##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 20-F



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|           |  |                                                                                                       
|---------- |  | ------------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                       
|          
|o          |  | REGISTRATION STATEMENT PURSUANT TO
    SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
    1934
|          
|or        
|          
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934              
|          
|           |  | For the fiscal year ended March 31,
    2004                                                          
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          
|          
|           |  | For the transition period
    from           to                                                       

Commission file number 1-15240

James Hardie Industries N.V.

(Exact name of Registrant as specified in its
charter)


N/A

(Translation of Registrants name into
English)


The Netherlands

(Jurisdiction of incorporation or
organization)


4th Level, Atrium,
unit 04-07

Strawinskylaan 3077


1077 ZX Amsterdam, The
Netherlands


(Address of principal executive
offices)


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

|                                                                                                  |  |                                           
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------
|Title of Each Class:                                                                              |  | Name of Each Exchange on Which Registered:
|                                                                                                  |  |                                           
|Common stock, represented by CHESS Units of
    Foreign Securities                                |  | New York Stock Exchange*                  
|CHESS Units of Foreign
    Securities                                                             |  | New York Stock Exchange*                  
|American Depositary Shares,
    each representing five units of CHESS Units of Foreign Securities |  | New York Stock Exchange                   



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|  |                                                                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Listed, not for trading, but only in connection
    with the registered American Depositary Shares, pursuant to the
    requirements of the Securities and Exchange Commission

Securities registered or to be registered
pursuant to Section 12(g) of the Act.

None.


Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act.

None.


Indicate
the number of outstanding shares of each of the issuers
classes of capital or common stock as of the close of the period
covered by the annual report: 458,558,436 shares of common
stock at March 31, 2004.

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

Indicate
by check mark which financial statement item the registrant has
elected to
follow.     o Item 17          þ Item 18



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TABLE OF CONTENTS

|             |  |                                                                                  |  |                                |     |  |    | 
|------------ |  | -------------------------------------------------------------------------------- |  | ------------------------------ | --- |  | -- | 
|             |  |                                                                                  |  | Page                          
|             |  |                                                                                  |  |                               
|PART I      
|Item 1       |  | Identity of Directors,
    Senior Management and Advisers                        |  |                                | 2   | 
|Item 2       |  | Offer Statistics and
    Expected Timetable                                      |  |                                | 2   | 
|Item 3       |  | Key Information                                                                  |  |                                | 2   | 
|             |  |                                                                                  |  | Selected Financial Data        |     |  | 2  | 
|             |  |                                                                                  |  | Risk Factors                   |     |  | 5  | 
|             |  |                                                                                  |  | Forward-Looking
    Statements |     |  | 16 | 
|Item 4       |  | Information on the
    Company                                                   |  |                                | 16  | 
|Item 5       |  | Operating and Financial
    Review and Prospects                                 |  |                                | 38  | 
|Item 6       |  | Directors, Senior Management
    and Employees                                   |  |                                | 58  | 
|Item 7       |  | Major Shareholders and
    Related Party Transactions                            |  |                                | 80  | 
|Item 8       |  | Financial Information                                                            |  |                                | 83  | 
|Item 9       |  | Listing Details                                                                  |  |                                | 83  | 
|Item 10      |  | Additional Information                                                           |  |                                | 86  | 
|Item 11      |  | Quantitative and Qualitative
    Disclosures About Market Risk                   |  |                                | 100 | 
|Item 12      |  | Description of Securities
    Other Than Equity Securities                       |  |                                | 102 | 
|PART II     
|Item 13      |  | Defaults, Dividend
    Arrearages and Delinquencies                              |  |                                | 103 | 
|Item 14      |  | Material Modifications to
    the Rights of Security Holders and Use of Proceeds |  |                                | 103 | 
|Item 15      |  | Controls and Procedures                                                          |  |                                | 103 | 
|Item 16A     |  | Audit Committee Financial
    Expert                                             |  |                                | 103 | 
|Item 16B     |  | Code of Ethics                                                                   |  |                                | 103 | 
|Item 16C     |  | Principal Accountant Fees
    and Services                                       |  |                                | 103 | 
|Item 16D     |  | Exemptions from the Listing
    Standards for Audit Committees                   |  |                                | 104 | 
|Item 16E     |  | Purchases of Equity
    Securities by the Issuer and Affiliated Purchasers       |  |                                | 104 | 
|PART III    
|Item 18      |  | Financial Statements                                                             |  |                                | 104 | 
|Item 19      |  | Exhibits                                                                         |  |                                | 104 | 
|EXHIBIT 1.1 
|EXHIBIT 2.18
|EXHIBIT 2.19
|EXHIBIT 2.20
|EXHIBIT 4.6 
|EXHIBIT 4.7 
|EXHIBIT 4.8 
|EXHIBIT 4.9 
|EXHIBIT 4.11
|EXHIBIT 4.12
|EXHIBIT 4.13
|EXHIBIT 4.14
|EXHIBIT 4.15
|EXHIBIT 4.16
|EXHIBIT 4.20
|EXHIBIT 4.21
|EXHIBIT 4.22
|EXHIBIT 4.23
|EXHIBIT 4.24
|EXHIBIT 4.25
|EXHIBIT 8.1 
|EXHIBIT 10.1
|EXHIBIT 12.1
|EXHIBIT 12.2
|EXHIBIT 13.1



1



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##### Table of Contents






PART I






|        |                                                          
|------- | ---------------------------------------------------------
|Item 1. | Identity of Directors, Senior Management
    and Advisers

Not Required






|        |                                            
|------- | -------------------------------------------
|Item 2. | Offer Statistics and Expected
    Timetable

Not Applicable






|        |                
|------- | ---------------
|Item 3. | Key Information

In this annual report, unless the context
otherwise indicates, James Hardie Industries N.V., a
naamloze vennootschap, or a Dutch public limited
liability company incorporated under the laws of The
Netherlands, is referred to as JHI NV. JHI NV and
its subsidiaries are collectively referred to as we,
us, our, JHI NV and its
subsidiaries, the Company or
company, James Hardie or the James
Hardie Group.

The term fiscal year refers to our
fiscal year ended March 31 of such year, the term
dollars or $ refers to
U.S. dollars, the term A$ refers to Australian
dollars, the term NZ$ refers to New Zealand dollars,
the term PHP refers to Philippine pesos and the term
CLP refers to Chilean pesos. The term
msf refers to thousands of square feet and the term
mmsf refers to millions of square feet, where a
square foot is defined as a standard square foot of 5/16
thickness.

As a company incorporated under the laws of
The Netherlands, JHI NV has listed its securities for trading on
the Australian Stock Exchange (ASX) through the use
of the Clearing House Electronic Subregister System
(CHESS) Units of Foreign Securities
(CUFS). CUFS are a form of depositary security that
represents a beneficial ownership interest in the securities of
a non-Australian corporation. Each of our CUFS represents the
beneficial ownership of one share of common stock of JHI NV, the
legal ownership of which is held by CHESS Depositary Nominees
Pty Ltd. The CUFS are listed and traded on the ASX under the
symbol JHX.

The Company has also listed its securities for
trading on the New York Stock Exchange (NYSE). The
Company sponsors a program, whereby beneficial ownership of five
CUFS is represented by one American Depositary Share
(ADS), which is issued by The Bank of New York.
These ADSs trade on the NYSE in the form of American Depositary
Receipts (ADRs) under the symbol JHX.
Unless the context indicates otherwise, when we refer to ADRs,
we are referring to ADRs or ADSs depending on the context and
when we refer to our common stock we are referring
to the shares of our common stock that are represented by
CUFS.




Selected Financial Data

We have included in Item 18 of this annual
report the audited consolidated financial statements of
JHI NV, consisting of our consolidated balance sheets and
consolidated statements of changes in shareholders equity
as of March 31, 2004 and March 31, 2003, and our
consolidated statements of income and cash flows for the years
ended March 31, 2004, 2003 and 2002, together with the
related notes. For periods prior to October 19, 2001, the
effective date of our corporate restructuring (see Item 4
Information on the Company  History and
Development of the Company  Corporate
Restructuring), the consolidated financial statements
represent the financial position, results of operations and cash
flows of ABN 60 000 009 263 Pty Ltd
(ABN 60), which was formerly known as James
Hardie Industries Limited (JHIL) and its wholly
owned subsidiaries. For periods after October 19, 2001, our
consolidated financial statements represent the financial
position, results of operations and cash flows of JHI NV
and its wholly owned subsidiaries.

The consolidated financial statements included in
this annual report have been prepared in accordance with
accounting principles generally accepted in the United States,
or U.S. GAAP.

2



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##### Table of Contents



The selected consolidated financial information
summarized below has been derived in part from JHI NVs
financial statements. You should read the selected consolidated
financial information in conjunction with JHI NVs
financial statements and related notes contained in Item 18
and under the section entitled Operating and Financial
Review and Prospects contained in Item 5. Such
historic financial data is not necessarily indicative of our
future results and you should not unduly rely on it.

|                                                                 |                              |                                                               |       |       |       |      |        |       |       |      |       |       |       |   |        |       |       |   |       |       |       | 
|---------------------------------------------------------------- | ---------------------------- | ------------------------------------------------------------- | ----- | ----- | ----- | ---- | ------ | ----- | ----- | ---- | ----- | ----- | ----- | - | ------ | ----- | ----- | - | ----- | ----- | ----- | 
|                                                                 |                              |                                                              
|                                                                 |                              | Fiscal Years Ended March 31,                                 
|                                                                 |                              |                                                              
|                                                                 |                              | 2004                                                          |       | 2003  |       | 2002 |        | 2001  |       | 2000
|                                                                 |                              |                                                               |       |       |       |      |        |       |       |     
|                                                                 |                              |                                                              
|                                                                 |                              | (In millions, except sales price per unit and per share data)
|Consolidated Statements of Income
    Data:                      |                              |                                                               |       |       |       |      |        |       |       |      |       |       |       |   |        |       |       |   |       |      
|Net Sales                                                        |                              |                                                               |       |       |       |      |        |       |       |      |       |       |       |   |        |       |       |   |       |      
|                                                                 | USA Fiber Cement             |                                                               | $     | 738.6 |       |      | $      | 599.7 |       |      | $     | 444.8 |       |   | $      | 373.0 |       |   | $     | 310.5 |      
|                                                                 | Asia Pacific Fiber Cement(1) |                                                               |       | 219.8 |       |      |        | 174.3 |       |      |       | 141.7 |       |   |        | 152.0 |       |   |       | 185.5 |      
|                                                                 | Other(2)                     |                                                               |       | 23.5  |       |      |        | 9.6   |       |      |       | 5.2   |       |   |        | 1.3   |       |   |       | 2.0   |      
|                                                                 |                              |                                                               |       |       |       |      |        |       |       |      |       |       |       |   |        |       |       |   |       |      
|                                                                 |                              | Total net sales                                               |       | $     | 981.9 |      |        | $     | 783.6 |      |       | $     | 591.7 |   |        | $     | 526.3 |   |       | $     | 498.0 | 
|                                                                 |                              |                                                               |       |       |       |      |        |       |       |      |       |       |       |   |        |       |       |   |       |      
|Operating income(3)                                              |                              | $                                                             | 172.2 |       |       | $    | 128.8  |       |       | $    | 46.8  |       |       | $ | 40.5   |       |       | $ | 58.8  |      
|Interest expense                                                 |                              |                                                               | (11.2 | )     |       |      | (23.8  | )     |       |      | (18.4 | )     |       |   | (21.4  | )     |       |   | (25.9 | )    
|Interest income                                                  |                              |                                                               | 1.2   |       |       |      | 3.9    |       |       |      | 2.4   |       |       |   | 8.2    |       |       |   | 5.4   |      
|Other income (expense), net(4)                                   |                              |                                                               | 3.5   |       |       |      | 0.7    |       |       |      | (0.4  | )     |       |   | 1.6    |       |       |   | (1.6  | )    
|                                                                 |                              |                                                               |       |       |       |      |        |       |       |      |       |       |       |   |        |       |       |   |       |      
|Income from continuing operations before income
    taxes        |                              |                                                               | 165.7 |       |       |      | 109.6  |       |       |      | 30.4  |       |       |   | 28.9   |       |       |   | 36.7  |      
|Income tax (expense) benefit                                     |                              |                                                               | (40.4 | )     |       |      | (26.1  | )     |       |      | (3.1  | )     |       |   | 0.6    |       |       |   | (13.0 | )    
|                                                                 |                              |                                                               |       |       |       |      |        |       |       |      |       |       |       |   |        |       |       |   |       |      
|Income from continuing operations                                |                              | $                                                             | 125.3 |       |       | $    | 83.5   |       |       | $    | 27.3  |       |       | $ | 29.5   |       |       | $ | 23.7  |      
|                                                                 |                              |                                                               |       |       |       |      |        |       |       |      |       |       |       |   |        |       |       |   |       |      
|Net income                                                       |                              | $                                                             | 129.6 |       |       | $    | 170.5  |       |       | $    | 30.8  |       |       | $ | 38.6   |       |       | $ | 118.1 |      
|                                                                 |                              |                                                               |       |       |       |      |        |       |       |      |       |       |       |   |        |       |       |   |       |      
|Income from continuing operations per common
    share  basic   |                              | $                                                             | 0.27  |       |       | $    | 0.18   |       |       | $    | 0.06  |       |       | $ | 0.07   |       |       | $ | 0.06  |      
|Net income per common share  basic                              |                              |                                                               | 0.28  |       |       |      | 0.37   |       |       |      | 0.07  |       |       |   | 0.09   |       |       |   | 0.29  |      
|Income from continuing operations per common
    share  diluted |                              |                                                               | 0.27  |       |       |      | 0.18   |       |       |      | 0.06  |       |       |   | 0.07   |       |       |   | 0.06  |      
|Net income per common share  diluted                            |                              |                                                               | 0.28  |       |       |      | 0.37   |       |       |      | 0.07  |       |       |   | 0.09   |       |       |   | 0.29  |      
|Dividends paid per share                                         |                              |                                                               | 0.05  |       |       |      | 0.08   |       |       |      | 0.05  |       |       |   | 0.10   |       |       |   | 0.10  |      
|Return of capital per share                                      |                              | $                                                             | 0.15  |       |       | $    | 0.20   |       |       | $    | 0.05  |       |       | $ |       |       |       | $ |      |      
|Weighted average number of common shares
    outstanding         |                              |                                                               |       |       |       |      |        |       |       |      |       |       |       |   |        |       |       |   |       |      
|                                                                 | Basic                        |                                                               |       | 458.1 |       |      |        | 456.7 |       |      |       | 438.4 |       |   |        | 409.6 |       |   |       | 407.0 |      
|                                                                 | Diluted                      |                                                               |       | 461.4 |       |      |        | 459.4 |       |      |       | 440.4 |       |   |        | 409.6 |       |   |       | 407.0 |      
|Consolidated Cash Flow Information:                              |                              |                                                               |       |       |       |      |        |       |       |      |       |       |       |   |        |       |       |   |       |      
|Cash flows provided by operating activities                      |                              | $                                                             | 162.6 |       |       | $    | 64.8   |       |       | $    | 76.6  |       |       | $ | 94.6   |       |       | $ | 146.3 |      
|Cash flows (used in) provided by investing
    activities        |                              |                                                               | (58.0 | )     |       |      | 237.9  |       |       |      | (77.2 | )     |       |   | (162.9 | )     |       |   | 5.8   |      
|Cash flows (used in) provided by financing
    activities        |                              | $                                                             | (87.9 | )     |       | $    | (279.4 | )     |       | $    | (40.8 | )     |       | $ | 1.3    |       |       | $ | (49.0 | )    
|Other Data:                                                      |                              |                                                               |       |       |       |      |        |       |       |      |       |       |       |   |        |       |       |   |       |      
|Depreciation and amortization(5)                                 |                              | $                                                             | 36.4  |       |       | $    | 27.4   |       |       | $    | 23.5  |       |       | $ | 20.6   |       |       | $ | 20.8  |      
|Adjusted EBITDA(6)                                               |                              |                                                               | 208.6 |       |       |      | 156.2  |       |       |      | 70.3  |       |       |   | 68.6   |       |       |   | 79.6  |      
|Capital expenditures(7)                                          |                              | $                                                             | 74.1  |       |       | $    | 90.2   |       |       | $    | 50.8  |       |       | $ | 114.7  |       |       | $ | 44.1  |      

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##### Table of Contents



|                                                            |                              |                                                               |       |         |  |      |       |         |  |      |       |       |  |   |       |       |  |   |         |       | 
|----------------------------------------------------------- | ---------------------------- | ------------------------------------------------------------- | ----- | ------- |  | ---- | ----- | ------- |  | ---- | ----- | ----- |  | - | ----- | ----- |  | - | ------- | ----- | 
|                                                            |                              |                                                              
|                                                            |                              | Fiscal Years Ended March 31,                                 
|                                                            |                              |                                                              
|                                                            |                              | 2004                                                          |       | 2003    |  | 2002 |       | 2001    |  | 2000
|                                                            |                              |                                                               |       |         |  |      |       |         |  |     
|                                                            |                              |                                                              
|                                                            |                              | (In millions, except sales price per unit and per share data)
|Volume (million square feet)(8)                             |                              |                                                               |       |         |  |      |       |         |  |      |       |       |  |   |       |       |  |   |         |      
|                                                            | USA Fiber Cement             |                                                               |       | 1,519.9 |  |      |       | 1,273.6 |  |      |       | 988.5 |  |   |       | 852.3 |  |   |         | 724.9 | 
|                                                            | Asia Pacific Fiber Cement(1) |                                                               |       | 362.1   |  |      |       | 349.9   |  |      |       | 320.7 |  |   |       | 318.9 |  |   |         | 333.8 | 
|Average sales price per unit (per thousand square
    feet) |                              |                                                               |       |         |  |      |       |         |  |      |       |       |  |   |       |       |  |   |         |      
|                                                            | USA Fiber Cement             |                                                               | $     | 486     |  |      | $     | 471     |  |      | $     | 450   |  |   | $     | 438   |  |   | $       | 428   | 
|                                                            | Asia Pacific Fiber Cement(1) |                                                               | A$    | 862     |  |      | A$    | 887     |  |      | A$    | 861   |  |   | A$    | 857   |  |   | A$      | 879   | 
|Consolidated Balance Sheet Data:                            |                              |                                                               |       |         |  |      |       |         |  |      |       |       |  |   |       |       |  |   |         |      
|Net current assets                                          |                              | $                                                             | 195.9 |         |  | $    | 159.4 |         |  | $    | 115.1 |       |  | $ | 84.9  |       |  | $ | 180.3   |      
|Total assets                                                |                              |                                                               | 971.2 |         |  |      | 851.8 |         |  |      | 968.0 |       |  |   | 969.0 |       |  |   | 1,018.6 |      
|Long-term debt                                              |                              |                                                               | 147.4 |         |  |      | 165.0 |         |  |      | 325.0 |       |  |   | 357.3 |       |  |   | 346.5   |      
|Shareholders equity                                        |                              | $                                                             | 504.7 |         |  | $    | 434.7 |         |  | $    | 370.7 |       |  | $ | 281.1 |       |  | $ | 244.7   |      



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Asia Pacific Fiber Cement includes all fiber
    cement manufactured in Australia, New Zealand and the
    Philippines and sold in Australia, New Zealand and Asia. See
    section entitled Notes to Results of Operations on
    page 49 in Item 5 for additional details on sales
    volume and average sales price per unit in fiscal years 2004 and
    2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(2) | Includes fiber cement manufactured and sold in
    Chile, fiber reinforced concrete pipes manufactured and sold in
    the United States, fiber cement operations in Europe and roofing
    operations in the United States. Also includes general corporate
    income in fiscal years 2002, 2001 and 2000 comprised primarily
    of rental income from subleasing office space in Sydney,
    Australia.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(3) | Amount includes restructuring and other operating
    income/expenses as follows: (i) for fiscal year 2004,
    $2.1 million expense primarily related to an increase in
    cost provisions for our Australian and New Zealand business,
    (ii) for fiscal year 2003, $1.0 million income related
    to the settlement of a terminated derivative contract,
    (iii) for fiscal year 2002, $12.6 million expense
    related to the roofing Class Action Settlement Agreement in
    the United States, $7.4 million expense associated with the
    corporate reorganization and $8.1 million expense related
    to the decrease in fair value of derivative contracts,
    (iv) for fiscal year 2001, asset write-downs, lease
    termination charges and employee termination costs of
    $15.5 million primarily associated with the restructuring
    of our fiber cement business in Australia and the creation of
    the new Asia Pacific regional structure and (v) for fiscal
    year 2000, $4.1 million of employee termination costs
    associated with the restructuring and upgrading of the fiber
    cement business in Australia.
|   
|(4) | Consists primarily of: (i) for fiscal year
    2004, the net gain achieved after accounting for income items,
    including a $4.5 million profit on the sale of our New
    Zealand property. These income items were partially offset by
    expense items including $3.2 million primarily due to a
    capital duty fee paid in conjunction with our Dutch corporate
    structure, (ii) for fiscal year 2003, investment income of
    $0.7 million, (iii) for fiscal year 2002, investment
    expenses of $0.4 million, (iv) for fiscal year 2001,
    investment income of $1.6 million and (v) for fiscal
    year 2000, investment expenses of $1.6 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(5) | Information for depreciation and amortization is
    for continuing businesses only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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|    |                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Represents income from continuing operations
    before interest income, interest expense, income taxes, other
    nonoperating expenses as described above, net, depreciation and
    amortization charges, and certain other property, goodwill and
    equipment impairment charges as follows:

|                                            |  |                              |       |      |  |      |       |      |  |      |      |   |  |   |      |   |  |   |      |  
|------------------------------------------- |  | ---------------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ---- | - |  | - | ---- | - |  | - | ---- | -
|                                            |  |                             
|(Adjusted EBITDA)                         |  | Fiscal Years Ended March 31,
|                                            |  |                             
|                                            |  | 2004                         |       | 2003 |  | 2002 |       | 2001 |  | 2000
|                                            |  |                              |       |      |  |      |       |      |  |     
|                                            |  |                             
|                                            |  | (In millions)               
|Income from continuing operations           |  | $                            | 125.3 |      |  | $    | 83.5  |      |  | $    | 27.3 |   |  | $ | 29.5 |   |  | $ | 23.7 |  
|Income tax expense (benefit)                |  |                              | 40.4  |      |  |      | 26.1  |      |  |      | 3.1  |   |  |   | (0.6 | ) |  |   | 13.0 |  
|Interest expense                            |  |                              | 11.2  |      |  |      | 23.8  |      |  |      | 18.4 |   |  |   | 21.4 |   |  |   | 25.9 |  
|Interest income                             |  |                              | (1.2  | )    |  |      | (3.9  | )    |  |      | (2.4 | ) |  |   | (8.2 | ) |  |   | (5.4 | )
|Other (income) expense, net                 |  |                              | (3.5  | )    |  |      | (0.7  | )    |  |      | 0.4  |   |  |   | (1.6 | ) |  |   | 1.6  |  
|Depreciation and amortization               |  |                              | 36.4  |      |  |      | 27.4  |      |  |      | 23.5 |   |  |   | 20.6 |   |  |   | 20.8 |  
|Impairment of property, plant and equipment |  |                              |      |      |  |      |      |      |  |      |     |   |  |   | 7.5  |   |  |   |     |  
|                                            |  |                              |       |      |  |      |       |      |  |      |      |   |  |   |      |   |  |   |      |  
|Adjusted EBITDA                             |  | $                            | 208.6 |      |  | $    | 156.2 |      |  | $    | 70.3 |   |  | $ | 68.6 |   |  | $ | 79.6 |  
|                                            |  |                              |       |      |  |      |       |      |  |      |      |   |  |   |      |   |  |   |      |  



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Adjusted EBITDA is not a measure of financial
    performance under U.S. GAAP and should not be considered an
    alternative to, or more meaningful than, income from operations,
    net income or cash flows as defined by U.S. GAAP or as a
    measure of our profitability or liquidity. Not all companies
    calculate Adjusted EBITDA in the same manner and, accordingly,
    Adjusted EBITDA may not be comparable with other companies. We
    have included information concerning Adjusted EBITDA because we
    believe that this data is commonly used by investors to evaluate
    the ability of a companys earnings from its core business
    operations to satisfy its debt, capital expenditure and working
    capital requirements. To permit evaluation of this data on a
    consistent basis from period to period, Adjusted EBITDA has been
    adjusted for noncash charges such as goodwill and asset
    impairment charges, as well as nonoperating income and expense
    items. See our consolidated financial statements and
    Operating and Financial Review and Prospects for
    further information to assist in identifying and evaluating
    trends in Adjusted EBITDA.



|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(7) | Information for capital expenditures includes
    both cash and credit purchases, and is for continuing businesses
    only.
|   
|(8) | Fiber cement volume is measured in 5/16
    thick square feet, which are referred to as standard feet.                     




Risk Factors



| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be subject to potential liability
    because ABN 60 and certain former subsidiaries formerly
    manufactured products containing asbestos.

A New Zealand subsidiary of JHI NV manufactured
products containing asbestos in New Zealand prior to 1987.
Statutory provisions in New Zealand currently bar claims for
compensatory damages arising from work-related asbestos
exposure. In addition, prior to 1987, two former subsidiaries of
ABN 60, Amaca Pty Limited and Amaba Pty Limited, which are
now owned and controlled by the Medical Research and
Compensation Foundation (the Foundation),
manufactured products containing asbestos in Australia. In
addition, prior to 1937, ABN 60, now owned by the ABN
60 Foundation Pty Ltd (ABN 60 Foundation),
manufactured products containing asbestos in Australia. We
cannot predict with any certainty any future claims or
allegations that may be made, how the laws of various
jurisdictions may be applied to the facts or how the laws may
change in the future. If, however, a court of competent
jurisdiction relying on applicable law were to find JHI NV, our
New Zealand subsidiary or another James Hardie subsidiary liable
for damages connected with existing or former subsidiaries or
their manufacture of asbestos-containing products, we may incur
significant liabilities in connection with any damages that may
be awarded in the legal proceedings, in addition to the costs
associated with defending against such claims. See Item 4
Information on the Company  Legal
Proceedings.

5



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| |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Following a Special Commission of Inquiry
    that was established in Australia to consider matters related to
    the Foundation, we may be subject to claims and allegations
    involving asbestos-related liability, or our corporate
    restructurings, including the corporate restructuring related to
    the creation of the Foundation and the ABN 60 Foundation and
    associated intercompany transactions.

In February 2004, the Government of the State of
New South Wales (NSW), Australia established a
Special Commission of Inquiry (SCI) to investigate,
among other matters described in Item 4 Information
on the Company  Legal Proceedings, the
circumstances in which the Foundation was established. The SCI
heard evidence and received submissions from April 5, 2004
to August 13, 2004.

The Company provided submissions to the SCI and,
on July 14, 2004, issued a statement announcing that it
would recommend that shareholders approve the provision of an
unspecified amount of additional funding to enable an effective
statutory scheme to compensate all future claimants for
asbestos-related injuries caused by former James Hardie
subsidiary companies. The submission also stated that an
effective scheme would reduce legal, superimposed
(judicial) inflation and administrative costs and that the
proposal was made without any admission of liability or
prejudice to the Companys rights or defenses. Superimposed
inflation is inflation in claim awards above the underlying rate
of inflation and is sometimes called judicial inflation. In
addition, the Company provided additional oral and written
submissions to the SCI in response to questions from the
Commissioner of the SCI concerning James Hardies proposed
statutory scheme.

The SCI issued its report on September 21,
2004. The SCI indicated that the establishment of the Foundation
and the establishment of the ABN 60 Foundation were legally
effective and that, accordingly, it was not likely that any
significant liabilities for present or future asbestos claims
for claimants against Amaca, Amaba or ABN 60 could be
successfully made directly against JHI NV or any other James
Hardie subsidiary. The SCI found that there was a significant
funding shortfall in the establishment of the Foundation
inasmuch as the net assets of the Foundation and the ABN 60
Foundation were not sufficient to meet the central estimate of
approximately A$1.570 billion discounted value of asbestos
liabilities of Amaca and Amaba. The SCI also concluded that the
assets of the Foundation were likely to be exhausted in the
first half of 2007.

The SCIs findings are not binding and a
later court consideration of the issues could lead to one or
more different conclusions. The claims to which we may be
subject could include claims by the Foundation or its current
subsidiaries or their directors. The SCI further found, however,
that there were hurdles that might prove to be insuperable
against any substantial recovery or remedy by such potential
claimants against the Company. In addition, the NSW Government
has announced its preparedness to pass legislation, as described
in Item 4 Information on the Company  Legal
Proceedings, which would alter the Companys
liability position.

The NSW Government has stated that it would not
consider assisting the implementation of any proposal advanced
by the Company unless it was the result of an agreement reached
with the union movement acting through the Australian Council of
Trade Unions (ACTU) and the Labor Council of NSW as
well as the representatives of the asbestos claimants (together,
the Representatives). The statutory scheme that the
Company recommended on July 14, 2004 was rejected by the
Representatives. The Company is currently in discussions with
the Representatives regarding potential arrangements that could
be acceptable to both the Representatives and the Company and
subsequently to the Companys shareholders and the NSW
Government. Both the outcome of those discussions and the timing
of any potential resolution are highly uncertain, and
accordingly, the Company cannot yet determine whether it will
achieve a satisfactory resolution or what any potential
arrangement may involve.

The terms of any resolution, or the uncertainty
arising from the lack of any resolution, could have a material
adverse effect on the Companys financial position, results
of operations and cash flows. The Company has announced its
intention to put any such resolution to shareholders for
approval at a General Meeting. If no resolution is reached and
implemented, it is not possible to predict what action the
Foundation, the NSW Government or other state and territory
governments and/or the Australian federal government,
Representatives or others may take or what the outcome may be.
The impact of any such actions however, could be materially
adverse to the Company.

6



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##### Table of Contents



The Company has incurred substantial costs
associated with the SCI and may incur material costs in the
future related to the SCI or subsequent legal proceedings. See
Item 4 Information on the Company  Legal
Proceedings.

We
may have difficulty obtaining financing (debt or equity), or
obtaining financing on usual terms, or retaining existing
financial support because of concerns or uncertainty relating to
the SCI, legal or legislative action following the SCI, or the
Companys offer to provide additional funding to the
Foundation.

Debt as well as equity finance providers may view
the uncertainty relating to the SCI, legal or legislative action
following the SCI, or the Companys offer to provide an
additional funding mechanism for payment to asbestos claimants
as negatively impacting the Companys ability to service or
repay debt or generate acceptable after tax profit. As a
consequence, we may have difficulty obtaining financing,
obtaining financing on usual terms or retaining existing
financial support.

In addition, if a resolution is reached with the
Representatives and approved by them, the NSW Government and the
Companys Board, shareholders and lenders, the Company may
be required to make a substantial provision in its accounts at a
later date. It is also possible that any future resolution of
this issue may result in the Company having negative
shareholders equity, which would be likely to restrict its
ability to pay dividends to its shareholders. These events may
also cause the Company to be in breach of certain debt
covenants, which could lead to acceleration of the repayment of
the indebtedness. It is not certain that alternative financing
would become available, whether on usual terms or otherwise.

See also Liquidity and Capital Resources under
Item 5 Operating and Financial Review and
Prospects  Liquidity and Capital Resources.



| |                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may encounter product boycotts, negative
    publicity or other measures taken by the Representatives or
    others to influence the resolution of matters relating to the
    SCI investigation or encourage governmental action if there is
    no resolution.

The Representatives and/or others may encourage
or continue to encourage consumers and union members in
Australia and elsewhere to boycott the Companys products,
to demonstrate or otherwise create negative publicity toward the
Company in order to influence the Companys approach to
discussions with the Representatives or to encourage
governmental action if the discussions are unsuccessful. The
Representatives and/or others might also take such actions in an
effort to influence the Companys shareholders, a
significant number of which are located in Australia, to approve
any proposed arrangement. Any such measures, and the influences
resulting from them, could have a material adverse impact on the
Companys financial position, results of operations and
cash flows.

The
Government of the State of New South Wales has announced its
preparedness to pass legislation if current negotiations between
James Hardie, the ACTU and asbestos claimants do not reach an
acceptable conclusion.

The Ministerial Council for Corporations (the
relevant body of the Federal, State and Territory Ministers)
agreed to support a negotiated settlement that would ensure that
claimants of asbestos-related diseases receive full and timely
compensation from the Company. If current negotiations between
James Hardie, the ACTU and asbestos claimants do not reach an
acceptable conclusion, the NSW Government announced its
preparedness to pass legislation which would wind back
James Hardies corporate restructure and rescind the
cancellation of the A$1.9 billion in partly-paid
shares. Negotiations with the Representatives continue and
no draft legislation has currently been published. See
Item 4 Information on the Company  Legal
Proceedings.



| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our current senior management team was
    recently appointed on an interim basis after the resignations of
    our chief executive officer and chief financial
    officer.

Our senior executives were appointed in October
2004 on an interim basis after the resignations of Peter
Macdonald, formerly our Chief Executive Officer, and Peter
Shafron, formerly our Chief Financial Officer.

7



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##### Table of Contents



Because of the unscheduled departure of our
former senior management, and the essentially concurrent
appointment of current management, there was little time
available to smoothly transition over to the new management
team. Accordingly, it may take time for our new management team
to effectively transition into their new roles and to develop
effective working relationships with our board of directors,
employees, shareholders and others. We cannot assure you that
this major restructuring of our senior management team will not
adversely affect our results of operations or otherwise
adversely affect us.




| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our board of directors and senior
    management continue to devote significant attention to matters
    arising from and related to the Special Commission of
    Inquiry.

Since the establishment of the SCI, our board of
directors, our senior management and others within our
organization have devoted a significant amount of time and
resources to investigating the allegations raised in the report
of the SCI, to producing documents to and complying with
requests from governmental and regulatory authorities and
others, and to seeking a resolution of the issues arising out of
the SCI. The board of directors and managements
focus on issues related to the SCI may distract them from
conducting the business of the Company, and this could adversely
effect our results of operations.



| |                                                                     
| | --------------------------------------------------------------------
| | Continuing negative publicity may adversely
    affect our business.

As a result of the events that are the focus of
the SCI, we have been the subject of continuing negative
publicity, both in Australia and elsewhere in the world. We
believe that this negative publicity has contributed to declines
in the price of our publicly traded securities in 2004, and that
this publicity has brought increased regulatory scrutiny upon
us. We also believe that many of our employees are operating
under stressful conditions, which may reduce morale and could
lead to increased employee turnover. Continuing negative
publicity could have a material adverse effect on our results of
operations and liquidity and the market price of our publicly
traded securities and create difficulties in attracting or
retaining high caliber staff.



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | Continued scrutiny resulting from ongoing
    investigations may have an adverse effect on our
    business.

We are subject to an ongoing investigation by the
Australian Securities and Investments Commission. We cannot
predict when this investigation will be completed, nor can we
predict what the results of this investigation will be. It is
possible that we will be required to pay material fines, provide
indemnification payments, or suffer other penalties, each of
which could have a material adverse effect on our business. We
cannot assure you that the effects and results of these or other
investigations will not be material and adverse to our business,
financial condition, results of operations or liquidity.



| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may incur costs of current or former
    officers and employees of the James Hardie Group to the extent
    that those costs are covered by indemnity arrangements granted
    by the James Hardie Group to those persons.

We may incur costs of current or former officers
and employees of James Hardie Group to the extent that those
costs are covered by indemnity arrangements granted by the James
Group to those persons. The Company may be reimbursed under
directors and officers insurance policies taken out
by the Company. However, there is no guarantee that such
insurance will completely cover any claims that would be made.



| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | Substantial and increasing competition in
    the building products industry could adversely affect our
    business.

Competition in the building products industry is
based largely on price and, to a lesser extent, quality,
performance and service. Our fiber cement products compete with
products manufactured from natural and engineered wood, vinyl,
stucco, masonry, gypsum and other materials as well as fiber
cement products from other manufacturers. Some of our
competitors may have greater financial and other resources than
we do and, among other factors, may be less affected by
reductions in margins resulting from price competition.

Some of our competitors have lowered prices of
their products to compete for sales. In addition, we expect our
competitors to continue to expand their manufacturing
capacities, to improve the design and

8



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performance of their products and to introduce
new products with competitive price and performance
characteristics. Increased competition by existing or future
competitors could adversely impact fiber cement prices, as well
as require us to increase our investment in product development,
productivity improvements and customer service and support to
compete in our markets.


Fiber cement product prices in the United States,
Australia and New Zealand have fluctuated for a number of years
due to the entry into the market of new producers and
competition from alternative products, among other reasons, and
these prices could continue to fluctuate in the future. Because
of the maturity of the Australian and New Zealand markets, we
believe that prices in those markets may decline and that sales
volumes may not increase significantly or may decline in the
future. Historically, increased sales volumes of our
U.S. fiber cement products, the addition of proprietary
products to our product mix and improved operating efficiencies
have more than offset the decrease in pricing for such products
in the United States. However, there may be future price
decreases and we may not be able to offset such decreases with
increased volume, new products or improved operating
efficiencies. For instance, unanticipated technical problems
could impair our efforts to commission new equipment aimed at
improving operating efficiencies. Any of these factors could
have a material adverse effect on our business, results of
operations and financial condition.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Our business is dependent on the
    residential and commercial construction markets.

Demand for our products depends in large part on
residential construction markets and, to a lesser extent, on
commercial construction markets. The level of activity in
residential construction markets depends on new housing starts
and residential remodeling projects, which are a function of
many factors not within our control, including general economic
conditions, mortgage and other interest rates, inflation,
unemployment, demographic trends, gross domestic product growth
and consumer confidence in each of the countries and regions in
which we operate. Historically, in periods of economic decline,
both new housing starts and residential remodeling also decline.
The level of activity in the commercial construction market
depends largely on vacancy rates and general economic
conditions. Because residential and commercial construction
markets are sensitive to cyclical changes in the economy,
downturns in the economy or a lack of substantial improvement in
the economy of any of our geographic markets could negatively
affect operating results. Because of these and other factors,
our operating results may be subject to substantial fluctuations
and the results for any prior period may not be indicative of
results for any future period.



| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may acquire or divest businesses from
    time to time, and this may adversely affect our operating
    results and financial condition as well as significantly change
    the nature of the company in which you have
    invested.

In the past, we have divested business segments
and, from time to time in the future, we may acquire other
businesses or sell some or all of our assets or business
segments. Any significant acquisition or sale may adversely
affect our operating results and financial condition and could
change the overall profile of our business. As a result, the
value of our shares may decrease in response to any such
acquisition or sale and, upon any such acquisition or sale, our
shares may represent an investment in a company with
significantly different assets and prospects from the Company
when you made your initial investment in us.



| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our research and development efforts
    fail to generate new, innovative products or processes, our
    overall profit margins may decrease and demand for our products
    may fall, which would have an adverse effect on our results of
    operations and financial condition.

We have invested significantly in research and
development because we believe that such efforts are key to
sustaining and growing our existing market leadership position
in fiber cement. Because profit margins for fiber cement
products and building products generally erode the longer a
product has been on the market, innovation is particularly
important. We rely on our research and development efforts to
generate new products and processes to increase demand and to
protect profit margins. If our research and development efforts
fail to generate new, innovative products or processes, our
overall profit margins may decrease and demand for our products
may fall, which would have an adverse effect on our results of
operations and financial condition.

9



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##### Table of Contents





| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | Because demand for our products in our
    major markets is seasonal, our quarterly results of operations
    may vary throughout the year.

In the United States, a large proportion of our
fiber cement products is sold in three regions: the Southeast,
the Southcentral and the Pacific Northwest. Demand for building
products in these regions is seasonal because construction
activity diminishes during the winter season. In Australia, New
Zealand and the Philippines, demand for building products is
also seasonal because, in Australia and New Zealand,
construction activity diminishes during the summer period of
December to February, and in the Philippines, construction
activity diminishes during the wet season from June to September
and the last half of December due to the slowdown in business
activity over the Christmas period. We commenced production of
fiber cement products in Chile in early 2001, where markets also
experience decreased seasonal construction activity from May
through September.



| |                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may experience adverse fluctuations in
    the supply and cost of raw materials necessary to our business
    and a significant reduction or cessation of shipments from an
    important supplier could adversely affect our business if we are
    unable to secure alternative supplies within a short time or on
    reasonable terms.

Our fiber cement business periodically
experiences fluctuations in supply and costs of raw materials,
and some of our supply markets are concentrated. Cellulose
fiber, silica, cement and water are the principal raw materials
utilized in the production of fiber cement. Cellulose fiber has
been subject to significant price fluctuations. Although we have
not recently experienced any shortages of raw materials that
have materially affected our operations, price fluctuations or
material delays may occur in the future due to lack of raw
materials or suppliers. The loss or deterioration of our
relationship with a major supplier, an increase in demand by
third parties for a particular suppliers products or
materials or delays in obtaining materials could have a material
adverse effect on our business, results of operations and
financial condition.



| |                                                                          
| | -------------------------------------------------------------------------
| | Demand for our products is subject to
    changes in consumer preference.

The continued development of builder and consumer
preference for our fiber cement products over competitive
products is critical to sustaining and expanding demand for our
products. Therefore, the failure to maintain and increase
builder and consumer acceptance of our fiber cement products
could have a material adverse effect on our growth strategy as
well as our business, results of operations and financial
condition.



| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on only a few distributors to
    distribute our fiber cement products and the loss of any
    distributor could adversely affect our business.

Our top two distributors in the United States
represented approximately 50% of our total U.S. fiber
cement sales in fiscal year 2004. In addition, a large home
center retailer also accounted for approximately 15% of our
total U.S. fiber cement sales in fiscal year 2004. Our top
two distributors in Australia and our top four distributors in
New Zealand accounted for approximately 30% and 95% of our total
sales of fiber cement in Australia and New Zealand,
respectively, in fiscal year 2004. We generally do not have
long-term contracts with our large distributors. Accordingly, if
we were to lose one or more of these distributors because our
competitors were able to offer distributors more favorable
pricing terms or for any other reasons, we may not be able to
replace such distributors in a timely manner and on reasonable
terms. The loss of one or more distributors could have a
material adverse effect on our business, results of operations
and financial condition.



| |                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If one or more of our fiber cement products
    fail to perform as expected or contain a design defect, such
    failure or defect, and/or any resulting negative publicity,
    could result in lower sales and may subject us to claims from
    purchasers or users of our fiber cement products.

Because our fiber cement products have been used
only since the early 1980s, we cannot assure you that these
products will perform in accordance with our expectations over
an extended period of time or that there are no serious design
defects in such products. If our fiber cement technology fails
to perform as expected or a product is discovered to have design
defects, such failure or defects, and/or any resulting negative
publicity, could result in lower sales of our products and may
subject us to claims from purchasers or users of defective

10



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products, either of which could have a material
adverse effect on our business, results of operations and
financial condition.




| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Warranty claims resulting from unforeseen
    defects in our products and exceeding our warranty reserves
    could have a material adverse effect on our business, results of
    operations and financial condition.

We have offered, and continue to offer, various
warranties on our products, including a 50-year limited warranty
on certain of our fiber cement siding products in the United
States. Although we maintain reserves for warranty-related
claims and legal proceedings that we believe are adequate, we
cannot assure you that warranty expense levels or the results of
any warranty-related legal proceedings will not exceed our
reserves.



| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If damages resulting from product defects
    exceed our insurance coverage, paying these damages could result
    in a material adverse effect on our business, results of
    operations and financial condition.

The actual or alleged existence of defects in any
of our products could subject us to significant product
liability claims. Although we do not have replacement insurance
coverage for damages to, or defects in, our products, we do have
product liability insurance coverage for consequential damages
that may arise from our products. Although we believe this
coverage is adequate and currently intend to maintain this
coverage in the future, we cannot assure you that this coverage
will be sufficient to cover all future product liability claims
or that this coverage will be available at reasonable rates in
the future. The successful assertion of one or more claims
against us that exceed our insurance coverage could require us
to incur significant expenses to pay these damages. These
additional expenses could have a material adverse effect on our
business, results of operations and financial condition.



| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on a continuous power supply and
    availability of utilities to conduct our operations, and any
    shortages or interruptions could disrupt our operations and
    increase our expenses.

In the manufacture of our products, we rely on a
continuous and uninterrupted supply of electric power, water and
natural gas as well as the availability of water, waste and
emissions discharge facilities. Any future shortages or
discharge curtailments could significantly disrupt our
operations and increase our expenses. We currently do not have
backup generators to maintain power and do not have alternate
sources of power in the event of a blackout. In addition, our
current insurance does not provide coverage for any damages that
we or our customers may suffer as a result of any interruption
in our power supply. If blackouts interrupt our power supply, we
would be temporarily unable to continue operations at the
affected facilities. Any future interruption in our ability to
continue operations at our facilities could damage our
reputation, harm our ability to retain existing customers or
obtain new customers and could result in lost revenue, any of
which could have a material adverse effect on our business,
results of operations and financial condition.



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may incur significant costs in the
    future in complying with applicable environmental and health and
    safety laws and regulation, and if we fail to comply with these
    laws and regulations, or these laws or regulations change, we
    may be subject to significant liabilities, including but not
    limited to damages and penalties.

We are subject to U.S. federal, state and
local and foreign environmental and health and safety laws and
regulations governing, among other matters, our operations and
the use, handling, disposal and remediation of hazardous
substances currently or formerly used by us or any affiliates.
Under these laws and regulations, we may be held jointly and
severally responsible for the remediation of any hazardous
substance contamination at our or our predecessors past or
present facilities and at third-party waste disposal sites and
may also be held liable for any claims arising out of human
exposure to such substances or other environmental damage. We
will continue to be liable for any environmental problems that
occurred while we owned or operated any of the three gypsum
facilities that we sold in April 2002. See Information on
the Company  Capital Expenditures and
Divestitures  Divestitures in Item 4.

In addition, many James Hardie products contain
crystalline silica, which can be released in a respirable form
in connection with manufacturing practices and handling or use
by consumers. The inhalation of

11



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respirable crystalline silica is known or
suspected to be associated with silicosis, lung cancer and other
adverse human health effects. We may face future costs of
engineering and compliance to meet new standards relating to
crystalline silica if standards are made more stringent. In
addition, there is a risk that claims for silica-related disease
could be made against us. At this time, we are not subject to
any silica-related claims, prosecutions or litigation. However,
we cannot assure you that we will have adequate resources,
including adequate insurance coverage, to satisfy any future
silica-related disease claims or that there will not be adverse
business consequences in the distribution, end user or other
markets. Any such claims may have a material adverse effect on
our financial condition. See Risk Factor above captioned
 If damages resulting from product defects
exceed our insurance coverage, paying these damages could result
in a material adverse effect on our business, results of
operations and financial condition.


The costs of complying with environmental and
health and safety laws relating to our operations, or the
liabilities arising from past or future releases of, or exposure
to, hazardous substances or from product liability matters may
result in us making future expenditures that could have a
material adverse effect on our business, results of operations
or financial condition. In addition, we cannot make any
assurances that the laws currently in place will not change.
Also, if applicable laws or judicial interpretations related to
successor liability or piercing the corporate veil
were to change, it could have a material adverse effect on our
business, results of operations and financial condition. See
Information on the Company  Legal
Proceedings in Item 4.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in, or failure to comply with, the
    laws, regulations, policies or conditions of any jurisdiction in
    which we conduct our business could result in, among other
    consequences, the loss of our assets in such jurisdiction, the
    elimination of certain rights that are critical to the operation
    of our business in such jurisdiction, a decrease in revenues or
    the imposition of additional taxes or other costs.

Because we manufacture and sell our products
internationally, our activities are subject to political,
economic, legal and other uncertainties, including:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changing political and economic conditions;                                                                                                               
|
| |  | changing laws and policies;                                                                                                                               
|
| |  | the general hazards associated with the assertion
    of sovereign rights over certain areas in which we conduct our
    business; and                    
|
| |  | laws limiting or conditioning the right and
    ability of subsidiaries and joint ventures to pay dividends or
    remit earnings to affiliated companies.

Although we seek to take applicable laws,
regulations and conditions into account in structuring our
business on a global basis, changes in, or our failure to comply
with, the laws, regulations, policies or conditions of any
jurisdiction in which we conduct our business could result in,
among other consequences, the loss of our assets in such
jurisdiction, the elimination of certain rights that are
critical to the operation of our business in such jurisdiction,
a decrease in revenues or the imposition of additional taxes.
Therefore, any change in laws, regulations, policies or
conditions of a jurisdiction could have a material adverse
effect on our business, results of operations and financial
condition.



| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our reliance on intellectual property and
    other proprietary information subjects us to the risk that
    competitors could copy our products or processes.

Our success depends, in part, on the proprietary
nature of our technology, including non-patentable intellectual
property such as our process technology. Despite safeguards, to
the extent that a competitor is able to reproduce or otherwise
capitalize on our technology, it may be difficult, expensive or
impossible for us to obtain necessary legal protection. Also,
the laws of some foreign countries may not protect our
intellectual property to the same extent as do the laws of the
United States. In addition to patent protection of intellectual
property rights, we consider elements of our product designs and
processes to be proprietary and confidential. We rely on
employee, consultant and vendor non-disclosure agreements and
contractual provisions and a system of internal safeguards to
protect our proprietary information. However, any of our
registered or

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##### Table of Contents



unregistered intellectual property rights may be
challenged or exploited by others in the industry, which could
harm our operating results and competitive position.




| |                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because we have significant operations
    outside of the United States and report our earnings in
    U.S. dollars, unfavorable fluctuations in currency values
    and exchange rates could have a significant negative impact on
    our earnings.

Because our reporting currency is the
U.S. dollar, our non-U.S. operations face the
additional risk of fluctuating currency values and exchange
rates. Such operations may also face hard currency shortages and
controls on currency exchange. Approximately 24% and 23% of our
net sales in fiscal years 2004 and 2003, respectively, were
derived from sales outside the United States. Consequently,
changes in the value of foreign currencies (principally
Australian dollars, New Zealand dollars, Philippine pesos,
Chilean pesos, Euros, U.K. pounds and Canadian dollars)
could significantly affect our business, results of operations
and financial condition. We generally attempt to mitigate
foreign exchange risk by (1) entering, where possible, into
contracts providing for payment in U.S. dollars instead of
the local currency and (2) having non-U.S. operations
borrow in local currencies, particularly the Philippines and
Chile. Although we did not have any material interest rate swaps
or forward exchange contracts outstanding as of March 31,
2004, we may enter into such financial instruments from time to
time to manage our market risks. There can be no assurance that
we will be successful in these mitigation strategies, or that
fluctuations in foreign currencies and other foreign exchange
risks will not have a material adverse effect on our business,
results of operations and financial condition.



| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Articles of Association and Dutch law
    contain provisions that could delay or prevent a change of
    control that may otherwise be beneficial to you.

Our Articles of Association contain several
provisions that could have the effect of delaying or preventing
a change of control of our ownership. Broadly, our Articles of
Association prohibit the holding of shares of our common stock
if, because of an acquisition of a relevant interest (including
interests held in the form of shares of our common stock, CUFS
or ADRs) in such shares, a partys relevant interest in our
common stock or voting rights in us increases from 20% or below
to over 20% or from a starting point that is above 20% and below
90%. However, this prohibition is subject to exceptions,
including acquisitions that result from acceptance under a
takeover bid as described in our Articles of Association.
Although these provisions in our Articles of Association may
help to ensure that no person acquires voting control of us
without making an offer to all shareholders, these provisions
may also have the effect of delaying or preventing a change of
control that may otherwise be beneficial to you. See
Additional Information  Key Provisions of our
Articles of Association  Limitations on Right to Hold
Common Stock under Item 10.



| |                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because we are incorporated under Dutch
    laws, you may not be able to effectively seek legal recourse
    against us or our management in the United States and you may
    have further difficulty enforcing any U.S. judgments or
    rulings in a foreign jurisdiction.

We are incorporated under the laws of The
Netherlands. In addition, many of our directors and executive
officers are residents of jurisdictions outside the United
States and a substantial portion of our assets are located
outside the United States. As a result, it may be difficult to
effect service of process within the United States upon such
persons, or to enforce outside the United States judgments
obtained against such persons in U.S. courts, or to enforce
in U.S. courts any judgments obtained against such persons
in courts located in jurisdictions outside the United States,
including actions predicated upon the civil liability provisions
of the U.S. securities laws. In addition, it may be
difficult for you to enforce, in original actions brought in
courts located in jurisdictions outside the United States,
rights predicated upon the U.S. securities laws.

The rights of shareholders and the
responsibilities of directors under the laws of The Netherlands
may not be as clearly established as under statutes or judicial
precedent in existence in certain U.S. jurisdictions.
Therefore, our shareholders may have more difficulty in
challenging the actions by our directors than they would
otherwise as shareholders of a corporation incorporated in the
United States.

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| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The issuance of additional shares or the
    grant of additional options could dilute the value of your
    shares and adversely affect the price of our common
    stock.

Because the authority to issue shares (and to
grant rights to subscribe for shares, such as options) up to the
amount of our authorized share capital has been delegated to our
Supervisory Board, the issuance of such shares or rights could
dilute the value of your shares and adversely affect the price
of our common stock.

In addition, if we issue a large number of our
equity securities, the trading price of our equity securities
could decrease. We may pursue acquisitions of businesses and may
issue equity securities in connection with these acquisitions,
although we do not currently have specific acquisitions planned.
We may also issue equity securities to satisfy other liabilities
of the Company. We cannot predict the effect, if any, the future
sales or issuances of our equity securities or the availability
of such securities for future sale will have on our securities
market price from time to time.



| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we experience labor disputes or
    interruptions, as we have from time to time in the past, our
    operations may be disrupted and our business, financial
    condition and results of operations may be adversely
    affected.

Approximately 53% of our employees in Australia
and 58% of our employees in New Zealand are currently
represented by labor unions. Our unionized employees are covered
by a range of federal and state-based agreements in Australia
and New Zealand. Our Australian and New Zealand agreements
expire at various times beginning September 2005. We cannot
assure you that the agreements will be renewed on reasonable
terms, or at all. During the past three years we experienced
occasional strikes and work interruptions lasting up to two days
in Australia. In the event we experience a prolonged labor
dispute at any of our facilities, any strikes or work
interruptions associated with such dispute could have a material
adverse effect on our business, financial condition and results
of operations.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under the U.S.-Netherlands income tax
    treaty and Netherlands law, we derive substantial tax benefits
    from the group finance operations of our Netherlands-based
    finance subsidiary, and changes in either the treaty or laws
    applicable to the finance subsidiary, including the recently
    approved Protocol, could increase our effective tax rate and, as
    a result, reduce our future profits and cash
    flows.

We believe the current U.S.-Netherlands Income
Tax Treaty (the U.S.-NL Treaty) applies to us and
our Dutch and U.S. subsidiaries and that, accordingly, we
are eligible for its benefits. Under the current U.S.-NL Treaty,
a reduced 5% withholding tax applies to dividends, and no
withholding tax applies to interest and royalties, that our
U.S. subsidiaries pay to JHI NV or our Dutch finance
subsidiary. The current U.S.-NL Treaty has various conditions of
eligibility for reduced tax withholding rates (and other treaty
benefits), all of which we expect to satisfy. If, however, the
current U.S.-NL Treaty were not to apply, such dividend and
interest payments would be subject to a 30%
U.S. withholding tax.

The United States and The Netherlands approved a
new protocol that, when ratified, would amend the current
U.S.-NL Treaty. We expect ratification to occur soon. Companies
eligible for benefits under the amended treaty qualify for a
zero percent withholding rate on dividends. However, the
Protocol has various new, more restrictive eligibility
requirements for reduced tax withholding rates and other treaty
benefits. We can elect to apply and continue to benefit from the
current treaty until the first day of the 14th month
after ratification of the Protocol, when we will become subject
to the amended treaty. Unless we change our organizational and
operational structure, we are unlikely to satisfy the
requirements of the amended treaty. Accordingly, we are
evaluating various reorganization options to satisfy those
requirements and thus remain eligible for benefits under the
amended treaty. However, we cannot guarantee whether we can
remain eligible for benefits under the amended treaty, or to
obtain an equally favorable result. The loss of treaty benefits
could significantly increase our effective tax rate in the
future, which could have a material adverse impact on our
financial condition, cash flows and results of operations.

We have concentrated our finance and treasury
activities in our Dutch finance subsidiary located in The
Netherlands. In addition to providing financing to our various
subsidiaries, the finance subsidiary owns and develops
intellectual property that it licenses to our operating
subsidiaries. Under the Netherlands Interna-

14



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tional Group Finance Company rules, we have
obtained a ruling from the Dutch revenue authority that allows
the finance subsidiary to set aside, in a Financial Risk Reserve
(FRR), a portion of its taxable profits from
financing and from licensing its intellectual property. The
amounts set aside in the FRR are free of current Dutch income
tax. Consequently, the finance subsidiary will generally incur a
tax rate of approximately 15% to 18% on its qualifying financing
and licensing income and a 34.5% statutory rate on all other
income, including any amounts involuntarily released from the
FRR to cover any risks (including currency, bad debt and foreign
branch losses) for which the FRR was established. The tax rate
on qualifying income may be reduced to as low as approximately
7% to 10%, depending on the extent to which amounts from the FRR
pay for capital expenditures of our operating companies. Issued
in December 2000, the ruling became effective July 1, 2001,
and applies for ten years (although it will end earlier, on
December 31, 2010, because of developments described
below), so long as we satisfy the requirements of the
International Group Finance Company provisions under Dutch law.


Under the European Union Code of Conduct on
Direct Business Taxation, member states of the European Union
have agreed to eliminate harmful tax competition within the
European Union. Accordingly, the EU Council of Economic and
Finance Ministers, a working group of EU member countries,
reviewed the tax regimes of all its member countries and
identified certain tax concessions the Council considered as
harmfully competitive and therefore in violation of the Code of
Conduct. Among the identified tax concessions is the Netherlands
International Group Finance Company regime. In December 2002,
The Netherlands agreed to end its International Group Finance
Company regime for new entrants.

In a separate but related development, the
European Commission, the executive arm of the European Union,
similarly has reviewed the tax regimes of its member countries
to identify tax concessions that the Commission considers a form
of prohibited state aid and therefore contrary to
the provisions of the European Community Treaty. In February
2003, the Commission concluded that the existence of special tax
concessions in certain countries, including the Netherlands
International Group Finance Company regime, cannot be reconciled
with EU rules regarding state aid. Accordingly, the Commission
banned certain concessionary tax regimes, including the
Netherlands International Group Finance Company regime, but
allowed companies then operating under that regime, including
our Dutch finance subsidiary, to continue to operate under the
regime until December 31, 2010. Some uncertainty exists
whether, during this extended period of the International Group
Finance Company regime, qualifying companies can:
(1) continue to set aside profits in their FRR and
(2) defer any taxable recovery of profits from their FRR
until the expiration date. Until December 31, 2010 and
absent further legal developments, we intend to maintain and
continue to add to the FRR of our Dutch finance subsidiary all
allowable profits the subsidiary earns, and to fund capital
expenditures of our operating companies with amounts from the
FRR.

Although our Dutch finance company can continue
to derive benefits under the Netherlands International Group
Finance Company rules until December 31, 2010, we cannot
guarantee that either the EU again, or another relevant
authority or legislative body, would not attempt to repeal that
law earlier, or that a court of competent jurisdiction would not
invalidate it, possibly with retrospective effect.



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Our effective income tax rate could
    increase and adversely affect our operating
    results.

We operate in multiple jurisdictions and pay tax
on our income according to the tax laws of these jurisdictions.
Various factors, some of which are beyond our control, determine
our effective tax rate, including changes in or interpretations
of tax laws in any given jurisdiction; our ability to use net
operating losses and tax credit carry forwards and other tax
attributes; changes in geographical allocation of income and
expense; and our judgment about the realizability of deferred
tax assets.

In addition, because we derive a majority of our
revenues in the United States, certain proposed changes in
U.S. tax laws, if enacted, could increase our effective tax
rate. Recent legislative and regulatory proposals would reduce
or eliminate certain of our tax advantages as a foreign-based
company with U.S. operations. If any of these proposals
were enacted, our U.S. income tax liability could increase
and thus reduce our cash flow and earnings. We cannot predict
whether any such proposals will be enacted and the extent to
which any enacted proposal would apply to us.

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| |                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are classified as a controlled
    foreign corporation, a passive foreign investment
    company or a foreign personal holding company,
    our shareholders could be subject to increased tax liability as
    a consequence of their investment in our
    securities.

Our U.S. citizen and resident shareholders
could incur adverse U.S. federal income tax consequences
if, for federal income tax purposes, we are classified as a
controlled foreign corporation, a passive
foreign investment company or, for our tax years beginning
before January 1, 2005, a foreign personal holding
company. For information regarding these consequences, see
Item 10  Additional
Information  Taxation  United States
Taxation. In addition, shareholders could be adversely
affected by changes in the current tax laws, regulations and
interpretations thereof in the United States and The
Netherlands, including changes that could have retroactive
effect.




Forward-Looking Statements

This annual report contains forward-looking
statements. We may from time to time make forward-looking
statements in our periodic reports filed with the Securities and
Exchange Commission on Forms 20-F and 6-K, in our annual reports
to shareholders, in offering circulars and prospectuses, in
media releases and other written materials and in oral
statements made by our officers, directors or employees to
analysts, institutional investors, representatives of the media
and others. Examples of such forward-looking statements include:



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | projections of our operating results or financial
    condition;                                                                            
|
| |  | statements of our plans, objectives or goals,
    including those relating to competition, acquisitions,
    dispositions and our products; 
|
| |  | statements about our future economic performance
    or that of the United States, Australia or other countries in
    which we operate; and
|
| |  | statements about product or environmental
    liabilities.                                                                                  

Words such as believe,
anticipate, plan, expect,
intend, target, estimate,
project, predict, forecast,
guideline, should, aim and
similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such
statements.

Forward-looking statements involve inherent risks
and uncertainties. We caution you that a number of important
factors could cause actual results to differ materially from the
plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements. These factors,
some of which are discussed under Risk Factors
beginning on page 5, include but are not limited to: all
matters relating to or arising out of the prior manufacture of
asbestos by ABN 60 and certain former subsidiaries;
competition and product pricing in the markets in which we
operate; general economic and market conditions; compliance with
and possible changes in environmental and health and safety
laws; the successful transition of new senior management; the
success of our research and development efforts; the supply and
cost of raw materials; our reliance on a small number of product
distributors; the consequences of product failures or defects;
exposure to environmental, asbestos or other legal proceedings;
risks of conducting business internationally; compliance with
and changes in tax laws and treatments; and foreign exchange
risks. We caution you that the foregoing list of factors is not
exclusive and that other risks and uncertainties may cause
actual results to differ materially from those in
forward-looking statements. Forward-looking statements speak
only as of the date they are made.






|        |                           
|------- | --------------------------
|Item 4. | Information on the Company

History and Development of the
Company

Our legal name was changed to James Hardie
Industries N.V. from RCI Netherlands Holdings B.V. in July 2001
when our legal form was converted from a besloten
vennootschap met beperkte aansprakelijkheid(B.V.), or private limited liability company, to
a naamloze vennootschap(N.V.),
or public limited liability company whose stock, unlike a
private limited liability company, may be transferred without

16



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##### Table of Contents



executing a notarial deed if such company is
listed on a recognized stock exchange. We operate under Dutch
law. Our corporate seat is located in Amsterdam, The
Netherlands. The address of our registered office in The
Netherlands is 4th Level Atrium, unit 04-07, Strawinskylaan
3077, 1077 ZX Amsterdam. The telephone number there is 011 31 20
301 2984. Our Company Secretary is W. (Pim) Vlot who is based in
The Netherlands.




| |                        
| | -----------------------
| | Corporate Restructuring

On July 2, 1998, ABN 60, which was then a
public company organized under the laws of Australia and listed
on the Australian Stock Exchange, announced a plan of
reorganization and capital restructuring (the 1998
Reorganization).

James Hardie N.V. (JHNV) was
incorporated in August 1998 as an intermediary holding company,
with all of its common stock owned by indirect subsidiaries of
ABN 60. On October 16, 1998, ABN 60s shareholders
approved the 1998 Reorganization. Effective as of
November 1, 1998, ABN 60 and its subsidiaries contributed
certain business assets to ABN 60s subsidiary, JHNV and
JHNVs subsidiaries. In connection with the 1998
Reorganization, ABN 60 and its non-transferring subsidiaries
retained certain other assets and liabilities.

On July 24, 2001, ABN 60 announced a further
plan of reorganization and capital restructuring (the 2001
Reorganization). On October 19, 2001, we completed
our 2001 Reorganization. In connection with the 2001
Reorganization, JHI NV issued common shares represented by CUFS
on a one for one basis to existing ABN 60 shareholders in
exchange for their shares in ABN 60 and thereby became the
ultimate holding company for ABN 60 and JHNV. In addition, JHI
NV subscribed for partly-paid shares in ABN 60, with respect to
which ABN 60 could call upon JHI NV to pay any or all of the
remainder of the issue price at any time, and from time to time,
in the future for such amount as is necessary to ensure that ABN
60 remains solvent.

Following the 2001 Reorganization, JHI NV
controlled the same assets and liabilities as ABN 60 controlled
immediately prior to the 2001 Reorganization.

During fiscal year 2003, JHI NV and ABN 60
cancelled the partly-paid shares and ABN 60 transferred control
of all of its non-operating subsidiaries to RCI Holdings Pty
Ltd. On March 31, 2003, we transferred control of ABN 60 to
a newly established company named the ABN 60 Foundation. See
Information on the Company  Capital
Expenditures and Divestitures  Divestitures.

Recent Developments



| |                              
| | -----------------------------
| | Special Commission of Inquiry

In February 2004, the NSW Government established
the SCI to investigate, among other matters described in
Legal Proceedings, the circumstances in which the
Foundation was established. The SCI heard evidence and received
submissions from April 5, 2004 to August 13, 2004. On
July 14, 2004, the Company issued a statement announcing
that it would recommend that shareholders approve the provision
of an unspecified amount of additional funding to enable an
effective statutory scheme to compensate all future claimants
for asbestos-related injuries caused by former James Hardie
subsidiary companies. On September 21, 2004, the SCI issued
its report to the NSW Government. The report in part supported
certain allegations made against certain Company personnel and
the Company, but also supported positions taken by the Company
on a number of important issues. The SCIs findings are not
binding and a later court consideration of the issues could lead
to one or more different conclusions. In addition, the NSW
Government has announced its preparedness to pass legislation
that would alter the Companys liability position.

The NSW Government has stated that it would not
consider assisting the implementation of any proposal advanced
by the Company unless it was the result of an agreement reached
with the union movement acting through the ACTU and the Labor
Council of NSW as well as the representatives of the asbestos
claimants (together, the Representatives). The
statutory scheme that the Company recommended on July 14,
2004 was rejected by the Representatives. The Company is
currently in discussions with the Representatives

17



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##### Table of Contents



regarding potential arrangements that could be
acceptable to both the Representatives and the Company and
subsequently to the Companys shareholders and the NSW
Government. Both the outcome of those discussions and the timing
of any potential resolution are highly uncertain and,
accordingly, the Company cannot determine whether it will
achieve a satisfactory resolution or what any potential
arrangement may involve.


The Company has incurred substantial costs
associated with the SCI and may incur material costs in the
future related to the SCI or subsequent legal proceedings. See
Legal Proceedings and Risk Factors entitled We
may be subject to potential liability because ABN 60 and certain
former subsidiaries formerly manufactured products containing
asbestos and Following a Special Commission of
Inquiry that was established in Australia to consider matters
related to the Foundation, we may be subject to claims and
allegations involving asbestos-related liability, or our
corporate restructurings, including the corporate restructuring
related to the creation of the Foundation and the ABN 60
Foundation and associated intercompany transactions in
Item 3.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Australian Securities and Investments
    Commission Investigation (ASIC)

On September 22, 2004, the ASIC announced
that it was conducting an investigation into potential
contraventions of certain Australian laws arising from the
transactions considered by the SCI. We received a notice from
ASIC under relevant legislation to produce certain categories of
documents to be considered by it in its investigation. We are
currently responding to this notice and will cooperate with the
ASIC in relation to all aspects of its investigation. See
Legal Proceedings.



| |                             
| | ----------------------------
| | Board and Management Changes

On August 11, 2004, Mr. Alan McGregor
resigned as Chairman of the Supervisory Board due to his
continuing ill health. Ms. Meredith Hellicar was appointed
Chairman of the Supervisory Board on the same day.

On September 28, 2004, the Company announced
that Mr. Peter Macdonald and Mr. Peter Shafron were
standing aside as Chief Executive Officer and Chief Financial
Officer, respectively.

On October 21, 2004, Mr. Macdonald
resigned from his position on the Managing Board and as Chief
Executive Officer. On the same day, Mr. Louis Gries was
appointed as a temporary member of the Managing Board in
accordance with article 15.4 of the Companys Articles of
Association and was granted the title of Interim Chief Executive
Officer. On October 20, 2004, Mr. Shafron resigned
from his position as Chief Financial Officer. Mr. Russell
Chenu was appointed as Executive Vice President 
Australia and Interim Chief Financial Officer on
October 21, 2004.

On October 21, 2004, Mr. Folkert
Zwinkels resigned from the Managing Board. Mr. W. (Pim)
Vlot, the Companys Secretary, was appointed as a temporary
member of the Managing Board in accordance with article 15.4 of
the Companys Articles of Association on the same day.

General Overview of Our Business

Based on revenue, we believe we are the largest
manufacturer of fiber cement products and systems for internal
and external building construction applications in the United
States, Australia, New Zealand and the Philippines, and the
second largest manufacturer of flat sheet fiber cement products
in Chile. Fiber cement is currently one of the fastest growing
segments of the U.S. residential exteriors industry. Based
on our knowledge, experience, and third-party data regarding our
industry, we estimate that total U.S. industry shipments of
fiber cement siding, trim, soffit and fascia were approximately
1.4 billion square feet during fiscal year 2004, an
increase of approximately 15% from fiscal year 2003. Based on
our knowledge, experience and third-party data, fiber cement is
estimated to have 25% to 30% of the U.S. Interior Cement
Board market. We market our fiber cement products and systems
under various Hardi brand names and other brand names such as
Cemplank® siding, Sentry® siding and
ArtisanTM roofing. We believe that, in certain
applications, our fiber cement products and systems provide a
combination of distinctive performance, design and cost
advantages

18



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##### Table of Contents



when compared to other fiber cement products and
alternative products and systems using solid wood, engineered
wood, vinyl, brick, stucco or gypsum wallboard.


The sale of fiber cement products in the United
States accounted for 75%, 77% and 75% of our total net sales
from continuing operations in fiscal years 2004, 2003 and 2002,
respectively.

Our fiber cement products are used in various
markets including new residential construction (single and
multi-family housing), manufactured housing (mobile and
pre-fabricated homes), repair and remodeling and a variety of
commercial and industrial applications (stores, warehouses,
offices, hotels, motels, schools, libraries, museums,
dormitories, hospitals, detention facilities, religious
buildings and gymnasiums). We manufacture numerous types of
fiber cement products with a variety of patterned profiles and
surface finishes for a range of applications including external
siding and soffit lining, roofing, internal linings, facades,
fencing, pipes and floor and tile underlayments. In contrast to
some other building materials, fiber cement provides durability
attributes such as strong resistance to moisture, fire, impact
and termites, requires relatively little maintenance and can be
used as a substrate to create a wide variety of architectural
effects with textured and colored finishes. During fiscal year
2004, management believes, based on its analysis of
competitors sales that we sold approximately 90% of all
fiber cement products sold in the United States, approximately
65% of all fiber cement products sold in Australia and
approximately 90% of all fiber cement products sold in New
Zealand. We estimate that we had approximately 11% of the
approximately 12 billion square foot per year
U.S. exteriors market in fiscal year 2004.

The breakdown of our revenue by product category
and geographic area for each of our last three fiscal years is
as follows:

|                        |                                |                   |                                                |      |       |       |   |      |       |       |   |       |       |       | 
|----------------------- | ------------------------------ | ----------------- | ---------------------------------------------- | ---- | ----- | ----- | - | ---- | ----- | ----- | - | ----- | ----- | ----- | 
|                        |                                |                  
|                        |                                | Fiscal Year Ended
|                        |                                | March 31,        
|                        |                                |                  
|                        |                                | 2004              |                                                | 2003 |       | 2002 
|                        |                                |                   |                                                |      |       |      
|                        |                                |                  
|                        |                                | (In millions)    
|Continuing Operations   |                                |                   |                                                |      |       |       |   |      |       |       |   |      
|                        | Fiber Cement                   |                   |                                                |      |       |       |   |      |       |       |   |       |      
|                        |                                | United States     |                                                | $    | 738.6 |       |   | $    | 599.7 |       |   | $     | 444.8 |      
|                        |                                | Asia Pacific      |                                                |      | 219.8 |       |   |      | 174.3 |       |   |       | 141.7 |      
|                        |                                | Other             |                                                |      | 23.5  |       |   |      | 9.6   |       |   |       | 4.2   |      
|                        | General Corporate              |                   |                                                |     |       |       |   |     |       |       |   | 1.0   |      
|                        |                                |                   |                                                |      |       |       |   |      |       |       |   |      
|                        |                                |                   | Total Continuing Operations                    |      | $     | 981.9 |   |      | $     | 783.6 |   |       | $     | 591.7 | 
|                        |                                |                   |                                                |      |       |       |   |      |       |       |   |      
|Discontinued Operations |                                |                   |                                                |      |       |       |   |      |       |       |   |      
|                        | Gypsum (United States)         |                   | $                                              |     |       |       | $ | 18.7 |       |       | $ | 247.6 |      
|                        | Building Systems (New Zealand) |                   |                                                | 2.9  |       |       |   | 20.1 |       |       |   | 15.2  |      
|                        |                                |                   |                                                |      |       |       |   |      |       |       |   |      
|                        |                                |                   | Total Discontinued Operations                  |      | $     | 2.9   |   |      | $     | 38.8  |   |       | $     | 262.8 | 
|                        |                                |                   |                                                |      |       |       |   |      |       |       |   |      
|                        |                                |                   | Total (Continuing and Discontinued Operations) |      | $     | 984.8 |   |      | $     | 822.4 |   |       | $     | 854.5 | 
|                        |                                |                   |                                                |      |       |       |   |      |       |       |   |      

Industry Overview



| |                                           
| | ------------------------------------------
| | U.S. Housing Industry and Fiber
    Cement

In the United States, fiber cement is principally
used in the residential building industry, which fluctuates
based on the level of new home construction and the repair and
remodeling of existing homes. The level of activity is generally
a function of interest rates, inflation, unemployment levels,
demographic trends, gross domestic product growth and consumer
confidence. Demand for building products is also affected by
residential housing starts and existing home sales, the age and
size of the housing stock and overall home improvement
expenditures. According to the U.S. Census Bureau, annual
domestic housing starts increased from approximately
1.57 million in calendar year 2000 to approximately
1.85 million in calendar year 2003 and

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residential remodeling expenditures increased
from approximately $153.0 billion in calendar year 2000 to
approximately $176.9 billion in calendar year 2003.


Based on our knowledge, experience and
third-party data regarding our industry, we estimate that total
U.S. industry shipments of fiber cement siding, trim,
soffit and fascia were approximately 1.4 billion square
feet during fiscal year 2004, up approximately 15% from fiscal
year 2003. The future growth of fiber cement products will not
only depend on overall demand for building products but also the
rate of penetration of fiber cement products against competing
materials such as wood, engineered wood (hardboard and oriented
strand board), vinyl, masonry and stucco.

In the United States, the largest application for
fiber cement products is in the external siding industry. Fiber
cement is one of the fastest growing segments of the siding
industry. Continued strength in residential construction
combined with gains in the repair and remodel market have
resulted in strong demand for external siding products. Based on
our knowledge, experience and third-party data regarding our
industry, we estimate that the external siding market (including
siding, fascia, trim and soffit) was approximately
12 billion square feet in fiscal year 2004. Siding is a
component of every building and it usually occupies more square
footage than other building components, such as windows and
doors. Selection of siding material is based on installed cost,
durability, aesthetic appeal, strength, weather resistance,
maintenance requirements and cost, insulating properties and
other features. Different regions of the United States show a
decided preference among siding materials according to economic
conditions, weather, materials availability and local taste. The
principal siding materials are solid wood, engineered wood,
fiber cement, vinyl, masonry and stucco. Vinyl has the largest
share of the siding market. In recent years, fiber cement has
been gaining market share against vinyl, and wood and engineered
wood products, in the one of wood and engineered wood products,
share growth is believed to be due to durability concerns and
higher maintenance requirements of those products.

