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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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(Mark One)

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

For the quarterly period ended February 28, 2007

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 000-51307

CHAPARRAL STEEL COMPANY

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-2373478                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|300 Ward Road Midlothian, Texas                                |  | 76065                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(972) 775-8241

(Registrants telephone number, including area code)

Not Applicable

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):

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 ̈No  x

There were 46,819,527 shares of
common stock, $0.01 par value per share, outstanding on April 6, 2007.



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For purposes of this Quarterly Report, references to the Company,
we, us, our and Chaparral mean Chaparral Steel Company collectively with all of our subsidiaries.

FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements. All
statements other than statements of historical fact are forward-looking statements. Forward-looking statements may include the words may, will, estimate, intend, continue,
believe, expect, plan, or anticipate and other similar words. Such forward-looking statements may be contained in Managements Discussion and Analysis of Financial Condition and Results of
Operations, among other places. Forward-looking statements include statements concerning:



| |  |  | future results of operations;
| | - |  | -----------------------------



| |  |  | future cash flows and liquidity;
| | - |  | --------------------------------



| |  |  | future capital expenditures;
| | - |  | ----------------------------



| |  |  | competitive pressures and general economic and financial conditions;
| | - |  | --------------------------------------------------------------------



| |  |  | levels of construction activity;
| | - |  | --------------------------------



| |  |  | levels of import activity;
| | - |  | --------------------------



| |  |  | inclement weather;
| | - |  | ------------------



| |  |  | the occurrence of unanticipated equipment failures and plant outages;
| | - |  | ---------------------------------------------------------------------



| |  |  | cost and availability of raw materials, fuel and energy;
| | - |  | --------------------------------------------------------



| |  |  | environmental conditions and regulations; and
| | - |  | ---------------------------------------------



| |  |  | any assumptions underlying any of the foregoing.
| | - |  | ------------------------------------------------

Although we believe the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements. Our future
financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in this Quarterly Report. Each forward-looking statement
speaks only as of the date of the particular statement.



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INDEX

CHAPARRAL STEEL COMPANY AND SUBSIDIARIES



|                              |  |                                                                                                                    |  |     
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | ----
|                              |  |                                                                                                                    |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                                                                   
|                              |  |                                                                                                                   
|Item 1.                       |  | Financial Statements                                                                                               |  | 1   
|                              |  |                                                                                                                   
|                              |  | Report of Independent Registered Public Accounting Firm                                                            |  | 2   
|                              |  |                                                                                                                   
|                              |  | Consolidated Balance Sheets - February 28, 2007 and May 31, 2006                                                   |  | 3   
|                              |  |                                                                                                                   
|                              |  | Consolidated Statements of Operations - three months and nine months ended February 28, 2007 and February 28, 2006 |  | 4   
|                              |  |                                                                                                                   
|                              |  | Consolidated Statements of Cash Flows - nine months ended February 28, 2007 and February 28, 2006                  |  | 5   
|                              |  |                                                                                                                   
|                              |  | Consolidated Statement of Stockholders Equity - nine months ended February 28, 2007                               |  | 6   
|                              |  |                                                                                                                   
|                              |  | Notes to Consolidated Financial Statements                                                                         |  | 7   
|                              |  |                                                                                                                   
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                              |  | 25  
|                              |  |                                                                                                                   
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                         |  | 33  
|                              |  |                                                                                                                   
|Item 4.                       |  | Controls and Procedures                                                                                            |  | 34  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                   
|                              |  |                                                                                                                   
|Item 1.                       |  | Legal Proceedings                                                                                                  |  | 34  
|                              |  |                                                                                                                   
|Item 1A.                      |  | Risk Factors                                                                                                       |  | 34  
|                              |  |                                                                                                                   
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                        |  | 35  
|                              |  |                                                                                                                   
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                    |  | 35  
|                              |  |                                                                                                                   
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                |  | 35  
|                              |  |                                                                                                                   
|Item 5.                       |  | Other Information                                                                                                  |  | 35  
|                              |  |                                                                                                                   
|Item 6.                       |  | Exhibits                                                                                                           |  | 36  
|                              |  |                                                                                                                   
|                              |  | Signatures                                                                                                         |  | 40  



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PART I. FINANCIAL INFORMATION



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



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Chaparral Steel Company

We have reviewed
the accompanying consolidated balance sheet of Chaparral Steel Company and subsidiaries as of February 28, 2007, the related consolidated statements of operations for the three-month and nine-month periods ended February 28, 2007 and 2006,
the related consolidated statements of cash flows for the nine-month periods ended February 28, 2007 and 2006 and the related consolidated statement of stockholders equity for the nine-month period ended February 28, 2007. These
financial statements are the responsibility of the Companys management.

We conducted our review in accordance with the standards of
the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to
the consolidated interim financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Chaparral Steel Company and subsidiaries as of May 31, 2006, and the
related consolidated statements of operations, stockholders equity, and cash flows for the year then ended (not presented herein), and in our report dated July 19, 2006, we expressed an unqualified opinion on those consolidated financial
statements. On September 1, 2006, the Company distributed a 100% common stock dividend resulting in a revision of the May 31, 2006 consolidated balance sheet. We have not audited the revised consolidated balance sheet reflecting its
revision for the stock dividend.

/s/ Ernst & Young LLP

Dallas, Texas

April 10, 2007



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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)



|                                           |  |                  |           |   |             |   |           |  
|------------------------------------------ |  | ---------------- | --------- | - | ----------- | - | --------- | -
|                                           |  | February 28,2007 |           |   | May 31,2006 |  
|Assets                                     |  |                  |           |   |             |   |           |  
|Current assets:                            |  |                  |           |   |             |   |           |  
|Cash and cash equivalents                  |  | $                | 48,650    |   |             | $ | 42,583    |  
|Short-term investments                     |  |                  | 316,897   |   |             |   | 164,000   |  
|Accounts receivable                        |  |                  | 182,876   |   |             |   | 159,721   |  
|Inventories                                |  |                  | 189,541   |   |             |   | 159,803   |  
|Prepaid expenses                           |  |                  | 12,236    |   |             |   | 7,465     |  
|                                           |  |                  |           |   |             |   |           |  
|Total current assets                       |  |                  | 750,200   |   |             |   | 533,572   |  
|                                           |  |                  |           |   |             |   |           |  
|Other assets:                              |  |                  |           |   |             |   |           |  
|Goodwill                                   |  |                  | 85,166    |   |             |   | 85,166    |  
|Investments and deferred charges           |  |                  | 17,982    |   |             |   | 16,807    |  
|                                           |  |                  |           |   |             |   |           |  
|                                           |  |                  | 103,148   |   |             |   | 101,973   |  
|                                           |  |                  |           |   |             |   |           |  
|Property, plant and equipment:             |  |                  |           |   |             |   |           |  
|Land and land improvements                 |  |                  | 96,925    |   |             |   | 96,926    |  
|Buildings                                  |  |                  | 56,477    |   |             |   | 55,570    |  
|Machinery and equipment                    |  |                  | 1,038,001 |   |             |   | 1,032,697 |  
|Construction in progress                   |  |                  | 34,257    |   |             |   | 28,867    |  
|                                           |  |                  |           |   |             |   |           |  
|                                           |  |                  | 1,225,660 |   |             |   | 1,214,060 |  
|Less depreciation                          |  |                  | 652,638   |   |             |   | 620,083   |  
|                                           |  |                  |           |   |             |   |           |  
|                                           |  |                  | 573,022   |   |             |   | 593,977   |  
|                                           |  |                  |           |   |             |   |           |  
|                                           |  | $                | 1,426,370 |   |             | $ | 1,229,522 |  
|                                           |  |                  |           |   |             |   |           |  
|Liabilities and Stockholders Equity       |  |                  |           |   |             |   |           |  
|Current liabilities:                       |  |                  |           |   |             |   |           |  
|Trade accounts payable                     |  | $                | 84,743    |   |             | $ | 49,979    |  
|Accrued wages, taxes and other liabilities |  |                  | 42,340    |   |             |   | 55,392    |  
|                                           |  |                  |           |   |             |   |           |  
|Total current liabilities                  |  |                  | 127,083   |   |             |   | 105,371   |  
|                                           |  |                  |           |   |             |   |           |  
|Deferred income taxes and other credits    |  |                  | 148,855   |   |             |   | 155,645   |  
|Long-term debt                             |  |                  | 300,000   |   |             |   | 300,000   |  
|Stockholders equity:                      |  |                  |           |   |             |   |           |  
|Common stock, $0.01 par value              |  |                  | 469       |   |             |   | 462       |  
|Additional paid-in capital                 |  |                  | 719,298   |   |             |   | 707,573   |  
|Retained earnings (deficit)                |  |                  | 140,260   |   |             |   | (39,529   | )
|Treasury stock                             |  |                  | (9,595    | ) |             |   |          |  
|                                           |  |                  |           |   |             |   |           |  
|Total stockholders equity                 |  |                  | 850,432   |   |             |   | 668,506   |  
|                                           |  |                  |           |   |             |   |           |  
|                                           |  | $                | 1,426,370 |   |             | $ | 1,229,522 |  
|                                           |  |                  |           |   |             |   |           |  

See notes to consolidated financial statements.



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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                    |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  
|----------------------------------- |  | ------------------------------ | ------- | - | ----------------------------- | - | ------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                    |  | Three months endedFebruary 28, |         |   | Nine months endedFebruary 28, |  
|                                    |  | 2007                           |         |   | 2006                          |   |         | 2007 |  |   | 2006      |  
|Net sales                           |  | $                              | 420,166 |   |                               | $ | 374,649 |      |  | $ | 1,234,192 |   |  | $ | 1,061,184 |  
|Costs and expenses (income)         |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  
|Cost of products sold               |  |                                | 306,945 |   |                               |   | 279,250 |      |  |   | 901,897   |   |  |   | 859,691   |  
|Selling, general and administrative |  |                                | 16,335  |   |                               |   | 17,714  |      |  |   | 41,083    |   |  |   | 34,637    |  
|Interest                            |  |                                | 7,931   |   |                               |   | 7,890   |      |  |   | 23,895    |   |  |   | 24,036    |  
|Other income, net                   |  |                                | (4,464  | ) |                               |   | (4,367  | )    |  |   | (15,693   | ) |  |   | (9,760    | )
|                                    |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  
|                                    |  |                                | 326,747 |   |                               |   | 300,487 |      |  |   | 951,182   |   |  |   | 908,604   |  
|                                    |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  
|Income before income taxes          |  |                                | 93,419  |   |                               |   | 74,162  |      |  |   | 283,010   |   |  |   | 152,580   |  
|Income taxes                        |  |                                | 30,884  |   |                               |   | 24,918  |      |  |   | 93,921    |   |  |   | 51,582    |  
|                                    |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  
|Net income                          |  | $                              | 62,535  |   |                               | $ | 49,244  |      |  | $ | 189,089   |   |  | $ | 100,998   |  
|                                    |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  
|Earnings per share:                 |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  
|Basic                               |  | $                              | 1.34    |   |                               | $ | 1.07    |      |  | $ | 4.07      |   |  | $ | 2.21      |  
|                                    |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  
|Diluted                             |  | $                              | 1.29    |   |                               | $ | 1.03    |      |  | $ | 3.92      |   |  | $ | 2.15      |  
|                                    |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  
|Average shares outstanding:         |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  
|Basic                               |  |                                | 46,554  |   |                               |   | 45,824  |      |  |   | 46,421    |   |  |   | 45,752    |  
|                                    |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  
|Diluted                             |  |                                | 48,328  |   |                               |   | 47,704  |      |  |   | 48,251    |   |  |   | 47,029    |  
|                                    |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  
|Cash dividends per share            |  | $                              | 0.10    |   |                               | $ |        |      |  | $ | 0.20      |   |  | $ |          |  
|                                    |  |                                |         |   |                               |   |         |      |  |   |           |   |  |   |           |  

See notes to consolidated financial statements.



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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                 |  |                               |             |   |      |   |            |  
|-------------------------------------------------------------------------------- |  | ----------------------------- | ----------- | - | ---- | - | ---------- | -
|                                                                                 |  | Nine months endedFebruary 28, |            
|                                                                                 |  | 2007                          |             |   | 2006 |  
|Operating activities:                                                            |  |                               |             |   |      |   |            |  
|Net income                                                                       |  | $                             | 189,089     |   |      | $ | 100,998    |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                               |             |   |      |   |            |  
|Depreciation                                                                     |  |                               | 35,920      |   |      |   | 37,212     |  
|Deferred income taxes                                                            |  |                               | (8,846      | ) |      |   | 260        |  
|Stock-based compensation                                                         |  |                               | 2,559       |   |      |   | 259        |  
|Other  net                                                                      |  |                               | (357        | ) |      |   | 1,114      |  
|Changes in operating assets and liabilities                                      |  |                               |             |   |      |   |            |  
|Accounts receivable                                                              |  |                               | (23,154     | ) |      |   | (17,487    | )
|Inventories                                                                      |  |                               | (29,737     | ) |      |   | 66,595     |  
|Prepaid expenses                                                                 |  |                               | (3,392      | ) |      |   | (966       | )
|Accounts payable                                                                 |  |                               | 34,765      |   |      |   | (12,030    | )
|Accrued wages, taxes and other liabilities                                       |  |                               | (12,000     | ) |      |   | 36,186     |  
|Other credits                                                                    |  |                               | 598         |   |      |   | 853        |  
|Receivable from or payable to TXI                                                |  |                               |            |   |      |   | (10,286    | )
|                                                                                 |  |                               |             |   |      |   |            |  
|Net cash provided by operating activities                                        |  |                               | 185,445     |   |      |   | 202,708    |  
|                                                                                 |  |                               |             |   |      |   |            |  
|Investing activities:                                                            |  |                               |             |   |      |   |            |  
|Capital expenditures                                                             |  |                               | (15,154     | ) |      |   | (11,937    | )
|Purchases of short-term investments                                              |  |                               | (10,453,808 | ) |      |   | (1,426,735 | )
|Sales of short-term investments                                                  |  |                               | 10,300,910  |   |      |   | 1,320,520  |  
|Other  net                                                                      |  |                               | (630        | ) |      |   | (570       | )
|                                                                                 |  |                               |             |   |      |   |            |  
|Net cash used by investing activities                                            |  |                               | (168,682    | ) |      |   | (118,722   | )
|                                                                                 |  |                               |             |   |      |   |            |  
|Financing activities:                                                            |  |                               |             |   |      |   |            |  
|Long-term borrowings                                                             |  |                               |            |   |      |   | 350,000    |  
|Debt retirements                                                                 |  |                               |            |   |      |   | (50,000    | )
|Debt issuance costs                                                              |  |                               |            |   |      |   | (9,500     | )
|Dividend paid to Texas Industries, Inc.                                          |  |                               |            |   |      |   | (341,139   | )
|Issuance of common stock                                                         |  |                               | 3,191       |   |      |   | 1,090      |  
|Tax benefits from exercise of stock options                                      |  |                               | 4,959       |   |      |   | 2,337      |  
|Common dividends paid                                                            |  |                               | (9,300      | ) |      |   |           |  
|Acquisitions of treasury stock                                                   |  |                               | (9,546      | ) |      |   |           |  
|                                                                                 |  |                               |             |   |      |   |            |  
|Net cash used by financing activities                                            |  |                               | (10,696     | ) |      |   | (47,212    | )
|                                                                                 |  |                               |             |   |      |   |            |  
|Increase in cash and cash equivalents                                            |  |                               | 6,067       |   |      |   | 36,774     |  
|Cash and cash equivalents at beginning of period                                 |  |                               | 42,583      |   |      |   | 9,287      |  
|                                                                                 |  |                               |             |   |      |   |            |  
|Cash and cash equivalents at end of period                                       |  | $                             | 48,650      |   |      | $ | 46,061     |  
|                                                                                 |  |                               |             |   |      |   |            |  

See notes to consolidated financial statements.



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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(In thousands, except per share data)

(Unaudited)



|                                                           |  |              |     |                            |   |         |                             |  |   |                |   |  |                            |        |   |  |   |         |  
|---------------------------------------------------------- |  | ------------ | --- | -------------------------- | - | ------- | --------------------------- |  | - | -------------- | - |  | -------------------------- | ------ | - |  | - | ------- | -
|                                                           |  | Common Stock |     | Additional Paid-in Capital |   |         | Retained Earnings (Deficit) |  |   | Treasury Stock |   |  | Total Stockholders Equity |       
|May 31, 2006, as previously reported                       |  | $            | 231 |                            | $ | 707,804 |                             |  | $ | (39,529        | ) |  | $                          |       |   |  | $ | 668,506 |  
|Adjustment for the 100% stock dividend                     |  |              | 231 |                            |   | (231    | )                           |  |   |               |   |  |                            |       |   |  |   |        |  
|                                                           |  |              |     |                            |   |         |                             |  |   |                |   |  |                            |        |   |  |   |         |  
|May 31, 2006, as adjusted                                  |  |              | 462 |                            |   | 707,573 |                             |  |   | (39,529        | ) |  |                            |       |   |  |   | 668,506 |  
|Net income                                                 |  |              |    |                            |   |        |                             |  |   | 189,089        |   |  |                            |       |   |  |   | 189,089 |  
|Adjustment of prior contribution by Texas Industries, Inc. |  |              |    |                            |   | 1,053   |                             |  |   |               |   |  |                            |       |   |  |   | 1,053   |  
|Stock-based compensation                                   |  |              |    |                            |   | 2,400   |                             |  |   |               |   |  |                            |       |   |  |   | 2,400   |  
|Stock award issued                                         |  |              |    |                            |   | 80      |                             |  |   |               |   |  |                            |       |   |  |   | 80      |  
|Issuance of common stock for options                       |  |              | 7   |                            |   | 3,233   |                             |  |   |               |   |  |                            | (49    | ) |  |   | 3,191   |  
|Tax benefit from exercise of stock                         |  |              |    |                            |   | 4,959   |                             |  |   |               |   |  |                            |       |   |  |   | 4,959   |  
|Common dividends paid-$0.10 per share                      |  |              |    |                            |   |        |                             |  |   | (9,300         | ) |  |                            |       |   |  |   | (9,300  | )
|Acquisitions of treasury stock                             |  |              |    |                            |   |        |                             |  |   |               |   |  |                            | (9,546 | ) |  |   | (9,546  | )
|                                                           |  |              |     |                            |   |         |                             |  |   |                |   |  |                            |        |   |  |   |         |  
|February 28, 2007                                          |  | $            | 469 |                            | $ | 719,298 |                             |  | $ | 140,260        |   |  | $                          | (9,595 | ) |  | $ | 850,432 |  
|                                                           |  |              |     |                            |   |         |                             |  |   |                |   |  |                            |        |   |  |   |         |  

See notes to consolidated financial statements.



