<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

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

  For the fiscal year ended December 31, 2000

                                      or

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

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

                       Commission File Number: 333-79587

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

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

<TABLE>
<S>                                       <C>
                Delaware                                    33-0051150
      (State or other jurisdiction                       (I.R.S. Employer
   of incorporation or organization)                    Identification No.)
      14000 San Bernardino Avenue
          Fontana, California                                 92335
(Address of principal executive offices)                    (Zip code)
</TABLE>

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

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

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

<TABLE>
<CAPTION>
                                  Name of Each Exchange
            Title of Each Class:  on Which Registered:
            --------------------  ---------------------
            <S>                   <C>
                    None                  None
</TABLE>

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

                                     None
                               (Title of Class)

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

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

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

   As of March 26, 2001, there were 1,000 shares of the registrant's common
stock, no par value, outstanding.


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<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.

                      INDEX TO ANNUAL REPORT ON FORM 10-K

                  For The Fiscal Year Ended December 31, 2000

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
 <C>      <S>                                                              <C>
 PART I..................................................................    1

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

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

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

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

 PART II.................................................................   11

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

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

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

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

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

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

 PART III................................................................   19

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

 Item 11. Executive Compensation........................................    21

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

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

 PART IV.................................................................   26

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

                                    PART I

Item 1. Business

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

Introduction

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

Industry Overview

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

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

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

 Recent Industry Conditions

   In 2000, the United States steel industry entered into its second downward
cycle in the last three years, characterized by excess supply and depressed
prices. In 1998, the difficulties suffered by the industry were generally the
result of increased quantities of lower-priced imports into the United States,
triggered in large part by the Asian financial crisis. This past year, high
import levels have continued. In addition, high inventory levels and a
slowdown in domestic demand have resulted in lower steel sales and depressed
average selling prices.

                                       1
<PAGE>

   During 1999, the International Trade Commission of the U.S. Department of
Commerce and the U.S. International Trade Commission imposed anti-dumping
duties ranging from 17% to 67% on certain foreign steel producers.
Additionally, agreements were concluded between the U.S. government and the
governments of Brazil and Russia to limit hot rolled shipments into the United
States for a period of five years. We believe that this measure of relief
against the significant supply of hot rolled products entering the U.S.
market, through clearly defined limits on imports or additional tariffs,
served as a stabilizing force to domestic steel prices in 1999.

   In 1999, several U.S. steel producers also filed petitions seeking relief
from foreign dumping of several other types of steel products including, but
not limited to, cold rolled steel and electric resistance welded or ERW pipe.
The International Trade Commission in mid-2000 ultimately rejected the trade
case filed against imported cold rolled products. In response to a petition
from the domestic ERW pipe industry, the President of the United States
determined that the domestic ERW pipe industry was severely injured due to a
surge in volume of imported ERW pipe. As a result, the President has imposed
significant limits on the volume of imported ERW pipe for the next several
years.

   In response to continued high volumes of imported steel imports in 2000, a
second round of hot rolled trade cases were filed in late 2000 by a consortium
of domestic steel producers, complementing the successful cases filed in 1999
against Japan, Brazil and Russia. The International Trade Commission has not
yet reached a final determination on this second round of hot rolled trade
cases. Other than the 1999 hot rolled trade cases, we have not participated in
the steel industry trade actions.

   Despite aggressive trade actions, several steel companies in the United
States have initiated bankruptcy proceedings over the last year. Liquidity
concerns plague the industry in general and steel company valuations have been
significantly depressed.

Products and Customers

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

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                            ---------------------------------
                                            2000   1999   1998   1997   1996
                                            -----  -----  -----  -----  -----
   <S>                                      <C>    <C>    <C>    <C>    <C>
   Hot rolled coil and sheet...............  40.7%  47.3%  52.1%  58.0%  58.8%
   Cold rolled coil and sheet..............  16.1%  15.9%  15.1%  12.0%  12.2%
   Galvanized coil and sheet...............  35.6%  29.7%  24.4%  21.8%  22.2%
   ERW pipe................................   7.6%   7.1%   8.4%   8.2%   6.8%
                                            -----  -----  -----  -----  -----
     Total ................................   100%   100%   100%   100%   100%
                                            -----  -----  -----  -----  -----
   Total tons billed, excluding scrap (in
    thousands)............................. 1,753  1,803  1,614  1,625  1,563
                                            =====  =====  =====  =====  =====
</TABLE>

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

   We have approximately 300 active customers, with no single customer
accounting for more than 6% of our 2000 sales. Our customers include service
and processing centers, construction and building material companies, roofing
and decking manufacturers, structural tubing concerns, oil and gas producers
and distributors, wheel and rim manufacturers, packaging and container
companies as well as various customers in other industries.

                                       2
<PAGE>

   We do not actively pursue sales in foreign markets and we make foreign
sales only when they are economically advantageous to us. In 2000, we sold
approximately 8,900 tons of steel product to customers in Mexico and Canada,
which represented approximately 0.51% of our total 2000 tons billed.

   Hot rolled coil and sheet is our largest product category as measured by
tons sold per year. Our customers use hot rolled steel for a variety of
manufacturing applications, including the production of spiral weld pipe,
shipping containers, automobile wheels and rims, strapping, tubing and a
variety of construction related products. In 2000, we directed approximately
40.2% of our hot rolled production to outside sales and we further processed
approximately 59.8% internally for our own higher-margin, value added product
needs.

   Cold rolled coil and sheet are used in exposed steel applications where
high surface quality is important. Typically, cold rolled material is coated
or painted. Applications for our cold rolled products include electronic
cabinetry, lighting fixtures, metal office furniture, water heaters, container
manufacturers, tubing, appliances, galvanized containers and a variety of
construction related products. In 2000, we directed approximately 35.0% of our
cold rolled production to outside sales and we further processed approximately
65.0% internally for our own higher-margin, value added product needs.

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

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

Operations

 Modernization Program

   In 1999 we completed a six-year modernization program encompassing capital
expenditures of approximately $250.0 million. We believe that these
investments have strengthened our competitive position by reducing operating
costs, broadening our product line, improving product quality and
significantly increasing our throughput capacity of flat rolled steel
products. We continued to make additional capital investments in 2000 that
were designed to improve the efficiency of our cold rolled annealing processes
and ensure continued reliability of our hot strip mill.

                                       3
<PAGE>

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

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

 Five-stand cold rolling
  mill modernization....      $64         1997     .  Revamped five-stand cold
                                                      rolling mill and
                                                      increased throughput
                                                      capacity and improved
                                                      overall product quality
                                                   .  Increased maximum width
                                                      of coils produced from
                                                      42 inches to 62 inches,
                                                      allowing for a
                                                      commensurate increase in
                                                      coil weight from 18 to 35
                                                      tons (increased width
                                                      matches width capacity on
                                                      new continuous pickling
                                                      line)

 Reheat furnace.........      $28         1997     .  Walking beam furnace
                                                      substantially replaced
                                                      3 pusher furnaces
                                                   .  Reduced emissions from
                                                      reheating process and
                                                      decreased energy costs

 Second continuous
  galvanizing line......      $73         1998     .  Increased annual capacity
                                                      from 375,000 to
                                                      550,000 tons
                                                   .  Provided ability to
                                                      produce a broader product
                                                      range (we believe the
                                                      widest range in the
                                                      western United States)
                                                   .  Improved efficiency by
                                                      allowing each galvanizing
                                                      line to focus on either
                                                      high or low gauge product
                                                   .  Investment includes a
                                                      capital expenditure of
                                                      $38.5 million and an
                                                      operating lease of $34.5
                                                      million

 Coil handling system...      $14         1999     .  Reduced hot coil cooling
                                                      times from 3 days to
                                                      6-8 hours
                                                   .  Improved product quality
                                                      and efficiency by
                                                      eliminating manual coil
                                                      handling process
</TABLE>

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

Hot Strip Rolling and Finishing Mills

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

                                       4
<PAGE>

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

  .  a walking beam furnace with a capacity of 5,820 tons of slab per day
     supported by one pusher type reheat furnace that can be used to provide
     incremental production needs and increase capacity by 310 tons per day;
     and

  .  the 86 inches 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 inches coil slitter line that can trim product up to 0.375 inches 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 inches diameter x 86
     inches rolls which is used for surface improvements; and

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

 Continuous Pickle Line

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

 Cold Rolled Mill

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

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

  .  a five-stand reduction mill;

  .  an electrolytic cleaning line; and

  .  nine single stack annealing furnaces.

   The five-stand reduction mill reduces pickled steel strip from a gauge
range of 0.075 inches to 0.225 inches to a range of 0.010 inches to 0.172
inches in thickness, with a maximum width of 60 inches. 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 batch annealed before final production
in the 609 temper mill, where the steel is tempered to specified finish and
gauge.

   In year 2000, we initiated a capital improvement project to replace our
existing Hydrogen/Nitrogen gas annealing units with new, state of the art,
Hydrogen Annealing units. Phase I of this Batch Anneal-Hydrogen Annealing
project was completed in August 2000, and included 8 bases. This process heats
steel coils to annealing temperatures in a pure Hydrogen atmosphere, in
comparison to the previous batch annealing process

                                       5
<PAGE>

which used a Hydrogen/Nitrogen mixed gas (HNx) atmosphere. Phase II, with an
additional 12 bases, is under construction now, and is scheduled to be
completed in the third quarter of 2001. Hydrogen annealing provides higher
productivity, improved product quality, and a reduction in utilities
consumption compared to HNx annealing. When complete, the two phases combined
will have an annual capacity of 360,000 tons of cold rolled annealed product
per year.