In the U.S. civil construction market, large
diameter pipes are used for major public infrastructure projects
such as storm water, sewer, water distribution and other
non-pressurized drainage applications. According to the most
recent Freedonia Report on Large Diameter Pipes, the
U.S. market for large diameter pipe is estimated at
177 million linear feet annually. Of this amount,
approximately 45% is used for storm water and sewer
applications, approximately 20% is used in drainage and
irrigation applications and approximately 35% is used for a
variety of other applications. The market is expected to grow
approximately 2.4% annually.



| |                                        
| | ---------------------------------------
| | International Fiber Cement
    Industry

In Australia and New Zealand, fiber cement
building products are used in both the residential and
commercial building industries with applications in external
siding, internal walls, ceilings, floors, soffits and fences.
The residential building industry represents the principal
market for fiber cement products. We believe the level of
activity in this industry is generally a function of interest
rates, inflation, unemployment levels, demographic trends, gross
domestic product growth and consumer confidence. Demand for
fiber cement building products is also affected by the level of
new housing starts and renovation activity. According to the
Australian Bureau of Statistics, new housing starts in Australia
have grown from approximately 167,137 in fiscal year 2000 to
approximately 169,272 in fiscal year 2004. Renovation activity,
as measured in local currency expenditures by the Australian
Bureau of Statistics, has increased steadily each year from
calendar year ended December 31, 2000 to calendar year
ended December 31, 2003 for a total increase over this
period of approximately 46%. According to Statistics New
Zealand, new dwellings authorized in New Zealand grew from
approximately 25,858 in fiscal year 2000 to 31,423 in fiscal
year 2004. Residential renovation activity in New Zealand has
steadily increased each year from fiscal year 2000 to fiscal
year 2004 for a total increase over this period of approximately
52%.

Fiber cement products have gained broader
acceptance across a range of product applications in Australia
and New Zealand than in the United States primarily due to their
earlier introduction. Our former ABN 60 subsidiaries developed
fiber cement in Australia as a replacement for asbestos cement
in the early 1980s. Asbestos sheet production ceased in
the early 1980s and asbestos pipe-based production ceased in
early 1987. Competition has intensified over the past eight
years in Australia. In addition to competition from solid wood,

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engineered wood, wallboard, masonry and brick,
two Australian competitors have established fiber cement
manufacturing facilities in Australia and fiber cement imports
are also available. Competition has also intensified in New
Zealand as fiber cement imports have increased, resulting in
increasingly competitive market pricing.


Management believes that fiber cement has good
long-term growth potential in some Asian and South American
markets because of the benefits of framed construction over
traditional masonry construction. In addition, we believe the
opportunity to replace wood-based products such as plywood with
more durable fiber cement will be attractive to consumers in
these markets.

Products

We manufacture fiber cement products in the
United States, Australia, New Zealand, the Philippines and
Chile. In fiscal year 2004, we also commenced our Europe Fiber
Cement business by distributing in the U.K. and France. In
addition, we made our first commercial sales of our new
generation of fiber cement roofing products manufactured at our
pilot roofing plant in Fontana, California. Our total product
offering is aimed at building and construction markets,
including new residential construction, manufactured housing,
repair and remodeling and a variety of commercial and industrial
building applications.

We offer a wide range of fiber cement products
for both exterior and interior applications, some of which have
not yet been introduced into the United States. In the United
States and elsewhere, our products are typically sold as planks
or flat sheets with a variety of patterned profiles and
finishes. Planks are used for external siding while flat sheets
are used for internal and external wall linings and floor
underlay. At our Plant City, Florida facility, we manufacture
fiber reinforced concrete pipes for use as large diameter storm
water and non-pressurized drainage applications. Outside the
United States, we also manufacture fiber cement products for use
in other applications such as building facades, lattice,
fencing, decorative columns and ceiling applications.

We have developed a proprietary technology
platform enabling the production of thicker yet lighter-weight
fiber cement products that are generally lighter and easier to
handle than traditional building products. The first application
of this technology has been our Harditrim® product.
Harditrim is a fiber cement trim product that is used on the
exterior of residential and commercial construction to replace
traditional wood and engineered wood trim. Harditrim was
launched in fiscal year 1999 from our Cleburne, Texas plant and
demand has been strong since that time. A new production process
for manufacturing Harditrim was commissioned at the Cleburne
plant and production commenced in fiscal year 2002.

Management believes that our products provide
certain performance, design and cost advantages. The principal
fiber cement attribute in exterior applications is durability,
particularly when compared to competing wood and wood-based
products, while offering comparable aesthetics. Our fiber cement
products exhibit superior resistance to the damaging effects of
moisture, fire, impact and termites compared to wood and
wood-based products, which has enabled us to gain a competitive
advantage over competing products. Vinyl siding products
generally have better durability characteristics than wood-based
products, but typically cannot duplicate the superior aesthetics
of fiber cement and lack the characteristics necessary for
effectively accepting paint applications.

Our fiber cement products provide strength and
the ability to imprint simulated patterns that closely resemble
patterns and profiles of traditional materials such as wood and
stucco. The surface properties provide a superior paint-holding
finish to wood and engineered wood products such that the
periods between necessary maintenance and repainting are longer.
Compared to masonry construction, the product is lightweight,
physically flexible and can be cut using readily available
tools. This makes the product suitable for lightweight
construction across a range of architectural styles. The product
is well suited to both timber and steel framed construction.

In ceramic tile underlayment applications, our
products provide superior handling and installation
characteristics compared to fiberglass mesh cement boards.
Compared to wood and wood-based products, our products provide
the same general advantages that apply to external applications.
In addition, our fiber cement

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products exhibit less movement in response to
exposure to moisture than many alternative competing products,
providing a more consistent and durable substrate on which to
install tiles. In internal lining applications where exposure to
moisture and impact damage are significant concerns, our
products provide superior moisture resistance and impact
resistance to traditional gypsum wet area wallboard and other
competing products.


Hardie® Pipe continues to offer advantages
to the mid-size drainage pipe market because our product
features span both traditional concrete pipes and newer flexible
pipes. We offer the initial crush strength of rigid pipes,
combined with the lighter-weight, longer lengths and ease of
installation of flexible pipes. The result is productivity gains
over rigid pipes and less installation and service risk than
with flexible pipes.

We seek to emphasize the performance attributes
of our products and continue to develop new products that, due
to the materials used and the process technology employed in
their manufacture, may be difficult for competitors to emulate.
While no assurances can be given, we believe that the
proprietary nature of these products, our ability to
competitively source raw materials for these products and the
economies of scale that are derived from their manufacture
should assist our efforts to maintain our leadership and low
cost competitive position. See Research and
Development.

In fiscal year 2000, we launched Hardibacker
500® tile underlayment, a new  1/2 inch thick tile
backer board in the United States. This enabled us to increase
sales of products to home center retailers which access the
building trade and home repair markets. We also introduced
Harditrim, a new generation of low density fiber cement trim
products for residential construction that further extended our
product range and enhanced our reputation as a leader in fiber
cement product innovation. The addition of Harditrim enabled us
to offer a fiber cement system for residential construction that
gave builders the option to completely replace wood and
engineered wood products with fiber cement in most exterior
applications. We introduced the ColorPlusTM
collection, a new finished product available in specific lap
siding, shingles, trim, fascia and soffit products, during
fiscal year 2002. In fiscal year 2003, we expanded our new line
of pre-finished exterior products, the ColorPlus collection,
with the addition of several new colors, and successfully
launched a new all-weather low density trim product utilizing
our new proprietary XLD® low density fiber cement
technology. We also launched our new improved proprietary
grid  1/4 backer product EzGrid® underlayment.
In fiscal year 2004, we introduced pre-finished trim accessories
to further expand our ColorPlus collection line. And the first
commercial sales of our Artisan® Roofing product were made
in the second half of fiscal year 2004. Additionally, in the
past five years, we launched many new textures, styles and
coatings in fiber cement siding products in the United States to
capitalize on demand for a variety of styles among homebuilders
and homeowners. In Australia and New Zealand, new products
released over the past three years include Hardifloor®
panels, Monotek® cladding, HardiGroove® lining,
HardiGlaze® tile sheet, EziGrid® tilebacker,
Hardirock® board (Australia only), Linea®
weatherboards and new column profiles and accessories. In fiscal
year 2004, we launched Hardiplank® siding in South Korea
and China, and launched a shorter and lighter version of
HardiSenepaTM fascia board in the Philippines.

Seasonality

Our business is seasonal and follows activity
levels in the building and construction industry. In the United
States, the quarters ending in December and March generally
reflect reduced levels of building activity depending on weather
conditions. In Australia, the quarter ending in March is usually
affected by a slowdown due to summer vacations. In the
Philippines, sales are generally lower during the period from
June through September as this is typhoon season and during the
last half of December due to the slowdown in business activity
over the Christmas period. In Chile, sales are generally lower
from May through September due to weather conditions. In
addition, general industry patterns can be affected by weather,
economic conditions, industrial disputes and other factors.

Raw Materials

All of the raw materials required in the
manufacture of our fiber cement products are available from a
number of sources and we have not experienced any shortages that
have materially affected our operations.

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The principal raw materials used in the
manufacture of fiber cement are cellulose fiber (wood-based
pulp), silica (sand), portland cement and water.


Cellulose Fiber.Reliable access to specialized, consistent quality, low cost
pulp is critical to the production of fiber cement building
materials. Cellulose fiber is sourced from New Zealand, the
United States and Canada, and is processed to our
specifications. It is further processed using our proprietary
technology to provide the reinforcing material in the cement
matrix of fiber cement. We have developed a high level of
internal expertise in the production and use of wood-based
pulps. This expertise is shared with pulp producers, which have
access to appropriate raw wood stocks, in order to formulate
superior reinforcing pulps. The resulting pulp formulas are
typically proprietary and are the subject of confidentiality
agreements between the pulp producers and us. There are a
variety of supply alternatives for the sourcing of pulp.
Although we have entered into contracts to hedge pulp prices in
the past, we currently have none in effect. However, we continue
to evaluate options on agreements with suppliers for the
purchase of pulp that could fix our pulp prices over the
longer-term.

Silica.High purity
silica is sourced locally by the various production plants. In
the majority of locations, we use silica sand as a silica
source. In certain other locations, however, we process quartz
rock and beneficiate silica sand to ensure the quality and
consistency of this key raw material. In our Fontana, California
and Tacoma, Washington plants, where cost-effective sources of
sand are not available, we operate quartz mines and process the
rock to obtain silica.

Cement.Cement is
acquired in bulk from local suppliers and is supplied on a
just-in-time basis to our manufacturing facilities. The silos at
each fiber cement plant hold between one and three days of our
cement requirements.

Water.We use local
water supplies and seek to process all wastewater to comply with
environmental requirements.

Sales, Marketing and Distribution

The principal markets for our fiber cement
products are the United States, Australia, New Zealand, the
Philippines, Chile, the U.K. and France. In addition, we sell
fiber cement products in Canada, Taiwan, Thailand, Singapore,
Japan, China, Vietnam, Malaysia, Hong Kong, the Middle East,
South Korea, Indonesia, Argentina, Spain, The Netherlands,
Denmark and the Republic of Ireland. Our HardiTM
brand name, customer education in comparative product
advantages, differentiated product range and customer service,
including technical advice and assistance, provide the basis for
our marketing strategy. We offer our customers support through a
specialized fiber cement sales force and customer service
infrastructure in the United States, Australia, New Zealand, the
Philippines, Europe, Canada and Chile. The customer service
infrastructure includes inbound customer service support
coordinated nationally in each country, and is complemented by
outbound telemarketing capability. Within each regional market,
we provide sales and marketing support to building products
dealers and lumber yards and also provide support directly to
the customers of these distribution channels, principally
homebuilders and building contractors.

In the United States, we sell fiber cement
products for new residential construction predominantly to
distributors, which then sell these products to dealers or
lumber yards. This two-step distribution process is increasingly
being supplemented with direct sales to customers as a means of
accelerating product penetration and sales. Our top two
U.S. distributors accounted for approximately 50% of our
total U.S. fiber cement sales in fiscal year 2004. In
addition, a large home center retailer also accounted for
approximately 15% of our total U.S. fiber cement sales in
fiscal year 2004. Repair and remodel products in the United
States are typically sold through the large home center
retailers and specialist distributors. In Australia and New
Zealand, both new construction and repair and remodel products
are generally sold directly to hardware stores and lumber yards
rather than through the two-step distribution process used in
the United States. In the Philippines, a network of thousands of
small to medium size dealer outlets sells our fiber cement
products to consumers, builders and real estate developers. In
Chile, we sell directly to builders and contractors, as well as
to hardware stores and distributors. Physical distribution of
product in each country is primarily by road or sea transport
with also some use of rail in the United States.

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We maintain dedicated regional sales management
teams in the major sales territories. The sales teams (including
telemarketing staff) consist of approximately 320 people in
the United States and Canada, 69 people in Australia,
26 people in New Zealand, 40 people in the
Philippines, 24 people in Chile, 25 people in Europe
and one person in Taiwan and Korea. Our national sales managers
and national account managers together with the regional sales
managers and sales representatives maintain relationships with
national and other major accounts. Our sales force includes
skilled trades people who provide on-site technical advice and
assistance. In certain cases, sales forces manage specific
product categories. For example, in the United States there are
separate sales forces for siding products, interior products,
pipes and roofing. The interior products sales force provides
in-store merchandising support for home center retailers.

We also use trade and consumer advertising and
public relations campaigns to generate demand for our products.
These campaigns usually explain the differentiating attributes
of our fiber cement products and the suitability of our fiber
cement products and systems for specific applications.

Despite the fact that distributors are generally
our direct customers, we also aim to increase primary demand for
our products by marketing our products directly to homeowners,
architects and builders. We encourage them to specify and
install our products because of the quality and craftsmanship of
our products. This pull through strategy, in turn,
assists us in expanding sales for our distribution network as
distributors benefit from the increasing demand for our products.

Geographic expansion of our fiber cement business
has occurred, such as in parts of Asia and South America, in
markets where framed construction is prevalent for residential
applications or where there are opportunities to change building
practices from masonry to framed construction. Expansion is also
possible where there are direct substitution opportunities
irrespective of the methods of construction. Our entry into the
Philippines is an example of the ability to substitute fiber
cement for an alternative product (in this case plywood). With
the exception of our current major markets, as well as Japan and
certain rural areas in Asia and Eastern Europe, most markets in
the world principally utilize masonry construction for external
walls in residential construction. Accordingly, further
geographic expansion depends on our ability to provide
alternative solutions and for those solutions to be accepted by
the markets.

The launch of fiber cement products in the
Philippines in fiscal year 1999 was accompanied by strategies to
address the particular needs of local customers and the building
trade as fiber cement products are relatively new to this market
and until recently were not widely used. For example, we have
established a carpenter training and accreditation program
whereby Filipino carpenters who are unfamiliar with our products
are taught installation techniques. We have also instituted a
business development agreement program to build further loyalty
with top residential developers.

Fiber cement products manufactured in Australia,
New Zealand and the Philippines are exported to a number of
markets in Asia and the Middle East by sea transport. A regional
sales management team based in the Philippines is responsible
for coordinating export sales into Asia and the Middle East.

Research and Development

We pioneered the successful development of
cellulose reinforced fiber cement and, during the 1980s,
progressively introduced products resulting from our proprietary
product formulation and process technology. We have capitalized
on our strong market positions to maintain leadership in product
research and development and process technology enhancements.
Our product differentiation strategy, and our quest to maintain
our position as one of the low cost manufacturers of fiber
cement, is supported by our significant investment in research
and development activities. In fiscal year 2004, we spent
$26.1 million in research and development activities or
approximately 2.7% of total net sales in research and
development activities, which includes $3.5 million of
amounts classified as selling, general and administrative
expenses for U.S. GAAP purposes. For fiscal years 2003 and
2002, we spent $20.8 million and $16.0 million,
respectively, in research and development expenditures, which
includes $2.7 million and $1.9 million of amounts
classified as selling, general and administrative expenses for
U.S. GAAP purposes, or 2.7% of total net sales in fiscal
years 2003 and 2002. We believe that we now have one of the
largest and most advanced fiber cement research and development
capabilities in the world.

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Globally, we employ over 110 scientists,
engineers and technicians in Core Research and in
Product & Process Development. Over 50% of our
scientists have advanced degrees, and 45% have worked for James
Hardie for over five years.

We have Research & Development Centers
in Sydney, Australia, and Fontana, California, where we conduct
core research, develop new manufacturing technology platforms
and develop products for specific markets and applications. By
investing in production technology, we aim to keep reducing our
capital and operating costs, and at the same time find new ways
to make existing products and new products.

Over the past ten years, advances in process
technology have allowed us to reduce the incremental cost of
additional capacity at existing sites. At the same time, we have
reduced the relative cost of raw materials through yield
improvements in the plants, by providing technological support
to drive process improvements in our suppliers operations,
and from our increased business scale.

We believe that we also benefit from superior
economies of scale, since we operate plants that have two to
three times larger capacity than our fiber cement competitors.

In addition, our goals are to:



| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | continue to lower the capital cost of each unit
    of production at new plants by learning from past projects and
    through continuing innovation in engineering; and
|
| |  | reduce operating costs at all plants by improving
    manufacturing processes, raw materials yields and machine
    productivity.                                       

We believe that efficient, low-cost
manufacturing, combined with our unique technology, will allow
us to generate higher returns on invested capital because we
will be able to sell our products at prices that are attractive
to our customers, and achieve a profit margin that is attractive
to shareholders.

Dependence on Trade Secrets and Research and
Development

Our current patent portfolio is based mainly on
manufacturing and use of fiber cement products. Our additional
technical intellectual property consists primarily of our
operating and manufacturing know-how, which is treated as a
trade secret. We are in the process of elevating our abilities
to effectively create, manage and utilize our intellectual
property and have developed a strategy that increasingly uses
patenting, licensing, trade secret protection and joint
development. If our research and development efforts fail to
generate new, innovative products or processes, our overall
profit margins may decrease and demand for our products may fall.

Governmental Regulation



| |                         
| | ------------------------
| | Environmental Regulation

Our operations and properties are subject to
extensive federal, state and local and foreign environmental
protection and health and safety laws, regulations and
ordinances. These environmental laws, among other matters,
govern activities and operations that may have adverse
environmental effects, such as discharges to air, soil and
water, and establish standards for the handling of hazardous and
toxic substances and the handling and disposal of solid and
hazardous wastes. In the United States, these environmental laws
include:



| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | the Resource Conservation and Recovery Act;                                  
|
| |  | the Comprehensive Environmental Response,
    Compensation and Liability Act;
|
| |  | the Clean Air Act;                                                           
|
| |  | the Occupational Safety and Health Act;                                      
|
| |  | the Emergency Planning and Community Right to
    Know Act;                  
|
| |  | the Clean Water Act;                                                         

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| |   |                                                
| | - | -----------------------------------------------
| |  | the Safe Drinking Water Act;                   
|
| |  | the Surface Mining Control and Reclamation Act;
|
| |  | the Toxic Substances Control Act;              
|
| |  | the National Environmental Policy Act; and     
|
| |  | the Endangered Species Act,                    

as well as analogous state statutes and
regulations. Other countries also have statutory schemes
relating to the protection of the environment. Pursuant to
certain environmental laws, a current or previous owner or
operator of real property may be liable for the costs of removal
or remediation of environmental contamination on, under or in
that property. In addition, persons who arrange, or are deemed
to have arranged, for the disposal or treatment of hazardous
substances may also be liable for the costs of removal or
remediation of environmental contamination at the disposal or
treatment site, regardless of whether the affected site is owned
or operated by such person. Environmental laws often impose
liability whether or not the owner, operator or arranger knew
of, or was responsible for, the presence of such environmental
contamination. Also, third parties may make claims against
owners or operators of properties for personal injuries and
property damage associated with releases of hazardous or toxic
substances pursuant to applicable environmental laws as well as
common law tort theories, including strict liability.
Environmental compliance costs in the future will depend, in
part, on regulatory developments and future requirements that
cannot be predicted.

Organizational Structure

JHI NV is incorporated in The Netherlands, with
its corporate seat in Amsterdam.

The table below sets forth our significant
subsidiaries, all of which are 100% owned by JHI NV, either
directly or indirectly, as of October 31, 2004.

|                                                 |  |                 |               | 
|------------------------------------------------ |  | --------------- | ------------- | 
|                                                 |  | Jurisdiction of
|Name of Company                                  |  | Establishment  
|                                                 |  |                
|James Hardie Aust Holdings Pty Ltd.              |  |                 | Australia     | 
|James Hardie Aust Investments No. 1 Pty
    Ltd. |  |                 | Australia     | 
|James Hardie Austgroup Pty Ltd.                  |  |                 | Australia     | 
|James Hardie Australia Management Pty
    Ltd.   |  |                 | Australia     | 
|James Hardie Australia Pty Ltd.                  |  |                 | Australia     | 
|James Hardie Building Products Inc.              |  |                 | United States | 
|James Hardie Fibre Cement Pty Ltd.               |  |                 | Australia     | 
|James Hardie International Finance B.V           |  |                 | Netherlands   | 
|James Hardie N.V.                                |  |                 | Netherlands   | 
|James Hardie New Zealand Inc.                    |  |                 | New Zealand   | 
|James Hardie Philippines Inc.                    |  |                 | Philippines   | 
|James Hardie Research (Holdings) Pty
    Ltd.    |  |                 | Australia     | 
|James Hardie U.S. Investments Sierra
    Inc.    |  |                 | United States | 
|N.V. Technology Holdings A Limited Partnership   |  |                 | Australia     | 
|RCI Pty Ltd.                                     |  |                 | Australia     | 

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Capital Expenditures and
Divestitures



| |                     
| | --------------------
| | Capital Expenditures

The following table sets forth our capital
expenditures, calculated on an accrual basis, for each year in
the three-year period ended March 31, 2004.

|                                                                        |                        |                                                |                               |      |      |      |      |     |      |      |      |     |      |      | 
|----------------------------------------------------------------------- | ---------------------- | ---------------------------------------------- | ----------------------------- | ---- | ---- | ---- | ---- | --- | ---- | ---- | ---- | --- | ---- | ---- | 
|                                                                        |                        |                                               
|                                                                        |                        | Fiscal Years Ended                            
|                                                                        |                        | March 31,                                     
|                                                                        |                        |                                               
|                                                                        |                        | 2004                                           |                               | 2003 |      | 2002
|                                                                        |                        |                                                |                               |      |      |     
|                                                                        |                        |                                               
|                                                                        |                        | (In millions)                                 
|Continuing Operations                                                   |                        |                                                |                               |      |      |      |      |     |      |      |      |    
|                                                                        | Fiber Cement           |                                                |                               |      |      |      |      |     |      |      |      |     |     
|                                                                        |                        | United States                                  |                               | $    | 56.2 |      |      | $   | 81.0 |      |      | $   | 39.3 |     
|                                                                        |                        | Asia Pacific                                   |                               |      | 8.4  |      |      |     | 6.6  |      |      |     | 8.1  |     
|                                                                        |                        | Chile, U.S. Pipes, U.S. Roofing and
    Europe |                               |      | 9.5  |      |      |     | 2.5  |      |      |     | 3.3  |     
|                                                                        |                        |                                                |                               |      |      |      |      |     |      |      |      |    
|                                                                        |                        |                                                | Total Fiber Cement            |      |      | 74.1 |      |     |      | 90.1 |      |     |      | 50.7 | 
|                                                                        | General Corporate      |                                                |                               |     |      |      |      | 0.1 |      |      |      | 0.1 |     
|                                                                        |                        |                                                |                               |      |      |      |      |     |      |      |      |    
|                                                                        |                        |                                                | Total Continuing Operations   |      | $    | 74.1 |      |     | $    | 90.2 |      |     | $    | 50.8 | 
|                                                                        |                        |                                                |                               |      |      |      |      |     |      |      |      |    
|Discontinued Operations                                                 |                        |                                                |                               |      |      |      |      |     |      |      |      |    
|                                                                        | Gypsum (United States) |                                                | $                             |     |      |      | $    |    |      |      | $    | 1.4 |     
|                                                                        | Windows (Australia)    |                                                |                               |     |      |      |      |    |      |      |      | 0.2 |     
|                                                                        |                        |                                                |                               |      |      |      |      |     |      |      |      |    
|                                                                        |                        |                                                | Total Discontinued Operations |      |      |     |      |     |      |     |      |     |      | 1.6  | 
|                                                                        |                        |                                                |                               |      |      |      |      |     |      |      |      |    
|Total Capital Expenditures (Continuing and
    Discontinued Operations) |                        | $                                              | 74.1                          |      |      | $    | 90.2 |     |      | $    | 52.4 |    
|                                                                        |                        |                                                |                               |      |      |      |      |     |      |      |      |    

The significant capital expenditure projects over
the past three fiscal years in our USA Fiber Cement business
include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the addition of our first XLD trim line at our
    Cleburne, Texas plant at a total cost of $22.7 million,
    where $4.3 million occurred during fiscal year 2002 and
    $18.4 million occurred during fiscal years 2000 and 2001;                                                                                                                                                                                                  
|
| |  | the addition of the first line built by James
    Hardie at our Waxahachie, Texas plant at a cost of
    $12.6 million, which occurred during fiscal year 2002. This
    addition was made to replace an existing second line built by a
    third party for Temple Inland. In fiscal year 2001, we spent
    $9.1 million related to upgrades to the existing first line
    and plant infrastructure at our Waxahachie, Texas plant;
|
| |  | the addition of a second flat sheet production
    line at our Peru, Illinois plant at a total cost of
    $24.7 million, consisting of capital expenditures of
    $19.1 million, which occurred during fiscal years 2002 and
    2003, and $5.6 million, which occurred during fiscal year
    2001;                                                                                                                                
|
| |  | the purchase of land and building in Summerville,
    South Carolina and Blandon, Pennsylvania, at a cost of
    $10.0 million and $7.6 million, respectively, in
    fiscal year 2003;                                                                                                                                                                                                                                               
|
| |  | the addition of a panel production line at our
    Waxahachie, Texas plant at a cost of $26.5 million, which
    occurred during fiscal years 2003 and 2004;                                                                                                                                                                                                                                                                          
|
| |  | the addition of a pre-finishing line and
    expansion of the building at our Peru, Illinois plant at a total
    cost of $7.8 million, which occurred during fiscal years
    2003 and 2004;                                                                                                                                                                                                                                         
|
| |  | upgrades to our Blandon, Pennsylvania plant at a
    cost of $14.4 million, which occurred during fiscal years
    2003 and 2004;                                                                                                                                                                                                                                                                                                     
|
| |  | the addition of a new trim line at our Peru,
    Illinois plant, which began during fiscal year 2004 and is
    expected to commence production by the fourth quarter of fiscal
    year 2005. This new production line will have a design capacity
    of 160 million square feet and is currently estimated to
    cost $61.0 million. Previously, we announced that the
    estimated cost would be $49.9 million; and             

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the addition of a new green-field (from
    scratch on undeveloped land) fiber cement plant in Reno,
    Nevada, construction of which began during the fourth quarter of
    fiscal year 2004 and is expected to commence production by the
    end of calendar year 2004. The plant is expected to have a
    single production line with a design capacity of
    300 million square feet a year, 50% more than the capacity
    of any of our production lines today. The plant will make plank,
    panel and backer products and is currently estimated to cost
    $54.5 million. Previously, we announced that the estimated
    cost would be $47.5 million.

The significant capital expenditure project in
our U.S. Pipes businesses over the past five fiscal years
was for the construction of our pipe plant in Plant City,
Florida at a cost of $33.7 million, which primarily
occurred during fiscal year 2001.

In our roofing operations, we spent
$11.7 million in fiscal years 2003 and 2004 on our new
pilot plant in Fontana, California. This pilot plant was built
to test our proprietary manufacturing technology and provide
product market testing in Southern California for a new
generation of fiber cement roofing product.

In addition, in fiscal year 2004,
$2.2 million was spent to upgrade the fiber cement
manufacturing plant at Rosehill in Sydney and $1.8 million
was spent at our Brisbane plant to install a coating facility.

We currently expect the level of our capital
expenditures to continue to be substantial. Competitive
pressures or market developments could require increased capital
expenditures. Our financing for these capital expenditures is
expected to come from our internal cash flows from our future
operations and external debt to the extent that internal cash
flows do not cover our capital expenditures.



| |             
| | ------------
| | Divestitures



| |                 
| | ----------------
| | Building Systems

On May 30, 2003, we sold our New Zealand
Building Systems business to a third party. We recorded a gain
of $1.9 million representing the excess of net proceeds
from the sale of $6.7 million over the net book value of
assets sold of $4.8 million. The proceeds from the sale
comprised cash of $5.0 million and a note receivable in the
amount of $1.7 million.



| |       
| | ------
| | Gypsum

On March 12, 2002, we signed an agreement to
sell our Gypsum operations to BPB U.S. Holdings, Inc. for
cash proceeds of $345.0 million less selling costs of
$10.6 million. The sale was completed on April 25,
2002. We recorded a pre-tax gain of $81.4 million
representing the excess of net proceeds from the sale of
$334.4 million over the net book value of assets sold of
$253.0 million. The sale resulted in income tax expense of
$26.1 million. The net assets of our Gypsum business prior
to the sale primarily consisted of trade receivables, inventory,
accounts payable, mineral reserves, property, plant and
equipment, goodwill and deferred taxes.

Prior to the sale of our Gypsum operations in
April 2002, we owned and operated three gypsum
wallboard-manufacturing facilities in the United States.

Part of our former Gypsum business included three
gypsum rock mines located in an area covering parts of Northwest
Arizona, Utah and Nevada; in Las Vegas, Nevada; and in
Nashville, Arkansas. In June 2001, we entered into an agreement
to sell our Las Vegas mine to a developer for
$50.0 million. On March 21, 2003, we completed the
sale of our gypsum mine in Las Vegas and recorded a pre-tax gain
of $49.2 million representing the excess of net proceeds
from the sale of $48.4 million less the cost of assets sold
of $0.7 million and the assumption of $1.5 million in
liabilities by the buyer. The sale resulted in an income tax
expense of $19.2 million. The proceeds from the sale
comprised cash of $50.6 million less selling costs of
$2.2 million. The other two gypsum rock mines were included
with the sale of our Gypsum operations to BPB
U.S. Holdings, Inc. in April 2002.

Under the terms of the sale agreement, we agreed
to customary indemnification obligations related to our
representations and warranties in the agreement. In addition, we
agreed to indemnify BPB U.S. Holdings, Inc.

28



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for any future liabilities arising from
asbestos-related injuries to persons or property arising from
our former Gypsum business. Although we are not aware of any
asbestos-related claims arising from the Gypsum business nor
circumstances that would give rise to such claims, under the
sale agreement, our obligation to indemnify the purchaser for
liabilities arising from asbestos-related injuries arises only
if such claims exceed $5 million in the aggregate, is
limited to $250 million in the aggregate and will continue
for 30 years after the closing date of our Gypsum
business.


Pursuant to the terms of our agreement to sell
our Gypsum business, we also retained responsibility for any
losses incurred by the purchaser resulting from environmental
conditions at the Duwamish River in the State of Washington so
long as notice of a claim is given within 10 years of
closing. Our indemnification obligations are subject to a
$34.5 million limitation. The Seattle gypsum facility had
previously been included on the Confirmed and Suspected
Contaminate Sites Report released in 1987 due to the
presence of metals in the groundwater. As we believe the metals
found emanated from an offsite source, we do not believe we are
liable for, and have not been requested to conduct, any
investigation or remediation relating to the metals in the
groundwater.



| |                  
| | -----------------
| | Building Services

During the year ended March 31, 2003, we
recorded a loss of $1.3 million relating to our Building
Services business, which was disposed of in November 1996. The
loss consisted of expenses of $0.8 million and a
$0.5 million write-down of an outstanding receivable that
was retained as part of the sale.



| |                                
| | -------------------------------
| | Amaca Pty Ltd and Amaba Pty Ltd

In fiscal year 2001, we gifted A$3.0 million
($1.7 million) in cash and transferred ownership of Amaca
Pty Ltd (formerly James Hardie & Coy Pty Ltd)
(Amaca) and Amaba Pty Ltd (formerly Jsekarb Pty Ltd)
(Amaba) to the Medical Research and Compensation
Foundation. The change in ownership resulted in a gain on
disposal of $2.3 million. In addition, ABN 60 (formerly
JHIL) agreed to repay its existing loan of A$70.0 million
($34.3 million) due to Amaca. Following the placement of
ABN 60 shares on August 1, 2001, this
A$70.0 million loan was repaid in full on August 8,
2001. ABN 60 also agreed to provide 42 annual payments to the
former subsidiaries, totaling A$234.2 million
($141.4 million), in return for certain covenants and
undertakings by the former subsidiaries not to bring any
asbestos-related claims against ABN 60 or to make claims with
respect to payments previously made by the former subsidiaries
to ABN 60 or its affiliates, and to indemnify ABN 60 in relation
to any asbestos-related claims that may be brought against it in
connection with the former subsidiaries. Under this agreement,
ABN 60 had the option of making the first seven annual payments
and then a final payment of A$73.0 million
($44.1 million) when the eighth payment becomes due, making
a total payment of A$112.0 million ($67.6 million).
However, the former subsidiaries obligation to indemnify
ABN 60 and its related entities is not limited to the amount ABN
60 is obligated to pay to the Foundation. Apart from the express
indemnity for non-asbestos matters provided to ABN 60 and a
possible arrangement to fund some or all future claimants for
asbestos-related injuries caused by former James Hardie
subsidiary companies and to the potential liabilities more fully
described in Legal Proceedings, we do not believe we
would have any liability under current Australian law should
future asbestos-related liabilities of Amaca and Amaba exceed
the funds available to those entities or the Foundation.

On September 9, 2001, ABN 60 made an early
payment of A$1.0 million ($0.5 million) to the
Foundation. This payment was in addition to the annual required
payment that is made each February. As a result, the required
annual payments of A$5.6 million have been reduced to
A$5.5 million. On March 31, 2003, we transferred
ownership and control of ABN 60 to the ABN 60 Foundation as
described below, and consequently the indirect benefit of the
deed of covenant and indemnity and related liability, to a newly
established company named ABN 60 Foundation. Also see
Legal Proceedings and Notes 14 and 17 to our
consolidated financial statements included in Item 18 in
this Form 20-F.

29



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| |       
| | ------
| | ABN 60

On March 31, 2003, we transferred control of
ABN 60 to a newly established company named ABN 60 Foundation.
The ABN 60 Foundation was established to be the sole shareholder
of ABN 60 and to ensure ABN 60 meets its payment obligations to
the Foundation. Following the establishment of the ABN 60
Foundation, JHI NV no longer owns any shares of ABN 60. The ABN
60 Foundation is managed by independent directors and operates
entirely independently of the Company. We do not control the
activities of ABN 60 or the ABN 60 Foundation in any way. We
have no economic interest in ABN 60 or the ABN 60 Foundation and
have no right to dividends or capital distributions. Apart from
the express indemnity for non-asbestos matters provided to ABN
60 as described above under Amaca Pty Ltd and Amaba Pty
Ltd and a possible arrangement to fund some or all future
claimants for asbestos-related injuries caused by former James
Hardie subsidiary companies and to the potential liabilities
more fully described in Legal Proceedings, we do not
believe we will have any liability under current Australian law
should future liabilities of ABN 60 or ABN 60 Foundation exceed
the funds available to those entities. As a result of the change
in ownership of ABN 60 on March 31, 2003, we recorded a
loss on disposal of $0.4 million, representing the
liabilities of ABN 60 (to the Foundation) of A$94.6 million
($57.2 million), the A$94.5 million
($57.1 million) in cash held on the balance sheet, and
costs associated with the establishment and funding of the ABN
60 Foundation. Also see Legal Proceedings and
Notes 14 and 17 to our consolidated financial statements
included in Item 18 in this Form 20-F.



| |        
| | -------
| | Windows

On November 30, 2001, we sold our Windows
business. We began the divestiture of our Windows business in
August 2000 when we approved a plan to dispose of the business.
In fiscal year 2001, we recorded a loss on disposal of
$17.4 million, net of an income tax benefit of
$0.6 million. This loss on disposal consisted of
$17.2 million for a write-down of assets to their expected
net realizable value on disposal and transaction costs expected
to be incurred with the disposal. In addition, operating losses
from August 15, 2000 to the final disposition date were
estimated at $0.8 million and included in fiscal year
2001s loss on disposal. In fiscal year 2002, we recorded a
gain on disposal of $2.0 million representing the excess of
cash proceeds of $7.8 million over the net book value of
the assets sold of $5.8 million, a retirement plan
settlement loss of $1.3 million and an income tax benefit
of $1.3 million. The cash proceeds were offset by cash
divested of $0.5 million.

Property, Plant and Equipment

Over the past several years, we have built
significant production capacity in the United States in an
effort to ensure that we will be able to meet expected increases
in demand for our products and improve our operating
efficiencies. As part of our facilities investment strategy, we
have constructed a plant for flat sheet and trim products in
Illinois and upgraded and expanded our existing plants in
Illinois, Texas, California and Pennsylvania. In addition, we
entered into a long-term lease arrangement in fiscal year 2001
for our Waxahachie, Texas plant and upgraded the existing first
line, replaced the existing second line and completed
construction on a new panel production line at this fiber cement
plant in fiscal years 2001, 2002 and 2004, respectively. In
fiscal year 2002, we also acquired the operating assets of
Cemplank, Inc., which included a fiber cement plant at Blandon,
Pennsylvania and a fiber cement plant at Summerville, South
Carolina, and in fiscal year 2003 we purchased the property on
which these plants are located. In fiscal year 2004, we
completed upgrades to our Blandon, Pennsylvania plant. In
addition, we started construction on our new green-field plant
in Reno, Nevada and our new trim line at our Peru, Illinois
plant, and completed our pilot roofing plant in Fontana,
California. Over the last five years we have spent an aggregate
of approximately $229.7 million related to the construction
and upgrades of our plants in the United States. Our management
estimates that once our green-field plant is completed in Reno,
Nevada, our nine manufacturing plants will be among the largest
and lowest cost fiber cement manufacturing plants in the United
States. Our management also believes that the location of our
plants in California, Texas, Florida, Illinois, Washington,
Pennsylvania, South Carolina and Nevada positions us near high
growth markets in the United States while minimizing our
transportation costs for product distribution and raw material
sourcing.

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In fiscal year 2002, we closed our fiber cement
plant in Western Australia and have been meeting demand from our
remaining facilities. The remaining plants in Australia have
also been upgraded over recent years to both improve output and
productivity. In fiscal year 2004, A$3.2 million
($2.2 million) was spent to upgrade the fiber cement
manufacturing plant at Rosehill in Sydney. In addition, we spent
A$2.6 ($1.8 million) in fiscal year 2004 at our Brisbane
plant to install a coating facility, which we believe will add
value to our basic product range. In New Zealand, our fiber
cement production line was upgraded in fiscal year 2001 at a
cost of NZ$1 million ($1 million) to enable it to
produce new siding and internal lining fiber cement products. In
the Philippines, we have one fiber cement manufacturing plant,
which began producing marketable product in fiscal year 1999.

In December 2000, we purchased and significantly
upgraded a plant in Santiago, Chile and the production of our
products commenced in March 2001.

In March 2001, our fiber reinforced concrete pipe
plant at Plant City, Florida commenced operations. Built at a
total cost of $33.7 million, the plant has commenced
production of drainage pipes and has an annual production
capacity of 100,000 tons.

Plants and Process.We manufacture fiber cement products in the United States,
Australia, New Zealand, the Philippines and Chile. The location
of each of our fiber cement plants and the annual design
capacity for such plants are set forth below:

|                                                     |                                       |                                          |                                       |             |     |             |  |   |     |  |  |         |     |         | 
|---------------------------------------------------- | ------------------------------------- | ---------------------------------------- | ------------------------------------- | ----------- | --- | ----------- |  | - | --- |  |  | ------- | --- | ------- | 
|                                                     |                                       | Existing                                 |                                       | Committed   |     | Total      
|                                                     |                                       | Annual                                   |                                       | Additional  |     | Planned    
|                                                     |                                       | Design                                   |                                       | Design      |     | Design     
|Location                                             |                                       | Capacity(1)                              |                                       | Capacity(1) |     | Capacity(1)
|                                                     |                                       |                                          |                                       |             |     |            
|Fiber Cement Flat Sheet (in million square
    feet) |                                       |                                          |                                       |             |     |             |  |   |     |  |  |        
|                                                     | United States                         |                                          |                                       |             |     |             |  |   |     |  |  |         |    
|                                                     |                                       | Fontana, California                      |                                       |             | 180 |             |  |   |    |  |  |         | 180 |        
|                                                     |                                       | Plant City, Florida                      |                                       |             | 300 |             |  |   |    |  |  |         | 300 |        
|                                                     |                                       | Cleburne, Texas                          |                                       |             | 500 |             |  |   |    |  |  |         | 500 |        
|                                                     |                                       | Tacoma, Washington                       |                                       |             | 200 |             |  |   |    |  |  |         | 200 |        
|                                                     |                                       | Peru, Illinois                           |                                       |             | 400 |             |  |   | 160 |  |  |         | 560 |        
|                                                     |                                       | Waxahachie, Texas                        |                                       |             | 360 |             |  |   |    |  |  |         | 360 |        
|                                                     |                                       | Blandon, Pennsylvania                    |                                       |             | 200 |             |  |   |    |  |  |         | 200 |        
|                                                     |                                       | Summerville, South Carolina              |                                       |             | 190 |             |  |   |    |  |  |         | 190 |        
|                                                     |                                       | Reno, Nevada                             |                                       |             |    |             |  |   | 300 |  |  |         | 300 |        
|                                                     |                                       |                                          |                                       |             |     |             |  |   |     |  |  |        
|                                                     |                                       |                                          | Total United States                   |             |     |             |  |   |     |  |  |         |     | 2,790   | 
|                                                     | Australia                             |                                          |                                       |             |     |             |  |   |     |  |  |         |    
|                                                     |                                       | Sydney, New South Wales(2)               |                                       |             | 200 |             |  |   |    |  |  |         | 200 |        
|                                                     |                                       | Brisbane, Queensland (Carole Park)(2)(3) |                                       |             | 160 |             |  |   |    |  |  |         | 160 |        
|                                                     |                                       |                                          |                                       |             |     |             |  |   |     |  |  |        
|                                                     |                                       |                                          | Total Australia                       |             |     |             |  |   |     |  |  |         |     | 360     | 
|                                                     | New Zealand                           |                                          |                                       |             |     |             |  |   |     |  |  |         |    
|                                                     |                                       | Auckland(2)                              |                                       |             | 75  |             |  |   |    |  |  |         | 75  |        
|                                                     | The Philippines                       |                                          |                                       |             |     |             |  |   |     |  |  |         |    
|                                                     |                                       | Manila                                   |                                       |             | 145 |             |  |   |    |  |  |         | 145 |        
|                                                     | Chile                                 |                                          |                                       |             |     |             |  |   |     |  |  |         |    
|                                                     |                                       | Santiago                                 |                                       |             | 55  |             |  |   |    |  |  |         | 55  |        
|                                                     |                                       |                                          |                                       |             |     |             |  |   |     |  |  |        
|                                                     |                                       |                                          | Total Fiber Cement Flat Sheet         |             |     |             |  |   |     |  |  |         |     | 3,425   | 
|Fiber Reinforced Concrete Pipes(in tons)(4)          |                                       |                                          |                                       |             |     |             |  |   |     |  |  |        
|                                                     | Plant City, Florida (pipes)           |                                          |                                       | 100,000     |     |             |  |  |     |  |  | 100,000 |    
|                                                     | Brisbane, Queensland (Meeandah)(2)(3) |                                          |                                       | 50,000      |     |             |  |  |     |  |  | 50,000  |    
|                                                     |                                       |                                          |                                       |             |     |             |  |   |     |  |  |        
|                                                     |                                       |                                          | Total Fiber Reinforced Concrete Pipes |             |     |             |  |   |     |  |  |         |     | 150,000 | 



---



|    |                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Annual design capacity is based on
    managements historical experience with our production
    process and is calculated assuming continuous operation,
    24 hours per day, seven days per week, producing 5/16
    thickness siding at a target operating speed. Plants outside the
    United States produce a range of thicker

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| |                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | products, which negatively affect their outputs.
    Actual production is affected by factors such as product mix,
    batch size, plant availability and production speeds and is
    usually less than annual design capacity.



|    |                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Prior to March 2004, the land on which these
    Australian facilities are located was leased on a long-term
    basis from Amaca Pty Limited. In March 2004, various
    subsidiaries of Multiplex Property Trust (together,
    Multiplex), an unrelated third party, acquired the
    land and buildings related to these four fiber cement
    manufacturing facilities from the Foundation.
|   
|(3) | There are two manufacturing plants in Brisbane.
    Carole Park produces only flat sheets and Meeandah produces only
    pipes and columns.                                                                                                                                                                                                                                                       
|   
|(4) | Pipe and column capacity is measured in tons
    rather than million square feet.                                                                                                                                                                                                                                                                                                                 

While the same basic process is used to
manufacture fiber cement products at each facility, plants are
designed to produce the appropriate mix of products to meet each
markets specific, projected needs. All of our
manufacturing facilities have been either newly constructed or
substantially modernized and upgraded in the past five years.
The facilities were constructed so production can be efficiently
adjusted in response to increased consumer demand by either
increasing production capacity utilization or enhancing the
economies of scale or by adding additional lines to existing
facilities, or by making corresponding reductions in production
capacity in response to weaker demand. Except for the
Waxahachie, Texas plant, we own all of our fiber cement sites
and plants located in the United States. The lease for the
Waxahachie, Texas site and plant expires on March 31, 2020,
at which time we have an option to purchase the plant. Pursuant
to the lease, we make quarterly base rental payments of
$850,000. In 1998, we entered into lease agreements with a
former subsidiary now held by the Foundation for all of our
fiber cement sites located in Australia. In March 2004,
Multiplex acquired the land and buildings related to the four
fiber cement manufacturing facilities from the Foundation. Prior
to that acquisition, we renegotiated the four leases with
Multiplex. Upon completion of the acquisition and subsequent
transfer of title into Multiplexs name, Multiplex then
assumed the responsibility of landlord under each of the amended
leases. In addition, in March 2004, Multiplex also acquired our
New Zealand land and buildings and we now make lease payments to
Multiplex related to this site. We own our fiber cement plant
located in Chile and our Pipe plant in the United States. In
addition, we own 40% of our fiber cement plant located in the
Philippines.

For fiscal year 2004, average capacity
utilization for our fiber cement plants by country was
approximately as follows:

|              |  |                |    |  
|------------- |  | -------------- | -- | -
|              |  | Capacity      
|Country       |  | Utilization(1)
|              |  |               
|United States |  |                | 70 | %
|Australia     |  |                | 57 | %
|New Zealand   |  |                | 56 | %
|Philippines   |  |                | 67 | %
|Chile         |  |                | 82 | %



---



|    |                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Capacity utilization is based on design capacity
    that is based on management estimates as described above, as no
    industry standard exists for the calculation of fiber cement
    manufacturing facility capacities.

The capital cost per unit of production for new
plants has significantly declined since we opened our first
U.S. plant in Fontana, California in 1989. This improvement
is largely attributable to our utilization of proprietary
technology. Management believes that this capital cost per unit
of capacity is substantially lower than that of many of our
competitors plants. In addition, we can now build and
commission new manufacturing plants significantly faster than
when we built our first production line in the United States.
Management believes that the speed and cost at which we can
construct new plants relative to our competitors enable us to
respond rapidly to emerging regional demand for fiber cement
products and to gain the advantage accorded to the first local
producer in a market.

Mines.We own a
quartz mine in Fontana, California and lease a quartz mine in
Tacoma, Washington. Our five-year lease for the mine in Tacoma,
Washington expires on February 28, 2006, at which time we
have

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the option to renew our lease for an additional
four years. We pay production royalties to the owner based on
silica tonnage removed from the mine. Because cost effective
sources of sand are not available at these locations, we operate
these quartz mines and process the rock to obtain silica for our
fiber cement products.


Legal Proceedings

Our subsidiaries are involved from time to time
in various legal proceedings and administrative actions
incidental to the normal conduct of business. Although it is
impossible to predict the outcome of any pending legal
proceeding, our management believes that such proceedings and
actions in the normal conduct of business should not,
individually or in the aggregate, have a material adverse effect
on either our consolidated financial position, results of
operations or cash flows.

With regard to asbestos-related matters, see Risk
Factors entitled We may be subject to potential liability
because ABN 60 and certain former subsidiaries formerly
manufactured products containing asbestos and
Following a Special Commission of Inquiry that was
established in Australia to consider transactions related to the
Foundation, we may be subject to claims and allegations
involving asbestos-related liability, or our corporate
restructurings, including the corporate restructuring related to
the creation of the Foundation and the ABN 60 Foundation and
associated intercompany transactions in Item 3.



| |                                       
| | --------------------------------------
| | Claims Against Former
    Subsidiaries



| |                                            
| | -------------------------------------------
| | Amaca Pty Ltd, Amaba Pty Ltd and ABN
    60

Following the establishment of the Foundation in
February 2001, JHI NV no longer owns any shares of Amaca or
Amaba, former Australian subsidiaries of ABN 60 that previously
manufactured products containing asbestos in Australia.
Following the establishment of the ABN 60 Foundation on
March 31, 2003, JHI NV no longer owns any shares of ABN 60,
which manufactured products containing asbestos prior to 1937.
Amaca, Amaba and ABN 60 have all agreed to indemnify JHI NV and
its related corporate entities for past and future
asbestos-related liabilities as part of the establishment of the
respective foundations. Amaba and ABN 60s obligation to
indemnify JHI NV and its related entities includes claims that
may arise associated with the manufacturing activities of those
companies. JHI NV has agreed to indemnify the ABN 60 Foundation
for any non asbestos-related legal claims made on ABN 60. See
also Note 17 to our consolidated financial statements
included in Item 18 of this Form 20-F.

Up to the date of the establishment of the
Foundation, Amaca and Amaba incurred costs of asbestos-related
litigation and settlements. From time to time, ABN 60 was joined
as a party to asbestos suits which were primarily directed at
Amaca and Amaba. As Amaca, Amaba and ABN 60 are no longer a part
of James Hardie, and all relevant claims against ABN 60 had been
successfully defended, no provision for asbestos-related claims
was established in the Companys accounts at
September 30, 2004 and March 31, 2004.

It is possible that JHI NV or any member of the
James Hardie group could become subject to suits for damages for
personal injury or death in connection with the former
manufacture or sale of asbestos products that are or may be
filed against Amaca, Amaba or ABN 60. Although it is difficult
to predict the incidence or outcome of future litigation, we
believe that in the absence of governmental action introducing
legislation or a change in jurisprudence as previously adopted
in prior case law before the NSW Supreme Court and Federal High
Court, as more fully described below, the risk that such suits
could be successfully asserted against us is low to remote.
However, if suits are made possible and/or successfully brought,
they could have a material adverse effect on our business,
results of operations or financial condition. This belief is
based in part on the fact that following the transfers of Amaca
and Amaba to the Foundation and of ABN 60 to the ABN 60
Foundation, none of those companies are part of James Hardie;
the separateness of corporate entities under Australian law; the
limited circumstances where piercing the corporate
veil might occur under Australian and Dutch law; there
being no equivalent under Australian law of the U.S. legal
doctrine of successor liability; and because JHI NV
has been advised that the principle applicable under Dutch law,
to the effect that transferees of assets may be held liable for
the transferors liabilities when they acquire assets at a
price that leaves the transferor with insufficient assets to
meet claims, is not triggered by the restructuring or previous
group transactions. The courts in Australia have generally
refused to hold parent entities responsible

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for the liabilities of their subsidiaries absent
any finding of fraud, agency, direct operational responsibility
or the like. In New Zealand, where RCI Holdings Pty Ltd holds a
subsidiary that formerly manufactured asbestos-containing
products, there is current legislation entitled the
Accident Insurance Act 1998 which bars claims for
compensatory damages arising from work-related asbestos
exposure. While claims in New Zealand for non work-related
injury might still be alleged, and while it is possible that a
claimant for work-related asbestos exposure could still seek
non-compensatory damages, we believe that any such claims would
not have a material adverse effect on our business, results of
operations or financial condition.


During the period ended September 30, 2004,
James Hardie has not been a party to any asbestos litigation and
has not made any settlement payments in relation to such
litigation.

Under U.S. laws, the doctrine of
successor liability provides that an acquirer of the
assets of a business carried on by a corporation can, in certain
states and in certain circumstances, be held responsible for
liabilities arising from the conduct of that business prior to
the acquisition, notwithstanding the absence of any contractual
arrangement between the acquirer and the selling corporation
pursuant to which the acquirer agreed to assume such liabilities.

The general principle under Australian law is
that, in the absence of a contractual agreement to transfer
specified liabilities of a business and where there is no
fraudulent conduct, the liabilities remain with the corporation
that previously carried on the business and are not passed on to
the acquirer of assets. Prior to March 2004, we leased certain
manufacturing sites from the former subsidiaries now owned and
controlled by the Foundation. In addition, we purchased certain
of our business assets comprising plant and equipment and
inventory pursuant to the first phase of our restructuring at
fair value from those former subsidiaries now owned and
controlled by the Foundation. Each of these transactions
concerned only Australian companies, and accordingly, we believe
the transactions are governed by Australian laws and not the
laws of any other jurisdiction. We do not believe these
transactions should give rise to the assumption by us or our
subsidiaries of any asbestos-related liabilities (tortious or
otherwise) under Australian law that may have been incurred
during the period prior to the transfer of the assets.

As an issue related to the restructuring
completed on October 19, 2001, under Dutch law, a Dutch
transferee of assets may be held responsible for the liabilities
of the transferor following a transfer of such assets, if the
transfer results in the transferor having insufficient assets to
meet the claims of its creditors or if the transfer will
otherwise jeopardize the position of the creditors of the
transferor. We believe the transfer by ABN 60 of all of the
shares of JHNV to us under the restructuring will not result in
us being held responsible as transferee under this principle of
Dutch law since, upon the transfer and the implementation of the
other aspects of the restructuring, ABN 60 had the same
financial resources to meet the claims of its creditors as it
had prior to the transfer.



| |                              
| | -----------------------------
| | Special Commission of Inquiry

The Foundation issued a press release on
October 29, 2003 stating that its most recent
actuarial analysis estimates that the compensation bill for the
organization could reach one billion Australian dollars in
addition to those funds already paid out to claimants since the
Foundation was formed and that existing funding could be
exhausted within five years. In February 2004, the
Government of the State of New South Wales, Australia
established the SCI to investigate, among other matters
described below, the circumstances in which the Foundation was
established. The SCI was instructed to determine the current
financial position of the Foundation and whether it is likely to
meet its future asbestos-related claims in the medium to
long-term. It was also instructed to report on the circumstances
in which the Foundation was separated from James Hardie and
whether this may have resulted in or contributed to a possible
insufficiency of assets to meet its future asbestos-related
liabilities, and the circumstances in which any corporate
restructure or asset transfers occurred within or in relation to
the James Hardie group prior to the funding of the Foundation to
the extent that this may have affected the Foundations
ability to meet its current and future liabilities. The SCI was
also instructed to report on the adequacy of current
arrangements available to the Foundation under the Corporations
Act of Australia to assist the Foundation in managing its
liabilities and whether reform is desirable in order to assist
the Foundation in managing its obligations to current and future
claimants.

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On July 14, 2004, the Company lodged a
submission with the SCI stating that the Company would recommend
that shareholders approve the provision of an unspecified amount
of additional funding to enable an effective statute-based
scheme to compensate all future claimants for asbestos-related
injuries for which Amaca and Amaba are liable. The Company
proposed that the statutory scheme include the following
elements:



| |   |                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | speedy, fair and equitable compensation for all
    existing and future claimants, including objective criteria to
    reduce superimposed (judicial) inflation;                                                                                                                                 
|
| |  | contributions to be made in a manner which
    provide certainty to claimants as to their entitlement, the
    scheme administrator as to the amount available for
    distribution, and the proposed contributors (including James
    Hardie) as to the ultimate amount of their contributions;
|
| |  | significant reductions in legal costs through
    reduced and more abbreviated litigation; and                                                                                                                                                                                                   
|
| |  | limitation of legal avenues outside of the scheme.                                                                                                                                                                                                                                               

The submission stated that the proposal was made
without any admission of liability or prejudice to the
Companys rights or defenses.

The SCI finished taking evidence on
August 13, 2004 and issued its report on September 21,
2004. The SCI indicated that the establishment of the Foundation
and the establishment of the ABN 60 Foundation were legally
effective and that, accordingly, although any liabilities in
relation to the asbestos claims for claimants remained with
Amaca, Amaba or ABN 60 (as the case may be), no significant
liabilities for those claims could likely be assessed directly
against JHI NV or any other James Hardie entities.

In relation to the assertions by the Foundation
concerning the circumstances of its establishment, the SCI
examined these in detail. Although the SCI made certain adverse
findings against Mr. Macdonald (former CEO) and
Mr. Shafron (former CFO), it did not find that their
conduct caused any material loss to the Foundation or the
asbestos claimants which would create a valuable cause of action
against, and therefore a material liability of, any James Hardie
entity or would lead to any of the restructuring arrangements
being reversed. Indeed, the SCI specifically noted that there
were significant hurdles, which might be insuperable, to
establishing any liability in respect of these claims against
the Company, ABN 60 or their respective directors and that, even
if liability were established, there were further hurdles which
might prove to be insuperable against any substantial recovery
or remedy by such potential claimants in respect of them.

In relation to the question of the funding of the
Foundation, the SCI found that there was a significant funding
shortfall. In part, this was based on actuarial work indicating
that the discounted value of the central estimate of the
asbestos liabilities of Amaca and Amaba was approximately
A$1.570 billion. The SCI found that the net assets of the
Foundation and the ABN 60 Foundation were not sufficient to meet
these prospective liabilities and were likely to be exhausted in
the first half of 2007.

In relation to the Companys statutory
scheme proposal, the SCI reported that there were several issues
that needed to be refined quite significantly but that it would
be an appropriate starting point for devising an appropriate
compensation scheme.

The SCIs findings are not binding and a
later court consideration of the issues could lead to one or
more different conclusions.

The NSW Government has stated that it would not
consider assisting the implementation of any proposal advanced
by the Company unless it was the result of an agreement reached
with the union movement acting through the ACTU and the Labor
Council of NSW as well as the representatives of the asbestos
claimants (together, the Representatives). The
statutory scheme that the Company recommended on July 14,
2004 was rejected by the Representatives. The Company is
currently in discussions with the Representatives regarding
potential arrangements that could be acceptable to both the
Representatives and the Company and subsequently to the
Companys shareholders and the NSW Government. Both the
outcome of those discussions and the timing of any potential
resolution are highly uncertain and, accordingly, the Company

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cannot yet determine whether it will achieve a
satisfactory resolution or what any potential arrangement may
involve.


The Companys view is that, except to the
extent that it agrees otherwise as a result of these
discussions, under current Australian law it is not liable for
any shortfall in the assets of Amaca, Amaba, the Foundation, the
ABN 60 Foundation or ABN 60. The Company cannot determine when
or if a resolution may be reached between itself and the
Representatives. The Company is attempting to negotiate a
resolution as quickly as possible. Accordingly, the Company has
not established a provision for asbestos-related liabilities
because at this time it is not probable nor estimable.

In order to facilitate the release of funding by
ABN 60 to the Foundation, and thereby inter alia to seek to
ensure that asbestos-related claims processing is not
interrupted during the negotiations and facilitate negotiations
with the Representatives, the Company offered an indemnity to
the directors of ABN 60, which it announced on November 16,
2004. This proposed indemnity would require the Company to pay
for any liability incurred by the ABN 60 directors resulting
from the release of funding by ABN 60 to the Foundation. The
Company believes that the release of funding by ABN 60 is in
accordance with law and contracts in place and therefore the
Company should not incur liability under this indemnity, but the
indemnity is being offered to relieve the concerns of those who
may have hesitation about their legal and financial exposure.
Additionally, the Company has offered to provide funding to the
Foundation on an interim basis for a period of up to six months,
commencing on November 16, 2004. The proposed interim
funding by the Company would only be provided once existing
Foundation funds have been exhausted. The Company believes,
based on actuarial and legal advice that claims against the
Foundation should not exceed the funds which are or which are
expected to become available to the Foundation during the period
of the interim funding proposal. By way of example, the Company
expects the prospect of such funds being exhausted will be
materially reduced in the event that ABN 60 releases funds to
the Foundation in light of the indemnity described above. The
proposal for interim funding was put forward to relieve concerns
regarding the short-term funding and payment of legitimate
asbestos-related claims, and so that the Foundation would
continue claims processing during the negotiation process. The
Company has not recorded a provision for either the proposed
indemnity or the potential payments under the interim funding
proposal.

In October 2004, the Company commissioned an
updated actuarial study of potential asbestos-related
liabilities.

Based on the results of the study, which was
updated as at June 30, 2004, it is estimated that the
discounted central estimate, after allowing for expected
insurance recoveries, of asbestos-related liabilities of Amaca,
Amaba and ABN 60 is A$1.536 billion (discounted at
6.12% per annum) or an undiscounted central estimate of
A$3.586 billion.

In estimating the potential asbestos-related
exposure, the actuaries have made a number of assumptions
relating to wage inflation, superimposed inflation (being the
excess of total claim cost inflation over wage inflation),
discount rates, the total number of claims expected to be
reported through to 2071, the pace of such notifications and
their settlement, the average costs of an award (which is
affected by the disease type, the age and occupation of the
claimant and the jurisdiction in which the claim is brought and
settled), the proportion of claims for which no award is paid by
the above-named entities, and the associated average claimant
and defendant legal fees to be incurred.

Further, the actuaries have relied on the data
and information provided by the Medical Research and
Compensation Foundation and Litigation Management Group Pty
Limited and assumed that it is accurate and complete in all
material respects. The actuaries have not verified that
information independently nor established the reliability,
accuracy or completeness of the data and information provided or
used for the preparation of their report, and were not provided
with the information required to carry out such a verification
exercise.

Due to inherent uncertainties in the legal and
medical environment; the number and timing of future claim
notifications and settlements; the recoverability of claims
against insurance contracts and in estimating

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the future trends in average claim awards as well
as the extent to which the above-named entities will contribute
to the overall settlements, the outcome could differ materially
from that currently projected.


Sensitivity analysis has been performed, showing
how the actuarial estimates would change if the outcome of
certain assumptions (being the rate of superimposed inflation,
the average costs of claims and legal fees, and the projected
numbers of claims) were different to that included within the
central estimates.

This shows that the discounted central estimates
could fall in a range A$1.1 billion to A$2.3 billion
(undiscounted estimates of A$2.0 billion to A$5.7 billion)
based on the current information available and reflecting
current trends. It should be noted that the actual cost of the
liabilities could fall outside that range depending on the
actual outcome of the assumptions made.

If a resolution is reached with the
Representatives and approved by them, the NSW Government and the
Companys Board, shareholders and lenders, the Company may
be required to make a substantial provision in its accounts at a
later date, and it is possible that the Company would need to
seek additional borrowing facilities. See Risk Factor entitled
We may have difficulty obtaining financing (debt or
equity), or obtaining financing on usual terms, or retaining
existing financial support because of concerns or uncertainty
relating to the SCI, legal or legislative action following the
SCI, or the Companys offer to provide additional funding
to the Foundation in Item 3. Additionally, it is
possible that any future resolution of this issue may result in
the Company having negative shareholders equity, which
would be likely to restrict its ability to pay dividends to its
shareholders. If the terms of a future resolution involve James
Hardie making payments, either on an annual or other basis,
pursuant to a statutory scheme or other form of arrangement,
James Hardies financial position, results of operations
and cash flows could be materially adversely affected.

It is also possible that the Representatives
and/or others may encourage or continue to encourage consumers
and union members in Australia and elsewhere to boycott the
Companys products, to demonstrate or otherwise create
negative publicity toward the Company in order to influence the
Companys approach to the discussions with the
Representatives or to encourage governmental action if the
discussions are unsuccessful. The Representatives and/or others
might also take such actions in an effort to influence the
Companys shareholders, a significant number of which are
located in Australia, to approve any proposed arrangement. Any
such measures, and the influences resulting from them, could
have a material adverse impact on the Companys financial
position, results of operations and cash flows.

On October 28, 2004, the NSW Premier
announced that the NSW Government would seek the agreement of
the Ministerial Council comprised of Ministers of the
Commonwealth and the Australian States and Territories to allow
the NSW Government to pass legislation which he announced would
wind back James Hardies corporate restructure and
rescind the cancellation of A$1.9 billion in partly paid
shares. The announcement said that the laws will
effectively enforce the liability [for asbestosrelated
claims] against the Dutch parent company. On
November 5, 2004, the Australian Attorney-General and the
Parliamentary Secretary to the Treasurer (the two relevant
ministers of the Australian Federal Government) issued a news
release stating that the Ministerial Council for Corporations
(the relevant body of Federal, State and Territory Ministers,
MINCO) had unanimously agreed to support a
negotiated settlement that will ensure that victims of
asbestos-related diseases receive full and timely compensation
from James Hardie and if the current negotiations
between James Hardie, the ACTU and asbestos victims do not reach
an acceptable conclusion, MINCO also agreed in principle to
consider options for legislative reform. The news release
of November 5, 2004 indicated that treaties to enforce
Australian judgments in Dutch and U.S. courts are not
required but that the Australian Government has been involved in
communications with Dutch and U.S. authorities regarding
arrangements to ensure that Australian judgments are able to be
enforced where necessary. Should negotiations not lead to an
acceptable conclusion, James Hardie is aware of suggestions of
legislative intervention but has no detailed information as to
its likely content. Negotiations with the Representatives
continue and no draft legislation has currently been published.

On November 18, 2004, the NSW Government
announced its intention to conduct a review of current asbestos
compensation arrangements in NSW. The intention of this review
is primarily to determine ways to reduce legal and
administrative costs, and to consider the current processes for
handling and resolving dust

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diseases compensation claims. The review is
expected to report to the NSW Government early in 2005. The
Company is unable to predict the outcome of this review.




| |                                                                            
| | ---------------------------------------------------------------------------
| | Australian Securities and Investments
    Commission Investigation (ASIC)

On September 22, 2004, ASIC announced that
it was conducting an investigation into potential contraventions
of certain Australian laws arising from the transactions
considered by the SCI. The persons whose conduct is being
investigated have not been expressly identified by the ASIC. The
investigation will include a review of the conduct of the
directors of various James Hardie Group companies, including
their conduct and statements made in relation to securities of
JHI NV or JHIL and the circumstances in which various
transactions occurred (including the cancellation of partly-paid
shares in JHIL).

We have received a notice from ASIC under
relevant legislation to produce certain categories of documents
to be considered by it in its investigation. We are currently
responding to this notice and will cooperate with the ASIC in
relation to all aspects of its investigation.

The Company may incur costs of current or former
officers of the James Hardie Group to the extent that those
costs are covered by indemnity arrangements granted by the James
Hardie Group to those persons. To date, no claims have been
received by any current or former officers in relation to the
ASIC investigation and, if claims do arise, the Company may be
reimbursed under directors and officers insurance
policies taken out by the Company.






|        |                                                 
|------- | ------------------------------------------------
|Item 5. | Operating and Financial Review and
    Prospects

For the periods prior to October 19, 2001,
the effective date of the 2001 Reorganization, the consolidated
financial statements represent the financial position and
results of operations of JHIL and its wholly owned subsidiaries.
The following discussion of our financial condition and results
of operations should be read in conjunction with the
consolidated financial statements and the related notes thereto,
included under Item 18.

Overview

We intend this discussion to provide information
that will assist in understanding our March 31, 2004
consolidated financial statements, the changes in significant
items in those consolidated financial statements from year to
year, and the primary reasons for those changes. This discussion
includes our critical accounting policies and how these policies
affect our consolidated financial statements, and information
about the consolidated financial results of each business
segment to provide a better understanding of how each segment
and its results affect our financial condition and operating
results as a whole. Our March 31, 2004 consolidated
financial statements and the notes accompanying those
consolidated financial statements should be read in conjunction
with this discussion.



| |                                                 
| | ------------------------------------------------
| | The Company and the Building Product
    Markets

Based on revenues, we believe we are the largest
manufacturer of fiber cement products and systems for internal
and external building construction applications in the United
States, Australia, New Zealand and the Philippines and the
second largest manufacturer of flat sheet products in Chile. Our
current primary geographic markets include the United States,
Australia, New Zealand, the Philippines, Chile and Europe.
Through significant research and development expenditure, we
develop key product and production process technologies that we
patent or hold as trade secrets. We believe that these
technologies give us a competitive advantage in the markets in
which we sell our products.

We manufacture numerous types of fiber cement
products with a variety of patterned profiles and surface
finishes for a range of applications including external siding
and soffit lining, trim, roofing, internal linings, facades,
floor and tile underlayments, drainage pipes and decorative
columns. Our products are used in various markets including new
residential construction, manufactured housing, repair and
remodel and a variety of commercial and industrial construction
applications. We believe that in certain construction
applications, our

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fiber cement products and systems provide a
combination of distinctive performance, design and cost
advantages over competing building products and systems.


Our products are primarily sold to the
residential housing markets. Residential construction fluctuates
based on the levels of new home construction activity and the
repair and remodeling of existing homes. These levels of
activity are affected by many factors including home mortgage
interest rates, inflation rates, unemployment levels, existing
home sales, the average age and the size of housing inventory,
consumer home repair and remodel spending, gross domestic
product growth and consumer confidence levels. These factors
were generally favorable during fiscal year 2004, resulting in
healthy levels of residential construction and home repair and
remodel activity.



| |                             
| | ----------------------------
| | Fiscal Year 2004 Key Results

Total net sales increased 25% to
$981.9 million in fiscal year 2004, operating income
increased 34% to $172.2 million, and income from continuing
operations increased 50% to $125.3 million.

Our largest market is North America, where fiber
cement is one of the fastest growing segments of the external
siding market. USA Fiber Cement net sales contributed 75% of
total net sales, and its operating income was the primary
contributor of total company operating income, during fiscal
year 2004. Both net sales and operating income increased from
fiscal year 2003 due mainly to healthy levels of residential
construction and repair and remodel activity, and strong
penetration against competing products, in the United States.

Asia Pacific net sales contributed 22% of total
net sales, and its operating income was the second largest
contributor of total company operating income. Net sales
increased in fiscal year 2004 in both our Australia/ New Zealand
and our Philippines Fiber Cement businesses. In Australia/ New
Zealand, this increase was primarily due to favorable foreign
currency exchange rates and less to factors that affected that
segments markets. Operating income increased primarily due
to favorable foreign currency exchange rate differences and cost
savings initiatives that we implemented during fiscal year 2004
that caused a decrease in selling, general and administrative
expense.

In our emerging businesses of Chile Fiber Cement
and Hardie® Pipe, we continued to make good
progress. We also commenced our fiber cement business in Europe
and commissioned a pilot roofing plant at Fontana, California to
test our proprietary manufacturing technology and to provide
product for market testing in Southern California. Our
investment in these emerging businesses is expected to provide
good growth over the medium to longer-term.

For further information regarding our business
and operations, please see Item 4 Information on the
Company.

Critical Accounting Policies

Our accounting policies affecting our financial
condition and results of operations are more fully described in
Note 2 to our consolidated financial statements included in
Item 18 of this Form 20-F. Certain of our accounting
policies require the application of judgment by management in
selecting appropriate assumptions for calculating financial
estimates, which inherently contain some degree of uncertainty.
Management bases its estimates on historical experience and
various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for
making judgments about the reported carrying value of assets and
liabilities and the reported amounts of revenues and expenses
that may not be readily apparent from other sources. Actual
results may differ from these estimates under different
assumptions and conditions. We consider the following policies
to be the most critical in understanding the judgments that are
involved in preparing our consolidated financial statements and
the uncertainties that could impact our results of operations,
financial condition and cash flows.



| |      
| | -----
| | Sales

We record estimated reductions to sales for
customer rebates and discounts including volume, promotional,
cash and other rebates and discounts. Rebates and discounts are
recorded based on managements best

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estimate when products are sold. The estimates
are based on historical experience for similar programs and
products. Management reviews these rebates and discounts on an
ongoing basis and the related accruals are adjusted, if
necessary, as additional information becomes available.




| |                    
| | -------------------
| | Accounts Receivable

We evaluate the collectibility of accounts
receivable, based on historical bad debts, customer
credit-worthiness, current economic trends and changes in our
customer payment activity, on an ongoing basis and an allowance
for doubtful accounts is provided for known and estimated bad
debts. While credit losses have historically been within our
expectations, we cannot guarantee that we will continue to
experience the same credit loss rates that we have in the past.
Since our accounts receivable are concentrated in a relatively
small number of customers, a significant change in the liquidity
or financial position of any of these customers could impact
their ability to make payments and result in the need for
additional allowances which would decrease our net sales. For
additional information regarding our customer concentration, see
Item 3 Risk Factors.



| |          
| | ---------
| | Inventory

Inventories are recorded at the lower of cost or
market. In order to determine market, management regularly
reviews inventory quantities on hand and evaluates significant
items to determine whether they are excess, slow-moving or
obsolete. The estimated value of excess, slow-moving and
obsolete inventory is recorded as a reduction to inventory and
an expense in cost of sales in the period it is identified. This
estimate requires management to make judgments about the future
demand for inventory, and is therefore at risk to change from
period to period. If our estimate for the future demand for
inventory is greater than actual demand and we fail to reduce
manufacturing output accordingly, we could be required to record
additional inventory reserves, which would have a negative
impact on our gross profit.



| |                         
| | ------------------------
| | Accrued Warranty Reserve

We offer various warranties on our products,
including a 50-year limited warranty on certain of our fiber
cement siding products in the United States. Because our fiber
cement products have only been used since the early 1980s, there
is a risk that these products will not perform in accordance
with our expectations over an extended period of time. A typical
warranty program requires that we replace defective products
within a specified time period from the date of sale. We record
an estimate for future warranty related costs based on an
analysis of actual historical warranty costs as they relate to
sales. Based on this analysis and other factors, we adjust the
adequacy of our warranty provisions as necessary. While our
warranty costs have historically been within calculated
estimates, if our experience is significantly different from our
estimates, it could result in the need for additional reserves.
For additional information regarding warranties, see Item 3
Risk Factors.



| |                          
| | -------------------------
| | Accounting for Income Tax

We account for income taxes according to
SFAS No. 109, Accounting for Income Taxes,
under which we compute our deferred tax assets and liabilities,
which arise from differences in the timing of recognition of
revenue and expense for tax and financial statement purposes. We
must assess whether, and to what extent, we can recover our
deferred tax assets. If full or partial recovery is unlikely, we
must increase our income tax expense by recording a valuation
allowance against the portion of deferred tax assets that we
cannot recover. We believe that we will recover all of the
deferred tax assets recorded (net of valuation allowance) on our
consolidated balance sheet at March 31, 2004. However, if
facts later indicate that we will be unable to recover all or a
portion of our net deferred tax assets, our income tax expense
would increase in the period in which we determine that recovery
is unlikely.

Due to the size of the Company and the nature of
our business, we are subject to ongoing reviews by the Internal
Revenue Service (IRS) and other taxing jurisdictions
on various tax matters, including challenges to various
positions we assert. We accrue for tax contingencies based on
our best estimate of the taxes ultimately expected to be paid,
which is updated over time as more information becomes
available. Such amounts are included in taxes payable or other
non-current liabilities, as appropriate. If we ultimately

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determine that payment of these amounts is
unnecessary, we reverse the liability and recognize a tax
benefit during the period in which we determine that the
liability is no longer necessary. We record an additional charge
in the period in which we determine that the recorded tax
liability is less than we expect the ultimate assessment to be.