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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | Description of Business and Basis of Presentation
|-- | -------------------------------------------------

Chaparral Steel Company and its subsidiaries (the Company) is a leading supplier of structural steel and steel bar products through a single business segment. The Company produces and
sells structural steel, piling products, special bar quality products, merchant bar quality rounds, reinforcing bar and channels from facilities located in Texas and Virginia. Structural steel products include wide flange beams, piling products,
channels and other shapes. Steel bar products include specialty bar products and, to a lesser extent, reinforcing bar. The Company sells to steel service centers and steel fabricators for use in the construction industry, as well as to cold
finishers, forgers and original equipment manufacturers for use in the railroad, defense, automotive, manufactured housing and energy industries. The Companys products are marketed throughout the United States, Canada and Mexico, and to a
limited extent in Europe. All of the Companys long-lived assets are located in the United States.

On July 29,
2005, Texas Industries, Inc. and its subsidiaries (TXI) completed the spin-off of its steel business to TXI stockholders in the form of a pro-rata, tax-free dividend of one share of the Companys common stock for each share of TXI
stock owned on July 20, 2005. Although pursuant to the Companys separation and distribution agreement with TXI and certain ancillary agreements, TXI has agreed to indemnify the Company against certain liabilities and the Company has
agreed to indemnify TXI against certain liabilities, TXI has no further ownership interest in the Company and the Company has no ownership interest in TXI. In addition, the Company is not a guarantor of any of TXIs indebtedness and TXI is not
a guarantor of any of the Companys indebtedness. The Companys relationship with TXI is now governed by the separation and distribution agreement and the ancillary agreements described in that agreement. The terms of the agreements are
more fully described in Note 9 Legal Proceedings and Contingent Liabilities. At various times, items of intercompany indebtedness were settled by and among the Company and the Companys subsidiaries and TXI and its subsidiaries.
These intercompany accounts were settled through offsets, contributions of such indebtedness to the Companys capital and other non-cash transfers. During the nine months ended February 28, 2007, an adjustment of $1.1 million was recorded
increasing the previous contributions to the Companys capital by TXI.

For all periods prior to the spin-off, the
Companys costs include the allocation of certain corporate expenses from TXI. TXIs corporate expenses have been allocated to the Company based on either the percentage of time employees spent performing services for the Company or
specifically identified costs incurred by TXI for the Company. Management believes that the allocations were made on a reasonable basis. However, the consolidated financial statements for periods prior to the spin off may not necessarily reflect the
financial position, results of operations and cash flows of the Company in the future, nor is it practical for management to estimate what the financial position, results of operations or cash flows would have been if the Company had been an
independent, public company for the historical periods presented.

On July 12, 2006, the Companys board of
directors approved a stock split effected in the form of a 100% common stock dividend which was distributed on September 1, 2006 to stockholders of record on August 15, 2006. The historical share and per share amounts have been
retroactively adjusted to reflect the stock dividend for all periods presented.

The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair
statement of the results for the interim periods presented have been included. Operating results for the nine-month period ended February 28, 2007, are not necessarily indicative of the results that may be expected for the year ending
May 31, 2007. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys Annual Report on Form 10-K for the year ended May 31, 2006.



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|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

Principles of Consolidation.The accompanying consolidated financial statements include the accounts of Chaparral Steel Company and all subsidiaries. Certain amounts in the prior year financial statements have
been reclassified to conform to the current period presentation.

Estimates.The preparation of financial statements
and accompanying notes in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates.

Fair Value of Financial Instruments.The estimated fair value of each class of financial instruments as of February 28, 2007
approximates its carrying value except for the Senior Notes having a fixed interest rate at February 28, 2007. The fair value of the Senior Notes at February 28, 2007, estimated based on quoted market prices, was $336.8 million compared to
the carrying amount of $300.0 million.

Cash Equivalents. Investments with maturities of less than 90 days when
purchased are classified as cash equivalents and consist primarily of money market funds and investment grade commercial paper issued by major corporations and financial institutions.

Short-term Investments.Short-term investments consist of Auction Rate Securities (ARS). At February 28, 2007,
these ARS have remaining stated maturities which range from 11 to 35 years, but have their interest rates reset at predetermined intervals, typically less than 30 days, through an auction process. The Company invests in high credit quality
instruments of political subdivisions of states with an active resale market to ensure liquidity and the ability to readily convert these investments into cash to fund current operations or satisfy other cash requirements as needed. Accordingly, the
Company classified all these securities as available-for-sale and as current assets in the accompanying consolidated balance sheet as of February 28, 2007. The ARS are stated at cost which approximates fair value based on market quotes. Net
unrealized gains and losses, net of deferred taxes, have not been significant. The Company limits the amount of credit exposure to any one issuer. The Company expects that the majority of its short-term investments will be sold within one year,
regardless of legal maturity date. Purchases and sales activity of ARS are presented as cash flows from investing activities in the accompanying consolidated statements of cash flows.

Accounts Receivable.Management evaluates the ability to collect accounts receivable based on a combination of factors. A reserve
for doubtful accounts is maintained based on historical default rates and current economic trends. The reserve is increased if it is anticipated that a specific customer will be unable to make required payments. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of customers in the Companys customer base and their dispersion across geographical areas.

Environmental Liabilities. The Company is subject to environmental laws and regulations established by federal, state and local authorities and makes provision for the estimated costs
related to compliance when it is probable that a reasonably estimable liability has been incurred.

Legal
Contingencies. The Company and its subsidiaries are defendants in lawsuits which arose in the normal course of business, and make provision for the estimated loss from any claim or legal proceeding when it is probable that a reasonably estimable
liability has been incurred.

Long-lived Assets. Management reviews long-lived assets for impairment whenever
changes in circumstances indicate that the carrying amount of the assets may not be recoverable and would record an impairment charge if necessary. Such evaluations compare the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset and are significantly impacted by estimates of future prices for the Companys products, capital needs, economic trends and other factors. All of the Companys long-lived assets are located in the
United States.

Property, plant and equipment is recorded at cost. Provisions for depreciation are computed generally using
the straight-line method. The Company assigns each fixed asset a useful life generally ranging from 5 to 7 years for mobile and other equipment, 10 to 20 years for machinery and equipment and 20 to 40 years for buildings and land improvements.
Maintenance and repairs are charged to expense as incurred. Costs incurred for scheduled shut-



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downs to refurbish facilities are amortized over the benefited period, typically 12 months. Such deferred amounts are included in prepaid expenses on the
accompanying consolidated balance sheets and amounted to $2.3 million at February 28, 2007 and $3.4 million at May 31, 2006.

Goodwill.Management tests goodwill for impairment at least annually. If the carrying amount of the goodwill exceeds its fair value, an impairment loss is recognized. In applying a fair-value-based test,
estimates are made of the expected future cash flows to be derived from the applicable reporting unit. Similar to the review for impairment of other long-lived assets, the resulting fair value determination is significantly impacted by estimates of
future prices for the Companys products, capital needs, economic trends and other factors. At May 31, 2006, the fair value of the Companys goodwill on the accompanying consolidated balance sheet exceeded its carrying value of $85.2
million.

Investments and Deferred Charges.Investments are composed primarily of life insurance contracts that may
be used to fund certain Company benefit agreements. The contracts, recorded at their net cash surrender value, totaled $10.5 million at February 28, 2007 and $8.3 million at May 31, 2006. Deferred charges are composed primarily of debt
issuance costs that totaled $7.5 million at February 28, 2007 and $8.5 million at May 31, 2006. The costs are associated with various debt issues and amortized over the term of the related debt.

Other Credits.Other credits of $14.5 million at February 28, 2007 and $13.8 million at May 31, 2006 are composed
primarily of liabilities related to the Companys retirement plans, asset retirement obligations and deferred compensation agreements.

Asset Retirement Obligations. Changes in asset retirement obligations are as follows (in thousands):



|                               |  |                                |       |   |      |   |     |  
|------------------------------ |  | ------------------------------ | ----- | - | ---- | - | --- | -
|                               |  | Nine months ended February 28, |      
|                               |  | 2007                           |       |   | 2006 |  
|Balance at beginning of period |  | $                              | 1,040 |   |      | $ | 566 |  
|Accretion expense              |  |                                | 90    |   |      |   | 50  |  
|Settlements                    |  |                                | (46   | ) |      |   | (70 | )
|                               |  |                                |       |   |      |   |     |  
|Balance at end of period       |  | $                              | 1,084 |   |      | $ | 546 |  
|                               |  |                                |       |   |      |   |     |  

Net Sales. The Company sells products to a highly diversified customer base
representing various steel consuming markets. A significant portion of the Companys sales are to steel service centers, fabricators and processors. These customers typically act as intermediaries between steel producers and various end-user
manufacturers that require further processing or inventory programs. The Company recognizes revenue when the goods are shipped and title and risk of loss transfer to the customer (FOB shipping point). The Company typically includes delivery fees in
the amount it bills customers to the extent needed to recover the Companys cost of freight and delivery. Net sales from other products were generated from the Companys metals separation operation.

The following table summarizes the Companys net sales by product line (in thousands):



|                 |  |                                 |         |                                |   |         |  |      |           |  |   |          
|---------------- |  | ------------------------------- | ------- | ------------------------------ | - | ------- |  | ---- | --------- |  | - | ---------
|                 |  | Three months ended February 28, |         | Nine months ended February 28,
|                 |  | 2007                            |         | 2006                           |   | 2007    |  | 2006
|Net sales        |  |                                 |         |                                |   |         |  |      |           |  |   |          
|Structural mills |  | $                               | 331,807 |                                | $ | 283,905 |  | $    | 959,383   |  | $ | 793,474  
|Bar mill         |  |                                 | 53,532  |                                |   | 59,988  |  |      | 166,701   |  |   | 179,159  
|Other products   |  |                                 | 12,465  |                                |   | 10,033  |  |      | 41,563    |  |   | 27,731   
|Delivery fees    |  |                                 | 22,362  |                                |   | 20,723  |  |      | 66,545    |  |   | 60,820   
|                 |  |                                 |         |                                |   |         |  |      |           |  |   |          
|                 |  | $                               | 420,166 |                                | $ | 374,649 |  | $    | 1,234,192 |  | $ | 1,061,184
|                 |  |                                 |         |                                |   |         |  |      |           |  |   |          

Other Income. Interest income was $3.3 million and $1.3 million in the
three-month periods ended February 28, 2007 and 2006, respectively and $8.7 million and $1.9 million in the nine-month periods ended



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February 28, 2007 and 2006, respectively. Other income in the nine-month period ended February 28, 2007 includes $4.1 million of insurance recovery
from a business interruption claim stemming from an outage of the rolling mill at our Virginia facility that occurred during the three months ended August 31, 2006

Income Taxes. The Company uses the liability method of recognizing and classifying deferred income taxes. The Company and its subsidiaries were included in the consolidated income tax
returns of TXI for periods prior to the spin-off and will file stand alone returns for subsequent periods. However, the provision for income taxes for the periods presented has been determined as if the Company had filed separate tax returns. The
Company provides valuation allowances to reduce deferred tax assets to amounts that will more likely than not be realized.

Earnings Per Share (EPS). Basic EPS is computed by adjusting net income for the participation in earnings of unvested restricted shares outstanding, then dividing by the weighted-average number of common shares
outstanding during the period including contingently issuable shares and excluding outstanding unvested restricted shares. Contingently issuable shares relate to former deferred compensation agreements in which directors elected to defer annual and
meeting fees. During the nine months ended February 28, 2007, the Company issued 674,540 shares of common stock as a result of the exercise of stock options, 9,666 shares of common stock as a result of non-employee director restricted stock
awards and 2,530 shares of common stock as a result of an employee stock award and acquired 214,903 shares of common stock. Diluted EPS adjusts net income and the outstanding shares for the dilutive effect of stock options and other equity-based
awards.



|                                                     |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|---------------------------------------------------- |  | ------------------------------ | ------ | - | ----------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                     |  | Three months endedFebruary 28, |        |   | Nine months endedFebruary 28, |  
|In thousands except per share data                   |  | 2007                           |        |   | 2006                          |   |        | 2007 |  |   | 2006    |  
|Basic earnings:                                      |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Net income                                           |  | $                              | 62,535 |   |                               | $ | 49,244 |      |  | $ | 189,089 |   |  | $ | 100,998 |  
|Unvested restricted share participation              |  |                                | (35    | ) |                               |   | (17    | )    |  |   | (167    | ) |  |   | (13     | )
|                                                     |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Basic income                                         |  | $                              | 62,500 |   |                               | $ | 49,227 |      |  | $ | 188,922 |   |  | $ | 100,985 |  
|                                                     |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Dilutive earnings:                                   |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Net income                                           |  | $                              | 62,535 |   |                               | $ | 49,244 |      |  | $ | 189,089 |   |  | $ | 100,998 |  
|Unvested restricted share participation              |  |                                | (34    | ) |                               |   | (17    | )    |  |   | (161    | ) |  |   | (13     | )
|                                                     |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Basic income                                         |  | $                              | 62,501 |   |                               | $ | 49,227 |      |  | $ | 188,928 |   |  | $ | 100,985 |  
|                                                     |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Shares:                                              |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Weighted-average shares outstanding                  |  |                                | 46,473 |   |                               |   | 45,734 |      |  |   | 46,355  |   |  |   | 45,652  |  
|Contingently issuable shares                         |  |                                | 107    |   |                               |   | 106    |      |  |   | 107     |   |  |   | 106     |  
|Unvested restricted shares                           |  |                                | (26    | ) |                               |   | (16    | )    |  |   | (41     | ) |  |   | (6      | )
|                                                     |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Basic weighted-average shares                        |  |                                | 46,554 |   |                               |   | 45,824 |      |  |   | 46,421  |   |  |   | 45,752  |  
|Dilutive stock options and other equity-based awards |  |                                | 1,774  |   |                               |   | 1,880  |      |  |   | 1,830   |   |  |   | 1,277   |  
|                                                     |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Diluted weighted-average shares                      |  |                                | 48,328 |   |                               |   | 47,704 |      |  |   | 48,251  |   |  |   | 47,029  |  
|                                                     |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Net income:                                          |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Basic earnings per share                             |  | $                              | 1.34   |   |                               | $ | 1.07   |      |  | $ | 4.07    |   |  | $ | 2.21    |  
|                                                     |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  
|Diluted earnings per share                           |  | $                              | 1.29   |   |                               | $ | 1.03   |      |  | $ | 3.92    |   |  | $ | 2.15    |  
|                                                     |  |                                |        |   |                               |   |        |      |  |   |         |   |  |   |         |  

Stock-based Compensation.The Companys employees and non-employee
directors participate in stock compensation plans. The plans provide for the granting of incentive and non-qualified stock options, restricted stock and other equity-based incentive awards for officers, key employees and non-employee directors.

Prior to June 1, 2006, the Company accounted for employee and non-employee director stock options using the intrinsic
value method of accounting prescribed by APB Opinion (APB) No. 25, Accounting for Stock Issued to Employees, as allowed by Statement of Financial Accounting Standard (SFAS) No. 123, Accounting for
Stock-Based Compensation. Generally, no expense was recognized related to the Companys stock options because each options exercise price was set at the stocks fair market value on the date the option was granted.

Effective June 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based
Payments, using the modified prospective application method. Under this modified prospective



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method, compensation cost recognized for the three and nine month periods ended February 28, 2007 includes the applicable amounts of compensation cost
of stock-based payments granted prior to, but not vested as of June 1, 2006 based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123 and previously presented in pro forma footnote disclosures.
The Company uses the Black-Scholes-Merton valuation method to determine the fair value of stock options as of the grant date. During the nine months ended February 28, 2007, the fair value of options granted to the Companys employees
ranged from $20.69 to $23.16 based on assumptions for dividend yield ranging from 0.9% to 1.0%, volatility factors ranging from .509 to .535, risk-free interest rates ranging from 4.75% to 4.76% and expected life in years of 6.5. For restricted
stock awards, the Company uses the stock price as of the grant date to determine the fair value. The impact of recognizing compensation expense related to stock options using the fair value recognition provisions of SFAS 123(R) was $0.5 million (net
of tax benefit of $0.2 million) or $0.01 per common share for the three-month period ended February 28, 2007 and $1.4 million (net of tax benefit of $0.4 million) or $0.03 per common share for the nine-month period ended February 28, 2007.
Results for periods prior to June 1, 2006, have not been restated.

