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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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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, 2003



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



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CALIFORNIA STEEL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33-0051150                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer 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)



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



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



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



None

(Title of Class)



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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
8, 2004, there were 1,000 shares of the registrants common stock, no par value, outstanding.



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CALIFORNIA STEEL INDUSTRIES, INC.



INDEX TO ANNUAL REPORT ON FORM 10-K



For The Fiscal Year Ended December 31, 2003



|           |  |                                                                                       |  |   
|---------- |  | ------------------------------------------------------------------------------------- |  | --
|           |  | Page                                                                                 
|           | 
|PART I     |  |                                                                                      
|           |  |                                                                                      
|Item 1.    |  | Business                                                                              |  | 1 
|           |  |                                                                                      
|Item 2.    |  | Properties                                                                            |  | 8 
|           |  |                                                                                      
|Item 3.    |  | Legal Proceedings                                                                     |  | 8 
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 8 
|           | 
|PART II    |  |                                                                                      
|           |  |                                                                                      
|Item 5.    |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 9 
|           |  |                                                                                      
|Item 6.    |  | Selected Financial Data                                                               |  | 9 
|           |  |                                                                                      
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 10
|           |  |                                                                                      
|Item 7A.   |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 17
|           |  |                                                                                      
|Item 8.    |  | Consolidated Financial Statements and Supplementary Data                              |  | 19
|           |  |                                                                                      
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 19
|           |  |                                                                                      
|Item 9A    |  | Disclosure Controls and Procedures                                                    |  | 20
|           | 
|PART III   |  |                                                                                      
|           |  |                                                                                      
|Item 10.   |  | Directors and Executive Officers of the Registrant                                    |  | 21
|           |  |                                                                                      
|Item 11.   |  | Executive Compensation                                                                |  | 24
|           |  |                                                                                      
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 27
|           |  |                                                                                      
|Item 13.   |  | Certain Relationships and Related Transactions                                        |  | 27
|           |  |                                                                                      
|Item 14.   |  | Principal Accountant Fees and Services                                                |  | 28
|           | 
|PART IV    |  |                                                                                      
|           |  |                                                                                      
|Item 15.   |  | Index of Exhibits, Financial Statement Schedule, and Reports on Form 8-K              |  | 29
|           | 
|Signatures |  |                                                                                      
|           | 
|Exhibits   |  |                                                                                      





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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 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
welded (referred to herein as ERW) 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 two 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 located outside the western United States. 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 also 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 a steel producer that uses an electric arc furnace rather than a blast furnace to create steel from ferrous scrap metal.



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 one of the
largest purchasers 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. Generally, prices of our flat
rolled steel products have experienced a 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, has
historically protected our operating margins when compared to other flat rolled steel producers.



Recent Industry Conditions



On March 5, 2002, President Bush, pursuant to his authority under Section 201 of the Trade Act of 1974, imposed temporary measures on imports of ten categories of steel products. These measures took the form of tariffs ranging from 8 to 30
percent, as well as a tariff-rate quota (TRQ) on semi-finished steel slab. In 2002, the TRQ exempted the first 5.4 million tons of imported semi-finished steel slab from tariffs; with imports above that level facing the same tariffs imposed on
finished flat-rolled products (tariffs on flat-rolled products were 30% in 2002 and 24% in 2003). The TRQ exemption increased to 5.9 million tons in 2003.



On December 4, 2003, President Bush announced his decision to terminate the safeguard measures fifteen months before the scheduled end date of March 5,
2005, while reserving the option of introducing new measures should steel imports again surge into the United States.



The World Trade Organization (WTO) ruled in November 2003 that the tariffs established pursuant to Section 201 are illegal under global trade laws,
leaving the U.S. open to the risk of heavy trade retaliation from its trading partners, namely, the European Union, Japan, and South Korea. Complaints were also filed with the WTO by Norway, Switzerland, China, New Zealand, and Brazil.



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We opposed quotas or tariffs on semi-finished steel slab before the measures were enacted by President
Bush in March 2002, and continued our lobbying efforts to end the TRQ, particularly during the mid-term review conducted by the International Trade Commission during the Summer of 2003. We believe that the early termination of the safeguard measures
will have no impact on our slab purchases, or on the prices of steel products, which are dictated by market conditions.



Another key factor influencing our industry is the continuing increase in world demand for steel products, driven primarily by increased demand by China.
This increased demand has impacted our industry in two ways. First, it has increased the average selling prices of steel products (including semi-finished steel slabs) as supply has trailed demand. Second, it has led to an increase in freight rates
as global shipping capacity has been insufficient to keep pace.



As we have historically focused on our core customers in the western United States, we have not and do not currently pursue foreign sales, including sales to China. Furthermore, we believe that, despite higher average selling prices for
steel products in our market, the increased demand for steel products by China, together with higher freight rates and a weaker U.S. dollar will limit imports of steel products into the western United States.



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 welded (ERW) pipe. The following table sets forth our billed tons by product category as a percentage of total shipments for the periods indicated:



|                                                  |  |                         |   |  |       |   |  |       |   |  |       |   |  |       |  
|------------------------------------------------- |  | ----------------------- | - |  | ----- | - |  | ----- | - |  | ----- | - |  | ----- | -
|                                                  |  | Year Ended December 31, |  
|                                                  |  | 2003                    |   |  | 2002  |   |  | 2001  |   |  | 2000  |   |  | 1999  |  
|Hot rolled coil and sheet                         |  | 43.1                    | % |  | 47.0  | % |  | 45.3  | % |  | 40.7  | % |  | 47.3  | %
|Cold rolled coil and sheet                        |  | 11.2                    | % |  | 11.6  | % |  | 13.9  | % |  | 16.1  | % |  | 15.9  | %
|Galvanized coil and sheet                         |  | 38.0                    | % |  | 35.7  | % |  | 34.2  | % |  | 35.6  | % |  | 29.7  | %
|ERW pipe                                          |  | 7.7                     | % |  | 5.7   | % |  | 6.6   | % |  | 7.6   | % |  | 7.1   | %
|                                                  |  |                         |   |  |       |   |  |       |   |  |       |   |  |       |  
|Total                                             |  | 100                     | % |  | 100   | % |  | 100   | % |  | 100   | % |  | 100   | %
|                                                  |  |                         |   |  |       |   |  |       |   |  |       |   |  |       |  
|Total tons billed, excluding scrap (in thousands) |  | 1,885                   |   |  | 2,014 |   |  | 1,828 |   |  | 1,753 |   |  | 1,803 |  
|                                                  |  |                         |   |  |       |   |  |       |   |  |       |   |  |       |  



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 further 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 7% of our 2003 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, aftermarket automotive manufacturers, 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 2003, we sold
approximately 14,596 tons of steel products to customers, primarily in Mexico and Canada, which represented less than 1% of our total 2003 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, automobile wheels and rims, strapping, tubing and a variety of construction related products. In 2003, we directed 41.9% of our hot rolled production to outside sales and we
further processed approximately 58.1% 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 and a variety of construction related products. In 2003, we
directed approximately 23.8% of our cold rolled production to outside sales and we further processed approximately 76.2% internally for our own higher-margin, value added product needs.



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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 a
variety of construction related products such as roofing, decking, studs, tubing and tanks.



We supply ERW pipe with diameters ranging from 4.5 to 16.0. 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 2001, we completed a $265 million modernization program that allowed us
to improve our product quality, double production volumes, and increase our percentage of high value added products to our product mix. Since the completion of our modernization program, we have continued to make selective investments designed to
keep our facilities competitive or reduce operating costs. Our capital spending in 2001 was $14.8 million. Of this amount, approximately 22% was spent on the installation of phase 2 of our Hydrogen Annealing Project and approximately 18% was spent
on various upgrades to our hot strip mill. Total capital spending in 2002 was $20.8 million, the majority of which was spent on motors and other related equipment in our hot strip mill. Total capital spending in 2003 was $16.5 million primarily on
various upgrades to our production facilities.



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 approximately 2.0 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 approximately 6,900 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.
| | - | --------------------------------------------------------------------------------



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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 cold rolled facility, with a current annual finished capacity of approximately 1.1 million tons, includes the following:



| |  | a five-stand reduction mill;
| | - | ----------------------------



| |  | an electrolytic cleaning line;
| | - | ------------------------------



| |  | twenty hydrogen annealing bases; and
| | - | ------------------------------------



| |  | 60 temper mill.
| | - | ----------------



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



Hydrogen annealing is a process that heats steel coils to annealing temperatures in a pure hydrogen atmosphere and then slowly allows the steel coils to
cool. This process restores ductility to our steel products that is lost as a result of cold rolling. Our hydrogen 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 and roofing.



We currently operate two
continuous galvanizing lines and believe that our galvanizing facilities can produce the full range of coated steel. In 2003 we increased the productivity of our galvanizing lines to approximately 750,000 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.



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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 one of the largest purchasers of slab in the world. We purchase slab from a diverse group of foreign suppliers to obtain high quality steel at competitive cost through reliable sources.
Our foreign vendors are located in Brazil, Mexico, Australia, Japan, Russia, South Africa, Argentina, Venezuela and China.



We typically make our slab purchases on a quarterly basis. As of December 31, 2003 we were committed, in the form of open purchase orders, to purchase
approximately $82.3 million in steel slabs. We negotiate slab procurement for longer periods when our purchasing power combined with market conditions provide us with the opportunity to negotiate on terms which we believe are favorable to us.



Although we are not reliant on any one single vendor, in 2003,
we purchased approximately 40% of our slab from Ispat Mexicana de C. V. (Imexsa) of Mexico and approximately 25% of our slab from Companhia Siderurgica de Tubarão of Brazil. Ispat Mexicana is the only steel facility in the world dedicated
solely to the production of steel slab.



We own 4% of the
common stock of Companhia Siderurgica de Tubarão, which represents 1.5% of the total equity interest in Companhia Siderurgica de Tubarão. Companhia Siderurgica de Tubarão is a subsidiary of both Companhia Vale do Rio Doce and
JFE 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. The vessels are loaded following a specific stowage plan that we develop. The plan is designed to provide 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. Our current contract with Burlington Northern Santa Fe Railroad is effective 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 improves 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 Tubarão as raw
material for our operations according to basic terms and conditions agreed upon from time to time.



We believe that our integrated slab procurement system allows us to manage our slab inventory levels, improve tonnage levels as well as the slab quality
necessary to meet our customers order specifications. As of December 2003, we had what we believed to be firm backlog orders of approximately 335,000 tons. Based on our average sales price at that time, the backlog value was approximately
$135,000,000. As of December 2002, we had what we believed to be firm backlog orders of approximately 300,000 tons. Based on our average sales price at that time, the backlog value was approximately $132,000,000.



Marketing and Customer Service



We believe that we provide a high 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 and our ability to provide consistent service, reliable product availability and 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



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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. Substantial portions 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.



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. More recently, the domestic steel industry has been affected by increased global demand for steel products (largely driven by increased
demand by China) and increased freight rates. 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 production 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, oil 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 and profitability and liquidity could be adversely affected.



U. S. Competition



During 2003, the U. S. steel industry continued to see change among its domestic producers, as consolidation continued among the larger integrated mills
with the U.S. Steel acquisition of National Steel and International Steel Groups purchase of the assets of Bethlehem Steel. In some instances, inefficient production was shuttered on a permanent basis, while other production was brought back
on-line. While high transportation costs have historically deterred mid-western and eastern steel producers from accessing the western United States market, conditions during the first half of 2003 led to excess production which producers attempted
to push into the Western United States. However, by the second half of 2003, increasing order backlogs reduced excess production and generally reversed this trend.



In hot rolled products, our principal domestic competition comes from a number of producers located in the Midwestern United
States, although this is cyclical in nature, based in economic conditions in the mid-western markets. Some hot rolled products are produced by Oregon Steel Mills, located in Portland, Oregon, although Oregon Steel Mills typically ships to customers
located in the Northwest United States. USS-POSCO Industries (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., which operates
facilities located in Kalama, Washington and Rancho Cucamonga, California.



We also compete with steel service and processing centers, although such centers are customers as well as competitors. Service centers serve as wholesale distributors for a broad line of sheet products, providing
value-added services including slitting, shearing and painting. We face increasing competition from producers of materials such as aluminum, composites, plastics and concrete that compete with steel in many markets.



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Foreign Competition



Historically, foreign steel producers consistently competed in the western United States in all of our product categories. On March 5, 2002, pursuant to
his authority under Section 201 of the Trade Act of 1974, President Bush imposed tariffs on imports of plate, hot rolled, cold rolled and coated flat-rolled products from all countries except Canada and Mexico. With the imposition of these tariffs,
steel available from foreign suppliers decreased dramatically in 2002 and 2003.



Although imported steel has relatively long lead times to reach the western United States markets, economic and currency dislocations in foreign markets may encourage 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. Despite the termination of the safeguard measures, the increased demand for steel products by China, together with
higher freight rates and a weaker U.S. dollar has significantly decreased the amount of foreign steel offered in the Western U.S. markets.



Employee Relations



At December 31, 2003, we had 921 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.



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 hazardous materials handling and 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 $1.1 million in 1999, $0.9 million in 2000, $1.3 million in 2001, $1.4 million in 2002 and $1.4 million in 2003. We plan to spend approximately $1.7 million in 2004, with
the largest component representing investigation and remediation 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 engaged an
environmental consultant to conduct a remedial investigation and develop a remediation plan and remediation cost projections based upon that plan. Utilizing the remediation plan developed by the environmental consultant, we developed an estimate for
future costs of the remediation plan. The total aggregate cost of remediation was estimated to be approximately $1.8 million, was accrued in 2002 and is included in other accrued expenses in 2003 and 2002 in our consolidated financial statements.
The California Department of Toxic Substances Control has not yet completed its review and approval of our plan; however, preliminary discussions between the DTSC and us have not indicated the need for any significant changes to the remediation plan
or to the Companys estimate of related costs. The estimate of costs could change as a result of changes to the remediation plan required by the DTSC or unforeseen circumstances at the site.



Forward-Looking Statements



Certain statements contained in this Form 10-K regarding 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, estimate, expect, project, imply, intend, foresee,
will be, will continue, will likely result, could, should, would 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:



| |  | fluctuations in raw materials and freight prices as a result of changes in global steel consumption,
| | - | ----------------------------------------------------------------------------------------------------



| |  | our substantial indebtedness, interest expense and principal repayment obligations under our bank facility, when drawn upon, 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,
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



7



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##### Table of Contents

| |  | because our board of directors consists of four members and 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 delays in making important business decisions and put us at a competitive disadvantage,
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | fluctuations in commodity prices for our electricity and natural gas requirements, as well as the viability of the electrical power distribution system within the State of
California,
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | competitive factors and pricing pressures,
| | - | ------------------------------------------



| |  | our ability to control costs and maintain quality,
| | - | --------------------------------------------------



| |  | future expenditures for capital projects, and
| | - | ---------------------------------------------



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



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.