The IRS has audited our U.S. income tax
returns for all tax years ended through March 31, 2000. We
settled all issues and paid all assessments arising out of the
audit during fiscal year 2004. The California Franchise Tax
Board (FTB) audited our California franchise tax
returns for all tax years ended through March 31, 1999 and
proposed substantial assessments. We have accrued a lesser
amount for these proposed assessments based on a protest that we
filed on which we believe we will prevail on several issues,
with the estimated result that the final assessment will not
exceed the amount accrued.

The IRS, the FTB, and the Australian Tax Office
are each in the process of auditing our respective
jurisdictional income tax returns for various ranges of years
including 1998 through 2003. None of the audits have progressed
sufficiently to predict their ultimate outcome. We have accrued
income tax liabilities for these audits based on knowledge of
all relevant facts and circumstances, taking into account
existing tax laws, our experience with previous audits and
settlements, the status of current tax examinations, and how the
tax authorities view certain issues.

Results of Operations

In fiscal years 2002 through 2004, there was a
significant increase in net sales generated from our
USA Fiber Cement operations primarily as a result of demand
for our fiber cement products and $176.5 million in capital
investments during fiscal years 2002 to 2004 in this segment. In
fiscal year 2002, restructuring and other operating expenses
adversely affected the impact of increased sales from our
USA Fiber Cement business.

The following table shows JHI NVs
selected financial and operating data for continuing operations,
expressed in millions of dollars and as a percentage of total
net sales:

|                                                          |                           |                              |        |       |       |      |       |      |       |   |        |       |       |  |       |      |       |   |        |       |       |  |       |      |       | 
|--------------------------------------------------------- | ------------------------- | ---------------------------- | ------ | ----- | ----- | ---- | ----- | ---- | ----- | - | ------ | ----- | ----- |  | ----- | ---- | ----- | - | ------ | ----- | ----- |  | ----- | ---- | ----- | 
|                                                          |                           |                             
|                                                          |                           | Fiscal Years Ended March 31,
|                                                          |                           |                             
|                                                          |                           |                              |        |       |       |     
|                                                          |                           | 2004                         |        | 2003  |       | 2002
|                                                          |                           |                              |        |       |       |     
|                                                          |                           |                              |        |       |       |      |       |      |       |  
|Net sales:                                                |                           |                              |        |       |       |      |       |      |       |   |        |       |       |  |       |      |       |   |        |       |       |  |       |     
|                                                          | USA Fiber Cement          |                              | $      | 738.6 |       |      |       | 75.2 | %     |   | $      | 599.7 |       |  |       | 76.5 | %     |   | $      | 444.8 |       |  |       | 75.2 | %    
|                                                          | Asia Pacific Fiber Cement |                              |        | 219.8 |       |      |       | 22.4 |       |   |        | 174.3 |       |  |       | 22.2 |       |   |        | 141.7 |       |  |       | 23.9 |      
|                                                          | Other(1)                  |                              |        | 23.5  |       |      |       | 2.4  |       |   |        | 9.6   |       |  |       | 1.3  |       |   |        | 5.2   |       |  |       | 0.9  |      
|                                                          |                           |                              |        |       |       |      |       |      |       |   |        |       |       |  |       |      |       |   |        |       |       |  |       |     
|                                                          |                           | Total net sales              |        |       | 981.9 |      |       |      | 100.0 |   |        |       | 783.6 |  |       |      | 100.0 |   |        |       | 591.7 |  |       |      | 100.0 | 
|Cost of goods sold                                        |                           |                              | (623.0 | )     |       |      | (63.4 | )    |       |   | (492.8 | )     |       |  | (62.9 | )    |       |   | (393.4 | )     |       |  | (66.5 | )   
|                                                          |                           |                              |        |       |       |      |       |      |       |   |        |       |       |  |       |      |       |   |        |       |       |  |       |     
|Gross profit                                              |                           |                              | 358.9  |       |       |      | 36.6  |      |       |   | 290.8  |       |       |  | 37.1  |      |       |   | 198.3  |       |       |  | 33.5  |     
|Selling, general and administrative expenses              |                           |                              | (162.0 | )     |       |      | (16.5 | )    |       |   | (144.9 | )     |       |  | (18.5 | )    |       |   | (109.3 | )     |       |  | (18.5 | )   
|Research and development expenses                         |                           |                              | (22.6  | )     |       |      | (2.3  | )    |       |   | (18.1  | )     |       |  | (2.3  | )    |       |   | (14.1  | )     |       |  | (2.4  | )   
|Other operating (expense) income                          |                           |                              | (2.1   | )     |       |      | (0.3  | )    |       |   | 1.0    |       |       |  | 0.1   |      |       |   | (28.1  | )     |       |  | (4.7  | )   
|                                                          |                           |                              |        |       |       |      |       |      |       |   |        |       |       |  |       |      |       |   |        |       |       |  |       |     
|Operating income                                          |                           |                              | 172.2  |       |       |      | 17.5  |      |       |   | 128.8  |       |       |  | 16.4  |      |       |   | 46.8   |       |       |  | 7.9   |     
|Interest expense                                          |                           |                              | (11.2  | )     |       |      | (1.1  | )    |       |   | (23.8  | )     |       |  | (3.0  | )    |       |   | (18.4  | )     |       |  | (3.1  | )   
|Interest income                                           |                           |                              | 1.2    |       |       |      | 0.1   |      |       |   | 3.9    |       |       |  | 0.5   |      |       |   | 2.4    |       |       |  | 0.4   |     
|Other income (expense), net                               |                           |                              | 3.5    |       |       |      | 0.4   |      |       |   | 0.7    |       |       |  | 0.1   |      |       |   | (0.4   | )     |       |  | (0.1  | )   
|                                                          |                           |                              |        |       |       |      |       |      |       |   |        |       |       |  |       |      |       |   |        |       |       |  |       |     
|Income from continuing operations before income
    taxes |                           |                              | 165.7  |       |       |      | 16.9  |      |       |   | 109.6  |       |       |  | 14.0  |      |       |   | 30.4   |       |       |  | 5.1   |     
|Income tax expense                                        |                           |                              | (40.4  | )     |       |      | (4.1  | )    |       |   | (26.1  | )     |       |  | (3.3  | )    |       |   | (3.1   | )     |       |  | (0.5  | )   
|                                                          |                           |                              |        |       |       |      |       |      |       |   |        |       |       |  |       |      |       |   |        |       |       |  |       |     
|Income from continuing operations                         |                           | $                            | 125.3  |       |       |      | 12.8  | %    |       | $ | 83.5   |       |       |  | 10.7  | %    |       | $ | 27.3   |       |       |  | 4.6   | %   
|                                                          |                           |                              |        |       |       |      |       |      |       |   |        |       |       |  |       |      |       |   |        |       |       |  |       |     

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---



|    |                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes sales for fiber cement in Chile and
    fiber reinforced concrete pipes in the United States, our
    roofing operations in the United States and fiber cement
    operations in Europe. Also includes general corporate income in
    fiscal year 2002, which is comprised primarily of rental income
    from subleasing office space in Sydney, Australia.



| |                                                                    
| | -------------------------------------------------------------------
| | Year Ended March 31, 2004 Compared to
    Year Ended March 31, 2003

Total Net Sales.Total net sales increased 25% from $783.6 million in fiscal
year 2003 to $981.9 million in fiscal year 2004. Net sales
from USA Fiber Cement increased 23% from
$599.7 million in fiscal year 2003 to $738.6 million
in fiscal year 2004 due to continued strong growth in sales
volumes and higher average net selling prices. Net sales from
Asia Pacific Fiber Cement increased 26% from $174.3 million
in fiscal year 2003 to $219.8 million in fiscal year 2004
due to increased sales volumes and favorable currency exchange
rate differences. Net sales from Other Fiber Cement increased
145% from $9.6 million in fiscal year 2003 to
$23.5 million in fiscal year 2004 as the Chilean flat sheet
business, the USA-based Hardie Pipe business and the Europe
Fiber Cement business continued to grow strongly.

USA Fiber Cement Net
Sales.Net sales increased 23% from
$599.7 million in fiscal year 2003 to $738.6 million
in fiscal year 2004. Sales volume increased 19% from
1,273.6 million square feet in fiscal year 2003 to
1,519.9 million square feet in fiscal year 2004 due to
strong growth in primary demand for fiber cement and a favorable
housing construction market. Residential housing activity
remained healthy during fiscal year 2004 buoyed by low mortgage
rates, strong housing prices, low inventory levels of new homes
for sale and a recovering domestic economy. Strong growth
continued in both the interior and exterior product markets and
in our emerging and established markets as our products
continued to take share from alternative materials, mainly
wood-based and vinyl siding.

The average net selling price increased 3% from
$471 per thousand square feet in fiscal year 2003 to
$486 per thousand square feet in fiscal year 2004. This was
due to an increased proportion of sales of higher-priced,
differentiated products and a price increase in some regions
implemented in the first quarter of fiscal year 2004.

In the exterior products market, there was
continued strong growth in sales of higher-priced,
differentiated products such as vented soffits, Heritage®
panels, the ColorPlusTM Collection of pre-painted
siding and Harditrim® XLD® planks. In the interior
products market, sales of our Hardibacker 500® half-inch
backerboard grew strongly as it further penetrated its target
market, helping to lift our share of the interior cement board
market.

During the fourth quarter of fiscal year 2004, we
commenced construction of our new 300 million square foot
green-field fiber cement plant at Reno, Nevada. The plant will
service the rapidly growing demand in the west-coast region of
the United States and is expected to commence production by the
end of calendar year 2004.

During fiscal year 2004, we completed the upgrade
and began ramping-up our Blandon, Pennsylvania plant acquired
from Cemplank in December 2001. The upgrade increased design
capacity of the plant from 120 million square feet to
200 million square feet. We also completed the upgrade and
began ramping-up our 160 million square foot panel
production line at our Waxahachie, Texas plant. In addition, in
fiscal year 2004 we commissioned and commenced ramping-up our
new proprietary pre-finishing line at our Peru, Illinois plant.
This is expected to significantly reduce painting costs for our
ColorPlusTM Collection of exterior siding, and help
accelerate our market penetration in the northern region. Also
at our Peru, Illinois plant, we commenced construction of the
new 160 million square foot trim line, which is expected to
commence production by the fourth quarter of fiscal year 2005.

Asia Pacific Fiber Cement Net Sales (See
Notes to Results of Operations on
page 49).Net sales increased 26%
from $174.3 million in fiscal year 2003 to
$219.8 million in fiscal year 2004. Net sales increased 2%
in Australian dollars. Sales volume increased 3% from
349.9 million square feet in fiscal year 2003 to
362.1 million square feet in fiscal year 2004. Net selling
price decreased by 3% primarily due to the increase in the
Philippines product mix in overall Asia Pacific net sales.

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In Australia and New Zealand Fiber Cement, net
sales increased 25% from $156.3 million in fiscal year 2003
to $195.5 million in fiscal year 2004, primarily due to
favorable foreign exchange rate differences. In Australian
dollars, net sales increased 1%. The increase in net sales in
local currency was due to a 1% increase in sales volume from
280.2 million square feet in fiscal year 2003 to
284.2 million square feet in fiscal year 2004. The average
net selling price was flat compared to fiscal year 2003. In
Australia, new residential housing activity slowed during the
year, but was better than industry forecasts. The impact of this
was partly offset by strong residential renovation and
commercial activity. Fiber Reinforced Concrete (FRC)
Pipes continued to penetrate its targeted market and increased
sales volumes compared to fiscal year 2003. During fiscal year
2004, FRC® pipes was successful in tendering to supply
storm drainage pipes for the Sydney Orbital road project. The
project involves the supply of a significant volume of FRC pipes
over the next year. A new pipe standard was released by
Standards Australia during fiscal year 2004. This will enable
our fiber cement pipes to compete more effectively against steel
reinforced concrete pipes. During fiscal year 2004, we launched
ExoTec® Facade Panel, our new premium facade panel
incorporating the next generation of fiber cement composites.
The new product is designed for commercial applications. In New
Zealand, new residential housing activity remained at healthy
levels and demand was strong for soffits and weatherboards,
including our Linea® range of weatherboards, which uses
proprietary low-density technology.

In the Philippines, net sales increased 16% from
$18.0 million in fiscal year 2003 to $20.8 million in
fiscal year 2004. In local currency, net sales increased 22%.
Sales volume increased 12% from 69.7 million square feet in
fiscal year 2003 to 77.9 million square feet in fiscal year
2004. The average net selling price increased 10% compared to
fiscal year 2003 due to a combination of increased regional
export business and expansion of product range into higher
priced products in the domestic market.

Other Sales.Other
sales include sales of our fiber cement products manufactured in
Chile, sales of Hardie® Pipe in the United States, our
roofing operations in the United States and fiber cement
operations in Europe.

Our Chilean operation continued to increase its
penetration of the local market in line with its targets. Net
sales increased 167% compared to fiscal year 2003 due to a 103%
increase in sales volume and a higher average net selling price.
The level of construction activity in Chile improved during
fiscal year 2004 after being stagnant since the end of 2001. The
average net selling price increased due to strong export sales
and growth in sales of higher-priced, differentiated products.

Our USA Hardie Pipe business continued to
penetrate the south-east market of the United States and improve
its manufacturing efficiency. Net sales increased 95% compared
to fiscal year 2003 due to a 95% increase in sales volume. The
average net selling price was flat compared to fiscal year 2003.
Market acceptance of our fiber cement pipes continued to grow
strongly and we further increased our share of the market for
our targeted diameter range of drainage pipes in Florida. The
manufacturing performance of the plant continued to improve
during the period, reducing costs and increasing output,
particularly of the larger diameter pipes. Despite this,
manufacturing costs remain higher than our targets. The
competitive response to our entry into the south-east market
remains intense.

Our Europe Fiber Cement business commenced
operations during fiscal year 2004 with the launch in the United
Kingdom and France markets of our Hardibacker® backerboard
range of interior products and our proprietary pre-painted
siding products. Awareness of our product range among
distributors, builders and contractors is growing and sales of
Hardibacker® tile backer and our pre-painted siding
products are in line with our expectations. In June 2003, we
commissioned a new coating line near Southampton in England. The
line is used to apply the finishing coat to siding products
imported from our United States business.

In June 2003, we commissioned our pilot roofing
plant at Fontana, California. The pilot plant, which has a
design capacity of 25 million square feet, was built to
test our proprietary manufacturing technology and to provide
product for market testing in Southern California. Plant testing
and manufacturing trials commenced during fiscal year 2004 and
the first on-site installations of the new roofing product were
completed. The first commercial sales of our
ArtisanTM roofing product were made in the second
half of fiscal year 2004. There were no commercial sales in the
first half of fiscal year 2005, but sales began in October 2004
and are expected to

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ramp up through the end of fiscal year 2005.
Interest in our roofing product within our targeted market is
strong.


Gross Profit.Gross
profit increased 23% from $290.8 million in fiscal year
2003 to $358.9 million in fiscal year 2004 due to
improvements in all our major businesses. The gross profit
margin decreased 0.5 of a percentage point to 36.6% in fiscal
year 2004.

USA Fiber Cement gross profit increased 24% due
to higher sales volumes and a higher average net selling price,
partly offset by an increase in unit cost of sales and higher
freight costs. The higher unit cost of sales resulted primarily
from higher pulp costs, increased sales of higher-priced
differentiated products and the ramp-up of the new manufacturing
lines at the Blandon, Pennsylvania; Waxahachie, Texas; and Peru,
Illinois plants. The gross profit margin increased 0.2 of a
percentage point.

Asia Pacific Fiber Cement gross profit increased
19% following improvements from Australia and New Zealand Fiber
Cement, and Philippines Fiber Cement, which increased 16% and
70%, respectively. The improved result for Australia and New
Zealand was due to a favorable foreign exchange difference. In
the Philippines, increased sales and reduced manufacturing costs
resulted in the stronger gross profit performance. The Asia
Pacific Fiber Cement gross profit margin decreased
2.1 percentage points.

Selling, General and Administrative (SG&A)
Expenses.SG&A expenses increased
12% compared to the prior year, from $144.9 million in
fiscal year 2003 to $162.0 million in fiscal year 2004. The
increase in SG&A expenses was due mainly to sales and
marketing expenses associated with growth initiatives in the
USA. However, as a percentage of sales, SG&A expenses were
2.0 percentage points lower, at 16.5% in fiscal year 2004.

Research and Development
Expenses.Research and development
includes costs associated with core research
projects that are aimed at benefiting all fiber cement business
units. These costs are recorded in the Research and Development
segment rather than being attributed to individual business
units. These costs increased 36% during fiscal year 2004 to
$14.1 million. Our Research and Development segment
includes these costs and $3.5 million of Research and
Development administrative expenses classified as SG&A
expense. Other research and development costs associated with
commercialization projects in business units are included in the
business unit segment results. In total, these costs increased
10% to $8.5 million in fiscal year 2004.

Other Operating (Expenses)/
Income.Other operating expenses of
$2.1 million in fiscal year 2004 mainly reflect an increase
in cost provisions for our Australia and New Zealand business.
In fiscal year 2003, we realized a $1.0 million gain from
the settlement of a pulp hedge contract.

Operating Income.Operating income increased 34% from $128.8 million in
fiscal year 2003 to $172.2 million in fiscal year 2004. The
operating income margin increased 1.1 percentage points to
17.5% in fiscal year 2004.

USA Fiber Cement operating income increased 26%
from $155.1 million in fiscal year 2003 to
$195.6 million in fiscal year 2004. The increase was due to
strong growth in net sales, partly offset by an increase in unit
cost of sales, freight and SG&A expenses. The operating
income margin increased 0.6 percentage points to 26.5% in
fiscal year 2004.

Asia Pacific Fiber Cement operating income
increased 38% from $27.3 million in fiscal year 2003 to
$37.6 million in fiscal year 2004. The operating income
margin increased 1.4 percentage points to 17.1% in fiscal
year 2004. Australia and New Zealand Fiber Cement operating
income increased 30% from $27.2 million in fiscal year 2003
to $35.4 million in fiscal year 2004, primarily due to
favorable foreign exchange rate differences. In Australian
dollars, Australia and New Zealand Fiber Cement operating income
increased 5% mainly due to lower SG&A expenses, partly
offset by a temporary decrease in manufacturing performance at
the Rosehill, NSW plant during fiscal year 2004 and increased
freight costs. The operating income margin for Australia and New
Zealand Fiber Cement was 0.7 of a percentage point higher, at
18.1%. Our Philippines business recorded operating income of
$2.2 million for fiscal year 2004 compared to a
$0.1 million operating income in fiscal year 2003.

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The Chile Fiber Cement business recorded its
first full year positive operating income since commencing
commercial production in 2001.

Despite continued strong volume growth and
improved manufacturing performance, our USA Hardie Pipe business
incurred an operating loss for the year due to low prices and
higher than targeted unit costs.

Our Europe Fiber Cement business became
operational during fiscal year 2004 and incurred an operating
loss, as expected.

General corporate costs decreased by
$2.4 million from $29.9 million in fiscal year 2003 to
$27.5 million in fiscal year 2004. This decrease was
primarily due to a reduction in employee bonus plan expense and
a $1.6 million gain from the positive resolution of a
vendor dispute, partly offset by changes in a number of other
corporate expenses.

Net Interest
Expense.Net interest expense
decreased by $9.9 million from $19.9 million in fiscal
year 2003 to $10.0 million in fiscal year 2004. In fiscal
year 2003, we incurred a $9.9 million make-whole payment
from the early retirement of $60.0 million of long-term
debt. Interest expense decreased further by $2.7 million
due to lower average borrowings. These decreases in net interest
expense were partially offset by a $2.7 million decrease in
interest income due to lower average cash balances compared to
fiscal year 2003.

Other Income, net.We realized a gain before income tax of $4.5 million on the
sale of property formerly owned by one of our New Zealand
subsidiaries. Additionally, a previously recorded liability
related to potential contingent legal claims was reversed,
resulting in income of $4.3 million. We also realized
$0.1 million in net investment income. These income items
were partially offset by an impairment charge that we recorded
of $2.2 million on an investment in a company that filed a
voluntary petition for reorganization under Chapter 11 of
the U.S. bankruptcy code. Additionally, we incurred an
expense of $3.2 million primarily due to a capital duty fee
paid in conjunction with our Dutch legal structure. We incurred
this to extend the scope of our international finance subsidiary
to lend to global operations.

Income Tax Expense.Income tax expense increased by $14.3 million from
$26.1 million in fiscal year 2003 to $40.4 million in
fiscal year 2004 due to the increase in profit.

Income from Continuing
Operations.Income from continuing
operations increased by 50% or $41.8 million, from
$83.5 million in fiscal year 2003 to $125.3 million in
fiscal year 2004.



| |                                                                    
| | -------------------------------------------------------------------
| | Year Ended March 31, 2003 Compared to
    Year Ended March 31, 2002

Total Net Sales.Total net sales increased 32% from $591.7 million in fiscal
year 2002 to $783.6 million in fiscal year 2003. Net sales
from USA Fiber Cement increased 35% from $444.8 million in
fiscal year 2002 to $599.7 million in fiscal year 2003 due
to continued growth in sales volumes and higher selling prices.
Net sales from Asia Pacific Fiber Cement increased 23% from
$141.7 million in fiscal year 2002 to $174.3 million
in fiscal year 2003 due mainly to higher sales volumes. Net
sales from Other increased 85% from $5.2 million in fiscal
year 2002 to $9.6 million in fiscal year 2003 as the
Chilean flat sheet business and the U.S.-based fiber reinforced
concrete Pipes business continued to ramp up, following its
start-up early in the 2001 calendar year.

USA Fiber Cement
Sales.Net sales increased 35% from
$444.8 million in fiscal year 2002 to $599.7 million
in fiscal year 2003. Sales volume increased 29% from
988.5 million square feet in fiscal year 2002 to
1,273.6 million square feet in fiscal year 2003, due to
strong growth in primary demand for fiber cement, increased
housing construction activity and sales of product from the
Cemplank operations acquired in December 2001. The residential
housing market remained healthy during fiscal year 2003 buoyed
by low mortgage rates and strong housing prices despite a
softening in consumer confidence and a bad weather-related
slowdown in activity during the fourth quarter of fiscal year
2003. There was strong volume growth across all major markets.
Market share increased in the siding, backer and trim segments
and in both the southern and northern regions of the country.

In the northern region, we continued to take
market share from the dominant siding material, vinyl. Market
penetration strategies designed to build awareness of our
products attributes among the regions builders,
distributors and homeowners helped to generate increased demand
in the region. In the southern

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region, growth strategies, including a greater
focus on the repair and remodel segment and increased selling
activity in rural areas, helped the business increase demand in
the region. In the exterior products market, there was strong
sales growth in higher-priced, differentiated products such as
trim, vented soffits, Heritage® panels and the
ColorPlusTM Collection of pre-finished siding. In the
interior cement board market, sales of Hardibacker 500®,
our  1/2 inch backerboard that is manufactured using
proprietary G2 Technology®, continued to grow strongly.


The average selling price increased 5% from
$450 per thousand square feet in fiscal year 2002 to
$471 per thousand square feet in fiscal year 2003, due to
an increased proportion of sales of higher-priced,
differentiated products.

During fiscal year 2003, we commenced
construction of a 160 million square feet panel line at
Waxahachie, Texas and a pilot roofing products plant at Fontana,
California. At the Peru, Illinois plant, we began to manufacture
products on a newly commissioned second production line in
September 2002. On October 22, 2002, we announced that our
Blandon, Pennsylvania plant will undergo a $15.3 million
upgrade that is expected to increase its annual production
capacity from 120 million square feet to 200 million
square feet to meet rapidly growing demand in the northeast
region.

Asia Pacific Fiber Cement Sales (See
Notes to Results of Operations on
page 49).Net sales increased 23%
from $141.7 million in fiscal year 2002 to
$174.3 million in fiscal year 2003. Sales volume increased
9% from 320.7 million square feet in fiscal year 2002 to
349.9 million square feet in fiscal year 2003.

In our Australia and New Zealand business, net
sales increased 27% from $123.5 million in fiscal year 2002
to $156.3 million in fiscal year 2003. In Australian
dollars, the increase was 16%. The growth in net sales was due
to a 10% increase in sales volume, from 255.9 million
square feet in fiscal year 2002 to 280.2 million square
feet in fiscal year 2003 and a 6% increase in the average
selling price. In Australia, demand for new residential housing
remained at high levels during the period buoyed by a relatively
strong economy and low interest rates. Despite new housing
approvals slowing in the second half of the year, robust
residential renovation activity and the 3-6 month lag
between the start of house construction and the sale of our
products helped to maintain strong demand. During fiscal year
2003, we relocated our corrugate production line in Australia,
which manufactures HardiFence® panels, from Perth to
Brisbane. In addition, in Australia, we launched two new
internal lining products, HardiRock® board and
EziGrid® tilebacker. HardiRockTM is a fiber
cement wet area lining board that is flexible and is easy to cut
and nail. EziGrid tilebacker is another wet area lining sheet
designed to make tile installation easier for internal lining.
Both products are expected to strengthen our share of the
internal lining segment. In New Zealand, we experienced stronger
demand arising from increased residential building activity,
which was fueled by low and stable interest rates, strong
housing prices and a stronger economy. The new Linea®
weatherboard cladding range of products launched in March 2002
continued to penetrate its targeted markets, taking market share
from alternative products such as brick. Linea weatherboard is a
thick, lightweight weatherboard that uses our proprietary
low-density technology and offers a number of performance
advantages, notably superior durability, over timber
weatherboards. Despite the non-residential building market in
New Zealand being weaker during fiscal year 2003 compared to
fiscal year 2002, sales of panel products such as
Hardipanel® Titan cladding and Hardipanel Compressed sheet
were up strongly during fiscal year 2003 compared to fiscal year
2002. We also gained several key customers in New Zealand during
fiscal year 2003 and increased our share of fiber cement sales.

In the Philippines, net sales decreased by 1%
from $18.2 million in fiscal year 2002 to
$18.0 million in fiscal year 2003. In local currency, net
sales were flat. This was due to an increase in sales volume,
offset by a lower average selling price. Sales volume increased
8% from 64.8 million square feet in fiscal year 2002 to
69.7 million square feet in fiscal year 2003 due to
increased demand in the domestic building boards market. We
continued to penetrate the domestic building boards market
during the year, taking further share from the main competing
material, plywood. Strong demand for HardiFlex® lite panel,
a thin, light sheet designed for ceiling applications, and
HardiFlex panel, used in ceiling and internal wall applications,
continued during fiscal year 2003. During fiscal year 2003, we
launched our first plank product, Hardiplank® Select
Cedarmill cladding, which is being marketed to architects and
developers. The launch of plank is expected to increase sales to
large residential projects. Export sales were weaker in fiscal
year 2003 compared to fiscal year 2002,

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due primarily to supply issues and lower export
demand. The average selling price decreased 7% compared to
fiscal year 2002 due to a decrease in sales of higher-priced
exports.


Other Sales.Other
sales include sales of our fiber cement products manufactured in
Chile, sales of Hardie® Pipe in the United States and
general corporate income, which is comprised primarily of rental
income from subleasing office space in Sydney, Australia.

Our Chilean operation, which began commercial
production in March 2001, penetrated the market at its targeted
rate. Economic instability in the neighboring countries of
Argentina and Brazil continued to have a negative effect on the
Chilean economy. Despite weak market conditions during fiscal
year 2003, net sales and volumes were significantly higher than
fiscal year 2002, increasing 153% and 120%, respectively. During
fiscal year 2003, the business moved to the next stage of its
market penetration strategy with the launch of new interior and
exterior products. These included Hardibacker®
underlayment, for interior applications, and textured panels and
planks, for exterior cladding. Selling prices continued to be
negatively affected by aggressive pricing by competitors as they
continued to try to maintain market positions.

Our Hardie Pipe business continued to penetrate
the southeast market of the United States and improve its
operational efficiencies. Net sales more than doubled in fiscal
year 2003 compared to fiscal year 2002. Sales volumes continued
to grow since the business began operating early in calendar
year 2001, as awareness among construction contractors increased
and as the product range has been progressively expanded. The
increased sales have resulted in a doubling of our share of our
targeted large diameter drainage pipe market in Florida compared
to fiscal year 2002. Competition has reacted to our market entry
with aggressive pricing. As a result, our average selling price
was lower compared to fiscal year 2002. This decrease was offset
by unit production costs that have continued to decline during
fiscal year 2003 as we achieved significant improvements in
manufacturing efficiencies. The Florida civil construction
market remained buoyant. Activity increased due to the start of
projects funded by TEA-21 and the Florida State Mobility Act,
both of which involve significant increases in government
spending on highway construction.

Gross Profit.Gross
profit increased 47% from $198.3 million in fiscal year
2002 to $290.8 million in fiscal year 2003 due to strong
improvements in USA Fiber Cement and Asia Pacific Fiber Cement.
The gross profit margin increased 3.6 percentage points in
fiscal year 2003 to 37.1%. USA Fiber Cement gross profit
increased 49% due to higher sales volumes, higher average
selling prices and lower unit cost of sales. The gross profit
margin for USA Fiber Cement increased 3.8 percentage points
in fiscal year 2003. Asia Pacific Fiber Cement gross profit
increased 32% in fiscal year 2003 following strong improvements
from all businesses. Increased volumes, lower raw material costs
and improved manufacturing efficiencies were major factors in
the improved results. The gross profit margin for Asia Pacific
Fiber Cement increased 2.5 percentage points in fiscal year
2003.

Adjustments Related to Stock Option
Accounting.Effective fiscal year
2003, we adopted retrospectively the fair value based method of
accounting for stock options as outlined in
SFAS No. 123. SFAS No. 123 requires the
Company to value stock options issued based on an option-pricing
model and recognize this value as compensation expense over the
periods in which the options vest. Previously, we used variable
plan accounting. As a result, fiscal year 2002 has been restated
to reflect lower compensation cost of $1.4 million that
would have been recognized under the fair value based accounting
method for all options granted, modified or settled in fiscal
years beginning after December 15, 1994.

Selling, General and Administrative
(SG&A) Expenses.SG&A expenses increased 33% from $109.3 million in
fiscal year 2002 to $144.9 million in fiscal year 2003. The
amount previously reported for 2002 is adjusted and decreased by
$1.4 million for the adoption of the fair value provisions
of SFAS No. 123. After this adjustment, the increase
in SG&A expenses was mainly due to the funding of growth
initiatives in the United States, an increase in bonus accruals
in line with the significant improvement in operating profit and
redundancy costs associated with restructuring in the Asia
Pacific business. As a percentage of sales, SG&A expenses
remained comparable to fiscal year 2002, at 18.5% in fiscal year
2003.

Research and Development
Expenses.Research and development
includes costs associated with core research
projects that are aimed at benefiting all fiber cement business
units. These costs are recorded in the

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Research and Development segment rather than
being attributed to individual business units. These costs
increased 27% to $10.4 million in fiscal year 2003 due to
increased project costs and intellectual property costs. Other
research and development costs associated with commercialization
projects in business units are included in the business unit
segment results. In total, these costs increased 30% to
$7.7 million in fiscal year 2003, reflecting a greater
number of projects in the development and commercialization
phase. Total research and development costs as a percentage of
sales decreased by 0.1 of a percentage point to 2.3% in fiscal
year 2003.


Other Operating Income
(Expense).During fiscal year 2003, we
realized a $1.0 million gain from the settlement of a pulp
hedge contract. In fiscal year 2002, there was a charge of
$28.1 million related to a number of costs that did not
recur in fiscal year 2003.

Operating Income.Operating income increased 175% from $46.8 million in
fiscal year 2002 to $128.8 million in fiscal year 2003. The
amount previously reported for fiscal year 2002 is adjusted and
increased by $1.4 million for the adoption of the fair
value provisions of SFAS No. 123. After this
adjustment, the operating profit margin increased
8.5 percentage points to 16.4% in fiscal year 2003.

Our USA Fiber Cement operating income increased
81% from $85.8 million in fiscal year 2002 to
$155.1 million in fiscal year 2003 due to strong sales
volume growth driven by increased primary demand for fiber
cement and lower unit cost of sales from improved manufacturing
efficiencies, partly offset by higher SG&A costs.

Our Asia Pacific Fiber Cement operating income
increased 31% from $20.9 million in fiscal year 2002 to
$27.3 million in fiscal year 2003. Our Australia and New
Zealand Fiber Cement business operating income increased
23% from $22.1 million in fiscal year 2002 to
$27.2 million in fiscal year 2003. In Australian dollars,
the increase was 13%. The stronger operating income performance
was due to higher sales volume and lower unit cost of sales,
partly offset by higher SG&A costs. Australia and New
Zealand Fiber Cements operating income margin decreased
0.5 of a percentage point to 17.4% in fiscal year 2003 primarily
due higher SG&A costs. Our Philippines business recorded a
small operating income in fiscal year 2003, compared to a small
operating loss in fiscal year 2002, primarily due to increased
domestic sales and lower costs of production and SG&A.

Both Hardie Pipe and Chile Fiber Cement incurred
operating losses during fiscal year 2003 as these businesses
continued to ramp up.

General corporate costs decreased by
$11.2 million from $41.1 million in fiscal year 2002
to $29.9 million in fiscal year 2003. The amount previously
reported for fiscal year 2002 is adjusted and decreased by
$1.4 million for the adoption of the fair value provisions
of SFAS No. 123 and by $0.6 million related to
activities that are now a part of Other. After these
adjustments, the decrease in general corporate costs was
primarily due to a $8.1 million charge for a decrease in
the fair value of the pulp hedge contract and a
$7.4 million charge related to our corporate restructuring
being incurred in fiscal year 2002, which were not repeated in
fiscal year 2003, partially offset by increased bonus expense,
in line with the significant improvement in operating profit.
For fiscal year 2003, general corporate costs consist of bonus
expense of $7.1 million, SFAS No. 123 expense of
$1.7 million and other general costs of $21.1 million.

Net Interest
Expense.Net interest expense
increased 24% from $16.0 million in fiscal year 2002 to
$19.9 million in fiscal year 2003. This increase was
primarily due to a $9.9 million make-whole payment, which
was partially offset by a decrease in net borrowings following
the receipt of proceeds from the sale of our Gypsum business in
April 2002. The make-whole payment resulted from the early
retirement of $60.0 million of long-term debt in December
2002. The retirement of the debt will result in savings of
approximately $24.4 million in interest costs for the
remaining term of the debt.

Income Tax Expense.Income tax expense increased by $23.0 million from
$3.1 million in fiscal year 2002 to $26.1 million in
fiscal year 2003.

Income from Continuing
Operations.Income from continuing
operations increased by $56.2 million from
$27.3 million in fiscal year 2002 to $83.5 million in
fiscal year 2003. Income from continuing operations

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previously reported for fiscal year 2002 is
adjusted and increased by $1.7 million for the adoption of
the fair value provisions of SFAS No. 123, which
includes a deferred tax benefit of $0.3 million.


Notes to Results of Operations



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Volume and Average Net Selling
    Price  Asia Pacific Fiber Cement 
    Adjusted:

During the first quarter of fiscal year 2005, we
disclosed in a Form 6-K that in fiscal years 2004 and 2003,
our Asia Pacific Fiber Cement segment reported incorrect volume
figures due to errors when converting to our standard square
feet measurement and due to our Philippines Fiber Cement
business including intercompany volume during fiscal year 2004.
The following table presents adjusted volume and average net
selling price for our Asia Pacific Fiber Cement business
segment. We have adjusted this Form 20-F for the revised
volume and average net selling price.

|                                                            |  |                              |       |          |  |               |       |          |  |    |       |  |  |    |       | 
|----------------------------------------------------------- |  | ---------------------------- | ----- | -------- |  | ------------- | ----- | -------- |  | -- | ----- |  |  | -- | ----- | 
|                                                            |  |                             
|                                                            |  | Fiscal Years Ended March 31,
|                                                            |  |                             
|                                                            |  |                              |       |         
|                                                            |  | 2004                         |       | 2003    
|                                                            |  |                              |       |         
|                                                            |  | As Previously                |       | Adjusted |  | As Previously |       | Adjusted
|                                                            |  | Published                    |       | Figure   |  | Published     |       | Figure  
|                                                            |  |                              |       |          |  |               |       |         
|Volume (million square feet)                                |  |                              | 402.1 |          |  |               | 362.1 |          |  |    | 368.3 |  |  |    | 349.9 | 
|Average sales price per unit (per thousand square
    feet) |  | A$                           | 788   |          |  | A$            | 862   |          |  | A$ | 843   |  |  | A$ | 887   | 



| |                                                     
| | ----------------------------------------------------
| | Net Sales  Philippines Fiber
    Cement  Adjusted:

During the first quarter of fiscal year 2005, we
disclosed in a Form 6-K that in fiscal year 2004, our
Philippines business incorrectly reported intercompany transfers
as external net sales and cost of sales. Adjustment to the
Philippines Fiber Cement discussion is necessary to provide an
accurate year-to-year discussion of Philippines Fiber Cement net
sales. Therefore, for discussion purposes only, for the
Philippines Fiber Cement business we adjusted fiscal year 2004
Philippines Fiber Cement net sales. We have not restated the
Asia Pacific Fiber Cement business segment results or the
consolidated financial statements since these adjustments are
not material to our Asia Pacific Fiber Cement segment or to the
consolidated financial statements taken as a whole. The
following table presents adjusted Philippines Fiber Cement net
sales for discussion purposes only:

|                    |  |                 |      |  
|------------------- |  | --------------- | ---- | -
|                    |  | Fiscal Year    
|                    |  | Ended          
|                    |  | March 31,      
|                    |  | 2004           
|                    |  |                
|                    |  | (In millions of
|                    |  | U.S. dollars)  
|Previously Reported |  | $               | 24.2 |  
|Adjustment          |  |                 | (3.4 | )
|                    |  |                 |      |  
|Adjusted Net Sales  |  | $               | 20.8 |  
|                    |  |                 |      |  

Discontinued Operations

In total, we recorded income from discontinued
operations of $4.3 million, $87.0 million and
$3.5 million in fiscal years 2004, 2003 and 2002,
respectively. The amount for fiscal year 2004 primarily includes
a favorable outcome from matters related to our former Gypsum
business and a gain on the sale of our New Zealand Building
Systems business, net of other wind-up costs of Gypsum and other
discontinued businesses. See Note 17 to our consolidated
financial statements included in Item 18 in this
Form 20-F for additional information on the results of our
discontinued operations.



| |                 
| | ----------------
| | Building Systems

On May 30, 2003, we sold our New Zealand
Building Systems business to a third party. We recorded a gain
of $1.9 million representing the excess of net proceeds
from the sale of $6.7 million over the net book

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value of assets sold of $4.8 million. The
proceeds from the sale comprised cash of $5.0 million and a
note receivable in the amount of $1.7 million.




| |       
| | ------
| | Gypsum

In fiscal year 2002, we successfully completed
the transformation of the Company into a purely fiber cement
business when we signed a definitive agreement to sell our
Gypsum business. We completed the sale on April 25, 2002
and recorded a pre-tax gain of $81.4 million in fiscal year
2003, with income tax expense of $26.1 million. See
Item 4 Information on the Company  Capital
Expenditures and Divestitures  Divestitures.

On June 28, 2001, we entered into an
agreement to sell our gypsum mine property in Las Vegas, Nevada
to a developer. We completed the transaction on March 21,
2003 and realized a $49.2 million pre-tax gain on the sale
with $19.2 million of income tax expense. See Item 4
Information on the Company  Capital
Expenditures and Divestitures  Divestitures.



| |                  
| | -----------------
| | Building Services

During the year ended March 31, 2003, we
recorded a loss of $1.3 million related to our Building
Services business, which was disposed of in November 1996. The
loss consisted of expenses of $0.8 million and a
$0.5 million write down of an outstanding receivable that
was retained as part of the sale.



| |        
| | -------
| | Windows

In September 2000, we decided to exit our
Australian Windows operation. This led to the carrying value of
the Windows business assets being written down to its
near-term realizable value, as opposed to maintaining a value
for these assets that reflected the longer term development
potential of the business. A provision was also established for
costs that were likely to be incurred as part of the divestiture
process. In November 2001, we sold our Windows business.



| |                                    
| | -----------------------------------
| | Amaca Pty Ltd and Amaba Pty
    Ltd

In February 2001, we announced the establishment
of a special purpose foundation to compensate individuals with
claims against two former ABN 60 subsidiaries and to fund
medical research into asbestos-related diseases (the
Foundation). We gifted A$3.0 million
($1.7 million) in cash and transferred ownership and
control of the two former subsidiaries to the Foundation. The
two former subsidiaries manufactured and marketed
asbestos-related products prior to 1987, when all such
activities ceased. The change in ownership resulted in a gain on
disposal of $2.3 million. See Item 4 Information
on the Company  Capital Expenditures and
Divestitures  Divestitures.

The Foundation is managed by independent trustees
and operates entirely independently of us. We do not control the
activities of the Foundation in any way and, since
February 16, 2001, we have not controlled the activities of
the two former subsidiaries. In particular, the trustees are
responsible for the effective management of claims against the
former subsidiaries and for the investment of its assets. We
have no economic interest in either the Foundation or the two
former subsidiaries. Apart from the express indemnity for
non-asbestos matters provided to ABN 60 and a possible
arrangement to fund some or all future claimants for
asbestos-related injuries caused by former James Hardie
subsidiary companies and to the potential liabilities more fully
described in Legal Proceedings in Item 4, we do
not believe we will have any liability under current Australian
law should future asbestos-related liabilities of Amaca and
Amaba exceed the funds available to those entities or the
Foundation. Also see Legal Proceedings in
Item 4 and Notes 14 and 17 to our consolidated
financial statements included in Item 18 in this
Form 20-F.



| |       
| | ------
| | ABN 60

On March 31, 2003, we transferred control of
ABN 60 to a newly established company named ABN 60
Foundation. The ABN 60 Foundation was established to be the
sole shareholder of ABN 60 and to ensure

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ABN 60 meets its payment obligations to the
Foundation. Following the establishment of the ABN 60
Foundation, JHI NV no longer owns any shares of
ABN 60. The ABN 60 Foundation is managed by
independent directors and operates entirely independently of the
Company. We do not control the activities of ABN 60 or the
ABN 60 Foundation in any way. We have no economic interest
in ABN 60 or the ABN 60 Foundation and have no right
to dividends or capital distributions. Apart from the express
indemnity for non-asbestos matters provided to ABN 60 and a
possible arrangement to fund some or all future claimants for
asbestos-related injuries caused by former James Hardie
subsidiary companies and to the potential liabilities more fully
described in Legal Proceedings in Item 4, we do
not believe we will have any liability under current Australian
law should future liabilities of ABN 60 or ABN 60
Foundation exceed the funds available to those entities. As a
result of the change in ownership of ABN 60 on
March 31, 2003, we recorded a loss on disposal of
$0.4 million, representing the liabilities of ABN 60
(to the Foundation) of A$94.6 million ($57.2 million),
the A$94.5 million ($57.1 million) in cash held on the
balance sheet, and costs associated with the establishment and
funding of the ABN 60 Foundation. Also see Legal
Proceedings in Item 4 and Notes 14 and 17 to our
consolidated financial statements included in Item 18 in
this Form 20-F.


Impact of Recent Accounting
Pronouncements



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Amendment of SFAS No. 133,
    Accounting for Derivative Instruments and Hedging
    Activities

In April 2003, the Financial Accounting Standards
Board (FASB) issued SFAS No. 149,
Amendment of Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities. This
statement clarifies the definition of a derivative and
incorporates certain decisions made by the FASB as part of the
Derivatives Implementation Group process. This statement is
effective for contracts entered into or modified, and for
hedging relationships designated after June 30, 2003 and
should be applied prospectively. The provisions of the statement
that relate to implementation issues addressed by the
Derivatives Implementation Group that have been effective should
continue to be applied in accordance with their respective
effective dates. Adoption of this standard did not have a
material impact on our consolidated financial statements.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Certain Financial Instruments with
    Characteristics of both Liabilities and Equity

In May 2003, the FASB issued
SFAS No. 150, Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This
statement establishes standards for how a company clarifies and
measures certain financial instruments with characteristics of
both liabilities and equity. It requires that a company classify
such instruments as liabilities, whereas they previously may
have been classified as equity. The standard is effective for
all financial instruments entered into or modified after
May 31, 2003, and otherwise is effective July 1, 2003.
The adoption of this standard did not have an impact on our
consolidated financial statements.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Employers Disclosures about Pensions
    and Other Postretirement Benefits

In December 2003, the FASB issued
SFAS No. 132 (revised 2003)
(SFAS No. 132R), Employers
Disclosures about Pensions and Other Postretirement Benefits, an
amendment of FASB Statement 87, Employers Accounting
for Pensions, No. 88, Employers Accounting for
Settlement and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits, and No. 106, Employers
Accounting for Postretirement Benefits Other than
Pensions. SFAS No. 132R requires additional
disclosures about the assets, obligations, cash flows and net
periodic benefit/cost of defined benefit pension plans and other
defined benefit postretirement plans. SFAS No. 132R is
effective for foreign plans for the fiscal years ending after
June 15, 2004. The Company does not expect the adoption of
this standard to have a material impact on our consolidated
financial statements.



| |                                                
| | -----------------------------------------------
| | Consolidation of Variable Interest
    Entities

In December 2003, the FASB issued FASB
Interpretation No. (FIN) 46 (revised December 2003),
Consolidation of Variable Interest Entities
(FIN 46R), which addresses how a business
should evaluate whether it has a controlling financial interest
in an entity through means other than voting rights and

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accordingly should consolidate the entity.
FIN 46R replaced FIN 46, which was issued in January
2003. FIN 46 or FIN 46R applies immediately to
entities created after January 31, 2003 and no later than
the end of the first reporting that ended after
December 15, 2003 to entities considered to be
special-purpose entities (SPEs). FIN 46R is
effective for all other entities no later than the end of the
first interim or annual reporting period ending after
March 15, 2004. The adoption of the provisions of
FIN 46 or FIN 46R relative to SPEs and for entities
created after January 31, 2003 did not have an impact on
our consolidated financial statements. Additionally, we do not
expect the other provisions of FIN 46R to have a material
impact on our consolidated financial statements.


Liquidity and Capital Resources

We have historically met our working capital
needs and capital expenditure requirements through a combination
of cash flow from operations, proceeds from the divestiture of
businesses, credit facilities and other borrowings, proceeds
from the sale of property, plant and equipment and proceeds from
the redemption of investments. Seasonal fluctuations in working
capital generally have not had a significant impact on our
short-term or long-term liquidity. We believe that we can meet
our present working capital requirements for at least the next
12 months based on our current capital resources.

We had cash and cash equivalents of
$72.3 million as of March 31, 2004. At that date we
also had credit facilities totaling $446.0 million of which
$175.8 million was outstanding. Our credit facilities are
all uncollateralized and consist of the following:

|                                                                                                                                                                                                       |       |           |      |               |  |                |       |       |  |   |       |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----- | --------- | ---- | ------------- |  | -------------- | ----- | ----- |  | - | ----- | ----- | 
|                                                                                                                                                                                                       |       | Interest  |      | Total         |  | Principal     
|                                                                                                                                                                                                       |       | Rate at   |      | Facility at   |  | Outstanding at
|                                                                                                                                                                                                       |       | March 31, |      | March 31,     |  | March 31,     
|Description                                                                                                                                                                                            |       | 2004      |      | 2004          |  | 2004          
|                                                                                                                                                                                                       |       |           |      |               |  |               
|                                                                                                                                                                                                       |       |           |      | (In millions) |  |               
|US$ notes; fixed interest; repayable annually in
    varying tranches from November 2004 through November 2013                                                                                         |       |           | 7.09 | %             |  | $              | 165.0 |       |  | $ | 165.0 |      
|A$ revolving loan; can be drawn down in either
    US$ or A$; variable interest based on US$ LIBOR or A$ bank
    bill rate plus margin; can be repaid and redrawn until maturity
    in November 2006 |       |           | N/A  |               |  |                | 152.0 |       |  |   |      |      
|US$ stand-by loan; can be drawn down in either
    US$ or A$; variable interest based on US$ LIBOR or A$ bank
    bill rate plus margin until maturity in April 2005                                   |       |           | N/A  |               |  |                | 117.5 |       |  |   |      |      
|US$ line of credit; can be drawn down in Chilean
    Pesos; variable interest based on Chilean Tasa Activa Bancaria
    rate plus margin until maturity in October and December 2004                   |       |           | 3.24 | %             |  |                | 11.5  |       |  |   | 10.8  |      
|                                                                                                                                                                                                       |       |           |      |               |  |                |       |       |  |   |       |      
|                                                                                                                                                                                                       | Total |           |      |               |  |                | $     | 446.0 |  |   | $     | 175.8 | 
|                                                                                                                                                                                                       |       |           |      |               |  |                |       |       |  |   |       |      

The US$ line of credit was amended for an
aggregate amount of $15.0 million with a maturity date of
December 2004. We currently plan to extend this line of credit
upon its maturity, under substantially similar terms.

As a consequence of the completion of the sale of
our Gypsum business on April 25, 2002, we were technically
not in compliance as of that date with certain pre-approval
covenants of our US$ noncollateralized note agreements totaling
$225.0 million. Effective December 23, 2002, the note
purchase agreement was amended to, among other matters, modify
these covenants to remove the technical non-compliance caused by
the sale of our Gypsum business. In connection with such
amendment, we prepaid $60.0 million in principal amount of
the notes. As a result of the early retirement, we incurred a
$9.9 million make-whole payment charge, which was charged
to interest expense during fiscal year 2003.

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| |                                               
| | ----------------------------------------------
| | Cash Flow Provided by Operating
    Activities

Net cash provided by operating activities was
$162.6 million, $64.8 million and $76.6 million
in fiscal years 2004, 2003 and 2002, respectively.

Fiscal year 2004 net income, after adjusting
for the gain on disposal of subsidiaries and businesses and for
a gain on sale of land and buildings, increased by
$35.6 million compared to fiscal year 2003. Adjusting
further for non-cash items included in net income, cash flows
from operations increased additionally by $36.7 million in
fiscal year 2004 compared to fiscal year 2003. Other working
capital changes caused a net increase in cash of
$25.5 million.

The major reason for the $11.8 million
decrease in cash flow provided by operating activities for
fiscal year 2003 compared to fiscal year 2002 was the increase
in operating income, which was partially offset by the gain on
disposal of subsidiaries and businesses and other non-cash
charges. This net increase was offset by changes in working
capital balances, which primarily reflect increases in
inventories and accounts payable and accrued liabilities.



| |                                                         
| | --------------------------------------------------------
| | Cash Flow (Used in) Provided by Investing
    Activities

Net cash (used in) provided by investing
activities was ($58.0) million, $237.9 million and
($77.2) million in fiscal years 2004, 2003 and 2002,
respectively.

The decrease in cash flows from investing
activities from fiscal year 2003 to fiscal year 2004 was
primarily due to proceeds from the sale of our Gypsum business
and from the Las Vegas land sale in fiscal year 2003, which was
partially offset by a $57.1 million payment related to the
transfer of control of ABN 60 in fiscal year 2003 that did not
recur in fiscal year 2004. In addition, we spent
$15.4 million less on capital expenditures during fiscal
year 2004 compared to fiscal year 2003. The $5.0 million
from the sale of businesses resulted from the sale of our New
Zealand Building Systems business in May 2003. The
$10.9 million from property sold resulted primarily from
land and buildings of our Australia/ New Zealand segment that we
sold for cash in March 2004. The $74.8 million capital
expenditures in fiscal year 2004 resulted primarily from
continued operating plant expansions and construction and new
property purchases.

Net investing cash inflows increased in fiscal
year 2003 primarily due to proceeds of $383.4 million
mainly from the sale of our Gypsum business and Las Vegas land,
which was partially offset by a $57.1 million payment
related to the transfer of ABN 60 and higher capital
expenditures in fiscal year 2003.



| |                                           
| | ------------------------------------------
| | Cash Flow Used in Financing
    Activities

Net cash used in financing activities was
$87.9 million, $279.4 million and $40.8 million
in fiscal years 2004, 2003 and 2002, respectively.

Net cash outflow in fiscal year 2004 resulted
primarily from a $68.7 million return of capital and
$22.9 million of dividends paid. In fiscal year 2003, the
return of capital was higher by $26.1 million. In addition,
in fiscal year 2003 we repaid $160.0 million of bank debt,
which did not recur in fiscal year 2004. Net proceeds from
borrowings decreased from fiscal year 2003 by $5.0 million
to $0.5 million in fiscal year 2004. The proceeds of
$3.2 million represent stock option exercises during fiscal
year 2004.

The increase in outflow in fiscal year 2003
compared to fiscal year 2002 was primarily due to a
$109.7 million decrease in proceeds from the issuance of
shares, a $72.3 million increase in repayments of capital
and a $42.6 million increase in net repayments of
borrowings.



| |                                       
| | --------------------------------------
| | Capital Requirements and
    Resources

Our capital requirements consist of expansion,
renovation and maintenance of our production facilities and
construction of new facilities. Our working capital requirements
consisting primarily of inventory and accounts receivable and
payables fluctuate seasonally and increase prior to and during
months of the year when overall construction and renovation
activity volumes increase. We have historically funded cash flow

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shortfalls with cash generated from divestiture
of non-fiber cement business operations and other business
assets and from available cash under bank debt facilities.


During fiscal year 2004, our continuing
businesses generated cash in excess of our capital requirements.
As we continue expanding our fiber cement businesses, we expect
to use cash primarily generated from our operations to fund
capital expenditures and working capital. We expect to spend
significantly during fiscal year 2005 on capital expenditures
that include facility upgrades and new facility construction.
Upgrades generally include required expenditures to maintain our
facilities and expenditures for implementing new fiber cement
technologies. If we do not generate sufficient cash from
operations to fund our planned capital expenditures and working
capital requirements, we believe the cash and cash equivalents,
and cash available at March 31, 2004 of approximately
$270.2 million under debt facilities, will be sufficient to
meet any cash shortfalls during the next two to three years.
Beyond three years, we intend to rely, for the most part, on
increased market penetration of our products and increased
profitability from a more favorable product mix to generate cash
to fund our growth. Historically, our products have been well
accepted by our market and our product mix has changed towards
higher priced differentiated products that generate higher
margins. We are relying on the markets for our products to
continue recognizing that value to achieve sufficient market
penetration and a product mix sufficiently profitable to fund
our growth plans. We also intend to maintain sufficient levels
of available cash under bank debt facilities to offset any cash
shortfall.

We believe that we will be able to continue
increasing our market share by further market penetration
against competing products. Generally, over the past three
years, a large part of our growth resulted from market share
increases, especially in our major market of North America. We
have historically acquired market share from vinyl and
wood-based products in this market and believe that our success
is based primarily on our superior and proprietary product and
production technologies that give us competitive product
advantages. We expect to continue our research and development
activities over the short and long-term to maintain, improve and
increase our technology advantages. Based on our market
penetration history, technology benefits from our research and
development activities, and other factors, we expect that our
market penetration trend will continue over the short and
longer-term.

We believe our business is affected by general
economic conditions and interest rates in the United States and
in other countries since these factors may affect the number of
new housing starts and the level of housing prices and household
income levels. We believe that housing prices, which may affect
available owner equity, and household income levels are
contributors to the currently robust renovation and remodel
markets for our products. We believe continued improvements in
general economic conditions and continued low mortgage interest
rates will maintain new housing starts and the renovation and
remodel markets at historically high levels, which we expect
will result in our operations generating cash flow sufficient to
fund the majority of our planned capital expenditures. It is
possible that a decline in residential housing starts in the
United States and in other countries, in which we manufacture
and sell our products, would negatively impact our growth and
current levels of revenue and profitability and therefore
decrease our liquidity and our ability to generate sufficient
cash from operations to meet our capital requirements. The
anticipated interest rate increase in the United States during
calendar year 2004 may slow down new housing starts in the
United States and decrease housing prices, which may reduce
demand for our products.

Pulp is a primary ingredient in our fiber cement
formulation and affects our working capital requirements. Pulp
prices have risen during fiscal year 2004 and it is possible
that they will continue rising. To minimize additional working
capital requirements caused by rising pulp prices, we may seek
to enter into contracts with suppliers for the purchase of pulp
that could fix our pulp prices over the longer-term. However, if
pulp prices do not continue rising, our cash generated from
operations may be negatively impacted if pulp pricing is fixed
over the longer-term.

Freight costs have increased due to higher fuel
prices and an increase in the average length of haul of our
products from our facilities to our customers facilities.
We expect fuel costs to remain higher, which will increase our
working capital requirements as compared to fiscal year 2004.

During fiscal year 2004, the United States and
The Netherlands approved a new protocol that, when ratified,
would amend the current U.S.-Netherlands Income Tax Treaty,
under which we currently derive

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significant tax benefits. We expect ratification
will occur soon. Unless we change our organizational and
operational structure, we are unlikely to satisfy the
requirements of the amended treaty. Accordingly, we are
evaluating various reorganization options either to: 1) satisfy
those requirements and thus remain eligible for benefits under
the amended treaty, or 2) obtain an equally favorable result. If
we are unable to remain eligible for benefits under the amended
treaty or obtain an equally favorable result, our effective tax
rate would significantly increase beginning in our fiscal year
2006. See Risk Factor entitled Under the U.S.-Netherlands
income tax treaty and Netherlands law, we derive substantial tax
benefits from the group finance operations of our
Netherlands-based finance subsidiary, and changes in either the
treaty or laws applicable to the finance subsidiary, including
the recently approved Protocol, could increase our effective tax
rate and, as a result, reduce our future profits and cash
flows in Item 3.


In October 2004, the American Job Creation Act of
2004 (the Act) was signed into law. The Act
establishes a deduction for certain qualified domestic
production activities, a deduction to which we expect to become
entitled in tax years that begin after 2004. This and other
provisions of the Act will require guidance from the Internal
Revenue Service to fully assess their consequences. The FASB has
proposed guidance on how companies should account for the
effects of the Act, including the special deduction for domestic
production activities. Based on the FASBs proposal, we
expect to recognize the tax benefits from the deduction
beginning in our consolidated financial statements for our
fiscal year that begins April 1, 2005.

The SCI was established by the NSW Government in
February 2004 to investigate, among other matters described in
Legal Proceedings in Item 4, the circumstances
in which the Foundation was established. The SCIs report
was delivered on September 21, 2004. We are currently in
discussions with the Representatives regarding potential
arrangements that could be acceptable to both the
Representatives and our Company and subsequently to our
shareholders and the NSW Government. Both the outcome of those
discussions and the timing of any potential resolution are
highly uncertain and accordingly, we cannot determine whether we
will achieve a satisfactory resolution or what any potential
arrangement may involve.

If a resolution is reached with the
Representatives and approved by them, the NSW Government and the
Companys Board, shareholders and lenders, the Company may
be required to make a substantial provision in its accounts at a
later date, and it is possible that the Company would need to
seek additional borrowing facilities. See Risk Factor entitled,
We may have difficulty obtaining financing (debt or
equity), or obtaining financing on usual terms, or retaining
existing financial support because of concerns or uncertainty
relating to the SCI, legal or legislative action following the
SCI, or the Companys offer to provide additional funding
to the Foundation in Item 3. Additionally, it is
possible that any future resolution of this issue may result in
the Company having negative shareholders equity, which
would be likely to restrict its ability to pay dividends to
shareholders. If the terms of a future resolution involve James
Hardie making payments, either on an annual or other basis,
pursuant to a statutory scheme or other form of arrangement,
James Hardies financial position, results of operations
and cash flows could be materially adversely affected.

It is also possible that the Representatives
and/or others may encourage or continue to encourage consumers
and union members in Australia and elsewhere to boycott the
Companys products, to demonstrate or otherwise create
negative publicity toward the Company in order to influence the
Companys approach to the discussions with the
Representatives or to encourage governmental action if the
discussions are unsuccessful. The Representatives and/or others
might also take such actions in an effort to influence the
Companys shareholders, a significant number of which are
located in Australia, to approve any proposed arrangement. Any
such measures, and the influences resulting from them, could
have a material adverse impact on the Companys financial
position, results of operations and cash flows.

We anticipate that, during our involvement with
the SCI, we will incur increased administration expenses of up
to approximately $2.0 million each month. It is currently
the Companys policy to expense any legal costs incurred.
See Item 4 Information on the Company 
Legal Proceedings.

As a result of the SCI and other related
developments, the Company has reviewed the long-lived assets of
its Australian business for impairment and determined that no
impairment charge was required.

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The collective impact of the foregoing factors,
and other factors, may affect our ability to generate sufficient
cash flows from operations to meet our short and longer-term
capital requirements. We believe that we will be able to fund
any cash shortfalls with cash available under existing or future
bank debt facilities and that we will be able to maintain
sufficient cash available under those facilities. Additionally,
we could determine it necessary to scale back or postpone our
expansion plans to maintain sufficient capital resources over
the short and longer-term.



| |                     
| | --------------------
| | Capital Expenditures

Our total capital expenditures, including amounts
accrued, for continuing operations for fiscal years 2004, 2003
and 2002 were $74.1 million, $90.2 million and
$50.8 million, respectively. The capital expenditures were
primarily used to create additional low cost, high volume
manufacturing capacity to meet increased demand for our fiber
cement products and to create new manufacturing capacity for new
fiber cement products.

Significant capital expenditures in fiscal year
2004 included the completion of: (i) an upgrade to our
Blandon, Pennsylvania plant; (ii) a panel production line
at our Waxahachie, Texas plant; (iii) a new pre-finishing
line at our Peru, Illinois plant; and (iv) a pilot roofing
plant in Fontana, California. In addition, we commenced
construction on a new green-field fiber cement plant at Reno,
Nevada and on a new trim line at our Peru, Illinois plant.
Significant capital expenditures in fiscal year 2003 included
the completion of a second flat sheet production line at our
plant in Peru, Illinois. In addition, we commenced construction
on a panel production line at our Waxahachie, Texas plant and a
pilot roofing products plant at Fontana, California; and began
an upgrade to our Blandon, Pennsylvania plant. Significant
capital expenditures in fiscal year 2002 included the addition
of our first line at our plant in Waxahachie, Texas and the
addition of a second line at our plant in Peru, Illinois. See
Item 4 Information on the Company  Capital
Expenditures and Divestitures.



| |                        
| | -----------------------
| | Contractual Obligations

The following table summarizes our significant
contractual obligations at March 31, 2004:

|                           |       |               |       |                                     |  |              |      |              |  |            |      |      |  |   |      |      |  |   |      |       | 
|-------------------------- | ----- | ------------- | ----- | ----------------------------------- |  | ------------ | ---- | ------------ |  | ---------- | ---- | ---- |  | - | ---- | ---- |  | - | ---- | ----- | 
|                           |       |              
|                           |       | Payments Due 
|                           |       |              
|                           |       |               |       |                                    
|                           |       |               |       | During Fiscal Year Ending March 31,
|                           |       |               |       |                                    
|                           |       | Total         |       | 2005                                |  | 2006 to 2007 |      | 2008 to 2009 |  | Thereafter
|                           |       |               |       |                                     |  |              |      |              |  |           
|                           |       |              
|                           |       | (In millions)
|Long-Term Debt             |       | $             | 165.0 |                                     |  | $            | 17.6 |              |  | $          | 52.8 |      |  | $ | 54.3 |      |  | $ | 40.3 |      
|Interest on Long-Term Debt |       |               | 55.6  |                                     |  |              | 11.7 |              |  |            | 19.2 |      |  |   | 13.1 |      |  |   | 11.6 |      
|Operating Leases           |       |               | 128.3 |                                     |  |              | 12.5 |              |  |            | 22.0 |      |  |   | 18.6 |      |  |   | 75.2 |      
|Purchase Obligations(1)    |       |               | 26.8  |                                     |  |              | 26.8 |              |  |            |     |      |  |   |     |      |  |   |     |      
|Line of Credit             |       |               | 10.8  |                                     |  |              | 10.8 |              |  |            |     |      |  |   |     |      |  |   |     |      
|                           |       |               |       |                                     |  |              |      |              |  |            |      |      |  |   |      |      |  |   |      |      
|                           | Total |               | $     | 386.5                               |  |              | $    | 79.4         |  |            | $    | 94.0 |  |   | $    | 86.0 |  |   | $    | 127.1 | 
|                           |       |               |       |                                     |  |              |      |              |  |            |      |      |  |   |      |      |  |   |      |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Purchase Obligations are defined as agreements to
    purchase goods or services that are enforceable and legally
    binding on the Company and that specify all significant terms,
    including: fixed or minimum quantities to be purchased; fixed,
    minimum or variable price provisions; and the approximate timing
    of the transactions. Purchase obligations listed above primarily
    represent commitments for capital expenditures. The Company did
    not have any agreements with variable price provisions.

The table above does not include amounts related
to our future funding obligations for our Australian defined
benefit plan. We estimate that our pension plan funding will be
approximately $3.0 million for fiscal year 2005. Projected
payments beyond fiscal year 2005 are not currently determinable.
Also see Note 9 to our consolidated financial statements in
Item 18 in this Form 20-F.

In addition, the table above does not include any
amounts related to funding obligations that might arise from
matters discussed under the headings Amaca Pty Ltd, Amaba
Pty Ltd and ABN 60, Special Commission of
Inquiry, Australian Securities and Investments
Commission Investigation, Severance

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Agreements and ABN 60
Indemnity in Note 14 to our consolidated financial
statements in Item 18 in this Form 20-F. The Company has not
established a provision for any of these liabilities because at
this time it is not probable nor estimable, but depending on
future developments, the impact on future cash funding
obligations could be significant.


See Notes 11 and 14 to our consolidated
financial statements in Item 18 in this Form 20-F for
further information regarding long-term debt and operating
leases, respectively.

Off-Balance Sheet Arrangements

As of March 31, 2004 and 2003, we did not
have any material off-balance sheet arrangements.

Inflation

We do not believe that inflation has had a
significant impact on our results of operations for the three
years presented.

Seasonality and Quarterly
Variability

Earnings are seasonal and typically follow
activity levels in the building and construction industry. In
the United States, the quarters ending December and March
reflect reduced levels of building activity depending on weather
conditions. In Australia and New Zealand, the quarter ending
March is usually affected by a slowdown due to summer vacations.
In the Philippines, construction activity diminishes during the
wet season from June to September and during the last half of
December due to the slowdown in business activity over the
Christmas period. In Chile, we also experience decreased
construction activity from May through September due to weather.
Also, general industry patterns can be affected by weather,
economic conditions, industrial disputes and other factors.

Research and Development

For fiscal years 2004, 2003 and 2002, our
expenses for research and development were $22.6 million,
$18.1 million and $14.1 million, respectively.

We have invested heavily in research and
development, with a focus primarily on fiber cement. We view
research and development as key to sustaining our existing
market leadership position and expect to continue to allocate
significant funding to this endeavor. By investing in process
technology, we aim to keep reducing our capital and operating
costs, and at the same time find new ways to make existing and
new products.

Over the past ten years, advances in process
technology have allowed us to reduce the incremental cost of
additional capacity at existing sites. At the same time, we have
reduced the cost of raw materials through yield improvements in
the plants; by providing technological support to drive process
improvements in our suppliers operations; and from our
increased business scale.

We believe that we also benefit from superior
economies of scale, since we operate plants that are two to
three times larger than our competitors.

In addition, our goals are to:



| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | continue to lower the capital cost of each unit
    of production at new plants by learning from past projects and
    through continuing innovation in engineering; and
|
| |  | reduce operating costs at each plant by improving
    manufacturing processes, raw materials yields and machine
    productivity.                                       

We believe that efficient, low-cost
manufacturing, combined with our unique technology, will allow
us to generate higher returns on invested capital because we
will be able to sell our products at prices that are attractive
to our customers, and achieve a profit margin that is attractive
to shareholders.

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Outlook

In North America, there is little on the
short-term horizon to suggest the housing construction sector
will not remain strong. Interest rates continue to be low and
expected increases over the balance of the fiscal year 2005
should have only a modest impact on demand for new housing.
Builders are reporting an optimistic outlook for the remainder
of fiscal year 2005 and continue to have relatively low
inventories of new homes for sale and large backlogs of orders
for homes to be built. Further strong top-line growth is
expected and improved manufacturing performance and lower costs
should lift profitability as the Companys North American
business continues to penetrate its exterior and interior
product markets.

During the first half of fiscal year 2005, the
USA Fiber Cement business results were negatively impacted by
higher spending on ramping-up growth initiatives and higher
manufacturing costs, including increased costs caused by
efficiency problems at a number of our U.S. plants. We have
addressed the efficiency issues and expect to see improved
efficiency levels in the second half of fiscal year 2005. In
addition, we expect pulp prices to decrease beginning in the
third quarter of fiscal year 2005. Further ramping-up costs are
expected to be incurred in the second half of fiscal year 2005
for a number of growth initiatives.

Despite expectations of higher interest rates,
the fundamental drivers of housing demand continue to look
positive. The U.S. domestic economy is strengthening and
demographic factors such as immigration, internal migration and
household formation all suggest healthy levels of housing demand
over the medium to longer-term.

In the Australia and New Zealand
(ANZ) business, new housing and the renovations
segments in Australia are expected to further soften with the
expectation of higher interest rates over the medium term. In
New Zealand, the new housing segment is believed to have peaked
and activity may soften as interest rates increase. Demand and
profitability for the ANZ business may be also adversely
affected by product boycotts and negative sentiment in Australia
associated with the Special Commission of Inquiry and related
matters.

In the Philippines, stronger domestic and export
demand is expected from increased construction activity,
reflecting more favorable economic conditions in the region.
Increased demand and more cost savings should further improve
operating performance.

In our emerging Chile Fiber Cement, Europe Fiber
Cement and U.S. Hardie® Pipe businesses, sales and
market share are expected to increase as awareness of their
products among builders, contractors and distributors continues
to grow.

Overall, the strong top-line growth momentum
evident in the first half of fiscal year 2005 is continuing into
the third quarter of fiscal year 2005. Operating performance for
the full fiscal year 2005 is expected to benefit from improved
manufacturing performance and reduced costs in the second half
of fiscal year 2005.

Costs associated with the SCI and other
associated developments are continuing to be incurred and may
continue to be material.






|        |                                               
|------- | ----------------------------------------------
|Item 6. | Directors, Senior Management and
    Employees

Board Practices and Senior
Management



| |                
| | ---------------
| | Board Structure

We have a multi-tiered board structure that is
consistent with Dutch corporate law. This structure consists of
our Supervisory Board, our Managing Board and our Joint Board.

Our Supervisory Board currently includes only
non-executive directors, including the Chairman,
Ms. Meredith Hellicar, and is responsible for advising and
supervising our Managing Board based on the best interests of
the Company, including the interests of our shareholders.

Our Managing Board currently consists of two
executive officers and is responsible for overseeing general
affairs, operations and finance, including our treasury. Our
interim CEO, Mr. Louis Gries, is the temporary

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Chairman of our Managing Board.
Mr. W. (Pim), Vlot, Company Secretary, is also a
temporary member of our Managing Board.


Our Joint Board comprises all of the members of
our Supervisory Board and the Chairman of our Managing Board. In
its role and composition, our Joint Board (Board) is
the equivalent of a full board of directors of a U.S. or an
Australian public company.

The Chairman of our Joint Board must be an
independent, non-executive director. Our Joint Board must always
include at least a two-thirds majority of independent directors.



| |                                       
| | --------------------------------------
| | Board Mission and
    Responsibilities

A key responsibility of our Board is determining
strategy and monitoring Company performance. To this end, the
Company adopts a 3-year business plan and a 12-month operating
plan. Financial results and performance are closely monitored
against the operating plan. Our Board also ensures that the
Company has in place effective external disclosure policies and
procedures so that shareholders and the financial markets are
fully informed on all matters that might influence our share
price. The core responsibility of directors is to exercise their
business judgment in the best interest of the Company and its
shareholders. Directors must fulfill their fiduciary duties to
shareholders in compliance with all applicable laws and
regulations. As appropriate, directors will also take into
consideration the interests of other stakeholders in the
Company, including employees, customers, creditors and others
with a legitimate interest in our affairs. In discharging their
duties, directors are provided direct access to, and may rely
on, our senior executives and outside advisors and auditors.
Board committees and individual directors may seek independent
professional advice at our expense for the purposes of the
proper performance of their duties.



| |               
| | --------------
| | Qualifications

Directors should possess qualifications,
experience and expertise which will assist the Board in
fulfilling its responsibilities, as well as assist the Company
in achieving future growth. Directors must also be able to
devote a sufficient amount of time to prepare for, and
effectively participate in, Board and committee meetings.

Members of our Supervisory Board, who are elected
by our shareholders, and members of our Managing Board (other
than our Chief Executive Officer) are elected for a three-year
term. In each case, such terms expire at the end of the third
annual meeting of shareholders following election.



| |       
| | ------
| | Tenure

The Board does not believe that arbitrary limits
on the tenure of directors are appropriate or in the best
interests of the Company and its shareholders. Limits on tenure
may cause the loss of experience and expertise that are
important contributors to the long-term growth and prosperity of
the Company. Conversely, the Board does not believe that
directors should expect to be automatically nominated for
re-election at the end of their three-year term, but that their
nomination for re-election should be based on their individual
performance and the needs of the Company.



| |                        
| | -----------------------
| | Standard of Performance

There are performance and evaluation processes
for directors that are conducted by the Nominating and
Governance Committee and these are important factors in
determining nominations for re-election as well as for selecting
nominees for new directors.

During fiscal year 2004, the Board and individual
directors underwent an independent, external review and
assessment. This process was conducted in accordance with the
charter of the Nominating and Governance Committee and was
designed to answer questions such as whether the Board is
focusing on the right issues and using its time efficiently.

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Each of the non-executive directors was
interviewed, as were members of management and the Board
consultant. The review covered relative strengths and relative
weaknesses of the Board compared to other boards and it reviewed
former decisions and the lessons that emerged from those
decisions. It also covered meeting planning and process, Board
composition and structure, director performance, relations with
management, director nominations and succession issues. The
report, which included advice about improving performance, was
given to the Chairman of the Nominating and Governance Committee
and discussed with directors.



| |             
| | ------------
| | Independence

All directors are expected to bring their
independent views and judgment to the Board and must declare any
potential or actual conflicts of interest. The Board has a
policy that at least a two-thirds majority of its members must
be independent and that the office of Chairman of the Board and
Chief Executive Officer cannot be held by the same person
simultaneously, other than in special circumstances and/or for a
short period of time.

In determining the independence of directors and
whether a director has a material relationship with the Company
or another party that might impair his or her independence, the
Board considers all relevant facts and circumstances, including
the following:



| |   |                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Company stock owned either directly or indirectly
    by the director;                                                                                                                                                                                                                                           
|
| |  | compensation received by the director or a family
    member (other than amounts received for service to the Board);                                                                                                                                                                                             
|
| |  | employment by the Company (or any of its
    affiliates) of the director or a family member and whether such
    employment is current or in the past;                                                                                                                                                           
|
| |  | past or present business relationships between
    (i) the director or a family member or any business entity
    associated with them and (ii) any of the Company, the
    Companys auditors, advisors, vendors, customers or other
    business entities or individuals providing services to the
    Company;
|
| |  | any interlocking Board or other company committee
    relationships; and                                                                                                                                                                                                                                         
|
| |  | any other direct or indirect relationship between
    the director and the Company that may be material.                                                                                                                                                                                                         

The Board may determine that a director is
independent, even if there is a material relationship. This may
occur if that relationship is not considered by the Board to
influence, or be perceived to influence, the directors
decisions in relation to the Company. The Board has not set
materiality thresholds and will consider all relationships on a
case-by-case basis, having regard to the accounting
standards approach to materiality.

The Board has considered the issue of the
independence of the Companys directors and determined that
each of the members of the Joint Board other than Mr. Gries
and Mr. Cameron are independent. Mr. Gries is our
Interim CEO and as such is not independent. Until March 31,
2002, Mr. Cameron was a partner of the Australian law firm
Allens Arthur Robinson. Allens Arthur Robinson has advised the
Company in relation to the New South Wales Special Commission of
Inquiry investigation into the Foundation. In view of the
significance of the inquiry, the Board currently considers the
firm to be a material professional advisor to the Company. As
such, Mr. Cameron is not considered independent.

All of the independent directors have:



| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | undertaken to advise the Board of any change in
    their circumstances that could affect their
    independence; and
|
| |  | completed a comprehensive questionnaire that
    confirms their independence.                                        

The Nominating and Governance Committee reviews
the applicable definitions and director independence on a
regular basis.

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| |         
| | --------
| | Meetings

The Joint and Supervisory Boards generally meet
between five and eight times each year and the committees of the
Board meet as required to fulfill their responsibilities. At
each Board meeting, the Supervisory Board conducts sessions
without any members of the Companys management present.
The Board has an annual program of visiting Company facilities
and spending time with line management, customers and suppliers
to assist directors to better understand our business and the
markets in which we operate.

The Audit Committee meets a minimum of once each
quarter to conduct business pursuant to its charter, to review
quarterly financial results and releases and to discharge its
other responsibilities.

The Managing Board meets between five and eight
times each year.



| |                     
| | --------------------
| | Director Orientation

The Company has an orientation procedure for new
directors. Our Chief Executive Officer, Chief Financial Officer,
General Counsel and Executive Vice Presidents are responsible
for providing information for the orientation for new directors
and for periodically providing materials or briefing papers to
the Board on matters as requested or appropriate for the
fulfillment of the directors duties. Typically, a new
director will undergo an extensive orientation including:



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | visits to Company facilities and meetings with
    management and customers;           
|
| |  | reviews of financial position, strategy,
    operating performance and risk management;
|
| |  | their rights, duties and
    responsibilities; and                                     
|
| |  | the role of Board Committees.                                                          

Similar induction and orientation programs are in
place for executives and employees and are tailored according to
seniority and position.

The Company encourages its directors to
participate in continuing education programs to assist them in
performing their responsibilities.



| |                      
| | ---------------------
| | Management Succession

The Board, together with the Nominating and
Governance Committee, has developed and periodically revises
management succession plans, policies and procedures for our
Chief Executive Officer and other senior officers, whether such
succession occurs as a result of a promotion, termination,
resignation, retirement or an emergency.



| |                                                        
| | -------------------------------------------------------
| | Current and Former Directors and Executive
    Officers



| |                    
| | -------------------
| | Recent Developments

On August 11, 2004, Mr. Alan McGregor
resigned as Chairman of the Supervisory Board due to his
continuing ill health. Ms. Meredith Hellicar was appointed
Chairman of the Supervisory Board on the same day.

On September 28, 2004, the Company announced
that Mr. Peter Macdonald and Mr. Peter Shafron were
standing aside as Chief Executive Officer and Chief Financial
Officer, respectively.

On October 21, 2004, Mr. Macdonald
resigned from his position on the Managing Board and as Chief
Executive Officer. On the same day, Mr. Louis Gries was
appointed as a temporary member of the Managing Board in
accordance with article 15.4 of the Companys Articles of
Association and was named Interim Chief Executive Officer. On
October 20, 2004, Mr. Shafron resigned from his
position as Chief Financial Officer. On October 21, 2004,
Mr. Russell Chenu was named Executive Vice President,
Australia and Interim Chief Financial Officer.

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On October 21, 2004, Mr. Folkert
Zwinkels resigned from the Managing Board. Mr. W. (Pim)
Vlot, the Companys Secretary, was appointed as a temporary
member of the Managing Board in accordance with article 15.4 of
the Companys Articles of Association on the same day.

The current members of our Supervisory Board,
Managing Board and Joint Board and our executive officers, along
with certain of our former directors and executive officers are
as follows:

|                                            |                    |     |  |          |  |              |                                                                                                                   |  |  |      | 
|------------------------------------------- | ------------------ | --- |  | -------- |  | ------------ | ----------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Name                                        |                    | Age |  | Position |  | Term Expires
|                                            |                    |     |  |          |  |             
|Supervisory Board                           |                    |     |  |          |  |              |                                                                                                                   |  |  |     
|                                            | Meredith Hellicar  |     |  | 50       |  |              | Chairman of the Joint Board and Chairman of the
    Supervisory Board                                             |  |  | 2006 | 
|                                            | John Barr          |     |  | 57       |  |              | Deputy Chairman of the Joint Board and Deputy
    Chairman of the Supervisory Board                               |  |  | 2007 | 
|                                            | Michael Brown      |     |  | 58       |  |              | Member of the Joint Board and the Supervisory
    Board                                                           |  |  | 2005 | 
|                                            | Peter Cameron      |     |  | 53       |  |              | Member of the Joint Board and the Supervisory
    Board                                                           |  |  | 2006 | 
|                                            | Gregory Clark      |     |  | 61       |  |              | Member of the Joint Board and the Supervisory
    Board                                                           |  |  | 2005 | 
|                                            | Michael Gillfillan |     |  | 56       |  |              | Member of the Joint Board and the Supervisory
    Board                                                           |  |  | 2006 | 
|                                            | James Loudon       |     |  | 61       |  |              | Member of the Joint Board and the Supervisory
    Board                                                           |  |  | 2005 | 
|                                            | Donald McGauchie   |     |  | 54       |  |              | Member of the Joint Board and the Supervisory
    Board                                                           |  |  | 2006 | 
|Managing Board                              |                    |     |  |          |  |              |                                                                                                                   |  |  |     
|                                            | Louis Gries        |     |  | 51       |  |              | Interim Chief Executive Officer, Member of the
    Joint Board and Temporary Chairman of the Managing Board      
|                                            | W. (Pim) Vlot      |     |  | 40       |  |              | Temporary member of the Managing Board                                                                           
|                                           
|Other Executive Officers                    |                    |     |  |          |  |              |                                                                                                                   |  |  |     
|                                            | Russell Chenu      |     |  | 55       |  |              | Executive Vice President  Australia
    and Interim Chief Financial Officer                                     
|                                            | Donald Merkley     |     |  | 41       |  |              | Executive Vice President  Research and
    Development                                                          
|                                            | David Merkley      |     |  | 41       |  |              | Executive Vice President  Engineering
    and Process Development                                               
|                                            | James Chilcoff     |     |  | 40       |  |              | Vice President  International(1)                                                                                
|                                            | Mark Fisher        |     |  | 34       |  |              | Vice President  Interiors/Pipes/Trim(2)                                                                         
|                                            | Nigel Rigby        |     |  | 37       |  |              | Vice President  Emerging Markets(2)                                                                             
|                                            | Robert Russell     |     |  | 38       |  |              | Vice President  Established Markets(2)                                                                          
|                                           
|Former Directors and Executive
    Officers |                    |     |  |          |  |             
|                                            | Alan McGregor      |     |  | 68       |  |              | Former Chairman of the Joint Board and Former
    Chairman of the Supervisory Board(3)                           
|                                            | Peter Macdonald    |     |  | 52       |  |              | Former Chief Executive Officer, Former Member of
    the Joint Board and Former Chairman of the Managing Board(4)
|                                            | Peter Shafron      |     |  | 43       |  |              | Former Senior Vice President Legal and Chief
    Financial Officer(5)                                            
|                                            | Phillip Morley     |     |  | 56       |  |              | Former Chief Financial Officer(5)                                                                                
|                                            | Folkert Zwinkels   |     |  | 35       |  |              | Current Treasurer and Former Member of the
    Managing Board(6)                                                 



---



|    |                                                         
|--- | --------------------------------------------------------
|(1) | Mr. Chilcoff became a Vice President in
    August 2004.

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|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Mr. Fisher, Mr. Rigby and
    Mr. Russell became Vice Presidents in November 2004.                                                                                                   
|   
|(3) | On August 11, 2004, Mr. McGregor
    resigned as Chairman and on August 25, 2004 resigned his
    Board and committee memberships due to continuing ill health.                      
|   
|(4) | Mr. Macdonald resigned on October 21,
    2004.                                                                                                                                      
|   
|(5) | At the end of May 2004, Mr. Shafron replaced
    Mr. Morley as Chief Financial Officer. Mr. Shafron
    resigned on October 20, 2004.                                                
|   
|(6) | On October 21, 2004, Mr. Zwinkels
    resigned from the Managing Board. Mr. Vlot, Company
    Secretary, was appointed as temporary member of the Managing
    Board on the same day.

Directors

Meredith Hellicaris
the Chairman of our Joint Board and the Chairman of our
Supervisory Board. Ms. Hellicar is also the Chairman of the
Special Committee overseeing the Companys participation in
the SCI into the Medical Research and Compensation Foundation,
and a member of our Remuneration Committee, Nominating and
Governance Committee and Audit Committee. Ms. Hellicar
joined James Hardie Industries Limited (now named ABN 60) as an
independent, non-executive director in May 1992 and was
appointed to our Supervisory Board and Joint Board in October
2001. She was last reappointed by our shareholders at our August
2003 Annual General Meeting. Ms. Hellicar was appointed
Chairman of our Joint and Supervisory Board after
Mr. McGregors resignation. She is experienced as a
company director and has held chief executive positions in
resources, transport and logistics, law and financial services.
She is a director of AMP Limited, Southern Cross Airports Group,
Amalgamated Holdings Limited, NSW Treasury Corporation and HIH
Claims Support; Chairman of The Sydney Institute and HLA
Envirosciences Pty Limited; and a board or committee member of
several charitable organizations. Ms. Hellicar is also a
member of the Australian Takeovers Panel and the Board of the
Garvan Institute Foundation. Her previous experience includes
directorships with AurionGold and the NSW Environment Protection
Authority and she has served on the Foreign Affairs Council and
Australian Business and the Arts Foundation. Ms. Hellicar
was Chief Executive Officer of the law firm Corrs Chambers
Westgarth, Managing Director of TNT Logistics Asia Pte Ltd and
of InTech Pty Ltd. Ms. Hellicar received a Bachelor of Arts
and Master of Laws, specializing in international business law,
from University of Sydney.

John Barrjoined
James Hardie as an independent, non-executive director as a
member of our Joint Board and Supervisory Board in September
2003. He was reappointed by our shareholders at our September
2004 Annual General Meeting. Mr. Barr is also a member of
our Remuneration Committee (Chairman). He has more than
30 years of management experience in the North American
industrial sector, including 25 years at The Valvoline
Company, a leading marketer, distributor and producer of quality
branded automotive and industrial products and services, eight
years as President and Chief Executive Officer. Between 1995 and
1999 Mr. Barr served as President and Chief Operating
Officer and a member of the Board of Directors of the Quaker
State Corporation, a leading automotive aftermarket products and
consumer car care company, now part of Royal Dutch Shell. Since
1999, Mr. Barr has been President and Chief Executive
Officer of Automotive Performance Industries, a private
U.S. company that provides a variety of logistics services
to major automotive manufacturers. Since December 2002,
Mr. Barr has served as director of United Auto Group, the
second largest publicly held automotive retailer in the United
States, and in August 2003 he was appointed to the Board of
Directors of Clean Harbors Inc., the leading provider of
hazardous waste and environmental management services throughout
North America. In December 2003, he was appointed as Director to
UST Inc. Mr. Barr is also currently Vice Chairman of Papa
Murphys International, Inc.

Michael Brownis a
member of our Joint Board and Supervisory Board and Audit
Committee (Chairman). Mr. Brown joined James Hardie
Industries Limited as an independent, non-executive director in
September 1992 and was appointed to our Supervisory Board and
Joint Board in October 2001. He was last reappointed by our
shareholders at our August 2002 Annual General Meeting.
Mr. Brown has broad executive experience in finance,
accounting and general management in Australia, Asia and the
United States. He is Chairman of Repco Corporation Ltd and of
Energy Developments Ltd and a non-executive director of Wattyl
Ltd and Innamincka Petroleum Ltd. He was Group Finance Director
of Brambles Industries Limited from

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1995 to 2000; prior to that he was Finance
Director of Goodman Fielder Ltd, Renison Goldfields Consolidated
Ltd, and Esso Australia Ltd.


Peter Cameronjoined
James Hardie Industries N.V. as a non-executive director as a
member of our Joint Board and Supervisory Board after
appointment by shareholders at the August 2003 Annual General
Meeting. He is also a member of our Nominating and Governance
Committee. Mr. Cameron has been involved in some of
Australias largest corporate takeovers, mergers and
corporate reconstructions, and has a wealth of commercial and
corporate advisory experience. He is Chairman of Investment
Banking in Australia and a Managing Director of Credit Suisse
First Boston. Mr. Cameron was formerly a partner and Head
of Mergers and Acquisitions with the Australian law firm, Allens
Arthur Robinson. In addition, he is a member of the Australian
Takeovers Panel and Chairman of the Advisory Board of the
University of Sydney Law School. Mr. Cameron has a Bachelor
of Arts and Bachelor of Laws from the University of Sydney.

Gregory Clarkwas
elected as an independent, non-executive director of James
Hardie Industries N.V. at our July 2002 Annual General Meeting.
Dr. Clark first joined the Company as a consultant to the
Board in December 2001. He is also a member of our Nominating
and Governance Committee. He has a distinguished background in
science and business, specializing in the development and
commercialization of new technology. He is the recipient of a
number of international awards for science and technology,
including the Australian Academy of Science Pawsey Medal as the
most outstanding Australian scientist. Dr. Clark is
currently Principal of Clark Capital Partners, a technology
advisor to a number of financial institutions and a Director of
ANZ Bank. He served as President and Chief Operating Officer of
U.S.-based Loral Space and Communications LLC from 1998 to 2000.
Prior to that he was President of News Corporations News
Technology Group and a member of News Corporations
Executive Committee. Dr. Clark received a PhD in Physics
from the Australian National University.

Michael Gillfillanis a member of our Joint Board and
Supervisory Board, Audit Committee and Special Committee.
Mr. Gillfillan joined James Hardie Industries Limited as an
independent, non-executive director in August 1999 and was
appointed to our Supervisory Board and Joint Board in September
2001. He was last reappointed by our shareholders at our August
2003 Annual General Meeting. He provides James Hardie with
considerable knowledge of U.S. capital markets and a depth
of experience in commercial and corporate banking. He has held a
number of senior executive positions, including Vice Chairman of
Wells Fargo Bank. He is a director of UnionBanCal Corporation
and its primary subsidiary, Union Bank of California, NA and is
a partner at Meriturn Partners, LLC. Mr. Gillfillan
received a B.A. in History from the University of California,
Berkeley and an MBA from the University of California, Los
Angeles.

James Loudonwas
elected as an independent director of James Hardie Industries
N.V. at our July 2002 Annual General Meeting. Mr. Loudon is
also a member of our Audit Committee and Remuneration Committee.
Mr. Loudon first joined the Company as a consultant to the
Board in March 2002. He has held management positions in finance
and investment banking and senior roles in the transport and
construction industries. He is currently Deputy Chairman of
Caledonia Investments Plc, a non-executive director of Lafarge
Malayan Cement Berhad and of Lafarge UK Pension Trustees and
Governor of the University of Greenwich and of several
charitable organizations. He served as Group Finance Director of
Blue Circle Industries Plc, one of the worlds largest
cement producers, from 1987 until 2001 and prior to that he was
the first Vice-President of Finance for Blue Circles
companies in the United States. Mr. Loudon received an MBA
from the Stanford Graduate School of Business.

Donald McGauchiejoined James Hardie Industries N.V. as
an independent, non-executive director as a member of our Joint
Board and Supervisory Board after appointment by shareholders at
the August 2003 Annual General Meeting. He is also a member of
our Nominating and Governance Committee (Chairman) and Special
Committee. Mr. McGauchie has extensive commercial and
public policy experience, having previously held several
high-level advisory positions to the Australian Government
including the Prime Ministers Supermarket to Asia Council,
the Foreign Affairs Council and the Trade Policy Advisory
Council. Mr. McGauchie is Chairman of Telstra Corporation
Limited, and is a director of The Reserve Bank of Australia,
Nufarm Limited and National Foods Limited. Mr. McGauchie
was Chairman of Woolstock

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Australia Ltd from 1999 to 2002 and President of
the National Farmers Federation from 1994 to 1998. In 2003, he
was awarded the Centenary Medal for service to Australian
society through agriculture and business.


Louis Griesis our
Interim Chief Executive Officer, Executive Vice
President  Operations, Member of the Joint Board and
temporary Chairman of the Managing Board. His election as a
permanent member of the Managing Board will be required at the
next General Meeting of shareholders. Mr. Gries joined
James Hardie as Manager of the Fontana fiber cement plant in
California in February 1991 and was appointed President of James
Hardie Building Products (USA) in December 1993 and
Executive Vice President  Operations in January 2003.
In October 2004, Mr. Gries was appointed Interim CEO. He
previously held management positions with United States Gypsum
Company (USG). He has a Bachelor of Science in
Mathematics from the University of Illinois and an MBA from
California State University, Long Beach.

W. (Pim) Vlotis our Company Secretary and was
elected as a temporary member of our Managing Board in October
2004. His election as a permanent member of the Managing Board
will be required at the next General Meeting of shareholders.
Mr. Vlot joined James Hardie in January 2004 as Legal
Counsel Europe & Global Manager Intellectual Property.
In February 2004, Mr. Vlot was also appointed Company
Secretary. Before joining the Company, from January 2003 to
December 2003, he worked at the Amsterdam office of the Amicorp
Group, a privately owned international provider of multinational
company management, trust & fiduciary and financial
services. From October 2001 to December 2002, he worked at
Ernst & Young in The Netherlands as Senior Manager, tax
and legal. From 2000 to 2001 Mr. Vlot worked at EQT
Scandinavia B.V., the Dutch branch of a Swedish Private Equity
firm in Amsterdam, as its in-house counsel tax & legal.
Mr. Vlot is also currently a part-time teacher in corporate
tax law at the Inholland University for Economic and Legal
studies in Rotterdam and has taught at the Dutch Federal Tax
Consultants Association in Amsterdam. Mr. Vlot holds a
Masters degree in Dutch and International Tax Law from the
University of Amsterdam.

Executive Officers

Russell Chenuis our
Interim Chief Financial Officer and Executive Vice President,
Australia. Mr. Chenu joined James Hardie in October 2004.
From February 2001 to July 2004, Mr. Chenu served as Chief
Financial Officer of Tab Limited, then a publicly traded
entertainment and gambling company. Prior to that, from November
1999 to February 2001, he served as Chief Financial Officer of
Delta Gold Limited, then a publicly traded gold mining company.
Mr. Chenu previously worked for James Hardie for
13 years in a variety of capacities, ultimately as Group
Banking Manager from 1982 to 1984. He has a Bachelor of Commerce
from the University of Melbourne and an MBA from Macquarie
University in Australia.

Donald Merkleyis
our Executive Vice President  Research and
Development. Mr. Merkley joined James Hardie in 1993 as
Manager of the Plant City fiber cement plant in Florida and was
appointed U.S. Product Development Manager in 1997. In
2002, he was made Executive Vice President  Research
and Development and in January 2003, his role was expanded to
give him responsibility for our emerging Roofing business in the
United States. Mr. Merkley is also involved in reviewing
business development opportunities. Before joining James Hardie,
Mr. Merkley held positions with USG in various
engineering-related roles. He has a Bachelor of Science in
Engineering from Arizona State University.

David Merkleyis our
Executive Vice President  Engineering and Process
Development. Mr. Merkley joined James Hardie in 1994 as
Plant Manager of the Fontana fiber cement operation in
California. Other roles Mr. Merkley has held include:
Manager, Research and Development 1994 to 1996; Plant Manager,
Plant City 1996 to 1998, Process Development Manager 1998 to
2000, Operations Manager for James Hardie Building Products USA.
In 2002, Mr. Merkley was made Executive Vice
President  Manufacturing and Engineering, with global
responsibility. In August 2004, Mr. Merkley became
Executive Vice President  Engineering and Process
Development. Prior to joining James Hardie, Mr. Merkley
held various engineering positions in the civil construction
industry. Mr. Merkley has a Bachelor of Science in
Construction from Arizona State University.

James Chilcoffis
our Vice President  International. Mr. Chilcoff
joined James Hardie in 1997 as a Senior Product Manager for
Siding. Other roles Mr. Chilcoff has held include: Siding
Product Development

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Manager  Marketing from 1998 to 1999;
Siding Product Manager from 1999 to 2000; Exterior Marketing
Manager from 2000 to 2001; Southern Division Sales/Marketing
Manager from 2001 to 2002; Vice President Sales/ Marketing from
2002 to 2003; and General Manager of our Australian and New
Zealand business. In August 2004, Mr. Chilcoff became Vice
President  International. Before joining James
Hardie, Mr. Chilcoff held various positions with
CertainTeed Corporation, S. C. Johnson Wax, Formica Corporation
and Armstrong World Industries. Mr. Chilcoff has a Bachelor
of Business Administration from Eastern Michigan University and
an MBA from Xavier University in Ohio.


Mark Fisheris our
Vice President  Interiors/Pipes/Trim. Mr. Fisher
joined James Hardie in 1993 as a Production Engineer. Other
roles Mr. Fisher has held include: Finishing Manager,
Production Manager and Product Manager at various locations from
1993 to 1999; Sales and Marketing Manager from 2000 to 2002; and
General Manager of our European business. In November 2004,
Mr. Fisher became Vice President 
Interiors/Pipes/Trim. Before joining James Hardie,
Mr. Fisher held various engineering positions at Chevron.
Mr. Fisher has a Bachelor of Science in Mechanical
Engineering and an MBA from University of Southern California.

Robert Russellis
our Vice President  Established Markets.
Mr. Russell joined James Hardie in 1996 as a Production
Engineer. Other roles Mr. Russell held include: Production
Manager from 1997 to 1998; Plant Manager from 1998 to 1999;
Interior Products & Retail Sales Manager from 1999 to
2000; Vice President Marketing and Sales (James Hardie Gypsum)
from 2000 to 2001; Business Development Manager from 2001 to
2002 and Vice President Exterior Sales and Marketing 
Established Markets from 2002 to 2004. In November 2004,
Mr. Russell became Vice President  Established
Markets. Prior to joining James Hardie, Mr. Russell held
various engineering positions with United States Gypsum Company.
Mr. Russell has a Bachelor of Science Degree in Industrial
Engineering from The University of Arizona and is currently
completing his MBA at The University of California
Los Angeles.

Nigel Rigbyis our
Vice President  Emerging Markets. Mr. Rigby
joined James Hardie in 1998 as a Planning Manager for our
New Zealand business. Other roles Mr. Rigby held
include: Sales and Marketing and Product Development from 1999
to 2002; Strategic Marketing Manager for our Australian business
from 2002 to 2003; Business Development Manager for our
U.S. business in 2003; and Vice President Exterior
Sales  Emerging Markets. In November 2004,
Mr. Rigby became Vice President  Emerging
Markets. Before joining James Hardie, Mr. Rigby held
various management positions at Fletcher Challenge, a
New Zealand based company involved in energy, pulp and
paper, forestry and building materials.

Donald Merkley and David Merkley are brothers.
None of the other persons above have any familial relationship
with each other. In addition, none of the individuals listed
above is party to any arrangement or understanding with a major
shareholder, customer, supplier or other entity, pursuant to
which any of the above was selected as a director or member of
senior management.

Former Directors and Executive
Officers



| |                 
| | ----------------
| | Former Directors

Alan McGregor, AOwas Chairman of our Joint Board and Supervisory Board until
August 11, 2004 and resigned as a director on
August 25, 2004 due to continuing ill health.
Mr. McGregor was also a member of our Audit Committee,
Nominating and Governance Committee (Chairman) and Remuneration
Committee (Chairman). Mr. McGregor joined James Hardie in
1989 as an independent, non-executive director and became
Chairman in 1995, and was appointed to our Joint and Supervisory
Board in September 2001. Mr. McGregor has a
distinguished career in the law and as a director and chairman
of a number of large Australian public companies. He is a former
Chairman of Burns Philp & Co. Ltd, the Australian Wool
Testing Authority Ltd and FH Faulding & Co. Ltd.
Mr. McGregor has been a board or committee member of a
number of charitable and community organizations and private
companies. Mr. McGregor received an M.A. in Economics and
Law from the University of Cambridge in the United Kingdom and a
Bachelor of Laws from the University of Adelaide in Australia.

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Peter Macdonaldwas
our Chief Executive Officer, Member of the Joint Board and
Chairman of the Managing Board. Mr. Macdonald resigned on
October 21, 2004 but is expected to remain in a consulting
capacity for an interim period. Mr. Macdonald joined James
Hardie in 1993 as General Manager of James Hardies
Australian fiber cement business and was appointed President of
our U.S. operations in 1994. He was appointed Chief
Operating Officer in September 1998 and Managing Director and
Chief Executive Officer in November 1999. Prior to joining
James Hardie, Mr. Macdonald held senior roles at
CSR Ltd and Metal Manufactures Ltd. Mr. Macdonald
received a Bachelor of Commerce and Administration from Victoria
University, New Zealand and an MBA from Pepperdine
University.

Folkert Zwinkelsis
our Treasurer and was elected to James Hardies Managing
Board in August 2003 and was appointed in
September 2003. Mr. Zwinkels resigned on
October 21, 2004 from the Managing Board. Mr. Zwinkels
joined James Hardie in October 2001 as Treasury Manager and
was appointed Treasurer of James Hardie in January 2003.
Before joining James Hardie, he was Treasury Manager for
Reichhold Chemicals and prior to that he held a number of
financial positions at ING Barings and ABN AMRO. In
addition, he is a member of the Dutch Association of Corporate
Treasurers. Mr. Zwinkels has a Bachelor of Business
Administration from Erasmus University in Rotterdam and an MBA
from University of Bradford.



| |                          
| | -------------------------
| | Former Executive Officers

Peter Shafronwas
our Senior Vice President Legal and Chief Financial Officer
until he resigned on October 20, 2004. Mr. Shafron
joined James Hardie in August 1993 and served as Senior
Company Solicitor from June 1995 until he was appointed
General Counsel in March 1997. He was appointed Senior Vice
President  Finance and Legal in November 2002
and in February 2004 was named as the Companys Chief
Financial Officer, taking over after Mr. Morleys
retirement from the position at the end of May 2004. Before
joining James Hardie, Mr. Shafron was an associate with the
Australian law firm, Allen Allen & Hemsley. He has a
Bachelor of Arts from the Australian National University, a
Bachelor and Master of Laws from the University of Sydney and an
MBA from Pepperdine University. Mr. Shafron is admitted to
practice law in Australia and California.

Phillip Morleywas
our Chief Financial Officer until he retired from the position
at the end of May 2004. Mr. Morley joined James Hardie
as Chief Accountant in October 1984 and served as Financial
Controller from 1988 to 1995 and Executive General Manager
Building Services from 1995 to 1997. He was appointed Chief
Financial Officer in 1997. Before joining James Hardie,
Mr. Morley held senior positions in finance and management
at Swift & Co Ltd and Pfizer Corporation. He is a
Chartered Accountant and has a Bachelor of Economics and an MBA
from the University of Sydney.

Compensation



| |             
| | ------------
| | Remuneration

The aggregate amount of compensation that we paid
to, or accrued with respect to, members of our Supervisory
Board, our Managing Board and our Joint Board and to our
executive officers (18 persons in aggregate) for services in all
their capacities to us in fiscal year 2004 was approximately
$11.3 million. This figure consists of base salaries,
bonuses paid, accrued compensation relating to awards of shadow
stock, superannuation and retirement benefits and stock options.

67



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The tables below set forth the compensation for
those non-executive and executive directors who served on the
JHI NV Board during the fiscal year ended March 31,
2004 and for our five most highly compensated officers of
JHI NV during the fiscal year ended March 31, 2004:

Non-Executive Directors

|                                                   |  |            |         |          |  |       |         |  |  |   |         | 
|-------------------------------------------------- |  | ---------- | ------- | -------- |  | ----- | ------- |  |  | - | ------- | 
|                                                   |  | Directors |         | JHI NV   |  |      
|                                                   |  | Cash Fees  |         | Stock(1) |  | Total
|Name                                               |  | US$        |         | US$      |  | US$  
|                                                   |  |            |         |          |  |      
|A.G. McGregor                                      |  | $          | 160,000 |          |  | $     | 10,000  |  |  | $ | 170,000 | 
|M. Hellicar                                        |  |            | 43,333  |          |  |       | 20,000  |  |  |   | 63,333  | 
|M.R. Brown                                         |  |            | 53,333  |          |  |       | 10,000  |  |  |   | 63,333  | 
|M.J. Gillfillan                                    |  |            | 53,333  |          |  |       | 10,000  |  |  |   | 63,333  | 
|J.R.H. Loudon                                      |  |            | 47,333  |          |  |       | 16,000  |  |  |   | 63,333  | 
|G.J. Clark                                         |  |            |        |          |  |       | 63,333  |  |  |   | 63,333  | 
|P. Cameron                                         |  |            |        |          |  |       | 63,333  |  |  |   | 63,333  | 
|D.G. McGauchie                                     |  |            | 31,667  |          |  |       | 15,000  |  |  |   | 46,667  | 
|J.D. Barr                                          |  |            | 33,519  |          |  |       |        |  |  |   | 33,519  | 
|                                                   |  |            |         |          |  |       |         |  |  |   |         | 
|Total compensation for non-executive
    directors |  | $          | 422,518 |          |  | $     | 207,666 |  |  | $ | 630,184 | 
|                                                   |  |            |         |          |  |       |         |  |  |   |         | 

Executive Directors

|                                               |  |          |         |         |  |            |           |                |  |            |           |  |  |   |        |  |  |   |         | 
|---------------------------------------------- |  | -------- | ------- | ------- |  | ---------- | --------- | -------------- |  | ---------- | --------- |  |  | - | ------ |  |  | - | ------- | 
|                                               |  |          |         |         |  |            |           | Superannuation |  | Shadow    
|                                               |  |          |         |         |  | Total Cash |           | and Other      |  | Share and 
|                                               |  | Base Pay |         | Bonuses |  | Pay        |           | Benefits       |  | Options(3)
|Name                                           |  | US$      |         | US$     |  | US$        |           | US$            |  | US$       
|                                               |  |          |         |         |  |            |           |                |  |           
|P.D. Macdonald                                 |  | $        | 822,500 |         |  | $          | 1,745,390 |                |  | $          | 2,567,890 |  |  | $ | 27,693 |  |  | $ | 593,558 | 
|F.H. Zwinkels                                  |  |          | 121,756 |         |  |            | 27,921    |                |  |            | 149,677   |  |  |   | 24,241 |  |  |   | 3,345   | 
|                                               |  |          |         |         |  |            |           |                |  |            |           |  |  |   |        |  |  |   |         | 
|Total compensation for executive
    directors |  | $        | 944,256 |         |  | $          | 1,773,311 |                |  | $          | 2,717,567 |  |  | $ | 51,934 |  |  | $ | 596,903 | 
|                                               |  |          |         |         |  |            |           |                |  |            |           |  |  |   |        |  |  |   |         | 

Executive Officers

|               |  |          |         |         |  |            |         |                |  |            |           |               |  |   |         |  |  |   |         |  |  |   |        | 
|-------------- |  | -------- | ------- | ------- |  | ---------- | ------- | -------------- |  | ---------- | --------- | ------------- |  | - | ------- |  |  | - | ------- |  |  | - | ------ | 
|               |  |          |         |         |  |            |         |                |  |            |           | Relocation   
|               |  |          |         |         |  |            |         | Superannuation |  | Shadow     |           | Allowances   
|               |  |          |         |         |  | Total Cash |         | and Other      |  | Share &    |           | and Other    
|               |  | Base Pay |         | Bonuses |  | Pay        |         | Benefits(2)    |  | Options(3) |           | Non-recurring
|Name           |  | US$      |         | US$     |  | US$        |         | US$            |  | US$        |           | US$          
|               |  |          |         |         |  |            |         |                |  |            |           |              
|L. Gries       |  | $        | 439,427 |         |  | $          | 753,720 |                |  | $          | 1,193,147 |               |  | $ | 126,725 |  |  | $ | 228,535 |  |  | $ |       | 
|P.G. Morley    |  |          | 327,630 |         |  |            | 445,742 |                |  |            | 773,372   |               |  |   | 90,802  |  |  |   | 580,926 |  |  |   |       | 
|Donald Merkley |  |          | 315,577 |         |  |            | 437,401 |                |  |            | 752,978   |               |  |   | 80,503  |  |  |   | 173,176 |  |  |   |       | 
|P.J. Shafron   |  |          | 307,500 |         |  |            | 375,951 |                |  |            | 683,451   |               |  |   | 46,625  |  |  |   | 360,222 |  |  |   | 16,356 | 
|David Merkley  |  |          | 285,577 |         |  |            | 394,064 |                |  |            | 679,641   |               |  |   | 80,481  |  |  |   | 135,437 |  |  |   |       | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The annual allocation to non-executive directors
    of JHI NV stock to the value of $10,000 was approved by
    shareholders at the Annual General Meeting held on July 19,
    2002. The non-executive directors can elect to take additional
    stock in lieu of fees.                                                                                                                                                                                   
|   
|(2) | Gross up of tax on the increase/ decrease in
    investment value of superannuation is included for
    Mr. Morley.                                                                                                                                                                                                                                                                                                                                          
|   
|(3) | Options are valued using the Black-Scholes
    option-pricing model and the fair value of options granted are
    included in compensation during the period in which the options
    vest. The weighted average assumptions and weighted average fair
    valued used for grants in fiscal year 2004 was as follows: 1.0%
    dividend yield; 26% expected volatility; 2.7% risk free interest
    rate; 3.3 years of expected life; A$1.42 weighted average

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| |                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | fair value used at grant date. Shadow share
    expense included in compensation is calculated based on the
    movement in the JHI NV share price during the year and the
    increase in vesting of the shadow shares; A$/US$ foreign
    exchange movements also affect the result. Actual benefit
    received depends on the JHI NV share price and foreign
    exchange rates at the time of exercise.

We sponsor a U.S. defined contribution plan,
the James Hardie Retirement and Profit Sharing Plan, for our
employees in the United States and a defined benefit pension
plan, the Hardiplan Superannuation Plan, for our employees in
Australia. The U.S. defined contribution plan is a
tax-qualified retirement and savings plan (the
401(k) Plan) covering all U.S. employees,
subject to certain eligibility requirements. Participating
employees may elect to reduce their current annual compensation
by up to $13,000 and have the amount of such reduction
contributed to the 401(k) Plan, with a maximum compensation
limit of $205,000. In addition, we match employee contributions
dollar for dollar up to a maximum of the first 6% of an
employees salary or base compensation. The Hardiplan
Superannuation Plan is funded based on statutory requirements in
Australia and is based primarily on the contributions and income
derived thereon held by the plan on behalf of the member, and to
a lesser degree, on the participants eligible compensation
and years of credited service.

On December 5, 2003, December 3, 2002
and December 17, 2001, JHI NV granted options to
purchase 6,179,583 shares, 4,037,000 shares and
4,248,417 shares of our common stock, respectively, at fair
market value to management and other employees of the Company
under the JHI NV 2001 Equity Incentive Plan. The
JHIL Key Management Equity Incentive Plan
(KMEIP) was terminated as of October 19, 2001
and was replaced with the JHI NV KMEIP Option Plan.
See the section below entitled Option Ownership.

On October 19, 2001, the effective date of
the 2001 Reorganization, we confirmed JHI NVs
Economic Profit Incentive Plan. The Economic Profit Incentive
Plan provides incentive compensation, in the form of year-end
bonus payments, to certain of our officers and key employees
based on the participants achievement of mutually agreed
upon individual performance objectives and the Companys
achievement of certain target economic profit levels.

In addition, as part of the 2001 Reorganization,
we amended the JHIL 1998 Executive Stock Incentive Plan,
the JHIL 2000 Executive Stock Incentive Plan and the James
Hardie Inc. Shadow Stock Plan, such that JHI NVs
common stock served as the benchmark for determining cash
payments at maturity as opposed to JHILs common stock.

At our Annual General Meeting on July 19,
2002, our shareholders approved a Supervisory Board Share Plan
(SBSP), which requires that all non-executive
directors on our Joint Board and Supervisory Board receive our
shares as payment for a portion of their director fees. This
plan requires that our directors take at least $10,000 of their
fees in shares, but directors may receive additional fees in
shares at their discretion. Shares issued under the $10,000
compulsory component of the SBSP are subject to a two-year
holding lock, where members of the Supervisory Board must retain
those shares for at least two years following issue. The issue
price for the shares will be at market value at the time of
issue. No loans will be entered into by the Company in relation
to the grant of shares pursuant to the SBSP.

Service Contracts and Severance
Agreements



| |                                             
| | --------------------------------------------
| | Service Contracts with Current
    Directors

Mr. Gries and Mr. Vlot, each a member
of or treated as a member of our Managing Board, have employment
agreements with us pursuant to which they are compensated for
their services as executive officers. The terms of the agreement
are described below. None of our Supervisory Board members has a
service contract with us.



| |            
| | -----------
| | Louis Gries

Mr. Gries serves as our Interim Chief
Executive Officer, temporary Chairman of the Managing Board and
Member of the Joint Board. Mr. Gries was appointed Interim
Chief Executive Officer and Temporary Managing Director on
October 21, 2004. His appointment expires on
October 21, 2005 unless he is appointed Chief Executive
Officer and Managing Director before then or his appointment is
terminated earlier at the

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sole and absolute discretion of the Board of
Directors. If Mr. Gries is appointed Chief Executive
Officer and Managing Director, a new contract will be negotiated
and put in place at that time. If his appointment is terminated
before October 21, 2005, Mr. Gries will receive the
remainder of the salary and bonus due until October 21,
2005. In addition, if Mr. Gries is not appointed to the
Chief Executive Officer and Managing Director role and he and
the Company do not agree upon a new contract for his return to
employment with the Company in a senior officer role, then he
will receive an amount equal to one and one half
(1.5) years severance pay which includes a salary equal to
his annual salary at the time of departure plus an annual bonus
equal to the average annual bonus he was paid over the
immediately preceding three years. Additionally, he will agree
to consult to the company for two (2) years and abide by
certain restrictions in exchange for his annual salary and
annual target bonus during this time as well as certain
additional benefits.




| |         
| | --------
| | Pim Vlot

Mr. Vlot serves as Company Secretary and a
temporary Member of the Managing Board. We entered into an
Executive Service Agreement with Mr. Vlot on
January 1, 2004 and amended it on June 15, 2004. This
agreement provides that unless an indefinite contract is
negotiated in November 2004, this contract will terminate on
December 30, 2004.



| |                                            
| | -------------------------------------------
| | Service Contracts with Former
    Directors

During the fiscal year ended March 31, 2004,
Mr. Macdonald and Mr. Zwinkels were members of our
Managing Board. Each has employment agreements with us pursuant
to which they were compensated. The terms of the agreement are
described below.



| |                
| | ---------------
| | Peter Macdonald

Until October 21, 2004, Mr. Macdonald
served as our Chief Executive Officer, Chairman of the Managing
Board and Member of the Joint Board. In accordance with his
Executive Service Agreement, he served as one of the Members of
our Managing Board and as our Chief Executive Officer and as
Chief Executive Officer of several of our subsidiaries.
Mr. Macdonalds current agreement took effect on
November 1, 2002 and was to expire on October 31, 2005.



| |                 
| | ----------------
| | Folkert Zwinkels

Mr. Zwinkels currently serves as our
Treasurer. During fiscal year 2004 and until October 21,
2004, he was a Member of the Managing Board of Directors. On
October 1, 2001, James Hardie Industries Finance B.V.
entered into an Employment Agreement Treasury Manager with
Mr. Zwinkels, and the agreement was amended on
August 6, 2004. The agreement, as amended, provides that if
the Company wishes to terminate the agreement for reasons not
exclusively to an act or omission or a series of acts of
omissions or other performance related issues committed by
Mr. Zwinkels or if the termination is not based on urgent
grounds as defined in Netherlands Civil Code, it will pay him a
severance fee equal to 12 months of his pretax salary.



| |                     
| | --------------------
| | Severance Agreements

In connection with the resignation of
Mr. Macdonald and Mr. Shafron, we entered into
severance agreements with each individual.

The severance agreement with Mr. Macdonald
was consistent with the terms of his employment agreement. We
made a lump sum payment to Mr. Macdonald equal to two times
his current annual salary at the time of his departure plus
twice the annual bonus paid in the year immediately preceding
the year of termination, plus fiscal year ending 2004s
notional balance under our Economic Profit Incentive Plan.

The severance agreement with Mr. Shafron was
consistent with his employment agreement. We made a lump sum
payment to Mr. Shafron equal to the sum of his current
annual salary at the time of his departure plus his annual
target bonus plus fiscal year ending 2004s notional
balance under our Economic Profit Incentive Plan. In addition,
Mr. Shafron will receive an annual bonus which relates to
the Companys

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economic profit results following the
finalization of the fiscal year 2005 accounts, pro-rated to the
date of resignation. Mr. Shafron will not be entitled to
receive any discretionary component of this bonus.


Audit Committee, Nominating and Governance
Committee, Remuneration Committee and Special
Committee

The charters for our Audit, Nominating and
Governance, and Remuneration committees are available on our
Investor Relations website at www.jameshardie.com.



| |                
| | ---------------
| | Audit Committee

Our Audit Committee provides advice and
assistance to the Board in fulfilling its responsibilities
relating to the Companys financial statements, financial
reporting processes and compliance with legal and regulatory
requirements, internal accounting and financial control systems,
internal audit, external audit and such other matters as the
Board may request from time to time.

Our Audit Committee comprises at least three
members of the Board who are appointed by the Board. Each member
is a non-executive director, independent of the Company and
management. All members are financially literate and have
sufficient business and financial expertise to act effectively
as members of the committee, as determined by the Board. In
addition, the Audit Committee has at least one member who
qualifies as an Audit Committee financial expert. The Chair is
nominated by the Board and may not also be the Chairman of the
Board.

Currently, our Audit Committee comprises
Mr. Brown (Chairman), Ms. Hellicar,
Mr. Gillfillan and Mr. Loudon and its responsibilities
include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | overseeing the adequacy and effectiveness of our
    accounting and financial policies and controls, including having
    periodic discussions with management, external auditors and
    internal auditors and assuring compliance with relevant
    regulatory and statutory requirements;                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | overseeing our financial reporting process and
    reporting on the results of our activities to the Joint Board.
    Specifically, our Audit Committee reviews with management and
    the external auditors our annual and quarterly financial
    statements and reports to our shareholders, seeking assurance
    that the external auditor is satisfied with the disclosures and
    content of the financial statements. In addition, our Audit
    Committee reviews material accounting principles and policies,
    any off-balance sheet transactions and material litigation on an
    as needed or quarterly basis. The Chair of our Audit Committee
    may represent the entire Audit Committee for the purposes of
    quarterly reviews;
|
| |  | discussing with our external auditors the overall
    scope and plans for its audit activities, including staffing,
    contractual arrangements and fees. Our Audit Committee reviews
    all audit reports provided by the external auditor, including an
    annual report from the external auditor on its internal
    quality-control procedures and on its independence to the
    Company. In addition, the Audit Committee specifically approves
    or establishes approval policies or procedures for any proposed
    audit and non-audit activity by the provider of the external
    audit, and oversees the independence of the external auditor;                                                                                         
|
| |  | discussing with our internal auditors the overall
    scope and plans for their audit activities and reviewing all
    internal audit reports;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | reviewing the performance of our external auditor
    with direct responsibility for the appointment, compensation and
    oversight of the external auditor;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | reviewing the adequacy and effectiveness of, and
    any significant changes to, the Companys internal controls;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | reviewing and reporting on the adequacy and
    effectiveness of the Companys disclosure controls and
    procedures;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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| |   |                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | establishing procedures for handling complaints
    regarding accounting, internal accounting controls and auditing
    matters, including procedures for confidential, anonymous
    submission of concerns by employees regarding accounting and
    auditing matters; and
|
| |  | reviewing and discussing, in conjunction with the
    Board, the Companys policies with respect to risk
    assessment and risk management.                                                                                                                                

Our Audit Committees processes include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | maintaining free and open communications with the
    external auditor, internal auditor and management. The committee
    periodically meets with the external auditors without
    representatives of management present to discuss the adequacy of
    the Companys disclosures and policies, and to satisfy
    itself regarding the external auditors independence from
    the Company; 
|
| |  | investigating any matter brought to its
    attention, and for this purpose, has full access to the
    Companys records, personnel and any required external
    support. Our Audit Committee has the authority to retain (at the
    Companys expense) outside counsel, accountants, experts
    and other advisors it determines are appropriate to assist it to
    perform its functions;
|
| |  | reviewing and taking any necessary action to
    uphold the overall quality of the Companys financial
    reporting and practices;                                                                                                                                                                                                                                                             
|
| |  | reviewing and reassessing its charter at least
    annually, and recommending any changes it considers appropriate
    to the Board;                                                                                                                                                                                                                                                            
|
| |  | conducting an annual performance review of its
    function and report its findings to the Board;                                                                                                                                                                                                                                                                                               
|
| |  | regularly reviewing with the Board any issues
    that arise with respect to the quality or integrity of the
    Companys financial statements, its compliance with legal
    or regulatory requirements, the performance and independence of
    the external auditor, or the performance of the internal audit
    function; and                                                             
|
| |  | undertaking other special duties during the
    course of the year as requested by the Board.                                                                                                                                                                                                                                                                                                   

The external auditor attends shareholder
meetings  either personally or by
telephone  and is available to answer questions from
shareholders about the conduct of the audit and the preparation
and content of the audit report and the Companys accounts.



| |                                        
| | ---------------------------------------
| | Nominating and Governance
    Committee

The Nominating and Governance Committees
responsibilities include:



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | continuously evaluating and refining our
    corporate governance processes and principles;                                                                                                   
|
| |  | evaluating individual director performance and
    independence;                                                                                                                              
|
| |  | evaluating, at least annually, the performance of
    each Board and the Board committees;                                                                                                    
|
| |  | recommending candidates for re-election;                                                                                                                                                      
|
| |  | making recommendations on the structure,
    composition and function of the board and its committees,
    including consideration of the periodic rotation of directors
    among committees;
|
| |  | identifying, evaluating and recruiting candidates
    for election or appointment to our boards, including candidates
    recommended by our shareholders;                                    
|
| |  | reviewing and assessing the channels through
    which the Board receives information and the quality and
    timeliness of this information;                                                 

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| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | considering changes in directors
    compensation; and                                                   
|
| |  | overseeing succession planning for senior
    management positions, including the Chief Executive Officer.

Members of the Nominating and Governance
Committee are: Mr. McGauchie (Chairman), Ms. Hellicar,
Mr. Cameron and Mr. Clark.



| |                       
| | ----------------------
| | Remuneration Committee

Our Joint Board established a Remuneration
Committee to institute appropriate controls in the remuneration
of senior executives and non-executive directors and to advise
it on remuneration policies and practices.

The Company uses a mix of fixed pay,
performance-based remuneration and equity-based remuneration. In
recent years, the use of variable or at-risk remuneration has
been expanded so that a growing proportion of executive
remuneration is at-risk and dependent on individual and Company
performance. Performance-based remuneration is determined by the
extent to which our economic profit exceeds the cost of capital
and the extent to which the executive contributed to such an
outcome.

We also encourage share ownership by directors,
executives and employees to align their interest with those of
the shareholders. Executives and employees participate in share
option and share purchase schemes tied to individual and Company
performance. The Companys share and share option plans
operate within limits approved by shareholders and deliver a
benefit to executives and employees only if there is a
corresponding benefit to shareholders. Our past Chief Executive
Officers most recent option plans deliver a benefit only
if the Companys Total Shareholder Return (TSR)
exceeds the average TSR for a benchmark group of
100 companies listed on the ASX. The options do not fully
vest for three years from date of grant.

In addition, directors are required to receive at
least $10,000 of their directors fees in shares of the
Companys stock. Our executive officers do not receive
additional compensation for their service as directors. We
believe that compensation for non-employee members of the Board
should be competitive. The Remuneration Committee will report
once a year to the Board on the status of Board compensation in
relation to other comparable companies. As part of a Board
members total compensation and to create a direct link
with corporate performance, the Board believes that a meaningful
portion of a Board members total compensation should be
provided in common stock or stock options. A retirement plan for
directors was terminated in 2002 and directors appointed since
then are not entitled to retirement benefits. At the end of
fiscal year 2004, three directors had accumulated benefits under
the plan that will be paid out when they retire and
Australian-based directors still receive government mandated
superannuation payments. Subsequent to fiscal year 2004, one
director has retired and will begin receiving these benefits.

The Remuneration Committee comprises
Mr. Barr (Chairman), Ms. Hellicar and Mr. Loudon.
The Remuneration Committees membership comprises
independent directors and its responsibilities include:



| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | reviewing and approving our Chief Executive
    Officers remuneration package and evaluating his or her
    performance each year;                    
|
| |  | reviewing and approving the annual remuneration
    for other senior executives;                                                                       
|
| |  | administering and making recommendations to the
    Board with respect to the Companys incentive-compensation
    and equity based compensation plans;
|
| |  | approving the granting of stock options or other
    forms of equity-based compensation to senior executives;                                          
|
| |  | reviewing and recommending employment agreements
    and severance arrangements for senior executives; and                                             
|
| |  | approving any significant changes in remuneration
    policy, superannuation, or executive and employee incentive
    plans.                           

73



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| |                  
| | -----------------
| | Special Committee

In July 2004, the Board established a committee
of the Board to oversee the Companys further participation
in the Special Commission of Inquirys investigation into
the Foundation. The committee comprises Ms. Hellicar
(Chairman), Mr. McGauchie and Mr. Gillfillan and its
responsibilities include:



| |   |                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | reviewing the Commissioners report, which
    was delivered to the NSW Government on September 21, 2004,
    and recommending to the Board appropriate actions in response to
    its findings; and                        
|
| |  | overviewing on behalf of the Company any
    developments or discussion of suitable arrangements as to the
    SCIs findings and taking any recommendations to the Board
    and, ultimately, to shareholders for approval.

Employees

As of the end of each of the last three fiscal
years, we employed the following number of people:

|                        |                                                  |                                     |                    |      |       |       |  |     |       |       |  |     |       |       | 
|----------------------- | ------------------------------------------------ | ----------------------------------- | ------------------ | ---- | ----- | ----- |  | --- | ----- | ----- |  | --- | ----- | ----- | 
|                        |                                                  |                                    
|                        |                                                  | Fiscal Years Ended                 
|                        |                                                  | March 31,                          
|                        |                                                  |                                    
|                        |                                                  | 2004                                |                    | 2003 |       | 2002 
|                        |                                                  |                                     |                    |      |       |      
|Continuing Operations   |                                                  |                                     |                    |      |       |       |  |     |       |       |  |    
|                        | Fiber Cement:                                    |                                     |                    |      |       |       |  |     |       |       |  |     |      
|                        |                                                  | United States (includes Canada)     |                    |      | 1,722 |       |  |     | 1,500 |       |  |     | 1,177 |      
|                        |                                                  | Australia                           |                    |      | 459   |       |  |     | 539   |       |  |     | 611   |      
|                        |                                                  | New Zealand                         |                    |      | 161   |       |  |     | 183   |       |  |     | 191   |      
|                        |                                                  | Philippines                         |                    |      | 225   |       |  |     | 209   |       |  |     | 175   |      
|                        |                                                  | Chile                               |                    |      | 122   |       |  |     | 91    |       |  |     | 66    |      
|                        |                                                  | Pipes (United States and Australia) |                    |      | 178   |       |  |     | 162   |       |  |     | 42    |      
|                        |                                                  | Europe                              |                    |      | 37    |       |  |     | 30    |       |  |     | 1     |      
|                        |                                                  | Roofing                             |                    |      | 18    |       |  |     |      |       |  |     |      |      
|                        |                                                  |                                     |                    |      |       |       |  |     |       |       |  |    
|                        |                                                  |                                     | Total Fiber Cement |      |       | 2,922 |  |     |       | 2,714 |  |     |       | 2,263 | 
|                        | Research & Development, including
    Technology |                                     |                    | 117  |       |       |  | 107 |       |       |  | 51  |      
|                        | General Corporate                                |                                     |                    | 34   |       |       |  | 34  |       |       |  | 34  |      
|Discontinued Businesses |                                                  |                                     |                    |      |       |       |  |     |       |       |  |    
|                        | Gypsum                                           |                                     |                    |     |       |       |  |    |       |       |  | 590 |      
|                        | Building Systems (New Zealand)                   |                                     |                    |     |       |       |  | 65  |       |       |  | 64  |      
|                        |                                                  |                                     |                    |      |       |       |  |     |       |       |  |    
|                        |                                                  |                                     | Total Employees    |      |       | 3,073 |  |     |       | 2,920 |  |     |       | 3,002 | 
|                        |                                                  |                                     |                    |      |       |       |  |     |       |       |  |    

As of the end of fiscal year 2004, of the
3,073 people we employ, 398 are members of labor unions:
304 in Australia and 94 in New Zealand. Management believes it
has a satisfactory relationship with these unions as well as
with its employees and there are currently no labor disputes.
See Risk Factors  If we experience labor
disputes or interruptions, as we have from time to time in the
past, our operations may be disrupted and our business,
financial condition and results of operations may be adversely
affected in Item 3.

74



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Share Ownership

The number of shares of common stock of JHI NV
beneficially owned by each person listed in the table under the
heading Compensation  Remuneration, as of
October 31, 2004 was:

|                                                                                 |  |              |           |          |  |  |      |  
|-------------------------------------------------------------------------------- |  | ------------ | --------- | -------- |  |  | ---- | -
|                                                                                 |  | Number of    |           |         
|                                                                                 |  | Shares       |           | Percent 
|                                                                                 |  | Beneficially |           | of      
|Name                                                                             |  | Owned        |           | Class(1)
|                                                                                 |  |              |           |         
|Meredith Hellicar                                                                |  |              | 7,934     |          |  |  | *    |  
|John Barr                                                                        |  |              | 21,000    |          |  |  | *    |  
|Michael Brown                                                                    |  |              | 12,901    |          |  |  | *    |  
|Peter Cameron                                                                    |  |              | 11,602    |          |  |  | *    |  
|Gregory Clark                                                                    |  |              | 12,290    |          |  |  | *    |  
|Michael Gillfillan                                                               |  |              | 52,901    |          |  |  | *    |  
|James Loudon                                                                     |  |              | 3,480     |          |  |  | *    |  
|Donald McGauchie(2)                                                              |  |              | 4,743     |          |  |  | *    |  
|Louis Gries                                                                      |  |              | 823,462   |          |  |  | *    |  
|Former Directors and Executive
    Officers                                      |  |              |           |          |  |  |      |  
|Alan McGregor (former Chairman)(3)                                               |  |              | 8,614,895 |          |  |  | 1.88 | %
|Peter Macdonald (former CEO)(4)                                                  |  |              | 1,628,600 |          |  |  | *    |  
|Phillip Morley (former CFO)                                                      |  |              | 480,484   |          |  |  | *    |  
|Folkert Zwinkels (current Treasurer and former
    member of our Managing Board) |  |              | 2,925     |          |  |  | *    |  



---



|  |                                                                                                                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Indicates that the individual beneficially owns
    less than 1% of our shares of common stock. In addition,
    Messrs. Donald Merkley, David Merkley and P. Shafron
    (former CFO) each beneficially own less than 1% of our shares of
    common stock.



|    |                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on 458,773,612 shares of common stock
    at October 31, 2004, which were all issued in the form of
    CUFS.                                                                                                                                                                                                                                                                              
|   
|(2) | Includes 3,000 shares held in the McGauchie
    Superfund, of which Mr. McGauchie is a trustee.                                                                                                                                                                                                                                                                                                  
|   
|(3) | Includes 5,121,200 shares held in the Andrew
    Thyne Reid Charitable Trust and 3,490,794 shares held in a
    discretionary family trust. Mr. McGregor is a director of
    two trust companies but is not a beneficiary of the
    discretionary family trust. Mr. McGregor resigned as
    Chairman on August 11, 2004 and as a director on
    August 25, 2004 due to continuing ill health.
|   
|(4) | Includes 380 shares held by Mr. Peter
    Macdonalds wife in trust for their children. On
    October 21, 2004, Mr. Macdonald resigned from our
    Company.                                                                                                                                                                                                                                    

None of the shares held by any of the directors
or executive officers has any special voting rights. Beneficial
ownership of shares includes shares issuable upon exercise of
options which are exercisable within 60 days of
October 31, 2004.

75



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##### Table of Contents



Option Ownership

The number of shares of JHI NV common stock that
each person listed in the table under the heading
Compensation  Remuneration, have an
option to purchase as of October 31, 2004 was:

|                                                                                 |  |                  |           |                |  |                 |              |           |  |  |               | 
|-------------------------------------------------------------------------------- |  | ---------------- | --------- | -------------- |  | --------------- | ------------ | --------- |  |  | ------------- | 
|                                                                                 |  | Number of Shares |           |                |  |                
|                                                                                 |  | Underlying       |           |                |  |                
|Name                                                                             |  | Options Owned    |           | Exercise Price |  | Expiration Date
|                                                                                 |  |                  |           |                |  |                
|Louis Gries                                                                      |  |                  | 40,174    | (1)(2)         |  | A$              | 3.1321/share | (3)(4)(5) |  |  | November 2009 | 
|                                                                                 |  |                  | 175,023   | (1)(6)         |  | A$              | 3.0921/share | (3)(4)(5) |  |  | November 2010 | 
|                                                                                 |  |                  | 324,347   | (7)            |  | A$              | 5.0586/share | (4)(5)    |  |  | December 2011 | 
|                                                                                 |  |                  | 325,000   | (8)            |  | A$              | 6.4490/share | (5)       |  |  | December 2012 | 
|                                                                                 |  |                  | 325,000   | (9)            |  | A$              | 7.05/share   |           |  |  | December 2013 | 
|Donald Merkley                                                                   |  |                  | 48,209    | (1)(10)        |  | A$              | 3.1321/share | (3)(4)(5) |  |  | November 2009 | 
|                                                                                 |  |                  | 138,170   | (1)(11)        |  | A$              | 3.0921/share | (3)(4)(5) |  |  | November 2010 | 
|                                                                                 |  |                  | 170,709   | (7)            |  | A$              | 5.0586/share | (4)(5)    |  |  | December 2011 | 
|                                                                                 |  |                  | 200,000   | (8)            |  | A$              | 6.4490/share | (5)       |  |  | December 2012 | 
|                                                                                 |  |                  | 250,000   | (9)            |  | A$              | 7.05/share   |           |  |  | December 2013 | 
|David Merkley                                                                    |  |                  | 48,209    | (1)(10)        |  | A$              | 3.1321/share | (3)(4)(5) |  |  | November 2009 | 
|                                                                                 |  |                  | 82,902    | (1)(11)        |  | A$              | 3.0921/share | (3)(4)(5) |  |  | November 2010 | 
|                                                                                 |  |                  | 102,425   | (7)            |  | A$              | 5.0586/share | (4)(5)    |  |  | December 2011 | 
|                                                                                 |  |                  | 200,000   | (8)            |  | A$              | 6.4490/share | (5)       |  |  | December 2012 | 
|                                                                                 |  |                  | 250,000   | (9)            |  | A$              | 7.05/share   |           |  |  | December 2013 | 
|Former Directors and
    Executive Officers                                      |  |                  |           |                |  |                 |              |           |  |  |               | 
|Peter Macdonald (former CEO)                                                     |  |                  | 1,200,000 | (12)           |  | A$              | 3.1821/share | (3)(4)(5) |  |  | November 2009 | 
|                                                                                 |  |                  | 624,000   | (13)           |  | A$              | 4.7621/share | (3)(4)(5) |  |  | July 2011     | 
|                                                                                 |  |                  | 1,950,000 | (14)           |  | A$              | 5.7086/share | (4)(5)    |  |  | July 2012     | 
|Phillip Morley (former CFO)                                                      |  |                  | 273,134   | (7)            |  | A$              | 5.0586/share | (4)(5)    |  |  | December 2011 | 
|                                                                                 |  |                  | 134,300   | (8)            |  | A$              | 6.4490/share | (5)       |  |  | December 2012 | 
|                                                                                 |  |                  | 100,000   | (9)            |  | A$              | 7.05/share   |           |  |  | December 2013 | 
|Peter Shafron (former CFO)                                                       |  |                  | 85,355    | (15)           |  | A$              | 5.0586/share | (4)(5)    |  |  | December 2011 | 
|                                                                                 |  |                  | 50,000    | (16)           |  | A$              | 6.4490/share | (5)       |  |  | December 2012 | 
|Folkert Zwinkels (Current Treasurer and former
    member of our Managing Board) |  |                  | 8,775     | (17)           |  | A$              | 6.4490/share | (5)       |  |  | December 2012 | 



---



| |     |                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | This nonqualified stock option to purchase shares
    of JHI NV common stock under the JHI NV 2001 Equity Incentive
    Plan was granted on October 19, 2001 in exchange for the
    termination of an award of shadow stock covering an equal number
    of shares of JHIL common stock. See  Equity
    Plans  2001 Equity Incentive Plan under
    Item 6.
|
| | (2) | Options vest and become exercisable in November
    2004.                                                                                                                                                                                                                                                                                                        
|
| | (3) | The exercise price reflects an A$0.0965 per
    share price reduction due to a capital return paid to
    shareholders in December 2001.                                                                                                                                                                                                                         
|
| | (4) | The exercise price reflects an A$0.3804 per
    share price reduction due to a capital return paid to
    shareholders in November 2002.                                                                                                                                                                                                                         
|
| | (5) | The exercise price reflects an A$0.2110 per
    share price reduction due to a capital return paid to
    shareholders in November 2003.                                                                                                                                                                                                                         
|
| | (6) | Options vest and become exercisable in two equal
    installments in November 2004 and 2005.                                                                                                                                                                                                                                                                     

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| |     |                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (7) | Granted under the 2001 Equity Incentive Plan
    and vests and becomes exercisable in three
    installments: 25% on December 17, 2002; 25% on
    December 17, 2003 and 50% on December 17, 2004.
|
| | (8) | Granted under the 2001 Equity Incentive Plan and
    vests and becomes exercisable in three installments: 25% on
    December 3, 2003; 25% on December 3, 2004 and 50% on
    December 3, 2005.   
|
| | (9) | Granted under the 2001 Equity Incentive Plan and
    vests and becomes exercisable in three installments: 25% on
    December 5, 2004; 25% on December 5, 2005; and 50% on
    December 5, 2006.  



|     |                                                                                                                                                                                                                                                                                                                                                            
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Options vest and become exercisable in two equal
    installments in November 2003 and 2004.                                                                                                                                                                                                                                                               
|    
|(11) | Options vest and become exercisable in three
    equal installments in November 2003, 2004 and 2005.                                                                                                                                                                                                                                                       
|    
|(12) | JHIL granted a nonqualified stock option to
    Mr. Macdonald on November 17, 1999 under the
    JHIL Peter Donald Macdonald Share Option Plan. That option
    was terminated and replaced by this stock option to purchase
    shares of JHI NV common stock. See  Equity
    Plans  JHI NV Peter Donald Macdonald Share Option
    Plan below.      
|    
|(13) | JHIL granted a nonqualified stock option to
    Mr. Macdonald on July 12, 2001 under the
    JHIL Peter Donald Macdonald Share Option Plan 2001. That
    option was terminated and replaced by this stock option to
    purchase shares of JHI NV common stock. See
     Equity Plans  JHI NV Peter
    Donald Macdonald Share Option Plan 2001 below.
|    
|(14) | This option was granted to Mr. Macdonald on
    July 19, 2002 under the Peter Donald Macdonald
    2002 Share Option Plan.                                                                                                                                                                                                                                 
|    
|(15) | Granted under the 2001 Equity Incentive Plan on
    December 17, 2001 and is fully vested and exercisable.                                                                                                                                                                                                                                                 
|    
|(16) | Granted under the 2001 Equity Incentive Plan on
    December 3, 2002 and is fully vested and exercisable.                                                                                                                                                                                                                                                  
|    
|(17) | Granted under the 2001 Equity Incentive Plan and
    vests and becomes exercisable in two installments: 2,925 on
    December 5, 2005; and 5,850 on December 5, 2006.                                                                                                                                                                                      

Equity Plans



| |                                              
| | ---------------------------------------------
| | Peter Donald Macdonald Share Option
    Plans

Mr. Macdonald was granted an option to
purchase 1,200,000 shares of our common stock at an
exercise price of A$3.87 per share under the JHI NV
Peter Donald Macdonald Share Option Plan as a replacement for
options previously granted by JHIL. As with the original
JHIL option grant, this stock option became fully vested
and exercisable on November 17, 2004. The options will
expire on April 20, 2005, six months after the date of
Mr. Macdonalds resignation. The exercise price and
the number of shares available on exercise may be adjusted on
the occurrence of certain events, including new issues, share
splits, rights issues and capital reconstructions, as set out in
the plan rules. Consequently, the exercise price was reduced by
A$0.21, A$0.38 and A$0.10 for the November 2003, November 2002
and December 2001 returns of capital, respectively.

Mr. Macdonald was granted an option to
purchase 624,000 shares of our common stock at an
exercise price per share equal to A$5.45 under the JHI NV
Peter Donald Macdonald Share Option Plan 2001 as a replacement
for options previously granted by JHIL. The replacement options
will become exercisable for 468,000 shares on the first
business day on or after July 12, 2004, if our total
shareholder returns (essentially our dividend yield and common
stock performance) from July 12, 2001 to that date is at
least equal to the median total shareholder returns for the
companies comprising our peer group, as determined by our Joint
Board (the Initial Performance Milestone). In
addition, the replacement options will become exercisable on
that same day for an additional 6,240 shares for each
one-percent improvement in our total shareholder returns ranking
above the median total shareholder returns for our peer group
(up to a total of 156,000 additional shares). As of this
20-F filing, the performance hurdles have not been
satisfied. On the first business day of each month from November
2004 until the options expire on April 20, 2005, six months
after the date of Mr. Macdonalds resignation, our
total shareholder returns will again be compared with that of
our peer group to determine if any previously unvested options
vest according to the applicable test described above. As set
out in the plan rules, the exercise price and the number of
shares available on exercise may be adjusted on the occurrence
of certain events, including new issues, share splits, rights
issues and capital reconstructions.

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Consequently, the exercise price was reduced by
A$0.21, A$0.38 and A$0.10 for the November 2003, November 2002
and December 2001 returns of capital, respectively.


Under the JHI NV Peter Donald Macdonald
2002 Share Option Plan, Mr. Macdonald was granted an
option to purchase 1,950,000 shares of our common
stock at an exercise price of A$6.30 per share. These
options will become exercisable for 1,462,500 shares of our
common stock on the first business day on or after July 19,
2005, if our total shareholder returns from July 19, 2002
to that date is at least equal to the median total shareholder
returns for the companies comprising our peer group, which
comprises those companies included in the S&P/ ASX 200 index
excluding the companies listed in the 200 Financials and
200 Property Trust indices. Additionally, for each
one-percent improvement in our total shareholder returns ranking
above the median total shareholder returns for our peer group
19,500 shares become exercisable (up to a total of
487,500 additional shares). If any options remain
unexercisable on that date because the applicable test for total
shareholder returns is not satisfied, then on the first business
day of each month occurring from that day until October 31,
2005, our total shareholder returns will again be compared with
that of our peer group to determine if any previously unvested
options vest according to the applicable test described above.
The vested options will remain exercisable until the tenth
anniversary of the issue date, July 19, 2012. As set out in
the plan rules, the exercise price and the number of shares
available on exercise may be adjusted on the occurrence of
certain events, including new issues, share splits, rights
issues and capital reconstructions. Consequently, the exercise
price was reduced by A$0.21 and A$0.38 for the November 2003 and
November 2002 returns of capital, respectively.



| |                           
| | --------------------------
| | 2001 Equity Incentive Plan

Under our 2001 Equity Incentive Plan (the
Equity Incentive Plan), our employees, including
employees of our subsidiaries and officers who are employees,
but not including any member of our Managing Board or
Supervisory Board, are eligible to receive awards in the form of
nonqualified stock options, performance awards, restricted stock
grants, stock appreciation rights, dividend equivalent rights,
phantom stock or other stock-based benefits. The Equity
Incentive Plan is intended to promote our long-term financial
interests by encouraging our management and other persons to
acquire an ownership position in us, to align their interests
with those of our shareholders and to encourage and reward their
performance. The Equity Incentive Plan was approved by our Joint
Board subject to implementation of the consummation of our
2001 Reorganization.

An aggregate of 45,077,100 shares of common
stock have been made available for issuance under the Equity
Incentive Plan, provided that such number (and any awards
granted) will be subject to adjustment in the event of a stock
split, stock dividend or other changes in our common stock or
capital structure or our restructuring. Our ADSs evidenced by
ADRs and our common stock in the form of CUFS will be equivalent
to and interchangeable with our common stock for all purposes of
the Equity Incentive Plan, in the case of ADRs on a
proportionately adjusted basis to account for the ratio of
outstanding common stock or CUFS in relation to outstanding
ADRs. The following options to purchase shares are outstanding
as of October 31, 2004:



| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | options to purchase 1,870,596 shares of
    our common stock awarded to our employees on October 19,
    2001 in exchange for the cancellation of JHIL shadow stock
    awards under the JHIL Key Management Equity Incentive Plan;
|
| |  | options to purchase 2,316,322 shares of our
    common stock that were granted to employees in December
    2001; and                                                                                                              
|
| |  | options to purchase 2,844,325 shares of
    our common stock that were granted to employees in December 2002.                                                                                                                      
|
| |  | Options to purchase 4,737,250 shares of
    our common stock that were granted to employees in December 2003.                                                                                                                      

Our Remuneration Committee administers the Equity
Incentive Plan. Subject to the provisions of the Equity
Incentive Plan, our Joint Board or Remuneration Committee is
authorized to determine who may

78



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participate in the Equity Incentive Plan, the
number and types of awards made to each participant and the
terms, conditions and limitations applicable to each award. In
addition, our Joint Board or Remuneration Committee will have
the exclusive power to interpret the Equity Incentive Plan and
to adopt such rules and regulations as it may deem necessary or
appropriate for purposes of administering the Equity Incentive
Plan. Subject to certain limitations, our Joint Board or
Remuneration Committee will be authorized to amend, modify or
terminate the Equity Incentive Plan to meet any changes in legal
requirements or for any other purpose permitted by law.


The purchase or exercise price of any award
granted under the Equity Incentive Plan may be paid in cash or
other consideration at the discretion of our Joint Board or
Remuneration Committee. Our Joint Board or Remuneration
Committee, in its discretion, may allow cashless exercises of
awards or may permit us to assist in the exercise of options.

Stock Options.Under
the Equity Incentive Plan, our Joint Board or Remuneration
Committee is authorized to award nonqualified options to
purchase shares of common stock as additional employment
compensation. The Equity Incentive Plan does not allow us to
grant options qualified as incentive stock options
under Section 422 of the U.S. Internal Revenue Code of
1986, as amended. Options shall be exercisable over such periods
as may be determined by our Joint Board or Remuneration
Committee, but no stock option may be exercised after
10 years from the date of grant. Options may be exercisable
in installments and upon such other terms as determined by our
Joint Board or Remuneration Committee. Options will be evidenced
by notices of option grants authorized by our Joint Board or
Remuneration Committee. No option may be transferable other than
by will or by the laws of descent and distribution or pursuant
to certain domestic relations orders.

Performance Awards.Our Joint Board or Remuneration Committee, in its discretion,
may award performance awards to an eligible person contingent on
the attainment of criteria specified by our Joint Board or
Remuneration Committee. Performance awards will be paid in the
form of cash, shares of common stock or a combination of both.
Our Joint Board or Remuneration Committee will determine the
total number of performance shares subject to an award, and the
terms and the time at which the performance shares will be
issued.

Restricted Stock
Awards.Under the Equity Incentive
Plan, our Joint Board or Remuneration Committee may award
restricted shares of common stock, which are subject to
forfeiture under such conditions and for such periods of time as
our Joint Board or Remuneration Committee may determine. Shares
of such restricted stock may not be sold, transferred, assigned,
pledged or otherwise encumbered so long as such shares remain
restricted. Our Joint Board or Remuneration Committee shall
determine the conditions or restrictions of any restricted stock
awards, which may include restrictions on requirements of
continued employment, individual performance or our financial
performance or other criteria.

Stock Appreciation
Rights.Under the Equity Incentive
Plan, our Joint Board or Remuneration Committee also may award
stock appreciation rights either in tandem with an option or
alone. Stock appreciation rights granted in tandem with a stock
option may be granted at the same time as the stock option or at
a later time. A stock appreciation right shall entitle the
participant to receive from us an amount payable in cash, in
shares of common stock or in a combination of cash and common
stock, equal to the positive difference between the fair market
value of a share of common stock on the date of exercise and the
grant price, or such lesser amount as our Joint Board or
Remuneration Committee may determine.

Dividend Equivalent
Rights.Dividend equivalent rights,
defined as a right to receive payment with respect to all or
some portion of the cash dividends that are or would be payable
with respect to shares of common stock, may be awarded in tandem
with stock options, stock appreciation rights or other awards
under the Equity Incentive Plan. Our Joint Board or Remuneration
Committee will determine the terms and conditions of these
rights. The rights may be paid in cash, shares of common stock
or other awards.

Other Stock-Based
Benefits.Our Joint Board or
Remuneration Committee may award other benefits that by their
terms might involve the issuance or sale of common stock or
other securities of JHI NV, or involve a benefit that is
measured by the value, appreciation, dividend yield or other
features attributable to a

79



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specified number of shares of our common stock or
other securities, including but not limited to stock payments,
stock bonuses and stock sales.


Effect of Change in
Control.The Equity Incentive Plan
provides for the automatic acceleration of certain benefits and
the termination of the plan under certain circumstances in the
event of a change in control. A change in control
will be deemed to have occurred if either (1) any person or
group acquires beneficial ownership equivalent to 30% of our
voting securities, (2) individuals who are members of our
Joint Board as of the effective date of the Equity Incentive
Plan, or individuals who became members of our Joint Board after
the effective date of the Equity Incentive Plan whose election
or nomination for election was approved by a majority of such
individuals (or, in the case of directors nominated by a person,
entity or group with 20% of our voting securities, by two-thirds
of such individuals) cease to constitute at least a majority of
the members of our Joint Board or (3) there occurs the
consummation of certain mergers, the sale of substantially all
of our assets or our complete liquidation or dissolution.

Executive Share Purchase Plan

Prior to July 1998, JHIL issued stock under an
Executive Share Purchase Plan (the Plan). Under the
terms of the Plan, eligible executives purchased
JHIL shares at their market price when issued. Executives
funded purchases of JHIL shares with non-recourse,
interest-free loans provided by JHIL and collateralized by the
shares. In such cases, the amount of indebtedness is reduced by
dividend income earned by, and capital returns from, the
collateralized shares. These loans are generally payable within
two years after termination of an executives employment.
As part of the 2001 Reorganization, the identical terms of the
agreement have been carried over to JHI NV. Variable plan
accounting under the provisions of APB Opinion No. 25
has been applied to the Plan shares granted prior to
April 1, 1995 and fair value accounting, pursuant to the
requirements of SFAS No. 123, has been applied to
shares granted after March 31, 1995. No shares were issued
to executives under the Plan during fiscal years 2004, 2003 and
2002.

Economic Profit Incentive Plan

We maintain an Economic Profit Incentive Plan,
which provides incentive compensation to certain of our
directors, officers and key executives. These designated
executives are entitled to receive bonus payments upon the
accomplishment of certain economic profit target levels of the
Company and certain other mutually agreed upon personal
objectives. Our Economic Profit Incentive Plan is a variable pay
plan, which links the Companys economic profit to bonus
payments to certain key individuals. The target bonus is paid to
the participant at the end of the year if the economic profit
target is met. If the economic profit target is exceeded, the
participant earns a bonus greater than his or her target bonus,
but only one-third of the excess bonus is paid to the
participant at the end of the year. The remaining two-thirds is
then deposited with a notional bank and is paid to the executive
over the following two years if the economic profit target is
met in these years, or is reduced if the economic profit target
is not met. This arrangement distinguishes between sustained
performance and one-time performance and encourages participants
to maintain a long-term view.