Total stock-based compensation expense, related to
the Companys stock options and non-employee director stock awards, recognized using the straight-line method over the requisite service period of the award was as follows (in thousands):



|                                    |  |                   |     |                  |   |      
|----------------------------------- |  | ----------------- | --- | ---------------- | - | -----
|                                    |  | ThreeMonths Ended |     | NineMonths Ended
|                                    |  | February 28, 2007
|Cost of products sold               |  | $                 | 245 |                  | $ | 591  
|Selling, general and administrative |  |                   | 608 |                  |   | 1,809
|                                    |  |                   |     |                  |   |      
|                                    |  | $                 | 853 |                  | $ | 2,400
|                                    |  |                   |     |                  |   |      

As of February 28, 2007, the total estimated future compensation cost related
to previous grants of stock options to be recognized in the statement of operations was $9.1 million over a weighted-average period of 23 months while $0.4 million remained to be recognized related to previous grants of restricted stock awards over
a weighted-average period of 5 months. In addition, the Company currently expects to recognize future compensation expense of $1.6 million related to the share portion of the new performance awards to be granted to the executive officers under the
2006 Plan (see Note 7 and 11).

Prior to adopting SFAS 123(R), the Company presented the tax benefits of deductions
resulting from the exercise of stock options as operating cash flows. SFAS 123(R) requires the cash flows resulting from excess tax benefits related to stock options be classified as a part of cash flows from financing activities. As a result of
adopting SFAS 123(R) effective June 1, 2006, $5.0 million of excess tax benefits have been recorded in the current period as financing cash flows.

For purposes of pro forma disclosures under SFAS 123 for the three-month and nine-month periods ended February 28, 2006, the estimated fair value of the stock options was assumed to be amortized to expense over
the stock options vesting periods. The pro forma effects of recognizing estimated compensation expense under the fair value method on net income and earnings per common share were as follows (in thousands, except per share data):



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|                                                                                             |  |                   |        |   |                  |   |         |  
|-------------------------------------------------------------------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------- | -
|                                                                                             |  | ThreeMonths Ended |        |   | NineMonths Ended |  
|                                                                                             |  | February 28, 2006 |       
|Net income                                                                                   |  |                   |        |   |                  |   |         |  
|As reported                                                                                  |  | $                 | 49,227 |   |                  | $ | 100,985 |  
|Stock-based compensation included in the determination of net income as reported, net of tax |  |                   | 121    |   |                  |   | 169     |  
|Fair value of stock-based compensation, net of tax                                           |  |                   | (298   | ) |                  |   | (953    | )
|                                                                                             |  |                   |        |   |                  |   |         |  
|Pro forma                                                                                    |  | $                 | 49,050 |   |                  | $ | 100,201 |  
|                                                                                             |  |                   |        |   |                  |   |         |  
|Net earnings per share-as reported:                                                          |  |                   |        |   |                  |   |         |  
|Basic                                                                                        |  | $                 | 1.07   |   |                  | $ | 2.21    |  
|Diluted                                                                                      |  |                   | 1.03   |   |                  |   | 2.15    |  
|Net earnings per share-pro forma:                                                            |  |                   |        |   |                  |   |         |  
|Basic                                                                                        |  |                   | 1.07   |   |                  |   | 2.19    |  
|Diluted                                                                                      |  |                   | 1.03   |   |                  |   | 2.13    |  

Recent Accounting Pronouncements. The Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes, in July 2006. The new rules will be effective for the Company in the fiscal year beginning June 1, 2007. The
Company is evaluating this interpretation, but does not presently anticipate its adoption will have a material impact on the Companys financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 will be effective as of June 1, 2007. The Company is currently evaluating the impact on the Companys financial
statements of adopting SFAS No. 157.

In September 2006, the FASB issued SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R), which requires employers to fully recognize the funded status of single-employer defined benefit
pension, retiree healthcare and other postretirement plans in their financial statements, recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are
not recognized as components of net periodic costs, measure defined benefit plan assets and obligations as of the date of the Companys fiscal year-end statement of financial position, and disclose in the notes to financial statements
additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. The requirement
of SFAS No. 158 to recognize the funded status of a benefit plan and the disclosure requirements is effective as of the end of the fiscal year ending May 31, 2007. The requirement to measure plan assets and benefit obligations as of the
date of the employers fiscal year-end statement of financial position will be effective for the fiscal year ending May 31, 2008. The Company is evaluating this interpretation, but does not presently anticipate its adoption will have
a material impact on the Companys financial statements.

In September 2006, the FASB issued FASB Staff Position AUG
AIR-1, Accounting for Planned Major Maintenance Activities which is effective for fiscal years beginning after December 15, 2006. This position statement eliminates the accrue-in-advance method of accounting for planned major
maintenance activities. The Company is evaluating this interpretation, but does not presently anticipate its adoption will have a material impact on the Companys financial statements.



|3. | Working Capital
|-- | ---------------

Working capital totaled $623.1 million at February 28, 2007 and $428.2 million at May 31, 2006.

Short-term investments were $316.9 million at February 28, 2007 and $164.0 million at May 31, 2006 and consisted of Auction Rate Securities, all of which had stated maturities of over 10 years but have their interest rates reset
at predetermined intervals, typically less than 30 days, through an auction process.



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Accounts receivable are presented net of allowances for doubtful receivables of $1.8
million at February 28, 2007 and May 31, 2006 and net of allowances for returns and allowances of $0.4 million at February 28, 2007 and May 31, 2006. Provisions for bad debts charged to expense were $0.3 million and $1.4 million
in the nine-month periods ended February 28, 2007 and 2006, respectively. Recoveries totaled $0.2 million in the nine-month period ended February 28, 2006. Amounts written off as uncollectible were $0.3 million and none for the nine-month
periods ended February 28, 2007 and 2006, respectively. The Company had no additional provisions for returns and allowances charged to sales in the nine-month periods ended February 28, 2007 and 2006, respectively. Accounts receivable at
February 28, 2007 includes a $3.3 million federal income tax claim.

Inventories consist of (in thousands):



|                  |  |                  |         |             |   |        
|----------------- |  | ---------------- | ------- | ----------- | - | -------
|                  |  | February 28,2007 |         | May 31,2006
|Finished products |  | $                | 57,143  |             | $ | 52,373 
|Work in process   |  |                  | 20,230  |             |   | 15,348 
|Raw materials     |  |                  | 26,296  |             |   | 16,952 
|Supplies          |  |                  | 85,872  |             |   | 75,130 
|                  |  |                  |         |             |   |        
|                  |  | $                | 189,541 |             | $ | 159,803
|                  |  |                  |         |             |   |        

Inventories, excluding supplies, are stated at cost (not in excess of market)
using the last-in, first-out (LIFO) method that results in better matching of costs and revenues than other methods. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory
levels and costs at that time. Accordingly, interim LIFO calculations are based on managements estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. If the average cost method
(which approximates current replacement cost) had been used, inventory values would have been higher by $61.7 million at February 28, 2007 and $51.5 million higher at May 31, 2006. Supplies primarily consist of rolls and molds, which are
used in the manufacturing processes, and are carried at average cost.

Effective June 1, 2006, the Company adopted
SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. This standard clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted material should be expensed as incurred and not
included in inventory. In addition, this standard requires that the allocation of fixed production overhead costs to inventory be based on the normal capacity of the production facilities. The adoption of this standard did not have a significant
effect on the Companys consolidated financial position or results of operations.

Accrued wages, taxes and other
liabilities consist of (in thousands):



|                             |  |                  |        |             |   |       
|---------------------------- |  | ---------------- | ------ | ----------- | - | ------
|                             |  | February 28,2007 |        | May 31,2006
|Employee wages and benefits  |  | $                | 28,982 |             | $ | 26,354
|Property taxes               |  |                  | 1,424  |             |   | 3,135 
|Current income taxes payable |  |                  | 1,880  |             |   | 6,695 
|Interest payable             |  |                  | 3,899  |             |   | 11,431
|Other liabilities            |  |                  | 6,155  |             |   | 7,777 
|                             |  |                  |        |             |   |       
|                             |  | $                | 42,340 |             | $ | 55,392
|                             |  |                  |        |             |   |       



|4. | Commitments
|-- | -----------

The Company has entered into an agreement to purchase a minimum monthly amount of processed gases at a base price adjusted quarterly based upon a percentage change in the producer price index. The gases are produced from a facility located
at the Companys Texas facility which is owned and operated by an independent third party. This agreement expires in August 2012. At February 28, 2007, the minimum monthly charge was approximately $0.4 million. The Company has entered into
a similar agreement to purchase processed gases for its Virginia facility with the same third party, which expires in December 2014. The agreement specifies that the Company will purchase a minimum monthly amount of processed gases at a base price
adjusted quarterly based upon a similar formula. At February 28, 2007, the minimum monthly charge was approximately $0.1 million. The Company believes that its minimum purchase requirements will be satisfied by its consumption of the products
in the normal course of its business.



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The Company has entered into an agreement to purchase a minimum monthly amount of mill
services at its Texas facility. This agreement expires in December 2014. At February 28, 2007, the minimum monthly charge was approximately $23,000. The Company has entered into a similar agreement to purchase a minimum monthly amount of mill
services for its Virginia facility. This agreement expires in June 2012. At February 28, 2007, the minimum monthly charge was approximately $0.4 million. The Company believes that its minimum purchase requirements will be satisfied by its
consumption of the products in the normal course of its business.

The Company has entered into agreements to purchase
minimum amounts of electricity and natural gas for its Texas and Virginia facilities. As of February 28, 2007, our remaining commitments under these agreements are through October 2007 for electricity in Texas, June 2007 for natural gas in
Texas and March 2007 for natural gas in Virginia. The Company believes its purchase requirements will be satisfied by its consumption of these energy sources in the normal course of its business.

The Company leases or rents certain mobile and other equipment, real estate and other items, which in the normal course of business may
be renewed or replaced by subsequent leases. Total expense for such obligations was $2.1 million and $1.3 million in the nine-month periods ended February 28, 2007 and 2006, respectively.

Future estimated payments under these agreements as of February 28, 2007 are as follows for the years ending February 28 as
noted (in thousands):



|                                       |  |       |         |      |   |        |  |      |        |      |   |        |  |           |        |  |   |       |  |   |      
|-------------------------------------- |  | ----- | ------- | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | --------- | ------ |  | - | ----- |  | - | -----
|                                       |  | Total |         | 2008 |   | 2009   |  | 2010 |        | 2011 |   | 2012   |  | After2012
|Processed gas supply contract          |  | $     | 34,831  |      | $ | 5,870  |  | $    | 5,870  |      | $ | 5,871  |  | $         | 5,870  |  | $ | 5,870 |  | $ | 5,480
|In-plant mill services                 |  |       | 20,231  |      |   | 4,786  |  |      | 4,785  |      |   | 4,785  |  |           | 4,786  |  |   | 284   |  |   | 805  
|Short-term energy purchase obligations |  |       | 41,508  |      |   | 41,508 |  |      |       |      |   |       |  |           |       |  |   |      |  |   |     
|Operating lease obligations            |  |       | 3,525   |      |   | 562    |  |      | 501    |      |   | 496    |  |           | 497    |  |   | 209   |  |   | 1,260
|                                       |  |       |         |      |   |        |  |      |        |      |   |        |  |           |        |  |   |       |  |   |      
|Total                                  |  | $     | 100,095 |      | $ | 52,726 |  | $    | 11,156 |      | $ | 11,152 |  | $         | 11,153 |  | $ | 6,363 |  | $ | 7,545
|                                       |  |       |         |      |   |        |  |      |        |      |   |        |  |           |        |  |   |       |  |   |      



|5. | Long-term Debt
|-- | --------------

Long-term debt is comprised of the following (in thousands):



|                                                |  |                  |         |             |   |        
|----------------------------------------------- |  | ---------------- | ------- | ----------- | - | -------
|                                                |  | February 28,2007 |         | May 31,2006
|Senior secured credit facility expiring in 2010 |  | $                |        |             | $ |       
|Senior notes due in 2013, interest rate 10.00%  |  |                  | 300,000 |             |   | 300,000
|                                                |  |                  |         |             |   |        
|                                                |  |                  | 300,000 |             |   | 300,000
|Less current maturities                         |  |                  |        |             |   |       
|                                                |  |                  |         |             |   |        
|                                                |  | $                | 300,000 |             | $ | 300,000
|                                                |  |                  |         |             |   |        



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On June 16, 2005, the Company entered into a senior secured revolving credit
facility (the Credit Facility) which provides up to $150.0 million of available borrowings. The Credit Facility includes a $25.0 million sub-limit for letters of credit of which $3.2 million was outstanding at February 28, 2007. Any
outstanding letters of credit are deducted from the borrowing availability under the Credit Facility. Amounts drawn under the Credit Facility bear interest either at the LIBOR rate plus a margin of 1.00% to 1.75%, or at a base rate (which will be
the higher of the federal funds rate plus 0.5% and the prime rate) plus a margin of up to 1%. The interest rate margins are subject to adjustments based on the Companys leverage ratio. The commitment fee calculated on the unused portion of the
Credit Facility ranges from 0.25% to 0.5% per year based on the Companys leverage ratio. The Credit Facility matures June 16, 2010 and may be terminated by the Company at any time. The Credit Facility is secured by security interests
in all of the Companys existing and future accounts and inventory, certain related personal property and in all of the equity interest in the Companys present and future domestic subsidiaries and 66% of the equity interest in the
Companys present and future foreign subsidiaries. The Credit Facility contains covenants restricting, among other things, prepayment or redemption of the Companys other debt, distributions, dividends, and repurchases of capital stock and
other equity interests, acquisitions and investments, indebtedness, liens and affiliate transactions. The Company is required to comply with certain financial tests and to maintain certain financial ratios, such as leverage and interest coverage
ratios. On April 10, 2007 at the Companys request, the Company and its lenders entered into the First Amendment to the Credit Facility (the Amendment) which reduced its borrowing capacity from $150.0 million to $75.0 million
and increased the sub-limit for letters of credit to $37.5 million. The terms of the Amendment are substantially identical to the Companys original Credit Facility. The amount borrowed under the Credit Facility will fluctuate based upon the
Companys cash flow and working capital needs.

In addition, on
July 6, 2005, the Company issued $300.0 million aggregate principal amount of 10% senior notes due July 15, 2013 in a private offering. On December 2, 2005, the Company completed the offer to exchange senior notes due 2013 (the
Senior Notes), which are registered under the Securities Act of 1933, as amended, for the outstanding 10% senior notes due 2013 that were issued in the private offering. The terms of the registered notes are substantially identical to
the Companys previously outstanding senior notes. The Senior Notes are unsecured and will effectively be subordinated in right of payment to all of the Companys existing and future senior secured debt, including borrowings under the
Companys Credit Facility. The indenture governing the Senior Notes contains covenants limiting the Companys ability and the ability of the Companys subsidiaries to, among other things, incur additional indebtedness, pay dividends
or make other distributions or repurchase or redeem stock, make investments, sell assets, incur liens, enter into agreements restricting the Companys subsidiaries ability to pay dividends, enter into transactions with affiliates and
consolidate, merge or sell all or substantially all of the Companys assets or the assets of its subsidiaries. Interest is due semi-annually on January 15thand July 15th. As of
February 28, 2007, the Company was in compliance with all loan covenants.

The Company used the net proceeds from
$50.0 million of borrowings under the Credit Facility and the $300.0 million of Senior Notes to pay a cash dividend of $341.1 million to Texas Industries, Inc. on July 6, 2005.

The amount of interest paid was $30.4 million and $19.2 million in the nine-month periods ended February 28, 2007 and 2006,
respectively. No interest was capitalized in either of the nine-month periods ended February 28, 2007 and 2006.



|6. | Stockholders Equity
|-- | --------------------

Common stock, as adjusted for the 100% stock dividend distributed on September 1, 2006, consists of (in thousands):



|                   |  |                  |  |            
|------------------ |  | ---------------- |  | -----------
|                   |  | February 28,2007 |  | May 31,2006
|Shares authorized  |  | 100,000          |  | 100,000    
|Shares outstanding |  | 46,681           |  | 46,209     



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Preferred stock consists of 10,000,000 authorized shares, $0.01 par value, none of which
have been issued. On October 11, 2006, the Companys board of directors approved a stock repurchase program authorizing the Company to repurchase up to $100 million of the Companys common stock. Prior to any repurchase, the board
must be advised and approve the terms of the proposed repurchase. The Company repurchased 213,800 shares of its common stock at a cost of $9.5 million and acquired 1,103 shares of its common stock from the issuance of stock options during the three
months ended February 28, 2007.

On October 11, 2006, the Companys board of directors initiated a quarterly
cash dividend of $0.10 per common share. Dividends of $9.3 million were paid to stockholders during the nine months ended February 28, 2007.



|7. | Stock Compensation Plans
|-- | ------------------------

On July 21, 2005, the Board of Directors and on July 22, 2005, TXI as the sole stockholder of the Company approved the Companys Amended and Restated 2005 Omnibus Equity Compensation Plan (the
2005 Plan) which provides for grants of stock-based awards, including non-qualified and incentive stock options, restricted stock, restricted stock units, performance shares, and performance units to non-employee directors, officers and
key employees of the Company. On August 29, 2006, the Companys stockholders ratified the 2005 Plan. The Chaparral Steel Company 2006 Omnibus Incentive Plan (the 2006 Plan), as approved by stockholders, provides for grants of
performance awards, annual incentive awards or a combination of such awards. Awards under the 2006 Plan for fiscal 2007 may be paid in cash, in shares of the common stock or both. Any shares of common stock used to settle awards will be issued under
the 2005 Plan as Other Stock-Based Awards and will count against the maximum number of shares that may be issued under the 2005 Plan. At February 28, 2007, a maximum of 6,712,084 shares of the Companys common stock is
available for issuance to participants under the 2005 plan.

