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UNITED STATESSECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004
    
    Commission File Number 0-11936
 (LAFARGE NORTH AMERICA LOGO) Lafarge North America Inc. Incorporated in Maryland
    
    I.R.S. Employer Identification No.12950 Worldgate Dr., Suite 500Herndon, Virginia 20170
    
    58-1290226(703) 480-3600
 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, par value $1.00 per share
    
    New York Stock Exchange, IncThe Toronto Stock Exchange
 Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the company (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 company 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 if disclosure of delinquent filers pursuant to Item 405 of Regulations
S-K is not contained herein, and will not be contained, to the best of companys knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act).
     Yes
þ   No o The aggregate market value of the voting stock held by nonaffiliates of the company at June
30, 2004 was approximately $1,522,134,000. There were approximately 70,757,000 shares of Common Stock and 4,027,000 Exchangeable
Preference Shares of our subsidiary, Lafarge Canada Inc., outstanding as of January 31, 2005. DOCUMENTS INCORPORATED BY REFERENCE Portions of our definitive Proxy Statement for the 2005 Annual Meeting of Stockholders,
to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III
of this Annual Report on Form 10-K as indicated herein.




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LAFARGE NORTH AMERICA INC. ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2004 TABLE OF CONTENTS PagePART IItem 1.
    
    BUSINESS
    
    
    1Item 2.
    
    PROPERTIES
    
    
    12Item 3.
    
    LEGAL PROCEEDINGS
    
    
    13Item 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    13PART IIItem 5.
    
    MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    14Item 6.
    
    SELECTED CONSOLIDATED FINANCIAL DATA
    
    
    15Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    16Item 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    31Item 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    33Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
    
    
    72Item 9A.
    
    CONTROLS AND PROCEDURES
    
    
    72Item 9B.
    
    OTHER INFORMATION
    
    
    75PART IIIItem 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
    
    
    75Item 11.
    
    EXECUTIVE COMPENSATION
    
    
    75Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    75Item 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    75Item 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    75PART IVItem 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    76SIGNATURES
    
    
    80
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FORWARD-LOOKING STATEMENTS Statements we make in this Annual Report on Form 10-K that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as
may, will, expect, intend, anticipate, believe, estimate, plan, could, should,
and continue or similar words. These forward-looking statements may also use different phrases.
Such forward-looking statements are not guarantees of future performance and involve risks,
uncertainties and assumptions (Factors) that are difficult to predict. Factors that could cause
our actual results to differ materially from those in the forward-looking statements include, but
are not limited to:  the cyclical nature of our business; § competition from new or existing
competitors; § national and regional economic conditions in the U.S. and Canada; § unfavorable
weather conditions; § Canadian currency fluctuations; § changes in and implementation of
environmental and other governmental regulations; § seasonality of our operations; § our ability
to successfully identify, complete and efficiently integrate acquisitions; § levels of
construction spending in major markets; § our ability to successfully penetrate new markets; §
supply/demand structure of our industry; § international events that may disrupt the world
economy; § and significant changes in the cost of fuel, energy and other raw materials. In general, we are subject to the risks and uncertainties of the construction industry and of
doing business in the U.S. and Canada. The forward-looking statements are made as of the date of
this report, and we undertake no obligation to update them, whether as a result of new information,
future events or otherwise. Throughout this discussion, when we refer to Lafarge, Lafarge North America, the
company, us, we, our or similar terms, we mean Lafarge North America Inc. and its
subsidiaries. Our executive offices are located at 12950 Worldgate Drive, Suite 500, Herndon,
Virginia 20170, and our telephone number is (703) 480-3600. PART I Item 1. BUSINESS Company Profile Lafarge North America is the largest diversified supplier of construction materials in the
U.S. and Canada. We produce and sell cement, ready-mixed concrete, gypsum wallboard, aggregates,
asphalt, and related products and services. Our products are used in residential, commercial and
public works construction projects across North America. We estimate that approximately 40 percent
of our business is related to the public works construction sector, 30 percent to the commercial
sector, 25 percent to the residential construction sector and 5 percent other. In 2004, we
generated net sales of $3.8 billion and, as of December 31, 2004, employed approximately 15,300
people working in more than 1,000 operations in the U.S. and Canada. Lafarge North America Inc. had its beginnings in 1956 when the Lafarge Group entered the North
American cement market by building a cement plant in British Columbia, Canada. In 1970, Lafarge
Canada Inc., part of the Lafarge Group, acquired Canada Cement Company, then already the largest
cement producer in Canada. The company entered the U.S. market in 1974, and in 1981 became the
second largest U.S. cement producer by acquiring General Portland Inc. In 1983, a corporate
reorganization established Lafarge North America as the parent of these operations in Canada and
the U.S., and we completed our initial public offering of common stock. Since 1983, we have
expanded our cement, concrete, aggregates and asphalt operations throughout the U.S. and Canada,
added gypsum to our product mix, and achieved an impressive record of growth mainly through
acquisitions. Lafarge North America is part of the Lafarge Group, headed by Lafarge S.A., which held
approximately 53 percent of our common stock on January 31, 2005. The Lafarge Group is the global
leader in building materials with top-ranking positions in cement, aggregates, concrete, roofing
and gypsum. In addition to our own operations, we also manage, for a fee, a number of U.S. cement,
aggregates and concrete businesses owned by the Lafarge Group under terms set forth in a management
agreement that we entered into during 2001. The operating results of these managed assets are not
consolidated with our own. Unless otherwise indicated, all discussions below exclude information
relating to the businesses we manage for the Lafarge Group. 1




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Our ambition is to become the undisputed leader in the building materials industrythe company
that has the highest quality and most innovative products, the safest and best run operations, and
offers the best return to its shareholders. We believe we are uniquely positioned to become the
undisputed leader because we combine the talent, technical depth, strength and brand recognition of
a global company with our financial strength and excellence in managing multiple local businesses. Our business strategy has two fundamental components: performance and growth. Performance:We combine the global capabilities of the Lafarge Group with our own to manage
each of our local businesses through our highly developed, proprietary programs designed to improve
performance. Each of our product lines employs a specific, well-documented program designed to
drive superior performance and ongoing operating improvements. These programs allow us to use the
same systematic management approach at each of our locations, focusing our people on the same
priorities and using proven models and management techniques. We strive to focus on customer
orientation and competing based on value. Through this approach, we believe we can create
additional value for our customers, differentiate our product-service offering, and increase our
profitability. Growth:We continue to expand our market reach in North America through the disciplined use
of capital. We focus on internal development and acquisition opportunities that fit strategically
with our core business lines and meet our financial return criteria. We believe our strong balance
sheet and significant cash flows will allow us to fund our operating plan in varied economic
environments, and to capitalize on strategic opportunities when they materialize. Business Segments We conduct our operations through three business segments: Aggregates, Concrete & Asphalt;
Cement; and Gypsum. Each segment is a separate strategic business unit with different capital
requirements and marketing strategies. At the end of 2004, we changed the name of our Lafarge
Construction Materials segment to the Aggregates, Concrete & Asphalt segment to more clearly
reflect the product lines managed in the segment. The segments scope of operations has not
changed. We are vertically integrated to varying degrees across and within our operating segments. Our
ready-mixed operations obtain most of their cement and aggregates from internal sources; we supply
aggregates to our asphalt and paving operations; and we manufacture most of the paper used in our
gypsum wallboard operations. Through this strategy, we can improve the quality and consistency of
our products, strengthen operational efficiencies, and improve our competitive position. In 2004, the Aggregates, Concrete & Asphalt segment accounted for 60 percent of our net sales,
the Cement segment accounted for 31 percent, and the Gypsum segment accounted for 9 percent. You may evaluate the financial performance of each of our segments by reviewing Managements
Discussion of Income included in Item 7 of this Form 10-K and Note 17 Segment and Related
Information in our financial statements included in Item 8 of this Form 10-K, the information
within each of which is incorporated herein by reference. The Aggregates, Concrete & Asphalt Segment We are a leading supplier of aggregates, ready-mixed concrete and asphalt for use in the North
American construction industries. We manage our aggregates, concrete and asphalt operations in the
same business segment for several reasons. The customer bases for these product lines are similar,
each line involves the service of local markets through large numbers of operational units, and we
can realize significant cost savings by co-locating production operations for products in this
segment. Aggregates(sand, gravel, and crushed and graded stone) Construction aggregates are the primary raw material for concrete, masonry and asphalt, and
are also used in many industrial processes. Crushed and graded stone, sand and gravel are natural
resources that are used in nearly every form of residential and commercial construction. 2




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Products.We classify the primary aggregates we produce as hard rock, limestone,
natural sand and gravel, and other sources, which include recycled concrete and asphalt. Our
sales are comprised of approximately 49 percent limestone, 41 percent sand and gravel, 6 percent
hard rock and 4 percent other sources. Customers.We sell our aggregates primarily to road building and paving contractors,
asphalt and concrete producers and general contractors, mostly in the Canadian provinces of British
Columbia, Alberta and Ontario; and the U.S. states of Colorado, New Mexico, Missouri, New York,
Maryland, Ohio, Michigan and Illinois. We also use a significant portion of our aggregates
production in our own ready-mixed concrete and asphalt and paving businesses. In 2004, we produced
133.3 million tons of aggregates, making us one of the top four producers of construction
aggregates in North America. Sales to our internal businesses accounted for 20 percent of these
volumes. The cost to transport aggregates is high relative to sales prices. Consequently, our
aggregates facilities are usually located close to their markets. We transport our aggregates
primarily by truck although we also use water and rail transportation to deliver aggregates to
areas that are limited by local geology or operating restrictions. Production and facility information.Our aggregates production operations consist
primarily of the extraction, crushing and screening of rock to meet end user specifications. Our
geologists identify areas with large natural aggregates deposits (usually limestone or granite) of
the type and quality required by our customers. Rock is then blasted from quarries, crushed to
sizes desired by the market, washed and loaded for transportation. We operate approximately 330 aggregates production facilities throughout the U.S. and Canada.
We estimate that 58 of our largest sites, which account for approximately 75 percent of annual
production, have on average, sufficient reserves to provide approximately 50 years of production at
current levels. As part of our aggregates operations, we operate thousands of loaders, haul trucks
and other equipment that are operated and maintained by experienced drivers and mechanics. Market and competitive factors.The U.S. and Canadian aggregates industry is highly
fragmented with many participants, including large multi-national producers and many small
producers. Aggregates businesses compete on the basis of product quality and consistency, service
and price. We believe we have several competitive advantages in the aggregates business: our reserve
positions are generally strong; our financial position allows us to fund long-term aggregates
investments; we employ mature performance programs (dealing with strategy, sales and marketing,
manufacturing and land management) through which we share and implement best practices throughout
our aggregates operations; and our vertical integration provides us a deeper understanding of our
aggregates customers and how we can become a valuable partner in their businesses. Concrete The versatility, durability and economy of concrete have made it the worlds most used
construction material. Concrete is often confused with cement. However, cement is just one of the
ingredients used to make concrete. Basic ready-mixed concrete is a blend of cement, aggregates
(sand and stone), admixtures and water. This mixture hardens to form a building material used for
everything from sidewalks to skyscrapers. Products.We offer a wide range of concretes, from the very basic to the cutting edge
including patented concrete specialty mixes such as Agilia®, a self-placing, self-compacting
concrete that eliminates the need for vibration and produces an unparalleled surface finish. Our
ultra-high performance concrete, Ductal®, is a self-placing ductile concrete, that can bend without
breaking and which has ten times the compressive strength of traditional concrete. Our Ultra
Series of concrete formulations allows us to cater to the specific needs of individual customer
segments. Recently, decorative concrete has become attractive in many of these segments, and we
have responded by launching the Artevia Color series. Customers.We sell ready-mixed concrete primarily to building contractors, mostly in
Colorado, Louisiana, Maryland, Missouri, New Mexico and Western New York. In Canada, our concrete
plants are positioned from coast to coast and serve customers nationwide. Our customers include
building contractors of all sizes working on a broad range 3




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of projects from homes to highways and bridges to office and entertainment buildings. In
2004, we sold 11.4 million cubic yards of ready-mixed concrete, which we delivered to construction
sites in mixer trucks. Production and facility information.We obtain most of our ready-mixed concrete raw
materials from internal supplies and purchase the balance from other aggregates and cement
suppliers when necessary. The materials are blended at ready-mixed concrete production facilities
and put into the drums of concrete trucks for further mixing and delivery. As of December 31,
2004, we owned and operated 67 ready-mixed concrete plants in the U.S. and 141 plants in Canada.
In addition, we own and operate a number of portable ready-mixed concrete plants to meet the
specific needs of our customers. Concrete production is a science with the possibility of infinite mix designs. Varying cement
and aggregates chemistries and characteristics, coupled with the myriad of chemical admixtures
available, make the production of high quality concrete more difficult than it may seem.
Significant technical expertise and quality control is needed to address construction issues such
as setting time, pumpability, placeability, weather conditions, shrinkage and structural strength.
As a result of our extensive research and development activities, we focus heavily on supplying
concrete that meets the various custom needs of our customers. Depending on the mix design needed to address a customers specific need, raw materials
represent approximately 60 percent of the cost of supplying ready-mixed concrete. Delivery costs
are the next largest cost component, representing 25 percent of total costs. We own a fleet of
more than 2,600 ready-mixed trucks. In 2003, we introduced pay-by-the-load, an innovative pay
structure for the industry, to a portion of our ready-mixed concrete truck drivers. Under this
program, our participating drivers have raised their hourly wages by 10 percent on average and we
have realized significant productivity gains. Market and competitive factors.Because concrete hardens relatively quickly and
requires timely delivery, we serve customers in markets located a short distance from our plants.
The U.S. and Canadian concrete businesses are highly fragmented with both large and many small
participants operating in localized markets. Ready-mixed concrete businesses compete on the basis
of product quality and diversity, technical service, and price. Customer focus is an essential element of our concrete sales strategy. We seek strong
customer relationships that allow us to use our expertise to solve issues that our customers
confront and provide them with products or mixes that save them time and money. In 2004, we
introduced a customer focused operating model to increase our responsiveness to our customers and
their needs. In many of our markets, our ready-mixed concrete businesses operate in conjunction with
operations from our other major product lines. We believe our competitive advantage lies in
understanding the strategic success factors required to operate profitably in each of our markets,
leveraging our expertise and products to search for value added solutions for customers, and
applying our performance programs and best practices across our operations. Asphalt and Paving We are both a major producer of asphalt and a leading paving contractor in many areas of the
U.S. and Canada. We believe our size and diversification enables us to supply superior quality
asphalt as well as to provide the expertise required to manage a variety of paving construction
projects, from the most complex interstate highway project to the smallest patchwork or driveway. Products.We produce asphalt mixtures that satisfy nearly any specification and meet
a wide range of paving challenges. Our DuraPave series of high performance asphalt mixtures can
improve the durability of and reduce maintenance costs on new or existing pavements. Through our
road building services, we offer combinations of base work, concrete flat work and paving services.
We also offer programs for designing, building and maintaining various types of pavement systems
to meet our customers varying needs. Customers.Our asphalt products and services are purchased by customers in four
primary segments: governmental entities at the federal, state, provincial and local levels;
industrial, commercial and institutional owners; housing subdivision developers; and small
residential and commercial owners. In 2004, we sold 9.5 million tons of asphalt and placed 5.6
million tons. 4




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Our principal customers in the U.S. are located mainly in Colorado, Maryland, Missouri, New
Mexico and New York. Our primary Canadian customers are located in Ontario, mainly greater Toronto
and Ottawa, and the metro areas of Calgary, Edmonton and Vancouver. Production and facility information.The production of asphalt involves mixing dried
aggregates with heated liquid asphalt cement, which serves as the binder. Liquid asphalt cement is
a by-product of the crude oil refining process. The asphalt is then delivered to the project site
and placed by crews using specialized paving machines. As of December 31, 2004, we operated 75
asphalt production facilities in the U.S. and Canada, and also have mobile operations that can be
located on-site for unique requirements or major projects. Fifty percent of the cost of producing asphalt consists of liquid asphalt cement. To contain
costs, when possible and where permitted by regulations, we produce asphalt with lower-cost
recycled asphalt pavement. The recycled product is generated through the milling of existing roads
and parking lots that are resurfaced or reconstructed. This broken asphalt is crushed to specific
gradations and blended into new asphalt under carefully controlled conditions to ensure quality. Market and competitive factors.U.S. and Canadian asphalt markets are comprised of
numerous producers, including large multi-national or national players and many small producers,
who generally compete on the basis of quality, service, reliability and prices in their local
markets. Road construction services are generally offered through an open tender and bid process. We often operate our asphalt and paving businesses in conjunction with our aggregates
operations, thereby adding strategic value to our aggregates business. We internally supply
substantially all asphalt to our paving operations. Most of the asphalt is produced using
aggregates we supply. We believe we possess competitive advantages because our production sites
are generally state-of-the-art, we employ mature performance programs through which we share and
implement best practices throughout our operations, and we are able to offer our customers a full
range of products and services due to our integrated operations. The Cement Segment Cement is a fine powder that is the principal strength-giving and property-controlling
component of concrete. It is one of the oldest manufactured and most widely used products on
earth. Including the operations we manage on behalf of the Lafarge Group, we are the largest
producer of cement in the U.S. and Canada, and we operate the broadest cement distribution system
in North America. Products.Our primary products are basic Portland and masonry cements, and more than
20 blended and specialty cements. Portland cement is a high quality, cost-effective basic building
material used in virtually all forms of construction. Our blended cements are used in high
performance applications where enhanced strength and durability properties are required. We own or
license registered trademarks for our major cement and cement related brands and tailor our
products to meet the individual application and performance requirements of our customers. We
offer a range of services associated with these products, including technical support, advisory
services, ordering and delivery logistics. Certain industrial by-products have physical and chemical characteristics similar to cement
and may be used to enhance a portion of the cement typically used to produce concrete. These
materials, such as blast-furnace slag and fly ash from coal-fired power plants, may be combined
with cement to improve some of the performance characteristics of concrete. Use of these materials
extends the effective utility of cement we produce, thereby, reducing the effective energy cost of
producing products made with cement, as well as carbon dioxide emissions associated with such
products. Customers.We sell cementitious materials to several thousand customers, including
contractors, builders, municipal authorities, ready-mixed producers, concrete product manufacturers
and masons for use in construction projects from offices and homes to dams, plants, tunnels,
highways and airports. Given the wide variety of cementitious uses and our customer profiles, the product performance
and service requirements of our customers vary significantly. We strive to recognize the diversity
of our customers requirements and to deliver differentiated solutions to enable our customers to
create more value and be more successful in their businesses. 5




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In 2004, we sold approximately 20 percent of our U.S. cement volume in Michigan and Wisconsin.
We also sold significant volumes in Ohio, Minnesota, Illinois, Washington, Iowa, New York,
Missouri and North Dakota. In 2004, our most significant Canadian cement sales occurred in
Ontario, Alberta, British Columbia and Quebec. We use a significant amount of cement we produce in
our own ready-mixed concrete businesses. During 2004, approximately 13 percent of our total cement
sales were made to affiliates. We maintain distribution and storage facilities at all of our cement manufacturing and
finishing plants and at approximately 80 other locations, including one deep-water ocean terminal
near New Orleans, Louisiana. This extensive coast-to-coast network of distribution and import
facilities enables us to operate our plants in an integrated fashion and to optimize our production
patterns to adjust to changing market needs. We distribute our cement primarily in bulk, although we distribute some in bags. We transport
cement via trucks, rail cars and waterborne vessels from our plants to distribution facilities or
directly to our customers. Some of our U.S. customers make their own transportation arrangements
and take delivery of cement at our manufacturing plants or distribution facilities. Production and facility information.Cement is made out of four basic ingredients:
limestone, sand, clay and iron-rich materials. These are crushed and finely ground, then burned at
high temperatures in a kiln to form an intermediary product called clinker. The clinker is then
finely ground along with gypsum and other additives to make cement. According to a December 2002 report prepared by the industrys Portland Cement Association
(the most recent report available), we have 12.2 percent of the total active industry cement
clinker production capacity in Canada and the U.S. including 34.8 percent in Canada and 7.8 percent
in the U.S. The following table shows the location, types of process and rated annual clinker production
capacity of each of our operating cement manufacturing plants at December 31, 2004. Annual clinker
production of a cement plant might be less than its rated capacity due principally to product
demand fluctuations and seasonal factors. Rated Annual Clinker Production Capacity of
Cement Manufacturing Plants
(in million short tons)  U.S. Plants
    
    Canadian PlantsRated
    
    
    
    
    
    RatedClinker
    
    
    
    
    
    ClinkerLocation
    
    Process*
    
    Capacity
    
    Location
    
    Process*
    
    CapacityAlpena, Michigan
    
    Dry
    
    2.6
    
    Bath, Ontario
    
    Dry
    
    1.2Davenport, Iowa
    
    Dry
    
    1.1
    
    Brookfield, Nova Scotia
    
    Dry
    
    0.6Fredonia, Kansas
    
    Wet
    
    0.4
    
    Exshaw, Alberta
    
    Dry
    
    1.4Joppa, Illinois
    
    Dry
    
    1.2
    
    Kamloops, British Columbia
    
    Dry
    
    0.2Paulding, Ohio
    
    Wet
    
    0.5
    
    Richmond, British Columbia
    
    Dry
    
    1.3Seattle, Washington
    
    Wet
    
    0.5
    
    St.Constant, Quebec
    
    Dry
    
    1.1Sugar Creek, Missouri
    
    Dry
    
    1.0
    
    Woodstock, Ontario
    
    Wet
    
    0.6Whitehall, Pennsylvania
    
    Dry
    
    0.8Total Rated Capacity
    
    
    
    8.1
    
    Total Rated Capacity
    
    
    
    6.4Total 2004 Clinker
Production
    
    
    
    7.3
    
    Total 2004 Clinker Production
    
    
    
    5.5
   *
    
    The dry production process is a newer, more fuel efficient production process than the wet
production process. However, the wet production process allows for easier use of alternative
fuels. 6




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We obtain the limestone required to manufacture cement principally from land we own or in
which we have long-term quarrying rights. These sources are generally located close to our
manufacturing plants except in a few instances in which sources are further away but for which we
have ready access to water transportation. We estimate that limestone reserves for most of our
cement plants will be adequate to permit production at present levels for at least 50 years. Cement production is energy and capital intensive. The approximate cost components for our
cement production are as follows: Item
    
    Percentage of Total CostProduction-related
    
    25%Energy
    
    25%Maintenance
    
    20%Raw materials
    
    15%Depreciation
    
    15%Total cost
    
    100%
 Cement production processes and technologies provide many opportunities for better operators
to make a significant difference in their performance. With an accumulated experience from
operating more than 150 cement plants around the world, the Lafarge Group has developed a wealth of
cement manufacturing expertise, which we employ to increase our asset utilization, lower our
production costs and increase the performance of our products. We share and reinforce this
leadership position through a culture of knowledge-sharing which stresses driving superior
performance and ongoing operating improvements. We place special emphasis on becoming more efficient in our sourcing and use of fuel. Most of
our cement plants are equipped to convert from one form of fuel to another with very little
interruption in production, thus avoiding dependence on a single fuel and permitting us to take
advantage of price variations between fuels. All of our cement manufacturing plants have fuel
flexibility between at least three of the following four base sources: coal, petroleum coke,
natural gas and oil. We seek to replace coal with less costly fuel sources such as petroleum coke
and fuel-quality waste materials. Such sources constituted 46 percent of the total fuel we used in
our cement operations during 2004, and we constantly strive to seek additional alternative fuel
sources to use in our cement manufacturing operations. Market and competitive factors.The cement industry in the U.S. and Canada has been
consolidating during the past 10 years, with smaller companies generally being acquired by large
international public companies. Domestic cement production in the U.S. and Canada supplies
approximately 84 percent of U.S. and Canadian domestic consumption. The balance is supplied
through imports usually managed by domestic producers. Consequently, U.S. and Canada cement plants
generally operate at full capacity throughout variations in the business cycle. The competitive radius of a typical cement plant for common types of cement is approximately
250 miles, except for waterborne shipments that can be economically transported considerably
greater distances. Sales of cement are usually made on the basis of quality, service, reliability
and prices in each market area. Thus, a cement manufacturers competitive position depends largely
on the location and operating costs of its plants and associated terminals. The Gypsum Segment Gypsum drywall is the predominant material used for finishing interior walls and ceilings in
residential, commercial and institutional construction across North America. Use of drywall has
risen dramatically in recent years. Wallboard demand in the U.S. has grown more than 45 percent
over the last ten years due to the trend towards larger homes (higher ceilings and increased square
footage), remodeling of residential and commercial properties, low mortgage rates and record high
housing starts. 7




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Products.We offer a full line of quality drywall and finishing products for
commercial and residential construction. These products accommodate a variety of decorative
treatments for interior walls and ceilings and for uses in fire retardant, water-resistant,
sag-resistant and abuse resistant applications. We also offer a top quality line of finishing
products to meet the varied needs of building professionals. In 2004, we launched the Rapid Deco® Level 5 Skim-Coated Drywall and Joint Finishing System,
a fast and simple solution to address technical performance and design issues concerning
specialized lighting and paint treatments. Customers.Our gypsum drywall products are sold to residential and commercial
building materials dealers, gypsum wallboard specialty distributors, original equipment
manufacturers, building materials distribution companies, lumber yards and do-it-yourself home
centers. We utilize contracted trucks to transport finished gypsum board to distributors and other
customers. Additionally, our Newark, New Jersey, Silver Grove, Kentucky and Palatka, Florida
plants are equipped to ship by rail. In many markets, our plants can backfill for each other in
deliveries to our customers. Production and facility information.Gypsum wallboard is manufactured in large
automated production plants in which gypsum rock is ground into a powder that is heated and blended
with water to form a slurry. The slurry is then extruded between sheets of paper, dried and cut
into board lengths. In some plants, natural gypsum rock is replaced with synthetic gypsum, which
is generated as a byproduct of chemical manufacturing and power production operations. We own and operate five drywall plants and one joint compound plant in North America. We also
are party to a wallboard paper joint venture with Rock-Tenn Company in Lynchburg, Virginia, named
Seven Hills, LLC. Through this venture we are vertically integrated into wallboard paper, as are
most of our competitors. Paper integration is important in terms of controlling the cost and
quality of the final product. This venture provides us a continuous supply of high quality
wallboard paper to meet our ongoing requirements. Our two largest drywall plants (Silver Grove and Palatka) use synthetic gypsum as their raw
material. Both are located adjacent to their synthetic gypsum sources and have long term supply
contracts with those sources. Our other drywall plants use natural gypsum. Our production capacity has grown from a two-plant network in 1996 with a capacity of 0.7
billion square feet to five plants with a capacity of 2.4 billion square feet. In 1996, we
acquired the Buchanan, New York plant, located 30 miles outside of New York City, and the
Wilmington, Delaware plant. In 2000, we acquired a drywall plant in Newfoundland, Canada and a
joint compound manufacturer in Quebec. In 2002, we acquired the Newark, New Jersey plant and
ceased operating the Wilmington plant as part of an ongoing strategy to service customers
predominantly from more efficient plants. In 2000 and 2001, we opened two of the largest single-line drywall production facilities in
the U.S., one in Silver Grove, Kentucky, just outside of Cincinnati, Ohio, and the other in
Palatka, Florida. Each has the capacity to produce up to 900 million square feet of 1/2-inch
drywall a year. As part of our environmental commitment, both plants were built to satisfy 100
percent of their primary raw material needs by using recycled materials, including reclaimed paper
and synthetic gypsum. These state-of-the-art low cost facilities have enabled us to grow with our
customers and expand our market positions. In November 2004, we announced plans to invest $75 million to substantially upgrade and double
the capacity of our Buchanan gypsum drywall manufacturing facility. The modernized production line
is being built to produce 650 million square feet (on a practical capacity basis) of gypsum
wallboard annually to meet the growing demands of our residential and commercial customers in the
Northeast region. The renovation is expected to begin mid-2005 and be completed in mid-2006. Following this upgrade, our average U.S. plant production age will be approximately five
years, resulting in a newer and more efficient plant network. We believe our plants will be among
the lowest cost producers in their primary markets when the Buchanan project is completed. 8




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The following table shows the locations and capacity of our gypsum plants: CapacityLocation
    
    (in million square feet)Buchanan, New York
    
    380Palatka, Florida
    
    900Silver Grove, Kentucky
    
    900Newark, New Jersey
    
    340Corner Brook, Newfoundland
    
    125Total rated
capacity for 1/2 inch drywall*
    
    2,645Total practical capacity**
    
    2,400Total 2004 drywall production
    
    2,1792004 production as a percentage of
practical capacity
as of December 31, 2004
    
    91
    %
   *
    
    Rated capacity refers to full-time production of
1/2-inch drywall.**
    
    Practical capacity refers to capacity assuming variations in product mix and scheduled
maintenance. Natural gas is the major energy source for our drywall manufacturing process. We purchase
natural gas on a contract basis with transportation negotiated under long-term contracts. Energy
costs represent approximately 17 percent of the total production costs of manufacturing gypsum
drywall. To minimize energy costs, we designed both the Silver Grove and Palatka plants with
energy efficient technologies, and we plan to install similar technologies at the Buchanan plant
during its upgrade. Market and competitive factors.Our plants serve customers in markets primarily east
of the Mississippi River, an area representing nearly two thirds of U.S. wallboard demand. Our
plants are located relatively close to large markets, which generally allows us to deliver product
to our customers within 24 hours. Our capabilities are further enhanced by a flexible plant
network that can accommodate shifting demand across our markets. In 2004, the states in which we
had the most significant sales of gypsum products were Florida, New York, New Jersey and Ohio. In the past several years, the U.S. gypsum wallboard industry has experienced consolidation
resulting in a few large companies accounting for most of the industrys capacity. We estimate
that we have a market share of 15 to 20 percent in those market areas which are in close proximity
to our U.S. plants. Drywall producers primarily compete on a regional basis due to the cost of
transporting products over long distances. Producers whose customers are located close to their
drywall plants benefit from lower transportation costs. We compete with other producers based on
price, product quality and customer service. Other Factors The following discussions include information common to all three of our business segments. Product Demand.The demand for all of our major products and services are closely
linked to construction activity levels. Construction activity levels are influenced by many
factors, including availability of public funds, interest rates, inflation, consumer spending
habits, demographic shifts, environmental laws and regulations and employment levels. As our
products are expensive to transport, they are particularly susceptible to regional demand factors
that may fluctuate more widely and more frequently than national demand factors. We cannot predict
or control these factors. Seasonality and Weather. Our sales are highly seasonal since construction activity
typically diminishes in the winter, particularly in Canada and in the northern United States where
we have significant operations. Also, weather conditions in our markets during the construction
season may significantly impact demand for our products. As a consequence, our sales and earnings
are normally highest in the third quarter and lowest in the first quarter. We believe the most
effective way to review our results is on a trailing 12-month basis as our results for any quarter
are not indicative of results to be expected for the year as a whole. You may find additional
information about our quarterly 9




