SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

ANNUAL REPORT

March 31, 2004
Commission File No. 1-12984

EAGLE MATERIALS INC.

Delaware
(State of Incorporation)

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

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

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

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ü ] No [   ].

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

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

The aggregate market value of the voting stock held by nonaffiliates of the Company at September 30, 2003 (the last business day of the registrants’ most recently completed second fiscal quarter) was $291.3 million.

As of June 7, 2004, the number of outstanding shares of each of the issuer’s classes of common stock was:

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy statement for the Annual Meeting of Stockholders of Eagle Materials Inc. to be held on July 27, 2004 are incorporated by reference in Part III of this Report.

TABLE OF CONTENTS

PART I

     Net revenues (net of joint ventures and intersegment revenues, see Note F of the Notes to the Consolidated Financial Statements) for the past three years from each of the Company’s business segments, expressed as a percentage of total consolidated net revenues were as follows:

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Cement Operations

      Company Operations . The Company’s cement production facilities are located in or near Buda, Texas; LaSalle, Illinois; Laramie, Wyoming; and Fernley, Nevada. The Laramie, Wyoming and Fernley, Nevada facilities are wholly-owned. The Buda, Texas plant is owned by Texas Lehigh Cement Company LP, a limited partnership joint venture owned 50% by the Company and 50% by Lehigh Cement Company, a subsidiary of Heidelberg Cement AG. The LaSalle, Illinois plant is owned by Illinois Cement Company, a joint venture owned 50% by the Company and 50% by RAAM Limited Partnership, a partnership controlled by members of the Pritzker family (the “Joint Ventures”). The Company’s Laramie, Wyoming plant operates under the name of Mountain Cement Company and the Fernley, Nevada plant under the name of Nevada Cement Company.

     Cement is the basic binding agent for concrete, a primary construction material. The manufacture of portland cement primarily involves the extracting, crushing, grinding and blending of limestone and other raw materials into a chemically proportioned mixture which is then burned in a rotary kiln at extremely high temperatures to produce an intermediate product known as clinker. The clinker is cooled and interground with a small amount of gypsum to the consistency of face powder to produce finished cement. Clinker can be produced utilizing either of two basic methods, a “wet” or a “dry” process. In the wet process, the raw materials are mixed with water to take advantage of the greater ease in the handling and mixing of the raw materials. However, additional heat, and therefore fuel, is required to evaporate the moisture before the raw materials can react to form clinker. The dry process, a more fuel efficient technology, excludes the addition of water into the process. Dry process plants are either preheater plants, in which hot air is recycled from the rotary kiln to preheat materials, or are precalciner plants, in which separate burners are added to accomplish a significant portion of the chemical reaction prior to the introduction of the raw materials into the rotary kiln. As fuel is a major cost component in the production of clinker, most modern cement plants, including all four of the plants operated by the Company, incorporate the more fuel-efficient dry process technology. At present, approximately 80% of the Company’s net clinker capacity is from preheater or preheater/precalciner kiln. The following table sets forth certain information regarding these plants:

(1)		One short ton equals 2,000 pounds.
(2)		The amounts shown represent 100% of plant capacity and production. Each of these plants is owned by a separate partnership in which the Company has a 50% interest.
(3)		Generally, a plant’s cement grinding production capacity is greater than its clinker production capacity.
(4)		Net of partners’ 50% interest in the Buda, Texas and LaSalle, Illinois plants.
(5)		Owned reserves.
(6)		Includes both owned and leased reserves.

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     The Company’s net cement production, including its 50% share of the cement Joint Ventures production, totaled 2.39 million tons in Fiscal 2004 and 2.27 million tons in Fiscal 2003. Total net cement sales, including the Company’s 50% share of cement sales from the Joint Ventures, were 2.52 million tons in Fiscal 2004 and 2.36 million tons in Fiscal 2003 as all plants sold all of the product they produced. Cement production is capital-intensive and involves high fixed costs. As a result, plant capacity utilization levels are an important contributor to a plant’s profitability, since incremental sales volumes tend to generate increasing profit margins. During the past two years, the Company purchased cement from others to be resold. Purchased cement sales typically occur at lower gross profit margins. In Fiscal 2004, 8.7% of the cement sold by the Company was acquired from outside sources, compared to 6.7% in Fiscal 2003.

      Raw Materials and Fuel Supplies . The principal raw material used in the production of portland cement is calcium carbonate in the form of limestone. Limestone is obtained principally through mining and extraction operations conducted at quarries owned or leased by the Company and located in close proximity to its plants. The Company believes that the estimated recoverable limestone reserves owned or leased by it will permit each of its plants to operate at its present production capacity for at least 25 years or, in the case of the Company’s Nevada plant, at least 15 years. The Company controls additional limestone reserves for its Nevada market that will be available when needed on an economically feasible basis but may require a new plant to be built in close proximity to these reserves. Other raw materials used in substantially smaller quantities than limestone are sand, clay, iron ore and gypsum. These materials are readily available and can either be obtained from Company-owned or leased reserves or are purchased from outside suppliers.

     The Company’s cement plants use coal and coke as their primary fuel, but are equipped to burn natural gas as an alternative. The Company has not used hazardous waste-derived fuels in its plants. The Company’s LaSalle, Illinois and Buda, Texas plants have been permitted to burn scrap tires as a partial fuel alternative. Electric power is also a major cost component in the manufacture of cement. The Company has sought to diminish overall power costs by adopting interruptible power supply agreements which may expose the Company to some production interruptions during periods of power curtailment.

      Sales and Distribution . Demand for cement is highly cyclical and derived from the demand for concrete products which, in turn, is derived from demand for construction. According to estimates of the Portland Cement Association (the “PCA”), the industry’s primary trade organization, the construction sectors that are the major components of cement consumption are (i) public construction, (ii) non-residential buildings, (iii) residential buildings, and (iv) other, which comprised 49%, 17%, 28% and 6%, respectively, of U.S. cement consumption over the last 5 years, from the most recent data available. Public works construction was favorably impacted when the U.S. Congress passed legislation in 1998, known as the Transportation Equity Act for the 21 ^st Century (“TEA-21”). This legislation authorized a total of $218 billion in federal expenditures on highways, bridges and mass transit projects over the six year period beginning in 1998. Various proposals are currently pending in Congress to reauthorize the current six-year Federal Highway Program, TEA-21. The new proposal, called “SAFETEA,” passed by the House and Senate, totals $275.0 billion and $318.0 billion, respectively. Both amounts are higher than the Administration’s $256.0 billion proposal. Construction spending and cement consumption have historically fluctuated widely. The construction sector is affected by the general condition of the economy as well as regional economic influences. Regional cement markets experience peaks and valleys correlated with regional construction cycles. Also, demand for cement is seasonal, particularly in northern states where inclement weather affects construction activity. Sales are generally greater from spring through the middle of autumn than during the remainder of the year. While the impact on the Company of regional construction cycles may be mitigated to some degree by the geographic diversification of the Company, profitability is very sensitive to shifts in the balance between supply and demand. As a consequence, the Company’s cement segment sales and earnings follow a similar cyclical pattern.

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

     Cement is distributed directly to customers by common carriers and customer pickups from plants or distribution terminals. The Company transports cement principally by rail to its storage and distribution terminals. Cement is distributed primarily in bulk, but also in paper bags. No single customer accounted for 10% or more of the Company’s cement sales during Fiscal 2004.

     Sales are made on the basis of competitive prices in each area. As is customary in the industry, the Company does not typically enter into long-term sales contracts, except with respect to major construction projects.

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

     According to the PCA, the United States cement industry is comprised of approximately 38 companies which own 104 gray cement plants with approximately 98 million short tons of clinker manufacturing capacity (approximately 103 million short tons of cement manufacturing capacity, assuming a 105% conversion ratio). The top five companies account for nearly 50% of industry capacity with the top ten companies accounting for a 69% concentration ratio. The PCA estimates that total U.S. cement consumption was approximately 124 million short tons in calendar 2003, with approximately 21% of such demand being satisfied by imported cement and clinker. As a result of strong residential construction activity, calendar 2003 consumption was up 4% from calendar 2002. Based on the level of demand, the Company estimates that the cement industry as a whole operated in excess of 91% of its aggregate manufacturing capacity during calendar 2003. The PCA reported that, as of December 2001, approximately 22 plant modernization and expansion projects, including six new cement plants, were announced or are underway. However, numerous projects have been placed on hold because of lengthy environmental permitting processes. It is estimated that over the next 4

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years (thru 2008), a maximum of 4 new plants might be built and 10 modernization projects might be completed, adding approximately 12 million short tons of new domestic capacity and increasing existing capacity by 12%. The PCA has predicted total cement consumption will grow to 134 million short tons by 2008, compared with an estimated 124 million short tons of cement consumption in calendar 2003. The Company, however, cannot offer any assurances regarding any near-term or long-term increases in demand. In addition, the Company does not know how much, if any, old, inefficient cement production capacity may be retired during this period. Even if all announced expansions are completed, a capacity deficit would still exist in 2008 if the PCA consumption projections are realized.

     Cement imports into the United States occur primarily to supplement domestic cement production during peak demand periods. Throughout most of the 1980’s, however, competition from low-priced imported cement in the Mississippi river system and most coastal and border areas of the U.S. grew significantly, which included the markets served by the Company’s Fernley, Nevada, La Salle, Illinois and Buda, Texas plants. According to the PCA, the 1980’s were a period of relatively high cement imports. This high level of low-priced imports depressed cement prices. As a result of antidumping petitions filed by a group of domestic cement producers, significant antidumping duty cash deposit requirements have been imposed on cement imported from Mexico since 1990 and from Japan since 1991. The existing antidumping orders have contributed substantially to an improvement in the condition of the U.S. cement industry.