During the nine-month period ended February 28, 2007,
executive officers and key employees were awarded options to purchase 180,301 shares of common stock. The options were granted at the weighted average market price of the common stock on the date of grant of $38.791 and $44.909. The term of the
options is ten years and the options vest in equal annual installments over five years.

A summary of Company stock option
transactions related to the Companys employees and non-employee directors for the nine-month period ended February 28, 2007, follows:



|                                                            |  |                     |   |  |                                |       |  
|----------------------------------------------------------- |  | ------------------- | - |  | ------------------------------ | ----- | -
|                                                            |  | Shares Under Option |   |  | Weighted- Average Option Price |      
|Options outstanding at May 31, 2006, as previously reported |  | 1,535,141           |   |  | $                              | 13.14 |  
|Adjustment for the 100% stock dividend                      |  | 1,535,141           |   |  |                                | (6.57 | )
|                                                            |  |                     |   |  |                                |       |  
|Options outstanding at May 31, 2006, as adjusted            |  | 3,070,282           |   |  |                                | 6.57  |  
|Granted                                                     |  | 180,301             |   |  |                                | 42.42 |  
|Exercised                                                   |  | (674,540            | ) |  |                                | 4.80  |  
|Cancelled                                                   |  | (34,400             | ) |  |                                | 6.35  |  
|                                                            |  |                     |   |  |                                |       |  
|Options outstanding at February 28, 2007                    |  | 2,541,643           |   |  | $                              | 9.59  |  
|                                                            |  |                     |   |  |                                |       |  
|Options exercisable at February 28, 2007                    |  | 320,336             |   |  | $                              | 7.30  |  
|                                                            |  |                     |   |  |                                |       |  

The term of the options is ten years and the options vest in equal annual
installments over five years. Outstanding options expire on various dates through January 12, 2017.

The following
table summarizes information about Company stock options held by the Companys employees and non-employee directors outstanding as of February 28, 2007:



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|                                         |  |                          |         |              |   |                 |  |   |        
|---------------------------------------- |  | ------------------------ | ------- | ------------ | - | --------------- |  | - | -------
|                                         |  | Range of Exercise Prices
|                                         |  | $2.675-$7.645            |         | $9.20-$15.18 |   | $38.791-$44.909
|Options outstanding:                     |  |                          |         |              |   |                 |  |   |        
|Shares outstanding                       |  |                          | 855,836 |              |   | 1,505,506       |  |   | 180,301
|Weighted-average remaining life in years |  |                          | 6.02    |              |   | 8.33            |  |   | 9.78   
|Weighted-average exercise price          |  | $                        | 2.90    |              | $ | 9.45            |  | $ | 42.42  
|Options exercisable:                     |  |                          |         |              |   |                 |  |   |        
|Shares exercisable                       |  |                          | 118,430 |              |   | 201,906         |  |   |       
|Weighted-average remaining life in years |  |                          | 5.31    |              |   | 8.37            |  |   |       
|Weighted-average exercise price          |  | $                        | 3.57    |              | $ | 9.49            |  | $ |       

As of February 28, 2007, the aggregate intrinsic value (the difference in the
closing market price of the Companys common stock of $49.83 and the exercise price to be paid by the optionee) of stock options outstanding was $102.3 million. The aggregate intrinsic value of exercisable stock options at that date was $13.6
million. During the nine-month period ended February 28, 2007, the total intrinsic value for options exercised (the difference in the market price of the Companys common stock on the exercise date and the price paid by the optionee to
exercise the option) was $27.1 million.

In addition, during the nine-month period ended February 28, 2007, the
Companys board of directors granted 9,666 shares of restricted stock to non-employee directors pursuant to the 2005 Plan, at the weighted market price of the common stock of $38.791 on date of grant. The Company recorded compensation expense
of $0.6 million related to restricted stock grants based on their vesting periods for the nine-month period ended February 28, 2007. As of February 28, 2007, 39,666 shares of restricted stock awarded to non-employee directors were
unvested.



|8. | Income Taxes
|-- | ------------

Income taxes for the interim periods have been included in the accompanying financial statements on the basis of an estimated annual rate of 33.2% for the three-month and nine-month periods ended February 28, 2007, respectively,
compared to an estimated annual tax rate of 33.8% for the three-month and nine-month periods ended February 28, 2006. The primary reason that these respective tax rates differ from the 35% statutory federal corporate rate is due to deduction
for qualified domestic production activities. The Company made income tax payments of $111.5 million and $36.1 million in the nine-month periods ended February 28, 2007 and 2006, respectively.

As of May 31, 2006, the Company has $689.9 million in Virginia state net operating loss carryforwards that begin to expire in 2020.
The Company also has Virginia state credits to offset future income tax liabilities of $41.9 million that begin to expire in 2018 and $10 million of credits that do not expire. The Company had net Virginia state deferred tax assets of $47.5 million
at May 31, 2006 and $51.9 million at May 31, 2005. Management believes it is more likely than not that this net state deferred tax asset will be unrealized. Therefore, a valuation allowance has been recorded to fully reserve the amount of
the net state deferred tax assets.



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|9. | Legal Proceedings and Contingent Liabilities
|-- | --------------------------------------------

The Company is subject to federal, state and local environmental laws and regulations concerning, among other matters, air emissions, furnace dust disposal, automobile shredder residue
(ASR) disposal and wastewater discharge. The Company believes it is in substantial compliance with applicable environmental laws and regulations; however, from time to time the Company receives claims from federal and state environmental
regulatory agencies and entities asserting that the Company is or may be in violation of certain environmental laws and regulations. The Company has received a Notice of Enforcement, dated February 5, 2007, from the Texas Commission on
Environmental Quality (the TCEQ). The Notice of Enforcement primarily alleges that the manner in which the Company has handled and disposed of ASR, which contains lead, does not comply with statutes and regulations applicable to the
management of waste from the beneficial recycling of ASR. Although the Company believes that it has complied with such statutes and regulations and is engaged in negotiations with the TCEQ to resolve these claims, the impact of the ultimate
resolution of these claims is not currently determinable or estimable. Based on its historical compliance and experience with environmental laws and regulations and the information currently available to it regarding the TCEQs allegations, the
Company believes that such claims will not have a material impact on its consolidated financial condition or future results of operations. However, changes in federal and state laws, regulations and requirements or discovery of currently unknown
conditions could require additional expenditures by the Company.

The Company and its subsidiaries are defendants in
lawsuits which arose in the normal course of business. In managements judgment the ultimate liability, if any, from such legal proceedings will not have a material effect on the consolidated financial position or results of operations of the
Company.

In connection with the Companys spin-off from TXI, the Company entered into a separation and distribution
agreement and a tax sharing and indemnification agreement with TXI. In these agreements, the Company has agreed to indemnify TXI and its related parties against, among other things, any liabilities arising out of the businesses, assets or
liabilities transferred to the Company and any taxes imposed on TXI in connection with the spin-off that result from the Companys breach of its covenants in the tax sharing and indemnification agreement. TXI has agreed to indemnify the Company
and its related parties against, among other things, any liabilities arising out of the businesses, assets or liabilities retained by TXI and any taxes imposed on the Company in connection with the spin-off that result from TXIs breach of its
covenants in the tax sharing and indemnification agreement.

The Company and TXI have made certain covenants to each other
in connection with the spin-off that prohibit the Company and TXI from taking certain actions. Pursuant to these covenants: (1) the Company and TXI will, for a minimum of two years after the distribution date, continue the active conduct of the
steel or cement business, respectively; (2) neither the Company nor TXI will repurchase its stock for two years following the distribution date of the spin-off except in certain circumstances permitted by the Internal Revenue Service (the
IRS); (3) neither the Company nor TXI will take any actions inconsistent with the representations made in the separation and distribution agreement or in connection with the issuance by tax counsel of its legal opinion with respect
to the spin-off; and (4) neither the Company nor TXI will take any other action that would result in or fail to take any action necessary to prevent any tax being imposed on the spin-off. Each of the Company and TXI may take actions
inconsistent with these covenants if it obtains an unqualified opinion of counsel or a private letter ruling from the IRS that such actions will not cause the spin-off to become taxable. The Company has satisfied all of the requirements of such
covenants applicable to the implementation of its stock repurchase program announced on October 11, 2006.



|10. | Retirement Plans
|--- | ----------------

The Companys employees participate in a defined contribution retirement plan. Prior to January 1, 2006, the Company contributed 2% of each employees eligible compensation and a variable contribution based on a predetermined
formula established annually. After December 31, 2005, the Company will contribute 100% of eligible contributions of up to 3% of employee compensation, and 50% of eligible contributions of the next 2% of employee compensation as defined by the
plan. The amount of retirement expense charged to costs and expenses for this plan was $2.7 million and $2.3 million in the nine-month periods ended February 28, 2007 and 2006.

On July 21, 2005, the Companys board of directors approved the Chaparral Steel Company financial security plan
(FSP) a non-qualified defined benefit plan providing death and retirement benefits to the Companys



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executive and key managerial employees who are invited and elect to participate. The plan is contributory but not funded. Participants elect the amount of
their base salary that is covered by the plan. Costs and associated assets and liabilities related to the Companys employee participation are included in the accompanying consolidated financial statements. Amounts payable to participants are
to be paid exclusively from the general assets of the Company and are otherwise unsecured. Life insurance contracts have been purchased that may be used to fund the FSP payments. These insurance contracts, recorded at their net cash surrender value,
totaled $10.5 million at February 28, 2007 and $8.3 million at May 31, 2006, and are included in investments on the accompanying consolidated balance sheets. The amount of FSP benefit expense and the projected FSP benefit obligation are
determined using assumptions as of the end of each fiscal year. The weighted-average discount rate used was 6% in the nine-month period ended February 28, 2007. Actuarial gains or losses are recognized when incurred. Prior to the spin-off, the
Companys executive and key managerial employees who were invited and elected to do so, participated in a series of TXI financial security plans which had terms and conditions similar to those of the FSP adopted by the Company.

As of February 28, 2007, the estimated future benefit payments pursuant to the FSP for each of the five succeeding years are $0.2
million, $0.4 million, $0.9 million, $1.0 million and $1.1 million and for the five-year period thereafter an aggregate of $6.5 million.

The amount of FSP benefit expense was as follows (in thousands):



|                          |  |                               |       |   |      |   |      |  
|------------------------- |  | ----------------------------- | ----- | - | ---- | - | ---- | -
|                          |  | Nine months endedFebruary 28, |      
|                          |  | 2007                          |       |   | 2006 |  
|Service cost              |  | $                             | 2,345 |   |      | $ | 667  |  
|Interest cost             |  |                               | 470   |   |      |   | 331  |  
|Recognized actuarial loss |  |                               | 691   |   |      |   |     |  
|Amortization of costs     |  |                               |      |   |      |   | 12   |  
|Participant deferrals     |  |                               | (221  | ) |      |   | (193 | )
|                          |  |                               |       |   |      |   |      |  
|                          |  | $                             | 3,285 |   |      | $ | 817  |  
|                          |  |                               |       |   |      |   |      |  



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|11. | Incentive Plans
|--- | ---------------

All personnel employed by the Company as of May 31 and not subject to production-based incentive or 2006 Plan awards share in the pretax income of the Company for the year then ended based on predetermined formulas. The duration of the
plan is one year. Certain executives are additionally covered under three-year plans with respect to fiscal years ending May 31, 2007 and 2008. In August 2006, the Companys executive officers relinquished their previous participation
under the three-year plans with respect to fiscal years ending May 31, 2007 and 2008 and will participate in new performance awards under the 2006 Plan (see Notes 2 and 7) with respect to the fiscal year ending May 31, 2007. The new
performance awards are payable in cash, shares of common stock or both and are being accrued over the respective vesting periods. New awards will be subject to annual approval by the Companys board of directors. Incentive compensation related
to these plans is included in selling, general and administrative expense and was $14.3 million and $11.2 million in the nine-month periods ended February 28, 2007 and 2006, respectively.



|12. | Condensed Consolidating Financial Information
|--- | ---------------------------------------------

On July 6, 2005, Chaparral Steel Company (the Parent Company) issued $300.0 million principal amount of its 10% senior notes due July 15, 2013. All of the Parent
Companys consolidated domestic subsidiaries have guaranteed the 10% senior notes. The guarantees are full and unconditional and are joint and several. There are no significant restrictions on the Parent Companys ability to obtain funds
from any of the guarantor subsidiaries in the form of a dividend or loan. Additionally, there are no significant restrictions on a guarantor subsidiarys ability to obtain funds from the Parent Company or its direct or indirect subsidiaries.

The following condensed consolidating balance sheets, condensed consolidating statements of operations and condensed
consolidating statements of cash flows are provided for the Parent Company and all guarantor subsidiaries. The information has been presented as if the Parent Company accounted for its ownership of the guarantor subsidiaries using the equity method
of accounting.



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|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|------------------------------------------------------------- |  | --------------------- | --------- | --------------------- | - | ------------------------- |  | ------------------ | - |  | ------------ | ---------- | - |  | - | ---------
|In thousands                                                  |  | ChaparralSteelCompany |           | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |  | EliminatingEntries |   |  | Consolidated
|Condensed consolidating balance sheet as of February 28, 2007 |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Cash and cash equivalents                                     |  | $                     | 31,129    |                       | $ | 17,521                    |  | $                  |  |  | $            |           |   |  | $ | 48,650   
|Short-term investments                                        |  |                       | 316,897   |                       |   |                          |  |                    |  |  |              |           |   |  |   | 316,897  
|Accounts receivable                                           |  |                       | 3,305     |                       |   | 179,571                   |  |                    |  |  |              |           |   |  |   | 182,876  
|Intercompany receivables                                      |  |                       |          |                       |   | 440,163                   |  |                    |  |  |              | (440,163   | ) |  |   |         
|Inventories                                                   |  |                       |          |                       |   | 189,541                   |  |                    |  |  |              |           |   |  |   | 189,541  
|Prepaid expenses                                              |  |                       | 5,891     |                       |   | 6,345                     |  |                    |  |  |              |           |   |  |   | 12,236   
|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Total current assets                                          |  |                       | 357,222   |                       |   | 833,141                   |  |                    |  |  |              | (440,163   | ) |  |   | 750,200  
|Goodwill                                                      |  |                       |          |                       |   | 85,166                    |  |                    |  |  |              |           |   |  |   | 85,166   
|Investments and deferred charges                              |  |                       | 17,982    |                       |   |                          |  |                    |  |  |              |           |   |  |   | 17,982   
|Investments in subsidiaries                                   |  |                       | 1,226,890 |                       |   |                          |  |                    |  |  |              | (1,226,890 | ) |  |   |         
|Property, plant and equipment - net                           |  |                       |           |                       |   | 573,022                   |  |                    |  |  |              |           |   |  |   | 573,022  
|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Total assets                                                  |  | $                     | 1,602,094 |                       | $ | 1,491,329                 |  | $                  |  |  | $            | (1,667,053 | ) |  | $ | 1,426,370
|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Trade accounts payable                                        |  | $                     | 4         |                       | $ | 84,739                    |  | $                  |  |  | $            |           |   |  | $ | 84,743   
|Intercompany payables                                         |  |                       | 440,163   |                       |   |                          |  |                    |  |  |              | (440,163   | ) |  |   |         
|Accrued wages, taxes and other liabilities                    |  |                       | 4,173     |                       |   | 38,167                    |  |                    |  |  |              |           |   |  |   | 42,340   
|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Total current liabilities                                     |  |                       | 444,340   |                       |   | 122,906                   |  |                    |  |  |              | (440,163   | ) |  |   | 127,083  
|Deferred income taxes and other credits                       |  |                       | 7,322     |                       |   | 141,533                   |  |                    |  |  |              |           |   |  |   | 148,855  
|Long-term debt                                                |  |                       | 300,000   |                       |   |                          |  |                    |  |  |              |           |   |  |   | 300,000  
|Stockholders equity                                          |  |                       | 850,432   |                       |   | 1,226,890                 |  |                    |  |  |              | (1,226,890 | ) |  |   | 850,432  
|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Total liabilities and stockholders equity                    |  | $                     | 1,602,094 |                       | $ | 1,491,329                 |  | $                  |  |  | $            | (1,667,053 | ) |  | $ | 1,426,370
|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Condensed consolidating balance sheet as of May 31, 2006      |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Cash and cash equivalents                                     |  | $                     | 35,939    |                       | $ | 6,644                     |  | $                  |  |  | $            |           |   |  | $ | 42,583   
|Short-term investments                                        |  |                       | 164,000   |                       |   |                          |  |                    |  |  |              |           |   |  |   | 164,000  
|Accounts receivable                                           |  |                       |          |                       |   | 159,721                   |  |                    |  |  |              |           |   |  |   | 159,721  
|Intercompany receivables                                      |  |                       |          |                       |   | 251,985                   |  |                    |  |  |              | (251,985   | ) |  |   |         
|Inventories                                                   |  |                       |          |                       |   | 159,803                   |  |                    |  |  |              |           |   |  |   | 159,803  
|Prepaid expenses                                              |  |                       | 173       |                       |   | 7,292                     |  |                    |  |  |              |           |   |  |   | 7,465    
|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Total current assets                                          |  |                       | 200,112   |                       |   | 585,445                   |  |                    |  |  |              | (251,985   | ) |  |   | 533,572  
|Goodwill                                                      |  |                       |          |                       |   | 85,166                    |  |                    |  |  |              |           |   |  |   | 85,166   
|Investments and deferred charges                              |  |                       | 16,807    |                       |   |                          |  |                    |  |  |              |           |   |  |   | 16,807   
|Investments in subsidiaries                                   |  |                       | 1,026,771 |                       |   |                          |  |                    |  |  |              | (1,026,771 | ) |  |   |         
|Property, plant and equipment - net                           |  |                       |          |                       |   | 593,977                   |  |                    |  |  |              |           |   |  |   | 593,977  
|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Total assets                                                  |  | $                     | 1,243,690 |                       | $ | 1,264,588                 |  | $                  |  |  | $            | (1,278,756 | ) |  | $ | 1,229,522
|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Trade accounts payable                                        |  | $                     | 179       |                       | $ | 49,800                    |  | $                  |  |  | $            |           |   |  | $ | 49,979   
|Intercompany payables                                         |  |                       | 251,985   |                       |   |                          |  |                    |  |  |              | (251,985   | ) |  |   |         
|Accrued wages, taxes and other liabilities                    |  |                       | 17,620    |                       |   | 37,772                    |  |                    |  |  |              |           |   |  |   | 55,392   
|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Total current liabilities                                     |  |                       | 269,784   |                       |   | 87,572                    |  |                    |  |  |              | (251,985   | ) |  |   | 105,371  
|Deferred income taxes and other credits                       |  |                       | 5,400     |                       |   | 150,245                   |  |                    |  |  |              |           |   |  |   | 155,645  
|Long-term debt                                                |  |                       | 300,000   |                       |   |                          |  |                    |  |  |              |           |   |  |   | 300,000  
|Stockholders equity                                          |  |                       | 668,506   |                       |   | 1,026,771                 |  |                    |  |  |              | (1,026,771 | ) |  |   | 668,506  
|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Total liabilities and stockholders equity                    |  | $                     | 1,243,690 |                       | $ | 1,264,588                 |  | $                  |  |  | $            | (1,278,756 | ) |  | $ | 1,229,522
|                                                              |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          



