Mr. Isamu Okamura of Kawasaki Steel Corporation and one vacancy which has not
yet been filled. This committee met twice during 2001. The Operations and
Finance Committee mainly reviews our investment plans, business plan, annual
operating plan and budget. The Operations and Finance Committee is also
responsible for reviewing our operating results and performance.

Director Compensation

     For their service as our Directors for fiscal year 2001, all Directors,
except the Chairman, received $3,000 per month and committee members received
$1,000 per month, each payable on a monthly basis. Mr. Hamamoto, Chairman of the
Board of Directors, is paid a salary of $336,661 as our employee. In addition to
his salary, he received $25,000 in bonus and $10,500 in matching contributions
to his account in our 401(k) Plan.

Item 11. Executive Compensation

     The following summary compensation table sets forth information regarding
compensation earned in the fiscal years ended December 31, 2001, 2000 and 1999
by our Chief Executive Officer and each of our other four most highly
compensated executive officers whose salary and bonus exceeded $100,000 in the
2001 fiscal year.

                                      20
<PAGE>

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                               Long-Term       All Other
                                                             Annual Compensation              Compensation   Compensation
                                                  ----------------------------------          ------------   ------------
                                                                  Incentive
                                                                  ---------    Other Annual
           Name and Principal Position        Year    Salary    Compensation   Compensation   LTIP Payouts
          ----------------------------        ----   --------   ------------   ------------   ------------
<S>                                           <C>    <C>          <C>           <C>                <C>        <C>
C. Lourenco Goncalves .................       2001   $336,661     $ 25,000      $136,009(1)        --         $10,500(2)
   President and Chief Executive Officer      2000   $324,000     $286,000      $183,997(3)        --         $10,381(2)
                                              1999   $310,000     $127,284      $ 49,521(4)        --         $ 7,470(2)

Vicente Wright ........................       2001   $217,119     $114,950      $128,324(5)        --         $ 9,384(2)
   Executive Vice President, Finance          2000   $209,000     $149,000      $135,387(6)        --         $ 8,812(2)
                                              1999   $190,000     $ 87,404      $ 62,509(7)        --         $ 8,237(2)

Junsuke Takasaki ......................       2001   $119,387     $ 57,475      $ 45,486(9)        --         $ 6,278(2)
   Executive Vice President, Operations (8)   2000   $209,000     $163,000      $43,243(10)        --         $ 8,812(2)
                                              1999   $190,000     $ 59,771      $17,836(11)        --         $ 8,237(2)

Brett Guge ............................       2001   $199,369     $ 45,980      $23,470(12)        --         $ 9,006(2)
   Vice President, Administration             2000   $167,000     $127,000      $19,083(12)        --         $ 8,360(2)
   & Corporate Secretary                      1999   $160,000     $ 85,115      $11,478(12)        --         $ 7,785(2)

Jim Wilson ............................       2001   $200,000     $ 12,319      $24,738(12)        --         $ 8,500(2)
   Vice President, Sales (13)                 2000   $141,000     $ 32,521      $16,726(12)        --         $ 6,670(2)
</TABLE>

----------
(1)  Represents $10,750 in car allowance and $125,259 in personal and family
     medical expenses and home leave reimbursements. Home leave reimbursement is
     paid to our executives who are foreign nationals in connection with trips
     by them and their family members to their country of origin.

(2)  Represents matching contributions made to the executive's account in our
     401(k) plan.

(3)  Represents $10,734 in car allowance and $173,263 in personal and family
     medical expenses and home leave reimbursements. Home leave reimbursement is
     paid to our executives who are foreign nationals in connection with trips
     by them and their family members to their country of origin.

(4)  Represents $9,250 in car allowance and $40,271 in personal and family
     medical expenses and home leave reimbursements. Home leave reimbursement is
     paid to our executives who are foreign nationals in connection with trips
     by them and their family members to their country of origin.

(5)  Represents $10,750 in car allowance and $117,574 in medical expenses and
     home leave reimbursements. Home leave reimbursement is paid to our
     executives who are foreign nationals in connection with trips by them and
     their family members to their country of origin.

(6)  Represents $10,729 in car allowance and $124,658 in medical expenses and
     home leave reimbursements. Home leave reimbursement is paid to our
     executives who are foreign nationals in connection with trips by them and
     their family members to their country of origin.

(7)  Represents $9,250 in car allowance and $53,259 in medical expenses and home
     leave reimbursements. Home leave reimbursement is paid to our executives
     who are foreign nationals in connection with trips by them and their family
     members to their country of origin.

(8)  Mr. Junsuke Takasaki left CSI and was substituted by Mr. Toshiyuki Tamai on
     June 29, 2001.

(9)  Represents $4,774 in car allowance and $40,712 in medical and moving
     expenses due to his return to Japan and home leave reimbursements due to
     his return to Japan. Home leave reimbursement is paid to our executives who
     are foreign nationals in connection with trips by them and their family
     members to their country of origin.

                                      21
<PAGE>

(10) Represents $10,195 in car allowance and $33,048 in medical expenses and
     home leave reimbursements. Home leave reimbursement is paid to our
     executives who are foreign nationals in connection with trips by them and
     their family members to their country of origin.

(11) Represents $9,250 in car allowance and $8,586 in medical expenses and home
     leave reimbursements. Home leave reimbursement is paid to our executives
     who are foreign nationals in connection with trips by them and their family
     members to their country of origin.

(12) Represents car allowance and other fringe benefits.

(13) Mr. Jim Wilson was promoted to this position effective November 1, 2000.

Supplemental Executive Retirement Plans and Separation Agreement

     On September 19, 2000, we entered into a Supplemental Executive Retirement
Plan with Brett J. Guge, Vice President, Administration and Secretary, intended
to induce Mr. Guge to remain in our employ. Upon his retirement, we are
obligated to pay Mr. Guge a monthly benefit for 180 months calculated as
follows: one-twelfth of the product of 2.5% multiplied by the number of years he
is employed with us limited to 18 years, multiplied by his average annual
compensation. This benefit vests at the rate of 4% per year, continuing yearly
except for the year Mr. Guge turns 65, when the vesting will be 24%. The payment
of the vested portion of this benefit will start at the first day of the month
following the month in which Mr. Guge reaches age 65. At December 31, 2001, he
was vested 8% under this agreement.

Shareholders' Agreement

     We are owned 50% by Kawasaki Steel Holdings (USA), Inc., a Delaware
corporation and a subsidiary of Kawasaki Steel Corporation, a Japanese
corporation, and 50% by Rio Doce Limited, a New York corporation and a
subsidiary of Companhia Vale do Rio Doce ("CVRD"), a Brazilian corporation. Our
two stockholders entered into a Shareholders' Agreement dated June 27, 1995,
replacing a Shareholders' Agreement dated June 1, 1987. According to the
Shareholders' Agreement, the stockholders agreed to subscribe for additional
shares of our stock in proportion to their respective ownership if any new stock
is issued, and increases in our capital stock from time to time shall be
allocated between our common stock and preferred stock as agreed upon by the
stockholders. Each of the stockholders has the right and obligation to subscribe
and pay fully for the new shares in proportion to its respective ownership of
our common stock. In addition, either stockholder may let its Affiliated
Corporations, as defined the Shareholders' Agreement, subscribe, in whole or in
part, to the new shares to be issued to it under the terms described below.

     The Shareholders' Agreement provides that the Board of Directors shall be
constituted of five directors, one of whom shall be chairman, as elected by and
among the directors. Each stockholder shall have the right to appoint two
Directors and the fifth Director shall be elected by unanimous affirmative vote
of the shareholders. In addition, the stockholders shall jointly appoint a
president, who shall appoint other officers designated by the Board of
Directors. The Shareholders' Agreement also provides for a Consultative Council
consisting of two members, one appointed by each of the stockholders. It is
unclear whether the Consultative Council provisions are valid under Delaware
corporation law. The Consultative Council decides on all relevant matters
submitted to it by both or either of the stockholders and specifically resolves
any deadlock among the Directors. Because no stockholder holds a majority of our
stock and the Directors and members of the Consultative Council are elected by
the stockholders in proportion to each of the stockholders' holdings, there is a
possibility that a deadlock may occur on any issue voted on by the stockholders,
Board of Directors and Consultative Council. If a deadlock were to occur and the
Consultative Council could not resolve the issue, the last recourse is
arbitration according to the Shareholders' Agreement. Furthermore, according to
the Shareholders' Agreement, we have agreed to purchase slab from Companhia
Siderurgica de Tubarao and use Seamar Shipping Corporation for ocean
transportation of slab at negotiated prices.

     The Shareholders' Agreement provides that, subject to any limitation on the
payment of dividends contained in any agreement we are a party to, the
stockholders shall cause us to distribute from our profits as many dividends as
possible that may be distributed under the applicable laws and regulations,
provided that the profits shall first be applied to the payment of dividends on
the preferred stock. We have historically paid dividends of 50% of our net
income per year.

     If either one of the stockholders wishes to transfer or assign their shares
of our stock to a third party, other than to one of its affiliated corporations,
the stockholder must first offer to sell those shares to the other stockholder
upon the same terms and conditions that the third party has offered to purchase
the shares. Any stockholder who sells, transfers, assigns, or creates a pledge
or other encumbrance on its shares in favor a third party, other than its
affiliated corporations, is obligated to obtain an undertaking letter from the
third party according to which the third party undertakes unconditionally and
irrevocably the

                                      22
<PAGE>

obligations of the transferring stockholder under the Shareholders' Agreement in
proportion to the number of shares transferred. Either stockholder may sell,
transfer or assign to its affiliated corporations all or any part of its shares
or preemptive rights to subscribe for new shares of our stock by giving written
notice to the other stockholder, provided that the affiliated corporation has
agreed to become a party to the Shareholders' Agreement. In this case, both the
transferor and the affiliated corporation shall jointly assume all of the
obligations of the transferor under the Shareholders' Agreement.

401(k) Plan

     We maintain the California Steel Industries, Inc. 401(k) Savings Plan, a
tax qualified cash or deferred tax arrangement under Section 401(k) of the
Internal Revenue Code of 1986, as amended. The 401(k) Plan provides the
participants with benefits upon retirement, death, disability or termination of
employment with us. Employees are eligible to participate in the salary
reduction portion of the plan on the first day of the calendar month following
their date of hire.

     Participants may authorize us to contribute to the 401(k) Plan on their
behalf a percentage of their compensation, not to exceed legally permissible
limits, including an overall dollar limit of $10,500 for 2001. The 401(k) Plan
provides for our discretionary matching and profit sharing contributions. We
currently match 100% of the first 4% of the participant's deferral under the
401(k) Plan each year and 50% of the next 2% of the participant's deferral under
the 401(k) Plan each year. Each plan year we may also elect to make an
additional contribution to the 401(k) Plan. This discretionary employer
contribution, if we make it, is allocated to each participant's account based on
the participant's compensation for the year relative to the compensation of all
participants for that year. In order to share in the allocation of the
discretionary employer contribution, if any, a participant must complete 1,000
hours of service in the plan year.

Profit-Sharing Plan

     We maintain a profit sharing plan under which bonuses are awarded based on
a pool amount, equal to 8% of our income before taxes excluding gain or loss on
disposition of fixed assets and the results of Companhia Siderurgica de Tubarao.
The basis for determining the profit sharing pool is subject to review and
approval of our Board of Directors. The employee's share in the pool amount is
based on his or her length of service with us during the profit sharing period.
Employees who voluntarily terminate their employment for reasons others than
retirement before the end of the profit sharing period and employees whose
employment is involuntarily terminated are not eligible to receive any profit
sharing award.

Compensation Committee Interlocks and Inside Participation

     Mr. Tatsuhiko Hamamoto, Mr. Francisco Povoa, Mr. Yatsutaka Kumeda, and Ms.
Carla Grasso served as members of our Compensation Committee in 2001. Except for
Mr. Hamamoto, none of the members of the Compensation Committee was, during
2001, an officer, employee or formerly an officer or employee of ours or our
subsidiary. In December, 2001, Ms. Carla Grasso was replaced by Mr. Marcus Roger
M.M. da Costa.

     Mr. Kumeda served as Staff Manager, Corporate Planning Department of
Kawasaki Steel Corporation during 2001. Kawasaki Steel Corporation's subsidiary,
Kawasaki Steel Holdings (USA), Inc. is one of our stockholders. During 2001, no
amounts were paid for related party transactions with Kawasaki Steel
Corporation. In 2001, Mr. Povoa served as a board member of CVRD, as well as the
President of the CVRD Employees Investment Club, a shareholder of Companhia Vale
do Rio Doce. In 2001, Mr. Marcus Roger M.M. de Costa served as General Manager
of Human Resources and Corporate Administration of Companhia Vale do Rio Doce.

Board Compensation Committee Report on Executive Compensation

     Executive compensation at California Steel Industries, including plan
design and scope, covers five corporate executive officer positions and the
Chairman of the Board. Executive compensation is the responsibility of the Board
of Directors. Periodically the Board, through its Compensation Committee,
authorizes benchmarking surveys of executive compensation for similarly sized
manufacturing companies, including private companies and those publicly traded.
The surveys are conducted by recognized consulting firms, analyzing executive
compensation within the steel industry and other manufacturing sectors.
California Steel Industries' executive compensation program currently includes
as its major elements a base annual salary, and a management incentive program
based on (i) annual performance of California Steel Industries, and (ii)
individual performance measured against annual objectives.

                                      23
<PAGE>

                         Submitted by the Compensation Committee of the Board of
                           Directors:

                         Tatsuhiko Hamamoto
                         Francisco Povoa
                         Yatsutaka Kumeda
                         Marcus Roger M.M. de Costa

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The following table sets forth, as of December 31, 2001, information
regarding the shares of our common stock and Class C preferred stock
beneficially owned by each stockholder that beneficially owns in excess of 5% of
the outstanding shares of our common stock and Class C preferred stock. No
director or named executive officer beneficially owns any shares of our common
stock or Class C preferred stock.

                                                                     Class C
                                                     Common         Preferred
                                                     ------         ---------
                                                           % of            % of
       Name of Beneficial Owner                  Number   Class   Number   Class
       ------------------------                  ------   -----   ------   -----

Rio Doce Limited .............................    500      50%    1,500     50%
   546 5th Avenue, 12th Floor
   New York, New York 10036

Kawasaki Steel Holdings (USA), Inc. ..........    500      50%    1,500     50%
   c/o Corporation Trust Center
   1209 Orange Street
   Wilmington, Delaware 19801

     Rio Doce Limited is a subsidiary of Companhia Vale do Rio Doce, a Brazilian
corporation, and Kawasaki Steel Holdings (USA), Inc. is a subsidiary of Kawasaki
Steel Corporation, a Japanese corporation.

Item 13. Certain Relationships and Related Transactions

     Our stockholders, Kawasaki Steel Holdings (USA), Inc., a subsidiary of
Kawasaki Steel Corporation, and Rio Doce Limited, a subsidiary of Companhia Vale
do Rio Doce, are parties to a Shareholders' Agreement. According to the
Shareholders' Agreement, the stockholders control the election of the Board of
Directors. The stockholders also indirectly control the appointment of officers
through their right to jointly elect the president, who is entitled to appoint
our other officers.

     The Shareholders' Agreement also provides for a Consultative Council,
comprised of two members. Each stockholder is entitled to elect one member. The
Consultative Council decides on all matters submitted to it by either or both of
the stockholders and resolves deadlocks among the Board of Directors. We have
transactions in the normal course of business with affiliated companies. For
example, we purchase slab from Companhia Siderurgica de Tubarao, a subsidiary of
both Companhia Vale do Rio Doce and Kawasaki Steel Corporation. During 2001, we
purchased $116,254,000 of slab from Companhia Siderurgica de Tubarao and no slab
from Kawasaki Steel Corporation. We also hold a 4% interest in the common stock
of Companhia Siderurgica de Tubarao.

     We conducted arms-length negotiations with Companhia Siderurgica de Tubarao
in 2001. The Shareholders' Agreement provides that we shall continuously
purchase slabs from Companhia Siderurgica de Tubarao under terms and conditions
as agreed upon by Companhia Siderurgica de Tubarao and us. The executive officer
negotiating the market price for the steel slab was our Executive Vice
President--Finance.

     We charter vessels from Seamar Shipping Corporation (Seamar), a subsidiary
of Companhia Vale do Rio Doce, for the ocean transfer of slab to the Port of Los
Angeles. During 2001, we incurred $13,003,000 in charter fees from Seamar for
its services. The Shareholders' Agreement provides that we shall charter vessels
from Seamar. We entered into a 15-year contract with Seamar for shipping
services that expired on May 29, 2000, which was then extended to December 31,
2001. We do not currently have a contract with Seamar or any other carrier. The
executive officer responsible for negotiating the price for shipping services
was our Executive Vice President--Finance.

