e10vq

United States
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended

December 31, 2007

Commission File Number 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)

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 No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


		þ Large accelerated filer		o Accelerated filer
		o Non-accelerated filer		o Smaller reporting company

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes o No þ

As of January 31, 2008, the number of outstanding shares of common stock was:


Class		Outstanding Shares
Common Stock, $.01 Par Value		43,388,143

Eagle Materials Inc. and Subsidiaries
Consolidated Statements of Earnings
(dollars in thousands, except per share data)
(unaudited)


	For the Three Months				For the Nine Months
	Ended December 31,				Ended December 31,
	2007		2006		2007		2006

REVENUES
Gypsum Wallboard	$	73,371	$	114,411	$	266,761	$	399,685
Cement		57,697		56,408		204,069		194,793
Paperboard		19,433		18,632		61,947		56,948
Concrete and Aggregates		22,148		24,245		70,434		75,433
Other, net		356		483		1,494		3,762

		173,005		214,179		604,705		730,621


COSTS AND EXPENSES
Gypsum Wallboard		66,493		72,834		217,463		235,315
Cement		40,951		47,360		138,846		145,819
Paperboard		14,337		13,641		46,715		42,501
Concrete and Aggregates		19,013		19,926		59,148		62,327
Corporate General and Administrative		4,300		5,622		14,393		15,034
Interest Expense, net		5,811		1,041		13,666		3,920

		150,905		160,424		490,231		504,916


EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURE		9,854		7,596		25,304		24,594

EARNINGS BEFORE INCOME TAXES		31,954		61,351		139,778		250,299
Income Taxes		9,579		20,434		43,922		84,195

NET EARNINGS	$	22,375	$	40,917	$	95,856	$	166,104


EARNINGS PER SHARE:
Basic	$	0.51	$	0.85	$	2.07	$	3.36

Diluted	$	0.50	$	0.83	$	2.05	$	3.31

AVERAGE SHARES OUTSTANDING:
Basic		44,019,262		48,354,882		46,227,109		49,415,067

Diluted		44,596,051		49,011,353		46,834,390		50,117,681


CASH DIVIDENDS PER SHARE:	$	0.20	$	0.175	$	0.60	$	0.525

See notes to unaudited consolidated financial statements.

Eagle Materials Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)


	December 31,			March 31,
	2007			2007
	(unaudited)

ASSETS
Current Assets —
Cash and Cash Equivalents	$	65,820		$	17,215
Accounts and Notes Receivable		53,217			77,486
Inventories		85,998			78,908

Total Current Assets		205,035			173,609

Property, Plant and Equipment —		1,059,235			986,821
Less: Accumulated Depreciation		(362,460	)		(333,641	)

Property, Plant and Equipment, net		696,775			653,180
Notes Receivable		7,546			8,270
Investment in Joint Venture		39,166			43,862
Goodwill and Intangible Assets		69,740			70,218
Other Assets		104,304			22,271

	$	1,122,566		$	971,410


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities —
Accounts Payable	$	41,303		$	52,359
Federal Income Taxes Payable		6,047			—
Accrued Liabilities		57,273			55,665

Total Current Liabilities		104,623			108,024

Long-term Debt		400,000			200,000
Deferred Income Taxes		183,219			117,340
Stockholders’ Equity —
Preferred Stock, Par Value $0.01; Authorized 5,000,000 Shares; None Issued		—			—
Common Stock, Par Value $0.01; Authorized 100,000,000 Shares; Issued and Outstanding 44,034,925 and 47,909,103 Shares, respectively		440			479
Capital in Excess of Par Value		—			—
Accumulated Other Comprehensive Losses		(850	)		(850	)
Retained Earnings		435,134			546,417

Total Stockholders’ Equity		434,724			546,046

	$	1,122,566		$	971,410

See notes to the unaudited consolidated financial statements.

Eagle Materials Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited — dollars in thousands)


	For the Nine Months
	Ended December 31,
	2007			2006

CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings	$	95,856		$	166,104
Adjustments to Reconcile Net Earnings to Net Cash Provided
By Operating Activities, Net of Effects of Non-Cash Activity — Depreciation, Depletion and Amortization		32,354			29,681
Deferred Income Tax Benefit		(6,777	)		(4,054	)
Stock Compensation Expense		4,814			4,207
Equity in Earnings of Unconsolidated Joint Venture		(25,304	)		(24,594	)
Excess Tax Benefits from Share Based Payment Arrangements		(1,235	)		(1,969	)
Distributions from Joint Venture		30,000			9,749
Changes in Operating Assets and Liabilities:
Accounts and Notes Receivable		24,993			16,133
Inventories		(7,090	)		1,136
Accounts Payable and Accrued Liabilities		(23,706	)		(2,003	)
Other Assets		(901	)		703
Income Taxes Payable		(21,499	)		12,473

Net Cash Provided by Operating Activities		101,505			207,566


CASH FLOWS FROM INVESTING ACTIVITIES
Property, Plant and Equipment Additions		(75,937	)		(102,342	)

Net Cash Used in Investing Activities		(75,937	)		(102,342	)


CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Long-term Debt		200,000			—
Dividends Paid to Stockholders		(26,793	)		(26,210	)
Purchase and Retirement of Common Stock		(153,445	)		(75,522	)
Proceeds from Stock Option Exercises		2,040			1,570
Excess Tax Benefits from Share Based Payment Arrangements		1,235			1,969

Net Cash Provided by (Used in) Financing Activities		23,037			(98,193	)


NET INCREASE IN CASH AND CASH EQUIVALENTS		48,605			7,031
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		17,215			54,766

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	65,820		$	61,797

See notes to the unaudited consolidated financial statements.

Eagle Materials Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements
December 31, 2007

(A) BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements as of and for the three and nine month periods ended December 31, 2007, include the accounts of Eagle Materials Inc. and its majority owned subsidiaries (“EXP”, the “Company”, 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 the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 29, 2007.

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 the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of the Company, 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.

(B) SHARE-BASED EMPLOYEE COMPENSATION

Long-Term Compensation Plans

Options. The Company granted a target number of stock options during June 2007 to certain employees (the “Fiscal 2008 Employee Stock Option Grant”) that may be earned, in whole or in part, if certain performance conditions are satisfied. The Fiscal 2008 Employee Stock Option Grant is intended to be a single award covering the next three years, and will vest over a seven year period depending upon the achievement of specified levels of earnings per share and operating earnings. Options are vested as they are earned, and any options not earned at the end of the seven year period will be forfeited. These stock options were valued at the grant date using the Black-Scholes option pricing model. In August 2007, we granted options to members of the Board of Directors. Such options vested immediately, and can be exercised from the date of grant until their expiration at the end of seven years. The weighted-average assumptions used in the Black-Scholes model to value the option awards in fiscal 2008 are as follows: annual dividend rate of 2.0%, expected volatility of 32%, risk free interest rate of 4.7% and expected life of 5.5 years. We are expensing the fair value of the Fiscal 2008 Employee Stock Option Grant over its expected life, as adjusted for expected forfeitures, and expensed the options issued to the Board of Directors at the time of issuance.

We expensed approximately $1.1 million and $4.5 million for the three and nine month periods ended December 31, 2007, respectively, as compared to $1.2 million and $3.1 million expensed for the three and nine month periods ended December 31, 2006, respectively. At December 31, 2007, there was approximately $16.0 million of unrecognized compensation cost related to outstanding stock options which is expected to be recognized over a weighted-average period of 5.7 years.