     In the case of imports from Mexico, margins to calculate cash deposit rates and the resulting antidumping duties are subject to annual review by the Department of Commerce and appeal to the U.S. Court of International Trade and the U.S. Court of Appeals or to binational dispute panels under the North American Free Trade Agreement (“NAFTA”).

     Pursuant to the Uruguay Round Agreement, the General Agreement on Tariffs and Trade (“GATT”) Antidumping Code was superseded on January 1, 1995 by a new antidumping agreement that is administered by the World Trade Organization. As a result of legislation passed by the U.S. Congress in 1994, the Department of Commerce and the ITC conducted “sunset” reviews of antidumping orders during 1999-2000 and determined they should remain in effect for another five years until 2005.

     NAFTA thus far has had no material adverse effect on the antidumping duty cash deposit rates imposed on gray portland cement and clinker imported from Mexico. The Company does not believe that NAFTA will likely have a material adverse effect on the foregoing antidumping duty cash deposit rates in the near future. A substantial reduction or elimination of the existing antidumping duties as a result of GATT, NAFTA or any other reason could adversely affect the Company’s results of operations.

     U.S. imports of foreign cement began to increase in the mid-1990’s as the use of cement in the U.S. began to recover. The PCA has estimated that imports represented approximately 21% of cement used in the U.S. during calendar 2003 as compared with approximately 23% in 2002 and 24% in 2001. Unlike the imports during the 1980’s, however, most of the recent imports have provided an additional source of supply rather than disrupting the market with unfair prices. The introduction of low-priced imported cement from new sources could adversely affect the Company’s result of operations.

      Capital Expenditures . Capital expenditures, not including capital expenditures associated with the 50% owned cement Joint Ventures, during Fiscal 2004 amounted to $1.8 million for the Company’s wholly owned cement operations compared with $2.5 million and $1.7 million in Fiscal 2003 and 2002, respectively. Capital outlays in Fiscal 2005 are estimated to be approximately $8.9 million. The increase is due primarily to a limestone crusher relocation and the construction of a cement storage silo totaling approximately $5.8 million. Approximately 13% of the estimated Fiscal 2005 total is related to compliance with environmental regulations.

      Environmental Matters . The operations of the Company are subject to numerous federal, state and local laws and regulations pertaining to health, safety and the environment. Some of these laws, such as the federal Clean Air Act and the federal Clean Water Act (and analogous state laws) impose environmental permitting requirements and govern the nature and amount of emissions that may be generated when

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conducting particular operations. Some laws, such as the federal Comprehensive Environmental Response, Compensation, and Liability Act (and analogous state laws) impose obligations to clean up or remediate spills of hazardous materials into the environment. Other laws require us to reclaim certain land upon completion of extraction and mining operations in our quarries. We believe that the Company has obtained all the material environmental permits that are necessary to conduct its operations. We further believe that the Company is conducting its operations in material compliance with these permits. In addition, none of the Company’s sites is listed as a CERCLA “Superfund” site.

     Four environmental issues involving the cement manufacturing industry deserve special mention. The first issue involves cement kiln dust or CKD. The federal Environmental Protection Agency or EPA has been evaluating the regulatory status of CKD under the federal Resource Conservation and Recovery Act (“RCRA”) for a number of years. In 1999, the EPA proposed a rule that would allow states to regulate properly-managed CKD as a non-hazardous waste under state laws and regulations governing solid waste. In contrast, CKD that was not properly managed would be treated as a hazardous waste under RCRA. In 2002, the EPA confirmed its intention to exempt properly-managed CKD from the hazardous waste requirements of RCRA. The agency announced that it would collect additional data over the next three to five years to determine if the states’ regulation of CKD is effective, which may lead the EPA to withdraw its 1999 proposal to treat any CKD as a hazardous waste. Final action implementing the 2002 announcement is expected to occur in Fiscal 2005.

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

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

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

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

     Management believes that the Company’s current procedures and practices in its operations, including those for handling and managing materials, are consistent with industry standards and are in substantial compliance with applicable environmental laws and regulations. Nevertheless, because of the complexity of operations and compliance with environmental laws, there can be no assurance that past or future operations will not result in violations, remediation or other liabilities or claims. Moreover, the Company cannot predict what environmental laws will be enacted or adopted in the future or how such future environmental laws or regulations will be administered or interpreted. Compliance with more stringent environmental laws, or stricter interpretation of existing environmental laws, could necessitate significant capital outlays.

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Gypsum Wallboard Operations

      Company Operations . The Company owns and operates four gypsum wallboard manufacturing facilities, one located in Albuquerque and another in nearby Bernalillo, New Mexico, one located in Gypsum (near Vail), Colorado and one located in Duke, Oklahoma. The Company mines and extracts gypsum and then manufactures gypsum wallboard by first pulverizing quarried gypsum, then placing it in a calciner for conversion into plaster. The plaster is mixed with various chemicals and water to produce a mixture known as slurry, which is inserted between two continuous sheets of recycled paperboard on a high-speed production line and allowed to harden. The resulting sheets of gypsum wallboard are then cut to appropriate lengths, dried and bundled for sale. Gypsum wallboard is used to finish the interior walls and ceilings in residential, commercial and institutional construction. These panel products have aesthetic as well as sound-dampening and fire-retarding characteristics.

     The Albuquerque plant was acquired in 1985, and was operated until early 1991. Following the start-up of the new Bernalillo plant in the spring of 1990, the Company elected to suspend operations at the Albuquerque plant due to weak market conditions. Operations at the Albuquerque plant were recommenced in May 1993, due to improvements in wallboard demand and prices. The Gypsum, Colorado gypsum wallboard plant and accompanying electric power cogeneration facility were purchased in February 1997. The plant originally commenced production in early 1990 and had been operated by an independent producer until its acquisition by EXP. The Duke, Oklahoma plant was acquired in November 2000. The plant commenced production in 1964 and has operated continuously since then. In 1999, a second line was added that expanded the plant’s annual capacity to 1.2 billion square feet. The Company believes that the Duke plant is the second largest single gypsum wallboard plant in North America.

     The following table sets forth certain information regarding these plants:

(1)		Million Square Feet (“MMSF”)
(2)		The same reserves serve both New Mexico plants
(3)		Leased reserves.
(4)		Includes both owned and leased reserves.
(5)		Additional reserves available.

     The Company’s gypsum wallboard production totaled 2,496 MMSF in Fiscal 2004 and 1,956 MMSF in Fiscal 2003. Total gypsum wallboard sales were 2,437 MMSF in Fiscal 2004 and 1,933 MMSF in Fiscal 2003. Total wallboard production as a percentage of rated capacity was 90% in Fiscal 2004 and 72% in Fiscal 2003 due to the Company operating at industry average capacity utilization in Fiscal 2004 combined with increased wallboard demand.

      Raw Materials and Fuel Supplies . The Company mines and extracts natural gypsum rock, the principal raw material used in the manufacture of gypsum wallboard, from mines and quarries owned, leased or subject to claims owned by the Company and located near its plants. The Company does not use synthetic gypsum. The New Mexico, Colorado and Oklahoma mines and quarries are estimated to contain approximately 49 million tons, 19 million tons and 15 million tons, respectively, of gypsum reserves. There are two leases covering the New Mexico reserves. One is with the Pueblo of Zia and the other is with the State of New Mexico. The term of the Zia lease continues for so long as gypsum is produced in paying quantities, as defined therein. The term of the State lease continues for so long as the royalties paid under the lease exceed a certain amount. We do not anticipate any problems in continuing to extend the term of these leases

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for the foreseeable future. Other gypsum deposits are located in the immediate area of the Duke, Oklahoma plant and may be obtained at reasonable costs when needed. Based on its current production capacity, the Company estimates that the life of its existing gypsum rock reserves is a minimum of 80 years in New Mexico, 30 years in Colorado and 15 years in Oklahoma.

     Prior to November 2000, the Company purchased paper used in manufacturing gypsum wallboard from third-party suppliers. The Company now manufactures almost all of the paper needed for its gypsum wallboard production.

     The Company’s gypsum wallboard manufacturing operations use large quantities of natural gas and electrical power. A significant portion of the Company’s natural gas requirements for its gypsum wallboard plants are currently provided by three gas producers under gas supply agreements expiring in October 2004 for Colorado, March 2005 for New Mexico, and October 2004 for Oklahoma. If the agreements are not renewed, the Company expects to be able to obtain its gas supplies from other suppliers at competitive prices. Electrical power is supplied to the Company’s New Mexico plants at standard industrial rates by a local utility. The Company’s Albuquerque plant utilizes an interruptible power supply agreement, which may expose it to some production interruptions during periods of power curtailment. Power for the Gypsum, Colorado facility is generated at the facility by a cogeneration power plant. Currently the cogeneration power facility supplies only the power needs of the gypsum wallboard plant and does not sell any power to third parties. Power at the Duke, Oklahoma plant is supplied by a local electric cooperative under a contract, which expires in January 2005. Gas costs increased significantly in Fiscal 2004 and are likely to increase further during Fiscal 2005. If they remain at the current high level, or continue to increase, they are expected to negatively impact Fiscal 2005 gypsum wallboard manufacturing cost and operating earnings.