21



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##### Table of Contents

|                                                                                             |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------- |  | --------------------- | ------ | - | --------------------- | - | ------- | ------------------------- |  | ------------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|In thousands                                                                                 |  | ChaparralSteelCompany |        |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  | EliminatingEntries |   |  | Consolidated |        
|Condensed consolidating statement of operations for the three months ended February 28, 2007 |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Net sales                                                                                    |  | $                     |       |   |                       | $ | 420,166 |                           |  | $                  |  |  | $            |        |   |  | $ | 420,166 |  
|Costs and expenses (income)                                                                  |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Cost of products sold                                                                        |  |                       |       |   |                       |   | 306,945 |                           |  |                    |  |  |              |        |   |  |   | 306,945 |  
|Selling, general and administrative                                                          |  |                       | 1,797  |   |                       |   | 14,538  |                           |  |                    |  |  |              |        |   |  |   | 16,335  |  
|Interest                                                                                     |  |                       | 7,931  |   |                       |   |        |                           |  |                    |  |  |              |        |   |  |   | 7,931   |  
|Other income                                                                                 |  |                       | (3,327 | ) |                       |   | (1,137  | )                         |  |                    |  |  |              |        |   |  |   | (4,464  | )
|                                                                                             |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|                                                                                             |  |                       | 6,401  |   |                       |   | 320,346 |                           |  |                    |  |  |              |        |   |  |   | 326,747 |  
|                                                                                             |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Income (loss) before income taxes                                                            |  |                       | (6,401 | ) |                       |   | 99,820  |                           |  |                    |  |  |              |         |   |  |   | 93,419  |  
|Income taxes (benefit)                                                                       |  |                       | (2,484 | ) |                       |   | 33,368  |                           |  |                    |  |  |              |        |   |  |   | 30,884  |  
|                                                                                             |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|                                                                                             |  |                       | (3,917 | ) |                       |   | 66,452  |                           |  |                    |  |  |              |        |   |  |   | 62,535  |  
|Equity in earnings of subsidiaries                                                           |  |                       | 66,452 |   |                       |   |        |                           |  |                    |  |  |              | (66,452 | ) |  |   |        |  
|                                                                                             |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Net income                                                                                   |  | $                     | 62,535 |   |                       | $ | 66,452  |                           |  | $                  |  |  | $            | (66,452 | ) |  | $ | 62,535  |  
|                                                                                             |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Condensed consolidating statement of operations for the three months ended February 28, 2006 |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Net sales                                                                                    |  | $                     |       |   |                       | $ | 374,649 |                           |  | $                  |  |  | $            |        |   |  | $ | 374,649 |  
|Costs and expenses (income)                                                                  |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Cost of products sold                                                                        |  |                       |       |   |                       |   | 279,250 |                           |  |                    |  |  |              |        |   |  |   | 279,250 |  
|Selling, general and administrative                                                          |  |                       | 404    |   |                       |   | 17,310  |                           |  |                    |  |  |              |        |   |  |   | 17,714  |  
|Interest                                                                                     |  |                       | 7,890  |   |                       |   |        |                           |  |                    |  |  |              |        |   |  |   | 7,890   |  
|Other income                                                                                 |  |                       | (1,308 | ) |                       |   | (3,059  | )                         |  |                    |  |  |              |        |   |  |   | (4,367  | )
|                                                                                             |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|                                                                                             |  |                       | 6,986  |   |                       |   | 293,501 |                           |  |                    |  |  |              |        |   |  |   | 300,487 |  
|                                                                                             |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Income (loss) before income taxes                                                            |  |                       | (6,986 | ) |                       |   | 81,148  |                           |  |                    |  |  |              |        |   |  |   | 74,162  |  
|Income taxes (benefit)                                                                       |  |                       | (2,917 | ) |                       |   | 27,835  |                           |  |                    |  |  |              |        |   |  |   | 24,918  |  
|                                                                                             |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|                                                                                             |  |                       | (4,069 | ) |                       |   | 53,313  |                           |  |                    |  |  |              |        |   |  |   | 49,244  |  
|Equity in earnings of subsidiaries                                                           |  |                       | 53,313 |   |                       |   |        |                           |  |                    |  |  |              | (53,313 | ) |  |   |        |  
|                                                                                             |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Net income                                                                                   |  | $                     | 49,244 |   |                       | $ | 53,313  |                           |  | $                  |  |  | $            | (53,313 | ) |  | $ | 49,244  |  
|                                                                                             |  |                       |        |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  



22



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##### Table of Contents

|                                                                                            |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|------------------------------------------------------------------------------------------- |  | --------------------- | ------- | - | --------------------- | - | --------- | ------------------------- |  | ------------------ | - |  | ------------ | -------- | - |  | - | --------- | -
|In thousands                                                                                |  | ChaparralSteelCompany |         |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiaries |  | EliminatingEntries |   |  | Consolidated |         
|Condensed consolidating statement of operations for the nine months ended February 28, 2007 |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|Net sales                                                                                   |  | $                     |        |   |                       | $ | 1,234,192 |                           |  | $                  |  |  | $            |         |   |  | $ | 1,234,192 |  
|Costs and expenses (income)                                                                 |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|Cost of products sold                                                                       |  |                       |        |   |                       |   | 901,897   |                           |  |                    |  |  |              |         |   |  |   | 901,897   |  
|Selling, general and administrative                                                         |  |                       | 3,350   |   |                       |   | 37,733    |                           |  |                    |  |  |              |         |   |  |   | 41,083    |  
|Interest                                                                                    |  |                       | 23,895  |   |                       |   |          |                           |  |                    |  |  |              |         |   |  |   | 23,895    |  
|Other income                                                                                |  |                       | (8,656  | ) |                       |   | (7,037    | )                         |  |                    |  |  |              |         |   |  |   | (15,693   | )
|                                                                                            |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|                                                                                            |  |                       | 18,589  |   |                       |   | 932,593   |                           |  |                    |  |  |              |         |   |  |   | 951,182   |  
|                                                                                            |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|Income (loss) before income taxes                                                           |  |                       | (18,589 | ) |                       |   | 301,599   |                           |  |                    |  |  |              |         |   |  |   | 283,010   |  
|Income taxes (benefit)                                                                      |  |                       | (8,611  | ) |                       |   | 102,532   |                           |  |                    |  |  |              |         |   |  |   | 93,921    |  
|                                                                                            |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|                                                                                            |  |                       | (9,978  | ) |                       |   | 199,067   |                           |  |                    |  |  |              |         |   |  |   | 189,089   |  
|Equity in earnings of subsidiaries                                                          |  |                       | 199,067 |   |                       |   |          |                           |  |                    |  |  |              | (199,067 | ) |  |   |          |  
|                                                                                            |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|Net income                                                                                  |  | $                     | 189,089 |   |                       | $ | 199,067   |                           |  | $                  |  |  | $            | (199,067 | ) |  | $ | 189,089   |  
|                                                                                            |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|Condensed consolidating statement of operations for the nine months ended February 28, 2006 |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|Net sales                                                                                   |  | $                     |        |   |                       | $ | 1,061,184 |                           |  | $                  |  |  | $            |         |   |  | $ | 1,061,184 |  
|Costs and expenses (income)                                                                 |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|Cost of products sold                                                                       |  |                       |        |   |                       |   | 859,691   |                           |  |                    |  |  |              |         |   |  |   | 859,691   |  
|Selling, general and administrative                                                         |  |                       | 568     |   |                       |   | 34,069    |                           |  |                    |  |  |              |         |   |  |   | 34,637    |  
|Interest                                                                                    |  |                       | 21,190  |   |                       |   | 2,846     |                           |  |                    |  |  |              |         |   |  |   | 24,036    |  
|Other income                                                                                |  |                       | (1,896  | ) |                       |   | (7,864    | )                         |  |                    |  |  |              |         |   |  |   | (9,760    | )
|                                                                                            |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|                                                                                            |  |                       | 19,862  |   |                       |   | 888,742   |                           |  |                    |  |  |              |         |   |  |   | 908,604   |  
|                                                                                            |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|Income (loss) before income taxes                                                           |  |                       | (19,862 | ) |                       |   | 172,442   |                           |  |                    |  |  |              |         |   |  |   | 152,580   |  
|Income taxes (benefit)                                                                      |  |                       | (7,423  | ) |                       |   | 59,005    |                           |  |                    |  |  |              |         |   |  |   | 51,582    |  
|                                                                                            |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|                                                                                            |  |                       | (12,439 | ) |                       |   | 113,437   |                           |  |                    |  |  |              |         |   |  |   | 100,998   |  
|Equity in earnings of subsidiaries                                                          |  |                       | 113,437 |   |                       |   |          |                           |  |                    |  |  |              | (113,437 | ) |  |   |          |  
|                                                                                            |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  
|Net income                                                                                  |  | $                     | 100,998 |   |                       | $ | 113,437   |                           |  | $                  |  |  | $            | (113,437 | ) |  | $ | 100,998   |  
|                                                                                            |  |                       |         |   |                       |   |           |                           |  |                    |   |  |              |          |   |  |   |           |  



23



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##### Table of Contents

|                                                                                            |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|------------------------------------------------------------------------------------------- |  | ---------------------- | ----------- | - | --------------------- | - | -------- | ------------------------- |  | ------------------ | - | ------------ | - | - |  | - | ----------- | -
|In thousands                                                                                |  | ChaparralSteel Company |             |   | GuarantorSubsidiaries |   |          | Non-GuarantorSubsidiaries |  | EliminatingEntries |   | Consolidated |  
|Condensed consolidating statement of cash flows for the nine months ended February 28, 2007 |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Net cash provided (used) by operating activities                                            |  | $                      | (28,637     | ) |                       | $ | 214,082  |                           |  | $                  |  |              | $ |  |  | $ | 185,445     |  
|Investing activities                                                                        |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Capital expenditures                                                                        |  |                        |            |   |                       |   | (15,154  | )                         |  |                    |  |              |   |  |  |   | (15,154     | )
|Purchases of short-term investments                                                         |  |                        | (10,453,808 | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (10,453,808 | )
|Sales of short-term investments                                                             |  |                        | 10,300,910  |   |                       |   |         |                           |  |                    |  |              |   |  |  |   | 10,300,910  |  
|Intercompany advances                                                                       |  |                        | 188,258     |   |                       |   | (188,258 | )                         |  |                    |  |              |   |  |  |   |            |  
|Other-net                                                                                   |  |                        | (838        | ) |                       |   | 208      |                           |  |                    |  |              |   |  |  |   | (630        | )
|                                                                                            |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Net cash provided (used) by investing activities                                            |  |                        | 34,522      |   |                       |   | (203,204 | )                         |  |                    |  |              |   |  |  |   | (168,682    | )
|Financing activities                                                                        |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Issuance of common stock                                                                    |  |                        | 3,191       |   |                       |   |         |                           |  |                    |  |              |   |  |  |   | 3,191       |  
|Tax benefits from exercise of stock options                                                 |  |                        | 4,959       |   |                       |   |         |                           |  |                    |  |              |   |  |  |   | 4,959       |  
|Common dividends paid                                                                       |  |                        | (9,300      | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (9,300      | )
|Acquisitions of treasury stock                                                              |  |                        | (9,546      | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (9,546      | )
|                                                                                            |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Net cash provided by financing activities                                                   |  |                        | (10,696     | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (10,696     | )
|                                                                                            |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Decrease in cash and cash equivalents                                                       |  |                        | (4,811      | ) |                       |   | 10,878   |                           |  |                    |  |              |   |  |  |   | 6,067       |  
|Cash and cash equivalents at beginning of period                                            |  |                        | 35,939      |   |                       |   | 6,644    |                           |  |                    |  |              |   |  |  |   | 42,583      |  
|                                                                                            |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Cash and cash equivalents at end of period                                                  |  | $                      | 31,128      |   |                       | $ | 17,522   |                           |  | $                  |  |              | $ |  |  | $ | 48,650      |  
|                                                                                            |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Condensed consolidating statement of cash flows for the nine months ended February 28, 2006 |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Net cash provided by operating activities                                                   |  | $                      | 3,128       |   |                       | $ | 199,580  |                           |  | $                  |  |              | $ |  |  | $ | 202,708     |  
|Investing activities                                                                        |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Capital expenditures                                                                        |  |                        |            |   |                       |   | (11,937  | )                         |  |                    |  |              |   |  |  |   | (11,937     | )
|Purchases of short-term investments                                                         |  |                        | (1,426,735  | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (1,426,735  | )
|Sales of short-term investments                                                             |  |                        | 1,320,520   |   |                       |   |         |                           |  |                    |  |              |   |  |  |   | 1,320,520   |  
|Intercompany advances                                                                       |  |                        | 188,034     |   |                       |   | (188,034 | )                         |  |                    |  |              |   |  |  |   |            |  
|Other-net                                                                                   |  |                        |            |   |                       |   | (570     | )                         |  |                    |  |              |   |  |  |   | (570        | )
|                                                                                            |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Net cash provided (used) by investing activities                                            |  |                        | 81,819      |   |                       |   | (200,541 | )                         |  |                    |  |              |   |  |  |   | (118,722    | )
|Financing activities                                                                        |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Long-term borrowings                                                                        |  |                        | 350,000     |   |                       |   |         |                           |  |                    |  |              |   |  |  |   | 350,000     |  
|Debt retirements                                                                            |  |                        | (50,000     | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (50,000     | )
|Debt issuance costs                                                                         |  |                        | (9,500      | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (9,500      | )
|Dividend paid to Texas Industries, Inc.                                                     |  |                        | (341,139    | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (341,139    | )
|Issuance of common stock                                                                    |  |                        | 1,090       |   |                       |   |         |                           |  |                    |  |              |   |  |  |   | 1,090       |  
|Tax benefits from exercise of stock options                                                 |  |                        | 2,337       |   |                       |   |         |                           |  |                    |  |              |   |  |  |   | 2,337       |  
|                                                                                            |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Net cash used by financing activities                                                       |  |                        | (47,212     | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (47,212     | )
|                                                                                            |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Increase (decrease) in cash and cash equivalents                                            |  |                        | 37,735      |   |                       |   | (961     | )                         |  |                    |  |              |   |  |  |   | 36,774      |  
|Cash and cash equivalents at beginning of period                                            |  |                        | 1           |   |                       |   | 9,286    |                           |  |                    |  |              |   |  |  |   | 9,287       |  
|                                                                                            |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  
|Cash and cash equivalents at end of period                                                  |  | $                      | 37,736      |   |                       | $ | 8,325    |                           |  | $                  |  |              | $ |  |  | $ | 46,061      |  
|                                                                                            |  |                        |             |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |             |  



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

You should read the following discussion in conjunction with the consolidated financial statements and the corresponding notes included
elsewhere in this Quarterly Report. Certain statements contained in this Managements Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. See Forward-Looking Statements. Such statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such
forward-looking statements.

Overview

We are a leading supplier of structural steel and steel bar products through a single business segment. We produce and sell structural steel, piling products, special bar quality products,
merchant bar quality rounds, reinforcing bar and channels from facilities located in Texas and Virginia. Structural steel products include wide flange beams, channels, piling products and other shapes. Steel bar products include specialty bar
products and, to a lesser extent, reinforcing bar. We sell to steel service centers and steel fabricators for use in the construction industry, as well as to cold finishers, forgers and original equipment manufacturers for use in the railroad,
defense, automotive, manufactured housing and energy industries. Our products are marketed throughout the United States, Canada and Mexico, and to a limited extent in Europe. All of our long-lived assets are located in the United States.