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



None.



8



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##### Table of Contents

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, 2003, 2002, 2001, 2000 and 1999, has
been derived from our audited consolidated financial statements. The consolidated balance sheets as of December 31, 2003 and 2002 and the consolidated statements of operations for the years ended December 31, 2003, 2002 and 2001 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.



|                                                            |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|----------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                            |  | Year Ended December 31, |        
|                                                            |  | 2003                    |         |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|                                                            |  | (dollars in thousands)  |        
|Statement of Operations Data:                               |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net sales                                                   |  | $                       | 763,556 |   |      | $ | 754,355 |      |  | $ | 640,390 |   |  | $    | 720,900 |   |  | $ | 687,050 |  
|Cost of sales                                               |  |                         | 719,935 |   |      |   | 657,085 |      |  |   | 612,713 |   |  |      | 616,638 |   |  |   | 564,889 |  
|Gross profit                                                |  |                         | 43,621  |   |      |   | 97,270  |      |  |   | 27,677  |   |  |      | 104,262 |   |  |   | 122,161 |  
|Selling, general and administrative expenses                |  |                         | 25,607  |   |      |   | 26,013  |      |  |   | 23,350  |   |  |      | 32,185  |   |  |   | 29,946  |  
|(Gain) loss on disposition of property, plant and equipment |  |                         | 114     |   |      |   | (492    | )    |  |   | 802     |   |  |      | (28     | ) |  |   | (13     | )
|Income from operations(4)                                   |  |                         | 17,900  |   |      |   | 71,749  |      |  |   | 3,525   |   |  |      | 72,105  |   |  |   | 92,228  |  
|Interest expense, net                                       |  |                         | (13,120 | ) |      |   | (14,127 | )    |  |   | (16,316 | ) |  |      | (18,756 | ) |  |   | (16,345 | )
|Income (loss) before income tax expense (benefit)           |  |                         | 6,815   |   |      |   | 58,139  |      |  |   | (7,317  | ) |  |      | 56,138  |   |  |   | 77,027  |  
|Net income (loss)                                           |  |                         | 4,544   |   |      |   | 35,001  |      |  |   | (3,711  | ) |  |      | 34,845  |   |  |   | 46,847  |  
|                                                            |  |                         |         |   |     
|EBITDA(1)                                                   |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                                           |  | $                       | 4,544   |   |      | $ | 35,001  |      |  | $ | (3,711  | ) |  | $    | 34,845  |   |  | $ | 46,847  |  
|Income tax expense (benefit)                                |  |                         | 2,271   |   |      |   | 23,138  |      |  |   | (3,606  | ) |  |      | 21,293  |   |  |   | 30,180  |  
|Interest expense, net                                       |  |                         | 13,120  |   |      |   | 14,127  |      |  |   | 16,316  |   |  |      | 18,756  |   |  |   | 16,345  |  
|Depreciation and amortization                               |  |                         | 28,660  |   |      |   | 28,827  |      |  |   | 30,204  |   |  |      | 28,852  |   |  |   | 26,331  |  
|EBITDA                                                      |  | $                       | 48,595  |   |      | $ | 101,093 |      |  | $ | 39,203  |   |  | $    | 103,746 |   |  | $ | 119,703 |  
|EBITDA margin(5)                                            |  |                         | 6.4     | % |      |   | 13.4    | %    |  |   | 6.1     | % |  |      | 14.4    | % |  |   | 17.4    | %
|                                                            |  |                         |         |   |     
|Other Data:                                                 |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Operating margin(4)                                         |  |                         | 2.3     | % |      |   | 9.5     | %    |  |   | 0.6     | % |  |      | 10.0    | % |  |   | 13.4    | %
|Cash flows provided by operating activities                 |  | $                       | 80,216  |   |      | $ | 48,295  |      |  | $ | 83,963  |   |  | $    | 34,594  |   |  | $ | 72,287  |  
|Cash flows used in investing activities                     |  |                         | (16,582 | ) |      |   | (20,111 | )    |  |   | (14,753 | ) |  |      | (33,936 | ) |  |   | (37,321 | )
|Cash flows used in financing activities                     |  |                         | (23,878 | ) |      |   | (34,045 | )    |  |   | (63,000 | ) |  |      | (6,015  | ) |  |   | (39,029 | )
|Capital expenditures                                        |  |                         | 16,484  |   |      |   | 20,812  |      |  |   | 14,753  |   |  |      | 33,995  |   |  |   | 37,397  |  
|Total tons billed, excluding scrap (in thousands)           |  |                         | 1,885   |   |      |   | 2,014   |      |  |   | 1,828   |   |  |      | 1,753   |   |  |   | 1,803   |  
|Number of employees at end of period                        |  |                         | 921     |   |      |   | 929     |      |  |   | 952     |   |  |      | 973     |   |  |   | 952     |  
|Man hours per ton produced                                  |  |                         | 1.04    |   |      |   | 1.02    |      |  |   | 1.14    |   |  |      | 1.18    |   |  |   | 1.18    |  
|                                                            |  |                         |         |   |     
|Selected Ratios:                                            |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Ratio of earnings to fixed charges(2)                       |  |                         | 1.5x    |   |      |   | 4.8x    |      |  |   |        |   |  |      | 3.8x    |   |  |   | 5.3x    |  
|Ratio of EBITDA to interest expense, net(3)                 |  |                         | 3.7x    |   |      |   | 7.2x    |      |  |   | 2.4x    |   |  |      | 5.5x    |   |  |   | 7.3x    |  



9



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##### Table of Contents

|                                                                          |  |                    |         |            |   |            |  |            |         |            |   |         |  |   |        
|------------------------------------------------------------------------- |  | ------------------ | ------- | ---------- | - | ---------- |  | ---------- | ------- | ---------- | - | ------- |  | - | -------
|                                                                          |  | As of December 31,
|                                                                          |  | 2003               |         | 2002       |   | 2001       |  | 2000       |         | 1999      
|                                                                          |  |                    |         | (restated) |   | (restated) |  | (restated) |         | (restated)
|                                                                          |  | (in thousands)    
|Balance Sheet Data:                                                       |  |                    |         |            |   |            |  |            |         |            |   |         |  |   |        
|Cash and cash equivalents                                                 |  | $                  | 42,647  |            | $ | 2,891      |  | $          | 8,752   |            | $ | 2,542   |  | $ | 7,899  
|Property, plant and equipment, net                                        |  |                    | 233,612 |            |   | 245,193    |  |            | 252,796 |            |   | 268,429 |  |   | 262,696
|Total assets                                                              |  |                    | 507,345 |            |   | 552,314    |  |            | 499,198 |            |   | 602,158 |  |   | 552,805
|Total long-term debt including current portion and notes payable to banks |  |                    | 150,000 |            |   | 163,000    |  |            | 179,000 |            |   | 239,000 |  |   | 230,000
|Redeemable Preferred Stock(6)                                             |  |                    | 30,000  |            |   | 30,000     |  |            | 30,000  |            |   | 30,000  |  |   | 30,000 
|Total stockholders equity(6)                                             |  |                    | 210,820 |            |   | 217,154    |  |            | 200,198 |            |   | 206,909 |  |   | 187,079

---

|(1) | EBITDA represents net income, plus income taxes, net interest expense and depreciation and
amortization. EBITDA 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 is included because we believe that investors find it a useful tool for measuring our
ability to service our debt.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | 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). For the year 2001, there was a
deficiency of earnings to fixed charges of $7,914,000.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Ratio of EBITDA to interest expense, net, represents EBITDA per (1) above, divided by net interest expense.
|--- | -----------------------------------------------------------------------------------------------------------



|(4) | Certain prior years amounts have been reclassified to conform with the current year presentation due to the presentation of the item (gain)loss on disposition
of property, plant and equipment separately from Other income(expense)  other net.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | EBITDA margin represents EDITDA per (1) above divided by net sales.
|--- | -------------------------------------------------------------------



|(6) | See discussion of restatement of Class C preferred stock from stockholders equity to Redeemable Preferred Stock in
Managements Discussion and Analysis of Financial Condition and Results of OperationsRestatement of Financial Information and to Note 2a to our consolidated financial statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|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, and galvanized, as
well as ERW pipe, with a current annual finished shipment capability of approximately 2.0 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 and a variety of construction related products.



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 transferred 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 and title has transferred to the customer. For products shipped FOB destination, revenue is recognized at the time of delivery and title is transferred to the customer. 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 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 2003 was higher compared to 2002 and 2001.



10



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##### Table of Contents

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 have negotiated 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 various suppliers. Zinc is purchased on a monthly basis with both fixed price and floating price contracts and is priced using a formula tied to the London Metals Exchange zinc index plus negotiated delivery premiums.
For 2004, we have locked in pricing for more than 80% of our delivered zinc requirements.



We require an average of approximately 38 megawatts of electricity demand in operating our equipment to produce our products. We participate in the direct access program whereby electricity customers can contract
directly with energy service providers for energy, rather than utilizing the full-service bundled tariff from the local utility distribution company, Southern California Edison. Our direct access agreement generally has resulted in lower electricity
costs than would otherwise be available via the applicable tariff from Southern California Edison. The Public Utilities Commission of the State of California (PUC) issued an order on November 7, 2002, imposing exit fees of 2.7 cents per kilowatt
hour on utility customers who entered into the direct access program during the California electricity crisis in 2001. The PUCs stated purpose for the exit fees (officially termed as the Cost Responsibility Surcharge or CRS) is to
recoup the substantial sums spent by the State of California and the utilities to purchase electricity during the crisis. The CRS, if continued at 2.7 cents per kwh, is projected to result in additional costs for our electricity service of
approximately $9,000,000 per year at our current production levels. In 2003, our electricity costs accounted for approximately 3.7% of our cost of goods sold compared to approximately 3.2% in 2002.



For the first quarter of 2004, we purchased a fixed-price block of
electricity covering about 25 percent of our energy requirements, with the remainder of requirements purchased at the floating hourly market price. In an effort to manage risk effectively, we will continue to monitor the electricity forward market
pricing with the intention of locking in more physical supply volumes for 2004 and possibly 2005 as prices fall to more attractive levels against recent historical standards.



We generally utilize a daily average of about 12,000 million British thermal units, or MMBTUs, of natural gas to produce our
products. We pay for the commodity and for delivery charges from the Southern California border. For the last several years natural gas prices have experienced volatility. To stabilize such volatility, we regularly use a risk management approach to
fix the price on portions of our natural gas requirements up to two years ahead, through financial and/or physical hedging arrangements. These arrangements include fixed-price contracts for the New York Mercantile Exchange (NYMEX), and/or the
Southern California border basis.



We currently have in place
agreements to hedge the price of approximately 75% of our natural gas requirements from January through March, 2004, and about 60% for the balance of 2004. We continue to monitor the near and long term price trends of natural gas and may enter into
additional purchase agreements when we deem it appropriate or when opportunities present themselves. In 2003, our natural gas costs accounted for approximately 3.8% of our cost of goods sold compared to approximately 4.8% in 2002.



Selling, general and administrative expenses consist primarily of sales
and labor, various administrative expenses, and shipping costs. In 2003, labor costs comprised approximately 59% of our total selling, general and administrative expenses compared to 54% in 2002.



Results of Operations



|                        |  |                         |  |           |  |          
|----------------------- |  | ----------------------- |  | --------- |  | ---------
|                        |  | Tons Billed            
|                        |  | Year Ended December 31,
|                        |  | 2003                    |  | 2002      |  | 2001     
|Hot Rolled              |  | 813,029                 |  | 945,663   |  | 829,161  
|Cold Rolled             |  | 210,834                 |  | 234,505   |  | 253,465  
|Galvanized              |  | 716,740                 |  | 719,711   |  | 625,138  
|ERW pipe                |  | 144,585                 |  | 113,902   |  | 120,607  
|                        |  |                         |  |           |  |          
|Total (excluding scrap) |  | 1,885,188               |  | 2,013,781 |  | 1,828,371
|                        |  |                         |  |           |  |          



11



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##### Table of Contents

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002



Net sales. Net sales were $763,556,000 for the year ended
December 31, 2003. This was a $9,201,000 improvement over the prior year. This increase is attributable to an improved average sales unit price and improved product mix, offset by a decrease in volume of products sold. Our average sales price
increased by more than $29 per ton increasing our net sales by approximately $50,930,000 and improved product mix added more than six million dollars to our net sales. We sold over 1,885,000 net tons in 2003, a decrease of 129,000 net tons when
compared to 2,014,000 net tons in 2002. This decrease in tonnage was the result of market conditions and decreased our net sales by approximately $48,435,000.



Gross profit.Gross profit decreased $53,649,000 from $97,270,000 last year to $43,621,000 this year. Gross profit as a percentage
of net sales also decreased from 12.9% in 2002 to 5.7% in 2003. The main reason for the decrease in our gross profit was the result of a higher slab consumption cost per ton in 2003 compared to 2002. The higher slab consumption cost per ton was
partially off set by an increase in our average selling price.



Selling, general and administrative (SG&A) expenses.Selling, general and administrative expenses decreased $406,000 from $26,013,000 last year to $25,607,000 this year, primarily due to a one time non-cash accrual
in 2002 of $1,800,000 for future environmental remediation expenditures. SG&A expenses as a percentage of net sales was 3.4% in 2003 and 2002.



Gain/Loss on disposition of property, plant and equipment (PP&E). For the year ending December 31, 2003, we had a net loss of $114,000
on the disposition of PP&E compared to the net gain of $492,000 for the same period in 2002.



Equity in income of affiliate.We maintain a 1.5% ownership interest in Companhia Siderurgica de Tubarão, which is based on
our ownership of 4.0% of its common stock. Our investment in Companhia Siderurgica de Tubarão is accounted for under the equity method of accounting. For the year ended December 31, 2003, we recognized income of $1,950,000 compared to the
income of $150,000 last year, which consists of our pro-rata share of Companhia Siderurgica de Tubarãos income. Companhia Siderurgica de Tubarão is a publicly traded Brazilian company engaged in the production of steel slab and
hot rolled coils. Over the last three years approximately 85% of Companhia Siderurgica de Tubarãos products were exported outside of Brazil. 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.



Net interest expense.Net interest expense decreased $1,007,000 from $14,127,000 last year to $13,120,000 this year. The decrease in interest expense is attributable to lower average loan balances in 2003 compared to
2002. Interest expense figures are net of interest income of $120,000 and $508,000 in 2003 and 2002 respectively and capitalized interest of $52,000 in 2003 and $319,000 in 2002.



Other income, net.Other income, net, decreased $282,000 from $367,000 last year to $85,000 this year.
Other income is comprised of miscellaneous income items such as rental income, proceeds from legal settlements, refund from anti dumping subsidy, etc. As many of these items occur infrequently or result in a one-time recognition of income, this
category is subject to significant fluctuation from year to year.



Income tax expense (benefit). Due to lower income before income tax of $6,815,000 in 2003 compared to last year income before income tax of $58,139,000 our income tax expense for 2003 was $2,271,000 compared to $23,138,000
last year. The effective tax rate for 2003 was 33.3% compared to an effective tax rate of 39.8% in 2002. Income tax expense is net of state manufacturing investment credit of $810,000 in 2003 and $1,116,000 in 2002.



Net income (loss).Net income for the year was
$4,544,000 compared to the net income last year in the amount of $35,001,000.



Year Ended December 31, 2002 Compared to Year Ended December 31, 2001



Net sales. For the year ended December 31, 2002 net sales were $754,355,000. This was a $113,965,000 improvement over the prior year. The
increase is attributable to an improved average sales unit price and a significantly higher volume of products sold. Our average sales price increased by more than $24 per ton increasing our net sales by approximately $48,600,000. We established a
new volume sold record of 2,013,781 net tons, representing a 185,410 net ton increase over the prior year and further increasing our net sales by an additional $65,200,000.



12



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##### Table of Contents

Gross profit.Gross profit increased $69,593,000 from $27,677,000 last year to
$97,270,000 this year. Gross profit as a percentage of net sales increased from 4.3% in 2001 to 12.9% in 2002. Our improvement in gross profit was the result of a better margin between our average sales price and our average slab consumption cost,
higher volumes and improved utility costs.



Selling,
general and administrative (SG&A) expenses.Selling, general and administrative expenses increased $2,663,000, from $23,350,000 last year to $26,013,000 this year. The primary reasons for the increase in SG&A expenses was an
increase in profit sharing expenses resulting from improving profits as well as a $1,800,000 non-cash accrual recorded for future environmental remediation expenditures. SG&A expenses as a percentage of net sales decreased slightly from the
prior year from 3.6% last year to 3.4% this year.



Gain/Loss on disposition of property, plant and equipment (PP&E). For the year ending December 31, 2002, we had a net gain of $492,000 on the disposition of PP&E compared to the net loss of $802,000 for the same period
in 2001.



Equity in income of affiliate.We maintain a 1.5% ownership interest in Companhia Siderurgica de Tubarão, which is based on our ownership of 4.0% of its common stock. Our investment in Companhia Siderurgica de Tubarão is accounted for under the equity method of
accounting. For the year ended December 31, 2002, we recognized income of $150,000, which consists of our pro-rata share of Companhia Siderurgica de Tubarãos income. Companhia Siderurgica de Tubarão is a publicly traded Brazilian
company engaged in the production of steel slab and hot rolled coils. Approximately 90% of Companhia Siderurgica de Tubarão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, 2001, we recognized income of $1,274,000 from our investment in Companhia Siderurgica de
Tubarão.



Net interest expense.Net
interest expense decreased $2,189,000 from $16,316,000 last year to $14,127,000 this year. The decrease in interest expense is attributable to lower average loan balances. Interest expense figures are net of interest income of $508,000 and $246,000
in 2002 and 2001 respectively and capitalized interest of $319,000 in 2002 and $118,000 in 2001.



Other income, net.Other income, net, decreased $3,833,000 from $4,200,000 last year to $367,000 this year. Other income is comprised
of miscellaneous income items such as rental income, proceeds from legal settlements, etc. As many of these items occur infrequently or result in a one-time recognition of income, this category is subject to significant fluctuation from year to
year.



Income tax expense (benefit).Income tax
expense for the year was $23,138,000 compared to income tax benefit of $3,606,000 last year. The effective tax rate for 2002 was 39.8% compared to an effective tax rate benefit of 49.3% in 2001. Income tax expense (benefit) is net of state
manufacturing investment credit of $1,113,000 in 2002 and $1,200,000 in 2001.



Net income (loss).Net income for the year was $35,001,000 compared to the net loss incurred last year in the amount of $3,711,000.



Liquidity and Capital Resources



At December 31, 2003, we had $42,647,000 in cash and cash equivalents and $100,163,000 available under our bank facility. During the year, cash flow from
operations generated $80,216,000, which consisted of $4,544,000 in net income, $28,660,000 in depreciation and amortization expense and a net cash flow increase of $47,012,000 due to changes in assets and liabilities. Operating cash flow increased
as a result of a $53,897,000 decrease in inventories, a $17,434,000 decrease in accounts receivable and $6,780,000 increase in deferred income taxes. Operating cash flow was decreased as a result of a $29,535,000 increase in accounts payable. Cash
flow from investing activities consisted primarily of $16,484,000 of capital expenditures. Cash flow from financing activities consisted of net repayments under our bank facility in the amount of $13,000,000 and dividend payments of $10,878,000.



In March 1999, we entered into a $130,000,000 five-year bank
facility. 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, which was the earlier to occur of March 10, 2004 or the date
which is 60 days prior to the maturity of the 8.5% senior notes. On June 30, 2003 this bank facility was amended with the same bank group to $110,000,000 for a new period of three years expiring on June 30, 2006. There were no amounts outstanding
under this facility as of December 31, 2003. The bank facility is collateralized by cash, accounts receivable, inventory and other assets. Advances under this facility may be used for working capital, capital expenditures, payment of dividends and
other lawful corporate purposes, including the refinancing of existing debt.



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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.



We currently have
approximately $973,000 in material commitments for capital expenditures expected to be completed during fiscal 2004. These represent signed purchase orders for various production facility upgrades. Our total budget for capital improvements in 2004
is approximately $20,000,000.



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 2004.



Commitments and
Contingencies



The following table represents a
comprehensive list of the Companys contractual obligations and commitments as of December 31, 2003:



Payments Due by Period

(amounts in thousands)



|                            |  |       |         |                 |   |           |  |           |       |                   |   |        |  |   |        
|--------------------------- |  | ----- | ------- | --------------- | - | --------- |  | --------- | ----- | ----------------- | - | ------ |  | - | -------
|                            |  | Total |         | Less Than 1Year |   | 1-3 Years |  | 3-5 Years |       | More Than 5 Years
|Long Term Debt              |  | $     | 150,000 |                 |   |           |  |           |       |                   |   |        |  | $ | 150,000
|Capital Lease Obligations   |  | $     |        |                 |   |           |  |           |       |                   |   |        |  |   |        
|Operating Leases            |  | $     | 26,443  |                 | $ | 8,088     |  | $         | 7,527 |                   | $ | 10,828 |  |   |        
|Purchase Obligations(1)     |  | $     | 109,709 |                 | $ | 109,709   |  |           |       |                   |   |        |  |   |        
|Other Long Term Liabilities |  | $     |        |                 |   |           |  |           |       |                   |   |        |  |   |        
|                            |  |       |         |                 |   |           |  |           |       |                   |   |        |  |   |        
|Total                       |  | $     | 286,152 |                 | $ | 117,797   |  | $         | 7,527 |                   | $ | 10,828 |  | $ | 150,000
|                            |  |       |         |                 |   |           |  |           |       |                   |   |        |  |   |        



|(1) | Relates to contractual commitments to purchase $82.3 million of steel slabs and assorted
other contractual commitments.
|--- | -----------------------------------------------------------------------------------------------------------------------



When market conditions warrant,
we will also enter into contracts to purchase certain commodities used in the manufacture of our products, such as electricity and natural gas. Any such commodity commitments are expected to be purchased and used over a reasonable period of time in
the normal course of business. Accordingly, pursuant to SFAS No. 133, they are not accounted for as a derivative.



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##### Table of Contents

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 judgments, 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 accounts receivable.



Environmental reserve: We have engaged an environmental consultant to conduct a remedial investigation and develop a remediation plan and
remediation cost projections based upon that plan. Utilizing the remediation plan developed by the environmental consultant, we developed an estimate for future costs of the remediation plan. The total aggregate cost of remediation is estimated to
be approximately $1.8 million, which has been accrued in the 2002 and is included in accrued expenses in the 2003 and 2002 consolidated financial statements. The California Department of Toxic Substances Control has not yet completed its review and
approval of our plan; however, preliminary discussions between the DTSC and us have not indicated the need for any significant changes to the remediation plan or to the Companys estimate of related costs. The estimate of costs could change as
a result of changes to the remediation plan required by the DTSC or unforeseen circumstances at the site.



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 when title and risk of loss are transferred to the customer. For products shipped FOB destination, revenue is recognized at the time of delivery. In certain cases, at
the customers request, the Company will enter into bill and hold transactions whereby title transfers to the customer, but the product does not ship until a specified later date. Revenue on such transactions is recognized when the product is
ready for shipment, and only after all conditions set forth under Staff Accounting Bulletin (SAB) No. 101 have been met.



Restatements of Financial Information



Background



In preparing our 2003 consolidated financial statements, we noted that our Class C preferred stock was improperly classified as stockholders equity
due to the general right granted to the Board of Directors under our Certificate of Incorporation, as amended, to redeem the Class C preferred stock at the Boards option. Pursuant to the guidance issued by the Emerging Issues Task Force of the
Financial Accounting Standards Board in Topic No. D-98 on July 19, 2001, the Securities and Exchange Commission (SEC) has indicated that a preferred security which may be called by the Board of Directors of a company shall not be treated
as permanent equity if the preferred stockholders control the Board of Directors. The composition of our Class C preferred stockholder and our common stockholders is identical, therefore, our Class C preferred stockholders have control over our
Board of Directors. Our classification of the Class C preferred stock as stockholders equity was based upon our belief that the equal ownership of our two stockholders did not give either stockholder control over the Board of Directors and
thus neither stockholder had control over the redemption of the Class C preferred stock. As Topic No. D-98 states that the SEC views the preferred stockholders as a class, rather than on an individual basis, we have determined that the Class C
preferred stock should be removed from stockholders equity and separately stated on the consolidated balance sheet.



Restatement of 2001, 2002 and First, Second and Third Quarters of 2003 Financial Information



Consistent with the foregoing discussion, we are restating our consolidated financial statements for the fiscal years 2002
and 2001, as well as our consolidated financial information for the first, second and third quarters of 2003, to remove the Class C preferred stock from stockholders equity on the consolidated balance sheet and list it separately under
Liabilities and Stockholders Equity as redeemable preferred stock. All financial information contained in this Annual Report on Form 10-K gives effect to these restatements. The restatement of this consolidated balance sheet item
does not result in any change to our results of operations. We have further reviewed the financial covenants applicable to our bank facility and our 8.5% unsecured senior notes and have determined that the restatement did not have an adverse effect
on the Company or its debt obligations. As our 8.5% unsecured senior notes are senior in priority to the Class C preferred stock, we do not believe that the restatement will have an adverse effect on the holders of such notes.



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##### Table of Contents

The following table sets forth the relevant items of the consolidated balance sheet presentation of Liabilities and
Stockholders Equity for 2002 and 2001 as originally reported and as restated.



|                                                                                                                                               |  |                              |  |                              |  |                      |  |            
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- |  | ---------------------------- |  | -------------------- |  | -----------
|                                                                                                                                               |  | Year Ended December 31, 2002 |  | Year Ended December 31, 2001
|                                                                                                                                               |  | (dollars in thousands)      
|                                                                                                                                               |  | As Originally Stated         |  | As Restated                  |  | As Originally Stated |  | As Restated
|Liabilities and Stockholders Equity:                                                                                                          |  |                              |  |                              |  |                      |  |            
|Redeemable preferred stock, Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares; issued and outstanding 3,000
shares |  |                             |  | 30,000                       |  |                     |  | 30,000     
|Stockholders equity:                                                                                                                          |  |                              |  |                              |  |                      |  |            
|Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares; issued and outstanding 3,000 shares                             |  | 30,000                       |  |                             |  | 30,000               |  |           
|Total stockholders equity                                                                                                                     |  | 247,154                      |  | 217,154                      |  | 230,198              |  | 200,198    
|                                                                                                                                               |  |                              |  |                              |  |                      |  |            



The following tables set forth the
relevant items of the consolidated balance sheet presentation of Liabilities and Stockholders Equity for the first, second and third quarters as originally reported and as restated.



|                                                                                                                                               |  |                                      |  |                   |  |                |  |                  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ |  | ----------------- |  | -------------- |  | -----------------
|                                                                                                                                               |  | First Quarter (dollars in thousands)
|                                                                                                                                               |  | As Originally Stated                 |  | As Restated      
|                                                                                                                                               |  | March 31, 2003                       |  | December 31, 2002 |  | March 31, 2003 |  | December 31, 2002
|Liabilities and Stockholders Equity:                                                                                                          |  |                                      |  |                   |  |                |  |                  
|Redeemable preferred stock, Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares; issued and outstanding 3,000
shares |  |                                     |  |                  |  | 30,000         |  | 30,000           
|Stockholders equity:                                                                                                                          |  |                                      |  |                   |  |                |  |                  
|Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares; issued and outstanding 3,000 shares                             |  | 30,000                               |  | 30,000            |  |               |  |                 
|Total stockholders equity                                                                                                                     |  | 246,518                              |  | 247,154           |  | 216,518        |  | 217,154          
|                                                                                                                                               |  |                                      |  |                   |  |                |  |                  



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|                                                                                                                                               |  |                                       |  |                   |  |               |  |                  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- |  | ----------------- |  | ------------- |  | -----------------
|                                                                                                                                               |  | Second Quarter (dollars in thousands)
|                                                                                                                                               |  | As Originally Stated                  |  | As Restated      
|                                                                                                                                               |  | June 30, 2003                         |  | December 31, 2002 |  | June 30, 2003 |  | December 31, 2002
|Liabilities and Stockholders Equity:                                                                                                          |  |                                       |  |                   |  |               |  |                  
|Redeemable preferred stock, Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares; issued and outstanding 3,000
shares |  |                                      |  |                  |  | 30,000        |  | 30,000           
|Stockholders equity:                                                                                                                          |  |                                       |  |                   |  |               |  |                  
|Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares; issued and outstanding 3,000 shares                             |  | 30,000                                |  | 30,000            |  |              |  |                 
|Total stockholders equity                                                                                                                     |  | 246,538                               |  | 247,154           |  | 216,538       |  | 217,154          
|                                                                                                                                               |  |                                       |  |                   |  |               |  |                  



|                                                                                                                                               |  |                                      |  |                   |  |                    |  |                  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ |  | ----------------- |  | ------------------ |  | -----------------
|                                                                                                                                               |  | Third Quarter (dollars in thousands)
|                                                                                                                                               |  | As Originally Stated                 |  | As Restated      
|                                                                                                                                               |  | September 30, 2003                   |  | December 31, 2002 |  | September 30, 2003 |  | December 31, 2002
|Liabilities and Stockholders Equity:                                                                                                          |  |                                      |  |                   |  |                    |  |                  
|Redeemable preferred stock, Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares; issued and outstanding 3,000
shares |  |                                     |  |                  |  | 30,000             |  | 30,000           
|Stockholders equity:                                                                                                                          |  |                                      |  |                   |  |                    |  |                  
|Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares; issued and outstanding 3,000 shares                             |  | 30,000                               |  | 30,000            |  |                   |  |                 
|Total stockholders equity                                                                                                                     |  | 237,705                              |  | 247,154           |  | 207,705            |  | 217,154          
|                                                                                                                                               |  |                                      |  |                   |  |                    |  |                  



Additional information
concerning the specific adjustments made on our annual and quarterly basis, see Notes 2 and 13 of the Notes to Consolidated Financial Statements.



|Item 7A. | Quantitative and Qualitative Disclosures about Market Risk
|-------- | ----------------------------------------------------------



We are exposed to market risks related to fluctuations in interest rates on our 8.5% senior notes and our $110,000,000
floating interest rate bank facility. We do not currently use interest rate swaps or other types of derivative financial instruments. 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 or the prime rate, which was approximately 2.625% (including margin) and 4.00% respectively at December 31, 2003. We estimate that the average amount of debt outstanding
under the facility for fiscal year 2004 will be approximately $22.5 million. Therefore, a one-percentage point increase in interest rates would result in an increase in interest expense of $225,000 for the year.