The following table represents stock option activity for the nine months ended December 31, 2007:


				Weighted-
	Number of			Average
	Shares			Exercise Price
Outstanding Options at Beginning of Period		1,636,852		$	19.07
Granted		1,457,148		$	47.12
Exercised		(128,667	)	$	15.86
Cancelled		(25,920	)	$	34.11

Outstanding Options at End of Period		2,939,413		$	32.98

Options Exercisable at End of Period		1,370,460		$	18.04

Weighted-Average Fair Value of Options Granted during the Period	$	14.38

The following table summarizes information about stock options outstanding at December 31, 2007:


	Options Outstanding						Options Exercisable
			Weighted
	Number of Shares		-Average Remaining		Weighted - Average		Number of Shares		Weighted - Average
Range of Exercise Prices	Outstanding		Contractual Life		Exercise Price		Outstanding		Exercise Price
$6.80 — $8.15		299,933		2.89	$	7.41		292,918	$	7.39
$9.57 — $10.54		190,867		1.95	$	10.27		188,101	$	10.27
$11.04 — $13.43		405,546		4.69	$	12.28		378,763	$	12.27
$21.52 — $29.08		361,060		5.70	$	25.44		302,852	$	24.95
$34.09 — $40.78		255,670		4.99	$	38.44		191,140	$	38.55
$47.53 — $62.83		1,426,337		6.58	$	48.20		16,686	$	62.83

		2,939,413		5.39	$	32.98		1,370,460	$	18.04

At December 31, 2007, the aggregate intrinsic value of options outstanding was $7.4 million. The aggregate intrinsic value of exercisable options at that date was approximately $23.9 million. The total intrinsic value of options exercised during the nine month period ended December 31, 2007 was approximately $4.0 million.

Restricted Stock Units. The Company granted restricted stock units (“RSU’s”) to employees and directors during fiscal years 2006 and 2007. The value of the RSU’s granted to employees is being amortized over a three year period, while the value of the RSU’s granted to directors is being amortized over a period not to exceed ten years. Expense related to RSU’s was approximately $198,000 and $455,000 for the three and nine month periods ended December 31, 2007, as compared to $356,000 and $1,055,000 for the three and nine month periods ended December 31, 2006, respectively. At December 31, 2007, there was approximately $1.0 million of unearned compensation from restricted stock units that will be recognized over a weighted-average period of 4.2 years.

Shares available for future stock option and restricted stock unit grants under existing plans were 1,193,030 at December 31, 2007.

(C) PENSION AND EMPLOYEE BENEFIT PLANS

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:


	For the Three Months						For the Nine Months
	Ended December 31,						Ended December 31,
	2007			2006			2007			2006
	(dollars in thousands)						(dollars in thousands)
Service Cost — Benefits Earned during the Period	$	133		$	124		$	399		$	372
Interest Cost of Benefit Obligations		225			192			675			576
Expected Return on Plan Assets		(280	)		(211	)		(840	)		(633	)
Recognized Net Actuarial Loss		33			60			99			180
Amortization of Prior-Service Cost		37			35			111			105

Net Periodic Pension Cost	$	148		$	200		$	444		$	600

(D) STOCKHOLDERS’ EQUITY

A summary of changes in stockholders’ equity follows:


	For the Nine Months
	Ended December 31, 2007
	(dollars in thousands)
Common Stock —
Balance at Beginning of Period	$	479
Stock Option Exercises		1
Share Repurchases		(40	)


Balance at End of Period		440


Capital in Excess of Par Value —
Balance at Beginning of Period		—
Share-Based Activity		6,049
Stock Option Exercises		2,039
Share Repurchases		(8,088	)


Balance at End of Period		—


Retained Earnings —
Balance at Beginning of Period		546,417
Dividends Declared to Stockholders		(27,221	)
Cumulative Effect of the Adoption of FIN 48 (Note N)		(34,601	)
Share Repurchases		(145,317	)
Net Earnings		95,856


Balance at End of Period		435,134


Accumulated Other Comprehensive Losses —
Balance at Beginning of Period		(850	)


Balance at End of Period		(850	)


Total Stockholders’ Equity	$	434,724

We repurchased 4,006,300 shares at an average price of $38.30 during the nine month period ended December 31, 2007, as compared to our repurchase of 2,156,800 shares at an average price of $35.02 during the nine month period ended December 31, 2006. We repurchased 316,700 shares at an average price of $35.92 during the three months ended December 31, 2007. Additionally, we purchased 772,200 shares at an

average price of $30.38 during January 2008. After considering the shares purchased during January 2008, there are 717,300 shares remaining under the current repurchase authorization.

(E) CASH FLOW INFORMATION — SUPPLEMENTAL

Cash payments made for interest were $15.4 million and $11.4 million for the nine months ended December 31, 2007 and 2006, respectively. Net payments made for federal and state income taxes during the nine months ended December 31, 2007 and 2006, were $69.5 and $75.4 million, respectively. The payments made during the nine month period ended December 31, 2007 includes approximately $33.3 million related to an exam by the Internal Revenue Service, which is discussed in Footnote (K) of the Unaudited Consolidated Financial Statements.

(F) COMPREHENSIVE INCOME

Comprehensive income for the three month periods ended December 31, 2007 and 2006 was identical to net income for the same periods.

As of December 31, 2007, the Company has an accumulated other comprehensive loss of $0.8 million, in connection with recognizing the difference between the fair value of the pension assets and the projected benefit obligation.

(G) INVENTORIES

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


	As of
	December 31,		March 31,
	2007		2007
	(dollars in thousands)
Raw Materials and Material-in-Progress	$	20,562	$	22,286
Gypsum Wallboard		6,670		6,378
Finished Cement		9,942		12,640
Paperboard		4,735		5,321
Aggregates		10,213		3,392
Repair Parts and Supplies		30,355		25,300
Fuel and Coal		3,521		3,591

	$	85,998	$	78,908

(H) ACCRUED EXPENSES

Included in accrued expenses are approximately $13.3 million and $19.8 million of accrued incentive compensation and $7.5 million and $4.0 million of accrued interest at December 31, 2007 and March 31, 2007, respectively.

(I) COMPUTATION OF EARNINGS PER SHARE

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


	For the Three Months						For the Nine Months
	Ended December 31,						Ended December 31,
	2007			2006			2007			2006
Weighted-Average Shares of Common Stock Outstanding		44,019,262			48,354,882			46,227,109			49,415,067
Common Equivalent Shares:
Assumed Exercise of Outstanding Dilutive Options		1,321,978			1,604,967			1,373,658			1,621,639
Less Shares Repurchased from Proceeds of Assumed Exercised Options		(813,437	)		(1,018,219	)		(832,392	)		(989,804	)
Restricted Shares		68,242			69,723			66,015			70,779

Weighted-Average Common and Common Equivalent Shares Outstanding		44,596,051			49,011,353			46,834,390			50,117,681


Shares excluded due to anti-dilution effects		1,632,043			154,699			1,382,866			150,945

(J) CREDIT FACILITIES

Bank Credit Facility -

We entered into a $350.0 million credit facility on December 16, 2004. On June 30, 2006, we amended the Bank Credit Facility (the “Bank Credit Facility”) to extend the expiration date from December 2009 to June 2011, and to reduce the borrowing rates and commitment fees. On August 31, 2007, we amended the Bank Credit Facility to modify certain covenants to be more consistent with the credit quality of the Company and to provide the Company with additional financial flexibility. This amendment, among other things, increased the permissible leverage ratio; added additional categories to the definition of “Applicable Rate” to account for the higher potential leverage ratio; and decreased the interest coverage ratio.

Borrowings under the Bank Credit Facility are guaranteed by all major operating subsidiaries of the Company. Outstanding principal amounts on the Bank Credit Facility bear interest, at the option of the Company, at a variable rate equal to: (i) LIBOR, plus an agreed margin (ranging from 55 to 150 basis points), which is established quarterly based upon our ratio of consolidated EBITDA, which is defined as earnings before interest, taxes, depreciation and amortization, to our 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. Interest payments are payable monthly or at the end of the LIBOR advance periods, which can be up to a period of nine months at our option. Under the Bank 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 December 31, 2007 we had no borrowings outstanding under the Bank Credit Facility.

The Bank Credit Facility has a $25 million letter of credit facility. Under the letter of credit facility, the Company pays a fee at a per annum rate equal to the applicable margin for Eurodollar loans in effect from time to time plus a one-time letter of credit fee in an amount equal to 0.125% of the initial stated amount. At December 31, 2007, the Company had $7.7 million of letters of credit outstanding, and $342.3 million of borrowings available under the Bank Credit Facility.

