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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended September 30, 2006

OR



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

For the transition period from  to

Commission File Number 333-79587



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CALIFORNIA STEEL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33-0051150                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



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

(909) 350-6200

(Registrants telephone number including area code)



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

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated file, or a non-accelerated filer (as defined in Rule 12b-2 of the Act). Large Accelerated Filer ̈Accelerated
Filer ̈Non-Accelerated Filer x

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 27, 2006, 4,000 shares of the Companys
common stock, no par value, were outstanding.



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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, 2006 (unaudited) and December 31, 2005                            |  | 1   
|                                                                                                                  | 
|Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005 (unaudited) |  | 2   
|                                                                                                                  | 
|Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 (unaudited)           |  | 3   
|                                                                                                                  | 
|Notes to Consolidated Financial Statements (unaudited)                                                            |  | 4   
|                                                                                                                  | 
|ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                    |  | 7   
|                                                                                                                  | 
|ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                               |  | 12  
|                                                                                                                  | 
|ITEM 4.  CONTROLS AND PROCEDURES                                                                                  |  | 12  
|                                                                                                                  | 
|PART II OTHER INFORMATION                                                                                         |  | 13  
|                                                                                                                  | 
|ITEM 1.  LEGAL PROCEEDINGS                                                                                        |  | 13  
|                                                                                                                  | 
|ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                                                        |  | 13  
|                                                                                                                  | 
|ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                                                         |  | 13  
|                                                                                                                  | 
|SIGNATURE                                                                                                         |  | 14  
|                                                                                                                  | 
|INDEX TO EXHIBITS                                                                                                 |  | 15  
|                                                                                                                  | 
|EXHIBITS                                                                                                          |  |     



ii



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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 of September 30,2006 |         | As of December 31, 2005
|                                                                                                                                                                              |  | (Unaudited)            
|Assets                                                                                                                                                                        |  |                         |         |                         |   |        
|Current assets:                                                                                                                                                               |  |                         |         |                         |   |        
|Cash and cash equivalents                                                                                                                                                     |  | $                       | 103,131 |                         | $ | 104,294
|Trade accounts receivable, less allowance for doubtful receivables of $700 at September 30, 2006 and $750 at December 31,
2005                                                |  |                         | 115,467 |                         |   | 91,757 
|Inventories                                                                                                                                                                   |  |                         | 349,851 |                         |   | 201,640
|Deferred income taxes                                                                                                                                                         |  |                         | 3,501   |                         |   | 3,501  
|Other receivables and prepaid expenses                                                                                                                                        |  |                         | 3,421   |                         |   | 9,320  
|                                                                                                                                                                              |  |                         |         |                         |   |        
|Total current assets                                                                                                                                                          |  |                         | 575,371 |                         |   | 410,512
|Other assets                                                                                                                                                                  |  |                         | 2,250   |                         |   | 2,515  
|Property, plant and equipment, net                                                                                                                                            |  |                         | 235,523 |                         |   | 241,774
|                                                                                                                                                                              |  |                         |         |                         |   |        
|Total assets                                                                                                                                                                  |  | $                       | 813,144 |                         | $ | 654,801
|                                                                                                                                                                              |  |                         |         |                         |   |        
|Liabilities, redeemable preferred stock and stockholders equity                                                                                                              |  |                         |         |                         |   |        
|Current liabilities:                                                                                                                                                          |  |                         |         |                         |   |        
|Accounts payable                                                                                                                                                              |  | $                       | 229,102 |                         | $ | 100,299
|Accrued interest expense                                                                                                                                                      |  |                         | 394     |                         |   | 2,691  
|Accrued utilities                                                                                                                                                             |  |                         | 5,918   |                         |   | 4,856  
|Income taxes payable                                                                                                                                                          |  |                         | 11,760  |                         |   | 13,394 
|Other accrued expenses                                                                                                                                                        |  |                         | 21,980  |                         |   | 10,990 
|                                                                                                                                                                              |  |                         |         |                         |   |        
|Total current liabilities                                                                                                                                                     |  |                         | 269,154 |                         |   | 132,230
|                                                                                                                                                                              |  |                         |         |                         |   |        
|Long-term debt                                                                                                                                                                |  |                         | 150,000 |                         |   | 150,000
|Deferred income taxes                                                                                                                                                         |  |                         | 52,592  |                         |   | 52,592 
|Commitments and contingencies (Note 6)                                                                                                                                        |  |                         |         |                         |   |        
|Redeemable preferred stock:                                                                                                                                                   |  |                         |         |                         |   |        
|Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares; none issued at September 30, 2006 and 3,000 shares issued
and outstanding at December 31, 2005 |  |                         |        |                         |   | 30,000 
|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                                                                                    |  |                         |        |                         |   |       
|Common stock, no par value. Authorized 5,000 shares; 4,000 shares issued and outstanding at September 30, 2006 and 1,000 shares issued
and outstanding at December 31, 2005   |  |                         | 40,000  |                         |   | 10,000 
|Retained earnings                                                                                                                                                             |  |                         | 301,398 |                         |   | 279,979
|                                                                                                                                                                              |  |                         |         |                         |   |        
|Total stockholders equity                                                                                                                                                    |  |                         | 341,398 |                         |   | 289,979
|                                                                                                                                                                              |  |                         |         |                         |   |        
|Total liabilities, redeemable preferred stock and stockholders equity                                                                                                        |  | $                       | 813,144 |                         | $ | 654,801
|                                                                                                                                                                              |  |                         |         |                         |   |        

See accompanying notes to consolidated financial statements.



