SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended
March 31, 2005

Commission File No. 1-12984

EAGLE MATERIALS INC.

Delaware
(State of Incorporation)

75-2520779
(I.R.S. Employer Identification No.)

3811 Turtle Creek Blvd, Suite 1100, Dallas, Texas 75219
(Address of principal executive offices)

(214) 432-2000
(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ Noo.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to Form 10-K þ.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o.

The aggregate market value of the voting stock held by nonaffiliates of the Company at September 30, 2004 (the last business day of the registrants’ most recently completed second fiscal quarter) was approximately $1.266 billion.

As of June 1, 2005, the number of outstanding shares of each of the issuer’s classes of common stock was:

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy statement for the Annual Meeting of Stockholders of Eagle Materials Inc. to be held on August 4, 2005 are incorporated by reference in Part III of this Report.

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS

OVERVIEW

Eagle Materials Inc. (the “Company” or “EXP” which may be referred to as “we” or “us”) is a manufacturer of basic building materials including gypsum wallboard, cement, gypsum paperboard and concrete and aggregates. We were founded in 1963 as a building materials subsidiary of Centex Corporation (“Centex”). We operated as a public company under the name Centex Construction Products from April 1994 to January 30, 2004; on January 30, 2004, Centex completed a tax free distribution of its shares to its shareholders and, as a result, we are no longer affiliated with Centex. Today, our primary businesses are the manufacture and distribution of gypsum wallboard and the manufacture and sale of cement. Gypsum Wallboard is distributed throughout the U.S. with particular emphasis in the geographic markets nearest to our production facilities. We sell cement throughout the western U.S. and for the nineteenth consecutive year we have sold all the cement we produced. At March 31, 2005 we operated, four gypsum wallboard plants (five lines), four cement plants (six kilns, one of which is managed through a joint venture agreement), one gypsum paperboard plant, eight concrete batching plants and two aggregates facilities.

Calendar 2004 also represented a record year for the building materials business:

Improving Productivity and Reducing Costs. We are constantly maintaining, evaluating, and making capital investments to improve the productivity and reduce the costs of our existing assets. Collectively, this process resulted in the following Fiscal 2005 achievements:

Pursue Strategic Acquisition or Expansion Opportunities. Strategic acquisitions or expansion opportunities can play a significant role in Eagle Materials growth. While we continually focus on improving productivity and reducing costs of our existing operations we also remain focused on improving our competitive position through acquisition or expansion. We look for opportunities that:

Expanding our Wallboard Operations. On April 1, 2005, we announced the expansion of our wallboard operations with the construction of a new $125 million wallboard plant in Georgetown, South Carolina. The plant will utilize synthetic gypsum and is anticipated to be completed and operational early in calendar year 2007.

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Expanding on Our Existing Asset Position in Our Cement Business. On January 10, 2005, we purchased the 50% interest in the Illinois Cement Company Joint Venture that we did not own for approximately $72 million. On March 14, 2005, we announced a $65 million expansion of our Illinois Cement plant. The expansion will increase the clinker capacity of the plant by approximately 70% to 1,100,000 tons and is anticipated to be completed in Fiscal 2007.

Our vision for the future is to remain a low cost producer in each of the markets in which we compete by remaining disciplined and operationally focused. Our goal is to expand our geographic footprint through acquisition or expansion and to provide superior returns to our shareholders.

INDUSTRY SEGMENT INFORMATION

     For management and financial reporting purposes, our businesses are separated into four segments: Gypsum Wallboard; Cement; Recycled Paperboard; and Concrete and Aggregates. A description of these business segments can be found on pages 4-14.

     The following table presents revenues and earnings before interest and income taxes contributed by each of our industry segments during the periods indicated. We conduct one of our four cement plant operations through a joint venture, Texas Lehigh Cement Company LP, which is located in Buda, Texas. The Company owns a 50% interest in the joint venture and accounts for its interest using the equity method of accounting. However, for segment reporting purposes, we proportionately consolidate our 50% share of the cement joint venture’s revenues and operating earnings, which is consistent with the way management organizes the segments within the Company for making operating decisions and assessing performance. Prior to January 11, 2005, we reported our 50% interest in the Illinois Cement Company consistent with that of Texas Lehigh Cement Company. Consequently, the information presented below and for the remainder of this Form 10-K includes the 50% interest in Illinois Cement through January 10, 2005 (the date we acquired the other 50%) and our 100% interest in Illinois Cement for the period from January 11, 2005 through March 31, 2005. Identifiable assets, depreciation, depletion and amortization, and capital expenditures by segment are presented in Note (G) of the Notes to the Consolidated Financial Statements on pages 49 - 52.

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     Net revenues (net of joint venture and intersegment revenue, see Note (G) of the Notes to the Consolidated Financial Statements) for the past three years from each of our business segments, expressed as a percentage of total Net Revenues were as follows:

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GYPSUM WALLBOARD OPERATIONS

     Company Operations. We own and operate four gypsum wallboard manufacturing facilities. There are four primary steps in the manufacturing process: (1) gypsum is mined and extracted from the ground; (2) the gypsum is then calcined and converted into plaster; (3) the plaster is mixed with various chemicals and water to produce a mixture known as slurry, which is inserted between two continuous sheets of recycled paperboard on a high-speed production line and allowed to harden; and (4) the sheets of gypsum wallboard are then cut to appropriate lengths, dried and bundled for sale. Gypsum wallboard is used to finish the interior walls and ceilings in residential, commercial and industrial construction.

The following table sets forth certain information regarding our plants:

     Our gypsum wallboard production totaled 2,572 MMSF in Fiscal 2005 and 2,496 MMSF in Fiscal 2004. Total gypsum wallboard sales were 2,547 MMSF in Fiscal 2005 and 2,437 MMSF in Fiscal 2004. Total wallboard production as a percentage of rated capacity was 93% in Fiscal 2005 and 90% in Fiscal 2004. The Company operating rates were consistent with industry average capacity utilization in Fiscal 2005 and 2004, which were supported by record wallboard demand in those years.

     Raw Materials and Fuel Supplies. We mine and extract natural gypsum rock, the principal raw material used in the manufacture of gypsum wallboard, from mines and quarries owned, leased or subject to mining claims owned by the Company and located near our plants. We do not presently use synthetic gypsum. Two leases cover the New Mexico reserves; one with the Pueblo of Zia and the second with the State of New Mexico. The term of the Zia lease continues for so long as gypsum is produced in paying quantities, as defined therein. The term of the State lease continues for so long as the royalties paid under the lease exceed a certain amount. We do not anticipate any problems in continuing to extend the term of these leases for the foreseeable future. Other gypsum deposits are located in the immediate area of the Duke, Oklahoma plant and which we believe may be obtained at reasonable costs when needed.

     Through our modern low cost paperboard mill we manufacture sufficient quantities of paper necessary for our gypsum wallboard production. Paper is the largest cost component in the manufacturer of gypsum wallboard representing approximately 40% of the production cost.

     Our gypsum wallboard manufacturing operations use large quantities of natural gas and electrical power. A significant portion of the Company’s natural gas requirements for our gypsum wallboard plants are currently provided by three gas producers under gas supply agreements expiring in October 2005 for Colorado, April 2006 for New Mexico, and October 2006 for Oklahoma. If the agreements are not renewed, we expect to be able to obtain our gas supplies from other suppliers at competitive prices. Electrical power is supplied to our New Mexico plants at standard industrial rates by a local utility. Our Albuquerque plant utilizes an interruptible power supply agreement, which may expose it to some production interruptions during periods of power curtailment. Power for the Gypsum, Colorado facility is generated at the facility by a cogeneration power plant. Currently the cogeneration power facility supplies power and waste hot gases for drying to the gypsum wallboard plant. We do not sell any power to third parties. Gas costs increased significantly in Fiscal

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2005 and are likely to increase further during Fiscal 2006. If they remain at the current high level, or continue to increase, they are expected to negatively impact Fiscal 2006 gypsum wallboard manufacturing cost and operating earnings.

     Sales and Distribution. The principal sources of demand for gypsum wallboard are (i) residential construction, (ii) repair and remodeling, (iii) non-residential construction, and (iv) other activities such as exports and manufactured housing, which the Company estimates accounted for approximately 50%, 35%, 12% and 3%, respectively, of calendar 2004 industry sales. While the gypsum wallboard industry remains highly cyclical, recent strong residential growth in the repair and remodeling segment have partially mitigated the impact of fluctuations in overall levels of new construction. Also, demand for wallboard is seasonal and generally greater from spring through the middle of autumn.

     Although the percentage of gypsum wallboard shipments accounted for by new residential construction has declined in recent years, new residential construction remains the largest single source of gypsum wallboard demand. In recent years, demand has been favorably impacted by a shift toward more single-family detached housing within the new residential construction segment and by an increase in the size and volume of the average single-family detached home.

     We estimate that the size of the total residential repair and remodel market grew to a record $270 billion in calendar 2004, up 15% from calendar 2003. Although data on commercial repair and remodel activity is not readily available, we believe that this segment has also grown significantly in recent years. The growth of the repair and remodeling market is primarily due to the aging of housing stock, remodeling of existing buildings and tenant turnover in commercial space. In addition, repair and remodeling activity has benefited from the fact that it has increasingly come to be viewed by homeowners, particularly in recessionary periods, as a low cost alternative to purchasing a new house.

     We sell gypsum wallboard to numerous building materials dealers, gypsum wallboard specialty distributors, lumber yards, home center chains and other customers located throughout the United States. Two customers with multiple shipping locations accounted for approximately 12% and 11%, respectively, of our total gypsum wallboard sales during Fiscal 2005. The loss of either of these customers could have a material adverse effect on our financial results.

     Although gypsum wallboard is distributed principally in regional areas, the Company and certain other producers have the ability to ship gypsum wallboard by rail outside their usual regional distribution areas to regions where demand is strong. We own or lease 241 railcars for transporting gypsum wallboard. In addition, in order to facilitate distribution in certain strategic areas, we maintain a distribution center in Albuquerque, New Mexico and five reload yards in Arizona, California and Illinois. Our rail distribution capabilities permit us to reach customers in all states west of the Mississippi River and many eastern states. During Fiscal 2005, approximately 30% of our sales volume of gypsum wallboard was transported by rail.

     Competition. There are eight manufacturers of gypsum wallboard in the U.S. operating a total of 81 plants. We estimate that the three largest producers - USG Corporation, National Gypsum Company and Georgia-Pacific Corporation - account for approximately 65% of gypsum wallboard sales in the U.S. In general, a number of our competitors in the gypsum wallboard industry have greater financial, manufacturing, marketing and distribution resources than the Company. Furthermore, certain of our competitors operate vertically integrated gypsum wallboard distribution centers, which may provide them with certain cost advantages over the Company.

     Competition among gypsum wallboard producers is primarily on a regional basis and to a lesser extent on a national basis. Because of the commodity nature of the product, competition is based principally on price, which is highly sensitive to changes in supply and demand, and to a lesser extent, on product quality and customer service.

     Currently total U.S. gypsum wallboard production capacity is estimated at 37.0 billion square feet per year, a 33% increase from 1998. The Gypsum Association, an industry trade group, estimates that total

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calendar 2004 gypsum wallboard shipments by U.S. manufacturers were approximately 34.2 billion square feet, the highest level on record, resulting in average industry capacity utilization of approximately 92%.

     Capital Expenditures. Capital expenditures during Fiscal 2005 for the gypsum wallboard segment amounted to $5.8 million; $8.2 million in Fiscal 2004; and $3.0 million in Fiscal 2003. Capital outlays in Fiscal 2006 are estimated to be approximately $16.5 million with less than 1% of the estimated expenditures related to compliance with environmental regulations.

     Environmental Matters. The gypsum wallboard industry is subject to numerous federal, state and local laws and regulations pertaining to health, safety and the environment. Some of these laws, such as the federal Clean Air Act and the federal Clean Water Act (and analogous state laws) impose environmental permitting requirements and govern the nature and amount of emissions that may be generated when conducting particular operations. Some laws, such as the federal Comprehensive Environmental Response, Compensation, and Liability Act (and analogous state laws) impose obligations to clean up or remediate spills of hazardous materials into the environment. Other laws require us to reclaim certain land upon completion of extraction and mining operations in our quarries. None of the Company’s gypsum wallboard operations are presently the subject of any local, state or federal environmental proceedings or inquiries. The Company does not, and has not, used asbestos in any of its gypsum wallboard products.

CEMENT OPERATIONS

     Company Operations. Our cement production facilities are located in or near Buda, Texas; LaSalle, Illinois; Laramie, Wyoming; and Fernley, Nevada. The LaSalle, Illinois, Laramie, Wyoming and Fernley, Nevada facilities are wholly-owned. The Buda, Texas plant is owned by Texas Lehigh Cement Company LP, a limited partnership joint venture owned 50% by the Company and 50% by Lehigh Cement Company, a subsidiary of Heidelberg Cement AG. Our LaSalle, Illinois plant operates under the name Illinois Cement Company, the Laramie, Wyoming plant operates under the name of Mountain Cement Company and the Fernley, Nevada plant under the name of Nevada Cement Company.

     Cement is the basic binding agent for concrete, a primary construction material. Our modern cement plants utilize dry process technology and at present approximately 80% of our clinker capacity is from preheater or preheater/precalciner kilns. The following table sets forth certain information regarding these plants:

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     The Company’s net cement production, including its 50% share of the cement Joint Venture production, totaled 2.42 million tons in Fiscal 2005 and 2.39 million tons in Fiscal 2004 (Fiscal 2004 includes 50% of Illinois Cement production versus 50% of Illinois through January 10, 2005 and a 100% from January 11, 2005 through March 31, 2005). Total net cement sales, including the Company’s 50% share of cement sales from the Joint Venture, were 2.75 million tons in Fiscal 2005 and 2.52 million tons in Fiscal 2004 as all four plants sold 100% of the product they produced. Cement production is capital-intensive and involves high initial fixed costs. During the past two years, we imported and purchased cement from others to be resold. Purchased cement sales typically occur at lower gross profit margins. In Fiscal 2005, 14.6% of the cement sold by us was acquired from outside sources, compared to 8.7% in Fiscal 2004.

     Raw Materials and Fuel Supplies. The principal raw material used in the production of portland cement is calcium carbonate in the form of limestone. Limestone is obtained principally through mining and extraction operations conducted at quarries owned or leased by the Company and located in close proximity to our plants. We believe that the estimated recoverable limestone reserves owned or leased by us will permit each of our plants to operate at our present production capacity for at least 25 years or, in the case of our Nevada plant, at least 13 years. We control additional limestone reserves for our Nevada market that will be available when needed on an economically feasible basis but may require a new plant to be built in close proximity to these reserves. Other raw materials used in substantially smaller quantities than limestone are sand, clay, iron ore and gypsum. These materials are readily available and can either be obtained from Company-owned or leased reserves or are purchased from outside suppliers.

     Our cement plants use coal and coke as their primary fuel, but are equipped to burn natural gas as an alternative. We have not used hazardous waste-derived fuels in our plants although our LaSalle, Illinois and Buda, Texas plants have been permitted to burn scrap tires as a partial fuel alternative. Electric power is also a major cost component in the manufacturing process and we have sought to diminish overall power costs by adopting interruptible power supply agreements. These agreements may expose us to some production interruptions during periods of power curtailment.

     Sales and Distribution. Demand for cement has been historically cyclical, derived from the demand for concrete products which, in turn, is derived from demand for construction. However, recently construction spending and cement consumption have been more stable and growing. The construction sector is affected by the general condition of the economy as well as regional economic influences. Regional cement markets experience peaks and valleys correlated with regional construction cycles. Also, demand for cement is seasonal, particularly in northern states where inclement weather affects construction activity. Sales are generally greater from spring through the middle of autumn than during the remainder of the year. While the impact on the Company of regional construction cycles may be mitigated to some degree by a geographic diversification, profitability is sensitive to shifts in the balance between regional supply and demand.

     The following table sets forth certain information regarding the geographic area served by each of our cement plants and the location of our distribution terminals in each area. We have a total of 10 cement storage and distribution terminals that are strategically located to extend the sales areas of our plants.

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     Cement is distributed directly to our customers by common carriers and customer pickups from plants or distribution terminals. We transport cement principally by rail to our storage and distribution terminals. No single customer accounted for 10% or more of our cement sales during Fiscal 2005. Sales are made on the basis of competitive prices in each area. As is customary in the industry, the Company does not typically enter into long-term sales contracts, except with respect to major construction projects.

     Competition. The cement industry is extremely competitive as a result of multiple domestic suppliers and the importation of foreign cement through various terminal operations. Competition among producers and suppliers of cement is based primarily on price, with consistency of quality and service to customers being important but of lesser significance. Price competition among individual producers and suppliers of cement within a geographic area is intense because of the fungible nature of the product. Because of cement’s low value-to-weight ratio, the relative cost of transporting cement on land is high and limits the geographic area in which each company can market its products economically. Therefore, the U.S. cement industry is fragmented into regional geographic areas rather than a single national selling area. No one cement company has a distribution of plants extensive enough to serve all geographic areas.

     Cement imports into the U.S. occur primarily to supplement domestic cement production. Cement is typically imported into deep water ports or transported on the Mississippi River system near major populated centers to take advantage of higher freight costs that U.S. manufacturers have in the same areas.

     As a result of antidumping petitions filed by a group of domestic cement producers, significant antidumping duty cash deposit requirements have been imposed on cement imported from Mexico since 1990 and from Japan since 1991. The existing antidumping orders have contributed substantially to an improvement in the condition of the U.S. cement industry.

     The Department of Commerce and the International Trade Commission (“ITC”) conducted “sunset” reviews of antidumping orders during 1999 – 2000 and determined they should remain in effect for another five years until 2005. It is anticipated that a similar review will commence in the fall of calendar 2005 with final conclusions being reached approximately one year later.

     The Portland Cement Association (“PCA”) estimates that imports represented approximately 20.3% of cement used in the U.S. during calendar 2004 as compared with approximately 21% in 2003 and 23% in 2002. The introduction of low-priced imported cement from new sources could adversely affect our results of operations.

     Capital Expenditures. Capital expenditures during Fiscal 2005, not including capital expenditures associated with the 50% owned cement Joint Venture, amounted to $8.5 million compared with $1.8 million and $2.5 million in Fiscal 2004 and 2003, respectively. Capital outlays in Fiscal 2006 are estimated to be

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approximately $33.0 million. The increase is due primarily to the expansion of our Illinois Cement facility. Approximately 14% of the estimated Fiscal 2006 total is related to compliance with environmental regulations.

     Environmental Matters. Our operations are subject to numerous federal, state and local laws and regulations pertaining to health, safety and the environment. Some of these laws, such as the federal Clean Air Act and the federal Clean Water Act (and analogous state laws) impose environmental permitting requirements and govern the nature and amount of emissions that may be generated when conducting particular operations. Some laws, such as the federal Comprehensive Environmental Response, Compensation, and Liability Act (and analogous state laws) impose obligations to clean up or remediate spills of hazardous materials into the environment. Other laws require us to reclaim certain land upon completion of extraction and mining operations in our quarries. We believe that the Company has obtained all the material environmental permits that are necessary to conduct our operations. We further believe that the Company is conducting its operations in substantial compliance with these permits. In addition, none of the Company’s sites is listed as a CERCLA “Superfund” site.

     Four environmental issues involving the cement manufacturing industry deserve special mention. The first issue involves cement kiln dust or CKD. The federal Environmental Protection Agency or EPA has been evaluating the regulatory status of CKD under the federal Resource Conservation and Recovery Act (“RCRA”) for a number of years. In 1999, the EPA proposed a rule that would allow states to regulate properly-managed CKD as a non-hazardous waste under state laws and regulations governing solid waste. In contrast, CKD that was not properly managed would be treated as a hazardous waste under RCRA. In 2002, the EPA confirmed its intention to exempt properly-managed CKD from the hazardous waste requirements of RCRA. The agency announced that it would collect additional data over the next three to five years to determine if the states’ regulation of CKD is effective, which may lead the EPA to withdraw its 1999 proposal to treat any CKD as a hazardous waste. Final action implementing the 2002 announcement is expected to occur in October 2006.

     Currently, substantially all CKD produced in connection with our ongoing operations is recycled, and therefore such CKD is not viewed as a waste under RCRA. However, CKD was historically collected and stored on-site at our Illinois, Nevada and Wyoming cement plants and at a former plant site in Corpus Christi, Texas, which is no longer in operation. If either the EPA or the states decide to impose management standards on this CKD at some point in the future, the Company could incur additional costs to comply with those requirements with respect to its historically collected CKD. CKD that comes in contact with water might produce a leachate with an alkalinity high enough to be classified as hazardous and might also leach certain hazardous trace metals therein.

     A second industry environmental issue involves the historical disposal of refractory brick containing chromium. Such refractory brick was formerly widely used in the cement industry to line cement kilns. The Company currently crushes spent refractory brick (which does not contain chromium) and uses it as raw feed in the kiln.

     A third industry environmental issue involves the potential regulation of greenhouse gases from cement plants. Carbon dioxide is a greenhouse gas that many scientists and others believe contributes to the warming of the Earth’s atmosphere. Although no restrictions have yet been imposed under federal laws, it is possible that cement plants may be targeted because of the large amounts of carbon dioxide generated during the manufacturing process. Any imposition of raw materials or production limitations or fuel-use or carbon taxes could have a significant impact on the cement manufacturing industry.

     Fourth, the U.S. EPA has promulgated regulations for certain toxic air pollutants including standards for portland cement manufacturing. The maximum attainable control technology standards require cement plants to test for certain pollutants and meet certain emission and operating standards. Management has no reason to believe, however, that these standards have placed the Company at a competitive disadvantage.

     Management believes that our current procedures and practices in our operations, including those for handling and managing hazardous materials, are consistent with industry standards and are in substantial compliance with applicable environmental laws and regulations. Nevertheless, because of the complexity of

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operations and compliance with environmental laws, there can be no assurance that past or future operations will not result in violations, remediation or other liabilities or claims. Moreover, we cannot predict what environmental laws will be enacted or adopted in the future or how such future environmental laws or regulations will be administered or interpreted. Compliance with more stringent environmental laws, or stricter interpretation of existing environmental laws, could necessitate significant capital outlays.

RECYCLED PAPERBOARD OPERATIONS

     Company Operations. Our recycled paperboard manufacturing operation is located in Lawton, Oklahoma and was acquired in November 2000 along with certain other related assets that were sold or closed in Fiscal 2002 and 2003.

     All of our paper products are manufactured from 100% recovered (recycled) paper fiber. Products manufactured primarily include the facing and backside paper used in the manufacture of gypsum wallboard; other recycled paperboard grades used by manufacturers of consumer packaging (e.g. corrugate medium and linerboard); and industrial paperboard products (e.g. angle board, tube and core board) are also produced for diversity and mill optimization.

     The Mill. The mill is designed to manufacture gypsum-grade recycled paperboard utilizing various modern technologies that produces recycled paperboard that is up to 20% lighter than that currently generally available in the U.S., but with similar strength characteristics. Because gypsum-grade recycled paperboard generally is sold on the basis of surface area, manufacturing lighter paper potentially translates into higher profit margins per ton for the recycled paperboard manufacturer. Lighter recycled paperboard also reduces drying costs associated with the production of gypsum wallboard and reduces inbound and outbound freight costs of both recycled paperboard and gypsum wallboard. In addition to producing a product that is more attractive to customers, our lighter weight, better quality recycled paperboard reduces production and transportation costs at our gypsum wallboard plants.

     Manufacturing Process. Recycled paperboard is manufactured in a continuous process during which reclaimed paper fiber is mixed with water and pulped to separate the individual fibers. This mixture is passed through a series of filters and cleaners to remove all of the undesirable materials (e.g. tapes, glass, staples, glues, waxes) from the recovered fiber to produce a slurry. The slurry is then diluted to a very low concentration and is then applied to a series of traveling wire screens through a mechanical distribution system. The paper machine is designed so that four individual webs of paper are combined to form one multi-ply sheet of paperboard. The excess water from this process is allowed to be drained through the wire mesh fabric and is continuously recycled for additional paper making. The multi-ply paper mat is then mechanically pressed, steam dried and trimmed to specific customer size and packaging requirements. The finished product is wound in roll form weighing approximately 2.5 tons and containing 2.2 miles of paper. It is made specifically to customer quality specifications.

     Raw Materials. The principal raw materials are recovered paper fiber (in other words, wastepaper), water and specialty paper chemicals. Several different types of recovered fiber (e.g. newspaper, grocery store boxes, etc.) are formulated together to give the desired paperboard qualities. Recovered paper fiber is currently purchased from several sources, with 60% being under contractual commitments.

     We believe that adequate supplies of recovered paper fiber will continue to be available from generators and wholesalers located within a 400-mile radius of the mill. One third of all purchased fiber is supplied by rail. Recovered paper fiber is a commodity bought, sold and traded under the guidelines of the Institute of Scrap Recycling Industries, Inc. (ISRI). Monthly pricing is established in several industry publications based on location. Prices are subject to fluctuations based on supply, demand and export. The current outlook for Fiscal 2006 is for wastepaper prices to increase moderately during the first half of the year and stabilize for the remainder of the fiscal year. Current customer contracts include price escalators to compensate for changes in raw material prices.

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     Chemicals, including size, retention aids, bactericides and strength aids, used by the Company in its recycled paperboard operations are environmentally friendly and are readily available from several manufacturers at competitive prices.

     The manufacture of recycled paperboard involves the use of large volumes of water both in the production process and for cooling purposes. The mill uses water provided under an agreement with the City of Lawton, Oklahoma municipal services. The term of the agreement with the City of Lawton, Oklahoma is fifteen years (commencing in calendar 1999) with two automatic five-year extensions unless the Company notifies the City in writing at least six months prior to the expiration of the term or extended term. Although adequate sources of water have historically been available, an extended period of general water shortages, legal curtailment of any mill’s current water sources or uses, or deterioration of the current quality of water could adversely affect the mill’s operations and limit its production capacity.

     Electricity, natural gas and other utilities are available to the mill either at contracted rates or at standard industrial rates in adequate supplies, subject to standard industrial curtailment provisions. If periods of natural gas curtailment or unfavorable pricing occur, the Lawton mill is equipped to use fuel oil as an alternative fuel. The mill has a four year contract for natural gas transportation.

     Paperboard mills are generally large consumers of natural gas, with Lawton’s needs in excess of 3200 MMBTU per day. During Fiscal 2005, natural gas pricing significantly increased and is expected to increase further during Fiscal 2006. If natural gas prices remain at the current high level, or continue to increase, they are expected to negatively impact Fiscal 2006 production cost and operating earnings. The mill is under a favorable electrical agreement with Public Service of Oklahoma that renews annually, unless terminated by notice by either party.

     Sales and Distribution. Our manufactured recycled paperboard products are sold primarily to gypsum wallboard manufacturers. During Fiscal 2005, approximately 41% of the recycled paperboard manufactured and shipped by the mill was consumed by the Company’s gypsum wallboard manufacturing operations, approximately 5% was shipped to other gypsum wallboard manufacturers and 40% was sold to BPB Gypsum (“BPB Gypsum”) pursuant to a paper supply contract (the “BPB Gypsum Agreement”). Originally, the BPB Gypsum Agreement was entered into by Republic Paperboard and James Hardie Gypsum Inc.; however, subsequent to the agreement James Hardie’s North American gypsum wallboard operations were acquired by BPB Gypsum. The BPB Gypsum Agreement is a long-term paper supply contract with sales to BPB Gypsum made at a defined base price determined at the time of execution of the BPB Gypsum Agreement. This defined price is subject to adjustment based on changes in the major variable costs of production of recycled paperboard. Under this agreement, the mill is obligated to sell and BPB Gypsum is obligated to purchase at least 95% (plus or minus 5%) of the gypsum-grade recycled paperboard requirements of three of BPB Gypsum’s plants. The loss of BPB Gypsum as a customer or a termination or reduction of its production of gypsum wallboard, unless replaced by a commercially similar arrangement, could have a material adverse effect on the Company.

     Competition. In selling the portion of our production not consumed by our gypsum wallboard manufacturing operations, we compete with approximately nine other manufacturers of gypsum-grade paperboard, six of which have gypsum wallboard manufacturing operations. Substantially all of these competitors have greater financial resources than the Company. During periods of peak demand for gypsum wallboard, the demand for recycled paperboard typically matches or exceeds the productive capacities of the gypsum-grade paperboard producers. During periods of reduced demand for gypsum wallboard, the demand for recycled paperboard falls, and selling prices may decrease on open market tonnage.

     Price, quality and timeliness of deliveries are the principal methods of competition among paperboard producers. The location of our mill allows us to serve a variety of markets, including several gypsum wallboard plants in the mid-west, southeast, southwest and western U.S.

     Environmental Matters. Prior to November 2000, the Company’s now closed Commerce City, Colorado paper mill (the “Commerce City Mill”) had investigated the presence of subsurface petroleum hydrocarbons at the mill site and had retained an environmental consultant, who concluded that fuel oil, jet

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fuel, and gasoline additives had migrated in the subsurface of the property from an adjacent property. As a result of an additional subsequent investigation by the Commerce City Mill, new environmental conditions were uncovered that appear to stem from underground storage tank use on the mill site. The Commerce City Mill and a former owner of the Commerce City Mill have entered into a participation agreement with the Division of Oil and Public Safety of the Colorado Department of Labor and Employment (the “Oil Division”) to respond to those conditions that appear to stem from historical underground storage tank use. Under the participation agreement, the Commerce City mill will pay 25% (with the former owner paying 75%) of the costs associated with the investigation and remediation efforts approved by both parties. The Company and the former owner have each approved and submitted to the Oil Division a Corrective Action Plan (the “CAP”) for the removal of the subsurface petroleum hydrocarbon at the Commerce City Mill. The CAP was approved by the Oil Inspection Section in calendar 2002. It is estimated that this CAP will cost approximately $2.5 million and take approximately eight years to complete. Under the participation agreement, the Company will pay 25% (or approximately $625,000 of which a portion has been paid and the remainder is fully accrued) of such estimated costs. There can be no assurance however, that the actual costs of remediation will not exceed these estimates.

     Capital Expenditures. Capital expenditures during Fiscal 2005 for the paperboard operations were $4.5 million, $1.3 million in Fiscal 2004 and $4.7 million in Fiscal 2003. Capital expenditures for Fiscal 2006 have been estimated at approximately $7.3 million. This increase is due to two large equipment upgrade projects and a plant automation project. None of the estimated Fiscal 2006 capital outlays is related to compliance with environmental regulations.

CONCRETE AND AGGREGATES OPERATIONS

     Company Operations. Readymix concrete, a versatile, low-cost building material used in almost all construction, involves the mixing of cement, sand, gravel, or crushed stone and water to form concrete which is then sold and distributed to numerous construction contractors. Concrete is produced in batch plants and transported to the customer’s job site in mixer trucks.

     The construction aggregates business consists of the mining, extraction, production and sale of crushed stone, sand, gravel and lightweight aggregates such as expanded clays and shales. Construction aggregates of suitable characteristics are employed in virtually all types of construction, including the production of portland cement concrete and asphaltic mixes in highway construction and maintenance.

     We produce and distribute readymix concrete north of Sacramento, California and in Austin, Texas. The following table sets forth certain information regarding these operations:

     The Austin, Texas market, which is our largest concrete market, has been negatively impacted by the market conditions affecting technology companies that began in 2000. Our net readymix concrete production was 769,000 cubic yards in Fiscal 2005 and 762,000 cubic yards in Fiscal 2004.

     We conduct aggregate operations near our concrete facilities in northern California and Austin, Texas. Aggregates are obtained principally by mining and extracting from quarries owned or leased by the Company. The following table sets forth certain information regarding these operations.

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     The Company’s total net aggregate sales were 5.2 million tons in Fiscal 2005 and 4.2 million tons in Fiscal 2004. Total aggregates production was 5.4 million tons for Fiscal 2005 and 4.7 million for Fiscal 2004. A portion of the Company’s total aggregates production is used internally by the Company’s readymix concrete operations.

     In September 2002, we closed our Georgetown, Texas quarry and processing plant. We initially planned to utilize all or a substantial portion of the assets used in the Georgetown operations at our other facilities, although it was later determined that only a portion of such assets were needed and the remainder were sold. Assets written-off during Fiscal 2003 as part of the closure totaled $2.6 million.

     Raw Materials. The Company supplies approximately 100% and 5% of its cement requirements for its Austin and northern California concrete operations, respectively. The Company supplies approximately 53% and 50%, respectively, of its aggregates requirements for its Austin and northern California concrete operations. The Company obtains the balance of its cement and aggregates requirements from multiple sources in each of these areas.

     We mine and extract limestone and sand and gravel, the principal raw materials used in the production of aggregates, from quarries owned or leased by the Company and located near its plants. The northern California quarry is estimated to contain approximately one billion tons of sand and gravel reserves. The Austin, Texas quarry is covered by a lease which expires in 2060. Based on its current production capacity, the Company estimates its Austin, Texas quarry contains approximately 60 years of limestone reserves.

     Sales and Distribution. Demand for readymix concrete and aggregates largely depends on local levels of construction activity. The construction sector is subject to weather conditions, the availability of financing at reasonable rates and overall fluctuations in local economies, and therefore tends to be cyclical. We sell readymix concrete to numerous contractors and other customers in each plant’s selling area. Our batch plants in Austin and northern California are strategically located to serve each selling area. Concrete is delivered from the batch plants by trucks owned by the Company.

     We sell aggregates to building contractors and other customers engaged in a wide variety of construction activities. Aggregates are delivered from our aggregate plants by common carriers, customer pick-up and, to a lesser extent, trucks owned by the Company. No single customer accounted for 10% or more of our concrete or aggregates sales during Fiscal 2005. Presently we are attempting to secure a rail link from our principal aggregates deposit north of Sacramento, California to extended markets in the San Francisco Bay area.

     Competition. Both the concrete and aggregates industries are highly fragmented, with numerous participants operating in local areas. Because the cost of transporting concrete and aggregates is very high relative to product values, producers of concrete and aggregates typically can sell their products only in areas within 50 miles of their production facilities. Barriers to entry in each industry are low, except with respect to environmental permitting requirements for new aggregate production facilities and zoning of land to permit mining and extraction of aggregates.

     Both concrete and aggregates are commodity products. Each type of aggregate is sold in competition with other types of aggregates and in competition with other producers of the same type of aggregates.

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Accordingly, competition in both the concrete and aggregates businesses is based principally on price and, to a lesser extent, on product quality and customer service.

     Capital Expenditures. Capital expenditures during Fiscal 2005 amounted to $3.5 million for the concrete and aggregates segment compared with $1.0 million and $1.1 million in Fiscal 2004 and 2003, respectively. Capital outlays in Fiscal 2006 are estimated to be approximately $11.1 million (with approximately $7.0 million relating to a mining dredge and related equipment). Only $0.7 million of estimated Fiscal 2006 capital expenditures are related to compliance with environmental regulations.

     Environmental Matters. The concrete and aggregates industry is subject to environmental regulations similar to those governing our cement operations. None of our concrete or aggregates operations are presently the subject of any local, state or federal environmental proceeding or inquiries.

EMPLOYEES

     As of March 31, 2005, we had approximately 1,557 employees

     As of March 31, 2005, we had approximately 400 employees employed under collective bargaining agreements and various supplemental agreements with local unions.

WHERE YOU CAN FIND MORE INFORMATION

     We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports available free of charge through the investor relations page of our website, located at www.eaglematerials.com as soon as reasonably practicable after they are filed with or furnished to the SEC. Alternatively, you may contact our investor relations department directly at (214) 432-2000 or by writing to Eagle Materials Inc., Investor Relations, 3811 Turtle Creek Blvd., Suite 1100, Dallas, Texas 75219.

ITEM 2. PROPERTIES

     We operate cement plants, quarries and related facilities at Buda, Texas; LaSalle, Illinois; Fernley, Nevada and Laramie, Wyoming. The Buda plant is owned by a partnership in which EXP has a 50% interest. Our principal aggregate plants and quarries are located in the Austin, Texas area and Marysville, California. In addition, we operate gypsum wallboard plants in Albuquerque and nearby Bernalillo, New Mexico, Gypsum, Colorado and Duke, Oklahoma. We produce recycled paperboard at Lawton, Oklahoma. None of our facilities are pledged as security for any debts.

     See “Item 1. Business” on pages 1-14 of this Report for additional information relating to the Company’s properties.

ITEM 3. LEGAL PROCEEDINGS

     We are a party to certain ordinary legal proceedings incidental to our business. In general, although the outcome of litigation is inherently uncertain, we believe that all of the pending litigation proceedings in which the Company or any subsidiary is currently involved are likely to be resolved without having a material adverse effect on the consolidated financial condition or operations of the Company.

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

     Not applicable.

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PART II

STOCK PRICES AND DIVIDENDS

     The Common Stock and Class B Common Stock of Eagle Materials Inc. are traded on the New York Stock Exchange (ticker symbols EXP and EXP.B). The approximate number of record holders of the Common Stock and the Class B Common Stock as of June 1, 2005 was 1,089 and 2,682, respectively. We currently expect that quarterly cash dividends comparable to the $.30 per share quarterly dividend will continue to be paid throughout Fiscal 2006.

     The following table shows the number of outstanding options and shares available for future issuance of options under all of the Company’s equity compensation plans as of March 31, 2005. All of the Company’s equity compensation plans have been approved by the Company’s shareholders.

     The Company’s Board of Directors has approved a cumulative total of 7,901,430 shares of the Company’s common stock for repurchase since the Company became publicly held in April 1994. As of March 31, 2005 there are approximately 1,599,200 shares remaining under the Company’s current repurchase authorization. The Company repurchased 662,200 shares of Class B Common Stock at a cost of $43.8 million during Fiscal 2005 and 58,500 shares of EXP.B Common Stock in Fiscal 2004 at a cost of $3.1 million.

     The total number of shares purchased in the table below represents shares of common stock repurchased pursuant to the Board of Directors authorization dated November 29, 1998 as amended July 28, 2004. Share repurchases may be made from time-to-time in the open market or in privately negotiated transactions. The timing and amount of any repurchases of shares will be determined by Company management, based on its evaluation of market and economic conditions and other factors. The repurchase authorization applies to both classes of the Company’s common stock.

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     Purchases of the Company’s Class B Common Stock during the year ended March 31, 2005 are as follows:

SUMMARY OF SELECTED FINANCIAL DATA ⁽¹⁾
(amounts in thousands, except per share data)

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EXECUTIVE SUMMARY

     Strong residential construction and a recovering commercial construction demand in all of our markets helped to set record Fiscal 2005 sales volume, revenues and earnings per share. Demand in all of our markets was strong as we reported increased sales volume in each of our segments for the fiscal year ended March 31, 2005. The majority of our earnings improvement was in the Gypsum Wallboard and Cement operations. Fiscal 2005 revenues increased 23% to $616.5 million, net earnings were up 59% to $106.7 million and diluted earnings per share were up 61% to $5.73.

     Gypsum Wallboard sales volume was up 5% and represented record volumes for the Company due to record industry demand while operating earnings increased 129% due to a 25% increase in average sales price. Fiscal 2005 was the 19^th consecutive sold-out year for our cement operations. Cement sales volume increased 9%, and operating earnings increased 14% from last year due to higher average net sales prices offset primarily by the impact of increased purchased cement volumes and costs. Paperboard reported record sales volume and operating earnings due to increased shipments to our wallboard operations and higher net sales prices. Concrete and Aggregates operating earnings improved 30% over last fiscal year due primarily to a record sales volume increase in aggregates of 23%. Corporate expenses increased $1.0 million due primarily to the cost associated with consulting services and the implementation costs of Sarbanes Oxley.

     Manufacturing costs in Fiscal 2005 were negatively impacted by increased natural gas, coal, power, paper fiber and maintenance costs. Demand for energy related products continued at a high level and prices for these products are expected to increase further in Fiscal 2006. Maintenance costs are expected to remain flat in Fiscal 2006.

     We operate in cyclical businesses. Downturns in overall economic activity usually have a significant adverse effect on cyclical businesses due to decreased demand and reduced pricing. Recently, wallboard demand has been favorably impacted by strong residential construction due to low interest rates. Rising interest rates could bring an erosion in new residential construction activity. However, commercial and industrial activity, which are showing signs of improvement, may help to offset reduced demand in the residential construction sector if interest rates increase. Cement demand continues to be positively impacted by a strong national highway funding program. The funds to be allocated in the current re-authorization proposals in Congress exceed the prior highway funding program.

     Strong demand from new housing and residential remodeling resulted in record wallboard consumption for calendar 2004. According to the Gypsum Association, national wallboard consumption of 34.2 billion square feet for calendar 2004, the highest level on record, was up 8% from last year’s consumption. Industry utilization rates have been at the 90%+ level, resulting in a 25% increase in wallboard pricing for FY 2005. We implemented a price increase in April 2005 and another price increase was announced in May 2005 to be implemented in July 2005.

     U.S. Cement consumption continues to be strong. Total U.S. cement shipments of 124 million short tons for calendar 2004 were 4% above calendar 2003. Cement imports for calendar 2004 were 28 million short tons, 20% above last year’s imports. The U.S. Cement Industry has been sold out for the last 10 years as a result of a domestic capacity deficit. Current U.S. demand requires imports of over 20% to supplement domestic capacity. The U.S. Cement Industry is anticipating a tight supply of imported cement this year due to high freight rates and increasing consumption in world markets. Cement pricing has increased 7% over prior year reversing a slight decline over the past three years. We implemented price increases in certain markets in January 2005 and all markets in April 2005.

     Our recycled paperboard mill continued operational and marketing improvements and is now producing at 25% above its original design capacity.

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     The Company conducts one of its cement operations through a joint venture, Texas Lehigh Cement Company LP, which is located in Buda, Texas (the “Joint Venture”). The Company owns a 50% interest in the joint venture and accounts for its interest under the equity method of accounting. However, for purposes of the Cement segment information presented, the Company proportionately consolidates its 50% share of the cement Joint Venture’s revenues and operating earnings, which is the way management organizes the segments within the Company for making operating decisions and assessing performance. See Note (G) of the Notes to the Consolidated Financial Statements for additional segment information.

RESULTS OF OPERATIONS

Fiscal Year 2005 Compared to Fiscal Year 2004

     Consolidated Results. Consolidated net revenues for Fiscal 2005 were up 23% from Fiscal 2004 driven by higher sales prices and volumes in all segments, especially Gypsum Wallboard and Cement. Fiscal 2005 operating earnings of $171.7 million were up 49% from $115.2 million last fiscal year mainly due to increased Gypsum Wallboard and Cement operating earnings.

     The following tables lists by line of business the revenues and operating earnings discussed in our operating segments:

     Corporate Overhead. Corporate general and administrative expenses for Fiscal 2005 were $10.3 million compared to $9.3 million for last fiscal year. The increase was primarily the result of increased consulting expenses, higher compensation and benefit costs and costs associated with Sarbanes Oxley, partially offset by the absence of $2.5 million in direct expenses related to the spin-off transaction included in Fiscal 2004.

     Other Income. Other income consists of a variety of items that are non-segment operating in nature and includes clinker sales income, non-inventoried aggregates income, gypsum wallboard distribution center income, asset sales and other miscellaneous income and cost items.

     Net Interest Expense. Net interest expense of $3.3 million for Fiscal 2005 declined $0.6 million from Fiscal 2004 due to lower debt balances and reduced borrowing costs.

     Income Taxes. The effective tax rate for fiscal 2005 declined to 32.5% from 33.9% primarily due to legal, advisory and consultant costs incurred in Fiscal 2004 related to the spin-off transaction which were not deductible for tax purposes and, a current year state tax benefit of $2.3 million as a result of a lower effective state tax rate applied to our anticipated state deferred tax balances.

     Net Income. As a result of the foregoing, pre-tax earnings of $158.1 million were 55% above Fiscal 2004 pre-tax earnings of $102.1 million. Fiscal 2005 net earnings of $106.7 million increased 59% from net earnings of $66.9 million in Fiscal 2004. Diluted earnings per share in Fiscal 2005 of $5.73 were 61% higher than the $3.57 for Fiscal 2004.

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GYPSUM WALLBOARD OPERATIONS

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CEMENT OPERATIONS

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PAPERBOARD OPERATIONS

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CONCRETE OPERATIONS

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AGGREGATES OPERATIONS

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Fiscal Year 2004 Compared to Fiscal Year 2003

     Consolidated Results. Consolidated net revenues for Fiscal 2004 totaled $502.6 million, up 17% from $429.2 million for Fiscal 2003. Higher sales volume in all segments, especially Gypsum Wallboard, accounted for the majority of the revenues gain. Fiscal 2004 operating earnings of $115.2 million were up 13% from $101.9 million last fiscal year mainly due to increased Gypsum Wallboard, Paperboard and Aggregates operating earnings.

     The following tables lists by line of business the revenues and operating earnings discussed in our operating segments:

     Other Income. Other income consists of a variety of items that are non-segment operating in nature and includes clinker sales income, non-inventoried aggregates income, gypsum wallboard distribution center income, asset sales and other miscellaneous income and cost items.

     Corporate Overhead. Corporate general and administrative expenses for Fiscal 2004 were $9.3 million compared to $5.7 million for Fiscal 2003. The increase was primarily the result of increased consulting, moving, insurance, investor relations and employee costs plus $2.5 million in direct expenses related to the spin-off transaction.

     Net Interest Expense. Net interest expense of $3.8 million for Fiscal 2004 declined $5.8 million from Fiscal 2003 due to lower debt balances and reduced borrowing costs.

     Income Taxes. The effective tax rate for fiscal 2004 increased to 34.5% from 33.5% primarily due to legal, advisory and consultant costs incurred related to the spin-off transaction which are not deductible for tax purposes.

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GYPSUM WALLBOARD OPERATIONS

     Gypsum Wallboard. Gypsum Wallboard revenues were 28% greater than Fiscal 2003 revenues due to increased sales volume. The operating earnings gain resulted from higher sales volume and lower cost of sales, partially offset by a slight decrease in sales prices. Sales volume of 2,437 million square feet (“MMSF”) for Fiscal 2004 was 26% greater than 1,933 MMSF sold during Fiscal 2003. The sales volume increase resulted from record industry demand and the Company operating at a higher average utilization rate in Fiscal 2004 compared to Fiscal 2003. Pricing increased from its low point of $79.00 per MSF at the end of Fiscal 2003 to approximately $97.00 per MSF at the end of Fiscal 2004. Cost of sales per MSF was impacted by the positive impact on fixed costs from the 36% increase in production volume, partially offset by higher natural gas and paper costs.

CEMENT OPERATIONS

     Cement. Cement revenues and operating earnings which includes the combined results of EXP’s wholly owned cement operations and its 50% share of the two unconsolidated cement Joint Ventures were impacted primarily by lower net sales prices and increased manufacturing costs, partially offset by higher sales volume. Sales volume increases were attributable to increased sales volume in each of our markets due to a 4% increase in industry demand. Purchased cement sales volume of 219,000 tons was 38% greater than Fiscal 2003 sales volume. Demand continued to be strong in all of the Company’s cement markets as Fiscal 2004 was another “sold out” year. Lower average cement net sales price of $66.02 per ton for Fiscal 2004 was 1% lower than $66.84 per ton for Fiscal 2003 due to competitive price pressures in the Illinois and mountain states markets. Cost of sales per ton for Fiscal 2004 increased 5% over Fiscal 2003 due to higher maintenance, employee benefits and energy costs.

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PAPERBOARD OPERATIONS

     Paperboard. Increased Paperboard revenues (including sales to our Wallboard operations) resulted mostly from increased sales volume to our Wallboard operations and higher average net sales prices. The average net sales price was impacted by increases in non gypsum paper pricing and a greater percentage of sales in Fiscal 2004 of higher priced gypsum paper sales to total sales. Paperboard sales volume was 264,000 tons, an increase of 17% from 225,000 tons from Fiscal 2003. The majority of the sales volume gain resulted from a 50% increase in sales volume to our wallboard operations. Fiscal 2004 cost of sales per ton increased 2% from Fiscal 2003 due to higher energy and chemical costs partially offset by the positive impact of increased production volume on fixed manufacturing costs.

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CONCRETE OPERATIONS

     Concrete. Concrete revenues were impacted by increased sales volumes in our Texas market, offset by a 2% decline in pricing in the same market. Cost of sales decreased by 4% due primarily to lower materials cost at our Texas operation.

AGGREGATES OPERATIONS

     Aggregates. Aggregates operating earnings of $3.0 million for Fiscal 2004 improved from a $2.1 million loss in Fiscal 2003. The earnings gain was due to higher sales volume, increased sales prices, lower cost of sales and no cost in Fiscal 2004 associated with the closing of the Company’s former Georgetown, Texas facility in Fiscal 2003. Volume increases were due to increased west coast sales volume, partially offset by lower Texas sales volume. Increased aggregates net sales price per ton was a result of higher sales price at the west coast operation and no low priced Georgetown sales volume in Fiscal 2004. Cost of sales decreased due to lower production cost at the Texas operation and the $2.6 million cost in Fiscal 2003 from closing the Georgetown facility.

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CRITICAL ACCOUNTING POLICIES

     Certain of our critical accounting policies require the use of judgment in their application or require estimates of inherently uncertain matters. Although our accounting policies are in compliance with generally accepted accounting principles, a change in the facts and circumstances of the underlying transactions could significantly change the application of the accounting policies and the resulting financial statement impact. Listed below are those policies that we believe are critical and require the use of complex judgment in their application.

     Impairment of Long-Lived Assets. We assess long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. These evaluations for impairment are significantly impacted by estimates of revenues, costs and expenses and other factors. If these assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

     Goodwill. Pursuant to SFAS No. 142 “Goodwill and Other Intangible Assets,” goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test. We have elected to test for goodwill impairment in the first quarter of each calendar year. The goodwill impairment test is a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of each reporting unit based on a discounted cash flow model using revenues and profit forecasts and comparing those estimated fair values with the carrying value; a second step is performed to compute the amount of the impairment by determining a “implied fair value” of goodwill. Similar to the review for impairment of other long-lived assets, evaluations for impairment are significantly impacted by estimates of future prices for our products, capital needs, economic trends and other factors.

     Environmental Liabilities. Our operations are subject to state, federal and local environmental laws and regulations, which impose liability for cleanup or remediation of environmental pollution and hazardous waste arising from past acts and require pollution control and prevention, site restoration and operating permits and/or approvals to conduct certain of its operations. We record environmental accruals when it is probable that a reasonably estimable liability has been incurred. Environmental remediation accruals are based on internal studies and estimates, including shared financial liability with third parties. Environmental expenditures that extend the life, increase the capacity, improve the safety or efficiency of assets or mitigate or prevent future environmental contamination may be capitalized. Other environmental costs are expensed when incurred.

     Valuation of Accounts Receivable. We evaluate the collectibility of accounts receivable based on a combination of factors. In circumstances when we are aware of a specific customer’s inability to meet its financial obligation to the Company, the balance in the reserve for doubtful accounts is evaluated, and if determined to be deficient, a specific amount will be added to the reserve. For all other customers, the reserve for doubtful accounts is determined by the length of time the receivables are past due or the status of the customer’s financial condition.

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity.

     The following table provides a summary of our cash flows:

     The $44.5 million increase in cash flows from operating activities for Fiscal 2005 was largely attributable to increased earnings. In addition, changes in working capital items such as increases in accounts payable offset by the increase in accounts receivable contributed to the increase in cash flows from operating activities.

     Working capital at March 31, 2005 was $19.8 million compared to $12.6 million at March 31, 2004. The increase resulted primarily from a $3.7 million increase in cash, $6.9 million increase in inventories, a $12.5 million increase in accounts and notes receivable; offset against a $6.7 million increase in notes payable, and a $14.4 million increase in accounts payable and accrued liabilities.

     Total debt increased from $82.9 million at March 31, 2004, to $84.8 at March 31, 2005. Debt-to-capitalization at March 31, 2005, was 14.9% compared to 15.9% at March 31, 2004.

     Based on our financial condition and results of operations as of and for the year ended March 31, 2005, along with the projected net earnings for Fiscal 2006, we believe that our internally generated cash flow coupled with funds available under various credit facilities will enable us to provide adequately for our current operations, dividends, capital expenditures and future growth through the end of Fiscal 2006. The Company was in compliance at March 31, 2005 and during the fiscal year ended March 31, 2005, with all the terms and covenants of its credit agreements and expects to be in compliance during the next 12 months.

     Cash and cash equivalents totaled $7.2 million at March 31, 2005, compared to $3.5 million at March 31, 2004.

Debt Financing Activities.

     On December 16, 2004 we amended our existing credit facility to increase the facility amount from $250.0 million to $350.0 million (the “New Credit Facility”), modified certain financial and other covenants and extended the maturity date to 2009. The New Credit Facility expires on December 16, 2009, at which time all borrowings outstanding are due. The borrowings under the New Credit Facility are guaranteed by all

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major operating subsidiaries of the Company. At the option of the Company, outstanding principal amounts on the New Credit Facility bear interest at a variable rate equal to: (i) LIBOR, plus an agreed margin (ranging from 87.5 to 162.5 basis points), which is to be established quarterly based upon the Company’s ratio of consolidated EBITDA to its consolidated indebtedness; or (ii) an alternate base rate which is the higher of (a) the prime rate or (b) the federal funds rate plus 1/2% per annum, plus an agreed margin (ranging from 25 to 100 basis points). Interest payments are payable monthly or at the end of the LIBOR advance periods, which can be up to a period of six months at the option of the Company. Under the New Credit Facility, we are required to adhere to a number of financial and other covenants, including covenants relating to the Company’s interest coverage ratio and consolidated funded indebtedness ratio. At March 31, 2005 the Company had $289.6 million of borrowings available under the New Credit Facility.

     Our $50.0 million trade receivables securitization facility (the “Receivables Securitization Facility”), was funded through the issuance of commercial paper and backed by a 364-day committed bank liquidity arrangement. The Receivables Securitization Facility has a termination date of February 20, 2007, subject to a 364-day bank commitment. The Receivables Securitization Facility has been fully consolidated on the accompanying consolidated balance sheet. Subsidiary company receivables are sold on a revolving basis first to the Company and then to a wholly owned special purpose bankruptcy remote entity of the Company. This entity pledges the receivables as security for advances under the facility. Initially, the borrowed funds have been used to pay down borrowings under the Credit Facility. Outstanding principal amounts under the Receivables Securitization Facility bear interest at the commercial paper rate plus a facility fee. Under the Receivables Securitization Facility, we are required to adhere to certain financial and other covenants that are similar to those in the New Credit Facility. The Company had $30.8 million of borrowings outstanding at March 31, 2005 under the Receivables Securitization Facility.

     Other than the Receivables Securitization Facility and the New Credit Facility, the Company has no other source of committed external financing in place. In the event the Receivables Securitization Facility is terminated, funds should be available under the New Credit Facility to repay borrowings. However, if the New Credit Facility were terminated, no assurance can be given as to the Company’s ability to secure a new source of financing. Consequently, if a balance is outstanding on the New Credit Facility at the time of termination, and an alternative source of financing cannot be secured, it would have a material adverse impact on the Company. None of the Company’s debt is rated by the rating agencies.

     We do not have any off balance sheet debt except for operating leases. Other than the Receivables Securitization Facility, we do not have any other transactions, arrangements or relationships with “special purpose” entities. Also, we have no outstanding guarantees of debt of third parties. The Company has available under the New Credit Facility a $25.0 million Letter of Credit Facility. At March 31, 2005, the Company had $6.4 million of letters of credit outstanding that renew annually. We are contingently liable for performance under $5.5 million in performance bonds relating primarily to our mining operations.

     On January 10, 2005, we completed the purchase of our partner’s 50% interest in Illinois Cement Company for $72 million of which $65 million was financed through borrowings under the New Credit Facility and the balance was paid with cash on hand. See Note (B) to the Consolidated Financial Statements for further discussion.

Cash used for Share Repurchases.

     See table under Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” on page 16.

     On July 28, 2004, we announced that our Board of Directors authorized the repurchase of an additional 1,800,000 shares of common stock, raising our repurchase authorization to approximately 2,000,000 shares. As of March 31, 2005, we had remaining authorization to purchase 1,599,200 shares. Share repurchases may be made from time-to-time in the open market or in privately negotiated transactions. The timing and amount of any repurchases of shares will be determined by the Company’s management, based on

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its evaluation of market and economic conditions and other factors. The repurchase authorization applies to both classes of the Company’s common stock.

Dividends. Dividends paid in fiscal years 2005 and 2004 were $22.2 million and $116.6 million, respectively. On January 28, 2004, in conjunction with the spin off from Centex, the Company paid a $6 per share or approximately $112.9 million special dividend. Each quarterly dividend payment is subject to review and approval by our Board of Directors, and we intend to evaluate our dividend payment amount on an ongoing basis.

Capital Expenditures.

     The following table compares capital expenditures:

     For Fiscal 2006, we expect expenditures of the following: approximately $68 million ($45.6 million higher than our 2005 levels), with the year-over-year increase due primarily to the expansion of Illinois Cement. Historically, we have financed such expenditures with cash from operations and borrowings under our revolving credit facilities.

Contractual Obligations.

     The Company has certain contractual obligations covering manufacturing, transportation and certain other facilities and equipment. Future payments due, aggregated by type of contractual obligation are set forth as follows:

     Purchase obligations are non-cancelable agreements to purchase coal and natural gas, to pay royalty amounts and capital expenditure commitments.

     Based on our current estimates, we will not make any additional contributions to our defined benefit plans for fiscal year 2006.

Stock Repurchase Program.

     See table under Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” on pages 15 and 16.

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Inflation and Changing Prices

     Inflation has become less of a factor in the U.S. economy as the rate of increase has moderated during the last several years. The Consumer Price Index rose approximately 3.3% in calendar 2004, 1.9% in 2003, and 2.4% in 2002. Prices of materials and services, with the exception of power, natural gas, coal, coke, and transportation freight have remained relatively stable over the three-year period. Strict cost control and improving productivity also minimize the impact of inflation. The ability to recover increasing costs by obtaining higher sales prices varies with the level of activity in the construction industry, the number, size, and strength of competitors and the availability of products to supply a local market.

GENERAL OUTLOOK

     See outlook within Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 17-23.

RECENT ACCOUNTING PRONOUNCEMENTS

     See Footnote (A) to the Consolidated Financial Statements on page 39.

FORWARD-LOOKING STATEMENTS

     Certain sections of this report including Management’s Discussion and Analysis of Results of Operations and Financial Condition contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs, estimates or expectations. These statements involve known and unknown risks and uncertainties that may cause the Company’s actual results to be materially different from planned or expected results. Those risks and uncertainties include, but are not limited to:

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     In general, the Company is subject to the risks and uncertainties of the construction industry and of doing business in the U.S. The forward-looking statements are made as of the date of this report, and the Company undertakes no obligation to update them, whether as a result of new information, future events or otherwise.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risks related to fluctuations in interest rates on its debt obligations and accounts receivable securitization classified as debt. The Company from time-to-time has utilized derivative instruments, including interest rate swaps, in conjunction with its overall strategy to manage the debt outstanding that is subject to changes in interest rates. At March 31, 2005, the Company had approximately $84.8 million in variable rate debt ($54.0 million in bank debt and $30.8 million in a note payable under the Company’s accounts receivable securitization program). Accordingly, using the unhedged balance of the Company’s variable rate debt as of March 31, 2005 of $84.8 million, if the applicable interest rates on such debt (LIBOR or commercial paper rates) increase by 100 basis points (1%) for a full year, the Company’s pre-tax earnings and cash flows would decrease by approximately $848,000 for such period. On the other hand, if such interest rates decrease by 100 basis points for a full year, the Company’s pre-tax earnings and cash flows would increase by approximately $848,000 for such period. The Company does not currently utilize forward or option contacts on foreign currencies or other types of derivative financial instruments. To date transactions in foreign currencies have been immaterial.

     The Company is subject to commodity risk with respect to price changes principally in coal, coke, natural gas and power. We attempt to limit our exposure to changes in commodity prices by entering into short term fixed forward purchase contracts or increasing the use of alternative fuels.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Information

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Eagle Materials Inc. and Subsidiaries