For fixed rate debt instruments such as our 8.5% senior notes, changes in
interest rates generally affect the fair value of such debt instruments. For variable rate debt such as our bank facility, changes in interest rates generally do not affect the fair value of such debt, but do affect earnings and cash flow. We do not
have an obligation to repay our 8.5% senior notes prior to maturity in



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##### Table of Contents

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 our 8.5%
senior notes approximates the current rates available for similar types of financing and as a result the carrying amount of the 8.5% senior notes approximates fair value. The fair value of our senior notes at December 31, 2003 was approximately
$157,500,000. In 2004, we will have the right to redeem the notes in accordance with the terms of the notes. We will analyze the market conditions and decide the best course of action at the appropriate time.



We do not believe that the future market rate risk related to our 8.5% senior
notes and floating rate bank facility will have a material impact on our financial position, results of operations or liquidity.



We require an average of approximately 38 megawatts of electricity demand in operating our equipment to produce our products. We participate in the direct
access program whereby electricity customers can contract directly with energy service providers for energy, rather than utilizing the full-service bundled tariff from the local utility distribution company, Southern California Edison. Our direct
access agreement generally has resulted in lower electricity costs than would otherwise be available via the applicable tariff from Southern California Edison. The Public Utilities Commission of the State of California (PUC) issued an order on
November 7, 2002, imposing exit fees of 2.7 cents per kilowatt hour on utility customers who entered into the direct access program during the California electricity crisis in 2001. The PUCs stated purpose for the exit fees (officially termed
as the Cost Responsibility Surcharge or CRS) is to recoup the substantial sums spent by the State of California and the utilities to purchase electricity during the crisis. The CRS, if continued at 2.7 cents per kwh, is projected to
result in additional costs for our electricity service of approximately $9,000,000 per year at our current production levels. In 2003, our electricity costs accounted for approximately 3.7% of our cost of goods sold compared to approximately 3.2% in
2002.



For the first quarter of 2004, we purchased a
fixed-price block of electricity covering about 25 percent of our energy requirements, with the remainder of requirements purchased at the floating hourly market price. In an effort to manage risk effectively, we will continue to monitor the
electricity forward market pricing with the intention of locking in more physical supply volumes for 2004 and possibly 2005 as prices fall to more attractive levels against recent historical standards.



We generally utilize a daily average of about 12,000 million British thermal
units, or MMBTUs, of natural gas to produce our products. We pay for the commodity and for delivery charges from the Southern California border. For the last several years natural gas prices have experienced volatility. To stabilize such volatility,
we regularly use a risk management approach to fix the price on portions of our natural gas requirements up to two years ahead, through financial and/or physical hedging arrangements. These arrangements include fixed-price contracts for the New York
Mercantile Exchange (NYMEX), and/or the Southern California border basis.



We currently have in place agreements to hedge the price of approximately 75% of our natural gas requirements from January through March, 2004, and about 60% for the balance of 2004. We continue to monitor the near
and long term price trends of natural gas and may enter into additional purchase agreements when we deem it appropriate or when opportunities present themselves. In 2003, our natural gas costs accounted for approximately 3.8% of our cost of goods
sold compared to approximately 4.8% in 2002.



Recently Issued
Accounting Standards



In September 2001, the FASB issued
SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143). SFAS No. 143 requires a 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. A 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
adopted SFAS No. 143 on January 1, 2003, which did not have a material impact on the Companys consolidated financial position or consolidated results of operations.



In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections (SFAS No. 145). This statement eliminates the automatic classification of gain or loss on extinguishment of debt as an extraordinary item of income and requires that such gain or loss be evaluated
for extraordinary classification under the criteria of Accounting Principles Board No. 30,  Reporting Results of Operations. This statement also requires sale-leaseback accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions, and makes various other technical corrections to existing pronouncements. The Company adopted SFAS No. 145 on January 1, 2003, which did not have a material effect on the Companys
results of operations or financial position.



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In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 is effective prospectively
for exit and disposal activities initiated after December 31, 2002. The Company adopted SFAS 146 on January 1, 2003, which did not have an effect on the Companys results of operations or financial position.



In November 2002, the FASB issued Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (the Interpretation), which addresses the disclosure to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees. At December 31, 2003, the Company has no such guarantees.



On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure, which amends
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 amends the disclosure requirements in SFAS No. 123 for stock-based compensation for annual periods ending after December 15, 2002, and for interim periods beginning
after December 15, 2002, including those companies that continue to recognize stock-based compensation under APB Opinion No. 25, Accounting for Stock Issued to Employees. In addition, SFAS No. 148 provides three alternative transition
methods for companies that choose to adopt the fair value measurement provisions of SFAS No. 123. The Company does not utilize stock based employee compensation and as a result the adoption of SFAS 148 on January 1, 2003, did not have a material
effect on the Companys results of operations or financial position.



In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities, (as amended in December, 2003) to expand upon and strengthen existing accounting guidance that addresses when a company
should include the assets, liabilities and activities of another entity in its financial statements. To improve financial reporting by companies involved with variable interest entities (more commonly referred to as a special-purpose entities or
off-balance sheet structures), FIN 46 requires that a variable interest entity be considered by a company if that company is subject to a majority risk of loss from the variable interest entitys activities or entitled to receive a majority of
the entitys residual returns or both. Prior to FIN 46, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. The consolidation requirements of FIN 46, as
amended in December, 2003, apply immediately to variable interest entities created after January 31, 2003, and to older entities in the first fiscal year or interim period beginning after June 15, 2003. The adoption of this interpretation did not
have a material effect on the Companys results of operations or financial position.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS No. 150). This pronouncement establishes standards for the
classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires classification of financial instruments within its scope as a liability, including financial instruments
issued in the form of shares that are mandatorily redeemable, because those financial instruments are deemed to be, in essence, obligations of the issuer. This statement is effective for financial statements issued after May 2003 and did not have
any impact on the Companys 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 15 of Part IV of this
Report.



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



On December 12, 2002, the Board of Directors of California Steel Industries,
Inc. (the Company) decided to terminate the engagement of KPMG, LLP (KPMG) as its independent auditor upon completion of the December 31, 2002 audit and issuance of their report thereon. The decision to terminate KPMGs
engagement was based on the Boards determination that it is in the best interests of the Company to rotate its independent auditors every five years to ensure independence.



The Companys auditor for the 2002, 2001 and 2000 fiscal years was KPMG. KPMGs reports on the Companys
consolidated financial statements for the years ended December 31, 2002, 2001 and 2000, did not contain an adverse opinion or disclaimer of opinion, nor were they otherwise modified as to uncertainty, audit scope or accounting principles.



During the years ended December 31, 2002, 2001 and 2000, there
were no disagreements between the Company and KPMG on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to KPMGs satisfaction, as applicable, would have caused
it to make reference to the subject matter of the disagreement in connection with its report on the Companys consolidated financial statements for such years.



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##### Table of Contents

The Company has provided KPMG with a copy of the foregoing disclosures. Attached as Exhibit 16.1 is a
copy of KPMGs letter, dated December 19, 2002, stating that it agrees with such statements.



On December 12, 2002, the Board of Directors of the Company approved the engagement of PricewaterhouseCoopers, LLP (PWC) effective as of
January 1, 2003.



During the three most recent fiscal years
ended December 31, 2002, 2001 and 2000, the Company has not consulted with PWC regarding either (i) the application of accounting principles to a specific completed or contemplated transaction; or the type of audit opinion that might be rendered on
the Companys consolidated financial statements, and neither written nor oral advice was provided to the Company that PWC concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing, or
financial reporting issues; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K or a reportable event as defined
in Item 304(a)(1)(v).



|Item 9A. | Controls and Procedures
|-------- | -----------------------



For the period ending December 31, 2003 (the Evaluation Date), we carried out an evaluation, under the supervision and with the participation
of our management, including our President and Chief Executive Officer and our Chief Financial Officer (the principal finance and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures
pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon this evaluation, our President and Chief Executive Officer and our Chief Financial Officer concluded that, as of December 31,
2003, our disclosure controls and procedures were adequate to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, and summarized and reported within the time
periods specified in the SECs rules and forms.



Additionally, our President and Chief Executive Officer and Executive Vice President of Finance determined, as of December 31, 2003, that there were no changes in our internal controls or in other factors that could significantly affect our
internal controls.



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##### Table of Contents

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, 2003. Directors are elected to terms
of one year. 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.



|                   |  |     |  |                                                       
|------------------ |  | --- |  | ------------------------------------------------------
|Name               |  | Age |  | Position                                              
|Tatsuhiko Hamamoto |  | 63  |  | Chairman of the Board of Directors                    
|Francisco Póvoa    |  | 54  |  | Director                                              
|Toshihiro Kabasawa |  | 49  |  | Director                                              
|Dalton Nosé        |  | 55  |  | Director                                              
|Vicente Wright     |  | 51  |  | President and Chief Executive Officer                 
|Ricardo Bernandes  |  | 41  |  | Executive Vice President and Chief Financial Officer  
|Toshiyuki Tamai    |  | 52  |  | Executive Vice President, Operations                  
|James Wilson       |  | 56  |  | Vice President, Sales                                 
|Brett Guge         |  | 49  |  | Vice President, Administration and Corporate Secretary



Tatsuhiko Hamamotohas 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 (now JFE 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 Póvoahas 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. Póvoa 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, Société
Européenne DAlliages Pour La Sidérurgie (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.
Póvoa graduated from Universidade Federal de Minas Gerais with a Mining Engineering Degree.



Toshihiro Kabasawahas 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.



Dalton Nosé has served as a Director since
January 1, 2002. He has been employed by Companhia Vale do Rio Doce since February 2001 where he serves as the Development Director. From 1975 through 2001, Mr. Nosé held management positions, including that of President and CEO, at a number
of Brazilian steel and manufacturing companies, including twenty years of working with the KORF Group and associated companies in Germany and Brazil. Mr. Nosé has specialized in operations and engineering, with a strong emphasis on
implementing new technologies. Mr. Nosé graduated from Instituto Maua de Technologia with a B.S. in Metallurgical Engineering.



Vicente Wright was named President and Chief Executive Officer in February, 2003. Mr. Wright served as the Executive Vice President, Finance, from
February, 1998 to February, 2003. 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 Tubarão. 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 steel mill, from 1994 to



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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.



Ricardo Bernandes joined the Company on September 15, 2003, as Executive Vice President and Chief Financial Officer. Mr. Bernandes held various financial and executive positions in Brazil with RBS Group from
November 1995 to July 2003, including the positions of Executive Director of Business Development, CFO Media, Broadcasting Finance Director and Telecommunications Director. He is familiar with the steel industry from his work on various projects as
a senior consultant for Booz Allen & Hamilton in Latin America and from his work experience with the Gerdau Group. Mr. Bernandes holds a Masters of Business Administration from the University of California, Los Angeles.



Toshiyuki Tamaihas 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.



James Wilsonhas 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 Gugehas 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.



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 Póvoa, Mr. Kazuo Fujisawa of JFE Steel Corporation and Mr. Marcus Roger M.M. da Costa of Companhia Vale do Rio Doce. The Compensation Committee met twice during 2003. 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 Director Toshihiro Kabasawa, Mr. Gilberto Pena and Mr. Leonardo Moretzohn of
Companhia Vale do Rio Doce, and Mr. Hiroyuki Tezuka of JFE Steel Corporation. This committee met twice during 2003. 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.



There is no separate Audit Committee as audit related decisions are made by the entire Board of Directors. The Board of Directors does not contain an
audit committee financial expert as such term is defined in Item 401(h)(2) of Regulation S-K and has not determined that such an expert is necessary to properly carry out its oversight responsibilities.



Director Compensation



For their service as our Directors for fiscal year 2003, 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 $348,384 as our employee. In addition to his salary he received $178,386 in incentive compensation,
$7,873 in other compensation and $9,552 in matching contribution to his account in our 401(k) plan.



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Code of Ethics



We have not adopted a written code of ethics for our principal executive officer, principal financial officer, principal accounting officer or controller,
or persons performing similar functions. Ethical oversight and actual or apparent conflicts of interest have historically been handled informally by senior management and the Board of Directors. We are currently reviewing examples of written codes
of ethics and will address the adoption of such a code with the Board of Directors during 2004.



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|Item 11. | Executive Compensation
|-------- | ----------------------



The following summary compensation table sets forth information regarding compensation earned in the fiscal years ended December 31, 2003, 2002, and 2001
by our Chief Executive Officer and each of our other four most highly compensated executive officers whose salary and bonus exceeded $100,000.