Our sales prices closely track domestic steel industry sales prices and are market based. Domestic demand for structural steel is
derived primarily from non-residential construction. Therefore, a significant percentage of our sales are attributable to the level of non-residential (including industrial) construction activity in the United States. The level of activity in
non-residential construction is cyclical and is influenced by prevailing economic conditions, including interest rate levels, inflation, consumer spending habits and employment. In addition, we compete in a global steel industry and domestic prices
are significantly influenced by global industry prices. The global steel industry has at times in the past been characterized by overcapacity, which can result in high levels of steel imports into the United States, exerting downward pressure on
domestic steel prices. In the recent past, increased world-wide steel demand and the relatively weak U.S. dollar have helped curb imports into the United States. These domestic and global factors have combined to produce historically high selling
prices.

Our business requires large amounts of capital investment, raw materials, energy, labor and maintenance, and our
future success depends on continued access to these resources. At full capacity, our annual steel scrap usage would be 3.4 million tons, which would represent approximately 6% of the U.S. scrap market. We make predominately all steel scrap
purchases on the open market where prices are subject to market forces beyond our control. A major portion of the shredded steel requirements of our Texas plant is produced by an on-site shredder operation primarily utilizing crushed auto bodies
purchased on the open market. We believe our shredding operations give us a competitive advantage by providing usable scrap at reduced cost compared to similarly prepared scrap available on the open market. The geographical market that supplies the
Texas plant provides some protection from sharply higher raw material prices caused in part by favorable global market conditions. Our Virginia plant receives scrap from our on-site shredding facility which is operated by an unrelated party. We
attempt to negotiate the best prices for our raw materials and to obtain prices for our steel products that match market price movements in response to supply and demand. Beginning in January 2004, we implemented a raw material surcharge program,
derived from a published scrap price index, designed to pass some of the increased costs associated with rising raw material prices through to customers. We believe there will be adequate sources of our principal raw materials to meet our near term
needs, although probably at higher prices than has historically been the case.

Steel mini-mills consume large amounts of
electricity and natural gas. The electric industry has been deregulated in Texas since January 2002. The Texas plant purchases electricity through a local retail electric provider using various long and short term supply arrangements. We have
entered into agreements to purchase minimum amounts of electricity and natural gas for our Texas and Virginia facilities. As of February 28, 2007, our remaining commitments under these agreements are through October 2007 for electricity in
Texas, June 2007 for natural gas in Texas and March 2007 for natural gas in Virginia. The Commonwealth of Virginia has introduced legislation to reverse its decision to deregulate its market for electricity. Electricity for the Virginia plant
is purchased through the local utility under an interruptible supply contract with periodic adjustments for fuel costs. While it is uncertain how great of an effect re-regulation will have on the cost of electricity in Virginia, we do
not expect the re-regulation of Virginias market to have a material impact on our costs under this contract. Natural gas is purchased from local gas marketers and delivered to our plants through local transportation agreements.



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Historically, we have not used financial instruments to mitigate price fluctuations on such purchases, however we may use such financial instruments when
appropriate. We believe adequate supplies of electricity and natural gas are readily available, although some fluctuations will occur.

Various Aspects of Spin-Off from TXI

We became an independent public company on July 29, 2005, as a
result of our spin-off from TXI. When we were a subsidiary of TXI, TXI utilized a centralized cash management program for all of its subsidiaries through which we received payments from TXI as a result of cash received from product sales or made
payments to TXI or its subsidiaries for purchases of materials or services or for costs incurred on our behalf, including raw material procurement, payroll and capital expenditures. As a result of the spin-off, we are no longer part of this program.

The accompanying consolidated financial statements include all costs of our steel business. For periods prior to
July 30, 2005, these costs include the allocation of certain corporate expenses from TXI. TXIs corporate expenses were allocated to us based on either the percentage of time employees incurred performing services for us or specifically
identified costs incurred by TXI for us. Management believes the allocations were made on a reasonable basis. However, the consolidated financial statements for periods prior to the spin off may not necessarily reflect our financial position,
results of operations and cash flows in the future.

TXI, through one of its subsidiaries, previously provided us with
common carrier services, transporting finished product to our customers and backhauling materials and supplies for us. For periods prior to July 30, 2005, these costs have been included in cost of products sold in our consolidated statements of
operations and were $0.6 million in the nine-month period ended February 28, 2006. We believe the rates charged to us for transportation services approximate the rates that would have been charged by third parties. For periods subsequent to
July 29, 2005, we are utilizing assets transferred to us by TXI to operate our own common carrier service.

Since
1986, TXI included our operations in its United States consolidated federal income tax return. TXI also included us with it or certain of its subsidiaries in consolidated, combined or unitary income tax groups for state tax purposes as required by
law. The provision (benefit) for deferred income taxes for the periods presented has been determined as if we had filed separate tax returns. TXI managed its tax position for the benefit of its entire portfolio of businesses and its tax strategies
are not necessarily reflective of the tax strategies we will follow.

At various times, items of intercompany indebtedness
were settled by and among us and our subsidiaries and TXI and its subsidiaries. These intercompany accounts were settled through offsets, contributions of such indebtedness to our capital and other non-cash transfers. During the nine months ended
February 28, 2007, an adjustment of $1.1 million was recorded increasing the previous contributions to our capital by TXI.



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Results of Operations

Three-month period ended February 28, 2007 compared to the three-month period ended February 28, 2006.

(In thousands except per ton data)



|                                    |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   
|----------------------------------- |  | ------------------------------- | ------- | - | ------ | - | ------- | -------- |  | - | ------ | - |  | ----- | --
|                                    |  | Three months ended February 28, |         |   | Change |   |         | % Change | 
|                                    |  | 2007                            |         |   | 2006   |   |         |         
|Net sales                           |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   
|Structural mills                    |  | $                               | 331,807 |   |        | $ | 283,905 |          |  | $ | 47,902 |   |  | 16.9  | % 
|Bar mill                            |  |                                 | 53,532  |   |        |   | 59,988  |          |  |   | (6,456 | ) |  | (10.8 | %)
|Other products                      |  |                                 | 12,465  |   |        |   | 10,033  |          |  |   | 2,432  |   |  | 24.2  | % 
|Delivery fees                       |  |                                 | 22,362  |   |        |   | 20,723  |          |  |   | 1,639  |   |  | 7.9   | % 
|                                    |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   
|Total                               |  | $                               | 420,166 |   |        | $ | 374,649 |          |  | $ | 45,517 |   |  | 12.1  | % 
|                                    |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   
|Units shipped (tons)                |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   
|Structural                          |  |                                 | 482     |   |        |   | 469     |          |  |   | 13     |   |  | 2.8   | % 
|Bar                                 |  |                                 | 85      |   |        |   | 104     |          |  |   | (19    | ) |  | (18.3 | %)
|                                    |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   
|Total                               |  |                                 | 567     |   |        |   | 573     |          |  |   | (6     | ) |  | (1.0  | %)
|                                    |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   
|Average sales price per ton         |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   
|Structural                          |  | $                               | 688     |   |        | $ | 605     |          |  | $ | 83     |   |  | 13.7  | % 
|Bar                                 |  |                                 | 629     |   |        |   | 577     |          |  |   | 52     |   |  | 9.0   | % 
|Total                               |  |                                 | 679     |   |        |   | 600     |          |  |   | 79     |   |  | 13.2  | % 
|Net sales                           |  | $                               | 420,166 |   |        | $ | 374,649 |          |  | $ | 45,517 |   |  | 12.1  | % 
|Costs and expenses (income)         |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   
|Cost of products sold               |  |                                 | 306,945 |   |        |   | 279,250 |          |  |   | 27,695 |   |  | 9.9   | % 
|Selling, general and administrative |  |                                 | 16,335  |   |        |   | 17,714  |          |  |   | (1,379 | ) |  | (7.8  | %)
|Interest                            |  |                                 | 7,931   |   |        |   | 7,890   |          |  |   | 41     |   |  | 0.5   | % 
|Other income, net                   |  |                                 | (4,464  | ) |        |   | (4,367  | )        |  |   | (97    | ) |  | 2.2   | % 
|                                    |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   
|                                    |  |                                 | 326,747 |   |        |   | 300,487 |          |  |   | 26,260 |   |  | 8.7   | % 
|                                    |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   
|Income before income taxes          |  |                                 | 93,419  |   |        |   | 74,162  |          |  |   | 19,257 |   |  | 26.0  | % 
|Income taxes                        |  |                                 | 30,884  |   |        |   | 24,918  |          |  |   | 5,966  |   |  | 23.9  | % 
|                                    |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   
|Net income                          |  | $                               | 62,535  |   |        | $ | 49,244  |          |  | $ | 13,291 |   |  | 27.0  | % 
|                                    |  |                                 |         |   |        |   |         |          |  |   |        |   |  |       |   

Net sales.Net sales increased $45.5 million to $420.2 million from the
prior year period. Shipments of 567,000 tons were comparable to levels in the prior year period as demand for structural products remained strong in both domestic and international markets. Average selling price for structural products continued to
improve in the current year period and were $83 per ton higher than the prior year period while bar product prices increased 9.0% reflecting higher special bar quality product pricing. The increase in pricing for steel products accounted for
approximately $45.0 million of increased net sales, while decreased shipping volumes accounted for approximately $3.6 million of decreased net sales. Net sales of other products increased by $2.4 million to $12.5 million due to higher selling prices
for non-ferrous metals. Delivery fees increased by 7.9% due to slightly higher costs partially offset by lower shipments. We expect that end user demand for our products will remain strong for the remainder of this fiscal year. International
structural prices have improved and we will continue to price our products competitively to the international market.

Cost of products sold. Cost of products sold including depreciation and amortization was $306.9 million, an increase of $27.7 million from the prior year period. The increase was due primarily to an 11.1% increase in per ton costs.
Per ton scrap costs were 8.3% higher than the prior year period due to rising domestic and international demand for scrap. Per ton energy costs were 14.6% lower than the prior year period due to lower natural gas prices. Domestic and international
scrap markets are volatile and at historic highs; however, international structural prices have improved and we will continue to price our products competitively to the international market. However, continued increases could have a negative impact
on our margins. The prospects for higher energy costs due to warmer weather could also have a negative impact on margins during the summer months.



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Selling, general and administrative.Selling, general and administrative expense
decreased $1.4 million from the prior year period due to decreases in incentive expense of $2.3 million and bad debt expense of $1.2 million which were offset by increases in net financial security plan expense of $1.1 million and equity
compensation expense of $0.6 million.

Interest.Interest expense of $7.9 million was comparable to the prior year
period and was reflective of our capitalization structure described in Note 5 of the consolidated financial statements.

Other income, net.Other income, net increased by $0.1 million to $4.5 million as an increase in interest income was offset by lower miscellaneous sales from the prior year period.

Income taxes.Income taxes for the three-month periods ended February 28, 2007 and 2006, have been included in the
accompanying financial statements on the basis of an estimated annual rate of 33.2% and 34.0%, respectively. The primary reason that these respective tax rates differ from the 35% statutory federal corporate rate is due to the deduction for
qualified domestic production activities. The provision for income taxes of $30.9 million increased $6.0 million from the prior year period primarily due to the increase in pretax profits.

Net income.Net income improved $13.3 million to $62.5 million from the prior year period primarily due to the increase in selling
prices discussed above.



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Nine-month period ended February 28, 2007 compared to the nine-month period ended
February 28, 2006.

(In thousands except per ton data)



|                                    |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   
|----------------------------------- |  | ------------------------------ | --------- | - | ------ | - | --------- | -------- |  | - | ------- | - |  | ----- | --
|                                    |  | Nine months ended February 28, |           |   | Change |   |           | % Change | 
|                                    |  | 2007                           |           |   | 2006   |   |           |         
|Net sales                           |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   
|Structural mills                    |  | $                              | 959,383   |   |        | $ | 793,474   |          |  | $ | 165,908 |   |  | 20.9  | % 
|Bar mill                            |  |                                | 166,701   |   |        |   | 179,159   |          |  |   | (12,458 | ) |  | (7.0  | %)
|Other products                      |  |                                | 41,563    |   |        |   | 27,731    |          |  |   | 13,833  |   |  | 49.9  | % 
|Delivery fees                       |  |                                | 66,545    |   |        |   | 60,820    |          |  |   | 5,725   |   |  | 9.4   | % 
|                                    |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   
|Total                               |  | $                              | 1,234,192 |   |        | $ | 1,061,184 |          |  | $ | 173,008 |   |  | 16.3  | % 
|                                    |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   
|Units shipped (tons)                |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   
|Structural                          |  |                                | 1,418     |   |        |   | 1,411     |          |  |   | 7       |   |  | 0.5   | % 
|Bar                                 |  |                                | 257       |   |        |   | 313       |          |  |   | (56     | ) |  | (17.9 | %)
|                                    |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   
|Total                               |  |                                | 1,675     |   |        |   | 1,724     |          |  |   | (49     | ) |  | (2.8  | %)
|                                    |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   
|Average sales price per ton         |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   
|Structural                          |  | $                              | 677       |   |        | $ | 562       |          |  | $ | 115     |   |  | 20.5  | % 
|Bar                                 |  |                                | 648       |   |        |   | 573       |          |  |   | 75      |   |  | 13.2  | % 
|Total                               |  |                                | 672       |   |        |   | 564       |          |  |   | 108     |   |  | 19.1  | % 
|Net sales                           |  | $                              | 1,234,192 |   |        | $ | 1,061,184 |          |  | $ | 173,008 |   |  | 16.3  | % 
|Costs and expenses (income)         |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   
|Cost of products sold               |  |                                | 901,897   |   |        |   | 859,691   |          |  |   | 42,206  |   |  | 4.9   | % 
|Selling, general and administrative |  |                                | 41,083    |   |        |   | 34,637    |          |  |   | 6,446   |   |  | 18.6  | % 
|Interest                            |  |                                | 23,895    |   |        |   | 24,036    |          |  |   | (141    | ) |  | (0.6  | %)
|Other income, net                   |  |                                | (15,693   | ) |        |   | (9,760    | )        |  |   | (5,933  | ) |  | 60.8  | % 
|                                    |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   
|                                    |  |                                | 951,182   |   |        |   | 908,604   |          |  |   | 42,578  |   |  | 4.7   | % 
|                                    |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   
|Income before income taxes          |  |                                | 283,010   |   |        |   | 152,580   |          |  |   | 130,430 |   |  | 85.5  | % 
|Income taxes                        |  |                                | 93,921    |   |        |   | 51,582    |          |  |   | 42,339  |   |  | 82.1  | % 
|                                    |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   
|Net income                          |  | $                              | 189,089   |   |        | $ | 100,998   |          |  | $ | 88,091  |   |  | 87.2  | % 
|                                    |  |                                |           |   |        |   |           |          |  |   |         |   |  |       |   

Net sales.Net sales increased $173.0 million to $1.2 billion from the
prior year period. Shipments of 1,675,000 tons decreased 2.8% from the record levels in the prior year. Average selling price for structural products were $115 per ton higher than the prior year period reflecting the strong demand in both domestic
and international markets. Bar product prices increased 13.2% reflecting increased pricing and a higher mix of special bar quality shipments. The increase in pricing for steel products accounted for approximately $181.1 million of increased net
sales, while decreased shipping volumes accounted for approximately $27.6 million of decreased net sales. Net sales of other products increased by $13.8 million to $41.6 million due to higher selling prices for non-ferrous metals. Delivery fees
increased by 9.4% due to higher fuel costs.



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Cost of products sold. Cost of products sold including depreciation and
amortization was $901.9 million, an increase of $42.2 million from the prior year period. The increase was due primarily to an 8.0% increase in per ton costs offset by a 2.8% decrease in shipments from the prior year period. Per ton scrap costs were
15.3% higher due to rising domestic and international demand. Per ton energy costs decreased 24.8% from the prior year period due to lower natural gas prices and the short-term energy contract at the Texas facility.

Selling, general and administrative.Selling, general and administrative expense increased $6.4 million from the prior year period
due to increases in incentive expense of $3.1 million due to increased profits, equity compensation expense of $1.8 million, net financial security plan expense of $1.1 million and increases in other general expenses offset by a decrease in bad debt
expense of $1.1 million.

Interest.Interest expense of $23.9 million decreased $0.1 million from the prior year
period and was reflective of our capitalization structure described in Note 5 of the consolidated financial statements.

Other income, net.Other income, net increased by $5.9 million to $15.7 million and includes $4.1 million of insurance recovery from a business interruption claim stemming from an outage of the rolling mill at our Virginia facility
that occurred during the three months ended August 31, 2006. In addition, an increase in interest income of $6.8 million was offset by a decrease of $0.9 million in miscellaneous sales and other items from the prior year period.

Income taxes.Income taxes for the nine-month periods ended February 28, 2007 and 2006, have been included in the
accompanying financial statements on the basis of an estimated annual rate of 33.2% and 33.8%, respectively. The primary reason that these respective tax rates differ from the 35% statutory federal corporate rate is due to the deduction for
qualified domestic production activities. The provision for income taxes of $93.9 million increased $42.3 million from the prior year period primarily due to the increase in pretax profits.

Net income.Net income improved $88.1 million to $189.1 million from the prior year period primarily due to the increase in
selling prices discussed above.



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Financial Condition, Liquidity and Capital Resources

Net working capital at February 28, 2007 increased $194.9 million to $623.1 million from May 31, 2006, reflecting a $216.6
million increase in current assets and a $21.7 million increase in current liabilities. Significant changes in the components of current assets included an increase in short-term investments of $152.9 million as a result of improved operating
results. Accounts receivable increased $23.2 million due to a higher daily sales rate in February 2007 compared to May 2006 and a $3.3 million federal income tax claim. Inventories increased $29.7 million as raw material and finished goods volumes
increased from May 2006 levels. Trade accounts payable increased $34.8 million due to higher volumes of raw material purchases in the month of February 2007.

In June 2005, we entered into our Credit Facility which provides up to $150.0 million of available borrowings and in July 2005, we issued $300.0 million aggregate principal amount of our Senior
Notes. We used $50.0 million of borrowings from our Credit Facility and the net proceeds from our Senior Notes to pay a cash dividend of $341.1 million to Texas Industries, Inc. on July 6, 2005 in connection with the spin-off. We had no
outstanding borrowings under the Credit Facility during the nine months ended February 28, 2007; however, $3.2 million of the facility was utilized to support letters of credit. On April 10, 2007 at our request, we and our lenders entered
into the First Amendment to the Credit Facility (the Amendment) which reduced our borrowing capacity from $150.0 million to $75.0 million and increased the sub-limit for letters of credit to $37.5 million. The terms of the Amendment are
substantially identical to our original Credit Facility. The reduction in borrowing capacity will reduce our interest cost by approximately $0.2 million per year. The amount borrowed under the Credit Facility will fluctuate based upon our cash flow
and working capital needs.

In addition to cash and cash equivalents of $48.7 million and short-term investments of $316.9
million at February 28, 2007, our primary sources of liquidity are cash provided from operations and borrowings available under the Credit Facility. We fund working capital requirements and capital expenditures primarily with cash from
operations. In addition, we lease certain mobile and other equipment used in our operations under operating leases that in the normal course of business are renewed or replaced by subsequent leases.

We believe the net cash provided by our operating activities, existing cash and cash equivalents and short-term investments, supplemented
as necessary with borrowings under the Credit Facility, will provide sufficient resources to meet our working capital requirements, capital expenditures, debt service and other cash needs over the next year.

Cash flows

Net cash provided by operating activities decreased $17.3 million in the nine-month period ended February 28, 2007 to $185.4 million, compared to the prior year period. Net income and the related effect of deferred income taxes
increased cash flows $79.0 million compared to the prior year period. A decrease in cash provided by changes in inventories of $96.3 million was due to higher comparative volumes of raw materials in February 2007 and a depletion in finished goods
inventory levels in the prior year period. Cash provided by the change in accounts payable increased $46.8 million primarily due to higher raw material purchases in February 2007.

Net cash used by investing activities was $168.7 million in the current year period compared to $118.7 million in the prior year period.
In the current year period, purchases of short-term investments used cash of $10.5 billion and sales of short-term investments provided cash of $10.3 billion. In the prior year period, purchases of short-term investments used cash of $1.4 billion
and sales of short-term investments provided cash of $1.3 billion. Capital expenditures were $15.2 million in the current year period and $11.9 million in the prior year period. Capital expenditures for normal replacement and improvement of our
existing equipment are currently estimated to be approximately $25 million over the next 12 months.

Net cash provided by
financing activities consisted of the issuance of common stock for the exercise of stock options of $3.2 million and a tax benefit from the exercise of stock options of $5.0 million in the current year period. On October 11, 2006, our board of
directors initiated a quarterly cash dividend of $0.10 per common share. Dividends of $9.3 million were paid to stockholders during the nine months ended February 28, 2007. On October 11, 2006, our board of directors approved a stock
repurchase program authorizing the repurchase of up to $100 million of our common stock. Prior to any repurchase, our board must approve the terms of the proposed repurchase. We repurchased 213,800 shares of our common stock at a cost of $9.5
million in the three months ended February 28, 2007. Net cash used by financing activities in the prior year period was $47.2 million which consisted of long-term borrowings of $350.0 million, debt retirements of $50.0 million, debt issuance
costs of $9.5 million under our Credit Facility and Senior Notes described below and a tax benefit from the exercise of stock options of



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$2.3 million. In conjunction with our spin-off, we paid a cash dividend to Texas Industries, Inc. of $341.1 million in the prior year period.

Prior to our spin-off from TXI, net cash provided by operating activities included the effects of TXIs centralized cash management
program for all of its subsidiaries, through which we received advances from and made transfers to TXI depending on our cash requirements. Prior to our spin-off from TXI, these transactions were treated as amounts payable to and receivable from TXI.

Impact of the distribution and separation from TXI

On June 16, 2005, we entered into our senior secured revolving credit facility (the Credit Facility) which provides up to
$150.0 million of available borrowings. The Credit Facility includes a $25.0 million sub-limit for letters of credit of which $3.2 million was outstanding at February 28, 2007. Any outstanding letters of credit are deducted from the borrowing
availability under the Credit Facility. Amounts drawn under the Credit Facility bear interest either at the LIBOR rate plus a margin of 1.00% to 1.75%, or at a base rate (which will be the higher of the federal funds rate plus 0.5% and the prime
rate) plus a margin of up to 1%. The interest rate margins are subject to adjustments based on our leverage ratio. The commitment fee calculated on the unused portion of the Credit Facility ranges from 0.25% to 0.5% per year based on our
leverage ratio. The Credit Facility matures June 16, 2010 and may be terminated by us at any time. The Credit Facility is secured by security interests in all of our existing and future accounts and inventory, certain related personal property
and in all of the equity interest in our present and future domestic subsidiaries and 66% of the equity interest in our present and future foreign subsidiaries. The Credit Facility contains covenants restricting, among other things, prepayment or
redemption of our other debt, distributions, dividends, and repurchases of capital stock and other equity interests, acquisitions and investments, indebtedness, liens and affiliate transactions. We are required to comply with certain financial tests
and to maintain certain financial ratios, such as leverage and interest coverage ratios. On April 10, 2007 at our request, we and our lenders entered into the First Amendment to the Credit Facility (the Amendment) which reduced our
borrowing capacity from $150.0 million to $75.0 million and increased the sub-limit for letters of credit to $37.5 million. The terms of the Amendment are substantially identical to our original Credit Facility. The amount borrowed under the Credit
Facility will fluctuate based upon our cash flow and working capital needs.

In addition, on July 6, 2005, we issued $300.0 million aggregate principal amount of 10% senior notes due July 15, 2013 in a private offering. On December 2, 2005, the we completed the offer to exchange senior notes due 2013
(the Senior Notes), which are registered under the Securities Act of 1933, as amended, for the outstanding 10% senior notes due 2013 that were issued in the private offering. The terms of the registered Senior Notes are substantially
identical to our previously outstanding senior notes. The Senior Notes are unsecured and will effectively be subordinated in right of payment to all of our existing and future senior secured debt, including borrowings under our Credit Facility The
indenture governing the Senior Notes contains covenants limiting our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness, pay dividends or make other distributions or repurchase or redeem stock, make
investments, sell assets, incur liens, enter into agreements restricting our subsidiaries ability to pay dividends, enter into transactions with affiliates and consolidate, merge or sell all or substantially all of our assets or the assets of
our subsidiaries. Interest is due semi-annually on January 15thand July 15th. As of February 28, 2007, we were in compliance with all loan covenants.

We used the net proceeds from $50.0 million of borrowings under the Credit Facility and the $300 million of Senior Notes to pay a cash
dividend of $341.1 million to Texas Industries, Inc. on July 6, 2005.

Any intercompany accounts with TXI that
remained immediately prior to the spin-off distribution on July 29, 2005 were contributed to our capital. On July 29, 2005, the spin-off was completed in the form of a pro-rata, tax-free dividend to TXI stockholders of one share of
our common stock for each share of TXI stock owned on July 20, 2005. Although pursuant to our separation and distribution agreement with TXI and certain ancillary agreements, TXI has agreed to indemnify us against certain liabilities and we
have agreed to indemnify TXI against certain liabilities, TXI has no further ownership interest in us, and we have no ownership interest in TXI. In addition, we are not a guarantor of any of TXIs indebtedness and TXI is not a guarantor of any
of our indebtedness. Our relationship with TXI is now governed by the separation and distribution agreement and the ancillary agreements described in that agreement. During the nine months ended February 28, 2007, an adjustment of $1.1 million
was recorded increasing the previous contributions to our capital by TXI.



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Other Items

Critical accounting policies.The preparation of financial statements and accompanying notes in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported. Changes in the facts and circumstances could have a significant impact on the resulting financial statements.

Effective June 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payments, using the modified prospective application method.
Under this modified prospective method, compensation cost recognized for the nine months ended February 28, 2007 includes the applicable amounts of compensation cost of stock-based payments granted prior to, but not yet vested as of
June 1, 2006 based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123 and previously presented in pro forma footnote disclosures. The impact of recognizing compensation expense related to
stock options using the fair value recognition provisions of SFAS 123(R) was $0.5 million (net of tax benefit of $0.2 million) or $0.01 per common share for the three-month period ended February 28, 2007 and $1.4 million (net of tax benefit of
$0.4 million) or $0.03 per common share for the nine-month period ended February 28, 2007. Results for periods prior to June 1, 2006, have not been restated.

In December 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4, which became effective for us beginning June 1, 2006. This
standard clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted material should be expensed as incurred and not included in inventory. In addition, this standard requires that the allocation of fixed production
overhead costs to inventory be based on the normal capacity of the production facilities. The adoption of this standard did not have a significant effect on our consolidated financial position or results of operations.

Additional critical accounting policies that affect managements more complex judgments and estimates are described in Note 2 to the
consolidated financial statements and in our Annual Report on Form 10-K for the year ended May 31, 2006.

Off-balance sheet arrangements. We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, expenses, results
of operations, liquidity, capital expenditures or capital resources that is material to investors.

Environmental
matters.We are subject to federal, state and local environmental laws and regulations concerning, among other matters, air emissions, furnace dust disposal, automobile shredder residue (ASR) disposal and wastewater discharge. We
believe we are in substantial compliance with applicable environmental laws and regulations; however, from time to time we receive claims from federal and state environmental regulatory agencies and entities asserting that we are or may be in
violation of certain environmental laws and regulations. We have received a Notice of Enforcement, dated February 5, 2007, from the Texas Commission on Environmental Quality (the TCEQ). The Notice of Enforcement primarily alleges
that the manner in which we have handled and disposed of ASR, which contains lead, does not comply with statutes and regulations applicable to the management of waste from the beneficial recycling of ASR. Although we believe that we have complied
with such statutes and regulations and is engaged in negotiations with the TCEQ to resolve these claims, the impact of the ultimate resolution of these claims is not currently determinable or estimable. Based on our historical compliance and
experience with environmental laws and regulations and the information currently available to us regarding the TCEQs allegations, we believe that such claims will not have a material impact on our consolidated financial condition or future
results of operations. However, changes in federal and state laws, regulations and requirements or discovery of currently unknown conditions could require additional expenditures by us.

Inflation.We believe inflation has not had a material effect on our results of operations.



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

Market Risk

We have not entered into derivatives or other
financial instruments for trading or speculative purposes.



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On June 16, 2005, we entered into the Credit Facility which provides up to $150
million of available borrowings. Amounts drawn under the Credit Facility bear interest either at the LIBOR rate plus a margin of 1.00% to 1.75%, or at a base rate (which will be the higher of the federal funds rate plus 0.50% and the prime rate)
plus a margin of up to 1.00%. The interest rate margins are subject to adjustments based on our leverage ratio. Accordingly, fluctuations in interest rates will impact the interest we pay on borrowings under this Credit Facility. On July 6,
2005, we also issued $300 million of our Senior Notes. Although fluctuations in interest rates will not impact the interest we pay on this debt, it would impact the fair value of this debt.

In the normal course of our business, we are exposed to market risk for price fluctuations related to the sale of steel products and to
the purchase of commodities used in the steel production process, principally scrap steel, electricity and natural gas. We attempt to negotiate the best prices for our raw materials and energy requirements and to obtain prices for our steel products
that match market price movements in response to supply and demand. Beginning in January 2004, we implemented a raw material surcharge program, derived from a published scrap price index, designed to pass some of the increased costs associated with
rising raw material prices through to customers.

Steel mini-mills consume large amounts of electricity and natural gas.
The electric industry has been deregulated in Texas since January 2002. The Texas plant purchases electricity through a local retail electric provider using various long and short term supply arrangements. The Commonwealth of Virginia has introduced
legislation to reverse its decision to deregulate its market for electricity. Electricity for the Virginia plant is purchased through the local utility under an interruptible supply contract with periodic adjustments for fuel costs. Natural gas is
purchased from local gas marketers and delivered to our plants through local transportation agreements. Historically, we have not used financial instruments to mitigate price fluctuations on such purchases; however we may use such financial
instruments when appropriate.

We have not engaged in formal hedging activities to mitigate risks associated with
fluctuations in currency values, but we do periodically review the potential impact of this risk to ensure that the risk of significant potential losses is minimized.



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

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the specified time periods. As of the period covered by this Quarterly Report on Form 10-Q, our Principal Executive Officer and Principal Financial Officer evaluated, with the participation of our management, the effectiveness of
our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, our Principal Executive Officer and Principal Financial
Officer concluded that our disclosure controls and procedures are effective. There were no significant changes in our internal controls and procedures in our most recent fiscal quarter that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.

In connection with our spin-off from TXI on July 29,
2005, responsibility for all of our corporate accounting, finance and internal audit functions was transferred from personnel at TXI to our personnel. We have created our own, or engaged third parties to provide these functions to replace those
previously performed by TXI. These changes, although significant, are not expected to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION



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

The information required by this item is included in Note 9 to the consolidated financial statements, Legal Proceedings and Contingent Liabilities presented in Part I and is incorporated herein by reference.



|ITEM 1A. | RISK FACTORS.
|-------- | -------------

No material changes have occurred to our indicated risk factors as disclosed in our 2006 Annual Report on Form 10-K filed on July 24, 2006.



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|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|------- | ------------------------------------------------------------

None.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITES.
|------- | -------------------------------

None.



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

None.



|ITEM 5. | OTHER INFORMATION.
|------- | ------------------

On April 10, 2007 at our request, we and our lenders entered into the First Amendment to the Credit Facility (the Amendment) which reduced our borrowing capacity from $150.0 million to $75.0 million and increased the
sub-limit for letters of credit to $37.5 million. The terms of the Amendment are substantially identical to our original Credit Facility dated June 16, 2005.



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|ITEM 6. | EXHIBITS
|------- | --------



|               |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  |   |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3.1            |  | - |  | Amended and Restated Certificate of Incorporation of Chaparral Steel Company (incorporated herein by reference to Exhibit 3.1 to Chaparral Steel Companys Amendment No.
1 to Form 10, dated June 10, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                                              
|               |  |  
|3.2            |  | - |  | Bylaws of Chaparral Steel Company (incorporated herein by reference to Exhibit 3.2 to Chaparral Steel Companys Form 10, dated May 6, 2005, file number
000-51307)                                                                                                                                                                                                                                                                                                                                                                                                              
|               |  |  
|3.3            |  | - |  | Certificate of Designations of Series A Junior Participating Preferred Stock, filed with the Secretary of State of the State of Delaware on July 21, 2005 (incorporated herein
by reference to Exhibit 3.1 to Chaparral Steel Companys Current Report on Form 8-K, dated July 21, 2005, file number 000-51307)                                                                                                                                                                                                                                                                 
|               |  |  
|4.1            |  | - |  | Reference is made to Exhibit 3.1, Exhibit 3.2 and Exhibit 3.3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|               |  |  
|4.2            |  | - |  | Registration Rights Agreement, dated July 6, 2005, among Chaparral Steel Company, certain of its domestic subsidiaries as guarantors, Banc of America Securities LLC, UBS
Securities LLC, SunTrust Capital Markets, Inc., Wells Fargo Securities, LLC and Comerica Securities, Inc. (incorporated herein by reference to Exhibit 4.3 to Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number
000-51307)                                                                                                                                       
|               |  |  
|4.3            |  | - |  | Form of Notation of Guarantee (incorporated herein by reference to Exhibit 4.3 to Chaparral Steel Companys Quarterly Report on Form 10-Q for the quarterly period ended
November 30, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                                                              
|               |  |  
|4.4            |  | - |  | Form of Chaparral Steel Companys 10% Senior Note due 2013 (incorporated herein by reference to Exhibit 4.4 to Chaparral Steel Companys Quarterly Report on Form
10-Q for the quarterly period ended November 30, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                                 
|               |  |  
|4.5            |  | - |  | Indenture, dated July 6, 2005, among Chaparral Steel Company, certain of its domestic subsidiaries and Wells Fargo Bank, National Association, as Trustee (incorporated herein
by reference to Exhibit 4.4 to Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number 000-51307)                                                                                                                                                                                                                                                                 
|               |  |  
|4.6            |  | - |  | Rights Agreement, effective as of July 29, 2005, between Chaparral Steel Company and Mellon Investor Services LLC, as rights agent (incorporated herein by reference to
Exhibit 4.1 to Chaparral Steel Companys Current Report on Form 8-K, dated July 21, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                        
|               |  |  
|10.1           |  | - |  | Purchase Agreement, dated June 29, 2005, among Chaparral Steel Company, Banc of America Securities LLC, UBS Securities LLC, SunTrust Capital Markets, Inc., Wells Fargo
Securities, LLC and Comerica Securities, Inc. (incorporated herein by reference to Exhibit 10.1 to Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number 000-51307)                                                                                                                                                                                                    
|               |  |  
|10.2           |  | - |  | Credit Agreement, dated June 16, 2005, among Chaparral Steel Company, Bank of America, N.A., as administrative agent, letter of credit issuer, swing line lender and lender,
UBS Securities LLC, as syndication agent, General Electric Capital Corporation, Wells Fargo Bank, National Association, and SunTrust Bank, as co-documentation agents and as lenders, and UBS Loan Finance LLC and Comerica Bank, as lenders
(incorporated herein by reference to Exhibit 10.2 to Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number 000-51307)