                                      24
<PAGE>

     We had a five year contract with Rio Doce Pasha Terminal ("RDP"), a joint
venture of Companhia Vale do Rio Doce, to unload our ocean cargo from ships at
the Port of Los Angeles that expired on December 31, 2000. During 2001, we
incurred $17,254,000 for RDP's services. In 2001, CVRD sold its interest in RDP
and CSI signed a new agreement with Pasha Stevedoring Terminal ("PST"). CSI's
new agreement with PST is for 10 years commencing with January, 2001. The
executive officer negotiating the price for unloading services was our Executive
Vice President--Finance.

                                      25
<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K

     (a)(1) and (2) Financial Statements:

     The following consolidated financial statements and schedule of the
Registrant are included in response to Item 8 of this Report:

     1.   Consolidated Financial Statements:

<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                ----
<S>                                                                                                              <C>
     Index to Consolidated Financial Statements.............................................................     F-1
     Independent Auditors' Report...........................................................................     F-2
     Consolidated Balance Sheets as of December 31, 2001 and 2000...........................................     F-3
     Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999.............     F-4
     Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999 ..     F-5
     Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 ............     F-6
     Notes to Consolidated Financial Statements.............................................................     F-7

     2.   Consolidated Financial Statement Schedule:

     Schedule II--Valuation and Qualifying Accounts.........................................................     S-1
</TABLE>

     All other schedules have been omitted since they are either not required,
not applicable or the information is otherwise included.

     (b) Reports on Form 8-K, filed during the last quarter of 2001:

     None.

     (c) Exhibits:

Exhibit
-------
No.                                       Description
---                                       -----------

3.1       Certificate of Incorporation of the Registrant as amended by Amendment
          to the Certificate of Incorporation filed June 6, 1984, with Delaware
          Secretary of State, as amended by the Certificate of Amendment to the
          Certificate of Incorporation filed August 2, 1984, with the Delaware
          Secretary of State, as amended by the Certificate of Amendment to the
          Certificate of Incorporation, filed January 12, 1988, with the
          Delaware Secretary of State, and as amended by the Certificate of
          Ownership merging California Steel Industries Tubular Products, Inc.
          into the Registrant, filed with the Delaware Secretary of State on
          December 20, 1993. (1)

3.2       Certificate of Amendment to the Certificate of Incorporation filed
          July 27, 1999, with the Delaware Secretary of State.

3.3       Bylaws of the Registrant, as amended on July 16, 1999.

4.1       Indenture dated as of April 6, 1999 between the Registrant and State
          Street Bank Trust Company of California, N.A., Trustee, relating to
          the Registrant's 8% Senior Notes due April 6, 2009.(1)

4.2       Specimen Series B note.(1)

4.3       Shareholders' Agreement, dated June 27, 1995, by and among Rio Doce
          Limited, Companhia Vale do Rio Doce, Kawasaki Steel Holdings (USA),
          Inc. and Kawasaki Steel Corporation.(1)

4.4       Fourth Amendment to Revolving Credit Agreement dated September 26,
          2001, among the Registrant, the Banks named therein, Bank of America,
          N.A., as loan and collateral agent for the Banks, and Bank of America,
          N.A., as documentation and letter of credit agent for the Banks. (5)

                                      26
<PAGE>

Exhibit
-------
No.                                       Description
---                                       -----------

10.1      Revolving Credit Agreement, dated as of March 10, 1999, among the
          Registrant, the Lending Institutions from time to time party thereto
          as lenders, BancBoston, N.A., in its capacity as Loan and Collateral
          Agent, and Bank of America National Trust and Savings Association, in
          its capacity as Letter of Credit and Documentation Agent and
          BancBoston Robertson Stephens Inc. and NationsBanc Montgomery
          Securities LLC, as the Arrangers.(1)

10.2      Agreement for the Purchase of Carbon Steel Slabs, dated as of December
          5, 1984, by and between the Registrant and Companhia Siderurgica de
          Tubarao, as amended by Memorandum of Agreement, dated as of June 7,
          1985, Memorandum of Agreement No. MA-02, dated as of December 9, 1986,
          Memorandum of Agreement No. MA-03, dated as of December 11, 1986,
          Memorandum of Agreement No. MA-04, dated as of December 11, 1986,
          Memorandum of Agreement No. MA-05, dated as of May 22, 1987 and
          Memorandum of Agreement No. MA-06, dated as of December 11, 1996.(1)

10.3      Facsimile transmission, dated October 27, 1998 from the Registrant to
          Companhia Siderurgica de Tubarao, confirming the parties mutual
          understanding that the Registrant will acquire 700,000 metric tons of
          steel slab from Companhia Siderurgica de Tubarao for 1999 delivery.(1)

10.4      E-mails from Broken Hill Proprietary Company Ltd. to the Registrant,
          dated October 13, 1998 and October 15, 1998, respectively, confirming
          the Registrant's and Broker Hill Proprietary Company Ltd.'s mutual
          agreement of October 9, 1998 and October 14, 1998, to purchase and
          supply 70,000 metric tons and 280,000 metric tons of steel slab during
          1999.(1)

10.5      Letter, dated October 6, 1998, from the Registrant to Companhia
          Siderurgica Nacional, confirming Companhia Siderurgica Nacional's
          agreement to supply the Registrant with 100,000 metric tons of steel
          in 1999.(1)

10.6      Contract, dated August 20, 1990, by and between the Registrant and
          Seamar Shipping Corporation of Monrovia, Liberia.(1)

10.7      The Burlington Northern and Santa Fe Railway Company BNSFC 302606
          Regulated Transportation Contract, dated as of November 19, 1998, by
          and between the Registrant and Burlington Northern Railroad
          Company.(1)

10.8      Stevedore and Terminal Services Agreement, dated as of January 1,
          1996, between Rio Doce Pasha Terminal L.P. and the Registrant, as
          amended.(1)

10.9      Equipment Lease Agreement, dated as of September 30, 1998, by and
          between the Registrant and State Street Bank and Trust Company of
          California, National Association.(1)

10.10     Settlement Agreement, dated as of June 1, 1995, by and among the
          Registrant, Kaiser Ventures, Inc., KSC Recovery, Inc. and Kaiser Steel
          Land Development, Inc.(1)

10.11     Groundwater Indemnity Agreement, dated as of June 1, 1995, between the
          Registrant and Kaiser Ventures, Inc.(1)

10.12     A 1996 Expedited Remedial Action Voluntary Enforceable Agreement, by
          and among the Registrant and the California Environmental Protection
          Agency, Department of Toxic Substances Control.(1)

10.13     Purchase Agreement dated March 30, 1999 by and among the Registrant,
          Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
          Incorporated, BancBoston Robertson Stephens Inc. and NationsBanc
          Montgomery Securities LLC.(1)

10.14     Registration Rights Agreement dated as of April 6, 1999 by and among
          the Registrant, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
          Smith Incorporated, BancBoston Robertson Stephens Inc. and NationsBanc
          Montgomery Securities LLC.(1)

                                      27
<PAGE>

Exhibit
-------
No.                                       Description
---                                       -----------

10.15     Addendum No. 39, dated May 31, 2000, to Contract, dated August 20,
          1990, by and between the Registrant and Seamar Shipping Corporation of
          Monrovia, Liberia.(2)

10.16     First Amendment, dated as of April 28, 2000, to Revolving Credit
          Agreement, dated as of March 10, 1999, among the Registrant, the Banks
          named therein, Fleet National Bank (f/k/a BankBoston, N.A.), as loan
          and collateral agent for the Banks, and Bank of America National Trust
          and Savings Association, as documentation and letter of credit agent
          for the Banks.(2)

10.17     Amendment to Supplemental Executive Retirement Plan, dated October 10,
          2000, between the Registrant and James E. Declusin.(3)

10.18     Supplemental Executive Retirement Plan, dated as of September 19,
          2000, between the Registrant and Brett J. Guge.(3)

10.19     The Burlington Northern and Santa Fe Railway Company BNSFC
          302606--Amendment 1 Regulated Transportation Contract, dated as of
          January 15, 2001, by and between the Registrant and The Burlington
          Northern and Santa Fe Railway Company (4)

12.1      Statement of Computation of Ratio of Earnings to Fixed Charges.

12.2      Statement of Computation of Ratio of EBITDA to Interest Expense.

21.1      Subsidiaries of the Registrant.(1)

23.1      Independent Auditors' Report on Schedule.


(1)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-4, File No. 333-79587, as filed with the Securities and Exchange
     Commission on May 28, 1999, as amended.

(2)  Incorporated by reference to the Registrant's Quarterly Report on Form
     10-Q, for the period ended June 30, 2000, as filed with the Securities and
     Exchange Commission on August 4, 2000.

(3)  Incorporated by reference to the Registrant's Quarterly Report on Form
     10-Q, for the period ended September 30, 2000, as filed with the Securities
     and Exchange Commission on October 27, 2000.

(4)  Incorporated by reference to the Registrant's Annual Report on Form 10-K,
     for the year ended December 31, 2000, as filed with the Securities and
     Exchange Commission on March 29, 2001.

(5)  Incorporated by reference to the Registrant's Quarterly Report on Form
     10-Q, for the period ended September 30, 2001, as filed with the Securities
     and Exchange Commission on November 8, 2001.

                                      28
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----
<S>                                                                                                       <C>
Independent Auditors' Report..........................................................................    F-2

Consolidated Balance Sheets as of December 31, 2001 and 2000..........................................    F-3

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999............    F-4

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999..    F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999............    F-6

Notes to Consolidated Financial Statements............................................................    F-7
</TABLE>

                                       F-1


<PAGE>

                          Independent Auditors' Report

The Board of Directors
California Steel Industries, Inc.:

We have audited the accompanying consolidated balance sheets of California Steel
Industries, Inc. and subsidiary as of December 31, 2001 and 2000 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of California Steel
Industries, Inc. and subsidiary as of December 31, 2001 and 2000 and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.


                                                 /s/ KPMG LLP

Orange County, California
January 21, 2002

                                      F-2


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                           2001         2000
                                                                                         ---------    ---------
                                                                                         (Dollars in thousands)
                                                 ASSETS
                                                 ------
<S>                                                                                       <C>          <C>
Current assets:
   Cash and cash equivalents (note 7) ................................................    $  8,752     $  2,542
   Trade accounts  receivable,  less allowance for doubtful receivables of $600,000 in
     2001 and 2000 (note 7) ..........................................................      51.537       59,998
   Inventories (notes 3 and 7) .......................................................     136,149      218,579
   Deferred income taxes (note 11) ...................................................       2,158        3,242
   Other receivables and prepaid expenses ............................................       7,106        9,079
                                                                                          --------     --------
     Total current assets ............................................................     205,702      293,440
Investment in affiliated company (notes 6 and 9) .....................................      37,182       36,151
Other assets (note 7) ................................................................       3,518        4,138
Property, plant and equipment, net (notes 4 and 7) ...................................     252,796      268,429
                                                                                          --------     --------
                                                                                          $499,198     $602,158
                                                                                          ========     ========

                       LIABILITIES AND STOCKHOLDERS' EQUITY
                       ------------------------------------

Current liabilities:
   Accounts payable (note 9) .........................................................    $ 30,478     $ 65,508
   Accrued interest expense (note 7) .................................................       3,412        4,325
   Accrued utilities .................................................................       3,000        7,233
   Other accrued expenses (notes 10 and 12) ..........................................       7,413        6,320
                                                                                          --------     --------
     Total current liabilities .......................................................      44,303       83,386
                                                                                          --------     --------
Long-term debt (note 7) ..............................................................     179,000      239,000
Deferred income taxes (note 11) ......................................................      45,697       42,863

Stockholders' equity (note 8):
   Class A preferred stock, $10,000 par value per share. Authorized 1,000 shares;
     none issued .....................................................................          --           --
   Class B preferred stock, $10,000 par value per share. Authorized 2,000 shares;
     none issued .....................................................................          --           --
   Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares;
     issued and outstanding 3,000 shares .............................................      30,000       30,000
   Common stock, no par value. Authorized 2,000 shares; issued and outstanding
     1,000 shares ....................................................................      10,000       10,000
   Retained earnings .................................................................     190,198      196,909
                                                                                          --------     --------
     Total Stockholders' equity ......................................................     230,198      236,909
                                                                                          --------     --------
Commitments and contingencies (notes 5, 7, 9, 10, 11 and 12) .........................    $499,198     $602,158
                                                                                          ========     ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  Years ended December 31, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                                              2001        2000        1999
                                                            --------    --------    --------
                                                                   (Dollars in thousands)
<S>                                                         <C>         <C>         <C>
Net sales ..............................................    $640,390    $720,900    $687,050
Cost of sales (notes 2 and 9) ..........................     612,713     616,638     564,889
                                                            --------    --------    --------
     Gross profit ......................................      27,677     104,262     122,161
Selling, general and administrative expenses (note 12)..      23,350      32,185      29,946
                                                            --------    --------    --------
     Income from operations ............................       4,327      72,077      92,215
Other income (expense):
Equity in income of affiliate (note 6) .................       1,274       2,229          75
Interest expense, net (note 7) .........................     (16,316)    (18,756)    (16,345)
Other, net .............................................       3,398         588       1,082
                                                            --------    --------    --------
     Income (loss) before income tax expense (benefit)..      (7,317)     56,138      77,027
Income tax expense (benefit) (note 11) .................      (3,606)     21,293      30,180
                                                            --------    --------    --------
     Net income (loss) .................................    $ (3,711)   $ 34,845    $ 46,847
                                                            ========    ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  Years ended December 31, 2001, 2000 and 1999
                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                          Class C                             Total
                                                         preferred   Common    Retained    stockholders'
                                                          stock      stock     earnings        equity
                                                         ---------   -------   --------    -------------
<S>                                                        <C>       <C>       <C>           <C>
Balance at December 31, 1998 .........................     30,000     10,000    150,272       190,272
Net income for the year ended December 31, 1999 ......         --         --     46,847        46,847
Cash dividends (note 8):
     Class C Preferred Stock, $5,260 on 3,000 shares..         --         --    (15,780)      (15,780)
     Common Stock, $4,260 on 1,000 shares ............         --         --     (4,260)       (4,260)
                                                          -------    -------   --------      --------
Balance at December 31, 1999 .........................     30,000     10,000    177,079       217,079
Net income for the year ended December 31, 2000 ......         --         --     34,845        34,845
Cash dividends (note 8):
     Class C Preferred Stock, $4,129 on 3,000 shares..         --         --    (12,386)      (12,386)
     Common Stock, $2,629 on 1,000 shares ............         --         --     (2,629)       (2,629)
                                                          -------    -------   --------      --------
Balance at December 31, 2000 .........................    $30,000    $10,000   $196,909      $236,909
                                                          -------    -------   --------      --------
Net loss for the year ended December 31, 2001 ........         --         --     (3,711)       (3,711)
Cash dividends (note 8):
     Class C Preferred Stock, $1,000 on 3,000 shares           --         --     (3,000)       (3,000)
Balance at December 31, 2001 .........................    $30,000    $10,000   $190,198      $230,198
                                                          =======    =======   ========      ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-5


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                         2001        2000        1999
                                                                       --------    --------    ---------
                                                                            (dollars in thousands)
<S>                                                                    <C>         <C>         <C>
Cash flows from operating activities:
   Net income (loss) ..............................................    $ (3,711)   $ 34,845    $  46,847
   Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
     Depreciation and amortization ................................      30,204      28,852       26,331
     (Gain) loss on disposition of property, plant and equipment...         802         (28)         (13)
     Undistributed earnings of affiliate ..........................      (1,274)     (2,229)         (75)
     Dividends received from affiliate ............................         243         879           --
     Changes in assets and liabilities:
        Trade accounts receivable, net ............................       8,461       8,868      (15,236)
        Inventories ...............................................      82,430     (52,009)       5,085
        Other receivables and prepaid expenses ....................       1,973      (4,247)         330
        Accounts payable ..........................................     (35,030)     10,801        4,157
        Accrued interest expense ..................................        (913)        261        2,566
        Other accrued expenses ....................................      (3,140)       (204)      (7,089)
        Deferred income taxes .....................................       3,918       8,805        9,384
                                                                       --------    --------    ---------
             Net cash provided by operating activities ............      83,963      34,594       72,287
                                                                       --------    --------    ---------
Cash flows from investing activities:
   Additions to property, plant and equipment .....................     (14,753)    (33,995)     (37,397)
   Proceeds from sale of property, plant and equipment ............          --          59           76
                                                                       --------    --------    ---------
             Net cash used in investing activities ................     (14,753)    (33,936)     (37,321)
                                                                       --------    --------    ---------
Cash flows from financing activities:
   Net repayments under line of credit agreement with banks .......          --          --     (103,700)
   Proceeds from issuance of long-term debt .......................          --          --      150,000
   Borrowings (repayments) on credit facility .....................     (60,000)      9,000       80,000
   Repayment of long-term debt ....................................          --          --     (140,000)
   Deferred financing costs .......................................          --          --       (5,289)
   Dividends paid .................................................      (3,000)    (15,015)     (20,040)
                                                                       --------    --------    ---------
             Net cash used in financing activities ................     (63,000)     (6,015)     (39,029)
                                                                       --------    --------    ---------
             Net increase (decrease) in cash and cash equivalents..       6,210      (5,357)      (4,063)