Summary Compensation Table



|                                             |  |                     |  |        |                        |                        |                        |                           |  |   |         |      |  |   |  |   |        |    
|-------------------------------------------- |  | ------------------- |  | ------ | ---------------------- | ---------------------- | ---------------------- | ------------------------- |  | - | ------- | ---- |  | - |  | - | ------ | ---
|                                             |  | Annual Compensation |  |        | Long-Term Compensation |                        | All Other Compensation |                          
|Name and Principal Position                  |  | Year                |  | Salary |                        | Incentive Compensation |                        | Other Annual Compensation |  |   |        
|                                             |  |                     |  |        | LTIP Payouts           |                       
|Vicente Wright(1)                            |  | 2003                |  | $      | 327,081                |                        | $                      | 110,938                   |  | $ | 139,526 | (3)  |  |  |  | $ | 9,260. | (2)
|President and Chief Executive Officer        |  | 2002                |  | $      | 217,360                |                        | $                      | 45,010                    |  | $ | 110,001 | (4)  |  |  |  | $ | 8,500  | (2)
|                                             |  | 2001                |  | $      | 217,199                |                        | $                      | 114,950                   |  | $ | 128,324 | (5)  |  |  |  | $ | 9,384  | (2)
|                                             |  |                     |  |        |                        |                       
|Mr. Toshiyuki Tamai                          |  | 2003                |  | $      | 224,763                |                        | $                      | 115,502                   |  | $ | 59,458  | (6)  |  |  |  | $ | 9,973  | (2)
|Executive Vice President, Operations         |  | 2002                |  | $      | 217,360                |                        | $                      | 64,789                    |  | $ | 26,984  | (7)  |  |  |  | $ | 5,462  | (2)
|                                             |  | 2001                |  | $      | 167,826                |                        | $                      | 3,256                     |  | $ | 30,424  | (8)  |  |  |  | $ | 4,610  | (2)
|                                             |  |                     |  |        |                        |                       
|Brett Guge                                   |  | 2003                |  | $      | 206,812                |                        | $                      | 102,171                   |  | $ | 15,175  | (9)  |  |  |  | $ | 9,943  | (2)
|Vice President, Administration               |  | 2002                |  | $      | 200,000                |                        | $                      | 60,050                    |  | $ | 14,751  | (9)  |  |  |  | $ | 8,500  | (2)
|& Corporate Secretary                        |  | 2001                |  | $      | 199,369                |                        | $                      | 45,980                    |  | $ | 23,470  | (9)  |  |  |  | $ | 9,006  | (2)
|                                             |  |                     |  |        |                        |                       
|Jim Wilson                                   |  | 2003                |  | $      | 206,042                |                        | $                      | 106,371                   |  | $ | 17,563  | (9)  |  |  |  | $ | 9,942  | (2)
|Vice President, Sales                        |  | 2002                |  | $      | 200,000                |                        | $                      | 23,650                    |  | $ | 16,797  | (9)  |  |  |  | $ | 8,500  | (2)
|                                             |  | 2001                |  | $      | 200,000                |                        | $                      | 12,319                    |  | $ | 24,738  | (9)  |  |  |  | $ | 8,500  | (2)
|                                             |  |                     |  |        |                        |                       
|C. Lourenco Goncalves(1)                     |  | 2003                |  | $      | 60,035                 |                        | $                      | 177,215                   |  | $ | 66,514  | (10) |  |  |  | $ | 5,139  | (2)
|Former President and Chief Executive Officer |  | 2002                |  | $      | 336,910                |                        | $                      | 36,109                    |  | $ | 57,537  | (11) |  |  |  | $ | 8,500  | (2)
|                                             |  | 2001                |  | $      | 336,661                |                        | $                      | 25,000                    |  | $ | 136,009 | (12) |  |  |  | $ | 10,500 | (2)

---

|(1) | Mr. Vicente Wright took over the position following the resignation of Mr. C. Lourenco
Goncalves on February 21, 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------



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



|(3) | Represents $10,250 in car allowance and $129,276 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Represents $10,679 in car allowance and $99,322 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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 $6,850 in car allowance and $52,608 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 $6,850 in car allowance and $20,134 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(8) | Represents $4,610 in car allowance and $25,814 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | Represents car allowance and other fringe benefits.
|--- | ---------------------------------------------------



|(10) | Represents $1,460 in car allowance and $65,054 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 $10,524 in car allowance and $47,013 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 $10,750 in car allowance and $125,259 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.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Supplemental Executive Retirement Plans and Separation Agreement



On January 16, 2003, the Company entered into a Supplemental Executive Retirement Plan with James L. Wilson, Vice President, Sales, intended to induce Mr.
Wilson to remain in our employ. Upon his retirement, the Company is obligated to pay Mr. Wilson 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 6% for 2003 and 7% per year thereafter, continuing yearly except for the year Mr. Wilson 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. Wilson reaches age 65. At December 31, 2003, he was vested 6% under this agreement.



On September 19, 2000, the Company entered into a Supplemental Executive
Retirement Plan with Brett J. Guge, Vice President, Administration and Corporate Secretary, intended to induce Mr. Guge to remain in our employ. Upon his retirement, the Company is 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, 2003, he was vested
16% under this agreement.



Shareholders Agreement



We are owned 50% by JFE Steel USA, Inc. (formerly Kawasaki Steel Holdings
(USA), Inc.), a Delaware corporation and a subsidiary of JFE Steel Corporation (formerly 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 July 1999, the stockholders
approved a revision to the Bylaws of the Company changing the number of directors to 4, however, no corresponding change was made to the Shareholders Agreement). 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



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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 Tubarão and use Seamar Shipping Corporation for ocean transportation of
slab at negotiated prices, however, with the approval of the stockholders, we ceased using Seamar for ocean transportation in 2001.



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 the maximum dividend 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 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 $12,000 for 2003. 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 Tubarão. 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 Póvoa, Mr. Yasuhiro Sakamoto, and Mr. Marcus Roger M.M. da Costa served as members of our Compensation Committee in 2003. Except for Mr. Hamamoto, none of the members of
the Compensation Committee was, during 2003, an officer, employee or formerly an officer or employee of ours or our subsidiary.



Mr. Sakamoto served as Deputy General Manager, Overseas, Corporate Planning Department of JFE Steel Corporation (formerly Kawasaki Steel Corporation)
during 2003. JFE Steel Corporations subsidiary, JFE Steel (USA), Inc. is one of our



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stockholders. During 2003, no amounts were paid to JFE Steel for participation on the committee. In 2003, Mr. Póvoa 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 2003, 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.



Submitted by the Compensation Committee of the Board of Directors:Tatsuhiko Hamamoto Francisco Póvoa Yasuhiro Sakamoto 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, 2003, 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.



|                             |  |        |  |            |                   |  |        |  |            |  
|---------------------------- |  | ------ |  | ---------- | ----------------- |  | ------ |  | ---------- | -
|                             |  | Common |  |            | Class C Preferred | 
|Name of Beneficial Owner     |  | Number |  | % of Class |                   |  | Number |  | % of Class |  
|Rio Doce Limited             |  | 500    |  | 50         | %                 |  | 1,500  |  | 50         | %
|546 5th Avenue, 12th Floor   |  |        |  |            |                   |  |        |  |            |  
|New York, New York 10036     |  |        |  |            |                   |  |        |  |            |  
|JFE Steel U.S.A., Inc.(1)    |  | 500    |  | 50         | %                 |  | 1,500  |  | 50         | %
|c/o Corporation Trust Center |  |        |  |            |                   |  |        |  |            |  
|1209 Orange Street           |  |        |  |            |                   |  |        |  |            |  
|Wilmington, Delaware 19801   |  |        |  |            |                   |  |        |  |            |  



|(1) | On June 4, 2003, Kawasaki Steel Holdings (USA), Inc, one of the stockholders of the Company, changed its corporate name to JFE Steel U.S.A., Inc.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------



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



|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------



Our stockholders, JFE Steel (USA), Inc., a subsidiary of JFE 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.



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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 Tubarão, a subsidiary of both Companhia Vale do Rio Doce and JFE Steel Corporation. During 2003, we purchased $87,252,000 of slab from Companhia
Siderurgica de Tubarão and $6,048,000 of slab from JFE Steel Corporation. We also hold a 4% interest in the common stock of Companhia Siderurgica de Tubarão.



We conducted arms-length negotiations with Companhia Siderurgica de Tubarão and JFE Steel Corporation in 2003. The
Shareholders Agreement provides that we shall continuously purchase slabs from Companhia Siderurgica de Tubarão under terms and conditions as agreed upon by Companhia Siderurgica de Tubarão and us. The executive officer
negotiating the market price for the steel slab was our Executive Vice PresidentFinance & CFO.



We chartered vessels from Seamar Shipping Corporation (Seamar), in 2002 and prior years, a subsidiary of Companhia Vale do Rio Doce, for the ocean
transfer of slab to the Port of Los Angeles. During 2003 we did not charter any vessels from Seamar, in 2002, we incurred $574,000 in charter fees from Seamar for its services. The Shareholders Agreement provided that we would 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 & CFO.



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), which is not a related party. CSIs new agreement with PST is for 10 years commencing with January, 2001.



|Item 14. | Principal Accounting Fees and Services
|-------- | --------------------------------------



Aggregate Fees Billed by Principal Accountants in the Past Two Years.



|                            |  |      |         |      |   |        
|--------------------------- |  | ---- | ------- | ---- | - | -------
|                            |  | 2003 |         | 2002
|KPMG, LLP                   |  |      |         |      |   |        
|Audit Fees                  |  | $    |        |      | $ | 120,000
|Audit Related Fees          |  | $    | 16,700  |      | $ | 31,000 
|Tax Fees                    |  | $    | 199,035 |      | $ | 207,070
|Other Fees                  |  | $    |        |      | $ | 7,200  
|PricewaterhouseCoopers, LLP |  |      |         |      |   |        
|Audit Fees                  |  | $    | 130,000 |      |   |        
|Audit Related Fees          |  | $    | 21,000  |      |   |        
|Tax Fees                    |  | $    |        |      |   |        
|Other Fees                  |  | $    |        |      |   |        



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PART IV



|Item 15. | 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:



|                                                                                                      |  |     
|----------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                      |  | Page
|Index to Consolidated Financial Statements                                                            |  | F-1 
|Report of Independent Auditors by PricewaterhouseCoopers, LLP as of December 31, 2003                 |  | F-2 
|Independent Auditors Report by KPMG LLP as of December 31, 2002 and 2001                             |  | F-3 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                          |  | F-4 
|Consolidated Statements of Operations for the years ended December 31, 2003, 2002, and 2001           |  | F-5 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2003, 2002, and 2001 |  | F-6 
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002, and 2001           |  | F-7 
|Notes to Consolidated Financial Statements                                                            |  | F-8 
|                                                                                                      | 
|2. Consolidated Financial Statement Schedule:                                                         |  |     
|                                                                                                      | 
|Schedule IIValuation and Qualifying Accounts                                                         |  | S-1 



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 2003:



| | 1. | Form 8-K filed on October 14, 2003
| | -- | ----------------------------------

Item 9 Regulation FD
Disclosure

Item 12. Use of Non-GAAP Financial Measures

Third Quarter Financial Results disclosed in Press Release



(c) Exhibits:



|           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | 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. (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|           | 
|3.3        |  | Bylaws of the Registrant, as amended on July 16, 1999. (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|           | 
|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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



29



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##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|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)                                                                                                                                                                                                                                                                                                                                                                               
|      | 
|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, BankBoston, 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 Tubarão, 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  |  | Contract, dated August 20, 1990, by and between the Registrant and Seamar Shipping Corporation of Monrovia, Liberia.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|      | 
|10.4  |  | 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)                                                                                                                                                                                                                                                                                                                                                
|      | 
|10.5  |  | 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)                                                                                                                                                                                                                                                                                                                                                                                      
|      | 
|10.6  |  | 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)                                                                                                                                                                                                                                                                                                                                                                                             
|      | 
|10.7  |  | Groundwater Indemnity Agreement, dated as of June 1, 1995, between the Registrant and Kaiser Ventures, Inc.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      | 
|10.8  |  | 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)                                                                                                                                                                                                                                                                                                                                                                  
|      | 
|10.9  |  | 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)                                                                                                                                                                                                                                                                                                                                
|      | 
|10.10 |  | 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)                                                                                                                                                                                                                                                                                                                
|      | 
|10.11 |  | 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)                                                                                                                                                                                                                                                                                                                                                                                               
|      | 
|10.12 |  | 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)                                                                                                                                                                                    
|      | 
|10.13 |  | Amendment to Supplemental Executive Retirement Plan, dated October 10, 2000, between the Registrant and James E. Declusin.(3)                                                                                                                                                                                                                                                                                                                                                                                                                                 
|      | 
|10.14 |  | Supplemental Executive Retirement Plan, dated as of September 19, 2000, between the Registrant and Brett J. Guge.(3)                                                                                                                                                                                                                                                                                                                                                                                                                                          



30



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##### Table of Contents

|           |  |                                                                                                                                                                                                                                                                                                                                                                             
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                                                                                                                                                                                                 
|           | 
|10.15      |  | 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)                                                                                                                                   
|           | 
|10.16      |  | Second Amendment, dated as of March 12, 2001, 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. (5)
|           | 
|10.17      |  | 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)                                                                                        
|           | 
|10.18      |  | Fifth Amendment, dated as of March 22, 2002, to Revolving Credit Agreement, dated as of March 10, 1999, among the Registrant, the Banks named therein, and Bank of America National Trust and
Savings Association, as loan and collateral agent and as documentation and letter of credit agent for the Banks. (7)                                                          
|           | 
|10.19      |  | The Burlington Northern and Santa Fe Railway Company BNSFC 302606Amendment 2 Regulated Transportation Contract, dated as of September 4, 2002, by and between the Registrant and The
Burlington Northern and Santa Fe Railway Company.                                                                                                                                     
|           | 
|10.20      |  | Sixth Amendment, dated as of July 17, 2003, to Revolving Credit Agreement, dated as of March 10, 1999, among the Registrant, the Banks named therein, and Bank of America National Trust and
Savings Association, as loan and collateral agent and as documentation and letter of credit agent for the Banks.                                                               
|           | 
|10.21      |  | Supplemental Executive Retirement Plan, dated as of January 16, 2003, between the Registrant and James L. Wilson                                                                                                                                                                                                                                                            
|           | 
|12.1       |  | Statement of Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                             
|           | 
|12.2       |  | Statement of Computation of Ratio of EBITDA to Interest Expense.                                                                                                                                                                                                                                                                                                            
|           | 
|16.1       |  | Letter from KPMG to the Securities and Exchange Commission, dated December 19, 2002 (8).                                                                                                                                                                                                                                                                                    
|           | 
|21.1       |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                             
|           | 
|31.1       |  | Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                           
|           | 
|31.2       |  | Certification of Executive Vice President, Finance pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                               
|           | 
|32.1       |  | Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                           
|           | 
|32.2       |  | Certification of Executive Vice President, Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                               



|(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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31



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##### Table of Contents

|(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 9, 2001.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Incorporated by reference to the Registrants Annual Report on Form 10-K, for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on March
28, 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q, for the period ended March 31, 2002, as filed with the Securities and Exchange Commission on April
29, 2002.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Incorporated by reference to the Registrants Quarterly Report on Form 8-K, filed with the Securities and Exchange Commission on December 19, 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------



32



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##### Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                     |  |     
|---------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                     |  | Page
|Report of Independent Auditors by PricewaterhouseCoopers LLP as of December 31, 2003                 |  | F-2 
|                                                                                                     | 
|Independent Auditors Report by KPMG LLP as of December 31, 2002 and 2001                            |  | F-3 
|                                                                                                     | 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                         |  | F-4 
|                                                                                                     | 
|Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001           |  | F-5 
|                                                                                                     | 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2003, 2002 and 2001 |  | F-6 
|                                                                                                     | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001           |  | F-7 
|                                                                                                     | 
|Notes to Consolidated Financial Statements                                                           |  | F-8 



F - 1



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##### Table of Contents

Report of Independent Auditors



To the Board of
Directors and Shareholders of

California Steel Industries, Inc.:



In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1), present fairly, in all material respects, the financial
position of California Steel Industries, Inc. and its subsidiary (the Company) at December 31, 2003, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Companys management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



PricewaterhouseCoopers LLP

Los Angeles, California

February 23, 2004



F - 2



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##### Table of Contents

Independent Auditors Report



The Board of
Directors

California Steel Industries, Inc.:



We have audited the accompanying consolidated balance sheet of California Steel Industries, Inc. and subsidiary as of December 31, 2002, and the related consolidated
statements of operations, stockholders equity, and cash flows for each of the years in the two-year period ended December 31, 2002. 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, 2002 and the results of their operations and their cash flows for each of the years in the two year period ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.