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|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3  |  | - |  | Security Agreement, dated July 6, 2005, made by Chaparral Steel Company, certain of its domestic subsidiaries, and Bank of America, N.A. as administrative agent
(incorporated herein by reference to Exhibit 10.3 to Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                       
|      |  |  
|10.4  |  | - |  | Separation and Distribution Agreement, dated July 6, 2005, between Texas Industries, Inc. and Chaparral Steel Company (incorporated herein by reference to Exhibit 10.4 to
Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                                                  
|      |  |  
|10.5  |  | - |  | Amendment No. 1 to Separation and Distribution Agreement between Chaparral Steel Company and Texas Industries, Inc., dated July 27, 2005 (incorporated herein by reference to
Exhibit 10.5 to Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                             
|      |  |  
|10.6  |  | - |  | Tax Sharing and Indemnification Agreement, dated July 6, 2005, between Texas Industries, Inc. and Chaparral Steel Company (incorporated herein by reference to Exhibit 10.5 to
Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                                              
|      |  |  
|10.7  |  | - |  | Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan (incorporated herein by reference to Exhibit 10.3 to Chaparral Steel Companys
Amendment No. 5 to Form 10, dated July 21, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                                                                                     
|      |  |  
|10.8  |  | - |  | Chaparral Steel Company Second Amended and Restated Financial Security Plan (incorporated herein by reference to Exhibit 10.8 to Chaparral Steel Companys Quarterly
Report on Form 10-Q for the quarterly period ended November 30, 2006, file 000-51307)                                                                                                                                                                                                                                                                                                                                                                    
|      |  |  
|10.9  |  | - |  | Employment Agreement, effective as of January 12, 2007, between Chaparral Steel Company and Tommy A. Valenta (incorporated herein by reference to Exhibit 10.9 to Chaparral
Steel Companys Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2006, file 000-51307)                                                                                                                                                                                                                                                                                                                                   
|      |  |  
|10.10 |  | - |  | Form of Incentive and Nonqualified Stock Option Agreement under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan issued by Chaparral
Steel Company in replacement of Texas Industries, Inc. options originally granted to Texas Industries, Inc. employees under the Texas Industries, Inc. 1993 Stock Option Plan and the related form of Amendment (Change of Control) to Stock Option
Agreement (incorporated herein by reference to Exhibit 10.10 to Chaparral Steel Companys Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2005, file 000-51307)      
|      |  |  
|10.11 |  | - |  | Form of Incentive and Nonqualified Stock Option Agreement under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan issued by Chaparral
Steel Company in replacement of Texas Industries, Inc. options originally granted to Texas Industries, Inc. employees under the Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan (incorporated herein by reference to Exhibit 10.11 to
Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                             
|      |  |  
|10.12 |  | - |  | Form of Nonqualified Stock Option Agreement under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan issued by Chaparral Steel Company in
replacement of Texas Industries, Inc. options originally granted to Texas Industries, Inc. non-employee directors under the Texas Industries, Inc. 1993 Stock Option Plan and the related form of Amendment (Change of Control) to Stock Option Agreement
(incorporated herein by reference to Exhibit 10.12 to Chaparral Steel Companys Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2005, file number 000-51307)



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|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.13 |  | - |  | Form of Nonqualified Stock Option Agreement under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan issued by Chaparral Steel Company in
replacement of Texas Industries, Inc. options originally granted to Texas Industries, Inc. non-employee directors under the Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan (incorporated herein by reference to Exhibit 10.13 to Chaparral
Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)
|      |  |  
|10.14 |  | - |  | Form of Stock Option Agreement for employees under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan (incorporated herein by reference to
Exhibit 10.14 to Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                                                                                                                                                                             
|      |  |  
|10.15 |  | - |  | Form of Deferred Compensation Agreement for non-employee directors under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan (incorporated
herein by reference to Exhibit 10.15 to Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                                                                                                                                                       
|      |  |  
|10.16 |  | - |  | Form of Restricted Stock Agreement for non-employee directors under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan (incorporated
herein by reference to Exhibit 10.16 to Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                                                                                                                                                            
|      |  |  
|10.17 |  | - |  | Form of Texas Industries, Inc. Common Stock Award Plan and Award Letters for Tommy A. Valenta and William H. Dickert assumed by Chaparral Steel Company (incorporated herein
by reference to Exhibit 10.17 to Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                                                                                                                                                               
|      |  |  
|10.23 |  | - |  | Form of Amended and Restated Change of Control Agreement entered into with the executive officers of Chaparral Steel Company (other than the Chief Executive Officer)
effective as of January 12, 2007 (incorporated herein by reference to Exhibit 10.23 to Chaparral Steel Companys Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2006, file 000-51307)                                                                                                                                                          
|      |  |  
|10.24 |  | - |  | Chaparral Steel Company 2006 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Chaparral Steel Companys Current Report on Form 8-K, dated
August 29, 2006, file number 000-51307).                                                                                                                                                                                                                                                                                                                                   
|      |  |  
|10.25 |  | - |  | Form of 2007 Annual Incentive Award Agreement entered into with the executive officers of Chaparral Steel Company (incorporated herein by reference to Exhibit 10.2 to
Chaparral Steel Companys Current Report on Form 8-K, dated August 29, 2006, file number 000-51307).                                                                                                                                                                                                                                                                     
|      |  |  
|10.26 |  | - |  | First Amendment to Credit Agreement, dated April 10, 2007, among Chaparral Steel Company, Bank of America, N.A., as administrative agent, letter of credit issuer, swing line
lender and lender, UBS Securities LLC, as syndication agent, General Electric Capital Corporation, Wells Fargo Bank, National Association, and SunTrust Bank, as co-documentation agents and as lenders, and UBS Loan Finance and Comerica Bank, as
lenders*                                                                                                      
|      |  |  
|15.1  |  | - |  | Letter Re: Unaudited Interim Financial Information*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|      |  |  
|31.1  |  | - |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer*                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      |  |  
|31.2  |  | - |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer*                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|      |  |  
|32.1  |  | - |  | Section 1350 Certification of Principal Executive Officer*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      |  |  
|32.2  |  | - |  | Section 1350 Certification of Principal Financial Officer*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



|* | Filed herewith.
|- | ---------------



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The remaining exhibits have been omitted because they are not applicable or the
information required therein is included elsewhere in the financial statements or notes thereto.



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##### Table of Contents

SIGNATURES

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.

CHAPARRAL STEEL COMPANY



|               |  |  |  |                                                                                          
|-------------- |  |  |  | -----------------------------------------------------------------------------------------
|               |  | 
|April 11, 2007 |  |  |  | /s/ J. Celtyn Hughes                                                                     
|               |  |  |  | J. Celtyn Hughes Vice
President and Chief Financial Officer (Principal Financial Officer)
|               |  | 
|April 11, 2007 |  |  |  | /s/ M. Kevin Linch                                                                       
|               |  |  |  | M. Kevin Linch Vice
President-Controller (Principal Accounting Officer)                  



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INDEX TO EXHIBITS



|              |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |   |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3.1           |  | - |  | Amended and Restated Certificate of Incorporation of Chaparral Steel Company (incorporated herein by reference to Exhibit 3.1 to Chaparral Steel Companys Amendment
No. 1 to Form 10, dated June 10, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                                              
|              |  |  
|3.2           |  | - |  | Bylaws of Chaparral Steel Company (incorporated herein by reference to Exhibit 3.2 to Chaparral Steel Companys Form 10, dated May 6, 2005, file number
000-51307)                                                                                                                                                                                                                                                                                                                                                                                                              
|              |  |  
|3.3           |  | - |  | Certificate of Designations of Series A Junior Participating Preferred Stock, filed with the Secretary of State of the State of Delaware on July 21, 2005 (incorporated
herein by reference to Exhibit 3.1 to Chaparral Steel Companys Current Report on Form 8-K, dated July 21, 2005, file number 000-51307)                                                                                                                                                                                                                                                                 
|              |  |  
|4.1           |  | - |  | Reference is made to Exhibit 3.1, Exhibit 3.2 and Exhibit 3.3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|              |  |  
|4.2           |  | - |  | Registration Rights Agreement, dated July 6, 2005, among Chaparral Steel Company, certain of its domestic subsidiaries as guarantors, Banc of America Securities LLC, UBS
Securities LLC, SunTrust Capital Markets, Inc., Wells Fargo Securities, LLC and Comerica Securities, Inc. (incorporated herein by reference to Exhibit 4.3 to Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number
000-51307)                                                                                                                                       
|              |  |  
|4.3           |  | - |  | Form of Notation of Guarantee (incorporated herein by reference to Exhibit 4.3 to Chaparral Steel Companys Quarterly Report on Form 10-Q for the quarterly period
ended November 30, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                                                              
|              |  |  
|4.4           |  | - |  | Form of Chaparral Steel Companys 10% Senior Note due 2013 (incorporated herein by reference to Exhibit 4.4 to Chaparral Steel Companys Quarterly Report on Form
10-Q for the quarterly period ended November 30, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                                 
|              |  |  
|4.5           |  | - |  | Indenture, dated July 6, 2005, among Chaparral Steel Company, certain of its domestic subsidiaries and Wells Fargo Bank, National Association, as Trustee (incorporated
herein by reference to Exhibit 4.4 to Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number 000-51307)                                                                                                                                                                                                                                                                 
|              |  |  
|4.6           |  | - |  | Rights Agreement, effective as of July 29, 2005, between Chaparral Steel Company and Mellon Investor Services LLC, as rights agent (incorporated herein by reference to
Exhibit 4.1 to Chaparral Steel Companys Current Report on Form 8-K, dated July 21, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                        
|              |  |  
|10.1          |  | - |  | Purchase Agreement, dated June 29, 2005, among Chaparral Steel Company, Banc of America Securities LLC, UBS Securities LLC, SunTrust Capital Markets, Inc., Wells Fargo
Securities, LLC and Comerica Securities, Inc. (incorporated herein by reference to Exhibit 10.1 to Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number 000-51307)                                                                                                                                                                                                    
|              |  |  
|10.2          |  | - |  | Credit Agreement, dated June 16, 2005, among Chaparral Steel Company, Bank of America, N.A., as administrative agent, letter of credit issuer, swing line lender and
lender, UBS Securities LLC, as syndication agent, General Electric Capital Corporation, Wells Fargo Bank, National Association, and SunTrust Bank, as co-documentation agents and as lenders, and UBS Loan Finance LLC and Comerica Bank, as lenders
(incorporated herein by reference to Exhibit 10.2 to Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number 000-51307)



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##### Table of Contents

|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3  |  | - |  | Security Agreement, dated July 6, 2005, made by Chaparral Steel Company, certain of its domestic subsidiaries, and Bank of America, N.A. as administrative agent
(incorporated herein by reference to Exhibit 10.3 to Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                        
|      |  |  
|10.4  |  | - |  | Separation and Distribution Agreement, dated July 6, 2005, between Texas Industries, Inc. and Chaparral Steel Company (incorporated herein by reference to Exhibit 10.4 to
Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                                                   
|      |  |  
|10.5  |  | - |  | Amendment No. 1 to Separation and Distribution Agreement between Chaparral Steel Company and Texas Industries, Inc., dated July 27, 2005 (incorporated herein by reference
to Exhibit 10.5 to Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                              
|      |  |  
|10.6  |  | - |  | Tax Sharing and Indemnification Agreement, dated July 6, 2005, between Texas Industries, Inc. and Chaparral Steel Company (incorporated herein by reference to Exhibit 10.5
to Chaparral Steel Companys Current Report on Form 8-K, dated July 12, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                                               
|      |  |  
|10.7  |  | - |  | Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan (incorporated herein by reference to Exhibit 10.3 to Chaparral Steel Companys
Amendment No. 5 to Form 10, dated July 21, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                                                                                      
|      |  |  
|10.8  |  | - |  | Chaparral Steel Company Second Amended and Restated Financial Security Plan (incorporated herein by reference to Exhibit 10.8 to Chaparral Steel Companys Quarterly
Report on Form 10-Q for the quarterly period ended November 30, 2006, file 000-51307)                                                                                                                                                                                                                                                                                                                                                                     
|      |  |  
|10.9  |  | - |  | Employment Agreement, effective as of January 12, 2007, between Chaparral Steel Company and Tommy A. Valenta (incorporated herein by reference to Exhibit 10.9 to Chaparral
Steel Companys Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2006, file 000-51307)                                                                                                                                                                                                                                                                                                                                    
|      |  |  
|10.10 |  | - |  | Form of Incentive and Nonqualified Stock Option Agreement under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan issued by Chaparral
Steel Company in replacement of Texas Industries, Inc. options originally granted to Texas Industries, Inc. employees under the Texas Industries, Inc. 1993 Stock Option Plan and the related form of Amendment (Change of Control) to Stock Option
Agreement (incorporated herein by reference to Exhibit 10.10 to Chaparral Steel Companys Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2005, file number 000-51307)
|      |  |  
|10.11 |  | - |  | Form of Incentive and Nonqualified Stock Option Agreement under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan issued by Chaparral
Steel Company in replacement of Texas Industries, Inc. options originally granted to Texas Industries, Inc. employees under the Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan (incorporated herein by reference to Exhibit 10.11 to
Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                              



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##### Table of Contents

|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.12 |  | - |  | Form of Nonqualified Stock Option Agreement under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan issued by Chaparral Steel Company
in replacement of Texas Industries, Inc. options originally granted to Texas Industries, Inc. non-employee directors under the Texas Industries, Inc. 1993 Stock Option Plan and the related form of Amendment (Change of Control) to Stock Option
Agreement (incorporated herein by reference to Exhibit 10.12 to Chaparral Steel Companys Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2005, file number 000-51307)
|      |  |  
|10.13 |  | - |  | Form of Nonqualified Stock Option Agreement under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan issued by Chaparral Steel Company
in replacement of Texas Industries, Inc. options originally granted to Texas Industries, Inc. non-employee directors under the Texas Industries, Inc. 2004 Omnibus Equity Compensation Plan (incorporated herein by reference to Exhibit 10.13 to
Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                              
|      |  |  
|10.14 |  | - |  | Form of Stock Option Agreement for employees under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan (incorporated herein by reference
to Exhibit 10.14 to Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                           
|      |  |  
|10.15 |  | - |  | Form of Deferred Compensation Agreement for non-employee directors under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan
(incorporated herein by reference to Exhibit 10.15 to Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                     
|      |  |  
|10.16 |  | - |  | Form of Restricted Stock Agreement for non-employee directors under the Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation Plan (incorporated
herein by reference to Exhibit 10.16 to Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                          
|      |  |  
|10.17 |  | - |  | Form of Texas Industries, Inc. Common Stock Award Plan and Award Letters for Tommy A. Valenta and William H. Dickert assumed by Chaparral Steel Company (incorporated
herein by reference to Exhibit 10.17 to Chaparral Steel Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                             
|      |  |  
|10.23 |  | - |  | Form of Amended and Restated Change of Control Agreement entered into with the executive officers of Chaparral Steel Company (other than the Chief Executive Officer)
effective as of January 12, 2007 (incorporated herein by reference to Exhibit 10.23 to Chaparral Steel Companys Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2006, file 000-51307)                                                                                                                                                                                                                                        
|      |  |  
|10.24 |  | - |  | Chaparral Steel Company 2006 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Chaparral Steel Companys Current Report on Form 8-K, dated
August 29, 2006, file number 000-51307)                                                                                                                                                                                                                                                                                                                                                                                                                  
|      |  |  
|10.25 |  | - |  | Form of 2007 Annual Incentive Award Agreement entered into with the executive officers of Chaparral Steel Company (incorporated herein by reference to Exhibit 10.2 to
Chaparral Steel Companys Current Report on Form 8-K, dated August 29, 2006, file number 000-51307)                                                                                                                                                                                                                                                                                                                                                    



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##### Table of Contents

|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.26 |  | - |  | First Amendment to Credit Agreement, dated April 10, 2007, among Chaparral Steel Company, Bank of America, N.A., as administrative agent, letter of credit issuer,
swing line lender and lender, UBS Securities LLC, as syndication agent, General Electric Capital Corporation, Wells Fargo Bank, National Association, and SunTrust Bank, as co-documentation agents and as lenders, and UBS Loan Finance and Comerica
Bank, as lenders*
|      |  |  
|15.1  |  | - |  | Letter Re: Unaudited Interim Financial Information*                                                                                                                                                                                                                                                                                                                                                                                       
|      |  |  
|31.1  |  | - |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer*                                                                                                                                                                                                                                                                                                                                                                    
|      |  |  
|31.2  |  | - |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer*                                                                                                                                                                                                                                                                                                                                                                    
|      |  |  
|32.1  |  | - |  | Section 1350 Certification of Principal Executive Officer*                                                                                                                                                                                                                                                                                                                                                                                
|      |  |  
|32.2  |  | - |  | Section 1350 Certification of Principal Financial Officer*                                                                                                                                                                                                                                                                                                                                                                                



|* | Filed herewith
|- | --------------