      Sales and Distribution . The principal sources of demand for gypsum wallboard are (i) residential construction, (ii) repair and remodeling, (iii) non-residential construction, and (iv) other activities such as exports and temporary construction, which the Company estimates accounted for approximately 47%, 35%, 12% and 6%, respectively, of calendar 2003 industry sales. While the gypsum wallboard industry remains highly cyclical, recent growth in the repair and remodeling segment have partially mitigated the impact of fluctuations in overall levels of new construction.

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

     The Company estimates that the size of the total residential repair and remodel market grew to a record $130 billion in calendar 2003, up 4% from calendar 2002. Although data on commercial repair and remodel activity is not readily available, the Company believes that this segment has also grown significantly in recent years. The growth of the repair and remodeling market is primarily due to the aging of housing stock, remodeling of existing buildings and tenant turnover in commercial space. In addition, repair and remodeling activity has benefited from the fact that it has increasingly come to be viewed by homeowners, particularly in recessionary periods, as a low cost alternative to purchasing a new house.

     The Company sells gypsum wallboard to numerous building materials dealers, gypsum wallboard specialty distributors, home center chains and other customers located throughout the United States. Two customers with multiple shipping locations accounted for approximately 13% and 10%, respectively, of the Company’s total gypsum wallboard sales during Fiscal 2004. The loss of either of these customers could have a material adverse effect on the Company and its subsidiaries taken as a whole.

     During Fiscal 2004, the principal states in which the Company had gypsum wallboard sales were Texas, Colorado, Arizona, California and New Mexico. Prior to Fiscal 2001, a large portion of the Company’s gypsum wallboard sales were made in the southeastern United States, with significant sales in Florida. However, due to a dramatic increase in new capacity in the eastern portion of the United States and falling

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prices, the Company has focused the distribution of its gypsum wallboard in the southwestern and western areas of the United States.

     Although gypsum wallboard is distributed principally in regional areas, the Company and certain other producers have the ability to ship gypsum wallboard by rail outside their usual regional distribution areas to different regional areas where demand is strong. The Company owns or leases 241 railcars for transporting gypsum wallboard. In addition, in order to facilitate distribution in certain strategic areas, the Company maintains a distribution center in Albuquerque, New Mexico and five reload yards in Arizona, California and Illinois. The Company’s rail distribution capabilities permit it to reach customers in all states west of the Mississippi River and many eastern states. During Fiscal 2004, approximately 28% of the Company’s sales volume of gypsum wallboard was transported by rail.

      Competition . There are eight manufacturers of gypsum wallboard in the U.S. operating a total of 81 plants. The Company estimates that the three largest producers - USG Corporation, National Gypsum Company and Georgia-Pacific Corporation - account for approximately 65% of gypsum wallboard sales in the United States. The industry has experienced some consolidation, the largest being Georgia-Pacific Corporation’s purchase of the gypsum wallboard business of Domtar, Inc. and British Plasterboard’s purchase of James Hardie and Celotex. In general, a number of the Company’s competitors in the gypsum wallboard industry have greater financial, manufacturing, marketing and distribution resources than the Company. Furthermore, certain of its competitors have vertically integrated gypsum wallboard distribution centers, which may provide them with certain cost advantages over the Company.

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

     Currently total United States gypsum wallboard production capacity is estimated at 36.0 billion square feet per year, a 33% rise from 1998. The Gypsum Association, an industry trade group, estimates that total calendar 2003 gypsum wallboard shipments by U.S. manufacturers were approximately 31.3 billion square feet (31.7 billion square feet including imports), the highest level on record, resulting in average industry capacity utilization of approximately 88%.

      Capital Expenditures . Capital expenditures during Fiscal 2004 for the gypsum wallboard segment amounted to $8.2 million; $3.0 million in Fiscal 2003; and $1.2 million in Fiscal 2002. Capital outlays in Fiscal 2005 are estimated to be approximately $6.8 million with less than 1% of the estimated expenditures related to compliance with environmental regulations.

      Environmental Matters . The gypsum wallboard industry is subject to environmental regulations similar to those governing the Company’s cement operations. None of the Company’s gypsum wallboard operations are presently the subject of any local, state or federal environmental proceedings or inquiries. The Company does not, and has not, used asbestos in any of its gypsum wallboard products.

Recycled Paperboard Operations

      Company Operations . The Company’s recycled paperboard manufacturing operation is located in Lawton, Oklahoma. This mill, in addition to the closed Commerce City, Colorado paperboard mill and the sold four recovered fiber centers were acquired in November 2000. The Commerce City mill was closed in April 2001, due to high manufacturing costs and the successful ramp up rate of the Lawton facility. The four recovered fiber centers were sold early in Fiscal 2003, as it was determined that their location and supply capabilities were not strategically favorable to the Lawton location.

     All of the paper products manufactured at Lawton are produced from 100% recovered (recycled) paper fiber. The recycled paperboard products manufactured by the Company primarily include the facing and backside paper used in the manufacture of gypsum wallboard. Other recycled paperboard grades used by

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manufacturers of consumer packaging (e.g. corrugate medium and linerboard) and industrial paperboard products (e.g. angle board, tube and core board) are also produced for diversity and mill expansion needs.

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

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

     Management believes that adequate supplies of recovered paper fiber will continue to be available from generators and wholesalers located within a 400-mile radius of the Lawton mill. One third of all purchased fiber is supplied by rail. Recovered paper fiber is a commodity bought, sold and traded under the guidelines of the Institute of Scrap Recycling Industries, Inc. (ISRI). Monthly pricing is established in several industry publications based on location. Prices are subject to fluctuations based on generation, demand and export.. The current outlook for Fiscal 2005 is for wastepaper prices to increase moderately during the first half of the year and stabilize for the remainder of the fiscal year. Current customer contracts include price escalators to compensate for changes in raw material prices.

     Chemicals, including size, retention aids, bactericides and strength aids, used by the Company in its recycled paperboard operations are environmentally friendly and are readily available from several manufacturers at competitive prices. Size is used principally as a water-resisting agent in the production of recycled paperboard. Retention aids are agents used to retain fiber and chemicals in the papermaking process by preventing their loss into the waste stream. Bactericides are agents used to control bacteria and other organisms in the papermaking process. Strength aids are used to increase the tensile of the paper and strengthen the customers converted wallboard.

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

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

     Paperboard mills are generally large consumers of natural gas, with Lawton’s needs in excess of 3200 MMBTU per day. During Fiscal 2004, natural gas pricing significantly increased and is expected to increase

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further during Fiscal 2005. If natural gas prices remain at the current high level, or continue to increase, they are expected to negatively impact Fiscal 2005 production cost and operating earnings. The Lawton mill is under a very favorable electrical agreement with Public Service of Oklahoma that renews annually, unless terminated by notice by either party.

      Sales and Distribution. The recycled paperboard products manufactured by the Company are sold primarily to gypsum wallboard manufacturers. During Fiscal 2004, approximately 41% of the recycled paperboard manufactured and shipped by the Lawton mill was consumed by the Company’s gypsum wallboard manufacturing operations, approximately 5% was shipped to other gypsum wallboard manufacturers and 40% was sold to BPB Gypsum (f/k/a James Hardie Gypsum) (“BPB Gypsum”) pursuant to a paper supply contract (the “BPB Gypsum Agreement”). The BPB Gypsum Agreement is a long-term paper supply contract with sales to BPB Gypsum made at a defined base price determined at the time of execution of the BPB Gypsum Agreement. This defined price is subject to adjustment based on changes in the major variable costs of production of recycled paperboard, including the cost of power, transportation and the primary raw materials, and changes in the purchaser price index for industrial commodities and a reference employment cost index. Under this agreement, the Lawton mill is obligated to sell and BPB Gypsum is obligated to purchase at least 95% (plus or minus 5%) of the gypsum-grade recycled paperboard requirements of BPB Gypsum’s three gypsum wallboard plants purchased from James Hardie Gypsum. In addition, the loss of this gypsum wallboard manufacturer as a customer or a termination or reduction of its production of gypsum wallboard, unless replaced by a commercially similar arrangement, could have a material adverse effect on the Company.

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

     Price, quality and timeliness of deliveries are the principal methods of competition among paperboard producers. The location of the Company’s Lawton recycled paperboard mill allows the Company to serve a variety of markets, including several gypsum wallboard plants in the midwest, southeast, southwest and western United States.

      The Lawton Mill . The Lawton mill was acquired in November 2000 and is located in southwestern Oklahoma. The Lawton mill is designed to manufacture gypsum-grade recycled paperboard utilizing various technologies that were successfully introduced during the 1990’s in recycled paperboard mills in the United States. These technologies include (i) the use of an advanced paper forming section in which the gap forming process utilizes a hydraulic headbox and a twin wire de-watering system to form a paper sheet operating in excess of 2,300 feet per minute, thereby allowing reduced labor costs per ton produced, (ii) an advanced control system, which immediately senses changes in the paper as it is being formed and adjusts the forming section of the paper machine to maintain the uniformity of the paper and also monitors and adjusts the recovered paper fiber cleaning process to maintain the quality of this raw material, (iii) modern shoe pressing technology, which permits water removal in a way that provides more uniformity and enhances the properties of the paper, (iv) dryer felts on all dryer sections, which improve drying efficiency and reduce shrinkage, and (v) a cleaning and screening process for the reclaimed paper fiber that enhances the strength, surface characteristics and overall surface uniformity of the paperboard.

     The Company expects the Lawton mill to produce recycled paperboard that is approximately 20% to 30% lighter than that currently generally available in the United States, but with equal strength characteristics. Because gypsum-grade recycled paperboard generally is sold on the basis of surface area, manufacturing lighter paper potentially translates into higher profit margins per ton for the recycled paperboard manufacturer. Lighter recycled paperboard also reduces drying costs associated with the production of gypsum wallboard and reduces inbound and outbound freight costs of both recycled paperboard and gypsum wallboard. In addition,

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because the Lawton mill is designed as an efficient high capacity, high-speed mill, operating costs are expected to be lower than existing mills now producing recycled paperboard for the wallboard industry. In addition to producing a product which should be more attractive to customers, it is anticipated that the lighter weight, better quality recycled paperboard from the Lawton mill will reduce production and transportation costs at the Company’s gypsum wallboard plants.

     The Lawton mill currently has the capacity to produce approximately 275,000 tons of recycled paperboard annually. Production from the Lawton mill will be used both internally at all four of EXP’s gypsum wallboard plants and sold to third parties. Although primarily designed for the production of gypsum-grade recycled paperboard, the Lawton mill is also capable of producing recycled paperboard for other uses.

      Environmental Matters . Prior to November 2000, the Company’s now closed Commerce City, Colorado paper mill (the “Commerce City Mill”) had investigated the presence of subsurface petroleum hydrocarbons at the mill site and had retained an environmental consultant, who concluded that fuel oil, jet fuel, and gasoline additives had migrated in the subsurface of the property from an adjacent property. As a result of an additional subsequent investigation by the Commerce City Mill, there were uncovered newly discovered environmental conditions that appear to stem from underground storage tank use on the mill site. As a result, the Commerce City Mill notified the Division of Oil and Public Safety of the Colorado Department of Labor and Employment (the “Oil Division”). The Commerce City Mill and a former owner of the Commerce City Mill have entered into a participation agreement to respond to those conditions that appear to stem from historical underground storage tank use. Under the participation agreement, the Commerce City mill will pay 25% (with the former owner paying 75%) of the costs associated with the investigation and remediation efforts approved by both parties. The Company and the former owner have each approved and submitted to the Oil Division a Corrective Action Plan (the “CAP”) for the removal of the subsurface petroleum hydrocarbon at the Commerce City Mill. The CAP was approved by the Oil Inspection Section in calendar 2002. It is estimated that this CAP will cost approximately $2.5 million and take approximately eight years to complete. Under the participation agreement, the Company will pay 25% (or approximately $625,000 which is fully accrued) of such estimated costs. There can be no assurance however, that the actual costs of remediation will not exceed these estimates.

      Capital Expenditures . Capital expenditures during Fiscal 2004 for the paperboard operations were $1.3 million, $4.7 million in Fiscal 2003 and $2.7 million in Fiscal 2002. Capital expenditures for Fiscal 2005 have been estimated at approximately $9.9 million. This increase is due to two large equipment upgrade projects and a plant automation project. None of the estimated Fiscal 2005 capital outlays is related to compliance with environmental regulations.

Concrete and Aggregates Operations

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

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

     Demand for readymix concrete and aggregates largely depends on local levels of construction activity. The construction sector is subject to weather conditions, the availability of financing at reasonable rates and overall fluctuations in local economies, and therefore tends to be cyclical. Both the concrete and aggregates industries are highly fragmented, with numerous participants operating in local areas. Because the cost of transporting concrete and aggregates is very high relative to product values, producers of concrete and aggregates typically can sell their products only in areas within 50 miles of their production facilities. Barriers

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to entry in each industry are low, except with respect to environmental permitting requirements for new aggregate production facilities and zoning of land to permit mining and extraction of aggregates.

     The Company produces and distributes readymix concrete north of Sacramento, California and in Austin, Texas. The following table sets forth certain information regarding these operations:

     The Austin, Texas market, which is the Company’s largest concrete market, has not fully recovered from the negative impact of the market conditions affecting technology companies beginning in 2000. The Company’s net readymix concrete production was 762,000 cubic yards in Fiscal 2004 and 681,000 cubic yards in Fiscal 2003.

     The Company conducts aggregate operations near its concrete facilities in northern California and Austin, Texas. Aggregates are obtained principally by mining and extracting from quarries owned or leased by the Company and located in close proximity to its plants. The following table sets forth certain information regarding these operations:

(1)		Owned reserves through various subsidiaries.
(2)		Leased reserves.

     The Company’s total net aggregate sales were 4.2 million tons in Fiscal 2004 and 4.2 million tons in Fiscal 2003. Total aggregates production was 4.7 million tons for Fiscal 2004 and 4.5 million for Fiscal 2003. A portion of the Company’s total aggregates production is used internally by the Company’s readymix concrete operations.

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

      Raw Materials . The Company supplies approximately 100% and 20% of its cement requirements for its Austin and northern California concrete operations, respectively. The Company supplies approximately 36% and 47%, respectively, of its aggregates requirements for its Austin and northern California concrete operations. The Company obtains the balance of its cement and aggregates requirements from multiple sources in each of these areas.

     The Company mines and extracts limestone and sand and gravel, the principal raw materials used in the production of aggregates, from quarries owned or leased by the Company and located near its plants. The northern California quarry is estimated to contain approximately one billion tons of sand and gravel reserves. The Austin, Texas quarry is covered by a lease which expires in 2060. Based on its current production capacity, the Company estimates its Austin, Texas quarry contains approximately 15 years of limestone reserves. Other limestone deposits are located in the immediate area of the Austin, Texas plant and may be obtained at reasonable costs when needed.

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      Sales and Distribution . The Company sells readymix concrete to numerous contractors and other customers in each plant’s selling area. The Company’s batch plants in Austin and northern California are strategically located to serve each selling area. Concrete is delivered from the batch plants by trucks owned by the Company.

     The Company sells aggregates to building contractors and other customers engaged in a wide variety of construction activities. Aggregates are delivered from the Company’s aggregate plants by common carriers, customer pick-up and, to a lesser extent, trucks owned by the Company. No single customer accounted for 10% or more of the Company’s concrete or aggregates sales during Fiscal 2004. The Company is attempting to secure a rail link from its principal aggregates deposit north of Sacramento, California to extended markets.

      Competition . Competition among concrete producers within the Company’s northern California and Austin selling areas is strong. The Company’s competitors include five small and four large concrete producers in the northern California area and five large and five small concrete producers in the Austin area.

     Both concrete and aggregates are commodity products. Each type of aggregate is sold in competition with other types of aggregates and in competition with other producers of the same type of aggregates. Accordingly, competition in both the concrete and aggregates businesses is based principally on price and, to a lesser extent, on product quality and customer service.

      Capital Expenditures . Capital expenditures during Fiscal 2004 amounted to $1.0 million for the concrete and aggregates segment compared with $1.1 million and $10.6 million in Fiscal 2003 and 2002, respectively. The majority of Fiscal 2002 capital expenditures were for the completion of the Company’s Georgetown washed aggregate plant in the Austin, Texas area. Capital outlays in Fiscal 2005 are estimated to be approximately $1.6 million. Only $0.2 million of estimated Fiscal 2005 capital expenditures are related to compliance with environmental regulations.

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

Employees

     The Company and its subsidiaries, including the Joint Ventures, had approximately 1,529 employees at March 31, 2004. Approximately 24% of the employees are represented by collective bargaining units. The number of corporate employees of the Company is 18.

Available Information

     Anyone seeking information about our business operations and financial performance can receive copies of the 2004 Annual Report to Stockholders, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports and other documents filed with the Securities and Exchange Commission in Washington, D.C., without charge, by contacting our Investor Relations office at (214) 432-2000; by writing to Eagle Materials Inc., Investor Relations, 3811 Turtle Creek Boulevard, Dallas, Texas 75219 or via email at eaglematerials.com. In addition, all filings with the Securities and Exchange Commission, news releases and quarterly earnings announcements, including live audio and replays of recent quarterly earnings webcasts, can be accessed free of charge on our web site (www.eaglematerials.com). We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available on our web site as soon as reasonably practicable after we electronically file the material with, or furnish it to, the Securities and Exchange Commission. To retrieve any of this information, go to www.eaglematerials.com, select “Investor Relations” and select “SEC Filings.” The reference to our web site is merely intended to suggest where additional information may be obtained by

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investors, and the materials and other information presented on our web site are not incorporated in and should not otherwise be considered part of this Report.

4)

Stockholders approved the Special Meeting Proposal as set forth in Proposal Four of the Centex Construction Products, Inc. Proxy Statement dated December 1, 2003. Voting results are summarized as follows:

5)

Stockholders approved the Supermajority Voting Proposal as set forth in Proposal Five of the Centex Construction Products, Inc. Proxy Statement dated December 1, 2003. Voting results are summarized as follows:

6)

Stockholders approved the Authorized Capital Increase Proposal as set forth in Proposal Six of the Centex Construction Products, Inc. Proxy Statement dated December 1, 2003. Voting results are summarized as follows:

7)

Stockholders approved the Name Change Proposal as set forth in Proposal Seven of the Centex Construction Products, Inc. Proxy Statement dated December 1, 2003. Voting results are summarized as follows:

8)

Stockholders approved the Stockholders’ Rights Plan Proposal as set forth in Proposal Eight of the Centex Construction Products, Inc. Proxy Statement dated December 1, 2003. Voting results are summarized as follows:

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9)

Stockholders approved the Incentive Plan Proposal as set forth in Proposal Nine of the Centex Construction Products, Inc. Proxy Statement dated December 1, 2003. Voting results are summarized as follows:

EXECUTIVE OFFICERS OF EXP (See Item 10 of Part III)

     The following is a listing of the Company’s executive officers, as such term is defined under the rules and regulations of the Securities and Exchange Commission as of June 7, 2004. Except for Mr. Dutton, all of these executive officers have been employed by the Company and/or one or more subsidiaries of the Company for at least the past five years. Except for Mr. Rowley, who was appointed President and Chief Executive Officer in September 2003, and Mr. Dutton, who became Executive Vice President – Paperboard in May 2004, all executive officers were elected by the Board of Directors of the Company at its Annual Meeting on July 21, 2003. All such officers shall serve until the next Annual Meeting of Directors or until their respective successors are duly elected and qualified or appointed as the case may be. There is no family relationship between any of these officers.

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PART II

     Purchases of the Company’s Class B Common Stock during the quarter ended March 31, 2004 are set below. There were no purchases of the Company’s Common Stock during the quarter.

     Continued strong residential construction and mild winter weather in the Company’s markets helped to increase Fiscal 2004 sales volume, revenues and net earnings. Demand in all of the Company’s markets was strong as the Company reported increased sales volume in each of its segments for the fiscal year ended March 31, 2004. The majority of the earnings improvement were in the Gypsum Wallboard, Paperboard and Concrete and Aggregates operations. Fiscal 2004 revenues increased 17% to $502.6 million, net earnings were up 16% to $66.9 million and diluted earnings per share were up 15% to $3.57.

     Fiscal 2004 was the 18 ^th consecutive sold-out year for the Company’s cement operations. Although Cement sales volume increased 7%, operating earnings declined 8% from last year due to lower net sales prices and increased production costs. Gypsum Wallboard sales volume was up 25% due to record industry demand and operating earnings increased 31% due to increased sales volume. Paperboard reported record sales volume and operating earnings due to increased shipments to the Company’s wallboard operations and higher net sales prices. Concrete and Aggregates earnings improved from a $268,000 loss last fiscal year to $6.0 million operating profit this fiscal year due primarily to the losses incurred with the closing of the Georgetown facility last year. Corporate expenses increased $3.6 million due primarily to the cost associated with the spin-off from Centex Corporation.

     Manufacturing costs in Fiscal 2004 were negatively impacted by increased natural gas, coal, power and maintenance costs. Demand for energy related products continued at a high level and prices for these products are expected to increase further in Fiscal 2005. Maintenance costs are expected to “level out” in Fiscal 2005 as the Company experienced some one-time large maintenance projects in Fiscal 2004.

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

     U.S. Cement consumption continues to be strong. Total U.S. cement shipments of 124 million short tons for calendar 2003 were 4% above calendar 2002. Cement imports for calendar 2003 were 25 million short tons, 4% below last year’s imports. The U.S. Cement Industry has been sold out for the last 10 years as a result of a domestic capacity deficit. Current U.S. demand requires over 20% of imports to supplement domestic capacity. The U.S. Cement Industry is anticipating a tight supply of imported cement this year due to higher freight rates and increasing consumption in world markets. Although Cement pricing has declined slightly over the past three years, prospects for future price increases are favorable.

     Strong demand from new housing and residential remodeling resulted in record wallboard consumption for calendar 2003. According to the Gypsum Association, national wallboard consumption of 31.7 billion square feet for calendar 2003, the highest level on record, was up 6% from last year’s consumption. Industry utilization rates have been trending upward toward the 90% level, resulting in the firming of wallboard pricing. The Company implemented a price increase in January 2004 and another in March 2004. Prospects for future price increases are favorable.

     The Company’s paperboard mill continued operational and marketing improvements and is now producing at 25% above its original design capacity. Profitability in aggregates improved in Fiscal 2004 as a result of the issues related to the closing of the Georgetown Quarry last year.

     The Company conducts two of its cement operations through joint ventures, Texas Lehigh Cement Company LP, which is located in Buda, Texas, and Illinois Cement Company, which is located in LaSalle, Illinois (the “Joint Ventures”). The Company owns a 50% interest in each joint venture and accounts for its interest under the equity method of accounting. However, for purposes of the Cement segment information presented, the Company proportionately consolidates its 50% share of the cement Joint Ventures’ revenues and

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operating earnings, which, consistent with FASB Statement 131, is the way management organizes the segments within the Company for making operating decisions and assessing performance. See Note F of the Notes to the Consolidated Financial Statements for additional segment information.

     The Balance Sheet is well positioned at March 31, 2004 with total debt of $82.9 million, slightly higher than last year. On January 28, 2004, the Company paid a $6 per share ($112.9 million) special dividend. On January 30, 2004, the Company and Centex completed a series of transactions that resulted in the Spin-off by Centex of its entire equity interest in the Company. As a result of the Spin-off, the Company is no longer affiliated with Centex.

Results of Operations

Fiscal Year 2004 Compared to Fiscal Year 2003

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

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

      ⁽¹⁾ Prior to Corporate General and Administrative expenses.

     Corporate General and Administrative expenses of $9.3 million increased $3.6 million from Fiscal 2003 due primarily to expenses related to the spin-off. Net interest expense of $3.8 million in Fiscal 2004 decreased $5.8 million from $9.6 million in Fiscal 2003 due to lower interest rates and reduced debt levels. As a result of the foregoing, pre-tax earnings of $102.1 million were 18% above Fiscal 2003 pre-tax earnings of $86.6 million. The Fiscal 2004 effective tax rate of 34.5%, up from 33.5% in Fiscal 2003, resulted in Fiscal 2004 net earnings of $66.9 million, a 16% increase from net earnings of $57.6 million in Fiscal 2003. Diluted earnings per share in Fiscal 2004 of $3.57 were 15% higher than the $3.11 for Fiscal 2003.

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     The following table compares sales volumes, average unit sales prices and unit operating margins for the Company’s operations by segment (see Note F of the Notes to the Consolidated Financial Statements):

      ⁽¹⁾ Total of wholly owned and proportionately consolidated 50% interest of Joint Ventures results.

      ⁽²⁾ As historically reported. Does not include freight and delivery costs billed to customers.

      ⁽³⁾ Operating margins represent operating earnings as reported in Note F of the Notes to the Consolidated Financial Statements divided by total sales volume.

      Cement. Cement revenues, which includes the combined results of EXP’s wholly owned cement operations and its 50% share of the two unconsolidated cement Joint Ventures, totaled $181.9 million for Fiscal 2004, up 5% from $173.2 from fiscal 2003. Operating earnings for the current fiscal year, which include the equity in earnings of unconsolidated Joint Ventures of $23.9 million, were $50.5 million, an 8% decrease from $54.7 million for Fiscal 2003. Lower net sales prices and increased manufacturing costs, partially offset by higher sales volume, accounted for the earnings decline. Sales volume of 2,518,000 tons for Fiscal 2004 was 7% above Fiscal 2003 sales volume of 2,361,000 tons due to increased sales volume in each of the Company’s markets due to a 4% increase in industry demand. Purchased cement sales volume of 219,400 tons was 38% greater than the prior fiscal year’s sales volume. Demand continues to be strong in all of the Company’s cement markets as Fiscal 2004 was another “sold out” year. The average cement net sales price of $66.02 per ton for Fiscal 2004 was 1% lower than $66.84 per ton for last fiscal year due to competitive price pressures in the Illinois and mountain states markets. Cost of sales of $45.98 per ton for Fiscal 2004 increased 5% over Fiscal 2003 due to higher maintenance, employee benefits and energy costs.

      Gypsum Wallboard. Gypsum Wallboard revenues of $272.9 million for the current fiscal year were 28% greater than last fiscal year’s revenues of $212.8 million due to increased sales volume. Operating earnings for Fiscal 2004 were $35.6 million, 31% greater than operating earnings of $27.2 million for Fiscal 2003. The earnings gain resulted from higher sales volume and lower cost of sales, partially offset by a slight decrease in sales prices. Sales volume of 2,437 million square feet (“MMSF”) for this fiscal year was 26% greater than 1,933 MMSF sold during Fiscal 2003. The sales volume increase resulted from record industry demand and the Company operating at a higher average utilization rate in Fiscal 2004 compared to Fiscal 2003. The Company’s Fiscal 2004 average net sales price of $86.97 per thousand square feet (“MSF”) decreased slightly from $87.12 per MSF for Fiscal 2003. Pricing increased from its low point of $79.00 per MSF at the end of Fiscal 2003 to approximately $97.00 per MSF at the end of Fiscal 2004. A 10% price increase was implemented mid-March 2004. Cost of sales of $72.36 per MSF was 1% below last year’s cost of sales of $73.05 per MSF due to the positive impact on fixed costs from the 36% increase in production volume, partially offset by higher natural gas and paper costs.

      Paperboard. For Fiscal 2004, Paperboard reported revenues (including sales to EXP’s Wallboard operations) of $112.4 million compared to $92.9 million for Fiscal 2003 and operating earnings of $20.9 million, up 19% from Fiscal 2003 operating earnings of $17.6 million. The revenue gain resulted mostly from increased sales volume to EXP’s Wallboard operations and higher average sales prices. The average net sales price of $416.71 per ton for Fiscal 2004 was up 2% from $408.44 per ton from Fiscal 2003 due to increased sales prices for non gypsum paper and greater percentage this year of higher priced gypsum paper sales to total sales. Paperboard sales volume was 264,000 tons, an increase of 17% from 225,000 tons from Fiscal 2003. The majority of the sales volume gain resulted from a 50% increase in sales volume to the Company’s wallboard operations. Fiscal 2004 cost of sales of $337.44 per ton increased 2% from Fiscal 2003 cost of sales. Higher energy and chemical costs were partially offset by the positive impact of increased production volume on fixed manufacturing costs.

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      Concrete and Aggregates. Revenues from Concrete and Aggregates were $63.1 million for Fiscal 2004, up 11% from $56.6 million for last fiscal year. Concrete and Aggregates reported Fiscal 2004 operating earnings of $6.0 million compared to a $268,000 operating loss in Fiscal 2003. The earnings improvement resulted from higher Concrete and Aggregates sales volume increased Aggregates sales prices and decreased Concrete and Aggregates cost of sales.

     Concrete operating earnings of $3.0 million increased 58% from Fiscal 2003 mainly due to increased sales volume and lower cost of sales. Concrete sales volume for Fiscal 2004 was 762,000 cubic yards, up 12% from last fiscal year with most of the sales volume gain at the Texas operation. The Company’s Fiscal 2004 average Concrete net sales price of $52.79 per cubic yard was 2% below $53.68 per cubic yard for last fiscal year due to pricing pressures in the Texas market. Cost of sales of $48.87 per cubic yard in Fiscal 2004 decreased 4% from $50.94 per cubic yard for last fiscal year due primarily to lower materials cost at the Texas operation.

     Aggregates operating earnings of $3.0 million for Fiscal 2004 improved from a $2.1 million loss in Fiscal 2003. The earnings gain was due to higher sales volume, increased sales prices, lower cost of sales and no Georgetown closing cost in Fiscal 2004. The Company’s Aggregates operation reported Fiscal 2004 sales volume of 4,228,000 tons, 2% above sales volume of 4,159,000 tons for last fiscal year due to increased west coast sales volume, partially offset by lower Texas sales volume. Aggregates net sales price of $5.24 per ton increased 16% from $4.51 per ton for last fiscal year due to higher sales price at the west coast operation and no low priced Georgetown sales volume this year. Cost of sales decreased 10% to $4.53 per ton due to lower production cost at the Texas operation and the $2.6 million cost last fiscal year from closing the Georgetown facility.

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

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

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

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

Fiscal Year 2003 Compared to Fiscal Year 2002

      Overview. Commercial construction, which is a significant component of the demand for the Company’s products, declined dramatically and remained at a depressed level in Fiscal 2003. A large portion of the decline related to the completion of pre-9/11 projects and the absence of projects to replace them. Infrastructure activity (road building) performed short of expectations. With highway construction funding softening, along with the downturn in commercial construction activity, U.S. cement consumption for calendar 2002 was 3% below calendar 2001 consumption.

     Although new housing and home repair activity was strong, the gypsum wallboard industry experienced a softening in wallboard demand in the latter part of calendar 2002. While the industry reported a 1.8% increase in calendar 2002 consumption over calendar 2001 consumption, cumulative production volume at the Company’s Gypsum Wallboard plants during Fiscal 2003 was 72% of its total capacity due to an “over capacity” situation in the gypsum wallboard industry. Although the Company implemented price increases during the fiscal year, the price increases completely eroded by the end of Fiscal 2003 as monthly wallboard consumption

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from August 2002 to November 2002 was below the same months’ consumption for the prior year. During May 2003, the Company implemented another price increase.

     In Austin, Texas, which is the Company’s primary concrete and aggregates market, the economy was affected by weakened economic conditions which negatively impacted concrete and aggregates demand and pricing in the Austin market. On September 3, 2002, the Company announced the closing of its aggregates facility in Georgetown, Texas (near Austin, Texas).

      Consolidated Results. Consolidated net revenues for Fiscal 2003 totaled $429.2 million, up 9% from $395.2 million for Fiscal 2002. Higher net sales prices in Gypsum Wallboard and Paperboard accounted for the majority of the revenue gain. Operating earnings of $101.9 million in Fiscal 2003 were up 29% from last fiscal year mainly due to a $22.6 million increase in Gypsum Wallboard operating earnings.

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

      ⁽¹⁾ Prior to Corporate General and Administrative expenses.

     Corporate General and Administrative expenses of $5.7 million in Fiscal 2003 were up 3% over Fiscal 2002. Net interest expense of $9.6 million in Fiscal 2003 decreased $4.1 million from Fiscal 2002 due to lower interest rates and reduced debt levels. As a result of the foregoing, pre-tax earnings of $86.6 million were 45% above Fiscal 2002 pre-tax earnings of $59.7 million. The Fiscal 2003 effective tax rate of 33.5%, the same rate as in Fiscal 2002, resulted in Fiscal 2003 net earnings of $57.6 million, a 45% increase from $39.7 million in Fiscal 2002. Diluted earnings per share in Fiscal 2003 of $3.11 were 45% higher than the $2.15 for Fiscal 2002.

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     The following table compares sales volumes, average unit sales prices and unit operating margins for the Company’s operations by segment (see Note F of the Notes to the Consolidated Financial Statements):

      ⁽¹⁾ Total of wholly owned and proportionately consolidated 50% interest of Joint Ventures results.

      ⁽²⁾ As historically reported. Does not include freight and delivery costs billed to customers.

      ⁽³⁾ Operating margins represent operating earnings as reported in Note F of the Notes to the Consolidated Financial Statements divided by sales volume.

      Cement. Cement revenues (both wholly owned and Joint Ventures) for Fiscal 2003 were $173.2 million, down 5% from $183.2 million for the prior fiscal year due to decreased sales volume and lower sales prices. Operating earnings of $54.7 million, which includes the equity in earnings of unconsolidated Joint Ventures of $25.1 million and $27.1 million, respectively, decreased 10% from $60.7 million in Fiscal 2002, which had been an all-time high, due to a 3% decrease in sales volume, an $0.85 ton sales price decline and a 2% increase in cost of sales. Cement sales volume of 2.36 million tons was 80,000 tons below Fiscal 2002 sales volume. The Company supplemented its Fiscal 2003 manufactured cement sales volume with 159,000 tons of purchased cement, down 98,000 tons from last fiscal year. All of the net sales volume decline came from purchased cement as all plants operated at their capacity and were “sold out.” EXP’s Fiscal 2003 average net sales price of $66.84 per ton was 1% below Fiscal 2002 as lower pricing in the northern California and Texas markets was partially offset by higher pricing in the Company’s other markets. Cost of sales of $43.67 per ton increased $0.83 per ton over Fiscal 2002 due to higher maintenance and energy costs.

      Gypsum Wallboard. Gypsum Wallboard revenues of $212.8 million increased 16% from Fiscal 2002 revenues. Higher average sales prices resulted in the revenue gain. Operating earnings totaled $27.2 million in Fiscal 2003, up 486% from $4.6 million in Fiscal 2002. Increased sales prices, partially offset by a $2.49 per MSF increase in cost of sales, resulted in the earnings gain. Sales volume of 1,933 million square feet (“MMSF”) in Fiscal 2003 was level with Fiscal 2002 sales volume. The Company’s wallboard plants ran at approximately 72% of total annual capacity during Fiscal 2003 and 70% in Fiscal 2002. Excess production capacity negatively impacted industry utilization rates. U.S. wallboard consumption was 30.7 billion square feet in calendar 2002, the second highest level on record, up 1.8% from calendar 2001 consumption. Gypsum Wallboard’s Fiscal 2003 average net sales price of $87.12 per thousand square feet (“MSF”) increased 19% from Fiscal 2002’s net sales price. Fiscal 2003 cost of sales of $73.06 per MSF increased 4% from last fiscal year’s cost of sales due mostly to higher energy, paper and labor costs.

      Paperboard. For Fiscal 2003, Paperboard reported revenues of $92.9 million and operating earnings of $17.6 million compared to revenues of $84.3 million and operating earnings of $10.0 million for Fiscal 2002. The operating earnings gain resulted from the combination of increased sales volume, higher sales prices and a 6% decrease in cost of sales. Included in Fiscal 2002’s operating earnings is a $2.3 million loss associated with the closing of the Denver mill in Fiscal 2002’s first quarter. Paperboard sales volume of 225,000 tons for Fiscal 2003 was 7% greater than the prior fiscal year’s sales volume due mostly to the sale in Fiscal 2003 of an additional 10,000 tons of lower priced non-gypsum paper. The average net sales price of $408.44 per ton for Fiscal 2003 increased 3% from the prior year’s average sales price of $398.13 per ton due to higher sales prices for all grades of paper. Cost of sales of $330.16 per ton during Fiscal 2003 was $20.48 per ton lower than Fiscal 2002 cost of sales due to decreased maintenance and chemical costs.

      Concrete and Aggregates . Revenues from Concrete and Aggregates were $56.6 million in Fiscal 2003, down 2% from $57.6 million in Fiscal 2002. The revenue decline resulted mostly from lower Concrete sales prices. The Austin, Texas market, which is the Company’s largest concrete market, was negatively

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impacted by a depressed local economy. Fiscal 2003’s operating loss of $268,000 declined 106% from operating earnings of $4.4 million in Fiscal 2002 mainly due to costs associated with the closing of the Georgetown quarry and lower Concrete and Aggregates operating margins.

     Concrete operating earnings of $1.9 million were 25% below Fiscal 2002 operating earnings due to a 4% decrease in sales prices, partially offset by a 3% decline in cost of sales. Concrete sales volume of 681,000 cubic yards in Fiscal 2003 was 8,000 cubic yards above Fiscal 2002 sales volume. Fiscal 2003’s concrete net sales price of $53.68 per cubic yard was 4% lower than $55.93 per cubic yard in Fiscal 2002 due to slow demand in the Austin, Texas market. Cost of sales of $50.94 per cubic yard decreased 3% from Fiscal 2002 due to decreased materials costs at the Texas operation.