As described in Note 2a, the Company
has restated its 2002 consolidated financial statements.



/s/    KPMG LLP



Orange
County, California

January 17, 2003



F-3



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##### Table of Contents

California Steel Industries, Inc. and Subsidiary



Consolidated Balance Sheets

December 31, 2003 and 2002

(Dollars in thousands except for share amounts)



|                                                                                                                   |  |      |         |                             |   |        
|------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | --------------------------- | - | -------
|                                                                                                                   |  | 2003 |         | 2002 (restated -see note 2)
|Assets                                                                                                             |  |      |         |                             |   |        
|Current assets                                                                                                     |  |      |         |                             |   |        
|Cash and cash equivalents (Note 2)                                                                                 |  | $    | 42,647  |                             | $ | 2,891  
|Trade accounts receivable, less allowance for doubtful receivables of $400 and $300 in 2003 and 2002, respectively |  |      | 50,206  |                             |   | 67,640 
|Inventories (Note 3)                                                                                               |  |      | 136,812 |                             |   | 190,709
|Deferred income taxes (Note 11)                                                                                    |  |      | 463     |                             |   | 3,138  
|Other receivables and prepaid expenses                                                                             |  |      | 4,191   |                             |   | 3,081  
|                                                                                                                   |  |      |         |                             |   |        
|Total current assets                                                                                               |  |      | 234,319 |                             |   | 267,459
|Investment in affiliated company (Notes 6 and 9)                                                                   |  |      | 36,753  |                             |   | 36,765 
|Other assets                                                                                                       |  |      | 2,661   |                             |   | 2,897  
|Property, plant and equipment, net (Note 4)                                                                        |  |      | 233,612 |                             |   | 245,193
|                                                                                                                   |  |      |         |                             |   |        
|Total assets                                                                                                       |  | $    | 507,345 |                             | $ | 552,314
|                                                                                                                   |  |      |         |                             |   |        
|Liabilities and Stockholders Equity                                                                               |  |      |         |                             |   |        
|Current liabilities                                                                                                |  |      |         |                             |   |        
|Accounts payable (Note 9)                                                                                          |  | $    | 42,337  |                             | $ | 71,872 
|Accrued interest expense (Note 7)                                                                                  |  |      | 3,252   |                             |   | 3,414  
|Accrued utilities                                                                                                  |  |      | 3,303   |                             |   | 4,305  
|Income taxes payable (Note 11)                                                                                     |  |      | 1,982   |                             |   | 2,774  
|Deferred rent                                                                                                      |  |      | 4,432   |                             |   | 3,113  
|Other accrued expenses (Notes 10 and 12)                                                                           |  |      | 6,646   |                             |   | 6,214  
|                                                                                                                   |  |      |         |                             |   |        
|Total current liabilities                                                                                          |  |      | 61,952  |                             |   | 91,692 
|                                                                                                                   |  |      |         |                             |   |        
|Long-term debt (Note 7)                                                                                            |  |      | 150,000 |                             |   | 163,000
|Deferred income taxes (Note 11)                                                                                    |  |      | 54,573  |                             |   | 50,468 
|Commitments and contingencies (Notes 5, 7, 9, 10, 11 and 12)                                                       |  |      |         |                             |   |        
|Redeemable preferred stock (Note 8)                                                                                |  |      |         |                             |   |        
|Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares; issued and outstanding 3,000 shares |  |      | 30,000  |                             |   | 30,000 
|Stockholders equity (Note 8)                                                                                      |  |      |         |                             |   |        
|Class A preferred stock, $10,000 par value per share. Authorized 1,000 shares; issued none                         |  |      |        |                             |   |       
|Class B preferred stock, $10,000 par value per share. Authorized 2,000 shares; issued none                         |  |      |        |                             |   |       
|Common stock, no par value. Authorized 2,000 shares; issued and outstanding 1,000 shares                           |  |      | 10,000  |                             |   | 10,000 
|Retained earnings                                                                                                  |  |      | 200,820 |                             |   | 207,154
|                                                                                                                   |  |      |         |                             |   |        
|Total stockholders equity                                                                                         |  |      | 210,820 |                             |   | 217,154
|                                                                                                                   |  |      |         |                             |   |        
|Total liabilities and stockholders equity                                                                         |  | $    | 507,345 |                             | $ | 552,314
|                                                                                                                   |  |      |         |                             |   |        



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



F - 4



---

##### Table of Contents

California Steel Industries, Inc. and Subsidiary

Consolidated Statements of Operations

For the Years Ended December 31, 2003, 2002 and 2001

(Dollars in thousands)



|                                                            |  |      |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                            |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Net sales                                                   |  | $    | 763,556 |   |      | $ | 754,355 |      |  | $ | 640,390 |  
|Cost of sales (Note 9)                                      |  |      | 719,935 |   |      |   | 657,085 |      |  |   | 612,713 |  
|                                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Gross profit                                                |  |      | 43,621  |   |      |   | 97,270  |      |  |   | 27,677  |  
|Selling, general and administrative expenses (Note 12)      |  |      | 25,607  |   |      |   | 26,013  |      |  |   | 23,350  |  
|(Gain) loss on disposition of property, plant and equipment |  |      | 114     |   |      |   | (492    | )    |  |   | 802     |  
|                                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Income from operations                                      |  |      | 17,900  |   |      |   | 71,749  |      |  |   | 3,525   |  
|Other income (expense)                                      |  |      |         |   |      |   |         |      |  |   |         |  
|Equity in income of affiliate (Note 6)                      |  |      | 1,950   |   |      |   | 150     |      |  |   | 1,274   |  
|Interest expense, net (Note 7)                              |  |      | (13,120 | ) |      |   | (14,127 | )    |  |   | (16,316 | )
|Other, net                                                  |  |      | 85      |   |      |   | 367     |      |  |   | 4,200   |  
|                                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income tax expense (benefit)           |  |      | 6,815   |   |      |   | 58,139  |      |  |   | (7,317  | )
|Income tax expense (benefit) (Note 11)                      |  |      | 2,271   |   |      |   | 23,138  |      |  |   | (3,606  | )
|                                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                           |  |      | 4,544   |   |      |   | 35,001  |      |  |   | (3,711  | )
|Preferred dividends declared and paid                       |  |      | (8,909  | ) |      |   | (14,284 | )    |  |   | (3,000  | )
|                                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Net income (loss) available to common stockholders          |  | $    | (4,365  | ) |      | $ | 20,717  |      |  | $ | (6,711  | )
|                                                            |  |      |         |   |      |   |         |      |  |   |         |  



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



F - 5



---

##### Table of Contents

California Steel Industries, Inc. and Subsidiary

Consolidated Statements of Stockholders Equity

For the Years Ended December 31, 2003, 2002 and 2001

(Dollars in thousands, except per share amounts)



|                                                   |  |              |        |                   |   |         |                            |  |   |         |  
|-------------------------------------------------- |  | ------------ | ------ | ----------------- | - | ------- | -------------------------- |  | - | ------- | -
|                                                   |  | Common Stock |        | Retained Earnings |   |         | Total Stockholders Equity | 
|Balance at December 31, 2000 (restatedsee note 2) |  | $            | 10,000 |                   | $ | 196,909 |                            |  | $ | 206,909 |  
|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 (restatedsee note 2) |  |              | 10,000 |                   |   | 190,198 |                            |  |   | 200,198 |  
|Net income for the year ended December 31, 2002    |  |              |       |                   |   | 35,001  |                            |  |   | 35,001  |  
|Cash dividends (Note 8)                            |  |              |        |                   |   |         |                            |  |   |         |  
|Class C preferred stock, $4,761 on 3,000 shares    |  |              |       |                   |   | (14,284 | )                          |  |   | (14,284 | )
|Common stock, $3,761 on 1,000 shares               |  |              |       |                   |   | (3,761  | )                          |  |   | (3,761  | )
|                                                   |  |              |        |                   |   |         |                            |  |   |         |  
|Balance at December 31, 2002 (restatedsee note 2) |  |              | 10,000 |                   |   | 207,154 |                            |  |   | 217,154 |  
|Net income for the year ended December 31, 2003    |  |              |       |                   |   | 4,544   |                            |  |   | 4,544   |  
|Cash dividends (Note 8)                            |  |              |        |                   |   |         |                            |  |   |         |  
|Class C preferred stock, $2,970 on 3,000 shares    |  |              |       |                   |   | (8,909  | )                          |  |   | (8,909  | )
|Common stock, $1,969 on 1,000 shares               |  |              |       |                   |   | (1,969  | )                          |  |   | (1,969  | )
|                                                   |  |              |        |                   |   |         |                            |  |   |         |  
|Balance at December 31, 2003                       |  | $            | 10,000 |                   | $ | 200,820 |                            |  | $ | 210,820 |  
|                                                   |  |              |        |                   |   |         |                            |  |   |         |  



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





F - 6



---

##### Table of Contents

California Steel Industries, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2003, 2002 and 2001

(Dollars in thousands)



|                                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                        |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Cash flows from operating activities                                                    |  |      |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                                                       |  | $    | 4,544   |   |      | $ | 35,001  |      |  | $ | (3,711  | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities |  |      |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                           |  |      | 28,660  |   |      |   | 28,827  |      |  |   | 30,204  |  
|(Gain) loss on disposition of property, plant and equipment                             |  |      | 114     |   |      |   | (492    | )    |  |   | 802     |  
|Undistributed earnings of affiliate                                                     |  |      | (1,950  | ) |      |   | (150    | )    |  |   | (1,274  | )
|Dividends received from affiliate                                                       |  |      | 1,962   |   |      |   | 567     |      |  |   | 243     |  
|Changes in assets and liabilities                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Trade accounts receivable, net                                                          |  |      | 17,434  |   |      |   | (16,103 | )    |  |   | 8,461   |  
|Inventories                                                                             |  |      | 53,897  |   |      |   | (54,560 | )    |  |   | 82,430  |  
|Other receivables and prepaid expenses                                                  |  |      | (1,485  | ) |      |   | 4,025   |      |  |   | 1,973   |  
|Accounts payable                                                                        |  |      | (29,535 | ) |      |   | 41,394  |      |  |   | (35,030 | )
|Accrued interest expense                                                                |  |      | (162    | ) |      |   | 2       |      |  |   | (913    | )
|Other accrued expenses and deferred rent                                                |  |      | (43     | ) |      |   | 5,993   |      |  |   | (3,140  | )
|Deferred income taxes                                                                   |  |      | 6,780   |   |      |   | 3,791   |      |  |   | 3,918   |  
|                                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                               |  |      | 80,216  |   |      |   | 48,295  |      |  |   | 83,963  |  
|                                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities                                                    |  |      |         |   |      |   |         |      |  |   |         |  
|Additions to property, plant and equipment                                              |  |      | (16,484 | ) |      |   | (20,812 | )    |  |   | (14,753 | )
|Proceeds (disposal costs) from sale of property, plant and equipment                    |  |      | (98     | ) |      |   | 701     |      |  |   |        |  
|                                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                   |  |      | (16,582 | ) |      |   | (20,111 | )    |  |   | (14,753 | )
|                                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|Cash flows from financing activities                                                    |  |      |         |   |      |   |         |      |  |   |         |  
|Net repayments under line of credit agreement with banks                                |  |      | (13,000 | ) |      |   | (16,000 | )    |  |   | (60,000 | )
|Dividends paid                                                                          |  |      | (10,878 | ) |      |   | (18,045 | )    |  |   | (3,000  | )
|                                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash used in financing activities                                                   |  |      | (23,878 | ) |      |   | (34,045 | )    |  |   | (63,000 | )
|                                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                    |  |      | 39,756  |   |      |   | (5,861  | )    |  |   | 6,210   |  
|Cash and cash equivalents at beginning of year                                          |  |      | 2,891   |   |      |   | 8,752   |      |  |   | 2,542   |  
|                                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of year                                                |  | $    | 42,647  |   |      | $ | 2,891   |      |  | $ | 8,752   |  
|                                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|Supplemental disclosures of cash flow information                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Cash paid (received) during the year for                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Interest (net of amount capitalized)                                                    |  | $    | 13,454  |   |      | $ | 13,885  |      |  | $ | 17,475  |  
|Income taxes                                                                            |  | $    | (3,718  | ) |      | $ | 14,576  |      |  | $ | (7,682  | )



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



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##### Table of Contents

California Steel Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2003, 2002 and 2001



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, JFE Steel USA, Inc. (formerly 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) Restatement of Previously Issued Financial Statements



The accompanying consolidated financial statements for each of the two years in the period ended December 31, 2002 have been revised from those
originally issued by the Company to reflect the classification of the Companys Class C redeemable preferred stock outside of permanent equity. The impact of this revision, which has been reflected throughout the consolidated financial
statements and accompanying notes, is as follows (amounts in thousands):



Consolidated Balance Sheet



|                           |  |                   |         |            |   |        
|-------------------------- |  | ----------------- | ------- | ---------- | - | -------
|                           |  | December 31, 2002
|                           |  | As reported       |         | As revised
|Redeemable preferred stock |  | $                 |        |            | $ | 30,000 
|Total stockholders equity |  |                   | 247,154 |            |   | 217,154



Consolidated Statement
of Stockholders Equity



|                             |  |                 |        |                            |   |                 |  |                            |  |   |        
|---------------------------- |  | --------------- | ------ | -------------------------- | - | --------------- |  | -------------------------- |  | - | -------
|                             |  | As reported     |        | As revised                
|                             |  | Preferred Stock |        | Total Stockholders Equity |   | Preferred Stock |  | Total Stockholders Equity
|Balance at December 31, 2002 |  | $               | 30,000 |                            | $ | 247,154         |  |                           |  | $ | 217,154



b) 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.



c) Cash and Cash Equivalents



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##### Table of Contents

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.



d) Inventories



Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method.



e) Investment in Affiliated Company



Investment in affiliated company consists of 4% of the common stock of Companhia Siderúrgica de Tubarão (CST), a Brazilian
semi-finished steel slab and hot-rolled steel 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.