Cash and cash equivalents at beginning of year ....................       2,542       7,899       11,962
                                                                       --------    --------    ---------
Cash and cash equivalents at end of year ..........................    $  8,752    $  2,542    $   7,899
                                                                       ========    ========    =========
Supplemental disclosures of cash flow information: Cash paid
(received) during the year for:
     Interest (net of amount capitalized) .........................    $ 17,475    $ 18,864    $  13,974
     Income taxes .................................................      (7,682)     15,211       21,035
                                                                       ========    ========    =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-6


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

(1)  Organization and Nature of Operations

     California Steel Industries, Inc. and subsidiary (the Company) was
     incorporated in the state of Delaware on November 3, 1983. Its stockholders
     consist of two U.S. companies, Kawasaki Steel Holdings (USA), Inc., a
     Delaware corporation, and Rio Doce Limited, a New York corporation, which
     each own 50% of the stock of the Company. From its site in Fontana,
     California, the Company manufactures a wide range of flat rolled steel
     products, including hot rolled, cold rolled, and galvanized coil and sheet.
     The Company also produces electric resistant weld pipe.

(2)  Summary of Significant Accounting Policies

     (a)  Principles of Consolidation

          The consolidated financial statements include the accounts of the
          Company and its wholly owned subsidiary. All significant intercompany
          balances and transactions have been eliminated in consolidation.

     (b)  Cash and Cash Equivalents

          For purposes of the consolidated statements of cash flows, all highly
          liquid debt instruments purchased with an original maturity of three
          months or less are considered to be cash equivalents. The statement of
          cash flows is prepared using the indirect method.

     (c)  Inventories

          During the fourth quarter of 1999, the Company changed its inventory
          costing method from the last-in, first-out (LIFO) method to the
          first-in, first-out (FIFO) method. Management believed that the
          accounting change was preferable primarily because under the then
          existing economic environment of low inflation, the change to FIFO
          would result in a better measurement of operating results. All
          previously reported results have been restated to reflect the
          retroactive application of this accounting change as required by
          accounting principles generally accepted in the United States of
          America. The accounting change decreased net income for 1999 by
          $6,276,000, net of applicable income taxes, due principally to the
          effect of LIFO allowance liquidation.

          The balance of retained earnings for 1998 has been adjusted for the
          effect (net of applicable income taxes) of applying retroactively the
          new method of accounting.

     (d)  Investment in Affiliated Company

          Investment in affiliated company consists of 4% of the common stock of
          Companhia Siderurgica de Tubarao (CST), a Brazilian steel slab
          manufacturer. The investment is accounted for by the equity method,
          since combined investments in CST by the Company and certain other
          related companies allow for significant influence over the financing
          and operating activities of CST. The Company's share of earnings or
          losses from this investment is reflected in other income (expense) in
          the accompanying consolidated statements of operations. Dividends are
          credited against the investment when received. The excess of the
          Company's share of the net assets of CST over the cost of the common
          stock was amortized straight-line over a five-year period and was
          fully amortized as of December 31, 2001.

     (e)  Property, Plant, and Equipment

          Property, plant, and equipment is stated at cost and depreciation is
          computed on the straight-line method over the estimated useful lives
          of the respective assets as follows:

          Plant and equipment                                      3 to 25 years
          Plant refurbishment costs                                10 years


          Assets under construction are not depreciated until placed into
          service.

                                      F-7


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     (f)  Deferred Financing Costs

          Costs related to the issuance of debt are deferred and amortized on a
          straight-line basis over the terms of the respective debt issues.

     (g)  Impairment of Long-Lived Assets

          The Company accounts for long-lived assets in accordance with the
          provisions of Statement of Financial Accounting Standards No. 121,
          Accounting for the Impairment of Long-Lived Assets and for Long-Lived
          Assets to Be Disposed Of. This Statement requires that long-lived
          assets and certain identifiable intangibles be reviewed for impairment
          whenever events or changes in circumstances indicate that the carrying
          amount of an asset may not be recoverable. Recoverability of assets to
          be held and used is measured by a comparison of the carrying amount of
          an asset to future net cash flows expected to be generated by the
          asset. If such assets are considered to be impaired, the impairment to
          be recognized is measured by the amount by which the carrying amount
          of the assets exceed the fair value of the asset. Assets to be
          disposed of are reported at the lower of the carrying amount or fair
          value less costs to sell.

     (h)  Income Taxes

          Income taxes are accounted for under the asset and liability method.
          Deferred tax assets and liabilities are recognized for the future tax
          consequences attributable to differences between the financial
          statement carrying amounts of existing assets and liabilities and
          their respective tax bases and tax credit carryforwards. Deferred tax
          assets and liabilities are measured using enacted tax rates expected
          to apply to taxable income in the years in which those temporary
          differences are expected to be recovered or settled. The effect on
          deferred tax assets and liabilities of a change in tax rates is
          recognized in income in the period that includes the enactment date.

     (i)  Environmental

          Environmental expenditures that relate to current operations are
          expensed or capitalized as appropriate. Expenditures are capitalized
          if they meet one of the following criteria: (1) extend the useful
          life, increase the capacity or improve the safety or efficiency of
          property, (2) mitigate or prevent environmental contamination that has
          yet to occur and that otherwise may result from future operations or
          activities, (3) incurred in preparing property currently held for
          sale. The Company accrues for costs associated with environmental
          remediation obligations when such losses are probable and reasonably
          estimable. Accruals for estimated losses from environmental
          remediation obligations are recognized no later than completion of the
          remedial feasibility study. Such accruals are adjusted as further
          information develops or circumstances change (see note 10).

     (j)  Use of Estimates

          Management of the Company has made a number of estimates and
          assumptions relating to the reporting of assets and liabilities and
          the disclosure of contingent assets and liabilities to prepare these
          consolidated financial statements in conformity with accounting
          principles generally accepted in the United States of America. Actual
          results could differ from those estimates.

     (k)  Reclassifications

          Certain reclassifications have been made to the 2000 and 1999
          consolidated financial statements to conform with the 2001
          presentation.

                                      F-8


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     (l)  Fair Value of Financial Instruments

          The carrying value of cash, trade accounts receivable, other accounts
          receivable, accounts payable, and other accrued expenses are measured
          at cost which approximates their fair value because of the short
          maturity of those instruments. The fair values of long-term
          indebtedness are estimated based on the quoted market prices for the
          same or similar issues, or the current rates offered to the Company
          for debt of similar maturities. The carrying amounts and fair values
          of financial instruments at December 31, 2001 and 2000 are listed as
          follows:

                                          2001                    2000
                                   ---------------------   ---------------------
                                   Carrying                Carrying
                                    amount    Fair value    amount    Fair value
                                   --------   ----------   --------   ----------

          Senior notes             $150,000     147,000     150,000     124,500
          Notes payable              29,000      29,000      89,000      89,000

     (m)  Revenue Recognition

          The Company recognizes revenue when products are shipped or delivered
          to the customer, depending on the terms of the sale. For products
          shipped FOB shipping point, revenue is recognized at the time of
          shipment. For products shipped FOB destination, revenue is recognized
          at the time of delivery.

(3)  Inventories

     Inventories at December 31, 2001 and 2000 consist of the following:

                                                             2001        2000
                                                          ----------   ---------
                                                          (Dollars in thousands)

          Finished goods                                    $ 29,839    44,289
          Work in process                                     23,055    37,310
          Raw materials                                       76,860   131,939
          Supplies                                             6,395     5,041
                                                            --------   -------

                   Total inventories                        $136,149   218,579
                                                            ========   =======

(4)  Property, Plant, and Equipment

     The following is a summary of property, plant, and equipment at December
     31, 2001 and 2000:

                                                             2001        2000
                                                          ---------    ---------
                                                          (Dollars in thousands)

          Land                                            $  17,422      17,422
          Plant and equipment                               471,130     454,810
          Plant refurbishment costs                          22,219      22,219
          Construction in progress                            5,177      11,734
                                                          ---------    --------

                                                            515,948     506,185
          Less accumulated depreciation                    (263,152)   (237,756)
                                                          ---------    --------

                   Total property, plant, and equipment   $ 252,796     268,429
                                                          =========    ========

Capitalized interest was $118,000, $300,000, and $587,000 for 2001, 2000, and
1999, respectively.

                                      F-9


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(5)  Leases

     The Company is obligated under various leases for equipment that expire at
     various dates during the next seven years. At December 31, 2001, the future
     minimum lease payments under noncancelable operating leases with
     commitments of at least one year are as follows (dollars in thousands):

     Year ending December 31:
     2002                                     $ 6,047
     2003                                       4,014
     2004                                       7,255
     2005                                       2,843
     2006                                       4,622
     Thereafter                                10,827
                                               -------

                                               $35,608
                                               =======

     Lease expense totaled approximately $6,320,000, $6,209,000, and $6,346,000
     for the years ended December 31, 2001, 2000, and 1999, respectively.

(6)  Investment in Affiliated Company

     The investment in the net assets of CST accounted for under the equity
     method amounted to $37,182,000 and $36,151,000 at December 31, 2001 and
     2000, respectively.

     The unamortized portion of the excess of the Company's share of net assets
     over the cost of the common stock was $650,000 at December 31, 2000 and
     such amount was fully amortized as of December 31, 2001.

     The Company received $243,000 and $879,000 in dividends from CST during the
     years ended December 31, 2001 and 2000, respectively.

     The Company and its parents purchased their investment in CST at a premium
     over the market price of the shares which was paid in order to obtain
     significant influence over CST.

(7)  Notes Payable and Long-Term Debt

     In March 1999, the Company entered into a five-year revolving credit
     facility (the Facility) with a syndicate of three financial institutions.
     The Facility provides for an aggregate principal amount of up to
     $130,000,000, including a $25,000,000 sublimit for letters of credit,
     subject in all respects to a borrowing base coverage requirement. The
     Company drew a substantial portion of the advances available under the
     Facility on the closing date to repay advances under its previously
     existing credit agreement.

     Under the Facility, a commitment fee is applied on the average daily
     undrawn portion of the commitments at a rate equal to the applicable
     margin. The applicable margin in effect from time to time will range from
     0.150% to 0.500%, based upon the leverage ratio, provided that the
     applicable margin with respect to the commitment fee will increase to
     0.500% if borrowings fall below a certain level. The Facility is secured by
     a first priority security interest in cash, accounts receivable, inventory,
     and other assets.

                                      F-10


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     At the Company's election, the amounts advanced under the Facility bear
     interest at the base rate or the Eurodollar rate, plus the applicable
     margin. Interest is generally payable monthly and any accrued interest and
     principal is due and payable in full in March 2004. As of December 31, 2001
     and 2000, outstanding borrowings of $29,000,000 and $88,000,000 consisted
     of advances payable at the Eurodollar rate, which was 4.43% and 6.56%,
     respectively. As of December 31, 2000, outstanding borrowings of $1,000,000
     consisted of advances payable at the base rate, which was 9.50%. There were
     no outstanding borrowings against the base rate as of December 31, 2001.
     The Company had $63,068,000 of borrowings available under the Facility as
     of December 31, 2001. The unamortized amount of the related financing costs
     was approximately $403,000 at December 31, 2001.

     The Facility requires that the Company maintain certain financial ratios
     and other financial covenants. The Company was in compliance with all such
     covenants at December 31, 2001.

     In April 1999, the Company issued an aggregate principal amount of
     $150,000,000 unsecured senior notes (the Senior Notes). The Senior Notes
     are due in April 2009, carry an 8.5% coupon rate and are redeemable by the
     Company beginning on April 1, 2004. Interest is payable semi-annually on
     each April 1 and October 1, commencing October 1, 1999. The notes are
     senior in right of payment to all of the Company's subordinated
     indebtedness and equal in right of payment to all of the Company's existing
     and future indebtedness that is not by its terms subordinate to the Senior
     Notes. The indenture governing the Senior Notes contains covenants that
     limit the Company's ability to incur additional indebtedness, pay
     dividends, redeem or repurchase capital stock and make investments, create
     liens, sell assets, sell capital stock of its subsidiary, engage in
     transactions with affiliates and consolidate, merge or transfer all or
     substantially all of the Company's assets and the assets of its subsidiary
     on a consolidated basis. The Company was in compliance with all such
     covenants at December 31, 2001. Proceeds from the Senior Notes were used to
     repay in full the then existing long-term debt. The unamortized portion of
     the related financing costs was approximately $3,114,000 at December 31,
     2001.

     Long-term debt at December 31, 2001 and 2000 consisted of the following
     (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                2001       2000
                                                                              --------   --------
     <S>                                                                      <C>        <C>
     Senior Notes bearing interest at 8.5%, payable semi-annually, due
         April 2009                                                           $150,000   150,000
     Notes payable to banks consist of advanced under a $130,000,000
         revolving credit facility, bearing interest at either the
         Eurodollar rate or the base rate, plus the applicable margin
         Interest is generally payable monthly and any accrued interest and
         principal are due and payable in full in March 2004                    29,000    89,000
                                                                              --------   -------

                   Long-term debt                                             $179,000   239,000
                                                                              ========   =======
</TABLE>

(8)  Stockholders' Equity

     The Class C preferred stock is redeemable by the Company at its option, in
     whole or in part, at par value. Class C preferred stock has priority over
     the common stock in the distribution of dividends and is entitled to a
     dividend equivalent to 10% of the par value per annum on a cumulative basis
     and is thereafter entitled to participate in the distribution of dividends
     at the same rate and upon the same conditions as the common stock.

                                      F-11


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     Each holder of common stock is entitled to one vote for each share held of
     record on each matter submitted to a vote of the stockholders. Holders of
     the common stock have no cumulative voting, conversion or redemption
     rights, but are entitled to preemptive rights to subscribe for additional
     shares of common stock in any additional issuance of common stock or any
     security convertible into common stock. Subject to any preferences that may
     be granted to the holders of preferred stock, each holder of common stock
     is entitled to receive ratably dividends as may be declared by the board of
     directors, and in the event of liquidation, dissolution or winding up, is
     entitled to share ratably in all Company assets remaining after payment of
     liabilities.

     During the years ended December 31, 2001, 2000, and 1999, $3,000,000,
     $15,015,000, and $20,040,000, respectively, in dividends were declared and
     paid.

(9)  Related Party Transactions

     The Company has transactions in the normal course of business with
     affiliated companies. The Company is 50% owned by Kawasaki Steel Holdings
     (USA), Inc., a subsidiary of Kawasaki Steel Corporation, a Japanese
     corporation, and 50% owned by Rio Doce Limited, a subsidiary of Companhia
     Vale do Rio Doce (CVRD), a Brazilian corporation.

     The Company purchases steel slab from CST, an investee, from Kawasaki Steel
     Corporation, and from Companhia Siderurgica National (CSN). CSN maintained
     an ownership interest in CVRD through December 31, 2000. The Company
     charters vessels from Seamar Shipping Corporation, a subsidiary of CVRD,
     for the ocean transfer of slab from Brazil to the Port of Los Angeles. The
     Company also contracts with Rio Doce Pasha Terminal (RDPT), a joint venture
     of CVRD, to unload ocean cargo from ships in the Port of Los Angeles. CVRD
     sold its interest in RDPT in November 2001. As such, after November 2001,
     RDPT is no longer considered a related party. The following represents
     amounts paid to the various affiliated companies for the years ended
     December 31:

                                                 2001         2000        1999
                                               --------      ------      -------
                                                     (Dollars in thousands)

     CST                                       $116,254      78,188      105,248
     Kawasaki Steel Corporation                      --      27,253       51,089
     Rio Doce Pasha Terminal                     17,254      21,580       16,076
     CSN                                             --          --       14,499
     Seamar Shipping Corporation                 13,003       7,691        8,003

     At December 31, 2001 and 2000, the Company owed affiliated companies
     $17,372,000 and $23,584,000, respectively, for goods and services.

(10) Commitments and Contingencies

     At December 31, 2001, the Company is committed, in the form of open
     purchase orders, to purchase approximately $43,735,000 in steel slabs, of
     which $23,850,000 is from related parties.

     The Company has been contacted by various governmental agencies regarding
     specific environmental matters, at its operating facility. During September
     1990, the Company reached a preliminary agreement with the California
     Regional Department of Health Services, which allows the Company to draft
     its own remediation agreement and move forward with its own plan of action
     at its operating facility. In November 1992, the Company entered into a
     Voluntary and Enforceable Agreement (the Agreement) with the California
     Department of Toxic Substances Control which sets forth certain terms and
     conditions related to the remediation of hazardous substances at the
     Company's operating facility. The Agreement also preserves the Company's
     right as to future assignment and apportionment of costs to other parties.

                                      F-12


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The Company is addressing environmental concerns caused by the former
     occupant at the Company's Fontana site and is currently in the remedial
     investigation stage. The Company is unable to reasonably estimate the range
     of liability until completion of a remedial feasibility study. The site
     investigation is expected to be completed in 2002. At December 31, 2001,
     the Company has accrued $400,000, which represents management's best
     estimate of the costs to complete the remedial feasibility study.

     Although the level of future expenditures for environmental remediation
     matters cannot be reasonably estimated, based on the facts presently known
     to management, it does not believe that the costs will have a material
     effect on the Company's financial position, results of operations, or
     liquidity.

     The Company is involved in legal actions and claims arising in the ordinary
     course of business. It is the opinion of management, based on advice of
     legal counsel, that this litigation will be resolved without material
     effect on the Company's financial position, results of operations, or
     liquidity.

(11) Income Taxes

     Income tax expense (benefit) for the years ended December 31, 2001, 2000,
     and 1999 consists of the following:

                                                      2001       2000      1999
                                                     -------    ------    ------
                                                        (Dollars in thousands)
     Current:
         Federal                                     $(6,756)   11,206    20,504
         State                                          (768)    1,282       291
                                                     -------    ------    ------

                                                      (7,524)   12,488    20,795
                                                     -------    ------    ------
     Deferred:
         Federal                                       4,690     9,133     4,718
         State                                          (772)     (328)    4,667
                                                     -------    ------    ------

                                                       3,918     8,805     9,385
                                                     -------    ------    ------

                                                     $(3,606)   21,293    30,180
                                                     =======    ======    ======

     Actual tax expense (benefit) differs from the "expected" tax expense
     (benefit) (computed by applying the U.S. federal corporate tax rate of 35%
     to income (loss) before income tax expense (benefit)) as follows:

                                                     2001       2000      1999
                                                    -------    ------    ------
                                                       (Dollars in thousands)

     Computed "expected" tax expense (benefit)      $(2,561)   19,648    26,959
     State income taxes, net of federal benefit        (221)    2,416     3,935
     State manufacturing investment credit, net of
         federal benefit                               (780)   (1,795)     (712)
     Other                                              (44)    1,024        (2)
                                                    -------    ------    ------

                                                    $(3,606)   21,293    30,180
                                                    =======    ======    ======

                                      F-13


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The tax effects of temporary differences that give rise to significant
     portions of the deferred tax assets and deferred tax liabilities at
     December 31, 2001 and 2000 are as follows:

                                                             2001         2000
                                                           --------     -------
                                                           Dollars in thousands)
     Deferred tax assets:
         Inventory                                         $  1,901       2,649
         State taxes                                            562         832
         Reserves                                               263         263
         Accrued expenses                                     1,618       2,096
         NOL carryforward                                       722          --
         Credits                                              1,200          --
         Other                                                   25          25
                                                           --------     -------

                   Total gross deferred tax assets            6,291       5,865

         Less valuation allowance                                --          --
                                                           --------     -------

                   Net deferred tax assets                    6,291       5,865
                                                           --------     -------

     Deferred tax liabilities:
         Property, plant, and equipment                     (46,159)    (40,731)
         Change in inventory valuation                           --      (1,536)
         Undistributed earnings of affiliate                 (2,317)     (1,865)
         Other                                               (1,354)     (1,354)
                                                           --------     -------

                   Total gross deferred tax liabilities     (49,830)    (45,486)
                                                           --------     -------

                   Net deferred tax liabilities            $(43,539)    (39,621)
                                                           ========     =======

     Based on the Company's historical pretax earnings, adjusted for significant
     items such as nonrecurring charges, management believes it is more likely
     than not that the Company will realize the benefit of the deferred tax
     assets existing at December 31, 2001. Management believes the existing
     deductible temporary differences will reverse during periods in which the
     Company generates net taxable income. Nevertheless, certain tax planning or
     other strategies will be implemented, if necessary, to supplement income
     from operations to fully realize the recorded tax benefits.

     At December 31, 2001, the Company has net operating loss carryforwards for
     state income tax purposes of $8,167,000, which are available to offset
     future state taxable income, if any, through 2006. In addition, the Company
     has state manufacturing investment credit carryforwards of $1,200,000,
     which are available to reduce future state income taxes, if any, through
     2009.

     The Company's U.S. federal income tax returns for the years ended 1994,
     1995, 1996 and 1997 are currently under examination by the Internal Revenue
     Service. Management of the Company believes that the ultimate outcome of
     this matter will not have a material adverse effect on the Company's
     consolidated financial statements.

                                      F-14


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(12) Employee Benefit and Retirement Plans

     (a)  401(k) Plan

          The Company sponsors a 401(k) plan covering substantially all
          employees of the Company who are full-time employees.

          Participants may make contributions to the plan on a pretax basis from
          1% to 16% of their annual salary. Company contributions, when made,
          will match 100% of employee contributions up to 4% of employees'
          salaries and 50% of employee contributions for the next 2% of
          employees' salaries. Participants are immediately 100% vested in both
          their contributions and Company contributions plus actual earnings and
          losses thereon. Company contributions are accrued as participant
          contributions are withheld, and are paid in full to the Trustee of the
          plan on a pay period basis.

          Plan expense for the years ended December 31, 2001, 2000, and 1999 was
          approximately $2,198,000, $2,300,000, and $2,189,000, respectively.

     (b)  Profit Sharing

          The Company has a profit sharing plan under which bonuses are awarded
          based on a pool amount, equal to 8% of the Company's income before
          taxes and gain or loss on disposition of fixed assets. The basis for
          determining the profit sharing pool is subject to review and approval
          of the Company's board of directors. The employee's share in the pool
          amount is based on his or her length of service with the Company
          during the profit sharing period. Employees who voluntarily terminate
          their employment for reasons other than retirement before the end of
          the profit sharing period and employees whose employment is
          involuntarily terminated are not eligible to receive any profit
          sharing award. Profit sharing expense for the years ended December 31,
          2001, 2000, and 1999 was $0, $6,108,000, and $6,394,000, respectively.

(13) Selected Quarterly Financial Data (Unaudited)

     Summarized quarterly financial data for 2001 and 2000 is as follows
     (dollars in thousands):

<TABLE>
<CAPTION>
                                                       Quarter
                                -----------------------------------------
                                   1st        2nd        3rd        4th       Total
                                --------    -------    -------    -------    -------
<S>                             <C>         <C>        <C>        <C>        <C>
2001
----

Net sales                       $153,378    167,450    168,291    151,271    640,390
Income (loss) from operations     (1,252)     6,065     (2,146)     1,660      4,327
Net income (loss)                 (1,939)     1,633     (3,491)        86     (3,711)

2000
----

Net sales                       $187,709    196,483    186,796    149,912    720,900
Income from operations            29,909     30,262      9,162      2,744     72,077
Net income                        15,438     15,716      3,416        275     34,845
</TABLE>

                                      F-15


<PAGE>

                        CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                     Beginning                             Ending
                                      Balance    Additions   Deductions   Balance
                                     ---------   ---------   ----------   -------
<S>                                   <C>         <C>         <C>         <C>
Year ended December 31, 2001
     A/R Allowance ...............    600,000     270,297     (270,297)   600,000
Year ended December 31, 2000
     A/R Allowance ...............    300,000     300,000           --    600,000
Year ended December 31, 1999
     A/R Allowance ...............    720,000     296,747     (716,747)   300,000
</TABLE>

                                       S-1

<PAGE>

                                   SIGNATURES

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

                                       CALIFORNIA STEEL INDUSTRIES, INC.