Employment Agreements

Under our compensation plan, we enter into
employment agreements with certain of our senior executives. The
amounts paid under these agreements are listed under
Compensation. The terms of these agreements provide
for an annual base salary, potential annual bonus payment
pursuant to our Economic Profit Incentive Plan, and various
benefits and expense reimbursements. These agreements also
include restrictive covenants to protect our trade secrets, as
well as non-competition and non-solicitation of our employees
for a specified period in the event the executive is no longer
employed by us.






|        |                                                      
|------- | -----------------------------------------------------
|Item 7. | Major Shareholders and Related Party
    Transactions

Major Shareholders

At October 31, 2004, all issued and
outstanding JHI NV shares were listed on the Australian
Stock Exchange in the form of CHESS Units of Foreign
Securities (CUFS). CUFS represent beneficial

80



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ownership of JHI NV shares and CHESS
Depository Nominees Pty Ltd is the registered owner of the
shares represented by CUFS. Each of our CUFS represents one
share of our common stock.


To our knowledge, based on substantial
shareholder notices filed with the Australian Stock Exchange as
of October 31, 2004, the following table identifies those
shareholders which beneficially owned 5% or more of our common
stock and their holdings as of the date of their last respective
notices:

|                                                  |  |              |            |             |  |  |       |  
|------------------------------------------------- |  | ------------ | ---------- | ----------- |  |  | ----- | -
|                                                  |  | Shares       |            | Percentage 
|                                                  |  | Beneficially |            | of Shares  
|Shareholder                                       |  | Owned        |            | Outstanding
|                                                  |  |              |            |            
|Commonwealth Bank of Australia (and subsidiaries) |  |              | 68,968,946 |             |  |  | 15.04 | %
|Schroder Investment Management Australia Limited  |  |              | 39,835,741 |             |  |  | 8.69  | %
|Lazard Asset Management Pacific Co.               |  |              | 36,080,578 |             |  |  | 7.87  | %
|National Australia Bank Limited Group             |  |              | 28,198,184 |             |  |  | 6.15  | %
|Concord Capital Ltd.                              |  |              | 23,787,238 |             |  |  | 5.19  | %
|The Capital Group Companies, Inc.                 |  |              | 28,039,211 |             |  |  | 6.11  | %

Commonwealth Bank merged with Colonial First
State Investments in June 2000, and their combined holdings as
of March 22, 2001 exceeded 5% of JHILs outstanding
stock. Commonwealth Bank increased its percentage ownership of
JHIL to approximately 13% in May 2001. Through subsequent
periodic purchases, Commonwealth Bank gradually increased its
interest in JHI NV to 17.03% in July 2003, but in the last
notice received had reduced its interest in JHI NV on
May 21, 2004 to 15.04%.

Schroder Investment Management Australia Limited
became a substantial shareholder on January 28, 2004, with
a 5.55% interest in JHI NV outstanding shares and increased
its holding in JHI NV on April 6, 2004 to 8.69% in the
last notice received.

Lazard Asset Management Pacific Co became a
substantial shareholder on April 1, 2004, with a 5.34%
interest in our outstanding stock and increased its holding in
JHI NV on October 22, 2004 to 7.87% in the last notice
received.

National Australia Bank Limited Group became a
substantial shareholder on May 25, 2004, with 5.03% of our
outstanding stock and increased its holding in JHI NV on
June 16, 2004 to 6.15% in the last notice received.

Concord Capital Ltd became a substantial
shareholder on June 18, 2004, with 5.34% of our outstanding
stock before reducing its holding in JHI NV below 5% on
August 6, 2004. However, in the last notice received,
Concord Capital Ltd became a substantial shareholder again on
August 20, 2004, with a 5.19% interest of our outstanding
stock.

The Capital Group Companies, Inc became a
substantial shareholder on August 3, 2004, with a 5.09%
interest in JHI NV outstanding shares and increased its holding
in JHI NV on September 6, 2004 to 6.11% in the last notice
received.

Deutsche Bank AG on July 23, 2002 announced
its interest in 5.24% of our outstanding shares before reducing
its holding in JHI NV below 5% in September 2002. Through
subsequent periodic purchases, Deutsche Banks interest in
JHI NV fluctuated above and below 5% and, in the last notice
received, its interest was reduced to below 5% on
September 30, 2004.

Merrill Lynch began purchasing JHIL common stock
in April 1999. Through subsequent periodic purchases, Merrill
Lynch gradually increased its interest in JHIL to 9.14% in
February 2001, but thereafter reduced its holding in JHI NV
below 5% in July 2003.

AMP Limited increased its percentage ownership
interest in JHIL to approximately 6% in May 2001 before reducing
its holding below 5% in October 2001. However, through
subsequent periodic purchases, AMP Limited gradually increased
its holdings in JHI NV to 6.16% at December 10, 2002 before
reducing its holdings in JHI NV below 5% in July 2003.

81



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Each of the above shareholders has the same
voting rights as all other holders of our common stock. To our
knowledge, except for the major shareholders described above, we
are not directly or indirectly owned or controlled by another
corporation, by a foreign government or by any other natural or
legal persons severally or jointly.

Other Security
Ownership Information

At October 31, 2004, 0.60% of the
outstanding shares of common stock of JHI NV were held by
69 CUFS holders with registered addresses in the United
States. In addition, at October 31, 2004, 0.37% of the
outstanding shares of JHI NV were represented by JHI NV ADRs
held by 15 holders, all of whom have registered addresses in the
United States. A total of 0.97% of the outstanding capital stock
of JHI NV was registered to 84 United States holders as of
October 31, 2004.

Related Party Transactions



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Transactions and Existing Loans to our
    Directors and Directors of our Subsidiaries

Loans receivable totaling $167,635 were
outstanding from directors of JHI NV and its subsidiaries under
the terms and conditions of the Plan at March 31, 2004.
Loans under the Plan are interest free and repayable from
dividend income earned by, or capital returns from, securities
acquired under the Plan. The loans are collateralized by shares
issued under the Plan. No new loans to directors or executive
officers of JHI NV, under the Plan or otherwise, and no
modifications to the existing loans have been made since
December 1997. Repayments totaling $22,693 were received in
fiscal year 2004 in respect of the Plan from such directors.

During fiscal year 2004, a director resigned with
a $26,204 loan outstanding at the date of his resignation. This
amount is repayable within two years under the terms of the Plan.

The following table sets forth the names of JHI
NV and its subsidiaries directors and the loan amounts
outstanding for each such director as of March 31, 2004.
All figures are in U.S. dollars.

|               |       |           |         |         | 
|-------------- | ----- | --------- | ------- | ------- | 
|               |       | March 31,
|Director       |       | 2004     
|               |       |          
|A.T. Kneeshaw  |       | $         | 12,159  |        
|P.D. Macdonald |       |           | 17,330  |        
|P.G. Morley    |       |           | 117,003 |        
|D.A.J. Salter  |       |           | 21,143  |        
|               |       |           |         |        
|               | Total |           | $       | 167,635 | 
|               |       |           |         |        

In February 2004, we entered into a consulting
agreement in usual commercial terms and conditions with The
Gries Group in respect to professional services. The principal
of The Gries Group, James P. Gries, is Mr. Louis
Gries brother. Under the agreement, approximately $12,000
is paid each month to The Gries Group. The agreement expires in
June 2005 and payments of $18,423 were made for the year ended
March 31, 2004.



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Payments Made to Directors and Director
    Related Entities of our Subsidiaries

Payments of $13,240 for the year ended
March 31, 2004 were made to Grech, Vella,
Tortell & Hyzler Advocates. Dr. J.J. Vella was a
director of a number of the Companys subsidiaries. The
payments were in respect of professional services and were
negotiated in accordance with usual commercial terms and
conditions.

Payments of $111,705 for the year ended
March 31, 2004 were made to Pether and Associates Pty Ltd,
technical contractors. J.F. Pether is a director of a subsidiary
of the Company and a director of Pether and Associates Pty Ltd.
The payments were in respect of technical services and were
negotiated in accordance with usual commercial terms and
conditions.

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Payments totaling $845 for the year ended
March 31, 2004 were made to R. Christensen and T. Norman
who are directors of a subsidiary of the Company. The payments
were in respect of professional services and were negotiated in
accordance with usual commercial terms and conditions.



| |                                           
| | ------------------------------------------
| | Transactions Related to the
    Foundation

In 1998, we entered into lease agreements with
Amaca whereby we lease, on a long-term basis, fiber cement
manufacturing facilities in Australia. Obligations under such
leases amount to an aggregate of approximately $2.7 million
per year. All of the leases expire on October 31, 2008. The
leases contain renewal options and provisions adjusting lease
payments based on changes in various market factors as reflected
in changes in the consumer price index.

In March 2004, Multiplex acquired the land and
building related to the four fiber cement manufacturing
facilities in Australia from Amaca. Prior to the acquisition, we
renegotiated these four leases with Multiplex. See Item 4
Information on the Company  Property, Plant and
Equipment.






|        |                      
|------- | ---------------------
|Item 8. | Financial Information

See Item 4 Information on the
Company  Legal Proceedings, Item 18
Financial Statements and pages F-1 through
F-51. There has been no significant change to the financial
statements included in this annual report since the date of such
financial statements.






|        |                
|------- | ---------------
|Item 9. | Listing Details

Price History

Prior to the restructuring completed in October
2001, there was no public market for shares of JHI NV common
stock, nor was there a market for JHI NV ADRs. Shares in JHIL,
which represented substantially the same operations, assets and
liabilities as those of JHI NV prior to our 2001 Reorganization,
were traded on the Australian Stock Exchange and
over-the-counter as ADRs. One JHIL ADR represented two JHIL
shares. After October 19, 2001, one JHI NV ADR represents
five JHI NV shares.

JHIL shares were exchanged for JHI NV shares
represented by CUFS shares on October 19, 2001. See
Item 4 Information on the Company  History
and Development of the Company.

83



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The high and low trading prices of JHI NV CUFS on
the Australian Stock Exchange are as follows (Note: Prices
listed after October 19, 2001 represent JHI NV CUFS; prices
listed prior to October 19, 2001, represent JHIL shares):

|                      |                    |      |  |       |  |      |  |       |  |  |  |      |  |  |  |      | 
|--------------------- | ------------------ | ---- |  | ----- |  | ---- |  | ----- |  |  |  | ---- |  |  |  | ---- | 
|                      |                    |      |  |      
|                      |                    | High |  | Low  
|                      |                    |      |  |      
|Period                |                    | (A$) |  | (US$) |  | (A$) |  | (US$)
|                      |                    |      |  |       |  |      |  |      
|Fiscal year ended:    |                    |      |  |       |  |      |  |       |  |  |  |      |  |  |  |     
|                      | March 31, 2004     |      |  | 8.04  |  |      |  | 5.58  |  |  |  | 5.84 |  |  |  | 4.05 | 
|                      | March 31, 2003     |      |  | 7.06  |  |      |  | 3.96  |  |  |  | 5.56 |  |  |  | 3.12 | 
|                      | March 31, 2002     |      |  | 6.77  |  |      |  | 3.47  |  |  |  | 4.19 |  |  |  | 2.15 | 
|                      | March 31, 2001     |      |  | 4.65  |  |      |  | 2.58  |  |  |  | 3.36 |  |  |  | 1.87 | 
|                      | March 31, 2000     |      |  | 4.62  |  |      |  | 2.98  |  |  |  | 3.21 |  |  |  | 2.07 | 
|Fiscal quarter ended: |                    |      |  |       |  |      |  |       |  |  |  |      |  |  |  |     
|                      | September 30, 2004 |      |  | 6.30  |  |      |  | 4.52  |  |  |  | 4.95 |  |  |  | 3.55 | 
|                      | June 30, 2004      |      |  | 6.88  |  |      |  | 4.92  |  |  |  | 5.22 |  |  |  | 3.73 | 
|                      | March 31, 2004     |      |  | 7.02  |  |      |  | 5.44  |  |  |  | 6.15 |  |  |  | 4.77 | 
|                      | December 31, 2003  |      |  | 8.04  |  |      |  | 5.74  |  |  |  | 6.32 |  |  |  | 4.51 | 
|                      | September 30, 2003 |      |  | 7.80  |  |      |  | 5.14  |  |  |  | 6.64 |  |  |  | 4.38 | 
|                      | June 30, 2003      |      |  | 7.20  |  |      |  | 4.61  |  |  |  | 5.84 |  |  |  | 3.74 | 
|                      | March 31, 2003     |      |  | 7.06  |  |      |  | 4.17  |  |  |  | 5.81 |  |  |  | 3.43 | 
|                      | December 31, 2002  |      |  | 6.89  |  |      |  | 3.84  |  |  |  | 5.92 |  |  |  | 3.30 | 
|                      | September 30, 2002 |      |  | 6.90  |  |      |  | 3.78  |  |  |  | 5.56 |  |  |  | 3.05 | 
|                      | June 30, 2002      |      |  | 6.56  |  |      |  | 3.62  |  |  |  | 5.90 |  |  |  | 3.25 | 
|Month ended:          |                    |      |  |       |  |      |  |       |  |  |  |      |  |  |  |     
|                      | October 31, 2004   |      |  | 6.38  |  |      |  | 4.53  |  |  |  | 5.68 |  |  |  | 4.04 | 
|                      | September 30, 2004 |      |  | 6.16  |  |      |  | 4.35  |  |  |  | 5.24 |  |  |  | 3.70 | 
|                      | August 31, 2004    |      |  | 5.68  |  |      |  | 4.03  |  |  |  | 4.95 |  |  |  | 3.52 | 
|                      | July 31, 2004      |      |  | 6.30  |  |      |  | 4.64  |  |  |  | 5.42 |  |  |  | 3.99 | 
|                      | June 30, 2004      |      |  | 6.24  |  |      |  | 4.33  |  |  |  | 5.22 |  |  |  | 3.63 | 
|                      | May 31, 2004       |      |  | 6.88  |  |      |  | 4.87  |  |  |  | 5.90 |  |  |  | 4.17 | 

The U.S. dollar prices set forth above were
calculated using the weighted average exchange rate for the
relevant period.

84



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The high and low trading prices of JHI NV ADRs on
the New York Stock Exchange after October 19, 2001, the
effective date of the 2001 Reorganization, are as follows:

|                      |                    |       |  |       |  |  |  |       | 
|--------------------- | ------------------ | ----- |  | ----- |  |  |  | ----- | 
|                      |                    | High  |  | Low  
|Period                |                    | (US$) |  | (US$)
|                      |                    |       |  |      
|Fiscal year ended:    |                    |       |  |       |  |  |  |      
|                      | March 31, 2004     |       |  | 28.50 |  |  |  | 18.25 | 
|                      | March 31, 2003     |       |  | 19.95 |  |  |  | 15.29 | 
|                      | March 31, 2002     |       |  | 17.95 |  |  |  | 11.10 | 
|Fiscal quarter ended: |                    |       |  |       |  |  |  |      
|                      | September 30, 2004 |       |  | 22.26 |  |  |  | 18.10 | 
|                      | June 30, 2004      |       |  | 25.05 |  |  |  | 18.82 | 
|                      | March 31, 2004     |       |  | 27.60 |  |  |  | 23.60 | 
|                      | December 31, 2003  |       |  | 28.50 |  |  |  | 24.40 | 
|                      | September 30, 2003 |       |  | 25.85 |  |  |  | 22.50 | 
|                      | June 30, 2003      |       |  | 23.95 |  |  |  | 18.25 | 
|                      | March 31, 2003     |       |  | 19.95 |  |  |  | 17.75 | 
|                      | December 31, 2002  |       |  | 18.85 |  |  |  | 16.30 | 
|                      | September 30, 2002 |       |  | 18.70 |  |  |  | 15.29 | 
|                      | June 30, 2002      |       |  | 18.86 |  |  |  | 16.05 | 
|Month ended:          |                    |       |  |       |  |  |  |      
|                      | October 31, 2004   |       |  | 23.36 |  |  |  | 20.50 | 
|                      | September 30, 2004 |       |  | 21.40 |  |  |  | 18.40 | 
|                      | August 31, 2004    |       |  | 20.56 |  |  |  | 18.10 | 
|                      | July 31, 2004      |       |  | 22.26 |  |  |  | 19.71 | 
|                      | June 30, 2004      |       |  | 21.66 |  |  |  | 18.82 | 
|                      | May 31, 2004       |       |  | 24.71 |  |  |  | 21.30 | 

Prior to the 2001 Reorganization, JHIL ADRs
traded over the counter. Because historically the JHIL ADRs have
not been actively traded, complete trading price information is
not readily available. However, we believe that the trading
price of the JHIL ADRs generally reflect the price of the
underlying JHIL shares represented thereby, as well as any
transaction costs associated with the ADRs.

During the 12 months ended October 31,
2004, an average of 2,144,518 JHI NV CUFS were traded daily on
the Australian Stock Exchange.

During the 12 months ended October 31,
2004, an average of 1,672 JHI NV ADRs were traded daily on the
New York Stock Exchange.

Trading Markets

Prior to the restructuring, JHIL shares traded on
the Australian Stock Exchange. After the restructuring was
completed in October 2001, our securities became listed and
quoted on the following stock exchanges:

|                                   |  |                          
|---------------------------------- |  | -------------------------
|Common stock (in the form of CUFS) |  | Australian Stock Exchange
|ADRs                               |  | New York Stock Exchange  

We cannot predict the prices at which our shares
and ADRs will trade or the volume of trading for such
securities, nor can we assure you that these securities will
continue to meet the applicable listing requirements of these
exchanges.

85



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Trading on the Australian Stock
Exchange

The Australian Stock Exchange is headquartered in
Sydney, Australia, with branches located in each state capital.
Our CUFS trade on the Australian Stock Exchange under the symbol
JHX. The Australian Stock Exchange is a publicly listed company
with trading being undertaken by brokers registered under the
Australian Corporations Act 2001. Trading principally takes
place between the hours of 10:00 a.m. and 4:00 p.m. on
each weekday (excluding Australian public holidays). Settlement
of trades in uncertificated securities listed on the Australian
Stock Exchange is generally effected electronically on the third
business day following the trade. This is undertaken through
CHESS (Clearing House Electronic Sub-register System), which is
the clearing and settlement system operated by the Australian
Stock Exchange.

Trading on the New York Stock
Exchange

In the United States, five JHI NV CUFS equal one
JHI NV ADR. Our ADRs trade on the New York Stock Exchange under
the symbol JHX. Trading principally takes place between the
hours of 9:30 a.m. and 4:00 p.m. on each weekday
(excluding U.S. public holidays). All inquiries and
correspondence regarding ADRs should be directed to The Bank of
New York, depository for our ADRs, at The Bank of New York, ADR
Department, 101 Barclay Street, New York, New York 10286 or at
its website located at www.adrbny.com or contact: Bank of
New York, Investor Relations, P.O. Box 11258, Church Street
Station, New York, NY 10286-1258, toll free telephone number for
USA domestic callers: 1-888-BNY-ADRs, non-USA callers can call:
610-312-5315 or email: shareowners@bankofny.com.






|         |                       
|-------- | ----------------------
|Item 10. | Additional Information

General

We were originally incorporated in 1998 as a
private company with limited liability, or besloten
vennootschap met beperkte aansprakelijkheid(a
B.V.). By notarial deed dated July 24, 2001, we
changed our name to James Hardie Industries N.V. and by the same
deed we changed our legal form into that of a naamloze
vennootschap(an N.V.), a public limited
liability company under Dutch law. Our Articles of Association
were most recently amended on November 5, 2003.

Our corporate seat is in Amsterdam, The
Netherlands and we have offices at The Atrium, 4th floor,
Strawinskylaan 3077, 1077 ZX Amsterdam, The Netherlands. We are
registered at the trade register of the Chamber of Commerce and
Industry for Amsterdam, The Netherlands under
number 34106455.

Key Provisions of our Articles of Association
of JHI NV



| |                       
| | ----------------------
| | Purpose of the Company

Our purposes are:



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | to participate in, to take an interest in any
    other way in and to conduct the management of business
    enterprises of whatever nature;
|
| |  | to raise funds through the issuance of debt or
    equity or in any other way and to finance third parties;                                 
|
| |  | to provide guarantees, including guarantees for
    the debts of third parties; and                                                         
|
| |  | to perform all activities which are incidental to
    or which may be conducive to, or connected with, any of the
    foregoing.            



| |                                          
| | -----------------------------------------
| | Issuance of Shares; Preemptive
    Rights

Pursuant to Dutch law and our Articles of
Association, the authority to issue shares and to grant rights
to subscribe for shares, such as options, and to limit or
exclude preemptive rights is vested in our shareholders as a
group, unless our shareholders have delegated this authority to
another corporate body. Such delegation is valid for a maximum
period of five years, but may be renewed at any time prior to
its expiration.

86



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Our Supervisory Board has been delegated the
authority to issue shares and to grant rights to subscribe for
shares, such as options, and to limit or exclude preemptive
rights for a period expiring on August 15, 2006. After
August 15, 2006, shares and rights to subscribe for shares
may be issued, and preemptive rights may be limited or excluded
by our shareholders or by our Supervisory Board, provided it has
again been delegated this authority by our shareholders (such
delegation shall be for a maximum period of five years). We plan
to ask our shareholders to delegate this authority to our
Supervisory Board again prior to the expiration of the period
ending on August 15, 2006. It is anticipated that our
Supervisory Board will eliminate preemptive rights with respect
to any and all issuances of shares of common stock during such
period.

Shares of common stock must be issued for a
subscription price at least equal to their nominal value and at
least 25% of the nominal value must have been paid up at the
time of issuance.

As a Dutch company that has listed securities in
Australia and the United States, we are subject to applicable
legislation regarding insider trading. Generally, Dutch law
prohibits anyone, whether or not a director or employee of the
issuer, from trading in or bringing about transactions in the
securities of the issuer while in possession of inside,
non-public information and from passing on inside information or
recommending a transaction while in possession of inside
information. Under Australian law, persons are prohibited from
trading on the basis of undisclosed, price-sensitive information
regarding a companys securities. Similarly, in the United
States, persons are prohibited from trading on the basis of
material, non-public information. We have adopted an internal
code on insider trading consistent with Dutch, Australian and
U.S. laws and regulations.



| |                     
| | --------------------
| | Repurchase of Shares

At the proposal of our Joint Board, we may
acquire shares in our own capital, subject to certain provisions
of Dutch law and of our Articles of Association, if and insofar
as (1) shareholders equity, less the amount to be
paid for the shares acquired, is not less than the sum of the
paid and called up part of our issued share capital, plus any
reserves required to be maintained by Dutch law or our Articles
of Association, (2) the aggregate par value of the shares
of our capital which we or our subsidiaries acquire, already
hold or on which we or they hold a right of pledge, amounts to
no more than one-tenth of the aggregate par value of the issued
share capital and (3) our shareholders, as a group, have
authorized our Managing Board to acquire such shares. Neither we
nor any of our subsidiaries may vote shares that are held by
them or us.

At the September 17, 2004 Annual General
Meeting, our Managing Board was authorized to cause JHI NV to
acquire shares in JHI NVs capital for a period expiring on
March 17, 2006. After March 17, 2006, shares in JHI
NVs capital may be acquired if our Managing Board has
again been authorized to do so by our shareholders (such
authorization may be for a maximum period of 18 months). We
intend to ask our shareholders in our 2005 Annual General
Meeting to renew the authorization of the Managing Board to
cause JHI NV to acquire shares in JHI NVs capital, such on
terms substantially identical as the September 17, 2004
authorization.



| |                           
| | --------------------------
| | Reduction of Share Capital

Upon the proposal of our Joint Board, our
shareholders as a group have the power to effect a reduction of
share capital by deciding to (i) cancel shares, or
depositary receipts related to shares, acquired by us in our own
share capital, or (ii) to reduce the nominal value of our
shares, subject to applicable statutory provisions, with or
without a partial repayment or release. In case of a partial
repayment or release, these must be made pro rata to all
shares. The pro ratarequirements may be waived by
agreement of all shareholders concerned.



| |                                            
| | -------------------------------------------
| | Shareholders Meetings and Voting
    Rights

Each shareholder, person entitled to vote and
CUFS holder (but not an ADR holder) has the right to attend
general meetings of shareholders, either in person or by proxy,
to address shareholder meetings and, in the case of shareholders
and other persons entitled to vote (for instance, certain pledge
holders), to exercise voting rights, subject to the provisions
of our Articles of Association. Meetings of shareholders are
held in The Netherlands at least annually, within six months
after the close of each of our fiscal years. These meetings take

87



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place in either Amsterdam, The Hague, Rotterdam
or Haarlemmermeer. Additional meetings of shareholders may be
held as often as our Joint Board, our Managing Board or our
Supervisory Board deems necessary or upon the call of
(1) holders of shares of common stock jointly representing
at least 5% of our issued share capital, (2) at least 100
holders of shares of common stock or one shareholder
representing at least 100 CUFS holders or any relevant
combination thereof so that the request of at least 100 persons
is taken into account or (3) any one member of either the
Managing, Joint or Supervisory Boards. Our Articles of
Association also provide that an information meeting of
shareholders must be undertaken prior to each general meeting,
which must be held in Australia.


We give notice of each meeting of shareholders by
mail and by way of an announcement in a nationally distributed
newspaper in The Netherlands. Such notice is given no later than
the 28th day prior to the day of the meeting and includes or is
accompanied by an agenda identifying the business to be
considered at the meeting. We currently are exempt from the
proxy rules under the U.S. Securities Exchange Act of 1934
(the Exchange Act). Holders of shares of common
stock represented by CUFS are provided notice of general
meetings of shareholders and other communications with
shareholders by us, and the ADR depositary, The Bank of New
York, provides our ADR holders with such notices and
communications. CHESS Depositary Nominees Pty Ltd
(CDN), or we on behalf of CDN, may deliver to CUFS
holders instruction forms allowing the CUFS holders to instruct
CDN how to vote at a meeting. Similarly, the ADR depositary may
deliver to ADR holders instruction forms allowing the ADR
holders to direct the ADR depositary on how to instruct CDN to
vote at a meeting. In order for CUFS holders to attend general
meetings of shareholders in person, such holders need not
withdraw the shares of common stock represented by the CUFS, but
must follow such rules and procedures as may be established by
the CUFS Subregistrar and our share registry. CUFS holders may
request CDN to appoint them as proxy for the purposes of voting
the shares underlying their holding of CUFS on behalf of CDN. In
order for ADR holders to attend general meetings of shareholders
in person, such holders will have to convert their ADRs into
CUFS and, in doing so, must follow the procedures set forth in
the deposit agreement and such rules and procedures as may be
established by the ADR depositary.

Each share of common stock entitles the holder
thereof to one vote on each matter to be voted upon by the
shareholders. Holders of CUFS will be entitled to attend and to
speak, but not vote, at our shareholders meetings. A CUFS holder
may follow instructions set out in a relevant Notice of Meeting
to have the registered shareholder, CDN, appoint the CUFS holder
as a proxy of CDN to vote their CUFS holding at the relevant
meeting of shareholders. Holders of ADRs are not entitled to
attend or speak, nor vote, at our general meetings of
shareholders.

Unless otherwise required by our Articles of
Association or Dutch law, resolutions of the general meeting of
shareholders will be validly adopted by an absolute majority of
the votes cast at a meeting at which at least 5% of our issued
share capital is present or represented. Except where expressly
stated otherwise in this Form 20-F, all references here and
elsewhere herein to actions by the shareholders, or shareholders
as a group, are references to actions taken by way of such a
resolution at a meeting of shareholders.

Dutch law and our Articles of Association
currently do not impose any limitations on the rights of persons
who are not resident of The Netherlands to hold or vote shares
of common stock, solely as a result of such non-resident status.



| |              
| | -------------
| | Annual Report

Our fiscal year runs from April 1 through
March 31. Dutch law requires that within five months after
the end of our fiscal year, unless the general meeting of
shareholders has extended this period for a maximum of six
months, our Managing Board must make available to our
shareholders a report with respect to that fiscal year. This
report must include the financial statements and a report of an
independent accountant. The annual report must be submitted to
the shareholders for adoption. The annual report, including the
management report, is prepared in English and, in the case of
the JHI NV and its subsidiaries consolidated accounts,
according to U.S. GAAP, and in the case of JHI NVs
accounts, according to accounting principles generally accepted
in The Netherlands (Dutch GAAP).

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| |                
| | ---------------
| | Indemnification

Our Articles of Association provide that we shall
generally indemnify any person who is or was a member of our
Managing, Supervisory or Joint Boards or one of our employees,
officers or agents, and who suffers any loss as a result of any
action in connection with their service to us, provided they
acted in good faith in carrying out their duties and in a manner
they reasonably believed to be in our interest. This
indemnification generally will not be available if the person
seeking indemnification acted with gross negligence or willful
misconduct in the performance of such persons duties to
us. A court in which an action is brought may, however,
determine that indemnification is appropriate nonetheless.



| |          
| | ---------
| | Dividends

All calculations to determine the amounts
available for dividends or other distributions are based on our
statutory accounts, which are, as a holding company, different
from our consolidated accounts and which are prepared in
accordance with Dutch GAAP because we are a Dutch company.
Because we are a holding company and have limited operations of
our own, we are largely dependent on dividends or other
distributions from our subsidiaries to fund any cash dividends.

The profits of JHI NV in any financial year, if
any, shall first be retained by way of a reserve in such amount
as determined by our Supervisory Board. The remaining portion of
the profits shall be at the disposal of our Joint Board for
further allocation to our reserves or, if permitted by Dutch law
and our Articles of Association, be made available for
distribution as a dividend to the holders of shares of common
stock, or a combination thereof. Our Joint Board may also
declare interim dividends as permitted by Dutch law and our
Articles of Association.

We may not make any distribution, whether out of
our profits as an interim dividend, out of our general share
premium reserve or out of any other reserves that are available
for shareholder distributions under Dutch law, if the
distribution would reduce shareholders equity to an amount
less than the sum of the paid and called up part of our issued
share capital, plus certain reserves that are required to be
maintained by Dutch law and our Articles of Association.
Distributions may, at the discretion of our Joint Board, be made
in cash or in shares or other securities, such as a stock
dividend, provided that our shareholders as a group are
authorized to make distributions in shares or other securities,
if and so long as our Supervisory Board has not been delegated
the authority to issue shares and rights to subscribe for
shares. See Issuance of Shares; Preemptive Rights.

Cash dividends and other distributions that have
not been collected within five years and two days after the date
on which they became due and payable will revert to us.

JHIL historically paid dividends to its
shareholders. JHI NVs Joint Board determines whether to
declare a dividend and the amount of any such dividend. The
Joint Board also determines the record dates at which time
registered holders of our shares, including the CHESS Depositary
Nominee issuing CUFS to the ADR depositary, will be entitled to
dividends and sets the payment dates. Dividends are declared
payable to our shareholders in U.S. dollars. The ADR
Depositary (Bank of New York) receives dividends in
U.S. dollars directly from JHI NV on each CUFS dividend
payment date and will distribute any dividend to holders of ADRs
in U.S. dollars pursuant to the terms of the deposit
agreement. Other CUFS holders registered at a dividend record
date are paid their dividend on each CUFS dividend payment date
in the equivalent amount of Australian dollars, as determined by
the prevailing exchange rate shortly after the CUFS dividend
record date.



| |                                         
| | ----------------------------------------
| | Amendment of Articles of
    Association

Our Articles of Association may be amended by our
shareholders by resolution approved by 75% of the votes cast at
a general meeting of shareholders at which at least 5% of our
issued share capital is present or represented.

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| |                   
| | ------------------
| | Liquidation Rights

In the event of our dissolution and liquidation,
and after we have paid all debts and liquidation expenses, all
assets available for distribution shall be distributed to our
holders of shares of common stock pro ratabased on the
nominal amount paid upon the shares of common stock held by such
holders. As a holding company, our sole material assets are the
capital stock of our subsidiaries. Therefore, in the event of a
dissolution or liquidation, we will either distribute the
capital stock of our subsidiaries or sell such stock and
distribute the net proceeds thereof, or liquidate such
subsidiaries and distribute the net proceeds thereof, after
satisfying our liabilities.



| |                                              
| | ---------------------------------------------
| | Limitations on Right to Hold Common
    Stock

Subject to certain exceptions, our Articles of
Association prohibit the holding of shares of our common stock
if, because of an acquisition of a relevant interest (including
in the form of shares of our common stock, CUFS or ADRs) in such
shares: (1) the number of shares of our common stock in
which any person, directly or indirectly, acquires or holds a
relevant interest increases from 20% or below to over 20% or
from a starting point that is above 20% and below 90% of the
issued and outstanding share capital of JHI NV or (2) the
voting rights which any person, directly or indirectly, is
entitled to exercise at a general meeting of shareholders
increase from 20% or below to over 20% or from a starting point
that is above 20% and below 90% of the total number of such
voting rights which may be exercised by any person at a general
meeting of shareholders. The purpose of this prohibition is to
ensure that the principles which underpin the Australian
Corporations Act 2001 takeover regime are complied with in a
change of control, namely that: (1) the acquisition of
control over the Company takes place in an efficient,
competitive and informed market; (2) the holders of the
shares of our common stock or CUFS and our Managing Board, Joint
Board and Supervisory Board know the identity of any person who
proposes to acquire a substantial interest in the Company, have
a reasonable time to consider the proposal, and are given enough
information to enable them to assess the merits of the proposal
and (3) as far as practicable, the holders of the shares of
our common stock or CUFS inter aliaall have a reasonable
and equal opportunity to participate in any benefits accruing to
the holders through any proposal under which a person would
acquire a substantial interest in the Company. The exceptions to
this prohibition set forth in our Articles of Association
generally include:



| |   |                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | acquisitions that result from acceptances under a
    takeover bid, which complies with the Articles of Association,
    including the principles set forth above;                                                                                                                                                                                
|
| |  | acquisitions which result in a persons
    voting power increasing by not more than 3% in a six-month
    period;                                                                                                                                                                                                                                
|
| |  | acquisitions which are consistent with the
    principles set forth above, conform to the other takeover
    principles set out in the Articles of Association (adjusting
    those principles as appropriate to meet the particular
    circumstances of the acquisitions) and have received the prior
    approval of the Supervisory Board; and
|
| |  | acquisitions approved at a general meeting of
    shareholders, subject to certain requirements being satisfied in
    relation to voting and the provision of information.                                                                                                                                                                       

The prohibition does not apply to holdings by the
CUFS depositary, CDN, of our shares as custodian for the CUFS
holders but will apply to CDN where another person holds a
relevant interest thereby constituting a breach of the
provisions. If a person has a relevant interest that constitutes
a breach of the prohibition, JHI NV has several powers available
to it under our Articles of Association. These include powers to
require the disposal of our common stock, disregard the exercise
of votes and suspend dividend rights. These powers will only
extend to that number of shares of common stock which result in
the prohibition being breached.

The Supervisory Board may cause JHI NV to
exercise these powers if JHI NV has first obtained a judgment
from a court of competent jurisdiction that a breach of the
prohibition has occurred and is continuing. Alternatively, these
powers may also be exercised without having recourse to the
courts if certain procedures in relation to obtaining legal
advice are followed. Our right to exercise these powers by
complying with these procedures must be renewed by shareholder
approval every five years or such powers will lapse. If

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renewed, confirmation of this renewal must be
made by lodgement of a declaration by the Joint Board with the
relevant authority in accordance with Dutch law.


Furthermore, if JHI NV becomes subject to the law
of any jurisdiction, which applies so as to regulate the
acquisition of control and the conduct of any takeover of the
Company, JHI NV shall consult promptly with the ASX to determine
whether, in the light of the application of such law:



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) ASX requires an amendment to the
    takeover provisions in our Articles of Association to comply
    with the ASX Listing Rules as then in force; or
|
| | (ii) any waiver of the ASX Listing Rules
    permitting the inclusion of the takeovers provisions has ceased
    to have effect.                         

In either case, the Managing Board shall put to a
general meeting of shareholders a proposal to amend our Articles
of Association so as to make them, to the fullest extent
permitted by law, consistent with the ASX Listing Rules.

Although these provisions of our Articles of
Association may help to ensure that no person may acquire voting
control of us without making an offer to all shareholders, these
provisions may also have the effect of delaying or preventing a
change in control of the Company.



| |                       
| | ----------------------
| | Disclosure of Holdings

Holders of shares of our common stock, including
those shares represented by CUFS or ADRs, may become subject to
notification obligations under the Dutch 1995 Act on the
Supervision of the Securities Trade (Wet toezicht
effectenverkeer1995, the Dutch Securities Act).
Those obligations are summarized below. You are advised to
consult your own legal advisers to determine whether the
obligations apply to you.

Under the Dutch Securities Act, certain persons
must notify the Netherlands Authority for the Financial Markets
(the AFM) or Stichting Autoriteit
Financiele Marktenof any transaction in our shares of
our common stock, CUFS, ADRs or ADSs or related securities.
Notification must be made within 10 days of the end of the
calendar month in which the transaction was made, using a form
that can be obtained from the AFM (P.O. Box 11723, 1001 GS
Amsterdam, The Netherlands, telephone +31 (20) 553 52 00).
The AFM keeps a public register of all notifications received.

Persons who must notify the AFM of transactions
in our shares, ADRs or related securities include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | persons who directly or indirectly hold more than
    25% of JHI NVs outstanding share capital;                                                                                                                                                                                                                                                                                  
|
| |  | managing and supervisory directors of such
    greater than 25% shareholders; and                                                                                                                                                                                                                                                                                                 
|
| |  | the spouses of the persons referred to above,
    relations by blood or affinity to the first degree and other
    persons who share a household with these persons, and relations
    by blood or affinity to the first degree who do not share a
    household with these persons but hold at least 5% of our shares
    or will obtain this percentage through the transaction.

In case of non-observance of the notification
obligations of the Dutch Securities Act, criminal (including
fines and imprisonment) or administrative sanctions (including
fines) may be imposed.

Further pursuant to our Articles of Association,
shareholders are required to notify us of acquisitions of 5% or
more of our outstanding securities and of any further change of
1% or more of our outstanding securities. In addition, pursuant
to our Articles of Association, we have the power to require our
shareholders and CUFS holders to provide to us information about
the identity of persons who have relevant interests in our
securities and the details of that interest. These provisions
are intended to mirror the tracing of beneficial ownership
provisions of the Australian Corporations Act 2001, which would
not have applied statutorily to us as a Dutch company absent a
specific provision in our Articles of Association.

Finally, shareholders are subject to beneficial
ownership reporting disclosure requirements under
U.S. securities laws, including the filing of beneficial
ownership reports on Schedules 13D and 13G with the
U.S. Securities and Exchange Commission (the
SEC). The SECs rules require all persons who

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beneficially own more than 5% of a class of
securities registered with the SEC to file either a
Schedule 13D or 13G. This filing requirement applies to all
holders of our shares of common stock, ADRs or CUFS because our
securities have been registered with the SEC. The number of
shares of common stock underlying ADRs and CUFS is used to
determine whether a person beneficially owns more than 5% of the
class of securities. This beneficial ownership-reporting
requirement applies whether or not the holders are
U.S. residents. The decision of whether to file a
Schedule 13D or a Schedule 13G will depend primarily
on the nature of the beneficial owner and the circumstances
surrounding the persons beneficial ownership. A copy of
the rules and regulations relating to the reporting of
beneficial ownership with the SEC, as well as Schedules 13D and
13G, are available on the SECs website at
www.sec.gov.


Material Contracts

On April 25, 2002, James Hardie Inc. and
James Hardie Gypsum, Inc. entered into the Continued Mining and
Reclamation agreement whereby James Hardie Inc. granted to James
Hardie Gypsum, Inc. continuing mining rights with respect to our
gypsum mine located in Las Vegas, Nevada for a maximum of
18 months, with a further period of six months to remove
stockpiled ore and equipment. We had previously contracted to
sell the Las Vegas mine and associated properties to a third
party in June 2001, and that sale was completed in March 2003.

Notes.In November
1998, we issued $225.0 million of noncollateralized notes
as part of a seven-tranche private placement facility. Principal
repayments are due in seven installments on specified dates that
commence on November 5, 2004 and end on November 5,
2013. The tranches bear fixed interest rates of 6.86%, 6.92%,
6.99%, 7.05%, 7.12%, 7.24% and 7.42%, respectively. Interest is
payable in May and November each year. The notes are issued by
James Hardie International Finance B.V. (JHIF BV)
and JHI NV guarantees the principal and interest of the notes.
Effective December 23, 2002, the note purchase agreement
was amended to, among other matters, modify certain covenants in
connection with the sale of our Gypsum business in April 2002,
and, in connection with this amendment, we prepaid
$60.0 million in principal amount of the notes. As a result
of the early retirement, we incurred a $9.9 million
make-whole payment charge which was charged to interest expense
during the year ended March 31, 2003.

Revolving
Loan Facility.Under the
Revolving Loan Agreements among JHIF BV as borrower, JHI NV as
guarantor, and James Hardie N.V. and James Hardie
U.S. Funding Inc., as retiring guarantors, and certain
lenders thereto, we have an Australian dollar-denominated
noncollateralized revolving loan facility providing for
borrowings up to A$200.0 million that can be repaid and
redrawn until maturity in November 2006. Interest is
recalculated at the commencement of each drawdown period based
on the US$ LIBOR or the average Australian bank bill rate plus
the margins of individual lenders. During fiscal year 2004, we
paid $0.4 million in commitment fees. As of March 31,
2004, there was $152.0 million (A$200.0 million)
available under this revolving loan facility. This loan facility
was novated to the current parties on December 16, 2002.

Stand-by
Loan Facility.Under the 364 Day
Standby Loan Agreements among JHIF BV, as borrower, JHI NV as
guarantor, and James Hardie Australia Investco Pty Limited,
James Hardie N.V. and James Hardie U.S. Funding Inc., as
retiring guarantors, and certain lenders thereto, we have
short-term noncollateralized stand-by loan facilities that allow
us to borrow up to $117.5 million. As of March 31,
2004, the loan facilities had a maturity date of
October 30, 2004 and we had not drawn down any of the
available facilities. During April 2004, we renegotiated the
facilities to extend the maturity date to April 30, 2005.
Interest is recalculated at the commencement of each draw-down
period based on either the US$ LIBOR or the average A$ bank bill
bid rate plus the margins of the individual lenders and is
payable at the end of each draw-down period. During fiscal year
2004, we paid $0.2 million in commitment fees. JHI NV
guarantees the principal and interest under the standby loans.
This loan facility was novated to the current parties on
December 16, 2002.

Exchange Controls

There are no legislative or other legal
provisions currently in force in The Netherlands or arising
under our Articles of Association restricting remittances to our
security holders not resident in The Netherlands.

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Cash dividends payable in U.S. dollars on
our common stock may be officially transferred from The
Netherlands and converted into any other convertible currency.


There are no limitations, either by Dutch law or
in our Articles of Association, on the right of non-residents of
The Netherlands to hold or vote our common stock.

Taxation

The following summarizes the material Dutch and
U.S. tax consequences of an investment in shares of our
common stock. This summary does not address every aspect of
taxation relevant to a particular investor subject to special
treatment under any applicable law, and is not intended to apply
in all respects to all categories of investors. In addition,
except for the matters discussed under Netherlands
Taxation, this summary does not consider the effect of
other foreign tax laws or any state, local or other tax laws
that may apply to an investment in shares of our common stock.
This summary assumes that we will conduct our business in the
manner described in this annual report. Changes in our
organizational structure or the manner in which we conduct our
business may invalidate all or parts of this summary. The laws
on which this summary is based could change, perhaps with
retroactive effect, and any law changes could invalidate all or
parts of this summary. We will not update this summary for any
law changes after the date of this annual report.

This discussion does not bind either the
U.S. or Dutch tax authorities, or the courts of those
jurisdictions. Except as noted, we have not sought a ruling nor
will we seek a ruling of the U.S. or Dutch tax agencies
about matters in this summary. We cannot assure you that such
tax agencies will concur with the views in this summary
concerning the tax consequences of the purchase, ownership or
disposition of our common stock, or that any reviewing judicial
body in the United States or The Netherlands would likewise
concur.

PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX
ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THEIR
ACQUIRING, OWNING AND DISPOSING OF OUR COMMON SHARES, INCLUDING
THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.



| |                       
| | ----------------------
| | United States Taxation

The following is a summary of the material
U.S. federal income tax consequences generally applicable
to U.S. Shareholders (as defined below) who
invest in shares of our common stock and hold the shares as
capital assets. For purposes of this summary,
U.S. Shareholders means: (1) citizens or
residents of the United States (as defined for U.S. federal
income tax purposes); (2) corporations created or organized
in or under the laws of the United States or any of its
political subdivisions; (3) estates whose income is subject
to U.S. federal income taxation regardless of its source
and (4) trusts if (i) a court in the United States can
exercise primary supervision over the administration of the
trust and (ii) one or more U.S. persons can control
all of the substantial decisions of the trust.

This summary does not comprehensively describe
all possible tax issues that could influence a current or
prospective U.S. Shareholders decision to buy or sell
shares of our common stock. In particular, this summary does not
discuss: (1) the tax treatment of special classes of
U.S. Shareholders, such as financial institutions, life
insurance companies, tax exempt organizations, tax-qualified
employer plans and other tax-qualified or qualified accounts,
investors liable for the alternative minimum tax, dealers in
securities, shareholders who hold shares of our common stock as
part of a hedge, straddle, or other risk reduction arrangement,
or shareholders whose functional currency is not the
U.S. dollar; (2) the tax treatment of
U.S. Shareholders who own (directly or indirectly by
attribution through certain related parties) 10% or more of our
voting stock and (3) the application of other
U.S. federal taxes, such as the U.S. federal estate
tax. The summary is based on the Internal Revenue Code of 1986,
as amended (the Code), applicable Treasury
regulations, judicial decisions and administrative rulings and
practice, all as of the date of this annual report.

Treatment of ADRs.For U.S. federal income tax purposes, a holder of an ADR is
considered the owner of the shares of stock represented by the
ADR. Accordingly, except as otherwise noted, references in this

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summary to ownership of shares of our common
stock includes ownership of the shares of our common stock
underlying the corresponding ADRs.


Taxation of
Distributions.The tax treatment of a
distribution on shares of our common stock held by a
U.S. Shareholder depends on whether such distribution is
from our current or accumulated earnings and profits (as
determined under U.S. federal income tax principles). To
the extent a distribution is from our current or accumulated
earnings and profits, a U.S. Shareholder will include such
amount in gross income as a dividend. To the extent a
distribution exceeds our current and accumulated earnings and
profits, a U.S. Shareholder will treat such amount first as
a non-taxable return of capital to the extent of the
U.S. Shareholders tax basis in such shares, and any
excess amount will be treated and taxed as a capital gain. See
the discussion of Capital Gains Rates below.
Notwithstanding the foregoing described treatment, we do not
intend to maintain calculations of our current and accumulated
earnings and profits. Dividends received on shares of our common
stock will not qualify for the inter-corporate dividends
received deduction.

Distributions to U.S. Shareholders that are
treated as dividends may be subject to a reduced rate of tax
under recently enacted U.S. tax laws. For tax years
beginning after December 31, 2002 and before
January 1, 2009, qualified dividend income is
subject to a maximum tax rate of 15%. Qualified dividend
income includes dividends received from a qualified
foreign corporation. A qualified foreign
corporation includes (1) a foreign corporation that
is eligible for the benefits of a comprehensive income tax
treaty with the U.S. that contains an exchange of
information program and (2) a foreign corporation that pays
dividends with respect to shares of its stock that are readily
tradable on an established securities market in the U.S. We
believe that we are, and will continue to be, a qualified
foreign corporation and that dividends we pay with respect
to our shares will qualify as qualified dividend
income. To be eligible for the 15% tax rate, a
U.S. Shareholder must hold our shares un-hedged for a
minimum holding period (generally, 61 days during the
121-day period beginning on the date that is 60 days before
the ex-dividend date of the distribution). Although we believe
we presently are, and will continue to be, a qualified
foreign corporation, we cannot guarantee that we will so
qualify. For example, we will not constitute a qualified
foreign corporation if we are classified as a 1) a
passive foreign investment company (discussed below)
in either the taxable year of the distribution or the preceding
tax year or 2) a foreign investment company or
a foreign personal holding company (each discussed
below) in either the taxable year of the distribution or the
preceding tax year, but only for our tax years beginning before
January 1, 2005.

Distributions to U.S. Shareholders that are
treated as dividends are generally considered income from
sources outside the United States and foreign source
passive income for foreign tax credit purposes.
However, if U.S. persons own, directly or indirectly, 50%
or more of our shares of common stock, then a portion of the
dividends (based on the proportion of our income that is from
U.S. sources) may be treated as sourced within the
U.S. This 50% ownership rule could potentially limit a
U.S shareholders ability to use foreign tax credits
against the shareholders U.S. tax liability. In
addition, special rules will apply to determine a
U.S. Shareholders foreign tax credit limitation if a
dividend distributed with respect to our shares constitutes
qualified dividend income (as described above). See
the discussion of Credit of Foreign Taxes Withheld
below.

Any amounts of foreign currency we distribute on
shares of our common stock generally will equal the fair market
value in U.S. dollars of such foreign currency on the date
of receipt. A U.S. Shareholder will have a tax basis in the
foreign currency equal to its U.S. dollar value on the date
of receipt, and will recognize gain or loss when it sells or
exchanges the foreign currency. Such gain or loss is taxable as
ordinary income or loss from U.S. sources.
U.S. Shareholders who are individuals will not recognize
gain upon selling or exchanging foreign currency if the gain
does not exceed $200 and the sale or exchange constitutes a
personal transaction under the Internal Revenue
Code. The amount of any property other than money that we
distribute with respect to shares of our common stock will equal
its fair market value on the date of distribution.

Credit of Foreign Taxes
Withheld.Under certain conditions,
including a requirement to hold shares of our common stock
un-hedged for a certain period, and subject to limitation, a
U.S. Shareholder may claim a credit against the
U.S. shareholders federal income tax liability for
the foreign tax owed and withheld or paid with respect to
taxable dividends on its shares. Alternatively, a
U.S. Shareholder may deduct the amount of

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withheld foreign taxes, but only for a year for
which the U.S. Shareholder elects to deduct all foreign
income taxes. Complex rules determine how and when the foreign
tax credit applies, and U.S. Shareholders should consult
their tax advisors to determine whether and to what extent they
may claim foreign tax credits.


Under certain conditions, we may retain a portion
of Netherlands taxes we withhold from dividends paid to our
shareholders, rather than pay that portion of the withheld taxes
to The Netherlands Tax Administration. Uncertainty exists
whether a U.S. Shareholder can properly claim as a foreign
tax credit any Netherlands withholding taxes we retain. As a
result, U.S. Shareholders should consult their tax advisors
regarding their ability to do so. If unable to claim a foreign
tax credit for those tax amounts, a U.S. shareholder still
may deduct them for U.S. federal income tax purposes, but
only for a year for which the U.S. Shareholder elects to
deduct all foreign income taxes. The conditions under which we
could retain Netherlands withholding taxes are unlikely to
occur, but upon request, we will inform U.S. Shareholders
whether we retained any Dutch tax withheld from distributions on
shares of our common stock.

Sale or Other Disposition of
Shares.A U.S. Shareholder will
recognize capital gain or loss on the sale or other taxable
disposition of shares of our common stock, equal to the
difference between the U.S. Shareholders adjusted tax
basis in the shares sold or disposed of and the amount realized
on the sale or disposition. Individual U.S. Shareholders
may benefit from lower marginal tax rates on capital gains
recognized on shares sold, depending on the
U.S. Shareholders holding period of the shares. See
the discussion of Capital Gains Rates below. Capital
losses not offset by capital gains are subject to limitations on
deductibility. The gain or loss from the sale or other
disposition of shares of our common stock generally will be
treated as income from sources within the United States for
foreign tax credit purposes, unless the U.S. Shareholder is
a U.S. citizen residing outside the United States and
certain other conditions are met.

Capital Gains Rates.For individual U.S. Shareholders, the tax rates applicable
to capital gain and ordinary income may vary substantially. For
calendar year 2003, the highest marginal income tax rate that
could apply to the ordinary income of an individual
U.S. Shareholder (disregarding the effect of limitations on
deductions) is 35%. In contrast, for taxable years ending after
May 6, 2003, a maximum rate of 15% applies to any net
capital gain of an individual U.S. Shareholder recognized
on or after May 6, 2003 if such gain is attributable to the
sale or exchange of capital assets held more than one year. Gain
attributable to the sale or exchange of capital assets held one
year or less is short-term capital gain, taxable at the same
rates as ordinary income. In addition, a maximum rate of 15%
applies to qualified dividend income (as described
above).

Controlled Foreign Corporation
Status.If more than 50% of the voting
power of all classes of our stock or the total value of our
stock is owned, directly or indirectly, by citizens or residents
of the United States, United States domestic partnerships and
corporations or estates or trusts other than foreign estates or
trusts, each of whom owns 10% or more of the total combined
voting power of all classes of our stock entitled to vote or the
total value of our stock (10-Percent Shareholder),
we could be treated as a controlled foreign
corporation (CFC) under Subpart F of the
Code. This classification would, among other consequences,
require 10-Percent Shareholders to include in their gross
income, their pro rata share of our Subpart F
income (as specifically defined by the Code) and our
earnings invested in U.S. property (as specifically defined
by the Code).

In addition, gain from the sale or exchange of
our common shares by a U.S. person who is or was a United
States shareholder (as defined in the Code) at any time during
the five-year period ending with the sale or exchange is treated
as dividend income to the extent of earnings and profits of the
company attributable to the stock sold or exchanged. Under
certain circumstances, a corporate shareholder that directly
owns 10% or more of our voting shares may be entitled to an
indirect foreign tax credit for amounts characterized as
dividends under the Code.

If we were classified as both a Passive Foreign
Investment Company, as described below, and a CFC, generally we
would not be treated as a Passive Foreign Investment Company
(PFIC) with respect to 10-Percent Shareholders. We
believe that we are not, nor will we become, a CFC.

Passive Foreign Investment Company
Status.Special U.S. federal
income tax rules apply to U.S. Shareholders owning capital
stock of a PFIC. A foreign corporation will be a PFIC for any
taxable year

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in which 75% or more of its gross income is
passive income or in which 50% or more of the average value of
its assets are considered passive assets (generally
assets that generate passive income or assets held for the
production of passive income). For these purposes, passive
income generally excludes interest, dividends or royalties from
related parties.


If we were a PFIC, each U.S. Shareholder
would likely face increased tax liabilities (possibly including
an interest charge) upon the sale or other disposition of shares
of our common stock or upon receipt of excess
distributions, unless the U.S. Shareholder elects
(1) to be taxed currently on its pro rataportion of
our income, regardless of whether such income was distributed in
the form of dividends or otherwise, or (2) to mark its
shares to market by accounting for any difference between such
shares fair market value and adjusted basis at the end of
the taxable year by either an inclusion in income or a deduction
from income. Because of the manner in which we operate our
business, we are not, nor do we expect to become, a PFIC.

Foreign Personal Holding Company
Status.For our tax years beginning
before January 1, 2005, special U.S. federal income
tax rules apply to U.S. Shareholders owning shares of a
foreign personal holding company (a
FPHC). A foreign corporation will be a FPHC if
(1) at any time during its taxable year, five or fewer
individuals who are U.S. citizens or residents own
(directly or indirectly by attribution through certain related
parties) more than 50% of the corporations capital stock
(by either voting power or value) (the Shareholder
Test) and (2) the corporation derives at least 60% of
its gross income (reduced to at least 50% after the initial year
of qualification under certain circumstances), as adjusted, for
the taxable year from certain passive sources (the Income
Test). We and certain of our subsidiaries meet and will
likely continue to meet the Income Test, because most of our
income derives from interest or dividends. However, we will fail
the Shareholder Test, because U.S. citizens or residents do
not own more than 50% of the shares of our common stock.
Therefore, neither we nor any of our subsidiaries are a FPHC for
U.S. federal income tax purposes.

If we or any of our subsidiaries were a FPHC,
U.S. Shareholders (including certain indirect holders)
would be required to include in gross income, as a dividend,
their pro ratashare of the undistributed taxable income
(as specifically adjusted) of the FPHC, if they were holders on
the last day of our taxable year (or, if earlier, the last day
on which the FPHC satisfies the Shareholder Test), but such
pro ratashare would increase their basis in their shares
by a corresponding amount. In addition, if we or any of our
subsidiaries were to become a FPHC, U.S. persons who
acquire shares of our common stock from decedents would not
receive a stepped-up basis in such shares. Instead,
such holders would have a tax basis in such shares equal to the
lesser of the decedents basis or fair market value. These
special rules regarding foreign personal holding companies were
recently repealed by the American Job Creation Act of 2004 (the
Act) and these rules will not apply to our tax years
beginning after December 31, 2004.

Foreign Investment Company
Status.As described above, dividends
we pay on our stock after December 31, 2002 are subject to
a tax rate of no more than 15%, provided we are a
qualified foreign corporation and the required
un-hedged holding period is satisfied. We will not qualify for
that status if, among other reasons, we are a foreign
investment company in either the taxable year of the
distribution or the preceding tax year. A foreign investment
company is a foreign corporation that is (i) registered
under the Investment Company Act of 1940 as a management company
or as a unit investment trust or (ii) engaged primarily in
the business of investing, reinvesting, or trading in
securities, commodities, or derivative positions in securities
or commodities, at a time when U.S. persons directly,
indirectly, or constructively own more than 50% of either its
total voting power or total stock value. Because of the manner
in which we operate our business, we are not, nor do we expect
to become, a foreign investment company. These special rules
regarding foreign investment companies were recently repealed by
the Act, and these rules will not apply to our tax years
beginning after December 31, 2004.

U.S. Federal Income Tax Provisions
Applicable to Non-United States
Holders.Holders of shares of our
common stock who are not U.S. Shareholders
(Non-U.S. Shareholders) generally will not be
subject to U.S. federal income taxes, including
U.S. withholding taxes, on any gain realized on a sale,
exchange or other disposition of the shares unless (1) such
gain is effectively connected with the conduct by the
Non-U.S. Shareholder of a trade or business in the United
States or (2) in the case of gain realized by a

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Non-U.S. Shareholder who is an individual,
the Non-U.S. Shareholder is present in the United States
for 183 days or more in the taxable year in which the sale
or other disposition occurs and certain other conditions are
met. A Non-U.S. Shareholder generally will not be subject
to U.S. federal income or withholding tax on dividends
received with respect to shares of our common stock, unless such
income is effectively connected with the conduct by the
Non-U.S. Shareholder of a trade or business in the United
States.


U.S. Information Reporting and Backup
Withholding.Dividend payments on
shares of our common stock and proceeds from the sale, exchange,
or redemption of shares of our common stock may be subject to
information reporting to the Internal Revenue Service and
possible U.S. backup withholding at a current rate of 30%.
Backup withholding will not apply to a shareholder who furnishes
a correct taxpayer identification number or certificate of
foreign status and makes any other required certification or who
is otherwise exempt from backup withholding. U.S. persons
who are required to establish their exempt status generally must
provide such certification on a properly completed Internal
Revenue Service Form W-9 (Request for Taxpayer
Identification Number and Certification).
Non-U.S. shareholders generally will not be subject to
U.S. information reporting or backup withholding. However,
such shareholders may be required to provide certification of
non-U.S. status in connection with payments received in the
United States or through certain U.S.-related financial
intermediaries.

Backup withholding is not an additional tax.
Amounts withheld as backup withholding may be credited against a
shareholders U.S. federal income tax liability, and a
shareholder may obtain a refund of any excess amounts withheld
under the backup withholding rules by filing the appropriate
claim for refund with the Internal Revenue Service and
furnishing any required information.



| |                     
| | --------------------
| | Netherlands Taxation

The following is a summary of the material Dutch
tax consequences generally applicable to an investment in shares
of our common stock by a beneficial owner who is neither a
citizen, resident nor deemed resident of The Netherlands. This
summary does not comprehensively describe all possible tax
issues that could influence a prospective shareholders
decision to acquire shares of our common stock. For example,
this summary omits from discussion Netherlands gift,
estate and inheritance taxes. The summary is based on the Dutch
tax legislation, published case law and other applicable
regulations as at the date of this annual report, any of which
may change possibly with retroactive effect.

Treatment of ADRs.In general, for Netherlands tax purposes, an owner of depositary
receipts is considered the owner of the shares of stock
represented by depositary receipts. Accordingly, except as
otherwise noted, references in this section of the annual report
to ownership of shares of our common stock includes ownership of
the shares underlying the corresponding ADRs.

Dutch Dividend Withholding
Tax.The Netherlands imposes a 25%
withholding tax on amounts we distribute as dividends. The term
dividends for this purpose includes, but is not
limited to:

(1) direct or indirect distributions in cash
or in kind, deemed or constructive distributions, and repayments
of additional paid-in capital not recognized as such for
Netherlands dividend withholding tax purposes;

(2) liquidation proceeds, proceeds of
redemption of shares of common stock or, generally, except if a
certain specific exemption applies, consideration paid by us for
the repurchase of shares of common stock in excess of the
average paid-in capital recognized for Netherlands dividend
withholding tax purposes;

(3) the par value of shares of common stock
issued to a holder of shares of common stock or an increase of
the par value of shares of common stock, as the case may be, to
the extent that no contribution to capital, recognized for
Netherlands dividend withholding tax purposes, was made or will
be made; and

(4) the partial repayment of paid-in
capital, recognized for Netherlands dividend withholding tax
purposes, if and to the extent that there are net profits
(zuivere winst) for dividend withholding tax
purposes, unless the general meeting of our shareholders has
previously resolved to make such repayment and provided that the
par value of the shares of common stock concerned has been
reduced by a corresponding

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amount by changing our Articles of Association.
As a result of contributions in kind (i.e., in shares) to
our paid-in capital made prior to the listing of our common
shares, a portion of such paid-in capital may not be recognized
for Dutch dividend withholding tax purposes. Repayment of
paid-in capital in the manner described above may consequently
be subject to dividend withholding tax to the extent that
dividends have been received from non-Netherlands subsidiaries
out of profits generated after the above-mentioned contributions
in kind.


If a double taxation convention is in effect
between The Netherlands and the country of residence of a
non-resident shareholder and depending on the terms of that
double taxation convention, such non-resident shareholder may be
eligible for a full or partial exemption from, or refund of,
Dutch dividend withholding tax.

Under the U.S.-NL Treaty, dividends that we pay
to citizens and residents of the United States who are the
beneficial owners of shares of our common stock (other than an
exempt organization or exempt pension organization) are
generally eligible for a reduction of the 25% Netherlands
withholding tax to 15%, or in the case of certain
U.S. corporate shareholders owning at least 10% of our
voting power, 5%, unless the shares of common stock held by such
residents form part of the business property of a business
carried on through a permanent establishment in The Netherlands.
The same exception applies if the beneficial owner of the
shares, being a citizen or resident of the United States,
performs independent personal services from a fixed base
situated in The Netherlands and the holding of the shares of
common stock in respect of which the dividends are paid pertains
to such fixed base in The Netherlands. The U.S.-NL Treaty also
exempts from tax dividends we pay to exempt pension
organizations and exempt organizations, as defined under the
treaty. A shareholder of our common stock, other than an
individual, will be ineligible for the benefits of the U.S.-NL
Treaty unless the shareholder satisfies certain tests under the
limitation on benefits provisions of Article 26 of the
U.S.-NL Treaty. To prevent so-called dividend stripping,
Netherlands law generally denies the treaty benefit of a reduced
dividend withholding tax rate for any dividend paid to a
recipient who is not the beneficial owner of the
dividend.

To claim the reduced withholding tax rate on
portfolio dividends under the U.S.-NL Treaty, a shareholder of
our common stock (other than an exempt organization or exempt
pension organization) must give us in duplicate a signed
Form IB 92 USA before payment of the dividend. The
form has a qualifying bankers affidavit, requiring a bank
member of the New York Stock Exchange or the American Stock
Exchange, or a member bank of the Federal Reserve System, to
attest that the bank has custody of the shares of common stock,
or that the bank has been shown that the common shares are
property of the applicant. If the Form IB 92 USA is
submitted before the dividend payment date and all relevant
conditions are fulfilled, we will withhold tax from the dividend
at the reduced treaty rate of 15%. If a shareholder of our
common stock is unable to claim withholding tax relief in this
manner, the shareholder can get a refund of excess tax withheld
by filing a Form IB 92 USA, describing the
circumstances that prevented the holders claiming
withholding tax relief. The holder must file the form within
three years after the end of calendar year in which the tax had
been levied.

A qualified exempt pension organization may
obtain a full exemption from the dividend withholding tax if,
before the payment of the dividend, the organization gives us in
duplicate a signed Form IB 96 USA, along with the
requisite bankers affidavit as described above, and
includes IRS Form 6166 for the relevant year or a valid
qualification certification issued by the competent Dutch tax
office and complies with certain other requirements. Other
qualifying exempt organizations are ineligible for relief from
withholding at source but may claim a refund of the tax withheld
by filing a Form IB 95 USA and complying with certain
other formalities.

Holders of shares of our common stock through a
depository will initially receive dividends subject to a
withholding tax rate of 25%. Upon timely receipt of required
documents concerning a holders eligibility for the reduced
rate under the U.S.-NL Treaty, dependent on the status of
the holder, the dividend-disbursing agent (via any nominee) will
pay an amount equal to 10% or 25% of the dividend to the holder.

Taxes on Income and Capital
Gains.A shareholder of shares of our
common stock will not be subject to any Netherlands taxes on
income or capital gains in respect of dividends distributed by
the Company or in

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respect of capital gains realized on the
disposition of shares of our common stock (other than the
dividend withholding tax described above), provided that:




| |                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) such shareholder is neither resident nor
    deemed to be resident in The Netherlands, nor has elected to be
    subject to the rules of the Dutch Income Tax Act 2001 that apply
    to residents of The Netherlands;                                                                                                                                        
|
| | (2) such shareholder does not have a
    business or an interest in a business that is, in whole or in
    part, carried on through a permanent establishment or a
    permanent representative in The Netherlands and to which
    business or part of a business, as the case may be, the shares
    of common stock are attributable;                          
|
| | (3) such shareholder does not perform
    independent personal services in The Netherlands giving rise to
    a fixed base in The Netherlands to which the shares of common
    stock are attributable; and                                                                                                                                                       
|
| | (4) the shares of common stock owned by such
    shareholder do not form part of a substantial interest or a
    deemed substantial interest, as defined below, in the share
    capital of the Company or, if such shares of common stock do
    form part of such an interest, they form part of the assets of a
    business other than a Netherlands business.

Generally, a shareholder of our common stock will
have a substantial interest in our shares only if the
shareholder, the spouse of the shareholder, certain other
relatives (including foster children), or certain persons in the
household of the shareholder, alone or together, whether
directly or indirectly, own or possess certain rights (e.g., the
right of usufruct) in, shares of our stock representing 5% or
more of the total issued and outstanding capital (or the issued
and outstanding capital of any class of shares), or rights to
acquire the shares, whether or not already issued, that
represent at any time 5% or more of the total issued and
outstanding capital (or the issued and outstanding capital of
any class of shares) or the ownership of certain profit
participating certificates that relate to 5% or more of the
annual profit and/or to 5% or more of the liquidation proceeds.
Shareholders of our common stock who do not hold a substantial
interest themselves will also be subject to the
substantial interest regime if their spouse and/or
certain other relatives hold a substantial interest. A deemed
substantial interest is present if a substantial interest or
part of a substantial interest has been disposed of, or is
deemed to have been disposed of, without recognition of a gain.

If a shareholder has a substantial interest in
the shares of our common stock and is resident of a country with
which The Netherlands has concluded a convention to avoid double
taxation, such shareholder may, depending on the terms of such
double taxation convention, be eligible for an exemption from
Netherlands income tax on capital gains realized upon the
disposition or deemed disposition of shares of our common stock,
or to a full or partial exemption from Netherlands income tax on
dividends we pay.

Under the U.S.-NL Treaty, capital gains realized
by a shareholder that has a substantial interest in the shares
of our common stock and is a resident of the United States (as
defined in the U.S.-NL Treaty) upon the disposition of shares of
our common stock, are, with certain exceptions, generally exempt
from Netherlands tax.

As indicated above, a shareholder of shares of
our common stock, other than an individual, will be ineligible
for the benefits of the U.S.-NL Treaty if such shareholder does
not satisfy the limitation on benefits provisions under
Article 26 of the U.S.-NL Treaty.

Distribution Surtax.As a result of a major tax reform effective as of
January 1, 2001, we became subject to a 20% corporate
income tax on excessive dividends we distribute from
January 1, 2001 through December 31, 2005 (the
Surtax).

Dividends (to be understood in the broadest sense
including distributions in cash, liquidation proceeds and
proceeds from a share repurchase) are considered to be excessive
if, and to the extent that, in a certain calendar year the total
amount we distribute as dividends exceeds the highest of the
following amounts:



| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) 4% of our market capitalization at the
    beginning of the relevant calendar year;                                                                                                       
|
| | (2) twice the amount of the average annual
    dividends (exclusive of extraordinary distributions) by
    reference to the three calendar years immediately preceding
    January 1, 2001; or

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| |                                                                                 
| | --------------------------------------------------------------------------------
| | (3) our adjusted consolidated commercial
    result for the preceding book year.

The Surtax is not levied to the extent that the
aggregate profit distributions from January 1, 2001 through
December 31, 2005, exceed the balance of the assets,
liabilities and provisions, calculated at fair value, reduced by
the paid-in capital at the end of a taxpayers fiscal year
that ended prior to January 1, 2001. The Surtax due is
reduced pro ratato the extent that shares of our common
stock were held, at the time of the distribution of the
excessive proceeds, during an uninterrupted period
of three years, by individuals or entities (other than
investment institutions
(beleggingsinstellingen) as defined in the
Dutch Corporate Income Tax Act 1969) holding at least 5% of our
nominal paid-in capital, provided such individuals or legal
entities are resident in The Netherlands, The Netherlands
Antilles or Aruba, a Member State of the European Union or a
country with which The Netherlands has concluded a convention
for the avoidance of double taxation. Because any Surtax would
be payable by us, this reduction will not inure to our
shareholders, but to us, and therefore, indirectly to our
shareholders.

We believe the Surtax does not apply to
intercompany dividends and to the dividends in the
reorganization that comprised our corporate restructuring in
October 2001. Furthermore, we believe that the Surtax does not
apply to dividends from a Dutch listed company all of whose
shares are issued after January 1, 2001.

Other Taxes and
Duties.No other Netherlands
registration tax, transfer tax, stamp duty or any similar
documentary tax or duty will be payable by our investors in
respect of or in connection with the subscription, issue,
placement, allotment or transfer of shares of our common stock.

Documents Available for Review

We are subject to the reporting requirements of
the Exchange Act applicable to foreign private
issuers and in accordance therewith file reports,
including annual reports, and other information with the SEC.
Such reports and other information have been filed
electronically with the SEC beginning November 4, 2002. The
SEC maintains a site on the Internet, www.sec.gov, which
contains reports and other information regarding issuers that
file electronically with the SEC. In addition, such reports may
be obtained, upon written request, from our Company Secretary at
4th Level Atrium, unit 04-07,
Strawinskylaan 3077, 1077 ZX Amsterdam, The
Netherlands or our Assistant Company Secretaries located at
26300 La Alameda, Suite 100, Mission Viejo,
California 92691 and Level 3, 22 Pitt Street, Sydney,
NSW 2000. Such reports and other information filed with the
SEC prior to November 2002 may be inspected and copied at
prescribed rates at the public reference facilities maintained
by the SEC at Room 1200 450 Fifth Street, N.W.,
Washington, D.C. 20549, inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005 or obtained by written request to our Corporate
Secretary. Although, as a foreign private issuer, we are exempt
from the rules under the Exchange Act prescribing the furnishing
and content of proxy statements and annual reports to
shareholders and the short-swing profit recovery provisions set
forth in Section 16 of the Exchange Act, we:



| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | furnish our shareholders with annual reports
    containing consolidated financial statements examined by an
    independent accounting firm; and                                     
|
| |  | furnish quarterly reports for the first three
    quarters of each fiscal year containing unaudited consolidated
    financial information in filings with the SEC under
    Form 6-K.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 11. | Quantitative and Qualitative Disclosures
    About Market Risk

We have operations in foreign countries and, as a
result, are exposed to foreign currency exchange rate risk
inherent in purchases, sales, assets and liabilities denominated
in currencies other than the U.S. dollar. We also are
exposed to interest rate risk associated with our long-term debt
and to changes in prices of commodities we use in production.

Our policy is to enter into derivative
instruments solely to mitigate risks in our business and not for
trading or speculative purposes.

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Foreign Currency Exchange Rate Risk

We have significant operations outside of the
United States and, as a result, are exposed to changes in
exchange rates which affect our financial position, results of
operations and cash flow.

For our fiscal year ended March 31, 2004,
the following currencies comprised the following percentages of
our net sales, cost of goods sold, expenses and liabilities:

|                                   |  |     |       |    |  |     |       |          |  |  |      |  |  |  |      | 
|---------------------------------- |  | --- | ----- | -- |  | --- | ----- | -------- |  |  | ---- |  |  |  | ---- | 
|                                   |  | US$ |       | A$ |  | NZ$ |       | Other(1)
|                                   |  |     |       |    |  |     |       |         
|Net sales                          |  |     | 76.3% |    |  |     | 15.8% |          |  |  | 4.1% |  |  |  | 3.8% | 
|Cost of goods sold                 |  |     | 77.3% |    |  |     | 15.0% |          |  |  | 3.6% |  |  |  | 4.1% | 
|Expenses                           |  |     | 68.6% |    |  |     | 18.9% |          |  |  | 6.3% |  |  |  | 6.2% | 
|Liabilities (excluding borrowings) |  |     | 83.2% |    |  |     | 9.4%  |          |  |  | 4.2% |  |  |  | 3.2% | 

For our fiscal year ended March 31, 2003,
the following currencies comprised the following percentages of
our net sales, cost of goods sold, expenses and liabilities:

|                                   |  |     |       |    |  |     |       |          |  |  |      |  |  |  |      | 
|---------------------------------- |  | --- | ----- | -- |  | --- | ----- | -------- |  |  | ---- |  |  |  | ---- | 
|                                   |  | US$ |       | A$ |  | NZ$ |       | Other(1)
|                                   |  |     |       |    |  |     |       |         
|Net sales                          |  |     | 77.2% |    |  |     | 15.9% |          |  |  | 4.0% |  |  |  | 2.9% | 
|Cost of goods sold                 |  |     | 79.1% |    |  |     | 14.2% |          |  |  | 3.4% |  |  |  | 3.3% | 
|Expenses                           |  |     | 67.1% |    |  |     | 23.6% |          |  |  | 4.9% |  |  |  | 4.4% | 
|Liabilities (excluding borrowings) |  |     | 83.2% |    |  |     | 9.4%  |          |  |  | 4.2% |  |  |  | 3.2% | 



---



|    |                                                            
|--- | -----------------------------------------------------------
|(1) | Comprised of Philippine Pesos, Euros and Chilean
    Pesos.

We purchase raw materials and fixed assets and
sell some finished product for amounts denominated in currencies
other than the functional currency of the business in which the
related transaction is generated. In order to protect against
foreign exchange rate movements, we may enter into forward
exchange contracts timed to mature when settlement of the
underlying transaction is due to occur. At March 31, 2004,
there were no such material contracts outstanding.

Interest Rate Risk

We have market risk from changes in interest
rates, primarily related to our borrowings. At March 31,
2004, 94% of our borrowings were fixed-rate and 6%
variable-rate, as compared to 95% of our borrowings at a fixed
rate and 5% at a variable rate at March 31, 2003. The large
percentage of fixed-rate debt reduces the earnings volatility
that would result from changes in interest rates. From time to
time, we may enter into interest rate swap contracts in an
effort to mitigate interest rate risk. At March 31, 2004,
no interest rate swap contracts were outstanding.

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The table below presents our long-term borrowings
at March 31, 2004, the expected maturity date of future
principal repayments and related weighted average interest
rates. For obligations with variable interest rates, we have
used current interest rates and have not attempted to project
future interest rates. The fair value of our outstanding debt is
what we likely would have to pay over the term of the loan if we
were to enter into debt on substantially the same terms today.
At March 31, 2004, all of our outstanding fixed-rate and
variable-rate borrowings were denominated in U.S. dollars.

