GENERAL

We are a leading supplier of heavy construction materials in the United States through our three business segments: cement, aggregates and consumer products. Our principal products are gray portland cement, produced and sold through our cement segment; stone, sand and gravel, produced and sold through our aggregates segment; and ready-mix concrete, produced and sold through our consumer products segment. Other products include expanded shale and clay lightweight aggregates, produced and sold through our aggregates segment, and packaged concrete mix, mortar, sand and related products, produced and sold through our consumer products segment.

Our facilities are concentrated primarily in Texas, Louisiana and California. In May 2008, we completed construction on a project to expand and modernize our Oro Grande, California cement plant at a total project cost of approximately $427 million, excluding capitalized interest related to the project. We constructed approximately 2.3 million tons of advanced dry process annual cement production capacity, and retired the 1.3 million tons of existing, but less efficient, production.

In October 2007, we commenced construction on a project to expand our Hunter, Texas cement plant. We are expanding the Hunter plant by approximately 1.4 million tons of advanced dry process annual cement production capacity. The 900,000 tons of existing production will remain in operation. In light of current economic and market conditions, we believe it is likely that current cement demand levels in Texas will not permit the new kiln to operate profitably if the project is completed as originally scheduled. As a result, we have delayed completion of the project. We expect cement demand to rebound in the future and we will resume construction when future economic and market conditions indicate it is appropriate. We anticipate beginning the commissioning of the project within 12 months of resuming construction. The pause in construction began in May 2009, at which time we had incurred approximately $294 million, excluding capitalized interest of approximately $16.3 million related to the project, of which $284.1 million had been expended. We believe the delay conserved $40 million to $60 million of cash expenditures in fiscal years 2009 and 2010. Until we determine the date that we will resume construction, we cannot accurately estimate the cost of completing the project.

We own long-term reserves of the primary raw materials for the production of cement and aggregates. Our business requires large amounts of capital investment, energy, labor and maintenance.

During the last year, the economy in all of our operating regions has been in recession. Declining home values, investor losses on mortgage related securities, tight credit conditions, state budget shortfalls and rising unemployment have led to declines in all segments of construction activity in our markets. These conditions have impacted all segments of our business. In response, we have taken numerous steps to manage our production to more closely match market demand, reduce costs and manage our cash position. In addition to the delay in construction of the expansion of our Hunter plant discussed above, we have significantly reduced spending. We have idled plants where necessary and reduced our employee force accordingly. Since the beginning of the recession in December 2007, we have reduced our employee and contract labor force by approximately 25%. We have also significantly reduced overtime pay, implemented a salary freeze for non-union employees and renegotiated a number of supply and service agreements. Our president and chief executive officer voluntarily reduced his salary by 10% and other executive officers similarly reduced their salaries by 5%. We have negotiated amendments to our senior revolving credit facility to reduce the risk that the market decline would cause our operating results to fall below levels required by financial covenants. These steps and others are indicative of our intense focus on cost reduction, management of our cash position and management of production levels, which we believe had a significant positive impact on our operating results in fiscal year 2009.

RESULTS OF OPERATIONS

Management uses segment operating profit as its principal measure to assess performance and to allocate resources. Business segment operating profit consists of net sales less operating costs and expenses that are directly attributable to the segment. Unallocated overhead and other income includes income and operating overhead expenses such as environmental, engineering and other administrative activities that directly relate to some or all of our segments and are not allocated. Corporate includes non-operating income and expenses related to administrative, financial, legal, human resources and real estate activities. Prior period information has been reclassified to conform to the current period presentation.

It has been our past practice not to value our natural aggregate inventories for a number of reasons, including the fact that they were immaterial to our financial position and results of operations. A current assessment of this accounting method identified that our inventory levels have increased and their value has become significant in relation to the overall inventory amounts presented on our balance sheets in light of current economic conditions and the spin-off of Chaparral Steel Company in 2006. We have adopted the average cost method of valuing our natural aggregate inventories. Under the guidance of Staff Accounting Bulletin No. 99, "Materiality" and Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" we have determined that the adjustments are immaterial to our consolidated financial statements for 2007 and 2008. However, because the cumulative effect would have been material to our 2009 consolidated financial statements we have adjusted all prior period financial information to reflect this change. See Note 1 of Notes to Consolidated Financial Statements in Item 8 of this Report.

The following is a summary of operating results for our business segments and certain other operating information related to our principal products.

Cement Operations



                                                      Year ended May 31,
                                              2009           2008           2007
                                                 In thousands except per unit
      Operating Results
      Total cement sales                    $ 364,386      $ 468,673      $ 482,379
      Total other sales and delivery fees      30,934         36,079         27,648

      Total segment sales                     395,320        504,752        510,027
      Cost of products sold                   342,824        391,687        343,145

      Gross profit                             52,496        113,065        166,882
      Goodwill impairment                     (58,395 )            -              -
      Selling, general and administrative     (16,520 )      (16,224 )      (17,582 )
      Other income                              9,156          6,910         23,904

      Operating Profit (Loss)               $ (13,263 )    $ 103,751      $ 173,204

      Cement
      Shipments (tons)                          4,035          5,035          5,074
      Prices ($/ton)                        $   90.31      $   93.07      $   95.06
      Cost of sales ($/ton)                 $   78.02      $   70.85      $   63.08

Fiscal Year 2009 Compared to Fiscal Year 2008

Cement operating loss of $13.3 million for fiscal year 2009 includes a goodwill impairment charge of $58.4 million associated with our California cement operation. Cement operating profit for fiscal year 2009, excluding the impairment charge, decreased $58.6 million from the prior fiscal year.

Total segment sales for fiscal year 2009 were $395.3 million compared to $504.8 for the prior fiscal year. Cement sales decreased $104.3 million as construction activity declined in both our Texas and California market

areas. Our Texas market area accounted for approximately 70% of cement sales in the current fiscal year compared to 67% of cement sales in the prior fiscal year. Cement shipments in both our market areas decreased 20% from the prior fiscal year. Average prices increased 2% in our Texas market area and decreased 14% in our California market area.

Cost of products sold for fiscal year 2009 decreased $48.9 million from the prior fiscal year. The effects of lower shipments and lower variable costs including labor, energy, supply and maintenance costs were offset in part by higher fixed costs, primarily $12 million of depreciation at our Oro Grande, California cement plant. Cement unit costs increased 10% primarily as a result of lower production levels.

Goodwill resulting from the acquisition of Riverside Cement Company and identified with our California cement operations had a carrying value of $58.4 million at May 31, 2008. Based on an impairment test performed as of May 31, 2009 there was no implied fair value of the reporting unit goodwill, and therefore, an impairment charge of $58.4 million was recognized.

Selling, general and administrative expense for fiscal year 2009 increased $0.3 million from the prior fiscal year. The increase was primarily the result of $2.5 million higher legal and other professional expenses offset in part by $1.7 million lower incentive compensation expense and $0.5 million lower insurance expense.

Other income for fiscal year 2009 increased $2.2 million from the prior fiscal year. Other income in fiscal year 2009 includes $2.8 million in lease bonus payments received upon the execution of oil and gas lease agreements on property associated with our north Texas cement operations. In addition, other income includes gains of $1.7 million in fiscal year 2009 and $3.9 million in fiscal year 2008 from sales of emissions credits associated with our California cement operations.

Fiscal Year 2008 Compared to Fiscal Year 2007

Cement operating profit for fiscal year 2008 was $103.8 million, a decrease of $69.5 million from the prior fiscal year. The decrease was primarily the result of production inefficiencies at our old Oro Grande California cement plant and higher maintenance, fuel and transportation costs.

Total segment sales for fiscal year 2008 were $504.8 million compared to $510.0 million for the prior fiscal year. Cement sales decreased $13.7 million on 2% lower average prices and 1% lower shipments. Our Texas market area accounted for approximately 67% of cement sales in the current fiscal year compared to 62% of cement sales in the prior fiscal year. Average prices and shipments in our Texas market area improved from the prior fiscal year. The decline in overall average prices for cement from the prior fiscal year was due primarily to a shift in the mix of cement products and markets.

Cost of products sold for fiscal year 2008 increased $48.5 million from the prior fiscal year. Cement unit costs increased 12% primarily as a result of the production inefficiencies at our old Oro Grande, California cement plant and higher maintenance, fuel and transportation costs. Energy costs representing 34% of total cement unit costs and maintenance representing 25% of total cement unit costs increased 8% and 27%, respectively.

Selling, general and administrative expense for fiscal year 2008 decreased $1.4 million from the prior fiscal year. The decrease was primarily the result of $3.9 million lower incentive compensation expense offset in part by $0.6 million higher wages and benefits, $0.3 million higher insurance expense, $0.8 million higher provisions for bad debts and $0.9 million higher general expenses.

Cement other income for fiscal year 2008 decreased $17.0 million from the prior fiscal year. Other income in fiscal year 2008 includes a gain of $3.9 million from the sale of emissions credits associated with our California cement operations. Other income in fiscal year 2007 includes $19.8 million representing distributions which we received pursuant to agreements that settled a 16-year dispute over the U.S. antidumping duty order on cement imports from Mexico.

Aggregate Operations



                                                      Year ended May 31,
                                              2009           2008           2007
                                                 In thousands except per unit
      Operating Results
      Total stone, sand and gravel sales    $ 131,197      $ 162,582      $ 155,562
      Total other sales and delivery fees     106,294        122,748        113,292

      Total segment sales                     237,491        285,330        268,854
      Cost of products sold                   197,583        231,503        218,394

      Gross profit                             39,908         53,827         50,460
      Selling, general and administrative     (12,633 )      (15,178 )      (16,212 )
      Other income                              6,954         16,974          2,638

      Operating Profit                      $  34,229      $  55,623      $  36,886

      Stone, sand and gravel
      Shipments (tons)                         16,470         21,851         22,114
      Prices ($/ton)                        $    7.97      $    7.44      $    7.03
      Cost of sales ($/ton)                 $    6.68      $    6.13      $    5.40

Fiscal Year 2009 Compared to Fiscal Year 2008

Aggregate operating profit for fiscal year 2009 was $34.2 million, a decrease of $21.4 million from the prior fiscal year. Improvements in average prices for our stone, sand and gravel were offset by lower shipments and other income.

Total segment sales for fiscal year 2009 were $237.5 million compared to $285.3 million for the prior fiscal year. Stone, sand and gravel sales decreased $31.4 million on 7% higher average prices and 25% lower shipments.

Cost of products sold for fiscal year 2009 decreased $33.9 million from the prior fiscal year as labor hours were reduced in response to lower shipments and supplies and maintenance costs declined. Stone, sand and gravel unit costs increased 9% primarily as a result of higher material costs and lower production levels.

Selling, general and administrative expense for fiscal year 2009 decreased $2.5 million from the prior fiscal year. The decrease was primarily the result of $1.9 million lower incentive compensation expense.

Other income for fiscal year 2009 decreased $10.0 million. Other income includes gains of $5.0 million in fiscal year 2009 and $15.2 million in fiscal year 2008 from sales of property associated with our aggregate operations in north Texas and south Louisiana.

Fiscal Year 2008 Compared to Fiscal Year 2007

Aggregate operating profit for fiscal year 2008 was $55.6 million, an increase of $18.7 million from the prior fiscal year. Improvements in average prices for our stone, sand and gravel and higher other income were offset in part by higher fuel and transportation costs.

Total segment sales for fiscal year 2008 were $285.3 million compared to $268.9 million for the prior fiscal year. Stone, sand and gravel sales increased $7.0 million on 6% higher average prices and 1% lower shipments.

Cost of products sold for fiscal year 2008 increased $13.1 million from the prior fiscal year. Stone, sand and gravel unit costs increased 14% primarily as a result of higher fuel and transportation costs.

Selling, general and administrative expense for fiscal year 2008 decreased $1.0 million from the prior fiscal year. The decrease was primarily the result of $1.6 million lower incentive compensation expense, $0.2 million lower insurance expense and $0.1 million lower provisions for bad debts offset in part by $0.3 million higher wages and benefits and $.5 million higher general expenses.

Other income for fiscal year 2008 increased $14.3 million. Other income in fiscal year 2008 includes gains of $15.2 million from sales of property associated with our aggregate operations in north Texas and south Louisiana.

Consumer Products Operations



                                                      Year ended May 31,
                                              2009           2008           2007
                                                 In thousands except per unit
      Operating Results
      Total ready-mix concrete sales        $ 247,931      $ 310,652      $ 278,067
      Total other sales and delivery fees      61,490         58,581         57,708

      Total segment sales                     309,421        369,233        335,775
      Cost of products sold                   288,756        341,604        310,955

      Gross profit                             20,665         27,629         24,820
      Selling, general and administrative     (13,116 )      (19,314 )      (16,284 )
      Other income                              1,314          3,268          1,310

      Operating Profit (Loss)               $   8,863      $  11,583      $   9,846

      Ready-mix concrete
      Shipments (cubic yards)                   2,902          3,844          3,665
      Prices ($/cubic yard)                 $   85.46      $   80.83      $   75.87
      Cost of sales ($/cubic yard)          $   81.41      $   76.36      $   71.92

Fiscal Year 2009 Compared to Fiscal Year 2008

Consumer products operating profit for fiscal year 2009 was $8.9 million, a decrease of $2.7 million from the prior fiscal year. Improvements in ready-mix concrete average prices were offset by lower volumes and higher raw material costs.

Total segment sales for fiscal year 2009 were $309.4 million compared to $369.2 million for the prior fiscal year. Ready-mix concrete sales decreased $62.7 million on 6% higher average prices and 25% lower shipments.

Cost of products sold for fiscal year 2009 decreased $52.8 million from the prior fiscal year as labor hours were reduced in response to lower shipments and supplies and maintenance costs declined. Ready-mix concrete unit costs increased 7% primarily as a result of higher raw material costs, as well as higher distribution and transportation costs due to lower shipments. Our raw material costs increased approximately 4% from the prior fiscal year.

Selling, general and administrative expense for fiscal year 2009 decreased $6.2 million from the prior fiscal year. The decrease was primarily the result of $4.8 million lower incentive compensation expense and $1.6 million lower insurance expense.

Other income for fiscal year 2009 decreased $2.0 million from the prior fiscal year. Other income in fiscal year 2008 included a gain of $1.4 million from the sale of our license to produce and sell Sakrete branded products outside of the state of Texas.

Fiscal Year 2008 Compared to Fiscal Year 2007

Consumer products operating profit for fiscal year 2008 was $11.6 million, an increase of $1.7 million from the prior fiscal year. Improvements in ready-mix concrete average prices and volumes were offset in part by higher raw material costs.

Total segment sales for fiscal year 2008 were $369.2 million compared to $335.8 million for the prior fiscal year. Ready-mix concrete sales increased $32.6 million on 7% higher average prices and 5% higher shipments.

Cost of products sold for fiscal year 2008 increased $30.6 million from the prior fiscal year. Ready-mix concrete unit costs increased 6% primarily as a result of higher raw material costs, as well as higher distribution and transportation costs.

Selling, general and administrative expense for fiscal year 2008 increased $3.0 million from the prior fiscal year. The increase was primarily the result of $1.2 million higher incentive compensation expense, $0.3 million higher wages and benefits, $0.7 million higher insurance expense, $0.2 million higher provisions for bad debts and $0.2 million higher general expenses.

Other income for fiscal year 2008 increased $2.0 million from the prior fiscal year. Other income in fiscal year 2008 includes a gain of $1.4 million from the sale of our license to produce and sell certain Sakrete branded products outside of the state of Texas.

Unallocated Overhead and Other Income



                                                      Year ended May 31,
                                              2009           2008           2007
                                                         In thousands
      Other income                          $     145      $     547      $     670
      Selling, general and administrative     (11,865 )      (11,612 )      (12,834 )

                                            $ (11,720 )    $ (11,065 )    $ (12,164 )

Unallocated overhead and other income relate primarily to certain environmental, engineering and other administrative operating activities not attributable to a specific segment.

Unallocated selling, general and administrative expense for fiscal year 2009 increased $0.3 million from the prior fiscal year. The increase was primarily the result of $1.2 million higher insurance expense offset in part by $0.7 million lower incentive compensation expense and $0.3 million lower general expenses.

Unallocated selling, general and administrative expense for fiscal year 2008 decreased $1.2 million from the prior fiscal year. The decrease was primarily the result of $1.6 million lower incentive compensation expense offset in part by $0.7 million higher insurance expense.

Corporate



                                                      Year ended May 31,
                                              2009           2008           2007
                                                         In thousands
      Other income                          $   3,622      $   3,864      $   8,107
      Selling, general and administrative     (17,959 )      (33,892 )      (45,194 )

                                            $ (14,337 )    $ (30,028 )    $ (37,087 )

Fiscal Year 2009 Compared to Fiscal Year 2008

Corporate other income for fiscal year 2009 decreased $0.2 million from the prior fiscal year. The decrease was primarily the result of $1.1 million lower real estate income offset in part by $1.0 million higher lease bonus payments received upon the execution of oil and gas lease agreements on property we own in north Texas that is not associated with our operations.

Corporate selling, general and administrative expense for fiscal year 2009 decreased $15.9 million from the prior fiscal year. The decrease was primarily the result of $8.5 million lower incentive compensation expense, $6.7 million lower stock-based compensation and $1.8 million lower retirement expense. Our incentive plans are based on financial performance. Our stock-based compensation includes awards expected to be settled in cash the expense for which is based on the average stock price at the end of each period until the awards are paid. The impact of changes in our stock price during 2009 reduced stock-based compensation $5.8 million from the prior fiscal year. The decrease in retirement expense in 2009 was primarily the result of actuarial losses related to our defined benefit plans recognized in the prior fiscal year.

Fiscal Year 2008 Compared to Fiscal Year 2007

Corporate other income for fiscal year 2008 decreased $4.2 million from the prior fiscal year. The decrease was primarily the result of $3.7 million lower interest income and $0.6 million lower real estate income.

Corporate selling, general and administrative expense for fiscal year 2008 decreased $11.3 million from the prior fiscal year. The decrease was primarily the result of $2.9 million lower incentive compensation expense and $11.8 million lower stock-based compensation, offset in part by $3.5 million higher retirement expense. Our incentive plans are based on financial performance. Our stock-based compensation includes awards expected to be settled in cash the expense for which is based on the average stock price at the end of each period until the awards are paid. The impact of changes in our stock price during 2008 reduced stock-based compensation $12.5 million from the prior fiscal year. The increase in retirement expense in 2008 was primarily the result of recognized actuarial losses related to our defined benefit plans and increased contributions to our defined contribution plans.

Interest

Interest expense incurred for fiscal year 2009 was $47.7 million, of which $14.4 was capitalized in connection with our Hunter, Texas cement plant expansion project and $33.3 million was expensed. Interest expense incurred for fiscal year 2008 was $29.0 million, of which $26.5 million was capitalized in connection with our Hunter, Texas and Oro Grande, California cement plant expansion projects and $2.5 million was expensed.

Interest expense incurred for fiscal year 2009 increased $18.7 million from the prior fiscal year primarily as a result of higher average outstanding debt and borrowings on life insurance contracts. We have delayed completion of the Hunter, Texas cement plant expansion and do not expect to capitalize any interest in connection with the project during our fiscal year 2010.

Loss on Debt Retirements

On August 18, 2008, we sold $300 million aggregate principal amount of additional 7.25% senior notes due in 2013 at an offering price of $93.25. The net proceeds were used to repay our $150 million senior term loan and borrowings outstanding under our senior revolving credit facility in the amount of $29.5 million. We recognized a loss on debt retirement of $0.9 million representing a write-off of debt issuance costs associated with the mandatory prepayment of the term loan.

Income Taxes

Our effective tax rate was 42.0% in 2009, 31.2% in 2008 and 33.1% in 2007. The primary reason that the effective tax rate differed from the 35% statutory corporate rate was due to additional percentage depletion that is tax deductible, the deduction for qualified domestic production activities in 2008 and 2007, offset in part by state income taxes and nondeductible stock compensation.

The American Jobs Creation Act of 2004, among other things, allows a deduction for income from qualified domestic production activities, which will be phased in from 2005 through 2010. We realized a benefit of $1.2 million in 2008 and $1.1 million in 2007, but did not realize a benefit in 2009 because of a taxable loss for the year.

In addition to our federal income tax return, we file income tax returns in various state jurisdictions. We are no longer subject to income tax examinations by federal tax authorities for years prior to 2007 and state tax authorities for years prior to 2006. The examination of our federal income tax returns for 2004 through 2006 was completed in February 2009. The results of this audit did not have a material effect on our financial position or results of operations.

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