 Galvanizing Mills

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

   With the addition of our second continuous galvanizing line that was placed
in production in August 1998, we believe that our galvanizing facilities can
produce the full range of coated steel. The combined theoretical capacity of
our galvanizing lines is approximately 550,000 tons per year. However, in 2000
we achieved higher levels of productivity resulting in approximately 634,000
tons of galvanized steel production. The first continuous galvanizing line is
horizontally configured and produces gauges from 0.012 inches to 0.174 inches.
The second continuous galvanizing line is vertically configured and produces
gauges from 0.010 inches to 0.060 inches.

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

 Semi-Finished Steel Slab and Suppliers

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

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

   We typically make our slab purchases on a quarterly basis. As of December
31, 2000 we were committed, in the form of open purchase orders, to purchase
approximately $35 million in steel slabs. In 1999, approximately 90% of our
slab procurement needs were met with slab purchased under annual contracts,
which was a departure from our traditional method of quarterly slab
purchasing. This change resulted from an opportunity to assure slab suppliers
with guaranteed volume in exchange for more attractive pricing. Opportunities
to continue annual contract purchases diminished in the second half of 1999
and in 2000, no slab purchases were made under annual contracts. We do not
anticipate similar opportunities to appear in 2001. We expect to continue to
negotiate slab prices and volume with our traditional suppliers on a quarterly
basis for our slab purchases in 2001.

                                       6
<PAGE>

   Although we are not reliant on any one single vendor, in 2000, we purchased
approximately 27% of our slab from Ispat Mexicana de C. V. -Imexsa of Mexico
and approximately 21% of our slab from Companhia Siderurgica de Tubarao of
Brazil. Ispat Mexicana and Companhia Siderurgica de Tubarao are the only two
steel facilities in the world dedicated solely to the production of steel
slab. Each company currently does not possess production equipment beyond slab
casting.

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

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

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

   We believe that our integrated slab procurement system allows us to manage
our slab inventory levels, ensuring optimal tonnage levels as well as the slab
quality necessary to meet our customers' order specifications. As of December
2000, we had what we believed to be firm backlog orders of approximately
120,000 tons. Based on our average sales price at that time, the backlog value
was approximately $48,000,000. As of December 1999, we had what we believed to
be firm backlog orders of approximately 248,000 tons. Based on our average
sales price at that time, the backlog value was approximately $95,000,000.

Marketing and Customer Service

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

   We are the only producer of flat rolled steel products located in the
western United States which can supply hot rolled, cold rolled and galvanized
coil and sheet. We also produce ERW pipe in diameters ranging from 4.5 inches to
16.0 inches. 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

                                       7
<PAGE>

structure allows us to respond quickly to changes in the timing of customer
requirements, adjust schedules, source stock inventory and meet specialized
shipping needs. Our ability to deliver made-to-order products in a timely
manner allows our customers to maximize their inventory turns and meet
production targets. By maintaining a regional focus, we believe that we can
most effectively service our customers and achieve our goal of increasing
market share in higher margin value added products.

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

Competition

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

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

 U.S. Competition

   We compete with western U.S. based producers of steel sheet products,
including steel processors, one integrated producer and, to a lesser extent,
service centers. Historically, high transportation costs have deterred
midwestern steel manufacturers from accessing the western U.S. market. Many of
our competitors have invested in new plants and equipment, that have improved
their product quality and increased their production efficiencies. In the hot
rolled segment, our principal domestic competitor is Geneva Steel, located in
Provo, Utah. UPI, located in Pittsburg, California, is our principal
competitor in galvanized and cold rolled products. We also compete in the
galvanized market with Steelscape Inc. (formerly known as BHP Coated Steel
Corporation) with two facilities, one located in Kalama, Washington, and the
other in Rancho Cucamonga, California and MSC Pinole-Point Steel, located in
Richmond, California.

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

   Over the past 10 years, mini-mills have been transforming the competitive
environment of the U.S. steel industry. Mini-mills are generally smaller
volume steel producers that use ferrous scrap metal as their basic raw

                                       8
<PAGE>

material and serve regional markets. While no mini-mills in our market
currently produce significant amounts of flat rolled products, at least one
mini-mill has expressed an intention to construct facilities in the western
U.S. to produce hot rolled coil and sheet that might compete with products we
manufacture. Manufacturing techniques have allowed mini-mills to produce types
of sheet products that have traditionally been supplied by us or integrated
producers. We also face increasing competition from producers of materials
such as aluminum, composites, plastics and concrete that compete with steel in
many markets.

 Foreign Competition

   Foreign steel producers consistently compete in the western United States
steel market in all of our product categories. Since the fourth quarter of
1997, we have experienced increased competition from importers primarily
within the hot rolled product sector. Foreign competition within the cold
rolled product sector increased during 2000 following the failure of trade
suits initiated by certain U.S. steel companies earlier in the year. Although
imported steel has relatively long lead times to reach the western U.S.
market, economic and currency dislocations in foreign markets encourage many
importers to target the United States with excess capacity at aggressive
prices. Some foreign producers benefit from low labor costs, weak local
currencies and government subsidies. Existing trade laws and regulations may
not be adequate to prevent unfair trade practices concerning steel imports
that could pose increasing problems for us and the domestic steel industry in
general.

Employee Relations

   At December 31, 2000, we had 973 full-time employees. We have the largest
non-union workforce located at any one steel facility in the United States. We
provide our employees with supplemental work training and education programs.
Our officers also routinely discuss our business plan with them. We believe
that we have a good relationship with our employees.

Forward-Looking Statements

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

  .  our substantial indebtedness, interest expense and principal repayment
     obligations under our bank facility and 8 1/2% senior notes, which could
     limit our ability to use operating cash flow in our business other than
     for debt-servicing obligations, obtain additional financing and react to
     changing market and general economic conditions, and which increase our
     vulnerability to interest rate increases,

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

  .  competitive factors and pricing pressures,

  .  our ability to control costs and maintain quality,

  .  future expenditures for capital projects,

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

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


                                       9
<PAGE>

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

Item 2. Properties

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

Item 3. Legal Proceedings

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

Environmental Matters

   Compliance with environmental laws and regulations is a significant factor
in our business. We are subject to various federal, state, and local
environmental laws and regulations concerning, among other things, air
emissions, waste water discharges and solid and hazardous waste disposal. We
own property and conduct or have conducted operations at properties that are
contaminated with hazardous materials and will require investigation and
remediation according to federal, state or local environmental laws and
regulations. Expenditures on environmental matters, including expenditures on
pollution control equipment and remediation activities, totaled approximately
$3.2 million in 1997, $2.3 million in 1998, $1.1 million in 1999 and $0.9
million in 2000. We plan to spend approximately $2.2 million in 2001, with the
largest component representing investigation activities at our Fontana site.

   In 1996, we entered into an Expedited Remedial Action Voluntary Enforceable
Agreement with the California Environmental Protection Agency, Department of
Toxic Substances Control. This agreement superseded a Voluntary and
Enforceable Agreement and Imminent and/or Substantial Endangerment Order
issued by the Department in 1992 and amended in 1994. According to the
agreement, we are conducting an investigation of potential soil contamination
at approximately 28 areas of concern at our facility in Fontana, California.
We are unable to reasonably estimate the range of liability until completion
of a remedial feasibility study. The site investigation and remedial
feasibility study is expected to be completed in 2001. There can be no
guarantee that these expenditures will not have a material adverse effect on
our financial condition or results of operations. At December 31, 2000, we
accrued $700,000 for the remedial action feasibility study, which is expected
to be completed during 2001.

   In October 1998, we received a Notice of Violation of Waste Discharge
Requirements from the California Regional Water Quality Control Board, Santa
Ana Region, relating to stormwater discharges at our Fontana facility. Based
on the facts and circumstances of this case, we believe that the outcome of
this matter will not materially affect our financial position, results of
operations or liquidity.

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

   None.

                                      10
<PAGE>

                                    PART II

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

   Not applicable.

Item 6. Selected Financial Data

   The selected consolidated financial information presented below as of and
for the fiscal years ended December 31, 2000, 1999, 1998, 1997, and 1996 has
been derived from our audited consolidated financial statements. Except for
the fiscal years ended December 31, 1996 and 1997 these consolidated financial
statements are contained elsewhere in this Form 10-K. The following selected
consolidated financial information is qualified by reference to, and should be
read in conjunction with the historical consolidated financial statements,
including notes accompanying them and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" found elsewhere in this Form
10-K.

<TABLE>
<CAPTION>
                                        Year Ended December 31,
                              ------------------------------------------------
                                2000      1999      1998      1997      1996
                              --------  --------  --------  --------  --------
                                         (dollars in thousands)
<S>                           <C>       <C>       <C>       <C>       <C>
Income Statement Data(1):
Net sales...................  $720,900  $687,050  $673,439  $722,458  $694,444
Cost of sales...............   616,638   564,889   603,613   638,159   591,672
Gross profit................   104,262   122,161    69,826    84,299   102,772
Selling, general and
 administrative expenses....    32,185    29,946    28,626    27,088    26,215
Income from operations......    72,077    92,215    41,200    57,211    76,557
Interest expense, net.......   (18,756)  (16,345)  (16,954)  (13,977)  (10,145)
Income before income taxes..    56,138    77,027    26,816    44,316    67,725
Net income..................    34,845    46,847    19,800    28,792    39,403

EBITDA, as adjusted Data(2):
Income before income taxes..  $ 56,138  $ 77,027  $ 26,816  $ 44,316  $ 67,725
Interest expense ...........    18,756    16,345    16,954    13,977    10,145
Excluding (gain) loss of
 fixed assets...............       (28)      (13)      308     1,054     2,518
Depreciation and
 amortization...............    28,852    26,331    26,659    24,374    18,844
                              --------  --------  --------  --------  --------
EBITDA, as adjusted.........  $103,718  $119,690  $ 70,737  $ 83,721  $ 99,232
                              --------  --------  --------  --------  --------
EBITDA, as adjusted margin..      14.4%     17.4%     10.5%     11.6%     14.3%

Other Data:
Operating margin............      10.0%     13.4%      6.1%      7.9%     11.0%
Cash flows provided by
 operating activities.......    34,594    72,287    63,456    57,211    66,503
Cash flows used in investing
 activities.................   (33,936)  (37,321)  (49,335)  (57,954)  (82,300)
Cash flows (used in)
 provided by financing
 Activities.................    (6,015)  (39,029)  (12,502)    1,067    15,623
Capital expenditures........  $ 33,995  $ 37,397  $ 49,354  $ 58,296  $ 50,421
Total tons billed, excluding
 scrap (in thousands).......     1,753     1,803     1,614     1,625     1,563
Number of employees at end
 of period..................       973       952       976       945       923
Man hours per ton produced..      1.18      1.18      1.29       1.3       1.3

Selected Ratios:
Ratio of earnings to fixed
 charges(3).................      3.8x      5.3x      2.3x      3.6x      6.3x
Ratio of EBITDA, as adjusted
 to interest expense, net ..      5.5x      7.3x      4.2x      6.0x      9.8x
</TABLE>

                                      11
<PAGE>

<TABLE>
<CAPTION>
                                                  As of December 31,
                                        ---------------------------------------
                                         2000    1999    1998    1997    1996
                                        ------- ------- ------- ------- -------
                                                    (in thousands)
<S>                                     <C>     <C>     <C>     <C>     <C>
Balance Sheet Data:
Cash and cash equivalents.............  $ 2,542 $ 7,899 $11,962 $10,343 $10,019
Property, plant and equipment, net....  268,429 262,696 251,163 228,795 194,615
Total assets..........................  602,158 552,805 533,606 500,151 491,931
Total long-term debt including current
 portion and notes payable to banks...  239,000 230,000 243,700 241,900 213,500
Total stockholders' equity(1).........  236,909 217,079 190,272 184,774 183,315
</TABLE>
--------
(1) During the fourth quarter of 1999, we changed our inventory costing method
    from the last-in, first-out (LIFO) method to the first-in, first-out
    (FIFO) method. We believe that the accounting change is preferable
    primarily because under the then-existing economic environment of low
    inflation, the change to FIFO would result in a better measurement of
    operating results. All previously reported results have been restated to
    reflect the retroactive application of this accounting change as required
    by accounting principles generally accepted in the United States of
    America. The accounting change decreased net income for 1996 by
    $1,263,000, decreased net income for 1997 by $1,979,000, decreased net
    income for 1998 by $9,295,000 and decreased net income for 1999 by
    $6,276,000, net of applicable income taxes, due principally to the effect
    of LIFO allowance liquidations.

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

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

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

Introduction

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

   In 1993, we began a modernization program of approximately $250.0 million
to be spent over a six year period. In 1999, we completed these capital
expenditures originally contemplated under our modernization program. In 2000,
we spent approximately $34.0 million on our new capital projects. We believe
these investments have strengthened our competitive position by reducing
operating costs, broadening our product line, improving product quality and
significantly increasing throughput capacity. Our tons billed in 2000 were
1,753,000 compared to 953,000 tons billed in 1992. Hot rolled tons billed
increased 221,000 tons and accounted for 27.6% of the volume gains during this
period. Cold rolled tons billed increased 143,000 tons, or 17.9%, galvanized
tons billed increased 371,000, or 46.4% and ERW pipe tons billed increased
65,000 tons or 8.1%.

   We ship our products by truck and rail to manufacturers, contractors and
distributors primarily in the 11 states west of the Rocky Mountains. We
generally sell our products free on board (FOB), shipping point, and title is
passed when products are loaded for shipment. We recognize revenue from
product sales when products

                                      12
<PAGE>

are shipped or delivered to the customer, depending on the terms of the sale.
For products shipped FOB, shipping point, revenue is recognized at the time of
shipment. For products shipped FOB destination, revenue is recognized at the
time of delivery. Our revenue is dependent on the volume, product mix and
sales prices of our products. General economic conditions as well as the
supply and demand of steel products 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 unit cost in
2000 was higher compared to 1999 but still lower than in years prior to 1999.
Our slab unit cost was significantly lower in 1999 compared to previous years.

   We generally purchase steel slab in boatload quantities. Imported slab
arrives on chartered vessels in the Port of Los Angeles and is transported by
rail to our Fontana facility. We generally purchase steel slab on open
negotiated payment terms. Steel slab consumption costs include the FOB value
of steel slab, quality extras, ocean transportation, rail freight, duties,
unloading, insurance and handling costs. Historically, we negotiate slab FOB
prices quarterly and other rates through contracts of varying lengths. In
1999, however, approximately 90% of our slab procurement needs were met with
slab purchased under one year purchase contracts. We changed from our
traditional method of slab purchasing when an opportunity was recognized to
assure slab suppliers with guaranteed volume in exchange for attractive
pricing. Opportunities to continue annual contract purchases diminished in the
second half of 1999 and we returned to our practice of negotiating slab prices
on a quarterly basis for year 2000. Our purchasing power and extensive
knowledge of the worldwide slab market continues to provide us with the
opportunity to negotiate with slab suppliers on terms that we believe are
favorable to us. We will continue to actively manage slab procurement to
minimize costs and may opportunistically purchase slab in the future.

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

   We purchase natural gas and electricity from local vendors active in the
California market. The unit price we pay for natural gas is based on a formula
tied to published indices and the unit price we pay for electricity is based
on market prices.

   In 1998, the State of California partially deregulated the electricity
market. During 2000, the availability of electricity was significantly
impaired as a consequence of high spot prices for electricity, increasing debt
burdens of electric utility companies, and lack of available electricity to
meet demand. However, unit prices for electricity passed through to end-users
have not been materially affected because the laws enacting deregulation fixed
the price utility companies could charge consumers.

   As an "interruptible" purchaser of electricity, the crisis in California
forced us to interrupt production 14 times during 2000. We were also subject
to electricity surcharges of approximately $600,000 for consuming more
electricity during the interruption periods than our contract allowed.
Subsequent to December 31, 2000 the state of California's Public Utilities
Commission effectively cancelled the interruptible rate program. Additionally,
the state of California has taken significant steps to ensure reliable
electricity availability in the future. As a consequence of the electricity
crisis we expect our unit price of electricity to increase at least $0.01 per
kilowatt in 2001. Based on our average electricity consumption of
approximately 26.2 million kilowatts per month in 2000, we may expect to incur
an increased cost for electricity of approximately $3.1 million in 2001.

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

                                      13
<PAGE>

   We have experienced increasing natural gas costs for most of 2000. At
December 31, 2000, natural gas prices were approximately triple those of a
year earlier. Our average cost of natural gas in 1999 was approximately $3.00
per Million British Thermal Unit or MMBTU. Our natural gas costs escalated
throughout 2000, peaking in December at approximately $11.60 per MMBTU.
Additionally, we believe the transportation cost of natural gas from wellhead
to the state of California have been influenced by the state's electricity
crisis, further increasing the overall cost of natural gas. As opportunities
arise we will seek to mitigate the volatility of commodity natural gas prices
at reasonable costs.

   During 2000, rising natural gas prices negatively affected our
profitability. Subsequent to December 31, 2000, natural gas prices continued
to rise, further threatening our profitability. In March 2001 we elected to
enter into a natural gas swap transaction with a third party whereby we would
pay a fixed rate per MMBTU of natural gas and the third party would pay us an
index based rate per MMBTU of natural gas. The contract period is effective
March 2001 and continues through August 2002 and represents a substantial
portion of our natural gas volume requirements.

   Selling, general and administrative expenses consist primarily of sales and
labor, various administrative expenses, and shipping costs. Labor costs
comprise approximately 45% of selling, general and administrative expenses.

Results of Operations

<TABLE>
<CAPTION>
                                                            Tons Billed
                                                   -----------------------------
                                                      Year Ended December 31,
                                                   -----------------------------
                                                     2000      1999      1998
                                                   --------- --------- ---------
   <S>                                             <C>       <C>       <C>
   Hot Rolled.....................................   712,717   853,539   841,275
   Cold Rolled....................................   282,418   287,371   242,908
   Galvanized.....................................   623,782   534,861   394,100
   ERW pipe.......................................   134,177   127,599   135,753
                                                   --------- --------- ---------
     Total (excluding scrap)...................... 1,753,094 1,803,370 1,614,036
                                                   ========= ========= =========
</TABLE>

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

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

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

                                      14
<PAGE>

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

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

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

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

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

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

 Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

   Net sales. For the year ended December 31, 1999 net sales were
$687,050,000. This was a $13,611,000, or 2.0%, increase from the $673,439,000
net sales generated for the year ended December 31, 1998. The year over year
increase is attributable to an increase in sales volume and a better product
mix partially offset by a lower unit price. In 1999 we sold 1,803,370 net tons
of steel, excluding steel scrap. This exceeded 1998 tonnage sold of 1,614,036
by 189,334 net tons. The 11.7% increase in tonnage sold contributed
approximately $78,414,000 in additional net sales. In 1999 we sold more cold
rolled and galvanized steel as a percentage of total products then in 1998.
This improved product mix contributed an additional $21,400,000 in additional
net sales. Unit prices, after adjusting for product mix, decreased year over
year impacting net sales by approximately $87,700,000.

   Gross profit. Gross profit increased $52,335,000, or 75.0%, from
$69,826,000 for the year ended December 31, 1998 to $122,161,000 for the year
ended December 31, 1999. Gross profit as a percentage of net sales increased
from 10.4% in 1998 to 17.8% in 1999. Our gross profit increased as a result of
(1) our slab costs decreasing at a faster rate than our sales prices, (2)
higher sales volumes, and (3) a product mix that included more of the higher
value added galvanized products.

                                      15
<PAGE>

   Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1,320,000, or 4.6%, from $28,626,000 for
the year ended December 31, 1998 to $29,946,000 for the year ended December
31, 1999. Selling, general and administrative expenses as a percentage of net
sales remained comparable at 4.4% and 4.3% for the years ended December 31,
1999 and 1998, respectively. We experienced an increase in selling, general
and administrative expenses predominately as a result of profit sharing
increases.

   Equity in income (loss) of affiliate. We maintain a 1.5% ownership interest
in Companhia Siderurgica de Tubarao, which is based on our ownership of 4.0%
of its common stock. Our investment in Companhia Siderurgica de Tubarao is
accounted for under the equity method of accounting. For the year ended
December 31, 1999, we recognized a $1,125,000 loss from our investment in
Companhia Siderurgica de Tubarao, which consists of our pro-rata share of
Companhia Siderurgica de Tubarao's loss, offset by $1,200,000 of amortized
negative goodwill. Companhia Siderurgica de Tubarao is a publicly-traded
Brazilian company engaged in the production of steel slab. Approximately 90%
of Companhia Siderurgica de Tubarao's products are exported outside of Brazil
and sold predominantly in U.S. dollars. This high percentage of U.S. dollar
denominated cash flow tends to lessen the impact of market risks related to
fluctuations in currency exchange rates. For the year ended December 31, 1998,
we recognized income of $1,932,000, including amortization of negative
goodwill, from our investment in Companhia Siderurgica de Tubarao.

   Net Interest expense. Net interest expense decreased $609,000, or 3.6%,
from $16,954,000 for the year ended December 31, 1998 to $16,345,000 for the
year ended December 31, 1999. Interest expense figures are net of interest
income and capitalized interest of $2,522,000 in 1998 and $1,046,000 in 1999.

   Income taxes. Income taxes increased $23,164,000 from $7,016,000 for the
year ended December 31, 1998 to $30,180,000 for the year ended December 31,
1999. The effective tax rate for 1998 was 26.2% compared to an effective tax
rate of 39.2% in 1999. Income tax expense is net of state manufacturing
investment credit of $3,869,000 in 1998 and $1,050,000 in 1999.

   Net income. Net income for the year ended December 31, 1999 was
$46,847,000. This was $27,047,000, or 136.6%, higher than the net income of
$19,800,000 for the year ended December 31, 1998.

Liquidity and Capital Resources

   On March 10, 1999, we entered into a $130,000,000 five-year bank facility
of which $89,000,000 was outstanding as of December 31, 2000. The bank
facility is collateralized by cash, accounts receivable, inventory and other
assets. Subject to the satisfaction of customary conditions and a borrowing
base, advances under the bank facility may be made at any time prior to the
bank facility termination date. The termination date is the earlier to occur
of March 10, 2004 or the date that is 60 days prior to the maturity of our
8.5% senior notes. Advances may be used for working capital, capital
expenditures and other lawful corporate purposes, including the refinancing of
existing debt.

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

   In 1999, the proceeds from the notes were used to permanently repay
outstanding bank debt under a $10,000,000 term loan provided by The Dai-Ichi
Kangyo Bank, Netherlands, and a $50,000,000 revolving credit facility and an
$80,000,000 term loan, both provided by a syndicate of institutions led by the
Industrial Bank of Japan, Ltd., Los Angeles Agency.


                                      16
<PAGE>

   At December 31, 2000, we had $2,542,000 in cash and cash equivalents and
$21,648,000 available under our bank facility. During the year ended December
31, 2000, cash flows from operations generated $34,594,000, which consisted of
$34,845,000 in net income, $28,852,000 in depreciation and amortization
expense and a net cash flow decrease of $27,725,000 due to changes in assets
and liabilities. The majority of changes in assets and liabilities were due to
a $52,009,000 increase in inventories, a $8,868,000 decrease in accounts
receivable, a $10,801,000 increase in accounts payable and a $8,805,000
increase in deferred income taxes. Cash flows from investing activities during
the year ended December 31, 2000 consisted predominately of $33,995,000 of
capital expenditures. Cash flows from financing activities during the year
ended December 31, 2000 consisted primarily of additional borrowings under our
bank facility in the amount of $9,000,000 and a dividend payment of
$15,015,000.

   We currently have approximately $16,881,000 in material commitments for
capital investments expected to be completed during fiscal 2001. At December
31, 2000 there were approximately 52 open capital projects designed to
maintain or enhance operational performance.

   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 2001.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

   We are exposed to market risks related to fluctuations in interest rates on
our senior notes and on our $130 million floating rate bank facility. During
fiscal year 2000, we did not use interest rate swaps or other types of
derivative financial instruments.

   For fixed rate debt like the senior notes, changes in interest rates
generally affect the fair value of the debt instrument. For variable rate debt
like our bank facility, changes in interest rates generally do not affect the
fair value of the debt, but do affect earnings and cash flow. We do not have
an obligation to repay our senior notes prior to maturity in 2009 and, as a
result, interest rate risk and changes in fair value should not have a
significant impact on us. We believe that the interest rate on the 8 1/2%
senior notes approximates the current rates available for similar types of
financing and as a result the carrying amount of the 8 1/2% senior notes
approximates fair value. The carrying value of the floating rate bank facility
approximates fair value as the interest rate is variable and resets
frequently. The bank facility bears interest at the Eurodollar rate, which was
6.56% at December 31, 2000. We estimate that the average amount of debt
outstanding under the facility for fiscal year 2001 will be $80.0 million.
Therefore, a one percentage point increase in interest rates would result in
an increase in interest expense of $800,000 for the year.

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

   Historically, we have been exposed to market risks related to the
volatility of natural gas prices. We generally purchase natural gas on an
annual contract basis from a physical supplier active in the California
market. The price we pay for natural gas is tied to an index typically used in
the industry for natural gas purchases.

   During 2000 rising natural gas prices negatively affected our
profitability. Subsequent to December 31, 2000, natural gas prices continued
to rise, further threatening our profitability. In March 2001 we elected to
enter into a natural gas swap transaction with a third party whereby we would
pay a fixed rate per MMBTU of natural gas and the third party would pay us an
index based rate per MMBTU of natural gas. The contract period is effective
March 2001 and continues through August 2002 and represents a substantial
portion of our natural gas volume requirements.

                                      17
<PAGE>

Recently Issued Accounting Standards

   In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and hedging activities. SFAS 133, as
amended by SFAS 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Application of this accounting standard has not
had a material impact on our financial position, results of operations or
liquidity.

   In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." This Staff Accounting Bulletin ("SAB"), as amended by SAB 101A
and SAB 101B, summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements
and is effective for registrants with fiscal years that begin after March 15,
2000. We do not expect the adoption of SAB 101, as amended, to have a material
impact on our consolidated results of operations.

Item 8. Consolidated Financial Statements and Supplementary Data

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

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

   None.

                                      18
<PAGE>

                                   PART III

Item 10. Directors and Executive Officers of the Registrant

   The following table sets forth our Directors and executive officers as of
December 31, 2000. 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.

<TABLE>
<CAPTION>
                Name               Age                        Position
                ----               ---                        --------
   <S>                             <C> <C>
   Tatsuhiko Hamamoto.............  60 Chairman of the Board of Directors
   Francisco Povoa................  51 Director
   Toshihiro Kabasawa.............  46 Director
   Armando de Oliveira Santos       50 Director
    Neto..........................
   C. Lourenco Goncalves..........  42 President and Chief Executive Officer
   Junsuke Takasaki...............  51 Executive Vice President, Operations
   Vicente Wright.................  48 Executive Vice President, Finance
   James Wilson...................  52 Vice President, Sales
   Brett Guge.....................  46 Vice President, Administration and Corporate Secretary
</TABLE>

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

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

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

   Armando de Oliveira Santos Neto has been a member of the Board since July
2000. He has been employed by Companhia Vale do Rio Doce (CVRD) since 1970. He
currently is the President of Rio Doce America Inc. (USA), a subsidiary of
CVRD. Previously he has held the positions of Commercial Director of the CVRD
Group, Executive Director--Iron Ore Division of CVRD and General Sales
Manager. He graduated from the Engineering School of the Federal University of
Espirito Santo in Civil Engineering.

   C. Lourenco Goncalves has served as President and Chief Executive Officer
since March 1998. From 1981 to 1998, he was employed by Companhia Siderurgica
Nacional, the largest steel company in Brazil, where he held positions as a
Managing Director, General Superintendent of Volta Redonda Works, Hot Rolling
General

                                      19
<PAGE>

Manager, Cold Rolling and Coated Products General Manager, Hot Strip Mill
Superintendent, Continuous Casting Superintendent and Quality Control Manager.
Mr. Goncalves graduated from the Federal University of Minas Gerais State with
a Master's Degree in Metallurgy.

   Junsuke Takasaki has served as Executive Vice President, Operations since
June 1998. Prior to joining us, he was employed by Kawasaki Steel Corporation
from 1973 to 1998 where he held positions as Cold Rolling Department General
Manager and Quality Department Manager at Chiba Works and Kawasaki Steel
Corporation's New York and Detroit offices. Mr. Takasaki graduated from Kyushu
University with a Master's Degree in Metallurgy.

   Vicente Wright has served as Executive Vice President, Finance since
February 1998. Mr. Wright was the Steel Division General Manager, from 1992 to
1998, and Iron Ore Sales General Manager from 1991 to 1992 of Companhia Vale
do Rio Doce. From 1987 to 1988, he served as Iron Ore Sales General Manager
for Rio Doce Asia Ltd., a subsidiary of Companhia Vale do Rio Doce. In 1986
and 1987, he was the assistant to the President of California Steel Industries
in charge of slab procurement and all of its related logistics. From 1978 to
1986, Mr. Wright served as Purchasing Executive and Slab Marketing Manager at
Companhia Siderurgica de Tubarao. Mr. Wright was a member of the Board of
Directors of Companhia Siderurgica Nacional, the largest steel company in
Brazil, from 1993 to 1997, Acominas, a Brazilian steel mill, from 1994 to
1998, Siderar, an Argentine steel mill, from 1994 to 1997, Chairman of Nova
Era Silicon, a Brazilian ferro-silicon company mill, from 1994 to 1997 and
SEAS from 1994 to 1998. He graduated from Marquette University, Milwaukee,
Wisconsin with a Bachelor's Degree in Business Administration.

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

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

Board Committees

   Our Board of Directors has a Compensation Committee and an Operations and
Finance Committee. The Compensation Committee is comprised of four members:
Director Tatsuhiko Hamamoto, Director Francisco Povoa, Mr. Yasutaka Kumeda of
Kawasaki Steel Corporation and Ms. Carla Grasso of Companhia Vale do Rio Doce.
The Compensation Committee met twice during 2000. The Compensation Committee
reviews compensation packages for our officers and prepares the executive
compensation proposal to the Board.

   The Operations and Finance Committee is comprised of four members including
Directors Armando de Oliveira Santos Neto and Toshihiro Kabasawa, Ms. Gloria
Serra of Companhia Vale do Rio Doce and Mr. Yunosuke Maki of Kawasaki Steel
Corporation. This committee met twice during 2000. 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.

                                      20
<PAGE>

Director Compensation

   For their service as our Directors for fiscal year 2000, 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 $324,000 as our employee. In
addition to his salary, he received $286,000 in bonus and $10,500 in matching
contributions to his account in our 401(k) Plan.

Item 11. Executive Compensation

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

                          Summary Compensation Table

<TABLE>
<CAPTION>
                                                               Long-Term
                                 Annual Compensation          Compensation
                         -----------------------------------  ------------
   Name and Principal                           Other Annual                All Other
        Position         Year  Salary   Bonus   Compensation  LTIP Payouts Compensation
   ------------------    ---- -------- -------- ------------  ------------ ------------
<S>                      <C>  <C>      <C>      <C>           <C>          <C>
C. Lourenco Goncalves... 2000 $324,000 $286,000   $183,997(1)      --        $10,381(2)
 President and Chief     1999 $310,000 $127,284   $ 49,521(3)      --        $ 7,470(2)
  Executive Officer
James E. Declusin(4).... 2000 $270,000 $236,000        -- (5)      --        $10,283(2)
 Senior Executive Vice   1999 $282,000 $109,315        -- (5)      --        $ 7,884(2)
  President, Commercial
Vicente Wright.......... 2000 $209,000 $149,000   $135,387(6)      --        $ 8,812(2)
 Executive Vice          1999 $190,000 $ 87,404   $ 62,509(7)      --        $ 8,237(2)
  President,
  Finance
Junsuke Takasaki........ 2000 $209,000 $163,000        -- (5)      --        $ 8,812(2)
 Executive Vice          1999 $190,000 $ 59,771        -- (5)      --        $ 8,237(2)
  President, Operations
Brett Guge.............. 2000 $167,000 $127,000        -- (5)      --        $ 8,360(2)
 Vice President          1999 $160,000 $ 85,115        -- (5)      --        $ 7,785(2)
  Administration &
  Corporate Secretary
</TABLE>
--------
(1) Represents $10,734 in car allowance and $173,263 in personal and family
    medical expenses and home leave reimbursements. Home leave reimbursement
    is paid to our executives who are foreign nationals in connection with
    trips by them and their family members to their country of origin.

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

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

(4) Mr. Declusin retired on October 31, 2000.

(5) Executive received perquisites that are not disclosed here in accordance
    with SEC regulations because the value of such perquisites is less than
    the lesser of $50,000 or 10% of the executive's total salary and bonus.

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

(7) Represents $9,250 in car allowance and $53,259 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.

                                      21
<PAGE>

Supplemental Executive Retirement Plans and Separation Agreement

   On August 7, 1998, we entered into a Supplemental Executive Retirement Plan
with James E. Declusin, ex-Senior Executive Vice President, Commercial. The
plan reduced Mr. Declusin's annual base salary effective July 1, 1998 from
$360,000 to $282,000, based on reassignment from his position of Chief
Operating Officer, and granted him retirement payments in order to induce him
to remain in our employ. In addition, upon Mr. Declusin's retirement on
October 31, 2000, Mr. Declusin will be paid 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 16 years, multiplied by his
average annual compensation, multiplied by a vested percent and which
increases to 100% if Mr. Declusin continuously remains employed by us on
October 30, 2000. Mr. Declusin retired on October 31, 2000. Upon his
retirement he elected to receive the net present value of his total retirement
package and on November 6, 2000, he was paid $2,059,270 as his full retirement
package under this agreement.

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

Shareholders' Agreement

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

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

                                      22
<PAGE>

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

   If either one of the stockholders wishes to transfer or assign their shares
of our stock to a third party, other than to one of its affiliated
corporations, the stockholder must first offer to sell those shares to the
other stockholder upon the same terms and conditions that the third party has
offered to purchase the shares. Any stockholder who sells, transfers, assigns,
or creates a pledge or other encumbrance on its shares in favor a third party,
other than its affiliated corporations, is obligated to obtain an undertaking
letter from the third party according to which the third party undertakes
unconditionally and irrevocably the obligations of the transferring
stockholder under the Shareholders' Agreement in proportion to the number of
shares transferred. Either stockholder may sell, transfer or assign to its
affiliated corporations all or any part of its shares or preemptive rights to
subscribe for new shares of our stock by giving written notice to the other
stockholder, provided that the affiliated corporation has agreed to become a
party to the Shareholders' Agreement. In this case, both the transferor and
the affiliated corporation shall jointly assume all of the obligations of the
transferor under the Shareholders' Agreement.

401(k) Plan

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

   Participants may authorize us to contribute to the 401(k) Plan on their
behalf a percentage of their compensation, not to exceed legally permissible
limits, including an overall dollar limit of $10,500 for 2000. The 401(k) Plan
provides for our discretionary matching and profit sharing contributions. We
currently match 100% of the first 4% of the participant's deferral under the
401(k) Plan each year and 50% of the next 2% of the participant's deferral
under the 401(k) Plan each year. Each plan year we may also elect to make an
additional contribution to the 401(k) Plan. This discretionary employer
contribution, if we make it, is allocated to each participant's account based
on the participant's compensation for the year relative to the compensation of
all participants for that year. In order to share in the allocation of the
discretionary employer contribution, if any, a participant must complete 1,000
hours of service in the plan year.

Profit-Sharing Plan

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

Compensation Committee Interlocks and Inside Participation

   Francisco Povoa, Yatsutaka Kumeda, Carla Grasso and Tatsuhiko Hamamoto
served as members of our Compensation Committee in 2000. Except for Mr.
Hamamoto, none of the members of the Compensation Committee was, during 2000,
an officer, employee or formerly an officer or employee of ours or our
subsidiary.

                                      23
<PAGE>

   Mr. Kumeda served as Staff Manager, Corporate Planning Department of
Kawasaki Steel Corporation during 2000. Kawasaki Steel Corporation's
subsidiary, Kawasaki Steel Holdings (USA), Inc. is one of our stockholders.
During 2000, we paid $36,394,000 pursuant to related party transactions with
Kawasaki Steel Corporation. In 2000, Mr. Povoa served as a board member of
CVRD, as well as the President of the CVRD Employees Investment Club, a
shareholder of Companhia Vale do Rio Doce. In 2000, Ms. Grasso served as
Director of Human Resources and Corporate Administration of Companhia Vale do
Rio Doce, the parent of one of our stockholders, Rio Doce Limited.

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:

                                          Francisco Povoa
                                          Yatsutaka Kumeda
                                          Carla Grasso
                                          Tatsuhiko Hamamoto

Item 12. Security Ownership of Certain Beneficial Owners and Management

   The following table sets forth, as of December 31, 2000, 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.

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

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

Item 13. Certain Relationships and Related Transactions

   Our stockholders, Kawasaki Steel Holdings (USA), Inc., a subsidiary of
Kawasaki Steel Corporation, and Rio Doce Limited, a subsidiary of Companhia
Vale do Rio Doce, are parties to a Shareholders' Agreement.

                                      24
<PAGE>

According to the Shareholders' Agreement, the stockholders control the
election of the Board of Directors. The stockholders also indirectly control
the appointment of officers through their right to jointly elect the
president, who is entitled to appoint our other officers.

   The Shareholders' Agreement also provides for a Consultative Council,
comprised of two members. Each stockholder is entitled to elect one member.
The Consultative Council decides on all matters submitted to it by either or
both of the stockholders and resolves deadlocks among the Board of Directors.
We have transactions in the normal course of business with affiliated
companies. For example, we purchase slab from Companhia Siderurgica de
Tubarao, a subsidiary of both Companhia Vale do Rio Doce and Kawasaki Steel
Corporation. During 2000, we purchased $78,188,000 of slab from Companhia
Siderurgica de Tubarao and $36,394,000 of slab from Kawasaki Steel
Corporation. We expect to purchase approximately 30% of our estimated 2001
supply of steel slab from Companhia Siderurgica de Tubarao. We also hold a 4%
interest in the common stock of Companhia Siderurgica de Tubarao.

   We conducted arms-length negotiations with Companhia Siderurgica de Tubarao
in 2000. The Shareholders' Agreement provides that we shall continuously
purchase slabs from Companhia Siderurgica de Tubarao under terms and
conditions as agreed upon by Companhia Siderurgica de Tubarao and us. The
executive officer negotiating the market price for the steel slab was our
Executive Vice President--Finance.

   We charter vessels from Seamar Shipping Corporation (Seamar), a subsidiary
of Companhia Vale do Rio Doce, for the ocean transfer of slab to the Port of
Los Angeles. During 2000, we incurred $7,691,000 in charter fees from Seamar
for its services. The Shareholders' Agreement provides that we shall charter
vessels from Seamar. We entered into a 15-year contract with Seamar for
shipping services that expired on May 29, 2000, which was extended to December
31, 2000. We expect to continue utilizing Seamar's shipping services in 2001
on a ship by ship basis. The executive officer responsible for negotiating the
price for shipping services was our Executive Vice President--Finance.

   We contract with Rio Doce Pasha Terminal, a joint venture of Companhia Vale
do Rio Doce, to unload our ocean cargo from ships at the Port of Los Angeles.
During 2000, we incurred $21,580,000 for Rio Doce Pasha Terminal's services.
The Shareholders' Agreement provides that we shall contract with Rio Doce
Pasha Terminal for their unloading services. We have a five-year contract with
Rio Doce for terminal unloading services that expired on December 31, 2000. We
are currently negotiating a renewal of this contract with Rio Doce Pasha
Terminal and expect to enter into a definitive agreement shortly. We expect to
continue utilizing Rio Doce Pasha's unloading services in 2001. We negotiate
rates annually on an arms-length basis. The contract specifies that we will
process a minimum of 1.0 million tons of steel slab through Rio Doce Pasha
Terminal per year. The price per ton may be renegotiated July 1 of each year
to reflect a change in union labor contracts. If we ship more than 1.0 million
tons per year, we will receive a discount per ton for the unloading of any
slabs after 1.0 million tons of slabs have been unloaded. One hundred percent
of our unloading services of foreign slabs are provided by Rio Doce Pasha
Terminal. The executive officer negotiating the price for unloading services
was our Executive Vice President--Finance.

                                      25
<PAGE>

                                    PART IV

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

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

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

 1. Consolidated Financial Statements:

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
   <S>                                                                     <C>
   Index to Consolidated Financial Statements............................  F-1
   Independent Auditors' Report..........................................  F-2
   Consolidated Balance Sheets as of December 31, 2000 and 1999..........  F-3
   Consolidated Statements of Income for the years ended December 31,
    2000, 1999 and 1998..................................................  F-4
   Consolidated Statements of Stockholders' Equity for the years ended
    December 31, 2000, 1999 and 1998.....................................  F-5
   Consolidated Statements of Cash Flows for the years ended December 31,
    2000, 1999 and 1998..................................................  F-6
   Notes to Consolidated Financial Statements............................  F-7

 2. Consolidated Financial Statement Schedule:

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

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

   (b) Reports on Form 8-K, filed during the last quarter of 2000:

   None.

   (c) Exhibits:

<TABLE>
<CAPTION>
 Exhibit
   No.                                 Description
 -------                               -----------
 <C>     <S>
  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    Bylaws of the Registrant.(1)

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

  4.2    Specimen Series B note.(1)

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

 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)
</TABLE>

                                      26
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       27
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
   No.                               Description
 -------                             -----------
 <C>     <S>
 10.18   Supplemental Executive Retirement Plan, dated as of September 19,
          2000, between the Registrant and Brett J. Guge.(3)

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

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

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

 21.1    Subsidiaries of the Registrant.(1)

 23.1    Independent Auditors' Report on Schedule.
</TABLE>
--------
(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.

                                      28
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Consolidated Balance Sheets as of December 31, 2000 and 1999............. F-3

Consolidated Statements of Income for the years ended December 31, 2000,
 1999 and 1998........................................................... F-4

Consolidated Statements of Stockholders' Equity for the years ended
 December 31, 2000, 1999 and 1998........................................ F-5

Consolidated Statements of Cash Flows for the years ended December 31,
 2000, 1999 and 1998..................................................... F-6

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

                                      F-1
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors
California Steel Industries, Inc.:

   We have audited the accompanying consolidated balance sheets of California
Steel Industries, Inc. and subsidiary as of December 31, 2000 and 1999 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 2000. 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, 2000 and 1999 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.

                                          /s/ KPMG LLP

Orange County, California
January 19, 2001

                                      F-2
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS

                           December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                                2000     1999
                                                              -------- --------
                                                                 (Dollars in
                                                                  thousands)
<S>                                                           <C>      <C>
                           ASSETS

Current assets:
 Cash and cash equivalents (note 7).......................... $  2,542 $  7,899
 Trade accounts receivable, less allowance for doubtful
  receivables of $600,000 in 2000 and $300,000 in 1999 (note
  7).........................................................   59,998   68,866
 Inventories (notes 3 and 7).................................  218,579  166,570
 Deferred income taxes (note 11).............................    3,242    2,382
 Other receivables and prepaid expenses......................    9,079    4,832
                                                              -------- --------
  Total current assets.......................................  293,440  250,549
Investment in affiliated company (notes 6 and 9).............   36,151   34,801
Other assets (note 7)........................................    4,138    4,759
Property, plant and equipment, net (notes 4, 7 and 13).......  268,429  262,696
                                                              -------- --------
                                                              $602,158 $552,805
                                                              ======== ========

            LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable (note 9)................................... $ 65,508 $ 54,707
 Accrued interest expense (note 7)...........................    4,325    4,064
 Accrued utilities...........................................    7,233    3,303
 Other accrued expenses (notes 10 and 12)....................    6,320   10,454
                                                              -------- --------
  Total current liabilities..................................   83,386   72,528
                                                              -------- --------
Long-term debt (note 7)......................................  239,000  230,000
Deferred income taxes (note 11)..............................   42,863   33,198

Stockholders' equity (note 8):
 Class A preferred stock, $10,000 par value per share.
  Authorized 1,000 shares; none issued.......................      --       --
 Class B preferred stock, $10,000 par value per share.
  Authorized 2,000 shares; none issued.......................      --       --
 Class C preferred stock, $10,000 par value per share.
  Authorized 3,000 shares; issued and outstanding 3,000
  shares.....................................................   30,000   30,000
 Common stock, no par value. Authorized 2,000 shares; issued
  and outstanding 1,000 shares...............................   10,000   10,000
 Retained earnings...........................................  196,909  177,079
                                                              -------- --------
  Total Stockholders' equity.................................  236,909  217,079
                                                              -------- --------
Commitments and contingencies (notes 5, 7, 9, 10, 11 and
 12)......................................................... $602,158 $552,805
                                                              ======== ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                   2000      1999      1998
                                                 --------  --------  --------
                                                   (Dollars in thousands)
<S>                                              <C>       <C>       <C>
Net sales....................................... $720,900  $687,050  $673,439
Cost of sales (notes 2, 9 and 13)...............  616,638   564,889   603,613
                                                 --------  --------  --------
  Gross profit..................................  104,262   122,161    69,826
Selling, general and administrative expenses
 (note 12)......................................   32,185    29,946    28,626
                                                 --------  --------  --------
  Income from operations........................   72,077    92,215    41,200
Other income (expense):
Equity in income of affiliate (note 6)..........    2,229        75     1,932
Interest expense, net (note 7)..................  (18,756)  (16,345)  (16,954)
Other, net......................................      588     1,082       638
                                                 --------  --------  --------
  Income before income taxes....................   56,138    77,027    26,816
Income taxes (note 11)..........................   21,293    30,180     7,016
                                                 --------  --------  --------
  Net income.................................... $ 34,845  $ 46,847  $ 19,800
                                                 ========  ========  ========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  Years ended December 31, 2000, 1999 and 1998
                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                       Class C                        Total
                                      preferred Common  Retained  stockholders'
                                        stock    stock  earnings     equity
                                      --------- ------- --------  -------------
<S>                                   <C>       <C>     <C>       <C>
Balance at December 31, 1997.........  $30,000  $10,000 $144,774    $184,774
Net income for the year ended
 December 31, 1998...................      --       --    19,800      19,800
Cash dividends (note 8):
  Class C Preferred Stock, $3,826 on
   3,000 shares......................      --       --   (11,478)    (11,478)
  Common Stock, $2,824 on 1,000
   shares............................      --       --    (2,824)     (2,824)
                                       -------  ------- --------    --------
Balance at December 31, 1998.........   30,000   10,000  150,272     190,272
Net income for the year ended
 December 31, 1999...................      --       --    46,847      46,847
Cash dividends (note 8):
  Class C Preferred Stock, $5,260 on
   3,000 shares......................      --       --   (15,780)    (15,780)
  Common Stock, $4,260 on 1,000
   shares............................      --       --    (4,260)     (4,260)
                                       -------  ------- --------    --------
Balance at December 31, 1999.........   30,000   10,000  177,079     217,079
Net income for the year ended
 December 31, 2000...................      --       --    34,845      34,845
Cash dividends (note 8):
  Class C Preferred Stock, $4,129 on
   3,000 shares......................      --       --   (12,386)    (12,386)
  Common Stock, $2,629 on 1,000
   shares............................      --       --    (2,629)     (2,629)
                                       -------  ------- --------    --------
Balance at December 31, 2000.........  $30,000  $10,000 $196,909    $236,909
                                       =======  ======= ========    ========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                 AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                    2000      1999       1998
                                                  --------  ---------  --------
                                                    (dollars in thousands)
<S>                                               <C>       <C>        <C>
Cash flows from operating activities:
 Net income.....................................  $ 34,845  $  46,847  $ 19,800
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization.................    28,852     26,331    26,659
  (Gain) loss on disposition of property, plant
   and equipment................................       (28)       (13)      308
  Undistributed earnings of affiliate...........    (2,229)       (75)   (1,932)
  Dividends received from affiliate.............       879        --        789
  Changes in assets and liabilities:
   Trade accounts receivable, net...............     8,868    (15,236)    4,650
   Inventories..................................   (52,009)     5,085   (10,142)
   Other receivables and prepaid expenses.......    (4,247)       330    (2,576)
   Accounts payable.............................    10,801      4,157    19,166
   Accrued interest expense.....................       261      2,566      (683)
   Other accrued expenses.......................      (204)    (7,089)    6,996
   Deferred income taxes........................     8,805      9,384       421
                                                  --------  ---------  --------
     Net cash provided by operating activities..    34,594     72,287    63,456
                                                  --------  ---------  --------
Cash flows from investing activities:
 Additions to property, plant and equipment.....   (33,995)   (37,397)  (49,354)
 Proceeds from sale of property, plant and
  equipment.....................................        59         76        19
                                                  --------  ---------  --------
     Net cash used in investing activities......   (33,936)   (37,321)  (49,335)
                                                  --------  ---------  --------
Cash flows from financing activities:
 Net advances (repayments) under line of credit
  agreement with banks..........................       --    (103,700)    6,800
 Proceeds from issuance of long-term debt.......       --     150,000    10,000
 Borrowings on credit facility..................     9,000     80,000       --
 Repayment of long-term debt....................       --    (140,000)  (15,000)
 Deferred financing costs.......................       --      (5,289)      --
 Dividends paid.................................   (15,015)   (20,040)  (14,302)
                                                  --------  ---------  --------
     Net cash used in financing activities......    (6,015)   (39,029)  (12,502)
                                                  --------  ---------  --------
     Net increase (decrease) in cash and cash
      equivalents...............................    (5,357)    (4,063)    1,619
Cash and cash equivalents at beginning of year..     7,899     11,962    10,343
                                                  --------  ---------  --------
Cash and cash equivalents at end of year........  $  2,542  $   7,899  $ 11,962
                                                  ========  =========  ========
Supplemental disclosures of cash flow
 information:
Cash paid during the year for:
  Interest (net of amount capitalized)..........  $ 18,864  $  13,974  $ 18,254
  Income taxes..................................    15,211     21,035     7,050
                                                  ========  =========  ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 2000 and 1999

(1) Organization and Nature of Operations

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

(2) Summary of Significant Accounting Policies

 (a) Principles of Consolidation

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

 (b) Cash and Cash Equivalents

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

 (c) Inventories

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

    The balances of retained earnings for 1997 and 1998 have been adjusted
  for the effect (net of applicable income taxes) of applying retroactively
  the new method of accounting.

 (d) Investment in Affiliated Company

    Investment in affiliated company consists of 4% of the common stock of
  Companhia Siderurgica de Tubarao (CST), a Brazilian steel slab
  manufacturer. The investment is accounted for by the equity method, since
  combined investments in CST by the Company and certain other related
  companies allow for significant influence over the financing and operating
  activities of CST. The Company's share of earnings or losses from this
  investment is reflected in other income (expense) in the accompanying
  consolidated statements of income. 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 is being amortized
  straight-line over a five-year period.

                                      F-7
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (e) Property, Plant and Equipment

    Property, plant and equipment is stated at cost and depreciation is
  computed on the straight-line method over the estimated useful lives (see
  note 13) of the respective assets as follows:

<TABLE>
     <S>                                                           <C>
     Plant and equipment.......................................... 3 to 25 years
     Plant refurbishment costs....................................      10 years
</TABLE>

    Assets under construction are not depreciated until placed into service.

 (f) Deferred Financing Costs

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

 (g) Impairment of Long-Lived Assets

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

 (h) Income Taxes

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

 (i) Environmental

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

                                      F-8
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 (j) Use of Estimates

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

 (k) Reclassifications

    Certain reclassifications have been made to the 1999 and 1998
  consolidated financial statements to conform with the 2000 presentation.

 (l) Fair Value of Financial Instruments

    The carrying value of cash, trade accounts receivable, other accounts
  receivable, accounts payable and other accrued expenses are measured at
  cost which approximates their fair value because of the short maturity of
  those instruments. The fair values of long-term indebtedness are estimated
  based on the quoted market prices for the same or similar issues, or the
  current rates offered to the Company for debt of similar maturities. The
  carrying amounts and fair values of financial instruments at December 31,
  2000 and 1999 are listed as follows:

<TABLE>
<CAPTION>
                                                     2000             1999
                                               ---------------- ----------------
                                               Carrying  Fair   Carrying  Fair
                                                amount   value   amount   value
                                               -------- ------- -------- -------
   <S>                                         <C>      <C>     <C>      <C>
   Senior notes............................... $150,000 124,500 150,000  145,500
   Notes payable..............................   89,000  89,000  80,000   80,000
                                               ======== ======= =======  =======
</TABLE>

   (m) Revenue Recognition

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

(3) Inventories

  Inventories at December 31, 2000 and 1999 consist of the following:

<TABLE>
<CAPTION>
                                                                  2000    1999
                                                                -------- -------
                                                                  (Dollars in
                                                                   thousands)
   <S>                                                          <C>      <C>
   Finished goods.............................................. $ 44,289  39,526
   Work in process.............................................   37,310  18,723
   Raw materials...............................................  131,939 103,399
   Supplies....................................................    5,041   4,922
                                                                -------- -------
     Total inventories......................................... $218,579 166,570
                                                                ======== =======
</TABLE>

                                      F-9
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(4) Property, Plant and Equipment

   The following is a summary of property, plant and equipment at December 31,
2000 and 1999:

<TABLE>
<CAPTION>
                                                              2000       1999
                                                            ---------  --------
   <S>                                                      <C>        <C>
   Land.................................................... $  17,422    17,422
   Plant and equipment.....................................   454,810   416,458
   Plant refurbishment costs...............................    22,219    22,219
   Construction in progress................................    11,734    16,830
                                                            ---------  --------
                                                              506,185   472,929
   Less accumulated depreciation...........................  (237,756) (210,233)
                                                            ---------  --------
     Total property, plant and equipment................... $ 268,429   262,696
                                                            =========  ========
</TABLE>

  Capitalized interest was $300,000, $587,000 and $1,940,000 for 2000, 1999
  and 1998, respectively.

(5) Leases

   The Company is obligated under various leases for equipment that expire at
various dates during the next eight years. At December 31, 2000, the future
minimum lease payments under noncancelable operating leases with commitments
of at least one year are as follows (dollars in thousands):

<TABLE>
     <S>                                                                <C>
     Year ending December 31:
       2001............................................................ $  4,213
       2002............................................................    5,489
       2003............................................................    3,495
       2004............................................................    7,038
       2005............................................................    2,798
       Thereafter......................................................   15,450
                                                                        --------
                                                                        $ 38,483
                                                                        ========
</TABLE>

   Lease expense totaled approximately $6,209,000, $6,346,000 and $2,300,000
for the years ended December 31, 2000, 1999 and 1998, respectively.

(6) Investment in Affiliated Company

   The investment in the net assets of CST accounted for under the equity
method amounted to $36,151,000 and $34,801,000 at December 31, 2000 and 1999,
respectively.

   The unamortized portion of the excess of the Company's share of net assets
over the cost of the common stock is $780,000 at December 31, 2000 and
$2,100,000 at December 31, 1999.

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

                                     F-10
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(7) Notes Payable and Long-Term Debt

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

   Under the Facility, a commitment fee is applied on the average daily
undrawn portion of the commitments at a rate equal to the applicable margin.
The applicable margin in effect from time to time will range from 0.150% to
0.200%, based upon the leverage ratio, provided that the applicable margin
with respect to the commitment fee will increase to 0.500% if borrowings fall
below a certain level. The Facility is secured by a first priority security
interest in cash, accounts receivable, inventory and other assets.

   At the Company's election, the amounts advanced under the Facility bear
interest at the base rate or the Eurodollar rate, plus the applicable margin.
Interest is generally payable monthly and any accrued interest and principal
is due and payable in full in March 2004. As of December 31, 2000 and 1999,
outstanding borrowings of $88,000,000 and $80,000,000 consisted of advances
payable at the Eurodollar rate, which was 6.56% and 5.87%, respectively. Also
at December 31, 2000 outstanding borrowings of $1,000,000 consisted of
advances payable at the base rate, which was 9.50%. The Company had
$21,648,000 of borrowings available under the Facility as of December 31,
2000. The unamortized amount of the related financing costs was approximately
$589,000 at December 31, 2000.

   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, 2000.

   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, 2000. Proceeds from the Senior Notes were used
to repay in full the then existing long-term debt. The unamortized portion of
the related financing costs was approximately $3,549,000 at December 31, 2000.

   Long-term debt at December 31, 2000 and 1999 consisted of the following
(dollars in thousands):

<TABLE>
<CAPTION>
                                                                2000     1999
                                                              -------- --------
<S>                                                           <C>      <C>
Senior Notes bearing interest at 8.5%, payable semi-
 annually, due April 2009...................................  $150,000 $150,000
Notes payable to banks consist of advanced under a
 $130,000,000 revolving credit facility, bearing interest at
 either the Eurodollar rate or the base rate, plus the
 applicable margin. Interest is generally payable monthly
 and any accrued interest and principal are due and payable
 in full in March 2004......................................    89,000   80,000
                                                              -------- --------
  Long-term debt............................................  $239,000 $230,000
                                                              ======== ========
</TABLE>


                                     F-11
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(8) Stockholders' Equity

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

   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, 2000, 1999 and 1998, $15,015,000,
$20,040,000 and $14,302,000, respectively, in dividends were declared and
paid.

(9) Related Party Transactions

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

   The Company purchases steel slab from CST, an investee, from Kawasaki Steel
Corporation, and from Companhia Siderurgica National (CSN). CSN maintained an
ownership interest in CVRD through December 31, 2000. The Company charters
vessels from Seamar Shipping Corporation, a subsidiary of CVRD, for the ocean
transfer of slab from Brazil to the Port of Los Angeles. The Company also
contracts with Rio Doce Pasha Terminal, a joint venture of CVRD, to unload
ocean cargo from ships in the Port of Los Angeles. The following represents
amounts paid to the various affiliated companies for the years ended December
31:

<TABLE>
<CAPTION>
                                                          2000    1999    1998
                                                         ------- ------- -------
                                                         (Dollars in thousands)
   <S>                                                   <C>     <C>     <C>
   CST.................................................. $78,188 105,248 112,695
   Kawasaki Steel Corporation...........................  36,394  51,089  60,258
   Rio Doce Pasha Terminal..............................  21,580  16,076  16,732
   CSN..................................................     --   14,499     --
   Seamar Shipping Corporation..........................   7,691   8,003  11,825
</TABLE>

   At December 31, 2000 and 1999, the Company owed affiliated companies
$23,584,000 and $19,264,000, respectively, for goods and services.

(10) Commitments and Contingencies

   At December 31, 2000, the Company is committed, in the form of open
purchase orders, to purchase approximately $34,762,000 in steel slabs, of
which $9,736,000 is from related parties.

   The Company has been contacted by various governmental agencies regarding
specific environmental matters, at its operating facility. During September
1990, the Company reached a preliminary agreement with

                                     F-12
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 and is currently in the remedial
investigation stage. The Company is unable to reasonably estimate the range of
liability until completion of a remedial feasibility study. The site
investigation is expected to be completed in 2001. At December 31, 2000, the
Company has accrued $700,000, which represents management's best estimate of
the costs to complete the remedial feasibility study.

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

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

(11) Income Taxes

   Income tax expense (benefit) for the years ended December 31, 2000, 1999
and 1998 consists of the following:

<TABLE>
<CAPTION>
                                                          2000     1999   1998
                                                         -------  ------ ------
                                                              (Dollars in
                                                              thousands)
   <S>                                                   <C>      <C>    <C>
   Current:
     Federal............................................ $11,206  20,504  3,546
     State..............................................   1,282     291  3,000
                                                         -------  ------ ------
                                                          12,488  20,795  6,546
                                                         -------  ------ ------
   Deferred:
     Federal............................................   9,133   4,718  6,005
     State..............................................    (328)  4,667 (5,535)
                                                         -------  ------ ------
                                                           8,805   9,385    470
                                                         -------  ------ ------
                                                         $21,293  30,180  7,016
                                                         =======  ====== ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                       2000     1999    1998
                                                      -------  ------  ------
                                                           (Dollars in
                                                           thousands)
   <S>                                                <C>      <C>     <C>
   Computed "expected" tax expense................... $19,648  26,959   9,385
   State income taxes, net of federal benefit........   2,416   3,935     537
   State manufacturing investment credit, net of
    federal benefit..................................  (1,795)   (712) (2,515)
   Other.............................................   1,024      (2)   (391)
                                                      -------  ------  ------
                                                      $21,293  30,180   7,016
                                                      =======  ======  ======
</TABLE>

                                     F-13
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                2000     1999
                                                              --------  -------
                                                                 (Dollars in
                                                                 thousands)
   <S>                                                        <C>       <C>
   Deferred tax assets:
     Inventory............................................... $  2,649    2,583
     State taxes.............................................      832      894
     Reserves................................................      263      217
     Accrued expenses........................................    2,096    1,835
     Other...................................................       25       11
                                                              --------  -------
       Total gross deferred tax assets.......................    5,865    5,540
     Less valuation allowance................................      --       --
       Net deferred tax assets...............................    5,865    5,540
                                                              --------  -------
   Deferred tax liabilities:
     Property, plant and equipment...........................  (40,731) (31,929)
     Change in inventory valuation...........................   (1,536)  (3,072)
     Undistributed earnings of affiliate.....................   (1,865)  (1,273)
     Other...................................................   (1,354)     (82)
                                                              --------  -------
       Total gross deferred tax liabilities..................  (45,486) (36,356)
                                                              --------  -------
       Net deferred tax liability............................ $(39,621) (30,816)
                                                              ========  =======
</TABLE>

   Based on the Company's historical pretax earnings, adjusted for significant
items such as nonrecurring charges, management believes it is more likely than
not that the Company will realize the benefit of the deferred tax assets
existing at December 31, 2000. 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.

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

(12) Employee Benefit and Retirement Plans

 (a) 401(k) Plan

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

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

                                     F-14
<PAGE>

                       CALIFORNIA STEEL INDUSTRIES, INC.
                                AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Plan expense for the years ended December 31, 2000, 1999 and 1998 was
  approximately $2,300,000, $2,189,000 and $2,084,000, respectively.

 (b) Profit Sharing

  The Company has a profit sharing plan under which bonuses are awarded based
  on a pool amount, equal to 8% of the Company's income before taxes and gain
  or loss on disposition of fixed assets. The basis for determining the
  profit sharing pool is subject to review and approval of the Company's
  Board of Directors. The employee's share in the pool amount is based on his
  or her length of service with the Company during the profit sharing period.
  Employees who voluntarily terminate their employment for reasons other than
  retirement before the end of the profit sharing period and employees whose
  employment is involuntarily terminated are not eligible to receive any
  profit sharing award. Profit sharing expense for the years ended December
  31, 2000, 1999 and 1998 was $6,108,000, $6,394,000 and $2,248,000,
  respectively.

(13) Changes in Accounting Estimates

   In fiscal 1998, the Company made changes in the estimated useful lives of
the hot strip mill reheat furnace, five stand cold reduction mill, continuous
pickling line, and the second galvanizing line from 10 to 15 years. This
change increased 1998 net income by $1,500,000. Also, effective in fiscal
1998, the Company changed the estimated useful life of its rolls from 1 year
to 3 years for work rolls and 10 years for backup rolls. This change increased
1998 net income by $2,000,000. These changes were made to better reflect how
these assets are expected to be used over time, to provide a better matching
of revenues and expenses, and to be consistent with industry practice.

(14) Selected Quarterly Financial Data (Unaudited)

   Summarized quarterly financial data for 2000 and 1999 is as follows
(dollars in thousands):

<TABLE>
<CAPTION>
                                                       Quarter
                                       ----------------------------------------
                                         1st      2nd     3rd     4th    Total
                                       -------- ------- ------- ------- -------
<S>                                    <C>      <C>     <C>     <C>     <C>
2000
Net sales............................. $187,709 196,483 186,796 149,912 720,900
Income from operations................   29,909  30,262   9,162   2,744  72,077
Net income............................   15,438  15,716   3,416     275  34,845
1999
Net sales............................. $160,994 170,264 183,566 172,226 687,050
Income from operations................   12,092  23,232  30,055  26,836  92,215
Net income*...........................    5,096  11,956  16,168  13,627  46,847
</TABLE>
--------
*  In the fourth quarter of 1999, the Company changed its inventory costing
   method from the LIFO method to the FIFO method. All previously reported
   results have been restated to reflect the retroactive application of this
   accounting change (see note 2).

                                     F-15
<PAGE>

                CALIFORNIA STEEL INDUSTRIES, INC. AND SUBSIDIARY

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                          Beginning                      Ending
                                           Balance  Additions Deductions Balance
                                          --------- --------- ---------- -------
<S>                                       <C>       <C>       <C>        <C>
Year ended December 31, 2000
  A/R Allowance..........................  300,000   300,000        --   600,000
Year ended December 31, 1999
  A/R Allowance..........................  720,000   296,747   (716,747) 300,000
Year ended December 31, 1998
  A/R Allowance..........................  720,000   618,157   (618,157) 720,000
</TABLE>

                                      S-1
<PAGE>

                                  SIGNATURES

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

                                          CALIFORNIA STEEL INDUSTRIES, INC.

                                              /s/ C. Lourenco Goncalves
                                          By: _________________________________

                                                 C. Lourenco Goncalves,
                                               Chief Executive Officer and
                                                        President

                                                     March 28, 2001

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

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


 <S>                                       <C>                           <C>
       /s/ C. Lourenco Goncalves           Chief Executive Officer and   March 28, 2001
 ________________________________________   President (Principal
           C. Lourenco Goncalves            Executive Officer)

         /s/ Vicente B. Wright             Executive Vice President--    March 28, 2001
 ________________________________________   Finance (Principal
             Vicente B. Wright              Financial and Accounting
                                            Officer)

        /s/ Tatsuhiko Hamamoto             Director                      March 23, 2001
 ________________________________________
            Tatsuhiko Hamamoto

   /s/ Armando de Oliveira Santos Neto     Director                      March 28, 2001
 ________________________________________
      Armando de Oliveira Santos Neto

          /s/ Francisco Povoa              Director                      March 26, 2001
 ________________________________________
              Francisco Povoa

        /s/ Toshihiro Kabasawa             Director                      March 22, 2001
 ________________________________________
            Toshihiro Kabasawa
</TABLE>

                                     II-1
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
   No.                                 Description
 -------                               -----------
 <C>     <S>
  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    Bylaws of the Registrant.(1)

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

  4.2    Specimen Series B note.(1)

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

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

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

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

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

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

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

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

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


                                      II-2
<PAGE>

<TABLE>
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 Exhibit
   No.                                 Description
 -------                               -----------
 <C>     <S>
 10.9    Equipment Lease Agreement, dated as of September 30, 1998, by and
          between the Registrant and State Street Bank and Trust Company of
          California, National Association.(1)

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

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

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

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

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

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

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

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

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

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

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

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

 21.1    Subsidiaries of the Registrant.(1)

 23.1    Independent Auditors' Report on Schedule.
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(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.

                                     II-3