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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 November 30, 2005



| ̈ | 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 Number)



300 Ward Road

Midlothian, Texas 76065

(Address of Principal Executive Offices and 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 an accelerated filer (as defined in Rule 12b-2 of the Act).



Yes ̈No  x



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.



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 22,807,869 shares of common stock, $0.01 par value
per share, outstanding on January 10, 2006.



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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 the 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.



i



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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 - November 30, 2005 and May 31, 2005                                                        |  | 3   
|                              |  |                                                                                                                        
|                              |  | Consolidated Statements of Operations - three months ended and six months ended November 30, 2005 and November 30, 2004 |  | 4   
|                              |  |                                                                                                                        
|                              |  | Consolidated Statements of Cash Flows - six months ended November 30, 2005 and November 30, 2004                        |  | 5   
|                              |  |                                                                                                                        
|                              |  | Consolidated Statement of Stockholders Equity - six months ended November 30, 2005                                     |  | 6   
|                              |  |                                                                                                                        
|                              |  | Notes to Consolidated Financial Statements                                                                              |  | 7   
|                              |  |                                                                                                                        
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                   |  | 22  
|                              |  |                                                                                                                        
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                              |  | 29  
|                              |  |                                                                                                                        
|Item 4.                       |  | Controls and Procedures                                                                                                 |  | 30  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                        
|                              |  |                                                                                                                        
|Item 1.                       |  | Legal Proceedings                                                                                                       |  | 30  
|                              |  |                                                                                                                        
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                             |  | 30  
|                              |  |                                                                                                                        
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                         |  | 30  
|                              |  |                                                                                                                        
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                     |  | 30  
|                              |  |                                                                                                                        
|Item 5.                       |  | Other                                                                                                                   |  | 30  
|                              |  |                                                                                                                        
|Item 6.                       |  | Exhibits                                                                                                                |  | 32  
|                              | 
|SIGNATURES                    |  | 36                                                                                                                     



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PART I. FINANCIAL INFORMATION



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



1



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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 November 30, 2005, and the related consolidated statements of operations for the three and six-month periods ended November 30, 2005 and 2004, the related consolidated statements of cash flows for the
six-month periods ended November 30, 2005 and 2004, and the related statement of stockholders equity for the six-month period ended November 30, 2005. 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, 2005, 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 August 10, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated
balance sheet as of May 31, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



/s/ Ernst & Young LLP



Dallas, Texas

January 12, 2006



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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)



|                                                                                                                      |  |                   |           |   |              |   |          
|--------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | - | ------------ | - | ---------
|                                                                                                                      |  | November 30, 2005 |           |   | May 31, 2005
|Assets                                                                                                                |  |                   |           |   |              |   |          
|Current assets:                                                                                                       |  |                   |           |   |              |   |          
|Cash and cash equivalents                                                                                             |  | $                 | 70,632    |   |              | $ | 9,287    
|Short-term investments                                                                                                |  |                   | 42,775    |   |              |   |         
|Accounts receivable  net                                                                                             |  |                   | 131,795   |   |              |   | 127,383  
|Inventories                                                                                                           |  |                   | 178,790   |   |              |   | 246,223  
|Receivable from TXI                                                                                                   |  |                   |          |   |              |   | 40,734   
|Prepaid expenses                                                                                                      |  |                   | 13,298    |   |              |   | 11,097   
|                                                                                                                      |  |                   |           |   |              |   |          
|Total current assets                                                                                                  |  |                   | 437,290   |   |              |   | 434,724  
|                                                                                                                      |  |                   |           |   |              |   |          
|Other assets:                                                                                                         |  |                   |           |   |              |   |          
|Goodwill                                                                                                              |  |                   | 85,166    |   |              |   | 85,166   
|Investments and deferred charges                                                                                      |  |                   | 16,758    |   |              |   | 5,099    
|                                                                                                                      |  |                   |           |   |              |   |          
|                                                                                                                      |  |                   | 101,924   |   |              |   | 90,265   
|                                                                                                                      |  |                   |           |   |              |   |          
|Property, plant and equipment:                                                                                        |  |                   |           |   |              |   |          
|Land and land improvements                                                                                            |  |                   | 95,617    |   |              |   | 93,937   
|Buildings                                                                                                             |  |                   | 55,208    |   |              |   | 54,954   
|Machinery and equipment                                                                                               |  |                   | 1,028,711 |   |              |   | 1,025,475
|Construction in process                                                                                               |  |                   | 31,427    |   |              |   | 28,074   
|                                                                                                                      |  |                   |           |   |              |   |          
|                                                                                                                      |  |                   | 1,210,963 |   |              |   | 1,202,440
|Less depreciation                                                                                                     |  |                   | 599,229   |   |              |   | 575,187  
|                                                                                                                      |  |                   |           |   |              |   |          
|                                                                                                                      |  |                   | 611,734   |   |              |   | 627,253  
|                                                                                                                      |  |                   |           |   |              |   |          
|                                                                                                                      |  | $                 | 1,150,948 |   |              | $ | 1,152,242
|                                                                                                                      |  |                   |           |   |              |   |          
|Liabilities and Stockholders Equity                                                                                  |  |                   |           |   |              |   |          
|Current liabilities:                                                                                                  |  |                   |           |   |              |   |          
|Trade accounts payable                                                                                                |  | $                 | 82,311    |   |              | $ | 88,980   
|Accrued wages, taxes and other liabilities                                                                            |  |                   | 57,585    |   |              |   | 20,933   
|                                                                                                                      |  |                   |           |   |              |   |          
|Total current liabilities                                                                                             |  |                   | 139,896   |   |              |   | 109,913  
|                                                                                                                      |  |                   |           |   |              |   |          
|Deferred income taxes and other credits                                                                               |  |                   | 150,008   |   |              |   | 147,563  
|Long-term debt                                                                                                        |  |                   | 300,000   |   |              |   |         
|Long-term payable to TXI                                                                                              |  |                   |          |   |              |   | 543,246  
|Stockholders equity:                                                                                                 |  |                   |           |   |              |   |          
|Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued                                           |  |                   |          |   |              |   |         
|Common stock, $0.01 par value, 100,000,000 shares authorized, 22,807,869 and 22,803,867 shares issued and outstanding |  |                   | 228       |   |              |   | 228      
|Additional paid-in capital                                                                                            |  |                   | 705,727   |   |              |   | 206,818  
|Retained earnings (deficit)                                                                                           |  |                   | (144,911  | ) |              |   | 144,474  
|                                                                                                                      |  |                   |           |   |              |   |          
|Total stockholders equity                                                                                            |  |                   | 561,044   |   |              |   | 351,520  
|                                                                                                                      |  |                   |           |   |              |   |          
|                                                                                                                      |  | $                 | 1,150,948 |   |              | $ | 1,152,242
|                                                                                                                      |  |                   |           |   |              |   |          



See notes to
consolidated financial statements.



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##### Table of Contents

CHAPARRAL STEEL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share)

(Unaudited)



|                                    |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------- |  | ------------------------------- | ------- | - | ----------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                    |  | Three months ended November 30, |         |   | Six months ended November 30, |  
|                                    |  | 2005                            |         |   | 2004                          |   |         | 2005 |  |   | 2004    |  
|Net sales                           |  | $                               | 348,130 |   |                               | $ | 249,119 |      |  | $ | 686,535 |   |  | $ | 539,900 |  
|Costs and expenses (income)         |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Cost of products sold               |  |                                 | 283,247 |   |                               |   | 199,850 |      |  |   | 580,441 |   |  |   | 428,165 |  
|Selling, general and administrative |  |                                 | 9,484   |   |                               |   | 6,287   |      |  |   | 16,923  |   |  |   | 14,056  |  
|Interest                            |  |                                 | 7,982   |   |                               |   | 11,973  |      |  |   | 16,146  |   |  |   | 23,904  |  
|Other income, net                   |  |                                 | (4,091  | ) |                               |   | (1,325  | )    |  |   | (5,393  | ) |  |   | (1,829  | )
|                                    |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|                                    |  |                                 | 296,622 |   |                               |   | 216,785 |      |  |   | 608,117 |   |  |   | 464,296 |  
|                                    |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Income before income taxes          |  |                                 | 51,508  |   |                               |   | 32,334  |      |  |   | 78,418  |   |  |   | 75,604  |  
|Income taxes                        |  |                                 | 17,505  |   |                               |   | 11,320  |      |  |   | 26,664  |   |  |   | 26,468  |  
|                                    |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net income                          |  | $                               | 34,003  |   |                               | $ | 21,014  |      |  | $ | 51,754  |   |  | $ | 49,136  |  
|                                    |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Earnings per share:                 |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Basic                               |  | $                               | 1.49    |   |                               | $ | 0.92    |      |  | $ | 2.27    |   |  | $ | 2.15    |  
|                                    |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Diluted                             |  | $                               | 1.44    |   |                               | $ | 0.92    |      |  | $ | 2.22    |   |  | $ | 2.15    |  
|                                    |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Average shares outstanding:         |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Basic                               |  |                                 | 22,805  |   |                               |   | 22,804  |      |  |   | 22,805  |   |  |   | 22,804  |  
|                                    |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Diluted                             |  |                                 | 23,648  |   |                               |   | 22,804  |      |  |   | 23,346  |   |  |   | 22,804  |  
|                                    |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  



See notes to
consolidated financial statements.



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CHAPARRAL STEEL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                 |  |                               |          |   |      |   |         |  
|-------------------------------------------------------------------------------- |  | ----------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                 |  | Six months ended November 30, |         
|                                                                                 |  | 2005                          |          |   | 2004 |  
|Operating activities:                                                            |  |                               |          |   |      |   |         |  
|Net income                                                                       |  | $                             | 51,754   |   |      | $ | 49,136  |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                               |          |   |      |   |         |  
|Depreciation                                                                     |  |                               | 24,883   |   |      |   | 24,228  |  
|Deferred income taxes                                                            |  |                               | 1,358    |   |      |   | 16,752  |  
|Other  net                                                                      |  |                               | 3,005    |   |      |   | 2,746   |  
|Changes in operating assets and liabilities                                      |  |                               |          |   |      |   |         |  
|Accounts receivable-net                                                          |  |                               | (4,412   | ) |      |   | 11,902  |  
|Inventories                                                                      |  |                               | 67,433   |   |      |   | (68,454 | )
|Prepaid expenses                                                                 |  |                               | (2,201   | ) |      |   | (10,221 | )
|Accounts payable                                                                 |  |                               | (6,079   | ) |      |   | (2,569  | )
|Accrued wages, taxes and other liabilities                                       |  |                               | 37,405   |   |      |   | 1,941   |  
|Other credits                                                                    |  |                               | 567      |   |      |   | 269     |  
|Receivable from or payable to TXI                                                |  |                               | (10,286  | ) |      |   | (19,359 | )
|                                                                                 |  |                               |          |   |      |   |         |  
|Net cash provided by operating activities                                        |  |                               | 163,427  |   |      |   | 6,371   |  
|                                                                                 |  |                               |          |   |      |   |         |  
|Investing activities:                                                            |  |                               |          |   |      |   |         |  
|Capital expenditures                                                             |  |                               | (8,128   | ) |      |   | (10,027 | )
|Purchases of short-term investments                                              |  |                               | (317,130 | ) |      |   |        |  
|Sales of short-term investments                                                  |  |                               | 274,355  |   |      |   |        |  
|Other  net                                                                      |  |                               | (595     | ) |      |   | (417    | )
|                                                                                 |  |                               |          |   |      |   |         |  
|Net cash used by investing activities                                            |  |                               | (51,498  | ) |      |   | (10,444 | )
|                                                                                 |  |                               |          |   |      |   |         |  
|Financing activities:                                                            |  |                               |          |   |      |   |         |  
|Long-term borrowings                                                             |  |                               | 350,000  |   |      |   |        |  
|Debt retirements                                                                 |  |                               | (50,000  | ) |      |   |        |  
|Debt issuance costs                                                              |  |                               | (9,469   | ) |      |   |        |  
|Dividend paid to TXI                                                             |  |                               | (341,139 | ) |      |   |        |  
|Issuance of common stock                                                         |  |                               | 24       |   |      |   |        |  
|                                                                                 |  |                               |          |   |      |   |         |  
|Net cash used by financing activities                                            |  |                               | (50,584  | ) |      |   |        |  
|                                                                                 |  |                               |          |   |      |   |         |  
|Increase (decrease) in cash and cash equivalents                                 |  |                               | 61,345   |   |      |   | (4,073  | )
|Cash and cash equivalents at beginning of period                                 |  |                               | 9,287    |   |      |   | 8,575   |  
|                                                                                 |  |                               |          |   |      |   |         |  
|Cash and cash equivalents at end of period                                       |  | $                             | 70,632   |   |      | $ | 4,502   |  
|                                                                                 |  |                               |          |   |      |   |         |  



See notes to
consolidated financial statements.



5



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##### Table of Contents

CHAPARRAL STEEL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(In thousands)

(Unaudited)



|                                           |  |                 |   |              |   |                            |  |                             |         |  |                            |          |   |  |   |          |  
|------------------------------------------ |  | --------------- | - | ------------ | - | -------------------------- |  | --------------------------- | ------- |  | -------------------------- | -------- | - |  | - | -------- | -
|                                           |  | Preferred Stock |   | Common Stock |   | Additional Paid-in Capital |  | Retained Earnings (Deficit) |         |  | Total Stockholders Equity |         
|May 31, 2005                               |  | $               |  |              | $ | 228                        |  | $                           | 206,818 |  | $                          | 144,474  |   |  | $ | 351,520  |  
|Net income                                 |  |                 |  |              |   |                           |  |                             |        |  |                            | 51,754   |   |  |   | 51,754   |  
|Contribution by TXI                        |  |                 |  |              |   |                           |  |                             | 496,548 |  |                            |         |   |  |   | 496,548  |  
|Dividend to TXI                            |  |                 |  |              |   |                           |  |                             |        |  |                            | (341,139 | ) |  |   | (341,139 | )
|Issuance of common stock                   |  |                 |  |              |   |                           |  |                             | 24      |  |                            |         |   |  |   | 24       |  
|Tax benefit from exercise of stock options |  |                 |  |              |   |                           |  |                             | 2,337   |  |                            |         |   |  |   | 2,337    |  
|                                           |  |                 |   |              |   |                            |  |                             |         |  |                            |          |   |  |   |          |  
|November 30, 2005                          |  | $               |  |              | $ | 228                        |  | $                           | 705,727 |  | $                          | (144,911 | ) |  | $ | 561,044  |  
|                                           |  |                 |   |              |   |                            |  |                             |         |  |                            |          |   |  |   |          |  



See notes to
consolidated financial statements.



6



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##### Table of Contents

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, channels, piling products 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 December 14, 2004, Texas Industries Inc.s
(TXI) board of directors adopted a plan to spin-off its steel operations, which was completed on July 29, 2005. In anticipation of the spin-off, the Company and TXI entered into the following transactions:



On February 22, 2005, TXI formed a new, wholly-owned
subsidiary, Chaparral Steel Company to serve as the holding company for its steel business. The Company was initially capitalized for $1,000 and issued 1,000 shares of its common stock, at $0.01 par value per share, to TXI. On June 7, 2005, the
Companys authorized capital stock was increased to 10,000,000 shares of preferred stock, $0.01 par value per share, and 100,000,000 shares of common stock, $0.01 par value per share.



On June 25, 2005, TXI transferred to the Company all of
the stock of its subsidiaries that were engaged in its steel business, consisting of Chaparral Steel Investments Inc. and its subsidiaries and Chaparral (Virginia) Inc. In addition, the Company issued 22,802,867 additional shares of the
Companys common stock to TXI. These transactions have been accounted for as a reorganization of entities under common control. As a result, the assets and liabilities transferred to the Company were recorded at historical cost. In connection
with these transactions, on July 6, 2005, TXI also contributed or transferred real estate and transportation assets used in the steel business to the Company. The Company assumed all liabilities arising out of the steel business and the
transferred assets.



On July 29, 2005, the
Company became an independent, public company. 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 nor is TXI a
guarantor of any of the Companys indebtedness. However, 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. The Companys relationship with TXI is now governed by a separation and distribution agreement and the ancillary agreements described in that agreement. The terms of those agreements are more fully described in
note 9 Legal Proceedings and Contingent Liabilities.



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 incurred 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 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. See note 12 for additional information.



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



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for the interim period presented have been included. Operating results for the six-month period ended November 30, 2005, are not necessarily indicative
of the results that may be expected for the year ending May 31, 2006. 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, 2005.



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



Principles of Consolidation.The consolidated financial statements include the accounts of Chaparral Steel Company and all
subsidiaries.



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 November 30, 2005 approximates its carrying value except for the Senior Notes having a fixed interest rate. The fair value of the Senior Notes at
November 30, 2005, estimated based on over the counter quoted prices was $319.1 million compared to the carrying amount of $300.0 million.



Cash and 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 November 30, 2005,
these ARS have remaining legal maturities which range from 15 to 30 years, but have their interest rates reset at predetermined intervals, typically less than 30 days, through an auction process. We invest in high credit quality instruments 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, we have classified all these securities as
available-for-sale and as current assets in the accompanying balance as of November 30, 2005. The auction rate securities 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. We expect that the majority of our short-term investments will be sold within one year, regardless of legal maturity date. Purchase and sale activity of ARS is presented as cash flows from investing activities in
the consolidated statements of cash flows.



Receivables.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 a specific customers potential inability to make required payments is anticipated.



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 records 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



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shut-downs to refurbish the facilities are amortized over the benefited period, typically 12 months. Such deferred amounts are included in prepaid expenses
on the consolidated balance sheets and amounted to $7.6 million at November 30, 2005 and $7.9 million at May 31, 2005.



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, 2005 the fair value of the Companys goodwill on the
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 $7.7 million at November 30, 2005 and $5.1 million at May 31, 2005. Deferred charges are composed primarily of debt issuance costs that totaled $9.1 million at November 30, 2005. The costs are associated with various
debt issues and amortized over the term of the related debt.



Other Credits.Other credits of $8.4 million at November 30, 2005 and $7.4 million at May 31, 2005 are composed primarily of liabilities related to the Companys retirement plans, asset
retirement obligations and deferred compensation agreements.



Asset Retirement Obligations. Effective June 1, 2003, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement
Obligations, which applies to legal obligations associated with the retirement of long-lived assets.



SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it
is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through a charge to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement.



The Company incurs legal obligations for asset retirement as
part of its normal operations related to the Resource Conservation and Recovery Act closures. Prior to the adoption of SFAS No. 143, the Company generally accrued for land reclamation obligations as incurred. Determining the amount of any asset
retirement liability requires estimating the future cost of contracting with third parties to perform the obligation. The estimate is significantly impacted by, among other considerations, managements assumptions regarding the scope of the
work required, labor costs, inflation rates, market-risk premiums and closure dates.



Changes in asset retirement obligations for the six-month periods ended November 30, 2005 and November 30, 2004 are as follows (in thousands):



|                               |  |                               |     |   |      |   |     |  
|------------------------------ |  | ----------------------------- | --- | - | ---- | - | --- | -
|                               |  | Six months ended November 30, |    
|                               |  | 2005                          |     |   | 2004 |  
|Balance at beginning of period |  | $                             | 566 |   |      | $ | 537 |  
|Accretion expense              |  |                               | 34  |   |      |   | 27  |  
|Settlements                    |  |                               | (42 | ) |      |   | (25 | )
|                               |  |                               |     |   |      |   |     |  
|Balance at end of period       |  | $                             | 558 |   |      | $ | 539 |  
|                               |  |                               |     |   |      |   |     |  



Net
Sales. The Company recognizes revenue when the goods are shipped and title and risk of loss transfer to the customer. The Company 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.



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



|                 |  |                                 |         |                               |   |         |  |      |         |  |   |        
|---------------- |  | ------------------------------- | ------- | ----------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                 |  | Three months ended November 30, |         | Six months ended November 30,
|                 |  | 2005                            |         | 2004                          |   | 2005    |  | 2004
|Net sales        |  |                                 |         |                               |   |         |  |      |         |  |   |        
|Structural mills |  | $                               | 259,530 |                               | $ | 175,194 |  | $    | 509,569 |  | $ | 382,313
|Bar mill         |  |                                 | 58,408  |                               |   | 53,821  |  |      | 119,171 |  |   | 116,442
|Other products   |  |                                 | 9,084   |                               |   | 8,156   |  |      | 17,698  |  |   | 15,169 
|Delivery fees    |  |                                 | 21,108  |                               |   | 11,948  |  |      | 40,097  |  |   | 25,976 
|                 |  |                                 |         |                               |   |         |  |      |         |  |   |        
|                 |  | $                               | 348,130 |                               | $ | 249,119 |  | $    | 686,535 |  | $ | 539,900
|                 |  |                                 |         |                               |   |         |  |      |         |  |   |        



Other Income. Other income primarily includes miscellaneous sales and interest income.



Income Taxes. The Company uses the liability method of recognizing and classifying deferred income taxes. The Company and its
subsidiaries will be 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 dividing net income by the
weighted-average number of common shares outstanding during the period. During the three months ended November 30, 2005, the Company issued 4,002 shares of common stock for the exercise of a stock option. Diluted EPS adjusts net income and the
outstanding shares for the dilutive effect of stock options and other equity-based awards.



|                                                   |  |                                |        |                              |   |        |  |      |        |  |   |       
|-------------------------------------------------- |  | ------------------------------ | ------ | ---------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                   |  | Three months endedNovember 30, |        | Six months endedNovember 30,
|In thousands except per share                      |  | 2005                           |        | 2004                         |   | 2005   |  | 2004
|Earnings                                           |  |                                |        |                              |   |        |  |      |        |  |   |       
|Net income                                         |  | $                              | 34,003 |                              | $ | 21,014 |  | $    | 51,754 |  | $ | 49,136
|                                                   |  |                                |        |                              |   |        |  |      |        |  |   |       
|Shares                                             |  |                                |        |                              |   |        |  |      |        |  |   |       
|Weighted-average shares outstanding                |  |                                | 22,805 |                              |   | 22,804 |  |      | 22,805 |  |   | 22,804
|                                                   |  |                                |        |                              |   |        |  |      |        |  |   |       
|Basic weighted-average shares                      |  |                                | 22,805 |                              |   | 22,804 |  |      | 22,805 |  |   | 22,804
|Stock option and other equity-based award dilution |  |                                | 843    |                              |   |       |  |      | 541    |  |   |      
|                                                   |  |                                |        |                              |   |        |  |      |        |  |   |       
|Diluted weighted-average shares                    |  |                                | 23,648 |                              |   | 22,804 |  |      | 23,346 |  |   | 22,804
|                                                   |  |                                |        |                              |   |        |  |      |        |  |   |       
|Net income                                         |  |                                |        |                              |   |        |  |      |        |  |   |       
|Basic earnings per share                           |  | $                              | 1.49   |                              | $ | 0.92   |  | $    | 2.27   |  | $ | 2.15  
|                                                   |  |                                |        |                              |   |        |  |      |        |  |   |       
|Diluted earnings per share                         |  | $                              | 1.44   |                              | $ | 0.92   |  | $    | 2.22   |  | $ | 2.15  
|                                                   |  |                                |        |                              |   |        |  |      |        |  |   |       



Stock-based Compensation.The Companys employees 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 and key employees.



The Company
accounts for employee 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 SFAS No. 123, Accounting for
Stock-Based Compensation. Generally, no expense is recognized related to the Companys stock options because each options exercise price is set at the stocks fair market value on the date the option is granted.



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In accordance with SFAS No. 123, the Company discloses the compensation cost based
on the estimated fair value at the date of grant recognizing compensation expense ratably over the vesting period. The fair value of each option grant was estimated on the date of grant for purposes of the pro forma disclosures using the
Black-Scholes option-pricing model and assumptions applicable to the underlying common stock. In the three-months ended November 30, 2005, the weighted-average fair value of options granted to the Companys employees was $8.64 based on
weighted average assumptions for dividend yield of 0.0%, volatility factor of .385, risk-free interest rate of 4.0% and expected life in years of 6.5.



Therefore, had compensation expense for stock options held by the Companys employee participants been recognized based upon the fair
value for awards granted, the Companys net income would have been reduced to the following pro forma amounts (in thousands except per share):



|                                                                                             |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       
|-------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | ---------------------------- | ---- | - | ------ |  | - | ------ | - |  | - | ------
|                                                                                             |  | Three months endedNovember 30, |        | Six months endedNovember 30,
|                                                                                             |  | 2005                           |        |                              | 2004 |   | 2005   |  |   | 2004  
|Net income                                                                                   |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       
|As reported                                                                                  |  | $                              | 34,003 |                              |      | $ | 21,014 |  | $ | 51,754 |   |  | $ | 49,136
|Stock-based compensation included in the determination of net income as reported, net of tax |  |                                | 20     |                              |      |   | 5      |  |   | 48     |   |  |   | 10    
|Fair value of stock-based compensation, net of tax                                           |  |                                | (391   | )                            |      |   | 341    |  |   | (655   | ) |  |   | 220   
|                                                                                             |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       
|Pro forma                                                                                    |  | $                              | 33,632 |                              |      | $ | 21,360 |  | $ | 51,147 |   |  | $ | 49,366
|                                                                                             |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       
|Net earnings per share-as reported:                                                          |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       
|Basic                                                                                        |  | $                              | 1.49   |                              |      | $ | 0.92   |  | $ | 2.27   |   |  | $ | 2.15  
|Diluted                                                                                      |  |                                | 1.44   |                              |      |   | 0.92   |  |   | 2.22   |   |  |   | 2.15  
|Net earnings per share-pro forma:                                                            |  |                                |        |                              |      |   |        |  |   |        |   |  |   |       
|Basic                                                                                        |  |                                | 1.47   |                              |      |   | 0.94   |  |   | 2.24   |   |  |   | 2.16  
|Diluted                                                                                      |  |                                | 1.42   |                              |      |   | 0.94   |  |   | 2.19   |   |  |   | 2.16  



In
December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R is a revision of SFAS No. 123, Accounting for Stock Based Compensation, and supersedes APB No. 25. Among other items, SFAS
No. 123R eliminates the use of APB No. 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair
value of those awards, in the financial statements. The current effective date of SFAS No. 123R is the first fiscal year beginning after June 15, 2005, which is the first quarter of the Companys fiscal year ending May 31, 2007.
The Company currently expects to adopt SFAS No. 123R effective June 1, 2006 using the modified prospective method. Under the modified prospective method, compensation cost is recognized in the financial statements beginning
with the effective date, based on the requirements of SFAS No. 123R for all share-based payments granted after that date, and based on the requirements of SFAS No. 123 for all unvested awards granted prior to the effective date of SFAS
No. 123R. Financial information for periods prior to the date of adoption of SFAS No. 123R would not be restated. The Company currently utilizes a standard option pricing model (i.e., Black-Scholes) to measure the fair value of stock
options granted to employees. While SFAS No. 123R permits entities to continue to use such a model, the standard also permits the use of a lattice model. The Company has not yet determined which model it will use to measure the fair
value of awards of equity instruments to employees upon the adoption of SFAS No. 123R.



The adoption of SFAS No. 123R will have a significant effect on the Companys future results of operations. However, it will not have an impact on the Companys consolidated
financial position. The impact of SFAS No. 123R on the Companys results of operations cannot be predicted at this time, because it will depend on the number of equity awards granted in the future, as well as the model used to value the
awards. However, had the Company adopted the requirements of SFAS No. 123R in prior periods, the impact would have approximated the amounts disclosed in the table above.



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SFAS No. 123R also requires that the benefits associated with the tax deductions in
excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in
periods after the effective date. These future amounts cannot be estimated, because they depend on, among other things, when employees exercise stock options. However, the amount of operating cash flows recognized in prior periods for such excess
tax deductions was not material.



Recent
Accounting Pronouncements.In May 2005, the Financial Accounting Standards Board issued SFAS No. 154, Accounting Changes and Error Corrections, which is effective for the Company for reporting changes in accounting principles
beginning June 1, 2006. SFAS No. 154 changes the reporting of a change in accounting principle to require retrospective application to prior periods financial statements, unless explicit transition provisions are provided for in new
accounting pronouncements or existing pronouncements that are in the transition phase when SFAS No. 154 becomes effective.



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



Working capital totaled $297.4 million at November 30, 2005 and $324.8 million at May 31, 2005.



Short-term investments were $42.8 million at
November 30, 2005 and none at May 31, 2005 and consisted of Auction Rate Securities all of which had legal maturities of over 10 years but have their interest rates reset at predetermined intervals, typically less than 30 days, through an
auction process.



Accounts receivable are
presented net of allowances for doubtful receivables of $1.8 million at November 30, 2005 and at May 31, 2005. Provisions (recoveries) for bad debts charged (credited) to expense were none and $(0.2) million in the six-month periods ended
November 30, 2005 and 2004, respectively. Uncollectible amounts written off in the six-month periods ended November 30, 2005 and 2004 were none and $0.2 million, respectively.



Inventories consist of (in thousands):



|                           |  |                  |         |             |   |        
|-------------------------- |  | ---------------- | ------- | ----------- | - | -------
|                           |  | November 30,2005 |         | May 31,2005
|Finished product           |  | $                | 55,605  |             | $ | 107,475
|Work in process            |  |                  | 18,714  |             |   | 22,021 
|Raw materials and supplies |  |                  | 104,471 |             |   | 116,727
|                           |  |                  |         |             |   |        
|                           |  | $                | 178,790 |             | $ | 246,223
|                           |  |                  |         |             |   |        



Inventories are stated at cost (not in excess of market) with approximately 56% of inventories using the last-in, first-out (LIFO) method. If the average cost method (which approximates current replacement cost) had been used,
inventory values would have been higher by $60.6 million at November 30, 2005 and $63.1 million higher at May 31, 2005. During the six months ended November 30, 2005, certain inventory quantities were reduced, which resulted in a
partial liquidation of the fiscal year 2005 LIFO inventory layer carried at higher costs. Although the effect of the partial liquidation was to increase cost of products sold by $0.4 million, the overall effect of LIFO in the current period was to
decrease cost of products sold by a total of $2.5 million.



In December 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4, which will become effective for the Company on 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 overhead. 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.



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



|                                         |  |                  |        |             |   |       
|---------------------------------------- |  | ---------------- | ------ | ----------- | - | ------
|                                         |  | November 30,2005 |        | May 31,2005
|Employee wages and benefits              |  | $                | 18,948 |             | $ | 12,389
|Current portion of deferred income taxes |  |                  | 572    |             |   | 572   
|Property taxes                           |  |                  | 6,165  |             |   | 3,156 
|Current income taxes payable             |  |                  | 12,712 |             |   | 412   
|Interest payable                         |  |                  | 12,266 |             |   |      
|Other liabilities                        |  |                  | 6,922  |             |   | 4,404 
|                                         |  |                  |        |             |   |       
|                                         |  | $                | 57,585 |             | $ | 20,933
|                                         |  |                  |        |             |   |       



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



The Company 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
November 30, 2005, the minimum monthly charge was approximately $0.4 million.



The Company 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 November 30, 2005, the minimum monthly charge was approximately $0.1 million. Management believes that the
Companys minimum purchase requirements will be satisfied by its consumption of the products in the normal course of business.



The Company entered into an agreement to purchase a minimum monthly amount of mill services at its Texas facility. This agreement expires
in December 2014. At November 30, 2005, the minimum monthly charge was approximately $5,000. The Company 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 November 30, 2005, the minimum monthly charge was approximately $0.4 million. Management believes that the Companys minimum purchase requirements will be satisfied by its consumption of the products in the normal course of
business.



The Company leases certain mobile
and other equipment, real estate and other items, which in the normal course of business are renewed or replaced by subsequent leases. Total expense for such operating leases was $0.8 million and $1.1 million in the six-month periods ended
November 30, 2005 and 2004, respectively.



Future estimated payments under these agreements as of November 30, 2005 are as follows for the years ending November 30 as noted (in thousands):



|                              |  |       |        |      |   |        |  |      |        |           |   |            |  |   |        |  |   |       
|----------------------------- |  | ----- | ------ | ---- | - | ------ |  | ---- | ------ | --------- | - | ---------- |  | - | ------ |  | - | ------
|                              |  | Total |        | 2006 |   | 2007   |  | 2008 |        | 2009-2010 |   | After 2010
|Processed gas supply contract |  | $     | 41,220 |      | $ | 5,813  |  | $    | 5,813  |           | $ | 5,813      |  | $ | 11,626 |  | $ | 12,155
|In-plant mill services        |  |       | 29,468 |      |   | 4,453  |  |      | 4,453  |           |   | 4,453      |  |   | 8,906  |  |   | 7,203 
|Operating lease obligations   |  |       | 2,130  |      |   | 474    |  |      | 138    |           |   | 70         |  |   | 124    |  |   | 1,324 
|                              |  |       |        |      |   |        |  |      |        |           |   |            |  |   |        |  |   |       
|Total                         |  | $     | 72,818 |      | $ | 10,740 |  | $    | 10,404 |           | $ | 10,336     |  | $ | 20,656 |  | $ | 20,682
|                              |  |       |        |      |   |        |  |      |        |           |   |            |  |   |        |  |   |       



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



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



|                                                |  |                  |         |             |   |  
|----------------------------------------------- |  | ---------------- | ------- | ----------- | - | -
|                                                |  | November 30,2005 |         | May 31,2005
|Senior secured credit facility expiring in 2010 |  | $                |        |             | $ | 
|Senior notes due in 2013, interest rate 10.00%  |  |                  | 300,000 |             |   | 
|                                                |  |                  |         |             |   |  
|                                                |  |                  | 300,000 |             |   | 
|Less current maturities                         |  |                  |        |             |   | 
|                                                |  |                  |         |             |   |  
|                                                |  | $                | 300,000 |             | $ | 
|                                                |  |                  |         |             |   |  



On
June 16, 2005, the Company entered into a new 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 $1.6 million was outstanding at November 30, 2005. 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 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 July 6, 2005, the Company borrowed $50.0 million under the Credit Facility, none of which was outstanding at August 31, 2005. The Company did not borrow
any funds under the Credit Facility during the three-months ended November 30, 2005; however, $1.6 million of the facility was utilized to support letters of credit. 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 (the 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. As of
November 30, 2005, we were in compliance with all loan covenants.



The Company used the net proceeds from the Credit Facility and Senior Notes to pay a cash dividend of $341.1 million to TXI on July 6, 2005.



In connection with the issuance of the Senior Notes, the Company entered into a registration rights
agreement with the initial purchasers of the Senior Notes. The registration rights agreement provides the holders of the Senior Notes certain rights relating to the registration of the Senior Notes under the Securities Act of 1933, as amended.
Pursuant to the registration rights agreement, the Company agreed to conduct a registered exchange offer for the Senior Notes or cause to become effective a shelf registration statement providing for the resale of the Senior Notes. On
December 2, 2005, the Company completed the offer to exchange our 10% senior notes due 2013, which are registered under the Securities Act of 1933, as amended, for the outstanding 10% Senior Notes due 2013 that were issued in a private offering
on July 6, 2005. The terms of the registered notes are substantially identical to the Companys previously outstanding Senior Notes.



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The amount of interest paid was $3.3 million and $23.9 million in the six-month periods
ended November 30, 2005 and 2004, respectively. No interest was capitalized in either of the six-month periods ended November 30, 2005 and 2004.



|6. | Stockholders Rights Plan
|-- | ------------------------



On July 21, 2005, the Company adopted a stockholders rights plan (the Rights Agreement). Pursuant to the Rights
Agreement, the Company declared a dividend of rights (the Rights) to purchase, upon the occurrence of certain events, one one-thousandth of a share of the Series A Junior Participating Preferred Stock, par value $0.01 per share
(Preferred Stock), for each outstanding share of common stock of the Company. Until the Rights become exercisable, all further issuances of common stock, including common stock issuable upon exercise of outstanding options, will include
issuances of Rights. The Rights will be exercisable at $90.00 per one one-thousandth of a share of Preferred Stock. The Rights will expire on July 29, 2015 unless extended or unless the Rights are earlier redeemed or exchanged by the Company.



The Rights are not exercisable nor are they
transferable apart from the common stock of the Company until the earlier of (a) the tenth day after such time as a person or group acquires beneficial ownership of 15% of the common stock of the Company or (b) the tenth business day
(unless extended by the Board of Directors) after a person or group announces its intention to commence or commences a tender or exchange offer the consummation of which would result in beneficial ownership by a person or group of 15% or more of the
common stock. The earlier of these dates is referred to as the Distribution Date. As soon as practicable after the Distribution Date, separate right certificates will be issued and the Rights will become exercisable and transferable
apart from the common stock of the Company.



The Preferred Stock issuable upon exercise of the Rights will be non-redeemable and rank junior to any other series of the Companys preferred stock that is outstanding. Each whole share of Preferred Stock will be entitled to receive a
quarterly preferential dividend of $1.00 per share but will be entitled to receive, in the aggregate, a dividend of 1,000 times the dividend declared on the common stock. In the event of liquidation, the holders of the Preferred Stock will be
entitled to receive a preferential liquidation payment equal to the greater of $1,000 per share, plus accrued and unpaid dividends, or, in the aggregate, a liquidation payment equal to 1,000 times the payment made per share of the Companys
common stock. Each share of Preferred Stock will have 1,000 votes, voting together with the common stock. Finally, in the event of any merger, consolidation or other transaction in which shares of common stock are exchanged for or changed into other
stock or securities, cash and/or other property, each share of Preferred Stock would be entitled to receive 1,000 times the amount received per share of common stock.



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



Prior to the spin-off, certain of the Companys employees participated in TXI stock option plans which provided that non-qualified
and incentive stock options to purchase TXIs common stock could be granted to officers and key employees at an exercise price no less than market price on the date of grant. Outstanding options became exercisable in installments beginning one
year after date of grant and expire ten years from the date of grant.



TXI options that were vested at the distribution date of July 29, 2005 and held by individuals who became or were retained as employees of the Company in connection with the spin-off were cancelled and replaced
with the new TXI stock options. The exercise price of each new TXI option was based upon the respective market values of the two companies at the time the spin-off was completed so that the aggregate exercise price of the new options, as well as the
ratio of the per-share fair market value of the shares to the per-share exercise price of the new TXI options, were the same as the cancelled TXI options. All other terms of the new TXI options remained the same as the cancelled TXI options.



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 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



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Company. A maximum of 4,000,000 shares of the Companys common stock is available for issuance to participants under this plan.



TXI options that were unvested at the date of distribution
and held by individuals who became or were retained as employees of the Company in connection with the spin-off were cancelled and replaced with options to purchase shares of the Companys common stock. The exercise price of each new option
issued by the Company was based upon the respective market values of the two companies at the time the spin-off was completed so that the aggregate exercise price of the new options, as well as the ratio of the per-share fair market value of the
shares to the per-share exercise price of the new options, remained the same as the cancelled TXI options. All other terms of the new Company options, were the same as the cancelled TXI options. Following the adjustment, there were 1,181,212 options
outstanding to purchase shares of the Companys common stock at a weighted-average option price of $8.39 per share.



In July and August 2005, officers and key employees were awarded options to purchase 546,163 shares of common stock. The options were
granted at the market price of the common stock on the respective dates of grant, which ranged from $18.40 to $20.245. The term of the options is ten years and the options vest in equal annual installments over five years.



A summary of TXI and Company option transactions related to
the Companys employees and non-employee directors for the three-month period ended November 30, 2005, follows:



|                                                                |  |                     |   |  |                                |      
|--------------------------------------------------------------- |  | ------------------- | - |  | ------------------------------ | -----
|                                                                |  | Shares Under Option |   |  | Weighted- Average Option Price
|TXI options outstanding at May 31, 2005                         |  | 393,720             |   |  | $                              | 33.43
|Exercised                                                       |  | (31,000             | ) |  |                                | 29.95
|Cancelled                                                       |  | (67,500             | ) |  |                                | 34.42
|                                                                |  |                     |   |  |                                |      
|Unvested TXI options outstanding at July 29, 2005               |  | 295,220             |   |  |                                | 33.57
|Adjustment in connection with the spin-off from TXI             |  | 885,992             |   |  |                                |      
|                                                                |  |                     |   |  |                                |      
|Company options converted from TXI outstanding at July 29, 2005 |  | 1,181,212           |   |  |                                | 8.39 
|Exercised                                                       |  | (4,002              | ) |  |                                | 5.97 
|Cancelled                                                       |  | (5,400              | ) |  |                                | 10.28
|Stock appreciation right converted                              |  | 16,006              |   |  |                                | 6.61 
|Granted                                                         |  | 546,163             |   |  |                                | 18.89
|                                                                |  |                     |   |  |                                |      
|Company options outstanding at November 30, 2005                |  | 1,733,979           |   |  | $                              | 11.68
|                                                                |  |                     |   |  |                                |      



Company options totaling 20,009 were exercisable as of November 30, 2005. Outstanding options expire on various dates through August 2, 2015.



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



Federal income taxes for the interim periods ended November 30, 2005 and November 30, 2004, have been included in the
accompanying financial statements on the basis of an estimated annual rate. On October 22, 2004, a new tax law, the American Jobs Creation Act of 2004 (the Jobs Creation Act), became effective. Among other provisions, the Jobs
Creation Act allows a deduction for income from qualified domestic production activities, which will be phased in from 2005 through 2010. The Company anticipates realizing benefit from this deduction in the current fiscal year which resulted in an
estimated annualized effective tax rate of 34.0% for the three and six month periods ended November 30, 2005 compared to 35.0% for the comparable periods in the prior year. The Company made federal income tax payments of $13.0 million and $7.4
million in the six-month periods ended November 30, 2005 and 2004, respectively.



As of May 31, 2005, the Company has $752.3 million in Virginia state net operating loss carryforwards that begin to expire in 2019. 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 a net state



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deferred tax asset of $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.



|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 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. Based on its experience in dealing with such claims in the past and the information currently available to it
regarding any potential or outstanding claims, the Company believes that such claims will not have a material impact on its consolidated financial condition or results of operations. Despite the Companys compliance and experience, it is
possible that the Company could be held liable for future charges, which might be material but are not currently known or estimable. In addition, 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) neither the Company nor TXI will liquidate, merge, or consolidate with any other person, sell, exchange, distribute
or otherwise dispose of their respective assets (or those of certain of their respective subsidiaries) except in the ordinary course of business, or enter into any substantial negotiations, agreements, or arrangements, or arrangements with respect
to any such transaction, during the six months following July 29, 2005; (2) 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;
(3) 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 IRS; (4) 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 (5) 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, except that the Company may not, under any circumstances, take any action described in (1) above.



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



The Companys employees participate in a defined contribution retirement plan. The Company contributes 2% of each employees
eligible compensation and a variable contribution based on a predetermined formula established annually. The amount of retirement expense charged to costs and expenses for this plan was $1.5 million and $1.3 million in the six-month periods ended
November 30, 2005 and 2004, respectively. It is the Companys policy to fund the plan to the extent of charges to income.



On July 21, 2005, the 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 executive and



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key managerial employees who elect to participate. The plan is contributory but not funded. Costs and associated assets and liabilities related to the
Companys employee participation are included in the financial information contained herein. 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 $7.7 million at November 30, 2005 and $5.1 million at May 31, 2005, and are included in investments on the 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 current period. Actuarial gains or losses
are recognized when incurred, and therefore, the end of year benefit obligation is the same as the accrued benefit costs recognized in the balance sheet.



As of November 30, 2005, the estimated future benefit payments for each of the five succeeding years are $0.2 million, $0.3 million,
$0.4 million, $0.6 million and $0.9 million and for the five-year period thereafter an aggregate of $4.9 million.



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



|                                |  |                              |      |   |      |   |      |  
|------------------------------- |  | ---------------------------- | ---- | - | ---- | - | ---- | -
|                                |  | Six months endedNovember 30, |     
|                                |  | 2005                         |      |   | 2004 |  
|Service cost                    |  | $                            | 428  |   |      | $ | 313  |  
|Interest cost                   |  |                              | 212  |   |      |   | 244  |  
|Amortization of transition cost |  |                              | 8    |   |      |   | 8    |  
|Participant contributions       |  |                              | (118 | ) |      |   | (105 | )
|                                |  |                              |      |   |      |   |      |  
|                                |  | $                            | 530  |   |      | $ | 460  |  
|                                |  |                              |      |   |      |   |      |  



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



All personnel employed by the Company as of May 31 and not subject to production-based incentive 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 the fiscal years ending May 31, 2006, 2007 and 2008.
New plans 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 $3.2 million and $2.3 million in the six-month
periods ended November 30, 2005 and 2004, respectively.



|12. | Transactions with TXI and Affiliates
|--- | ------------------------------------



Prior to the spin-off, TXI utilized a centralized cash management program for all of its subsidiaries, through which the Company 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 its behalf, including raw material procurement, payroll and capital
expenditures. The current receivable from TXI also contained transactions with TXI under the inter-company tax sharing policy. Prior to the spin-off, TXI through one of its subsidiaries, provided the Company with common carrier services,
transporting finished product to the Companys customers and backhauling materials and supplies for the Company. These costs have been included in cost of products sold in the consolidated statements of operations and were $0.6 million and $3.0
million in the six-month periods ended November 30, 2005 and 2004, respectively. The Company believes that the rates charged to it for transportation services approximate the rates that would have been charged by third parties. Following the
spin-off, the Company utilizes assets transferred to it by TXI to operate its own common carrier service. TXI also allocated certain corporate expenses related primarily to shared services and facilities. Management believes that the allocations
were made on a reasonable basis.



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The long-term payable to TXI consisted of advances made by TXI to the Company for the
construction of facilities. During the periods presented, the Company received or paid interest on its balances with TXI and its subsidiaries at a rate of 8%. This rate does not necessarily represent the rate that the Company would have been able to
obtain on loans from unaffiliated third parties.



|13. | 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. For periods prior to the quarter ended August 31, 2005, the Parent Company had no significant assets or operations independent of its investment in its subsidiaries.



The following condensed consolidating balance sheet as of
November 30, 2005, and the condensed consolidating statement of operations for the three and six months ended November 30, 2005 and statement of cash flows for the six months then ended 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.



Condensed consolidating balance sheet as of November 30, 2005



|                                           |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|------------------------------------------ |  | --------------------- | --------- | --------------------- | - | ------------------------- |  | ------------------ | - |  | ------------ | ---------- | - |  | - | ---------
|In thousands                               |  | ChaparralSteelCompany |           | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |  | EliminatingEntries |   |  | Consolidated
|Cash and cash equivalents                  |  | $                     | 68,781    |                       | $ | 1,851                     |  | $                  |  |  | $            |           |   |  | $ | 70,632   
|Short-term investments                     |  |                       | 42,775    |                       |   |                          |  |                    |  |  |              |           |   |  |   | 42,775   
|Accounts receivable-net                    |  |                       |          |                       |   | 131,795                   |  |                    |  |  |              |           |   |  |   | 131,795  
|Intercompany receivables                   |  |                       |          |                       |   | 147,590                   |  |                    |  |  |              | (147,590   | ) |  |   |         
|Inventories                                |  |                       |          |                       |   | 178,790                   |  |                    |  |  |              |           |   |  |   | 178,790  
|Prepaid expenses                           |  |                       | 353       |                       |   | 12,945                    |  |                    |  |  |              |           |   |  |   | 13,298   
|                                           |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Total current assets                       |  |                       | 111,909   |                       |   | 472,971                   |  |                    |  |  |              | (147,590   | ) |  |   | 437,290  
|Goodwill                                   |  |                       |          |                       |   | 85,166                    |  |                    |  |  |              |           |   |  |   | 85,166   
|Investments and deferred charges           |  |                       | 9,103     |                       |   | 7,655                     |  |                    |  |  |              |           |   |  |   | 16,758   
|Investments in subsidiaries                |  |                       | 912,674   |                       |   |                          |  |                    |  |  |              | (912,674   | ) |  |   |         
|Property, plant and equipment - net        |  |                       |          |                       |   | 611,734                   |  |                    |  |  |              |           |   |  |   | 611,734  
|                                           |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Total assets                               |  | $                     | 1,033,686 |                       | $ | 1,177,526                 |  | $                  |  |  | $            | (1,060,264 | ) |  | $ | 1,150,948
|                                           |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Trade accounts payable                     |  | $                     | 326       |                       | $ | 81,985                    |  | $                  |  |  | $            |           |   |  | $ | 82,311   
|Intercompany payables                      |  |                       | 147,590   |                       |   |                          |  |                    |  |  |              | (147,590   | ) |  |   |         
|Accrued wages, taxes and other liabilities |  |                       | 24,623    |                       |   | 32,962                    |  |                    |  |  |              |           |   |  |   | 57,585   
|                                           |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Total current liabilities                  |  |                       | 172,539   |                       |   | 114,947                   |  |                    |  |  |              | (147,590   | ) |  |   | 139,896  
|Deferred income taxes and other credits    |  |                       | 103       |                       |   | 149,905                   |  |                    |  |  |              |           |   |  |   | 150,008  
|Long-term debt                             |  |                       | 300,000   |                       |   |                          |  |                    |  |  |              |           |   |  |   | 300,000  
|Stockholders equity                       |  |                       | 561,044   |                       |   | 912,674                   |  |                    |  |  |              | (912,674   | ) |  |   | 561,044  
|                                           |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          
|Total liabilities and stockholders equity |  | $                     | 1,033,686 |                       | $ | 1,177,526                 |  | $                  |  |  | $            | (1,060,264 | ) |  | $ | 1,150,948
|                                           |  |                       |           |                       |   |                           |  |                    |   |  |              |            |   |  |   |          



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Condensed consolidating statement of operations for the three months
ended November 30, 2005



|                                                                                           |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | --------------------- | ------- | - | --------------------- | - | ------- | ------------------------- |  | ------------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|In thousands                                                                               |  | ChaparralSteelCompany |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  | EliminatingEntries |   |  | Consolidated |        
|Net sales                                                                                  |  | $                     |        |   |                       | $ | 348,130 |                           |  | $                  |  |  | $            |        |   |  | $ | 348,130 |  
|Costs and expenses (income)                                                                |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Cost of products sold                                                                      |  |                       |        |   |                       |   | 283,247 |                           |  |                    |  |  |              |        |   |  |   | 283,247 |  
|Selling, general and administrative                                                        |  |                       | 159     |   |                       |   | 9,325   |                           |  |                    |  |  |              |        |   |  |   | 9,484   |  
|Interest, net                                                                              |  |                       | 7,982   |   |                       |   |        |                           |  |                    |  |  |              |        |   |  |   | 7,982   |  
|Other income                                                                               |  |                       | (551    | ) |                       |   | (3,540  | )                         |  |                    |  |  |              |        |   |  |   | (4,091  | )
|                                                                                           |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|                                                                                           |  |                       | 7,590   |   |                       |   | 289,032 |                           |  |                    |  |  |              |        |   |  |   | 296,622 |  
|                                                                                           |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Income (loss) before income taxes                                                          |  |                       | (7,590  | ) |                       |   | 59,098  |                           |  |                    |  |  |              |        |   |  |   | 51,508  |  
|Income taxes (benefit)                                                                     |  |                       | (2,656  | ) |                       |   | 20,161  |                           |  |                    |  |  |              |        |   |  |   | 17,505  |  
|                                                                                           |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|                                                                                           |  |                       | (4,934  | ) |                       |   | 38,937  |                           |  |                    |  |  |              |        |   |  |   | 34,003  |  
|Equity in earnings (loss) of subsidiaries                                                  |  |                       | 38,937  |   |                       |   |        |                           |  |                    |  |  |              | (38,937 | ) |  |   |        |  
|                                                                                           |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Net income (loss)                                                                          |  | $                     | 34,003  |   |                       | $ | 38,937  |                           |  | $                  |  |  | $            | (38,937 | ) |  | $ | 34,003  |  
|                                                                                           |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|                                                                                          
|Condensed consolidating statement of operations for the six months ended November 30,
2005 | 
|                                                                                           |  |                       |         |   |                      
|Net sales                                                                                  |  | $                     |        |   |                       | $ | 686,535 |                           |  | $                  |  |  | $            |        |   |  | $ | 686,535 |  
|Costs and expenses (income)                                                                |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Cost of products sold                                                                      |  |                       |        |   |                       |   | 580,441 |                           |  |                    |  |  |              |        |   |  |   | 580,441 |  
|Selling, general and administrative                                                        |  |                       | 164     |   |                       |   | 16,759  |                           |  |                    |  |  |              |        |   |  |   | 16,923  |  
|Interest, net                                                                              |  |                       | 13,300  |   |                       |   | 2,846   |                           |  |                    |  |  |              |        |   |  |   | 16,146  |  
|Other income                                                                               |  |                       | (588    | ) |                       |   | (4,805  | )                         |  |                    |  |  |              |        |   |  |   | (5,393  | )
|                                                                                           |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|                                                                                           |  |                       | 12,876  |   |                       |   | 595,241 |                           |  |                    |  |  |              |        |   |  |   | 608,117 |  
|                                                                                           |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Income (loss) before income taxes                                                          |  |                       | (12,876 | ) |                       |   | 91,294  |                           |  |                    |  |  |              |        |   |  |   | 78,418  |  
|Income taxes (benefit)                                                                     |  |                       | (4,506  | ) |                       |   | 31,170  |                           |  |                    |  |  |              |        |   |  |   | 26,664  |  
|                                                                                           |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|                                                                                           |  |                       | (8,370  | ) |                       |   | 60,124  |                           |  |                    |  |  |              |        |   |  |   | 51,754  |  
|Equity in earnings (loss) of subsidiaries                                                  |  |                       | 60,124  |   |                       |   |        |                           |  |                    |  |  |              | (60,124 | ) |  |   |        |  
|                                                                                           |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  
|Net income (loss)                                                                          |  | $                     | 51,754  |   |                       | $ | 60,124  |                           |  | $                  |  |  | $            | (60,124 | ) |  | $ | 51,754  |  
|                                                                                           |  |                       |         |   |                       |   |         |                           |  |                    |   |  |              |         |   |  |   |         |  



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Condensed consolidating statement of cash flows for the six months
ended November 30, 2005



|                                                 |  |                       |          |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |          |  
|------------------------------------------------ |  | --------------------- | -------- | - | --------------------- | - | -------- | ------------------------- |  | ------------------ | - | ------------ | - | - |  | - | -------- | -
|In thousands                                     |  | ChaparralSteelCompany |          |   | GuarantorSubsidiaries |   |          | Non-GuarantorSubsidiaries |  | EliminatingEntries |   | Consolidated |  
|Net cash provided by operating activities        |  | $                     | 14,549   |   |                       | $ | 148,878  |                           |  | $                  |  |              | $ |  |  | $ | 163,427  |  
|Investing activities                             |  |                       |          |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |          |  
|Capital expenditures                             |  |                       |         |   |                       |   | (8,128   | )                         |  |                    |  |              |   |  |  |   | (8,128   | )
|Purchases of short-term investments              |  |                       | (317,130 | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (317,130 | )
|Purchases of short-term investments              |  |                       | 274,355  |   |                       |   |         |                           |  |                    |  |              |   |  |  |   | 274,355  |  
|Intercompany advances                            |  |                       | 147,590  |   |                       |   | (147,590 | )                         |  |                    |  |              |   |  |  |   |         |  
|Other-net                                        |  |                       |         |   |                       |   | (595     | )                         |  |                    |  |              |   |  |  |   | (595     | )
|                                                 |  |                       |          |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |          |  
|Net cash provided (used) by investing activities |  |                       | 104,815  |   |                       |   | (156,313 | )                         |  |                    |  |              |   |  |  |   | (51,498  | )
|Financing activities                             |  |                       |          |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |          |  
|Long-term borrowings                             |  |                       | 350,000  |   |                       |   |         |                           |  |                    |  |              |   |  |  |   | 350,000  |  
|Debt issuance costs                              |  |                       | (9,469   | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (9,469   | )
|Debt retirements                                 |  |                       | (50,000  | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (50,000  | )
|Issuance of common stock                         |  |                       | 24       |   |                       |   |         |                           |  |                    |  |              |   |  |  |   | 24       |  
|Dividend paid to TXI                             |  |                       | (341,139 | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (341,139 | )
|                                                 |  |                       |          |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |          |  
|Net cash used by financing activities            |  |                       | (50,584  | ) |                       |   |         |                           |  |                    |  |              |   |  |  |   | (50,584  | )
|                                                 |  |                       |          |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |          |  
|Increase (decrease) in cash and cash equivalents |  |                       | 68,780   |   |                       |   | (7,435   | )                         |  |                    |  |              |   |  |  |   | 61,345   |  
|Cash and cash equivalents at beginning of period |  |                       | 1        |   |                       |   | 9,286    |                           |  |                    |  |              |   |  |  |   | 9,287    |  
|                                                 |  |                       |          |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |          |  
|Cash and cash equivalents at end of period       |  | $                     | 68,781   |   |                       | $ | 1,851    |                           |  | $                  |  |              | $ |  |  | $ | 70,632   |  
|                                                 |  |                       |          |   |                       |   |          |                           |  |                    |   |              |   |   |  |   |          |  



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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 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 is generally characterized by overcapacity, which in the past has resulted in high levels of steel imports into the United
States, exerting downward pressure on domestic steel prices. In the recent past, world-wide steel and steel scrap demand has increased, due in part to the economic expansion of China. Increased 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. Should global demand weaken, or steel production increase materially, foreign steel production that is currently
being exported to or consumed by other countries, including China, may instead be exported to the United States. Additional steel imports into the United States, declining non-residential construction or a material increase in domestic steel
production could cause our selling prices to fall. A significant decline in sales prices could materially and adversely affect our financial condition and results of operations.



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. The shredding operation gives 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 the economic expansion in China, which now consumes approximately one fourth of the worlds steel. Our Virginia plant began receiving scrap from our on-site,
shredding facility (which is operated by an unrelated party) in the fourth quarter of fiscal year 2005. 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 due to increased global demand for steel.



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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. See note 1 of the consolidated financial statements.



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
financial statements include all costs of our steel business. For periods prior to the spin-off 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 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. These
costs have been included in cost of products sold in the consolidated statements of operations and were approximately $0.6 million and $3.0 million in the six-month periods ended November 30, 2005 and 2004, respectively. We believe the rates
charged to us for transportation services approximate the rates that would have been charged by third parties. Following the spin-off, 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 between 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.
As of the effective date of the spin-off, TXI had contributed to capital the net intercompany indebtedness owed to it by us and our subsidiaries and various other assets in the amount of $496.5 million.



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Results of Operations



Three-month period ended November 30, 2005 compared to the three-month period ended November 30, 2004.



(In thousands except per ton data)



|                                    |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   
|----------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | ------ |  | - | -------- | - |  | ----- | --
|                                    |  | Three months ended November 30, |         |   |      |  
|                                    |  | 2005                            |         |   | 2004 |   |         | Change |  |   | % Change |  
|Net sales                           |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   
|Structural mills                    |  | $                               | 259,530 |   |      | $ | 175,194 |        |  | $ | 84,336   |   |  | 48.1  | % 
|Bar mill                            |  |                                 | 58,408  |   |      |   | 53,821  |        |  |   | 4,587    |   |  | 8.5   | % 
|Other products                      |  |                                 | 9,084   |   |      |   | 8,156   |        |  |   | 928      |   |  | 11.4  | % 
|Delivery fees                       |  |                                 | 21,108  |   |      |   | 11,948  |        |  |   | 9,160    |   |  | 76.7  | % 
|                                    |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   
|Total                               |  | $                               | 348,130 |   |      | $ | 249,119 |        |  | $ | 99,011   |   |  | 39.7  | % 
|                                    |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   
|Units shipped (tons)                |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   
|Structural                          |  |                                 | 449     |   |      |   | 308     |        |  |   | 141      |   |  | 45.8  | % 
|Bar                                 |  |                                 | 99      |   |      |   | 81      |        |  |   | 18       |   |  | 22.2  | % 
|                                    |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   
|Total                               |  |                                 | 548     |   |      |   | 389     |        |  |   | 159      |   |  | 40.9  | % 
|                                    |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   
|Average sales price per ton         |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   
|Structural                          |  | $                               | 578     |   |      | $ | 568     |        |  | $ | 10       |   |  | 1.8   | % 
|Bar                                 |  |                                 | 590     |   |      |   | 665     |        |  |   | (75      | ) |  | (11.3 | %)
|Total                               |  |                                 | 580     |   |      |   | 589     |        |  |   | (9       | ) |  | (1.5  | %)
|Net sales                           |  | $                               | 348,130 |   |      | $ | 249,119 |        |  | $ | 99,011   |   |  | 39.7  | % 
|Costs and expenses (income)         |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   
|Cost of products sold               |  |                                 | 283,247 |   |      |   | 199,850 |        |  |   | 83,397   |   |  | 41.7  | % 
|Selling, general and administrative |  |                                 | 9,484   |   |      |   | 6,287   |        |  |   | 3,197    |   |  | 50.9  | % 
|Interest                            |  |                                 | 7,982   |   |      |   | 11,973  |        |  |   | (3,991   | ) |  | (33.3 | %)
|Other income, net                   |  |                                 | (4,091  | ) |      |   | (1,325  | )      |  |   | (2,766   | ) |  | 208.8 | % 
|                                    |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   
|                                    |  |                                 | 296,622 |   |      |   | 216,785 |        |  |   | 79,837   |   |  | 36.8  | % 
|                                    |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   
|Income before income taxes          |  |                                 | 51,508  |   |      |   | 32,334  |        |  |   | 19,174   |   |  | 59.3  | % 
|Income taxes                        |  |                                 | 17,505  |   |      |   | 11,320  |        |  |   | 6,185    |   |  | 54.6  | % 
|                                    |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   
|Net income                          |  | $                               | 34,003  |   |      | $ | 21,014  |        |  | $ | 12,989   |   |  | 61.8  | % 
|                                    |  |                                 |         |   |      |   |         |        |  |   |          |   |  |       |   



Net
sales.Net sales increased $99.0 million to $348.1 million from the prior year period. Shipments increased 40.9% to a level of 548,000 tons, as demand for structural products remained strong. Shipping volumes of bar products were up 22% from the
prior year period. Average selling prices recovered in the current year period but were slightly lower than the prior year. The increase in shipping volumes accounted for approximately $93.4 million of increased net sales, while decreased pricing
for rolled product accounted for approximately $4.5 million of decreased net sales. The Company expects that end user demand for its products will remain strong for the three months ending February 28, 2006.



Cost of products sold. Cost of products sold
including depreciation and amortization was $283.2 million, an increase of $83.4 million from the prior year period. The increase was due primarily to the higher shipping levels and increases in energy expense of 53% from the prior year period. In
the near-term, we anticipate energy costs to remain high due to seasonal demand for natural gas compounded by the recent interruption in Gulf Coast production of oil and gas.



Selling, general and administrative.Selling, general and administrative expense increased $3.2
million from the prior year period as an increase in incentive expense of $1.8 million from the prior year combined with generally higher expenses in the current year period incurred in connection with being a public company.



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Interest.Interest expense of $8.0 million decreased $4.0 million from the prior
year period and was reflective of changes in our capitalization structure described in note 5 of the consolidated financial statements.



Other income, net.Other income, net increased by $2.8 million to $4.1 million reflecting an increase in miscellaneous sales and
interest income from the prior year period.



Income taxes.On October 22, 2004, a new tax law, the American Jobs Creation Act of 2004 (the Jobs Creation Act), became effective. Among other provisions, the Jobs Creation Act allows a deduction for income from
qualified domestic production activities, which will be phased in from 2005 through 2010. We anticipate realizing benefit from this deduction in the current fiscal year which resulted in an estimated annualized effective tax rate of 34% for the
current period compared to 35% in the prior year period. The provision for income taxes of $17.5 million increased $6.2 million from the prior year period primarily due to the increase in pretax profits and a decrease in the effective tax rate.



Net income.Net income improved $13.0
million to $34.0 million from the prior year period due to the factors discussed above. Management believes that end user demand for our products will remain strong in the near-term with slightly lower seasonally-adjusted shipping volumes and
continued high energy costs will compress margins from levels in the current period.



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Results of Operations



Six-month period ended November 30, 2005 compared to the six-month period ended November 30, 2004.



(In thousands except per ton data)



|                                    |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   
|----------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | ------ |  | - | -------- | - |  | ----- | --
|                                    |  | Six months endedNovember 30, |         |   |      |   |         |        | 
|                                    |  | 2005                         |         |   | 2004 |   |         | Change |  |   | % Change |  
|Net sales                           |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   
|Structural mills                    |  | $                            | 509,569 |   |      | $ | 382,313 |        |  | $ | 127,256  |   |  | 33.3  | % 
|Bar mill                            |  |                              | 119,171 |   |      |   | 116,442 |        |  |   | 2,729    |   |  | 2.3   | % 
|Other products                      |  |                              | 17,698  |   |      |   | 15,169  |        |  |   | 2,529    |   |  | 16.7  | % 
|Delivery fees                       |  |                              | 40,097  |   |      |   | 25,976  |        |  |   | 14,121   |   |  | 54.4  | % 
|                                    |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   
|Total                               |  | $                            | 686,535 |   |      | $ | 539,900 |        |  | $ | 146,635  |   |  | 27.2  | % 
|                                    |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   
|Units shipped (tons)                |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   
|Structural                          |  |                              | 942     |   |      |   | 695     |        |  |   | 247      |   |  | 35.5  | % 
|Bar                                 |  |                              | 209     |   |      |   | 187     |        |  |   | 22       |   |  | 11.8  | % 
|                                    |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   
|Total                               |  |                              | 1,151   |   |      |   | 882     |        |  |   | 269      |   |  | 30.5  | % 
|                                    |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   
|Average sales price per ton         |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   
|Structural                          |  | $                            | 541     |   |      | $ | 550     |        |  | $ | (9       | ) |  | (1.6  | %)
|Bar                                 |  |                              | 571     |   |      |   | 623     |        |  |   | (52      | ) |  | (8.3  | %)
|Total                               |  |                              | 546     |   |      |   | 565     |        |  |   | (19      | ) |  | (3.4  | %)
|Net sales                           |  | $                            | 686,535 |   |      | $ | 539,900 |        |  | $ | 146,635  |   |  | 27.2  | % 
|Costs and expenses (income)         |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   
|Cost of products sold               |  |                              | 580,441 |   |      |   | 428,165 |        |  |   | 152,276  |   |  | 35.6  | % 
|Selling, general and administrative |  |                              | 16,923  |   |      |   | 14,056  |        |  |   | 2,867    |   |  | 20.4  | % 
|Interest                            |  |                              | 16,146  |   |      |   | 23,904  |        |  |   | (7,758   | ) |  | (32.5 | %)
|Other income, net                   |  |                              | (5,393  | ) |      |   | (1,829  | )      |  |   | (3,564   | ) |  | 194.9 | % 
|                                    |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   
|                                    |  |                              | 608,117 |   |      |   | 464,296 |        |  |   | 143,821  |   |  | 31.0  | % 
|                                    |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   
|Income before income taxes          |  |                              | 78,418  |   |      |   | 75,604  |        |  |   | 2,814    |   |  | 3.7   | % 
|Income taxes                        |  |                              | 26,664  |   |      |   | 26,468  |        |  |   | 196      |   |  | 0.7   | % 
|                                    |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   
|Net income                          |  | $                            | 51,754  |   |      | $ | 49,136  |        |  | $ | 2,618    |   |  | 5.3   | % 
|                                    |  |                              |         |   |      |   |         |        |  |   |          |   |  |       |   



Net
sales. Net sales increased $146.6 million to $686.5 million from the prior year period. Shipments increased 30.5% to a level of 1.15 million tons, as demand for structural products remained strong. Shipping volumes of bar products were
11.8% higher compared to the prior year period. Average selling prices decreased 3.4% from the prior year period due to the volatility of raw material prices and fluctuations in demand described under Overview above. The increase in
shipping volumes accounted for approximately $151.9 million of increased net sales, while decreased pricing for rolled product accounted for approximately $22.0 million of decreased net sales.



Cost of products sold. Cost of products sold including
depreciation and amortization was $580.4 million, an increase of $152.3 million from the prior year period. The increase was due primarily to the higher shipping levels and increases in energy expense. In the near-term, we anticipate energy costs to
remain high due to seasonal demand for natural gas compounded by the recent interruption in Gulf Coast production of oil and gas.



Selling, general and administrative. Selling, general and administrative expense increased $2.9 million from the prior year period
as an increase in incentive expense of $0.9 million from the prior year combined with generally higher expenses for in the current year period incurred in connection with being a public company.



Interest. Interest expense of $16.1 million decreased
$7.8 million from the prior year period and was reflective of changes in our capitalization structure described in note 5 of the consolidated financial statements. Interest was charged on the balance due TXI that primarily resulted from cash
advances received for the construction of our Virginia plant until our current capital structure was put in place on July 6, 2005.



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Other income, net. Other income, net increased by $3.6 million to $5.4 million due
to higher miscellaneous sales in the current year period.



Income taxes. The provision for income taxes of $26.7 million increased $0.2 million from the prior year period due to the increase in pretax results and a lower effective tax rate in the current period as a
result of the provisions of the Jobs Creation Act. The impact of the Jobs Creation Act resulted in an estimated annualized effective tax rate of 34.0% for the current period compared to 35.0% for the prior year period.



Net income. Net income improved $2.6 million to $51.8
million from the prior year period due to the factors discussed above.



Financial Condition, Liquidity and Capital Resources



Net working capital at November 30, 2005 decreased $27.4 million to $297.4 million from May 31, 2005, reflecting a $2.6 million increase in current assets and a $30.0 million increase in current liabilities.
Significant changes in the components of current assets included increases in cash and cash equivalents of $61.3 million and short-term investments of $42.8 million. Inventories declined $67.4 million as shipments exceeded production in the
six-month period ended November 30, 2005. Accounts receivable-net increased $4.4 million due to higher sales in the month of November 2005 compared to May 2005. Prepaid expenses were higher by $2.2 million at November 30, 2005 primarily
due to a deposit for natural gas. All net balances with TXI were contributed to our capital during the current year period. Trade accounts payable decreased $6.7 million, while accrued wages, taxes and other items increased $36.7 million primarily
due to increases in interest payable of $12.3 million, income taxes payable of $12.3 million, employee wages and benefits of $6.6 million and property taxes of $3.0 million.



In June 2005, we entered into our Credit Facility which provides up to $150.0 million of available
borrowings and 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 TXI on
July 6, 2005 in connection with the spin-off. The Company had no outstanding borrowings under the Credit Facility during the three months ended November 30, 2005; however, $1.6 million of the facility was utilized to support letters of
credit.



In addition to cash and cash
equivalents of $70.6 million and short-term investments of $42.8 million at November 30, 2005, 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, supplemented as necessary with borrowings under the Credit Facility, and existing cash and cash equivalents and short-term investments will provide sufficient resources to meet our working capital requirements,
debt service and other cash needs over the next year.



Cash flows



Net cash provided
by operating activities increased $157.1 million in the six-month period ended November 30, 2005 to $163.4 million, compared to the prior year period. An increase in cash provided by changes in inventories of $135.9 million due to higher
shipping volumes was partially offset by the resulting decrease in cash provided by changes in accounts receivable of $16.3 million. Net income and the related effect of deferred income taxes decreased cash flows $12.8 million compared to the prior
year period. Cash provided by the change in accrued wages, taxes and other items increased $35.5 million primarily due to increases in interest payable of $12.3 million and current income taxes payable of $12.3 million.



Net cash used by investing activities was $51.5 million in
the current period compared to $10.4 million in the prior period. Purchases of available-for-sale securities used cash of $317.1 million and sales of available-for-sale securities provided cash of $274.4 million. Capital expenditures were $8.1
million in the current period and $10.0 million in the prior period. Capital expenditures for normal replacement and improvement of our existing equipment are currently estimated to be approximately $30 million over the next 12 months.



Net cash used by financing activities in the current year
period was $50.6 million which consisted of long-term borrowings of $350.0 million, debt retirements of $50.0 million and debt issuance costs of $9.5 million under



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our loan agreements described below. In conjunction with our spin-off, we paid a cash dividend to TXI of $341.1 million in the current 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 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 $1.6 million was outstanding at November 30, 2005. 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 0.50% 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. The commitment fee calculated on the unused portion of the Credit Facility ranges from 0.25% to 0.50% per year based on our leverage ratio. The Credit Facility matures
June 16, 2010 and may be terminated at any time. The Credit Facility is secured by security interests in all of or most of our existing and future accounts and inventory, certain related personal property and in all of the equity interest in
present and future domestic subsidiaries and 66% of the equity interest in 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. During the three months ended August 31, 2005, we borrowed and repaid $50.0 million under the Credit Facility. The Company did not borrow any funds under the Credit Facility during the three months
ended November 30, 2005; however, $1.6 million of the facility was utilized to support letters of credit. 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 our Senior Notes due July 15, 2013. Interest is due semi-annually on January 15thand July 15th. 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. All of our consolidated domestic subsidiaries have guaranteed our Senior Notes. The guarantees are full and unconditional and are joint
and several. For periods prior to the quarter ended November 30, 2005, we had no significant assets or operations independent of our investment in our subsidiaries. The indenture governing the Senior Notes contains covenants that will limit 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
the ability to pay dividends, enter into transactions with affiliates and consolidate, merge or sell all or substantially all of our or their assets. As of November 30, 2005, we were in compliance with all loan covenants.



On July 6, 2005, we used the net proceeds from our
Credit Facility and Senior Notes to pay a cash dividend of $341.1 million to TXI in connection with the spin-off.



In connection with the issuance of the Senior Notes, we entered into a registration rights agreement with the initial purchasers of the
Senior Notes. The registration rights agreement provides the holders of the Senior Notes certain rights relating to the registration of the Senior Notes under the Securities Act of 1933, as amended. Pursuant to the registration rights agreement, we
agreed to conduct a registered exchange offer for the Senior Notes or cause to become effective a shelf registration statement providing for the resale of the Senior Notes. On December 2, 2005, we completed the offer to exchange our 10% senior
notes due 2013, which are registered under the Securities Act of 1933, as amended, for the outstanding 10% Senior Notes due 2013 that were issued in a private offering on July 6, 2005. The terms of the registered notes are substantially
identical to our previously outstanding Senior Notes.



Any intercompany accounts with TXI that remained immediately prior to the spin-off distribution on July 29, 2005 were contributed to our capital. As a result of the these transactions, we expect our interest expense will decrease to an
estimated annualized expense of approximately $32 million at the current level of borrowings, compared to historical interest expense of approximately $47 million for the year ended May 31, 2005.



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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. The 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,
2005.



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 or 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 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. Based on our experience in dealing with such claims in the past and the information currently available to us regarding any potential or outstanding claims, we believe that such claims will not have a material impact on our
financial condition or results of operations. Despite our compliance and experience, it is possible that we could be held liable for future charges which might be material but are not currently known or estimable. In addition, changes in federal or
state laws, regulations or 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.



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 is in transition to a deregulated 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.



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|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.



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 on page 17 and is incorporated herein by reference.



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



None.



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



None.



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



None.



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



At its January 12, 2006 meeting, the Board of Directors of the Company authorized the following agreements and amended agreements to
make the Companys benefit and employment plans more consistent with current standards.



Effective as of January 13, 2006, the Company entered into Change of Control/Severance Agreements with certain of its officers, including, each of its four most highly compensated officers
(other than its Chief Executive Officer). These agreements provide that, if the employment of such an officer is terminated (or is constructively terminated) within two years following a change in the control of the Company, the Company will pay to
such officer an amount equal to 150% of such officers base salary for the remainder of his employment period (a period of up to two years) and all then un-expired, un-exercised and un-vested stock options granted to such officer by the Company
will become (effective immediately prior to such termination of employment) immediately vested and exercisable.



Effective as of January 13, 2006, the Company amended all of its outstanding stock options that did not previously contain such terms
and conditions (including, without limitation, stock options held by persons who are executive officers and/or directors of the Company) to provide that, if the employment of the holder of such option is terminated within two years following a
change in the control of the Company, all then outstanding un-expired, un-exercised and un-vested options held by such option holder will become (immediately prior to such termination of employment) immediately vested and exercisable.



Effective as of January 13, 2006, the Company amended
its Employment Agreement with Mr. Tommy A. Valenta, its President and Chief Executive Officer. Mr. Valentas prior Employment Agreement was negotiated in connection with the spin off of the Company from Texas Industries, Inc.
and, in the opinion of the Board of Directors, was not competitive with employment agreements of the chief executive officers of comparable public companies. The amended Employment Agreement retains the base salary and incentive compensation
provisions of Mr. Valentas prior Employment Agreement. However, pursuant to the Mr. Valentas amended Employment Agreement the Company has agreed to a three year term with annual one year extensions unless either party objects



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to renewal, greater specificity regarding Mr. Valentas duties and benefits, greater specificity regarding Mr. Valentas right to
participate in incentive compensation plans (i.e. Mr. Valenta may participate in any incentive plan offered to executive officers), annual review (for potential increase) of Mr. Valentas base salary and incentives, reimbursement of
up to $10,000 in legal fees incurred in connection with negotiation of the agreement, pay-out of the agreement over its remaining term upon Mr. Valentas total disability, a lump sum payment of base and incentive compensation (based upon
prior year base and incentive compensation) and acceleration of all options if the agreement is terminated by Mr. Valenta as a result of breach by the Company (plus continuation of benefits for the remainder of the term).



Effective as of January 13, 2006, the Company amended
its Financial Security Plan to (i) comply with the requirements of the American Jobs Security Act, (ii) eliminate the Companys ability to unilaterally forfeit the participants deferrals of compensation pursuant to the Financial
Security Plan and the benefits payable to participants in the Financial Security Plan, (iii) allow participants in the Financial Security Plan to elect early retirement (with reduced benefits) at age 60, (iv) correct certain errors in the
Financial Security Plan and (v) set forth the obligations of the Company and the rights of participants in connection with a termination/liquidation of the Financial Security Plan.



On January 12, 2006, the Board of Directors approved an award of options to purchase 20,000 shares of
the Companys common stock to William H. Dickert, the Companys Vice President  Chief Operating Officer. These options are issued pursuant to the Companys Amended and Restated 2005 Omnibus Equity Compensation Plan. The exercise
price is $30.36 per share of Company common stock. The term of the option is ten years and vests in equal annual installments over five years.



In addition, on January 12, 2006, the Board of Directors issued restricted stock grants to the non-employee directors pursuant to the
Companys Amended and Restated 2005 Omnibus Equity Compensation Plan. These awards are consistent with the compensation package previously approved on July 21, 2005. Non-employee directors (excluding the Chairman of the Board) received the
following restricted stock awards, based on the date a directors term of office expires:



|                                       |  |              |  |                     |  |                                                                                                                                                                           
|-------------------------------------- |  | ------------ |  | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Directors                              |  | TermExpiring |  | RestrictedShares    |  | Vesting                                                                                                                                                                   
|Eugenio Clariond Elizabeth C. Williams |  | 2006         |  | 2,000 common shares |  | 2,000 shares vest at 2006 annual meeting of stockholders                                                                                                                  
|                                       |  |              | 
|Ronald J. Gafford                      |  | 2007         |  | 4,000 common shares |  | 2,000 shares vest at 2006 annual meeting of stockholders 2,000 shares vest at 2007 annual meeting of stockholders                                                         
|                                       |  |              | 
|Ian Wachtmeister Joseph M. Grant       |  | 2008         |  | 6,000 common shares |  | 2,000 shares vest at 2006 annual meeting of stockholders 2,000 shares vest at 2007 annual meeting of stockholders 2,000 shares vest at 2008 annual meeting of stockholders



James
M. Hoak, Jr., the Chairman of the Board, received an award of 10,000 shares of restricted stock, based on his term of office as a director expiring in 2007. These shares of restricted stock vest in equal installments at the 2006 and 2007 annual
meetings of stockholders, contingent on his continued service as Chairman of the Board.



Any shares of restricted stock awarded to a director which have not vested will be forfeited on the resignation or removal of the director.



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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*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|               |  |  
|4.4            |  | - |  | Form of Chaparral Steel Companys 10% Senior Note due 2013*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|               |  |  
|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 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 Financial Security Plan (including form of agreement)*                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |  |  
|10.9  |  | - |  | Employment Agreement, effective as of January 13, 2006, between Chaparral Steel Company and Tommy A. Valenta*                                                                                                                                                                                                                                                                                                                                                                                                                             
|      |  |  
|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*                                                                                                 
|      |  |  
|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 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*                                                                                                  



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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 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 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 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 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 year ended May 31, 2005, file number 000-51307)                                                                                                                                                                                                               
|      |  |  
|10.18 |  | - |  | Three Year Cash Incentive Plan of Chaparral Steel Company for the three fiscal years ending May 31, 2006 (incorporated herein by reference to Exhibit 10.1 to Chaparral Steel
Companys Current Report on Form 8-K, dated October 13, 2005, file number 000-51307)                                                                                                                                                                                                                                                                       
|      |  |  
|10.19 |  | - |  | Three Year Cash Incentive Plan of Chaparral Steel Company for the three fiscal years ending May 31, 2007 (incorporated herein by reference to Exhibit 10.2 to Chaparral Steel
Companys Current Report on Form 8-K, dated October 13, 2005, file number 000-51307)                                                                                                                                                                                                                                                                       
|      |  |  
|10.20 |  | - |  | Three Year Cash Incentive Plan of Chaparral Steel Company for the three fiscal years ending May 31, 2008 (incorporated herein by reference to Exhibit 10.3 to Chaparral Steel
Companys Current Report on Form 8-K, dated October 13, 2005, file number 000-51307)                                                                                                                                                                                                                                                                       
|      |  |  
|10.21 |  | - |  | Three Year Incentive Plan Participant Designation Agreement (incorporated herein by reference to Exhibit 10.4 to Chaparral Steel Companys Current Report on Form 8-K,
dated October 13, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                    
|      |  |  
|10.22 |  | - |  | Chaparral Steel Company Annual Incentive Plans Fiscal Year 2006 (incorporated herein by reference to Exhibit 10.18 to Chaparral Steel Companys Annual Report on Form
10-K/A (Amendment No. 1), dated October 25, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                           
|      |  |  
|10.23 |  | - |  | Form of Change of Control/Severance Agreement entered into with the officers of Chaparral Steel Company (other than the Chief Executive Officer) effective as of January 13,
2005*                                                                                                                                                                                                                                                                                                                                                       
|      |  |  
|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*                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



34



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##### Table of Contents

|     |  |   |  |                                                           
|---- |  | - |  | ----------------------------------------------------------
|32.1 |  | - |  | Section 1350 Certification of Principal Executive Officer*
|     |  |  
|32.2 |  | - |  | Section 1350 Certification of Principal Financial Officer*



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



35



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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                   
|                 |  | 
|January 13, 2006 |  |  |  | /s/    J. CELTYN HUGHES                   
|                 |  |  |  | J. Celtyn Hughes                          
|                 |  |  |  | Vice President and Chief Financial Officer
|                 |  |  |  | (Principal Financial Officer)             
|                 |  | 
|January 13, 2006 |  |  |  | /s/    M. KEVIN LINCH                     
|                 |  |  |  | M. Kevin Linch                            
|                 |  |  |  | Vice President-Controller                 
|                 |  |  |  | (Principal Accounting Officer)            



36



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##### Table of Contents

INDEX TO 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*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|               |  |  
|4.4            |  | - |  | Form of Chaparral Steel Companys 10% Senior Note due 2013*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|               |  |  
|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)



37



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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 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 Financial Security Plan (including form of agreement) *                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      |  |  
|10.9  |  | - |  | Employment Agreement, effective as of January 13, 2006, between Chaparral Steel Company and Tommy A. Valenta*                                                                                                                                                                                                                                                                                                                                                                                                                             
|      |  |  
|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*                                                                                                 
|      |  |  
|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 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*                                                                                                  



38



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##### Table of Contents

|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 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 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 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 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 year ended May 31, 2005, file number 000-51307)                                                                                                                                                                                                               
|      |  |  
|10.18 |  | - |  | Three Year Cash Incentive Plan of Chaparral Steel Company for the three fiscal years ending May 31, 2006 (incorporated herein by reference to Exhibit 10.1 to Chaparral
Steel Companys Current Report on Form 8-K, dated October 13, 2005, file number 000-51307)                                                                                                                                                                                                                                                                       
|      |  |  
|10.19 |  | - |  | Three Year Cash Incentive Plan of Chaparral Steel Company for the three fiscal years ending May 31, 2007 (incorporated herein by reference to Exhibit 10.2 to Chaparral
Steel Companys Current Report on Form 8-K, dated October 13, 2005, file number 000-51307)                                                                                                                                                                                                                                                                       
|      |  |  
|10.20 |  | - |  | Three Year Cash Incentive Plan of Chaparral Steel Company for the three fiscal years ending May 31, 2008 (incorporated herein by reference to Exhibit 10.3 to Chaparral
Steel Companys Current Report on Form 8-K, dated October 13, 2005, file number 000-51307)                                                                                                                                                                                                                                                                       
|      |  |  
|10.21 |  | - |  | Three Year Incentive Plan Participant Designation Agreement (incorporated herein by reference to Exhibit 10.4 to Chaparral Steel Companys Current Report on Form 8-K,
dated October 13, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                                                    
|      |  |  
|10.22 |  | - |  | Chaparral Steel Company Annual Incentive Plans Fiscal Year 2006 (incorporated herein by reference to Exhibit 10.18 to Chaparral Steel Companys Annual Report on Form
10-K/A (Amendment No. 1), dated October 25, 2005, file number 000-51307)                                                                                                                                                                                                                                                                                           
|      |  |  
|10.23 |  | - |  | Form of Change of Control/Severance Agreement entered into with the officers of Chaparral Steel Company (other than the Chief Executive Officer) effective as of January
13, 2006*                                                                                                                                                                                                                                                                                                                                                       
|      |  |  
|15.1  |  | - |  | Letter Re: Unaudited Interim Financial Information*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



39



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##### Table of Contents

|     |  |   |  |                                                                       
|---- |  | - |  | ----------------------------------------------------------------------
|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
|- | --------------



40