The accompanying unaudited consolidated financial statements as of and for the six month period ended September 30, 2010, include the accounts of Eagle Materials Inc. and its majority owned subsidiaries (the "Company", "us" or "we") and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 27, 2010.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. In our opinion, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the information in the following unaudited consolidated financial statements of the Company have been included. The results of operations for interim periods are not necessarily indicative of the results for the full year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain prior period reclassifications have been made to conform to the current period presentation.

We evaluated all events or transactions that occurred after September 30, 2010 through the filing of these financial statements.

Recent Accounting Pronouncements

There are no recent accounting pronouncements that we expect will materially impact our financial statements during the current fiscal year.

Cash payments made for interest were $9.0 million and $9.3 million for the six months ended September 30, 2010 and 2009, respectively. Net payments made for federal and state income taxes during the six months ended September 30, 2010 and 2009, were $33.5 million and $10.9 million, respectively.

Comprehensive income for the six month periods ended September 30, 2010 and 2009 was identical to net income for the same periods.

As of September 30, 2010, we had an accumulated other comprehensive loss of $3.5 million in connection with recognizing the difference between the fair value of the pension assets and the projected benefit obligation.

A summary of changes in stockholders' equity follows:

There were no share repurchases during the three and six month periods ended September 30, 2010. As of September 30, 2010, we have authorization to purchase an additional 717,300 shares.

During the quarter ended September 30, 2010, we paid and applied cash deposits for the payment of federal tax, penalty and interest related to the dispute with the Internal Revenue Service ("IRS") regarding the Republic Asset Acquisition for tax years 2001 through 2006 (See Footnote (L) to the Unaudited Consolidated Financial Statements for more details on the Republic transaction). The above adjustment reflects the tax benefit of the interest deduction allowed on amounts related to unrecognized tax benefits that was not included in the cumulative effect adjustment relating to our original adoption of FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109", primarily codified in Accounting Standards Codification 740-10, in fiscal 2008. We are correcting the cumulative effe ct of our adoption of FIN 48 in fiscal year 2011 because we concluded, after evaluation, that the effect of the adjustment is not material to the current or any prior financial statements. This adjustment has not affected income or expense since the date of the adoption.

Inventories are stated at the lower of average cost (including applicable material, labor, depreciation, and plant overhead) or market, and consist of the following:

Accrued expenses consist of the following:

The calculation of basic and diluted common shares outstanding is as follows:

Income taxes for the interim period presented have been included in the accompanying financial statements on the basis of an estimated annual effective tax rate. In addition to the amount of tax resulting from applying the estimated annual effective tax rate to pre-tax income, we will, when appropriate, include certain items treated as discrete events to arrive at an estimated overall tax amount. The effective tax rate for the six months ended September 30, 2010 was approximately 25%, excluding the impact of discrete items.

During the quarter ended September 30, 2010, we asked the IRS to apply payments made on deposit to tax, penalties and interest related to our dispute involving the Republic Asset Acquisition. Furthermore, amended state returns and payments were made during this quarter that reported the federal audit adjustment. Due to the application of the deposits to payments and the filing of amended state returns, we were able to deduct certain items paid for state and federal taxes during the quarter, totaling approximately $1.5 million on an after-tax basis, that were treated as discrete items during the three month period ended September 30, 2010.

On January 8, 2004, our stockholders approved a new incentive plan (the "Plan") that combined and amended the two previously existing stock option plans. In August 2009, our shareholders approved an amendment to the Plan which, among other things, increased the number of shares available for award under the Plan by 3 million shares. Under the terms of the Plan, we can issue equity awards, including stock options, restricted stock units ("RSUs"), restricted stock and stock appreciation rights (collectively, the "Equity Awards") to employees of the Company and members of the Board of Directors. The Compensation Committee of our Board of Directors specifies the terms for grants of Equity Awards under the Plan.

Long-Term Compensation Plans -

Options. In May 2010, the Compensation Committee of the Board of Directors approved an incentive equity award of an aggregate of 163,000 performance-vesting stock options pursuant to the Plan to certain individuals that can be earned, in whole or in part, if certain performance conditions are satisfied (the "Fiscal 2011 Employee Stock Option Grant"). The performance and vesting criteria for the Fiscal 2011 Employee Stock Option Grant are based on the achievement of specified levels of operating earnings, as well as the achievement of certain safety and operational metrics, at each of our business segments for the fiscal year ending March 31, 2011. For those options earned based on the performance criteria, one third will vest immediately, one third will vest on March 31, 2012 and the final third will vest on March 31, 2013. The options have a term of ten years from the date of grant, and any options not earned at March 31, 2011 will be forfeited. In August 2010, we granted options to members of the Board of Directors (the "Fiscal 2011 Board of Directors Grant"). Options granted under the Fiscal 2011 Board of Directors Grant vested immediately, and can be exercised from the date of grant until their expiration at the end of seven years. The Fiscal 2011 Employee Stock Option Grant and Fiscal 2011 Board of Directors Grant were both valued at the grant date using the Black-Scholes option pricing model.

The average weighted-average assumptions used in the Black-Scholes model to value the option awards in fiscal 2011 are as follows:

Stock option expense for all outstanding stock option awards totaled approximately $0.4 million and $1.2 million for the three and six month periods ended September 30, 2010, respectively, and $1.4 million and $1.8 million for the three and six month periods ended September 30, 2009, respectively. At September 30, 2010, there was approximately $2.9 million of unrecognized compensation cost related to outstanding stock options, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 4.0 years.

The following table represents stock option activity for the six month period ended September 30, 2010:

The following table summarizes information about stock options outstanding at September 30, 2010:

At September 30, 2010, there was no aggregate intrinsic value for outstanding or exercisable options. The total intrinsic value of options exercised during the six month period ended September 30, 2010 was approximately $1.3 million.

Restricted Stock Units. In May 2010, the same employees receiving stock options also received an aggregate of 207,500 RSUs. The vesting criteria for the RSUs are the same as the vesting criteria for the Fiscal 2011 Employee Stock Option Grant. The value of the RSUs, net of expected forfeitures, is being expensed ratably over three years. Expense related to RSUs was approximately $0.2 million and $0.3 million for the three and six month periods ended September 30, 2010, respectively, and $0.4 and $1.2 for the three and six month periods ended September 30, 2009, respectively. At September 30, 2010, there was approximately $1.7 million of unearned compensation from RSUs, net of estimated forfeitures, which will be recognized over a weighted-average period of 2.9 years.

Restricted Stock. In May 2010, the Compensation Committee also approved the granting of an aggregate of 274,166 shares of restricted stock to certain key employees at both the corporate and subsidiary level that will be earned if our ten year average return on equity exceeds 17.25% at March 31, 2011. If this criterion is not met, all of the shares will be forfeited. If the criterion is met, the shares will be earned, but such shares will continue to have restrictions preventing the holder from selling, pledging, transferring or otherwise disposing of the shares until the holder satisfies the criteria for "retirement". Retirement, as related to the restricted shares, is defined as the shortest time frame of the following: a) the holder reaching the age of 65 and having more than ten years service; b) expiration of five years from the date of grant, and the holder having more than 25 years of service; or c) fifteen years from the date of grant. The value of the restricted shares, net of estimated forfeitures, is being expensed over each individual grantee's retirement period. Expense related to restricted shares was $0.3 million and $0.5 million for the three and six month periods ended September 30, 2010, respectively, and $0.1 million for both of the three and six month periods ended September 30, 2009. At September 30, 2010, there was approximately $6.7 million of unearned compensation from restricted stock, net of estimated forfeitures, which will be recognized over a weighted-average period of 7.3 years.

The number of shares available for future stock option, restricted stock unit, stock appreciation right and restricted stock grants under the Plan was 2,512,990 at September 30, 2010.

We sponsor several defined benefit and defined contribution pension plans which together cover substantially all our employees. Benefits paid under the defined benefit plans covering certain hourly employees are based on years of service and the employee's qualifying compensation over the last few years of employment.

The following table shows the components of net periodic cost for our plans:

Long-term debt consists of the following: