ToTable maintain consistency and comparability, certain prior-year amounts were reclassified to conform to the current-year presentation as described in Note 1, Basis of Presentation, of the Notes to Financial Statements in this Quarterly Report on Form 10-Q. Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2009~~2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission File Number 333-79587

CALIFORNIA STEEL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware		33-0051150
(State or other jurisdiction ofincorporation or organization)		(I.R.S. EmployerIdentification No.)
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
14000 San Bernardino Avenue Fontana, California		92335
(Address of principal executive offices)		(Zip Code)

14000 San Bernardino Avenue

Fontana, California

92335

(Address of principal executive offices)

(Zip Code)

(909) 350-6300

(Registrant’s telephone number including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). ¨ Yes x No

As of ~~October~~April 2823, ~~2009~~2010, 4,000 shares of the Company’s common stock, no par value, were outstanding.

CALIFORNIA STEEL INDUSTRIES, INC.

Table of Contents

	Page	~~Page~~
PART I FINANCIAL INFORMATION	1	1
ITEM 1.	FINANCIAL STATEMENTS	1
ITEM 1. FINANCIAL STATEMENTS	1
	Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008	1
Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009	1
	Statements of Operations for the three and nine months ended September 30, 2009 and 2008 (unaudited)	2
Statements of Operations for the three months ended March 31, 2010 and 2009 (unaudited)	2
	Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 (unaudited)	3
Statements of Cash Flows for the three months ended March 31, 2010 and 2009 (unaudited)	3
Notes to Financial Statements (unaudited)	~~Notes to Financial Statements (unaudited)~~4	4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	6
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	11
ITEM 4.	CONTROLS AND PROCEDURES	13
ITEM 4. CONTROLS AND PROCEDURES	11
PART II OTHER INFORMATION	13	15
ITEM 6.	EXHIBITS	15
ITEM 6. EXHIBITS	13
SIGNATURE	14	16
INDEX TO EXHIBITS	15	17
EXHIBITS

PART I FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CALIFORNIA STEEL INDUSTRIES, INC.

Balance Sheets

($ in thousands except share and per share amounts)

	September 30,2009		December 31,2008
	March 31,2010		December 31,2009
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	9655,~~806~~155	$	1061,~~880~~671
Trade accounts receivable, less allowance for doubtful accounts of $800 at September 30, 2009 and $1,550 at December 31, 2008		50,273		44,944
Trade accounts receivable, less allowance for doubtful accounts of $950 and $700 at March 31, 2010 and December 31, 2009, respectively		79,889		24,108
Inventories		~~139~~136,~~838~~937		~~224~~185,~~146~~068
Prepaid income taxes		3611,~~349~~704		7516,~~515~~160
Other receivables and prepaid expenses		1,~~376~~773		2,~~894~~201
Total current assets		~~324~~285,~~642~~458		~~358~~289,~~379~~208
Other assets		2019,~~697~~571		2119,~~423~~646
Property, plant and equipment, net		~~269~~277,~~335~~624		~~261~~276,~~027~~593
Total assets	$	~~614~~582,~~674~~653	$	~~640~~585,~~829~~447
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	5527,~~015~~124	$	6639,~~009~~793
Accrued interest expense		~~718~~667		3,~~074~~010
Accrued utilities		23,~~344~~324		1,~~392~~433
Deferred income taxes		46,~~826~~682		46,~~815~~682
Other accrued expenses		108,~~079~~713		106,~~755~~290
Current portion of long-term debt		10,000		510,000
Total current liabilities		8256,~~982~~510		9167,~~045~~208
Other liabilities		2,~~441~~488		2,~~495~~506
Long-term debt		~~177~~172,500		~~185~~175,000
Deferred income taxes		4840,~~789~~062		4840,~~517~~062
Commitments and contingencies
Stockholders’ equity
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; none issued		—		—
Common stock, no par value. Authorized 5,000 shares; 4,000 shares issued and outstanding		40,000		40,000
Retained earnings		~~262~~271,~~962~~093		~~273~~260,~~772~~671
Total stockholders’ equity		~~302~~311,~~962~~093		~~313~~300,~~772~~671
Total liabilities and stockholders’ equity	$	~~614~~582,~~674~~653	$	~~640~~585,~~829~~447

See accompanying notes to financial statements.

CALIFORNIA STEEL INDUSTRIES, INC.

Statements of Operations

(In$ in thousands)

	Three months endedSeptember 30,						Nine months endedSeptember 30,
	Three months endedMarch 31,
	2009			2008			2009			2008
	2010			2009
	(Unaudited)
Net sales	$	~~146~~232,~~983~~744		$	~~440~~147,~~836~~067		$	~~398,245~~		$	~~1,241,151~~
Cost of sales:
Cost of sales, excluding lower of cost or market adjustment		~~132~~211,~~753~~532			~~372~~133,~~781~~320			~~367,940~~			~~1,072,457~~
Lower of cost or market adjustment		~~2,000~~—			—35,000			~~41,800~~			—
Gross profit (loss)		1221,~~230~~212			68(21,~~055~~253	)		~~(11,495~~	)		~~168,694~~
Selling, general and administrative expenses		4,~~285~~748			64,~~356~~406			~~12,819~~			~~16,931~~
Loss on disposition of property, plant and equipment		29240			~~770~~—			29			~~2,875~~
Income (loss) from operations		716,~~916~~224			60(25,~~929~~659	)		~~(24,343~~	)		~~148,888~~
Other (expense) income:
Interest expense, net		(1,~~960~~858	)		(12,~~801~~321	)		~~(6,201~~	)		~~(6,319~~	)
Other income, net		2,110			(1,642	)		7,095			1,069
Other, net		1,392			2,872
Income (loss) before income tax expense (benefit)		8,066			57,486			(23,449	)		143,638
Income (loss) before income tax expense		15,758			(25,108	)
Income tax expense (benefit)		~~716~~5,336			21(9,~~940~~775	)		~~(12,639~~	)		~~54,243~~
Net income (loss)	$	710,~~350~~422		$	35(15,~~546~~333	)		~~(10,810~~	)		~~89,395~~

See accompanying notes to financial statements.

CALIFORNIA STEEL INDUSTRIES, INC.

Statements of Cash Flows

($ in thousands)

	Nine months endedSeptember 30,
	Three months endedMarch 31,
	2009			2008
	2010			2009
	(Unaudited)
Cash flows from operating activities:
Net (loss) income	$	(10,810	)	$	89,395
Net income (loss)	$	10,422		$	(15,333	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization		247,~~812~~300			248,~~659~~308
Deferred income taxes		283			—
Loss (gain) on disposition of property, plant and equipment and intangible assets		240			(438	)
Gain on disposition of environmental credits		(438	)		—
Inventory write-down		—			35,000
Loss on disposition of property, plant and equipment		29			2,875
Inventory write-down		41,800			—
Change in assets and liabilities:
Trade accounts receivable, net		(555,~~329~~781	)		~~(52~~3,~~029~~780	)
Inventories		4248,~~508~~131			~~(99~~50,~~171~~147	)
Other receivables and prepaid expenses		~~1,538~~428			~~1,963~~969
Accounts payable		(1012,~~994~~669	)		~~130~~(51,~~408~~703	)
Prepaid income taxes		394,~~166~~456			341,~~952~~652
Accrued interest expense		(2,~~356~~343	)		(2,~~098~~345	)
Other accrued expenses and liabilities		~~222~~4,296			152,~~158~~511
Net cash provided by operating activities		~~120~~4,~~431~~480			~~115~~72,~~112~~548
Cash flows from investing activities:
Additions to property, plant and equipment		(338,~~524~~422	)		(2611,~~119~~836	)
Proceeds received for the sale of environmental credits		1,519			—
(Removal cost) proceeds for the disposal and sale of property, plant and equipment and intangible assets		(74	)		1,519
Additions to intangible assets		—			(908	)
Net cash used in investing activities		(8,496	)		(10,317	)
Removal costs paid for the sale of property, plant and equipment		—			(2,038	)
Net cash used in investing activities		(32,005	)		(29,065	)
Cash flows from financing activities:
Net repayments under line-of-credit		—			(26,500	)
Repayments of long-term debt		(2,500	)		—
Borrowings of long-term debt		—			40,000
Net cash used in financing activities		(2,500	)		—
Principal payments on long-term debt		(2,500	)		—
Net (decrease) increase in cash and cash equivalents		(6,516	)		62,231
Dividends paid		—			(26,925	)
Cash and cash equivalents at beginning of period		61,671			10,880
Net cash used in financing activities		(2,500	)		(13,425	)
Cash and cash equivalents at end of period	$	55,155		$	73,111
Net increase in cash and cash equivalents		85,926			72,622
Cash and cash equivalents at beginning of period		10,880			13,630
Cash and cash equivalents at end of period	$	96,806		$	86,252
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest (net of amount capitalized)	$	84,~~640~~171		$	94,~~679~~617
Income taxes (net of amount refunded)	$	~~(51,900~~879	)	$	(51,~~992~~427	)