     Aggregates reported a Fiscal 2003 operating loss of $2.1 million compared to a $1.9 million operating profit in Fiscal 2002. The earnings decline resulted from increased cost of sales along with costs associated with the closing of the Georgetown quarry. On September 3, 2002, the Company closed its aggregates quarry and processing plant in Georgetown, Texas. The decision to cease operations was due primarily to excessive manufacturing costs as well as to soft local market conditions. A portion of the plant and equipment was deployed at the Company’s other mining operations with the remainder to be sold. The amount written off during the second quarter of Fiscal 2003 from the closing was $2.6 million. Fiscal 2003 Aggregates sales volume of 4,159,000 tons was 3% below Fiscal 2002 due to a partial year of sales volume in Fiscal 2003 from the Georgetown operation. The average net sales price of $4.51 per ton for Fiscal 2003 was 4% higher than Fiscal 2002 due to the combination of less lower-priced Georgetown sales volume and higher sales prices at all other locations. Cost of sales (excluding Georgetown closure costs) increased 7% to $3.88 per ton in Fiscal 2003 due mostly to excessive Georgetown production cost prior to its closing.

      Other Income. Fiscal 2003 other income of $2.6 million compares to a $0.8 million loss in Fiscal 2002. Included in the Fiscal 2002 loss is $0.6 million from recycled fiber collection center losses and $0.6 million of expenses related to the early retirement of subordinated debt. Other income consists of a variety of items that are non-segment operating in nature and includes clinker sales income, non-inventoried aggregates income, gypsum wallboard distribution center income, recycled fiber collection centers losses, trucking income, asset sales and other miscellaneous income and cost items.

      Net Interest Expense. Net interest expense of $9.6 million in Fiscal 2003 declined from $13.8 million in Fiscal 2002 due to declining debt balances and lower borrowing costs. Included in last fiscal year’s net interest expense is $2.5 million of interest income relating to a note receivable that was collected during Fiscal 2002’s third quarter. Included in Fiscal 2003’s net interest expense is $0.9 million of cost associated with the early termination of one of the Company’s interest rate swap agreements and the partial termination of the remaining interest rate swap agreement.

      Income Taxes. The effective tax rate for Fiscal 2003 and 2002 was 33.5%.

Critical Accounting Policies

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

      Impairment of Long-Lived Assets. The Company assesses long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. These evaluations for impairment are

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significantly impacted by estimates of revenues, costs and expenses and other factors. If these assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

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

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

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

Liquidity and Capital Resources

     The Company funds the growth of its business through internal generation of cash flow from operations and from bank borrowings, when needed. Liquidity is not currently dependent on the use of off-balance sheet transactions. The Company currently believes that cash on hand, cash provided by operations and funds available under its two credit facilities should be sufficient to cover working capital needs, capital expenditures, dividends and debt service requirements for the next twelve months.

     The Company had paid off its debt during the third quarter of Fiscal 2004. On January 29, 2004, the Company paid a $6.00 special dividend (approximately $112.9 million) funded with $92.0 million of borrowings by the Company under a new bank credit agreement and cash on hand.

     On March 25, 2003, pursuant to the Second Amended and Restated Credit Agreement, the Company amended its then existing credit facility to reduce the facility amount from $175.0 million to $155.0 million, modify certain financial and other covenants and extend the maturity date three years (the “Amended Credit Facility”). The principal balance of the Amended Credit Facility was paid off and terminated on December 18, 2003 and replaced with a new $250.0 million credit facility (the “New Credit Facility”). The principal balance of the New Credit Facility matures on December 18, 2006. At March 31, 2004, the Company had $58.7 million borrowings outstanding under the New Credit Facility. The borrowings under the New Credit Facility are guaranteed by all major operating subsidiaries of the Company. At the option of the Company, outstanding principal amounts on the New Credit Facility bear interest at a variable rate equal to: (i) LIBOR, plus an agreed margin (ranging from 125 to 200 basis points),

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which is to be established quarterly based upon the Company’s ratio of consolidated EBITDA to its consolidated indebtedness; or (ii) an alternate base rate which is the higher of (a) the prime rate or (b) the federal funds rate plus 1/2% per annum, plus an agreed margin (ranging from 25 to 100 basis points). Interest payments are payable monthly or at the end the LIBOR advance periods, which can be up to a period of six months at the option of the Company. Under the New Credit Facility, the Company is required to adhere to a number of financial and other covenants, including covenants relating to the Company’s interest coverage ratio, consolidated funded indebtedness ratio and minimum tangible net worth. The Company had a total of $185.1 million of borrowings available at March 31, 2004 under this facility.

     During August 2003, the Company paid off the $510,000 balance remaining under the senior subordinated notes (the “Notes”) that was assumed as part of certain assets purchased on November 10, 2000.

     On June 29, 2001, the Company entered into a $50.0 million trade receivables securitization facility (the “Receivables Securitization Facility”), which was funded through the issuance of commercial paper and backed by a 364-day committed bank liquidity arrangement. The Receivables Securitization Facility had a termination date of June 10, 2004, subject to a 364-day bank commitment that was renewed on June 28, 2002 for another 364-day period terminating on June 28, 2003. The Company did not renew the facility for the third year and paid off the Receivables Securitization Facility on June 27, 2003.

     On February 20, 2004, the Company entered into a new $50.0 million trade receivables securitization facility (the “New Receivables Securitization Facility”), which was funded through the issuance of commercial paper and backed by a 364-day committed bank liquidity arrangement. The New Receivables Securitization Facility has a termination date of February 20, 2007, subject to a 364-day bank commitment. The purpose of the New Receivables Securitization Facility is to obtain financing at an interest rate lower than the New Credit Facility interest rate by pledging accounts receivable. The New Receivables Securitization Facility has been fully consolidated on the consolidated balance sheet. Subsidiary company receivables are sold on a revolving basis first to the Company and then to a wholly-owned special purpose bankruptcy remote entity of the Company. This entity pledges the receivables as security for advances under the facility. Initially, the borrowed funds are used to pay down borrowings under the New Credit Facility. Outstanding principal amounts under the New Receivables Securitization Facility bear interest at the commercial paper rate plus a facility fee. Under the New Receivables Securitization Facility, the Company is required to adhere to certain financial and other covenants that are similar to those in the New Credit Facility. The Company had $24.1 million of borrowings outstanding at March 31, 2004 under the New Receivables Securitization Facility.

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

     The Company previously entered into an interest rate swap agreement which had the effect of converting a portion of the Company’s debt from a variable rate of interest to a fixed rate of interest. The agreement expired on August 30, 2003. The Company currently is not a party to any interest rate swap or other arrangement that provides protection against increases in interest rates, and accordingly expects that it would incur higher interest expense in the event of an increase in the floating rate interest rates applicable to borrowings under the New Credit Facility.

     The Company does not have any off balance sheet debt except for operating leases (see Note G of the Notes to the Consolidated Financial Statements). Other than the New Receivables Securitization Facility, the Company does not have any other transactions, arrangements or relationships with “special purpose” entities. Also, the Company has no outstanding debt guarantees. The Company has available under the New Credit Facility a $25.0 million Letter of Credit Facility. At March 31, 2004, the Company had $6.2 million of letters

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of credit outstanding that renew annually. Also, the Company is contingently liable for performance under $5.5 million in performance bonds relating primarily to its mining operations.

     In October 2003, the Company’s Board of Directors approved an increase in its annual cash dividend from $0.20 per share to $1.20 per share (representing an increase in the regular quarterly cash dividend from $0.05 to $0.30 per share), upon the completion of the spin-off of the Company shares by Centex on January 30, 2004. The increased cash dividend became effective for the first quarterly cash dividend following the January 30, 2004 spin-off. The annual dividend amount increased from approximately $3.7 million to approximately $22.7 million.

     The Company historically has financed routine capital expenditures and expansion projects with cash from operations and borrowing under its revolving credit facilities. The Fiscal 2005 capital expenditures budget is estimated currently at $25.0 million, an increase of $12.5 million over Fiscal 2004.

     Based on its financial condition at March 31, 2004, along with the prospects of higher net earnings in Fiscal 2005, the Company believes that its internally generated cash flow coupled with funds available under various credit facilities will enable it to provide adequately for its current operations, dividends, capital expenditures and future growth. The Company was in compliance at March 31, 2004 and during the twelve months ended March 31, 2004 with all the terms and covenants of its credit agreements and expects to be in compliance during the next twelve months.

     Working capital at March 31, 2004 was $12.6 million compared to $7.3 million at March 31, 2003. The increase resulted from a $12.1 million increase in accounts and notes receivable, a $1.2 million decline in notes payable, a $4.5 million increase in accounts payable and accrued liabilities netted against a $3.3 million decrease in cash.

     Cash and cash equivalents decreased $3.3 million from March 31, 2003 to $3.5 million at March 31, 2004. The net cash provided by or used in the operating, investing, and financing activities for the fiscal years ended March 31, 2004 and 2003 is summarized below:

     Net cash provided by operating activities was $112.7 million in Fiscal 2004 compared to $117.9 million in Fiscal 2003. The $5.2 million decrease in operating cash flows resulted from a $19.9 million negative year-to-year swing in accounts receivable due to increased Fiscal 2004 sales volume and $6.9 million decrease in deferred taxes, partially offset by increased earnings, a $4.0 million change in year-to-year inventory levels and a $11.1 million swing in accounts payable and accrued liabilities. The decline in deferred taxes is due to the lower tax depreciation. Inventory change was level in Fiscal 2004 compared to a $3.8 million increase in Fiscal 2003.