Future Principal Repayments by Expected
Maturity Date

(In millions of U.S. dollars, except
percentages)


|                               |  |                       |      |      |  |      |      |      |  |      |      |            |  |       |      |       |  |   |      |   |  |   |      |   |  |   |       |   |  |   |       | 
|------------------------------ |  | --------------------- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | ---------- |  | ----- | ---- | ----- |  | - | ---- | - |  | - | ---- | - |  | - | ----- | - |  | - | ----- | 
|                               |  |                       |      |      |  |      |      |     
|                               |  | Year Ending March 31, |      |      |  |      |      |     
|                               |  |                       |      |      |  |      |      | Fair
|                               |  | 2005                  |      | 2006 |  | 2007 |      | 2008 |  | 2009 |      | Thereafter |  | Total |      | Value
|                               |  |                       |      |      |  |      |      |      |  |      |      |            |  |       |      |      
|Fixed rate debt                |  | $                     | 17.6 |      |  | $    | 25.7 |      |  | $    | 27.1 |            |  | $     | 8.1  |       |  | $ | 46.2 |   |  | $ | 40.3 |   |  | $ | 165.0 |   |  | $ | 186.8 | 
|Weighted-average interest rate |  |                       | 6.86 | %    |  |      | 6.92 | %    |  |      | 6.99 | %          |  |       | 7.05 | %     |  |   | 7.12 | % |  |   | 7.35 | % |  |   | 7.09  | % |  |   |       | 
|Variable rate debt             |  | $                     | 10.8 |      |  |      |     |      |  |      |     |            |  |       |     |       |  |   |     |   |  |   |     |   |  | $ | 10.8  |   |  | $ | 10.8  | 
|Weighted-average interest rate |  |                       | 3.24 | %    |  |      |     |      |  |      |     |            |  |       |     |       |  |   |     |   |  |   |     |   |  |   | 3.24  | % |  |   |       | 

In addition, we have assessed the market risk for
our variable-rate debt and believe that a 1% change in interest
rates will increase or decrease interest expense by
approximately $0.1 million annually based on
$10.8 million of variable rate debt outstanding at
March 31, 2004.

Commodity Price Risk

Pulp is a raw material we use to produce fiber
cement, and it has historically demonstrated more price
sensitivity than other raw materials we use in our manufacturing
process. In August 2000, we entered into a contract with a third
party to hedge the price of 5,000 metric tons of pulp per
month, representing approximately 50% of our production
requirements at that time. The original contract term was
effective from September 1, 2000 to August 31, 2005,
with settlement payments due each month. On December 2,
2001, the other party filed for bankruptcy. This had the effect
of terminating all outstanding swap transactions immediately
prior to the bankruptcy filing. The estimated fair value at the
date of termination of the pulp contract was a $6.2 million
liability and was recorded in other non-current liabilities in
fiscal year 2002. Also, a current payable of $0.6 million
was recorded at March 31, 2002. In November 2002, we
settled our obligation under this contract for a cash payment of
$5.8 million. Accordingly, we recorded a gain on settlement
of the contract in the amount of $1.0 million in other
operating income during fiscal year 2003. Pulp prices have risen
during fiscal year 2004 and we expect them to continue rising.
To minimize the additional working capital requirements caused
by rising pulp prices, we may seek to enter into contracts with
suppliers for the purchase of pulp that could fix our pulp
prices over the longer-term. However, if pulp prices do not
continue rising, our cost of sales may be negatively impacted
due to fixed pulp pricing over the longer-term. We have assessed
the market risk for pulp and believe that, based on our most
recent estimates, a $60 per metric ton price movement in
pulp prices, which represents approximately 10% of the average
market pulp price in fiscal year 2004, would have had
approximately a 1.5% change in cost of sales in fiscal year 2004.






|         |                                                           
|-------- | ----------------------------------------------------------
|Item 12. | Description of Securities Other Than Equity
    Securities

Not Required

102



---



##### Table of Contents






PART II






|         |                                                    
|-------- | ---------------------------------------------------
|Item 13. | Defaults, Dividend Arrearages and
    Delinquencies

None






|         |                                                                                 
|-------- | --------------------------------------------------------------------------------
|Item 14. | Material Modifications to the Rights of
    Security Holders and Use of Proceeds

Upon the proposal of our Joint Board, our
shareholders voted at our Annual General Meeting of shareholders
held on August 15, 2003, to (i) amend our Articles of
Association to increase the nominal value of shares,
(ii) debit the share premium reserve with an amount equal
to the aggregate amount of the increase for each share on issue,
and (iii) subsequently amend the Articles of Association
again to decrease the nominal value of shares, with the
difference to be paid to shareholders as a capital return. At
the Annual General Meeting, the shareholders also voted to
approve the proposed procedural authorizations necessary to
execute the amendments to the Articles of Association and the
associated payment of the capital return. Following such
shareholder vote, we executed the amended Articles of
Association and effected the return on capital by paying per
share the amount of Euro 13.05 cents (or its
equivalent) to shareholders on November 19, 2003. In
connection with the capital return, we followed all procedures
and satisfied all requirements necessary to comply with Dutch
law in relation to creditors protection.






|         |                        
|-------- | -----------------------
|Item 15. | Controls and Procedures

We carried out an evaluation, under the
supervision and with the participation of our management,
including our Interim Chief Executive Officer and Interim Chief
Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of the
end of the period covered by this report. Based on that
evaluation, the Interim Chief Executive Officer and Interim
Chief Financial Officer concluded that, as of such date, our
disclosure controls and procedures are effective to ensure that
information relating to the Company (including its consolidated
subsidiaries) required to be disclosed in the reports that we
file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
applicable SEC rules and forms.

There have been no significant changes in our
internal control over financial reporting during fiscal year
2004 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.






|          |                                     
|--------- | ------------------------------------
|Item 16A. | Audit Committee Financial
    Expert

Our Joint Board has determined that Michael
Brown, Michael Gillfillan and James Loudon are audit
committee financial experts, as such term is defined by
applicable SEC rules.






|          |               
|--------- | --------------
|Item 16B. | Code of Ethics

We seek to maintain high standards of integrity
and are committed to ensuring that we conduct our business in
accordance with high standards of ethical behavior. In 2003 we
revised and updated our already comprehensive Code of Ethics and
we will continue to do so periodically. The Code of Ethics
applies to all Company employees, including our principal
executive and senior financial officers. This Code of Ethics is
publicly available on the Corporate Governance area of our
website at www.jameshardie.com.






|          |                                           
|--------- | ------------------------------------------
|Item 16C. | Principal Accountant Fees and
    Services

Fees Paid to Our Independent
Auditors

See page F-48 in this Form 20-F for
fees billed by our independent auditors in fiscal years 2004,
2003 and 2002.

103



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##### Table of Contents



Audit Committees Pre-Approval Policies
and Procedures

In accordance with our Audit Committees
policy and the requirements of the law, all services provided by
PricewaterhouseCoopers LLP are pre-approved annually by the
Audit Committee. Pre-approval includes a list of specific audit
and non-audit services in the following categories: audit
services, audit-related services, tax services and other
services. Any additional services that we may ask our auditors
to perform will be set forth in a separate document requesting
Audit Committee approval in advance of the service being
performed.

All of the services pre-approved by the Audit
Committee are permissible under the SECs auditor
independence rules. To avoid certain potential conflicts of
interest, the law prohibits a publicly traded company from
obtaining certain non-audit services from its auditing firm. We
obtain these services from other service providers as needed.






|          |                                                           
|--------- | ----------------------------------------------------------
|Item 16D. | Exemptions from Listing Standards for Audit
    Committees

Not Required






|          |                                                                           
|--------- | --------------------------------------------------------------------------
|Item 16E. | Purchases of Equity Securities by the
    Issuer and Affiliated Purchasers

Not Required




PART III






|         |                     
|-------- | --------------------
|Item 18. | Financial Statements

See pages F-1 through F-48, incorporated
into this annual report by reference.






|         |         
|-------- | --------
|Item 19. | Exhibits

Documents filed as exhibits to this annual report:

|        |   |                         |  |                                                                                                                                                                                                                                                                                                                                    
|------- | - | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                        
|Number  |   | Description of Exhibits
|        |   |                        
|        | 1 | .1                      |  | Articles of Association, as amended on
    November 5, 2003 of James Hardie Industries N.V. (English
    Translation)                                                                                                                                                                                                              
|        | 2 | .1                      |  | Letter Agreement of September 6, 2001 by and
    between James Hardie Industries N.V. and CHESS Depositary
    Nominees Pty Limited, as the depositary for CHESS Units of
    Foreign Securities(3)                                                                                                                                
|        | 2 | .2                      |  | Deposit Agreement dated as of September 24,
    2001 between The Bank of New York, as depositary, and James
    Hardie Industries N.V.(2)                                                                                                                                                                                          
|        | 2 | .3                      |  | Note Purchase Agreement, dated as of
    November 5, 1998, among James Hardie Finance B.V., James
    Hardie N.V. and certain purchasers thereto re: $225,000,000
    Guaranteed Senior Notes(1)                                                                                                                                   
|        | 2 | .4                      |  | Assignment and Assumption Agreement and First
    Amendment to Note Purchase Agreement, dated as of
    January 24, 2000, by and among James Hardie Finance B.V.,
    James Hardie U.S. Funding, Inc., James Hardie N.V., James
    Hardie Aust Investco Pty Limited and certain noteholders
    thereto(1)                        
|        | 2 | .5                      |  | Second Amendment to the Note Purchase Agreement
    dated as of October 22, 2001, by and among, James Hardie
    U.S. Funding, Inc., James Hardie N.V., James Hardie Aust
    Investco Pty Limited, James Hardie Australia Finance Pty
    Limited, James Hardie International Finance B. V. and certain
    noteholders thereto(6)
|        | 2 | .6                      |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Revolving Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and Australia and New
    Zealand Banking Group Limited(1)                                                       
|        | 2 | .7                      |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Revolving Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and Bank One, NA(1)                                                                                              

104



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##### Table of Contents



|        |   |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | - | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                        
|Number  |   | Description of Exhibits
|        |   |                        
|        | 2 | .8                      |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Revolving Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and BNP Paribas(1)                                                                                                                                                                                                                                                                 
|        | 2 | .9                      |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Revolving Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and Australia and
    Westdeutsche Landesbank Girozentrale, Sydney Branch(1)                                                                                                                                                                                                       
|        | 2 | .10                     |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Standby Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and Australia and New
    Zealand Banking Group Limited(1)                                                                                                                                                                                                                           
|        | 2 | .11                     |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Standby Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and Bank One, NA(1)                                                                                                                                                                                                                                                                  
|        | 2 | .12                     |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Standby Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and BBL Australia Limited(1)                                                                                                                                                                                                                                                         
|        | 2 | .13                     |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Standby Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and BNP Paribas(1)                                                                                                                                                                                                                                                                   
|        | 2 | .14                     |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated 364 Day Standby Loan Agreement
    among James Hardie International Finance B.V., James Hardie
    N.V., James Hardie U.S. Funding Inc. and Wells Fargo HSBC
    Trade Bank, National Association(1)                                                                                                                                                                                                                 
|        | 2 | .15                     |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated 364 Day Standby Loan Agreement
    among James Hardie International Finance B.V., James Hardie
    N.V., James Hardie U.S. Funding Inc. and Westdeutsche
    Landesbank Girozentrale, Sydney Branch (1)                                                                                                                                                                                                              
|        | 2 | .16                     |  | Form of Novation Agreement, dated
    December 16, 2002, relating to Amended and Restated
    Revolving Loan Agreement among James Hardie International
    Finance B.V., James Hardie N.V., James Hardie U.S. Funding
    Inc., James Hardie Industries N.V., and each of the following
    banks: Australia and New Zealand Banking Group Limited; Bank
    One, NA; BNP Paribas; and WestLB AG, Sydney Branch(7)                                                                                  
|        | 2 | .17                     |  | Form of Novation Agreement, dated
    December 16, 2002, relating to Amended and Restated Standby
    Loan Agreement among James Hardie International Finance B.V.,
    James Hardie N.V., James Hardie U.S. Funding Inc., James
    Hardie Industries N.V. and each of the following banks:
    Australia and New Zealand Banking Group Limited; Bank One, NA;
    ING Bank N.V., Sydney Branch; BNP Paribas; Wells Fargo HSBC
    Trade Bank, National Association; and WestLB AG, Sydney Branch(7)
|        | 2 | .18                     |  | Amendment Agreement to Amended and Restated
    Standby Loan Agreement, effective April 30, 2004, among
    James Hardie International Finance B.V., James Hardie Industries
    N.V. and Wells Fargo HSBC Trade Bank, National Association                                                                                                                                                                                                                                                          
|        | 2 | .19                     |  | Form of Extension Letter, relating to 364 Day
    Standby Loan Agreement among James Hardie International Finance
    B.V., James Hardie Industries N.V. and each of the following
    banks: Australia and New Zealand Banking Group Limited; Bank
    One, NA; ING Bank NV, Sydney Branch; BNP Paribas; and WestLB AG,
    Sydney Branch                                                                                                                                                           
|        | 2 | .20                     |  | Extension Letter relating to 364 Day Standby Loan
    Agreement among James Hardie International Finance B.V., James
    Hardie Industries N.V. and Wells Fargo HSBC Trade Bank N.A.                                                                                                                                                                                                                                                                                                                 
|        | 2 | .21                     |  | Assignment and Assumption Agreement and Third
    Amendment to Note Purchase Agreement, dated as of
    November 18, 2002, among James Hardie U.S. Funding
    Inc, James Hardie International Finance B.V., James Hardie
    Industries N.V., James Hardie N.V. and certain noteholders
    thereto(7)                                                                                                                                                                                              
|        | 4 | .1                      |  | James Hardie Industries N.V. 2001 Equity
    Incentive Plan(1)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 4 | .2                      |  | James Hardie Industries N.V. Peter Donald
    Macdonald Share Option Plan(1)                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 4 | .3                      |  | James Hardie Industries N.V. Peter Donald
    Macdonald Share Option Plan 2001(1)                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 4 | .4                      |  | James Hardie Industries N.V. Peter Donald
    Macdonald Share Option Plan 2002(6)                                                                                                                                                                                                                                                                                                                                                                                                                    

105



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##### Table of Contents



|        |   |                         |  |                                                                                                                                                                                                                                                                                               
|------- | - | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                        
|Number  |   | Description of Exhibits
|        |   |                        
|        | 4 | .5                      |  | Executive Service Agreement, effective as of
    November 1, 2002, between James Hardie Industries N.V. and
    Peter Donald Macdonald(6)                                                                                                                                                     
|        | 4 | .6                      |  | Letter of Resignation, dated October 21,
    2004, between James Hardie Industries N.V. and Peter Donald
    Macdonald                                                                                                                                                                        
|        | 4 | .7                      |  | Employment Agreement, effective June 1, 2004
    between James Products Building Products Inc. and Peter Shafron                                                                                                                                                                              
|        | 4 | .8                      |  | Letter of Resignation, dated October 21,
    2004, between James Hardie Industries N.V. on behalf of James
    Hardie Building Products Inc. and the Company, and Peter Shafron                                                                                                               
|        | 4 | .9                      |  | Consulting agreement, dated November 15,
    2004, between James Hardie Industries N.V. and Peter Shafron                                                                                                                                                                                     
|        | 4 | .10                     |  | Form of Executive Officer Employment Agreement
    (applies to Mr. David Merkley, Mr. Donald Merkley and
    Mr. Morley)(7)                                                                                                                                                                   
|        | 4 | .11                     |  | Employment Agreement, effective as of
    September 1, 2004, between James Hardie Building Products,
    Inc. and Louis Gries                                                                                                                                                                 
|        | 4 | .12                     |  | Amended Secondment dated October 8, 2004
    between James Hardie Building Products Inc. and James Chilcoff                                                                                                                                                                                   
|        | 4 | .13                     |  | Employment Agreement Treasury Manager, effective
    as of October 1, 2001, between RCI Netherlands Investments
    B.V. (to be renamed James Hardie International Finance B.V.) and
    Folkert H. Zwinkels                                                                                  
|        | 4 | .14                     |  | Attachment to the assignment letter of F.H.
    Zwinkels between James Hardie Industries N.V. and Folkert H.
    Zwinkels dated May 18, 2003                                                                                                                                                  
|        | 4 | .15                     |  | Addendum to Employment Agreement Treasury Manager
    between James Hardie International Finance B.V. and Folkert H.
    Zwinkels dated August 6, 2004                                                                                                                                        
|        | 4 | .16                     |  | Contract of Employment, effective as of
    January 1, 2004, between James Hardie Industries N.V. and
    W. (Pim) Vlot                                                                                                                                                                       
|        | 4 | .17                     |  | Form of Joint and Several Indemnity Agreement
    among James Hardie N.V., James Hardie (USA) Inc. and certain
    indemnitees thereto(1)                                                                                                                                                     
|        | 4 | .18                     |  | Form of Joint and Several Indemnity Agreement
    among James Hardie Industries N.V., James Hardie Inc. and
    certain indemnitees thereto(1)                                                                                                                                                
|        | 4 | .19                     |  | Form of Deed of Access to Documents, Indemnity
    and Insurance among James Hardie Industries N.V. and certain
    indemnitees thereto(1)                                                                                                                                                    
|        | 4 | .20                     |  | Lease Amendment, dated March 23, 2004, among
    Amaca Pty Limited (f/k/a/ James Hardie & Coy Pty
    Limited), James Hardie Australia Pty Limited and James Hardie
    Industries N.V. re premises at the corner of Cobalt &
    Silica Street, Carole Park, Queensland, Australia           
|        | 4 | .21                     |  | Variation of Lease dated March 23, 2004,
    among Amaca Pty Limited (f/k/a/ James Hardie & Coy Pty
    Limited), James Hardie Australia Pty Limited and James Hardie
    Industries N.V. re premises at the corner of
    Colquhoun & Devon Streets, Rosehill, New South Wales,
    Australia
|        | 4 | .22                     |  | Extension of Lease dated March 23, 2004,
    among Amaca Pty Limited (f/k/a/ James Hardie & Coy Pty
    Limited), James Hardie Australia Pty Limited and James Hardie
    Industries N.V. re premises at Rutland, Avenue, Welshpool,
    Western Australia, Australia                         
|        | 4 | .23                     |  | Lease Amendment dated March 23, 2004, among
    Amaca Pty Limited (f/k/a/ James Hardie & Coy Pty
    Limited), James Hardie Australia Pty Limited and James Hardie
    Industries N.V. re premises at 46 Randle Road, Meeandah,
    Queensland, Australia                                     
|        | 4 | .24                     |  | Lease Agreement dated March 23, 2004 among
    Studorp Limited, James Hardie New Zealand Limited and James
    Hardie Industries N.V. re premises at the corner of ORorke
    and Station Roads, Penrose, Auckland, New Zealand                                                              
|        | 4 | .25                     |  | Lease Agreement dated March 23, 2004 among
    Studorp Limited, James Hardie New Zealand Limited and James
    Hardie Industries N.V. re premises at 44-74 ORorke Road,
    Penrose, Auckland, New Zealand                                                                                   

106



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##### Table of Contents



|        |    |                         |  |                                                                                                                                                                                                                                
|------- | -- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Exhibits
|        |    |                        
|        | 4  | .26                     |  | Purchase and Sale Agreement with Escrow
    Instructions, dated June 28, 2001, between WL Homes LLC and
    James Hardie Gypsum, Inc. (5)(8)                                                                                   
|        | 4  | .27                     |  | Assignment and Assumption Agreement dated
    April 25, 2002, between James Hardie Gypsum, Inc. and James
    Hardie, Inc. in reference to the Purchase and Sale Agreement
    with Escrow Instructions, dated June 28, 2001(6)
|        | 4  | .28                     |  | Industrial Building Lease Agreement, effective
    October 6, 2000, between James Hardie Building Products,
    Inc. and Fortra Fiber-Cement L.L.C., re premises at Waxahachie,
    Ellis County, Texas(1)                     
|        | 4  | .29                     |  | Amended and Restated Stock Purchase Agreement
    dated March 12, 2002, between BPB U.S. Holdings, Inc
    and James Hardie Inc.(6)                                                                                            
|        | 4  | .30                     |  | Asset Purchase Agreement by and between James
    Hardie Building Products, Inc. and Cemplank, Inc. dated as of
    December 12, 2001(6)                                                                                       
|        | 4  | .31                     |  | Supervisory Board Share Plan, dated July 19,
    2002(6)                                                                                                                                                                       
|        | 8  | .1                      |  | List of significant subsidiaries of James Hardie
    Industries N.V.                                                                                                                                                           
|        | 10 | .1                      |  | Consent of independent registered public
    accounting firm                                                                                                                                                                   
|        | 12 | .1                      |  | Certification of the Chief Executive Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                     
|        | 12 | .2                      |  | Certification of the Chief Financial Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                     
|        | 13 | .1                      |  | Certification of the Chief Executive Officer and
    Chief Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002                                                                                     
|        | 99 | .1                      |  | Excerpts of the Securities Clearing House
    Business Rules, including Temporary Rule Book inserts thereto,
    as of September 28, 2001(4)                                                                                   
|        | 99 | .2                      |  | Excerpts of the Corporations Act 2001, as of
    September 28, 2001(4)                                                                                                                                                         
|        | 99 | .3                      |  | ASIC Class Order 00/182, dated
    February 13, 2000(4)                                                                                                                                                                        
|        | 99 | .4                      |  | ASIC Modification, dated August 23, 2001 (4)                                                                                                                                                                                   



---



|    |                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously filed as an exhibit to our
    Registration Statement on Form 20-F dated September 7,
    2001 and incorporated herein by reference.                                             
|   
|(2) | Previously filed as an exhibit to Amendment
    No. 1 to our Registration Statement on Form 20-F dated
    September 28, 2001 and incorporated herein by reference.                         
|   
|(3) | Previously filed as an exhibit to our
    Registration Statement Form F-6 dated September 12,
    2001 and incorporated herein by reference.                                                
|   
|(4) | Previously filed as an exhibit to our Amendment
    No. 1 to our Registration Statement Form F-6 dated
    September 28, 2001 and incorporated herein by reference.                         
|   
|(5) | Previously filed as an exhibit to Amendment
    No. 2 to our Registration Statement on Form 20-F dated
    October 1, 2001 and incorporated herein by reference.                            
|   
|(6) | Previously filed as an exhibit to our Annual
    Report on Form 20-F dated September 4, 2002 and
    incorporated herein by reference.                                                      
|   
|(7) | Previously filed as an exhibit to our Annual
    Report on Form 20-F dated July 2, 2003 and
    incorporated herein by reference.                                                           
|   
|(8) | Certain portions of the exhibit have been omitted
    and submitted to the Securities and Exchange Commission pursuant
    to a confidential treatment request filed on October 1,
    2001.

107



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##### Table of Contents



SIGNATURES

The registrant hereby certifies that it meets all
of the requirements for filing on Form 20-F and that it has
duly caused and authorized the undersigned to sign this annual
report on its behalf.



| |                             
| | ----------------------------
| | JAMES HARDIE INDUSTRIES N.V.



| |     |                
| | --- | ---------------
| | By: | /s/ LOUIS GRIES

| |                                
| | -------------------------------
| |                                
| | Louis Gries                    
| | Interim Chief Executive Officer

Date: November 22, 2004

108



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##### Table of Contents



JAMES HARDIE INDUSTRIES NV AND
SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                     |  |      |      | 
|-------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                     |  | Page
|                                                                                                                     |  |     
|Report of Independent
    Registered Public Accounting Firm                                                          |  |      | F-2  | 
|Consolidated Balance Sheets
    as of March 31, 2004 and 2003                                                        |  |      | F-3  | 
|Consolidated Statements of
    Income for the Years Ended March 31, 2004, 2003 and 2002                              |  |      | F-4  | 
|Consolidated Statements of
    Cash Flows for the Years Ended March 31, 2004, 2003 and
    2002                      |  |      | F-5  | 
|Consolidated Statements of
    Changes in Shareholders Equity for the Years Ended
    March 31, 2004, 2003 and 2002 |  |      | F-6  | 
|Notes to Consolidated
    Financial Statements                                                                       |  |      | F-7  | 
|Selected Quarterly Financial
    Data (unaudited)                                                                    |  |      | F-51 | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board of Directors and Shareholders of

James Hardie Industries N.V. and Subsidiaries


In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
income, cash flows and changes in shareholders equity
present fairly, in all material respects, the financial position
of James Hardie Industries N.V. and Subsidiaries (the
Company) at March 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the
three years in the period ended March 31, 2004 in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.

As discussed in Note 14 to the consolidated
financial statements, the Company is subject to certain
significant contingencies, including claims against former
subsidiaries; the Special Commission of Inquiry established by
the government of New South Wales, Australia; an investigation
by the Australian Securities and Investments Commission; and an
offer of an indemnity to ABN 60 together with a related
offer to provide funding to the Medical Research and
Compensation Foundation.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP
| |                               
| | PRICEWATERHOUSECOOPERS LLP    

Los Angeles, California

June 24, 2004, except for Note 14,


as to which the date is November 19, 2004


F-2



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS


|                                                 |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |       |       | 
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | -------- |  | -------- | ----- | ----- | ----- |  | ----- | ----- | ----- | 
|                                                 |                                                                                                                                                                                                                                    |                                            |       | March 31 |  | March 31
|                                                 |                                                                                                                                                                                                                                    | Notes                                      |       | 2004     |  | 2003    
|                                                 |                                                                                                                                                                                                                                    |                                            |       |          |  |         
|                                                 |                                                                                                                                                                                                                                    |                                           
|                                                 |                                                                                                                                                                                                                                    | (Millions of US dollars)                  
|ASSETS                                          
|Current assets:                                  |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      
|                                                 | Cash and cash equivalents                                                                                                                                                                                                          |                                            |       | 3        |  |          | $     | 72.3  |       |  | $     | 54.6  |      
|                                                 | Accounts and notes receivable, net of allowance
    for doubtful accounts of $1.2 million and $1.0 million
    as of March 31, 2004 and 2003, respectively                                                                         |                                            |       | 4        |  |          |       | 118.4 |       |  |       | 87.8  |      
|                                                 | Inventories                                                                                                                                                                                                                        |                                            |       | 5        |  |          |       | 103.2 |       |  |       | 74.0  |      
|                                                 | Refundable income taxes                                                                                                                                                                                                            |                                            |       | 16       |  |          |       | 37.8  |       |  |       | 44.6  |      
|                                                 | Prepaid expenses and other current assets                                                                                                                                                                                          |                                            |       |          |  |          |       | 8.8   |       |  |       | 6.6   |      
|                                                 | Deferred tax assets                                                                                                                                                                                                                |                                            |       | 16       |  |          |       | 24.7  |       |  |       | 23.0  |      
|                                                 | Current assets  discontinued operations                                                                                                                                                                                           |                                            |       | 17       |  |          |       |      |       |  |       | 5.4   |      
|                                                 |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      
|                                                 |                                                                                                                                                                                                                                    | Total current assets                       |       |          |  |          |       |       | 365.2 |  |       |       | 296.0 | 
|Long-term receivables                            |                                                                                                                                                                                                                                    |                                            |       |          |  |          | 6.1   |       |       |  | 3.7   |      
|Investments                                      |                                                                                                                                                                                                                                    |                                            | 6     |          |  |          | 3.7   |       |       |  | 6.0   |      
|Property, plant and equipment, net               |                                                                                                                                                                                                                                    |                                            | 7     |          |  |          | 567.1 |       |       |  | 520.0 |      
|Intangible assets, net                           |                                                                                                                                                                                                                                    |                                            | 8     |          |  |          | 3.0   |       |       |  | 3.4   |      
|Prepaid pension cost                             |                                                                                                                                                                                                                                    |                                            | 9     |          |  |          | 14.1  |       |       |  |      |      
|Deferred tax assets                              |                                                                                                                                                                                                                                    |                                            | 16    |          |  |          | 12.0  |       |       |  | 21.4  |      
|Non-current assets  discontinued
    operations |                                                                                                                                                                                                                                    |                                            | 17    |          |  |          |      |       |       |  | 1.3   |      
|                                                 |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      
|                                                 |                                                                                                                                                                                                                                    | Total assets                               |       |          |  |          |       | $     | 971.2 |  |       | $     | 851.8 | 
|                                                 |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      
|                                                
|LIABILITIES AND SHAREHOLDERS
    EQUITY        
|Current liabilities:                             |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      
|                                                 | Accounts payable and accrued liabilities                                                                                                                                                                                           |                                            |       | 10       |  |          | $     | 78.5  |       |  | $     | 74.0  |      
|                                                 | Current portion of long-term debt                                                                                                                                                                                                  |                                            |       | 11       |  |          |       | 17.6  |       |  |       |      |      
|                                                 | Short-term debt                                                                                                                                                                                                                    |                                            |       | 11       |  |          |       | 10.8  |       |  |       | 8.8   |      
|                                                 | Accrued payroll and employee benefits                                                                                                                                                                                              |                                            |       |          |  |          |       | 41.1  |       |  |       | 31.6  |      
|                                                 | Accrued product warranties                                                                                                                                                                                                         |                                            |       | 13       |  |          |       | 9.7   |       |  |       | 7.3   |      
|                                                 | Income taxes payable                                                                                                                                                                                                               |                                            |       | 16       |  |          |       | 9.8   |       |  |       | 7.7   |      
|                                                 | Other liabilities                                                                                                                                                                                                                  |                                            |       | 12       |  |          |       | 1.8   |       |  |       | 4.9   |      
|                                                 | Current liabilities  discontinued
    operations                                                                                                                                                                                  |                                            |       | 17       |  |          |       |      |       |  |       | 2.3   |      
|                                                 |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      
|                                                 |                                                                                                                                                                                                                                    | Total current liabilities                  |       |          |  |          |       |       | 169.3 |  |       |       | 136.6 | 
|Long-term debt                                   |                                                                                                                                                                                                                                    |                                            | 11    |          |  |          | 147.4 |       |       |  | 165.0 |      
|Deferred income taxes                            |                                                                                                                                                                                                                                    |                                            | 16    |          |  |          | 65.2  |       |       |  | 59.5  |      
|Accrued product warranties                       |                                                                                                                                                                                                                                    |                                            | 13    |          |  |          | 2.3   |       |       |  | 7.5   |      
|Other liabilities                                |                                                                                                                                                                                                                                    |                                            | 12,16 |          |  |          | 82.3  |       |       |  | 48.5  |      
|                                                 |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      
|                                                 |                                                                                                                                                                                                                                    | Total liabilities                          |       |          |  |          |       |       | 466.5 |  |       |       | 417.1 | 
|                                                 |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      
|Commitments and contingencies
    (Note 14)      |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      
|Shareholders equity:                            |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      
|                                                 | Common stock, 2.0 billion shares authorized;
    Euro 0.59 par value, 458,558,436 shares issued and
    outstanding at March 31, 2004 and Euro 0.64 par value,
    457,514,598 shares issued and outstanding at March 31,
    2003 |                                            |       | 18, 23   |  |          |       | 245.2 |       |  |       | 269.7 |      
|                                                 | Additional paid-in capital                                                                                                                                                                                                         |                                            |       | 18, 23   |  |          |       | 134.0 |       |  |       | 171.3 |      
|                                                 | Retained earnings                                                                                                                                                                                                                  |                                            |       |          |  |          |       | 151.1 |       |  |       | 44.4  |      
|                                                 | Employee loans                                                                                                                                                                                                                     |                                            |       | 18       |  |          |       | (4.0  | )     |  |       | (4.4  | )    
|                                                 | Accumulated other comprehensive loss                                                                                                                                                                                               |                                            |       | 21       |  |          |       | (21.6 | )     |  |       | (46.3 | )    
|                                                 |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      
|                                                 |                                                                                                                                                                                                                                    | Total shareholders equity                 |       |          |  |          |       |       | 504.7 |  |       |       | 434.7 | 
|                                                 |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      
|                                                 |                                                                                                                                                                                                                                    | Total liabilities and shareholders equity |       |          |  |          |       | $     | 971.2 |  |       | $     | 851.8 | 
|                                                 |                                                                                                                                                                                                                                    |                                            |       |          |  |          |       |       |       |  |       |      

The accompanying notes are an integral part of
these consolidated financial statements.

F-3



---



##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME


|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |       | 
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----- | -- | ------------------------ |  | ---- | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                                           |                                                                                                                                                                                      |       |    |                         
|                                                           |                                                                                                                                                                                      |       |    | Years Ended March 31    
|                                                           |                                                                                                                                                                                      |       |    |                         
|                                                           |                                                                                                                                                                                      | Notes |    | 2004                     |  | 2003 |        | 2002 
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |      
|                                                           |                                                                                                                                                                                      |       |    |                         
|                                                           |                                                                                                                                                                                      |       |    | (Millions of US dollars,
|                                                           |                                                                                                                                                                                      |       |    | except per share data)  
|Net sales                                                  |                                                                                                                                                                                      |       | 20 |                          |  | $    | 981.9  |       |  | $ | 783.6  |       |  | $ | 591.7  |      
|Cost of goods sold                                         |                                                                                                                                                                                      |       |    |                          |  |      | (623.0 | )     |  |   | (492.8 | )     |  |   | (393.4 | )    
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|                                                           | Gross profit                                                                                                                                                                         |       |    |                          |  |      |        | 358.9 |  |   |        | 290.8 |  |   |        | 198.3 | 
|Selling, general and administrative expenses               |                                                                                                                                                                                      |       |    |                          |  |      | (162.0 | )     |  |   | (144.9 | )     |  |   | (109.3 | )    
|Research and development expenses                          |                                                                                                                                                                                      |       |    |                          |  |      | (22.6  | )     |  |   | (18.1  | )     |  |   | (14.1  | )    
|Other operating (expense) income                           |                                                                                                                                                                                      |       | 15 |                          |  |      | (2.1   | )     |  |   | 1.0    |       |  |   | (28.1  | )    
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|                                                           | Operating income                                                                                                                                                                     |       |    |                          |  |      |        | 172.2 |  |   |        | 128.8 |  |   |        | 46.8  | 
|Interest expense                                           |                                                                                                                                                                                      |       |    |                          |  |      | (11.2  | )     |  |   | (23.8  | )     |  |   | (18.4  | )    
|Interest income                                            |                                                                                                                                                                                      |       |    |                          |  |      | 1.2    |       |  |   | 3.9    |       |  |   | 2.4    |      
|Other income (expense)                                     |                                                                                                                                                                                      |       |    |                          |  |      | 3.5    |       |  |   | 0.7    |       |  |   | (0.4   | )    
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|                                                           | Income from continuing operations before income
    taxes                                                                                                                            |       |    | 20                       |  |      |        | 165.7 |  |   |        | 109.6 |  |   |        | 30.4  | 
|Income tax expense                                         |                                                                                                                                                                                      |       |    |                          |  |      | (40.4  | )     |  |   | (26.1  | )     |  |   | (3.1   | )    
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|                                                           | Income from continuing operations                                                                                                                                                    |       |    |                          |  |      |        | 125.3 |  |   |        | 83.5  |  |   |        | 27.3  | 
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|Discontinued operations:                                   |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|                                                           | Income from discontinued operations, net of
    income tax expense of ($0.1) million, ($1.6) million
    and ($0.9) million for 2004, 2003 and 2002, respectively                    |       |    | 17                       |  |      |        | 0.2   |  |   |        | 3.0   |  |   |        | 1.5   | 
|                                                           | Gain on disposal of discontinued operations, net
    of income tax benefit (expense) of $4.8 million,
    ($45.3) million and $1.3 million for 2004, 2003 and
    2002, respectively |       |    | 17                       |  |      |        | 4.1   |  |   |        | 84.0  |  |   |        | 2.0   | 
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|                                                           | Income from discontinued operations                                                                                                                                                  |       |    |                          |  |      |        | 4.3   |  |   |        | 87.0  |  |   |        | 3.5   | 
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|                                                           | Net income                                                                                                                                                                           |       |    |                          |  |      | $      | 129.6 |  |   | $      | 170.5 |  |   | $      | 30.8  | 
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|Income per share  basic:                                  |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|                                                           | Income from continuing operations                                                                                                                                                    |       |    |                          |  |      | $      | 0.27  |  |   | $      | 0.18  |  |   | $      | 0.06  | 
|                                                           | Income from discontinued operations                                                                                                                                                  |       |    |                          |  |      |        | 0.01  |  |   |        | 0.19  |  |   |        | 0.01  | 
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|                                                           | Net income per share  basic                                                                                                                                                         |       |    |                          |  |      | $      | 0.28  |  |   | $      | 0.37  |  |   | $      | 0.07  | 
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|Income per share  diluted:                                |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|                                                           | Income from continuing operations                                                                                                                                                    |       |    |                          |  |      | $      | 0.27  |  |   | $      | 0.18  |  |   | $      | 0.06  | 
|                                                           | Income from discontinued operations                                                                                                                                                  |       |    |                          |  |      |        | 0.01  |  |   |        | 0.19  |  |   |        | 0.01  | 
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|                                                           | Net income per share  diluted                                                                                                                                                       |       |    |                          |  |      | $      | 0.28  |  |   | $      | 0.37  |  |   | $      | 0.07  | 
|                                                           |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|Weighted average common shares outstanding
    (Millions): |                                                                                                                                                                                      |       |    |                          |  |      |        |       |  |   |        |       |  |   |        |      
|                                                           | Basic                                                                                                                                                                                |       |    | 2                        |  |      |        | 458.1 |  |   |        | 456.7 |  |   |        | 438.4 | 
|                                                           | Diluted                                                                                                                                                                              |       |    | 2                        |  |      |        | 461.4 |  |   |        | 459.4 |  |   |        | 440.4 | 

The accompanying notes are an integral part of
these consolidated financial statements.

F-4



---



##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                                      |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |        |       |  
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------------------- | ----- | ----- | ----- | ---- | ----- | ------ | ------ | - | ----- | ------ | ----- | -
|                                                                                      |                                                                                 |                                                        
|                                                                                      |                                                                                 | Years Ended March 31                                   
|                                                                                      |                                                                                 |                                                        
|                                                                                      |                                                                                 | 2004                                                    |       | 2003  |       | 2002
|                                                                                      |                                                                                 |                                                         |       |       |       |     
|                                                                                      |                                                                                 |                                                        
|                                                                                      |                                                                                 | (Millions of US dollars)                               
|Cash flows from operating
    activities:                                             |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|Net income                                                                            |                                                                                 | $                                                       | 129.6 |       |       | $    | 170.5 |        |        | $ | 30.8  |       
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|                                                                                      | Gain on disposal of subsidiaries and businesses                                 |                                                         |       | (4.1  | )     |      |       | (84.8  | )      |   |       | (2.0   | )    
|                                                                                      | Gain on sale of land and buildings                                              |                                                         |       | (4.2  | )     |      |       |       |        |   |       |       |      
|                                                                                      | (Gain) loss on disposal of investments and
    negotiable securities            |                                                         |       |      |       |      |       | (0.4   | )      |   |       | 1.3    |      
|                                                                                      | Impairment loss on investment                                                   |                                                         |       | 2.2   |       |      |       |       |        |   |       |       |      
|                                                                                      | Depreciation and amortization                                                   |                                                         |       | 36.4  |       |      |       | 28.7   |        |   |       | 39.9   |      
|                                                                                      | Deferred income taxes                                                           |                                                         |       | 14.6  |       |      |       | (10.6  | )      |   |       | (0.6   | )    
|                                                                                      | Prepaid pension cost                                                            |                                                         |       | 1.8   |       |      |       | 2.3    |        |   |       | 0.9    |      
|                                                                                      | Tax benefit from stock options exercised                                        |                                                         |       | 0.4   |       |      |       | 0.8    |        |   |       | 0.2    |      
|                                                                                      | Stock compensation                                                              |                                                         |       | 3.3   |       |      |       | 1.9    |        |   |       | 1.8    |      
|                                                                                      | Other                                                                           |                                                         |       | 0.7   |       |      |       |       |        |   |       | (0.4   | )    
|Changes in operating assets and liabilities:                                          |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|                                                                                      | Accounts receivable                                                             |                                                         |       | (24.8 | )     |      |       | (10.8  | )      |   |       | (32.1  | )    
|                                                                                      | Inventories                                                                     |                                                         |       | (24.9 | )     |      |       | (8.5   | )      |   |       | 16.4   |      
|                                                                                      | Prepaids and other current assets                                               |                                                         |       | 2.1   |       |      |       | (12.5  | )      |   |       | 1.4    |      
|                                                                                      | Accounts payable                                                                |                                                         |       | 1.3   |       |      |       | 14.5   |        |   |       | (4.7   | )    
|                                                                                      | Accrued liabilities and other liabilities                                       |                                                         |       | 28.2  |       |      |       | (26.3  | )      |   |       | 23.7   |      
|                                                                                      |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|                                                                                      |                                                                                 | Net cash provided by operating
    activities           |       |       | 162.6 |      |       |        | 64.8   |   |       |        | 76.6  |  
|                                                                                      |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|Cash flows from investing
    activities:                                             |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|                                                                                      | Purchases of property, plant and equipment                                      |                                                         |       | (74.8 | )     |      |       | (90.2  | )      |   |       | (52.4  | )    
|                                                                                      | Proceeds from sale of property, plant and
    equipment                         |                                                         |       | 10.9  |       |      |       | 49.0   |        |   |       | 0.3    |      
|                                                                                      | Payments for subsidiaries and businesses, net of
    cash acquired              |                                                         |       |      |       |      |       |       |        |   |       | (40.8  | )    
|                                                                                      | Proceeds from disposal of subsidiaries and
    businesses, net of cash invested |                                                         |       | 5.0   |       |      |       | 334.4  |        |   |       | 7.3    |      
|                                                                                      | Proceeds from sale and maturity of investments                                  |                                                         |       |      |       |      |       | 1.1    |        |   |       | 4.4    |      
|                                                                                      | Collections on loans receivable                                                 |                                                         |       | 0.9   |       |      |       | 0.7    |        |   |       | 4.0    |      
|                                                                                      | Cash transferred on establishment of ABN 60
    Foundation                      |                                                         |       |      |       |      |       | (57.1  | )      |   |       |       |      
|                                                                                      |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|                                                                                      |                                                                                 | Net cash (used in) provided by investing
    activities |       |       | (58.0 | )    |       |        | 237.9  |   |       |        | (77.2 | )
|                                                                                      |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|Cash flows from financing
    activities:                                             |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|                                                                                      | Net proceeds from line of credit                                                |                                                         |       | 0.5   |       |      |       | 3.1    |        |   |       | 3.9    |      
|                                                                                      | Proceeds from borrowings                                                        |                                                         |       |      |       |      |       | 2.4    |        |   |       | 226.5  |      
|                                                                                      | Repayments of borrowings                                                        |                                                         |       |      |       |      |       | (160.0 | )      |   |       | (342.3 | )    
|                                                                                      | Proceeds from issuance of shares                                                |                                                         |       | 3.2   |       |      |       | 4.2    |        |   |       | 113.9  |      
|                                                                                      | Repayments of capital                                                           |                                                         |       | (68.7 | )     |      |       | (94.8  | )      |   |       | (22.5  | )    
|                                                                                      | Dividends paid                                                                  |                                                         |       | (22.9 | )     |      |       | (34.3  | )      |   |       | (20.3  | )    
|                                                                                      |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|                                                                                      |                                                                                 | Net cash used in financing
    activities               |       |       | (87.9 | )    |       |        | (279.4 | ) |       |        | (40.8 | )
|                                                                                      |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|Effects of exchange rate changes on cash                                              |                                                                                 |                                                         | 0.5   |       |       |      | 0.7   |        |        |   | (2.6  | )     
|Net increase (decrease) in cash and cash
    equivalents                              |                                                                                 |                                                         | 17.2  |       |       |      | 24.0  |        |        |   | (44.0 | )     
|Cash and cash equivalents at beginning of period                                      |                                                                                 |                                                         | 55.1  |       |       |      | 31.1  |        |        |   | 75.1  |       
|                                                                                      |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|Cash and cash equivalents at end of
    period                                        |                                                                                 |                                                         | 72.3  |       |       |      | 55.1  |        |        |   | 31.1  |       
|                                                                                      |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|Components of cash and cash
    equivalents:                                          |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|                                                                                      | Cash at bank and on hand                                                        |                                                         |       | 24.6  |       |      |       | 39.7   |        |   |       | 11.1   |      
|                                                                                      | Short-term deposits                                                             |                                                         |       | 47.7  |       |      |       | 14.9   |        |   |       | 20.0   |      
|                                                                                      |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|                                                                                      | Cash and cash equivalents  continuing
    operations                           |                                                         |       | 72.3  |       |      |       | 54.6   |        |   |       | 31.1   |      
|                                                                                      | Cash at bank and on hand  discontinued
    operations                          |                                                         |       |      |       |      |       | 0.5    |        |   |       |       |      
|                                                                                      |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|Cash and cash equivalents at end of
    period                                        |                                                                                 | $                                                       | 72.3  |       |       | $    | 55.1  |        |        | $ | 31.1  |       
|                                                                                      |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|Supplemental disclosure of cash flow
    activities:                                  |                                                                                 |                                                         |       |       |       |      |       |        |        |   |       |       
|Cash paid during the period for interest, net of
    amounts capitalized              |                                                                                 | $                                                       | 11.7  |       |       | $    | 28.1  |        |        | $ | 25.8  |       
|Cash (refunded) paid during the period for
    income taxes, net                      |                                                                                 | $                                                       | (6.5  | )     |       | $    | 77.3  |        |        | $ | (10.2 | )     

The accompanying notes are an integral part of
these consolidated financial statements.

F-5



---



##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY


|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |       |       |      |  
|--------------------------------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------------------------------------------------------ | --------------------------------------------------------------------------------------- | ---------- | - | ------------ | ------ | -------- | - | ------------- | ------ | ----- | - | - | ---- | - | - | - | ----- | - | ----- | ---- | ----- | ----- | ----- | ---- | -
|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   | Retained     |        |          |   | Accumulated   |        |      
|                                                                                                                      |                                    |                                                                          |                                                                                         | Additional |   | Earnings     |        |          |   | Other         |        |      
|                                                                                                                      |                                    | Common                                                                   |                                                                                         | Paid-In    |   | (Accumulated |        | Employee |   | Comprehensive |        |      
|                                                                                                                      |                                    | Stock                                                                    |                                                                                         | Capital    |   | Deficit)     |        | Loans    |   | Income (Loss) |        | Total
|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |      
|                                                                                                                      |                                    |                                                                         
|                                                                                                                      |                                    | (Millions of US dollars)                                                
|Balances as of March 31, 2001                                                                                         |                                    | $                                                                        | 435.5                                                                                   |            |   | $            |       |          |   | $             | (102.3 | )     |   | $ | (7.9 | ) |   | $ | (44.2 | ) |       | $    | 281.1 |      
|Comprehensive income (loss):                                                                                          |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      
|                                                                                                                      | Net income                         |                                                                          |                                                                                         |           |   |              |        |         |   |               |        | 30.8  |   |   |      |  |   |   |       |  |       |      |       | 30.8  |      
|                                                                                                                      | Other comprehensive income (loss): |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |       |      
|                                                                                                                      |                                    | Effect of adopting SFAS No. 133:                                         |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |       |       |     
|                                                                                                                      |                                    |                                                                          | Unrealized transition loss on derivative
    instruments classified as cash flow hedges |            |   |             |        |          |   |              |        |       |   |  |      |   |   |  |       |   |       | (4.9 | )     |       |       | (4.9 | )
|                                                                                                                      |                                    |                                                                          | Amortization of unrealized transition loss on
    derivative instruments                |            |   |             |        |          |   |              |        |       |   |  |      |   |   |  |       |   |       | 1.1  |       |       |       | 1.1  |  
|                                                                                                                      |                                    | Foreign currency translation loss                                        |                                                                                         |            |  |              |        |          |  |               |        |       |  |   |      |   |  |   |       |   | (14.9 | )    |       |       | (14.9 | )   
|                                                                                                                      |                                    | Unrealized gain on available-for-sale securities                         |                                                                                         |            |  |              |        |          |  |               |        |       |  |   |      |   |  |   |       |   | 1.3   |      |       |       | 1.3   |     
|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      
|                                                                                                                      |                                    | Other comprehensive loss                                                 |                                                                                         |            |  |              |        |          |  |               |        |       |  |   |      |   |  |   |       |   | (17.4 | )    |       |       | (17.4 | )   
|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      
|                                                                                                                      |                                    | Total comprehensive income                                               |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |       | 13.4  |     
|Dividends paid                                                                                                        |                                    |                                                                          |                                                                                        |            |   |              |       |          |   |               | (20.3  | )     |   |   |     |   |   |   |      |   |       |      | (20.3 | )    
|Conversion of JHIL no par common shares to JHI NV
    Euro 0.50 par value common shares                               |                                    |                                                                          | (333.4                                                                                  | )          |   |              | 333.4  |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      |      |      
|Issuance of common stock                                                                                              |                                    |                                                                          | 103.1                                                                                   |            |   |              | 9.9    |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      | 113.0 |      
|Return of capital of $0.05 per share                                                                                  |                                    |                                                                          |                                                                                        |            |   |              | (22.5  | )        |   |               |       |       |   |   |     |   |   |   |      |   |       |      | (22.5 | )    
|Stock compensation                                                                                                    |                                    |                                                                          |                                                                                        |            |   |              | 1.8    |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      | 1.8   |      
|Tax benefit from stock options exercised                                                                              |                                    |                                                                          |                                                                                        |            |   |              | 0.2    |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      | 0.2   |      
|Employee loans repaid                                                                                                 |                                    |                                                                          |                                                                                        |            |   |              |       |          |   |               |       |       |   |   | 3.1  |   |   |   |      |   |       |      | 3.1   |      
|Stock options exercised                                                                                               |                                    |                                                                          | 0.2                                                                                     |            |   |              | 0.7    |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      | 0.9   |      
|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      
|Balances as of March 31, 2002                                                                                         |                                    |                                                                          | 205.4                                                                                   |            |   |              | 323.5  |          |   |               | (91.8  | )     |   |   | (4.8 | ) |   |   | (61.6 | ) |       |      | 370.7 |      
|Comprehensive income (loss):                                                                                          |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      
|                                                                                                                      | Net income                         |                                                                          |                                                                                         |           |   |              |        |         |   |               |        | 170.5 |   |   |      |  |   |   |       |  |       |      |       | 170.5 |      
|                                                                                                                      | Other comprehensive income (loss): |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |       |      
|                                                                                                                      |                                    | Amortization of unrealized transition loss on
    derivative instruments |                                                                                         |            |  |              |        |          |  |               |        |       |  |   |      |   |  |   |       |   | 1.1   |      |       |       | 1.1   |     
|                                                                                                                      |                                    | Foreign currency translation gain                                        |                                                                                         |            |  |              |        |          |  |               |        |       |  |   |      |   |  |   |       |   | 21.9  |      |       |       | 21.9  |     
|                                                                                                                      |                                    | Additional minimum pension liability adjustment                          |                                                                                         |            |  |              |        |          |  |               |        |       |  |   |      |   |  |   |       |   | (7.7  | )    |       |       | (7.7  | )   
|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      
|                                                                                                                      |                                    | Other comprehensive income                                               |                                                                                         |            |  |              |        |          |  |               |        |       |  |   |      |   |  |   |       |   | 15.3  |      |       |       | 15.3  |     
|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      
|                                                                                                                      |                                    | Total comprehensive income                                               |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |       | 185.8 |     
|Dividends paid                                                                                                        |                                    |                                                                          |                                                                                        |            |   |              |       |          |   |               | (34.3  | )     |   |   |     |   |   |   |      |   |       |      | (34.3 | )    
|Conversion of common stock from Euro
    0.50 par value to Euro 0.85 par value                                        |                                    |                                                                          | 157.9                                                                                   |            |   |              | (157.9 | )        |   |               |       |       |   |   |     |   |   |   |      |   |       |      |      |      
|Conversion of common stock from Euro
    0.85 par value to Euro 0.64 par value and subsequent
    return of capital   |                                    |                                                                          | (94.8                                                                                   | )          |   |              |       |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      | (94.8 | )    
|Stock compensation                                                                                                    |                                    |                                                                          |                                                                                        |            |   |              | 1.9    |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      | 1.9   |      
|Tax benefit from stock options exercised                                                                              |                                    |                                                                          |                                                                                        |            |   |              | 0.8    |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      | 0.8   |      
|Employee loans repaid                                                                                                 |                                    |                                                                          |                                                                                        |            |   |              |       |          |   |               |       |       |   |   | 0.4  |   |   |   |      |   |       |      | 0.4   |      
|Stock options exercised                                                                                               |                                    |                                                                          | 1.2                                                                                     |            |   |              | 3.0    |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      | 4.2   |      
|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      
|Balances as of March 31, 2003                                                                                         |                                    |                                                                          | 269.7                                                                                   |            |   |              | 171.3  |          |   |               | 44.4   |       |   |   | (4.4 | ) |   |   | (46.3 | ) |       |      | 434.7 |      
|Comprehensive income (loss):                                                                                          |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      
|                                                                                                                      | Net income                         |                                                                          |                                                                                         |           |   |              |        |         |   |               |        | 129.6 |   |   |      |  |   |   |       |  |       |      |       | 129.6 |      
|                                                                                                                      | Other comprehensive income (loss): |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |       |      
|                                                                                                                      |                                    | Amortization of unrealized transition loss on
    derivative instruments |                                                                                         |            |  |              |        |          |  |               |        |       |  |   |      |   |  |   |       |   | 1.1   |      |       |       | 1.1   |     
|                                                                                                                      |                                    | Foreign currency translation gain                                        |                                                                                         |            |  |              |        |          |  |               |        |       |  |   |      |   |  |   |       |   | 16.0  |      |       |       | 16.0  |     
|                                                                                                                      |                                    | Unrealized loss on available-for-sale securities                         |                                                                                         |            |  |              |        |          |  |               |        |       |  |   |      |   |  |   |       |   | (0.1  | )    |       |       | (0.1  | )   
|                                                                                                                      |                                    | Additional minimum pension liability adjustment                          |                                                                                         |            |  |              |        |          |  |               |        |       |  |   |      |   |  |   |       |   | 7.7   |      |       |       | 7.7   |     
|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      
|                                                                                                                      |                                    | Other comprehensive income                                               |                                                                                         |            |  |              |        |          |  |               |        |       |  |   |      |   |  |   |       |   | 24.7  |      |       |       | 24.7  |     
|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      
|                                                                                                                      |                                    | Total comprehensive income                                               |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |       | 154.3 |     
|Dividends paid                                                                                                        |                                    |                                                                          |                                                                                        |            |   |              |       |          |   |               | (22.9  | )     |   |   |     |   |   |   |      |   |       |      | (22.9 | )    
|Conversion of common stock from Euro
    0.64 par value to Euro 0.73 par value                                        |                                    |                                                                          | 48.4                                                                                    |            |   |              | (48.4  | )        |   |               |       |       |   |   |     |   |   |   |      |   |       |      |      |      
|Conversion of common stock from Euro
    0.73 par value to Euro 0.5995 par value and subsequent
    return of capital |                                    |                                                                          | (68.7                                                                                   | )          |   |              |       |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      | (68.7 | )    
|Conversion of common stock from Euro
    0.5995 par value to Euro 0.59 par value                                      |                                    |                                                                          | (5.0                                                                                    | )          |   |              | 5.0    |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      |      |      
|Stock compensation                                                                                                    |                                    |                                                                          |                                                                                        |            |   |              | 3.3    |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      | 3.3   |      
|Tax benefit from stock options exercised                                                                              |                                    |                                                                          |                                                                                        |            |   |              | 0.4    |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      | 0.4   |      
|Employee loans repaid                                                                                                 |                                    |                                                                          |                                                                                        |            |   |              |       |          |   |               |       |       |   |   | 0.4  |   |   |   |      |   |       |      | 0.4   |      
|Stock options exercised                                                                                               |                                    |                                                                          | 0.8                                                                                     |            |   |              | 2.4    |          |   |               |       |       |   |   |     |   |   |   |      |   |       |      | 3.2   |      
|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      
|Balances as of March 31, 2004                                                                                         |                                    | $                                                                        | 245.2                                                                                   |            |   | $            | 134.0  |          |   | $             | 151.1  |       |   | $ | (4.0 | ) |   | $ | (21.6 | ) |       | $    | 504.7 |      
|                                                                                                                      |                                    |                                                                          |                                                                                         |            |   |              |        |          |   |               |        |       |   |   |      |   |   |   |       |   |       |      |       |      

The accompanying notes are an integral part of
these consolidated financial statements.

F-6



---



##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




|   |                                     
|-- | ------------------------------------
|1. | Background and Basis of Presentation



| |                     
| | --------------------
| | Nature of Operations

The Company manufactures and sells fiber cement
building products for interior and exterior building
construction applications primarily in the United States,
Australia, New Zealand, Philippines, Chile and Europe. Prior to
April 25, 2002, the Company manufactured gypsum wallboard
for interior construction applications in the United States.



| |           
| | ----------
| | Background

On July 2, 1998,
ABN 60 000 009 263 Pty Ltd, formerly
James Hardie Industries Limited (JHIL), then a
public company organized under the laws of Australia and listed
on the Australian Stock Exchange, announced a plan of
reorganization and capital restructuring (the 1998
Reorganization). James Hardie N.V. (JHNV) was
incorporated in August 1998, as an intermediary holding company,
with all of its common stock owned by indirect subsidiaries of
JHIL. On October 16, 1998, JHILs shareholders
approved the 1998 Reorganization. Effective as of
November 1, 1998, JHIL contributed its fiber cement
businesses, its U.S. gypsum wallboard business, its
Australian and New Zealand building systems businesses and its
Australian windows business (collectively, the Transferred
Businesses) to JHNV and its subsidiaries. In connection
with the 1998 Reorganization, JHIL and its non-transferring
subsidiaries retained certain unrelated assets and liabilities.

On July 24, 2001, JHIL announced a further
plan of reorganization and capital restructuring (the 2001
Reorganization). Completion of the 2001 Reorganization
occurred on October 19, 2001. In connection with the 2001
Reorganization, James Hardie Industries N.V.
(JHI NV), formerly RCI Netherlands Holdings
B.V., issued common shares represented by CHESS Units of Foreign
Securities (CUFS) on a one for one basis to existing
JHIL shareholders in exchange for their shares in JHIL such that
JHI NV became the new ultimate holding company for JHIL and
JHNV. Following the 2001 Reorganization, JHI NV controls
the same assets and liabilities as JHIL controlled immediately
prior to the 2001 Reorganization.



| |                      
| | ---------------------
| | Basis of Presentation

The consolidated financial statements represent
the financial position, results of operations and cash flows of
JHI NV and its wholly owned subsidiaries, collectively referred
to as either the Company or James
Hardie, unless the context indicates otherwise. For the
periods prior to October 19, 2001, the effective date of
the 2001 Reorganization, the consolidated financial statements
represent the financial position, results of operations and cash
flows of JHIL and its wholly owned subsidiaries.

In accordance with accounting principles
generally accepted in the United States of America, the
transfers to JHI NV have been accounted for on a historical
cost basis using the as-if pooling method on the
basis that the transfers are between companies under common
control.



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies



| |                      
| | ---------------------
| | Accounting Principles

The consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in the United States of America
(U.S. GAAP). The U.S. dollar is used as
the reporting currency. All subsidiaries are consolidated and
all significant intercompany transactions and balances are
eliminated.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and

F-7



---



##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these
estimates.



| |                  
| | -----------------
| | Reclassifications

Certain prior year balances have been
reclassified to conform with the current year presentation.



| |                             
| | ----------------------------
| | Foreign Currency Translation

All assets and liabilities are translated into
U.S. dollars at current exchange rates while revenues and
expenses are translated at average exchange rates in effect for
the period. The effects of foreign currency translation
adjustments are included directly in other comprehensive income
in shareholders equity. Gains and losses arising from
foreign currency transactions are recognized in income currently.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents include amounts on
deposit in banks and cash invested temporarily in various highly
liquid financial instruments with original maturities of three
months or less when acquired.



| |            
| | -----------
| | Inventories

Inventories are valued at the lower of cost or
market. Cost is generally determined under the first-in,
first-out method, except that the cost of raw materials and
supplies is determined using actual or average costs. Cost
includes the costs of materials, labor and applied factory
overhead.



| |            
| | -----------
| | Investments

Management determines the proper classifications
of investments at the time of purchase and re-evaluates such
designations at each balance sheet date. All marketable
securities are designated as available-for-sale securities.
Accordingly, these securities are stated at fair value based
upon quoted market prices, with unrealized gains and losses
charged to other comprehensive income in shareholders
equity, net of taxes. Realized gains and losses and declines in
value judged to be other-than-temporary on available-for-sale
securities are included in other income or expense currently.

Other investments without readily available
quoted market prices are recorded at the lower of cost or
managements estimate of fair value.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment are stated at cost.
Property, plant and equipment of businesses acquired are
recorded at their estimated cost based on fair value at the date
of acquisition. Depreciation of property, plant and equipment is
computed using the straight-line method over the following
estimated useful lives:

|                               |  |       |         | 
|------------------------------ |  | ----- | ------- | 
|                               |  | Years
|                               |  |      
|Buildings                      |  |       | 40      | 
|Building improvements          |  |       | 5 to 10 | 
|Machinery and equipment        |  |       | 5 to 27 | 
|Computer equipment             |  |       | 3 to 4  | 
|Office furniture and equipment |  |       | 3 to 10 | 

The cost of additions and improvements is
capitalized, while maintenance and repair costs are expensed as
incurred. Interest is capitalized in connection with the
construction of major facilities. Capitalized interest

F-8



---



##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

is recorded as part of the asset to which it
relates and is amortized over the assets estimated useful
life. Retirements, sales and disposals of assets are recorded by
removing the cost and accumulated depreciation amounts with any
resulting gain or loss reflected in the consolidated statements
of income.



| |                  
| | -----------------
| | Intangible Assets

Intangible assets consist primarily of goodwill,
which represents cost in excess of the fair value of the
identifiable net assets of businesses acquired. In July 2001,
the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142, which changes
the accounting for goodwill and indefinite-lived intangible
assets from an amortization method to an impairment-only
approach, is effective for fiscal years beginning after
December 15, 2001. The adoption of this standard, effective
April 1, 2002, had no material impact on the Companys
consolidated financial statements. The Companys selling,
general and administrative expenses were reduced by
approximately $0.1 million for each of the years ended
March 31, 2004 and 2003 due to the discontinuance of
goodwill amortization as required by SFAS No. 142.



| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    Assets

The Company regularly reviews its long-lived
assets for impairment. Potential impairment of assets held for
use is determined by comparing the carrying amount of an asset
to the future undiscounted cash flows expected to be generated
by that asset. If assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying value of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value, less costs to sell. In August
2001, SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, was issued
and became effective April 2002. SFAS No. 144
supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, however, it retains the requirement that
long-lived assets be tested for recoverability when events or
changes in circumstances indicate carrying amounts may not be
recoverable. The adoption of this standard had no material
impact on the Companys consolidated financial statements.



| |              
| | -------------
| | Environmental

Environmental remediation expenditures that
relate to current operations are expensed or capitalized as
appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to
current or future revenue generation, are expensed. Liabilities
are recorded when environmental assessments and/or remedial
efforts are probable and the costs can be reasonably estimated.
Estimated liabilities are not discounted to present value.
Generally, the timing of these accruals coincides with
completion of a feasibility study or the Companys
commitment to a formal plan of action.



| |                          
| | -------------------------
| | Mineral Acquisition Costs

The Company records acquired proven and probable
silica mineral ore reserves at their fair value at the date of
acquisition. Depletion expense is recorded based on the
estimated rate per ton multiplied by the number of tons
extracted during the period. The rate per ton may be
periodically revised by management based on changes in the
estimated tons available to be extracted which, in turn, is
based on third party studies of proven and probable reserves.
The estimated costs of reclamation associated with mining
activities are accrued during production and are included in
determining the cost of production.

In June 2001, the FASB issued
SFAS No. 143, Accounting for Asset Retirement
Obligations, which addresses the financial accounting and
reporting for legal obligations associated with the retirement
of tangible assets and the associated asset retirement costs.
SFAS No. 143 provisions apply to legal obligations
associated with the retirement of long-lived assets that result
from the acquisition, construction, development and/or the

F-9



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

normal operation of a long-lived asset, except
for certain obligations of lessees. SFAS No. 143
requires the recording of a liability for an asset retirement
obligation in the period in which the liability is incurred. The
initial measurement is based upon the present value of estimated
third party costs and a related long-lived asset retirement cost
capitalized as part of the assets carrying value and
allocated to expense over the assets useful life. In
accordance with SFAS No. 143, the Company accrues for
reclamation costs associated with mining activities, which are
accrued during production and are included in determining the
cost of production. The adoption of this standard did not have a
material impact on the Companys consolidated financial
statements.



| |                    
| | -------------------
| | Revenue Recognition

The Company recognizes revenue when the risks and
obligations of ownership have been transferred to the customer,
which generally occurs at the time of delivery to the customer.
The Company records estimated reductions to sales for customer
rebates and discounts including volume, promotional, cash and
other discounts. Rebates and discounts are recorded based on
managements best estimate when products are sold. The
estimates are based on historical experience for similar
programs and products. Management reviews these rebates and
discounts on an ongoing basis and the related accruals are
adjusted, if necessary, as additional information becomes
available.



| |                      
| | ---------------------
| | Advertising and Legal

The Company expenses the production costs of
advertising the first time the advertising takes place.
Advertising expense was $15.2 million, $10.5 million
and $10.3 million during the years ended March 31,
2004, 2003 and 2002, respectively.

It is currently the Companys policy to
expense any legal costs as incurred.



| |                           
| | --------------------------
| | Accrued Product Warranties

An accrual for estimated future warranty costs is
recorded based on an analysis by the Company, including the
historical relationship of warranty costs to sales.



| |             
| | ------------
| | Income Taxes

The Company accounts for income taxes under the
liability method. Under this method, deferred income taxes are
recognized by applying enacted statutory rates applicable to
future years to differences between the tax bases and financial
reporting amounts of existing assets and liabilities. The effect
on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. A
valuation allowance is provided when it is more likely than not
that all or some portion of deferred tax assets will not be
realized.



| |                      
| | ---------------------
| | Financial Instruments

To meet the reporting requirements of
SFAS No. 107, Disclosures About Fair Value of
Financial Instruments, the Company calculates the fair
value of financial instruments and includes this additional
information in the notes to the consolidated financial
statements when the fair value is different than the carrying
value of those financial instruments. When the fair value
reasonably approximates the carrying value, no additional
disclosure is made. The estimated fair value amounts have been
determined by the Company using available market information and
appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.

F-10



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On April 1, 2001, the Company adopted
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. The
cumulative effect on April 1, 2001 of adopting this
statement was to reduce other comprehensive income, a component
of shareholders equity, by $4.9 million.

Periodically, interest rate swaps, commodity
swaps and forward exchange contracts are used to manage market
risks and reduce exposure resulting from fluctuations in
interest rates, commodity prices and foreign currency exchange
rates. Where such contracts are designated as, and are effective
as, a hedge, gains and losses arising on such contracts are
accounted for in accordance with SFAS No. 133.
Specifically, changes in the fair value of derivative
instruments designated as cash flow hedges are deferred and
recorded in other comprehensive income. These deferred gains or
losses are recognized in income when the transactions being
hedged are completed. The ineffective portion of these hedges is
recognized in income currently. Changes in the fair value of
derivative instruments designated as fair value hedges are
recognized in income, as are changes in the fair value of the
hedged item. Changes in the fair value of derivative instruments
that are not designated as hedges for accounting purposes are
recognized in income. The Company does not use derivatives for
trading purposes.



| |                         
| | ------------------------
| | Stock-Based Compensation

In fiscal year 2003, the Company adopted the fair
value provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, which requires the Company to
value stock options issued based upon an option pricing model
and recognize this value as compensation expense over the
periods in which the options vest. In accordance with the
provisions of SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure,
an amendment of SFAS No. 123, the Company has
elected to recognize stock-based compensation using the
retroactive restatement method. Under this change in accounting
method, the Company has restated its consolidated financial
statements for all years presented herein to reflect stock-based
compensation expense under a fair value based accounting method
for all options granted, modified or settled in fiscal years
beginning after March 31, 1995. See Note 18 for full
disclosures required under SFAS No. 123 and 148.



| |                       
| | ----------------------
| | Employee Benefit Plans

The Company sponsors both defined benefit and
defined contribution retirement plans for its employees. The
defined contribution plans cover all eligible employees and
provide contributions of up to 6% of the eligible
employees salaries or wages. These contributions are
recognized as periodic pension expense in the period that the
employees salaries or wages are earned. The defined
benefit plan covers all eligible employees and takes into
consideration the following components to calculate net periodic
pension expense: (a) service cost; (b) interest cost;
(c) expected return on plan assets; (d) amortization
of unrecognized prior service cost; (e) recognition of net
actuarial gains or losses; and (f) amortization of any
unrecognized net transition asset. If the amount of the
Companys total contribution to its pension plan for the
period is not equal to the amount of net periodic pension cost,
the Company recognizes the difference either as a prepaid or
accrued pension cost.



| |          
| | ---------
| | Dividends

Dividends are recorded as a liability on the date
that the Board of Directors formally declares the dividend.



| |                   
| | ------------------
| | Earnings Per Share

The Company is required to disclose basic and
diluted earnings per share (EPS). Basic EPS is
calculated using income divided by the weighted average number
of common shares outstanding during the period. Diluted EPS is
similar to basic EPS except that the weighted average number of
common shares outstanding is increased to include the number of
additional common shares calculated using the treasury

F-11



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

method that would have been outstanding if the
dilutive potential common shares, such as options, had been
issued. Accordingly, basic and dilutive common shares
outstanding used in determining net income per share are as
follows:

|                                  |  |                      |       |      |  |      |       |  |  |   |       | 
|--------------------------------- |  | -------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                  |  |                     
|                                  |  | Years Ended March 31
|                                  |  |                     
|                                  |  | 2004                 |       | 2003 |  | 2002
|                                  |  |                      |       |      |  |     
|                                  |  |                     
|                                  |  | (Millions except    
|                                  |  | per share amounts)  
|Basic common shares outstanding   |  |                      | 458.1 |      |  |      | 456.7 |  |  |   | 438.4 | 
|Dilutive effect of stock options  |  |                      | 3.3   |      |  |      | 2.7   |  |  |   | 2.0   | 
|                                  |  |                      |       |      |  |      |       |  |  |   |       | 
|Diluted common shares outstanding |  |                      | 461.4 |      |  |      | 459.4 |  |  |   | 440.4 | 
|                                  |  |                      |       |      |  |      |       |  |  |   |       | 
|Net income per share  basic      |  | $                    | 0.28  |      |  | $    | 0.37  |  |  | $ | 0.07  | 
|Net income per share  diluted    |  | $                    | 0.28  |      |  | $    | 0.37  |  |  | $ | 0.07  | 

Potential common shares of 2.0 million,
1.3 million and 4.2 million for the years ended
March 31, 2004, 2003 and 2002, respectively, have been
excluded from the calculation of diluted common shares
outstanding because the effect of their inclusion would be
anti-dilutive.



| |                                                  
| | -------------------------------------------------
| | Accumulated Other Comprehensive Income
    (Loss)

Accumulated other comprehensive income (loss)
includes adjustments for additional minimum pension liabilities,
foreign currency translation, unrealized gains and losses on
available-for-sale securities and derivative instruments and is
presented as a separate component of shareholders equity.



| |                        
| | -----------------------
| | Extinguishments of Debt

In May 2002, the FASB issued
SFAS No. 145, Rescission of SFAS Nos. 4, 44
and 64, Amendment of SFAS No. 13, and Technical
Corrections. Among other things, SFAS No. 145
rescinds various pronouncements regarding early extinguishment
of debt and allows extraordinary accounting treatment for early
extinguishment only when the provisions of Accounting Principles
Board (APB) Opinion No. 30, Reporting the
Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, are
met. SFAS No. 145 provisions regarding early
extinguishment of debt are generally effective for fiscal years
beginning after May 15, 2002. As permitted under
SFAS No. 145, the Company has early adopted the
provisions of this standard effective April 1, 2002. As a
result of the early retirement of $60.0 million of the
Companys long-term debt, the Company incurred charges of
$9.9 million related to a make-whole payment paid to
certain noteholders on December 23, 2002. Accordingly, this
amount was included in interest expense in the year ended
March 31, 2003 rather than as an extraordinary item.



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Amendment of SFAS No. 133, Accounting for
    Derivative Instruments and Hedging Activities

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement
No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement clarifies the definition of a
derivative and incorporates certain decisions made by the FASB
as part of the Derivatives Implementation Group process. This
statement is effective for contracts entered into or modified,
and for hedging relationships designated after June 30,
2003 and should be applied prospectively. The provisions of the
statement that relate to implementation issues addressed by the
Derivatives Implementation Group that have been effective should
continue to be applied in accordance with their respective
effective dates. The adoption of this standard did not have a
material impact on the Companys consolidated financial
statements.

F-12



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Certain Financial Instruments with
    Characteristics of both Liabilities and Equity

In May 2003, the FASB issued
SFAS No. 150, Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This
statement establishes standards for how a company clarifies and
measures certain financial instruments with characteristics of
both liabilities and equity. It requires a company to classify
such instruments as liabilities, whereas they previously may
have been classified as equity. The standard is effective for
all financial instruments entered into or modified after
May 31, 2003, and otherwise is effective July 1, 2003.
The adoption of this standard did not have an impact on the
Companys consolidated financial statements.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Employers Disclosures about Pensions and
    Other Postretirement Benefits

In December 2003, the FASB issued
SFAS No. 132 (revised 2003)
(SFAS No. 132R), Employers
Disclosures about Pensions and Other Postretirement Benefits, an
amendment of FASB Statement 87, Employers Accounting
for Pensions, No. 88, Employers Accounting for
Settlement and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits, and No. 106, Employers
Accounting for Postretirement Benefits Other than
Pensions. SFAS No. 132R requires additional
disclosures about the assets, obligations, cash flows and net
periodic benefit/cost of defined benefit pension plans and other
defined benefit postretirement plans. SFAS No. 132R is
effective for foreign plans for the fiscal years ending after
June 15, 2004. The Company does not expect the adoption of
this standard to have a material impact on the Companys
consolidated financial statements.



| |                                                
| | -----------------------------------------------
| | Consolidation of Variable Interest
    Entities

In December 2003, the FASB issued FASB
Interpretation No. (FIN) 46 (revised December 2003),
Consolidation of Variable Interest Entities
(FIN 46R), which addresses how a business
should evaluate whether it has a controlling financial interest
in an entity through means other than voting rights and
accordingly should consolidate the entity. FIN 46R replaced
FIN 46 which was issued in January 2003. FIN 46 or
FIN 46R applies immediately to entities created after
January 31, 2003 and no later than the end of the first
reporting period that ended after December 15, 2003 to
entities considered to be special-purpose entities
(SPEs). FIN 46R is effective for all other
entities no later than the end of the first interim or annual
reporting period ending after March 15, 2004. The adoption
of the provisions of FIN 46 or FIN 46R relative to
SPEs and for entities created after January 31, 2003 did
not have an impact on the Companys consolidated financial
statements. Additionally, the Company does not expect the other
provisions of FIN 46R to have a material impact on the
Companys consolidated financial statements.



|   |                          
|-- | -------------------------
|3. | Cash and Cash Equivalents

Cash and cash equivalents consist of the
following components:

|                         |                                 |              |      |      |  |   |      |      | 
|------------------------ | ------------------------------- | ------------ | ---- | ---- |  | - | ---- | ---- | 
|                         |                                 |             
|                         |                                 | March 31    
|                         |                                 |             
|                         |                                 | 2004         |      | 2003
|                         |                                 |              |      |     
|                         |                                 |             
|                         |                                 | (Millions of
|                         |                                 | US dollars) 
|Cash at bank and on hand |                                 | $            | 24.6 |      |  | $ | 39.7 |     
|Short-term deposits      |                                 |              | 47.7 |      |  |   | 14.9 |     
|                         |                                 |              |      |      |  |   |      |     
|                         | Total cash and cash equivalents |              | $    | 72.3 |  |   | $    | 54.6 | 
|                         |                                 |              |      |      |  |   |      |     

Short-term deposits are placed at floating
interest rates varying between 0.90% to 1.02% and 1.18% to 1.75%
as of March 31, 2004 and 2003, respectively.

F-13



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                              
|-- | -----------------------------
|4. | Accounts and Notes Receivable

Accounts and notes receivable consist of the
following components:

|                                |                                     |              |       |       |  |   |      |      | 
|------------------------------- | ----------------------------------- | ------------ | ----- | ----- |  | - | ---- | ---- | 
|                                |                                     |             
|                                |                                     | March 31    
|                                |                                     |             
|                                |                                     | 2004         |       | 2003 
|                                |                                     |              |       |      
|                                |                                     |             
|                                |                                     | (Millions of
|                                |                                     | US dollars) 
|Trade receivables               |                                     | $            | 109.9 |       |  | $ | 83.0 |     
|Other receivables and advances  |                                     |              | 9.7   |       |  |   | 5.8  |     
|Allowance for doubtful accounts |                                     |              | (1.2  | )     |  |   | (1.0 | )   
|                                |                                     |              |       |       |  |   |      |     
|                                | Total accounts and notes receivable |              | $     | 118.4 |  |   | $    | 87.8 | 
|                                |                                     |              |       |       |  |   |      |     

The collectibility of accounts receivable,
consisting mainly of trade receivables, is reviewed on an
ongoing basis and an allowance for doubtful accounts is provided
for known and estimated bad debts. The following are changes in
the allowance for doubtful accounts:

|                           |  |              |      |      |  |   |      |  
|-------------------------- |  | ------------ | ---- | ---- |  | - | ---- | -
|                           |  |             
|                           |  | March 31    
|                           |  |             
|                           |  | 2004         |      | 2003
|                           |  |              |      |     
|                           |  |             
|                           |  | (Millions of
|                           |  | US dollars) 
|Balance at April 1         |  | $            | 1.0  |      |  | $ | 0.5  |  
|Charged to expense         |  |              | 0.9  |      |  |   | 0.5  |  
|Costs and deductions       |  |              | (0.8 | )    |  |   | (0.1 | )
|Foreign currency movements |  |              | 0.1  |      |  |   | 0.1  |  
|                           |  |              |      |      |  |   |      |  
|Balance at March 31        |  | $            | 1.2  |      |  | $ | 1.0  |  
|                           |  |              |      |      |  |   |      |  



|   |            
|-- | -----------
|5. | Inventories

Inventories consist of the following components:

|                                                            |                   |              |      |       |  |   |      |      | 
|----------------------------------------------------------- | ----------------- | ------------ | ---- | ----- |  | - | ---- | ---- | 
|                                                            |                   |             
|                                                            |                   | March 31    
|                                                            |                   |             
|                                                            |                   | 2004         |      | 2003 
|                                                            |                   |              |      |      
|                                                            |                   |             
|                                                            |                   | (Millions of
|                                                            |                   | US dollars) 
|Finished goods                                              |                   | $            | 76.7 |       |  | $ | 54.7 |     
|Work-in-process                                             |                   |              | 6.4  |       |  |   | 4.5  |     
|Raw materials and supplies                                  |                   |              | 22.3 |       |  |   | 16.2 |     
|Provision for obsolete finished goods and raw
    materials |                   |              | (2.2 | )     |  |   | (1.4 | )   
|                                                            |                   |              |      |       |  |   |      |     
|                                                            | Total inventories |              | $    | 103.2 |  |   | $    | 74.0 | 
|                                                            |                   |              |      |       |  |   |      |     

F-14



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |            
|-- | -----------
|6. | Investments

Investments consist of the following components:

|                                                   |                                     |              |     |      |  |   |     |     | 
|-------------------------------------------------- | ----------------------------------- | ------------ | --- | ---- |  | - | --- | --- | 
|                                                   |                                     |             
|                                                   |                                     | March 31    
|                                                   |                                     |             
|                                                   |                                     | 2004         |     | 2003
|                                                   |                                     |              |     |     
|                                                   |                                     |             
|                                                   |                                     | (Millions of
|                                                   |                                     | US dollars) 
|Available-for-sale securities:                     |                                     |              |     |      |  |   |     |    
|                                                   | Marketable securities at cost       |              | $   | 2.1  |  |   | $   | 3.2 | 
|                                                   | Unrealized gains                    |              |     |     |  |   |     | 1.1 | 
|                                                   |                                     |              |     |      |  |   |     |    
|                                                   | Marketable securities at fair value |              |     | 2.1  |  |   |     | 4.3 | 
|Other investments at cost approximating fair value |                                     |              | 1.6 |      |  |   | 1.7 |    
|                                                   |                                     |              |     |      |  |   |     |    
|Total investments                                  |                                     | $            | 3.7 |      |  | $ | 6.0 |    
|                                                   |                                     |              |     |      |  |   |     |    



|   |                              
|-- | -----------------------------
|7. | Property, Plant and Equipment

Property, plant and equipment consist of the
following components:

|                                         |  |                          |      |           |  |           |       |              |  |       |        |   |  |   |       |   |  |   |        |  
|---------------------------------------- |  | ------------------------ | ---- | --------- |  | --------- | ----- | ------------ |  | ----- | ------ | - |  | - | ----- | - |  | - | ------ | -
|                                         |  |                          |      |           |  | Machinery |       |              |  |      
|                                         |  |                          |      |           |  | and       |       | Construction |  |      
|                                         |  | Land                     |      | Buildings |  | Equipment |       | in Progress  |  | Total
|                                         |  |                          |      |           |  |           |       |              |  |      
|                                         |  |                         
|                                         |  | (Millions of US dollars)
|Balance at April 1, 2003:                |  |                          |      |           |  |           |       |              |  |       |        |   |  |   |       |   |  |   |        |  
|Cost                                     |  | $                        | 8.6  |           |  | $         | 119.8 |              |  | $     | 444.4  |   |  | $ | 107.0 |   |  | $ | 679.8  |  
|Accumulated depreciation                 |  |                          |     |           |  |           | (20.9 | )            |  |       | (138.9 | ) |  |   |      |   |  |   | (159.8 | )
|                                         |  |                          |      |           |  |           |       |              |  |       |        |   |  |   |       |   |  |   |        |  
|Net book value                           |  |                          | 8.6  |           |  |           | 98.9  |              |  |       | 305.5  |   |  |   | 107.0 |   |  |   | 520.0  |  
|Changes in net book value:               |  |                          |      |           |  |           |       |              |  |       |        |   |  |   |       |   |  |   |        |  
|Capital expenditures                     |  |                          | 3.5  |           |  |           | 25.1  |              |  |       | 89.5   |   |  |   | (44.0 | ) |  |   | 74.1   |  
|Retirements and sales                    |  |                          | (0.8 | )         |  |           | (5.3  | )            |  |       | (0.6   | ) |  |   |      |   |  |   | (6.7   | )
|Depreciation                             |  |                          |     |           |  |           | (4.7  | )            |  |       | (31.2  | ) |  |   |      |   |  |   | (35.9  | )
|Other movement                           |  |                          |     |           |  |           |      |              |  |       | (0.7   | ) |  |   |      |   |  |   | (0.7   | )
|Foreign currency translation adjustments |  |                          |     |           |  |           |      |              |  |       | 16.3   |   |  |   |      |   |  |   | 16.3   |  
|                                         |  |                          |      |           |  |           |       |              |  |       |        |   |  |   |       |   |  |   |        |  
|Total changes                            |  |                          | 2.7  |           |  |           | 15.1  |              |  |       | 73.3   |   |  |   | (44.0 | ) |  |   | 47.1   |  
|Balance at March 31, 2004:               |  |                          |      |           |  |           |       |              |  |       |        |   |  |   |       |   |  |   |        |  
|Cost                                     |  |                          | 11.3 |           |  |           | 135.0 |              |  |       | 562.8  |   |  |   | 63.0  |   |  |   | 772.1  |  
|Accumulated depreciation                 |  |                          |     |           |  |           | (21.0 | )            |  |       | (184.0 | ) |  |   |      |   |  |   | (205.0 | )
|                                         |  |                          |      |           |  |           |       |              |  |       |        |   |  |   |       |   |  |   |        |  
|Net book value                           |  | $                        | 11.3 |           |  | $         | 114.0 |              |  | $     | 378.8  |   |  | $ | 63.0  |   |  | $ | 567.1  |  
|                                         |  |                          |      |           |  |           |       |              |  |       |        |   |  |   |       |   |  |   |        |  

Construction in progress consists of plant
expansions and upgrades.

Interest related to the construction of major
facilities is capitalized and included in the cost of the asset
to which it relates. Interest capitalized was $1.6 million,
$1.7 million and $6.5 million for the years ended
March 31, 2004, 2003 and 2002, respectively. Depreciation
expense for continuing operations was $35.9 million,
$27.2 million and $23.3 million for the years ended
March 31, 2004, 2003 and 2002, respectively.

F-15



---



##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                  
|-- | -----------------
|8. | Intangible Assets

Intangible assets consist of the following
components:

|                                         |  |                          |      |       |  |       |      |   |  |   |      |  
|---------------------------------------- |  | ------------------------ | ---- | ----- |  | ----- | ---- | - |  | - | ---- | -
|                                         |  | Goodwill                 |      | Other |  | Total
|                                         |  |                          |      |       |  |      
|                                         |  |                         
|                                         |  | (Millions of US dollars)
|Balance at April 1, 2003:                |  |                          |      |       |  |       |      |   |  |   |      |  
|Cost                                     |  | $                        | 2.0  |       |  | $     | 2.3  |   |  | $ | 4.3  |  
|Accumulated amortization                 |  |                          | (0.2 | )     |  |       | (0.7 | ) |  |   | (0.9 | )
|                                         |  |                          |      |       |  |       |      |   |  |   |      |  
|Net book value                           |  |                          | 1.8  |       |  |       | 1.6  |   |  |   | 3.4  |  
|Changes in net book value:               |  |                          |      |       |  |       |      |   |  |   |      |  
|Amortization                             |  |                          |     |       |  |       | (0.5 | ) |  |   | (0.5 | )
|Additional minimum pension liability     |  |                          |     |       |  |       | (0.1 | ) |  |   | (0.1 | )
|Foreign currency translation adjustments |  |                          | 0.3  |       |  |       | (0.1 | ) |  |   | 0.2  |  
|                                         |  |                          |      |       |  |       |      |   |  |   |      |  
|Total changes                            |  |                          | 0.3  |       |  |       | (0.7 | ) |  |   | (0.4 | )
|Balance at March 31, 2004:               |  |                          |      |       |  |       |      |   |  |   |      |  
|Cost                                     |  |                          | 2.3  |       |  |       | 2.1  |   |  |   | 4.4  |  
|Accumulated amortization                 |  |                          | (0.2 | )     |  |       | (1.2 | ) |  |   | (1.4 | )
|                                         |  |                          |      |       |  |       |      |   |  |   |      |  
|Net book value                           |  | $                        | 2.1  |       |  | $     | 0.9  |   |  | $ | 3.0  |  
|                                         |  |                          |      |       |  |       |      |   |  |   |      |  

The Company recorded amortization expense of
$0.5 million, $0.2 million and nil for the years ended
March 31, 2004, 2003 and 2002, respectively, related to
other intangibles. Amortization expense of $0.2 million has
been recorded for the year ended March 31, 2002 related to
goodwill.



|   |                 
|-- | ----------------
|9. | Retirement Plans

The Company sponsors a defined contribution plan
for employees in its U.S. operations and defined benefit
and defined contribution plans for its Australian and New
Zealand employees, respectively. The defined contribution plan
in the U.S. covers all U.S. employees meeting certain
eligibility requirements and provides for contributions of up to
6% of their salary or wages. The Companys expense for its
defined contribution plans totaled $3.8 million,
$2.9 million and $2.6 million for the years ended
March 31, 2004, 2003 and 2002, respectively.

The following are the components of net periodic
pension cost for the Australian defined benefit pension plan:

|                                              |  |                          |      |      |  |      |      |   |  |   |      |  
|--------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                              |  |                         
|                                              |  | Years Ended March 31    
|                                              |  |                         
|                                              |  | 2004                     |      | 2003 |  | 2002
|                                              |  |                          |      |      |  |     
|                                              |  |                         
|                                              |  | (Millions of US dollars)
|Service cost                                  |  | $                        | 2.9  |      |  | $    | 2.7  |   |  | $ | 2.9  |  
|Interest cost                                 |  |                          | 2.9  |      |  |      | 2.9  |   |  |   | 2.4  |  
|Expected return on plan assets                |  |                          | (3.6 | )    |  |      | (3.2 | ) |  |   | (3.7 | )
|Amortization of unrecognized transition asset |  |                          | (0.9 | )    |  |      | (0.8 | ) |  |   | (0.8 | )
|Amortization of prior service costs           |  |                          | 0.1  |      |  |      |     |   |  |   |     |  
|Recognized net actuarial loss                 |  |                          | 0.4  |      |  |      | 0.7  |   |  |   | 0.1  |  
|                                              |  |                          |      |      |  |      |      |   |  |   |      |  
|Net periodic pension cost                     |  | $                        | 1.8  |      |  | $    | 2.3  |   |  | $ | 0.9  |  
|                                              |  |                          |      |      |  |      |      |   |  |   |      |  

F-16



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A settlement loss of $1.3 million was
recognized during the year ended March 31, 2002 as a result
of the sale of the Companys Windows business.

The following are the assumptions used in
developing the net periodic benefit cost and projected benefit
obligation as of March 31 for the Australian defined
benefit pension plan:

|                                          |  |          |      |      |  |      |      |  |  |  |      | 
|----------------------------------------- |  | -------- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                                          |  |         
|                                          |  | March 31
|                                          |  |         
|                                          |  | 2004     |      | 2003 |  | 2002
|                                          |  |          |      |      |  |     
|Net Periodic Benefit Cost Assumptions:    |  |          |      |      |  |      |      |  |  |  |      | 
|Discount rate                             |  |          | 6.8% |      |  |      | 7.0% |  |  |  | 5.5% | 
|Rate of increase in compensation          |  |          | 3.5% |      |  |      | 3.5% |  |  |  | 4.0% | 
|Expected return on plan assets            |  |          | 6.8% |      |  |      | 7.0% |  |  |  | 7.5% | 
|Projected Benefit Obligation Assumptions: |  |          |      |      |  |      |      |  |  |  |      | 
|Discount rate                             |  |          | 6.5% |      |  |      | 6.8% |  |  |  | 7.0% | 
|Rate of increase in compensation          |  |          | 4.0% |      |  |      | 3.5% |  |  |  | 3.5% | 

Plan assets consist primarily of investments in
marketable securities. Net unrecognized gains and losses are
amortized over the average remaining service period of active
employees. A market related value of assets is used to determine
pension costs with the difference between actual and expected
investment return each year recognized over 5 years. The
discount rate methodology is based on the yield on 10 year
high quality investment securities adjusted to reflect the rates
at which pension benefits could be effectively settled. The
changes in the discount rate from 2003 to 2004 and from 2002 to
2003 are a direct result of the changes in yields of high
quality investment securities over the same periods, adjusted to
rates at which pension benefits could be effectively settled.
The increase in the rate of increase in compensation under the
projected benefit obligation assumption from 2003 to 2004
reflects an increase in the expected margin of compensation
increases over price inflation. The decrease in the expected
return on plan assets from 2003 to 2004 and from 2002 to 2003 is
a result of lower expected after-tax rates of return.

The following are the actuarial changes in the
benefit obligation, changes in plan assets and the funded status
of the Australian defined benefit pension plan:

|                                 |  |              |       |      |  |   |      |  
|-------------------------------- |  | ------------ | ----- | ---- |  | - | ---- | -
|                                 |  |             
|                                 |  | Years Ended 
|                                 |  | March 31    
|                                 |  |             
|                                 |  | 2004         |       | 2003
|                                 |  |              |       |     
|                                 |  |             
|                                 |  | (Millions of
|                                 |  | US dollars) 
|Changes in benefit obligation:   |  |              |       |      |  |   |      |  
|Benefit obligation at April 1    |  | $            | 38.5  |      |  | $ | 38.7 |  
|Service cost                     |  |              | 2.9   |      |  |   | 2.7  |  
|Interest cost                    |  |              | 2.9   |      |  |   | 2.9  |  
|Plan participants contributions |  |              | 0.3   |      |  |   | 0.3  |  
|Actuarial gain                   |  |              | (1.5  | )    |  |   | (5.5 | )
|Benefits paid                    |  |              | (11.8 | )    |  |   | (5.5 | )
|Foreign currency translation     |  |              | 9.4   |      |  |   | 4.9  |  
|                                 |  |              |       |      |  |   |      |  
|Benefit obligation at March 31   |  | $            | 40.7  |      |  | $ | 38.5 |  
|                                 |  |              |       |      |  |   |      |  

F-17



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                         |  |              |       |      |  |   |       |  
|------------------------------------------------------------------------ |  | ------------ | ----- | ---- |  | - | ----- | -
|                                                                         |  |             
|                                                                         |  | Years Ended 
|                                                                         |  | March 31    
|                                                                         |  |             
|                                                                         |  | 2004         |       | 2003
|                                                                         |  |              |       |     
|                                                                         |  |             
|                                                                         |  | (Millions of
|                                                                         |  | US dollars) 
|Changes in plan assets:                                                  |  |              |       |      |  |   |       |  
|Fair value of plan assets at April 1                                     |  | $            | 37.7  |      |  | $ | 39.8  |  
|Actual return (loss) on plan assets                                      |  |              | 3.0   |      |  |   | (4.4  | )
|Employer contributions                                                   |  |              | 2.8   |      |  |   | 2.5   |  
|Participant contributions                                                |  |              | 0.3   |      |  |   | 0.3   |  
|Benefits paid                                                            |  |              | (11.8 | )    |  |   | (5.5  | )
|Foreign currency translation                                             |  |              | 9.2   |      |  |   | 5.0   |  
|                                                                         |  |              |       |      |  |   |       |  
|Fair value of plan assets at March 31                                    |  | $            | 41.2  |      |  | $ | 37.7  |  
|                                                                         |  |              |       |      |  |   |       |  
|Funded status                                                            |  | $            | 0.6   |      |  | $ | (0.8  | )
|Unamortized prior service cost                                           |  |              | 0.1   |      |  |   | 0.1   |  
|Unrecognized actuarial loss                                              |  |              | 13.4  |      |  |   | 11.9  |  
|Unrecognized net transition asset                                        |  |              |      |      |  |   | (0.8  | )
|                                                                         |  |              |       |      |  |   |       |  
|Net asset                                                                |  | $            | 14.1  |      |  | $ | 10.4  |  
|                                                                         |  |              |       |      |  |   |       |  
|Pension assets (liabilities) recognized in
    the financial statements: |  |              |       |      |  |   |       |  
|Prepaid pension cost                                                     |  | $            | 14.1  |      |  | $ | 10.4  |  
|Accrued pension liability                                                |  |              |      |      |  |   | (11.2 | )
|Accumulated other comprehensive loss                                     |  |              |      |      |  |   | 11.1  |  
|Intangible asset                                                         |  |              |      |      |  |   | 0.1   |  

The Company recorded an additional minimum
pension liability of $11.2 million at March 31, 2003
as required by SFAS No. 87, Employers
Accounting for Pensions. The adjustment was reflected in
other liabilities, accumulated other comprehensive income and
intangible assets, as appropriate, and is prescribed when the
accumulated benefit obligation of the plan exceeds the fair
value of the underlying pension plan assets and accrued pension
liabilities. In the current fiscal year, this minimum pension
liability was reversed as the fair value of plan assets exceeded
the plans accumulated benefit obligation at March 31,
2004.



|    |                                             
|--- | --------------------------------------------
|10. | Accounts Payable and Accrued
    Liabilities

Accounts payable and accrued liabilities consist
of the following components:

|                             |                                                |              |      |      |  |   |      |      | 
|---------------------------- | ---------------------------------------------- | ------------ | ---- | ---- |  | - | ---- | ---- | 
|                             |                                                |             
|                             |                                                | March 31    
|                             |                                                |             
|                             |                                                | 2004         |      | 2003
|                             |                                                |              |      |     
|                             |                                                |             
|                             |                                                | (Millions of
|                             |                                                | US dollars) 
|Trade creditors              |                                                | $            | 54.7 |      |  | $ | 49.7 |     
|Other creditors and accruals |                                                |              | 23.8 |      |  |   | 24.3 |     
|                             |                                                |              |      |      |  |   |      |     
|                             | Total accounts payable and accrued liabilities |              | $    | 78.5 |  |   | $    | 74.0 | 
|                             |                                                |              |      |      |  |   |      |     

F-18



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                         
|--- | ------------------------
|11. | Short and Long-Term Debt

Long-term debt consists of the following
components:

|                                                    |                                  |              |       |       |  |   |       |       | 
|--------------------------------------------------- | -------------------------------- | ------------ | ----- | ----- |  | - | ----- | ----- | 
|                                                    |                                  |             
|                                                    |                                  | March 31    
|                                                    |                                  |             
|                                                    |                                  | 2004         |       | 2003 
|                                                    |                                  |              |       |      
|                                                    |                                  |             
|                                                    |                                  | (Millions of
|                                                    |                                  | US dollars) 
|US$ noncollateralized notes  current
    portion   |                                  | $            | 17.6  |       |  | $ |      |      
|US$ noncollateralized notes  long term
    portion |                                  |              | 147.4 |       |  |   | 165.0 |      
|                                                    |                                  |              |       |       |  |   |       |      
|                                                    | Total debt at 7.09% average rate |              | $     | 165.0 |  |   | $     | 165.0 | 
|                                                    |                                  |              |       |       |  |   |       |      

The US$ non-collateralized notes form part of a
seven tranche private placement facility which provides for
maximum borrowings of $165.0 million. Principal repayments
are due in seven installments that commence on November 5,
2004 and end on November 5, 2013. The tranches bear fixed
interest rates of 6.86%, 6.92%, 6.99%, 7.05%, 7.12%, 7.24% and
7.42%. Interest is payable in May and November each year.

The Company has a short-term US$ line of credit
which provides for maximum borrowings of $11.5 million. At
March 31, 2004, the Company had drawn down
$10.8 million on this line of credit. The line of credit
can be repaid and redrawn until maturity in October and December
2004. Interest is recalculated at the commencement of each
draw-down period based on the 90-day Chilean Tasa Activa
Bancaria (TAB) rate plus a margin and is payable at
the end of each draw-down period. At March 31, 2004 and
2003, the weighted average interest rate on outstanding
borrowings under this facility was 3.24% and 4.80%,
respectively. The Company expects to renew this agreement under
similar terms and conditions after its maturity in October and
December 2004.

The US$ denominated non-collateralized revolving
loan facility can be repaid and redrawn until maturity in
November 2006 and provides for maximum borrowings of
A$200.0 million ($152.0 million). Interest is
recalculated at the commencement of each draw-down period based
on the US$ LIBOR or the average Australian bank bill rate plus
the margins of individual lenders, and is payable at the end of
each draw-down period. During the year ended March 31,
2004, the Company paid $0.4 million in commitment fees. At
March 31, 2004, there was $152.0 million available
under this revolving loan facility.

The Company has short-term non-collateralized
stand-by loan facilities which provide for maximum borrowings of
$117.5 million. At March 31, 2004, the facilities had
a maturity date of October 30, 2004 and the Company had not
drawn down any of these facilities. During April 2004, the
Company renegotiated the facilities to extend the maturity date
to April 30, 2005. Interest is recalculated at the
commencement of each draw-down period based on either the US$
LIBOR or the average A$ bank bill bid rate plus the margins of
the individual lenders and is payable at the end of each
draw-down period. During the year, the Company paid
$0.2 million in commitment fees.

The A$ loan from the Medical Research and
Compensation Foundation was repaid in full during the year ended
March 31, 2002.

F-19



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At March 31, 2004, the following are the
scheduled maturities of long-term debt for each of the next five
years and in total thereafter:

|                       |  |              |       | 
|---------------------- |  | ------------ | ----- | 
|                       |  | (Millions of
|                       |  | US dollars) 
|                       |  |             
|Years Ending March 31: |  |              |       | 
|2005                   |  | $            | 17.6  | 
|2006                   |  |              | 25.7  | 
|2007                   |  |              | 27.1  | 
|2008                   |  |              | 8.1   | 
|2009                   |  |              | 46.2  | 
|Thereafter             |  |              | 40.3  | 
|                       |  |              |       | 
|Total                  |  | $            | 165.0 | 
|                       |  |              |       | 

As a consequence of the completion of the sale of
the Gypsum business on April 25, 2002, the Company was
technically not in compliance as of that date with certain
pre-approval covenants of its US$ non-collateralized note
agreements totaling $225.0 million. Effective
December 23, 2002, the note purchase agreement was amended
to, among other matters, modify these covenants to remove the
technical non-compliance caused by the sale of the Gypsum
business. In connection with such amendment, the Company prepaid
$60.0 million in principal amount of notes. As a result of
the early retirement, the Company incurred a $9.9 million
make-whole payment charge. The make-whole payment was charged to
interest expense during the year ended March 31, 2003.

At March 31, 2004, management believes it
was in compliance with all restrictive covenants contained in
the non-collateralized notes, revolving loan facility and the
stand-by credit facility agreements. Under the most restrictive
of these covenants, the Company is required to maintain certain
ratios of debt to equity and net worth and levels of earnings
before interest and taxes.



|    |                  
|--- | -----------------
|12. | Other Liabilities

Other liabilities consist of the following
components:

|                               |                                     |              |   |      |  |  |   |      | 
|------------------------------ | ----------------------------------- | ------------ | - | ---- |  |  | - | ---- | 
|                               |                                     |             
|                               |                                     | March 31    
|                               |                                     |             
|                               |                                     | 2004         |   | 2003
|                               |                                     |              |   |     
|                               |                                     |             
|                               |                                     | (Millions of
|                               |                                     | US dollars) 
|Current other liabilities:     |                                     |              |   |      |  |  |   |     
|                               | Reorganization                      |              | $ | 0.7  |  |  | $ | 0.8  | 
|                               | Surplus leased space                |              |   |     |  |  |   | 1.5  | 
|                               | Other                               |              |   | 1.1  |  |  |   | 2.6  | 
|                               |                                     |              |   |      |  |  |   |     
|                               | Total current other liabilities     |              | $ | 1.8  |  |  | $ | 4.9  | 
|                               |                                     |              |   |      |  |  |   |     
|Non-current other liabilities: |                                     |              |   |      |  |  |   |     
|                               | Employee entitlements               |              |   | 13.5 |  |  |   | 15.4 | 
|                               | Product liability                   |              |   | 5.6  |  |  |   | 1.2  | 
|                               | Other                               |              |   | 63.2 |  |  |   | 31.9 | 
|                               |                                     |              |   |      |  |  |   |     
|                               | Total non-current other liabilities |              | $ | 82.3 |  |  | $ | 48.5 | 
|                               |                                     |              |   |      |  |  |   |     

F-20



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                   
|--- | ------------------
|13. | Product Warranties

The Company offers various warranties on its
products, including a 50-year limited warranty on certain of its
fiber cement siding products in the United States. A typical
warranty program requires that the Company replace defective
products within a specified time period from the date of sale.
The Company records an estimate for future warranty related
costs based on an analysis of actual historical warranty costs
as they relate to sales. Based on this analysis and other
factors, the adequacy of the Companys warranty provisions
are adjusted as necessary. While the Companys warranty
costs have historically been within its calculated estimates, it
is possible that future warranty costs could exceed those
estimates. The following are the changes in the product warranty
provision:

|                                         |  |              |      |      |  |   |      |  
|---------------------------------------- |  | ------------ | ---- | ---- |  | - | ---- | -
|                                         |  |             
|                                         |  | March 31    
|                                         |  |             
|                                         |  | 2004         |      | 2003
|                                         |  |              |      |     
|                                         |  |             
|                                         |  | (Millions of
|                                         |  | US dollars) 
|Balance at beginning of period           |  | $            | 14.8 |      |  | $ | 17.7 |  
|Accruals for product warranties          |  |              | 2.2  |      |  |   | 0.1  |  
|Settlements made in cash or in kind      |  |              | (5.7 | )    |  |   | (3.3 | )
|Foreign currency translation adjustments |  |              | 0.7  |      |  |   | 0.3  |  
|                                         |  |              |      |      |  |   |      |  
|Balance at end of period                 |  | $            | 12.0 |      |  | $ | 14.8 |  
|                                         |  |              |      |      |  |   |      |  



|    |                              
|--- | -----------------------------
|14. | Commitments and Contingencies



| |              
| | -------------
| | Environmental

The operations of the Company, like those of
other companies engaged in similar businesses, are subject to
various federal, state and local laws and regulations on air and
water quality, waste handling and disposal. The Companys
policy is to accrue for environmental costs when it is
determined that it is probable that an obligation exists and the
amount can be reasonably estimated. In the opinion of
management, based on information presently known, the ultimate
liability for such matters should not have a material adverse
effect on either the Companys consolidated financial
position, results of operations or cash flows.



| |      
| | -----
| | Legal

The Company is involved from time to time in
various legal proceedings and administrative actions incidental
to the normal conduct of its business. Although it is impossible
to predict the outcome of any pending legal proceeding,
management believes that such proceedings and actions in the
normal conduct of business should not, individually or in the
aggregate, have a material adverse effect on either its
consolidated financial position, results of operations or cash
flows.



| |                                       
| | --------------------------------------
| | Claims Against Former
    Subsidiaries



| |                                            
| | -------------------------------------------
| | Amaca Pty Ltd, Amaba Pty Ltd and ABN
    60

In February 2001, ABN 60, formerly known as James
Hardie Industries Limited (JHIL) established the
Medical Research and Compensation Foundation (the
Foundation) by gifting A$3.0 million
($1.7 million) in cash and transferring ownership of Amaca
Pty Ltd (formerly James Hardie & Coy Pty Ltd)
(Amaca) and Amaba Pty Ltd (formerly Jsekarb Pty Ltd)
(Amaba) to the Foundation. The Foundation is a
special purpose charitable foundation established to fund
medical and scientific research into asbestos-related diseases.
Amaca and Amaba were Australian companies which had manufactured
and marketed asbestos-related products prior to 1987.

F-21



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Foundation is managed by independent trustees
and operates entirely independently of the Company and its
current subsidiaries (James Hardie). The Company
does not control (directly or indirectly) the activities of the
Foundation in any way and, effective from February 16,
2001, has not owned, or controlled (directly or indirectly) the
activities of, Amaca or Amaba. In particular, the trustees are
responsible for the effective management of claims against Amaca
and Amaba, and for the investment of their assets. The Company
has no economic interest in the Foundation, Amaca or Amaba, and
has no right to dividends or capital distributions made by the
Foundation.

On March 31, 2003, James Hardie transferred
control of ABN 60 to a newly established company named
ABN 60 Foundation Pty Ltd (ABN 60
Foundation). ABN 60 Foundation was established to be
the sole shareholder of ABN 60 and to ensure ABN 60
meets its payment obligations to the Foundation. Following the
establishment of the ABN 60 Foundation, James Hardie no
longer owns any shares in ABN 60. ABN 60 Foundation is
managed by independent directors and operates entirely
independently of James Hardie. James Hardie does not control the
activities of ABN 60 or ABN 60 Foundation in any way,
it has no economic interest in ABN 60 or ABN 60
Foundation, and has no right to dividends or capital
distributions made by the ABN 60 Foundation.

Up to the date of the establishment of the
Foundation, Amaca and Amaba incurred costs of asbestos-related
litigation and settlements. From time to time, ABN 60 was joined
as a party to asbestos suits which were primarily directed at
Amaca and Amaba. As Amaca, Amaba and ABN 60 are no longer a part
of James Hardie, and all relevant claims against ABN 60 had been
successfully defended, no provision for asbestos-related claims
was established in the Companys accounts at March 31,
2004.

It is possible that JHI NV or any member of the
James Hardie group could become subject to suits for damages for
personal injury or death in connection with the former
manufacture or sale of asbestos products that are or may be
filed against Amaca, Amaba or ABN 60. Although it is difficult
to predict the incidence or outcome of future litigation, we
believe that in the absence of governmental action introducing
legislation, or a change in jurisprudence as previously adopted
in prior case law before the NSW Supreme Court and Federal High
Court, as more fully described below under Special
Commission of Inquiry, the risk that such suits could be
successfully asserted against us is low to remote. However, if
suits are made possible and/or successfully brought, they could
have a material adverse effect on our business, results of
operations or financial condition. This belief is based in part
on the fact that following the transfers of Amaca and Amaba to
the Foundation and of ABN 60 to the ABN 60 Foundation, none of
those companies are part of James Hardie; the separateness of
corporate entities under Australian law; the limited
circumstances where piercing the corporate veil
might occur under Australian and Dutch law; and the lack under
Australian law of any equivalent of the U.S. legal doctrine
of successor liability and because JHI NV has been
advised that the principle applicable under Dutch law, to the
effect that transferees of assets may be held liable for the
transferors liabilities when they acquire assets at a
price that leaves the transferor with insufficient assets to
meet claims, is not triggered by the restructuring or previous
group transactions. The courts in Australia have generally
refused to hold parent entities responsible for the liabilities
of their subsidiaries except in cases of fraud, agency, direct
operational responsibility or the like.

During the period ended March 31, 2004, 2003
and 2002, James Hardie has not been a party to any asbestos
litigation and has not made any settlement payments in relation
to such litigation.



| |                              
| | -----------------------------
| | Special Commission of Inquiry

On October 29, 2003, the Foundation issued a
press release stating that its most recent actuarial
analysis estimates that the compensation bill for the
organization could reach one billion Australian dollars in
addition to those funds already paid out to claimants since the
Foundation was formed and that existing funding could be
exhausted within five years. In February 2004, the
Government of the State of New South Wales (NSW),
Australia established a Special Commission of Inquiry
(SCI) to investigate, among other

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JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

matters described below, the circumstances in
which the Foundation was established. The SCI was instructed to
determine the current financial position of the Foundation and
whether it is likely to meet its future asbestos-related claims
in the medium to long-term. It was also instructed to report on
the circumstances in which the Foundation was separated from
James Hardie and whether this may have resulted in or
contributed to a possible insufficiency of assets to meet its
future asbestos-related liabilities, and the circumstances in
which any corporate restructure or asset transfers occurred
within or in relation to the James Hardie group prior to the
funding of the Foundation to the extent that this may have
affected the Foundations ability to meet its current and
future liabilities. The SCI was also instructed to report on the
adequacy of current arrangements available to the Foundation
under the Corporations Act of Australia to assist the Foundation
in managing its liabilities and whether reform is desirable in
order to assist the Foundation managing its obligations to
current and future claimants.

On July 14, 2004, the Company lodged a
submission with the SCI stating that the Company would recommend
that shareholders approve the provision of an unspecified amount
of additional funding to enable an effective statute-based
scheme to compensate all future claimants for asbestos-related
injuries for which Amaca and Amaba are liable. The Company
proposed that the statutory scheme should include: speedy, fair
and equitable compensation for all existing and future
claimants; objective criteria to reduce superimposed
(judicial) inflation; contributions to be made in a manner
which would provide certainty to claimants as to their
entitlement, the scheme administrator as to the amount available
for distribution, and the proposed contributors (including James
Hardie) as to the ultimate amount of their contributions;
significant reductions in legal costs through reduced and more
abbreviated litigation; and limiting legal avenues outside of
the scheme. The submission stated that the proposal was made
without any admission of liability or prejudice to the
Companys rights or defenses.

The SCI finished taking evidence on
August 13, 2004 and issued its report on September 21,
2004. The SCI indicated that the establishment of the Foundation
and the establishment of the ABN 60 Foundation were legally
effective and that, accordingly, although any liabilities in
relation to the asbestos claims for claimants remained with
Amaca, Amaba or ABN 60 (as the case may be), no significant
liabilities for those claims could be made directly against JHI
NV or any other James Hardie entities.

In relation to the assertions by the Foundation
concerning the circumstances of its establishment, the SCI
examined these in detail. Although the SCI made certain adverse
findings against Mr. Macdonald (former CEO) and
Mr. Shafron (former CFO), it did not find that their
conduct caused any material loss to the Foundation or the
asbestos claimants which would create a valuable cause of action
against, and therefore a material liability of, any James Hardie
entity or would lead to any of the restructuring arrangements
being reversed. Indeed, the SCI specifically noted that there
were significant hurdles, which might be insuperable, to
establishing any liability in respect of these claims against
the Company, ABN 60 or their respective directors and that, even
if liability were established, there were further hurdles which
might prove to be insuperable against any substantial recovery
or remedy by such potential claimants in respect of them.

In relation to the question of the funding of the
Foundation, the SCI found that there was a significant funding
shortfall. In part this was based on actuarial work indicating
that the discounted value of the central estimate of the
asbestos liabilities of Amaca and Amaba were approximately
A$1.570 billion. The SCI found that the net assets of the
Foundation and the ABN 60 Foundation were not sufficient to meet
these prospective liabilities and were likely to be exhausted in
the first half of 2007.

In relation to the Companys statutory
scheme proposal, the SCI reported that there were several issues
which needed to be refined quite significantly but that it would
be an appropriate starting point for devising an appropriate
compensation scheme.

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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The SCIs findings are not binding and a
later court consideration of the issues could lead to one or
more different conclusions.

The NSW Government has stated that it would not
consider assisting the implementation of any proposal advanced
by the Company unless it was the result of an agreement reached
with the union movement acting through the Australian Council of
Trade Unions (ACTU) and the Labor Council of NSW as
well as the representatives of the asbestos claimants (together,
the Representatives). The statutory scheme that the
Company recommended on July 14, 2004 was rejected by the
Representatives. The Company is currently in discussions with
the Representatives regarding potential arrangements that could
be acceptable to both the Representatives and the Company and
subsequently to the Companys shareholders and the NSW
Government. Both the outcome of those discussions and the timing
of any potential resolution are highly uncertain and
accordingly, the Company cannot yet determine whether it will
achieve a satisfactory resolution or what any potential
voluntary arrangement may involve.

The Companys view is that, except to the
extent that it agrees as a result of these discussions, under
current Australian law it is not liable for any shortfall in the
assets of Amaca, Amaba or the Foundation, the ABN 60 Foundation
or ABN 60. The Company cannot determine when or if a resolution
may be reached between itself and the Representatives. The
Company is attempting to negotiate a resolution as quickly as
possible. Accordingly, the Company has not established a
provision for asbestos-related liabilities because at this time
it is not probable nor estimable.

In October 2004, the Company commissioned an
updated actuarial study of potential asbestos-related
liabilities.

Based on the results of the study, which was
updated as at June 30, 2004, it is estimated that the discounted
central estimate, after allowing for expected insurance
recoveries, of asbestos-related liabilities of Amaca, Amaba and
ABN 60 is A$1.536 billion (discounted at 6.12% per annum) or an
undiscounted central estimate of A$3.586 billion.

In estimating the potential asbestos-related
exposure, the actuaries have made a number of assumptions
relating to wage inflation, superimposed inflation (being the
excess of total claim cost inflation over wage inflation),
discount rates, the total number of claims expected to be
reported through to 2071, the pace of such notifications and
their settlement, the average costs of an award (which is
affected by the disease type, the age and occupation of the
claimant and the jurisdiction in which the claim is brought and
settled), the proportion of claims for which no award is paid by
the above-named entities, and the associated average claimant
and defendant legal fees to be incurred.

Further, the actuaries have relied on the data
and information provided by the Medical Research and
Compensation Foundation and Litigation Management Group Pty
Limited and assumed that it is accurate and complete in all
material respects. The actuaries have not verified that
information independently nor established the reliability,
accuracy or completeness of the data and information provided or
used for the preparation of their report, and were not provided
with the information required to carry out such a verification
exercise.

Due to inherent uncertainties in the legal and
medical environment; the number and timing of future claim
notifications and settlements; the recoverability of claims
against insurance contracts and in estimating the future trends
in average claim awards as well as the extent to which the
above-named entities will contribute to the overall settlements,
the outcome could differ materially from that currently
projected.

Sensitivity analysis has been performed, showing
how the actuarial estimates would change if the outcome of
certain assumptions (being the rate of superimposed inflation,
the average costs of claims and legal fees, and the projected
numbers of claims) were different to that included within the
central estimates.

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JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

This shows that the discounted central estimates
could fall in a range A$1.1 billion to A$2.3 billion
(undiscounted estimates of A$2.0 billion to A$5.7 billion) based
on the current information available and reflecting current
trends. It should be noted that the actual cost of the
liabilities could fall outside that range depending on the
actual outcome of the assumptions made.

If a resolution is reached with the
Representatives and approved by them, the NSW Government and the
Companys Board, shareholders and lenders, the Company may
be required to make a substantial provision in its accounts at a
later date, and it is possible that the Company would need to
seek additional borrowing facilities. Additionally, it is
possible that any future resolution of this issue may result in
the Company having negative shareholders equity, which
would be likely to restrict its ability to pay dividends to its
shareholders. If the terms of a future resolution involve James
Hardie making payments, either on an annual or other basis,
pursuant to a statutory scheme or other form of arrangement,
James Hardies financial position, results of operations
and cash flows could be materially adversely affected.

It is also possible that the Representatives
and/or others may encourage or continue to encourage consumers
and union members in Australia and elsewhere to boycott the
Companys products, to demonstrate or otherwise create
negative publicity toward the Company in order to influence the
Companys approach to the discussions with the
Representatives or to encourage governmental action if the
discussions are unsuccessful. The Representatives and/or others
might also take such actions in an effort to influence the
Companys shareholders, a significant number of which are
located in Australia, to approve any proposed arrangement. Any
such measures, and the influences resulting from them, could
have a material adverse impact on the Companys financial
position, results of operations and cash flows.

On October 28, 2004, the NSW Premier
announced that the NSW Government would seek the agreement of
the Ministerial Council comprised of the Ministers of the
Commonwealth and the Australian States and Territories to allow
the NSW Government to pass legislation which he announced would
wind back James Hardies corporate restructure and
rescind the cancellation of A$1.9 billion in partly paid
shares. The announcement said that the laws will
effectively enforce the liability [for asbestos-related claims]
against the Dutch parent company. On November 5,
2004, the Australian Attorney-General and the Parliamentary
Secretary to the Treasurer (the two relevant ministers of the
Australian Federal Government) issued a news release stating
that the Ministerial Council for Corporations (the relevant body
of Federal, State and Territory Ministers, MINCO)
had unanimously agreed to support a negotiated settlement
that will ensure that victims of asbestos-related diseases
receive full and timely compensation from James Hardie and
if the current negotiations between James Hardie, the ACTU
and asbestos victims do not reach an acceptable conclusion,
MINCO also agreed in principle to consider options for
legislative reform. The news release of November 5,
2004 indicated that treaties to enforce Australian judgments in
Dutch and U.S. courts are not required but that the
Australian Government has been involved in communications with
Dutch and U.S. authorities regarding arrangements to ensure
that Australian judgments are able to be enforced where
necessary. Should negotiations not lead to an acceptable
conclusion, James Hardie is aware of suggestions of legislative
intervention but has no detailed information as to its likely
content. Negotiations with the Representatives continue and no
draft legislation has currently been published.

On November 18, 2004, the NSW Government
announced its intention to conduct a review of current asbestos
compensation arrangements in NSW. The intention of this review
is primarily to determine ways to reduce legal and
administrative costs, and to consider the current processes for
handling and resolving dust diseases compensation claims. The
review is expected to report to the NSW Government early in
2005. The Company is unable to predict the outcome of this
review.

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JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                   
| | ------------------------------------------------------------------
| | Australian Securities and Investments
    Commission Investigation

On September 22, 2004, the Australian
Securities and Investments Commission (ASIC)
announced that it was conducting an investigation into potential
contraventions of certain Australian laws arising from the
transactions considered by the SCI. The persons whose conduct is
being investigated have not been expressly identified by the
ASIC. The investigation will include a review of the conduct of
the directors of various James Hardie Group companies, including
their conduct and statements made in relation to securities of
JHI NV or JHIL and the circumstances in which various
transactions occurred (including the cancellation of partly-paid
shares in JHIL).

JHI NV has received a notice from ASIC under
relevant legislation to produce certain categories of documents
to be considered by it in its investigation. JHI NV is currently
responding to this notice and will cooperate with the ASIC in
relation to all aspects of its investigation.

The Company may incur costs of current or former
officers of the James Hardie Group to the extent that those
costs are covered by indemnity arrangements granted by the James
Hardie Group to those persons. To date, no claims have been
received by any current or former officers in relation to the
ASIC investigation and if claims do arise, the Company may be
reimbursed under directors and officers insurance
policies taken out by the Company.



| |                     
| | --------------------
| | Severance Agreements

On October 20, 2004, Mr. Peter Shafron resigned
from his position as Chief Financial Officer and on October 21,
2004, Mr. Peter Macdonald resigned from his position on the
Managing Board and as Chief Executive Officer. In connection
with these resignations, the Company will incur costs of $8.8
million in the quarter ending December 31, 2004. These costs
will be comprised of $5.9 million of additional expense and $2.9
million of accruals existing at September 30, 2004.



| |                 
| | ----------------
| | ABN 60 Indemnity

In order to facilitate the release of funding by
ABN 60 to the Foundation, and thereby inter alia to seek to
ensure that asbestos-related claims processing is not
interrupted during the negotiations and facilitate negotiations
with the Representatives, the Company offered an indemnity to
the directors of ABN 60, which it announced on
November 16, 2004. This proposed indemnity would require
the Company to pay for any liability incurred by the ABN 60
directors resulting from the release of funding by ABN 60
to the Foundation. The Company believes that the release of
funding by ABN 60 is in accordance with law and contracts
in place and therefore the Company should not incur liability
under this indemnity, but the indemnity is being offered to
relieve the concerns of those who may have hesitation about
their legal and financial exposure. Additionally, the Company
has offered to provide funding to the Foundation on an interim
basis for a period of up to six months, commencing on
November 16, 2004. The proposed interim funding by the
Company would only be provided once existing Foundation funds
have been exhausted. The Company believes, based on actuarial
and legal advice that claims against the Foundation should not
exceed the funds which are or which are expected to become
available to the Foundation during the period of the interim
funding proposal. By way of example, the Company expects the
prospect of such funds being exhausted will be materially
reduced in the event that ABN 60 releases funds to the
Foundation in light of the indemnity described above. The
proposal for interim funding was put forward to relieve concerns
regarding the short-term funding and payment of legitimate
asbestos-related claims, and so that the Foundation would
continue claims processing during the negotiation process. The
Company has not recorded a provision for either the proposed
indemnity or the potential payments under the interim funding
proposal.

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JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                
| | ---------------
| | Gypsum Business

Under the terms of the Companys agreement
to sell its Gypsum business to BPB U.S. Holdings, Inc., the
Company agreed to customary indemnification obligations related
to its representations and warranties in the agreement. The
Companys indemnification obligation generally extends for
2 years from the closing date, arises only if claims exceed
$5 million in the aggregate and is limited to
$100 million in the aggregate. In addition, the Company
agreed to indemnify BPB U.S. Holdings, Inc. for any future
liabilities arising from asbestos-related injuries to persons or
property. Although the Company is not aware of any
asbestos-related claims arising from the Gypsum business, nor
circumstances that would give rise to such claims, under the
sale agreement, the Companys obligation to indemnify the
purchaser for liabilities arising from asbestos-related injuries
arises only if such claims exceed $5 million in the
aggregate, is limited to $250 million in the aggregate and
will continue for 30 years after the closing date of the
sale of the Gypsum business.

Pursuant to the terms of the Companys
agreement to sell its Gypsum business, the Company also retained
responsibility for any losses incurred by the purchaser
resulting from environmental conditions at the Duwamish River in
Washington state so long as notice of a claim is given within
10 years of closing. Our indemnification obligations are
subject to a $34.5 million limitation. The Seattle gypsum
facility had previously been included on the Confirmed and
Suspected Contaminate Sites Report released in 1987 due to
the presence of metals in the groundwater. As the Company
believes the metals found emanated from an offsite source, the
Company does not believe it is liable for, and have not been
requested to conduct, any investigation or remediation relating
to the metals in the groundwater.



| |                 
| | ----------------
| | Operating Leases

As the lessee, the Company principally enters
into property, building and equipment leases. The following are
future minimum lease payments for non-cancelable operating
leases having a remaining term in excess of one year at
March 31, 2004:

|                       |  |              |       | 
|---------------------- |  | ------------ | ----- | 
|                       |  | (Millions of
|                       |  | US dollars) 
|                       |  |             
|Years Ending March 31: |  |              |       | 
|2005                   |  | $            | 12.5  | 
|2006                   |  |              | 11.6  | 
|2007                   |  |              | 10.4  | 
|2008                   |  |              | 9.8   | 
|2009                   |  |              | 8.8   | 
|Thereafter             |  |              | 75.2  | 
|                       |  |              |       | 
|Total                  |  | $            | 128.3 | 
|                       |  |              |       | 

Rental expense amounted to $8.1 million,
$9.0 million and $8.0 million for the years ended
March 31, 2004, 2003 and 2002, respectively.



| |                    
| | -------------------
| | Capital Commitments

Commitments for the acquisition of plant and
equipment and other purchase obligations, primarily in the
United States, contracted for but not recognized as liabilities
and generally payable within one year, were $26.8 million
at March 31, 2004.

F-27



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                 
|--- | --------------------------------
|15. | Other Operating (Expense) Income

In March 2001, the Company announced the creation
of a new division for its fiber cement business in the Asia
Pacific region, commencing with the 2002 fiscal year. The new
regional division comprises the fiber cement operations in
Australia, New Zealand and the Philippines. As a result, the
Company had decided to phase out manufacturing at its Perth,
Western Australia facility during the course of calendar year
2001. Accordingly, restructuring costs of $15.5 million
were incurred in the Asia Pacific fiber cement segment for the
year ended March 31, 2001. The Company incurred employee
termination costs of $5.4 million for 189 employees: 8 from
sales, 23 from administration, 5 from marketing and
153 hourly paid workers in manufacturing and distribution.
One employee had left by March 31, 2001. The 2
administrative employees remaining at March 31, 2002 left
in fiscal year 2003. Included in the March 2001 restructuring
costs were $7.5 million for the write down of fixed assets
to their estimated fair value and $2.6 million for lease
cancellation charges. With Multiplex Property Trusts
(Multiplex), an unrelated third party, March 2004
acquisition of the Perth, Western Australia facility from Amaca
Pty Ltd (see Note 17), the remaining surplus lease space
accrual of $1.5 million was reversed.

Corporate reorganization expenses represent the
costs incurred in relation to the 2001 Reorganization. Included
in these expenses is $2.3 million paid to our independent
auditors, PricewaterhouseCoopers LLP, for related professional
services.

On February 14, 2002, the Company signed a
Class Action Settlement Agreement (the Settlement
Agreement) for all product, warranty and property related
liability claims associated with its roofing products, which
were previously manufactured and sold by the USA Fiber Cement
business. These products were removed from the marketplace
between 1995 and 1998 in areas where there had been any alleged
problems. Consequently, the Company recorded a pre-tax charge of
$12.6 million in fiscal year 2002 to cover the estimated
cost of the settlement, and the estimated cost of any other
pending claims or lawsuits remaining which are not covered by
the settlement, as well as all related costs that may be paid
under the Settlement Agreement. The total liability included in
the balance sheet relating to the Settlement Agreement as of
March 31, 2004 and 2003 was approximately $4.7 million
and $9.1 million, respectively, which is included in the
product warranty liability (see Note 13).

Other operating (expense) income consist of
the following components:

|                                       |                                                |                          |      |      |   |      |     |     |  |   |       |       |  
|-------------------------------------- | ---------------------------------------------- | ------------------------ | ---- | ---- | - | ---- | --- | --- |  | - | ----- | ----- | -
|                                       |                                                |                         
|                                       |                                                | Years Ended March 31    
|                                       |                                                |                         
|                                       |                                                | 2004                     |      | 2003 |   | 2002
|                                       |                                                |                          |      |      |   |     
|                                       |                                                |                         
|                                       |                                                | (Millions of US dollars)
|Other operating (expense) income:      |                                                |                          |      |      |   |      |     |     |  |   |       |      
|                                       | Settlement of terminated derivative contract   |                          | $    |     |   |      | $   | 1.0 |  |   | $     |      |  
|                                       | Decrease in fair value of derivative contracts |                          |      |     |   |      |     |    |  |   |       | (8.1  | )
|                                       | Corporate reorganization expenses              |                          |      |     |   |      |     |    |  |   |       | (7.4  | )
|                                       | Class action settlement and roofing warranties |                          |      |     |   |      |     |    |  |   |       | (12.6 | )
|                                       | Other                                          |                          |      | (2.1 | ) |      |     |    |  |   |       |      |  
|                                       |                                                |                          |      |      |   |      |     |     |  |   |       |      
|Total other operating (expense) income |                                                | $                        | (2.1 | )    |   | $    | 1.0 |     |  | $ | (28.1 | )    
|                                       |                                                |                          |      |      |   |      |     |     |  |   |       |      

F-28



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table displays the activity and
balances of the restructuring accrual account, which is included
in other liabilities (in millions of US dollars):

|                      |       |          |     |           |  |            |   |           |  |   |      |      |   |   |     |     | 
|--------------------- | ----- | -------- | --- | --------- |  | ---------- | - | --------- |  | - | ---- | ---- | - | - | --- | --- | 
|                      |       | April 1, |     |           |  |            |   | March 31,
|                      |       | 2003     |     |           |  |            |   | 2004     
|Type of Cost          |       | Balance  |     | Additions |  | Deductions |   | Balance  
|                      |       |          |     |           |  |            |   |          
|Employee terminations |       | $        | 0.8 |           |  | $          |  |           |  | $ | (0.1 | )    |   | $ | 0.7 |    
|Surplus lease space   |       |          | 1.5 |           |  |            |  |           |  |   | (1.5 | )    |   |   |    |    
|                      |       |          |     |           |  |            |   |           |  |   |      |      |   |   |     |    
|                      | Total |          | $   | 2.3       |  |            | $ |          |  |   | $    | (1.6 | ) |   | $   | 0.7 | 
|                      |       |          |     |           |  |            |   |           |  |   |      |      |   |   |     |    

|                      |       |          |     |           |  |            |     |           |  |   |      |      |   |   |     |     | 
|--------------------- | ----- | -------- | --- | --------- |  | ---------- | --- | --------- |  | - | ---- | ---- | - | - | --- | --- | 
|                      |       | April 1, |     |           |  |            |     | March 31,
|                      |       | 2002     |     |           |  |            |     | 2003     
|Type of Cost          |       | Balance  |     | Additions |  | Deductions |     | Balance  
|                      |       |          |     |           |  |            |     |          
|Employee terminations |       | $        | 0.9 |           |  | $          |    |           |  | $ | (0.1 | )    |   | $ | 0.8 |    
|Surplus lease space   |       |          | 2.1 |           |  |            | 0.2 |           |  |   | (0.8 | )    |   |   | 1.5 |    
|                      |       |          |     |           |  |            |     |           |  |   |      |      |   |   |     |    
|                      | Total |          | $   | 3.0       |  |            | $   | 0.2       |  |   | $    | (0.9 | ) |   | $   | 2.3 | 
|                      |       |          |     |           |  |            |     |           |  |   |      |      |   |   |     |    

Additions in fiscal year 2003 reflect foreign
currency movements and deductions reflect payments.



|    |             
|--- | ------------
|16. | Income Taxes

The income tax (expense) benefit includes
income taxes currently payable and those deferred because of
temporary differences between the financial statement and tax
bases of assets and liabilities. The income tax expense for
continuing operations consists of the following components:

|                                                           |  |                          |       |      |  |      |       |   |  |   |      |  
|---------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ---- | -
|                                                           |  |                         
|                                                           |  | Years Ended March 31    
|                                                           |  |                         
|                                                           |  | 2004                     |       | 2003 |  | 2002
|                                                           |  |                          |       |      |  |     
|                                                           |  |                         
|                                                           |  | (Millions of US dollars)
|Income from continuing operations before income
    taxes: |  |                          |       |      |  |      |       |   |  |   |      |  
|Domestic(1)                                                |  | $                        | 103.5 |      |  | $    | 38.6  |   |  | $ | 10.1 |  
|Foreign                                                    |  |                          | 62.2  |      |  |      | 71.0  |   |  |   | 20.3 |  
|                                                           |  |                          |       |      |  |      |       |   |  |   |      |  
|Income from continuing operations before income
    taxes  |  | $                        | 165.7 |      |  | $    | 109.6 |   |  | $ | 30.4 |  
|                                                           |  |                          |       |      |  |      |       |   |  |   |      |  
|Income tax (expense) benefit:                              |  |                          |       |      |  |      |       |   |  |   |      |  
|Current:                                                   |  |                          |       |      |  |      |       |   |  |   |      |  
|Domestic(1)                                                |  |                          | (6.7  | )    |  |      | (7.0  | ) |  |   | (2.2 | )
|Foreign                                                    |  |                          | (20.4 | )    |  |      | 1.3   |   |  |   | (2.1 | )
|                                                           |  |                          |       |      |  |      |       |   |  |   |      |  
|Current income tax expense                                 |  |                          | (27.1 | )    |  |      | (5.7  | ) |  |   | (4.3 | )
|                                                           |  |                          |       |      |  |      |       |   |  |   |      |  
|Deferred:                                                  |  |                          |       |      |  |      |       |   |  |   |      |  
|Domestic(1)                                                |  |                          | (3.9  | )    |  |      | 0.1   |   |  |   | 0.2  |  
|Foreign                                                    |  |                          | (9.4  | )    |  |      | (20.5 | ) |  |   | 1.0  |  
|                                                           |  |                          |       |      |  |      |       |   |  |   |      |  
|Deferred income tax (expense) benefit                      |  |                          | (13.3 | )    |  |      | (20.4 | ) |  |   | 1.2  |  
|                                                           |  |                          |       |      |  |      |       |   |  |   |      |  
|Total income tax expense for continuing operations         |  | $                        | (40.4 | )    |  | $    | (26.1 | ) |  | $ | (3.1 | )
|                                                           |  |                          |       |      |  |      |       |   |  |   |      |  



---



|    |                                                                                           
|--- | ------------------------------------------------------------------------------------------
|(1) | Since JHI NV is the Dutch parent holding company,
    domestic represents The Netherlands.

F-29



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The income tax (expense) benefit computed at
the statutory rates represents taxes on income applicable to all
jurisdictions in which the Company conducts business, calculated
as the statutory income tax rate in each jurisdiction multiplied
by the pre-tax income attributable to that jurisdiction. The
income tax expense from continuing operations is reconciled to
the tax at the statutory rates as follows:

|                                                           |  |                          |       |      |  |      |       |   |  |   |       |  
|---------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                           |  |                         
|                                                           |  | Years Ended March 31    
|                                                           |  |                         
|                                                           |  | 2004                     |       | 2003 |  | 2002
|                                                           |  |                          |       |      |  |     
|                                                           |  |                         
|                                                           |  | (Millions of US dollars)
|Income tax expense computed at the statutory tax
    rates |  | $                        | (60.7 | )    |  | $    | (37.2 | ) |  | $ | (11.4 | )
|U.S. state income taxes, net of the federal
    benefit    |  |                          | (0.2  | )    |  |      | (1.2  | ) |  |   | 0.9   |  
|Benefit from Dutch financial risk reserve regime           |  |                          | 24.8  |      |  |      | 11.9  |   |  |   | 2.6   |  
|Expenses not deductible                                    |  |                          | (2.5  | )    |  |      | (4.7  | ) |  |   | (1.3  | )
|Non-assessable items                                       |  |                          | 1.3   |      |  |      |      |   |  |   | 9.3   |  
|Losses not available for carryforward                      |  |                          |      |      |  |      | (1.4  | ) |  |   | (3.9  | )
|Taxes related to 2001 Reorganization                       |  |                          |      |      |  |      | 3.5   |   |  |   | (18.7 | )
|Net operating losses brought back to account               |  |                          |      |      |  |      | 13.0  |   |  |   | 18.7  |  
|Increase in reserves                                       |  |                          |      |      |  |      | (10.0 | ) |  |   |      |  
|Result of U.S. tax audits                                  |  |                          | (3.9  | )    |  |      |      |   |  |   |      |  
|Other items                                                |  |                          | 0.8   |      |  |      |      |   |  |   | 0.7   |  
|                                                           |  |                          |       |      |  |      |       |   |  |   |       |  
|Total income tax expense                                   |  | $                        | (40.4 | )    |  | $    | (26.1 | ) |  | $ | (3.1  | )
|                                                           |  |                          |       |      |  |      |       |   |  |   |       |  
|Effective tax rate                                         |  |                          | 24.4  | %    |  |      | 23.8  | % |  |   | 10.3  | %
|                                                           |  |                          |       |      |  |      |       |   |  |   |       |  

Prior years Australian legislation reduced
the countrys income tax rate from 34% to 30% in the year
ended March 31, 2002. Consequently, the Company adjusted
its Australian deferred tax assets and liabilities using the
appropriate tax rate for the period in which the related timing
differences are expected to reverse.

F-30



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Deferred tax balances consist of the following
components:

|                                                         |  |              |       |      |  |   |       |  
|-------------------------------------------------------- |  | ------------ | ----- | ---- |  | - | ----- | -
|                                                         |  |             
|                                                         |  | March 31    
|                                                         |  |             
|                                                         |  | 2004         |       | 2003
|                                                         |  |              |       |     
|                                                         |  |             
|                                                         |  | (Millions of
|                                                         |  | US dollars) 
|Deferred tax assets:                                     |  |              |       |      |  |   |       |  
|Provisions and accruals                                  |  | $            | 18.3  |      |  | $ | 28.0  |  
|Net operating loss carryforwards                         |  |              | 14.6  |      |  |   | 35.6  |  
|Capital loss carryforwards                               |  |              | 33.2  |      |  |   | 6.0   |  
|Prepaid interest                                         |  |              | 16.6  |      |  |   |      |  
|Taxes on intellectual property transfer                  |  |              | 8.7   |      |  |   |      |  
|Other                                                    |  |              | 0.3   |      |  |   | 0.4   |  
|                                                         |  |              |       |      |  |   |       |  
|Total deferred tax assets                                |  |              | 91.7  |      |  |   | 70.0  |  
|Valuation allowance                                      |  |              | (37.7 | )    |  |   | (20.7 | )
|                                                         |  |              |       |      |  |   |       |  
|Total deferred tax assets net of valuation
    allowance |  |              | 54.0  |      |  |   | 49.3  |  
|                                                         |  |              |       |      |  |   |       |  
|Deferred tax liabilities:                                |  |              |       |      |  |   |       |  
|Property, plant and equipment                            |  |              | (76.3 | )    |  |   | (63.5 | )
|Prepaid pension cost                                     |  |              | (4.2  | )    |  |   |      |  
|Foreign currency movements                               |  |              | (1.1  | )    |  |   |      |  
|Other                                                    |  |              | (0.9  | )    |  |   | (0.9  | )
|                                                         |  |              |       |      |  |   |       |  
|Total deferred tax liabilities                           |  |              | (82.5 | )    |  |   | (64.4 | )
|                                                         |  |              |       |      |  |   |       |  
|Total deferred taxes, net                                |  | $            | (28.5 | )    |  | $ | (15.1 | )
|                                                         |  |              |       |      |  |   |       |  

Under SFAS No. 109, Accounting
for Income Taxes, the Company establishes a valuation
allowance against a deferred tax asset if it is more likely than
not that some portion or all of the deferred tax asset will not
be realized. The Company has established a valuation allowance
pertaining to a portion of its Australian net operating loss
carryforwards and all of its Australian capital loss
carryforwards.

F-31



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following are the changes in the valuation
allowance:

|                                                |  |                          |       |      |  |      |       |   |  |   |       |  
|----------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                |  |                         
|                                                |  | Years Ended March 31    
|                                                |  |                         
|                                                |  | 2004                     |       | 2003 |  | 2002
|                                                |  |                          |       |      |  |     
|                                                |  |                         
|                                                |  | (Millions of US dollars)
|Balance at April 1                              |  | $                        | (20.7 | )    |  | $    | (42.8 | ) |  | $ | (67.5 | )
|Write-off Australian NOL against allowance      |  |                          | 12.9  |      |  |      |      |   |  |   |      |  
|Australian capital losses                       |  |                          | (29.8 | )    |  |      |      |   |  |   |      |  
|Utilization of capital losses                   |  |                          | 6.4   |      |  |      |      |   |  |   |      |  
|Cumulative translation adjustment               |  |                          |      |      |  |      |      |   |  |   | 7.8   |  
|Transfer of ABN 60                              |  |                          |      |      |  |      | 16.8  |   |  |   |      |  
|Net deferred tax assets brought back to account |  |                          |      |      |  |      | (4.0  | ) |  |   |      |  
|Reduction (addition) to expense:                |  |                          |       |      |  |      |       |   |  |   |       |  
|Net operating losses brought back to account    |  |                          |      |      |  |      | 13.0  |   |  |   | 8.8   |  
|Timing differences brought back to account      |  |                          |      |      |  |      |      |   |  |   | 9.7   |  
|Tax rate change                                 |  |                          |      |      |  |      |      |   |  |   | (0.1  | )
|Reduction through sale of a business            |  |                          |      |      |  |      |      |   |  |   | 3.3   |  
|Foreign currency movements                      |  |                          | (6.5  | )    |  |      | (3.7  | ) |  |   | (4.8  | )
|                                                |  |                          |       |      |  |      |       |   |  |   |       |  
|Balance at March 31                             |  | $                        | (37.7 | )    |  | $    | (20.7 | ) |  | $ | (42.8 | )
|                                                |  |                          |       |      |  |      |       |   |  |   |       |  

At March 31, 2004, the Company had
Australian tax loss carryforwards of approximately
$38.7 million that will never expire. During fiscal year
2004, the Company wrote-off $43.1 million in Australian tax
loss carryforwards that are permanently impaired. The Company
had previously provided a 100% valuation allowance against these
carryforwards.

At March 31, 2004, the Company had
$110.6 million in Australian capital loss carryforwards
which will never expire. During fiscal year 2004, the Company
added Australian capital loss carryforwards of approximately
$99.4 million primarily as a result of the Company electing
to file their Australian income tax returns as a single
consolidated group, and utilized $21.4 million during
fiscal year 2004. At March 31, 2004, the Company had a 100%
valuation allowance against the Australian capital loss
carryforwards.

Under Australian legislation in fiscal 2003, the
Companys Australian entities have elected to file their
Australian income tax returns as a single consolidated group.
The election allows the group to recognize value in certain
deferred tax assets against which the Company had in prior years
established a valuation allowance. Accordingly, the Company
released $13.0 million of valuation allowance during the
year ended March 31, 2003.

At March 31, 2004, the undistributed
earnings of non-Dutch subsidiaries approximated
$528.0 million. The Company intends to indefinitely
reinvest these earnings, and accordingly, has not provided for
taxes that would be payable upon remittance of those earnings.
The amount of the potential deferred tax liability is
impracticable to determine at this time.

Due to the size of the Company and the nature of
its business, the Company is subject to ongoing reviews by the
Internal Revenue Service (IRS) and other taxing
jurisdictions on various tax matters, including challenges to
various positions the Company asserts. The Company accrues for
tax contingencies based upon its best estimate of the taxes
ultimately expected to be paid, which it updates over time as
more information becomes available. Such amounts are included in
taxes payable or other non-current liabilities, as appropriate.
If the Company ultimately determines that payment of these
amounts is unnecessary, the Company reverses the liability and
recognizes a tax benefit during the period in which the Company
determines that the liability

F-32



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

is no longer necessary. The Company records an
additional charge in the period in which it determines that the
recorded tax liability is less than it expects the ultimate
assessment to be.

The IRS has audited the Companys
U.S. income tax returns for all tax years ended through
March 31, 2000. The Company settled all issues and paid all
assessments arising out of the audit during fiscal year 2004.
The California Franchise Tax Board (FTB) audited the
Companys California franchise tax returns for all tax
years ended through March 31, 1999 and proposed substantial
assessments. The Company has accrued a lesser amount for these
proposed assessments that it based upon a protest that it filed
on which it believes it will prevail on several issues, with the
estimated result that the final assessment will not exceed the
amount accrued.

The IRS, the FTB, and the Australian Tax Office
are each in the process of auditing the Companys
respective jurisdictional income tax returns for various ranges
of years including 1998 through 2003. None of the audits have
progressed sufficiently to predict their ultimate outcome. The
Company has accrued income tax liabilities for these audits
based upon knowledge of all relevant facts and circumstances,
taking into account existing tax laws, its experience with
previous audits and settlements, the status of current tax
examinations, and how the tax authorities view certain issues.

During fiscal year 2004, the United States of
America and The Netherlands signed a Protocol that if ratified,
would amend the existing U.S.-Netherlands tax treaty, under
which the Company currently derives significant tax benefits. If
the Protocol is ratified and the Company is unable to satisfy
the requirements for treaty benefits under the Protocol, and if
the Company is unable to implement alternative arrangements, it
could significantly increase the Companys effective tax
rate in fiscal year 2006 forward.



|    |                        
|--- | -----------------------
|17. | Discontinued Operations



| |                 
| | ----------------
| | Building Systems

On May 30, 2003, the Company sold its
New Zealand Building Systems business to a third party. A
gain of $1.9 million represented the excess of net proceeds
from the sale of $6.7 million over the net book value of
assets sold of $4.8 million. The proceeds from the sale
were comprised of cash of $5.0 million and a note
receivable in the amount of $1.7 million.



| |       
| | ------
| | Gypsum

On March 13, 2002, the Company announced
that it had signed an agreement to sell the Gypsum business to a
third party. The transaction was completed on April 25,
2002. A pre-tax gain of $81.4 million was recorded
representing the excess of net proceeds from the sale of
$334.4 million over the net book value of assets sold of
$253.0 million. The sale resulted in income tax expense of
$26.1 million. The proceeds from the sale were comprised of
cash of $345.0 million less selling costs of
$10.6 million.

On June 28, 2001, the Company entered into
an agreement to sell its gypsum mine property in Las Vegas,
Nevada to a developer. The transaction was completed on
March 21, 2003. A pre-tax gain of $49.2 million
represented the excess of net proceeds from the sale of
$48.4 million less the cost of assets sold of
$0.7 million and the assumption of $1.5 million in
liabilities by the buyer. The sale resulted in income tax
expense of $19.2 million. The proceeds from the sale were
comprised of cash of $50.6 million less selling costs of
$2.2 million.



| |                  
| | -----------------
| | Building Services

During the year ended March 31, 2003, the
Company recorded a loss of $1.3 million related to its
Building Services business which was disposed of in
November 1996. The loss consisted of expenses of
$0.8 million and a $0.5 million write down of an
outstanding receivable that was retained as part of the sale.

F-33



---



##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                    
| | -----------------------------------
| | Amaca Pty Ltd and Amaba Pty
    Ltd

On February 16, 2001, JHIL announced that it
had established the Foundation to compensate individuals with
claims against two former James Hardie subsidiaries and to fund
medical research into asbestos-related diseases. ABN 60
gifted A$3.0 million ($1.7 million) in cash and
transferred ownership of Amaca Pty Ltd (formerly James
Hardie & Coy Pty Ltd) (Amaca) and Amaba Pty
Ltd (formerly Jsekarb Pty Ltd) (Amaba) to the
Foundation, a special purpose charitable foundation established
to fund medical and scientific research into asbestos-related
diseases. Amaca and Amaba manufactured and marketed
asbestos-related products prior to 1987, when all such
activities ceased.

The Foundation is managed by independent trustees
and operates entirely independently of James Hardie. James
Hardie does not control the activities of the Foundation in any
way and, effective from February 16, 2001, does not own or
control the activities of Amaca or Amaba. In particular, the
trustees are responsible for the effective management of claims
against Amaca and Amaba, and for the investment of their assets.
James Hardie has no economic interest in the Foundation, Amaca
or Amaba; it has no right to dividends or capital distributions.
Apart from the express indemnity for non-asbestos matters
provided to ABN 60 and a possible arrangement to fund some
or all future claimants for asbestos-related injuries caused by
former James Hardie subsidiary companies and to the potential
liabilities more fully described in Note 14, we do not
believe we would have any liability under current Australian law
should future asbestos-related liabilities of Amaca and Amaba
exceed the funds available to those entities or the Foundation.

As a result of the change in ownership of Amaca
and Amaba on February 16, 2001, a gain on disposal of
$2.3 million has been recorded by James Hardie at
March 31, 2001, representing the net liabilities of Amaca
and Amaba which were disposed of for no consideration, the
A$3.0 million ($1.7 million) cash gift to the
Foundation together with costs associated with the establishment
and funding of the Foundation. ABN 60 had agreed to repay
an existing loan of A$70.0 million ($34.3 million) due
to Amaca in four annual tranches of A$15.0 million
($7.4 million) and a final tranche of A$10.0 million
($4.9 million) with the first tranche payable on
August 15, 2002. However, the loan was repaid in full by
ABN 60 during fiscal year 2002.

As part of the establishment and funding of the
Foundation, ABN 60 has entered into an agreement to pay to
Amaca and Amaba 42 annual payments of A$5.6 million,
totaling A$234.2 million ($141.4 million). Under the
agreement, ABN 60 has the option of making the first seven
payments and then a final payment of A$73.0 million
($44.1 million) when the eighth payment becomes due, making
a total payment of A$112.0 million ($67.6 million). In
addition, in the event claims against the two former
subsidiaries exceed certain amounts, the Foundation has the
right to demand payment of any remaining unpaid balance,
discounted for early payment. On September 9, 2001,
ABN 60 made an early payment of A$1.0 million
($0.5 million) to the Foundation. This payment was in
addition to the annual required payment that is made each
February. As a result, the required annual payments of
A$5.6 million have been reduced to A$5.5 million. On
March 31, 2003, ABN 60 and consequently this agreement
and related liability were transferred to the ABN 60
Foundation (see Note 14).

In 1998, the Company entered into lease
agreements with Amaca whereby the Company leases, on a long-term
basis, four fiber cement manufacturing facilities in Australia.
Obligations under such leases amount to an aggregate of
approximately $2.7 million per year. All of the leases
expire on October 31, 2008. The leases contain renewal
options and provisions adjusting lease payments based on changes
in various market factors as reflected in changes in the
consumer price index.

In March 2004, Multiplex, acquired the four
fiber cement manufacturing facilities in Australia from Amaca.
Prior to the acquisition, James Hardie renegotiated these four
leases with Multiplex (see Note 14 and Note 15).

F-34



---



##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |       
| | ------
| | ABN 60

On March 31, 2003, James Hardie transferred
control of ABN 60 to a newly established company named
ABN 60 Foundation Pty Ltd (ABN 60
Foundation). ABN 60 Foundation was established to be
the sole shareholder of ABN 60 and to ensure ABN 60
meets its payment obligations to the Foundation. Following the
establishment of the ABN 60 Foundation, JHI NV no
longer owns any shares of ABN 60. ABN 60 Foundation is
managed by independent directors and operates entirely
independently of James Hardie. James Hardie does not control the
activities of ABN 60 or ABN 60 Foundation in any way.
James Hardie has no economic interest in ABN 60 or
ABN 60 Foundation, has no right to dividends or capital
distributions. Apart from the express indemnity for non-asbestos
matters provided to ABN 60 and a possible arrangement to
fund some or all future claimants for asbestos-related injuries
caused by former James Hardie subsidiary companies and to the
potential liabilities more fully described in Note 14, we
do not believe we will have any liability under current
Australian law should future liabilities of ABN 60 or
ABN 60 Foundation exceed the funds available to those
entities. As a result of the change in ownership of ABN 60
on March 31, 2003, a loss on disposal of $0.4 million
was recorded by James Hardie at March 31, 2003,
representing the liabilities of ABN 60 (to the Foundation)
of A$94.6 million ($57.2 million), the
A$94.5 million (US$57.1 million) in cash held on the
balance sheet, and costs associated with the establishment and
funding of ABN 60 Foundation.

JHI NV has agreed to indemnify ABN 60
Foundation for any non asbestos-related legal claims made on
ABN 60. There is no maximum amount of the indemnity and the
term of the indemnity is in perpetuity. James Hardie believes
that the likelihood of any material non asbestos-related claims
occurring is remote. As such, the Company has not recorded a
liability for the indemnity. James Hardie has not pledged any
assets as collateral for such indemnity.

Amaca, Amaba and ABN 60 have all agreed to
indemnify JHI NV and its related corporate entities for
past and future asbestos-related liabilities as part of the
establishment of the respective foundations. Amaba and
ABN 60s obligation to indemnify JHI NV and its
related entities includes claims that may arise associated with
the manufacturing activities of those companies.



| |        
| | -------
| | Windows

On August 15, 2000, the Company approved a
plan to dispose of its Windows business. For the year ended
March 31, 2001, the Company recorded a loss on disposal of
$17.4 million, net of an income tax benefit of
$0.6 million. This loss on disposal consisted of
$17.2 million for a write down of assets to their expected
net realizable value on disposal and transaction costs expected
to be incurred on disposal. At March 31, 2001, operating
losses from August 15, 2000 to the final disposal date were
estimated at $0.8 million and were included in fiscal year
2001s loss on disposal for the Windows segment.

F-35



---



##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On November 30, 2001, the Company sold its
Windows business. The Company recorded a gain on disposal of
discontinued operations of $2.0 million representing the
excess of cash proceeds of $7.8 million over the net book
value of the assets sold of $5.8 million, a retirement plan
settlement loss of $1.3 million and an income tax benefit
of $1.3 million. The cash proceeds were offset by cash
divested of $0.5 million. The following are the results of
operations of discontinued businesses:

|                                      |                                  |                          |     |      |   |      |      |      |   |   |     |       |  
|------------------------------------- | -------------------------------- | ------------------------ | --- | ---- | - | ---- | ---- | ---- | - | - | --- | ----- | -
|                                      |                                  |                         
|                                      |                                  | Years Ended March 31    
|                                      |                                  |                         
|                                      |                                  | 2004                     |     | 2003 |   | 2002
|                                      |                                  |                          |     |      |   |     
|                                      |                                  |                         
|                                      |                                  | (Millions of US dollars)
|Building Systems                      |                                  |                          |     |      |   |      |      |      |   |   |     |      
|                                      | Net sales                        |                          | $   | 2.9  |   |      | $    | 20.1 |   |   | $   | 15.2  |  
|                                      | Income before income tax expense |                          |     | 0.3  |   |      |      | 2.8  |   |   |     | 1.5   |  
|                                      | Income tax expense               |                          |     | (0.1 | ) |      |      | (0.9 | ) |   |     | (0.5  | )
|                                      |                                  |                          |     |      |   |      |      |      |   |   |     |      
|                                      | Net income                       |                          |     | 0.2  |   |      |      | 1.9  |   |   |     | 1.0   |  
|                                      |                                  |                          |     |      |   |      |      |      |   |   |     |      
|Gypsum                                |                                  |                          |     |      |   |      |      |      |   |   |     |      
|                                      | Net sales                        |                          |     |     |   |      |      | 18.7 |   |   |     | 247.6 |  
|                                      | Income before income tax expense |                          |     |     |   |      |      | 1.8  |   |   |     | 0.9   |  
|                                      | Income tax expense               |                          |     |     |   |      |      | (0.7 | ) |   |     | (0.4  | )
|                                      |                                  |                          |     |      |   |      |      |      |   |   |     |      
|                                      | Net income                       |                          |     |     |   |      |      | 1.1  |   |   |     | 0.5   |  
|                                      |                                  |                          |     |      |   |      |      |      |   |   |     |      
|Total                                 |                                  |                          |     |      |   |      |      |      |   |   |     |      
|                                      | Net sales                        |                          |     | 2.9  |   |      |      | 38.8 |   |   |     | 262.8 |  
|                                      | Income before income tax expense |                          |     | 0.3  |   |      |      | 4.6  |   |   |     | 2.4   |  
|                                      | Income tax expense               |                          |     | (0.1 | ) |      |      | (1.6 | ) |   |     | (0.9  | )
|                                      |                                  |                          |     |      |   |      |      |      |   |   |     |      
|                                      | Net income                       |                          |     | 0.2  |   |      |      | 3.0  |   |   |     | 1.5   |  
|                                      |                                  |                          |     |      |   |      |      |      |   |   |     |      
|Gain on disposal, net of income taxes |                                  |                          | 4.1 |      |   |      | 84.0 |      |   |   | 2.0 |      
|                                      |                                  |                          |     |      |   |      |      |      |   |   |     |      
|Income from discontinued operations   |                                  | $                        | 4.3 |      |   | $    | 87.0 |      |   | $ | 3.5 |      
|                                      |                                  |                          |     |      |   |      |      |      |   |   |     |      



|    |                         
|--- | ------------------------
|18. | Stock-Based Compensation

At March 31, 2004, the Company had the
following stock-based compensation plans: three Peter Donald
Macdonald Share Option Plans; the Executive Share Purchase Plan;
the 2001 Equity Incentive Plan and two Shadow Stock Plans. Prior
to fiscal year 2003, the Company elected to follow the
accounting provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and to
provide the pro forma disclosures required under
SFAS No. 123.

In fiscal year 2003, the Company adopted the fair
value provisions of SFAS No. 123, which requires the
Company to value stock options issued based upon an option
pricing model and recognize this value as compensation expense
over the periods in which the options vest (see Note 2).

F-36



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company estimates the fair value of each
option grant on the date of grant using the Black-Scholes
option-pricing model. In the table below are the weighted
average assumptions and weighted average fair values used for
grants in fiscal years 2004, 2003 and 2002:

|                                    |  |      |      |      |  |      |      |   |  |    |      |  
|----------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | -- | ---- | -
|                                    |  | 2004 |      | 2003 |  | 2002
|                                    |  |      |      |      |  |     
|Dividend yield                      |  |      | 1.0  | %    |  |      | 2.9  | % |  |    | 4.1  | %
|Expected volatility                 |  |      | 26.0 | %    |  |      | 27.0 | % |  |    | 22.3 | %
|Risk free interest rate             |  |      | 2.7  | %    |  |      | 2.9  | % |  |    | 3.3  | %
|Expected life in years              |  |      | 3.3  |      |  |      | 4.6  |   |  |    | 3.1  |  
|Weighted average fair at grant date |  | A$   | 1.42 |      |  | A$   | 1.12 |   |  | A$ | 0.77 |  

Compensation expense arising from stock option
grants as determined using the Black-Scholes model was
$3.2 million, $1.9 million and $1.6 million for
the fiscal years ended March 31, 2004, 2003 and 2002,
respectively. All prior periods presented have been restated to
reflect the compensation costs that would have been recognized
had the recognition provisions of SFAS No. 123 been
applied to all options granted after March 31, 1995.



| |                                              
| | ---------------------------------------------
| | Peter Donald Macdonald Share Option
    Plans



| |                                             
| | --------------------------------------------
| | Peter Donald Macdonald Share Option
    Plan

On November 17, 1999, 1,200,000 options were
granted by JHIL at fair market value to Mr. Peter D.
Macdonald, Chief Executive Officer of JHIL at that time, under
the Peter Donald Macdonald Share Option Plan. Each option
conferred the right to subscribe for one ordinary share in the
capital of JHIL at a price of A$3.87 payable by
Mr. Macdonald or his nominee at the time of exercise of the
options. As part of the 2001 Reorganization, JHIL terminated
this option plan and JHI NV granted Mr. Macdonald a
replacement option plan to purchase 1,200,000 shares of
JHI NV common stock at an exercise price of A$3.87 per
share. As with the original JHIL option grant, this stock option
plan vests and becomes exercisable in three equal installments
of 400,000 shares after November 17, 2002, 2003 and
2004. The JHI NV plan contains the same terms as the JHIL
plan. The exercise price and the number of shares available on
exercise may be adjusted on the occurrence of certain events,
including new issues, share splits, rights issues and capital
reconstructions, as set out in the plan rules. Consequently, the
exercise price was reduced by A$0.21, A$0.38 and A$0.10 for the
November 2003, November 2002 and December 2001
returns of capital, respectively.

Options which have not lapsed may be exercised on
any date on or after there has been a change of control of
JHI NV or Mr. Macdonalds termination,
resignation or death. Options not exercised will lapse on the
first to occur of: (a) 10 years from the date of
issue; or (b) expiration of six months after the date on
which Mr. Macdonald dies or six months after he ceases to
be employed by JHI NV.



| |                                                  
| | -------------------------------------------------
| | Peter Donald Macdonald Share Option Plan
    2001

On July 12, 2001, 624,000 options were
granted by JHIL at fair market value to Mr. Peter D.
Macdonald, Chief Executive Officer of JHIL at that time, under
the Peter Donald Macdonald Share Option Plan 2001. Each option
conferred the right to subscribe for one ordinary share in the
capital of JHIL at the price of A$5.45 per share payable by
Mr. Macdonald or his nominee at the time of exercise of the
options. As part of the 2001 Reorganization, JHIL terminated
this option plan and JHI NV granted Mr. Macdonald a
replacement option plan to purchase 624,000 shares of
JHI NV common stock at an exercise price of A$5.45 per
share. The options may only be exercised if the Company meets
certain performance hurdles. The first 468,000 options are
exercisable after July 12, 2004 if JHI NVs total
shareholder return (TSR) is equal to or greater than
the median TSR for the Companys peer group as set out in
the plan. For every 1% that JHI NVs TSR is greater
than the median peer groups TSR, an additional 6,240
options are exercisable, up to

F-37



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

156,000 options. As set out in the plan rules,
the exercise price and the number of shares available on
exercise may be adjusted on the occurrence of certain events,
including new issues, share splits, rights issues and capital
reconstructions. Consequently, the exercise price was reduced by
A$0.21, A$0.38 and A$0.10 for the November 2003,
November 2002 and December 2001 returns of capital,
respectively.

Options which have not lapsed may be exercised on
any date on or after there has been a change of control of
JHI NV or Mr. Macdonalds termination,
resignation or death. Options not exercised will lapse on the
first to occur of: (a) 10 years from the date of
issue; or (b) expiration of six months after the date on
which Mr. Macdonald dies or six months after he ceases to
be employed by JHI NV.



| |                                                  
| | -------------------------------------------------
| | Peter Donald Macdonald Share Option Plan
    2002

On July 19, 2002, 1,950,000 options were
granted by JHI NV at fair market value to Mr. Peter D.
Macdonald, Chief Executive Officer of JHI NV at that time,
under the Peter Donald Macdonald Share Option Plan 2002. Each
option confers the right to subscribe for one ordinary share in
the capital of JHI NV at the price of A$6.30 per share
payable by Mr. Macdonald or his nominee at the time of
exercise of the options. The options may only be exercised if
the Company meets certain performance hurdles. The first
1,462,500 options are exercisable after July 19, 2005 if
JHI NVs TSR is equal to or greater than the median
TSR for the Companys peer group as set out in the plan.
For every 1% that JHI NVs TSR is greater than the
median peer groups TSR, an additional 19,500 options are
exercisable, up to 487,500 options. As set out in the plan
rules, the exercise price and the number of shares available on
exercise may be adjusted on the occurrence of certain events,
including new issues, share splits, rights issues and capital
reconstructions. Consequently, the exercise price was reduced by
A$0.21 and A$0.38 for the November 2003 and
November 2002 return of capital.

Options which have not lapsed may be exercised on
any date on or after there has been a change of control of
JHI NV or Mr. Macdonalds termination,
resignation or death. Options not exercised will lapse on the
first to occur of: (a) 10 years from the date of
issue; or (b) expiration of 18 months after the date
on which Mr. Macdonald dies or 18 months after he
ceases to be employed by JHI NV.



| |                              
| | -----------------------------
| | Executive Share Purchase Plan

Prior to July 1998, JHIL issued stock under
an Executive Share Purchase Plan. Under the terms of the Plan,
eligible executives had purchased JHIL shares at their market
price when issued. Executives funded purchases of JHIL shares
with non-recourse, interest-free loans provided by JHIL and
collateralized by the shares. In such cases, the amount of
indebtedness is reduced by any amounts payable by JHIL in
respect of such shares, including dividends and capital returns.
These loans are generally payable within two years after
termination of an executives employment. As part of the
2001 Reorganization, the identical terms of the agreement have
been carried over to JHI NV. Variable plan accounting under
the provisions of APB Opinion No. 25 has been applied to
the Executive Share Purchase Plan shares granted prior to
April 1, 1995 and fair value accounting, pursuant to the
requirements of SFAS No. 123, has been applied to
shares granted after March 31, 1995. Accordingly, the
Company recorded variable compensation expense of
$0.1 million, nil and $0.2 million for the years ended
March 31, 2004, 2003 and 2002, respectively. No shares were
issued to executives during fiscal years 2004, 2003 and 2002.



| |                           
| | --------------------------
| | 2001 Equity Incentive Plan

On October 19, 2001 (the grant date),
JHI NV granted a total of 5,468,829 stock options under the
JHI NV 2001 Equity Incentive Plan to key
U.S. executives in exchange for their previously granted
Key Management Equity Incentive Plan (KMEIP) shadow
shares that were originally granted in November 2000 and
1999 by JHIL. These options may be exercised in five equal
tranches (20% each year) starting with the first anniversary of
the original shadow share grant.

F-38



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As set out in the plan rules, the exercise prices
and the number of shares available on exercise may be adjusted
on the occurrence of certain events, including new issues, share
splits, rights issues and capital reconstructions. Consequently,
the exercise price was reduced by A$0.21, A$0.38 and A$0.10 for
the November 2003, November 2002 and
December 2001 returns of capital, respectively.

|                      |  |                |      |           |  |                        |           |  |  |  |               | 
|--------------------- |  | -------------- | ---- | --------- |  | ---------------------- | --------- |  |  |  | ------------- | 
|                      |  |                |      | October   |  |                       
|                      |  |                |      | 2001      |  |                       
|                      |  |                |      | Number of |  |                       
|Original Shadow Share |  | Original       |      | Options   |  |                       
|Grant Date            |  | Exercise Price |      | Granted   |  | Option Expiration Date
|                      |  |                |      |           |  |                       
|November 1999         |  | A$             | 3.82 |           |  |                        | 1,968,544 |  |  |  | November 2009 | 
|November 2000         |  | A$             | 3.78 |           |  |                        | 3,500,285 |  |  |  | November 2010 | 

On December 5, 2003, December 3, 2002
and December 17, 2001, 6,179,583 options at an exercise
price of A$7.05, 4,037,000 options at an exercise price of
A$6.66 and 4,248,417 options at an exercise price of A$5.65,
respectively, were granted by JHI NV at fair market value
to management and other employees of the Company under the
JHI NV 2001 Equity Incentive Plan. Each option confers the
right to subscribe for one ordinary share in the capital of
JHI NV. The options may be exercised as follows: 25% after
the first year; 25% after the second year; and 50% after the
third year. All unexercised options expire 10 years from
the date of issue or 90 days after the employee ceases to
be employed by the Company.

The Company is authorized to issue
45,077,100 shares under the 2001 Equity Incentive Plan.
Also, as set out in the plan rules, the exercise prices and the
number of shares available on exercise may be adjusted on the
occurrence of certain events, including new issues, share
splits, rights issues and capital reconstructions. Consequently,
the exercise price on the December 3, 2002 and
December 17, 2001 option grants were reduced by A$0.21 for
the November 2003 return of capital and the
December 17, 2001 option grant was reduced by A$0.38 for
the November 2002 return of capital.

The following table shows the movement in the
Companys outstanding options:

|                                |  |                         |            |          |  |           |      |          |  |           |            |          |  |    |      |  |  |  |            |   |  |    |      | 
|------------------------------- |  | ----------------------- | ---------- | -------- |  | --------- | ---- | -------- |  | --------- | ---------- | -------- |  | -- | ---- |  |  |  | ---------- | - |  | -- | ---- | 
|                                |  |                         |            |          |  |          
|                                |  | 2004                    |            | 2003     |  | 2002     
|                                |  |                         |            |          |  |          
|                                |  |                         |            | Weighted |  |           |      | Weighted |  |           |            | Weighted
|                                |  |                         |            | Average  |  |           |      | Average  |  |           |            | Average 
|                                |  | Number of               |            | Exercise |  | Number of |      | Exercise |  | Number of |            | Exercise
|                                |  | Shares                  |            | Price    |  | Shares    |      | Price    |  | Shares    |            | Price   
|                                |  |                         |            |          |  |           |      |          |  |           |            |         
|                                |  |                        
|                                |  | (In Australian dollars)
|Outstanding at April 1          |  |                         | 13,410,024 |          |  | A$        | 5.20 |          |  |           | 10,969,562 |          |  | A$ | 4.54 |  |  |  | 1,200,000  |   |  | A$ | 3.87 | 
|Granted                         |  |                         | 6,179,583  |          |  |           | 7.05 |          |  |           | 5,987,000  |          |  |    | 6.42 |  |  |  | 10,341,246 |   |  |    | 4.37 | 
|Exercised                       |  |                         | (1,023,047 | )        |  |           | 4.38 |          |  |           | (2,059,879 | )        |  |    | 3.57 |  |  |  | (496,257   | ) |  |    | 3.75 | 
|Forfeited                       |  |                         | (587,853   | )        |  |           | 5.79 |          |  |           | (1,486,659 | )        |  |    | 4.95 |  |  |  | (75,427    | ) |  |    | 5.65 | 
|                                |  |                         |            |          |  |           |      |          |  |           |            |          |  |    |      |  |  |  |            |   |  |    |      | 
|Outstanding at March 31         |  |                         | 17,978,707 |          |  | A$        | 5.72 |          |  |           | 13,410,024 |          |  | A$ | 5.20 |  |  |  | 10,969,562 |   |  | A$ | 4.54 | 
|                                |  |                         |            |          |  |           |      |          |  |           |            |          |  |    |      |  |  |  |            |   |  |    |      | 
|Options exercisable at March 31 |  |                         | 3,858,736  |          |  | A$        | 4.54 |          |  |           | 1,948,346  |          |  | A$ | 4.17 |  |  |  | 1,122,022  |   |  | A$ | 3.70 | 
|                                |  |                         |            |          |  |           |      |          |  |           |            |          |  |    |      |  |  |  |            |   |  |    |      | 

F-39



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information about
the Companys stock options outstanding at March 31,
2004:

|                         |  |                         |            |                     |  |          |     |              |  |          |      |  |  |  |           |  |  |    |      | 
|------------------------ |  | ----------------------- | ---------- | ------------------- |  | -------- | --- | ------------ |  | -------- | ---- |  |  |  | --------- |  |  | -- | ---- | 
|                         |  |                         |            |                    
|                         |  | Options Outstanding     |            | Options Exercisable
|                         |  |                         |            |                    
|                         |  |                         |            | Weighted            |  |          |     |             
|                         |  | Number                  |            | Average             |  | Weighted |     | Number       |  | Weighted
|                         |  | Outstanding at          |            | Remaining           |  | Average  |     | Exercisable  |  | Average 
|                         |  | March 31,               |            | Contractual Life    |  | Exercise |     | at March 31, |  | Exercise
|Range of Exercise Prices |  | 2004                    |            | (in years)          |  | Price    |     | 2004         |  | Price   
|                         |  |                         |            |                     |  |          |     |              |  |         
|                         |  |                        
|                         |  | (In Australian dollars)
|A$3.09                   |  |                         | 1,404,712  |                     |  |          | 6.6 |              |  | A$       | 3.09 |  |  |  | 529,668   |  |  | A$ | 3.09 | 
|3.13                     |  |                         | 578,500    |                     |  |          | 5.6 |              |  |          | 3.13 |  |  |  | 357,555   |  |  |    | 3.13 | 
|3.18                     |  |                         | 1,200,000  |                     |  |          | 5.6 |              |  |          | 3.18 |  |  |  | 800,000   |  |  |    | 3.18 | 
|4.76                     |  |                         | 624,000    |                     |  |          | 7.3 |              |  |          | 4.76 |  |  |  |          |  |  |    |     | 
|5.06                     |  |                         | 2,666,587  |                     |  |          | 7.7 |              |  |          | 5.06 |  |  |  | 1,291,254 |  |  |    | 5.06 | 
|5.71                     |  |                         | 1,950,000  |                     |  |          | 8.3 |              |  |          | 5.71 |  |  |  |          |  |  |    |     | 
|6.45                     |  |                         | 3,478,325  |                     |  |          | 8.7 |              |  |          | 6.45 |  |  |  | 862,700   |  |  |    | 6.45 | 
|7.05                     |  |                         | 6,076,583  |                     |  |          | 9.7 |              |  |          | 7.05 |  |  |  | 17,559    |  |  |    | 7.05 | 
|                         |  |                         |            |                     |  |          |     |              |  |          |      |  |  |  |           |  |  |    |      | 
|A$3.09 to A$7.05         |  |                         | 17,978,707 |                     |  |          | 8.3 |              |  | A$       | 5.72 |  |  |  | 3,858,736 |  |  | A$ | 4.54 | 
|                         |  |                         |            |                     |  |          |     |              |  |          |      |  |  |  |           |  |  |    |      | 



| |                   
| | ------------------
| | Shadow Stock Plans

The U.S. Shadow Stock Plan provides an
incentive to certain key employees in the United States based on
growth in the JHI NV share price over time as if such
employees were the owners of that number of JHI NVs
common stock equal to the number of shares of shadow stock
issued to employees. The vesting period of these shadow stock
plans is five years. The last grant date under the
U.S. Shadow Stock Plan was December 17, 2001. The
total number of shadow stock shares outstanding under the plans
at March 31, 2004, 2003 and 2002 were 425,800 shares,
687,300 shares and 1,727,000 shares, respectively.

In December 1998, a shadow stock plan for
non-U.S. based employees was instituted under similar terms
to the U.S. Shadow Stock Plan with a vesting period of
three years. The last grant date under this plan was
August 15, 2001. The total number of shadow stock shares
outstanding at March 31, 2004, 2003 and 2002 were
380,619 shares, 1,512,274 shares and
2,325,000 shares, respectively.

On December 5, 2003, 12,600 shadow stock
shares were granted under the terms and conditions of the Key
Management Shadow Stock Incentive Plan. All of these shares are
outstanding at March 31, 2004.

These plans have been accounted for as stock
appreciation rights under SFAS No. 123 and,
accordingly, compensation expense of $2.6 million,
$1.9 million and $5.1 million was recognized in fiscal
years 2004, 2003 and 2002, respectively. The portion of this
compensation expense related to Gypsum employees was
$0.9 million for the year ended March 31, 2002.



|    |                      
|--- | ---------------------
|19. | Financial Instruments



| |                 
| | ----------------
| | Foreign Currency

As a multinational corporation, the Company
maintains significant operations in foreign countries. As a
result of these activities, the Company is exposed to changes in
exchange rates which affect its results of operations and cash
flows. At March 31, 2004 and 2003, the Company had not
entered into any material contracts to hedge these exposures.

The Company purchases raw materials and fixed
assets and sells some finished product for amounts denominated
in currencies other than the functional currency of the business
in which the related transaction

F-40



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

is generated. In order to protect against foreign
exchange rate movements, the Company may enter into forward
exchange contracts timed to mature when settlement of the
underlying transaction is due to occur. At March 31, 2004
and 2003, there were no material contracts outstanding.



| |            
| | -----------
| | Derivatives

In August 2000, the Company entered into a
contract with a third party to hedge the price of 5,000 metric
tons per month of pulp, a major commodity used in the
manufacture of fiber cement products. The original contract term
was effective from September 1, 2000 to August 31,
2005, with settlement payments due each month. On
December 2, 2001, the counter-party filed for bankruptcy.
This had the effect of terminating all outstanding swap
transactions immediately prior to the bankruptcy filing. The
estimated fair value at the date of termination of the pulp
contract was a $6.2 million liability and was recorded in
other non-current liabilities at March 31, 2002. Also a
current payable of $0.6 million related to the contract was
recorded at March 31, 2002. In November 2002, the Company
settled its obligation under this contract for a cash payment of
$5.8 million. Accordingly, a gain on settlement of the
contract in the amount of $1.0 million was recorded in
other operating income during the fiscal year ended
March 31, 2003.



| |            
| | -----------
| | Credit Risk

Financial instruments which potentially subject
the Company to credit risk consist primarily of cash and cash
equivalents, investments and trade accounts receivable.

The Company maintains cash and cash equivalents,
investments and certain other financial instruments with various
major financial institutions. At times, these financial
instruments may be in excess of federally insured limits. To
minimize this risk, the Company performs periodic evaluations of
the relative credit standing of these financial institutions
and, where appropriate, places limits on the amount of credit
exposure with any one institution.

For off-balance sheet financial instruments,
including derivatives, credit risk also arises from the
potential failure of counter-parties to meet their obligations
under the respective contracts at maturity. The Company controls
risk through the use of credit ratings and reviews.

The Company is exposed to losses on forward
exchange contracts in the event that counter-parties fail to
deliver the contracted amount. The credit exposure to the
Company is calculated as the net fair value of all contracts
outstanding with that counter-party. At March 31, 2004 and
2003, total credit exposure arising from forward exchange
contracts was not material.

Credit risk with respect to trade accounts
receivable is concentrated due to the concentration of the
distribution channels for the Companys fiber cement
products. Credit is extended based on an evaluation of each
customers financial condition and, generally, collateral
is not required. The Company has historically not incurred
significant credit losses.



| |               
| | --------------
| | Interest Rates

At March 31, 2004, the Company had
$10.8 million outstanding under its short-term line of
credit, which is subject to variable interest rates. No interest
rate hedging contracts in respect to that debt have been entered
into.

F-41



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |            
| | -----------
| | Fair Values

The carrying values of cash and cash equivalents,
marketable securities, accounts receivable, short-term
borrowings and accounts payable and accrued liabilities are a
reasonable estimate of their fair value due to the short-term
nature of these instruments. The following table summarizes the
estimated fair value of the Companys long-term debt:

|                |          |                          |   |            |       |                |   |            |       |  |   |       |       |  |   |       |       | 
|--------------- | -------- | ------------------------ | - | ---------- | ----- | -------------- | - | ---------- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                |          |                         
|                |          | March 31                
|                |          |                         
|                |          |                          |   |           
|                |          | 2004                     |   | 2003      
|                |          |                          |   |           
|                |          | Carrying Value           |   | Fair Value |       | Carrying Value |   | Fair Value
|                |          |                          |   |            |       |                |   |           
|                |          |                         
|                |          | (Millions of US dollars)
|Long-term debt: |          |                          |   |            |       |                |   |            |       |  |   |       |       |  |   |      
|                | Floating |                          | $ |           |       |                | $ |           |       |  | $ |      |       |  | $ |      |      
|                | Fixed    |                          |   | 165.0      |       |                |   | 186.8      |       |  |   | 165.0 |       |  |   | 200.7 |      
|                |          |                          |   |            |       |                |   |            |       |  |   |       |       |  |   |      
|                |          | Total                    |   | $          | 165.0 |                |   | $          | 186.8 |  |   | $     | 165.0 |  |   | $     | 200.7 | 
|                |          |                          |   |            |       |                |   |            |       |  |   |       |       |  |   |      

Fair values of long-term debt were determined by
reference to the March 31, 2004 and 2003 market values for
comparably rated debt instruments.



|    |                                                             
|--- | ------------------------------------------------------------
|20. | Operating Segment Information and
    Concentrations of Risk

The Company has reported its operating segment
information in the format that the operating segment information
is available to and evaluated by the Board of Directors. USA
Fiber Cement manufactures and sells fiber cement flat sheet
products in the United States. Asia Pacific Fiber Cement
includes all fiber cement manufactured in Australia, New Zealand
and the Philippines and sold in Australia, New Zealand and Asia.
Research and Development represents the cost incurred by the
research and development centers. Other includes the manufacture
and sale of fiber cement products in Chile, the manufacture and
sale of fiber cement reinforced pipes in the United States,
fiber cement operations in Europe and fiber cement roofing
operations in the United States. The Companys reportable
operating segments are strategic operating units that are
managed separately due to their different products and/or
geographical location.



| |                   
| | ------------------
| | Operating Segments

The following are the Companys operating
segments and geographical information:

|                          |                                            |                           |       |       |  |      |       |       |  |   |       |       | 
|------------------------- | ------------------------------------------ | ------------------------- | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                          |                                            |                          
|                          |                                            | Net Sales to Customers(1)
|                          |                                            | Years Ended March 31     
|                          |                                            |                          
|                          |                                            | 2004                      |       | 2003  |  | 2002
|                          |                                            |                           |       |       |  |     
|                          |                                            |                          
|                          |                                            | (Millions of US dollars) 
|USA Fiber Cement          |                                            | $                         | 738.6 |       |  | $    | 599.7 |       |  | $ | 444.8 |      
|Asia Pacific Fiber Cement |                                            |                           | 219.8 |       |  |      | 174.3 |       |  |   | 141.7 |      
|Other Fiber Cement        |                                            |                           | 23.5  |       |  |      | 9.6   |       |  |   | 4.2   |      
|                          |                                            |                           |       |       |  |      |       |       |  |   |       |      
|                          | Segments total                             |                           |       | 981.9 |  |      |       | 783.6 |  |   |       | 590.7 | 
|General Corporate         |                                            |                           |      |       |  |      |      |       |  |   | 1.0   |      
|                          |                                            |                           |       |       |  |      |       |       |  |   |       |      
|                          | Worldwide total from continuing operations |                           | $     | 981.9 |  |      | $     | 783.6 |  |   | $     | 591.7 | 
|                          |                                            |                           |       |       |  |      |       |       |  |   |       |      

F-42



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                             |                                            |                          |       |       |  |      |       |       |  |   |       |      | 
|---------------------------- | ------------------------------------------ | ------------------------ | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ---- | 
|                             |                                            |                         
|                             |                                            | Income from             
|                             |                                            | Continuing Operations   
|                             |                                            | Before Income Taxes     
|                             |                                            | Years Ended March 31    
|                             |                                            |                         
|                             |                                            | 2004                     |       | 2003  |  | 2002
|                             |                                            |                          |       |       |  |     
|                             |                                            |                         
|                             |                                            | (Millions of US dollars)
|USA Fiber Cement(2),(3)      |                                            | $                        | 195.6 |       |  | $    | 155.1 |       |  | $ | 85.8  |     
|Asia Pacific Fiber Cement(2) |                                            |                          | 37.6  |       |  |      | 27.3  |       |  |   | 20.9  |     
|Research and Development(2)  |                                            |                          | (17.6 | )     |  |      | (13.0 | )     |  |   | (10.0 | )   
|Other Fiber Cement           |                                            |                          | (15.9 | )     |  |      | (10.7 | )     |  |   | (8.9  | )   
|                             |                                            |                          |       |       |  |      |       |       |  |   |       |     
|                             | Segments total                             |                          |       | 199.7 |  |      |       | 158.7 |  |   |       | 87.8 | 
|General Corporate(4)         |                                            |                          | (27.5 | )     |  |      | (29.9 | )     |  |   | (41.0 | )   
|                             |                                            |                          |       |       |  |      |       |       |  |   |       |     
|Total operating income       |                                            |                          | 172.2 |       |  |      | 128.8 |       |  |   | 46.8  |     
|Net interest expense(5)      |                                            |                          | (10.0 | )     |  |      | (19.9 | )     |  |   | (16.0 | )   
|Other income (expense), net  |                                            |                          | 3.5   |       |  |      | 0.7   |       |  |   | (0.4  | )   
|                             |                                            |                          |       |       |  |      |       |       |  |   |       |     
|                             | Worldwide total from continuing operations |                          | $     | 165.7 |  |      | $     | 109.6 |  |   | $     | 30.4 | 
|                             |                                            |                          |       |       |  |      |       |       |  |   |       |     

|                          |                 |                    |       |       |  |   |       |       | 
|------------------------- | --------------- | ------------------ | ----- | ----- |  | - | ----- | ----- | 
|                          |                 |                   
|                          |                 | Total Identifiable
|                          |                 | Assets March 31   
|                          |                 |                   
|                          |                 | 2004               |       | 2003 
|                          |                 |                    |       |      
|                          |                 |                   
|                          |                 | (Millions of      
|                          |                 | US dollars)       
|USA Fiber Cement          |                 | $                  | 554.9 |       |  | $ | 492.2 |      
|Asia Pacific Fiber Cement |                 |                    | 175.9 |       |  |   | 147.9 |      
|Other Fiber Cement        |                 |                    | 74.7  |       |  |   | 48.2  |      
|                          |                 |                    |       |       |  |   |       |      
|                          | Segments total  |                    |       | 805.5 |  |   |       | 688.3 | 
|General Corporate(6)      |                 |                    | 165.7 |       |  |   | 156.8 |      
|Discontinued operations   |                 |                    |      |       |  |   | 6.7   |      
|                          |                 |                    |       |       |  |   |       |      
|                          | Worldwide total |                    | $     | 971.2 |  |   | $     | 851.8 | 
|                          |                 |                    |       |       |  |   |       |      

|                          |                 |                          |      |      |  |      |      |      |  |   |      |      | 
|------------------------- | --------------- | ------------------------ | ---- | ---- |  | ---- | ---- | ---- |  | - | ---- | ---- | 
|                          |                 |                         
|                          |                 | Additions to Property,  
|                          |                 | Plant and Equipment(7)  
|                          |                 | Years Ended March 31    
|                          |                 |                         
|                          |                 | 2004                     |      | 2003 |  | 2002
|                          |                 |                          |      |      |  |     
|                          |                 |                         
|                          |                 | (Millions of US dollars)
|USA Fiber Cement          |                 | $                        | 56.2 |      |  | $    | 81.0 |      |  | $ | 39.3 |     
|Asia Pacific Fiber Cement |                 |                          | 8.4  |      |  |      | 6.6  |      |  |   | 8.1  |     
|Other Fiber Cement        |                 |                          | 9.5  |      |  |      | 2.5  |      |  |   | 3.3  |     
|                          |                 |                          |      |      |  |      |      |      |  |   |      |     
|                          | Segments total  |                          |      | 74.1 |  |      |      | 90.1 |  |   |      | 50.7 | 
|General Corporate         |                 |                          |     |      |  |      | 0.1  |      |  |   | 0.1  |     
|Discontinued operations   |                 |                          |     |      |  |      |     |      |  |   | 1.6  |     
|                          |                 |                          |      |      |  |      |      |      |  |   |      |     
|                          | Worldwide total |                          | $    | 74.1 |  |      | $    | 90.2 |  |   | $    | 52.4 | 
|                          |                 |                          |      |      |  |      |      |      |  |   |      |     

F-43



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                          |                 |                          |      |      |  |      |      |      |  |   |      |      | 
|------------------------- | --------------- | ------------------------ | ---- | ---- |  | ---- | ---- | ---- |  | - | ---- | ---- | 
|                          |                 |                         
|                          |                 | Depreciation and        
|                          |                 | Amortization            
|                          |                 | Years Ended March 31    
|                          |                 |                         
|                          |                 | 2004                     |      | 2003 |  | 2002
|                          |                 |                          |      |      |  |     
|                          |                 |                         
|                          |                 | (Millions of US dollars)
|USA Fiber Cement          |                 | $                        | 25.1 |      |  | $    | 18.2 |      |  | $ | 14.5 |     
|Asia Pacific Fiber Cement |                 |                          | 9.7  |      |  |      | 8.7  |      |  |   | 8.6  |     
|Other Fiber Cement        |                 |                          | 1.5  |      |  |      | 0.3  |      |  |   | 0.2  |     
|                          |                 |                          |      |      |  |      |      |      |  |   |      |     
|                          | Segments total  |                          |      | 36.3 |  |      |      | 27.2 |  |   |      | 23.3 | 
|General Corporate         |                 |                          | 0.1  |      |  |      | 0.2  |      |  |   | 0.2  |     
|Discontinued operations   |                 |                          |     |      |  |      | 1.3  |      |  |   | 16.4 |     
|                          |                 |                          |      |      |  |      |      |      |  |   |      |     
|                          | Worldwide total |                          | $    | 36.4 |  |      | $    | 28.7 |  |   | $    | 39.9 | 
|                          |                 |                          |      |      |  |      |      |      |  |   |      |     



| |                 
| | ----------------
| | Geographic Areas

|                  |                                            |                           |       |       |  |      |       |       |  |   |       |       | 
|----------------- | ------------------------------------------ | ------------------------- | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                  |                                            |                          
|                  |                                            | Net Sales to Customers(1)
|                  |                                            | Years Ended March 31     
|                  |                                            |                          
|                  |                                            | 2004                      |       | 2003  |  | 2002
|                  |                                            |                           |       |       |  |     
|                  |                                            |                          
|                  |                                            | (Millions of US dollars) 
|USA               |                                            | $                         | 748.9 |       |  | $    | 605.0 |       |  | $ | 447.3 |      
|Australia         |                                            |                           | 154.9 |       |  |      | 124.7 |       |  |   | 100.7 |      
|New Zealand       |                                            |                           | 40.6  |       |  |      | 31.6  |       |  |   | 22.8  |      
|Other Countries   |                                            |                           | 37.5  |       |  |      | 22.3  |       |  |   | 19.9  |      
|                  |                                            |                           |       |       |  |      |       |       |  |   |       |      
|                  | Segments total                             |                           |       | 981.9 |  |      |       | 783.6 |  |   |       | 590.7 | 
|General Corporate |                                            |                           |      |       |  |      |      |       |  |   | 1.0   |      
|                  |                                            |                           |       |       |  |      |       |       |  |   |       |      
|                  | Worldwide total from continuing operations |                           | $     | 981.9 |  |      | $     | 783.6 |  |   | $     | 591.7 | 
|                  |                                            |                           |       |       |  |      |       |       |  |   |       |      

|                        |                 |                    |       |       |  |   |       |       | 
|----------------------- | --------------- | ------------------ | ----- | ----- |  | - | ----- | ----- | 
|                        |                 |                   
|                        |                 | Total Identifiable
|                        |                 | Assets March 31   
|                        |                 |                   
|                        |                 | 2004               |       | 2003 
|                        |                 |                    |       |      
|                        |                 |                   
|                        |                 | (Millions of      
|                        |                 | US dollars)       
|USA                     |                 | $                  | 609.8 |       |  | $ | 528.3 |      
|Australia               |                 |                    | 119.1 |       |  |   | 87.7  |      
|New Zealand             |                 |                    | 19.7  |       |  |   | 20.6  |      
|Other Countries         |                 |                    | 56.9  |       |  |   | 51.7  |      
|                        |                 |                    |       |       |  |   |       |      
|                        | Segments total  |                    |       | 805.5 |  |   |       | 688.3 | 
|General Corporate(6)    |                 |                    | 165.7 |       |  |   | 156.8 |      
|Discontinued operations |                 |                    |      |       |  |   | 6.7   |      
|                        |                 |                    |       |       |  |   |       |      
|                        | Worldwide total |                    | $     | 971.2 |  |   | $     | 851.8 | 
|                        |                 |                    |       |       |  |   |       |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Export sales and inter-segmental sales are not
    significant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(2) | Research and development costs of
    $6.3 million, $5.3 million and $4.0 million in
    fiscal years 2004, 2003 and 2002, respectively, were expensed in
    the USA Fiber Cement operating segment. Research and development
    costs of $2.2 million, $2.4 million and
    $2.0 million in 2004, 2003 and 2002, respectively, were
    expensed in the Asia Pacific Fiber Cement segment. Research and
    development costs of $14.1 million, $10.4 million and
    $8.1 million in fiscal years 2004, 2003 and 2002,
    respectively, were

F-44



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | expensed in the Research and Development segment.
    The Research and Development segment also included selling,
    general and administrative expenses of $3.5 million,
    $2.7 million and $1.9 million in fiscal years 2004,
    2003 and 2002, respectively.

Research and development expenditures are
expensed as incurred and in total amounted to
$22.6 million, $18.1 million and $14.1 million
for the years ended March 31, 2004, 2003 and 2002,
respectively.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | In 2002, the operating profit of USA Fiber Cement
    was reduced by a $12.6 million charge for the settlement of
    all product, warranty and property related liability claims
    associated with roofing products which were previously
    manufactured and sold by the Company (see Note 15).                                                                                                                                                                                                                                                       
|   
|(4) | The principal components of General Corporate are
    officer and employee compensation and related benefits,
    professional and legal fees, administrative costs and rental
    expense, net of rental income, on the Companys corporate
    offices. Pension cost related to the Australian and New Zealand
    defined benefit plan for the Asia Pacific Fiber Cement segment
    totaling $1.8 million, $2.3 million and
    $0.9 million in fiscal years 2004, 2003 and 2002,
    respectively, has been included in the General Corporate segment.
|   
|(5) | The Company does not report net interest expense
    for each reportable segment as reportable segments are not held
    directly accountable for interest expense.                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(6) | The Company does not report deferred tax assets
    and liabilities for each reportable segment as reportable
    segments are not held directly accountable for deferred taxes.
    All deferred taxes are included in General Corporate.                                                                                                                                                                                                                                                                                                                 
|   
|(7) | Additions to property, plant and equipment are
    calculated on an accrual basis, and therefore differ from
    property, plant and equipment in the consolidated statements of
    cash flows.                                                                                                                                                                                                                                                                                                                                                           



| |                       
| | ----------------------
| | Concentrations of Risk

The distribution channels for the Companys
fiber cement products are concentrated. If the Company were to
lose one or more of its major distributors, there can be no
assurance that the Company will be able to find a replacement.
Therefore, the loss of one or more distributors could have a
material adverse effect on the Companys consolidated
financial position, results of operations and cash flows. The
Company has three major distributors that individually account
for over 10% of the Companys net sales.

These three distributors represented 50% and 51%
of the Companys trade accounts receivable at
March 31, 2004 and 2003, respectively. The following are
net sales generated by these three distributors, which are all
from the USA Fiber Cement segment:

|              |       |                          |       |       |  |      |       |       |  |   |       |       | 
|------------- | ----- | ------------------------ | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|              |       |                         
|              |       | Years Ended March 31    
|              |       |                         
|              |       | 2004                     |       | 2003  |  | 2002
|              |       |                          |       |       |  |     
|              |       |                         
|              |       | (Millions of US dollars)
|Distributor A |       | $                        | 111.3 |       |  | $    | 125.1 |       |  | $ | 124.9 |      
|Distributor B |       |                          | 252.2 |       |  |      | 211.4 |       |  |   | 168.8 |      
|Distributor C |       |                          | 112.9 |       |  |      | 84.3  |       |  |   | 56.6  |      
|              |       |                          |       |       |  |      |       |       |  |   |       |      
|              | Total |                          | $     | 476.4 |  |      | $     | 420.8 |  |   | $     | 350.3 | 
|              |       |                          |       |       |  |      |       |       |  |   |       |      

Approximately 24% of the Companys fiscal
year 2004 net sales from continuing operations were derived
from sales outside the United States. Consequently, changes in
the value of foreign currencies could significantly affect the
consolidated financial position, results of operations and cash
flows of the Companys non-U.S. operations on
translation into U.S. dollars.

F-45



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                         
|--- | ------------------------
|21. | Other Comprehensive Loss

The following are the components of total
accumulated other comprehensive loss, net of related tax, which
is displayed in the consolidated balance sheets:

|                                                                                        |                                            |                          |       |       |   |   |       |       |  
|--------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------ | ----- | ----- | - | - | ----- | ----- | -
|                                                                                        |                                            |                         
|                                                                                        |                                            | March 31                
|                                                                                        |                                            |                         
|                                                                                        |                                            | 2004                     |       | 2003 
|                                                                                        |                                            |                          |       |      
|                                                                                        |                                            |                         
|                                                                                        |                                            | (Millions of US dollars)
|Net unrealized gain on available-for-sale
    securities                                |                                            | $                        |      |       |   | $ | 0.1   |      
|Unrealized transition loss on derivative
    instruments classified as cash flow hedges |                                            |                          | (4.9  | )     |   |   | (4.9  | )    
|Accumulated amortization of unrealized transition
    loss on derivative instruments    |                                            |                          | 3.3   |       |   |   | 2.2   |      
|Minimum pension liability adjustment                                                    |                                            |                          |      |       |   |   | (7.7  | )    
|Foreign currency translation adjustments                                                |                                            |                          | (20.0 | )     |   |   | (36.0 | )    
|                                                                                        |                                            |                          |       |       |   |   |       |      
|                                                                                        | Total accumulated other comprehensive loss |                          | $     | (21.6 | ) |   | $     | (46.3 | )
|                                                                                        |                                            |                          |       |       |   |   |       |      



|    |                                  
|--- | ---------------------------------
|22. | Purchases of Assets of a Business

On December 12, 2001, the Company acquired
the net assets of Cemplank, Inc., primarily fiber cement
equipment, for $40.8 million in cash. The acquisition was
accounted for under the purchase method of accounting and,
accordingly, the consolidated statements of income include the
results of operations arising from these net assets beginning
December 12, 2001. The pro forma effect on the results of
operations for fiscal year 2002 is not material to the
Companys consolidated financial statements.



|    |                     
|--- | --------------------
|23. | Shareholders Equity

On November 5, 2003, the Company converted
its common stock par value from Euro dollar 0.64 to Euro dollar
0.73. This resulted in an increase in common stock and a
decrease in additional paid-in capital of $48.4 million.
Simultaneously, the Company returned capital of Euro dollar
0.1305 per share to shareholders in the amount of
$68.7 million. Effectively, the return of capital decreased
the par value of common stock to Euro dollar 0.5995. The Company
then converted its common stock par value from Euro dollar
0.5995 to Euro dollar 0.59. This resulted in a decrease in
common stock and an increase in additional paid-in capital of
$5.0 million.

On November 1, 2002, the Company converted
its common stock par value from Euro 0.50 to Euro 0.85. This
resulted in an increase in common stock and a decrease in
additional paid-in capital of $157.9 million.
Simultaneously, the Company returned capital to shareholders in
the amount of $94.8 million. Effectively, the return of
capital decreased the par value of common stock to Euro 0.64.

In fiscal year 2002, the Company completed the
2001 Reorganization whereby the Company issued common shares
represented by CUFS on a one for one basis to existing JHIL
shareholders in exchange for their shares in JHIL. Also in
fiscal year 2002, the Company returned capital to shareholders
in the amount of $22.5 million.



|    |                          
|--- | -------------------------
|24. | Remuneration of Directors

Income paid or payable, or otherwise made
available by the Company and related parties to Directors of the
Company in connection with the management of affairs of the
Company totaled $11.5 million and $10.6 million for
the years ended March 31, 2004 and 2003, respectively.

F-46



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Remuneration for non-executive Directors
comprises fees for attendance at meetings of the Board of
Directors and its sub-committees. Remuneration for the executive
Director is determined on the same basis as for other executives
as described in Note 25 below.



|    |                           
|--- | --------------------------
|25. | Remuneration of Executives

Remuneration received or receivable from the
Company by all executives (including Directors) whose
remuneration was at least $100,000 was $13.4 million and
$10.4 million for the years ended March 31, 2004 and
2003, respectively. Remuneration for each executive includes
salary, incentives, superannuation, stock options, retirement
and termination payments, motor vehicles, fringe benefits, tax
and other benefits.

The number of such executives within the
specified bands are as follows:

|                   |  |              |    |      |  |  |    | 
|------------------ |  | ------------ | -- | ---- |  |  | -- | 
|                   |  |             
|                   |  | March 31    
|                   |  |             
|Range Starting at: |  | 2004         |    | 2003
|                   |  |              |    |     
|                   |  |             
|                   |  | (US dollars)
|$270,000           |  |              |   |      |  |  | 1  | 
|$330,000           |  |              |   |      |  |  | 2  | 
|$340,000           |  |              |   |      |  |  | 1  | 
|$370,000           |  |              | 2  |      |  |  | 1  | 
|$430,000           |  |              | 1  |      |  |  |   | 
|$440,000           |  |              |   |      |  |  |   | 
|$460,000           |  |              | 1  |      |  |  | 1  | 
|$480,000           |  |              |   |      |  |  | 1  | 
|$530,000           |  |              | 2  |      |  |  |   | 
|$630,000           |  |              | 1  |      |  |  |   | 
|$660,000           |  |              | 1  |      |  |  |   | 
|$710,000           |  |              |   |      |  |  | 1  | 
|$770,000           |  |              |   |      |  |  | 1  | 
|$850,000           |  |              | 1  |      |  |  |   | 
|$930,000           |  |              | 1  |      |  |  | 1  | 
|$1,070,000         |  |              | 1  |      |  |  |   | 
|$1,270,000         |  |              |   |      |  |  | 1  | 
|$1,390,000         |  |              | 2  |      |  |  | 1  | 
|$3,189,000         |  |              | 1  |      |  |  | 1  | 
|                   |  |              |    |      |  |  |    | 
|                   |  |              | 14 |      |  |  | 13 | 
|                   |  |              |    |      |  |  |    | 

An executive is defined as the Chief Executive
Officer, members of the Group Management Team, General Managers
of Business Units and Company Secretaries of JHI NV.

Remuneration is determined on the basis of the
cost of the remuneration to the Company, but excludes insurance
premiums paid by the Company in respect of directors and
officers liability insurance contracts.

Options and shares issued to executives under the
Executive Share Purchase Plan are valued using the Black-Scholes
model and the fair value of options granted is included in
remuneration.

F-47



---



##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                         
|--- | ------------------------
|26. | Remuneration of Auditors

Remuneration to our independent auditors for
services provided for 2004, 2003 and 2002 were as follows:



| |           
| | ----------
| | Audit Fees

The aggregate fees billed for professional
services rendered by our independent auditors during the years
ended March 31, 2004, 2003 and 2002 were $1.2 million,
$1.1 million and $0.8 million, respectively.
Professional services include the audit of the Companys
annual financial statements and services that are normally
provided in connection with statutory and regulatory filings.



| |                   
| | ------------------
| | Audit Related Fees

The aggregate fees billed for assurance and
related services rendered by our independent auditors during the
years ended March 31, 2004, 2003 and 2002 were
$0.1 million, $0.6 million and $2.5 million,
respectively. Included in the March 31, 2002 audit related
fees is a $2.3 million charge for professional services
performed in relation to the 2001 Reorganization. All other
audit related fees are for accounting consultations and audits
in connection with disposals of businesses and employee benefit
plan audits.



| |         
| | --------
| | Tax Fees

The aggregate fees billed for tax compliance, tax
advice and tax planning services rendered by our independent
auditors during the years ended March 31, 2004, 2003 and
2002 were $3.5 million, $3.4 million and
$1.0 million, respectively.



| |               
| | --------------
| | All Other Fees

In addition to the fees described above, the
Company incurred minor fees from our independent auditors
related to the purchase and use of software.



|    |                           
|--- | --------------------------
|27. | Related Party Transactions



| |          
| | ---------
| | Directors

The names of persons who were Directors of JHI NV
at any time during the financial year are disclosed in
Item 6, Directors, Senior Management and
Employees in this Form 20-F.



| |                                         
| | ----------------------------------------
| | Remuneration and Retirement
    Benefits

Information on remuneration of Directors and
Directors retirement benefits are disclosed in Item 6,
Directors, Senior Management and Employees in this
Form 20-F.



| |                                              
| | ---------------------------------------------
| | JHI NV Directors Securities
    Transactions

The Companys Directors and their
director-related entities held an aggregate of 9,170,726
ordinary shares and 8,951,955 ordinary shares at March 31,
2004 and 2003, respectively, and 3,782,775 options and 3,774,000
options at March 31, 2004 and 2003, respectively.

F-48



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Supervisory Board members on August 22, 2003
participated in an allotment of 20,791 shares at
A$7.52 per share under the terms of the Supervisory Board
Share Plan which was approved by JHI NV shareholders on
July 19, 2002. Directors allocations were as follows:

|                |  |                 |        | 
|--------------- |  | --------------- | ------ | 
|Director        |  | Shares Allotted
|                |  |                
|A.G. McGregor   |  |                 | 1,260  | 
|M.R. Brown      |  |                 | 1,260  | 
|M.J. Gillfillan |  |                 | 1,260  | 
|D.G. McGauchie  |  |                 | 1,743  | 
|J.R.H Loudon    |  |                 | 1,839  | 
|M. Hellicar     |  |                 | 2,225  | 
|P.S. Cameron    |  |                 | 5,602  | 
|G.J. Clark      |  |                 | 5,602  | 
|                |  |                 |        | 
|Total           |  |                 | 20,791 | 
|                |  |                 |        | 

Managing Board Director P.D. Macdonald purchased
a total of 167,600 JHI NV shares, 164,000 shares in
November 2003 and 3,600 shares in March 2004.

The capital return paid by JHI NV on
November 19, 2003 and JHI NV dividends paid
December 16, 2003 and July 2, 2003 to Directors and
their related entities were on the same terms and conditions
that applied to other holders.



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Transactions and Existing Loans to the
    Companys Directors and Directors of James Hardie
    Subsidiaries

At March 31, 2004 and 2003, loans totaling
$167,635 and $197,130, respectively, were outstanding from
Directors of JHI NV and its subsidiaries under the terms and
conditions of the Executive Share Purchase Plan (the
Plan). Loans under the Plan are interest free and
repayable from dividend income earned by or capital returns from
securities acquired under the Plan. The loans are collateralized
by CUFS under the Plan. No new loans to Directors or executive
officers of JHI NV, under the plan or otherwise, and no
modifications to existing loans have been made since December
1997.

During fiscal years 2004 and 2003, repayments
totaling $22,693 and $95,239, respectively, were received in
respect of the Plan from A.T. Kneeshaw, P.D. Macdonald, P.G.
Morley and D.A.J. Salter. During fiscal years 2004 and 2003,
Directors resigned with loans outstanding totaling $26,204 and
$201,840, respectively, at the date of their resignation. These
amounts are repayable within two years under the terms of the
Plan.

In February 2004, we entered into a consulting
agreement in usual commercial terms and conditions with The
Gries Group in respect to professional services. The principal
of The Gries Group, James P. Gries, is Mr. Louis
Gries brother. Under the agreement, approximately $12,000
is paid each month to The Gries Group. The agreement expires in
June 2005 and payments of $18,423 were made for the year ended
March 31, 2004.



| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Payments Made to Directors and Director
    Related Entities of the Companys
    Subsidiaries

During the Year


Payments of $13,240 and $11,350 for the years
ended March 31, 2004 and 2003, respectively, were made to
Grech, Vella, Tortell & Hyzler Advocates. Dr. J.J.
Vella was a director of a number of the Companys
subsidiaries. The payments were in respect of professional
services and were negotiated in accordance with usual commercial
terms and conditions.

F-49



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Payments of $111,705 and $164,056 for the years
ended March 31, 2004 and 2003, respectively, were made to
Pether and Associates Pty Ltd, technical contractors. J.F.
Pether is a director of a subsidiary of the Company and a
director of Pether and Associates Pty Ltd. The payments were in
respect of technical services and were negotiated in accordance
with usual commercial terms and conditions.

Payments totaling $845 for the year ended
March 31, 2004 were made to R. Christensen and T. Norman.
They are directors of a subsidiary of the Company. The payments
were in respect of professional services and were negotiated in
accordance with usual commercial terms and conditions.

F-50



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##### Table of Contents



JAMES HARDIE INDUSTRIES N.V. AND
SUBSIDIARIES



SELECTED QUARTERLY FINANCIAL DATA


(Unaudited, not forming part of the
consolidated financial statements)


The information furnished in the selected
quarterly financial data for the years ended March 31, 2004
and 2003 is unaudited but includes all adjustments which, in the
opinion of management, are necessary for a fair statement of the
financial results of the respective interim periods. Such
adjustments are of a normal recurring nature. Interim financial
statements are by necessity somewhat tentative; judgments are
used to estimate interim amounts for items that are normally
determinable only on an annual basis.

|                                                          |  |                           |        |                           |  |       |        |        |  |       |        |        |  |       |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|--------------------------------------------------------- |  | ------------------------- | ------ | ------------------------- |  | ----- | ------ | ------ |  | ----- | ------ | ------ |  | ----- | ------ | ------ |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                          |  |                           |        |                          
|                                                          |  | Year Ended March 31, 2004 |        | Year Ended March 31, 2003
|                                                          |  | By Quarter                |        | By Quarter               
|                                                          |  |                           |        |                          
|                                                          |  | First                     |        | Second                    |  | Third |        | Fourth |  | First |        | Second |  | Third |        | Fourth
|                                                          |  |                           |        |                           |  |       |        |        |  |       |        |        |  |       |        |       
|                                                          |  |                          
|                                                          |  | (Millions of US dollars) 
|Net sales                                                 |  | $                         | 241.5  |                           |  | $     | 251.6  |        |  | $     | 237.5  |        |  | $     | 251.3  |        |  | $ | 194.6  |   |  | $ | 202.1  |   |  | $ | 192.6  |   |  | $ | 194.3  |  
|Cost of goods sold                                        |  |                           | (152.2 | )                         |  |       | (159.2 | )      |  |       | (150.0 | )      |  |       | (161.6 | )      |  |   | (126.1 | ) |  |   | (128.5 | ) |  |   | (121.0 | ) |  |   | (117.2 | )
|                                                          |  |                           |        |                           |  |       |        |        |  |       |        |        |  |       |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Gross profit                                              |  |                           | 89.3   |                           |  |       | 92.4   |        |  |       | 87.5   |        |  |       | 89.7   |        |  |   | 68.5   |   |  |   | 73.6   |   |  |   | 71.6   |   |  |   | 77.1   |  
|Operating income                                          |  |                           | 48.3   |                           |  |       | 47.9   |        |  |       | 41.2   |        |  |       | 34.8   |        |  |   | 35.1   |   |  |   | 35.6   |   |  |   | 30.2   |   |  |   | 27.9   |  
|Interest expense                                          |  |                           | (2.5   | )                         |  |       | (2.8   | )      |  |       | (3.0   | )      |  |       | (2.9   | )      |  |   | (4.0   | ) |  |   | (3.8   | ) |  |   | (13.5  | ) |  |   | (2.5   | )
|Interest income                                           |  |                           | 0.2    |                           |  |       | 0.4    |        |  |       | 0.2    |        |  |       | 0.4    |        |  |   | 1.1    |   |  |   | 1.3    |   |  |   | 1.1    |   |  |   | 0.4    |  
|Other (expense) income, net                               |  |                           |       |                           |  |       | (3.3   | )      |  |       | (0.1   | )      |  |       | 6.9    |        |  |   | 0.3    |   |  |   | (0.2   | ) |  |   |       |   |  |   | 0.6    |  
|                                                          |  |                           |        |                           |  |       |        |        |  |       |        |        |  |       |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Income from continuing operations before income
    taxes |  |                           | 46.0   |                           |  |       | 42.2   |        |  |       | 38.3   |        |  |       | 39.2   |        |  |   | 32.5   |   |  |   | 32.9   |   |  |   | 17.8   |   |  |   | 26.4   |  
|Income tax expense                                        |  |                           | (13.1  | )                         |  |       | (9.4   | )      |  |       | (10.0  | )      |  |       | (7.9   | )      |  |   | (10.1  | ) |  |   | (9.9   | ) |  |   | (2.8   | ) |  |   | (3.3   | )
|                                                          |  |                           |        |                           |  |       |        |        |  |       |        |        |  |       |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Income from continuing operations                         |  |                           | 32.9   |                           |  |       | 32.8   |        |  |       | 28.3   |        |  |       | 31.3   |        |  |   | 22.4   |   |  |   | 23.0   |   |  |   | 15.0   |   |  |   | 23.1   |  
|Discontinued operations:                                  |  |                           |        |                           |  |       |        |        |  |       |        |        |  |       |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Income from discontinued operations                       |  |                           | 0.2    |                           |  |       |       |        |  |       |       |        |  |       |       |        |  |   | 1.7    |   |  |   | 0.5    |   |  |   | 0.5    |   |  |   | 0.3    |  
|Gain on disposal of discontinued operations               |  |                           | 1.6    |                           |  |       |       |        |  |       | 1.8    |        |  |       | 0.7    |        |  |   | 51.8   |   |  |   | 1.1    |   |  |   |       |   |  |   | 31.1   |  
|                                                          |  |                           |        |                           |  |       |        |        |  |       |        |        |  |       |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Income from discontinued operations                       |  |                           | 1.8    |                           |  |       |       |        |  |       | 1.8    |        |  |       | 0.7    |        |  |   | 53.5   |   |  |   | 1.6    |   |  |   | 0.5    |   |  |   | 31.4   |  
|                                                          |  |                           |        |                           |  |       |        |        |  |       |        |        |  |       |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Net income                                                |  | $                         | 34.7   |                           |  | $     | 32.8   |        |  | $     | 30.1   |        |  | $     | 32.0   |        |  | $ | 75.9   |   |  | $ | 24.6   |   |  | $ | 15.5   |   |  | $ | 54.5   |  
|                                                          |  |                           |        |                           |  |       |        |        |  |       |        |        |  |       |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  

F-51



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##### Table of Contents



EXHIBIT INDEX

|        |   |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | - | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                        
|Number  |   | Description of Exhibits
|        |   |                        
|        | 1 | .1                      |  | Articles of Association, as amended on
    November 5, 2003 of James Hardie Industries N.V. (English
    Translation)                                                                                                                                                                                                                                                                                              
|        | 2 | .1                      |  | Letter Agreement of September 6, 2001 by and
    between James Hardie Industries N.V. and CHESS Depositary
    Nominees Pty Limited, as the depositary for CHESS Units of
    Foreign Securities(3)                                                                                                                                                                                                                
|        | 2 | .2                      |  | Deposit Agreement dated as of September 24,
    2001 between The Bank of New York, as depositary, and James
    Hardie Industries N.V.(2)                                                                                                                                                                                                                                                                          
|        | 2 | .3                      |  | Note Purchase Agreement, dated as of
    November 5, 1998, among James Hardie Finance B.V., James
    Hardie N.V. and certain purchasers thereto re: $225,000,000
    Guaranteed Senior Notes(1)                                                                                                                                                                                                                   
|        | 2 | .4                      |  | Assignment and Assumption Agreement and First
    Amendment to Note Purchase Agreement, dated as of
    January 24, 2000, by and among James Hardie Finance B.V.,
    James Hardie U.S. Funding, Inc., James Hardie N.V., James
    Hardie Aust Investco Pty Limited and certain noteholders
    thereto(1)                                                                                                        
|        | 2 | .5                      |  | Second Amendment to the Note Purchase Agreement
    dated as of October 22, 2001, by and among, James Hardie
    U.S. Funding, Inc., James Hardie N.V., James Hardie Aust
    Investco Pty Limited, James Hardie Australia Finance Pty
    Limited, James Hardie International Finance B. V. and certain
    noteholders thereto(6)                                                                                
|        | 2 | .6                      |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Revolving Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and Australia and New
    Zealand Banking Group Limited(1)                                                                                                                                       
|        | 2 | .7                      |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Revolving Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and Bank One, NA(1)                                                                                                                                                                              
|        | 2 | .8                      |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Revolving Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and BNP Paribas(1)                                                                                                                                                                               
|        | 2 | .9                      |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Revolving Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and Australia and
    Westdeutsche Landesbank Girozentrale, Sydney Branch(1)                                                                                                                     
|        | 2 | .10                     |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Standby Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and Australia and New
    Zealand Banking Group Limited(1)                                                                                                                                         
|        | 2 | .11                     |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Standby Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and Bank One, NA(1)                                                                                                                                                                                
|        | 2 | .12                     |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Standby Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and BBL Australia Limited(1)                                                                                                                                                                       
|        | 2 | .13                     |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated Standby Loan Agreement among
    James Hardie International Finance B.V., James Hardie N.V.,
    James Hardie U.S. Funding Inc. and BNP Paribas(1)                                                                                                                                                                                 
|        | 2 | .14                     |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated 364 Day Standby Loan Agreement
    among James Hardie International Finance B.V., James Hardie
    N.V., James Hardie U.S. Funding Inc. and Wells Fargo HSBC
    Trade Bank, National Association(1)                                                                                                                               
|        | 2 | .15                     |  | Novation Agreement, dated August 27, 2001,
    relating to Amended and Restated 364 Day Standby Loan Agreement
    among James Hardie International Finance B.V., James Hardie
    N.V., James Hardie U.S. Funding Inc. and Westdeutsche
    Landesbank Girozentrale, Sydney Branch(1)                                                                                                                             
|        | 2 | .16                     |  | Form of Novation Agreement, dated
    December 16, 2002, relating to Amended and Restated
    Revolving Loan Agreement among James Hardie International
    Finance B.V., James Hardie N.V., James Hardie U.S. Funding
    Inc., James Hardie Industries N.V., and each of the following
    banks: Australia and New Zealand Banking Group Limited; Bank
    One, NA; BNP Paribas; and WestLB AG, Sydney Branch(7)



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##### Table of Contents



|        |   |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | - | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                        
|Number  |   | Description of Exhibits
|        |   |                        
|        | 2 | .17                     |  | Form of Novation Agreement, dated
    December 16, 2002, relating to Amended and Restated Standby
    Loan Agreement among James Hardie International Finance B.V.,
    James Hardie N.V., James Hardie U.S. Funding Inc., James
    Hardie Industries N.V. and each of the following banks:
    Australia and New Zealand Banking Group Limited; Bank One, NA;
    ING Bank N.V., Sydney Branch; BNP Paribas; Wells Fargo HSBC
    Trade Bank, National Association; and WestLB AG, Sydney Branch(7)
|        | 2 | .18                     |  | Amendment Agreement to Amended and Restated
    Standby Loan Agreement, effective April 30, 2004, among
    James Hardie International Finance B.V., James Hardie Industries
    N.V. and Wells Fargo HSBC Trade Bank, National Association                                                                                                                                                                                                                                                          
|        | 2 | .19                     |  | Form of Extension Letter, relating to
    364 Day Standby Loan Agreement among James Hardie
    International Finance B.V., James Hardie Industries N.V. and
    each of the following banks: Australia and New Zealand Banking
    Group Limited; Bank One, NA; ING Bank NV, Sydney Branch; BNP
    Paribas; and WestLB AG, Sydney Branch                                                                                                                                                           
|        | 2 | .20                     |  | Extension Letter relating to 364 Day Standby
    Loan Agreement among James Hardie International Finance B.V.,
    James Hardie Industries N.V. and Wells Fargo HSBC Trade Bank N.A.                                                                                                                                                                                                                                                                                                                 
|        | 2 | .21                     |  | Assignment and Assumption Agreement and Third
    Amendment to Note Purchase Agreement, dated as of
    November 18, 2002, among James Hardie U.S. Funding
    Inc, James Hardie International Finance B.V., James Hardie
    Industries N.V., James Hardie N.V. and certain noteholders
    thereto(7)                                                                                                                                                                                              
|        | 4 | .1                      |  | James Hardie Industries N.V. 2001 Equity
    Incentive Plan(1)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 4 | .2                      |  | James Hardie Industries N.V. Peter Donald
    Macdonald Share Option Plan(1)                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 4 | .3                      |  | James Hardie Industries N.V. Peter Donald
    Macdonald Share Option Plan 2001 (1)                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 4 | .4                      |  | James Hardie Industries N.V. Peter Donald
    Macdonald Share Option Plan 2002 (6)                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 4 | .5                      |  | Executive Service Agreement, effective as of
    November 1, 2002, between James Hardie Industries N.V. and
    Peter Donald Macdonald(6)                                                                                                                                                                                                                                                                                                                                                            
|        | 4 | .6                      |  | Letter of Resignation, dated October 21,
    2004, between James Hardie Industries N.V. and Peter Donald
    Macdonald                                                                                                                                                                                                                                                                                                                                                                               
|        | 4 | .7                      |  | Employment Agreement, effective June 1, 2004
    between James Products Building Products Inc. and Peter Shafron                                                                                                                                                                                                                                                                                                                                                                                     
|        | 4 | .8                      |  | Letter of Resignation, dated October 21,
    2004, between James Hardie Industries N.V. on behalf of James
    Hardie Building Products Inc. and the Company, and Peter Shafron                                                                                                                                                                                                                                                                                                                      
|        | 4 | .9                      |  | Consulting agreement, dated November 15,
    2004, between James Hardie Industries N.V. and Peter Shafron                                                                                                                                                                                                                                                                                                                                                                                            
|        | 4 | .10                     |  | Form of Executive Officer Employment Agreement
    (applies to Mr. David Merkley, Mr. Donald Merkley and
    Mr. Morley)(7)                                                                                                                                                                                                                                                                                                                                                                          
|        | 4 | .11                     |  | Employment Agreement, effective as of
    September 1, 2004, between James Hardie Building Products,
    Inc. and Louis Gries                                                                                                                                                                                                                                                                                                                                                                        
|        | 4 | .12                     |  | Amended Secondment dated October 8, 2004
    between James Hardie Building Products Inc. and James Chilcoff                                                                                                                                                                                                                                                                                                                                                                                          
|        | 4 | .13                     |  | Employment Agreement Treasury Manager, effective
    as of October 1, 2001, between RCI Netherlands Investments
    B.V. (to be renamed James Hardie International Finance B.V.) and
    Folkert H. Zwinkels                                                                                                                                                                                                                                                                                         
|        | 4 | .14                     |  | Attachment to the assignment letter of
    F.H. Zwinkels between James Hardie Industries N.V. and
    Folkert H. Zwinkels dated May 18, 2003                                                                                                                                                                                                                                                                                                                                                         
|        | 4 | .15                     |  | Addendum to Employment Agreement Treasury Manager
    between James Hardie International Finance B.V. and Folkert H.
    Zwinkels dated August 6, 2004                                                                                                                                                                                                                                                                                                                                               
|        | 4 | .16                     |  | Contract of Employment, effective as of
    January 1, 2004, between James Hardie Industries N.V. and
    W. (Pim) Vlot                                                                                                                                                                                                                                                                                                                                                                              
|        | 4 | .17                     |  | Form of Joint and Several Indemnity Agreement
    among James Hardie N.V., James Hardie (USA) Inc. and certain
    indemnitees thereto(1)                                                                                                                                                                                                                                                                                                                                                            
|        | 4 | .18                     |  | Form of Joint and Several Indemnity Agreement
    among James Hardie Industries N.V., James Hardie Inc. and
    certain indemnitees thereto(1)                                                                                                                                                                                                                                                                                                                                                       



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##### Table of Contents



|        |    |                         |  |                                                                                                                                                                                                                                                                                               
|------- | -- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Exhibits
|        |    |                        
|        | 4  | .19                     |  | Form of Deed of Access to Documents, Indemnity
    and Insurance among James Hardie Industries N.V. and certain
    indemnitees thereto(1)                                                                                                                                                    
|        | 4  | .20                     |  | Lease Amendment, dated March 23, 2004, among
    Amaca Pty Limited (f/k/a/ James Hardie & Coy Pty
    Limited), James Hardie Australia Pty Limited and James Hardie
    Industries N.V. re premises at the corner of Cobalt &
    Silica Street, Carole Park, Queensland, Australia           
|        | 4  | .21                     |  | Variation of Lease dated March 23, 2004,
    among Amaca Pty Limited (f/k/a/ James Hardie & Coy Pty
    Limited), James Hardie Australia Pty Limited and James Hardie
    Industries N.V. re premises at the corner of
    Colquhoun & Devon Streets, Rosehill, New South Wales,
    Australia
|        | 4  | .22                     |  | Extension of Lease dated March 23, 2004,
    among Amaca Pty Limited (f/k/a/ James Hardie & Coy Pty
    Limited), James Hardie Australia Pty Limited and James Hardie
    Industries N.V. re premises at Rutland, Avenue, Welshpool,
    Western Australia, Australia                         
|        | 4  | .23                     |  | Lease Amendment dated March 23, 2004, among
    Amaca Pty Limited (f/k/a/ James Hardie & Coy Pty
    Limited), James Hardie Australia Pty Limited and James Hardie
    Industries N.V. re premises at 46 Randle Road, Meeandah,
    Queensland, Australia                                     
|        | 4  | .24                     |  | Lease Agreement dated March 23, 2004 among
    Studorp Limited, James Hardie New Zealand Limited and James
    Hardie Industries N.V. re premises at the corner of
    ORorke and Station Roads, Penrose, Auckland, New Zealand                                                              
|        | 4  | .25                     |  | Lease Agreement dated March 23, 2004 among
    Studorp Limited, James Hardie New Zealand Limited and James
    Hardie Industries N.V. re premises at 44-74 ORorke
    Road, Penrose, Auckland, New Zealand                                                                                   
|        | 4  | .26                     |  | Purchase and Sale Agreement with Escrow
    Instructions, dated June 28, 2001, between WL Homes LLC and
    James Hardie Gypsum, Inc.(5)(8)                                                                                                                                                   
|        | 4  | .27                     |  | Assignment and Assumption Agreement dated
    April 25, 2002, between James Hardie Gypsum, Inc. and James
    Hardie, Inc. in reference to the Purchase and Sale Agreement
    with Escrow Instructions, dated June 28, 2001(6)                                                               
|        | 4  | .28                     |  | Industrial Building Lease Agreement, effective
    October 6, 2000, between James Hardie Building Products,
    Inc. and Fortra Fiber-Cement L.L.C., re premises at Waxahachie,
    Ellis County, Texas(1)                                                                                    
|        | 4  | .29                     |  | Amended and Restated Stock Purchase Agreement
    dated March 12, 2002, between BPB U.S. Holdings, Inc
    and James Hardie Inc.(6)                                                                                                                                                           
|        | 4  | .30                     |  | Asset Purchase Agreement by and between James
    Hardie Building Products, Inc. and Cemplank, Inc. dated as of
    December 12, 2001(6)                                                                                                                                                      
|        | 4  | .31                     |  | Supervisory Board Share Plan, dated July 19,
    2002(6)                                                                                                                                                                                                                                      
|        | 8  | .1                      |  | List of significant subsidiaries of James Hardie
    Industries N.V.                                                                                                                                                                                                                          
|        | 10 | .1                      |  | Consent of independent registered public
    accounting firm                                                                                                                                                                                                                                  
|        | 12 | .1                      |  | Certification of the Chief Executive Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                    
|        | 12 | .2                      |  | Certification of the Chief Financial Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                    
|        | 13 | .1                      |  | Certification of the Chief Executive Officer and
    Chief Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002                                                                                                                                                    
|        | 99 | .1                      |  | Excerpts of the Securities Clearing House
    Business Rules, including Temporary Rule Book inserts thereto,
    as of September 28, 2001(4)                                                                                                                                                  
|        | 99 | .2                      |  | Excerpts of the Corporations Act 2001, as of
    September 28, 2001(4)                                                                                                                                                                                                                        
|        | 99 | .3                      |  | ASIC Class Order 00/182, dated
    February 13, 2000(4)                                                                                                                                                                                                                                       
|        | 99 | .4                      |  | ASIC Modification, dated August 23, 2001(4)                                                                                                                                                                                                                                                   



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|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously filed as an exhibit to our
    Registration Statement on Form 20-F dated September 7,
    2001 and incorporated herein by reference.                    
|   
|(2) | Previously filed as an exhibit to Amendment
    No. 1 to our Registration Statement on Form 20-F dated
    September 28, 2001 and incorporated herein by reference.



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##### Table of Contents





|    |                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Previously filed as an exhibit to our
    Registration Statement Form F-6 dated September 12,
    2001 and incorporated herein by reference.                                                
|   
|(4) | Previously filed as an exhibit to our Amendment
    No. 1 to our Registration Statement Form F-6 dated
    September 28, 2001 and incorporated herein by reference.                         
|   
|(5) | Previously filed as an exhibit to Amendment
    No. 2 to our Registration Statement on Form 20-F dated
    October 1, 2001 and incorporated herein by reference.                            
|   
|(6) | Previously filed as an exhibit to our Annual
    Report on Form 20-F dated September 4, 2002 and
    incorporated herein by reference.                                                      
|   
|(7) | Previously filed as an exhibit to our Annual
    Report on Form 20-F dated July 2, 2003 and
    incorporated herein by reference.                                                           
|   
|(8) | Certain portions of the exhibit have been omitted
    and submitted to the Securities and Exchange Commission pursuant
    to a confidential treatment request filed on October 1,
    2001.