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CALIFORNIA STEEL INDUSTRIES, INC.

AND SUBSIDIARY

Consolidated Statements of Operations

(In thousands)



|                                                                                |  |                                 |         |   |                                |   |          |      |  |   |           |   |  |   |              |  
|------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | -------- | ---- |  | - | --------- | - |  | - | ------------ | -
|                                                                                |  | Three months endedSeptember 30, |         |   | Nine months endedSeptember 30, |  
|                                                                                |  | (Unaudited)                     |        
|                                                                                |  | 2006                            |         |   | 2005                           |   |          | 2006 |  |   | 2005      |  
|Net sales                                                                       |  | $                               | 382,296 |   |                                | $ | 287,698  |      |  | $ | 1,049,387 |   |  | $ | 933,607      |  
|Cost of sales                                                                   |  |                                 | 318,311 |   |                                |   | 283,212  |      |  |   | 854,034   |   |  |   | 858,261      |  
|                                                                                |  |                                 |         |   |                                |   |          |      |  |   |           |   |  |   |              |  
|Gross profit                                                                    |  |                                 | 63,985  |   |                                |   | 4,486    |      |  |   | 195,353   |   |  |   | 75,346       |  
|Selling, general and administrative expenses Loss (gain) on disposition of PP&E |  |                                 | 8,19197 |   |                                |   | 5,758264 |      |  |   | 23,343344 |   |  |   | 19,662(3,040 | )
|                                                                                |  |                                 |         |   |                                |   |          |      |  |   |           |   |  |   |              |  
|Income (loss) from operations                                                   |  |                                 | 55,697  |   |                                |   | (1,536   | )    |  |   | 171,666   |   |  |   | 58,724       |  
|Other income (expense):                                                         |  |                                 |         |   |                                |   |          |      |  |   |           |   |  |   |              |  
|Interest expense, net                                                           |  |                                 | (746    | ) |                                |   | (2,815   | )    |  |   | (3,235    | ) |  |   | (9,127       | )
|Other, net                                                                      |  |                                 | (91     | ) |                                |   | 1,553    |      |  |   | (1,675    | ) |  |   | 2,117        |  
|                                                                                |  |                                 |         |   |                                |   |          |      |  |   |           |   |  |   |              |  
|Income (loss) before income tax expense                                         |  |                                 | 54,860  |   |                                |   | (2,798   | )    |  |   | 166,756   |   |  |   | 51,714       |  
|Income tax expense (benefit)                                                    |  |                                 | 20,941  |   |                                |   | (1,733   | )    |  |   | 66,219    |   |  |   | 21,032       |  
|                                                                                |  |                                 |         |   |                                |   |          |      |  |   |           |   |  |   |              |  
|Net income (loss)                                                               |  |                                 | 33,919  |   |                                |   | (1,065   | )    |  |   | 100,537   |   |  |   | 30,682       |  
|Preferred dividends declared and paid                                           |  |                                 |        |   |                                |   | (11,905  | )    |  |   | (5,107    | ) |  |   | (43,110      | )
|                                                                                |  |                                 |         |   |                                |   |          |      |  |   |           |   |  |   |              |  
|Net income (loss) available to common shareholders                              |  | $                               | 33,919  |   |                                | $ | (12,970  | )    |  | $ | 95,430    |   |  | $ | (12,428      | )
|                                                                                |  |                                 |         |   |                                |   |          |      |  |   |           |   |  |   |              |  

See accompanying notes to consolidated financial statements.



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CALIFORNIA STEEL INDUSTRIES, INC.

AND SUBSIDIARY

Consolidated Statements of Cash Flows

(In thousands)



|                                                                                 |  |                                |          |   |      |   |         |  
|-------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | ------- | -
|                                                                                 |  | Nine Months EndedSeptember 30, |         
|                                                                                 |  | 2006                           |          |   | 2005 |  
|                                                                                 |  | (Unaudited)                    |         
|Cash flows from operating activities:                                            |  |                                |          |   |      |   |         |  
|Net income                                                                       |  | $                              | 100,537  |   |      | $ | 30,682  |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                                |          |   |      |   |         |  
|Depreciation and amortization                                                    |  |                                | 22,057   |   |      |   | 20,413  |  
|Loss (gain) on sale of property, plant & equipment                               |  |                                | 344      |   |      |   | (3,040  | )
|Change in assets and liabilities:                                                |  |                                |          |   |      |   |         |  
|Trade accounts receivable, net                                                   |  |                                | (23,710  | ) |      |   | (265    | )
|Inventories                                                                      |  |                                | (148,211 | ) |      |   | 45,898  |  
|Other receivables and prepaid expenses                                           |  |                                | 5,899    |   |      |   | (4,147  | )
|Accounts payable                                                                 |  |                                | 128,803  |   |      |   | 14,485  |  
|Income taxes payable                                                             |  |                                | (1,634   | ) |      |   | (13,467 | )
|Accrued interest expense                                                         |  |                                | (2,297   | ) |      |   | (2,348  | )
|Accrued utilities and other accrued expenses                                     |  |                                | 12,052   |   |      |   | (730    | )
|                                                                                 |  |                                |          |   |      |   |         |  
|Net cash provided by operating activities                                        |  |                                | 93,840   |   |      |   | 87,481  |  
|                                                                                 |  |                                |          |   |      |   |         |  
|Cash flows from investing activities:                                            |  |                                |          |   |      |   |         |  
|Additions to property, plant and equipment                                       |  |                                | (15,622  | ) |      |   | (31,117 | )
|Proceeds from sale of affiliate stock                                            |  |                                |         |   |      |   | 30,283  |  
|(Removal cost) proceeds from the sale of property, plant and equipment           |  |                                | (263     | ) |      |   | 6,553   |  
|                                                                                 |  |                                |          |   |      |   |         |  
|Net cash (used in) provided by investing activities                              |  |                                | (15,885  | ) |      |   | 5,719   |  
|                                                                                 |  |                                |          |   |      |   |         |  
|Cash flows from financing activities:                                            |  |                                |          |   |      |   |         |  
|Net payment under line-of-credit agreement with banks                            |  |                                |         |   |      |   | (4,000  | )
|Dividends paid                                                                   |  |                                | (79,118  | ) |      |   | (56,480 | )
|                                                                                 |  |                                |          |   |      |   |         |  
|Net cash used in financing activities                                            |  |                                | (79,118  | ) |      |   | (60,480 | )
|                                                                                 |  |                                |          |   |      |   |         |  
|Net (decrease) increase in cash and cash equivalents                             |  |                                | (1,163   | ) |      |   | 32,720  |  
|Cash and cash equivalents at beginning of period                                 |  |                                | 104,294  |   |      |   | 801     |  
|                                                                                 |  |                                |          |   |      |   |         |  
|Cash and cash equivalents at end of period                                       |  | $                              | 103,131  |   |      | $ | 33,521  |  
|                                                                                 |  |                                |          |   |      |   |         |  
|Supplemental disclosures of cash flow information:                               |  |                                |          |   |      |   |         |  
|Cash paid during the period for:                                                 |  |                                |          |   |      |   |         |  
|Interest (net of amount capitalized)                                             |  | $                              | 9,292    |   |      | $ | 9,854   |  
|                                                                                 |  |                                |          |   |      |   |         |  
|Income taxes                                                                     |  | $                              | 68,390   |   |      | $ | 39,763  |  
|                                                                                 |  |                                |          |   |      |   |         |  

See accompanying notes to consolidated financial statements.



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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
September 30, 2006 and December 31, 2005 (audited) and for the three and nine months ended September 30, 2006 and 2005 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 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 contained in California Steel Industries, Inc.s Form 10-K and Form 10-K/A for the year ended December 31, 2005. Results of operations for the three and nine months ended
September 30, 2006 are not necessarily indicative of results expected for the full year.

2. New Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments  an amendment of FASB Statements No. 133 and 140, (SFAS 155). SFAS 155 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS
No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. SFAS 155 resolves issued addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets. Among other provisions, the new rule (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require
bifurcation, (b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, (c) establishes a requirement to evaluate interests in securitized financial assets to identify interests
that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (d) clarifies that concentrations of credit risk in the form of subordination are not embedded derivates, and
(e) amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is
effective for fiscal years beginning after September 15, 2006 and is required to be adopted by the Company in the first quarter of fiscal year 2007, beginning January 1, 2007. The Company is currently evaluating the effect that the
adoption of SFAS 155 will have on its consolidated results of operations and financial position or cash flows, but does not expect it to have a material impact.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets  an amendment of FASB Statement No. 140, (SFAS 156). SFAS 156 amends SFAS
No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS 156 is
effective for fiscal years beginning after September 15, 2006 and is required to be adopted by the Company in the first quarter of fiscal year 2007, beginning January 1, 2007. The Company is currently evaluating the effect that the
adoption of SFAS 156 will have on its consolidated results of operations and financial position or cash flows, but does not expect it to have a material impact.

In July 2006, the FASB issued Final Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, (FIN 48). FIN 48 clarifies the
accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure and transition. In addition, FIN 48 excludes income taxes from the scope of SFAS No. 5, Accounting for Contingencies. FIN 48 is effective for fiscal years beginning after
December 15, 2006. Differences between the amounts recognized in the consolidated balance sheets prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded to the
beginning balance of retained earnings. The Company is currently evaluating the effect that the adoption of FIN 48 will have on its results of operations and financial position.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and



4



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expands disclosures about fair value measurements. SFAS are effective for fiscal years beginning after November 15, 2007 and is required to be adopted
by the Company in the first quarter of fiscal year 2008, beginning January 1, 2008. The Company is currently evaluating the effect that the adoption of SFAS 157 will have on its consolidated results of operations and financial position or cash
flows, but does not expect it to have a material impact.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, to eliminate the diversity of practice surrounding how public companies
quantify financial statement misstatements. Traditionally, there have been two widely-recognized methods for quantifying the effects of financial statement misstatements: the roll-over method and the iron curtain method. The
roll-over method focuses primarily on the impact of a misstatement on the income statement, including the reversing effect of prior year misstatements, but its use can lead to the accumulation of misstatements in the balance sheet. The iron-curtain
method, on the other hand, focuses primarily on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement. In SAB No. 108, the SEC Staff established an
approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each financial statement and the related financial statement disclosures. This model is commonly referred to as a dual
approach because it requires quantification of errors under both the iron curtain and the roll-over methods. The Company is required to adopt SAB No. 108 in the fourth quarter of 2006 but does not expect the adoption will have a material
impact on its results of operations and financial position.

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, 2006 |         | December 31,2005
|                |  | (unaudited)        |         |                 
|                |  | (In thousands)    
|Finished goods  |  | $                  | 45,354  |                  | $ | 16,696 
|Work-in-process |  |                    | 43,098  |                  |   | 31,971 
|Raw materials   |  |                    | 245,985 |                  |   | 142,466
|Supplies        |  |                    | 15,414  |                  |   | 10,507 
|                |  |                    |         |                  |   |        
|Total           |  | $                  | 349,851 |                  | $ | 201,640
|                |  |                    |         |                  |   |        

4. Investment in Affiliated Company

The investment in Companhia Siderurgica de Tubarão (CST) was sold in June 2005 as described below.

In October 2004, the Company agreed in principal to sell its 4% interest in the common stock of CST to Arcelor S.A. (Arcelor). The
transaction was structured by entering into an option and waiver agreement whereby Arcelor granted the Company an option to sell and the Company granted Arcelor an option to purchase the Companys interest in CST. These options were exercised
during the thirty day period following the termination of the CST shareholders agreement on May 25, 2005. Under the option agreement, all earnings or losses as well as dividends and distributions accrued to the benefit of Arcelor during the
period from the execution of the option agreement to the date of exercise.

During the three months ended March 31, 2005, the Company
received $2,522,000 as a cash advance on the purchase price for the Companys interest in CST. The Company exercised its option in June 2005 to sell the stock and received the remaining $27,761,000 in June 2005.

5. Credit Facility

In September 2005, the
Company entered into a new five year $110,000,000 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 new credit facility may be made at any time prior to the credit facility termination date. There were no outstanding borrowings under this facility as of
September 30, 2006. 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.



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6. Commitments and Contingencies

At September 30, 2006, the Company is committed in the form of total open purchase orders, to purchase approximately $106,447,000 in steel and other
goods and services, of which $18,024,000 is from a related party.

When market conditions warrant, the Company enters into contracts to
purchase certain commodities used in the manufacture of its products, such as electricity and natural gas. Some of these forward contracts do not require derivative accounting as the Company takes possession of the commodities in the normal course
of business whereas other forward contracts are accounted for as derivatives in accordance with SFAS No. 133 by the Company. None of the Companys current contracts are designated as hedges.

The Company has been contacted by various governmental agencies regarding specified environmental matters at its operating facility in Fontana,
California. During September 1990, the Company reached a preliminary agreement with the California Regional Department of Health Services, which allows the Company to draft its own investigation and remediation agreement and move forward with its
own plan of action at its operating facility upon agency review and approval. In November 1992, the Company 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 the Companys operating facility. The Agreement also preserves the Companys right as to future assignment and
apportionment of costs to other parties.

The Company is addressing environmental concerns caused by the former occupant at the
Companys Fontana site. The Company engaged an environmental consultant to conduct a remedial investigation and develop a remediation plan and remediation cost projections based upon that plan. Utilizing the remediation plan developed by the
environmental consultant, the Company developed an estimate of future costs of the remediation plan. The total aggregate cost of remediation is estimated to be approximately $1.8 million, which is included in the other accrued expenses at
September 30, 2006 and December 31, 2005 consolidated financial statements. The DTSC has not yet completed its review and approval of the Companys remediation plan; however, preliminary discussions between the DTSC and the Company
have not indicated the need for any significant changes to the remediation plan or to the Companys estimate of related costs. The estimate of costs could change as a result of changes to the remediation plan required by the DTSC or unforeseen
circumstances, including without limitations, unknown site conditions, changes to applicable regulations or increased enforcement requirements by the regulators existing at the site.

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

The Company is self-insured for workers compensation. The accrued liability associated with these programs is based on managements 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 the Companys insurance brokers and insurers, combined with
managements judgments regarding a number of assumptions and factors, including the frequency and severity of claims, the Companys claims development history, case jurisdiction, related legislation, and the Companys claim settlement
practice. Significant judgment is required to estimate IBNR claims as parties have yet to assert such claims. If actual claim trends, including the severity or frequency of claims, differ from managements estimates, the Companys
financial results could be impacted.

7. Redeemable Preferred Stock and Common Stock

In June 2006, draft resolutions were circulated to the shareholders of the Company seeking approval of a conversion of the 3,000 issued and outstanding
shares of Class C preferred stock of the Company into 3,000 shares of common stock of the Company in a straight one to one conversion. The shareholders were further asked to approve an amendment to the Certificate of Incorporation of the Company to
increase the authorized number of common shares from 2,000 to 5,000 to allow for the conversion. The shareholders adopted resolutions approving both the conversion and the amendment to the Certificate of Incorporation pursuant to a unanimous written
consent which became effective in July 2006. The amendment to the Certificate of Incorporation was filed with the Delaware Secretary of State on July 25, 2006.

As a result of the conversion, the $30 million carrying value of the Class C redeemable preferred stock was reclassified to shareholders equity as part of common stock.



6



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|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 may contain
forward-looking statements about our current and expected performance trends, growth plans, business goals and other matters. These statements may contain words or phrases such as believe, plan, will likely
result, expect, intend, will continue, is anticipated, estimate, project, may, could, would, should and similar expressions
are intended to identify forward-looking statements. These statements, and any other statements that are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended from time to time (the Act).

In connection with the safe harbor provisions of the Act, we are identifying important risk factors that could cause our actual results to differ materially from those projected in forward-looking
statements made by us, or on our behalf. These cautionary statements are to be used as a reference in connection with any forward-looking statements. The risk factors identified in these cautionary statements are in addition to those contained in
any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the Securities and Exchange Commission. Because of these
risk factors, we caution against placing undue reliance on forward-looking statements. Although we believe that the assumptions underlying forward-looking statements are reasonable, any of the assumptions could be incorrect, and there can be no
assurance that forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date on which they are made. We do not undertake any obligation to modify or revise any forward-looking statement to take into
account or otherwise reflect subsequent events, or circumstances arising after the date that the forward-looking statement was made.

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



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



| |  |  | Our substantial indebtedness, interest expense and principal repayment obligations under our credit facility, when drawn upon, and 6.125% 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;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 our 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;
| | - |  | ------------------------------------------



| |  |  | Our 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 the Companys manufacturing plant;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Companys 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 the Company;
| | - |  | ------------------------------------------------



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



7



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| |  |  | Industry-wide market factors and general economic and business conditions; changes in general economic, demographic, geopolitical or public safety conditions which affect consumer
behavior and spending for the products which use our goods, including the ongoing ramifications of the September 11, 2001 terrorist attacks and the governmental response thereto, including the continuing armed conflict in Iraq or in other
countries; 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Results of Operations



|            |  |                                             |  |                                            |  |           |  |          
|----------- |  | ------------------------------------------- |  | ------------------------------------------ |  | --------- |  | ---------
|            |  | Tons BilledThree months ended September 30, |  | Tons BilledNine months ended September 30,
|            |  | 2006                                        |  | 2005                                       |  | 2006      |  | 2005     
|Hot Rolled  |  | 200,635                                     |  | 190,208                                    |  | 631,799   |  | 551,669  
|Cold Rolled |  | 43,029                                      |  | 52,364                                     |  | 129,902   |  | 138,650  
|Galvanized  |  | 194,657                                     |  | 163,415                                    |  | 588,577   |  | 497,143  
|ERW Pipe    |  | 66,326                                      |  | 52,775                                     |  | 170,151   |  | 147,189  
|            |  |                                             |  |                                            |  |           |  |          
|Total       |  | 504,647                                     |  | 458,762                                    |  | 1,520,429 |  | 1,334,651
|            |  |                                             |  |                                            |  |           |  |          

Net sales. Net sales increased $94,598,000, or 32.9%, from $287,698,000 for the three months ended
September 30, 2005 to $382,296,000 for the three months ended September 30, 2006. Year-to-date net sales increased $115,780,000, or 12.4%, from $933,607,000 for the nine months ended September 30, 2005 to $1,049,387,000 for the nine
months ended September 30, 2006. Billed tons increased by 45,885 net tons, or 10.0%, for the three months ended September 30, 2006 compared to the three months ended September 30, 2005. Year-to-date net tons billed were higher by
185,778, or 13.9%, for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005, which is due to strong favorable market conditions and greater demand for the Companys products. The increase in
billed tons for the three and nine months ended September 30, 2006 increased net sales by $28,908,000 and $130,880,000, respectively, compared to the three and nine months ended September 30, 2005. The average unit price is higher for the
three months ended September 30, 2006, compared to the three months ended September 30, 2005 which increased net sales approximately $62,702,000 for the three months ended September 30, 2006. The average unit price is lower for the
nine months ended September 30, 2006, compared to the nine months ended September 30, 2005 which decreased net sales approximately $18,925,000 for the nine months ended September 30, 2006. The product mix also contributed $3,868,000
and $5,652,000, respectively, to net sales for the three and nine months ended September 30, 2006, compared to the three and nine months ended September 30, 2005.

Gross profit. Gross profit increased $59,499,000, or 1,326.3% from $4,486,000 for the three months ended September 30, 2005 to $63,985,000 for the three months ended September 30, 2006.
Year-to-date gross profit increased $120,007,000, or 159.3%, from $75,346,000 for the nine months ended September 30, 2005 to $195,353,000 for the nine months ended September 30, 2006. Gross profit as a percentage of net sales increased
from 1.6% for the three months ended September 30, 2005 to 16.7% for the three months ended September 30, 2006 and from 8.1% for the nine months ended September 30, 2005 to 18.6% for the nine months ended September 30, 2006. The
increase in gross profit is attributable to an increase in margin, the difference between the average unit price and average slab consumption cost.

Selling, general and administrative expenses (SG&A). Selling, general and administrative expenses increased $2,433,000, or 42.3%, from $5,758,000 for three months ended September 30, 2005 to $8,191,000 for the
three months ended September 30, 2006. Year-to-date SG&A expenses increased $3,681,000, or 18.7%, from $19,662,000 for the nine months ended September 30, 2005 to $23,343,000 for the nine months ended September 30, 2006. The
largest factor contributing to the increase to SG&A for the nine months ended September 30, 2006 was salaries which increased $2,351,000 from the nine months ended September 30, 2005. The increase in salaries is attributable to an
increase in profit sharing due to an increase in income before taxes for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005.

Interest expense, net. Interest expense decreased $2,069,000, or 73.5%, from $2,815,000 for the three months ended September 30, 2005 to $746,000 for the three months ended September 30, 2006.
The year-to-date interest expense decreased $5,892,000, or 64.6%, from $9,127,000 for the nine months ended September 30, 2005 to $3,235,000 for the nine months



8



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ended September 30, 2006. The decrease is largely attributable to interest income earned on higher average cash balances and lower average loan balances
for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005. The Company also received interest income from the State of California Franchise Tax Board for disputed prior year income tax years during
the nine months ended September 30, 2006 which is netted against interest expense. Interest expense is net of interest income and capitalized interest of $464,000 and $711,000 for the three and nine months ended September 30, 2005 and
$1,974,000 and $5,229,000 for the three and nine months ended September 30, 2006, respectively.