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##### Table of Contents

|2. | Summary of Significant Accounting Policies (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) 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. Ordinary repairs and maintenance are charged to operating costs.



h) Impairment of Long-Lived Assets



The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting 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. Assets to be disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.



i) 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. A valuation allowance is provided against the deferred tax asset for amounts which are not considered more likely than not
to be realized.



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##### Table of Contents

|2. | Summary of Significant Accounting Policies (Continued)
|-- | ------------------------------------------------------



j) 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).
Costs of future expenditures for environmental remediation obligations are not discounted to their present value



k) 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.



l) Fair Value of Financial Instruments



The carrying value of cash and cash equivalents, trade accounts receivable,
other receivables, 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, 2003 and 2002 are listed as follows (dollars in
thousands):



|              |  |                 |         |            |   |                 |  |            |         |  |   |        
|------------- |  | --------------- | ------- | ---------- | - | --------------- |  | ---------- | ------- |  | - | -------
|              |  | 2003            |         | 2002      
|              |  | Carrying Amount |         | Fair Value |   | Carrying Amount |  | Fair Value
|Senior notes  |  | $               | 150,000 |            | $ | 157,500         |  | $          | 150,000 |  | $ | 151,125
|Notes payable |  |                 |        |            |   |                |  |            | 13,000  |  |   | 13,000 



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##### Table of Contents

|2. | Summary of Significant Accounting Policies (Continued)
|-- | ------------------------------------------------------



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 and title has transferred to the customer. For products shipped FOB destination, revenue is recognized at the time of delivery and title has transferred to the
customer.



n) Recent Accounting Pronouncements



In January 2003, the FASB issued FASB Interpretation
(FIN) No. 46, Consolidation of Variable Interest Entities. FIN No. 46, as amended in December 2003, clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or in which equity investors do not bear the residual economic risks. This interpretation applies immediately to
variable interest entities created after January 31, 2003. It applies in the first fiscal year or interim period ending after December 15, 2003, to variable interest entities considered to be a special purpose entity (SPE) in which an
enterprise holds a variable interest that it acquired before February 1, 2003. For non-SPE variable purpose entities acquired before February 1, 2003, the interpretation must be adopted no later than the first interim or annual reporting period
ending after March 15, 2004. The interpretation may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated. The adoption of this interpretation is not expected to have a material effect on our consolidated financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liability and Equity (SFAS No. 150). This pronouncement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liability and
equity. SFAS No. 150 requires classification of financial instruments within its scope as a liability, including financial instruments issued in form of shares that are mandatorily redeemable, because those financial instruments are deemed to be, in
essence, obligations of the issuer. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. The adoption of this statement did not have any impact on the Companys consolidated financial position or consolidated results of operations.



o) Reclassifications



Certain prior years amounts have been reclassified to conform with the
current year presentation.



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##### Table of Contents

|3. | Inventories
|-- | -----------



Inventories at December 31, 2003 and 2002 consist of the following (dollars in thousands):



|                  |  |      |         |      |   |        
|----------------- |  | ---- | ------- | ---- | - | -------
|                  |  | 2003 |         | 2002
|Finished goods    |  | $    | 17,562  |      | $ | 18,283 
|Work in process   |  |      | 29,236  |      |   | 24,473 
|Raw materials     |  |      | 81,923  |      |   | 142,008
|Supplies          |  |      | 8,091   |      |   | 5,945  
|                  |  |      |         |      |   |        
|Total inventories |  | $    | 136,812 |      | $ | 190,709
|                  |  |      |         |      |   |        



|4. | Property, Plant and Equipment
|-- | -----------------------------



The following is a summary of property, plant and equipment at December 31, 2003 and 2002 (dollars in thousands):



|                                    |  |      |          |   |      |   |          |  
|----------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                    |  | 2003 |          |   | 2002 |  
|Land                                |  | $    | 17,682   |   |      | $ | 17,682   |  
|Plant and equipment                 |  |      | 487,490  |   |      |   | 476,138  |  
|Plant refurbishment costs           |  |      | 22,220   |   |      |   | 22,220   |  
|Construction in progress            |  |      | 4,525    |   |      |   | 13,734   |  
|                                    |  |      |          |   |      |   |          |  
|                                    |  |      | 531,917  |   |      |   | 529,774  |  
|Less accumulated depreciation       |  |      | (298,305 | ) |      |   | (284,581 | )
|                                    |  |      |          |   |      |   |          |  
|Total property, plant and equipment |  | $    | 233,612  |   |      | $ | 245,193  |  
|                                    |  |      |          |   |      |   |          |  



Capitalized interest
was $52,000, $319,000 and $118,000 for 2003, 2002 and 2001, respectively.



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##### Table of Contents

|5. | Leases
|-- | ------



The Company is obligated under various leases for equipment that expire at various dates during the next five years. At December 31, 2003, 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: |  |  
|2004                     |  | $ | 8,088 
|2005                     |  |   | 2,883 
|2006                     |  |   | 4,644 
|2007                     |  |   | 4,863 
|2008                     |  |   | 5,965 
|Thereafter               |  |   |      
|                         |  |   |       
|                         |  | $ | 26,443
|                         |  |   |       



Lease expense totaled
approximately $5,687,000, $6,260,000 and $6,320,000 for the years ended December 31, 2003, 2002 and 2001, respectively.



|6. | Investment in Affiliated Company
|-- | --------------------------------



The investment in the net assets of CST accounted for under the equity method amounted to $36,753,000 and $36,765,000 at December 31, 2003 and 2002,
respectively.



The Company and its shareholders purchased
their investment in CST at a premium over the market price of the shares, which premium was paid in order to obtain influence over CST. 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 $1,962,000, $567,000 and $243,000 in dividends from CST during the years ended December 31, 2003, 2002 and 2001, respectively.



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##### Table of Contents

|6. | Investment in Affiliated Company (Continued)
|-- | --------------------------------------------



Summarized balance sheet information at September 30, 2003 and 2002 of the Companys
equity-method investee is as follows (dollars in thousands):



|                              |  |      |           |      |   |          
|----------------------------- |  | ---- | --------- | ---- | - | ---------
|                              |  | 2003 |           | 2002
|Current assets                |  | $    | 403,040   |      | $ | 360,595  
|Property, plant and equipment |  |      | 2,832,081 |      |   | 2,868,851
|Other assets                  |  |      | 138,423   |      |   | 152,234  
|Current liabilities           |  |      | 410,818   |      |   | 381,767  
|Long-term liabilities         |  |      | 581,106   |      |   | 600,666  



Summarized statement
of operations information of the Companys equity-method investee, calculated for the period during which the Company had investments in such investee, is as follows (dollars in thousands):



|                                    |  |      |         |      |   |         |  |   |        
|----------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                    |  | 2003 |         | 2002 |   | 2001   
|Net sales                           |  | $    | 962,224 |      | $ | 684,364 |  | $ | 641,302
|Gross profit                        |  |      | 336,689 |      |   | 102,697 |  |   | 95,015 
|Net income and comprehensive income |  |      | 100,943 |      |   | 61,982  |  |   | 25,975 



|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 provided 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.



On June 30, 2003, the Facility was amended with the then existing syndication of four financial institutions for an aggregate principal amount of up to
$110,000,000. The term of the Facility was also extended for a period of three years expiring on June 30, 2006.



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 0.200% to 0.500%, based upon the leverage ratio. The Facility is secured by a first priority security interest in cash and cash equivalents, accounts receivable, inventories and other
assets.



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##### Table of Contents

|7. | Notes Payable and Long-Term Debt (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 June 2006. As of December 31, 2003, there were no outstanding borrowings and as of December
31, 2002, outstanding borrowings of $10,000,000 consisted of advances payable at the Eurodollar rate, which was 2.44%. As of December 31, 2002 outstanding borrowings of $3,000,000 consisted of advances payable at the base rate, which was 4.25%. The
Company had $100,163,000 of borrowings available under the Facility as of December 31, 2003.



Additional fees amounting to $375,000 were incurred to extend the term of the Facility. This and the remaining fees are being amortized over the term of the life of the loan. The unamortized amount of the financing
costs was approximately $416,000 at December 31, 2003.



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, 2003.



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, 2003. 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 $2,245,000 at December 31, 2003.



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##### Table of Contents

|7. | Notes Payable and Long-Term Debt (Continued)
|-- | --------------------------------------------



Long-term debt at December 31, 2003 and 2002 consisted of the following (dollars in thousands):



|                                                                                                                                                                                                                                                                                                                                                             |  |      |         |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                                                                                                                                                             |  | 2003 |         | 2002
|Senior Notes bearing interest at 8.5%, interest payable semi-annually, due April 2009                                                                                                                                                                                                                                                                        |  | $    | 150,000 |      | $ | 150,000
|Notes payable to banks consist of amounts advanced under a $130,000,000 (amended to $110,000,000 at June 2003) 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 June 2006 |  |      |        |      |   | 13,000 
|                                                                                                                                                                                                                                                                                                                                                             |  |      |         |      |   |        
|Long-term debt                                                                                                                                                                                                                                                                                                                                               |  | $    | 150,000 |      | $ | 163,000
|                                                                                                                                                                                                                                                                                                                                                             |  |      |         |      |   |        



|8. | Redeemable Preferred Stock and Stockholders Equity
|-- | ---------------------------------------------------



The Class A, B and C preferred stock is redeemable by the Company at its option, in whole or in part, at par value. The Class C preferred stock has been
classified outside of equity as the preferred stockholders control a majority of the board of directors and therefore control the redemption rights.



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.



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, 2003, 2002 and 2001, $10,878,000, $18,045,000 and $3,000,000, respectively, in dividends were declared and paid.



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##### Table of Contents

|9. | Related Party Transactions
|-- | --------------------------



The Company has transactions in the normal course of business with affiliated companies. The Company is 50% owned by JFE Steel USA Inc., a subsidiary of
JFE Steel, 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, and JFE Steel. In 2001 and part of 2002, the Company chartered vessels from Seamar Shipping
Corporation, a subsidiary of CVRD, for the ocean transfer of slab from Brazil to the Port of Los Angeles. In 2001, the Company also contracted 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 (dollars in thousands):



|                            |  |      |        |      |   |         |  |   |        
|--------------------------- |  | ---- | ------ | ---- | - | ------- |  | - | -------
|                            |  | 2003 |        | 2002 |   | 2001   
|CST                         |  | $    | 87,252 |      | $ | 128,976 |  | $ | 116,254
|JFE Steel                   |  |      | 6,048  |      |   | 5,664   |  |   |       
|Rio Doce Pasha Terminal     |  |      |       |      |   |        |  |   | 17,254 
|Seamar Shipping Corporation |  |      |       |      |   | 574     |  |   | 13,003 



At December 31, 2003
and 2001, the Company owed affiliated companies $12,611,000 and $17,372,000, respectively, for goods and services. At December 31, 2002, no amounts were owed to affiliated companies.



|10. | Commitments and Contingencies
|--- | -----------------------------



At December 31, 2003, the Company is committed, in the form of open purchase orders, to purchase approximately $109,709,000 in steel slabs and other
commitments, of which $25,781,000 is from related parties.



When market conditions warrant, the Company enters into contracts to purchase certain commodities used in the manufacture of its products, such as electricity and natural gas. Any such commodity commitments are expected to be purchased and
used over a reasonable period of time in the normal course of business. Accordingly, pursuant to SFAS No. 133, they are not accounted for as a derivative.



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##### Table of Contents

|10. | Commitments and Contingencies (Continued)
|--- | -----------------------------------------



The Company has been contacted by various governmental agencies regarding specified environmental
matters at its operating facility in Fontana, California. 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.



The Company is addressing environmental concerns
caused by the former occupant at the Companys Fontana site. The Company engaged an environmental consultant to conduct a remedial investigation and develop a remediation plan and remediation cost projections based upon that plan. Utilizing the
remediation plan developed by the environmental consultant, the Company developed an estimate of future costs of the remediation plan. The total aggregate cost of remediation is estimated to be approximately $1.8 million, which is included in the
other accrued expenses in the 2003 and 2002 consolidated financial statements. The California Department of Toxic Substances Control (DTSC) has not yet completed its review and approval of the Companys remediation plan; however,
preliminary discussions between the DTSC and the Company have not indicated the need for any significant changes to the remediation plan or to the Companys estimate of related costs. The estimate of costs could change as a result of changes to
the remediation plan required by the DTSC or unforeseen circumstances, including without limitations, unknown site conditions, changes to applicable regulations or increased enforcement requirements by the regulators existing at the site.



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.