See accompanying notes to financial statements.

CALIFORNIA STEEL INDUSTRIES, INC.

Notes To Financial Statements

(Unaudited)

1. Basis of Presentation

Unless the context otherwise requires, the use of the terms “California Steel,” “we,” “us,” and “our” in these Notes to the Financial Statements refers to California Steel Industries, Inc.

In the opinion of management, the accompanying financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States. All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Financial Statements. ~~Our interim results are not necessarily indicative of results for the entire fiscal year.~~ The interim financial statements and the related notes in this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for year ended December 31, ~~2008~~2009. Results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010 are not necessarily indicative of results expected for the full year ending December 31, ~~2009~~ 2010.

We have evaluated subsequent events through October 28, 2009, the date the financial statements were issued.

Reclassifications

To maintain consistency and comparability, certain prior-year amounts were reclassified to conform to the current-year presentation. We reclassified:

• to cost of sales, excluding lower of cost or market adjustment, $2.7 million and $7.0 million in shipping expenses for the three and nine months ended September 30, 2008, respectively, which were previously reported in selling, general and administrative expenses on our statements of operations;

• to additions to property, plant and equipment, $1.4 million for the nine months ended September 30, 2008 for additions of spare parts, which was previously reported in inventories within cash provided by operating activities on our statements of cash flows.

These reclassifications had no affect on previously reported income from operations, net income or stockholders’ equity.

Recent Accounting Pronouncements

In ~~June~~January ~~2009~~2010, the Financial Accounting Standards Board (“FASB”) issued ~~Statement of Financial~~ Accounting Standards Update (“~~SFAS~~ASU”) No. ~~168~~2010-6, “~~The~~Improving ~~FASB~~Disclosures ~~Accounting~~about ~~Standards~~Fair ~~Codification~~Value ~~and~~Measurements” ~~the~~(ASU ~~Hierarchy~~2010-6”). ofThis ~~Generally~~update ~~Accepted~~amended ~~Accounting~~guidance ~~Principles~~and –issued a ~~replacement~~clarification ofwith ~~FASB Statement~~regard ~~No. 162”~~to ~~(“SFAS~~disclosure ~~168”).~~requirements ~~SFAS~~about ~~168~~fair ~~establishes~~market ~~the~~value ~~source of authoritative U~~measurement.S. ~~GAAP~~A reporting ~~recognized~~entity byis ~~the~~required ~~FASB~~ to bedisclose ~~applied~~separately bythe ~~nongovernmental~~amounts ~~entities.~~of ~~Rules~~significant ~~and~~transfers ~~interpretive~~in ~~releases~~and out of ~~the~~Level ~~Securities~~1 and ~~Exchange Commission~~Level ~~(“SEC”)~~2 ~~under~~fair ~~authority~~value ofmeasurements ~~federal~~and ~~securities~~describe ~~laws~~the ~~are~~reasons ~~also sources of authoritative GAAP~~ for ~~SEC~~the ~~registrants~~transfers. ~~Under~~In ~~SFAS 168~~addition, ~~the~~for ~~FASB~~measurements ~~Accounting~~utilizing ~~Standards Codification (“Codification”) will supersede all~~significant ~~then-existing~~unobservable ~~non-SEC~~inputs, ~~accounting~~a ~~and~~ reporting ~~standards.~~entity ~~All~~should ~~other~~present ~~nongrandfathered~~separately ~~non-SEC~~information ~~accounting~~about ~~literature~~purchases, ~~not~~sales, ~~included~~issuances, inand ~~the Codification will become nonauthoritative~~settlements. ~~SFAS~~We ~~168~~adopted isASU ~~effective~~2010-6 ~~for~~on ~~financial statements issued for fiscal years and interim periods ending after September~~January 151, ~~2009~~2010. There was no impact upon adoption of ~~SFAS~~ASU ~~168~~2010-6 to our financial position ~~statements~~or results of operations.

In ~~August~~February ~~2009~~2010, ~~the~~ FASB issued ~~Accounting Standards Update (“~~ASU”) No. ~~2009~~2010-059, “~~Measuring~~Amendments ~~Liabilities~~to atCertain Recognition ~~Fair~~and ~~Value~~Disclosure Requirements” (“ASU ~~2009~~ 2010-059”). This ~~update~~amendment ~~provides~~removed ~~amendments~~the torequirement ~~Accounting~~for ~~Standards Codification~~a ~~(“ASC”)~~Securities ~~Topic~~and ~~820,~~Exchange ~~“Fair~~Commission ~~Value Measurements and Disclosure~~(“SEC”) ~~for~~filer ~~the~~to ~~fair~~disclose ~~value~~a ~~measurement~~date ofthrough ~~liabilities.~~which ~~There~~subsequent ~~was~~events nohave ~~impact~~been evaluated ~~upon~~in ~~adoption~~both ofissued ~~ASU~~and ~~2009-05~~revised ~~for all~~ financial ~~liabilities~~statements. WeThis ~~will~~amendment ~~adopt~~is ~~ASU 2009-05~~effective ~~for~~upon ~~all~~issuance ~~non-financial~~date ~~liabilities in the first quarter~~ of ~~fiscal 2010 when we fully adopt SFAS 157~~February 24, ~~“Fair Value Measurements~~2010.” ~~Although~~There wewas ~~will~~no ~~continue~~impact toupon ~~evaluate the application of SFAS 157 and this update for its non-financial liabilities, we do not expect the~~ adoption of ASU ~~2009~~2010-059 ~~will~~to ~~have~~our afinancial ~~material~~position ~~impact~~or onresults ~~our~~of ~~financial statements~~operations.

CALIFORNIA STEEL INDUSTRIES, INC.

Notes To Financial Statements—(Continued)

(Unaudited)

establish a selling price hierarchy for determining the selling price of a deliverable. ASU 2009-13 is effective for financial statements issued for years beginning on or after June 15, 2010. We are currently evaluating the effect that the adoption of ASU 2009-13 will have on our results of operation, financial position, and cash flows, but do not expect the adoption will have a material impact.

2. Inventories

Inventories are stated at the lower of cost (determined under the first-in, first-out method of accounting) or market value and consist of the following ($ in thousands):

	September 30,2009		December 31,2008
	March 31,2010		December 31,2009
	(Unaudited)
Finished goods	$	1623,~~541~~001	$	1611,~~160~~294
Work in process		1932,~~280~~822		3417,~~168~~164
Raw materials		8562,~~777~~925		~~160~~137,~~096~~234
Supplies		18,~~240~~189		1319,~~722~~376
	$	~~139~~136,~~838~~937	$	~~224~~185,~~146~~068

3. Credit Facility

In September 2005, we entered into a five year $110.0 million credit facility with a bank group led by Mizuho Corporate Bank, as administrative agent and a lender, The Bank of Tokyo-Mitsubishi, Ltd., Citibank (West), FSB and Wells Fargo Bank. Subject to the satisfaction of customary conditions and a borrowing base, advances under this facility may be made at any time prior to the credit facility termination date. There were no outstanding borrowings under the credit facility as of ~~September~~March 3031, ~~2009~~2010. The credit facility is collateralized by accounts receivable and inventory. Advances under this facility may be used ~~for~~ for letters of credit, working capital, capital expenditures, payment of dividends and other lawful corporate purposes, including the refinancing of existing debt. The facility requires us to maintain certain financial ratios and other financial covenants. We were in compliance with all the covenants at ~~September~~March 3031, ~~2009~~2010.

4. ~~Commitments and Contingencies~~

At September 30, 2009, we are committed in the form of open purchase orders, to purchase approximately $117.4 million in steel slabs, of which $17.2 million are from a related party, material commitments for capital expenditures of $15.9 million and other assorted contractual commitments of $2.4 million.

When market conditions warrant, we enter into contracts to purchase certain commodities used in the manufacturing of our products, such as electricity and natural gas. Some of these forward contracts do not require derivative accounting as we take possession of the commodities in the normal course of business whereas other forward contracts are accounted for as derivatives. None of our current contracts are designated as hedges. As of September 30, 2009, the fair value of these contracts was a liability of approximately $1.0 million, which represents a decrease in the liability by approximately $1.2 million from December 31, 2008, and a decrease of approximately $1.3 million from June 30, 2009. The changes in the fair value of these contracts are recorded in other income, net on the statements of operations.

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

We are addressing environmental concerns caused by the former occupant at our Fontana site. We have engaged an environmental consultant to conduct a remedial investigation and develop a remediation plan and remediation cost projections based upon the plan. Utilizing the remediation plan developed by the environmental consultant, we developed an estimate of future costs of the remediation plan. The total aggregate cost of remediation is estimated to be approximately $1.8 million, which is included in other liabilities at September 30, 2009 and December 31, 2008. The DTSC has not yet completed its review and approval of our remediation plan; however, preliminary discussions between the DTSC and us have not indicated the need for any significant changes to the remediation plan or our estimate of related costs. The estimate of costs could change as a result of changes to the remediation plan required by the DTSC or unforeseen circumstances,

CALIFORNIA STEEL INDUSTRIES, INC.

Notes To Financial Statements—(Continued)

(Unaudited)

~~including~~4. ~~without~~Commitments ~~limitations,~~and ~~unknown~~Contingencies ~~site conditions, changes to applicable regulations or increased enforcement requirements by the regulators existing at the site.~~

At March 31, 2010, we are committed in the form of open purchase orders, to purchase approximately $322.4 million in steel slabs, of which $52.3 million are from a related party, and material commitments for capital expenditures of $9.2 million.

We are addressing environmental concerns caused by the former occupant at our Fontana site. We have engaged an environmental consultant to conduct a remedial investigation and develop a remediation plan and remediation cost projections based upon the plan. Utilizing the remediation plan developed by the environmental consultant, we developed an estimate of future costs of the remediation plan. The total aggregate cost of remediation is estimated to be approximately $1.8 million, which is included in other liabilities at March 31, 2010 and December 31, 2009. The DTSC has not yet completed its review and approval of our remediation plan; however, preliminary discussions between the DTSC and us have not indicated the need for any significant changes to the remediation plan or our estimate of related costs. The estimate of costs could change as a result of changes to the remediation plan required by the DTSC or unforeseen circumstances, including without limitations, unknown site conditions, changes to applicable regulations or increased enforcement requirements by the regulators existing at the site.

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

We are self-insured for workers’ compensation. The accrued liability associated with these programs is based on our estimate of the ultimate costs to settle known claims as well as claims incurred but not yet reported (IBNR claims) as of the balance sheet date. The estimated liability is not discounted and is based on information provided by our insurance brokers and insurers, combined with our judgments regarding a number of assumptions and factors, including the frequency and severity of claims, our claims development history, case jurisdiction, related legislation, and our claim settlement practice. Significant judgment is required to estimate IBNR claims as parties have yet to assert such claims. If actual trends, including the severity or frequency of claims, differ from our estimates, our financial results could be impacted.

5. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by the accounting literature contains three levels as follows:

• Level 1 –		Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the measurement date.
• Level 2 –		Inputs to the valuation include quoted prices in either markets that are not active, or in active markets for similar assets or liabilities, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data.
• Level 3 –		Inputs to the valuation that are unobservable inputs for the asset or liability.

•

Level 1 – Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the measurement date.

~~Our~~• ~~financial~~Level ~~assets~~2 ~~and~~– ~~liabilities~~Inputs ~~measured~~to atthe ~~fair~~valuation ~~value~~include onquoted aprices ~~recurring~~in ~~basis~~either ~~at September 30~~markets that are not active, ~~2009~~or in active markets for similar assets or liabilities, ~~were~~inputs asother ~~follows~~than ~~(dollars~~quoted inprices ~~thousands):~~that are observable, and inputs that are derived principally from or corroborated by observable market data.

	Fair Value Measurement Using
Description	Quoted Prices inActive Marketsfor IdenticalAssets(Level 1)		SignificantOtherObservableInputs(Level 2)			SignificantUnobservableInputs(Level 3)		Total
Cash and cash equivalents	$	96,806	$	—		$	—	$	96,806
Forward contracts		—		(1,032	)		—		(1,032	)
Total	$	96,806	$	(1,032	)	$	—	$	95,774

•

Level 3 – Inputs to the valuation that are unobservable inputs for the asset or liability.

We5 have determined that our forward contracts are Level 2 in the fair value hierarchy. At September 30, 2009, the fair value of our forward contracts were $1.0 million and are included in other accrued expenses on our balance sheets.

Our senior notes are reported at carrying value. The carrying value and fair value of our senior notes are $150.0 million and $138.4 million at September 30, 2009 and $150.0 million and $105.0 million at December 31, 2008, respectively. The carrying value approximates fair value for our term loan. The value of our term loan is $37.5 million and $40.0 million at September 30, 2009 and December 31, 2008, respectively.

6. Fair Value of Financial Instruments

Our financial instruments are primarily comprised of cash and cash equivalents, receivables, accounts payable, accrued liabilities and long-term debt. For cash and cash equivalents, receivables, accounts payable and accrued liabilities, the carrying amount approximates fair value because of the short maturity of these instruments. Forward contracts are carried at fair value and are disclosed in Note 5 above. The estimated fair value of the senior notes due 2014 at September 30, 2009, based on quoted market prices, was $138.4 million. Management estimates that the carrying values of our other financial instruments approximate their value since their realization or satisfaction is expected to occur in the short term or have been renegotiated at a date close to quarter end.

CALIFORNIA STEEL INDUSTRIES, INC.

Notes To Financial Statements—(Continued)

(Unaudited)

Our financial assets and liabilities measured at fair value on a recurring basis at March 31, 2010, were as follows (dollars in thousands):


	Fair Value Measurement Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and cash equivalents	$	55,155	$	—	$	—	$	55,155

Our senior notes are reported at carrying value. The fair value of our senior notes is the asking price of our senior notes at the end of the fiscal quarter. The carrying value and fair value of our senior notes are $150.0 million and $142.7 million at March 31, 2010 and $150.0 million and $144.0 million at December 31, 2009, respectively.

6. Fair Value of Financial Instruments

Our financial instruments are primarily comprised of cash and cash equivalents, receivables, accounts payable, accrued liabilities and long-term debt. For cash and cash equivalents, receivables, accounts payable and accrued liabilities, the carrying amount approximates fair value because of the short maturity of these instruments. The estimated fair value of the senior notes due 2014 at March 31, 2010, based on quoted market prices, was $142.7 million. Management estimates that the carrying values of our other financial instruments approximate their value since their realization or satisfaction is expected to occur in the short term or have been renegotiated at a date close to quarter end.

7. Income Taxes

~~The~~Our ~~decrease in our~~ effective tax rate ~~and~~was ~~increase~~33.9% infor ~~our~~the first quarter of fiscal 2010 compared to effective tax rate benefit ~~for~~of 38.9% in the ~~three~~same ~~and~~period one ~~nine~~year ~~months~~ago. ~~ended~~The ~~September 30, 2009~~change in our effective tax rate is attributable to a sales tax credit and a hiring credit under the Enterprise Zone (“EZ”) designation. We became eligible for the EZ credits effective October 2006. Our effective income tax rate was 8.9% for the third quarter and an income tax rate benefit of 53.9% for the nine months ended September 30, 2009 compared to an effective tax rate of 38.2% and 37.8% in the same periods one year ago.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Conditions and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in six sections:

•

Overview

•

Results of Operations

•

Liquidity and Capital Resources

•

Contractual Obligations and Commitments

•

Critical Accounting Policies

•

Recent Accounting Pronouncements

Overview

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

~~Financial~~6 ~~Reporting Changes~~

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

Results of Operations

Financial Results

The following table represents unaudited selected financial data (amounts in thousands, excepted for billed tons):

	Three months endedSeptember 30,						Nine months endedSeptember 30,
	Three months endedMarch 31,
	2009			2008			2009			2008
	2010			2009
Billed tons		~~244~~326,~~417~~880			~~352~~156,~~010~~884			~~578,133~~			~~1,249,743~~
Net sales	$	~~146~~232,~~983~~744		$	~~440~~147,~~836~~067		$	~~398,245~~		$	~~1,241,151~~
Net sales (loss) gain %		(67	)%		31	%		(68	)%		26	%
Net sales gain (loss) %		58	%		-60	%
Gross profit (loss)		12,230			68,055			(11,495	)		168,694
Gross profit (loss) as % of net sales		9.1	%		-14.5	%
Gross profit (loss) as % of net sales		8.3	%		15.4	%		(2.9	)%		13.6	%
SG&A	$	4,748		$	4,406
SG&A		4,285			6,356			12,819			16,931
SG&A as % of net sales		2.0	%		3.0	%
SG&A as % of net sales		2.9	%		1.4	%		3.2	%		1.4	%
Operating income (loss)	$	16,224		$	(25,659	)
Operating income (loss)	$	7,916		$	60,929		$	(24,343	)	$	148,888
Operating income (loss) as % of net sales		7.0	%		-17.4	%
Operating income (loss) as % of net sales		5.4	%		13.8	%		(6.1	)%		12.0	%
Net income (loss)	$	10,422		$	(15,333	)
Net income (loss)	$	7,350		$	35,546		$	(10,810	)	$	89,395

Net sales. Net sales in the ~~third~~first quarter of fiscal ~~2009 decreased~~2010 67increased 58% to $~~147~~232.07 million, compared with $~~440~~147.81 million in the same period one year ago. The ~~decrease~~increase resulted primarily from aan ~~decrease~~increase in sales volume ~~and~~of 108% compared to the same period one year ago. The higher sales volume increased net sales approximately $154.7 million. This increase was partially offset by a ~~lower~~decrease in the average selling price of 25% compared to the same period one year ago which decreased net sales approximately $30.8 million. The remaining offsetting decrease in net sales was primarily from lower value product mix during the first quarter of fiscal 2010 compared to the same period one year ago.

Gross profit (loss). Our gross profit rate in the first quarter of fiscal 2010 increased to 9.1% of net sales, compared with a gross loss of 14.5% of net sales in the same period one year ago. The increase was due to higher sale volume which was partially offset by the increase in raw material consumption costs. The write-down of inventory to the lower of cost or market of $35.0 million reduced gross profit by 23.8% during the first quarter of fiscal 2009. There was no such adjustment during the first quarter of fiscal 2010.

Selling, general and administrative (SG&A) expenses. Our SG&A expense rate in the first quarter of fiscal 2010 decreased by 1.0% to 2.0% of net sales, compared with 3.0% of net sales in the same period one year ago. The decrease in our SG&A expense rate is largely attributable to an increase of our net sales of 58% since the majority of our SG&A expenses are fixed costs. Our SG&A expenses consist primarily of labor and various administrative expenses. Labor costs comprised of approximately 57% and 58% of our SG&A expenses for the first quarter of fiscal 2010 and 2009, respectively.

Net interest expense. Net interest expense in the first quarter of fiscal 2010 decreased $463,000, or 19.9%, to $1.9 million compared with $2.3 million in the same period one year ago. The decrease in net interest expense was attributable to a decrease in the average outstanding debt and an increase in capitalized interest of $359,000 when compared to the same period one year ago.

Other income. Other income was $1.4 million for the first quarter of fiscal 2010, compared with $2.9 million in the same period one year ago. Other income is comprised of miscellaneous income items such as rental income, proceeds from legal settlements, refund from anti dumping subsidy, refund of property taxes, etc. As many of these items occur infrequently or result in a one-time recognition of income, this category is subject to significant fluctuation from period to period.

Income tax expense (benefit). Our income tax expense was $5.3 million for the first quarter of fiscal 2010 compared with an income tax benefit of $9.8 million in the same period one year ago. Our effective income tax rate was 33.9% for the first quarter of fiscal 2010 compared with an effective income tax rate benefit of 38.9% in the same period one year ago.

Net income (loss). Our net income was $10.4 million for the first quarter of fiscal 2010 compared with net loss of $15.3 million in the same period one year ago.

Liquidity and Capital Resources

We ended the first quarter of fiscal year 2010 with $55.2 million of cash and cash equivalents compared with $61.7 million at the end of fiscal 2009. Working capital, the excess of current assets over current liabilities, was $228.9 million at the end of the first quarter of fiscal 2010, up from $222.0 million at the end of fiscal 2009. We ended the first quarter of fiscal 2010 and the end of fiscal 2009 with over $108.8 million in financing available under our revolving credit facility.

price. Sales volume decreased 31% and the average selling price decreased 51% compared to the same period one year ago. The lower sales volume decreased net sales approximately $132.8 million and the lower average selling price decreased net sales approximately $153.3 million. The remaining decrease in net sales was primarily from lower freight revenue in third quarter of fiscal 2009 compared to the same period one year ago.

Net sales for the first nine months of fiscal 2009 decreased 68% to $398.2 million, compared with $1,241.2 million in the same period one year ago. The decrease resulted primarily from a decrease in sales volume and a lower average selling price. Sales volume decreased 54% and the average selling price decreased 30% compared to the same period one year ago. The lower sales volume decreased net sales approximately $648.8 million and the lower average selling price decreased net sales approximately $162.4 million. The remaining decrease in net sales was primarily from lower freight revenue during the first nine months of fiscal 2009 compared to the same period one year ago.

Gross (loss) profit. Our gross profit rate in the third quarter of fiscal 2009 decreased by 7.1% to 8.3% of net sales, compared with 15.4% of net sales in the same period one year ago. Our gross profit rate for the first nine months of fiscal 2009 decreased by 16.5% to a negative 2.9% of net sales, compared with a gross profit of 13.6% of net sales in the same period one year ago. The decrease was due to lower sales volume, lower average selling price and a write-down of inventory to the lower of cost or market of $2.0 million and $41.8 million for the three and nine months ended September 30, 2009, respectively. The write-down of inventory to the lower of cost or market represents 1.4% and 10.5% of net sales for the three and nine months ended September 30, 2009, respectively.

Selling, general and administrative (SG&A) expenses. Our SG&A expense rate in the third quarter of fiscal 2009 increased by 1.5% to 2.9% of net sales, compared with 1.4% of net sales in the same period one year ago. Our SG&A expense rate for the first nine months of fiscal 2009 increased by 1.8% to 3.2% of net sales, compared with 1.4% of net sales in the same period one year ago. The increase in our SG&A expense rate is largely attributable to a decrease of our net sales since the majority of our SG&A expenses are fixed costs. The decrease in our SG&A expense for the third quarter of $2.1 million and the first nine months of 2009 of $4.1 million is largely attributable to less salaries and benefit costs compared to the same period one year ago. This is attributable to fewer employees and less profit sharing in 2009 compared to 2008. Our SG&A expenses consist primarily of sales and labor, and various administrative expenses. Labor costs comprised of approximately 58% and 59% of our SG&A expenses for the third quarter of fiscal 2009 and 2008, respectively, and approximately 59% and 58% of our SG&A expenses for the first nine months of fiscal 2009 and 2008, respectively.

Net interest expense. Net interest expense in the third quarter of fiscal 2009 increased $159,000, or 8.8%, to $2.0 million compared with $1.8 million in the same period one year ago. Net interest expense for the first nine months of fiscal 2009 decreased $118,000, or 1.9%, to $6.2 million compared with $6.3 million in the same period one year ago. The increase in net interest expense for the third quarter of fiscal 2009 is attributable to a decrease in interest income of $651,000 which was partially offset by an increase in capitalized interest of $463,000 when compared to the three months ended September 30, 2008. The decrease in net interest expense for the first nine months of fiscal 2009 is attributable to a decrease in the average interest rate on our outstanding debt and an increase in capitalized interest of $1.4 million which was partially offset by a decrease in interest income of $1.2 million when compared to the nine months ended September 30, 2008. The increase in capitalized interest is largely attributable to the construction of our second reheat furnace.

Other income, net. Other income, net was $2.1 million for the third quarter of fiscal 2009, compared with an expense of $1.6 million in the same period one year ago. Other income, net for the first nine months of fiscal 2009 was $7.1 million compared to $1.1 million in the same period one year ago. Other income is comprised of miscellaneous income items such as rental income, proceeds from legal settlements, gain on sale of environmental credits, refund from anti dumping subsidy, refund of property taxes, etc. As many of these items occur infrequently or result in a one-time recognition of income, this category is subject to significant fluctuation from period to period.

Income tax expense (benefit). Our income tax expense was $716,000 for the third quarter of fiscal 2009 compared with $21.9 million in the same period one year ago. Our income tax benefit was $12.6 million for the first nine months of fiscal 2009 compared with an income tax expense of $54.2 million in the same period one year ago. Our effective income tax rate was 8.9% for the third quarter and an income tax rate benefit of 53.9% for the nine months ended September 30, 2009 compared to an effective tax rate of 38.2% and 37.8% in the same periods one year ago. The decrease in our effective tax rate and increase in our effective tax rate benefit for the three and nine months ended September 30, 2009 is attributable to a sales tax credit and a hiring credit under the Enterprise Zone (“EZ”) designation. We became eligible for the EZ credits effective October 2006.

Net income (loss). Our net income for the third quarter of fiscal 2009 was $7.4 million. Our net loss for the first nine months of fiscal 2009 was $10.8 million. Our net income for the three and nine months ended September 30, 2008 was $35.5 million and $89.4 million, respectively.

Liquidity and Capital Resources

We ended the third quarter of fiscal year 2009 with $96.8 million of cash and cash equivalents compared with $10.9 million at the end of fiscal 2008. Working capital, the excess of current assets over current liabilities, was $241.7 million at the end of the third quarter of fiscal 2009, down from $267.3 million at the end of fiscal 2008. We ended the third quarter of fiscal 2009 with over $108.3 million in financing available under our revolving credit facility.

Cash Flows

The following table summarizes our cash flows in the first ~~nine~~three months of the current and prior fiscal years ($ in thousands):

	Nine months endedSeptember 30,
	Three months endedMarch 31,
	2009			2008
	2010			2009
Total cash provided by (used in):
Operating activities	$	~~120~~4,~~431~~480		$	~~115~~72,~~112~~548
Investing activities		(328,~~005~~496	)		(2910,~~065~~317	)
Financing activities		(2,500	)		~~(13,425~~—	)
Increase in cash and cash equivalents	$	85,926		$	72,622
(Decrease) increase in cash and cash equivalents	$	(6,516	)	$	62,231

Operating Activities

Cash provided by operating activities was $~~120.~~4.5 million for the first ~~nine~~quarter ~~months~~ of fiscal ~~2009~~2010 compared with $~~115~~72.15 million in first ~~nine~~quarter ~~months~~ of fiscal ~~2008~~2009. The changes were due primarily to a ~~decrease~~change in ~~cash provided by~~ net income, ~~and the change in~~ operating assets and liabilities and the inventory write-down. The changes in operating assets and liabilities were due primarily to changes in trade accounts receivable, inventories, accounts payable, and prepaid income taxes ~~and other accrued expenses and liabilities~~. The ~~increase~~decrease in cash provided for prepaid income taxes resulted mainly from an income tax refund ~~and~~that ~~lower~~was received in the first quarter of fiscal 2009 which was partially offset higher estimated taxable income during the first quarter of fiscal 2010. The ~~increase~~ decrease in cash ~~provided~~used for trade accounts receivable was primarily due to ~~decreased~~an increased sales volume ~~and lower average selling price~~. The increase in cash used for accounts payable was due primarily to ~~a decrease in the average slab price, monitoring our expenses and~~ timing of vendor payments. The ~~increase~~decrease in cash provided for inventories was due to ~~lower inventory levels, decrease in~~ the ~~average cost and the~~ write-down of inventory to the lower or cost or market. ~~The~~during ~~increase~~the infirst ~~cash~~quarter ~~used~~of ~~for other~~fiscal ~~accrued expenses and liabilities was due primarily to a decrease in accrued salaries and benefits~~2009.

Investing Activities

Cash used in investing activities was $328.05 million for the first ~~nine~~quarter ~~months~~ of fiscal ~~2009~~2010 compared with $2910.13 million in the first ~~nine months~~ quarter of fiscal ~~2008~~2009. The ~~increase~~decrease in cash used by investing activities was primarily due tothe reduction in capital expenditures, specifically the construction of the second reheat furnace. The primary purposes of our capital expenditures were to support ~~our~~ our expansion plans and improve our operational efficiency.

Financing Activities

Cash used in financing activities was $2.5 million for the first ~~nine~~quarter ~~months~~ of fiscal ~~2009~~2010 compared ~~with~~to ~~$13.4~~no ~~million~~financing inactivities for the first ~~nine~~ ~~months~~quarter of fiscal ~~2008~~2009. ~~During~~The ~~fiscal~~changes ~~2009,~~in wefinancing ~~made~~activities ~~principal~~were ~~payments~~due onto ~~our long-term debt. During fiscal 2008, we had net~~ repayments on our ~~line-of-credit, additional borrowings of long-~~term ~~debt and paid dividends to our stockholders~~loan.

Sources of Liquidity

Our most significant sources of liquidity continue to be funds generated by operating activities and cash and cash equivalents. We believe funds generated from the expected results of operations and available cash and cash equivalents will be sufficient to finance anticipated ~~expansion~~capital expenditure plans for ~~the next~~ fiscal year 2010. In addition, our revolving credit facility is available for additional working capital needs. There can be no assurance, however, that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our revolving credit facility.

On March 28, 2008, we entered into a Term Loan Agreement with The Bank of Tokyo-Mitsubishi, Ltd. for a $40.0 million unsecured five-year term loan maturing April 2013 to finance construction of our second reheat furnace and other working capital needs. The Term Loan Agreement provided for a single loan disbursement of the entire principal amount on April 1, 2008. Interest on the principal balance of the loan shall accrue at a rate of 3.38% for the first two years of the loan and a rate of 3.58% for the remaining three years of the loan and is payable quarterly commencing July 2008. Quarterly principal payments commenced in July 2009.

9In September 2005, we entered into a five year $110.0 million credit facility with a bank group led by Mizuho Corporate Bank, as administrative agent and a lender, The Bank of Tokyo-Mitsubishi, Ltd., Citibank (West), FSB and Wells Fargo Bank. Subject to the satisfaction of customary conditions and a borrowing base, advances under this credit facility may be made at any time prior to the credit facility termination date. As of March 31, 2010, there were no outstanding borrowings under this facility. The credit facility is collateralized by accounts receivable and inventory. Advances under this facility may be used for letters of credit, working capital, capital expenditures, payment of dividends and other lawful corporate purposes, including the refinancing of existing debt.

On March 22, 2004, we issued an aggregate of $150.0 million of ten-year, 6.125% senior unsecured notes due in March 2014. With the proceeds of this issuance and cash on hand, we retired our 8.50% senior notes due in 2009. Interest on our

~~April~~6.125% senior notes is payable on March 1,15 ~~2008~~and September 15 of each year. ~~Interest~~The onnotes ~~the~~are ~~principal~~senior ~~balance~~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 ~~loan~~notes. ~~shall~~We ~~accrue~~may redeem the notes in whole or in part at any time after March 15, 2009. The redemption price is based on a ~~rate~~percentage premium in excess of the 3face value of the notes which decreases over time.~~38%~~ ~~for~~We periodically evaluate the ~~first~~cost ~~two~~of ~~years~~alternative forms of financing in the ~~loan~~market ~~and~~versus athe ~~rate~~cost of 3redeeming and retiring the notes.~~58%~~ ~~for~~Depending on the ~~remaining~~current ~~three~~market ~~years~~value of the ~~loan~~notes, we ~~and~~further isperiodically ~~payable~~evaluate ~~quarterly~~whether ~~commencing~~to ~~July~~acquire ~~2008~~notes in the market as a means to lower our financing costs. ~~Quarterly~~The ~~principal~~indenture ~~payments~~governing ~~commence~~the notes contains covenants that limit our ability to incur additional indebtedness, pay dividends, redeem or repurchase capital stock and make investments, create liens, sell assets, sell capital stock of certain subsidiaries, engage in ~~July~~transactions ~~2009~~with affiliates and consolidate, merge or transfer all or substantially all of our assets and the assets of certain subsidiaries on a consolidated basis. We were in compliance with all covenants and restrictions at March 31, 2010.

InWe ~~September~~currently ~~2005,~~have ~~we entered into a five year~~ $~~110~~9.02 million ~~credit~~in ~~facility~~material ~~with~~commitments afor ~~bank~~capital ~~group~~expenditures ~~led~~expected byto ~~Mizuho~~be ~~Corporate~~completed ~~Bank,~~during asfiscal ~~administrative~~2010. ~~agent~~These represent ~~and~~signed apurchase ~~lender,~~orders ~~The~~for ~~Bank~~various ofproduction ~~Tokyo-Mitsubishi,~~facility ~~Ltd.,~~upgrades ~~Citibank~~including ~~(West),~~the ~~FSB~~construction ~~and~~of ~~Wells~~our ~~Fargo~~second ~~Bank~~reheat furnace. ~~Subject~~Our tototal ~~the~~budget ~~satisfaction of~~for ~~customary~~capital ~~conditions~~improvements ~~and~~in a2010 ~~borrowing~~is ~~base,~~$36.7 ~~advances~~million ~~under~~of ~~this~~which ~~credit~~$6.7 ~~facility~~million ~~may~~relates ~~be made at any time prior~~ to the ~~credit~~second ~~facility~~reheat furnace ~~termination date~~project. AsWe ofare ~~September 30~~committed, ~~2009,~~in ~~there~~the ~~were~~form noof ~~outstanding~~open ~~borrowings~~purchase ~~under~~orders, ~~this~~to ~~facility.~~purchase ~~The credit facility is collateralized by accounts receivable and inventory~~$322.4 ~~Advances~~million ~~under~~in ~~this~~steel ~~facility may be used for letters of credit~~slabs, ~~working capital, capital expenditures, payment~~ of ~~dividends~~which ~~and~~$52.3 ~~other~~million ~~lawful~~are ~~corporate~~from ~~purposes,~~a ~~including~~related ~~the refinancing of existing debt~~party.

OnWe ~~March 22,~~anticipate ~~2004,~~that weour ~~issued~~primary anliquidity ~~aggregate~~requirements ofwill ~~$150.0~~be ~~million~~for ofworking ~~ten-year~~capital, ~~6.125%~~capital ~~senior unsecured notes due in March 2014. With the proceeds of this issuance and cash on hand~~expenditures, wedebt ~~retired~~service ~~our 8.50% senior notes due in 2009. Interest on our 6.125% senior notes is payable on March 15~~ and ~~September 15~~the ~~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 in whole or in part at any ~~time after March 15, 2009~~dividends. ~~The redemption price is based on a percentage premium in excess of the face value of the notes which decreases over time.~~ We ~~periodically~~believe ~~evaluate~~that ~~the~~cash ~~cost~~generated offrom ~~alternative~~operations ~~forms of financing in the market versus the cost of redeeming~~ and ~~retiring~~available ~~the~~borrowings ~~notes.~~under ~~Depending on the current market value of the notes, we further periodically evaluate whether to acquire notes in the market as a means to lower~~ our ~~financing~~bank ~~costs.~~facility ~~The~~will ~~indenture~~be ~~governing~~sufficient ~~the notes contains covenants that limit our ability~~ to ~~incur~~meet additional indebtedness, pay dividends, redeem or repurchase capital stock and make investments, create liens, sell assets, sell capital stock of certain subsidiaries, engage in transactions with affiliates and consolidate, merge or transfer all or substantially all of our ~~assets~~liquidity ~~and~~requirements ~~the~~for ~~assets~~fiscal ~~of certain subsidiaries on a consolidated basis~~2010. ~~We were in compliance with all covenants and restrictions at September 30, 2009.~~

We currently have $15.9 million in material commitments for capital expenditures expected to be completed during fiscal 2009. These represent signed purchase orders for various production facility upgrades including the construction of our second reheat furnace. Our total revised budget for capital improvements in 2009 is $53.8 million of which $42.3 million relates to the second reheat furnace project. We are committed, in the form of open purchase orders, to purchase $117.4 million in steel slabs, of which $17.2 million is from a related party.

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 meet our liquidity requirements for fiscal 2009.

Contractual Obligations and Commitments

The following table represents a comprehensive list of our contractual obligations and commitments as of ~~September~~March 3031, ~~2009~~ 2010 ($ in thousands):

	Total		LessThan 1Year		1-3Years		3-5Years		MoreThan 5Years
Long Term Debt	$	~~187~~182,500	$	10,000	$	20,000	$	~~157~~152,500	$	—
Capital Lease Obligations		—		—		—		—		—
Operating Leases		874		506		320		48		—
Operating Leases		762		439		244		79		—
Purchase Obligations (1)		332,478		332,478		—		—		—
Purchase Obligations (1)		135,677		135,677		—		—		—
Estimated Interest Payments on Debt (2)		38,142		10,141		19,196		8,805		—
Estimated Interest Payments on Debt (2)		43,313		10,288		19,558		13,467		—
Planned Expenditures on Environmental Matters (3)		2,750		950		1,000		800		—
Planned Expenditures on Environmental Matters (3)		3,067		1,267		1,000		800		—
Other Long Term Liabilities		760		72		145		145		398
Other Long Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP		713		72		145		145		351
Total	$	557,504	$	354,147	$	40,661	$	162,298	$	398
Total	$	371,032	$	157,743	$	40,947	$	171,991	$	351

(1) Amounts relate to contractual commitments to purchase $~~117~~322.4 million of steel slabs, of which $1752.23 million isare from a related party, material commitments for capital expenditures of $~~15.~~9.2 million, and the remaining $~~2.4~~900 ~~million~~thousand in assorted other contractual commitments.

(2)	Amounts represent the annual accrued interest on our $150.0 million ten-year, 6.125% senior unsecured notes, which are due and payable in March 2014 and the interest on our $40.0 million five-year unsecured term loan maturing in April 2013.

(3) Amounts reflect $~~1.3~~950 ~~million~~thousand of self assessed environmental clean-up of our facility and $1.8 million of anticipated expenditures on environmental matters pursuant to a proposed remediation plan submitted to the California Department of Toxic Substances Control. See discussion in Note 4 to the Financial Statements.

Critical Accounting Policies

We describe our significant accounting policies in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009. There has been no change in our significant accounting policies since the end of ~~2008~~2009.

Recent Accounting Pronouncements

In ~~June~~January ~~2009~~2010, the Financial Accounting Standards Board (“FASB”) issued ~~Statement of Financial~~ Accounting Standards Update (“~~SFAS~~ASU”) No. ~~168~~2010-6, “~~The~~Improving ~~FASB~~Disclosures ~~Accounting~~about ~~Standards~~Fair ~~Codification~~Value ~~and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162~~Measurements” (~~“SFAS~~ASU ~~168~~2010-6”). ~~SFAS~~This ~~168 establishes~~update ~~the~~amended ~~source~~guidance ofand ~~authoritative~~issued ~~U.S.~~a ~~GAAP~~clarification ~~recognized~~with byregard ~~the FASB~~ to bedisclosure ~~applied~~requirements byabout ~~nongovernmental~~fair ~~entities.~~market ~~Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities~~value ~~laws are also sources of authoritative GAAP for SEC registrants~~measurement. ~~Under~~A ~~SFAS 168, the FASB Accounting Standards Codification (“Codification”) will supersede all then-existing non-SEC accounting and~~ reporting ~~standards.~~entity ~~All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS 168~~ is ~~effective for financial statements issued for fiscal years and interim periods ending after September 15, 2009. There was no impact upon adoption of SFAS 168 to our financial statements.~~

In9 August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, “Measuring Liabilities at Fair Value” (“ASU 2009-05”). This update provides amendments to Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosure” for the fair value measurement of liabilities. There was no impact upon adoption of ASU 2009-05 for all financial liabilities. We will adopt ASU 2009-05 for all non-financial liabilities in the first quarter of fiscal 2010 when we fully adopt SFAS 157, “Fair Value Measurements.” Although we will continue to evaluate the application of SFAS 157 and this update for its non-financial liabilities, we do not expect the adoption of ASU 2009-05 will have a material impact on our financial statements.

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”). This update provides amendments to the criteria to ASC Topic 605, “Revenue Recognition” for separating consideration in multiple-deliverable arrangements. The amendments to this update establish a selling price hierarchy for determining the selling price of a deliverable. ASU 2009-13 is effective for financial statements issued for years beginning on or after June 15, 2010. We are currently evaluating the effect that the adoption of

~~ASU~~required ~~2009-13~~to ~~will~~disclose ~~have~~separately onthe ~~our~~amounts ~~results~~of significant transfers in and out of ~~operation~~Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. In addition, ~~financial~~for measurements ~~position~~utilizing significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and ~~cash~~settlements. ~~flows~~We adopted ASU 2010-6 on January 1, ~~but~~2010. doThere ~~not~~was ~~expect~~no ~~the~~impact upon adoption ~~will~~of ASU ~~have~~2010-6 ato ~~material~~our ~~impact~~financial position or results of operations.

In February 2010, FASB issued ASU No. 2010-9, “Amendments to Certain Recognition and Disclosure Requirements” (“ASU 2010-9”). This amendment removed the requirement for a Securities and Exchange Commission (“SEC”) filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. This amendment is effective upon issuance date of February 24, 2010. There was no impact upon adoption of ASU 2010-9 to our financial position or results of operations.

Safe Harbor Statement Under the Private Securities Litigation Reform Act

Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Act”), provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their companies. With the exception of historical information, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements and may be identified by the use of words such as “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” and other words and terms of similar meaning. Such statements reflect our current view with respect to future events and are subject to certain risks, uncertainties and assumptions. A variety of factors could cause our future results to differ materially from the anticipated results expressed in such forward-looking statements. Readers should review Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009, for a description of important factors that could cause future results to differ materially from those contemplated by the forward-looking statements made in this Quarterly Report on Form 10-Q.

The following risk factors may affect our operating results and the environment within which we conduct our business:

• ~~Industry-wide~~Fluctuations ~~market~~in ~~factors~~raw ~~and~~materials ~~general economic~~ and ~~business~~freight ~~conditions,~~prices ~~including~~as ~~the~~a ~~current~~result ~~global~~of ~~economic~~changes ~~downturn~~industry dynamics, ~~which~~increased ~~has~~oil ~~significantly~~prices ~~suppressed~~and ~~demand~~global ~~for~~steel ~~products which use our goods~~consumption;

• Fluctuations in raw materials and freight prices as a result of changes in industry dynamics, increased oil prices and global steel consumption;

•

Our substantial indebtedness, interest expense and principal repayment obligations under our credit facility, when drawn upon, and 6.125% senior notes, which could limit its 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 conditions, and which increase our vulnerability to interest rate increases;

•

The possibility of deadlocks among our board of directors that could result in delays in making important business decisions which could result in a competitive disadvantage due to the size of the board currently consisting of four members as elected by our two stockholders, each of whom holds 50% of our stock;

•

Fluctuations in commodity prices for our electricity and natural gas requirements, as well as the viability of the electrical power distribution system within the State of California;

•

Possible adverse effects resulting from new U.S. trade measures or increases in tariffs on imported steel slab;

•

Competitive factors and pricing pressures;

•

The ability to control costs and maintain quality;

•

Future expenditures for capital projects;

•

Fluctuations in the cost of management and hourly labor or other resources necessary to successfully operate our manufacturing plant;

•

Our ability to raise prices sufficiently to offset cost increases, including increased costs for minimum wages, employee benefits and insurance arrangements;

•

Legal claims and litigation against us;

•

Changes in, or any failure to comply with, governmental regulations;

• ~~Changes~~Industry-wide inmarket ~~general~~factors ~~economic, demographic, geopolitical or public safety conditions which affect consumer behavior~~ and ~~spending~~general ~~for~~economic ~~the products which use our goods, including the impact of the ongoing lack of liquidity in the financial system, making it difficult for consumers~~ and ~~customers~~business toconditions; ~~borrow,~~changes ~~and the ongoing armed conflict~~ in ~~Iraq~~general ~~and security concerns related to the continuing response of governments to the threat of terrorism and instability in certain regions of the world; and~~economic,

1210

demographic, geopolitical or public safety conditions which affect consumer behavior and spending for the products which use our goods, including the ongoing armed conflict in Iraq and Afghanistan and security concerns related to the continuing response of governments to the threat of terrorism and instability in certain regions of the world; and

•

Changes in accounting standards or interpretations of existing standards adopted by the Financial Accounting Standards Board, the Securities and Exchange Commission, and the American Institute of Certified Public Accountants that could impact our reported financial results.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In addition to the risks inherent in our operations, we are exposed to market risks, including interest rates and utility consumption rates.

Interest Rate Risk

Floating rate credit facility

At ~~September~~March 3031, ~~2009~~2010, there were no borrowings on our $110.0 million floating rate credit facility. The carrying value of the ~~floating~~ floating rate credit facility approximates fair value as the interest rate is variable and resets frequently. Changes in interest rates generally do not affect the fair value of our credit facility, but do affect earnings and cash flow. The credit ~~facility~~ facility bears interest at the Eurodollar rate or the prime rate, which was approximately 01.9015% (one month rate) (including margin) and 3.25%, respectively, at ~~September~~March 3031, ~~2009~~2010. We expect to borrow approximately $1263.30 million from our credit ~~facility~~ facility during the remainder of ~~2009~~2010. We estimate ~~the~~that average amount of debt outstanding under the facility for the remaining of fiscal ~~2009~~2010 will be approximately $425.10 million. Therefore, a one-percentage point increase in interest rates would result in an increase in interest expense of $41250,000 for the year. We do not manage the interest rate risk on our credit facility through the use of derivative instruments.

Fixed rate debt

At ~~September~~March 3031, ~~2009~~2010, our short-term and long-term fixed rate debt comprised of our $150.0 million senior notes and $40.0 million term loan. Changes in interest rates generally affect the fair value of our fixed rate debt instruments. We do not have an obligation to repay our senior notes prior to maturity and, as a result, interest rate risk and changes in fair value should not have a significant impact on us. We believe that the interest rate on our term loan approximates the current rate available for similar types of financing and as a result the carrying amount approximates the fair value. We do not manage the interest rate risk on our fixed rate debt through the use of derivative instruments.

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

Other Market Risks

Utility consumption rates

Our daily average electrical demand is approximately 35 megawatts to operate production equipment in manufacturing our products. We are currently a full-service bundled utility customer of Southern California Edison. Due to ~~lower~~higher projected production in ~~2009~~2010, our electricity costs are expected to be ~~lower~~higher than ~~2008~~2009 levels. Our electricity costs accounted for 32.~~9% and 3.~~1% of our cost of goods sold for the ~~three~~first ~~and~~quarter ~~nine~~of ~~months~~fiscal ~~ended September 30,~~2010 ~~2009~~ compared to 12.70% ~~and 1.8%~~ in the same period one year ago.

WeAt full capacity, we generally utilize a daily average of approximately 12,000 million British thermal units, or MMBTUs, of natural gas to produce our products. To stabilize price volatility, we ~~regularly~~periodically use a risk management approach to fix the price on portions of our natural gas requirements up to two years ahead through financial and/or physical hedging arrangements. These arrangements include fixed-price contracts for the New York Mercantile Exchange (NYMEX), and/or the Southern California border basis (basis represents the difference between the NYMEX price at Henry Hub, Louisiana and the price at the Southern California border).

We currently have in place fixed price physical purchase agreements for approximately 265% of our natural gas commodity requirements for ~~2009,~~fiscal ~~and 0% of the Southern California border basis~~2010. We continue to monitor the near and long term price trends of natural gas and may enter into such ~~additional~~instruments ~~purchase agreements~~ when we deem it appropriate or when opportunities present themselves. Our natural gas costs accounted for 2.~~7% and 2.~~4% of our cost of goods sold for the ~~three~~first ~~and~~quarter ~~nine~~of ~~months~~fiscal ~~ended~~2010 ~~September 30, 2009~~ compared to 2 1.58% ~~for~~in the ~~three~~same ~~and~~period ~~nine~~one ~~months~~year ~~ended September 30, 2008~~ago.

ITEM 4.

CONTROLS AND PROCEDURES

For the period ending ~~September~~March 3031, ~~2009~~2010 (the “Evaluation Date”), we carried out an evaluation, under the supervision and with the participation of our management, including the President and Chief Executive Officer and the ~~Chief~~ ~~Financial~~Executive ~~Officer~~Vice (the principal finance and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the

1311

President, Finance and Administration (the principal finance and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the President and Chief Executive Officer and the ~~Chief~~Executive ~~Financial~~Vice ~~Officer~~President, ~~concluded~~Finance and Administration concluded that, as of ~~September~~March 3031, ~~2009~~2010, our disclosure controls and procedures were effective.

Additionally, the President and Chief Executive Officer and the ~~Chief~~Executive ~~Financial Officer~~Vice President, Finance and Administration determined, as of ~~September~~March 3031, ~~2009~~2010, that there were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that could significantly affect our internal controls over financial reporting.

1412

PART II OTHER INFORMATION

ITEM 6.

EXHIBITS

The Exhibits required to be filed with this Quarterly Report on Form 10-Q are listed in the Exhibit Index included herein immediately following the Signature Page.

1513

SIGNATURE

Pursuant to the requirements 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.	~~CALIFORNIA STEEL INDUSTRIES, INC.~~
October 28, 2009		By:	/s/ VICENTE WRIGHT
April 23, 2010	By:	/s/ VICENTE WRIGHT
			Vicente Wright President and Chief Executive Officer
		Vicente Wright
		President and Chief Executive Officer

1614

INDEX OF EXHIBITS

Exhibit Number		Description
3.1		Certificate of Incorporation of the Registrant, as amended by Amendment to the Certificate of Incorporation filed June 6, 1984 with the Delaware Secretary of State, as amended by the Certificate of Amendment to the Certificate of Incorporation filed on August 2, 1984 with the Delaware Secretary of State, as amended by the Certificate of Amendment to the Certificate of Incorporation file on January 12, 1988 with the Delaware Secretary of State, and, as amended by the Certificate of Ownership merging CSI Tubular Products, Inc. into the Registrant filed with the Delaware Secretary of State on December 20, 1993. (1)
3.2		Certificate of Amendment to the Certificate of Incorporation filed July 27, 1999, with the Delaware Secretary ~~of State~~ofState. (2)
3.3		Certificate of Amendment to the Certificate of Incorporation filed July 24, 2006, with the Delaware Secretary ~~of State~~ofState. (3)
3.4		Restated Bylaws of the Registrant dated as of April 1, 2008. (7)
4.1		Indenture, dated as of March 22, 2004, between the Registrant and U.S. Bank National Association, Trustee. (4)
4.2		Specimen Series A note – 6.125% Senior Notes due 2014 (included in Exhibit 4.4). (4)
4.3		Shareholders’ Agreement, dated April 1, 2008, by and among Rio Doce Limited, Vale (Companhia Vale do Rio Doce), JFE Steel Corporation. (8)
10.1		Senior Secured Revolving Credit Agreement dated as of September 29, 2005 by and among California Steel Industries, Inc., Mizuho Corporate Bank, The Bank of Tokyo-Mitsubishi, Ltd., Citibank (West), FSB and Wells Fargo Bank. (5)
10.2		Term Loan Agreement dated March 28, 2008 by and among California Steel Industries, Inc., and The Bank of Tokyo-Mitsubishi, Ltd. (6)
31.1		Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Executive Vice President, Finance and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Executive Vice President, Finance and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

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

(3)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, for the quarter ended September 30, 2006, as filed with the Securities and Exchange Commission on October 27, 2006.

(4)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, for the quarter ended March 31, 2004, as filed with the Securities and Exchange Commission on April 28, 2004.

(5)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, for the quarter ended September 30, 2005, as filed with the Securities and Exchange Commission on October 28, 2005.

(6)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, for the quarter ended March 31, 2008, as file with the Securities and Exchange Commission on April 25, 2008.

1715

(7)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, for the quarter ended June 30, 2008, as filed with the Securities and Exchange Commission on July 28, 2008.

(8)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K, for the year ended December 31, 2008, as filed with the Securities and Exchange Commission on March 13, 2009.

1816

Filing Compare · CALIFORNIA STEEL INDUSTRIES INC