Senior Notes -

We entered into a Note Purchase Agreement on November 15, 2005 (the “2005 Note Purchase Agreement”) related to our sale of $200 million of senior, unsecured notes, designated as Series 2005A Senior Notes (the “Series 2005A Senior Notes”) in a private placement transaction. The Series 2005A Senior Notes, which are guaranteed by substantially all of the Company’s subsidiaries, were sold at par and issued in three tranches on November 15, 2005, as follows:

Principal

Maturity Date

Interest Rate

Tranche A

$40 million

November 15, 2012

5.25

Tranche B

$80 million

November 15, 2015

5.38

Tranche C

$80 million

November 15, 2017

5.48

Interest for each tranche of Notes is payable semi-annually on the 15^th day of May and the 15^th day of November of each year until all principal is paid for the respective tranche.

We entered into an additional Note Purchase Agreement on October 2, 2007 (the “2007 Note Purchase Agreement”) related to our sale of $200 million of senior, unsecured notes, designated as Series 2007A Senior Notes (the “Series 2007A Senior Notes”) in a private placement transaction. The Series 2007A Senior Notes, which are guaranteed by substantially all of the Company’s subsidiaries, were sold at par and issued in four tranches on October 2, 2007, as follows:

Principal

Maturity Date

Interest Rate

Tranche A

$20 million

October 2, 2014

6.08

Tranche B

$50 million

October 2, 2016

6.27

Tranche C

$70 million

October 2, 2017

6.36

Tranche D

$60 million

October 2, 2019

6.48

Interest for each tranche of Notes is payable semi-annually on the second day of April and the second day of October of each year until all principal is paid for the respective tranche.

Our obligations under the 2005 Note Purchase Agreement and the 2007 Note Purchase Agreement (collectively referred to as the “Note Purchase Agreements”) and the Series 2005A Senior Notes and the Series 2007A Senior Notes (collectively referred to as “the Senior Notes”) are equal in right of payment with all other senior, unsecured debt of the Company, including our debt under the Bank Credit Facility. The Note Purchase Agreements contain customary restrictive covenants, including covenants that place limits on our ability to encumber our assets, to incur additional debt, to sell assets, or to merge or consolidate with third parties, as well as certain cross covenants with the Bank Credit Facility.

Pursuant to a Subsidiary Guaranty Agreement, substantially all of our subsidiaries have guaranteed the punctual payment of all principal, interest, and Make-Whole Amounts (as defined in the Note Purchase Agreements) on the Senior Notes and the other payment and performance obligations of the Company contained in the Senior Notes and in the Note Purchase Agreements. We are permitted, at our option and without penalty, to prepay from time to time at least 10% of the original aggregate principal amount of the Senior Notes at 100% of the principal amount to be prepaid, together with interest accrued on such amount to be prepaid to the date of payment, plus a Make-Whole Amount. The Make-Whole Amount is computed by discounting the remaining scheduled payments of interest and principal of the Senior Notes being prepaid at a discount rate equal to the sum of 50 basis points and the yield to maturity of U.S. treasury securities having a maturity equal to the remaining average life of the Senior Notes being prepaid.

(K) COMMITMENTS AND CONTINGENCIES

The Company has certain deductible limits under its workers’ compensation and liability insurance policies for which reserves are established based on the undiscounted estimated costs of known and anticipated claims. We have entered into standby letter of credit agreements relating to workers’ compensation and auto and general liability self-insurance. At December 31, 2007, we had contingent liabilities under these outstanding letters of credit of approximately $7.7 million.

The following table compares insurance accruals and payments for our operations:


	As of and for the Three Months						As of and for the Nine Months
	Ended December 31,						Ended December 31,
	2007			2006			2007			2006
	(dollars in thousands)						(dollars in thousands)
Accrual Balance at Beginning of Period	$	5,927		$	6,288		$	5,582		$	5,456
Insurance Expense Accrued		740			791			2,512			2,934
Payments		(698	)		(448	)		(2,125	)		(1,759	)

Accrual Balance at End of Period	$	5,969		$	6,631		$	5,969		$	6,631

The Company is currently contingently liable for performance under $8.1 million in performance bonds required by certain states and municipalities, and their related agencies. The bonds are principally for certain reclamation obligations and mining permits. We have indemnified the underwriting insurance company against any exposure under the performance bonds. In the Company’s past experience, no material claims have been made against these financial instruments.

In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction such as sale of a business. These indemnification obligations might include claims relating to any of the following: environmental and tax matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier, and other commercial contractual relationships; construction contracts and financial matters. While the maximum amount to which the Company may be exposed under such agreements cannot be estimated, it is the opinion of management that these indemnifications are not expected to have a material adverse effect on our consolidated financial position or results of operations. The Company currently has no outstanding guarantees.

During December 2007, we settled an outstanding lawsuit. The settlement was classified as a reduction of paperboard costs and expenses of $2.3 million in the consolidated statement of earnings during the three month period ended December 31, 2007.

The Internal Revenue Service (the “IRS”) completed the examination of our federal income tax returns for the fiscal years ended March 31, 2001, 2002, and 2003. The IRS issued an Exam Report and Notice of Proposed Adjustment on November 9, 2007, in which it proposes to deny certain depreciation deductions claimed by the Company with respect to assets acquired by us from Republic Group LLC in November 2000 (the “Republic Assets”).

If sustained, the adjustment proposed by the IRS would result in additional federal income taxes owed by the Company of approximately $27.6 million, plus penalties of $5.7 million and applicable interest. Moreover, for taxable years subsequent to fiscal 2003, the Company also claimed depreciation deductions with respect to the Republic Assets, as originally recorded. If challenged on the same basis as set forth in the Notice of Proposed Adjustment, additional federal income taxes of approximately $37.0 million, plus applicable interest and possible civil penalties, could be asserted by the IRS for those periods. Also, additional state income taxes, interest, and civil penalties of approximately $7.5 million would be owed by the Company for the fiscal years under exam and subsequent taxable years if the IRS’ position is sustained. The IRS examination of federal income tax returns for fiscal years ended March 31, 2004, 2005 and 2006 is currently in process.

On December 7, 2007, the Company filed an administrative appeal of the IRS’s proposed adjustments. The Company intents to vigorously pursue the appeal and, if necessary, resort to the courts for a final determination.

The Company paid the IRS approximately $45.8 million during November 2007, which is comprised of $27.6 million in federal income taxes, $5.7 million for penalties and $12.5 million for interest, to avoid additional imposition of the large corporate tax underpayment interest rates. In the event we reach a settlement with the IRS through the appeals process or in the courts, we will reverse any accrued interest and penalties in excess of the negotiated settlement through the consolidated Statement of Earnings. In the event we are unable to reach a settlement, we believe we have a substantial basis for our tax position, and intend to vigorously contest the proposed adjustment in court. At this time, the Company is unable to predict with certainty the ultimate outcome or how much of the amounts paid for tax, interest, and penalties to the IRS and state taxing authorities will be recovered, if any. See Footnote (N) to the Unaudited Consolidated Financial Statements.

(L) SEGMENT INFORMATION

Operating segments are defined as components of an enterprise that engage in business activities that earn revenues, incur expenses and prepare separate financial information that is evaluated regularly by our chief operating decision maker in order to allocate resources and assess performance.

We operate in four business segments: Gypsum Wallboard, Cement, Recycled Paperboard, and Concrete and Aggregates, with Gypsum Wallboard and Cement being our principal lines of business. These operations are conducted in the United States and include the mining of gypsum and the manufacture and sale of gypsum wallboard, mining of limestone and the manufacture, production, distribution and sale of portland cement (a basic construction material which is the essential binding ingredient in concrete), the manufacture and sale of recycled paperboard primarily to the gypsum wallboard industry and other paperboard converters and the sale of readymix concrete and the mining and sale of aggregates (crushed stone, sand and gravel). These products are used primarily in commercial and residential construction, public construction projects and projects to build, expand and repair roads and highways.

We operate four gypsum wallboard reload centers, a gypsum wallboard distribution center, four cement plants, eleven cement distribution terminals, five gypsum wallboard plants, a recycled paperboard mill, nine readymix concrete batch plant locations and two aggregates processing plant locations. The principal markets for our cement products are Texas, northern Illinois (including Chicago), the Rocky Mountains, northern Nevada, and northern California. Gypsum wallboard and recycled paperboard are distributed throughout the continental United States. Concrete and aggregates are sold to local readymix producers and paving contractors in the Austin, Texas area and northern California.

We conduct one of our four cement plant operations, Texas Lehigh Cement Company LP in Buda, Texas, through a Joint Venture. For segment reporting purposes only, we proportionately consolidate our 50% share of the 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.

We account for intersegment sales at market prices. The following table sets forth certain financial information relating to our operations by segment:


	For the Three Months						For the Nine Months
	Ended December 31,						Ended December 31,
	2007			2006			2007			2006
	(dollars in thousands)						(dollars in thousands)
Revenues —
Gypsum Wallboard	$	73,371		$	114,411		$	266,761		$	399,685
Cement		85,818			77,738			284,049			258,040
Paperboard		32,091			29,913			102,000			97,612
Concrete and Aggregates		22,370			24,712			71,336			76,659
Other, net		356			483			1,494			3,762

Sub-total		214,006			247,257			725,640			835,758
Less: Intersegment Revenues		(15,311	)		(14,402	)		(48,217	)		(49,381	)
Less: Joint Venture		(25,690	)		(18,676	)		(72,718	)		(55,756	)

Net Revenues	$	173,005		$	214,179		$	604,705		$	730,621


	For the Three Months				For the Nine Months
	Ended December 31,				Ended December 31,
	2007		2006		2007		2006
	(dollars in thousands)				(dollars in thousands)
Intersegment Revenues —
Cement	$	2,431	$	2,654	$	7,262	$	7,491
Paperboard		12,658		11,281		40,053		40,664
Concrete and Aggregates		222		467		902		1,226

	$	15,311	$	14,402	$	48,217	$	49,381


Cement Sales Volume (M Tons) —
Wholly Owned		571		572		2,029		1,994
Joint Venture		279		207		792		619

		850		779		2,821		2,613


	For the Three Months						For the Nine Months
	Ended December 31,						Ended December 31,
	2007			2006			2007			2006
	(dollars in thousands)						(dollars in thousands)
Operating Earnings —
Gypsum Wallboard	$	6,878		$	41,577		$	49,298		$	164,370
Cement		26,600			16,644			90,527			73,568
Paperboard		5,096			4,990			15,232			14,447
Concrete and Aggregates		3,135			4,320			11,286			13,106
Other, net		356			483			1,494			3,762

Sub-total		42,065			68,014			167,837			269,253
Corporate General and Administrative		(4,300	)		(5,622	)		(14,393	)		(15,034	)

Earnings Before Interest and Income Taxes		37,765			62,392			153,444			254,219
Interest Expense, net		(5,811	)		(1,041	)		(13,666	)		(3,920	)

Earnings Before Income Taxes	$	31,954		$	61,351		$	139,778		$	250,299


Cement Operating Earnings —
Wholly Owned	$	16,746		$	9,048		$	65,223		$	48,974
Joint Venture		9,854			7,596			25,304			24,594

	$	26,600		$	16,644		$	90,527		$	73,568


Capital Expenditures ⁽¹⁾—
Gypsum Wallboard	$	9,487		$	25,747		$	60,489		$	70,231
Cement		3,424			5,578			11,366			21,756
Paperboard		485			1,382			1,382			4,951
Concrete and Aggregates		417			3,151			2,543			5,362
Other		34			3			157			42

	$	13,847		$	35,861		$	75,937		$	102,342


Depreciation, Depletion and Amortization ⁽¹⁾—
Gypsum Wallboard	$	4,233		$	4,137		$	12,594		$	12,478
Cement		3,257			2,623			9,675			7,920
Paperboard		2,180			2,080			6,418			6,222
Concrete and Aggregates		1,026			795			3,020			2,422
Other, net		223			216			647			639

	$	10,919		$	9,851		$	32,354		$	29,681


	As of
	December 31,		March 31,
	2007		2007
	(dollars in thousands)
Identifiable Assets ⁽¹⁾—
Gypsum Wallboard	$	419,610	$	392,377
Cement		304,778		309,974
Paperboard		170,642		171,735
Concrete and Aggregates		65,399		61,181
Corporate and Other		162,137		36,143

	$	1,122,566	$	971,410


⁽¹⁾		Basis conforms with equity method accounting.

Segment operating earnings, including the proportionately consolidated 50% interest in the revenues and expenses of the Joint Venture, represent revenues, less direct operating expenses, segment depreciation, and segment selling, general and administrative expenses. Corporate assets consist primarily of cash and cash equivalents, general office assets, miscellaneous other assets and unrecognized tax benefits. See Footnote (N) of the Unaudited Consolidated Financial Statements for additional information. The segment breakdown of goodwill is as follows:


	As of
	December 31,		March 31,
	2007		2007
	(dollars in thousands)
Gypsum Wallboard	$	37,842	$	37,842
Cement		8,359		8,359
Paperboard		2,446		2,446

	$	48,647	$	48,647

Summarized financial information for the Joint Venture that is not consolidated is set out below (this combined summarized financial information includes the total amount for the Joint Venture and not the Company’s 50% interest in those amounts):


	For the Three Months				For the Nine Months
	Ended December 31,				Ended December 31,
	2007		2006		2007		2006
	(dollars in thousands)				(dollars in thousands)
Revenues	$	49,835	$	36,317	$	140,326	$	107,594
Gross Margin	$	21,096	$	16,203	$	54,452	$	47,531
Earnings Before Income Taxes	$	19,708	$	15,192	$	50,608	$	49,189


	As of
	December 31,		March 31,
	2007		2007
	(dollars in thousands)
Current Assets	$	46,320	$	48,826
Non-Current Assets	$	47,048	$	49,991
Current Liabilities	$	15,998	$	12,039

(M) NET INTEREST EXPENSE

The following components are included in interest expense, net:


	For the Three Months						For the Nine Months
	Ended December 31,						Ended December 31,
	2007			2006			2007			2006
	(dollars in thousands)						(dollars in thousands)
Interest (Income)	$	(686	)	$	(542	)	$	(875	)	$	(1,870	)
Interest Expense		8,319			2,847			18,994			8,457
Other Expenses		115			110			335			321
Interest Capitalized		(1,937	)		(1,374	)		(4,788	)		(2,988	)

Interest Expense, net	$	5,811		$	1,041		$	13,666		$	3,920

Interest income includes interest on investments of excess cash and interest on notes receivable. Components of interest expense include interest associated with the Senior Notes, the Bank Credit Facility, commitment fees based on the unused portion of the Bank Credit Facility and interest accrued on our unrecognized tax benefits. Other expenses include amortization of debt issue costs, and Bank Credit Facility costs. Interest capitalized during the three month period ended December 31, 2007 relates to the construction of a new wallboard facility by American Gypsum Company.

(N) INCOME TAXES

Income taxes for the interim periods 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, the Company, when appropriate, includes certain items treated as discrete events to arrive at an estimated overall tax amount. The effective tax rate for the three months ended December 31, 2007 was 30.0%. The effective tax rate for the nine month period ended December 31, 2007 was 31.4%, which is also the estimated overall tax rate for the full fiscal year 2008.

In June 2006, the Financial Accounting Standards Board, or FASB, issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of Financial Accounting Standards Board Statement No. 109.” This interpretation clarifies the accounting and disclosures relating to the uncertainty about whether a tax return position will ultimately be sustained by the respective tax authorities. We adopted this interpretation on April 1, 2007. As part of the adoption, we recorded an increase in our liability for unrecognized tax benefits of $80.7 million relating to the Exam Report and Notice of Proposed Adjustment described in Footnote (K) of the Unaudited Consolidated Financial Statements. Upon adoption of the standard, we recorded $27.6 million of the unrecognized tax benefit as an increase in federal income taxes payable and $53.1 million as an increase in long-term deferred taxes. We also recorded an increase of $80.7 million to other assets relating to unrecognized tax benefits. Upon resolution, any tax benefit amounts ultimately not recognized will be reclassified to goodwill in accordance with Emerging Issues Task Force abstract 93-7, “Uncertainties Related to Income Taxes in a Purchase Business Combination”. Additionally, we reduced our April 1, 2007 retained earnings balance by $34.6 million, which represents potential interest and penalties related to our unrecognized tax benefits.

As of the date of adoption, the total amount of our unrecognized tax benefits was $84.3 million and the total amount of interest and penalties recognized on our consolidated balance sheet was $34.6 million. The Company paid the IRS approximately $45.8 million during November 2007, including $27.6 million in federal income taxes, $5.7 million for penalties and $12.5 million of interest, to avoid additional imposition of the large corporate tax underpayment interest rates. The remaining $53.1 million of unrecognized tax benefits is included in long-term deferred income taxes. During the three and nine month periods ended December 31, 2007 we accrued an additional $1.6 million and $5.4 million, respectively, of interest on our unrecognized tax benefit. We classify interest expense related to unrecognized tax benefits as a component of interest expense, while penalties related to unrecognized tax benefits are classified as a component of income tax expense.

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

EXECUTIVE SUMMARY

Eagle Materials Inc. is a diversified producer of basic building products used in residential, industrial, commercial and infrastructure construction. Information presented for the three and nine month periods ended December 31, 2007 and 2006, respectively, reflects the Company’s four business segments, consisting of Gypsum Wallboard, Cement, Recycled Paperboard and Concrete and Aggregates. Certain information for each of Concrete and Aggregates is broken out separately in the segment discussions.

We operate in cyclical commodity businesses. Downturns in overall economic activity or construction activity usually have a significant adverse effect on these businesses due to decreased demand and reduced pricing. Our operations, depending on each business segment, range from local in nature to national businesses; therefore, we have operations in a variety of geographic markets, subjecting our businesses to the economic conditions in each such geographic market. General economic downturns or localized downturns in the regions where we have operations could have a material adverse effect on our business, financial condition and results of operations. We believe we are well positioned to mitigate the effects of changing industry conditions because of our low-cost, balanced mix of construction products, combined with our geographical location in the sunbelt regions of the U.S. Our Wallboard and Paperboard operations are more national in scope and shipments are made throughout the continental U.S. Demand for wallboard varies between regions with the East and West Coasts representing the largest demand. Our cement companies are located in geographic areas west of the Mississippi River and the Chicago, Illinois metropolitan area. Due to the low value-to-weight ratio of cement, cement is usually shipped within a 150 mile radius of the plants by truck and up to 300 miles by rail. Concrete and aggregates are even more regional as those operations serve the areas immediately surrounding Austin, Texas and north of Sacramento, California. Therefore, demand for cement, concrete and aggregates is tied more closely to the economies of the local and regional markets, which may fluctuate more widely than in the nation as a whole.

We conduct one of our cement operations through a Joint Venture, Texas Lehigh Cement Company LP, which is located in Buda, Texas. We own a 50% interest in the Joint Venture and account for our interest under the equity method of accounting. We proportionately consolidate our 50% share of the Joint Venture’s revenues and operating earning in the presentation of our cement segment, which is the way management organizes the segment within the Company for making operating decisions and assessing performance.

RESULTS OF OPERATIONS

Consolidated Results

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


	For the Three Months						For the Nine Months
	Ended December 31,						Ended December 31,
	2007			2006			2007			2006
	(dollars in thousands)						(dollars in thousands)

REVENUES
Gypsum Wallboard	$	73,371		$	114,411		$	266,761		$	399,685
Cement ⁽¹⁾		85,818			77,738			284,049			258,040
Paperboard		32,091			29,913			102,000			97,612
Concrete and Aggregates		22,370			24,712			71,336			76,659
Other, net		356			483			1,494			3,762

Sub-total		214,006			247,257			725,640			835,758
Less: Intersegement Revenues		(15,311	)		(14,402	)		(48,217	)		(49,381	)
Less: Joint Venture Revenues		(25,690	)		(18,676	)		(72,718	)		(55,756	)

Total	$	173,005		$	214,179		$	604,705		$	730,621


	For the Three Months				For the Nine Months
	Ended December 31,				Ended December 31,
	2007		2006		2007		2006
	(dollars in thousands)				(dollars in thousands)

OPERATING EARNINGS ⁽²⁾
Gypsum Wallboard	$	6,878	$	41,577	$	49,298	$	164,370
Cement ⁽¹⁾		26,600		16,644		90,527		73,568
Paperboard		5,096		4,990		15,232		14,447
Concrete and Aggregates		3,135		4,320		11,286		13,106
Other, net		356		483		1,494		3,762

Total	$	42,065	$	68,014	$	167,837	$	269,253


⁽¹⁾		Total of wholly-owned subsidiaries and proportionately consolidated 50% interest in the Joint Venture’s results.

⁽²⁾		Prior to Corporate General and Administrative expenses.

Operating Earnings.

Consolidated operating earnings decreased 38% during both the three and nine month periods ended December 31, 2007, respectively, as compared to the similar periods in 2006. The decrease in both the three and nine month periods was due primarily to the decrease in operating earnings from our gypsum wallboard division, slightly offset in increases by our cement division. The decrease in operating earnings in the gypsum wallboard division was due primarily to lower average net sales prices, coupled with lower sales volumes, while the increase in the cement division was due to increased sales volumes and prices.

Other Income.

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

Corporate General and Administrative.

Corporate general and administrative expenses decreased 24%, to $4.3 million for the three month period ended December 31, 2007, compared to $5.6 million for the comparable prior year period, and decreased 4%, to $14.4 million for the nine month period ended December 31, 2007, compared to $15.0 million for the comparable prior year period. The decreases in both the three and nine month periods are due primarily to decreased compensation costs related to our incentive compensation plan.

Net Interest Expense.

Net interest expense increased to $5.8 million and $13.7 million for the three and nine month periods ended December 31, 2007, respectively, as compared to $1.0 million and $3.9 million for the three and nine month periods ended December 31, 2006, respectively. The increase is primarily due to interest expense on our unrecognized tax position in accordance with the adoption of FIN 48, as well as increased borrowings from the Series 2007A Senior Notes during the quarter ended December 31, 2007, offset slightly by interest income on excess cash and an increase in capitalized interest related to the construction of our gypsum wallboard plant in Georgetown, South Carolina.

Income Taxes.

As of December 31, 2007, the effective tax rate for fiscal 2008 is 31% compared to the prior year effective tax rate of 34%. The expected tax rate for the full fiscal year 2008 is estimated to be 31%.

Net Income.

Pre-tax earnings of $32.0 million were 48% lower than last year’s third quarter pre-tax earnings of $61.4 million. Net earnings of $22.4 million decreased 45% from net earnings of $40.9 million for last year’s same quarter. Diluted earnings per share of $0.50 were 40% lower than the $0.83 for last year’s same quarter. Year-to-date net earnings and diluted earnings per share of $95.9 million and $2.05, respectively, were down 42% and 38%, respectively, from last year’s year to date amounts.

GYPSUM WALLBOARD OPERATIONS


	For the Three Months Ended									For the Nine Months Ended
	December 31,						Percentage			December 31,						Percentage
	2007			2006			Change			2007			2006			Change
	(dollars in thousands)						(dollars in thousands)
Gross Revenues, as reported	$	73,371		$	114,411			(36	%)	$	266,761		$	399,685			(33	%)
Freight and Delivery Costs billed to customers		(18,714	)		(20,064	)		(7	%)		(62,390	)		(66,580	)		(6	%)

Net Revenues	$	54,657		$	94,347			(42	%)	$	204,371		$	333,105			(39	%)


Sales Volume (MMSF)		545			590			(8	%)		1,799			1,982			(9	%)
Average Net Sales Price ⁽¹⁾	$	100.32		$	159.73			(37	%)	$	113.64		$	168.03			(32	%)
Freight (MSF)	$	34.34		$	34.01			1	%	$	34.68		$	33.59			3	%
Operating Margin (MSF)	$	12.62		$	70.47			(82	%)	$	27.40		$	82.93			(67	%)
Operating Earnings	$	6,878		$	41,577			(83	%)	$	49,298		$	164,370			(70	%)


⁽¹⁾		Net of freight per MSF.

Revenues.

Revenues declined during the three and nine month periods ended December 31, 2007 as compared to 2006 primarily due to the decline in average sales price during the same periods. Declines in sales volumes during the three and nine month periods of fiscal 2008 as compared to 2007 also contributed to the decline in revenues. The decline in sales volume is due to the reduction in demand for residential housing during calendar 2007 as compared to 2006. The decrease in demand has put pressure on the price resulting in declines in average sales price.

Operating Margins.

The decline in operating margins during the three and nine month periods ended December 31, 2007 as compared to the similar periods in 2006 is due primarily to the reduction in average net sales price of 37% and 32%, respectively, coupled with declines in sales volumes during both periods. The decline in both average sales price and sales volumes is due primarily to the slowdown in residential housing, coupled with new capacity entering the marketplace, and the corresponding reduction in industry utilization, which has fallen from, on average, the mid 80’s to the low 70’s in the last twelve months.

CEMENT OPERATIONS ⁽¹⁾


	For the Three Months Ended									For the Nine Months Ended
	December 31,						Percentage			December 31,						Percentage
	2007			2006			Change			2007			2006			Change
	(dollars in thousands)									(dollars in thousands)

Gross Revenues, including Intersegment and joint venture	$	85,818		$	77,738			10	%	$	284,049		$	258,040			10	%
Freight and Delivery Costs billed to customers		(3,925	)		(4,638	)		(15	%)		(12,983	)		(16,456	)		(21	%)

Net Revenues	$	81,893		$	73,100			12	%	$	271,066		$	241,584			12	%


Sales Volume (M Tons)		850			779			9	%		2,821			2,613			8	%
Average Net Sales Price (Ton)	$	96.31		$	93.81			3	%	$	96.07		$	92.45			4	%
Operating Margin (Ton)	$	31.29		$	21.37			46	%	$	32.09		$	28.15			14	%
Operating Earnings	$	26,600		$	16,644			60	%	$	90,527		$	73,568			23	%


⁽¹⁾		Total of wholly-owned subsidiaries and proportionately consolidated 50% interest of the Joint Venture’s results.

Revenues.

Increases in revenues for the three and nine month periods ended December 31, 2007, as compared to similar periods in 2006, are primarily due to increases in average sales prices, coupled with increased sales volume. The increases in sales prices are related primarily to fully realizing price increases made throughout the latter part of fiscal 2007, coupled with price increases in certain markets during the first quarter of fiscal 2008.

Operating Margins.

Operating earnings increased by 60% and 23%, respectively, for the three and nine month periods ended December 31, 2007, as compared to similar periods in 2006, primarily due to increased sales prices, coupled with increased sales volume. Also, the increase in operating income during the quarter ended December 31, 2007 as compared to 2006 is primarily due to the increased production at Illinois Cement Company in 2007 as compared to 2006. During the third quarter of fiscal 2007, production at Illinois Cement Company was down for 45 days as we completed the modernization project, which resulted in a disproportionate amount of sales of purchased cement during the period. The positive impact of the increased production from Illinois Cement Company is also the primary reason for the increase in operating earnings during the nine month period ended December 31, 2007 as compared to the similar period in 2006.

RECYCLED PAPERBOARD OPERATIONS


	For the Three Months Ended									For the Nine Months Ended
	December 31,						Percentage			December 31,						Percentage
	2007			2006			Change			2007			2006			Change
	(dollars in thousands)									(dollars in thousands)

Gross Revenues, including intersegement	$	32,091		$	29,913			7	%	$	102,000		$	97,612			4	%
Freight and Delivery Costs billed to customers		(637	)		(589	)		8	%		(1,891	)		(2,278	)		(17	%)

Net Revenues	$	31,454		$	29,324			7	%	$	100,109		$	95,334			5	%

Sales Volume (M Tons)		65			65			—			208			212			(2	%)
Average Net Sales Price (Ton)	$	486.23		$	455.82			7	%	$	481.08		$	450.70			7	%
Unit Production Costs (Ton)	$	407.83		$	379.05			8	%	$	407.85		$	382.55			6	%
Operating Margin (Ton)	$	78.40		$	76.77			2	%	$	73.23		$	68.15			7	%
Operating Earnings	$	5,096		$	4,990			2	%	$	15,232		$	14,447			5	%

Revenues.

The increase in revenues during the three and nine month periods ended December 31, 2007 as compared to similar periods in 2006 is due primarily to price increases of approximately 7% for both periods, while sales volumes have remained relatively flat.

Operating Margins.

Operating margins increased slightly during the three and nine month periods ended December 31, 2007 as compared to similar periods in 2006. These increases are due primarily to price increases obtained in both the three and nine month periods, offset by increased production costs during the same periods. Increases in production costs were primarily due to increased fiber costs during both the three and nine month periods, which were offset by the favorable settlement of an outstanding lawsuit in the third quarter of fiscal 2008.

CONCRETE AND AGGREGATES OPERATIONS


	For the Three Months Ended							For the Nine Months Ended
	December 31,				Percentage			December 31,				Percentage
	2007		2006		Change			2007		2006		Change
	(dollars in thousands)							(dollars in thousands)
Gross Revenues, including intersegement	$	22,370	$	24,712		(9	%)	$	71,336	$	76,659		(7	%)
Sales Volume —
M Cubic Yards of Concrete		215		221		(3	%)		645		692		(7	%)
M Tons of Aggregates		862		1,201		(28	%)		3,203		3,969		(19	%)
Average Sales Price —
Concrete — Per Cubic Yard	$	77.88	$	73.34		6	%	$	76.18	$	70.95		7	%
Aggregates — Per Ton	$	6.49	$	6.97		(7	%)	$	6.92	$	6.84		1	%
Operating Earnings	$	3,135	$	4,320		(27	%)	$	11,286	$	13,106		(14	%)

Revenues.

Revenues decreased during the three month period ended December 31, 2007 primarily due to decreased sales volume for aggregates particularly in northern California. Additionally, the sales price of aggregates decreased primarily due to an increase in the quantity of lower-priced fill sand sold during the three month period ended December 31, 2007. The decrease in revenues during the nine months ended December 31, 2007 as compared to the similar period in 2006 is due primarily to the decline in sales volumes, particularly aggregate volumes in northern California.

Operating Earnings.

Operating earnings decreased for both the three and nine months ended December 31, 2007 as compared to 2006 primarily due to the decrease in sales volume. The decline in operating margin during the third quarter of fiscal 2008 as compared to 2007 was also impacted by the reduction in sales prices for aggregates.

GENERAL OUTLOOK

The slowdown in residential construction has slowed demand for wallboard, resulting in declining industry utilization. The Gypsum Association reported approximately 30.2 billion square feet of wallboard was shipped during the calendar year 2007, which represents a 14% decrease from prior year shipments. Industry utilization was estimated to be approximately 80% during this year. With the decrease in demand and the addition of new capacity, we believe that average industry capacity utilization will be in the 70-75% range for most of calendar year 2008. The low industry utilization rate and the soft residential construction is adversely impacting our fiscal 2008 operating results as compared to fiscal 2007, and is also expected to adversely impact our fiscal 2009 operating results as well. The Company’s Georgetown, S.C. plant will be fully operational during a portion of the fourth quarter of fiscal 2008.

Worldwide demand for cement remains at record levels, and U.S. demand for cement also remains at near record levels, requiring over 20% imports to meet U.S. construction demands. Cement demand in some U.S. regions has been negatively impacted due to the residential slowdown; however, the underlying demand in the majority of the markets served by our four cement plants remains at high levels due to infrastructure spending, and we expect fiscal 2008 to be our 22^nd consecutive year of selling out production of our four cement plants. Cement price increases that had been announced for the early part of calendar 2008 in most of our regional markets have been delayed until April 2008. The cost of purchased cement continued to increase during the third quarter, and while continued increases may adversely impact our operating margins on purchased product sales this also puts upward pricing pressure on the marketplace.

Low wallboard demand caused by the reduction in residential construction is expected to continue to adversely impact our recycled paperboard operations throughout calendar 2008. Additional increases in the cost of fiber and natural gas could adversely impact our paperboard operations as these two costs comprise a significant amount of our total production costs, as could further reductions of sales of higher margin gypsum paper to total paper sold.

We expect aggregate and concrete sales volumes to be depressed throughout calendar year 2008 particularly in our northern California markets as both residential and infrastructure spending remain soft, though we do not expect significant changes in sales prices.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare our financial statements. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

Information regarding our “Critical Accounting Policies and Estimates” can be found in our Annual Report. The four critical accounting policies that we believe either require the use of the most judgment, or the selection or application of alternative accounting policies, and are material to our financial statements, are those relating to long-lived assets, goodwill, environmental liabilities and accounts receivable. Management has discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of our Board of Directors and with our independent registered public accounting firm. In addition, Note (A) to the financial statements in our Annual Report contains a summary of our significant accounting policies.

Recent Accounting Pronouncements

There were no recent accounting pronouncements implemented that are expected to have a significant or material impact on the results of operations or financial position of the Company.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity.

The following table provides a summary of our cash flows:


	For the Nine Months
	Ended December 31,
	2007			2006
	(dollars in thousands)

Net Cash Provided by Operating Activities	$	101,505		$	207,566
Investing Activities:
Capital Expenditures		(75,937	)		(102,342	)

Net Cash Used in Investing Activities		(75,937	)		(102,342	)

Financing Activities:
Excess Tax Benefits from Share Based Payment Arrangements		1,235			1,969
Increase in Long-term Debt		200,000			—
Purchase and Retirement of Common Stock		(153,445	)		(75,522	)
Dividends Paid		(26,793	)		(26,210	)
Proceeds from Stock Option Exercises		2,040			1,570

Net Cash used in Financing Activities		23,037			(98,193	)


Net Increase in Cash	$	48,605		$	7,031

The $106.1 million decrease in cash flows from operating activities for the nine month period ended December 31, 2007 was largely attributable to decreased net earnings and a large tax payment, as described below.

Working capital at December 31, 2007, was $100.4 million compared to $65.6 million at March 31, 2007, primarily due to increased cash balances related to the additional borrowing during the nine months ended December 31, 2007.

On October 2, 2007 the Company entered into a Note Purchase Agreement with respect to the Series 2007 A Senior Notes, which increased our total debt by $200.0 million during the nine month period from March 31, 2007 to December 31, 2007. Our debt-to-capitalization ratio and net-debt-to-capitalization ratio were 47.9% and 43.5%, respectively, at December 31, 2007 as compared to 26.8% and 25.1%, respectively, at March 31, 2007.

The Internal Revenue Service (the “IRS”) issued its Exam Report and Notice of Proposed Adjustment to the Company in November 2007 that proposes to disallow a portion of the depreciation deductions claimed by the Company during fiscal years ended March 31, 2001, 2002 and 2003. The adjustment proposed by the IRS, if sustained, would result in additional federal income taxes of approximately $27.6 million, plus penalties of $5.7 million and applicable interest, and may result in additional state income taxes, including applicable interest and penalties. The Company is pursuing an administrative appeal and, if necessary, will resort to the courts for a final determination. The Company paid the IRS approximately $45.8 million during November 2007, including $27.6 million in federal income taxes, the $5.7 million for penalties and $12.5 million of interest, to avoid additional imposition of the large corporate tax underpayment interest rates. See Footnotes (K) and (N) of the Unaudited Consolidated Financial Statements for additional information.

Based on our financial condition and results of operations as of and for the three months ended December 31, 2007, along with the projected net earnings for the remainder of fiscal 2008, 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 2008. The Company was in compliance at December 31, 2007 and during the three months ended December 31, 2007, with all the terms and covenants of its credit agreements and expects to be in compliance during the next 12 months.

Debt Financing Activities.

Bank Credit Facility -

Senior Notes -


	Principal	Maturity Date	Interest Rate
Tranche A	$40 million	November 15, 2012		5.25	%
Tranche B	$80 million	November 15, 2015		5.38	%
Tranche C	$80 million	November 15, 2017		5.48	%

Interest for each tranche of Notes is payable semi-annually on the 15^th day of May and the 15^th day of November of each year until all principal is paid for the respective tranche.


	Principal	Maturity Date	Interest Rate
Tranche A	$20 million	October 2, 2014		6.08	%
Tranche B	$50 million	October 2, 2016		6.27	%
Tranche C	$70 million	October 2, 2017		6.36	%
Tranche D	$60 million	October 2, 2019		6.48	%

Interest for each tranche of Notes is payable semi-annually on the second day of April and the second day of October of each year until all principal is paid for the respective tranche.

Other than the Bank Credit Facility and the Senior Notes, the Company has no other source of committed external financing in place. If the Bank Credit Facility were terminated, no assurance can be given as to the Company’s ability to secure a new source of financing. Consequently, if an alternative source of financing cannot be secured, the termination would have a material adverse impact on the Company. None of the Company’s debt is rated by the rating agencies.

The Company does not have any off balance sheet debt except for operating leases. The Company does not have any transactions, arrangements or relationships with “special purpose” entities. Also, the Company has no outstanding debt guarantees. The Company has available under the Bank Credit Facility a $25.0 million Letter of Credit Facility. At December 31, 2007, the Company had $7.7 million of letters of credit outstanding that renew annually. We are also contingently liable for performance under $8.1 million in performance bonds relating primarily to our mining operations.

Cash used for Share Repurchases.


	Common Stock
	Shares		Average Price
	Purchased		Paid Per Share

April 1 through April 30, 2007		—	$	—
May 1 through May 31, 2007		—
June 1 through June 30, 2007		—

Quarter 1 Totals		—	$	—


July 1 through July 31, 2007		65,000	$	45.57
August 1 through August 31, 2007		2,231,900		39.38
September 1 through September 30, 2007		1,392,700		36.87

Quarter 2 Totals		3,689,600	$	38.52


October 1 through October 31, 2007		316,700	$	35.92
November 1 through November 30, 2007		—		—
December 1 through December 31, 2007		—		—

Quarter 3 Totals		316,700	$	35.92


Year-to-Date Totals		4,006,300	$	38.31

As of December 31, 2007, we had a remaining authorization to purchase 1,489,500 shares. During January 2008, we purchased an additional 772,200 shares at an average price of $30.38, reducing our remaining authorization to 717,300 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 its evaluation of market and economic conditions and other factors.

Dividends.

Dividends paid in the nine months ended December 31, 2007 and 2006 were $26.8 million and $26.2 million, respectively. The Company increased its quarterly dividend to $0.20 from $0.175 beginning with the July 2007 dividend payment. 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 the Nine Months
	Ended December 31,
	2007		2006
	(dollars in thousands)

Land and Quarries	$	66	$	2,741
Plants		71,701		96,858
Buildings, Machinery and Equipment		4,170		2,743

Total Capital Expenditures	$	75,937	$	102,342

For fiscal 2008, we expect capital expenditures of approximately $95.0 million, which is approximately $40.0 million less than our fiscal 2007 levels. Historically, we have financed such expenditures with cash from operations and borrowings under our revolving credit facilities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks related to fluctuations in interest rates in connection with our amended Bank Credit Facility. From time-to-time we have utilized derivative instruments, including interest rate swaps, in conjunction with our overall strategy to manage the debt outstanding that is subject to changes in interest rates; however, we are not presently utilizing such derivative financial instruments. At December 31, 2007 there were no outstanding borrowings under the amended Bank Credit Facility.

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 change in commodity prices by entering into contracts or increasing use of alternative fuels.

Item 4. Controls and Procedures

An evaluation has been performed under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2007. Based on that evaluation, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2007, to provide reasonable assurance that the information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934 is processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There have been no changes in the Company’s internal controls over financial reporting during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Part II. Other Information

Item 1A. Risk Factors

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:

	•		*Levels of construction spending.* Demand for our products is directly related to the level of activity in the construction industry, which includes residential, commercial and infrastructure construction. In particular, the downturn in residential construction has, and may continue to, adversely impact our wallboard business. Furthermore, activity in the infrastructure construction business is directly related to the amount of government funding available for such projects. Any decrease in the amount of government funds available for such projects or any decrease in construction activity in general (including a continued decrease in residential construction) could have a material adverse effect on our business, financial condition and results of operations.

	•		*Interest rates.* Our business is significantly affected by the movement of interest rates. Interest rates have a direct impact on the level of residential, commercial and infrastructure construction activity put in place. Higher interest rates could have a material adverse effect on our business and results of operations. In addition, increases in interest rates could result in higher interest expense related to borrowings under our credit facilities.