Income taxes. Due to higher income
before taxes of $54,860,000 for the three months ended September 30, 2006 compared to a loss of $2,798,000 for the three months ended September 30, 2005, the Companys income tax increased $22,674,000, from an income tax benefit of
$1,733,000, for the three months ended September 30, 2005 to an income tax expense of $20,941,000 for the three months ended September 30, 2006. As a result of higher income before taxes of $166,756,000 for the nine months ended
September 30, 2006 compared to $51,714,000 for the nine months ended September 30, 2005, year-to-date income tax expense increased $45,187,000 from $21,032,000 for the nine months ended September 30, 2005 to $66,219,000 for the nine
months ended September 30, 2006. The effective tax rate was 39.7% for nine months ended September 30, 2006 compared to 40.7% for the nine months ended September 30, 2005, respectively.

Net income. Net income for the three and nine months ended September 30, 2006 was $33,919,000 and $100,537,000, respectively, compared to a net loss
of $1,065,000 and net income of $30,682,000 for the three and nine months ended September 30, 2005.

Certain Liquidity and Capital Resources

At September 30, 2006, the Company had $103,131,000 in cash and cash equivalents and approximately $108,700,000 in financing
available under its credit facility. During the nine months ended September 30, 2006, cash flow from operations provided $93,840,000 which consisted of the generation of cash flow of $100,537,000 in net income, $22,057,000 in depreciation and
amortization expense, $344,000 on the loss on the disposition of property, plant and equipment and a net cash flow decrease of $29,098,000 due to changes in assets and liabilities. The majority of the net cash flow changes in assets and liabilities
were attributable to a $23,710,000 increase in trade accounts receivable, $148,211,000 increase in inventories, a $1,634,000 decrease in income tax payable and a $2,297,000 decrease in accrued interest offset by a $5,899,000 decrease in other
receivables and prepaid expenses, a $128,803,000 increase in accounts payable and a $12,052,000 increase in accrued utilities and other accrued expenses. Cash flow used in investing activities during the nine months ended September 30, 2006
consisted of $15,622,000 of capital expenditures and $263,000 for removal cost on the disposition of property, plant and equipment. Cash flows used in financing activities during the nine months ended September 30, 2006 consisted of dividend
payments of $79,118,000 on the Companys common and preferred stock. During the nine month period ended September 30, 2006, the Company also made interest payments of $9,187,500 on its 6.125% senior notes due in 2014.

In September 2005, the Company entered into a new five year $110,000,000 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 new credit facility may be made at any
time prior to the credit facility termination date. There were no outstanding borrowings under this facility as of September 30, 2006. 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, the Company issued an aggregate of $150,000,000 of ten-year, 6.125% senior unsecured notes due in March 2014. With the proceeds
of this issuance and cash on hand, the Company retired its 8.50% senior notes due in 2009. Interest on the Companys 6.125% senior notes is payable on March 15 and September 15 of each year. The notes are senior in right of payment to
all of the Companys subordinated indebtedness and equal in right of payment to all of its existing and future indebtedness that is not by its terms subordinated to the notes. The Company may redeem the notes at any time after March 15,
2009. In addition, the Company may redeem up to 35% of the notes before March 15, 2007 with the net cash proceeds from a public equity offering. The indenture governing the notes contains covenants that limit the Companys ability to incur
additional indebtedness, pay dividends, redeem or repurchase capital stock and make investments, create liens, sell assets, sell capital stock of certain subsidiaries, engage in transactions with affiliates and consolidate, merge or transfer all or
substantially all of its assets and the assets of certain subsidiaries on a consolidated basis.

In July 2006, the Company converted its
3,000 shares of Class C preferred stock to 3,000 shares of common stock. The Company also increased its authorized shares of common stock from 2,000 to 5,000 shares. The conversion of preferred stock to common stock has no impact on the
Companys current or long-term liquidity.



9



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The Company currently has approximately $10,523,000 in material commitments for capital expenditures
expected to be completed during fiscal year 2006. These represent signed purchase orders for various production facility upgrades. The Companys total budget for capital improvements in 2006 is approximately $30,000,000.

The Company anticipates that its primary liquidity requirements will be for working capital, capital expenditures, debt service and the payment of
dividends. The Company believes that cash generated from operations and available borrowings under its bank facility will be sufficient to enable it to meet its liquidity requirements for fiscal year 2006. The Company was in compliance with all the
bank covenants at September 30, 2006.

Commitment and Contingencies

The following table represents a comprehensive list of the Companys contractual obligations and commitments as of September 30, 2006 (in
thousands):



|                                                                                   |  |       |         |                  |   |           |  |           |        |                   |   |        |  |   |        
|---------------------------------------------------------------------------------- |  | ----- | ------- | ---------------- | - | --------- |  | --------- | ------ | ----------------- | - | ------ |  | - | -------
|                                                                                   |  | Total |         | Less Than 1 Year |   | 1-3 Years |  | 3-5 Years |        | More Than 5 Years
|Long Term Debt                                                                     |  | $     | 150,000 |                  | $ |          |  | $         |       |                   | $ |       |  | $ | 150,000
|Capital Lease Obligations                                                          |  |       |        |                  |   |          |  |           |       |                   |   |       |  |   |       
|Operating Leases                                                                   |  |       | 511     |                  |   | 414       |  |           | 97     |                   |   |       |  |   |       
|Purchase Obligations (1)                                                           |  |       | 106,447 |                  |   | 102,142   |  |           | 4,305  |                   |   |       |  |   |       
|Estimated Interest Payments on Debt (2)                                            |  |       | 68,523  |                  |   | 9,188     |  |           | 18,375 |                   |   | 18,375 |  |   | 22,585 
|Planned Expenditures on Environmental Matters (3)                                  |  |       | 1,800   |                  |   |          |  |           | 800    |                   |   | 1,000  |  |   |       
|Other Long Term Liabilities Reflected On the Registrants Balance Sheet under GAAP |  |       |        |                  |   |          |  |           |       |                   |   |       |  |   |       
|                                                                                   |  |       |         |                  |   |           |  |           |        |                   |   |        |  |   |        
|Total                                                                              |  | $     | 327,281 |                  | $ | 111,744   |  | $         | 23,577 |                   | $ | 19,375 |  | $ | 172,585
|                                                                                   |  |       |         |                  |   |           |  |           |        |                   |   |        |  |   |        

---

|(1) | Amounts relate to contractual commitments to purchase $85,761,000 ($18,024,000 from a related party) of steel slabs and the remaining in other assorted other contractual
commitments.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Amounts represent the annual accrued interest on our $150,000,000 ten year 6.125% senior unsecured notes, which are due and payable in March 2014.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Amounts reflect the anticipated expenditures on environmental matters pursuant to a proposed remediation plan submitted to the California Department of Toxic Substances Control. See
discussion in Note 6 to the Financial Statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

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

Allowance for Doubtful Accounts: The Company has attempted to reserve for expected credit losses based on
past experience with similar accounts receivable and believes its reserves to be adequate. It is possible, however, that the accuracy of the Companys estimation process could be materially impacted as the composition of this pool of accounts
receivable changes over time. The Company continually reviews and refines the estimation process to make it as reactive to these changes as possible; however, it cannot guarantee that it will be able to accurately estimate credit losses on these
accounts receivable.

Environmental Reserve: The Company has engaged an environmental consultant to conduct a remedial investigation and develop a
remediation plan and remediation cost projections based upon that plan. Utilizing the remediation plan developed by the environmental consultant, the Company developed an estimate for future costs of the remediation plan. The total aggregate cost of
remediation is estimated to be approximately $1.8 million, which was accrued in 2002 and is included in the other accrued expenses in the September 30, 2006 consolidated balance sheet. The California Department of Toxic Substances Control
(DTSC) has not yet completed its review and approval of the Companys plan; however, preliminary discussions between the DTSC and the Company have not indicated the need for any significant changes to the remediation plan or to the
Companys estimate of related costs. The estimate of costs could change as a result of changes to the remediation plan required by the DTSC or unforeseen circumstances at the site.



10



---

Self-insurance Liability: The Company is self-insured for workers compensation. The accrued liability
associated with these programs is based on managements 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 the Companys insurance brokers and insurers, combined with managements judgments regarding a number of assumptions and factors, including the frequency and severity of claims, the
Companys claims development history, case jurisdiction, related legislation, and the Companys claim settlement practice. Significant judgment is required to estimate IBNR claims as parties have yet to assert such claims. If actual claim
trends, including the severity or frequency of claims, differ from managements estimates, the Companys financial results could be impacted.

Revenue Recognition: The Company recognizes revenue when products are shipped or delivered to the customer, depending on the terms of the sale. For products shipped FOB shipping point, revenue is recognized at the time of shipment
when title and risk of loss are transferred to customer. For products shipped FOB destination, revenue is recognized at the time of delivery. In certain cases, at the customers request, the Company will enter into bill and hold transactions
whereby title transfers to the customer, but the product does not ship until a specified later date. Revenue on such transactions is recognized when the product is ready for shipment, and only after all conditions set forth under Staff Accounting
Bulletin (SAB) No. 104 have been met.



11



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

The Company is exposed to market risks related to fluctuations in interest rates on its $110,000,000 floating interest rate bank facility. The Company does not currently use interest rate swaps or other types of derivative financial
instruments related to interest rates.

For fixed rate debt instruments such as the Companys 6.125% senior notes, changes in interest
rates generally affect the fair value of such debt instruments. For variable rate debt such as its bank facility, changes in interest rates generally do not affect the fair value of such debt, but does affect earnings and cash flow. The Company does
not have an obligation to repay its 6.125% senior notes prior to maturity in 2014 and, as a result, interest rate risk and changes in fair value should not have a significant impact on the Company. The Company believes that the interest rate on its
6.125% senior notes approximates the current rates available for similar types of financing and as a result the $150,000,000 carrying amount of the 6.125% senior notes approximates fair value. The carrying value of the floating rate credit facility
approximates fair value as the interest rate is variable and resets frequently. The credit facility bears interest at the Eurodollar rate or the prime rate, which were 5.875% (three months rate) (including margin) and 8.25%, respectively, at
September 30, 2006. The Company estimates that the average amount of debt outstanding under the facility for the fourth quarter of fiscal year 2006 will be approximately $20,000,000. Therefore, a one-percentage point increase in interest rates
would result in an increase in interest expense of $200,000 for the year.