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results in Note 22 Quarterly Data (unaudited) in our financial statements included in Part
II, Item 8 of this Form 10-K, which information is incorporated herein by reference. Energy Costs.We purchase a significant amount of energy from various sources to
conduct our operations, including fossil fuels and electricity for cement production, natural gas
for gypsum wallboard and asphalt production, and diesel fuel for distribution and
production-related vehicles. Fuel cost increases have in the past and may in the future adversely
affect the results of our operations and our financial condition. Prices and availability of all
petroleum products are subject to political, economic and market factors that are generally outside
of our control. To help protect against fuel cost increases, we have equipped several of our
cement plants to use alternative fuels. As appropriate, we also utilize long-term energy
agreements and derivative financial instruments to hedge against increases in our fuel costs. Research and Development Activities. In 2004, we spent $4.1 million in research and
development costs, including $3.8 million paid to the Lafarge Group pursuant to agreements we have
with them. We have access to the Lafarge Groups state-of-the-art research and development
resources and the Lafarge Group shares with us its new product developments and enhancements for
each of our product lines through, in part, agreements by which we share certain costs for research
and development, strategic planning and marketing. We also conduct cement research and development
activities at our laboratory in Montreal, Canada, which we believe is one of the largest private
laboratories in the North American cement industry. Also, our subsidiary, Systech, performs
research and development focused on increasing utilization of alternative fuels. Trademarks and Patents.We either own or have rights to more than 200 trademarks and
patents relating to our operations and products. Our trademarked concrete mix designs, including
Agilia®,Futurecrete®, Agrifarge®, Artevia Color and
WeatherMix®, provide customers with enhanced performance for specific applications.
Specialty cements and cement-related products like our trademarked Tercem 3000®,
Maxcem, Supercem® and SF® cement are designed for durable applications such
as bridges, underwater structures, skyscrapers and industrial floors. Further, through a licensing
agreement, we market Ductal®, a breakthrough composite building material, in the U.S.
and Canada. We believe that our rights under existing trademarks are of value to our operations,
but no one trademark or group of trademarks is material to the conduct of our business as a whole. Backlogs. The amount of backlog orders, as measured by written contracts, in all of
our operations is normally not significant and was not material at December 31, 2004. Dependence on Significant Customers. None of our operations are dependent upon either
a single customer or a few customers, and no single unaffiliated customer accounted for 10 percent
or more of the sales of any of our segments. Managed Assets We continue to manage and operate certain U.S. cement, aggregates and concrete businesses
owned by the Lafarge Group as a result of its 2001 acquisition of U.K.-based Blue Circle Industries
PLC. For managing these businesses we receive $12 million annually plus potential incentives for
improving their operating results. As of December 31, 2004, these businesses include 5 full
production cement manufacturing plants, 15 cement terminals, 1 slag grinding facility, 15
aggregate-producing pits and quarries, 100 ready-mixed concrete plants and 10 concrete block plants
which we manage in conjunction with our own to maximize the efficiency of our respective
operations. Unless terminated at least six months in advance, our agreement to manage these assets
renews annually. We
are reimbursed our direct costs and expenses for managing these
businesses, as well as for the selling, general and administrative costs allocated to them. We are also reimbursed for payroll
and other related costs and expenses we incur associated with the employees who operate the managed
assets. If our agreement with Lafarge S.A. to manage these businesses terminates, these employees
are to be returned to the employment of the Blue Circle entities and we are to be reimbursed for
any cost, expense or financial consequence arising from the structural separation of our respective
operations. Our option to acquire these assets from Lafarge S.A. expired unexercised on December 31, 2004.
The decision to allow the option to expire was made by a special committee of independent
directors formed to evaluate the matter and was approved by our Board of Directors. 10




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Insurance Programs We maintain a comprehensive insurance program to protect the company from certain types of
property and casualty losses, which utilizes commercial insurance and our two captive insurance
companies. Commercial property insurance with replacement coverage is purchased to insure against
losses to plants and equipment. Additionally, the property policy provides business interruption
coverage for our cement and gypsum manufacturing plants, as well as certain of our aggregates
operations. We also purchase commercial insurance for our risks associated with workers
compensation, auto liability and general liability exposures. The deductibles on these coverages
range from $1 million to $5.0 million per claim. Our captive insurance companies are used to fund
losses below these amounts. We maintain other insurance programs as appropriate. We believe the
insurance programs, policy limits and deductibles are appropriate for the risks associated with our
business and in line with coverage available in the market. Employees The total number of people we employ varies significantly on a seasonal basis as we typically
hire several thousand more workers during the peak months of the summer. Measured at December 31,
2004, we employed approximately 15,300 people, including approximately 2,700 individuals operating
the managed assets. We are party to several collective bargaining agreements with numerous labor unions.
Generally, these agreements have multi-year terms and expire on a staggered basis. Environmental Matters Our operations involve the use, release, discharge, disposal and clean up of substances
regulated under federal, state, provincial and/or local environmental protection laws and
regulations. We believe that environmental performance is critical to achieving our ambition to
become the undisputed industry leader. We strive not only to maintain compliance with all
applicable environmental laws and regulations, but also to continuously improve our environmental
performance. Two of our U.S. cement plants burn fuel-quality wastes and are subject to emission limits and
other requirements under the U.S. Resource Conservation and Recovery Act (RCRA) and Boiler and
Industrial Furnaces regulations. We may burn such wastes at several of our cement plants in the
future. Our production of cement kiln dust by-product is currently excluded from federal hazardous
waste regulations under RCRA, but under current U.S. Environmental Protection Agency (EPA)
proposals, would be subject to state regulation. Under the Clean Air Act, we must install the best feasible equipment to control certain
hazardous air pollutants at our U.S. cement plants to meet maximum achievable control technology
standards. The Clean Air Act also imposes on us certain permitting requirements and requires us to
pay recurring permit fees for our U.S. operations deemed to be major sources of air pollution.
We will be required to comply with state plans to implement the EPAs new National Ambient Air
Quality Standards for particulate matter 2.5 to 10 microns in size and NOx relating to
formation of atmospheric ozone. The EPA is considering certain state plan revisions for NOxemissions as well as implementation schedule changes, which will likely result in state plans
being in place by 2007 and compliance sometime between 2010 and 2015. The EPA has also recommended
to the states that cement plants located east of the Mississippi River and in Missouri reduce
NOx emissions by 30 percent from a 1995 baseline. We must also comply with applicable
state implementation plan air quality requirements to SO2, COand lead.
Finally, during 2005 the U.S. Congress is scheduled to consider changes to the Clean Air Act
relating to further SO2, NOx and mercury reductions, primarily for the
utility industry but these changes could impact other industrial sectors as well. As a result of global climate change, and particularly the Kyoto Protocol which was ratified
by Canada and went into effect in February 2005, manufacturers like us face the prospect of
CO2 stabilization or reduction measures, including possible raw material and production
limitations and/or fuel-use or carbon fuel taxes. Cement manufacturers, including us, voluntarily
committed to improve energy efficiency approximately 1 percent per ton of clinker produced in
Canada per year from 1990 to 2005, and to reduce CO2 output per ton of U.S. production
by 10 percent between 1990 and 2020. Achievement of these goals is generally on target. Further,
the Canadian cement industry continues to discuss with the Canadian government how the industry
might implement the Kyoto Protocol. 11




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We are currently involved in the Superfund remediation of one contaminated site as described
in Note 20 to our financial statements included in Part II, Item 8 of this Form 10-K, which
description is incorporated herein by reference. We have initiated in the past, and may in the
future initiate, voluntary clean-up activities at certain of our properties to mitigate liability
exposure for environmental matters and/or in connection with our sale of property. Based on the EPAs prior interpretation of certain Clean Air Act new source review and
permitting rules, several of our cement plants changed fuels in the early 1990s to petroleum coke
or to a coal/coke mixture. The EPA contends that such rules do not exempt changes in fuel by
cement manufacturers unless the plant at which the change occurs was built with the expressed
intent of accommodating the alternate fuel. In 2004, we continued discussions with the EPA
concerning changes in fuel at our Alpena, Michigan and Joppa, Illinois cement plants, as well as
new source review compliance of all our U.S. cement plants. As a consequence of these discussions,
we may be required to make capital expenditures at certain of our cement plants and we may be
required to pay fines and penalties. In 2004, our capital expenditures and remediation expenses for environmental matters were not
material to our financial condition, nor were environmental liabilities recorded at December 31,
2004. However, our expenditures for environmental matters generally have increased over time and
are likely to increase in the future. Because of the complexity of environmental laws, differing
environmental requirements in the U.S. and Canada, and uncertainties surrounding environmental
compliance, permitting, technology and related matters, we cannot predict whether capital
expenditures and remediation expenses for future environmental matters will materially affect our
financial position, results of operations or liquidity. Available Information This annual report on Form 10-K, our reports on Form 10-Q and our current reports on Form 8-K
are available free of charge on our website, www.lafargenorthamerica.com, as soon as
reasonably practicable after we electronically file such reports with or furnish them to the
Securities and Exchange Commission. In addition, we have posted our corporate governance
guidelines, our code of ethics for directors, officers and employees and the charters of the Audit,
Governance, Nominating and Management Development and Compensation Committees of our Board of
Directors on our website at www.lafargenorthamerica.com. Copies of the guidelines, the
code of ethics and the charters are available in print to any stockholder who requests them.
Stockholders should direct any such request to L. Philip McClendon, Senior Vice President  General
Counsel and Secretary, Lafarge North America Inc., 12950 Worldgate Drive, Herndon, Virginia 20170. Item 2. PROPERTIES Information set forth in Item 1 of this Annual Report that relates to the location and general
character of the principal plants, mineral reserves and other significant physical properties owned
in fee or leased by us is incorporated herein by reference in answer to this Item 2. We own free of major encumbrances all of our cement plant sites (active and closed) and the
land on which they are located and quarries (active and closed), as well as terminals, grinding
plants, gypsum drywall plants and miscellaneous properties, except the land, quarry and buildings
related to the Sugar Creek cement plant, the land on which the Exshaw cement plant and Newark
drywall plant were built, and the Kamloops, British Columbia limestone and cinerite quarries.  
    The Exshaw plant is built on land leased from the province of Alberta. The
original lease has been renewed for a 42-year term commencing in 1992. Annual payments
under the lease are presently based on a fixed fee per acre.
    The manufacturing facilities of our Newark, New Jersey plant, which we acquired in
January 2002, are located on leased land from the Port Authority of New York and New
Jersey under an agreement that expires in 2031.
    The Kamloops limestone and cinerite quarries are located on land leased from the
province of British Columbia until March 2022. 12




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The land, quarry and buildings related to the cement plant that we built in Sugar Creek,
Missouri are being leased from the City of Sugar Creek pursuant to a Chapter 100 bond financing.
The lease expires in 2020 and contains provisions that automatically transfer ownership of the
leased facilities to us at the end of the lease term. We believe that each of our cement and gypsum drywall manufacturing plants is in good
operating condition. At December 31, 2004, we owned slag grinding facilities at South Chicago, Illinois; Spragge,
Ontario and Stoney Creek, Ontario. We also have slag grinding capacity at our Joppa, Illinois and
Seattle, Washington plants and Montreal-East, Quebec grinding facilities. We own the limestone quarries for our cement manufacturing plants which are conveniently
located near each plant, except for the quarries for our Joppa, Richmond and Seattle plants which
are located approximately 70, 80 and 180 miles, respectively, from their plant sites. Lafarge Canada Inc.s cement manufacturing plant limestone quarrying rights in Quebec, Nova
Scotia, Ontario, Alberta and British Columbia are held under quarry leases, some of which require
annual royalty payments to provincial authorities. We estimate that limestone reserves for most of
our cement plants currently producing clinker will be adequate to permit production at present
capacities for at least 50 years. Other raw materials, such as clay, shale, sandstone and gypsum
are either obtained from reserves owned by us or are purchased from suppliers and are readily
available. We own substantially all of our aggregate, ready-mixed concrete and concrete products plants
and believe that all of our plants are in good operating condition. We also own the majority of
our paving and road construction equipment. Deposits of raw materials for our aggregate producing plants are located on or near the plant
sites. These deposits are either owned by us or leased upon terms that permit orderly mining of
reserves. We own the majority of our aggregates quarries and pits, as well as our facilities for
production of ready-mixed concrete and asphalt. We also own the majority of our paving and road
construction equipment. We believe our aggregate reserves are adequate at current production
levels. Moreover, even where our reserves are low, we believe that new sources of aggregates would
be available and obtainable without significant interruption to our business. Item 3. LEGAL PROCEEDINGS Information set forth in Note 20 Commitments and Contingencies in our financial statements
included in Item 8 of this Form 10-K in reference to legal proceedings is hereby incorporated by
reference in answer to this Item 3. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None during the fourth quarter ended December 31, 2004. 13




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PART II  Item 5.
    MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES Certain information required in response to Item 5 is reported in Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations under the caption
Managements Discussion of Shareholders Equity of this Annual Report, and is incorporated herein
by reference. On January 31, 2005, 70,757,000 shares of our common stock (Common Stock) were outstanding
and held by 3,871 record holders. In addition, on January 31, 2005, 4,027,000 Exchangeable
Preference Shares of Lafarge Canada Inc., which are exchangeable at the option of the holder into
Common Stock on a one-for-one basis and have rights and privileges that parallel those of the
shares of Common Stock, were outstanding and held by 7,285 record holders. We may obtain funds required for dividend payments, expenses and interest payments on our debt
from our operations in the U.S., dividends from subsidiaries or from external sources, including
bank or other borrowings. Issuer Purchases of Equity Securities (dollars in thousands, except per share amounts): (c) Total Number of
    
    
    (d) Maximum NumberShares Purchased as
    
    
    (or Approximate DollarPart of Publicly
    
    
    Value) of Shares that(a) Total Number of
    
    
    (b) Average Price Paid
    
    
    Announced Program
    
    
    May Yet Be PurchasedPeriod
    
    Shares Purchased (1)
    
    
    per Share (2)
    
    
    (3)
    
    
    Under the Program10/01/04  10/31/04
    
    
    207,000
    
    
    
    $48.43
    
    
    
    207,000
    
    
    
    $17,14211/01/04  11/30/04
    
    
    207,600
    
    
    
    $49.79
    
    
    
    207,600
    
    
    
    $  6,80512/01/04  12/31/04
    
    
    134,694
    
    
    
    $50.52
    
    
    
    134,694
    
    
    

$       Total
    
    
    549,294
    
    
    
    
    
    
    
    549,294
   (1)

    All shares were purchased on the open-market and pursuant to the publicly announced
program.(2)

    Includes brokerage commissions.(3)

    On May 5, 2003, we announced that our Board of Directors approved a share repurchase
program through December 31, 2004. Under this program, we are authorized to purchase in
aggregate up to $50.0 million. On November 2, 2004, we announced that our Board of
Directors approved a new share repurchase program commencing on January 1, 2005 and
expiring on December 31, 2005. Under this program, we are authorized to repurchase shares
in aggregate up to $60 million. During the period covered by this report, we did not sell any equity securities that were not
registered under the Securities Act of 1933, as amended. Refer to Item 12 of this report for information regarding the Equity Compensation Plan
Information table. 14




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##### 



Item 6. SELECTED CONSOLIDATED FINANCIAL DATA Years Ended December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(in millions)Operating resultsNet sales
    
    $
    3,763.3
    
    
    $
    3,318.9
    
    
    $
    3,160.1
    
    
    $
    3,323.0
    (a)
    
    $
    2,787.6
    (a)EBIT (c)
    
    $
    482.0
    
    
    $
    411.7
    
    
    $
    400.9
    
    
    $
    401.1
    
    
    $
    430.7Interest expense, net
    
    
    (32.4
    )
    
    
    (53.7
    )
    
    
    (42.7
    )
    
    
    (47.9
    )
    
    
    (26.9
    )Minority interests
    
    
    (8.2
    )
    
    
    (7.4
    )
    
    
    (8.4
    )
    
    
    (7.0
    )
    
    
    Income taxes
    
    
    (145.9
    )
    
    
    (133.2
    )
    
    
    (93.1
    )
    
    
    (112.1
    )
    
    
    (146.4
    )Earnings from continuing operations
    
    
    295.5
    
    
    
    217.4
    
    
    
    256.7
    
    
    
    234.1
    (b)
    
    
    257.4
    (b)Discontinued operations, net of tax
    
    
    
    
    
    
    66.3
    
    
    
    11.7
    
    
    
    
    
    
    
    Change in accounting principle, net of tax
    
    
    
    
    
    
    (3.2
    )
    
    
    
    
    
    
    
    
    
    
    Net Income
    
    $
    295.5
    
    
    $
    280.5
    
    
    $
    268.4
    
    
    $
    234.1
    
    
    $
    257.4Net Cash Provided by Operations
    
    $
    331.1
    
    
    $
    406.4
    
    
    $
    423.9
    
    
    $
    423.1
    
    
    $
    487.6Net Cash Used for Investing
    
    $
    258.3
    
    
    $
    83.5
    
    
    $
    191.2
    
    
    $
    383.2
    
    
    $
    564.0Net Cash Provided (Used) by Financing
    
    $
    63.5
    
    
    $
    (126.2
    )
    
    $
    (85.8
    )
    
    $
    (42.9
    )
    
    $
    61.1Financial Condition at December 31Long-term debt
    
    $
    470.8
    
    
    $
    715.4
    
    
    $
    671.0
    
    
    $
    674.6
    
    
    $
    687.4Other long-term liabilities and minority interests
    
    
    737.9
    
    
    
    819.3
    
    
    
    681.5
    
    
    
    607.3
    
    
    
    582.5Shareholders equity
    
    
    3,112.9
    
    
    
    2,659.6
    
    
    
    2,159.7
    
    
    
    1,997.1
    
    
    
    1,892.2Total Capitalization
    
    $
    4,321.6
    
    
    $
    4,194.3
    
    
    $
    3,512.2
    
    
    $
    3,279.0
    
    
    $
    3,162.1Total Assets
    
    $
    5,404.1
    
    
    $
    4,766.7
    
    
    $
    4,161.8
    
    
    $
    4,117.6
    
    
    $
    3,902.6
   (a)
    
    Net sales from continuing operations include $90.2 and $94.2 for the years ended
December 31, 2001 and 2000, respectively, related to the divested operations of Lafarge
Florida Inc. (unaudited).(b)
    
    Earnings from continuing operations include $11.4 and $13.0 for the years ended December 31,
2001 and 2000, respectively, related to the divested operations of Lafarge Florida Inc.
(unaudited).(c)
    
    EBIT, a non-GAAP financial measure, represents earnings from continuing operations before
interest expense, redeemable preferred shares dividends and income taxes and includes $19.4
and $21.8 for the years ended December 31, 2001 and 2000, respectively, related to the
divested operations of Lafarge Florida Inc. (unaudited). Management believes EBIT better
reflects the ongoing performance of the company and enables management and investors to
meaningfully trend, analyze and benchmark the performance of the companys operations. 15




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Years Ended December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(in millions except as indicated by *)Common Equity Share InformationNet income  basic*
    
    $
    3.98
    
    
    $
    3.83
    
    
    $
    3.69
    
    
    $
    3.25
    
    
    $
    3.51Net income  diluted*
    
    $
    3.86
    
    
    $
    3.79
    
    
    $
    3.64
    
    
    $
    3.21
    
    
    $
    3.51Dividends*
    
    $
    0.84
    
    
    $
    0.70
    
    
    $
    0.60
    
    
    $
    0.60
    
    
    $
    0.60Book value at December 31*
    
    $
    41.73
    
    
    $
    36.11
    
    
    $
    29.54
    
    
    $
    27.70
    
    
    $
    26.27Average shares and equivalents outstanding
    
    
    74.3
    
    
    
    73.3
    
    
    
    72.8
    
    
    
    72.0
    
    
    
    73.3Shares outstanding at December 31
    
    
    74.6
    
    
    
    73.7
    
    
    
    73.1
    
    
    
    72.1
    
    
    
    72.0Statistical DataCapital expenditures
    
    $
    350.3
    
    
    $
    173.9
    
    
    $
    247.9
    
    
    $
    333.2
    
    
    $
    431.7Acquisitions
    
    $
    9.1
    
    
    $
    16.7
    
    
    $
    31.6
    
    
    $
    80.6
    
    
    $
    242.0
    (d)Net income as a percentage of net sales*
    
    
    7.9
    %
    
    
    8.5
    %
    
    
    8.5
    %
    
    
    7.0
    %
    
    
    9.2
    %Return on average shareholders equity*
    
    
    10.2
    %
    
    
    11.6
    %
    
    
    12.9
    %
    
    
    12.0
    %
    
    
    14.2
    %Long-term debt as a percentage
of total capitalization*
    
    
    10.9
    %
    
    
    17.1
    %
    
    
    19.1
    %
    
    
    20.6
    %
    
    
    21.7
    %Number of employees at December 31*
    
    
    15,300
    
    
    
    14,800
    
    
    
    15,500
    
    
    
    15,600
    
    
    
    14,300Exchange rate at December 31 (Cdn to U.S.)*
    
    
    0.830
    
    
    
    0.778
    
    
    
    0.636
    
    
    
    0.628
    
    
    
    0.667Average exchange rate for the year (Cdn to U.S.)*
    
    
    0.769
    
    
    
    0.715
    
    
    
    0.637
    
    
    
    0.646
    
    
    
    0.673
   (d)
    
    Excludes preferred shares and note payable totaling $127.7 million issued in conjunction
with the acquisition of Warren Paving & Materials Group which was treated as non-cash financing activities for
cash flow reporting. Item 7.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY OF 2004 RESULTS AND OUTLOOK This was a record year for us in sales and earnings. Our operating results benefited from
stronger economic fundamentals as well as good operating performance. Sustained construction
activity in both the U.S. and Canada, helped by robust economic growth and continued low interest
rates, led to strong demand levels in most of our markets. In addition, favorable weather both at
the beginning and end of the year resulted in strong volumes in the first and fourth quarters,
typically low seasons in the construction business. Pricing trends continued to be positive, and
successful price increases in most of our product lines were achieved in the majority of our
markets. Overall, our income before redeemable preferred shares dividends, interest and income taxes
from continuing operations reached a record $482 million, a 17 percent increase over 2003, with
strong volumes for cement, aggregates and gypsum. The prior year included a divestment gain of
$31.2 million related to the sale of our Detroit cement terminal. The Canadian dollar favorably
contributed $18.3 million to our 2004 operating results, although this was partially offset by a
$13.2 million increase in pension and other postretirement benefit expenses and $3.8 million of
foreign exchange losses on our U.S. dollar investments in Canada. Cement operating income was at
an all time high, boosted by strong volumes in all markets and improved prices. Our gypsum
business returned to full year profitability benefiting from the successful implementation of four
price increases throughout the year and supported by improved manufacturing performance.
Aggregates, concrete and asphalt operating income improved by 13 percent compared to 2003, driven
primarily by the aggregates business which alone generated a $32 million profit improvement. Net income from continuing operations in 2004 was $295.5 million, or $3.86 per diluted share,
including several unusual items that contributed a net benefit of $0.03 per diluted share. These
unusual items included a tax benefit of $6.3 million ($0.08 per diluted share), interest income of
$4.9 million ($3.2 million after taxes or $0.04 per diluted share) associated with an income tax
receivable partially offset by legal expenses of $10.6 million ($6.9 million after taxes or $0.09
per diluted share) related to settled litigation in our cement segment. The results of the year
compare with an 16




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##### 



income of $217.4 million, or $2.93 per diluted share in 2003 which included a gain
of $31.2 million ($18.9 million after taxes or $0.25 per diluted share) from the sale of one of our cement terminals, partially
offset by $7.6 million ($0.10 per diluted share) associated with provincial tax changes legislated
in both Ontario and Alberta as well as the higher tax rate applicable to the sale of the Detroit
cement terminal. We closed the year in strong financial condition. At the end of the year, total debt net of
cash, cash equivalents and short-term investments was negative $24.7 million compared with positive
$17.9 million in 2003. Our total debt was $827.3 million as of December 31, 2004 compared with
$717.2 million at the end of 2003. Cash, cash equivalents and short-term investments were $852
million at the end of the year compared to $699.2 million at the end of 2003. Reported cash flow
from operations was $331 million compared with the $406 million in 2003, reflecting our decision to
make additional cash contributions in 2004 to pre-fund certain pension plans (reducing the
comparative cash flows by approximately $48 million) and decreasing the amount of securitized
receivable financing (reducing the comparative cash flows by approximately $87 million). On October 22, 2004, President George W. Bush signed into law the American Jobs Creation Act
of 2004 (the Jobs Act). Among other things, the new legislation reduces the tax rate on foreign
earnings repatriated to the U.S. by December 31, 2005 and subsequently used for qualifying
reinvestments in the U.S. In 2005, we decided to take advantage of this temporary deduction and
intend to repatriate almost $1.1 billion in cash from Canada to the U.S. This money represents
accumulated after-tax earnings associated with our normal operations in Canada. We will record a
one-time tax charge associated with the repatriation of between $100 million and $120 million
during the first quarter of 2005. The exact amount of these taxes depends on pending technical
corrections to the legislation and expected interpretative guidelines to be issued by the Internal
Revenue Service. The repatriation will allow us to improve our capital structure and more
efficiently deploy available capital. Looking forward to 2005, we have seen no indications of change in the overall market
environment since the strong close to the fourth quarter of 2004. However, year-over-year
comparisons will also have to take into account the high level of demand growth and favorable
weather conditions experienced in 2004. We expect the continuation of solid demand and a favorable
pricing environment in most of our markets. However, we also expect to experience cost pressures,
especially in energy and energy-related costs such as distribution costs. Also, we estimate our
pension and other postretirement expenses to increase by $14 million in 2005. On July 1, 2005, we
will commence recognizing expenses associated with then unvested stock option grants and new stock
option grants after that date in connection with our adoption of a new accounting standard. The following discussion and analysis should be read in conjunction with the consolidated
financial statements and notes thereto. MANAGEMENTS DISCUSSION OF INCOME The Consolidated Statements of Income included in Item 8 of this Annual Report summarize the
operating performance of Lafarge North America Inc. for the past three years. It should be noted
that the discussions focus on earnings from continuing operations. Lafarge Florida Inc. (our
cement import and grinding operation) was sold to Florida Rock Industries Inc. in August 2003. The
Florida operations, including the gain on the sale, are shown separately in our financial
statements as discontinued operations in both 2003 and 2002. To facilitate analysis, net sales
and operating profit are discussed by operating segment and are summarized in the table below.
(See Note 17 Segment and Related Information in the Notes to Consolidated Financial Statements
for further segment information.) Our three operating segments are: Aggregates, Concrete & Asphalt the production and distribution of construction aggregates,
ready-mixed concrete, other concrete products and asphalt, and the construction and paving of
roads. Cement the production and distribution of Portland and specialty cements and slag, fly ash
and associated blended products, and the processing of fuel-quality waste and alternative raw
materials for use in cement kilns. Gypsum the production and distribution of gypsum drywall and related products. 17




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##### 



Years ended December 312004
    
    
    2003
    
    
    2002(in millions)Net Sales from Continuing OperationsAggregates, Concrete & Asphalt
    
    $
    2,274.1
    
    
    $
    2,032.5
    
    
    $
    1,943.0Cement
    
    
    1,352.7
    
    
    
    1,198.3
    
    
    
    1,127.2Gypsum
    
    
    326.6
    
    
    
    254.3
    
    
    
    232.7Eliminations
    
    
    (190.1
    )
    
    
    (166.2
    )
    
    
    (142.8
    )Total
    
    $
    3,763.3
    
    
    $
    3,318.9
    
    
    $
    3,160.1Gross Profit from Continuing OperationsAggregates, Concrete & Asphalt
    
    $
    373.2
    
    
    $
    335.5
    
    
    $
    341.4Cement
    
    
    443.6
    
    
    
    384.9
    
    
    
    368.7Gypsum
    
    
    65.9
    
    
    
    19.3
    
    
    
    9.6Total
    
    
    882.7
    
    
    
    739.7
    
    
    
    719.7Operational Overhead and Other ExpensesAggregates, Concrete & Asphalt
    
    
    (165.4
    )
    
    
    (151.8
    )
    
    
    (144.6
    )Cement
    
    
    (115.2
    )
    
    
    (94.4
    )
    
    
    (77.6
    )Gypsum
    
    
    (32.6
    )
    
    
    (24.3
    )
    
    
    (25.9
    )Total
    
    
    (313.2
    )
    
    
    (270.5
    )
    
    
    (248.1
    )Income (Loss) From Continuing OperationsAggregates, Concrete & Asphalt
    
    
    207.8
    
    
    
    183.7
    
    
    
    196.8Cement
    
    
    328.4
    
    
    
    290.5
    
    
    
    291.1Gypsum
    
    
    33.3
    
    
    
    (5.0
    )
    
    
    (16.3
    )Total
    
    
    569.5
    
    
    
    469.2
    
    
    
    471.6Corporate and unallocated expenses
    
    
    (87.5
    )
    
    
    (57.5
    )
    
    
    (70.7
    )Earnings from Continuing Operations before MinorityInterests, Interest and Income Taxes (a)
    
    $
    482.0
    
    
    $
    411.7
    
    
    $
    400.9AssetsAggregates, Concrete & Asphalt
    
    $
    2,204.6
    
    
    $
    2,010.3
    
    
    $
    1,872.4Cement
    
    
    1,505.2
    
    
    
    1,433.3
    
    
    
    1,312.5Gypsum
    
    
    329.6
    
    
    
    317.2
    
    
    
    310.4Corporate and unallocated assets
    
    
    1,364.7
    
    
    
    1,005.9
    
    
    
    645.1Discontinued operations
    
    
    
    
    
    
    
    
    
    
    21.4Total
    
    $
    5,404.1
    
    
    $
    4,766.7
    
    
    $
    4,161.8
   (a)
    