                                       By:       /s/   C. LOURENCO GONCALVES
                                           -------------------------------------
                                                   C. Lourenco Goncalves,
                                           Chief Executive Officer and President

                                                             March 28, 2002


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
        Signature                             Title                        Date
        ---------                             -----                        ----
<S>                              <C>                                  <C>


/s/ C. LOURENCO GONCALVES        Chief Executive Officer and          March 28, 2002
---------------------------
 C. Lourenco Goncalves           President (Principal Executive
                                 Officer)


/s/ VICENTE B. WRIGHT            Executive Vice President--Finance    March 28, 2002
---------------------------
 Vicente B. Wright               (Principal Financial and
                                 Accounting Officer)


/s/ TATSUHIKO HAMAMOTO           Director                             March 28, 2002
---------------------------
Tatsuhiko Hamamoto


 /s/ FRANCISCO POVOA             Director                             March 28, 2002
---------------------------
  Francisco Povoa


/s/ TOSHIHIRO KABASAWA           Director                             March 28, 2002
---------------------------
Toshihiro Kabasawa
</TABLE>

                                       2
<PAGE>

                                  EXHIBIT INDEX

Exhibit
-------
No.                                Description
---                                -----------

3.1       Certificate of Incorporation of the Registrant as amended by Amendment
          to the Certificate of Incorporation filed June 6, 1984, with Delaware
          Secretary of State, as amended by the Certificate of Amendment to the
          Certificate of Incorporation filed August 2, 1984, with the Delaware
          Secretary of State, as amended by the Certificate of Amendment to the
          Certificate of Incorporation, filed January 12, 1988, with the
          Delaware Secretary of State, and, as amended by the Certificate of
          Ownership merging California Steel Industries Tubular Products, Inc.
          into the Registrant, filed with the Delaware Secretary of State on
          December 20, 1993.(1)

3.2       Certificate of Amendment to the Certificate of Incorporation filed
          July 27, 1999, with the Delaware Secretary of State.

3.3       Bylaws of the Registrant, as amended on July 16, 1999.

4.1       Indenture dated as of April 6, 1999 between the Registrant and State
          Street Bank Trust Company of California, N.A., Trustee, relating to
          the Registrant's 8% Senior Notes due April 6, 2009.(1)

4.2       Specimen Series B note.(1)

4.3       Shareholders' Agreement, dated June 27, 1995, by and among Rio Doce
          Limited, Companhia Vale do Rio Doce, Kawasaki Steel Holdings (USA),
          Inc. and Kawasaki Steel Corporation.(1)

4.4       Fourth Amendment to Revolving Credit Agreement dated September 26,
          2001, among the Registrant, the Banks named therein, Bank of America,
          N.A., as loan and collateral agent for the Banks, and Bank of America,
          N.A., as documentation and letter of credit agent for the Banks. (5)

10.1      Revolving Credit Agreement, dated as of March 10, 1999, among the
          Registrant, the Lending Institutions from time to time party thereto
          as lenders, BancBoston, N.A., in its capacity as Loan and Collateral
          Agent, and Bank of America National Trust and Savings Association, in
          its capacity as Letter of Credit and Documentation Agent and
          BancBoston Robertson Stephens Inc. and NationsBanc Montgomery
          Securities LLC, as the Arrangers.(1)

10.2      Agreement for the Purchase of Carbon Steel Slabs, dated as of December
          5, 1984, by and between the Registrant and Companhia Siderurgica de
          Tubarao, as amended by Memorandum of Agreement, dated as of June 7,
          1985, Memorandum of Agreement No. MA-02, dated as of December 9, 1986,
          Memorandum of Agreement No. MA-03, dated as of December 11, 1986,
          Memorandum of Agreement No. MA-04, dated as of December 11, 1986,
          Memorandum of Agreement No. MA-05, dated as of May 22, 1987 and
          Memorandum of Agreement No. MA-06, dated as of December 11, 1996.(1)

10.3      Facsimile transmission, dated October 27, 1998 from the Registrant to
          Companhia Siderurgica de Tubarao, confirming the parties mutual
          understanding that the Registrant will acquire 700,000 metric tons of
          steel slab from Companhia Siderurgica de Tubarao for 1999 delivery.(1)

10.4      E-mails from Broken Hill Proprietary Company Ltd. to the Registrant,
          dated October 13, 1998 and October 15, 1998, respectively, confirming
          the Registrant's and Broker Hill Proprietary Company Ltd.'s mutual
          agreement of October 9, 1998 and October 14, 1998, to purchase and
          supply 70,000 metric tons and 280,000 metric tons of steel slab during
          1999.(1)

10.5      Letter, dated October 6, 1998, from the Registrant to Companhia
          Siderurgica Nacional, confirming Companhia Siderurgica Nacional's
          agreement to supply the Registrant with 100,000 metric tons of steel
          in 1999.(1)

10.6      Contract, dated August 20, 1990, by and between the Registrant and
          Seamar Shipping Corporation of Monrovia, Liberia.(1)

                                       1
<PAGE>

Exhibit
-------
No.                                Description
---                                -----------

10.7      The Burlington Northern and Santa Fe Railway Company BNSFC 302606
          Regulated Transportation Contract, dated as of November 19, 1998, by
          and between the Registrant and Burlington Northern Railroad
          Company.(1)

10.8      Stevedore and Terminal Services Agreement, dated as of January 1,
          1996, between Rio Doce Pasha Terminal L.P. and the Registrant, as
          amended.(1)

10.9      Equipment Lease Agreement, dated as of September 30, 1998, by and
          between the Registrant and State Street Bank and Trust Company of
          California, National Association.(1)

10.10     Settlement Agreement, dated as of June 1, 1995, by and among the
          Registrant, Kaiser Ventures, Inc., KSC Recovery, Inc. and Kaiser Steel
          Land Development, Inc.(1)

10.11     Groundwater Indemnity Agreement, dated as of June 1, 1995, between the
          Registrant and Kaiser Ventures, Inc.(1)

10.12     A 1996 Expedited Remedial Action Voluntary Enforceable Agreement, by
          and among the Registrant and the California Environmental Protection
          Agency, Department of Toxic Substances Control.(1)

10.13     Purchase Agreement dated March 30, 1999 by and among the Registrant,
          Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
          Incorporated, BancBoston Robertson Stephens Inc. and NationsBanc
          Montgomery Securities LLC.(1)

10.14     Registration Rights Agreement dated as of April 6, 1999 by and among
          the Registrant, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
          Smith Incorporated, BancBoston Robertson Stephens Inc. and NationsBanc
          Montgomery Securities LLC.(1)

10.15     Addendum No. 39, dated May 31, 2000, to Contract, dated August 20,
          1990, by and between the Registrant and Seamar Shipping Corporation of
          Monrovia, Liberia.(2)

10.16     First Amendment, dated as of April 28, 2000, to Revolving Credit
          Agreement, dated as of March 10, 1999, among the Registrant, the Banks
          named therein, Fleet National Bank (f/k/a BankBoston, N.A.), as loan
          and collateral agent for the Banks, and Bank of America National Trust
          and Savings Association, as documentation and letter of credit agent
          for the Banks.(2)

10.17     Amendment to Supplemental Executive Retirement Plan, dated October 10,
          2000, between the Registrant and James E. Declusin.(3)

10.18     Supplemental Executive Retirement Plan, dated as of September 19,
          2000, between the Registrant and Brett J. Guge.(3)

10.19     The Burlington Northern and Santa Fe Railway Company BNSFC
          302606--Amendment 1 Regulated Transportation Contract, dated as of
          January 15, 2001, by and between the Registrant and The Burlington
          Northern and Santa Fe Railway Company. (4)

12.1      Statement of Computation of Ratio of Earnings to Fixed Charges.

12.2      Statement of Computation of Ratio of EBITDA to Interest Expense.

21.1      Subsidiaries of the Registrant.(1)

23.1      Independent Auditors' Report on Schedule.

----------
(1)  Incorporated by reference to the Registrant's Registration Statement on
     Form S-4, File No. 333-79587, as filed with the Securities and Exchange
     Commission on May 28, 1999, as amended.

                                       2
<PAGE>

(2)  Incorporated by reference to the Registrant's Quarterly Report on Form
     10-Q, for the period ended June 30, 2000, as filed with the Securities and
     Exchange Commission on August 4, 2000.

(3)  Incorporated by reference to the Registrant's Quarterly Report on Form
     10-Q, for the period ended September 30, 2000, as filed with the Securities
     and Exchange Commission on October 27, 2000.

(4)  Incorporated by reference to the Registrant's Annual Report on Form 10-K,
     for the year ended December 31, 2000, as filed with the Securities and
     Exchange Commission on March 29, 2001.

(5)  Incorporated by reference to the Registrant's Quarterly Report on Form
     10-Q, for the period ended September 30, 2001, as filed with the Securities
     and Exchange Commission on November 8, 2001.

                                       3