F - 19



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##### Table of Contents

|11. | Income Taxes
|--- | ------------



Income tax expense (benefit) for the years ended December 31, 2003, 2002 and 2001 consists of the following (dollars in thousands):



|          |  |      |        |   |      |   |        |  |   |        |  
|--------- |  | ---- | ------ | - | ---- | - | ------ |  | - | ------ | -
|          |  | 2003 |        |   | 2002 |   | 2001   | 
|Current:  |  |      |        |   |      |   |        |  |   |        |  
|Federal   |  | $    | (3,393 | ) |      | $ | 16,296 |  | $ | (6,756 | )
|State     |  |      | (1,116 | ) |      |   | 3,051  |  |   | (768   | )
|          |  |      |        |   |      |   |        |  |   |        |  
|          |  |      | (4,509 | ) |      |   | 19,347 |  |   | (7,524 | )
|          |  |      |        |   |      |   |        |  |   |        |  
|Deferred: |  |      |        |   |      |   |        |  |   |        |  
|Federal   |  |      | 5,840  |   |      |   | 2,781  |  |   | 4,690  |  
|State     |  |      | 940    |   |      |   | 1,010  |  |   | (772   | )
|          |  |      |        |   |      |   |        |  |   |        |  
|          |  |      | 6,780  |   |      |   | 3,791  |  |   | 3,918  |  
|          |  |      |        |   |      |   |        |  |   |        |  
|          |  | $    | 2,271  |   |      | $ | 23,138 |  | $ | (3,606 | )
|          |  |      |        |   |      |   |        |  |   |        |  



Actual tax expense
(benefit) varies from the expected tax expense (benefit) (computed by applying the U.S. federal statutory tax rate of 35% to income (loss) before income tax expense (benefit)) as follows (dollars in thousands):



|                                                              |  |      |       |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                              |  | 2003 |       |   | 2002 |   |        | 2001 | 
|Computed expected tax expense (benefit)                     |  | $    | 2,385 |   |      | $ | 20,349 |      |  | $ | (2,561 | )
|State income taxes, net of federal benefit                    |  |      | 412   |   |      |   | 3,363  |      |  |   | (221   | )
|State manufacturing investment credit, net of federal benefit |  |      | (526  | ) |      |   | (724   | )    |  |   | (780   | )
|Other                                                         |  |      |      |   |      |   | 150    |      |  |   | (44    | )
|                                                              |  |      |       |   |      |   |        |      |  |   |        |  
|                                                              |  | $    | 2,271 |   |      | $ | 23,138 |      |  | $ | (3,606 | )
|                                                              |  |      |       |   |      |   |        |      |  |   |        |  



F - 20



---

##### Table of Contents

|11. | Income Taxes (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, 2003 and 2002 are as follows (dollars in thousands):



|                                     |  |      |         |   |      |   |         |  
|------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | -
|                                     |  | 2003 |         |   | 2002 |  
|Deferred tax assets:                 |  |      |         |   |      |   |         |  
|Inventory                            |  | $    | 565     |   |      | $ | 1,885   |  
|State taxes                          |  |      | 1,997   |   |      |   | 1,729   |  
|Allowance for doubtful accounts      |  |      | 175     |   |      |   | 132     |  
|Accrued expenses                     |  |      | 1,861   |   |      |   | 1,861   |  
|Net operating loss carryforward      |  |      | 971     |   |      |   | 971     |  
|Other                                |  |      | 26      |   |      |   | 65      |  
|                                     |  |      |         |   |      |   |         |  
|Total gross deferred tax assets      |  |      | 5,595   |   |      |   | 6,643   |  
|Less valuation allowance             |  |      |        |   |      |   |        |  
|                                     |  |      |         |   |      |   |         |  
|Net deferred tax assets              |  |      | 5,595   |   |      |   | 6,643   |  
|                                     |  |      |         |   |      |   |         |  
|Deferred tax liabilities:            |  |      |         |   |      |   |         |  
|Property, plant and equipment        |  |      | (54,567 | ) |      |   | (50,884 | )
|Undistributed earnings of affiliate  |  |      | (2,129  | ) |      |   | (2,135  | )
|Other                                |  |      | (3,009  | ) |      |   | (954    | )
|                                     |  |      |         |   |      |   |         |  
|Total gross deferred tax liabilities |  |      | (59,705 | ) |      |   | (53,973 | )
|                                     |  |      |         |   |      |   |         |  
|Net deferred tax liabilities         |  | $    | (54,110 | ) |      | $ | (47,330 | )
|                                     |  |      |         |   |      |   |         |  



Based on the
Companys historical pretax earnings, management believes it is more likely than not that the Company will realize the benefit of the deferred tax assets existing at December 31, 2003. 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, 2003, the Company has net
operating loss carry forwards for state income tax purposes of $10,986,000, which are available to offset future state taxable income through 2006.



F - 21



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##### Table of Contents

|12. | Employee Benefit and Retirement Plans
|--- | -------------------------------------



a) 401(k) Plan



The Company maintains a 401(k) savings plan (the 401(k) Plan), a tax qualified cash or deferred tax arrangement defined contribution plan
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 the company. Employees are eligible to participate in
the salary reduction portion of the 401k Plan on the first day of the calendar month following their date of hire. Participants may authorize the Company to contribute to the 401(k) Plan on their behalf a percentage of their compensation, not to
exceed the legally permissible limits. The 401(k) Plan provides for the Companys discretionary matching and profit sharing contributions. The Company currently matches 100% of the first 4% of the participants deferral under the 401(k)
Plan and 50% of the next 2% of the participants deferral under the 401(k) Plan each year. 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 401(k) Plan on a pay period basis. Each year the Company may elect to make additional contributions to the 401(k) Plan. This discretionary
employer contribution, if the Company makes it, is allocated to each participants account based on the participants compensation for the year relative to the compensation of all the 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.



Plan expense for the three years ended December 31, 2003, 2002 and 2001 was approximately $2,247,000, $2,235,000 and $2,198,000, respectively.



b) Profit Sharing Plan



The Company sponsors a profit sharing plan under which contributions are
established based on a pool amount, equal to 8% of the Companys income before taxes, gain or loss on disposition of fixed assets, and equity in income (loss) of affiliate. 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, 2003
and 2002 was $891,000 and $5,215,000, respectively. The Company did not incur any profit sharing expense for the year ended December 31, 2001.



F - 22



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##### Table of Contents

|13. | Selected Quarterly Financial Data (Unaudited)
|--- | ---------------------------------------------



Summarized quarterly financial data for 2003 and 2002 is as follows (dollars in thousands):



|                                           |  |         |         |     |   |         |  |   |         |   |       |   |         |  |   |        
|------------------------------------------ |  | ------- | ------- | --- | - | ------- |  | - | ------- | - | ----- | - | ------- |  | - | -------
|                                           |  | Quarter |         |    
|                                           |  | 1st     |         | 2nd |   | 3rd     |  |   | 4th     |   | Total
|2003:                                      |  |         |         |     |   |         |  |   |         |   |       |   |         |  |   |        
|Net sales                                  |  | $       | 198,829 |     | $ | 181,574 |  | $ | 191,215 |   |       | $ | 191,938 |  | $ | 763,556
|Gross profit                               |  |         | 20,259  |     |   | 7,793   |  |   | 1,577   |   |       |   | 13,992  |  |   | 43,621 
|Income (loss) from operations              |  |         | 11,972  |     |   | 2,412   |  |   | (4,141  | ) |       |   | 7,657   |  |   | 17,900 
|Net income (loss)                          |  |         | 5,364   |     |   | 20      |  |   | (3,955  | ) |       |   | 3,115   |  |   | 4,544  
|Redeemable preferred stock, as reported(1) |  |         |        |     |   |        |  |   |        |   |       |   | 30,000  |  |   |        
|Redeemable preferred stock, as adjusted(1) |  |         | 30,000  |     |   | 30,000  |  |   | 30,000  |   |       |   | 30,000  |  |   |        
|Total Stockholders Equity, as reported(1) |  |         | 246,518 |     |   | 246,538 |  |   | 237,705 |   |       |   | 210,820 |  |   |        
|Total Stockholders Equity, as adjusted(1) |  |         | 216,518 |     |   | 216,538 |  |   | 207,705 |   |       |   | 210,820 |  |   |        
|2002:                                      |  |         |         |     |   |         |  |   |         |   |       |   |         |  |   |        
|Net sales                                  |  | $       | 157,512 |     | $ | 188,554 |  | $ | 195,812 |   |       | $ | 212,477 |  | $ | 754,355
|Gross profit                               |  |         | 11,810  |     |   | 29,087  |  |   | 29,029  |   |       |   | 27,344  |  |   | 97,270 
|Income from operations                     |  |         | 6,359   |     |   | 23,106  |  |   | 23,169  |   |       |   | 19,115  |  |   | 71,749 
|Net income                                 |  |         | 1,822   |     |   | 11,422  |  |   | 11,877  |   |       |   | 9,880   |  |   | 35,001 
|Redeemable preferred stock, as reported(1) |  |         |        |     |   |        |  |   |        |   |       |   |        |  |   |        
|Redeemable preferred stock, as adjusted(1) |  |         | 30,000  |     |   | 30,000  |  |   | 30,000  |   |       |   | 30,000  |  |   |        
|Total Stockholders Equity, as reported(1) |  |         | 232,020 |     |   | 232,019 |  |   | 237,274 |   |       |   | 247,154 |  |   |        
|Total Stockholders Equity, as adjusted(1) |  |         | 202,020 |     |   | 202,019 |  |   | 207,274 |   |       |   | 217,154 |  |   |        



|(1) | The Company reclassified its Class C preferred stock outside of equity due to the fact that the holders of such stock control its redemption rights. Previously, the
Company included the $30 million of its Class C preferred stock within equity. Amounts previously reported during the quarters have been adjusted to conform to this presentation.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F - 23



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##### Table of Contents

CALIFORNIA STEEL INDUSTRIES, INC.

AND SUBSIDIARY



SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS



|                                           |  |                              |                              |           |                          |                      |  |   |                        |  |   |            |   |  |   |        
|------------------------------------------ |  | ---------------------------- | ---------------------------- | --------- | ------------------------ | -------------------- |  | - | ---------------------- |  | - | ---------- | - |  | - | -------
|                                           |  | Balance atBeginningof Period |                              | Additions |                          | Deductions toReserve |  |   | Balance atEnd ofPeriod
|                                           |  |                              | Charged to Costs andExpenses |           | Charged to otheraccounts |                      | 
|Year ended December 31, 2003 A/R Allowance |  | $                            | 300,000                      |           | $                        | 322,859              |  | $ |                       |  | $ | (222,859   | ) |  | $ | 400,000
|Year ended December 31, 2002 A/R Allowance |  |                              | 600,000                      |           |                          | 1,204,041            |  |   |                       |  |   | (1,504,041 | ) |  |   | 300,000
|Year ended December 31, 2001 A/R Allowance |  |                              | 600,000                      |           |                          | 270,297              |  |   |                       |  |   | (270,297   | ) |  |   | 600,000





S-1



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##### Table of Contents

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.



March 5, 2004



CALIFORNIA STEEL INDUSTRIES, INC.By:

/s/    VICENTE B. WRIGHTVicente B. Wright, President and Chief Executive Officer




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.



|                                            |  |                                                                                                   |  |              
|------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | -------------
|Signature                                   |  | Title                                                                                             |  | Date         
|                                            |  |                                                                                                  
|/s/    VICENTE B.
WRIGHTVicente B.
Wright   |  | President and Chief Executive Officer (Principal Executive Officer)                               |  | March 5, 2004
|                                            |  |                                                                                                  
|/s/    RICARDO
BERNARDESRicardo
Bernardes   |  | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 5, 2004
|                                            |  |                                                                                                  
|/s/    TATSUHIKO
HAMAMOTOTatsuhiko
Hamamoto |  | Director                                                                                          |  | March 5, 2004
|                                            |  |                                                                                                  
|/s/    TOSHIHIRO
KABASAWAToshihiro
Kabasawa |  | Director                                                                                          |  | March 5, 2004
|                                            |  |                                                                                                  
|/s/    DALTON
NOSEDalton Nose               |  | Director                                                                                          |  | March 5, 2004
|                                            |  |                                                                                                  
|/s/    FRANCISCO
PÓVOAFrancisco
Póvoa       |  | Director                                                                                          |  | March 5, 2004





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##### Table of Contents

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. (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            | 
|3.3         |  | Bylaws of the Registrant, as amended on July 16, 1999. (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|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         |  | Sharehsolders 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            | 
|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 Tubarão, 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        |  | Contract, dated August 20, 1990, by and between the Registrant and Seamar Shipping Corporation of Monrovia, Liberia.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|10.4        |  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|10.5        |  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|10.6        |  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | 
|10.7        |  | Groundwater Indemnity Agreement, dated as of June 1, 1995, between the Registrant and Kaiser Ventures, Inc.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               





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##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                                             
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.8  |  | 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)                                                                                                                                                                                
|      | 
|10.9  |  | 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)                                                                                                                                              
|      | 
|10.10 |  | 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)                                                                                                                              
|      | 
|10.11 |  | 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)                                                                                                                                                                                                             
|      | 
|10.12 |  | 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)  
|      | 
|10.13 |  | Amendment to Supplemental Executive Retirement Plan, dated October 10, 2000, between the Registrant and James E. Declusin.(3)                                                                                                                                                                                                                                               
|      | 
|10.14 |  | Supplemental Executive Retirement Plan, dated as of September 19, 2000, between the Registrant and Brett J. Guge.(3)                                                                                                                                                                                                                                                        
|      | 
|10.15 |  | 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)                                                                                                                                   
|      | 
|10.16 |  | Second Amendment, dated as of March 12, 2001, 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. (5)
|      | 
|10.17 |  | 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)                                                                                        
|      | 
|10.18 |  | Fifth Amendment, dated as of March 22, 2002, to Revolving Credit Agreement, dated as of March 10, 1999, among the Registrant, the Banks named therein, and Bank of America National Trust and
Savings Association, as loan and collateral agent and as documentation and letter of credit agent for the Banks. (7)                                                          
|      | 
|10.19 |  | The Burlington Northern and Santa Fe Railway Company BNSFC 302606Amendment 2 Regulated Transportation Contract, dated as of September 4, 2002, by and between the Registrant and The
Burlington Northern and Santa Fe Railway Company.                                                                                                                                     
|      | 
|10.20 |  | Sixth Amendment, dated as of July 17, 2003, to Revolving Credit Agreement, dated as of March 10, 1999, among the Registrant, the Banks named therein, and Bank of America National Trust and
Savings Association, as loan and collateral agent and as documentation and letter of credit agent for the Banks.                                                               
|      | 
|10.21 |  | Supplemental Executive Retirement Plan, dated as of January 16, 2003, between the Registrant and James L. Wilson                                                                                                                                                                                                                                                            
|      | 
|12.1  |  | Statement of Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                             





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##### Table of Contents

|     |  |                                                                                                                  
|---- |  | -----------------------------------------------------------------------------------------------------------------
|     | 
|12.2 |  | Statement of Computation of Ratio of EBITDA to Interest Expense.                                                 
|     | 
|16.1 |  | Letter from KPMG to the Securities and Exchange Commission, dated December 19, 2002 (8).                         
|     | 
|21.1 |  | Subsidiaries of the Registrant.                                                                                  
|     | 
|31.1 |  | Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|     | 
|31.2 |  | Certification of Executive Vice President, Finance pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.    
|     | 
|32.1 |  | Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.2 |  | Certification of Executive Vice President, Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.    



|(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 9, 2001.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Incorporated by reference to the Registrants Annual Report on Form 10-K, for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on March
28, 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q, for the period ended March 31, 2002, as filed with the Securities and Exchange Commission on April
29, 2002.
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|(8) | Incorporated by reference to the Registrants Quarterly Report on Form 8-K, filed with the Securities and Exchange Commission on December 19, 2002.
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