The Company does not believe that the future market rate risk
related to its 6.125% senior notes and floating rate credit facility will have a material impact on its financial position, results of operations or liquidity.

The Companys daily average electrical demand is approximately 40 megawatts to operate production equipment in manufacturing its products. During 2005, the Company changed its electricity procurement strategy
from the direct access program whereby electricity customers can contract directly with energy providers for energy; and effective November 1, 2005, became a full-service bundled utility customer of Southern California Edison. Due to high
prices and continued regulatory charges related to the California electricity crisis in 2001, the Companys average electricity costs are expected to increase 3 cents per kwh during 2006, about a 30% increase from 2005. The Companys
electricity costs represented approximately 3.4% and 3.0% for 2006 and 3.0% and 2.4% for 2005, of its costs of goods sold for the three and nine months ended September 30, 2006 and 2005, respectively.

The Company generally utilizes a daily average of about 12,000 million British thermal units, or MMBTUs, of natural gas to produce its products. To
stabilize price volatility, the Company regularly uses a risk management approach to fix the price on portions of its 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 difference between the NYMEX price at Henry Hub, Louisiana and the price at the Southern border).

The Company currently has in place fixed priced purchase agreements for approximately 70% of its natural gas commodity requirements for
the fourth quarter of 2006, and approximately 80% of basis. The Company continues to monitor the near and long term price trends of natural gas and may enter into additional purchase agreements when the Company deems it appropriate or when
opportunities present themselves. Natural gas costs represented approximately 2.8% and 3.3% for 2006 and 2.8% and 2.5% for 2005, of its cost of goods sold for the three and nine months ended on September 30, 2006 and 2005, respectively.



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

For the period ending
September 30, 2006 (the Evaluation Date), the Company carried out an evaluation, under the supervision and with the participation of its management, including the President and Chief Executive Officer and the Chief Financial Officer
(the principal finance and accounting officer), of the effectiveness of the design and operation of its 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, the President and Chief Executive Officer and the Chief Financial Officer concluded that, as of September 30, 2006, the Companys disclosure controls and procedures were effective to ensure that information
required to be disclosed by the Company in the reports filed or submitted by the Company under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in the SECs rules and forms.

Additionally, the President and Chief Executive Officer and the Chief Financial Officer determined, as September 30, 2006, that there were no
changes in the Companys internal controls over financial reporting or in other factors that could significantly affect its internal controls over financial reporting.



12



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PART II

OTHER INFORMATION



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

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



|ITEM 4. | SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
|------- | -------------------------------------------------

In June 2006, draft resolutions were circulated to the shareholders of the Company seeking approval of a conversion of the 3,000 issued and outstanding shares of Class C preferred stock of the Company into 3,000 shares of the common stock
of the Company in a straight one to one conversion. The shareholders were further asked to approve an amendment to the Certificate of Incorporation of the Company to increase the authorized number of common shares from 2,000 to 5,000 to allow for
the conversion. The shareholders adopted resolutions approving both the conversion and the amendment to the Certificate of Incorporation pursuant to a unanimous written consent which became effective in July 2006. The amendment to the Certificate of
Incorporation was filed with the Delaware Secretary of State on July 25, 2006.



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



|(a) | 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.



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



| | (1) | Form 8-K filed on July 17, 2006
| | --- | -------------------------------

| |  | Item 2.02. Results of Operations and Financial Condition
| |  | --------------------------------------------------------

| |  | Use of Non-GAAP Financial Measures in Second Quarter 2006 Financial Results disclosed in Press Release
| |  | ------------------------------------------------------------------------------------------------------



| | (2) | Form 8-K filed on October 11, 2006
| | --- | ----------------------------------

| |  | Item 2.02. Results of Operations and Financial Condition
| |  | --------------------------------------------------------

| |  | Use of Non-GAAP Financial Measures in Third Quarter 2006 Financial Results disclosed in Press Release
| |  | -----------------------------------------------------------------------------------------------------



13



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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 27, 2006



CALIFORNIA STEEL INDUSTRIES, INC.By:

/s/ MASAKAZU KURUSHIMAMasakazu KurushimaPresident and Chief Executive Officer




14



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INDEX OF 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           |  | Certificate of Amendment to the Certificate of Incorporation filed July 24 , 2006, with the Delaware Secretary of State.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|              | 
|3.4           |  | Bylaws of the Registrant, as amended on July 16, 1999.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|              | 
|4.1           |  | Indenture, dated as of March 22, 2004, between the Registrant and U.S. Bank National Association, Trustee.(3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|              | 
|4.2           |  | Specimen Series A note  6.125% Senior Notes due 2014 (included in Exhibit 4.4).(3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|              | 
|4.3           |  | Shareholders Agreement, dated June 27, 1995, by and among Rio Doce Limited, Companhia Vale do Rio Doce, Kawasaki Steel Holdings (USA), Inc. and Kawasaki Steel
Corporation.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|10.1          |  | Call and Put Option Agreement dated October 14, 2004 between Arcelor (a company organized under the laws of the Luxembourg) and California Steel Industries, Inc.(4)                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|              | 
|10.2          |  | Waiver dated October 14, 2004 executed by California Steel Industries, Inc., in favor of Arcelor.(4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|              | 
|10.3          |  | 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)                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|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.
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|(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 March 31, 2004, as filed with the Securities and Exchange Commission on
April 28, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q, for the quarter ended September 30, 2004, as filed with the Securities and Exchange Commission
on October 27, 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.
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