##### Table of 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 30, 2003



OR



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



For the transition period from
 to



Commission File Number 333-79587



---



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. Employer Identification No.)



|14000 San Bernardino Avenue Fontana, California        |  | 92335     
|------------------------------------------------------ |  | ----------
|(Address of principal executive offices of Registrant) |  | (Zip Code)



(909) 350-6200

(Registrants telephone number including area code)



---



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



As of October 30, 2003,
1,000 shares of the Companys common stock, no par value, were outstanding.



---



---

##### Table of Contents

CALIFORNIA STEEL INDUSTRIES, INC.



Table of Contents



| |  |                        |  |                                                                                                                                 |  |    |  | Page
| |  | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | -- |  | ----
| |  | PART I                 |  | FINANCIAL INFORMATION                                                                                                           |  | 1 
| |  |                        | 
| |  | ITEM 1.                |  | FINANCIAL STATEMENTS                                                                                                            |  | 1 
| |  |                        | 
| |  |                        |  | Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002                                          |  | 1 
| |  |                        | 
| |  |                        |  | Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and September 30, 2002 (unaudited) |  | 2 
| |  |                        | 
| |  |                        |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and September 30, 2002 (unaudited)           |  | 3 
| |  |                        | 
| |  |                        |  | Notes to Consolidated Financial Statements (unaudited)                                                                          |  | 4 
| |  |                        | 
| |  | ITEM 2.                |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                           |  | 6 
| |  |                        | 
| |  | ITEM 3.                |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                      |  | 10
| |  |                        | 
| |  | ITEM 4.                |  | CONTROLS AND PROCEDURES                                                                                                         |  | 11
| |  |                        | 
| |  | PART II                |  | OTHER INFORMATION                                                                                                               |  | 12
| |  |                        | 
| |  | ITEM 1.                |  | LEGAL PROCEEDINGS                                                                                                               |  | 12
| |  |                        | 
| |  | ITEM 5.                |  | OTHER ITEMS                                                                                                                     |  | 12
| |  |                        | 
| |  | ITEM 6.                |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                                                |  | 13
| |  |                       
| |  | SIGNATURE              |  | 15                                                                                                                             
| |  |                       
| |  | INDEX TO EXHIBITS      |  | 16                                                                                                                             
| |  |                       
| |  | OFFICER CERTIFICATIONS |  | 17                                                                                                                             





ii



---

##### Table of Contents

PART I FINANCIAL INFORMATION



|ITEM 1. |  | FINANCIAL STATEMENTS
|------- |  | --------------------



CALIFORNIA STEEL INDUSTRIES, INC.

AND SUBSIDIARY

Consolidated Balance Sheets



(In thousands except share and per share data)



|                                                                                                                               |  | As ofSeptember 30,2003 |         | As ofDecember 31,2002
|------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------- | ------- | ---------------------
|                                                                                                                               |  | (Unaudited)            |         |                      
|Assets                                                                                                                         |  |                        |         |                      
|Current assets:                                                                                                                |  |                        |         |                      
|Cash and cash equivalents                                                                                                      |  | $                      | 11,357  |                      
|Trade accounts receivable, less allowance for doubtful receivables of $400 at September 30, 2003 and $300 at December 31,
2002 |  |                        | 65,909  |                      
|Inventories                                                                                                                    |  |                        | 128,761 |                      
|Deferred income taxes                                                                                                          |  |                        | 3,138   |                      
|Other receivables and prepaid expenses                                                                                         |  |                        | 3,135   |                      
|                                                                                                                               |  |                        |         |                      
|Total current assets                                                                                                           |  |                        | 212,300 |                      
|                                                                                                                               |  |                        |         |                      
|Investment in affiliated company                                                                                               |  |                        | 35,981  |                      
|Other assets                                                                                                                   |  |                        | 2,811   |                      
|Property, plant and equipment, net                                                                                             |  |                        | 235,968 |                      
|                                                                                                                               |  |                        |         |                      
|Total assets                                                                                                                   |  | $                      | 487,060 |                      
|                                                                                                                               |  |                        |         |                      
|Liabilities and stockholders equity                                                                                           |  |                        |         |                      
|Current liabilities:                                                                                                           |  |                        |         |                      
|Accounts payable                                                                                                               |  | $                      | 32,717  |                      
|Accrued interest expense                                                                                                       |  |                        | 55      |                      
|Accrued utilities                                                                                                              |  |                        | 4,360   |                      
|Income taxes payable                                                                                                           |  |                        | 2,297   |                      
|Other accrued expenses                                                                                                         |  |                        | 9,458   |                      
|                                                                                                                               |  |                        |         |                      
|Total current liabilities                                                                                                      |  |                        | 48,887  |                      
|                                                                                                                               |  |                        |         |                      
|Long-term debt                                                                                                                 |  |                        | 150,000 |                      
|Deferred income taxes                                                                                                          |  |                        | 50,468  |                      
|Stockholders equity:                                                                                                          |  |                        |         |                      
|Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares; issued and outstanding 3,000 shares             |  |                        | 30,000  |                      
|Common stock, no par value. Authorized 2,000 shares; issued and outstanding 1,000 shares                                       |  |                        | 10,000  |                      
|Retained earnings                                                                                                              |  |                        | 197,705 |                      
|                                                                                                                               |  |                        |         |                      
|Total stockholders equity                                                                                                     |  |                        | 237,705 |                      
|Commitments and Contingencies                                                                                                  |  |                        |        |                      
|                                                                                                                               |  |                        |         |                      
|Total liabilities and stockholders equity                                                                                     |  | $                      | 487,060 |                      
|                                                                                                                               |  |                        |         |                      



See accompanying notes
to consolidated financial statements.



1



---

##### Table of Contents

CALIFORNIA STEEL INDUSTRIES, INC.

AND SUBSIDIARY

Consolidated Statements of Operations



(In thousands)



|                                                  |  | Three months endedSeptember 30, |         |   | Nine months endedSeptember 30, |  
|------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | -
|                                                  |  | 2003                            |         |   | 2002                           |  
|                                                  |  | (Unaudited)                     |        
|Net sales                                         |  | $                               | 191,215 |   |                                | $
|Cost of sales                                     |  |                                 | 189,638 |   |                                |  
|                                                  |  |                                 |         |   |                                |  
|Gross profit                                      |  |                                 | 1,577   |   |                                |  
|Selling, general and administrative expenses      |  |                                 | 5,722   |   |                                |  
|                                                  |  |                                 |         |   |                                |  
|Income (loss) from operations                     |  |                                 | (4,155  | ) |                                |  
|Other income (expense):                           |  |                                 |         |   |                                |  
|Equity in income (loss) of affiliate              |  |                                 | 431     |   |                                |  
|Interest expense, net                             |  |                                 | (3,220  | ) |                                |  
|Other, net                                        |  |                                 | 23      |   |                                |  
|                                                  |  |                                 |         |   |                                |  
|Income (loss) before income tax expense (benefit) |  |                                 | (6,911  | ) |                                |  
|Income tax expense (benefit)                      |  |                                 | (2,956  | ) |                                |  
|                                                  |  |                                 |         |   |                                |  
|Net income (loss)                                 |  | $                               | (3,955  | ) |                                | $
|                                                  |  |                                 |         |   |                                |  



See accompanying notes
to consolidated financial statements.



2



---

##### Table of Contents

CALIFORNIA STEEL INDUSTRIES, INC.

AND SUBSIDIARY

Consolidated Statements of Cash Flows

(In thousands)



|                                                                                  |  | Nine Months EndedSeptember 30, |        
|--------------------------------------------------------------------------------- |  | ------------------------------ | -------
|                                                                                  |  | 2003                           |        
|                                                                                  |  | (Unaudited)                    |        
|Cash flows from operating activities:                                             |  |                                |        
|Net income                                                                        |  | $                              | 1,429  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |        
|Depreciation and amortization                                                     |  |                                | 21,732 
|Gain on disposition of property, plant and equipment                              |  |                                | (9     
|Undistributed (earnings) losses of affiliate                                      |  |                                | (1,191 
|Dividends received from affiliate                                                 |  |                                | 1,975  
|Change in assets and liabilities:                                                 |  |                                |        
|Trade accounts receivable, net                                                    |  |                                | 1,731  
|Inventories                                                                       |  |                                | 61,948 
|Other receivables and prepaid expenses                                            |  |                                | (428   
|Accounts payable                                                                  |  |                                | (39,155
|Income taxes payable                                                              |  |                                | (477   
|Accrued interest expense                                                          |  |                                | (3,359 
|Deferred income taxes                                                             |  |                                |       
|Accrued utilities and other accrued expenses                                      |  |                                | 186    
|                                                                                  |  |                                |        
|Net cash provided by operating activities                                         |  |                                | 44,382 
|                                                                                  |  |                                |        
|Cash flows from investing activities:                                             |  |                                |        
|Additions to property, plant and equipment                                        |  |                                | (12,054
|Proceeds from disposition of property, plant and equipment                        |  |                                | 16     
|                                                                                  |  |                                |        
|Net cash used in investing activities                                             |  |                                | (12,038
|                                                                                  |  |                                |        
|Cash flows from financing activities:                                             |  |                                |        
|Net repayments under line-of-credit agreement with banks                          |  |                                | (13,000
|Dividends paid                                                                    |  |                                | (10,878
|                                                                                  |  |                                |        
|Net cash used in financing activities                                             |  |                                | (23,838
|                                                                                  |  |                                |        
|Net increase (decrease) in cash and cash equivalents                              |  |                                | 8,466  
|Cash and cash equivalents at beginning of period                                  |  |                                | 2,891  
|                                                                                  |  |                                |        
|Cash and cash equivalents at end of period                                        |  | $                              | 11,357 
|                                                                                  |  |                                |        
|Supplemental disclosures of cash flow information:                                |  |                                |        
|Cash paid (received) during the period for:                                       |  |                                |        
|Interest (net of amount capitalized)                                              |  | $                              | 13,174 
|Income taxes                                                                      |  |                                | 731    
|                                                                                  |  |                                |        



See accompanying notes
to consolidated financial statements.



3



---

##### Table of Contents

CALIFORNIA STEEL INDUSTRIES, INC.

AND SUBSIDIARY

Notes To Consolidated Financial Statements (Unaudited)



|1. | Basis of Presentation
|-- | ---------------------



The accompanying unaudited consolidated financial statements of California Steel Industries, Inc. and its subsidiary as of and for the nine months ended September 30,
2003 and 2002 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they
do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, the information reflects all adjustments (consisting only of normal
recurring adjustments) that, in the opinion of our management, are necessary to present fairly the financial position and results of operations for the periods indicated.



The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and
notes thereto for the years ended December 31, 2002 and 2001 contained in California Steel Industries, Inc.s Form 10-K for the year ended December 31, 2002. Results of operations for the nine months ended September 30, 2003 are not necessarily
indicative of results expected for the full year.



|2. | New Accounting Pronouncements
|-- | -----------------------------



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



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



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



4



---

##### Table of Contents

In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others (the Interpretation), which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under
guarantees. At September 30, 2003, the Company has no such guarantees.



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



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



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



5



---

##### Table of Contents

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



Inventories are stated at the lower of cost (determined under the first-in, first-out method of accounting) or market value.



|                |  | September 30, 2003 |         | December 31, 2002
|--------------- |  | ------------------ | ------- | -----------------
|                |  | (unaudited)        |         |                  
|                |  | (In thousands)    
|Finished goods  |  | $                  | 16,004  |                  
|Work-in-process |  |                    | 28,823  |                  
|Raw materials   |  |                    | 77,070  |                  
|Other           |  |                    | 6,864   |                  
|                |  |                    |         |                  
|Total           |  | $                  | 128,761 |                  
|                |  |                    |         |                  



|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



Forward-Looking Statements



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



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



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



| |  | fluctuations in commodity prices for our electricity and natural gas requirements,
| | - | ----------------------------------------------------------------------------------



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



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



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



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



6



---

##### Table of Contents

Results of Operations



|            |  | Tons BilledThree months endedSeptember 30, |  | Tons BilledNine months endedSeptember 30,
|----------- |  | ------------------------------------------ |  | -----------------------------------------
|            |  | 2003                                       |  | 2002                                     
|Hot Rolled  |  | 226,112                                    |  | 235,691                                  
|Cold Rolled |  | 55,181                                     |  | 53,523                                   
|Galvanized  |  | 185,006                                    |  | 182,837                                  
|ERW Pipe    |  | 41,384                                     |  | 36,333                                   
|            |  |                                            |  |                                          
|Total       |  | 507,683                                    |  | 508,384                                  
|            |  |                                            |  |                                          



Net sales. Net sales decreased
$4,597,000 or 2.3% from $195,812,000 for the three months ended September 30, 2002 to $191,215,000 for the three months ended September 30, 2003. However the year-to-date net sales increased $29,740,000, or 5.5%, from $541,878,000 for the nine
months ended September 30, 2002 to $571,618,000 for the nine months ended September 30, 2003. Our net tons billed decreased by 701 from 508,384 for the three months ended September 30, 2002 to 507,683 for the same period in year 2003. Our
year-to-date net tons billed also decreased 123,078 or 8.1%, from 1,520,383 for the nine months ended September 30, 2002 to 1,397,305 compared to the nine months ended September 30, 2003. Our average unit prices decreased for the three months ending
September 30, 2003 compared to the same period in 2002, however, due to better product mix, our average unit prices increased for the nine month period ending September 30, 2003 compared to the same period in 2002.



Gross profit. Gross profit decreased $27,452,000 or 94.6% from $29,029,000 for the
three months ending September 30, 2002 to $1,577,000 for the same period in 2003. Year-to-date gross profit also decreased $40,297,000, or 57.6%, from $69,926,000 for the nine months ended September 30, 2002 to $29,629,000 for the nine months ended
September 30, 2003. Gross profit as a percentage of net sales also decreased from 14.8% for the three months ending September 30, 2002 to 0.8% for the three months ending September 30, 2003 and from 12.9% for the nine months ended September 30, 2002
to 5.2% for the same period in 2003. Our gross profit for the three months ending September 30, 2003 compared to the same period in 2002, decreased primarily as a result of an increase in our slab consumption cost, slight increase in utility costs
and decrease in our selling price. Our gross profit for the nine months ending September 30, 2003 compared to the same period in 2002, decreased primarily as a result of an increase in our slab consumption cost, increase in utility costs and
partially offset by increases in our average sales price.



Selling, general
and administrative expenses (SG&A). Selling, general and administrative expenses decreased $1,008,000 or 15.0% from $6,730,000 for the three months ending September 30, 2002 to $5,722,000 for the three months ending September 30, 2003
primarily due to lower compensation and other various expenses. However our year-to-date SG&A expenses increased $1,233,000, or 6.8%, from $18,162,000 for nine months ended September 30, 2002 to $19,395,000 for nine months ended September 30,
2003 primarily due to higher compensation partially offset by other various expenses.



Equity in income (loss) of affiliate. We maintain a 1.5% ownership interest in Companhia Siderurgica de Tubarao (CST), 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 three and nine months ended September 30, 2003, we recognized income from our investment in Companhia Siderurgica de Tubarao of $ 431,000 and $1,191,000 compared to income of $127,000 and
a loss of $819,000 for the same period in 2002. We also received dividends from CST in the amount of $1,975,000 and $384,000 for the nine months ended September 30, 2003 and 2002, respectively.



7



---

##### Table of Contents

Interest expense. Interest expense decreased $239,000 from $3,459,000 for three months ending September 30, 2002
to $3,220,000 for the same period in 2003. The year-to-date interest expense also decreased $672,000, or 6.3%, from $10,596,000 for the nine months ended September 30, 2002 to $9,924,000 for the same period in 2003. The decrease in interest expense
for three and nine months ending September 30, 2003, resulted from lower average outstanding debt and lower interest rates on our revolving line of credit compared to the same period in 2002. Interest expense figures are net of interest income and
capitalized interest of $36,000 for the three months ending September 30, 2003 compared to $184,000 for the same period in 2002 and interest income and capitalized interest of $114,000 for the nine months ended September 30, 2003 compared to
$667,000 for the same period in 2002.



Income taxes. As a result of loss
before income tax of $6,911,000 for the three months ended September 30, 2003 compared to income before income tax of $19,852,000, for the same period in 2002, income tax decreased $10,931,000 from $7,975,000 tax expense for the three months ended
September 30, 2002 to $2,956,000 tax benefit for the three months ended September 30, 2003. Year-to-date income tax expense also decreased $16,173,000, from $16,559,000, for the nine months ended September 30, 2002 to $386,000 for the nine months
ended September 30, 2003 as a result of lower income before income tax of $1,815,000, for the nine months ended September 30, 2003, compared to $41,680,000 for the same period in 2002. Our effective tax rate was 21.3% for nine months ended September
30, 2003 compared to 39.7% for the nine months ended September 30, 2002. During the nine months period ended September 30, 2003 and 2002, our effective tax rate was influenced by State Manufacturers Investment Tax Credit (MIC) of $555,000 and
$842,000 respectively.



Net income/loss. There was a net loss of
$3,955,000 for the three months ended September 30, 2003 compared to net income of $11,877,000 for the same period in 2002, a decrease of $15,832,000 in net income. However, there was a yearto-date net income of $1,429,000 for the nine months
ended September 30, 2003 compared to a net income of $25,121,000 for the same period in 2002, a decrease of $23,692,000 in net income.



Liquidity and Capital Resources



At September 30, 2003, we had $11,357,000 in cash and cash equivalents and approximately $108,000,000 in financing available under our credit facilities. During the nine
months ended September 30, 2003, cash flow from operations provided $44,382,000, which consisted of generation of cash flow of $1,429,000 in net income, $21,732,000 in depreciation and amortization expense and a net cash flow increase of $20,446,000
due to changes in assets and liabilities. The majority of the net cash flow changes in assets and liabilities were attributable to a $61,948,000 decrease in inventories, $1,731,000 decrease in trade accounts receivable, offset by a $42,805,000
decrease in payables. The main reason for the decrease in our inventories at September 30, 2003, is due to a labor strike which lasted for about two weeks in August and is over now, at one of our slab suppliersImexsa in Mexico. Imexas
strike forced two slab vessels to be delayed into October. Other factors were port congestions in the port of origin and an accident in another slab supplier. Cash flow from investing activities during the nine months ended September 30, 2003
consisted primarily of $12,054,000 of capital expenditures. Cash flows from financing activities during the nine months ended September 30, 2003 consisted of net repayments under our credit facilities of $13,000,000 and a dividend payment of
$10,878,000. During the nine month period ended September 30, 2003, we also paid $12,750,000, representing payment of twelve months interest on our 8.5% senior notes.



In March 1999, we entered into a $130,000,000 five-year bank facility. Subject to the satisfaction of customary conditions and a borrowing
base, advances under the bank facility may be made at any time prior to the bank facility termination date, which is the earlier to occur of March 10, 2004 or the date which is 60 days prior to the maturity of the 8.5% senior notes. On June 30, 2003
this bank Credit facility was amended with the same bank group to $110,000,000 for a period of three years expiring on June 30,



8



---

##### Table of Contents

2006. There were no amounts outstanding under this facility as of September 30, 2003. The bank facility is collateralized by cash, accounts receivable,
inventory and other assets. Advances under this facility may be used for working capital, capital expenditures,payment of dividends and other lawful corporate purposes, including the refinancing of existing debt.



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 2003. The Company
was in compliance with all the bank covenants at the end of September 30, 2003.



Commitment and Contingencies



The
following table represents a list of the Companys contractual obligations and commitments as of September 30, 2003:



|                            |  | Payments Due by Period
|--------------------------- |  | ----------------------
|                            |  | Total                 
|                            |  | (amounts in thousands)
|Long Term Debt              |  | $                     
|Contractual Commitments     |  |                       
|Operating Leases            |  |                       
|                            |  |                       
|Contractual Cash Obligation |  | $                     
|                            |  |                       



Critical Accounting Policies



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



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



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



9



---

##### Table of Contents

costs could change as a result of changes to the remediation plan required by the DTSC or unforeseen circumstances at the site.



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



|ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- |  | ----------------------------------------------------------



We are exposed to market risks related to fluctuations in interest rates on our $110,000,000 floating interest rate bank facility. We do not currently use interest rate
swaps or other types of derivative financial instruments. The carrying value of the floating rate bank facility approximates fair value as the interest rate is variable and resets frequently. The bank facility bears interest at the Eurodollar rate
or the prime rate, which was approximately 2.438% (including margin) and 4.00% respectively at September 30, 2003. We estimate that the average amount of debt outstanding under the facility for fiscal year 2003 will be approximately $20.0 million.
Therefore, a one-percentage point increase in interest rates would result in an increase in interest expense of $200,000 for the year.



For fixed rate debt instruments such as our 8.5% senior notes, changes in interest rates generally affect the fair value of such debt instruments. For variable rate debt
such as our bank facility, changes in interest rates generally do not affect the fair value of such debt, but do affect earnings and cash flow. We do not have an obligation to repay our 8.5% senior notes prior to maturity in 2009 and, as a result,
interest rate risk and changes in fair value should not have a significant impact on us. We believe that the interest rate on our 8.5% senior notes approximates the current rates available for similar types of financing and as a result the carrying
amount of the 8.5% senior notes approximates fair value. The fair value of our senior notes at September 30, 2003 was approximately $155,250,000.



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



We require significant volumes of
electricity to operate our equipment and produce our products. We participate in the direct access program whereby electricity customers can contract directly with energy service providers, thereby bypassing the State of California procurement
system. Our direct access agreement results in lower electricity costs than would otherwise be available from Californias regulated utility providers. The Public Utilities Commission of the State of California (PUC) issued an order on November
7, 2002, imposing exit fees of 2.7 cents per kilowatt hour on utility customers who entered into the direct access program during the California electricity crisis in 2001. The PUCs stated purpose for the exit fees (officially termed as the
Cost Responsibility Surcharge or CRS) is to recoup the substantial sums spent by the State of California to purchase electricity during the crisis. The CRS, if continued at 2.7 cents per kwh, is projected to result in additional costs
for our electricity service of approximately $9,000,000 in 2003.



Our current
direct access electricity purchase agreement covers most of our electricity requirements at pre-established prices through December 2003. However, due to the nature of our operations and normal fluctuations in our daily electricity usage, we
occasionally are exposed to spot electricity prices when we sell excess energy into, or when we buy additional energy from, the spot wholesale market. As of September 30, 2003, our electricity costs accounted for approximately 3.69% of our cost of
goods sold compared to approximately 3.05% for the same period in 2002.



10



---

##### Table of Contents

We also require significant volumes of natural gas to produce our products. We generally purchase natural gas from a
physical supplier active in the California market. The price we normally pay for natural gas is based on the New York Mercantile Exchange (NYMEX) natural gas commodity index, adjusted by the Southern California border basis, plus delivery costs. For
the last several years the NYMEX index price for natural gas has experienced volatility. In an effort to stabilize such costs, we have a regular program of using layered financial NYMEX hedges, to ensure price stability for the majority of our
future natural gas requirements on occasion entered into agreements whereby we hedge portions of our future costs for natural gas.



Domestic events, including but not limited to, severe weather in certain parts of the United States, low natural gas inventory storage, and a lack of new natural gas
drilling activity, as well as international event, such as the war in Iraq have resulted in very high natural gas costs over the last several months. Our production costs have marginally been affected by such price fluctuations. We currently have in
place agreements to hedge the price of approximately 85% of our natural gas requirements through December, 2003, about 75% for first quarter 2004, and about 60% for the balance of 2004. We continue to monitor the near and long term price trends of
natural gas and may enter into additional purchase agreements when we deem it appropriate or when opportunities present themselves. As of September 30, 2003, our natural gas costs accounted for approximately 3.88% of our cost of goods sold compared
to approximately 4.98% for the same period in 2002.



|ITEM 4. |  | CONTROLS AND PROCEDURES
|------- |  | -----------------------



For the period ending September 30, 2003 (the Evaluation Date), we carried out an evaluation, under the supervision and with the participation of our
management, including our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of
1934, as amended (the Exchange Act). Based upon this evaluation, our President and Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2003, our disclosure controls and procedures were adequate to
ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in the SECs rules and forms.



Additionally, our President and Chief Executive Officer and Chief Financial
Officer determined, as of September 30, 2003, that there were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of their evaluation.



11



---

##### Table of Contents

PART II

OTHER INFORMATION



|ITEM 1. |  | LEGAL PROCEEDINGS
|------- |  | -----------------



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



|ITEM 5. |  | OTHER ITEMS
|------- |  | -----------



Effective September 15, 2003, Ricardo Bernandes joined the company as the Chief Financial Officer. Mr. Bernandes has held various executive financial positions in Brazil. He is familiar with the steel industry from
his work on various projects for Booz Allen & Hamilton in Brazil and Argentina. Mr. Bernandes holds a Masters of Business Administration from the University of California, Los Angeles.



12



---

##### Table of Contents

|ITEM 6. |  | EXHIBITS AND REPORTS ON FORM 8-K
|------- |  | --------------------------------



|(a) | Exhibits.
|--- | ---------



|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1           |  | Certificate of Incorporation of the Registrant, as amended by Amendment to the Certificate of Incorporation filed June 6, 1984 with Delaware Secretary of State, as amended by the
Certificate of Amendment to the Certificate of Incorporation filed August 2, 1984 with the Delaware Secretary of State, as amended by the Certificate of Amendment to the Certificate of Incorporation filed January 12, 1988 with the Delaware Secretary
of State, and, as amended by the Certificate of Ownership merging 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.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|              | 
|3.3           |  | Bylaws of the Registrant, as amended on July 16, 1999.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|              | 
|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 1/2% Senior Notes
due April 6, 2009.(1)                                                                                                                                                                                                                                                                                                                                                                                                                              
|              | 
|4.2           |  | Specimen Series A note (included in Exhibit 4.1).(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)                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|31.1          |  | Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|31.2          |  | Certification of Executive Vice President, Finance pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|              | 
|32.1          |  | Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|32.2          |  | Certification of Executive Vice President, Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



---

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



|(2) | Incorporated by reference to the Registrants 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13



---

##### Table of Contents

|(b) | Reports on Form 8-K.
|--- | --------------------



| | (1) | Form 8-K filed on July 21, 2003
| | --- | -------------------------------

| |  | Item 9 Regulation FD Disclosure
| |  | -------------------------------

Item 12.
Use of Non-GAAP Financial Measures

| |  | Second Quarter Financial Results disclosed in Press Release
| |  | -----------------------------------------------------------



14



---

##### Table of Contents

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.



October 31, 2003



CALIFORNIA STEEL INDUSTRIES, INC.By:

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




15



---

##### Table of Contents

INDEX TO EXHIBITS



|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|3.1           |  | Certificate of Incorporation of the Registrant, as amended by Amendment to the Certificate of Incorporation filed June 6, 1984 with Delaware Secretary of State, as amended by the
Certificate of Amendment to the Certificate of Incorporation filed August 2, 1984 with the Delaware Secretary of State, as amended by the Certificate of Amendment to the Certificate of Incorporation filed January 12, 1988 with the Delaware Secretary
of State, and, as amended by the Certificate of Ownership merging 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.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|              | 
|3.3           |  | Bylaws of the Registrant, as amended on July 16, 1999.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|              | 
|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 1/2% Senior Notes due April 6, 2009.(1)                                                                                                                                                                                                                                                                                                                                                                                                                              
|              | 
|4.2           |  | Specimen Series A note (included in Exhibit 4.1).(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)                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|31.1          |  | Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|31.2          |  | Certification of Executive Vice President, Finance pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|              | 
|32.1          |  | Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|32.2          |  | Certification of Executive Vice President, Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

---

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



|(2) | Incorporated by reference to the Registrants 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16