    EBIT is reconciled to the closest GAAP measure in Item 6 Selected Consolidated
Financial Data. YEAR ENDED DECEMBER 31, 2004 Net Sales Our net sales from continuing operations increased 13 percent in 2004 to $3,763.3 million from
$3,318.9 million in 2003. Demand for our products remained robust, which was supported by stronger
economic conditions and continued low interest rates. In addition, we benefited from favorable
weather both at the start and end of the year. Excluding divested operations, all our product
lines recorded higher shipments for the full year compared to last year, with cement, aggregates
and gypsum setting new records for volumes. Compared to 2003, our selling prices generally
increased with the exception of our paving business. In addition, net sales benefited from
continued strength of the Canadian dollar, which finished the year close to 83 cents per U.S.
dollar compared to 78 cents per U.S. dollar in the prior year. Excluding the exchange rate effect,
net sales from continuing operations were 10 percent higher than last year. 18




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##### 



U.S. net sales from continuing operations increased to $2,113.9 million, up 12 percent
compared to $1,882.0 million in 2003, driven by high cement, aggregate and gypsum sales. Canadian
net sales increased 15 percent to $1,649.4 million in 2004 (7 percent excluding the favorable
exchange rate effect) primarily due to higher cement, aggregate and paving sales. Aggregates, Concrete & Asphalt Net sales from the aggregates, concrete and asphalt segment, formerly identified as
construction materials segment, totaled $2,274.1 million in 2004, which were 12 percent higher than
the $2,032.5 million in 2003. Excluding the impact of the favorable Canadian exchange rate, net
sales were up 7 percent with stronger sales across all product lines. Net sales of construction aggregates were $732.1 million, which were 19 percent higher than
2003 (15 percent higher excluding the favorable exchange rate). Shipments of construction
aggregates increased 12 percent in 2004 to a record 133.3 million tons as a result of good weather
conditions and solid overall demand in the U.S. and in Canada. U.S. volumes were up 11 percent as
a result of higher sales in the Great Lakes, Maryland and Missouri. Canadian volumes were 13
percent higher than 2003 levels due to strong sales in Western Canada, certain Ontario markets and
Montreal as well as increased exports to the U.S. west coast. Average selling prices in 2004 were
up 2 percent in Canada, in local currency, and 3 percent in the U.S. due in part to a better
product mix as well as successful implementation of general price increases in most markets. Ready-mixed concrete sales totaled $751.0 million in 2004, up 9 percent from last year (5
percent higher, excluding the favorable exchange rate). Overall ready-mixed concrete shipments
increased by 3 percent to 11.4 million cubic yards as stronger demand in western Canada offset a
flat U.S. market. Strong sales in Maryland, New York and New Mexico were offset by lower volumes
in Louisiana (completion of New Orleans airport project) and Missouri. Canadian volumes increased
by 6 percent over 2003, as residential construction activity in Vancouver and Calgary remained
strong. However, price improvement gains in most regions were offset by pricing pressures in the
Denver, Toronto and Montreal markets. Asphalt and paving sales totaled $692.3 million in 2004, up 9 percent from 2003 (up 3 percent,
excluding the favorable exchange rate). Asphalt volumes were up 6 percent compared to prior year
due to strong demand, particularly in Calgary and Denver, and more favorable weather. Excluding
divested operations, paving volumes were up 8 percent due to strong demand in Calgary, Edmonton and
Denver. Cement Cement net sales from continuing operations increased 13 percent to $1,352.7 million in 2004
from $1,198.3 million in 2003 (up 10 percent excluding the favorable exchange rate). Cement
shipments in 2004 reached a record 14.2 million tons, which were 8 percent higher than 2003
shipments excluding divested Florida operations. Strong general economic conditions and favorable
weather contributed to make 2004 an exceptionally strong volume year. Some regional cement
shortages were experienced, particularly in the first half of the year, requiring imports in order
to meet customer demand. Sales volumes in the U.S., excluding divested Florida operations,
increased by 8 percent compared to 2003, driven by strong demand in all major markets except the
Great Lakes markets, which were flat. In Canada, sales volumes increased 6 percent as demand was
up sharply in Western Canada. Average selling prices continued their positive trend that began in the second quarter, driven
by successful price increases in a majority of our markets between January and May. For the first
time in more than a decade, we were able to successfully implement a second price increase in
selected U.S. markets allowing us to recover most of the shortfall due to the price degradation
that occurred in the second half of 2003. Average selling prices increased by 2 percent
year-over-year, with the U.S. gaining 3 percent and Canada increasing by 2 percent in local
currency. We expect the full benefit of these price increases will be realized during 2005. In
addition, new price increases of $6 to $8 per ton took effect in most of our U.S. and Canadian
markets on January 1, 2005, and an additional price increase of $5 per ton in most markets has been
announced in the U.S. effective July 1, 2005. 19




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##### 



Gypsum Net sales from gypsum operations increased by 28 percent to $326.6 million from $254.3 million
in 2003 benefiting from strong demand as well as the impact of four price increases implemented
throughout the year. Sales volume reached 2.2 billion square feet, which represents an increase of
4 percent over 2003 sales volume. We experienced continued growth of residential construction both
in the U.S. and Canada, supported by significantly improved manufacturing performance by our
plants. The average mill net price per thousand square feet for the year was $123 compared with
$98 in 2003, mainly derived from the strong performance of our U.S. markets. A price increase went
into effect on January 10, 2005. Performance by Line of Business Aggregates, Concrete & Asphalt Our aggregates, concrete and asphalt segment earned $207.8 million on sales of $2.3 billion,
13 percent higher than 2003 earnings of $183.7 million on sales of $2.0 billion. Profit growth was
driven primarily by the aggregates business, which alone generated a $32 million profit
improvement. The favorable impact of the Canadian dollar, which contributed $8.6 million to
reported profit for the year, was more than offset by a $9.0 million increase in pension and other
postretirement expenses. In addition, higher fuel costs across all product lines and increased
maintenance costs with higher plant activity resulted in increased operating costs. As a result,
segment operating income as a percentage of net sales at 9 percent was flat compared to 2003. Construction aggregates recorded an operating income of $155.8 million in 2004, which was 26
percent higher than 2003, driven by record volumes and higher selling prices across all regions.
This was partially offset by cost increases, including additional quarry stripping costs of $5
million and higher energy costs of $4 million. Operating margin improved by 1 percentage point in
2004 compared to the year-ago level. Ready-mixed concrete profits declined by $3.9 million to $30.8 million in 2004. Most of the
shortfall came from the Denver, Toronto and Montreal markets where market conditions and
competitive pressures limited our ability to recoup increased raw material prices. The strong
performance of our Western Canada and Eastern U.S. markets partially offset the shortfall.
Performance based distribution initiatives continued to help offset increased delivery, maintenance
and fuel costs. Operating margin was 1 percentage point lower than last year. Asphalt and paving operations earned $31.0 million in 2004, which was flat compared to 2003.
Paving contract margins declined, which more than offset benefits from increased asphalt volumes
and the absence of losses associated with the Western U.S. portable highway paving business we
exited in 2003. Increased use of recycled products helped offset higher costs during the year. Cement Cement operating profit from continuing operations was $328.4 million in 2004, which was 13
percent higher than last year. The results reflect increased volumes, higher prices and the
stronger Canadian dollar, which were partially offset by increased fuel, raw material and
distribution costs. Strong general economic conditions and sustained construction activity allowed
us to successfully implement two price increases in selected U.S. markets. A $12.1 million
favorable impact of the Canadian dollar partially offset a $2.4 million increase in pension and
other postretirement expenses and $10.6 million of legal expenses related to settled litigation.
Clinker production at 12.8 million tons was up 900,000 tons for the year. This 7.5 percent
production increase was achieved without increasing plant fixed costs from 2003 levels. Several of
our plants achieved record production levels for the year. Variable costs were up for the year,
primarily driven by fuel and power costs increases which unfavorably impacted operating earnings by
$7.4 million. Freight costs increased $2.0 million due to sub-optimal shipping patterns we
experienced to serve our customers during the tight market conditions earlier this year. As a result, cement operating income from continuing operations as a percentage of net sales
was 24.3 percent, which was similar to 2003. In 2004, we increased our imports by approximately
200,000 short tons to meet our customer needs. The low-margin sales of imported cement combined
with the legal fees associated with the settled litigation negatively impacted our 2004 operating
margin. 20




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##### 



Gypsum Our gypsum drywall operations recorded $33.3 million operating profit in 2004 compared to a
loss of $5.0 million in 2003, an improvement of $38.4 million. Our gypsum operations have
generated profit for the past 6 quarters, as we benefited from continued strong residential demand
and higher prices. In addition, significantly improved manufacturing productivity improved our
overall performance, partially offsetting higher paper costs and increased energy expenses.
Production volumes from our two newer plants in Kentucky and Florida now account for 72 percent of
total production. Corporate and Unallocated Expenses Corporate and unallocated expenses in 2004 were $87.5 million, which represents an increase of
$30 million compared to 2003. The prior year included a $31.2 million gain on the sale of our
Detroit cement terminal. Higher corporate expenses in 2004, due to increased pension and other
postretirement expenses, higher salaries, governance and compliance costs, were partially offset by
$10.6 million of lower foreign exchange transaction losses. Income from Managed Assets Income from the managed assets amounted to $16.3 million in 2004, which represents an increase
of $4.3 million compared to 2003 as a result of a management incentive fee we received from Lafarge
S.A. for exceeding agreed upon performance targets. Gross proceeds from the management of these
assets totaled $244.4 million in 2004, as compared to $206.4 million in 2003. Total proceeds
included billings for the annual management fee ($16.3 million in 2004 and $12.0 million in 2003),
as well as direct payroll, pension and postretirement costs and allocated selling, general and
administrative expenses. Expenses associated with management of these assets were $228 million and
$194.4 million in 2004 and 2003, respectively. We are fully reimbursed for these expenses under
the terms of the management agreement. Interest Expense Interest expense for the year was $48.8 million, $6.0 million lower than last year. The fixed
to floating rate interest rate swap we executed in the first quarter of 2004 reduced interest
expenses by $4.9 million. In addition, interest expense on our short-term debt borrowings
decreased by $1 million versus 2003 due to lower average borrowing levels. Interest Income Interest income for the year was $16.3 million, which represents an increase of $15.2 million
compared to 2003. The increase is due to the recognition of lower currency translation losses on
U.S. dollar investments in Canada, which favorably impacted the year-over-year comparison by $6.8
million. In addition, we recognized $4.9 million of interest income associated with an income tax
receivable and interest income increased by $1.9 million as a result of higher average investment
balances. Income Taxes Income tax expense from continuing operations increased to $145.9 million in 2004 from $133.2
million in 2003. Our tax expense was impacted in both 2003 and 2004 by certain unusual items. In
2004, we recorded a tax benefit of $6.3 million. In 2003, we recognized an additional $7.6 million
of tax expenses to reflect provincial tax changes legislated in both Ontario and Alberta, as well
as the higher tax rate applicable to the sale of the Detroit cement terminal in the third quarter.
Excluding these tax adjustments, the effective tax rate for 2004 and 2003 was approximately 35
percent and 36 percent, respectively. Net Income Net income was $295.5 million or $3.86 per diluted share, compared with net income in 2003 of
$280.6 million, or $3.79 per diluted share. Current year results included several unusual items
that contributed a net benefit of $0.03 per diluted share. These unusual items included a tax
benefit of $6.3 million ($0.08 per diluted share), interest income of $4.9 million ($3.2 million
after taxes or $0.04 per diluted share) associated with an income tax receivable partially offset
by legal expenses of $10.6 million ($6.9 million after taxes or $0.09 per diluted share) related to
settled litigation in our cement segment. Prior year results included income from discontinued
operations of $66.3 million ($0.90 per diluted 21




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##### 



share), a charge of $3.2 million ($0.04 per diluted share) representing the cumulative effect
of a change in accounting principle, a gain of $31.2 million ($18.9 million after taxes or $0.25
per diluted share) from the sale of one of our cement terminals and a charge of $7.6 million ($0.10
per diluted share) associated with provincial tax changes legislated in both Ontario and Alberta as
well as the higher tax rate applicable to the sale of the Detroit cement terminal. YEAR ENDED DECEMBER 31, 2003 Net Sales Lafarges net sales from continuing operations increased 5 percent in 2003 to $3,318.9 million
from $3,160.1 million in 2002. Demand for our products remained solid and we benefited during the
third and fourth quarters from the pent up demand that built up during the first half of the year,
when market conditions were particularly difficult due to poor weather. Cement, aggregate and
gypsum wallboard shipments for the full year were above last year, while shipments of ready-mixed
concrete were flat, and asphalt and paving sales fell short of last year. When compared to 2002,
our selling prices generally increased, with the exception of the U.S. cement market and our paving
business. In addition, net sales benefited from continued strength of the Canadian dollar, which
finished the year close to 78 cents per U.S. dollar. Excluding the exchange rate effect, net sales
from continuing operations were equal to last year. Excluding the favorable exchange rate effect, the increase in cement and gypsum net sales was
partially offset by the drop in sales of our aggregates, concrete and asphalt segment. By region,
U.S. net sales from continuing operations decreased to $1,882.0 million in 2003 compared to
$1,935.3 million in 2002, driven by lower cement and asphalt and paving sales. Canadian net sales
increased 17 percent to $1,436.9 million in 2003 (5 percent excluding the favorable exchange rate
effect), primarily due to higher cement, aggregate and ready-mixed concrete sales. Aggregates, Concrete & Asphalt Net sales from the aggregates, concrete and asphalt segment totaled $2,032.5 million in 2003,
5 percent higher than the $1,943.0 million in 2002. Excluding the impact of favorable Canadian
exchange rate, net sales were down 2 percent. Stronger sales in construction aggregates were
offset by a decline in asphalt and paving sales. Net sales of construction aggregates were $614.5 million, 15 percent higher than 2002 (8
percent higher excluding the favorable exchange rate). Shipments of construction aggregates
increased 2 percent in 2003 to 118.9 million tons, with U.S. volumes up 7 percent as a result of
higher sales in Missouri and New Mexico as well as higher resales in the Great Lakes. Canadian
volumes were 3 percent lower than 2002 levels due to lower shipments in most of our Western
Canadian markets as well as lower exports to the U.S. west coast. Average selling prices in 2003
were up 4 percent in Canada, in local currency, and 3 percent in the U.S. due in part to a better
product mix as well as successful implementation of general price increases in most markets. Ready-mixed concrete sales totaled $689.6 million in 2003, up 6 percent from last year (flat
to 2002, excluding the favorable exchange rate). Overall ready-mixed concrete shipments fell
slightly to 11.0 million cubic yards with stronger demand in Canada offsetting a 12 percent volume
decline in Western U.S. markets. The deterioration in the construction economy in Colorado and New
Mexico resulted in both lower volume and prices. Canadian volumes increased by 5 percent over
2002, with sustained project work in the energy/mining sector (Montreal and Vancouver). In
addition, average Canadian prices (in local currency) increased by 2 percent compared to 2002 to
strong project pricing and higher value added sales. Asphalt and paving sales totaled $637.8 million in 2003, down 4 percent from 2002 (down 11
percent, excluding the favorable exchange rate). Asphalt and paving volumes were down 6 percent
and 14 percent, respectively, in 2003 compared to prior year. Lower volumes in the U.S. were due
primarily to weather in the first half of the year, weak construction activity in our principal
Western U.S. markets as well as our exit from our Western U.S. portable highway paving business in
the second quarter of 2003. Further contributing to lower sales was lower demand in Eastern Canada
due to a weather related slow start of the paving season and less asphalt paving content in
projects. 22




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##### 



Cement Cement net sales from continuing operations increased 6 percent to $1,198.3 million in 2003
from $1,127.2 million in 2002 (up 3 percent excluding the favorable exchange rate). With strong
shipments in the fourth quarter, full year sales volumes from our continuing operations in 2003
reached 13.2 million tons, up 3 percent from 2002. Sales volumes in the U.S. increased a modest 1
percent compared to 2002 while in Canada, sales volumes increased 7 percent as demand was up
sharply in the western provinces. Average selling prices in Canada were up 3 percent in local
currency, reflecting the impact of general price increases implemented early in the year. Prices
in the U.S. declined 1 percent as the planned April price increase met with limited success and
some price degradation occurred due to competitive activity in several markets. Gypsum Net sales from gypsum operations increased by 9 percent to $254.3 million from $232.7 million
in 2002, benefiting from strong demand as well as the impact of the price increases implemented in
the second half of the year. Sales volume reached 2.1 billion square feet, an increase of 5
percent from 2002, which is in line with the increase in demand reported by the gypsum association
for the markets served by our plants. The average mill net price per thousand square feet for the
year was $98 compared with $96 in 2002. Prices increased significantly during the fourth quarter
2003 and a further price increase was implemented in January 2004. Performance by Line of Business Aggregates, Concrete & Asphalt Our aggregates, concrete and asphalt segment earned $183.7 million on sales of $2.0 billion,
down 7 percent from 2002 earnings of $196.8 million on sales of $1.9 billion. The favorable impact
of the Canadian dollar, which contributed $10.6 million to reported profit for the year, was more
than offset by an $18.7 million dollar increase in pension and other postretirement costs. In
addition, losses incurred in our Western U.S. portable highway paving business that we exited in
the second quarter of 2003 and lower levels of paving activities in Colorado reduced profits for
the year. As a result, operating income as a percentage of net sales was 9 percent in 2003
compared to 10 percent in 2002. Construction aggregates recorded an operating income of $123.9 million in 2003, in line with
last year, as higher volumes and prices were offset by pension expenses, which increased by $5.9
million, and higher operating costs resulting in part from weather-related inefficiencies. Ready-mixed concrete profits declined $6.2 million to $34.7 million in 2003. Most of the
shortfall was in the Western U.S. as continued weak market conditions resulted in a 12 percent drop
in volumes and competitive price pressures. In Canada, ready-mixed concrete profits were equal to
last year as a decline in Eastern Canada, due largely to difficult market conditions in Toronto,
was offset by improved profitability in our Western Canadian operations, due to higher volumes in
Vancouver and generally higher margins. Our ready-mixed concrete operations were negatively
impacted by an annual increase of $5.3 million in pension expense in 2003. Asphalt and paving operations earned $30.8 million in 2003, about $7.4 million less than in
prior year. Profits in Eastern Canada increased by 39 percent over 2002 as lower costs and
improved margins offset lower volumes. Weak market conditions in the Western U.S., combined with
losses associated with the portable highway paving operations that we exited during the year,
resulted in a significant drop in earnings in that market, more than offsetting the improvement in
Eastern Canada. In addition, pension expense for this product line increased $5.3 million in 2003. Cement Cement operating profit from continuing operations was $290.5 million, in line with last year.
The favorable impact of the Canadian dollar was $15.5 million, which offset a $15.3 million
increase in pension and other postretirement costs. Higher volumes and higher prices in Canada
were partially offset by weaker U.S. prices. In addition, margins declined as most of the
increased tonnage sold in the second half of the year came out of inventory rather than incremental
production. In terms of operating costs, fixed costs were lower by $3.8 million due to lower
maintenance expenses as well as the absence of costs related to the start up of our plant near
Kansas City and the Bath strike in 2002. Variable 23




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costs per ton was down slightly for the year as significant improvement in fuel cost at our
Exshaw plant, due to the conversion to coal from natural gas, was largely offset by a reduction in
the availability and pricing of fuel quality waste used in some of our plants. Finally, the
profitability of our cement-related products business declined in 2003, primarily due to lower slag
results and clinker sales volumes. As a result, cement operating income from continuing operations
as a percentage of net sales was 24 percent in 2003, which was down from 26 percent in the prior
year. Gypsum Our gypsum drywall operations returned to profitability starting the second half of 2003, as
we benefited from continued strong residential demand and higher prices, particularly in the fourth
quarter. For the full year, the gypsum operations lost $5.0 million, which represented an
improvement of $11.3 million from 2002 due to a combination of improved manufacturing performance
as well as price and volume increases. Production volumes from our two newer plants in Kentucky
and Florida accounted for 71 percent of total production compared to 62 percent last year. The
idling of our Wilmington plant in late 2002 resulted in the anticipated 2003 cost savings of
approximately $10 million. However, higher natural gas prices, increased wage rates, higher labor
costs related to increased production levels in our remaining plants, as well as increased pension
costs and higher depreciation expense offset the Wilmington savings in 2003. The 2002 operating
loss of $16.3 million excludes a $26 million charge recorded in Other (income) expense, net for
the idling of our Wilmington, Delaware plant. Corporate and Unallocated Expenses Corporate and unallocated expenses in 2003 were $57.5 million, which represented a decrease of
$13.2 million compared to 2002. The decrease was due to a $31.2 million gain on the sale of the
Detroit cement terminal partially offset by a $10.1 million increase in foreign exchange
transaction losses and the absence of an $8.1 million credit recognized in 2002 related to a
natural gas derivative that did not qualify for hedge accounting. The provision of $26 million
recognized in 2002 for the idling of our gypsum drywall plant in Wilmington was offset by a gain on
the sale of our Canadian paving stone business in that same year. Income from Managed Assets Income from the managed assets amounted to $12 million in both 2003 and 2002. Gross proceeds
from the management of these assets totaled $206.4 million in 2003, compared to $190.8 million in
2002. Total proceeds included billings for the annual management fee ($12.0 million in both
years), as well as direct payroll, pension and postretirement costs and allocated selling, general
and administrative expenses. Expenses associated with management of these assets were $194.4
million and $178.8 million in 2003 and 2002, respectively. We are fully reimbursed for these
expenses under the terms of the management agreement. Interest Expense Interest expense for the year was $54.8 million, up $2.4 million from 2002 due to the absence
of $4.0 million of capitalized interest in 2003 and a $1.2 million interest expense increase from a
long-term bond issued in June 2003. These were partially offset by a reduction in short-term
interest expense due to a combination of lower debt levels and lower interest rates. Interest Income Interest income was $1.1 million, a decrease of $8.6 million from 2002 as foreign exchange
losses of $10.5 million on U.S. dollar investments in Canada, due to the devaluation of the U.S.
dollar, offset an increase in interest from investments. Income Taxes Income tax expense from continuing operations increased from $93.1 million in 2002 to $133.2
million in 2003, including an $7.6 million tax expense increase in 2003 due to provincial tax
changes legislated in both Ontario and Alberta as well as the higher tax rate applicable to the
sale of the Detroit cement terminal in the third quarter. The 2002 results benefited from the
recognition of approximately $28 million in tax benefits related to the reversal of a deferred tax 24




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valuation allowance ($23 million) and the favorable final settlement of various tax issues
with both U.S. and Canadian authorities ($5 million) in the fourth quarter. Excluding these tax
adjustments, the effective tax rate for 2003 was 36 percent compared with approximately 35 percent
in 2002. Net Income Net income was $280.6 million, or $3.79 per diluted share, compared with net income in 2002 of
$268.4 million or $3.64 per diluted share. Net income in 2003 from continuing operations, which excludes the results of the divested
Florida operations, was $217.4 million, or $2.93 per diluted share, compared with $256.7 million,
or $3.48 per diluted share, in 2002. The 2003 results include a net gain of $11.3 million, or
$0.15 per diluted share, related to the increase in the Canadian deferred tax provision and a gain
from the sale of our Detroit, Michigan cement terminal. The 2002 results contain a net gain of
$28.7 million, or $0.39 per diluted share, from favorable tax adjustments and a gain on the sale of
our Canadian paving stone business, offset by a charge for the idling of our gypsum plant in
Wilmington, Delaware. Net income from discontinued operations for the full year 2003 was $66.3 million, or $0.90 per
diluted share (including the divestment gain after tax of $58.0 million, or $0.79 per diluted
share), compared with $11.7 million, or $0.16 per diluted share, in 2002. MANAGEMENTS DISCUSSION OF CASH FLOWS The Consolidated Statements of Cash Flows summarize our main sources and uses of cash. These
statements show the relationship between the operations presented in the Consolidated Statements of
Income and liquidity and financial resources depicted in the Consolidated Balance Sheets. Our liquidity requirements arise primarily from the funding of capital expenditures, working
capital needs, debt service obligations and dividends. We usually meet our operating liquidity
needs through internal generation of cash except in the event of significant acquisitions.
Short-term borrowings are generally used to fund seasonal operating requirements, particularly in
the first two calendar quarters. Cash Flows from Operations The net cash provided by operations for each of the three years presented reflects our net
income adjusted for the net effects of operating transactions and other events that affect net
income and operating cash flows in different periods. Significant adjustments are discussed below,
except for changes in working capital, which are discussed in Managements Discussion of Financial
Position. The non-cash adjustment for depreciation, depletion and amortization in 2004 increased by
$18.5 million reflecting new assets placed in service resulting from an increase in capital
expenditures ($176.4 million) and the commencement of amortization of certain information
technology projects. The non-cash adjustment for depreciation, depletion and amortization in 2003
increased by $10.7 million due to annualization effect of assets put in service in the course of
2002 (mainly the Sugar Creek cement plant and the Chicago slag operation), offset by the change in
useful lives of our cement plants in July 2002 (6 month impact of $8.5 million decrease). The
non-cash adjustment for gain on sale of assets for 2003 and 2002 was relatively similar ($38.8
million in 2003 and $35.2 million in 2002), as both years were impacted by large divestment gains
(Detroit cement terminal in 2003 and paving stone divestiture in Eastern Canada in 2002). The
impact of the gain on the sale of discontinued operations (Lafarge Florida Inc.), including related
income taxes paid, is shown separately. As a result of improving liquidity, we significantly
reduced the amount of securitized receivable financing. The impact of this change reduced the 2004
comparative cash flows from operations by approximately $87 million. The adjustment for Net
change in noncurrent assets and liabilities primarily reflects the change in pension
contributions, which increased by $61.2 million and $45.5 million in 2004 and 2003, respectively. 25




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Cash Flows from Investing In 2004, net cash used for investing activities increased $174.7 million to $258.3 million.
Capital expenditures more than doubled during 2004 as compared with 2003, from $173.9 million to
$350.3 million, due to $29.7 million of additional capital expenditures associated with our Sugar
Creek, Missouri cement plant (see Note 20 Commitments and Contingencies to the consolidated
financial statements for more information), increased spending on information technology projects,
costs associated with the replacement terminal in Detroit, Michigan, and timing factors associated
with various projects. Redemption of short-term investments, net, for 2004 was $34.3 million
compared to purchases of short-term investments, net in 2003 of $46.3 million, both years
reflecting the change in the amount of excess cash in Canada that was invested in short-term
investments with original maturities exceeding three months. Proceeds from the sale of
non-strategic assets, surplus land and other miscellaneous items totaled $66.6 million in 2004
compared to $71.2 million in 2003. Proceeds for 2004 includes several individually insignificant
sale transactions while proceeds from 2003 include $38.2 million from the sale of the Detroit
cement terminal. In 2003, net cash used for investing decreased $107.7 million compared to 2002. Capital
expenditures decreased $74.0 million in 2003 largely because ongoing development projects, such as
the construction of the Sugar Creek, Missouri plant and Chicago slag project, were completed in
2002. Spending on acquisitions decreased $14.8 million to $16.7 million as only a few small
acquisitions were made. Purchases of short-term investments, net, for 2003 was $46.3 million
compared to redemptions of short-term investments, net for 2002 of $1.0 million, both years
reflecting the change in the amount of excess cash in Canada that was invested in short-term
investments with original maturities exceeding three months. Proceeds from the sale of
non-strategic assets, surplus land and other miscellaneous items totaled $71.2 million in 2003
compared to $77.0 million in 2002, as both years had significant proceeds related to the Detroit
cement terminal (in 2003) and paving stone divestiture in eastern Canada (in 2002) in addition to
the routine sales of surplus land and retail mobile equipment. The proceeds from the sale of
discontinued operations of $123.9 million (Lafarge Florida Inc.), and related income taxes paid,
are shown separately. Cash Flows from Financing In 2004, net cash provided by financing was $63.4 million compared to net cash used by
financing activities of $126.2 million in 2003. The change reflects an increase in short-term
borrowings in 2004 whereas we repaid short-term borrowings in 2003. Repayments were made in 2003
utilizing cash proceeds received in connection with the two large asset dispositions noted above.
Issuance of long-term debt for 2003 includes $47.0 million of proceeds received in connection with
the issuance of industrial revenue bonds related to our Sugar Creek, Missouri plant. Also,
proceeds from issuance of equity securities increased to $52.3 million in 2004 from $11.8 million
in 2003 due to more employee stock option exercises in 2004. In 2003, net cash consumed by financing was $126.2 million compared to $85.8 million in 2002.
This increase of $40.4 million resulted from the net repayment of short-term borrowings of $131.1
million in 2003 versus net repayment of only $65.4 million in 2002, an increase in dividends of
$6.4 million and a decrease in the issuance of equity securities of $19.5 million, offset by an
increase in long-term debt mainly due to the issuance of the industrial revenue bonds discussed
above. We have access to a wide variety of short-term and long-term financing alternatives in both
the U.S. and Canada. These include a commercial paper facility under which we may from time to
time issue up to an aggregate principal amount of $300 million in unsecured, short-term promissory
notes through private placements. The facility is 100 percent backed by a syndicated, multi-year
committed bank revolver, which expires in April 2007. Commercial paper borrowings as of December
31, 2004 and 2003 were $90 million and zero, respectively. We also have a syndicated $300 million
multi-year committed bank revolver maturing in April 2007. At December 31, 2004 and 2003, no
amounts were outstanding under the committed bank revolver. We also have a receivables securitization program to provide a cost-effective source of
working capital and short-term financing. Under the program, we agreed to transfer, on a revolving
basis, an undivided percentage ownership interest in a designated pool of accounts receivable to
unrelated third-party purchasers up to a maximum of $200 million. Under the agreements, new
receivables are added to the pool as collections reduce previously sold receivables. We service,
administer and collect the receivables sold, which as of December 31, 2004 and 2003, were zero and 26




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$82.0 million, respectively. Since this program is accounted for as a sale of receivables,
the related cash flows are included in net cash provided by operations. In 2004, the strengthening of the Canadian dollar resulted in a positive effect of $50.7
million on the cash-flow statement, directly related to the impact of exchange rate changes on the
cash in Canada. MANAGEMENTS DISCUSSION OF FINANCIAL POSITION The Consolidated Balance Sheets summarize our financial position at December 31, 2004 and
2003. We are exposed to foreign currency exchange rate risk inherent in our Canadian revenues,
expenses, assets and liabilities denominated in Canadian dollars, as well as interest rate risk
inherent in our debt. The value reported for Canadian dollar denominated net assets increased from
December 31, 2003 as a result of a rise in the value of the Canadian dollar relative to the U.S.
dollar. At December 31, 2004, the U.S. dollar equivalent of a Canadian dollar was $0.83 versus
$0.78 at December 31, 2003. Based on 2004 results, if the value of the Canadian dollar relative to
the U.S. dollar changed by 10 percent, our consolidated net assets and net income each would change
by approximately 6 percent. Working capital, excluding cash, short-term investments, short-term borrowings, redeemable
preferred stock, current portion of long-term debt and the impact of exchange rate changes ($50.8
million increase), increased $140.3 million from December 31, 2003 to December 31, 2004.
Receivables, net (including Due from affiliates), excluding an exchange rate increase of $21.0
million, increased $166.2 million primarily due to a decrease in receivables sold under our
securitization program and increased sales. Inventories decreased $28.3 million, excluding the
exchange rate increase of $11.7 million, due to increased levels of sales in the fourth quarter of
2004 compared to 2003. Accounts payable and accrued liabilities, excluding the exchange rate
increase of $14.4 million, decreased $14.8 million mainly due to a decrease in amounts payable
under our receivable sales agreement. Income taxes payable increased $17.7 million due to stronger
earnings in the fourth quarter, which resulted in higher income taxes payable. Net property, plant and equipment increased $77.8 million during 2004, excluding the exchange
rate increase of $59.1 million, as capital expenditures outpaced depreciation. No significant
acquisitions were made in 2004. Goodwill relates primarily to the Redland, Warren and Presque Isle
transactions. Our operating cash flows are generally sufficient to provide all of the cash operating
requirements, including capital expenditures, on an annual basis, although short-term debt to fund
seasonal working capital needs and operating losses is incurred during the first six months of the
year. We maintain sufficient liquidity resources, including a $300 million commercial paper line,
a $200 million accounts receivable securitization line, a committed $300 million multi-year
revolver, a bi-lateral committed facility of $50 million, and over $100 million in uncommitted
bi-lateral bank facilities, to ensure that our cash requirements are met under any circumstances.
A $250 million bond, issued in 1998 to fund an acquisition, will mature in July 2005. At maturity,
we intend to use internal cash, short-term debt capacity, or a combination thereof, to repay the
bond. As noted above, we decided that we will repatriate almost $1.1 billion of Canadian earnings
under the repatriation provisions of the Jobs Act. Repatriation will substantially increase
liquidity in the United States, although use of the additional liquidity would be restricted by the
domestic reinvestment plan required by the Jobs Act. There will be a corresponding reduction in
liquidity at our Lafarge Canada Inc. (LCI) subsidiary. LCI may be required to borrow in order to
repatriate their earnings to the U.S. In addition, beginning on December 29, 2005, Canadian $166.4
million (approximately U.S. $138.1 million) in preferred shares issued by a Canadian subsidiary in
2000, in connection with our acquisition of the Warren Paving and Materials Group, will be
redeemable at the option of the holder. We also may be required to borrow if the holder of the
preferred shares elects to redeem these shares. We expect our significant positive Canadian cash
flows would be sufficient to repay any debt and replenish Canadian cash balances over time. 27




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CONTRACTUAL OBLIGATIONS Our summary of contractual obligations and maturities as of December 31, 2004 is as follows
(in thousands): Less thanTotal
    
    
    one year
    
    
    2-3 years
    
    
    4-5 years
    
    
    > 5 yearsLong-term debt (a)
    
    $
    832,259
    
    
    $
    356,479
    
    
    $
    12,797
    
    
    $
    201,368
    
    
    $
    261,615Redeemable preferred stock
    
    
    138,097
    
    
    
    138,097
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    266,940
    
    
    
    51,755
    
    
    
    79,721
    
    
    
    37,899
    
    
    
    97,565Purchase obligationsCapital
    
    
    48,588
    
    
    
    48,138
    
    
    
    450
    
    
    
    
    
    
    
    Noncapital
    
    
    456,887
    
    
    
    114,605
    
    
    
    77,098
    
    
    
    60,715
    
    
    
    204,469Total
    
    $
    1,742,771
    
    
    $
    709,074
    
    
    $
    170,066
    
    
    $
    299,982
    
    
    $
    563,649
   (a)
    
    Excludes interest. The amounts set forth in the table above for noncapital purchase obligations relate primarily
to contractual purchase obligations related to gas, power, fuel and other significant raw material
commitments as well as mineral royalties. In addition, we are required to make contributions to
certain defined benefit plans. Our estimated 2005 contributions total $41.7 million. Due to
uncertainties regarding significant assumptions involved in estimating future contributions, such
as interest rate levels and the amount and timing of asset returns, we are unable to reasonably
estimate our future contributions beyond 2005. We also have a number of contracts containing
commitments or contingent obligations that are not material to our earnings. These contracts are
discrete in nature, and it is unlikely that the various contingencies within the contract would be
triggered by a common event. The future payments under these contracts are not included in the
table set forth above. We do not have any off-balance sheet arrangements that have, or are reasonably likely to have
a current or future material effect on our financial condition, liquidity or results of operations. MANAGEMENTS DISCUSSION OF SHAREHOLDERS EQUITY The Consolidated Statements of Shareholders Equity summarize the activity in each component
of shareholders equity for the three years presented. In 2004, shareholders equity increased by
$453.2 million, mainly from net income of $295.5 million, a change in the foreign currency
translation adjustment of $124.5 million (resulting from a 7 percent increase in the value of the
Canadian dollar relative to the U.S. dollar), the reduction to accumulated other comprehensive loss
for $73.2 million related to the minimum pension liability and the exercise of stock options
resulting in an increase of $47.2 million. These were partially offset by share repurchases of
$49.1 million and dividend payments, net of reinvestments, of $44.2 million. In 2003, shareholders equity increased by $500.0 million, mainly from net income of $280.6
million, a change in the foreign currency translation adjustment of $276.8 million (resulting from
a 22 percent increase in the value of the Canadian dollar relative to the U.S. dollar), and the
exercise of stock options resulting in an increase of $7.7 million. These were partially offset by
dividend payments, net of reinvestments, of $45.6 million, and an increase to accumulated other
comprehensive loss for $36.9 million related to the minimum pension liability. Common equity interests include our $1.00 par value per share Common Stock and the Lafarge
Canada Inc. exchangeable preference shares (Exchangeable Shares), which are exchangeable into our
Common Stock and have comparable voting, dividend and liquidation rights. Our Common Stock is
traded on the New York and Toronto Stock Exchanges under the ticker symbol LAF and the
Exchangeable Shares on the Toronto Stock Exchange under the ticker symbol LCI.PR.E. 28




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The following table reflects the range of high and low closing prices of Common Stock by
quarter for 2004 and 2003 as quoted on the New York Stock Exchange: Quarters Ended31-Mar
    
    
    30-Jun
    
    
    30-Sep
    
    
    31-Dec2004 Stock PricesHigh
    
    $
    43.39
    
    
    $
    45.03
    
    
    $
    47.42
    
    
    $
    51.55Low
    
    $
    39.80
    
    
    $
    40.88
    
    
    $
    41.30
    
    
    $
    47.652003 Stock PricesHigh
    
    $
    33.88
    
    
    $
    32.35
    
    
    $
    35.73
    
    
    $
    40.85Low
    
    $
    26.46
    
    
    $
    29.14
    
    
    $
    31.00
    
    
    $
    34.48
 Dividends are summarized in the following table (in thousands, except per share amounts): Years Ended December 312004
    
    
    2003
    
    
    2002Common equity dividends
    
    $
    62,596
    
    
    $
    50,963
    
    
    $
    43,815Less dividend reinvestments
    
    
    (18,440
    )
    
    
    (5,375
    )
    
    
    (4,664
    )Net cash dividend payments
    
    $
    44,156
    
    
    $
    45,588
    
    
    $
    39,151Common equity dividends per share
    
    $
    0.84
    
    
    $
    0.70
    
    
    $
    0.60
 As of the third quarter of 2004, the dividend rate was changed from 20 cents to 22 cents per
share per quarter. OTHER FACTORS AFFECTING THE COMPANY Critical Accounting Policies and Estimates Certain of our critical accounting policies require the use of judgment in their application
or require estimates of inherently uncertain matters. Although our accounting policies are in
compliance with generally accepted accounting principles, a change in the facts and circumstances
of the underlying transactions could significantly change the application of the accounting policy
and the resulting financial statement impact. Listed below are those policies that we believe are
critical and require the use of complex judgment in their application. Goodwill On January 1, 2002, we adopted the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 requires that goodwill be reviewed annually (or more frequently
if impairment indicators arise) for impairment. In our goodwill impairment test, we use a
combination of a market approach and an income approach when determining the fair value of our
reporting units. In the market approach, we compare our reporting units with similar businesses,
business ownership interests or manufacturing facilities that have been sold. In the income
approach, we estimate the discounted value of the expected future cash flows that we expect our
reporting units to generate based on our budgets and projections. Similar to our review for
impairment of long-lived assets, evaluations for impairment are significantly impacted by estimates
of future prices for our products, the evolution of expenses, economic trends in the construction
sector and other factors. Pension Plans and Other Postretirement Benefits The accounting for pension plans and other
postretirement benefits requires us to make certain assumptions that have a significant impact on
the expenses and liabilities that we record for pension plans and other postretirement benefits. The primary assumptions made to account for pension plan and other postretirement benefit
expenses and liabilities are disclosed in Note 19 Pension Plan and Other Postretirement Benefits
of the consolidated financial statements. 29




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The assumption for the expected long-term rate of investment return on pension plan assets is
based on historical performance, current and long-term outlook and the asset mix in the pension
trust funds. The discount rates reflect the rate of long-term high-grade corporate bonds. The 2004 pension plan and other postretirement benefit expenses are impacted by the year-end
2003 assumptions for the discount rate and the return rate on assets (pension plan only). If the
2003 discount rate assumption had been lowered by one percentage point, 2004 pension plan and other
postretirement benefit expenses would have increased by approximately $18.5 million. If the 2003
asset returns rate assumption had been lowered by one percentage point, 2004 pension plan expenses
would have increased by approximately $7.9 million. The pension and other postretirement accumulated benefit obligations are impacted by the 2004
discount rate. The impact of decreasing the discount rate assumption by one percentage point as of
November 30, 2004 would have been to increase the total accumulated benefit obligation as of
December 31, 2004 by approximately $148.0 million, and would have increased the additional minimum
pension liability amount by approximately $219.4 million. Impairment or Disposal of Long-Lived Assets We evaluate the recoverability of our long-lived
assets in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is
measured by comparing the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. Such evaluations for impairment are significantly impacted
by estimates of future prices for our products, capital needs, economic trends in the construction
sector and other factors. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets exceeds their fair
value. Assets to be disposed of by sale are reflected at the lower of their carrying amount or
fair value less cost to sell. We did not identify any impairment during 2004 and 2003. In November 2002, an impairment
charge was recognized in relation to the idling of the gypsum drywall plant in Wilmington,
Delaware. This resulted in a $15 million asset write-off. Environmental Remediation Liabilities When we determine that it is probable that a
reasonably estimable liability for environmental matters has been incurred, an undiscounted
estimate of the required remediation costs is recorded as a liability in the consolidated financial
statements, without offset of potential insurance recoveries. Environmental expenditures that
extend the life, increase the capacity or improve the safety or efficiency of company-owned assets
or are incurred to mitigate or prevent future environmental contamination are capitalized. Other
environmental costs are expensed when incurred. Revenue Recognition Revenue from the sale of cement, cement-related products, aggregates,
ready-mixed concrete, concrete products, asphalt and gypsum drywall is recorded when title and
ownership are transferred upon delivery of the products. Revenue from waste recovery and disposal
is recognized when the material is received, tested and accepted. Revenue from road construction
contracts is recognized on the basis of units of work completed, while revenue from other
indivisible lump sum contracts is recognized using the cost-to-cost method to determine the
percentage-of-completion. Amounts billed to a customer in a sales transaction related to shipping
and handling are included in Net Sales, and costs incurred by us for shipping and handling are
classified as Cost of goods sold. Inflation Inflation rates in recent years have not been a significant factor in our net sales or
earnings growth. We continually attempt to offset the effect of inflation by purchasing strategies
and improving operating efficiencies, especially in the areas of productivity, energy costs, and
selling and administrative expenses. We compete with other suppliers of our products in all of our
markets. The ability to recover increasing costs by obtaining higher prices for our products
varies with the level of activity in the construction industry, the number, size and strength of
competitors and the availability of products to supply a local market. 30




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Environmental Matters Our operations, like those of our competitors, are subject to federal, state, provincial and
local environmental laws and regulations that impose liability for cleanup or remediation of
environmental pollution and hazardous waste, require pollution control and prevention measures to
be undertaken and require certain permits and approvals for us to conduct many of our operations.
As a consequence, we maintain an environmental program designed to monitor and control
environmental matters relevant to us, including changes in applicable laws and regulations as well
as instances where corrective action may be needed. We recruit, employ and train personnel
experienced in environmental matters who are responsible for identifying developments relating to
environmental matters and bringing them to managements attention, including emergency reporting
and quarterly reporting of environmental matters. We routinely audit our properties to determine
whether environmental remediation may be required, the amount of any necessary related provisions,
the status of remedial activities undertaken and whether improvements may be required to meet
current and future environmental requirements. We may capitalize environmental expenditures that extend the life, increase the capacity,
improve the safety or efficiency of assets or that are incurred to mitigate or prevent future
environmental contamination. We expense other environmental costs when incurred. Our
environmental capital expenditures and expenses were not material for the years ended December 31,
2004, 2003 and 2002 and we do not believe that the ultimate resolution of our known environmental
contingencies, for which we have recorded provisions for estimated probable liabilities, will have
a material adverse effect on our financial condition, results of operations or liquidity. However,
our environmental expenditures have increased over time and are likely to increase in the future.
Changes to existing or new environmental laws or regulations, or interpretations thereof, may
impose substantial further environmental obligations on us. Such changes may include: revised EPA
Boiler and Industrial Furnaces regulations; final residual risk or maximum achievable control
technology provisions governing air toxic emissions; cement kiln dust management standards or
programs; revised state implementation plans regarding NOx reductions; revised state
implementation plans regarding reduction of fine particulate matter particles; federal major
source permit requirements; and implementation of the Kyoto Protocol. We cannot presently
determine the effect such changes may have on us, including the nature and amount of any required
capital expenditures or other remedial actions, or on our financial condition, results of
operations or liquidity. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain commodity price, interest rate and foreign currency risks. We have
defined strict policies and procedures to measure, manage and monitor our market risk exposures.
Our policies do not permit any speculative market position. We use financial instruments only to hedge existing or anticipated financial and commercial
exposures. We undertake this hedging in the over-the-counter market with a limited number of
highly rated counter parties. Our positions in derivative financial instruments are monitored
using various techniques, including the fair value approach. Commodity Price Risk We
are subject to commodity price risk with respect to price changes principally in coal,
petroleum coke, natural gas, electricity, diesel fuel and liquid asphalt cement. We attempt to
limit our exposure to changes in commodity prices by entering into long-term contracts, increasing
our use of alternative fuels, or using commodity-based derivatives. We execute commodity-based
derivatives only for the purpose of hedging the economic exposure to commodity price changes, not
for trading or speculative purposes. By using derivative financial instruments to hedge exposures to changes in commodity prices,
we are exposed to credit risk and market risk. Credit risk is the failure of the counter party to
perform under the terms of the derivative contract. When the fair value of a derivative contract
is positive, the counter party owes us, which creates credit risk for us. When the fair value of a
derivative contract is negative, we owe the counter party and, therefore, do not have a credit
risk. We minimize the credit risk in derivative instruments by entering into transactions only
with what we believe are low credit risk counter parties. 31




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##### 



Market risk is the adverse effect on the value of a financial instrument that results from a
change in commodity prices. We manage market risk by establishing and monitoring parameters that
limit the types and degree of market risk that may be undertaken. As such, a 10 percent change in
the commodity prices for hedged items would cause a change on our December 31, 2004 consolidated
net assets and the 2004 consolidated other comprehensive income by less than $1.6 million, net of
any other impact. Such a change would have no impact on net income as our derivatives qualify as
cash flow hedges with the effective portion of the fair value change reported as a component of
Accumulated Other Comprehensive Income/(Loss). Foreign Currency Risk Translation Risk The assets, liabilities, income and expenses of our Canadian operating
entities are denominated in a foreign currency. Our financial statements are presented in U.S.
dollars. Thus, assets, liabilities, income and expenses denominated in currencies other than U.S.
dollars must be translated into U.S. dollars at the applicable exchange rate to be included in our
financial statements. If the U.S. dollar increases in value against the Canadian dollar, the value in U.S. dollars
of assets, liabilities, income and expenses originally recorded in the Canadian dollar will
decrease. Conversely, if the U.S. dollar decreases in value against the Canadian dollar, the value
in U.S. dollars of assets, liabilities, income and expenses originally recorded in Canadian dollars
will increase. Thus, increases and decreases in the value of the U.S. dollar relative to the
Canadian dollar has a direct impact on the value in U.S. dollars of our Canadian dollar-denominated
assets, liabilities, income and expenses, even if the value of these items has not changed in their
original currency. At December 31, 2004 and for the year then ended, approximately 63 percent of our consolidated
net assets and 60 percent of consolidated net income was attributable to subsidiaries that prepare
their financial statements in Canadian dollars. As such, a 10 percent change in the U.S.
dollar/Canadian dollar exchange rate would cause a change on consolidated net assets and
consolidated net income by approximately $195 million and $18 million, net of any other impact,
respectively. Transaction Risk We are subject to limited foreign currency exchange risks as a consequence
of commercial exposures related to purchase and sale transactions in currencies other than our
operating currencies. Our exposure to changes in foreign currency exchange risks related to
transactions is not material. Interest Rate Risk We are exposed to interest rate risk through our debt. We assess interest rate cash flow risk
by continually identifying and monitoring changes in interest rate exposures that may adversely
impact expected future cash flows and by evaluating hedging opportunities. In February 2004, we entered into a $200 million interest rate swap which effectively converts
our $200 million bond, maturing in July 2013, from a fixed rate coupon of 6.9 percent to a floating
rate coupon at six month LIBOR plus a fixed spread of 2.43 percent. At December 31 2004 we had no
other derivative instruments related to interest rates. Our interest rate exposure can be subdivided into the following risks: Price risk for fixed-rate financial assets and liabilities By contracting a fixed-rate
liability, for example, we are exposed to an opportunity cost in the event of a fall in interest
rates. Changes in interest rates impact the market value of fixed-rate assets and liabilities,
leaving the associated financial income or expense unchanged. At December 31, 2004 and after
giving effect to the interest rate swap noted above, 61 percent of our consolidated indebtedness
was contracted at fixed rates. Cash-flow risk for floating rate assets and liabilities Changes in interest rates have
little impact on the market value of floating-rate assets and liabilities, but directly influence
our future income or expense flows. 32




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##### 



We use variable-rate debt to finance our operations. At December 31, 2004, approximately 39
percent of our consolidated indebtedness was at variable rates, which exposes us to variability in
interest payments due to changes in interest rates. As such, a one percent change in the average
interest rate would have caused a change in 2004 consolidated net income by approximately $2.1
million, net of any other impact. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE PageFinancial Report:Report of Independent Registered Public Accounting Firm, Ernst & Young LLP
    
    
    34Consolidated Financial Statements:Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    
    35Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002
    
    
    36Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2004,
2003 and 2002
    
    
    37Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2004,
2003 and 2002
    
    
    38Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002
    
    
    39Notes to Consolidated Financial Statements
    
    
    40Financial Statement Schedule:Schedule II  Consolidated Valuation and Qualifying Accounts for the Years Ended
December 31, 2004, 2003 and 2002
    
    
    72
 All other schedules are omitted because they are not applicable. 33




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders
Lafarge North America Inc.: We have audited the accompanying consolidated balance sheets of Lafarge North America Inc. (a
Maryland corporation) and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of income, shareholders equity, comprehensive income and cash flows for
each of the three years in the period ended December 31, 2004. Our audits also included the
financial statement schedule listed in the Index at Item 15(a). These financial statements and
financial statement schedule are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit 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. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Lafarge North America Inc. and subsidiaries at
December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 2004, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein. As discussed in Note 1 to the consolidated financial statements, in 2003 the Company changed
its method of accounting for asset retirement obligations. Also, as discussed in Note 19 to the
consolidated financial statements, the Company changed the date used to measure pension and other
postretirement benefit plan assets and obligations. We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Lafarge North America Inc.s internal control
over financial reporting as of December 31, 2004, based on criteria established in Internal Control
 Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 4, 2005 expressed an unqualified opinion thereon. ERNST & YOUNG LLP
 McLean, Virginia
February 4, 2005 34




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands) December 312004
    
    
    2003AssetsCash and cash equivalents
    
    $
    817,715
    
    
    $
    630,644Short-term investments
    
    
    34,310
    
    
    
    68,573Receivables, net
    
    
    642,481
    
    
    
    446,204Due from affiliates
    
    
    40,115
    
    
    
    49,187Inventories
    
    
    357,552
    
    
    
    374,144Deferred tax assets
    
    
    49,944
    
    
    
    41,576Other current assets
    
    
    28,953
    
    
    
    34,250Total current assets
    
    
    1,971,070
    
    
    
    1,644,578Property, plant and equipment, net
    
    
    2,491,843
    
    
    
    2,354,878Goodwill
    
    
    511,500
    
    
    
    503,972Other assets, net
    
    
    429,722
    
    
    
    263,236Total Assets
    
    $
    5,404,135
    
    
    $
    4,766,664Liabilities and Shareholders EquityAccounts payable and accrued liabilities
    
    $
    537,198
    
    
    $
    537,675Redeemable preferred shares
    
    
    138,097
    
    
    
    Income taxes payable
    
    
    50,761
    
    
    
    32,907Short-term borrowings and current portion of long-term debt
    
    
    356,479
    
    
    
    1,775Total current liabilities
    
    
    1,082,535
    
    
    
    572,357Long-term debt
    
    
    470,838
    
    
    
    715,391Redeemable preferred shares
    
    
    
    
    
    
    129,485Deferred income taxes
    
    
    242,434
    
    
    
    151,378Other long-term liabilities
    
    
    495,469
    
    
    
    538,411Total Liabilities
    
    
    2,291,276
    
    
    
    2,107,022Shareholders Equity:Common stock ($1.00 par value; authorized 150.0 million shares; issued
70.6 and 69.4 million shares, respectively)
    
    
    70,559
    
    
    
    69,359Exchangeable shares (no par or stated value; authorized 15.7 million
shares; issued 4.0 and 4.3 million shares, respectively)
    
    
    31,935
    
    
    
    33,577Additional paid-in capital
    
    
    756,267
    
    
    
    734,227Retained earnings
    
    
    2,114,976
    
    
    
    1,882,071Accumulated other comprehensive income/(loss):Foreign currency translation
    
    
    226,902
    
    
    
    102,394Minimum pension liability
    
    
    (89,811
    )
    
    
    (162,962
    )Derivative adjustment
    
    
    2,031
    
    
    
    976Total Shareholders Equity
    
    
    3,112,859
    
    
    
    2,659,642Total Liabilities and Shareholders Equity
    
    $
    5,404,135
    
    
    $
    4,766,664
 See the Notes to Consolidated Financial Statements. 35




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except amounts per share) Years Ended December 312004
    
    
    2003
    
    
    2002Net Sales
    
    $
    3,763,268
    
    
    $
    3,318,936
    
    
    $
    3,160,094Costs, expenses and other income:Cost of goods sold
    
    
    2,880,549
    
    
    
    2,579,262
    
    
    
    2,440,357Selling and administrative
    
    
    402,974
    
    
    
    353,056
    
    
    
    328,449Income from managed assets:Management fees and cost reimbursement
    
    
    (244,359
    )
    
    
    (206,431
    )
    
    
    (190,833
    )Direct and allocated costs and expenses
    
    
    228,048
    
    
    
    194,431
    
    
    
    178,833Other (income) expense, net
    
    
    14,014
    
    
    
    (13,100
    )
    
    
    2,419Redeemable preferred shares dividends
    
    
    8,152
    
    
    
    7,371
    
    
    
    8,368Interest expense
    
    
    48,786
    
    
    
    54,813
    
    
    
    52,391Interest income
    
    
    (16,295
    )
    
    
    (1,111
    )
    
    
    (9,720
    )Total costs, expenses and other income
    
    
    3,321,869
    
    
    
    2,968,291
    
    
    
    2,810,264Earnings from continuing operations before income taxes
    
    
    441,399
    
    
    
    350,645
    
    
    
    349,830Income taxes
    
    
    145,898
    
    
    
    133,198
    
    
    
    93,148Net income from continuing operations
    
    
    295,501
    
    
    
    217,447
    
    
    
    256,682Income from discontinued operations, net of tax
    
    
    
    
    
    
    66,324
    
    
    
    11,693Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    (3,214
    )
    
    
    Net Income
    
    $
    295,501
    
    
    $
    280,557
    
    
    $
    268,375Net income per share from continuing operations  basic
    
    $
    3.98
    
    
    $
    2.97
    
    
    $
    3.53Per share effect of discontinued operations  basic
    
    
    
    
    
    
    0.90
    
    
    
    0.16Per share cumulative effect of change in accounting principle  basic
    
    
    
    
    
    
    (0.04
    )
    
    
    Net Income Per Share-Basic
    
    $
    3.98
    
    
    $
    3.83
    
    
    $
    3.69Net income per share from continuing operations  diluted
    
    $
    3.86
    
    
    $
    2.93
    
    
    $
    3.48Per share effect of discontinued operations  diluted
    
    
    
    
    
    
    0.90
    
    
    
    0.16Per share cumulative effect of change in accounting principle  diluted
    
    
    
    
    
    
    (0.04
    )
    
    
    Net Income Per Share-Diluted
    
    $
    3.86
    
    
    $
    3.79
    
    
    $
    3.64Dividends Per Share
    
    $
    0.84
    
    
    $
    0.70
    
    
    $
    0.60
 See the Notes to Consolidated Financial Statements. 36




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands) 2004
    
    
    2003
    
    
    2002Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    SharesCommon StockBalance at January 1
    
    $
    69,359
    
    
    
    69,359
    
    
    $
    68,885
    
    
    
    68,885
    
    
    $
    67,890
    
    
    
    67,890Share repurchases
    
    
    (1,053
    )
    
    
    (1,053
    )
    
    
    (28
    )
    
    
    (28
    )
    
    
    
    
    
    
    Issuance of shares for:Dividend reinvestment plans
    
    
    412
    
    
    
    412
    
    
    
    164
    
    
    
    164
    
    
    
    121
    
    
    
    121Employee stock purchase plan
    
    
    79
    
    
    
    79
    
    
    
    82
    
    
    
    82
    
    
    
    55
    
    
    
    55Conversion of exchangeable shares
    
    
    339
    
    
    
    339
    
    
    
    
    
    
    
    
    

    
    
    56
    
    
    
    56Exercise of stock options
    
    
    1,423
    
    
    
    1,423
    
    
    
    256
    
    
    
    256
    
    
    
    763
    
    
    
    763Balance at December 31
    
    
    70,559
    
    
    
    70,559
    
    
    
    69,359
    
    
    
    69,359
    
    
    
    68,885
    
    
    
    68,885Exchangeable SharesBalance at January 1
    
    
    33,577
    
    
    
    4,294
    
    
    
    32,909
    
    
    
    4,228
    
    
    
    32,640
    
    
    
    4,234Issuance of shares for:Dividend reinvestment plan
    
    
    280
    
    
    
    8
    
    
    
    264
    
    
    
    8
    
    
    
    378
    
    
    
    10Employee stock purchase plan
    
    
    448
    
    
    
    64
    
    
    
    404
    
    
    
    58
    
    
    
    282
    
    
    
    40Conversion of exchangeable shares
    
    
    (2,370
    )
    
    
    (339
    )
    
    
    
    
    
    
    
    
    
    
    (391
    )
    
    
    (56
    )Balance at December 31
    
    
    31,935
    
    
    
    4,027
    
    
    
    33,577
    
    
    
    4,294
    
    
    
    32,909
    
    
    
    4,228Additional Paid-In CapitalBalance at January 1
    
    
    734,227
    
    
    
    
    
    
    
    719,084
    
    
    
    
    
    
    
    684,435Share repurchases
    
    
    (48,080
    )
    
    
    
    
    
    
    (839
    )
    
    
    
    
    
    
    Issuance of shares for:Dividend reinvestment plans
    
    
    17,748
    
    
    
    
    
    
    
    4,946
    
    
    
    
    
    
    
    4,165Employee stock purchase plan
    
    
    4,519
    
    
    
    
    
    
    
    3,606
    
    
    
    
    
    
    
    4,159Conversion of exchangeable shares
    
    
    2,031
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    335Exercise of stock options
    
    
    45,822
    
    
    
    
    
    
    
    7,430
    
    
    
    
    
    
    
    25,990Balance at December 31
    
    
    756,267
    
    
    
    
    
    
    
    734,227
    
    
    
    
    
    
    
    719,084Retained EarningsBalance at January 1
    
    
    1,882,071
    
    
    
    
    
    
    
    1,652,477
    
    
    
    
    
    
    
    1,427,917Net income
    
    
    295,501
    
    
    
    
    
    
    
    280,557
    
    
    
    
    
    
    
    268,375Dividends  common equity interests
    
    
    (62,596
    )
    
    
    
    
    
    
    (50,963
    )
    
    
    
    
    
    
    (43,815
    )Balance at December 31
    
    
    2,114,976
    
    
    
    
    
    
    
    1,882,071
    
    
    
    
    
    
    
    1,652,477Accumulated Other ComprehensiveIncome/ (Loss)Balance at January 1
    
    
    (59,592
    )
    
    
    
    
    
    
    (313,704
    )
    
    
    
    
    
    
    (215,821
    )Foreign currency translation adjustments
    
    
    124,508
    
    
    
    
    
    
    
    291,350
    
    
    
    
    
    
    
    13,652Minimum pension liability
adjustment, net of income taxes
    
    
    73,151
    
    
    
    
    
    
    
    (36,874
    )
    
    
    
    
    
    
    (112,875
    )Derivative adjustment, net of
income taxes
    
    
    1,055
    
    
    
    
    
    
    
    (364
    )
    
    
    
    
    
    
    1,340Balance at December 31
    
    
    139,122
    
    
    
    
    
    
    
    (59,592
    )
    
    
    
    
    
    
    (313,704
    )Total Shareholders Equity
    
    $
    3,112,859
    
    
    
    
    
    
    $
    2,659,642
    
    
    
    
    
    
    $
    2,159,651
 See the Notes to Consolidated Financial Statements 37




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands) Years Ended December 312004
    
    
    2003
    
    
    2002Net Income
    
    $
    295,501
    
    
    $
    280,557
    
    
    $
    268,375Foreign currency translation adjustments
    
    
    124,508
    
    
    
    291,350
    
    
    
    13,652Minimum pension liability adjustment, net of income taxes
of $38,182, $(16,350) and $(71,192), respectively
    
    
    73,151
    
    
    
    (36,874
    )
    
    
    (112,875
    )Derivative adjustment, net of income taxes
of $576, $(191) and $705, respectively
    
    
    1,055
    
    
    
    (364
    )
    
    
    1,340Comprehensive Income
    
    $
    494,215
    
    
    $
    534,669
    
    
    $
    170,492
 See the Notes to Consolidated Financial Statements. 38




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Years Ended December 312004
    
    
    2003
    
    
    2002Cash Flows from OperationsNet income
    
    $
    295,501
    
    
    $
    280,557
    
    
    $
    268,375Adjustments to reconcile net income to net cash provided by
operations:Depreciation, depletion and amortization
    
    
    211,300
    
    
    
    192,819
    
    
    
    182,154Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    3,214
    
    
    
    Provision for bad debts
    
    
    3,708
    
    
    
    2,106
    
    
    
    2,921Deferred income taxes
    
    
    33,835
    
    
    
    22,921
    
    
    
    9,947Gain on sale of assets
    
    
    (8,050
    )
    
    
    (38,800
    )
    
    
    (35,181
    )Gain on sale of discontinued operations
    
    
    
    
    
    
    (93,126
    )
    
    
    Tax on sale of discontinued operations
    
    
    
    
    
    
    37,899
    
    
    
    Net change in noncurrent assets and liabilities
    
    
    (61,004
    )
    
    
    (5,515
    )
    
    
    34,723Net change in operating working capital (see Analysis below)*
    
    
    (144,193
    )
    
    
    4,328
    
    
    
    (39,087
    )Net Cash Provided by Operations
    
    
    331,097
    
    
    
    406,403
    
    
    
    423,852Cash Flows from InvestingCapital expenditures
    
    
    (350,304
    )
    
    
    (173,918
    )
    
    
    (247,873
    )Acquisitions, net of cash acquired
    
    
    (9,079
    )
    
    
    (16,701
    )
    
    
    (31,566
    )Redemptions (purchases) of short-term investments, net
    
    
    34,263
    
    
    
    (46,313
    )
    
    
    1,004Proceeds from asset dispositions
    
    
    66,600
    
    
    
    71,210
    
    
    
    76,993Proceeds received from sale of discontinued operations
    
    
    
    
    
    
    123,891
    
    
    
    Income tax payments on gain from sale of discontinued operations
    
    
    
    
    
    
    (37,899
    )
    
    
    Other
    
    
    266
    
    
    
    (3,792
    )
    
    
    10,221Net Cash Used for Investing
    
    
    (258,254
    )
    
    
    (83,522
    )
    
    
    (191,221
    )Cash Flows from FinancingIssuance (repayment) of long-term debt
    
    
    110
    
    
    
    39,563
    
    
    
    (12,491
    )Issuance (repayment) of short-term borrowings, net
    
    
    104,366
    
    
    
    (131,079
    )
    
    
    (65,404
    )Issuance of equity securities
    
    
    52,293
    
    
    
    11,777
    
    
    
    31,249Repurchase of common stock
    
    
    (49,133
    )
    
    
    (867
    )
    
    
    Dividends, net of reinvestments
    
    
    (44,156
    )
    
    
    (45,588
    )
    
    
    (39,151
    )Net Cash Provided (Used) for Financing
    
    
    63,480
    
    
    
    (126,194
    )
    
    
    (85,797
    )Effect of exchange rate changes
    
    
    50,748
    
    
    
    82,847
    
    
    
    1,830Net Increase in Cash and Cash Equivalents
    
    
    187,071
    
    
    
    279,534
    
    
    
    148,664Cash and Cash Equivalents at January 1
    
    
    630,644
    
    
    
    351,110
    
    
    
    202,446Cash and Cash Equivalents at December 31
    
    $
    817,715
    
    
    $
    630,644
    
    
    $
    351,110*Analysis of Changes in Operating Working Capital ItemsReceivables, net (including Due from affiliates)
    
    $
    (159,931
    )
    
    $
    (59,131
    )
    
    $
    84,359Inventories
    
    
    15,343
    
    
    
    24,836
    
    
    
    (21,770
    )Other current assets
    
    
    6,075
    
    
    
    2,608
    
    
    
    17,440Accounts payable and accrued liabilities
    
    
    (21,812
    )
    
    
    14,713
    
    
    
    (68,139
    )Income taxes payable
    
    
    16,132
    
    
    
    21,302
    
    
    
    (50,977
    )Net Change in Operating Working Capital
    
    $
    (144,193
    )
    
    $
    4,328
    
    
    $
    (39,087
    )
 See the Notes to Consolidated Financial Statements. 39




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Lafarge North America Inc., together with its subsidiaries, is the largest diversified
supplier of construction materials in the U.S. and Canada. We produce and sell cement, ready-mixed
concrete, gypsum wallboard, aggregates, asphalt, and related products and services. Our products
are used in residential, commercial and public works construction projects across North America.
Our business is organized into three operating segments: Aggregates, Concrete & Asphalt; Cement;
and Gypsum. Each represents a separately managed strategic business unit with different capital
requirements and marketing strategies. For information regarding our operating segments and
products, see Note 17 Segment and Related Information herein. Lafarge operates in the U.S. and throughout Canada, where we operate through a major
subsidiary, Lafarge Canada Inc. (LCI). The primary U.S. markets are in the northeast, midsouth,
midwest, northcentral, mountain and northwest areas. Our wholly-owned subsidiary, Systech
Environmental Corporation, supplies cement plants with fuel quality waste as a source of energy.
Lafarge S.A., a French corporation, and certain of its affiliates (Lafarge S.A.) own a majority
of the voting securities of Lafarge, including our outstanding common stock, par value $1.00 per
share (the Common Stock), and LCIs exchangeable preference shares (the Exchangeable Shares). We are party to an agreement with Lafarge S.A. to manage and operate certain U.S. cement,
aggregates and concrete businesses owned by them as a result of their 2001 acquisition of
U.K.-based Blue Circle Industries PLC (the Blue Circle Asset Management Agreement). For managing
these businesses we receive $12 million annually plus potential incentives for improving their
operating results. As of December 31, 2004, these businesses include 5 full production cement
manufacturing plants, 15 cement terminals, 1 slag grinding facility, 15 aggregate-producing pits
and quarries, 100 ready-mixed concrete plants and 10 concrete block plants which we manage in
conjunction with our own to maximize the efficiency of our respective operations. We are
reimbursed our direct costs and expenses for managing these
businesses, as well as for the selling,
general and administrative costs allocated to them. We are also reimbursed for payroll and other
related costs and expenses we incur associated with the employees who operate the managed assets.
If our agreement with Lafarge S.A. to manage these businesses terminates, these employees are to be
returned to the employment of the Blue Circle entities and we are to be reimbursed for any cost,
expense or financial consequence arising from the structural separation of our respective
operations. Unless terminated at least six months in advance, our agreement to manage these assets
renews annually. Our option to acquire these assets from Lafarge S.A. expired unexercised on
December 31, 2004. Note 1 Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Lafarge and all of its wholly
and majority-owned subsidiaries, after the elimination of intercompany balances and transactions.
Investments in affiliates in which we have less than a majority ownership, or where we cannot
exercise operating control, are accounted for by the equity method and included in Other assets,
net in the Consolidated Balance Sheets. As used in these Notes to Consolidated Financial
Statements, the terms Lafarge, company, we, us, our and similar terms refer to Lafarge
North America Inc. and its subsidiaries. Certain reclassifications have been made to prior years
to conform to the 2004 presentation. Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses. Actual
results may differ from these estimates. Foreign Currency Translation Lafarge uses the U.S. dollar as our functional currency for operations in the U.S. and the
Canadian dollar for LCI. The assets and liabilities of LCI are translated at the exchange rate
prevailing at the balance sheet date. Related revenue and expense accounts for LCI are translated
using the average exchange rate during the year. Cumulative foreign 40




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) currency translation adjustments of $226.9 million and $102.4 million at December 31, 2004 and
2003, respectively, are included in Accumulated other comprehensive income/(loss) in the
Consolidated Balance Sheets and in the Consolidated Statements of Shareholders Equity. Cash Equivalents and Short-term Investments Cash equivalents and short-term investments consist of liquid investments including commercial
paper and bank time deposits. Investments purchased with an original maturity of three months or
less are classified as cash equivalents. Investments purchased with an original maturity between
three months and one year are classified as short-term investments. Investments underlying our
cash equivalents and short-term investments are classified as available-for-sale in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Such investments are carried at amortized cost, which
approximates fair value due to their short period of time to maturity. Derivative Instruments and Hedging Activities We apply the provisions of SFAS No. 133, Accounting for Derivative Instruments and Certain
Hedging Activities as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an Amendment of SFAS 133. SFAS No. 133, as amended, requires that all
derivative instruments be recorded on the balance sheet at their respective fair values. To the extent possible, we will elect to apply the normal purchases or sales exception in
accordance with SFAS No. 133. Normal purchases or sales contracts are contracts that provide for
the purchase or sale of something other than a financial instrument or derivative instrument that
will be delivered in quantities expected to be used or sold by us over a reasonable period in the
normal course of business. Often this exception will apply to purchases of commodities used in our
production process that would otherwise be considered derivative instruments. When applied, this
exception allows us to not recognize these derivatives on the balance sheet at their fair value. When the normal purchases or sales exception is not applied, the derivatives are recognized on
the balance sheet at their fair value. We may execute derivatives for purposes of hedging various
commodity price and financial exposures. For those derivatives that qualify for hedge accounting,
on the date the derivative contract is entered into, we designate the derivative and document the
hedge relationship as either a fair value or cash flow hedge in accordance with the requirements of
SFAS No. 133. We formally document all relationships between hedging instruments and hedged items,
as well as its risk-management objective and strategy for undertaking various hedge transactions.
This process includes linking all derivatives that are designated as fair value, cash flow or
foreign currency hedges to specific assets and liabilities on the balance sheet or to specific firm
commitments or forecasted transactions. We also formally assess, both at the hedge inception and
on an ongoing basis, whether the derivatives that are used in hedging transactions are highly
effective (as defined by SFAS No. 133) in offsetting changes in fair values or cash flows of hedged
items. When it is determined that a derivative is not highly effective as a hedge or that it has
ceased to be a highly effective hedge, we discontinue hedge accounting prospectively. Classification of a change in a derivatives fair value is determined by whether the
derivative is designated in a qualifying hedge relationship. For a derivative in a qualifying cash
flow hedge, the effective portion of the derivatives fair value change is reported as a component
of Accumulated other comprehensive income/(loss) in the Consolidated Balance Sheets and in the
Consolidated Statements of Shareholders Equity. For a derivative in a qualifying fair value
hedge, effective changes in the fair value are reported in the Consolidated Statements of Income,
along with changes in the value of the hedged item for the risk being hedged. In both fair value
and cash flow hedge relationships, any hedge ineffectiveness is reported as a component of Other
(income) expense, net in the current periods Consolidated Statement of Income. 41




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LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Concentration of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk are
primarily cash equivalents, short-term investments, receivables and derivatives. We place our cash
equivalents and short-term investments primarily in investment grade, short-term debt instruments.
We perform ongoing credit evaluations of our customers financial condition and generally require
no collateral from our customers. The allowances for non-collection of receivables are based upon
analysis of economic trends in the construction industry, detailed analysis of the expected
collectibility of accounts receivable that are past due and the expected collectibility of overall
receivables. Inventories Inventories are valued at the lower of cost or market. The majority of our U.S. cement
inventories, other than maintenance and operating supplies, are stated at last-in, first-out
(LIFO) cost and all other inventories are valued at average cost. Property, Plant and Equipment Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation
of property, plant and equipment is computed for financial reporting purposes using the
straight-line method over the estimated useful lives of the assets. These lives range from three
years on light mobile equipment to 40 years on certain buildings. Land and mineral deposits include
depletable raw material reserves with depletion recorded using the units-of-production method based
upon proven and probable reserves. Repair and maintenance costs are expensed as incurred. Goodwill and Intangible Assets On January 1, 2002, we fully adopted the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 requires that goodwill and intangible assets with indefinite
lives be reviewed annually (or more frequently if impairment indicators arise) for impairment.
Intangible assets that are deemed to have definite lives are amortized over their useful lives.
The weighted average useful life for each category of intangible assets is as follows: capitalized
software  5 years; customer lists  10.3 years; and non-compete contracts  6.7 years. Impairment or Disposal of Long-Lived Assets We evaluate the recoverability of our long-lived assets in accordance with the provisions of
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144
requires that long-lived assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. Such evaluations for
impairment are significantly impacted by estimates of future prices for our products, capital
needs, economic trends in the construction sector and other factors. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds their fair value. Assets to be disposed of by sale are reflected at
the lower of their carrying amount or fair value less cost to sell. On
November 22, 2002, we ceased manufacturing operations at our gypsum drywall plant in
Wilmington, Delaware. The customer base continues to be served predominantly from newer, more
efficient plants in the Eastern U.S. In connection with this announcement in 2002, we recorded as
a component of Other (income) expense, net a pretax charge to earnings of approximately $26
million, which included $15 million for the write-off and impairment of assets in accordance with
SFAS No. 144, and, in accordance with EITF 94-3 Liability Recognition for Costs to Exit an
Activity, approximately $2.6 million for the termination of approximately 100 hourly and salaried
employees and approximately $8.4 million for costs to retire the property. The fair value of
impaired assets was determined using the expected net realizable value. As of December 31, 2004,
2003 and 2002, cumulative payments of approximately $9.9 million, $4.7 million and $1.0 million,
respectively, had been made against the liability of $11 million. The remaining liability as of
December 31, 2004 is $1.1 million. 42




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) No other impairments were recorded for the years ended December 31, 2004, 2003 and 2002. Asset Retirement Obligations SFAS No. 143, Accounting for Asset Retirement Obligations addresses financial accounting and
reporting for legal obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. We adopted SFAS No. 143 on January 1, 2003. SFAS No. 143s
primary impact on us relates to our accounting for quarry reclamation obligations. Previously, we
provided for the estimated quarry reclamation obligation over the life of the quarry based on the
units of production. A pre-tax charge of $4.8 million was recognized as of January 1, 2003, as the
cumulative effect of the change in accounting principle for the adoption of SFAS No. 143. Environmental Remediation Liabilities When we determine that it is probable that a liability for environmental matters has been
incurred, an undiscounted estimate of the required remediation costs is recorded as a liability in
the consolidated financial statements, without offset of potential insurance recoveries. Costs
that extend the life, increase the capacity or improve the safety or efficiency of company-owned
assets or are incurred to mitigate or prevent future environmental contamination are capitalized.
Other environmental costs are expensed when incurred. Postretirement and Postemployment Benefits We accrue the expected cost of retiree pension, health care and life insurance benefits and
charge it to expense during the years that the employees render service. In addition, we accrue for benefits provided to former or inactive employees after employment
but before retirement when it becomes probable that such benefits will be paid and when sufficient
information exists to make reasonable estimates of the amounts to be paid. Revenue Recognition Revenue from the sale of cement, cement-related products, aggregates, ready-mixed concrete,
concrete products, asphalt and gypsum drywall is recorded when title and ownership are transferred
upon delivery of the products. Revenue from waste recovery and disposal is recognized when the
material is received, tested and accepted. Revenue from road construction contracts is recognized
on the basis of units of work completed, while revenue from other indivisible lump sum contracts is
recognized using the cost-to-cost method to determine the percentage-of-completion. Amounts billed
to a customer in a sales transaction related to shipping and handling are included in Net Sales,
and costs incurred for shipping and handling are classified as Cost of goods sold in the
Consolidated Statements of Income. Research and Development We are committed to improving our manufacturing process, maintaining product quality and
meeting existing and future customer needs. These objectives are pursued through various programs.
Research and development costs, which are charged to expense as incurred, were $4.1 million, $5.1
million and $5.1 million for 2004, 2003 and 2002, respectively. 43




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Other (Income) Expense, Net Other (income) expense, net consists of the following (in millions): Years Ended December 312004
    
    
    2003
    
    
    2002Gain on sale of fixed assets
    
    $
    (11.0
    )
    
    $
    (12.2
    )
    
    $
    (7.8
    )Loss (gain) on divestitures
    
    
    1.2
    
    
    
    (28.8
    )
    
    
    (30.8
    )Loss on the sale of receivables under our securitization program
    
    
    1.8
    
    
    
    2.3
    
    
    
    3.4Gain on natural gas commodity contracts
    
    
    
    
    
    
    
    
    
    
    (8.1
    )Pension and other postretirement benefits expense
    
    
    9.5
    
    
    
    10.2
    
    
    
    15.2Equity income
    
    
    (1.7
    )
    
    
    (2.5
    )
    
    
    (0.3
    )Foreign exchange transaction losses
    
    
    2.1
    
    
    
    11.0
    
    
    
    0.9Loss on idling of Wilmington plant
    
    
    
    
    
    
    
    
    
    
    26.0Other miscellaneous expenses
    
    
    12.1
    
    
    
    6.9
    
    
    
    3.9Total other (income) expense, net
    
    $
    14.0
    
    
    $
    (13.1
    )
    
    $
    2.4
 Interest We capitalize interest costs incurred during the construction of new facilities as an element
of construction in progress and amortize such costs over the assets estimated useful lives.
Interest of $1.4 million, zero and $4.2 million was capitalized in 2004, 2003 and 2002,
respectively. Income Taxes Income taxes are accounted for under the asset and liability method. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. This method also requires the
recognition of future tax benefits such as net operating loss carryforwards, to the extent that
realization of such benefits is more likely than not. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. Net Income Per Share The calculation of basic net income per share is based on the weighted average number of
shares of Common Stock and Exchangeable Shares outstanding in each period. The basic weighted
average number of shares was (in thousands) 74,316, 73,304 and 72,824 in 2004, 2003 and 2002,
respectively. The weighted average number of shares and share equivalents outstanding, assuming dilution
from the exercise of stock options and stock warrant using the treasury stock method, was (in
thousands) 76,653, 74,014 and 73,814 in 2004, 2003 and 2002, respectively. Accounting for Stock-Based Compensation We account for employee stock options using the method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and the
associated interpretations using the intrinsic method. Generally, no expense is recognized related
to our stock options because the options exercise price is set at the stocks fair market value on
the date the option is granted. 44




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) As of December 31, 2002, we adopted the disclosure requirements of SFAS 148 Accounting for
Stock-Based Compensation  Transition and Disclosure. For disclosure purposes under SFAS No. 123, Accounting for Stock-Based Compensation,
employee stock options are valued at the grant date using the Black-Scholes option-pricing model
and compensation expense is recognized on a straight-line basis over the vesting period for the
entire award. The weighted average assumptions used in the Black-Scholes model to value the option
awards in 2004, 2003, and 2002, respectively, are as follows: dividend yield of 1.9 percent, 2.0
percent, and 1.5 percent; expected volatility of 32.0 percent, 34.0 percent, and 38.0 percent;
risk-free interest rates of 4.1 percent, 3.6 percent, and 4.9 percent; and expected lives of 5.1
years, 5.1 years, and 5.4 years. If we had recognized compensation expense for the fixed stock option plan based on the fair
value at the grant dates for awards, pro forma income statements for 2004, 2003 and 2002 would be
as follows (in thousands, except per share amounts): Years Ended December 312004
    
    
    2003
    
    
    2002Net IncomeAs reported
    
    $
    295,501
    
    

    $
    280,557
    
    
    $
    268,375Deduct fair value of stock-based employee compensation, net of tax
    
    
    (9,437
    )
    
    
    (7,459
    )
    
    
    (8,288
    )Pro forma
    
    $
    286,064
    
    
    $
    273,098
    
    
    $
    260,087Basic Net Income Per ShareAs reported
    
    $
    3.98
    
    
    $
    3.83
    
    
    $
    3.69Pro forma
    
    $
    3.85
    
    
    $
    3.73
    
    
    $
    3.57Diluted Net Income Per ShareAs reported
    
    $
    3.86

    
    
    $
    3.79
    
    
    $
    3.64Pro forma
    
    $
    3.73
    
    
    $
    3.69
    
    
    $
    3.52
 Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (the FASB) issued SFAS No. 123
(revised 2004), Share-Based Payment (SFAS No. 123(R)), which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash
Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS
No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income statement based on their fair values. Pro
forma disclosure is no longer an alternative. We expect to adopt SFAS No. 123(R) on July 1, 2005. We also expect to adopt its requirements
using the modified prospective method described in SFAS No. 123(R). Under this method,
compensation cost is recognized beginning with the effective date (a) based on the requirements of
SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the
requirements of Statement No. 123 for all awards granted to employees prior to the effective date
of Statement No. 123(R) that remain unvested on the effective date. The impact of adoption of Statement No. 123(R) cannot be predicted at this time because it
will depend on levels of share-based payments granted in the future. However, had we adopted SFAS
No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS
No. 123 as described in the disclosure of pro forma net income and income per share above. 45




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LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) In December 2004, the FASB issued FASB Staff Position No. 109-2, Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of
2004 (FSP 109-2), which provides guidance under SFAS No. 109, Accounting for Income Taxes,
with respect to recording the potential impact of the repatriation provisions of the American Jobs
Creation Act of 2004 (the Jobs Act) on enterprises income tax expense and deferred tax
liability. The Jobs Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise is
allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs
Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS
No. 109. We decided to repatriate the Canadian earnings subsequent to December 31, 2004.
Accordingly, as provided for in FSP 109-2, we did not adjust our 2004 tax expense or deferred tax
liability to reflect the repatriation provisions of the Jobs Act. As required by FSP 109-2, we
have disclosed the amount of unremitted earnings we will repatriate in 2005 and have disclosed pro
forma financial data for the effect of the repatriation. See Note 16 Income Taxes for more
information. In November 2004, the FASB issued SFAS No. 151, Inventory Costs an amendment of ARB No. 43,
Chapter 4. SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight,
handling costs, and wasted materials (spoilage) should be recognized as current-period charges and
requires the allocation of fixed production overheads to inventory based on the normal capacity of
the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15,
2005. We do not expect the adoption of SFAS No. 151 to have a material effect on our consolidated
financial position or results of operations. In May 2004, the FASB issued FASB Staff Position No. 106-2 (FSP 106-2), Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (the Medicare Act). The Medicare Act introduces a prescription drug benefit under
Medicare (Medicare Part D) as well as a federal subsidy to sponsors of postretirement health care
benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D.
FSP 106-2 provides authoritative guidance on the accounting for the federal subsidy and specifies
the disclosure requirements for employers who have adopted FSP 106-2. FSP 106-2 superseded FSP
106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003, which was issued in January 2004 and permitted a
sponsor of a postretirement health care plan that provides a prescription drug benefit to make a
one-time election to defer accounting for the effects of the Medicare Act until more authoritative
guidance on the accounting for the federal subsidy was issued. We elected the one-time deferral
allowed under FSP 106-1. We adopted FSP 106-2 effective July 1, 2004. See Note 19 Pension Plans
and Other Postretirement Benefits for information regarding the impact of adoption. In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). Under FIN 46, a variable interest entity (VIE) is an entity in
which the equity investment holders have not contributed sufficient capital to finance its
activities or the equity investment holders lack adequate decision making ability. FIN 46 requires
consolidation of a VIE by the enterprise that has the majority of the risks and rewards of
ownership, referred to as the primary beneficiary. In December 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable
Interest Entities (revised December 2003) (FIN 46(R)), clarifying FIN 46 and exempting certain
entities from the provisions of FIN 46. Generally, application of FIN 46(R) is required in
financial statements of public entities that have interests in structures commonly referred to as
special-purpose entities for periods ending after December 15, 2003, and, for other types of VIEs,
for periods ending after March 15, 2004. The adoption of FIN 46 and FIN 46(R) did not have a
material impact on our consolidated financial position or results of operations. Discontinued Operations In August 2003, we sold Lafarge Florida Inc. to Florida Rock Industries, Inc. The assets and
operations of Lafarge Florida Inc. were classified within our cement segment. The sale price of
approximately $123.9 million resulted in a pretax gain of approximately $93.1 million which is
included in Income from discontinued operations, net of tax in the consolidated statement of
income for the year ended December 31, 2003. 46




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, we have reclassified the results of operations and the assets and liabilities of Lafarge
Florida Inc. as discontinued operations for the years ended December 31, 2003 and 2002. As the
sale of Lafarge Florida Inc. closed on August 12, 2003, there are no assets or liabilities of
discontinued operations as of December 31, 2004 or 2003. Net sales and earnings before income tax from our discontinued Florida cement operations are
as follows (in thousands): Years Ended December 312003
    
    
    2002Net sales
    
    $
    60,625
    
    
    $
    91,461Earnings before income tax (including a divestiture gain of $93,126 in 2003)
    
    $
    106,486
    
    
    $
    19,327
 Included in earnings before income tax are allocated interest expenses of $100,000 on a
quarterly basis ($400,000 annually), based upon the book value of the net assets sold. Income taxes
associated with discontinued operations were $40.2 million and $7.6 million for the years ended
December 31, 2003 and 2002, respectively. Acquisitions, Dispositions and Significant Capital Developments On July 3, 2003, we sold our Detroit cement terminal and received $38.0 million in cash plus
land with a fair market value of $0.2 million. The resulting divestment gain of $31.2 million is
included in Other (income) expense, net in the Consolidated Statements of Income. The Detroit
terminal had a carrying value of $3.8 million. On January 28, 2002, we acquired the assets of Continental Gypsum, an independent drywall
manufacturer with annual capacity of more than 300 million square feet of 1/2-inch drywall, for $28.1
million. Based in Newark, New Jersey, Continental Gypsum complements our existing position in the
New York City area, the single largest metropolitan drywall market in the world. In April 2002, we divested non-strategic concrete paving stones and walls products business in
Canada for approximately $43 million plus working capital, resulting in a divestment gain of $26.9
million. Note 2   Receivables Receivables consist of the following (in thousands): December 312004
    
    
    2003Trade and notes receivable
    
    $
    575,246
    
    
    $
    296,906Subordinated interest in receivables
    
    
    
    
    
    
    96,329Unbilled receivables
    
    
    33,237
    
    
    
    34,893Retainage on long-term contracts
    
    
    42,712
    
    
    
    32,197Other receivables
    
    
    20,242
    
    
    
    17,151Allowances
    
    
    (28,956
    )
    
    
    (31,272
    )Total receivables, net
    
    $
    642,481
    
    
    $
    446,204
 We have a receivables securitization program to provide a cost-effective source of working
capital and short-term financing. Under the program, we agree to sell, on a revolving basis,
certain of our accounts receivable to a wholly-owned, special purpose subsidiary (the SPS). The
SPS in turn enters into an agreement to transfer, on a revolving
basis, an undivided percentage ownership interest in a designated pool of accounts receivable
to unrelated third-party purchasers, through the use of a qualified special purpose entity, up to a
maximum of $200 million. Under the agreements, new receivables are added to the pool as
collections reduce previously sold receivables. We service, administer and collect the receivables
sold. 47




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Under the terms of our securitization arrangement, we do not maintain control over the assets
sold and there is no entitlement nor obligation to repurchase the sold receivables. In accordance
with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, a replacement of FASB Statement No. 125, the receivables securitization
transactions have been accounted for as sales and, as a result, the related receivables and debt
have been excluded from the accompanying Consolidated Balance Sheets. The related fees and discounting expense are recorded as Other (income) expense, net in the
accompanying Consolidated Statements of Income. The SPS holds a subordinated retained interest in
the receivables not sold to third parties. The subordinated interest in receivables is recorded at
fair value, which is determined based on the present value of future expected cash flows estimated
using managements best estimates of credit losses and discount rates commensurate with the risks
involved. Due to the short-term nature of those trade receivables, their carrying amount, less
allowances, approximates fair value. Variations in the credit and discount assumptions would not
significantly impact fair value. Key figures related to the securitization program are as follows
(in millions): Years Ended December 312004
    
    
    2003Proceeds from the sale of trade receivables
    
    $
    1,057.5
    
    
    $
    1,545.0Fees and discounting expense
    
    $
    1.8
    
    
    $
    2.3
 December 312004
    
    
    2003Outstanding receivables sold under arrangement
    
    $
    
    
    
    $
    82.0Subordinated interest
    
    $
    
    
    
    $
    96.3
 The amount available to us under our receivables securitization program is determined in the
middle of each month based on our actual receivables outstanding as of the prior month end.
Periodically, the amount we may borrow under the terms of the program falls below the amount
borrowed for the prior month. In such cases, we reflect amounts we have borrowed in excess of
amounts available at month end as a payable on our balance sheet. As of December 31, 2004 and 2003,
we have amounts payable under this arrangement of zero and $54.2 million, respectively. Note 3   Inventories Inventories consist of the following (in thousands): December 312004
    
    
    2003Finished products
    
    $
    205,624
    
    
    $
    213,775Work in process
    
    
    27,363
    
    
    
    29,516Raw materials and fuel
    
    
    54,105
    
    
    
    60,521Maintenance and operating supplies
    
    
    70,460
    
    
    
    70,332Total inventories
    
    $
    357,552
    
    
    $
    374,144
 Included in the finished products, work in process and raw materials and fuel categories are
inventories valued using the LIFO method of $67.9 million and $64.3 million at December 31, 2004
and 2003, respectively. The value of inventory calculated by the LIFO method approximates the
value using the average cost method. 48




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Note 4   Property, Plant and Equipment Property, plant and equipment consist of the following (in thousands): December 312004
    
    
    2003Land and mineral deposits
    
    $
    619,083
    
    
    $
    609,228Buildings, machinery and equipment
    
    
    3,916,559
    
    
    
    3,660,084Construction in progress
    
    
    161,139
    
    
    
    137,375Property, plant and equipment, at cost
    
    
    4,696,781
    
    
    
    4,406,687Accumulated depreciation and depletion
    
    
    (2,204,938
    )
    
    
    (2,051,809
    )Total property, plant and equipment, net
    
    $
    2,491,843
    
    
    $
    2,354,878
 Depreciation and depletion expenses for the years 2004, 2003 and 2002 were $205.2 million,
$184.9 million, and $178.1 million, respectively. On July 1, 2002, we changed, on a prospective
basis, the estimated useful lives of the companys cement assets, which reduced depreciation
expense by approximately $8.5 million for 2002 ($17.0 million on an annual basis). The effect on
2002 net income (after tax) was approximately $5.6 million or $0.08 per share. Note 5   Goodwill The changes in the carrying value of goodwill for the years ended December 31, 2004 and 2003,
are as follows (in thousands): Aggregates,Concrete and
    
    
    
    
    
    
    
    
    
    
    CorporateAsphalt
    
    
    Cement
    
    
    Gypsum
    
    
    andSegment
    
    
    Segment
    
    
    Segment
    
    
    Unallocated
    
    
    TotalBalance at January 1, 2004
    
    $
    484,243
    
    
    $
    12,350
    
    
    $
    19,843
    
    
    $
    (12,464
    )
    
    $
    503,972Goodwill acquired (divested)
    
    
    (1,182
    )
    
    
    
    
    
    
    
    
    
    
    361
    
    
    
    (821
    )Purchase accounting adjustments
    
    
    680
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    680Intersegment transfer
    
    
    (3,844
    )
    
    
    3,844
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustment
    
    
    7,138
    
    
    
    309
    
    
    
    142
    
    
    
    80
    
    
    
    7,669Balance at December 31, 2004
    
    $
    487,035
    
    
    $
    16,503
    
    
    $
    19,985
    
    
    $
    (12,023
    )
    
    $
    511,500
 Aggregates,Concrete and
    
    
    
    
    
    
    
    
    
    
    CorporateAsphalt
    
    
    Cement
    
    
    Gypsum
    
    
    andSegment
    
    
    Segment
    
    
    Segment
    
    
    Unallocated
    
    
    TotalBalance at January 1, 2003
    
    $
    452,507
    
    
    $
    12,337
    
    
    $
    19,454
    
    
    $
    (12,803
    )
    
    $
    471,495Goodwill acquired
    
    
    10,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,315Purchase accounting adjustments
    
    
    215
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215Foreign currency translation adjustment
    
    
    21,206
    
    
    
    13
    
    
    
    389
    
    
    
    339
    
    
    
    21,947Balance at December 31, 2003
    
    $
    484,243
    
    
    $
    12,350
    
    
    $
    19,843
    
    
    $
    (12,464
    )
    
    $
    503,972
 Goodwill is recorded as of the date of acquisition based upon a preliminary purchase price
allocation. We typically make adjustments to the preliminary purchase price allocation during the
allocation period (generally not exceeding one year) as we finalize the fair value of certain
assets and liabilities such as property, plant and equipment, intangible assets, pension and other
postretirement benefit obligations, contingent liabilities, and deferred and current income tax
balances. 49




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) The purchase accounting adjustments reflected in the change in the carrying value of goodwill
for the years ended December 31, 2004 and 2003 include adjustments to the opening balance sheets of
acquired entities to reflect acquired assets (primarily property) and liabilities at their fair
values as of the date of acquisition. These adjustments were made within twelve months of the
respective acquisitions. In connection with SFAS No. 142s goodwill impairment evaluation, we performed the first step
of the goodwill impairment test, which compares the fair value of our reporting units with their
respective carrying values, to identify potential impairment. A reporting unit is the operating
segment, or one level below that operating segment (the component level) if discrete financial
information is prepared and regularly reviewed by segment management at the component level. Our
reporting units are cement; aggregates; concrete; asphalt and paving; and gypsum. We completed the
initial evaluation during the quarter ended June 30, 2002, and determined that no goodwill
impairment existed as of January 1, 2002. We performed a similar assessment as of October 31,
2004, 2003 and 2002, and determined that no goodwill impairment existed. Note 6   Other Assets Other assets consist of the following (in thousands): December 312004
    
    
    2003Long-term receivables
    
    $
    55,934
    
    
    $
    59,351Investments in unconsolidated companies
    
    
    39,756
    
    
    
    31,756Pension-related assets
    
    
    218,897
    
    
    
    91,255Intangible assets, net
    
    
    61,117
    
    
    
    30,534Property held for sale
    
    
    5,416
    
    
    
    6,099Other
    
    
    48,602
    
    
    
    44,241Total other assets, net
    
    $
    429,722
    
    
    $
    263,236
 Property held for sale is carried at the lower of cost or estimated net realizable value. The following tables present details of intangible assets (in thousands): December 31, 2004Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCapitalized software
    
    $
    46,484
    
    
    $
    1,587
    
    
    $
    44,897Customer lists
    
    
    20,338
    
    
    
    9,629
    
    
    
    10,709Non-compete contracts
    
    
    3,931
    
    
    
    1,654
    
    
    
    2,277Other
    
    
    6,720
    
    
    
    3,486
    
    
    
    3,234Total
    
    $
    77,473
    
    
    $
    16,356
    
    
    $
    61,117
 December 31, 2003Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetCapitalized software
    
    $
    14,574
    
    
    $
    
    
    
    
    14,574Customer lists
    
    
    19,254
    
    
    
    7,726
    
    
    
    11,528Non-compete contracts
    
    
    4,003
    
    
    
    2,372
    
    
    
    1,631Other
    
    
    5,323
    
    
    
    2,522
    
    
    
    2,801Total
    
    $
    43,154
    
    
    $
    12,620
    
    
    $
    30,534
 50




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Upon adoption of SFAS No. 142, we evaluated our existing intangible assets that were acquired
in purchase business combinations and did not find it necessary to make any reclassifications in
order to conform with the classification criteria in SFAS No. 141, Business Combinations, for
recognition separate from goodwill. We also were required to reassess the useful lives and
residual values of all intangible assets acquired. Based on our review, it was not necessary to
make any adjustments to the amortization period. Further, SFAS No. 142 required us to perform, as
of the adoption date, an impairment test for intangible assets other than goodwill that are
identified as having an indefinite useful life; however, we had no intangible assets meeting this
criteria as of January 1, 2002. The amortization expense for intangible assets for the years ended December 31, 2004 and 2003
was $6.1 million and $5.0 million, respectively. The following presents the estimated amortization
expense for intangible assets recognized in the accompanying consolidated balance sheet at December
31, 2004 for each of the next five years (in thousands): 2005
    
    $
    12,6802006
    
    $
    12,4312007
    
    $
    11,8362008
    
    $
    8,1562009
    
    $
    5,480
 Note 7   Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of the following (in thousands): December 312004
    
    
    2003Trade accounts payable
    
    $
    281,318
    
    
    $
    228,200Accrued payroll expense
    
    
    99,124
    
    
    
    92,555Payable to bank under receivables sales agreement
    
    
    
    
    
    
    54,241Bank overdraft
    
    
    11,174
    
    
    
    18,537Self insurance reserves
    
    
    44,435
    
    
    
    47,386Other accrued liabilities
    
    
    101,147
    
    
    
    96,756Total accounts payable and accrued liabilities
    
    $
    537,198
    
    
    $
    537,675
 51




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Note 8   Debt Debt consists of the following (in thousands): December 312004
    
    
    2003Senior notes in the amounts of $250,000, $200,000 and $200,000, maturing in 2005,
2008 and 2013, respectively; bearing interest at fixed rates of 6.4 percent,
6.5 percent and 6.9 percent, respectively; stated net of issuance costs
and original issue discount. The weighted average effective interest rate
is 6.6 percent.
    
    $
    642,687
    
    
    $
    641,603Medium-term note maturing in 2006, bearing fixed rate interest at 9.58 percent
    
    
    2,000
    
    
    
    2,000Tax-exempt bond maturing in 2037, bearing interest at a fixed rate of 5.65 percent,
stated net of issue discount
    
    
    46,313
    
    
    
    46,292Tax-exempt bonds maturing in various amounts between 2007 and 2026, bearing
interest at floating rates that range from 1.5 percent to 2.3 percent
    
    
    19,550
    
    
    
    19,550Short-term borrowings, including commercial paper
    
    
    104,700
    
    
    
    Other
    
    
    12,067
    
    
    
    7,721Subtotal
    
    
    827,317
    
    
    
    717,166Less short-term borrowings and current portion of long-term debt, net of
issuance costs and original issue discount of $2,060
    
    
    (356,479
    )
    
    
    (1,775
    )Total long-term debt
    
    $
    470,838
    
    
    $
    715,391
 The fair value of debt at December 31, 2004 and 2003, respectively, was approximately
$872.3 million and $772.1 million compared with $827.3 million and $717.2 million included in the
Consolidated Balance Sheets. This fair value was estimated based on quoted market prices or
current interest rates offered to us for debt of the same maturity. The scheduled annual principal payment requirements on debt for each of the five years in the
period ending December 31, 2009 are as follows (in thousands): 2005
    
    $
    356,4792006
    
    
    7372007
    
    
    12,0602008
    
    
    200,6842009
    
    
    684Thereafter
    
    
    261,615Less issuance costs and original issue discount
    
    
    (4,942
    )Total
    
    $
    827,317
 We are party to commercial paper agreements, under which we may from time to time issue up to
an aggregate principal amount of $300 million in unsecured, short-term promissory notes through
private placements. At December 31, 2004, we had $90 million of commercial paper outstanding under
the agreements compared to zero outstanding as of December 31, 2003 with a weighted-average
interest rate of 2.5 percent and maturity dates ranging from 14 to 30 days. Borrowings are backed
by a $300 million, syndicated, committed multi-year bank revolver which will expire in April 2007.
There were $14.7 million short-term borrowings outstanding at December 31, 2004, compared to zero
at December 31, 2003, under various credit facilities with interest at variable rates (2.8 percent
as of December 31, 2004). 52




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) We also have a syndicated, committed revolving credit facility totaling $300 million extending
through April 2007. At the end of 2004, no amount was outstanding under this facility. We are
required to pay annual commitment fees of 0.125 percent on the unused amount of the facility.
Borrowings made under the revolving credit facility would bear interest at 0.75 percent over the
London Interbank Offering Rate. Certain debt agreements require the maintenance of certain financial ratios relating to fixed
charge coverage and leverage, among other restrictions. At December 31, 2004, we were in
compliance with these requirements. Note 9   Redeemable Preferred Shares Redeemable preferred shares consist of 166.4 million shares of no par preferred stock (the
Preferred Shares) issued by a subsidiary of the company on December 29, 2000, in conjunction with
our acquisition in 2000 of Warren Paving and Materials Group
(Warren). No gain or loss was recognized as a
result of the issuance of these securities, and we owned substantially all of the voting equity of
the subsidiary both before and after the transaction. The holder of the Preferred Shares is
entitled to receive cumulative, preferential cash dividends at the annual rate of 6.0 percent of
the issue price (Canadian $166.4 million, or approximately U.S. $138.1 million) from 2001 to 2003,
5.5 percent of the issue price from 2004 to 2005 and 5.0 percent of the issue price thereafter. In
addition, the holder may receive additional dividends based on its share of
proceeds received by Warren from the sale or deemed sale of certain assets during each quarter. During 2004, 2003
and 2002, respectively, we paid $1.1 million, $0.2 million, and $2.1 million in additional
dividends resulting from these sales, which are included in Redeemable preferred shares dividends
in the accompanying Consolidated Statements of Income. The Preferred Shares are redeemable at the original issue price, in whole or in part, on or
after December 29, 2005 at the option of the holder thereof. Further, at any time following
December 29, 2015, we may redeem all or a portion of the then outstanding Preferred Shares at an
amount equal to the issuance price. The Preferred Shares are entitled to a preference over the Common Stock and Exchangeable
Shares with respect to the payment of dividends and to the distribution of assets in the event of
the issuing subsidiarys liquidation or dissolution. Note 10   Other Long-Term Liabilities Other long-term liabilities consist of the following (in thousands): December 312004
    
    
    2003Accrued postretirement benefit cost
    
    $
    222,752
    
    
    $
    212,057Accrued pension liability
    
    
    164,804
    
    
    
    219,091Other
    
    
    107,913
    
    
    
    107,263Total other long-term liabilities
    
    $
    495,469
    
    
    $
    538,411
 Asset retirement obligations are included in Other in the table set forth above. Effective
January 1, 2003, we adopted SFAS No. 143, Accounting for Asset Retirement Obligations. This
statement applies to legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and/or the normal operation of a long-lived
asset. Previously, we accrued for quarry reclamation costs on the units of production basis.
Application of the new rules resulted in an increase in net property, plant and equipment of $4.0
million, an increase in the asset retirement obligation liability of $8.8 million, and a pre-tax
cumulative charge of $4.8 million as of January 1, 2003. 53




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) The analysis of asset retirement obligations for the year ended December 31, 2004 is as
follows (in millions): Balance at January 1, 2004
    
    $
    36.5Accretion expense
    
    
    2.4New obligations incurred
    
    
    1.8Payments
    
    
    (3.2
    )Currency exchange rate impact
    

    
    1.2Balance at December 31, 2004
    
    $
    38.7
 The pro-forma effects, assuming adoption of SFAS No. 143 retroactively, were not material to
net income or per-share amounts for the year ended December 31, 2002. Note 11   Derivative Instruments and Hedging Activities We maintain a commodity-price risk management policy that allows for the use of derivative
instruments to minimize significant, unanticipated fluctuations caused by commodity-price
volatility. The manufacturing and distribution of certain of our products requires significant
consumption of fuel and power. Price fluctuations in natural gas, diesel fuel and electrical power
can cause the spot market price to differ from the fixed price in forward supply agreements. We use commodity-based derivatives to manage our exposure to commodity price fluctuations. We
execute these commodity-based derivatives for the purpose of hedging our economic exposure to
commodity price changes, not for trading or speculative purposes. We periodically enter into forward supply agreements for a portion of our anticipated fuel and
power purchases to hedge the price risk associated with fluctuations in market prices. The forward
agreements eliminate the exposure to the unfavorable impact price increases would have on such
purchases. As of December 31, 2004 and 2003, we executed outstanding forward, fixed-price supply
contracts that are considered derivative instruments under SFAS No. 133. When applying the
provisions of SFAS No. 133, most of these contracts qualify for the normal purchase exception and
are not subject to hedge or mark-to-market accounting. Certain contracts qualify as cash flow
hedges. As of December 31, 2004 and 2003, we recognized on the consolidated balance sheets in
Receivables, net $3.5 million and $1.9 million, respectively, in connection with such hedges. In
2002, we recognized an $8.1 million gain in Other (income) expense, net in connection with
certain contracts that were derivatives but did not qualify for hedge accounting. In February 2004, we entered into a $200 million interest rate swap which effectively converts
our $200 million bond, maturing in July 2013, from a fixed rate coupon of 6.9 percent to a floating
rate coupon at six month LIBOR plus a fixed spread of 2.43 percent without an exchange of the
underlying principal amount. The interest rate swap agreement expires in 2013. At the inception
of this agreement, we designated the interest rate swap as a fair value hedge as defined in SFAS
No. 133. The gain or loss on the interest rate swap as well as the offsetting loss or gain on the
hedged item (in this case, fixed-rate debt) are recognized in interest expense on our consolidated
statement of operations. No gain or loss related to hedge ineffectiveness was recognized during
2004. Note 12   Common Equity Interests Holders of Exchangeable Shares have voting, dividend and liquidation rights that parallel
those of holders of Common Stock. The Exchangeable Shares may be converted to Common Stock on a
one-for-one basis at any time at the option of the holder. Dividends on the Exchangeable Shares
are cumulative and payable at the same time as any dividends declared on the Common Stock. We have
agreed not to pay dividends on the Common Stock without causing LCI to declare an equivalent
dividend in Canadian dollars on the Exchangeable Shares. Dividend payments and the
exchange rate on the Exchangeable Shares are subject to adjustment from time to time to take
into account certain dilutive events. 54




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) At December 31, 2004, we had reserved for issuance approximately 8.2 million shares of Common
Stock for the exchange of outstanding Exchangeable Shares. Additional common equity shares are
reserved to cover grants under our stock option plans (8.9 million) and issuances pursuant to the
employee stock purchase plans (0.4 million). In May 2003, we announced a buyback program of Common Stock over the following 18 months. The
program allowed us to buy back up to $50 million of our Common Stock from time to time on the
market or through privately negotiated transactions. For the year ended December 31, 2004, we
repurchased approximately 1.1 million shares of Common Stock at an average cost of $46.65 per
share. This stock buyback program expired in December 2004. On November 2, 2004, we announced that our Board of Directors approved a new share repurchase
program commencing on January 1, 2005 and expiring on December 31, 2005. Under this program, we
are authorized to repurchase shares in aggregate up to $60 million. In connection with our acquisition of Warren in December 2000,
we issued a common stock warrant for $14.4 million. The warrant entitles the holder to acquire up
to 4.4 million shares of Common Stock at an exercise price of $29 per share and is exercisable for
a period of 10 years commencing on December 29, 2005. Note 13   Optional Stock Dividend Plan We have an optional stock dividend plan that permits holders of record of common equity shares
to elect to receive new common equity shares issued as stock dividends in lieu of cash dividends on
such shares. The common equity shares are issued under the plan at 95 percent of the average market
price, as defined in the plan. Note 14   Stock Option and Purchase Plans We maintain fixed stock option plans and employee stock purchase plans. Under the fixed stock
option plans, directors and key employees of the company may be granted stock options that entitle
the holder to receive shares of Common Stock based on the market price of the securities at the
date of grant. Directors stock options are exercisable based on the length of a directors
service on the Board of Directors and become fully exercisable when a director has served on the
Board for over four years. Employee stock options vest in annual 25 percent increments beginning
one year after the grant date. The stock options expire 10 years after the date of grant. The employee stock purchase plans allow substantially all employees to purchase Common Stock
or Exchangeable Shares, through payroll deductions, at 90 percent of the lower of the beginning or
end of the plan year market prices. During 2004, 142,237 shares were issued under the plan at a
share price of $28.33; in 2003, 139,380 shares were issued at a share price of $28.24; and in 2002,
95,299 shares were issued at a price of $29.46. At December 31, 2004 and 2003, approximately $2.6
million and $2.2 million, respectively, were subscribed for future share purchases. We account for our stock option plans under APB Opinion No. 25 and the associated
interpretations. No compensation expense has been recognized for these plans. Pro-forma footnote
disclosure in accordance with SFAS No. 148 is presented in Note 1 Summary of Significant
Accounting Policies. 55




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) A summary of the status of our fixed stock option plans as of December 31, 2004, 2003, and
2002, and changes during the years ended on these dates, is presented below: 2004
    
    
    2003
    
    
    2002Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceBalance outstanding at January 1
    
    
    5,137,304
    
    
    $
    32.23
    
    
    
    4,260,293
    
    
    $
    32.59
    
    
    
    3,978,950
    
    
    $
    29.12Options granted
    
    
    1,264,500
    
    
    $
    41.88
    
    
    
    1,279,750
    
    
    $
    29.82
    
    
    
    1,167,500
    
    
    $
    41.11Options exercised
    
    
    (1,426,913
    )
    
    $
    30.28
    
    
    
    (256,426
    )
    
    $
    25.31
    
    
    
    (762,720
    )
    
    $
    27.90Options canceled
    
    
    (93,625
    )
    
    $
    36.12
    
    
    
    (146,313
    )
    
    $
    33.88
    
    
    
    (123,437
    )
    
    $
    31.16Balance outstanding at December 31
    
    
    4,881,266
    
    
    $
    35.23
    
    
    
    5,137,304
    
    
    $
    32.23
    
    
    
    4,260,293
    
    
    $
    32.59Options exercisable at December 31
    
    
    2,005,585
    
    
    $
    32.60
    
    
    
    2,391,104
    
    
    $
    29.81
    
    
    
    1,775,593
    
    
    $
    29.94Weighted average fair value of options
granted during the year
    
    
    
    
    
    $
    12.07
    
    
    
    
    
    
    $
    8.66
    
    
    
    
    
    
    $
    15.07
 The following table summarizes information about stock options outstanding as of December 31,
2004: Options Outstanding
    
    
    Options ExercisableWeightedWeighted
    
    
    Average
    
    
    
    
    
    
    WeightedNumber of
    
    
    Average
    
    
    Remaining
    
    
    Number of
    
    
    AverageShares at
    
    
    Exercise
    
    
    Contractual
    
    
    Shares at
    
    
    ExerciseRange of exercise prices
    
    12/31/04
    
    
    Price
    
    
    Life
    
    
    12/31/04
    
    
    Price$18.00  $23.00
    
    
    418,550
    
    
    $
    21.94
    
    
    3.83 years
    
    
    418,550
    
    
    $
    21.94$24.13  $29.97
    
    
    1,658,678
    
    
    $
    29.84
    
    
    7.41 years
    
    
    552,247
    
    
    $
    29.86$33.19  $38.13
    
    
    603,188
    
    
    $
    36.25
    
    
    3.94 years
    
    
    589,438
    
    
    $
    36.31$41.05  $43.99
    
    
    2,200,850
    
    
    $
    41.54
    
    
    8.24 years
    
    
    445,350
    
    
    $
    41.104,881,266
    
    
    $
    35.23
    
    
    7.04 years
    
    
    2,005,585
    
    
    $
    32.60
 56




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Note 15   Net Income Per Share from Continuing Operations Years ended December 31
    
    
    
    
    
    
    
    
    
    Per Share(in thousands, except per share amounts)
    
    Income
    
    
    Shares
    
    
    Amount2004BasicNet income from continuing operations
    
    $
    295,501
    
    
    
    74,316
    
    
    $
    3.98DilutedOptions
    
    
    
    
    
    
    786Stock warrant
    
    
    
    
    
    
    1,551Income available to common stockholders
    
    $
    295,501
    
    
    
    76,653
    
    
    $
    3.862003BasicNet income from continuing operations
    
    $
    217,447
    
    
    
    73,304
    
    
    $
    2.97DilutedOptions
    
    
    
    
    
    
    356Stock warrant
    
    
    
    
    
    
    354Income available to common stockholders
    
    $
    217,447
    
    
    
    74,014
    
    
    $
    2.932002BasicNet income from continuing operations
    
    $
    256,682
    
    
    
    72,824
    
    
    $
    3.53DilutedOptions
    
    
    
    
    
    
    431Stock warrant
    
    
    
    
    
    
    559Income available to common stockholders
    
    $
    256,682
    
    
    
    73,814
    
    
    $
    3.48
 Basic net income per share from continuing operations was computed by dividing net
income from continuing operations by the weighted average number of shares of Common Stock and
Exchangeable Shares outstanding during the year. Diluted net income per share from continuing
operations assumed the exercise of in-the-money stock options and stock warrant for all years
presented. 57




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Note 16   Income Taxes Earnings from continuing operations before income taxes is summarized by country in the
following table (in thousands): Years Ended December 312004
    
    
    2003
    
    
    2002U.S.
    
    $
    176,609
    
    
    $
    151,086
    
    
    $
    129,408Canada
    
    
    264,790
    
    
    
    199,559
    
    
    
    220,422Earnings from continuing operations before income taxes
    
    $
    441,399
    
    
    $
    350,645
    
    
    $
    349,830
 The provision for income taxes includes the following components (in thousands): Years Ended December 312004
    
    
    2003
    
    
    2002Current:U.S.
    
    $
    46,130
    
    
    $
    28,523
    
    
    $
    9,419Canada
    
    
    78,379
    
    
    
    73,607
    
    
    
    73,576Total current
    
    
    124,509
    
    
    
    102,130
    
    
    
    82,995Deferred:U.S.
    
    
    12,196
    
    
    
    23,668
    
    
    
    4,992Canada
    
    
    9,193
    
    
    
    7,400
    
    
    
    5,161Total deferred
    
    
    21,389
    
    
    
    31,068
    
    
    
    10,153Total income taxes
    
    $
    145,898
    
    
    $
    133,198
    
    
    $
    93,148
 The Federal Statue of Limitations has closed for all U.S. income tax returns through 2000.
Our Canadian federal tax liability for all taxation years through 1997 has been reviewed
and finalized by Canada Customs and Revenue Agency. A reconciliation of taxes at the U.S. federal income tax rate to our actual income taxes is as
follows (in millions): Years Ended December 312004
    
    
    2003
    
    
    2002Taxes at the U.S. federal income tax rate
    
    $
    154.5
    
    
    $
    122.7
    
    
    $
    122.3U.S./Canadian tax rate differential
    
    
    7.9
    
    
    
    6.0
    
    
    
    6.9Canadian tax incentives
    
    
    (19.7
    )
    
    
    (14.2
    )
    
    
    (14.5
    )U.S. state and Canadian provincial income taxes, net of
federal benefit
    
    
    8.4
    
    
    
    9.4
    
    
    
    8.0U.S. state net operating loss realization
    
    
    (1.0
    )
    
    
    (10.4
    )
    
    
    Enacted tax rate changes
    
    
    (0.6
    )
    
    
    7.6
    
    
    
    (2.0
    )Dividends on Redeemable Preferred Shares
    
    
    2.8
    
    
    
    2.5
    
    
    
    2.9Reversal of valuation allowance
    
    
    
    
    
    
    
    
    
    
    (23.3
    )Transfer pricing adjustments
    
    
    
    
    
    
    
    
    
    
    (6.2
    )Other items
    
    
    (6.4
    )
    
    
    9.6
    
    
    
    (1.0
    )Provision for income taxes
    
    $
    145.9
    
    
    $
    133.2
    
    
    $
    93.1
 58




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Deferred income taxes reflect the tax consequences of temporary differences between the
amounts of assets and liabilities for financial reporting purposes and such amounts as measured by
tax law. These temporary differences are determined in accordance with SFAS No. 109, Accounting
for Income Taxes. Temporary differences and carry forwards that give rise to deferred tax assets
and liabilities are as follows (in thousands): December 312004
    
    
    2003Deferred tax assets:Reserves and other liabilities
    
    $
    60,762
    
    
    $
    60,867Other postretirement benefits
    
    
    82,431
    
    
    
    78,848Tax loss carry forwards
    
    
    24,524
    
    
    
    24,293Minimum pension liability
    
    
    56,960
    
    
    
    95,142Gross deferred tax assets
    
    
    224,677
    
    
    
    259,150Valuation allowance
    
    
    (2,621
    )
    
    
    (2,155
    )Net deferred tax assets
    
    
    222,056
    
    
    
    256,995Deferred tax liabilities:Property, plant and equipment
    
    
    325,040
    
    
    
    302,809Prepaid pension asset
    
    
    72,138
    
    
    
    46,830Other
    
    
    17,368
    
    
    
    17,158Gross deferred tax liabilities
    
    
    414,546
    
    
    
    366,797Net deferred tax liability
    
    
    192,490
    
    
    
    109,802Net deferred tax assetcurrent
    
    
    49,944
    
    
    
    41,576Net deferred tax liabilitynoncurrent
    
    $
    242,434
    
    
    $
    151,378
 At December 31, 2004, we had deferred tax assets due to net operating loss carryforwards of
$19.5 million in the U.S. (mainly related to state net operating loss carryforwards) and Canadian
$6.1 million (approximately U.S. $5.0 million) in Canada. The net operating loss carryforwards are
limited to use in varying annual amounts through 2024. At December 31, 2004, we have cash and short-term investments of approximately $792.8 million
and cumulative undistributed earnings of approximately $1.40 billion in Lafarge Canada Inc. We
have not recognized a provision for U.S. income taxes or Canadian withholding taxes related to
these undistributed earnings since we historically had the intent to reinvest these earnings
indefinitely in Canada. On October 22, 2004, President George W. Bush signed into law the Jobs
Act. Among other things, the new legislation introduces a new deduction for United States
manufacturing activities, which when fully phased in could reduce our U.S. effective tax rate by up
to 3 percentage points, and provides for a temporary 85 percent dividends received deduction on
certain foreign earnings repatriated by December 31, 2005. The deduction would result in an
approximate 5.25 percent federal tax rate on the repatriated earnings. To qualify for the
deduction, the earnings must be reinvested in the United States pursuant to a domestic reinvestment
plan established by a companys chief executive officer and approved by its board of directors.
Certain other criteria in the Jobs Act must be satisfied as well. During the first quarter of 2005, we decided to repatriate almost $1.1 billion of Canadian
earnings under the repatriation provisions of the Jobs Act. These earnings will also be subject to
Canadian withholding tax, which will result in a total effective tax rate of approximately 9 to 11
percent on the repatriated earnings including the special 5.25 percent legislation rate.
Repatriation of these earnings will result in recognition of additional income tax expense in the
first quarter of 2005, which we currently estimate to be between $100 million and $120 million.
The status of pending technical correction legislation and expected guidance that will clarify
certain provisions will determine the ultimate amount recognized. We intend to reinvest the
remaining undistributed Canadian earnings indefinitely in Canada and, therefore, no provision for
U.S. income taxes or Canadian withholding taxes has been provided against these undistributed
earnings. 59




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Note 17   Segment and Related Information Segment information is presented in accordance with SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, which establishes standards for reporting information
about operating segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and geographic areas. Lafarges two geographic areas consist of the U.S. and Canada for which it reports net sales,
fixed assets and net assets. Revenues from the major products sold to external customers include: cement, ready-mixed
concrete, aggregates, asphalt and paving, gypsum drywall, and other miscellaneous products. Operating segments are defined as components of an enterprise that engage in business
activities that earn revenues, incur expenses and prepare separate financial information that is
evaluated regularly by the companys chief operating decision maker in order to allocate resources
and assess performance. Lafarges three reportable operating segments, which represent separately managed strategic
business units that have different capital requirements and marketing strategies, are aggregates,
concrete and asphalt; cement; and gypsum. We manage our aggregates, concrete and asphalt
operations in the same business segment for several reasons. The customer bases for these product
lines are similar, each line involves the service of local markets through large numbers of
operational units, and we can realize significant cost savings by co-locating production operations
for products in this segment. Aggregates, concrete and asphalt produces and distributes
construction aggregate, ready-mixed concrete, other concrete products and asphalt, and also
constructs and paves roads. Cement produces Portland, masonry and mortar cements, as well as slag,
and distributes silica fume and fly ash. It also includes Systech Environmental Corporation, a
subsidiary that supplies fuel-quality waste and raw materials to cement kilns. Gypsum produces
drywall for the commercial and residential construction sectors. The accounting policies of the operating segments are described in Summary of Significant
Accounting Policies. Lafarge evaluates operating performance based on profit or loss from
operations before the following items: corporate and unallocated expenses, redeemable preferred
shares dividends, interest and income taxes. Lafarge accounts for intersegment sales and transfers at market prices. Revenues are
attributed to geographic areas based on the location of the assets producing the revenues.
Operating segment information consists of the following (in millions): Years Ended December 312004
    
    
    2003
    
    
    2002Net sales from continuing operations:Aggregates, Concrete & Asphalt:Revenues from external customers
    
    $
    2,265.2
    
    
    $
    2,027.8
    
    
    $
    1,938.6Intersegment revenues
    
    
    8.9
    
    
    
    4.7
    
    
    
    4.4Cement:Revenues from external customers
    
    
    1,171.5
    
    
    
    1,036.8
    
    
    
    988.8Intersegment revenues
    
    
    181.2
    
    
    
    161.5
    
    
    
    138.4Gypsum:Revenues from external customers
    
    
    326.6
    
    
    
    254.3
    
    
    
    232.7Eliminations
    
    
    (190.1
    )
    
    
    (166.2
    )
    
    
    (142.8
    )Total net sales from continuing operations
    
    $
    3,763.3
    
    
    $
    3,318.9
    
    
    $
    3,160.1
 60




---



##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Years Ended December 312004
    
    
    2003
    
    
    2002Income (loss) from continuing operations:Aggregates, Concrete & Asphalt (a)
    
    $
    207.8
    
    
    $
    183.7
    
    
    $
    196.8Cement (a)
    
    
    328.4
    
    
    
    290.5
    
    
    
    291.1Gypsum (a)
    
    
    33.3
    
    
    
    (5.0
    )
    
    
    (16.3
    )Total
    
    
    569.5
    
    
    
    469.2
    
    
    
    471.6Corporate and unallocated expenses
    
    
    (87.5
    )
    
    
    (57.5
    )
    
    
    (70.7
    )Earnings before minority interests, interest and income taxes
    
    
    482.0
    
    
    
    411.7
    
    
    
    400.9Minority interests
    
    
    (8.2
    )
    
    
    (7.4
    )
    
    
    (8.4
    )Interest expense, net
    
    
    (32.4
    )
    
    
    (53.7
    )
    
    
    (42.7
    )Earnings from continuing operations before income taxes
    
    $
    441.4
    
    
    $
    350.6
    
    
    $
    349.8
   (a)
    
    Excludes gains and losses on divestments of operations, other postretirement benefit
expense for retirees, redeemable preferred shares dividends, interest, income taxes, and a
$26 million charge in 2002 related to idling of Wilmington plant. December 312004
    
    
    2003Assets:Aggregates, Concrete & Asphalt
    
    $
    2,204.6
    
    
    $
    2,010.3Cement
    
    
    1,505.2
    
    
    
    1,433.3Gypsum
    
    
    329.6
    
    
    
    317.2Corporate and unallocated assets
    
    
    1,364.7
    
    
    
    1,005.9Total assets
    
    $
    5,404.1
    
    
    $
    4,766.7
 Years Ended December 312004
    
    
    2003
    
    
    2002Capital expenditures:Aggregates, Concrete & Asphalt
    
    $
    148.7
    
    
    $
    63.3
    
    
    $
    105.7Cement
    
    
    147.7
    
    
    
    74.0
    
    
    
    123.0Gypsum
    
    
    24.2
    
    
    
    16.8
    
    
    
    7.6Corporate and unallocated
    
    
    29.7
    
    
    
    19.8
    
    
    
    11.6Total capital expenditures
    
    $
    350.3
    
    
    $
    173.9
    
    
    $
    247.9
 Years Ended December 312004
    
    
    2003
    
    
    2002Depreciation, depletion and amortization:Aggregates, Concrete & Asphalt
    
    $
    104.7
    
    
    $
    92.2
    
    
    $
    87.9Cement
    
    
    80.7
    
    
    
    77.1
    
    
    
    74.0Gypsum
    
    
    18.3
    
    
    
    16.9
    
    
    
    17.6Corporate
    
    
    7.6
    
    
    
    6.6
    
    
    
    2.7Total depreciation, depletion and amortization
    
    $
    211.3
    
    
    $
    192.8
    
    
    $
    182.2
 61




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Information concerning product net sales was as follows (in millions): Years Ended December 312004
    
    
    2003
    
    
    2002Net sales from external customers:Cement
    
    $
    1,171.4
    
    
    $
    1,036.8
    
    
    $
    988.8Ready-mixed concrete
    
    
    751.0
    
    
    
    689.6
    
    
    
    648.5Aggregates
    
    
    723.3
    
    
    
    609.8
    
    
    
    530.7Asphalt and paving
    
    
    692.3
    
    
    
    637.8
    
    
    
    661.9Gypsum drywall
    
    
    326.6
    
    
    
    254.3
    
    
    
    232.7Other miscellaneous products
    
    
    98.7
    
    
    
    90.6
    
    
    
    97.5Total net sales
    
    $
    3,763.3
    
    
    $
    3,318.9
    
    
    $
    3,160.1
 No single customer represented more than 10 percent of our revenues. Information concerning principal geographic areas was as follows (in millions): As of and for the Years Ended December 312004
    
    
    2003
    
    
    2002Net
    
    
    Fixed
    
    
    Net
    
    
    Net
    
    
    Fixed
    
    
    Net
    
    
    NetSales
    
    
    Assets
    
    
    Assets
    
    
    Sales
    
    
    Assets
    
    
    Assets
    
    
    SalesU.S.
    
    $
    2,113.9
    
    
    $
    1,555.4
    
    
    $
    1,161.1
    
    
    $
    1,882.0
    
    
    $
    1,469.2
    
    
    $
    1,077.6
    
    
    $
    1,935.3Canada
    
    
    1,649.4
    
    
    
    936.4
    
    
    
    1,951.8
    
    
    
    1,436.9
    
    
    
    885.7
    
    
    
    1,582.0
    
    
    
    1,224.8$
    3,763.3
    
    
    $
    2,491.8
    
    
    $
    3,112.9
    
    
    $
    3,318.9
    
    
    $
    2,354.9
    
    
    $
    2,659.6
    
    
    $
    3,160.1
 Net sales exclude intersegment revenues. Note 18   Supplemental Cash Flow Information Non-cash investing and financing activities included the issuance of 420,000, 172,000 and
131,000 Common Stock and Exchangeable Shares on the reinvestment of dividends totaling $18.4
million, $5.4 million and $4.7 million in 2004, 2003 and 2002, respectively. Cash paid during the year for interest and income taxes was as follows (in thousands): Years Ended December 312004
    
    
    2003
    
    
    2002Interest (net of amounts capitalized)
    
    $
    48,887
    
    
    $
    54,887
    
    
    $
    52,944Income taxes (net of refunds)
    
    $
    96,645
    
    
    $
    124,302
    
    
    $
    128,757
 62




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Note 19 Pension Plans and Other Postretirement Benefits We have several defined benefit and defined contribution retirement plans covering
substantially all employees and directors. Benefits paid under the defined benefit plans are
generally based on either years of service and the employees compensation over the last few years
of employment or years of service multiplied by a contractual amount. Our funding policy is to
contribute amounts that are at least equal to the deductible amounts for income tax purposes. In 2004, we changed the measurement date for all of our defined benefit plans and other
postretirement benefit plans to November 30 to accelerate the publication of our annual report.
Prior to this year, the measurement date for all of our plans was December 31. The weighted-average assumptions used to determine benefit obligations as at November 30, 2004
and December 31, 2003 were: OtherPension
    
    
    PostretirementBenefits
    
    
    Benefits2004
    
    
    2003
    
    
    2004
    
    
    2003U.S. Plans:Discount rate
    
    
    5.9
    %
    
    
    6.0
    %
    
    
    5.9
    %
    
    
    6.0
    %Rate of compensation increase
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.0
    %Rate of benefit multiplier increase (for hourly plans)
    
    
    2.0
    %
    
    
    2.0
    %
    
    
    N/A

    
    
    N/A
 OtherPension
    
    
    PostretirementBenefits
    
    
    Benefits2004
    
    
    2003
    
    
    2004
    
    
    2003Canadian Plans:Discount rate
    
    
    5.9
    %
    
    
    6.0
    %
    
    
    5.9
    %
    
    
    6.0
    %Rate of compensation increase
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    3.5
    %Rate of benefit multiplier increase (for hourly plans)
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    N/A
    
    
    N/A
 The weighted-average assumptions used to determine net periodic benefit cost for the years
ending December 31, 2004, 2003 and 2002 were: OtherPension
    
    
    PostretirementBenefits
    
    
    Benefits2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002U.S. Plans:Discount rate
    
    
    6.0
    %
    
    
    6.8
    %
    
    
    7.8
    %
    
    
    6.0
    %
    
    
    7.0
    %
    
    
    7.8
    %Expected long-term return on plan assets
    
    
    8.5
    %
    
    
    8.5
    %
    
    
    9.0
    %
    
    
    N/A
    
    
    N/A
    
    
    N/ARate of compensation increase
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.5
    %
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.5
    %
 OtherPension
    
    
    PostretirementBenefits
    
    
    Benefits2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Canadian Plans:Discount rate
    
    
    6.0
    %
    
    
    6.4
    %
    
    
    6.5
    %
    
    
    6.0
    %
    
    
    6.4
    %
    
    
    6.5
    %Expected long-term return on plan assets
    
    
    8.5
    %
    
    
    8.5
    %
    
    
    9.0
    %
    
    
    N/A
    
    
    N/A
    
    
    N/ARate of compensation increase
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    3.5
    %
 63




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Our plans weighted-average asset allocations as at November 30, 2004 and December 31, 2003
were as follows: Plan Assets2004
    
    
    2003Equity Securities
    
    
    68
    %
    
    
    69
    %Debt Securities
    
    
    32
    %
    
    
    30
    %Other
    
    
    
    
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
 The target allocation for both years was: equity 71 percent; debt 28 percent; and other 1
percent. We use a total return investment approach whereby a mix of equities and fixed income
investments are used to maximize the long-term return of plan assets at a prudent level of risk.
The investment portfolio contains a diversified blend of equity and fixed income instruments
managed by several different specialized money managers. Investment risk and returns are monitored
on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements
and periodic asset/liability studies. We use the following approach in determining the assumption for the expected long-term rate of
return for plan assets: historical markets are studied and long-term historical relationships
between the major asset classes (domestic equity, international equity and fixed-income) are
projected consistent with the widely accepted capital markets principle that assets with higher
volatility generate a greater return over the long run. Peer data and historical returns are
reviewed to check the appropriateness of the assumption. We provide certain retiree health and life insurance benefits to eligible employees who retire
in the U.S. or Canada. Salaried participants generally become eligible for retiree health care
benefits when they retire from active service at age 55 or later, although there are some variances
by plan or unit in the U.S. and Canada. Benefits, eligibility and cost-sharing provisions for
hourly employees vary by location and/or bargaining unit. Generally, the health care plans pay a
stated percentage of most medical and dental expenses reduced for any deductible, copayment and
payments made by government programs and other group coverage. These plans are unfunded. An
eligible retirees health care benefit coverage is coordinated in Canada with provincial health and
insurance plans and in the U.S., after attaining age 65, with Medicare. Certain retired employees
of businesses acquired by us are covered under other health care plans that differ from current
plans in coverage, deductibles and retiree contributions. In the U.S., salaried retirees and dependents under age 65 have a $2.0 million health care
maximum benefit. At age 65 or over, a new lifetime maximum benefit of $50,000 becomes effective.
Lifetime maximums for hourly retirees are governed by the location and/or bargaining agreement in
effect at the time of retirement. In Canada, salaried retirees and their dependents have medical
coverage without a lifetime maximum benefit. The majority of our hourly retirees in Canada do not
have medical coverage. Only certain cement hourly retirees and dependents are offered medical
coverage without a lifetime maximum benefit. In Canada, both salaried and nonsalaried employees are generally eligible for postretirement
life insurance benefits. In the U.S., postretirement life insurance is provided for a number of
hourly employees as stipulated in their hourly bargaining agreements, but it is not provided for
salaried employees, except those of certain acquired companies. The assumed health care cost trend rate used in measuring the accumulated postretirement
benefit obligation differs between U.S. and Canadian plans. In 2004, the pre-65 and post-65
assumed rate was 11.0 percent in the U.S. plan, decreasing to 5.0 percent in 2011, and 9.1 percent
in the Canadian plan, decreasing to 4.7 percent in 2011. In 2003, the pre-65 and post-65 assumed
rate was 12.0 percent in the U.S. plan, decreasing to 5.5 percent in 2011, and 9.8 percent in the
Canadian plan, decreasing to 4.7 percent in 2011. The assumed rate for Medicare health cost trends
was the same as our U.S. plan. 64




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) The following table summarizes the consolidated funded status of our defined benefit
retirement plans and other postretirement benefits as of the measurement dates November 30, 2004
and December 31, 2003, and provides a reconciliation of the changes in the benefit obligations and
fair value of assets for the periods then ended (in millions): Other PostreirementPension Benefits
    
    
    Benefits2004
    
    
    2003
    
    
    2004
    
    
    2003Change in Benefit Obligation:Projected benefit obligation at January 1
    
    $
    915.0
    
    
    $
    738.4
    
    
    $
    297.9
    
    
    $
    243.6Exchange rate changes
    
    
    33.6
    
    
    
    79.0
    
    
    
    4.7
    
    
    
    10.4Service cost
    
    
    30.3
    
    
    
    23.4
    
    
    
    7.7
    
    
    
    5.7Interest cost
    
    
    56.2
    
    
    
    50.8
    
    
    
    15.6
    
    
    
    16.7Employee contributions
    
    
    0.2
    
    
    
    4.2
    
    
    
    1.3
    
    
    
    Plan amendments
    
    
    0.9
    
    
    
    0.5
    
    
    
    (13.6
    )
    
    
    (3.5
    )Special termination benefits
    
    
    (0.4
    )
    
    
    1.3
    
    
    
    
    
    
    
    1.0Benefits paid
    
    
    (48.3
    )
    
    
    (51.0
    )
    
    
    (16.8
    )
    
    
    (13.5
    )Actuarial loss (gain)
    
    
    44.7
    
    
    
    68.3
    
    
    
    (32.8
    )
    
    
    37.8Other
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    (0.3
    )Projected Benefits Obligation at End of the Period
    
    $
    1,032.2
    
    
    $
    915.0
    
    
    $
    264.0
    
    
    $
    297.9Change in Plan Assets:Fair value of plan assets at January 1
    
    $
    654.0
    
    
    $
    524.8Exchange rate changes
    
    
    27.1
    
    
    
    49.5Actual return on plan assets
    
    
    72.4
    
    
    
    78.1Employer contributions
    
    
    109.5
    
    
    
    50.9Employee contributions
    
    
    0.1
    
    
    
    4.2Benefits paid
    
    
    (48.3
    )
    
    
    (51.0
    )Administrative expenses
    
    
    (4.0
    )
    
    
    (2.5
    )Fair Value of Plan Assets at End of the Period
    
    $
    810.8
    
    
    $
    654.0Reconciliation of Prepaid (Accrued) Benefit Cost:Funded status

    
    $
    (221.4
    )
    
    $
    (261.0
    )
    
    $
    (264.0
    )
    
    $
    (297.9
    )Contributions from measurement date to fiscal year-end
    
    
    2.6
    
    
    
    
    
    
    
    1.4
    
    
    
    Unrecognized actuarial loss
    
    
    394.8
    
    
    
    364.2
    
    
    
    55.3
    
    
    
    88.5Unrecognized prior service cost (credit)
    
    
    24.9
    
    
    
    27.1
    
    
    
    (15.5
    )
    
    
    (2.7
    )Prepaid (Accrued) Benefit Cost at December 31
    
    $
    200.9
    
    
    $
    130.3
    
    
    $
    (222.8
    )
    
    $
    (212.1
    )Accumulated Benefit Obligation at End of the Period
    
    $
    915.0
    
    
    $
    829.9
 The following table provides the amounts recognized in the accompanying consolidated balance sheets at
December 31, 2004 and 2003 (in millions): Other PostreirementPension Benefits
    
    
    Benefits2004
    
    
    2003
    
    
    2004
    
    
    2003Amounts recognized in the Consolidated Balance Sheets consist of:Prepaid asset
    
    $
    208.1
    
    
    $
    70.3
    
    
    $
    
    
    
    $
    Accrued liability
    
    
    (164.8
    )
    
    
    (219.1
    )
    
    
    (222.8
    )
    
    
    (212.1
    )Intangible asset
    
    
    10.8
    
    
    
    21.0
    
    
    
    
    
    
    
    Accumulated other comprehensive loss
    
    
    146.8
    
    
    
    258.1
    
    
    
    
    
    
    
    Net amount recognized at December 31
    
    $
    200.9
    
    
    $
    130.3
    
    
    $
    (222.8
    )
    
    $
    (212.1
    )
 65




---



##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) The following table provides the components of the net retirement cost, including the net
periodic benefit cost, for the years ended December 31, 2004, 2003 and 2002 (in millions): Pension Benefits
    
    
    Other Postretirement Benefits2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Components of Net Periodic Benefit Cost:Service cost
    
    $
    30.3
    
    
    $
    23.4
    
    
    $
    18.6
    
    
    $
    7.7
    
    
    $
    5.7
    
    
    $
    4.7Interest cost
    
    
    56.2
    
    
    
    50.8
    
    
    
    45.4
    
    
    
    15.6
    
    
    
    16.7
    
    
    
    15.8Expected return on plan assets
    
    
    (68.9
    )
    
    
    (58.6
    )
    
    
    (63.3
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost (gain)
    
    
    3.6
    
    
    
    3.5
    
    
    
    3.1
    
    
    
    (0.8
    )
    
    
    (0.6
    )
    
    
    (0.8
    )Amortization of transition asset
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of actuarial loss
    
    
    28.3
    
    
    
    15.4
    
    
    
    1.1
    
    
    
    2.4
    
    
    
    2.2
    
    
    
    0.8Curtailment (gain) loss
    
    
    (0.4
    )
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special termination benefits
    
    
    
    
    
    
    1.3
    
    
    
    0.5
    
    
    
    
    
    
    
    1.0
    
    
    
    0.2Other
    
    
    
    
    
    
    
    
    
    
    (1.5
    )
    
    
    
    
    
    
    (0.3
    )
    
    
    (1.2
    )Net periodic benefit cost
    
    
    49.1
    
    
    
    35.9
    
    
    
    3.8
    
    
    
    24.9
    
    
    
    24.7
    
    
    
    19.5Defined contribution plan cost
    
    
    11.6
    
    
    
    12.0
    
    
    
    9.5
    
    
    
    
    
    
    
    
    
    
    
    Multi-employer pension plan cost
    
    
    8.7
    
    
    
    7.7
    
    
    
    6.2
    
    
    
    
    
    
    
    
    
    
    
    Net retirement cost
    
    $
    69.4
    
    
    $
    55.6
    
    
    $
    19.5
    
    
    $
    24.9
    
    
    $
    24.7
    
    
    $
    19.5
 On January 1, 2002 we hired substantially all of the employees of Blue Circle North America
(BCNA or Managed Assets). Under an arrangement designed to ensure that the ex-BCNA employees
suffer no diminution in benefits as a result of the change in employer, new defined benefit plans
(the Mirror plans) were created to supplement the existing BCNA pension plans for service accrued
from January 1, 2002. Starting January 1, 2002, we have also become the sponsor for the existing medical plans that
cover ex-BCNA employees now employed by us. On that date, we assumed a liability of $13.0 million
to recognize its Accumulated Postretirement Benefit Obligation, under the Lafarge medical plan, for
all ex-BCNA employees who retire after January 1, 2002. This amount will be recovered from BCNA
under the terms of the management agreement discussed below. New employees hired to work in the Managed Assets operations will join a Mirror plan and the
Lafarge medical plan. Under the terms of the management agreement with Lafarge S.A., BCNA
reimburses us for net periodic benefit costs, including pension benefit expenses and other
postretirement expenses, accrued under the Mirror plans and the Lafarge medical plans relating to
employees working in the Managed Assets operations. The tables above include the following amounts for Pension Benefits and Other Postretirement
Benefits related to employees of the Managed Assets operations as of and for the years ended
December 31, 2004 and 2003 (in millions): Other PostretirementPension Benefits
    
    
    Benefits2004
    
    
    2003
    
    
    2004
    
    
    2003Accrued Liability
    
    $
    3.7
    
    
    $
    2.3
    
    
    $
    17.6
    
    
    $
    16.9Intangible Asset
    
    $
    1.4
    
    
    $
    1.4
    
    
    $
    
    
    
    $
    Net Periodic Benefit Cost
    
    $
    5.4
    
    
    $
    4.8
    
    
    $
    2.4
    
    
    $
    2.5Projected Benefit Obligations
    
    $
    24.2
    
    
    $
    19.2
    
    
    $
    26.1
    
    
    $
    28.4Fair Value of Plan Assets
    
    $
    11.0
    
    
    $
    7.3
    
    
    $
    
    
    
    $
    
 66




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) The Consolidated Balance Sheets as of December 31, 2004 and 2003, include an additional
minimum pension liability of $157.6 million and $279.1 million, respectively, related to the
accumulated benefit obligation in excess of the fair value of the plan assets. An intangible
asset, reflecting the portion of the minimum pension liability generated from unamortized prior
service costs, of $10.8 million and $21.0 million is recorded as of December 31, 2004 and 2003,
respectively. The balance of these amounts, net of tax, is recorded under Accumulated other
comprehensive income/(loss) in the Consolidated Balance Sheets and Consolidated Statements of
Shareholders Equity. The accumulated benefit obligation and fair value of plan assets for the pension plans with an
accumulated benefit obligation in excess of the plan assets fair value were $478.3 million and
$314.3 million respectively, as of December 31, 2004, and $773.3 million and $554.8 million,
respectively, as of December 31, 2003. The projected benefit obligation and fair value of plan
assets for the pension plans with a projected benefit obligation in excess of the plan assets fair
value were $976.4 million and $706.4 million, respectively, as of December 31, 2004, and $858.9
million and $556.3 million, respectively, as of December 31, 2003. We expect to contribute $41.7 million to our defined benefit pension plans and $16.3 million
to our other postretirement benefit plans in 2005. In addition, the following benefits, which
reflect expected future service, as appropriate, are expected to be paid from the plans (in
millions): Other PostretirementPension Benefits
    
    
    Benefits (a)2005
    
    $
    55.4
    
    
    $
    16.32006
    
    $
    56.4
    
    
    $
    15.22007
    
    $
    57.6
    
    
    $
    16.32008
    
    $
    59.2
    
    
    $
    17.32009
    
    $
    61.2
    
    
    $
    18.52010 to 2014
    
    $
    348.0
    
    
    $
    106.8
   (a)
    
    The amounts disclosed are net of expected Medicare Act prescription drug subsidy
receipts of zero in 2005, $2.2 million in 2006, $2.4 million in 2007, $2.6 million in 2008, $2.8 million
in 2009 and $15.6 million for the years 2010 through 2014. In 2003, $1.3 million in special termination charges was incurred due to the divestment of
Lafarge Florida Inc. and various miscellaneous events. In 2002, $0.5 million in special
termination charges was incurred due to various miscellaneous events. The defined contribution plan costs in the table of net retirement cost relate to thrift
savings plans for eligible U.S. and Canadian employees. Under the provisions of these plans, the
company matches a portion of each participants contribution. Certain employees are also covered under multi-employer pension plans administered by unions.
The data available from administrators of the multi-employer plans are not sufficient to determine
the accumulated benefit obligation or the net assets attributable to these plans. Assumed health care cost trend rates have a significant effect on the amounts reported for the
health care plans. A one-percentage-point increase or decrease in assumed health care cost trend
rates would have the following effects (in millions): One-percentage-pointIncrease
    
    
    DecreaseIncrease (decrease) in postretirement benefit obligation at December 31, 2004
    
    $
    23.8
    
    
    $
    (20.6
    )Increase (decrease) in the total of service and interest cost components for 2004
    
    $
    2.8
    
    
    $
    (2.3
    )
 67




---



##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) We adopted FSP 106-2 effective July 1, 2004 (See Note 1 Summary of Significant Accounting
Policies). As permitted by FSP 106-2, we elected to recognize the impact of the anticipated
federal subsidy on our retirement benefits expense as of January 1, 2004. Results for the year
ended December 31, 2004 reflect a benefit of $1.6 million as a result of the Medicare Act. The
provisions of the Medicare Act reduced our accrued postretirement benefit obligation (APBO) by
$11.5 million. The amounts above exclude a benefit of $0.3 million and an APBO reduction of $2.1
million recognized in connection with our BCNA Mirror Plans, the costs of which are reimbursed to
us by Lafarge S.A. Note 20   Commitments and Contingencies We lease certain land, buildings and equipment. Total expenses under operating leases was
$58.5 million, $46.3 million and $39.3 million for the three years ended December 31, 2004, 2003
and 2002, respectively. The table below shows the future minimum lease payments (in millions) due
under noncancelable operating leases at December 31, 2004. Years Ending December 312005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Later YearsOperating leases
    
    $
    51.8
    
    
    $
    45.5
    
    
    $
    34.2
    
    
    $
    22.2
    
    
    $
    15.7
    
    
    $
    97.6
 We also have miscellaneous purchase obligations related to gas, power, fuel and other
significant raw material commitments. We maintain captive insurance companies to fund workers compensation, automobile and general
liability claims up to a maximum per claim. The undiscounted estimated liability is accrued based
on a determination by an outside actuary. This determination is impacted by assumptions made and
actual experience, and could change in the future. In the ordinary course of business, we execute contracts involving indemnifications standard
in the industry and indemnifications specific to a transaction such as sale of a business. These
indemnifications might include claims relating to any of the following: environmental and tax
matters; intellectual property rights; governmental regulations and employment-related matters;
customer, supplier, and other commercial contractual relationships; and financial matters, such as
securitizations. While the maximum amount to which we may be exposed under such agreements cannot
be estimated, it is the opinion of management that these guarantees and indemnifications are not
expected to have a material adverse effect on our financial condition, results of operations or
liquidity. On November 12, 2004, we settled the arbitration proceeding which the Dunn Industrial Group,
Inc. (Dunn Industrial) initially filed as a lawsuit against us in 2001 in the Circuit Court of
Jackson County, Missouri in connection with the construction of our cement plant in Sugar Creek,
Missouri. In this matter, Dunn Industrial sought additional payments under the construction
contract. In full satisfaction of all of Dunn Industrials claims: i) Dunn Industrial retained a
$6.5 million advance payment previously made by the company; ii) $3.8 million previously paid by us
to an escrow agent was released to Dunn Industrial; and iii) we paid Dunn Industrial an additional
$29.7 million. These amounts have been capitalized as additional costs of constructing the cement
plant. Lafarge Canada Inc. (LCI) remains a defendant in a 1999 class action joined by approximately
215 homeowners regarding defective concrete foundations. The class action is related to a 1992
lawsuit against LCI in which similar claims were alleged for which LCI paid Canadian $15.6 million
(approximately U.S. $10 million) as its share of damages. The Ontario Court of Appeal confirmed
that most of the amounts paid by LCI in the lawsuit were to be reimbursed by its insurers, as well
as most of LCIs defense expenses and third party costs it paid in the lawsuit. In April 2004, the
Ontario Superior Court confirmed LCIs insurance coverage in the class action. We believe that any
liability that LCI may incur arising from the class action (net of anticipated insurance
recoveries) will not have a material adverse effect on our financial condition. 68




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) On August 26, 2003, United States Gypsum Corporation (USG) filed a lawsuit against us in the
United States District Court for the Northern District of Illinois alleging our infringement of a
USG patent relating to the production of gypsum drywall. On May 12, 2004, we were served with an
amended complaint alleging our misappropriation of USG trade secrets and setting forth claims
related thereto. In the suit, USG seeks unspecified damages and certain injunctive relief relating
to the patent and our alleged misappropriation of trade secrets. The suit is in the discovery
stage and we are vigorously defending our position against USGs allegations. We believe that this
matter will not have a material adverse effect on our financial condition. Currently, the company is involved in one matter under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, which together are referred to as Superfund, and the corrective action
provisions of the Resource Conservation and Recovery Act of 1976. At this site, which the U.S.
Environmental Protection Agency (EPA) has listed on the National Priority List, some of the
potentially responsible parties named by the EPA have initiated a third-party action against 47
parties, including us. We also have been named a potentially responsible party for this site. The
suit alleges that in 1969 one of our predecessor companies sold equipment containing hazardous
substances that may now be present at the site. It appears that the largest disposer of hazardous
substances at this site is the U.S. Department of Defense. At a July 2, 2004 status conference, we
understand that the Department of Defense indicated that it has proceeded with an approved
remediation plan for the site. We anticipate receiving a deminimis settlement offer for this
matter and believe it will not have a material adverse effect on our financial condition. Based on the EPAs prior interpretation of certain Clean Air Act new source review and
permitting rules, several of our cement plants changed fuels in the early 1990s to petroleum coke
or to a coal/coke mixture. The EPA contends that such rules do not exempt changes in fuel by
cement manufacturers unless the plant at which the change occurs was built with the expressed
intent of accommodating the alternate fuel. In 2004, we continued discussion with the EPA
concerning changes in fuel at our Alpena, Michigan and Joppa, Illinois cement plants, as well as
new source review compliance of all our U.S. cement plants. As a consequence of these discussions,
we may be required to make capital expenditures at certain of our cement plants. We may also be
required to pay fines or penalties. We intend to vigorously defend the contentions raised by the
EPA. We believe that this matter will not have a material adverse effect on our financial
condition. On April 19, 1999, several individuals living in Alpena, Michigan filed a class action
complaint against us in the United States District Court for the Eastern District of Michigan
claiming personal injury and property damages allegedly stemming from certain emissions which they
claim originated from our cement manufacturing plant in Alpena. On October 24, 2001, the trial
court ordered that the case could proceed as a class action on behalf of all persons who owned
single family residences in Alpena from April 1996 to the present who have suffered damage from
emissions from the Alpena plant. We appealed the courts decision on several grounds, including
that the court did not have jurisdiction over the putative class as not all class members claims
satisfied the $75,000 amount in controversy for diversity jurisdiction. On September 7, 2004, a
Panel of the United States Court of Appeals for the Sixth Circuit affirmed the lower courts order
of class certification. On September 21, 2004, we petitioned the Sixth Court for Rehearing and
Rehearing En Banc, which petition has been denied. The U.S. Supreme Court previously granted
petitions for certiorari in two unrelated cases involving the jurisdictional question at issue in
our case, and we have petitioned the Supreme Court for certiorari to address the issue in our case.
We intend to vigorously defend the allegations raised. We believe that this matter will not have
a material adverse effect on our financial condition. When we determine that it is probable that a liability for environmental matters or other
legal actions has been incurred and the amount of the loss is reasonably estimable, an estimate of
the costs to be incurred is recorded as a liability in the financial statements. As of December
31, 2004, the liabilities recorded for the environmental obligations and other legal actions are
not material to our financial statements. While we believe our accruals for environmental
liabilities and other legal actions are adequate, we may incur costs in excess of the amounts
provided at December 31, 2004. Although the ultimate amount of liability at December 31, 2004 that
may result from these matters or actions is not ascertainable, we believe that any amounts
exceeding our recorded accruals will not materially affect our financial condition. 69




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) In the ordinary course of business, we are involved in certain legal actions and claims,
including proceedings under laws and regulations relating to environmental and other matters.
Because such matters are subject to many uncertainties and the outcomes are not predictable with
assurance, the total amount of these legal actions and claims cannot be determined with certainty.
Management believes that all pending legal and environmental matters will be resolved without
material adverse impact to our financial condition, results of operations or liquidity. Note 21   Related Party Transactions Income from managed assets for the years ended December 31, 2004, 2003 and 2002 is $16.3
million, $12.0 million and $12.0 million, respectively, of income recorded under the provisions of
the Blue Circle Asset Management Agreement. The agreement also provides for reimbursement of
payroll and other costs incurred by us on the behalf of Blue Circle North America. We charged Blue
Circle North America $228.0 million, $194.4 million and $178.8 million for payroll and other cost
reimbursements for the years ended December 31, 2004, 2003 and 2002, respectively. In accordance
with the terms of the Blue Circle Asset Management Agreement, payments of $2.8 million, $4.9
million and $2.5 million were made to Blue Circle North America for 2004, 2003 and 2002,
respectively, as compensation for actions taken to optimize the profitability of the combined
assets which benefited us to the detriment of Blue Circle North America. We are a participant to agreements with Lafarge S.A. for the sharing of certain costs incurred
for marketing, technical, research and managerial assistance and for the use of certain trademarks.
The net expenses incurred for these services were $3.8 million, $4.5 million and $4.2 million
during 2004, 2003 and 2002, respectively. In addition, we purchase various products from and sell
various products to Lafarge S.A. Such purchases totaled $17.0 million, $23.1 million and $40.3
million in 2004, 2003 and 2002, respectively; such sales totaled $6.7 million, $6.3 million and
$4.0 million in 2004, 2003 and 2002, respectively. Management believes all transactions we
conducted with Lafarge S.A. were on terms similar to those that would be obtained in transactions
with unrelated parties. We purchase products from and sell products to certain affiliates in which we do not have a
controlling interest. Such purchases totaled $69.2 million in 2004, $61.1 million in 2003 and
$60.2 million in 2002; such sales totaled $23.4 million in 2004, $30.0 million in 2003 and $20.7
million in 2002. We also received dividends from certain of these affiliates of $3.2 million and
$2.5 million in 2004 and 2003, respectively. Management believes all transactions with our
affiliates were on terms similar to those that would be obtained in transactions with unrelated
parties. In
conjunction with our acquisition of Warren in 2000, a
subsidiary of the company issued the Preferred Shares to Kilmer Van Norstrand Co. Limited (KVN)
(see Note 9 Redeemable Preferred Shares), on which cash dividends amounting to $8.2 million, $7.4
million and $8.4 million were paid in 2004, 2003 and 2002, respectively. In conjunction with that
acquisition, KVN granted us options to purchase several properties owned by KVN or its
subsidiaries. In 2004, we exercised options to purchase two of these properties for which we paid
KVN Canadian $3.2 million. In addition, in 2002 we purchased another property from KVN for which
we paid KVN Canadian $3.2 million. KVN is 100 percent owned by a member of the companys board of
directors, his family and certain family trusts. Management believes all transactions with KVN
were on terms similar to those that would be obtained in transactions with unrelated parties. We provide certain officers and employees housing assistance loans, which generally do not
bear interest. At December 31, 2004 and 2003, amounts outstanding under these loan agreements
totaled $7.2 million and $7.8 million, respectively. Since July 30, 2002, no such loans have been
granted to executive officers of the company. 70




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##### 



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued) Note 22   Quarterly Data (unaudited) The following table summarizes financial data by quarter for 2004 and 2003 (in millions,
except per share information): First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Total (d)2004Net sales from continuing operations:Cement
    
    $
    177.0
    
    
    $
    375.0
    
    
    $
    456.1
    
    
    $
    344.5
    
    
    $
    1,352.7Ready-mixed concrete
    
    
    128.3
    
    
    
    201.1
    
    
    
    225.2
    
    
    
    196.4
    
    
    
    751.0Aggregates
    
    
    100.1
    
    
    
    193.8
    
    
    
    243.4
    
    
    
    194.7
    
    
    
    732.1Asphalt and paving
    
    
    39.8
    
    
    
    160.8
    
    
    
    281.5
    
    
    
    210.3
    
    
    
    692.3Gypsum drywall
    
    
    74.0
    
    
    
    79.4
    
    
    
    87.1
    
    
    
    86.1
    
    
    
    326.6Other miscellaneous products
    
    
    18.5
    
    
    
    28.1
    
    
    
    29.9
    
    
    
    22.2
    
    
    
    98.7Eliminations
    
    
    (28.9
    )
    
    
    (48.3
    )
    
    
    (63.7
    )
    
    
    (49.2
    )
    
    
    (190.1
    )Total (d)
    
    $
    508.9
    
    
    $
    989.9
    
    
    $
    1,259.6
    
    
    $
    1,004.9
    
    
    $
    3,763.3Gross profit (loss) from continuing operations
    
    $
    (0.6
    )
    
    $
    267.6
    
    
    $
    372.6
    
    
    $
    243.1
    
    
    $
    882.7Net income (loss) from continuing operations
    
    
    (70.8
    )
    
    
    101.9
    
    
    
    165.6
    
    
    
    98.7
    
    
    
    295.5Net income (loss)
    
    
    (70.8
    )
    
    
    101.9
    
    
    
    165.6
    
    
    
    98.7
    
    
    
    295.5Net income (loss) from continuing operations per share (a)Basic
    
    
    (0.96
    )
    
    
    1.37
    
    
    
    2.22
    
    
    
    1.32
    
    
    
    3.98Diluted
    
    
    (0.96
    )
    
    
    1.34
    
    
    
    2.16
    
    
    
    1.28
    
    
    
    3.86Net income (loss) per share (a)Basic
    
    
    (0.96
    )
    
    
    1.37
    
    
    
    2.22
    
    
    
    1.32
    
    
    
    3.98Diluted
    
    
    (0.96
    )
    
    
    1.34
    
    
    
    2.16
    
    
    
    1.28
    
    
    
    3.862003Net sales from continuing operations:Cement
    
    $
    148.9
    
    
    $
    325.9
    
    
    $
    414.0
    
    
    $
    309.6
    
    
    $
    1,198.4Ready-mixed concrete
    
    
    110.7
    
    
    
    184.0
    
    
    
    220.2
    
    
    
    174.7
    
    
    
    689.6Aggregates
    
    
    68.0
    
    
    
    168.8
    
    
    
    213.7
    
    
    
    164.0
    
    
    
    614.5Asphalt and paving
    
    
    35.6
    
    
    
    143.5
    
    
    
    276.5
    
    
    
    182.2
    
    
    
    637.8Gypsum drywall
    
    
    57.2
    
    
    
    60.3
    
    
    
    67.6
    
    
    
    69.2
    
    
    
    254.3Other miscellaneous products
    
    
    14.3
    
    
    
    23.0
    
    
    
    29.0
    
    
    
    24.3
    
    
    
    90.7Eliminations
    
    
    (22.9
    )
    
    
    (43.9
    )
    
    
    (58.3
    )
    
    
    (41.1
    )
    
    
    (166.2
    )Total (d)
    
    $
    411.7
    
    
    $
    861.7
    
    
    $
    1,162.6
    
    
    $
    882.9
    
    
    $
    3,318.9Gross profit (loss) from continuing operations
    
    $
    (35.4
    )
    
    $
    219.6
    
    
    $
    337.5
    
    
    $
    218.1
    
    
    $
    739.7Net income (loss) from continuing operations
    
    
    (87.5
    )
    
    
    70.6
    
    
    
    166.2
    
    
    
    68.2
    
    
    
    217.4Net income from discontinued operations, net of tax
    
    
    3.6
    
    
    
    3.3
    
    
    
    59.1
    (b)
    
    
    0.2
    
    
    
    66.3Net income (loss)
    
    
    (87.0
    )
    
    
    73.9
    
    
    
    225.3
    
    
    
    68.4
    
    
    
    280.6Net income (loss) from continuing operations per share (a)Basic
    
    
    (1.20
    )
    
    
    0.96
    
    
    
    2.26
    
    
    
    0.93
    
    
    
    2.97Diluted
    
    
    (1.20
    )
    
    
    0.96
    
    
    
    2.24
    
    
    
    0.91
    
    
    
    2.93Net income from discontinued operations per share (a)Basic
    
    
    0.05
    
    
    
    0.05
    
    
    
    0.81
    (c)
    
    
    
    
    
    
    0.90Diluted
    
    
    0.05
    
    
    
    0.04
    
    
    
    0.80
    (c)
    
    
    
    
    
    
    0.90Net income (loss) per share (a)Basic
    
    
    (1.19
    )
    
    
    1.01
    
    
    
    3.07
    
    
    
    0.93
    
    
    
    3.83Diluted
    
    
    (1.19
    )
    
    
    1.00
    
    
    
    3.04
    
    
    
    0.91
    
    
    
    3.79
   (a)
    
    The sum of these amounts may not equal the annual amount because of changes in the
average number of shares outstanding during the year.(b)
    
    In the third quarter of 2003, net income from discontinued operations, net of tax,
includes the gain on sale of discontinued operations, net of tax of $58 million.(c)
    
    In the third quarter of 2003, net income from discontinued operations per share
includes $0.79 related to the gain on sale of discontinued operations.(d)
    
    Certain totals may not sum due to rounding. 71




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##### 



Schedule II LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(in thousands) Additions
    
    
    DeductionsFrom Reservefor PurposesBalance at
    
    
    Charge to
    
    
    for WhichBeginning of
    
    
    Cost and
    
    
    Reserve Was
    
    
    
    
    
    
    Balance atDescriptions
    
    Year
    
    
    Expenses(2)
    
    
    Created
    
    
    Other(1)
    
    
    End of YearReserve applicable to current receivablesFor doubtful accounts:2004
    
    $
    24,226
    
    
    $
    3,708
    
    
    $
    (8,534
    )
    
    $
    426
    
    
    $
    19,8262003
    
    $
    23,693
    

    
    $
    2,106
    
    
    $
    (3,546
    )
    
    $
    1,973
    
    
    $
    24,2262002
    
    $
    28,898
    
    
    $
    2,921
    
    
    $
    (8,206
    )
    
    $
    80
    
    
    $
    23,693For cash and other discounts:2004
    
    $
    7,046
    
    
    $
    22,030
    
    
    $
    (20,112
    )
    
    $
    166
    
    
    $
    9,1302003
    
    $
    4,618
    
    
    $
    22,722
    
    
    $
    (20,748
    )
    
    $
    454
    
    
    $
    7,0462002
    
    $
    4,827
    
    
    $
    20,307
    
    
    $
    (20,542
    )
    
    $
    26
    
    
    $
    4,618
   (1)
    
    Primarily foreign currency translation adjustments.(2)
    
    Cash and other discounts are recorded as a reduction to sales.  Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE None.  Item 9A. CONTROLS AND PROCEDURES Under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, management evaluated 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
this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in reasonably assuring the timely accumulation and
communication to management of information required to be disclosed in the reports that we file
with the SEC. There was no change in our internal control over financial reporting during the fourth quarter
of 2004 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting. 72




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##### 



MANAGEMENTS REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING We are responsible for the preparation and integrity of our published financial statements.
The financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America and, accordingly, include amounts based on judgments and
estimates made by our management. We also prepared the other information included in the annual
report and are responsible for its accuracy and consistency with the financial statements. We are responsible for establishing and maintaining a system of internal control over
financial reporting, which is intended to provide reasonable assurance to our management and Board
of Directors regarding the reliability of our financial statements. The system includes but is not
limited to:  
    a documented organizational structure and division of responsibility;
    established policies and procedures, including a code of conduct to foster a strong
ethical climate which is communicated throughout the company;
    internal auditors that monitor the operation of the internal control system and
report findings and recommendations to management and the Audit Committee;
    procedures for taking action in response to an internal audit finding or recommendation;
    regular reviews of our financial statements by qualified individuals; and
    the careful selection, training and development of our people. There are inherent limitations in the effectiveness of any system of internal control,
including the possibility of human error and the circumvention or overriding of controls. Also,
the effectiveness of an internal control system may change over time. We have implemented a system
of internal control that was designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. We have assessed our internal control system in relation to criteria for effective internal
control over financial reporting described in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based upon these
criteria, we believe that, as of December 31, 2004, our system of internal control over financial
reporting was effective. The independent registered public accounting firm, Ernst & Young LLP, has audited our 2004
financial statements. Ernst & Young LLP was given unrestricted access to all financial records and
related data, including minutes of all meetings of stockholders, the Board of Directors and
committees of the Board. Ernst & Young LLP has issued an unqualified audit opinion on our 2004
financial statements as a result of the audit and also has issued an attestation report on
managements assessment of its internal control over financial reporting. Lafarge North America Inc. February 4, 2005 By: /s/ Philippe R. Rollier
    
    /s/ Eric C. OlsenPhilippe R. Rollier
    
    Eric C. OlsenPresident and
    
    Executive Vice President andChief Executive Officer
    
    Chief Financial Officer
 73




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING The Board of Directors and Shareholders
Lafarge North America Inc.: We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting, that Lafarge North America Inc. maintained effective
internal control over financial reporting as of December 31, 2004, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Lafarge North America Inc.s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the effectiveness of the companys internal
control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that Lafarge North America Inc. maintained effective
internal control over financial reporting as of December 31, 2004, is fairly stated, in all
material respects, based on the COSO criteria. Also, in our opinion, Lafarge North America Inc.
maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2004, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the 2004 consolidated financial statements of Lafarge North
America Inc. and our report dated February 4, 2005 expressed an unqualified opinion thereon. ERNST & YOUNG LLP
 McLean, Virginia
February 4, 2005 74




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##### 



Item 9B. OTHER INFORMATION None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The sections captioned Election of Directors and Executive Officers of the Company in our
Proxy Statement for the 2005 Annual Meeting of Stockholders sets forth certain information with
respect to the directors and nominees for election as directors of the company and certain
information with respect to persons who are or may be deemed to be executive officers of the
company and is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION The section captioned Executive Compensation in our Proxy Statement for the 2005 Annual
Meeting of Stockholders sets forth certain information with respect to the compensation of
management of the company and is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
     STOCKHOLDER MATTERS The sections captioned Stock Ownership and Equity Compensation Plan Information in our
Proxy Statement for the 2005 Annual Meeting of Stockholders sets forth certain information with
respect to the ownership of our securities and securities authorized for issuance under equity
compensation plans and is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The sections captioned Certain Relationships and Related Transactions  Indebtedness of
Management and Certain Relationships and Related Transactions  Transactions with Management and
Others in our Proxy Statement for the 2005 Annual Meeting of Stockholders set forth certain
information with respect to relations of and transactions by management of the company and are
incorporated herein by reference. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The section captioned Independent Auditors in our Proxy Statement for the 2005 Annual
Meeting of Stockholders sets forth certain information with respect to principal accountant fees
and services and is incorporated herein by reference. 75




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##### 



PART IV Item 15.
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a)
    
    
    1.
    
    
    FINANCIAL STATEMENTS  The financial
statements listed in the accompanying
Index to Consolidated Financial
Statements and Financial Statement
Schedule are filed as part of this
Annual Report and such Index to
Consolidated Financial Statements and
Financial Statement Schedule is
incorporated herein by reference.2.
    
    
    FINANCIAL STATEMENT SCHEDULES  The financial statement schedule listed in
the accompanying Index to Consolidated Financial Statements and Financial Statement
Schedule is filed as part of this Annual Report and such Index to Consolidated
Financial Statements and Financial Statement Schedule is incorporated herein by
reference.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE PageFinancial Report:Report of Independent Registered Public Accounting Firm, Ernst & Young LLP
    
    
    34Consolidated Financial Statements:Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    
    35Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002
    
    
    36Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2004,
2003 and 2002
    
    
    37Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2004,
2003 and 2002
    
    
    38Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002
    
    
    39Notes to Consolidated Financial Statements
    
    
    40Financial Statement Schedule:Schedule II  Consolidated Valuation and Qualifying Accounts for the Years Ended
December 31, 2004, 2003 and 2002
    
    
    72All other schedules are omitted because they are not applicable.
  3.
    EXHIBITS  The exhibits listed on the accompanying List of Exhibits are filed
as part of this Annual Report and such List of Exhibits is incorporated herein by
reference. ExhibitNumber
    
    Description of Exhibits3.1
    
    Articles of Amendment and Restatement of the company, filed May 29, 1992, as
amended by the Articles of Amendment of the company dated May 8, 2000 [incorporated by
reference to Exhibit 3.1 to the Annual Report on Form 10-K filed by the company for the
fiscal year ended December 31, 2000].*3.2
    
    Amended By-Laws of the company, amended on February 4, 2005.4.1
    
    Form of Indenture dated as of October 1, 1989 between the company and Citibank,
N.A., as Trustee, relating to $250 million of debt securities of the company
[incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3
(Registration No. 33-31333) of the company, filed with the Securities and Exchange
Commission on October 3, 1989].4.2
    
    Form of Fixed Rate Medium-Term Note of the company [incorporated by reference to
Exhibit 4.2 to the Registration Statement on Form S-3 (Registration No. 33-31333) of the
company, filed with the Securities and Exchange Commission on October 3, 1989].
 76




---



##### 



ExhibitNumber
    
    Description of Exhibits4.3
    
    Instruments with respect to long-term debt which do not exceed 10 percent of the
total assets of the company and its consolidated subsidiaries have not been filed. The
company agrees to furnish a copy of such instruments to the Commission upon request.9.1
    
    Trust Agreement dated as of October 13, 1927 among Canada Cement Company Limited,
Montreal Trust Company, Henry L. Doble and Alban C. Bedford-Jones, as amended (composite
copy) [incorporated by reference to Exhibit 10.5 to the Registration Statement on Form
S-1 (Registration No. 2-82548) of the company, filed with the Securities and Exchange
Commission on March 21, 1983].9.2
    
    Amendment dated June 10, 1983 to Trust Agreement filed as Exhibit 9.1 [incorporated
by reference to Exhibit 9.2 to the Registration Statement of Form S-1 (Registration No.
2-86589) of the company, filed with the Securities and Exchange Commission on September
16, 1983].10.1
    
    Exchange Agency and Trust Agreement dated as of May 1, 1983 among the company,
Canada Cement Lafarge, Lafarge Coppee and Montreal Trust Company, as trustee
[incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Registration
Statement on Form S-1 (Registration No. 2-82548) of the company, filed with the
Securities and Exchange Commission on May 5, 1983]. Canada Cement Lafarge changed its
name in 1988 to Lafarge Canada Inc. Lafarge Coppee changed its name in 1995 to Lafarge
S.A.10.2
    
    Guarantee Agreement dated as of May 1, 1983 between the company and Canada Cement
Lafarge [incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registration

Statement of Form S-1 (Registration No. 2-82548) of the company, filed with the
Securities and Exchange Commission on May 5, 1983].10.3
    
    Special Surface Lease dated as of August 1, 1954 between the Province of Alberta
and Canada Cement Lafarge, as amended [incorporated by reference to Exhibit 10.3 to the
Registration Statement on Form S-1 (Registration No. 2-82548) of the company, filed with
the Securities and Exchange Commission on March 21, 1983].10.4
    
    1993 Stock Option Plan of the company, as amended and restated February 7, 1995
[incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K filed by the
company for the fiscal year ended December 31, 1997].10.5
    
    Optional Stock Dividend Plan of the company dated September 1999 [incorporated by
reference to Exhibit 10.7 to the Annual Report on Form 10-K filed by the company for the
fiscal year ended December 31, 2000].10.6
    
    Director Fee Deferral Plan of General Portland, assumed by the company on January
29, 1988 [incorporated by reference to Exhibit 10(g) to the Annual Report on Form 10-K
filed by General Portland for the fiscal year ended December 31, 1980].10.7
    
    Control Option Agreement dated as of November 1, 2003 between Lafarge North America
Inc. and Lafarge S.A. [incorporated by reference to Exhibit 10.9 to the Annual Report on
Form 10-K filed by the company for the fiscal year ended December 31, 2003].10.8
    
    Deferred Compensation Program of Canada Cement Lafarge [incorporated by reference
to Exhibit 10.57 to Amendment No. 1 to the Registration Statement on Form S-1
(Registration No. 2-86589) of the company, filed with the Securities and Exchange
Commission on November 23, 1983].10.9
    
    Agreement dated November 8, 1983 between Canada Cement Lafarge and Standard
Industries Ltd. [incorporated by reference to Exhibit 10.58 to Amendment No. 1 to the
Registration Statement on Form S-1 (Registration No. 2-86589) of the company, filed with
the Securities and Exchange Commission on November 23, 1983].10.10
    
    Stock Purchase Agreement dated September 17, 1986 between the company and Lafarge
Coppee, S.A. [incorporated by reference to Exhibit B to our report on Form 10-Q for the
quarter ended September 30, 1986].10.11
    
    Cost Sharing Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the
company relating to expenses for research and development, strategic planning and human
resources and communication techniques [incorporated by reference to Exhibit 10.42 to the
Annual Report on Form 10-K filed by the company for the fiscal year ended December 31,
1988].10.12
    
    Royalty Agreement dated December 2, 1988 between Lafarge Coppee, LCI and the
company relating to access to the reputation, logo and trademarks of Lafarge Coppee
[incorporated by reference to Exhibit 10.43 to the Annual Report on Form 10-K filed by
the company for the fiscal year ended December 31, 1988].10.13
    
    Amendment dated January 1, 1993 to Royalty Agreement filed as Exhibit 10.14
[incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K filed by
the company for the fiscal year ended December 31, 1992].
 77




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##### 



ExhibitNumber
    
    Description of Exhibits10.14
    
    Reimbursement Agreement dated January 1, 1990 between Lafarge Coppee and the
company relating to expenses for Strategic Planning and Communication techniques
[incorporated by reference to Exhibit 10.41 to the Annual Report on Form 10-K filed by
the company for the fiscal year ended December 31, 1990].10.15
    
    Amendment dated September 13, 1991 to Cost Sharing Agreement filed as Exhibit
10.13 [incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K filed
by the company for the fiscal year ended December 31, 1994].10.16
    
    Receivables Purchase Agreement dated as of October 13, 2000 among Sierra Bay
Receivables, Inc. as Seller, Lafarge North America, as Initial Servicer, Blue Ridge Asset
Funding Corporation, the Liquidity Banks from time to time party hereto and Wachovia
Bank, N.A. as Agent [incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q filed by the company for the fiscal quarter ended September 30, 2000].10.17
    
    Receivables Sale Agreement dated as of October 13, 2000 among Lafarge North
America and certain of its Subsidiaries, as Originators, and Sierra Bay Receivables, Inc.
as Buyer [incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q
filed by the company for the fiscal quarter ended September 30, 2000].10.18
    
    Cost Sharing Agreement dated January 2, 1996 between Lafarge Materiaux de
Specialties and the company related to costs of a new unit established for researching
potential profitable markets for their respective products in North America [incorporated
by reference to Exhibit 10.21 to the Annual Report on Form 10-K filed by the company for
the fiscal year ended December 31, 1996].10.19
    
    Marketing and Technical Assistance Agreement dated October 1, 1996 between Lafarge
S.A. and the company related to research and development, marketing, strategic planning,
human resources and communication techniques in relation to gypsum activities
[incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K filed by the
company for the fiscal year ended December 31, 1996].10.20
    
    1998 Stock Option Plan of the company [incorporated by reference to Exhibit 4.1 to
the Registration Statement on Form S-8 (Regulation No. 333-65897) of the company, filed
with the Securities and Exchange Commission on October 20, 1998].10.21
    
    Nonemployee Director Retirement Plan of the company, as amended [incorporated by
reference to Exhibit 10.26 to the Annual Report on Form 10-K filed by the company for the
fiscal year ended December 31, 1998].10.22
    
    Non-Employee Directors Deferred Compensation Plan Cash or Phantom Stock Investment
Options [incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K
filed by the company for the fiscal year ended December 31, 2000].10.23
    
    Commercial Paper Dealer Agreement dated as of March 2, 2001 between Lafarge North
America and Salomon Smith Barney Inc. concerning notes to be issued pursuant to an Issuing
and Paying Agency Agreement dated as of March 2, 2001 between Lafarge North America and
Citibank, N.A. [incorporated by reference to Exhibit 10.28 to the Annual Report on Form
10-K filed by the company for the fiscal year ended December 31, 2000].10.24
    
    Commercial Paper Dealer agreement dated as of March 2, 2001 between Lafarge North
America and SunTrust Bank concerning notes to be issued pursuant to an Issuing and Paying
Agency Agreement dated as of March 2, 2001 between Lafarge North America and Citibank N.A.
[incorporated by reference to Exhibit 10.29 to the Annual Report on Form 10-K filed by the
company for the fiscal year ended December 31, 2000].10.25
    
    Management Agreement dated as of July 11, 2001, by and among Lafarge Corporation,
Lafarge S.A. and Blue Circle North America [incorporated by reference to Exhibit 10.1 to
our report on Form 10-Q for the quarter ended June 30, 2001].10.26
    
    Supplemental Agreement Regarding Employees and Employee Benefits dated as of
December 21, 2001 by and among Lafarge North America Inc., Lafarge S.A. and Blue Circle
North America. [incorporated by reference to Exhibit 10.34 to the Annual Report on Form
10-K filed by the company for the fiscal year ended December 31, 2001].10.27
    
    Lafarge North America Inc. 2002 Stock Option Plan, as amended [incorporated by
reference to Exhibit 10.1 to our Report on Form 10-Q for the quarter ended March 31,
2002].10.28
    
    Five Year Credit Agreement dated as of April 18, 2002 among Lafarge North America
Inc., certain of its subsidiaries and certain banks, financial institutions and other
institutional lenders [incorporated by reference to Exhibit 10.3 to our Report on Form
10-Q for the quarter ended March 31, 2002].10.29
    
    Three-Year Credit Agreement dated as of April 16, 2004 by and between Lafarge
North America Inc. and certain of its subsidiaries and certain banks, financial
institutions and other institutional lenders, including
 78




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##### 



ExhibitNumber
    
    Description of ExhibitsWachovia Bank, National Association, as syndication agent, Citigroup Global Markets
Inc. and Wachovia Securities, Inc., as joint lead arrangers and joint bookrunners, and
Citibank, N.A. (Citibank), as administrative agent (the Agent) [incorporated by
reference to Exhibit 10.1 to our Report on Form 10-Q for the quarter ended March 31,
2004].*18
    
    Letter regarding change in accounting principle.*21
    
    Subsidiaries of the company.*23
    
    Consent of Ernst & Young LLP,
independent registered public accounting firm.*31.1
    
    Certification of Chief Executive
Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification of Chief Executive
Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of Chief Financial
Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
   *
    
    Filed herewith 79




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##### 



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the company has duly caused this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized. LAFARGE NORTH AMERICA INC.By:
    
    /s/ ERIC C. OLSENEric C. OlsenExecutive Vice President andChief Financial Officer
 Date: March 1, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has
been signed below by the following persons on behalf of the company and in the capacities and on
the dates indicated: Signature
    
    Title
    
    Date/s/ PHILIPPE R. ROLLIER
    
    President and Chief Executive
    
    March 1, 2005Officer and DirectorPhilippe R. Rollier/s/ ERIC C. OLSEN
    
    Executive Vice President and
    
    March 1, 2005Chief Financial OfficerEric C. Olsen/s/ YVON BRINDAMOUR
    
    Senior Vice President and
    
    March 1, 2005ControllerYvon BrindAmour/s/ BERTRAND P. COLLOMB
    
    Chairman of the Board
    
    March 1, 2005Bertrand P. Collomb/s/ BERNARD L. KASRIEL
    
    Vice Chairman of the Board
    
    March 1, 2005Bernard L. Kasriel/s/ MARSHALL A. COHEN
    
    Director
    
    March 1, 2005Marshall A. Cohen/s/ PHILIPPE P. DAUMAN
    
    Director
    
    March 1, 2005Philippe P. Dauman
 80




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##### 



Signature
    
    Title
    
    Date/s/ BRUNO LAFONT
    
    Director
    
    March 1, 2005Bruno Lafont/s/ CLAUDINE B. MALONE
    
    Director
    
    March 1, 2005Claudine B. Malone/s/ BLYTHE J. McGARVIE
    
    Director
    
    March 1, 2005Blythe J. McGarvie/s/ JAMES M. MICALI
    
    Director
    
    March 1, 2005James M. Micali/s/ ROBERT W. MURDOCH
    
    Director
    
    March 1, 2005Robert W. Murdoch/s/ BERTIN F. NADEAU
    
    Director
    
    March 1, 2005Bertin F. Nadeau/s/ JOHN D. REDFERN
    
    Director
    
    March 1, 2005John D. Redfern/s/ MICHEL ROSE
    
    Director
    
    March 1, 2005Michel Rose/s/ LAWRENCE M. TANENBAUM
    
    Director
    
    March 1, 2005Lawrence M. Tanenbaum/s/ GERALD H. TAYLOR
    
    Director
    
    March 1, 2005Gerald H. Taylor
 81