     Net cash used in investing activities in Fiscal 2004 totaled $11.7 million compared to $8.5 million in Fiscal 2003. Spending for property, plant and equipment of approximately $12.0 million in both years consisted primarily of funding normal sustaining capital projects to help the Company to maintain its low cost position in each of its lines of business. Also, in Fiscal 2003, the Company sold $3.4 million of surplus equipment from the shut-down Georgetown aggregates plant and the three recycled paper centers acquired with the Lawton Mill.

     Net cash consumed by financing activities was $104.3 million in Fiscal 2004 compared to $107.6 million in Fiscal 2003. Cash used in financing activities during Fiscal 2004 was primarily for the payment of

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the $6.00 per share one-time dividend to stockholders, partially offset by increased stock option exercises and fewer stock repurchases. Cash, used in financing activities in Fiscal 2003 was primarily for the repayment of the Company’s revolving credit facility along with the repurchase of 223,384 shares of the Company’s common stock.

     Total debt was reduced from $80.9 million at March 31, 2003 to $160,000 at December 31, 2003. On January 29, 2004, the Company borrowed $92.0 million to fund a substantial portion of the $6.00 per share special dividend ($112.9 million total). Total debt at March 31, 2004, was $82.9 million. Debt-to-Capitalization at March 31, 2004 was 15.9% compared to 14.4% at March 31, 2003.

     In Fiscal 2004, the Company utilized its regular and alternative minimum tax carryovers from Fiscal 2002. The Company has approximately $4 million of alternative minimum tax credits available to offset the excess of its regular over federal and state alternative minimum tax liability in future years.

Contractual Obligations

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

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

     Based on our current estimates, contributions to the Company’s defined benefit plans will be approximately $0.6 million for the next fiscal year.

Stock Repurchase Program

     The Company’s Board of Directors has approved a cumulative total of 6,101,430 shares for repurchase. There are approximately 461,400 shares remaining under the Company’s current repurchase authorization. The Company repurchased 58,500 shares of Class B Common Stock at a cost of $3.1 million during Fiscal 2004 and 223,384 shares of Common Stock at a cost of $8.1 million in Fiscal 2003. See Item 5C – “Purchase of Equity Securities.”

Inflation and Changing Prices

     Inflation has become less of a factor in the U.S. economy as the rate of increase has moderated during the last several years. The Consumer Price Index rose approximately 2.3% in calendar 2003, 2.4% in 2002, and 1.6% in 2001. Prices of materials and services, with the exception of power, energy and transportation freight, have remained relatively stable over the three-year period. Strict cost control and improving productivity also minimize the impact of inflation. The ability to recover increasing costs by obtaining higher sales prices varies with the level of activity in the construction industry, the number, size, and strength of competitors and the availability of products to supply a local market.

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General Outlook

     Cement demand in calendar 2004 is expected to remain strong. The U.S. Cement industry is anticipating a tight supply of imported cement due to higher freight rates and increasing consumption in world markets. Price increases of $3 to $5 per ton were implemented in all of EXP’s markets on April 1, 2004, except Texas, where a $4 per ton price increase in January 2004 has substantially held.

     Gypsum wallboard demand continues to remain high and supply tight due to favorable levels of activity in residential and repair/remodel construction. The 10% price increase implemented in mid-March 2004 substantially held and another price increase was implemented in late May 2004.

     However, costs are expected to be negatively impacted in Fiscal 2005 due to increased natural gas, coal, power, freight and employee benefit costs.

Recent Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recognition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. The Company adopted SFAS No. 143 in the first quarter of Fiscal 2004, and the adoption of SFAS No. 143 did not have a material impact on the Company’s financial position or results of operations. The Company will incur additional depreciation expense over the estimated useful life of the asset and accretion expense to accrete the discounted value of the retirement obligation.

     In July 2002, the Financial Accounting Standards Board issued SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The principal difference between SFAS No. 146 and EITF Issue No. 94-3 relates to SFAS No. 146’s requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date an entity committed to an exit plan. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this standard did not have a material impact on the consolidated financial statements of the Company.

     In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires a guarantor to recognize a liability for the fair value of the obligation at the inception of the guarantee. The disclosure requirements of FIN 45, which are already effective, are disclosed in Note G - “Commitments and Contingencies,” while the recognition provisions will be applied on a prospective basis to guarantees issued after December 31, 2002. As of April 1, 2003 the Company adopted FIN 45 and it did not have a material effect on our consolidated financial statements.

     In January 2003, the Financial Accounting Standard Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” which requires the consolidation of certain entities that are determined to be variable interest entities (“VIE’s”). An entity is considered to be a VIE when either (i) the entity lacks sufficient equity to carry on its principal operations, (ii) the equity owners of the entity cannot make decisions about the entity’s activities or (iii) the entity’s equity neither absorbs losses or benefits from gains. For VIEs created subsequent to January 31, 2003, the provisions of FIN 46 must be applied immediately. For VIEs created prior to that date, the adoption of FIN 46 is required for all reporting periods subsequent to December 15, 2003. The Company has determined that the adoption of FIN 46 did not have a material impact on our consolidated financial statements.

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     In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148 “Accounting for Stock Based Compensation – Transition and Disclosure.” SFAS No. 148 provides for expanded disclosure concerning stock-based compensation, including disclosures in interim financial statements, and amends SFAS No. 123. SFAS No. 148’s transition guidance and provisions for annual disclosures are effective for fiscal years ended after December 15, 2002. As of March 31, 2003, the Company adopted the disclosure requirements of SFAS No. 148.

     In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Certain provisions of this Statement are effective for financial instruments entered into or modified after May 31, 2003. In October 2003, FASB deferred indefinitely certain provisions of this Statement pertaining to limited life subsidiaries. The implementation of the provisions of SFAS No. 150, which are now effective, did not have an impact on the Company’s results of operations or financial position.

Forward-Looking Statements

     Certain sections of this 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 the Company’s products is directly related to the level of activity in the construction industry, which includes residential, commercial and infrastructure construction. 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 could have a material adverse effect on the Company’s financial condition and results of operations.

•

Interest rates. The Company’s business is significantly affected by the movement of interest rates. The level of residential, commercial and infrastructure construction activity is directly related to the level of interest rates. 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 expenses related to the Company’s borrowings under its credit facilities.

•

Price fluctuations and supply demand for our products. The products sold by the Company are commodities and competition among manufacturers is based largely on price. 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 the Company’s control. Increases in the production capacity for products such as gypsum wallboard may create an oversupply of such products and negatively impact product prices. There can be no assurance that prices for products sold by the Company will not decline in the future or that such declines will not have a material adverse effect on the Company’s financial condition and results of operations.

•

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 the Company’s business or substantial increases in their availability could materially and adversely affect the Company’s sales and operating profits. A major cost component in each of the Company’s businesses is the cost of fuel, energy and raw materials. Prices for fuel, energy or raw materials used in connection with the Company’s business could change significantly in a short period of time for

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reasons outside the Company’s control. In the event of large or rapid increases in prices, the Company may not be able to pass the increases through to its customers in full, which would reduce the Company’s operating margin.

•

National and regional economic conditions. A majority of the Company’s 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, the Company’s business is subject to the economic conditions in each such geographic market. General and economic downturns or localized downturns in the regions where the Company has 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 the Company’s business, financial condition and results of operations.

•

The seasonal nature of the Company’s business. A majority of the Company’s business is seasonal with peak revenues and profits occurring primarily in the months of April through November. 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.

•

Unfavorable weather conditions during peak construction periods and other unexpected operational difficulties. Because a majority of the Company’s business is seasonal, bad 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 the Company’s results of operations for the full year.

•

Competition from new or existing competitors or the ability to successfully penetrate new markets. The construction products industry is highly competitive. If the Company is unable to keep its products competitively priced, its sales could be reduced materially. Also, the Company 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 the Company at a disadvantage and cause it to lose customers and sales volume. The Company’s failure to continue to compete effectively could have a material adverse effect on the Company’s business, financial condition and results of operations.

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Environmental liabilities. The Company’s operations are subject to state, federal and local environmental laws and regulations, which impose liability for cleanup or remediation of environmental pollution and hazardous waste arising from past acts; and require pollution control and prevention, site restoration and operating permits and/or approvals to conduct certain of its operations. Certain of the Company’s 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 is inherent in the operation of the Company’s business. As a result, it is possible that environmental liabilities could have a material adverse effect on the Company in the future.

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Compliance with governmental regulations. The operations of the Company and its customers are subject to and affected by federal, state and local laws and regulations with respect to such matters and land usage, street and highway usage, noise level and health and safety and environmental matters. In many instances, various permits are required for construction and related operations. Although management believes that the Company is 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 its products will be affected by regulatory issues affecting its customers.

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The Company’s ability to successfully identify, complete and efficiently integrate acquisitions. Integrating acquired businesses requires a significant amount of management time and skill and may

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place significant demands on the Company’s operations and financial resources. The Company may not be able to successfully integrate acquired businesses into its operations, which could have a material effect on its business and results of operations. If the Company is unable to achieve the anticipated synergies from an acquisition, the costs of such an acquisition could exceed the net income the Company derives from the acquired operations.

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Events that may disrupt the U.S. or world economy. Future terrorist attacks, 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 the Company’s business.

     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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Information

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