	•		*National and regional economic conditions.* A majority of our revenues are from customers who are in industries and businesses that are cyclical in nature and subject to changes in general economic conditions. In addition, since operations occur in a variety of geographic markets, our businesses are subject to the economic conditions in each such geographic market. General economic downturns or localized downturns in the regions where we have operations, including any downturns in the construction industry or increases in capacity in the gypsum wallboard, paperboard and cement industries, could have a material adverse effect on our business, financial condition and results of operations.

	•		*Compliance with governmental regulations.* Our operations and our customers are subject to and affected by federal, state and local laws and regulations with respect to such matters as land usage, street and highway usage, noise level and health and safety and environmental matters. In many instances, various certificates, permits or licenses are required in order to conduct our business or for construction and related operations. Although management believes that we are in compliance in all material respects with regulatory requirements, there can be no assurance that the Company will not incur material costs or liabilities in connection with regulatory requirements or that demand for our products will not be adversely affected by regulatory issues affecting our customers. In addition, future developments, such as the discovery of new facts or conditions, stricter laws or regulations, or stricter interpretations of existing laws or regulations, may impose new liabilities on us, require additional investment by us or prevent us from opening or expanding plants or facilities, any of which could have a material adverse effect on our financial condition or results of operations.

	•		*The seasonal nature of the Company’s business.* A majority of our business is seasonal with peak revenues and profits occurring primarily in the months of April through November when the weather in our markets is more favorable to construction activity. Quarterly results have varied significantly in the past and are likely to vary significantly from quarter to quarter in the future. Such variations could have a negative impact on the price of the Company’s common stock.

	•		*Price fluctuations and supply/demand for our products.* The products sold by us are commodities and competition among manufacturers is based largely on price. The prices for cement are currently at levels higher than those experienced in recent years, while prices for wallboard have declined significantly as a result of the decline in residential construction. Prices are often subject to material changes in response to relatively minor fluctuations in supply and demand, general economic conditions and other market conditions beyond our control. Increases in the production capacity for products such as gypsum wallboard or cement may create an oversupply of such products and negatively impact product prices. There can be no assurance that prices for products sold by us will not decline in the future or that such declines will not have a material adverse effect on our business, financial condition and results of operations.

	•		*Restrictive covenants in our debt agreements*. Our amended and restated credit agreement and the note purchase agreements governing our senior notes contain, among other things, covenants that limit our ability to finance future operations or capital needs or to engage in other business activities, including our ability to:

	•		Incur additional indebtedness;

	•		Sell assets or make other fundamental changes;

	•		Engage in mergers and acquisitions;

	•		Make investments, loans, advances or guarantees;

	•		Encumber the assets of the Company and its restricted subsidiaries;

	•		Enter into transactions with our affiliates.

			In addition, these agreements require us to meet and maintain certain financial ratios and tests, which may require that we take action to reduce our debt or to act in a manner contrary to our business objectives. Events beyond our control, including changes in general business and economic conditions may impair our ability to comply with these covenants or meet those financial ratios and tests. A breach of any other these covenants or failure to maintain the required ratios and meet the required tests may result in an event of default under those agreements. This may allow the lenders under those agreements to declare all amounts outstanding thereunder to be immediately due and payable, terminate any commitments to extend further credit to us and pursue other remedies available to them under the operative agreements. If this occurs, we may not be able to refinance the accelerated indebtedness on favorable terms, or at all, or repay the accelerated indebtedness.

	•		*Significant changes in the cost of, and the availability of, fuel, energy and other raw materials.* Significant increases in the cost of fuel, energy or raw materials used in connection with our businesses or substantial decreases in their availability could materially and adversely affect our sales and operating profits. Major cost components in each of our businesses are the cost of fuel, energy and raw materials. Prices for fuel, energy or raw materials used in connection with our businesses could change significantly in a short period of time for reasons outside our control. Prices for natural gas and electrical power, which are significant components of the costs associated with our gypsum wallboard and cement businesses, have increased significantly in recent years and are expected to increase in the future. In the event of large or rapid increases in prices, we may not be able to pass the increases through to our customers in full, which would reduce our operating margin.

	•		*Unfavorable weather conditions during peak construction periods and other unexpected operational difficulties.* Because a majority of our business is seasonal, unfavorable weather conditions and other unexpected operational difficulties during peak periods could adversely affect operating income and cash flow and could have a disproportionate impact on our results of operations for the full year.

	•		*Unexpected equipment failures, catastrophic events and scheduled maintenance*. Interruptions in our production capabilities may cause our productivity and results of operations to decline significantly during the affected period. Our manufacturing processes are dependent upon critical pieces of equipment. Such equipment may, on occasion, be out of service as a result of unanticipated events such as fires, explosions or violent weather conditions. We also have periodic scheduled shut-downs to perform maintenance on our facilities. Any significant interruption in production capability may require us to make significant capital expenditures to remedy problems or damage as well as cause us to lose revenue due to lost production time, which could have a material adverse effect on our results of operations and financial condition.

	•		*Competition from new or existing competitors or the ability to successfully penetrate new markets.* The construction products industry is highly competitive. If we are unable to keep our products competitively priced, our sales could be reduced materially. Also, we may experience increased competition from companies offering products based on new processes that are more efficient or result in improvements in product performance, which could put us at a disadvantage and cause us to lose customers and sales volume. Our failure to continue to compete effectively could have a material adverse effect on our business, financial condition and results of operations.

	•		*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 our operations. Certain of our operations may from time-to-time involve the use of substances that are classified as toxic or hazardous substances within the meaning of these laws and regulations. Risk of environmental liability, (including the incurrence of fines, penalties or other sanctions or litigation liability) is inherent in the operation of our businesses. As a result, it is possible that environmental liabilities could have a material adverse effect on our operations in the future.

	•		*Events that may disrupt the U.S. or world economy.* Future terrorist attacks, and the ensuing U.S. military and other responsive actions, could have a significant adverse effect on the general economic, market and political conditions, which in turn could have material adverse effect on our business.

	•		*Significant changes in the cost and availability of transportation.* Some of the raw materials used in our manufacturing processes, such as coal or coke, are transported to our facilities by truck or rail. In addition, the transportation costs associated with the delivery of our wallboard products are a significant portion of the variable cost of the wallboard division. Significant increases in the cost of fuel or energy can result in material increases in the cost of transportation which could materially and adversely affect our operating profits. In addition, reductions in the availability of certain modes of transportation such as rail or trucking could limit our ability to deliver product and therefore materially and adversely affect our operating profits.

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 2. Unregistered Sales of Equity Securities and Use of Proceeds

The disclosure required under this Item is included in Part I, Item 2. of this Quarterly Report on Form 10-Q under the heading “Cash Used for Share Repurchases” and is incorporated herein by reference.

Item 6. Exhibits

	10.1		Note Purchase Agreement dated October 2, 2007 among Eagle Materials Inc. and the Purchasers named therein (filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 3, 2007 and incorporated herein by reference).

	31.1*		Certification of the Chief Executive Officer of Eagle Materials Inc. pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.

	31.2*		Certification of the Chief Financial Officer of Eagle Materials Inc. pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.

	32.1*		Certification of the Chief Executive Officer of Eagle Materials Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2*		Certification of the Chief Financial Officer of Eagle Materials Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith.


		Page

PART I. FINANCIAL INFORMATION (unaudited)

Item 1.	Consolidated Financial Statements

	Consolidated Statements of Earnings for the Three and Nine Months Ended December 31, 2007 and 2006		1

	Consolidated Balance Sheets as of December 31, 2007 and March 31, 2007		2

	Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2007 and 2006		3

	Notes to Unaudited Consolidated Financial Statements		4

Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition		16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		28

Item 4.	Controls and Procedures		28

PART II. OTHER INFORMATION

Item 1A.	Risk Factors		29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		32

Item 6.	Exhibits		32

SIGNATURES			33
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906


	EAGLE MATERIALS INC. Registrant
February 5, 2008	/s/ STEVEN R. ROWLEY
	Steven R. Rowley
	President and Chief Executive Officer (principal executive officer)


February 5, 2008	/s/ ARTHUR R. ZUNKER, JR.
	Arthur R. Zunker, Jr.
	Senior Vice President-Finance, Treasurer and Chief Financial Officer (principal financial and chief accounting officer)

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents