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UNITED STATES

SECURITIES 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, 2003 | Commission File Number 0-11936



---

Lafarge North America Inc.

|                                                                                                           |  |                                                  
|---------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------
|Incorporated in Maryland
    12950 Worldgate Dr., Suite 500
    Herndon, Virginia 20170
    (703) 480-3600 |  | I.R.S. Employer Identification No.
    58-1290226

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

|                                        |  |                                                             
|--------------------------------------- |  | ------------------------------------------------------------
|Title of Each Class                     |  | Name of Each Exchange on Which Registered                   
|                                        |  |                                                             
|Common Stock, par value $1.00 per share |  | New York Stock Exchange, Inc.
    The 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, 2003 was
$1,043,253,586.

There were 69,708,627 shares of Common Stock and
4,288,511 Exchangeable Preference Shares of our subsidiary,
Lafarge Canada Inc., outstanding as of February 20, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our definitive Proxy Statement for
the 2004 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, 2003


TABLE OF CONTENTS

|                                             |  |                                                                                           |  |      |    | 
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                             |  |                                                                                           |  | Page
|                                             |  |                                                                                           |  |     
|PART I                                      
|Item 1.                                      |  | Business                                                                                  |  |      | 1  | 
|                                             |  | Executive Officers of the
    Company                                                     |  |      | 22 | 
|Item 2.                                      |  | Properties                                                                                |  |      | 24 | 
|Item 3.                                      |  | Legal Proceedings                                                                         |  |      | 25 | 
|Item 4.                                      |  | Submission of Matters to a
    Vote of Security Holders                                   |  |      | 26 | 
|                                            
|PART II                                     
|Item 5.                                      |  | Market for our Common Equity
    and Related Stockholder Matters                          |  |      | 26 | 
|Item 6.                                      |  | Selected Consolidated
    Financial Data                                                  |  |      | 27 | 
|Item 7.                                      |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |  |      | 28 | 
|Item 7A.                                     |  | Quantitative and Qualitative
    Disclosures About Market Risk                            |  |      | 45 | 
|Item 8.                                      |  | Financial Statements and
    Supplementary Data                                           |  |      | 48 | 
|Item 9.                                      |  | Changes In and Disagreements
    with Accountants on Accounting and Financial Disclosure  |  |      | 90 | 
|Item 9A.                                     |  | Controls and Procedures                                                                   |  |      | 91 | 
|                                            
|PART III                                    
|Item 10.                                     |  | Directors and Executive
    Officers of the Company                                       |  |      | 91 | 
|Item 11.                                     |  | Executive Compensation                                                                    |  |      | 91 | 
|Item 12.                                     |  | Security Ownership of
    Certain Beneficial Owners and Management                        |  |      | 91 | 
|Item 13.                                     |  | Certain Relationships and
    Related Transactions                                        |  |      | 91 | 
|Item 14.                                     |  | Principal Accountant Fees
    and Services                                                |  |      | 91 | 
|                                            
|PART IV                                     
|Item 15.                                     |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                       |  |      | 92 | 
|                                             |  | Signatures                                                                                |  |      | 97 | 
|Control Option Agreement dated 11/1/2003    
|Subsidiaries of the Company                 
|Consent of Ernst & Young LLP                
|Certification of CEO required by Section 302
|Certification of CFO required by Section 302
|Certification of CEO required by Section 906
|Certification of CFO required by Section 906



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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. These
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                                                      
| 
| | national and regional economic conditions in the
    U.S. and Canada                     
| 
| | Canadian currency fluctuations                                                           
| 
| | seasonality of our operations                                                            
| 
| | levels of construction spending in major markets                                         
| 
| | supply/demand structure of our industry                                                  
| 
| | significant changes in the cost of fuel, energy
    and other raw materials.             
| 
| | competition from new or existing competitors                                             
| 
| | unfavorable weather conditions during peak
    construction periods                      
| 
| | changes in and implementation of environmental
    and other governmental regulations    
| 
| | our ability to successfully identify, complete
    and efficiently integrate acquisitions
| 
| | our ability to successfully penetrate new markets                                        
| 
| | international events that may disrupt the world
    economy                              

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, the company, us, we or our, 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



| |            
| | -----------
| | Who are we?

Lafarge North America Inc., including Managed
Assets (as defined below), is the largest supplier of cement and
a leading ready-mixed concrete supplier in North America (U.S.
and Canada). We are also one of the top four producers of
construction aggregates (crushed stone, sand and gravel) and a
leading manufacturer of gypsum drywall. We have over 1,000
operations doing business in most states and throughout Canada,
where we conduct our business through our subsidiary, Lafarge
Canada Inc., and as of December 31, 2003, we employed
approximately 14,800 people. Additionally, we entered into an
agreement in mid-2001 with Lafarge S.A., our majority
shareholder, to manage and operate approximately 100 cement and
construction materials businesses in the U.S. These businesses,
which we refer to as the Managed Assets and which Lafarge S.A.
obtained in the acquisition of Blue Circle Industries PLC in
July 2001, remain the property of Lafarge S.A., and their
operating results are consolidated with Lafarge S.A.s
results. Unless otherwise indicated, our discussions below refer
to our assets and operations, exclusive of the Managed Assets
and their operations.

Our products are used in the construction of such
diverse projects as roads, offices, factories, hospitals,
department stores, sports stadiums, banks, museums, high-rise
apartments, amusement parks, swimming pools and bridges. In
2003, excluding the Managed Assets, we generated net sales of
$3.3 billion and we shipped

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118.9 million tons of aggregate,
11.0 million cubic yards of ready-mixed concrete,
13.2 million tons of cement, 3.1 million tons of
cement-related products, and 2.1 billion square feet of
gypsum drywall.




| |                                           
| | ------------------------------------------
| | How are we organized; what do we
    make?

Our business is organized into three operating
segments: construction materials, cement and cement-related
products, and gypsum. Each represents a separately managed
strategic business unit with different capital requirements and
marketing strategies. The companys products are used in
residential, commercial, institutional and public works
construction.



| |   |                       
| | - | ----------------------
| |  | Construction Materials



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | Produces and supplies aggregates, ready-mixed
    concrete, concrete products and asphalt; and
|
| |  | Provides road paving and construction services.                                               



| |   |                                   
| | - | ----------------------------------
| |  | Cement and Cement-Related Products



| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | Produces and distributes Portland and specialty
    cements; and                                              
|
| |  | Distributes and processes cement-related
    materials such as fly ash, slag, silica fume and blended cements.



| |   |       
| | - | ------
| |  | Gypsum



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | Produces and distributes a full line of gypsum
    drywall products and joint compound.

You may evaluate the financial performance of
each of our segments by reviewing Managements
Discussion of Income in Managements Discussion and
Analysis of Financial Condition and Results of Operations set
forth under Part II, Item 7 of this Annual Report and
the Notes to Consolidated Financial Statements 
Note 17 Segment and Related Information in Financial
Statements and Supplementary Data set forth under Part II,
Item 8 of this Annual Report, which are incorporated herein
by reference.



| |                           
| | --------------------------
| | What is the Lafarge Group?

We are part of the Lafarge Group, a global
company headquartered in France, which includes Lafarge S.A. and
its consolidated subsidiaries. Lafarge S.A. and its affiliates
hold approximately 53 percent of our common stock. The
Lafarge Group is the world leader in building materials, holding
top-ranking positions in all four of its divisions: cement;
aggregates and concrete; roofing; and gypsum. The Lafarge Group
employs approximately 77,000 people in 75 countries. In 2003,
the Lafarge Group generated sales in excess of Euro
13.7 billion.



| |                          
| | -------------------------
| | How our Company developed



|     |  |                                                                                                                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1956 |  | Our majority shareholder, Lafarge S.A., entered
    the North American cement market by building a cement plant in
    Richmond, British Columbia and forming Lafarge Cement North
    America.
|    
|1970 |  | Lafarge S.A. merged with Canada Cement Company
    (now Lafarge Canada Inc., our Canadian subsidiary), already
    Canadas largest cement producer.                                           
|    
|1974 |  | Lafarge Canada entered the U.S. market through a
    joint venture to operate three U.S. cement plants.                                                                                        
|    
|1977 |  | Although the joint venture terminated, we were
    incorporated in Maryland in 1977 as Citadel Cement Corporation
    of Maryland and operated two of the three U.S. cement plants.            
|    
|1981 |  | Lafarge Canada acquired the common stock of
    General Portland Inc., the second largest cement producer in the
    U.S. at that time.                                                        
|    
|1983 |  | A corporate reorganization established us as the
    parent of Lafarge Canada and General Portland. We completed our
    initial public offering of common stock.                              

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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1986 |  | We acquired National Gypsums Huron Cement
    Division, consisting of the Alpena, Michigan cement plant (at
    that time North Americas largest existing cement plant),
    13 inland cement terminals and several Great Lakes distribution
    facilities. We also acquired Systech Environmental Corporation,
    which processes fuel-quality waste and alternative raw materials
    for use in our cement kilns.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|1989 |  | We acquired 32 plant facilities in five states
    and mineral reserves from Standard Slag Holding Company,
    significantly expanding our construction materials operations in
    the U.S.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|1991 |  | We acquired three cement plants, 15 cement
    terminals, two quarries and more than 30 ready-mixed concrete
    and aggregate operations in the Mississippi River Basin when we
    acquired Missouri Portland Cement Company and Davenport Cement
    Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|1993 |  | We divested our Alabama cement assets and
    implemented new organizational structures in cement and
    construction materials to improve efficiency of our operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|1994 |  | We divested our Texas assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|1995 |  | We acquired National Portland Cements
    600,000 ton capacity cement grinding plant in Port Manatee,
    Florida.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|1996 |  | We entered the North American gypsum market when
    we bought two gypsum drywall plants from Georgia Pacific, one
    located in Buchanan, New York and the other in Wilmington,
    Delaware, creating our new operating segment, Lafarge Gypsum.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|1997 |  | We began work on two new cement plants at
    existing facilities. The Richmond, British Columbia plant was
    completed in 1999, increasing the capacity of the facility to
    1.1 million tons per year. The Sugar Creek, Missouri plant
    began production in 2002 and also has a capacity of 1.1 million
    tons.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|1998 |  | We finalized the largest acquisition in our
    history when we bought the construction materials businesses of
    Denver, Colorado based Western Mobile, Inc.; Redland Genstar
    Inc. of Towson, Maryland; and the Ontario and New York based
    aggregate operations of Redland Quarries Inc. from Lafarge S.A.
    for $690 million. This acquisition, which we refer to as
    Redland, made us the largest diversified supplier of
    construction materials in North America. We also acquired a
    cement plant in Seattle, Washington, and cement distribution
    facilities and a limestone quarry in British Columbia.                                                                                                                                                                                                                                  
|    
|1999 |  | We began construction of a state-of-the-art
    drywall manufacturing plant in Silver Grove, Kentucky, which
    became operational in June 2000. We also broke ground on an
    almost identical drywall manufacturing plant in Palatka,
    Florida, which became operational in January 2001. These plants
    are the largest single line drywall production facilities in the
    U.S. and have a combined estimated annual capacity of
    1.8 billion square feet of  1/2-inch drywall, tripling
    our then existing drywall capacity. The plants were built to
    satisfy 100 percent of their primary raw material
    requirements by using recycled materials, including reclaimed
    paper and synthetic gypsum.                                                                                                                                         
|    
|2000 |  | We acquired the Presque Isle Corporation, a
    Michigan-based quarry operation. We also completed a merger with
    the Warren Paving & Materials Group, at the time
    Canadas largest privately held supplier of construction
    aggregate. The Warren merger added 23 aggregate operations and
    55 asphalt plants in British Columbia, Alberta, Saskatchewan,
    Ontario and Quebec. These acquisitions added 2 billion tons
    of aggregate reserves and over 25 million tons of annual
    sales volume.                                                                                                                                                                                                                                                                                                                                                   
|    
|2001 |  | In July 2001, we entered into an agreement with
    Lafarge S.A. to manage and operate certain U.S. cement and
    construction materials businesses that Lafarge S.A. obtained in
    its acquisition of U.K.-based Blue Circle Industries PLC. The
    agreement grants us management authority for most of Blue
    Circles U.S. business, which included five full production
    cement manufacturing plants, 11 cement terminals, a slag
    grinding facility, 13 aggregate-producing pits and quarries, 61
    ready-mixed concrete plants and several concrete block
    operations. The agreement provides for a fixed annual management
    fee plus incentives for improving operating results, and
    includes an option to purchase the assets anytime between July
    2002 and December 2004 at a fixed price subject to certain
    adjustments at the

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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  | time of the exercise. In addition to the assets
    covered under the management contract, we also purchased several
    Blue Circle construction material assets in New York and Ontario.                                                                                                                                                                                                                                                                                                                              
|    
|     |  | Also in 2001, we purchased Pine Hill Materials
    Corporation and American Readi-Mix Concrete Corporation, New
    York-based construction materials companies. We also acquired
    Rocky Mountain Construction Materials, an aggregate and
    ready-mixed concrete company based in Colorado; and several
    other smaller operations throughout North America. These
    acquisitions increased our annual production by over
    2 million tons of aggregate and 500,000 cubic yards of
    ready-mixed concrete.
|    
|     |  | In addition, in December 2001 we divested our
    joint-venture interest in Centennial Concrete Pipe &
    Products in Canada.                                                                                                                                                                                                                                                                                                                                                                                          
|    
|2002 |  | In January 2002, we acquired Continental Gypsum,
    a Newark, New Jersey-based gypsum operation. The purchase added
    more than 300 million square feet of  1/2-inch drywall
    capacity to our gypsum operations. This acquisition complements
    our position in the New York City area, in addition to the new
    plants in Silver Grove, Kentucky and Palatka, Florida that serve
    the North Central and Southeast markets.                                                                                
|    
|     |  | In November, we idled our manufacturing
    operations at our gypsum drywall plant in Wilmington, Delaware
    as part of an ongoing strategy to service customers
    predominantly from newer, more efficient plants.                                                                                                                                                                                                                                                                                                 
|    
|     |  | In addition, we divested our Pressure Pipe
    businesses in February 2002 and our Paving Stone operations in
    May 2002 in East Canada.                                                                                                                                                                                                                                                                                                                                                                              
|    
|2003 |  | We completed the sale of our wholly-owned
    subsidiary Lafarge Florida Inc. to Florida Rock Industries, Inc.
    The operations consisted primarily of two cement grinding and
    import facilities.                                                                                                                                                                                                                                                                                                                 



| |                                                                 
| | ----------------------------------------------------------------
| | What were our acquisitions and capital
    improvements in 2003?

In 2003 Lafarge made relatively few acquisitions,
totaling $16.7 million. The two largest were the purchase
of the Whitestone Railyard west of Cleveland and associated
contracts for $9.5 million, and the Rocca Quarry near
Independence, Missouri for $5.6 million. Whitestone adds
1.8 million tons of distribution capacity, and the Rocca
Quarry adds 750 thousand tons of production capacity. Each of
these purchases was made pursuant to our strategy to expand and
develop our aggregates business.

Our business is relatively capital-intensive.
During the three-year period ended December 31, 2003, our
capital expenditures were $755.0 million, principally for
the construction of new facilities and the modernization or
replacement of existing equipment. Of this amount, construction
materials, cement and cement-related products, and gypsum
represented approximately 39 percent, 46 percent and
8 percent, respectively. During the same period, we also
invested approximately $128.9 million in various
acquisitions that expanded our market and product lines. Of this
amount, construction materials and gypsum represented
approximately 75 percent and 25 percent, respectively.
During the three-year period ended December 31, 2003,
operating cash flows and divestment proceeds totaled
$1.3 billion.

In 2003, operating cash flows and divestment
proceeds totaled $492.4 million, while investments (capital
expenditures and acquisitions) totaled $190.6 million.
During 2003, proceeds from the sale of non-strategic assets,
surplus land and other miscellaneous items totaled
$71.2 million, consisting principally of the
$38 million sale in lieu of condemnation of property used
as a cement terminal, to the city of Detroit, Michigan.

In 2004, we expect capital expenditures to total
approximately $250 million to $300 million, excluding
acquisitions. We intend to invest in projects that maintain or
improve the performance of our plants, as well as in acquisition
opportunities that will enhance our ability to compete. 2004
capital expenditures are scheduled to include major developments
in our IT infrastructure, including the convergence to a common
enterprise resource planning system, the replacement of our
cement terminal in Detroit, optimization of our Sugar Creek and
Davenport cement plants, and modernization of the dock facility
at our Texada, British Columbia quarry, as well as routine
replacements of mobile equipment in our construction materials
segment.

4



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| |                               
| | ------------------------------
| | What is our business strategy?

Our ambition is to lead the industry, to be a
step ahead of our competition and become the preferred supplier
in the building materials business. Our business strategy is
comprised of two fundamental elements: performance, and
growth and development.



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Performanceencompasses a range of programs we
    have established to generate superior returns by improving our
    efficiency and optimizing our cost structure while
    simultaneously increasing revenues. These programs include key
    strategic, operational, cost and revenue drivers for each
    product segment, and encourage the rigorous application of best
    management practices in each area on a global basis. Our
    programs were recently expanded to promote greater focus on
    customer orientation and strengthen relationships with our
    customers by competing based on value. The programs include
    analytical methods to increase our understanding of our
    customers and tailor our products and services to meet the
    various needs of customer segments. By utilizing this approach,
    we hope to create additional value for our customers,
    differentiate our product-service offering, and increase our
    profitability.

Our performance improvement programs are designed
to allow the company to produce consistently positive financial
results in both good and bad market climates. During 2003, these
programs helped to offset negative pressures on our financial
results from unfavorable energy and pension costs and maintain
overall operating margins at largely stable levels despite weak
economic conditions.



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Growth and
    development, involves the
    companys effort to expand our business platform, via both
    acquisition and internal development, through the disciplined
    use of investment funds. Our approach is to pursue acquisition
    opportunities that represent a strategic fit with our core
    business lines and meet our financial return criteria, and
    integrate them quickly into the company. We maintain a strong
    balance sheet with sufficient flexibility to fund our operating
    plan in any economic environment, and to capitalize on
    opportunities when they arise.

During the past three years, our ratio of
long-term debt to total capitalization has decreased steadily,
from 20.6 percent in 2001 to 19.1 percent in 2002, and
to 17.1 percent in 2003. Even though there were few
opportunities for top-line growth that met our return criteria
in 2003, the company has greatly expanded its business in recent
years  particularly in aggregates  through
successful acquisitions.

The Construction Materials Segment



| |            
| | -----------
| | Who are we?

We are a leading supplier of ready-mixed concrete
in the U.S. and Canada, and one of the top four producers of
construction aggregates in North America. We are the largest
asphalt and paving operator in Canada after our merger with the
Warren Paving & Materials Group late in 2000. Our
organization expanded further in 2001 when we agreed to manage
the Managed Assets for our majority shareholder, adding
aggregates and ready-mixed concrete operations which account for
12.5 million tons and 3.1 million cubic yards,
respectively, and a large concrete block business. The results
of these operations are not consolidated with ours. However,
acquisitions and internal development have led to a vastly
larger organization from five years ago, as we have nearly
tripled our net sales and operating results.

Our U.S. construction materials operations are
located primarily in Colorado, Maryland, New Mexico, Ohio,
Missouri, New York, and Louisiana. In Canada, we are the only
producer of ready-mixed concrete, asphalt and construction
aggregates with operations extending from coast to coast. Our
operations include ready-mixed concrete plants, crushed stone
and sand and gravel sites, and concrete product and asphalt
plants.

During 2003, 2002, and 2001, our construction
materials segment accounted for 61 percent,
61 percent, and 62 percent, respectively, of
consolidated net sales, after the elimination of intracompany
sales, and 45 percent, 47 percent and 51 percent,
respectively, of consolidated gross profit (net sales minus cost
of goods sold).

5



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##### Table of Contents



We offer a broad range of products. Our main
products are:



|  |                                                                                     
|- | ------------------------------------------------------------------------------------
| | Aggregates (crushed stone, sand or gravel)
    including a full line of graded stone
| 
| | Concrete and masonry sand                                                           
| 
| | Slag aggregate                                                                      
| 
| | Asphalt for road paving and construction                                            
| 
| | Ready-mixed concrete, including specialty products                                  

In addition, in certain regions we offer products
related to our main products, such as:



|  |                                              
|- | ---------------------------------------------
| | Roller compacted concrete                    
| 
| | Concrete pipe                                
| 
| | Pipe couplings, pipeline weights and coatings
| 
| | Concrete brick, block and paving stones      
| 
| | Reinforcing steel                            
| 
| | Structural and architectural precast products
| 
| | Concrete drainage systems                    
| 
| | Other building supplies                      

Aggregates are used as a base material in roads
and buildings and as raw material for concrete, masonry, asphalt
and many industrial processes. Our ready-mixed concrete (a blend
of aggregates, water and cement) is used for a variety of
applications from curbs and sidewalks to foundations, highways
and buildings. Our asphalt (a blend of aggregates and liquid
asphalt cement) is used for paving and construction services.

We also offer a broad range of paving and road
construction services, including:



|  |              
|- | -------------
| | Paving       
| 
| | Base work    
| 
| | Concrete work

The paving and road construction business
involves the construction of roadways using any combination of
paving (construction of the road surface using asphalt), base
work (construction of the foundation for the roads using
aggregates) and concrete work (construction of curb, gutter and
sidewalks using concrete).



| |                                                             
| | ------------------------------------------------------------
| | Where are our construction materials
    facilities located?

We own or have a majority interest in
approximately 900 construction materials locations at
December 31, 2003. In the U.S., we have approximately 250
locations, including 115 aggregate facilities, 70 ready-mixed
concrete plants, 20 asphalt facilities and 15 paving facilities,
mainly located in the following states: Colorado, Louisiana,
Maryland, Missouri, New Mexico, New York and Ohio. In Canada, we
have approximately 675 locations from coast-to-coast, including
300 aggregate facilities, 150 ready-mixed concrete plants, 70
asphalt facilities and 40 paving facilities.

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.



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Where do we get the raw materials for our
    construction materials operations?

The aggregate business consists of the mining,
extraction, production and sale of stone, sand, gravel and
lightweight aggregate such as expanded shale, slag and clay.
Aggregates are employed in virtually all types of construction,
including highway construction and maintenance.

Construction aggregates come in different forms
from different sources. The different types of aggregate are
generally substitutable, depending on the uses and the
corresponding physical specification requirements (granularity,
hardness, etc.) The choice of aggregates used for a particular
purpose depends largely on the local geology and availability.

As aggregates are expensive to transport relative
to the price, the cost of transport will generally limit the
availability of aggregates to what is readily accessible in the
local area. Water-based shipping strategies may be successful
when local geology limits local extraction.

6



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##### Table of Contents



The aggregate manufacturing process varies
slightly depending on whether crushed rock or sand and gravel
are used. Rock (either limestone or hard rock) is blasted from
quarries and then processed (crushed, screened, and classified)
to meet end user specifications. Natural sand and gravel
requires less processing but as with rock also requires grading
and screening to different sizes (generally  1/4 to
4). Rock particularly can have different hardness and
crushing characteristics which makes it suitable for higher
specification uses (e.g. road building).

Our production can be classified as hard rock,
limestone, natural sand and gravel, and other sources, which
include recycled concrete and asphalt, and steel or mine waste.
Our sales are composed of approximately 15% hard rock, 45%
limestone, 35% sand and gravel, and 5% other sources.

Our aggregate reserves are large enough to
provide more than 25 years of production at current levels.
In most markets we are able to replenish supplies as we produce,
either by proving additional reserves, by acquisition of proven
reserves, or by receiving permits to produce aggregates on land
we control. In market areas where reserves are less plentiful, a
limitation of local supply can usually be made up for with
sources more distant but still economical to supply.

The ready-mixed concrete business involves the
mixing of cement with sand, gravel, crushed stone or other
aggregates, admixtures and water to form concrete which is
subsequently marketed and distributed to customers. Concrete mix
designs vary as the product is formulated in various proportions
for different applications. A cubic yard of concrete typically
weighs between 3,700 lbs. and 4,000 lbs. and contains 500 lbs.
of cement. About 3,000 lbs. of aggregates, 60% coarse
(gravel) and 40% fine (sand) make up the balance of
the dry materials.

The asphalt business involves the mixing of dried
aggregates with heated liquid asphalt cement to form asphalt,
which is subsequently sold to our internal paving operations
and/or marketed and distributed to our external paving customers
for the construction of roads and highways.

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.



| |                                                              
| | -------------------------------------------------------------
| | Who buys our construction material products
    and services?

Aggregates are sold primarily to road building
contractors, asphalt and ready-mixed concrete producers. Because
we are vertically integrated, we sell a substantial portion of
our production internally. Of our aggregate production,
approximately 10% is delivered to our ready-mix businesses, 6%
to our asphalt and paving, and 1% to our cement production
(limestone). Ready-mixed concrete is sold primarily to building
contractors and delivered to construction sites by mixer trucks.
Asphalt is sold primarily to our internal operations and/or
independent paving companies. Paving and road construction
services are offered to state, provincial or local government
agencies, as well as private commercial and residential
developers.

We sell our products and services to thousands of
customers. In 2003, no single unaffiliated customer accounted
for more than 10 percent of our total construction
materials sales.



| |                                                    
| | ---------------------------------------------------
| | How do we distribute products to our
    customers?

The cost to transport aggregates, ready-mixed
concrete, asphalt and concrete products is high, and
consequently, producers are typically limited to market areas
within a short distance of their production facilities. We
primarily utilize trucks and rail to transport our products to
the customers. For our aggregates operations located on the
Great Lakes and the west coast, we also take advantage of the
relatively low cost of waterborne transportation.

7



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##### Table of Contents





| |                                                                   
| | ------------------------------------------------------------------
| | How do changes in the seasons and weather
    affect our business?

Demand for aggregates, ready-mixed concrete,
asphalt and concrete products in most of our regions is
seasonal, because construction activity usually diminishes
during the winter, particularly in Canada and more northern
areas of the U.S. where we have a large portion of our
operations. Demand also may be adversely impacted by unfavorable
weather conditions during the construction season. Information
with respect to quarterly financial results is set forth in
Notes to Consolidated Financial Statements 
Note 22 Quarterly Data (unaudited) in Part II,
Item 8, Financial Statements and Supplementary Data, of
this Annual Report, which is incorporated herein by reference.



| |                         
| | ------------------------
| | Who are our competitors?

Most ready-mixed concrete local markets are
served by both large multi-national companies as well as many
small producers. Most ready-mixed concrete companies employ 10
to 20 mixer trucks with annual sales in the $1.5 to
$3.0 million range. Large ready-mixed concrete producers
may have over 100 mixer trucks. Some competitors companies
are vertically integrated and also own cement plants and
aggregate operations.

Both aggregates and asphalt markets are also made
up of numerous producers including large multi-national,
integrated producers and many small producers.

Demand for aggregates, ready-mixed concrete and
asphalt depends largely on regional levels of construction
activity. The aggregates, concrete and asphalt industries are
highly fragmented, with numerous participants operating in
localized markets. Aggregates, concrete and asphalt products are
sold in competition with offerings by other suppliers of the
same product and with substitute products. The size of the
market area for an aggregates quarry, a ready-mixed concrete
plant and an asphalt plant are similar; therefore, the ability
to compete is limited by the relatively high cost of truck and
rail transportation compared with the value of the product.
Proximity to customers is an important criterion. Our
aggregates, ready-mixed concrete and asphalt businesses compete
on the basis of quality, service, reliability and prices in each
market area, and sales are generally made pursuant to orders
from customers who purchase quantities sufficient for their
immediate requirements.

The paving and road construction business is
characterized by the tendering and bidding process and the added
mobility of the paving and road construction operations and
competes similarly on the basis of quality of service,
reliability and price.



| |                
| | ---------------
| | Customer Orders

Our sales of aggregates, ready-mixed concrete and
asphalt do not typically involve long-term contractual
commitments. Our paving and road construction services are
generally offered through a tendering and bidding process. We
believe our production capacity and inventories of products are
sufficient to fill customer orders in the normal course of
business.

The Cement and Cement-Related Products
Segment



| |            
| | -----------
| | Who are we?

Including the Managed Assets, we are the largest
producer of cement and cement-related products in North America
(U.S. and Canada). We operate North Americas broadest
cement distribution system by truck, rail, barge and lake
freighter. Our cement segment was formed by combining several
prominent North American cement companies  Canada Cement
Lafarge, General Portland, National Gypsums Huron Cement
division and the Missouri Portland and Davenport Cement
companies. We also significantly expanded our cement operations
in 2001 with our agreement to manage the Managed Assets which
our majority shareholder, Lafarge S.A., acquired in mid-2001,
the operating results of which, however, are not consolidated
with ours. The Managed Assets include five full production
cement manufacturing plants with a total capacity of
5.5 million short tons, 11 cement terminals and a slag
grinding facility.

8



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##### Table of Contents



We manufacture and distribute a diverse cement
and cement-related product line that includes:

Basic cements in both bulk and bags, including:



|  |         
|- | --------
| | Portland
| 
| | Masonry 

Specialty cements including:



|  |                           
|- | --------------------------
| | Oil well                  
| 
| | Low alkali                
| 
| | High early strength       
| 
| | Moderate heat of hydration
| 
| | Sulfate resistant cements 
| 
| | Silica fume cement        

And cement-related products including:



|  |                
|- | ---------------
| | Fly ash        
| 
| | Slag           
| 
| | Blended cements

Our cements are used in every facet of
residential, institutional, commercial, industrial and public
construction from offices and homes to dams, factories, tunnels,
roads, highways and airports.

We also manufacture and market slag cement, a
cement-related product that in its finished state exhibits
similar properties to Portland cement. The raw material for slag
cement manufacture is a by-product of the iron blast furnace
process, one similar in process control accuracy to our cement
kiln process, thereby ensuring a high level of consistency in
the finished product. We add value to this raw material by
specialized grinding, blending for specific customer
applications and distributing through our extensive cement
distribution and sales network. The product, when combined with
Portland cement and use of technical knowledge, produces
concrete with superior properties for many applications, and we
utilize our technical know-how to ensure the right combination
of performance and economics to the customer.

Another cement-related product is fly ash, a coal
combustion product residue produced by coal burning, electricity
generating power plants. We market this material in virtually
all of our cement geographic market areas utilizing our existing
sales channel to bring the product to the customer. Aside from
adding value by utilizing the existing sales channel, we also
add value in several other ways. As the performance, consistency
and product output levels of fly ash vary over time and by
location, we utilize our logistics know-how and technical
knowledge to optimize delivery of the product and its
performance to the end customer. The value proposition is not
only for concrete applications. We lead the industry in
developing and marketing fly ash into non-concrete applications
such as road base stabilization. Finally, due to the chemical
composition of some fly ashes we are able to utilize it as an
alternative raw material ingredient and/or alternative fuel
source in the cement kiln manufacturing process.

The manufacturing (in the case of slag cement
products) and marketing (both slag and fly ash) are not the only
value drivers of our involvement in these two products. Our
motivation and contribution to the economy at large extends
beyond this direct effect and into the environmental area. Our
management of these products reduces the negative environmental
impact at the source by eliminating the need for solid waste
disposal options. In the case of slag we also reduce the impact
on air pollution at the source. The use of fly ash in our cement
manufacturing process not only supports the environmental added
value at the fly ash source, but adds complimentary
environmental value by reducing the need for raw material
requirements from natural resources for the manufacturing of
cement, such as natural gas, coal and coke. Finally, both
products substantially contribute to the reduction of
CO2 generation per unit of concrete manufactured. In
essence we provide a true recycling solution.

In addition, our wholly-owned subsidiary, Systech
Environmental Corporation, processes industrial hazardous and
non-hazardous waste for use as fuel substitutes for coal,
natural gas and petroleum coke used in heating cement kilns.
Substitute fuels preserve natural resources and manage selected
waste materials, while

9



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##### Table of Contents



at the same time reducing fuel cost for
manufacturing cement. Waste-derived fuels constituted
approximately 10 percent of all fuel used in our cement
operations during 2003.


During 2003, 2002 and 2001 cement and
cement-related products accounted for 31 percent,
31 percent and 33 percent, respectively, of our
consolidated net sales, after the elimination of intracompany
sales, and 52 percent, 51 percent and 54 percent,
respectively, of consolidated gross profit.



| |                    
| | -------------------
| | How is cement made?

Processed cement was discovered by Joseph Aspdin
in 1824 and was called Portland cement because it
resembled a gray stone mined from the island of Portland off the
coast of England. People often confuse cement with concrete.
Cement is a fine powder that is the principle strength-giving
and property-controlling component of concrete. Concrete is a
mixture of cement, aggregate and water that hardens to form a
building material used for everything from sidewalks to
skyscrapers.

While different types of cement vary in their
ingredients, four common elements are found in all types of
cement. They are (from most to least): calcium carbonates
(limestone), silicates (sand), argillaceous material (clay,
shale or kaolin) and iron.

Cement is manufactured by a closely controlled
chemical process:



| |   |                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | first, limestone, sand, clay and iron-rich
    materials are crushed and mixed;                                                                                                                                                                                                    
|
| |  | next, the crushed raw materials undergo a
    grinding process, which mixes the various materials more
    thoroughly and increases fineness in preparation for the kiln
    (this may be done by either a wet or dry process);                                                    
|
| |  | in the wet process, the materials are mixed with
    water to form slurry, which is heated in kilns,
    forming hard pellets called clinker;                                                                                                                                  
|
| |  | in the more fuel efficient dry process, clinker
    is formed by heating the dry raw materials directly without
    adding water;                                                                                                                                                  
|
| |  | in the preheater process, which provides further
    fuel efficiencies, dry raw materials are preheated by air
    exiting the kiln, starting the chemical reaction prior to entry
    of the materials into the kiln;                                                             
|
| |  | in the pre-calciner process, an extension of the
    preheater process, heat is applied to the raw materials,
    increasing the proportion of the chemical reaction taking place
    prior to heating in the kiln and, as a result, increases clinker
    production capacity; and
|
| |  | gypsum is added and the clinker is ground into an
    extremely fine powder called Portland cement.                                                                                                                                                                                



| |                                                      
| | -----------------------------------------------------
| | Where do we get the raw materials to make
    cement?

We obtain the limestone required to manufacture
cement principally from operations we own or in which we have
long-term quarrying rights. These sources are located close to
our manufacturing plants except for the Joppa, Richmond and
Seattle quarries, which are located approximately 70, 80 and 180
miles, respectively, from their plant sites. Quarried materials
are delivered to Joppa, Richmond and Seattle by barge. Each
cement manufacturing plant is equipped with rock crushing
equipment. At Joppa, we own the reserves, but lease the
quarrying rights and purchase limestone from the lessee. At
Whitehall and Kamloops, we subcontract the quarry operations.
Lafarge Canada holds cement manufacturing limestone quarry
rights under quarry leases in Quebec, Nova Scotia, Ontario,
Alberta and British Columbia, 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 we own or
are purchased from suppliers and are readily available.

10



---



##### Table of Contents





| |                          
| | -------------------------
| | Where is our cement made?

Our U.S. plants are primarily concentrated in the
central and midwestern states, extending from the northern Great
Lakes southward along the Mississippi River system. In addition
we have plants in Washington and Pennsylvania. We are the only
cement producer serving all regions of Canada. At
December 31, 2003, we owned and operated 15 full-production
cement manufacturing plants with a combined rated annual clinker
production capacity of approximately 13.6 million tons
consisting of 7.8 million tons in the U.S. and
5.8 million tons in Canada. We also operated several slag
grinding facilities.

The Canadian Portland Cement Associations
Plant Information Summary report that was prepared
as of December 31, 2001, the most recent date for which
information is available, shows that Lafarge Canadas
capacity is the largest of the cement companies in Canada and
represented approximately 34 percent of the total active
industry clinker production capacity in Canada.

A similar report for the U.S. prepared as of
December 31, 2001, shows that our cement manufacturing
plants in the U.S. accounted for an estimated 7 percent
(excluding managed assets) of total U.S. active industry clinker
production capacity.

The following table indicates the location, types
of process and rated annual clinker production capacity of each
of our operating cement manufacturing plants at
December 31, 2003. The total clinker production of a cement
plant might be less than its rated capacity due principally to
product demand and seasonal factors. Generally, a plants
cement production capacity is greater than its clinker
production capacity.

Rated Annual Clinker Production Capacity
of

Cement Manufacturing Plants


(in million short tons)*


|                                                          |  |         |      |          |  |  |     | 
|--------------------------------------------------------- |  | ------- | ---- | -------- |  |  | --- | 
|                                                         
|U.S. Plants                                              
|                                                         
|                                                          |  | Clinker
|Location                                                  |  | Process |      | Capacity
|                                                          |  |         |      |         
|Alpena, Michigan                                          |  |         | Dry  |          |  |  | 2.4 | 
|Davenport, Iowa                                           |  |         | Dry  | **       |  |  | 1.0 | 
|Fredonia, Kansas                                          |  |         | Wet  |          |  |  | 0.4 | 
|Joppa, Illinois                                           |  |         | Dry  |          |  |  | 1.2 | 
|Paulding, Ohio                                            |  |         | Wet  |          |  |  | 0.5 | 
|Seattle, Washington                                       |  |         | Wet  |          |  |  | 0.4 | 
|Sugar Creek, Missouri                                     |  |         | Dry  | **       |  |  | 1.1 | 
|Whitehall, Pennsylvania                                   |  |         | Dry  | ***      |  |  | 0.8 | 
|                                                          |  |         |      |          |  |  |     | 
|Total Capacity                                            |  |         | 7.8  |         
|                                                          |  |         |      |         
|Total 2003 Clinker
        Production                     |  |         | 6.9  |         
|                                                          |  |         |      |         
|2003 production
        as a percentage of total capacity |  |         | 88.0 | %       
|                                                          |  |         |      |         
|                                                         
|Canadian Plants                                          
|                                                         
|                                                          |  | Clinker
|Location                                                  |  | Process |      | Capacity
|                                                          |  |         |      |         
|                                                          |  |         |      |          |  |  |     | 
|Bath, Ontario                                             |  |         | Dry  |          |  |  | 1.1 | 
|Brookfield, Nova Scotia                                   |  |         | Dry  |          |  |  | 0.5 | 
|Exshaw, Alberta                                           |  |         | Dry  | **       |  |  | 1.3 | 
|Kamloops, British Columbia                                |  |         | Dry  |          |  |  | 0.2 | 
|Richmond, British Columbia                                |  |         | Dry  | **       |  |  | 1.1 | 
|St-Constant, Quebec                                       |  |         | Dry  |          |  |  | 1.0 | 
|Woodstock, Ontario                                        |  |         | Wet  |          |  |  | 0.6 | 
|                                                          |  |         |      |          |  |  |     | 
|Total Capacity                                            |  |         | 5.8  |         
|                                                          |  |         |      |         
|Total 2003 Clinker
        Production                     |  |         | 5.1  |         
|                                                          |  |         |      |         
|2003 production
        as a percentage of total capacity |  |         | 87.4 | %       
|                                                          |  |         |      |         




|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | One short ton equals 2,000 pounds.                                                                                                                     
|   
|**  | Preheater, pre-calciner plants. The capacity of
    Exshaws preheater, pre-calciner kiln is 65 percent of
    the plants clinker production capacity.
|   
|*** | Preheater plant.                                                                                                                                       

We own all of our cement plants and the land on
which they are located, free of major encumbrances, except the
Exshaw cement plant and the Kamloops limestone and cinerite
quarries.



| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Exshaw plant is built on land leased from the
    province of Alberta. The original lease was renewed for a
    42-year term commencing in 1992. Annual payments under the lease
    are presently based on a fixed fee per acre.

11



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##### Table of Contents





| |   |                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Kamloops plant, as well as the gypsum quarry
    that serves this plant, is located on land we own. The limestone
    and cinerite quarries are located on land leased from the
    province of British Columbia until March 2022.

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, Missouri 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 manufacturing
plants is in good operating condition.

At December 31, 2003, 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 plant and at our Montreal-East, Quebec
grinding facilities. Excluding the effects of discontinued
operations, we produced approximately 550 thousand short tons of
slag cement during 2003, compared to 475 thousand tons in 2002.



| |                                              
| | ---------------------------------------------
| | The significance of fuel in making
    cement

Fuel represents a significant portion of the cost
of manufacturing cement. We place special emphasis on becoming,
and have become, more efficient in our sourcing and use of fuel.
In general, dry process plants consume significantly less fuel
per ton of output than do wet process plants. At
December 31, 2003, approximately 83 percent and
90 percent of our owned clinker production capacity in the
U.S. and Canada, respectively, used the dry process. The
Portland Cement Association (PCA) estimates that
approximately 81 percent of the U.S. cement industrys
clinker capacity and approximately 93 percent of the
Canadian industrys capacity utilizes dry process
technology.

As an additional means of reducing energy costs,
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. A project
completed in 2002 enabling our Exshaw, Alberta plant to convert
from natural gas to coal resulted in full year of savings in
2003 when natural gas prices remained at high levels.

At December 31, 2003, all of our cement
manufacturing plants in the U.S. and Canada have fuel
flexibility between at least three of the following four base
sources: coal, coke, natural gas and oil. In addition, we use
alternative (waste) fuel sources, such as fuel-quality
waste materials and tire-derived fuel at several of our plants.
Waste fuels constituted approximately 10 percent of the
fuel we used in all of our cement operations during 2003. We
continue to explore the use of alternative fuel sources for most
of our plants.



| |                     
| | --------------------
| | Who buys our cement?

We sell cement to several thousand customers. Our
primary customers are:



| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | manufacturers of ready-mixed concrete and other
    concrete products
|
| |  | contractors throughout Canada and in many areas
    of the U.S.      

The states in which we had the most significant
U.S. sales in 2003 were Michigan and Wisconsin (which together
accounted for 20 percent of total U.S. cement sales). Other
states in which we had significant sales included: Washington,
Ohio, Minnesota, Illinois, New York, Iowa, Missouri and North
Dakota. In 2003, the ten largest states in terms of our cement
sales represented 68 percent of our total cement sales in
the U.S.

In Canada, we made our most significant sales of
cement in Ontario and Alberta, which together accounted for
approximately 52 percent of our total Canadian cement
shipments in 2003. Other provinces in which we had significant
sales included British Columbia and Quebec. Approximately
28 percent of our cement shipments in Canada were made to
affiliates.

Some of our Canadian cement plants are
strategically located to serve both the U.S. and Canadian
markets.

12



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##### Table of Contents



No single unaffiliated customer accounted for
more than 10 percent of our consolidated sales during 2003,
2002, or 2001.



| |                                                    
| | ---------------------------------------------------
| | How do we distribute products to our
    customers?

Our U.S. sales offices are located in the
following states: Iowa, Michigan, Missouri, New York, North
Dakota, Ohio, Pennsylvania, Tennessee, Washington and Wisconsin.

Our Canadian sales offices are located in the
following provinces: Alberta, British Columbia, Manitoba,
Ontario, Quebec and Saskatchewan.

We maintain distribution and storage facilities
at all cement manufacturing and finishing plants and at
approximately 80 other locations including one deep-water ocean
terminal near New Orleans, Louisiana. These facilities are
strategically located to extend the marketing areas of each
plant. Because of freight costs, most cement is sold within a
radius of 250 miles from the producing plant except for
waterborne shipments, which can be economically shipped
considerably greater distances. Several of our Canadian cement
plants also serve the U.S. market. Our cement is distributed
primarily in bulk, but also in bags.

We utilize trucks, rail cars and waterborne
vessels to transport cement from our plants to distribution
facilities or directly to our customers. Transportation
equipment is owned, leased or contracted, as required. In
addition, some of our customers in the U.S. make their own
transportation arrangements and take delivery of cement at our
manufacturing plants or distribution facilities.

Each cement plant has facilities for shipping by
rail and/or by truck. The Richmond, Alpena, Bath, Davenport,
Sugar Creek, Seattle and Joppa plants have facilities for
transportation by water.



| |                                                                   
| | ------------------------------------------------------------------
| | How do changes in the seasons and weather
    affect our business?

Our cement business is seasonal because
construction activity usually diminishes during the winter,
particularly in Canada and more northern areas of the U.S. where
we have a large portion of our operations. Demand also may be
adversely impacted by unfavorable weather conditions during the
construction season. Information with respect to quarterly
financial results is set forth in Notes to Consolidated
Financial Statements  Note 22 Quarterly Data
(unaudited) in Part II, Item 8, Financial
Statements and Supplementary Data of this Annual Report.



| |                         
| | ------------------------
| | Who are our competitors?

The competitive marketing radius of a typical
cement plant for common types of cement is approximately 250
miles except for waterborne shipments, which can be economically
transported considerably greater distances. Consequently, even
cement producers with global operations compete on a regional
basis in each market in which such producers manufacture and
distribute products. No single cement company in the U.S. has a
production and distribution system extensive enough to serve all
U.S. markets. A companys competitive position in a given
market depends largely on the location and operating costs of
its plants and associated distribution terminals. Strong
competition is encountered in each of our primary marketing
areas.

Our operating cement plants located in Canada
represent an estimated 33.8 percent of the rated annual active
clinker production capacity of all Canadian cement plants. We
are the only cement producer serving all regions of Canada. Our
largest competitor in Canada accounted for approximately
17.6 percent of rated annual active clinker production
capacity. Our cement plants operating in the U.S. represented an
estimated 7.4 percent of the rated annual active clinker
production capacity of all U.S. cement plants. Including the
Managed Assets, they represented an estimated 12.7 percent
of such capacity. Our three largest competitors in the U.S.
accounted for approximately 13.1 percent, 12.2 percent
and 6.5 percent, respectively, of the rated annual active
clinker production capacity. These statements regarding our
ranking and competitive position in the cement industry are
based on the PCAs U.S. and Canadian Portland Cement
Industry: Plant Information Summary most recent
report which was prepared as of December 31, 2001.

13



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##### Table of Contents





| |                
| | ---------------
| | Customer Orders

Sales of cement are made on the basis of quality,
service, reliability and prices in each market area, generally
pursuant to orders from customers who purchase quantities
sufficient for their immediate requirements. Our sales of these
products do not typically involve long-term contractual
commitments. The amount of backlog orders, as measured by
written contracts, is normally not significant.

The Gypsum Segment



| |            
| | -----------
| | Who are we?

With our acquisition of two gypsum drywall
manufacturing plants (the Buchanan, New York plant, located
30 miles outside of New York City, and the Wilmington,
Delaware plant) in September 1996, our gypsum group was created.
On January 1, 2000, we acquired Atlantic Group Ltd., a
supplier of gypsum drywall in Newfoundland, Canada. In May 2000,
we acquired Cel-Tex, a joint compound manufacturer in Quebec,
Canada. In January 2002, we acquired Continental Gypsum, an
independent drywall manufacturer in Newark, New Jersey. In
November 2002, we indefinitely idled the Wilmington plant as
part of an ongoing strategy to service customers predominantly
from newer, more efficient plants.

During 1999 and 2000, we constructed two gypsum
drywall plants, one in northern Kentucky, just outside of
Cincinnati, Ohio, and the other in Palatka, Florida. These
plants began operating in 2000 and 2001, respectively, and each
has the capacity to produce up to 900 million square feet
of  1/2-inch drywall a year, which makes them the largest
drywall production facilities in the U.S. 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 facilities have enabled
us to reach a U.S. national market share level of over six
percent.

We offer a full line of gypsum drywall products
and joint compound for:



| |   |           
| | - | ----------
| |  | Partitions
|
| |  | Paneling  
|
| |  | Linings   
|
| |  | Ceilings  

Our products are used for both new construction
and for repair and remodeling.

During 2003, 2002 and 2001, our gypsum operations
accounted for eight percent, seven percent, and five percent,
respectively, of consolidated net sales. In 2003 and 2002
gypsums gross profit represented three percent and one
percent of consolidated amounts, respectively, while in 2001
gross profit was negative. The states in which we had the most
significant sales of gypsum products in 2003 were Florida, New
York, and New Jersey.



| |                            
| | ---------------------------
| | How is gypsum drywall made?

Gypsum is the common term for calcium sulfate
dihydrate. Water molecules are physically locked inside the
crystal structure of the gypsum molecule.

To make drywall:



| |   |                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | gypsum rock or synthetic gypsum is fed into a
    dryer, where surface moisture is removed;                                                                                                                                                                                                                               
|
| |  | then the material is ground to a flour-like
    consistency known as land plaster;                                                                                                                                                                                                                                        
|
| |  | the land plaster is then calcined, or heated,
    into calcium sulfate hemihydrate, also known as stucco. (Gypsum
    is unique because it is the only mineral that can be calcined,
    and yet go back to its original state when rehydrated. It is
    this property which is exploited in the manufacturing process.);
|
| |  | the stucco is blended with water and other
    ingredients in a mixer to form a slurry;                                                                                                                                                                                                                                   

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| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | this slurry is extruded between two continuous
    sheets of paper at the forming station;                                                  
|
| |  | the product travels down a long conveyor line in
    order to give the stucco molecules time to rehydrate and
    recrystallize into gypsum;
|
| |  | as it travels, the gypsum crystals grow into each
    other and into the liner paper, giving the product 3-dimensional
    strength;        
|
| |  | when the product has achieved initial
    set or firmness (approximately 3 minutes), the
    product is cut into lengths;                 
|
| |  | the individual boards are then dried in a kiln to
    remove excess water; and                                                              
|
| |  | the boards are packaged face to face and stored
    until ready for shipment.                                                               



| |                                     
| | ------------------------------------
| | Where do we make our gypsum drywall?

With the addition of the Newark, New Jersey plant
in January 2002 and the idling of the Wilmington, Delaware plant
in November 2002, we now operate five gypsum drywall
manufacturing plants with a combined rated annual production
capacity of approximately 2.65 billion square feet
of  1/2-inch drywall. The rated annual capacity assumes
around-the-clock production of  1/2-inch drywall
365 days a year (8,760 annual hours of operation).
Production as a percentage of total capacity, as calculated in
the table below, is based upon practical capacity, which assumes
8,400 production hours per year, efficiency ratios, which are
set at the top of the industry standards, and our actual product
mix.

|                           |                                                                                   |           |     |       |  
|-------------------------- | --------------------------------------------------------------------------------- | --------- | --- | ----- | -
|Location                   |                                                                                   | Capacity*
|                           |                                                                                   |          
|Buchanan, New York         |                                                                                   |           | 380 |      
|Palatka, Florida           |                                                                                   |           | 900 |      
|Silver Grove, Kentucky     |                                                                                   |           | 900 |      
|Newark, New Jersey         |                                                                                   |           | 340 |      
|Corner Brook, Newfoundland |                                                                                   |           | 125 |      
|                           |                                                                                   |           |     |      
|                           | Total rated capacity for  1/2 inch drywall                                        |           |     | 2,645 |  
|                           |                                                                                   |           |     |      
|                           | Total practical capacity                                                          |           |     | 2,400 |  
|                           |                                                                                   |           |     |      
|                           | Total 2003 drywall production                                                     |           |     | 2,082 |  
|                           |                                                                                   |           |     |      
|                           | 2003 production as a percentage of practical
    capacity as of December 31, 2003 |           |     | 87    | %
|                           |                                                                                   |           |     |      



---



|  |                        
|- | -----------------------
|* | In million square feet.

All of the plants are fueled primarily by natural
gas. Natural gas is purchased on a contract basis with
transportation negotiated under long-term contracts. The gypsum
manufacturing facility of our Newark, New Jersey plant is
located on leased land under an agreement that expires in 2031.
All other active facilities are located on property we own. We
believe that each of our active manufacturing plants is in good
operating condition.



| |                                                           
| | ----------------------------------------------------------
| | Where do we get the raw materials to make our
    drywall?

Currently, we have a requirements contract with
an unaffiliated third party for gypsum rock used in the
production of gypsum drywall at the Buchanan plant. This
contract terminates in December 2008. The Corner Brook plant
obtains its gypsum from an unaffiliated third party whose
contract expires August 2008, with a one-year extension at our
option. The Silver Grove and Palatka plants use synthetic gypsum
instead of natural rock, which is chemically equivalent to
naturally formed gypsum and is a recycled by-product of coal
combustion. We have entered into supply agreements at these
plants for the procurement of synthetic gypsum,

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##### Table of Contents



which call for minimum annual purchases over a
20-year period ending in 2020. Our Newark plant obtains gypsum
rock from an unaffiliated third party through a supply agreement
that expires December 2005.


In 2003, our paperboard liner joint venture with
Rock-Tenn Company in Lynchburg, Virginia, named Seven Hills,
LLC, produced most of our paper requirements, which reduced our
material costs in 2003.



| |                      
| | ---------------------
| | Who buys our drywall?

Our gypsum drywall products are sold to a variety
of:



| |   |                                                          
| | - | ---------------------------------------------------------
| |  | residential and commercial building materials
    dealers
|
| |  | individual and regional/national gypsum
    distributors 
|
| |  | original equipment manufacturers                         
|
| |  | building materials distribution companies                
|
| |  | lumber yards and do-it-yourself home
    centers       

The Silver Grove plants principal market is
centered around Kentucky and adjoining states in the mid-west.
In addition, Silver Grove has the ability to reach distant
markets such as the southeast, Florida and southwest by rail.
The Buchanan plants principal markets include New York,
Pennsylvania and New Jersey. The Newark plants largest
markets are New York, New Jersey, Maryland and Pennsylvania.
Palatka supplies the Southeast including Georgia and parts of
North Carolina. The Corner Brook drywall plants principal
markets include the eastern provinces of Canada. Sales are made
on the basis of quality, service, reliability and prices in each
market area, generally pursuant to orders from customers who
purchase quantities sufficient for their requirements. Customer
orders are taken at a centralized customer service facility.



| |                                                    
| | ---------------------------------------------------
| | How do we distribute products to our
    customers?

We utilize contracted trucks to transport
finished gypsum board to distributors and other customers.
Additionally, the Newark, Silver Grove and Palatka plants are
equipped to ship by rail. The Buchanan plant is in close
proximity to its key markets resulting in an average shipping
distance of 120 miles from the plant. The Corner Brook plant
ships over 25 percent of its production on the island of
Newfoundland. Distribution of drywall produced at our Silver
Grove and Palatka plants is more widely spread than the
northeast plants. In 2003, the average shipping distance for the
Silver Grove and Palatka plants was 300 miles. In many markets
our plants can substitute each other in delivery to our
customers and we can serve most markets east of the Mississippi
River.



| |                                                                          
| | -------------------------------------------------------------------------
| | How do changes in the seasons and in the
    weather affect our business?

Our gypsum drywall business is seasonal because
construction activity usually diminishes during the winter.
Demand also may be adversely impacted by unfavorable weather
conditions during the construction season. Information with
respect to quarterly financial results is set forth in
Notes to Consolidated Financial Statements 
Note 22 Quarterly Data (unaudited) in Part II,
Item 8, Financial Statements and Supplementary Data of this
Annual Report.



| |                         
| | ------------------------
| | Who are our competitors?

The gypsum industry is a large integrated
industry in which a few large companies predominate. These
companies operate gypsum drywall plants and usually own the
gypsum reserves used in manufacturing the drywall. They also
sell gypsum for use in Portland cement production, agriculture
and other manufactured gypsum products.

Gypsum drywall producers primarily compete on a
regional basis due to the cost of transportation. 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.

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Managed Assets

We entered into a Management Agreement dated
July 11, 2001 with Lafarge S.A. to manage and operate
certain U.S. cement and construction materials businesses that
Lafarge S.A. obtained in its acquisition of U.K.-based Blue
Circle Industries PLC on that date. Pursuant to that agreement,
we manage most of Blue Circles U.S. businesses, including
five full production cement manufacturing plants (with a total
capacity of 5.5 million short tons), 11 cement
terminals, a slag grinding facility, 15 aggregate-producing
pits and quarries, 72 ready-mixed concrete plants and several
concrete block operations. These businesses remain the property
of Lafarge S.A. and their operating results are not consolidated
with ours. For managing these businesses, we receive a fixed
annual management fee plus potential incentive fees for
improving operating results. As contemplated by our agreement,
we manage the Blue Circle businesses in conjunction with our own
so as to maximize cost savings and synergies for both Lafarge
S.A. and for us. The management agreement automatically renews
each calendar year unless either party gives the other at least
six months notice of its intention to terminate the agreement.

We are reimbursed for costs and expenses we incur
that are directly attributable to the businesses we manage, as
well as an allocation of selling, general and administrative
costs that we incur in our cement operations. We are also
reimbursed for payroll and other related costs and expenses that
arise from our employment of those individuals who carry on the
businesses we manage. We employ these individuals pursuant to
the terms of the Supplemental Agreement Regarding Employees and
Employee Benefits dated as of December 21, 2001 which we
entered into with Lafarge S.A. Pursuant to that agreement, Blue
Circle employees at December 31, 2001 became our employees
and individuals hired thereafter in connection with the managed
businesses were employed by us.

We also entered into an Option Agreement with
Lafarge S.A. dated July 11, 2001 pursuant to which we may
purchase the assets we manage for a fixed price of
$1.4 billion, subject to certain adjustments at the time of
the exercise. We may exercise this option anytime through
December 31, 2004. If we exercise the option, the
Management Agreement will terminate. Conversely, if we choose
not to exercise the option, we may continue to manage the assets
for Lafarge S.A. unless either we or Lafarge S.A. chooses to
terminate the Management Agreement.

If the Management Agreement terminates other than
in connection with our exercise of the option, we are to be
reimbursed for any cost, expense or financial consequence
arising from the structural separation of our business from that
which we are managing, including costs or expenses we may incur
in reducing our management structure to manage only our
operations. The Supplemental Agreement Regarding Employees and
Employee Benefits provides that upon termination of the
Management Agreement other than through our exercise of the
option, those individuals who operate the managed businesses are
to be returned to the employment of the Blue Circle entities.
That agreement also states that we are to be reimbursed for all
costs and expenses associated with returning such employees to
the Blue Circle entities or their termination of employment with
us.

Trademarks and Patents

We have more than 200 patents and trademarks in
use or pending for innovations in building materials. They
relate to construction materials, cement and cement-related and
gypsum products including our trademarked, high performance
concrete, cement and gypsum products for commercial,
agricultural, industrial and public works construction. Our
trademarked concrete mix designs, including Agilia®,
Futurecrete®, Agrifarge® 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, we have a licensing agreement to 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.

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Research, Development and
Engineering

We conduct research and development activities
for the cement and cement-related products segments
products at our laboratory located in Montreal, Canada, which we
believe is one of the largest private laboratories in the North
American cement industry. In addition, the Lafarge Group shares
its new product developments and enhancements for the
construction industry with the construction materials segment,
the cement and cement-related products segment, and gypsum
segment and we have access to their state-of-the-art research
and development resources. We are party to three agreements with
Lafarge S.A. concerning the sharing of costs for research and
development, strategic planning and marketing. Our subsidiary,
Systech, is engaged in research and development in an effort to
further develop technology to handle additional waste materials.
Research and development costs, which are charged to expense as
incurred, were $5.1 million, $5.1 million and
$7.2 million for 2003, 2002 and 2001, respectively. This
includes amounts we accrued for technical services rendered by
Lafarge S.A., under the terms of the agreements discussed above,
of $4.5 million, $4.2 million and $5.8 million
during 2003, 2002 and 2001, respectively. We also participate in
various trade associations that are involved in research and
development.

Insurance Programs

Lafarge North America maintains a comprehensive
insurance program to protect the company from certain types of
property and casualty losses. The program utilizes commercial
insurance and the companys two captive insurance
companies. Commercial property insurance is purchased to insure
against losses to plants and equipment. The property insurance
provides replacement cost coverage. Additionally, the property
policy provides business interruption coverage for the cement
manufacturing plants. Policy terms and deductibles are in line
with coverage available in the market.

The company also maintains insurance for its
risks associated with workers compensation, auto liability and
general liability exposures. The deductibles on these coverages
range from $1 million to $2.5 million per claim.
Lafarge North Americas captive insurance companies are
used to fund losses below these amounts. Above these amounts,
the company purchases commercial insurance. The company
maintains other insurance programs as appropriate. The company
believes the insurance programs, policy limits and deductibles
are appropriate for the risks associated with its business and
in line with coverage available in the market.

Who Are Our Employees?

The total number of people we employ varies
significantly on a seasonal basis, from approximately 14,800 in
the winter months to several thousand more during the peak
months of the summer. Measured at December 31, 2003, we
employed approximately 14,800 people, including 2,650
individuals operating the managed assets.

As of December 31, 2003 (including managed
assets), the cement and cement-related products employed
approximately 1,600 hourly workers and 2,000 salaried workers;
construction materials employed over 7,000 hourly and nearly
3,000 salaried workers; gypsum had approximately 200 hourly and
500 salaried employees. The corporate offices comprised
approximately 450 salaried employees. Of the workers operating
the managed assets, close to 2,000 were hourly employees.

The following section details the status of
collective bargaining agreements in each business. Overall, we
consider our relations with our employees to be good.



| |                       
| | ----------------------
| | Construction Materials

In the Eastern U.S. region we have 25 collective
bargaining agreements with 6 major labor unions. In 2003 we
concluded negotiation of an initial agreement with 1 new
bargaining unit and began bargaining with 3 others. Of the 8
agreements expiring in 2004, we have successfully completed one
agreement. This agreement is significant in that it is the first
in which Ready-Mix drivers are compensated on a pay-by-load
rather than hourly basis. Additionally we are in negotiations
with a newly formed bargaining unit which went on strike for

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7 days in December 2003. We expect the
balance of the 2004 negotiations to be completed by end of the
third quarter without disruption.


In the Western U.S., our hourly workforce is
covered by 25 collective bargaining agreements with three major
labor unions. During 2003, one collective bargaining and benefit
agreement was successfully negotiated with union bargaining
groups. In 2003, our employees in the western U.S. switched from
health and dental insurance plans provided by the Teamsters to
the companys plan. There were no work stoppages during
2003.

There are 122 collective agreements in our
Construction Materials Operations in Eastern Canada. Employees
are represented by, and bargaining relationships are maintained
with, ten different trade union organizations. For the non-union
hourly workforce, employee relations are maintained through a
direct relationship with local management in the respective
business units. In 2003, thirty agreements expired and came due
for renewal, and there was no industrial disruption through
either strike and/or lockout during the year. Twenty four of
these thirty agreements were concluded in 2003, while
negotiations are ongoing for the remaining six.

For 2004, another 31 collective agreements will
come due for renewal. Five of these agreements are in Quebec and
one renewal will take place in New Brunswick. The remainder of
the renewals will occur in the Province of Ontario. We do not
foresee any major disruption in 2004 as a result of work
stoppages.

In Western Canada, there are 55 collective
agreements with a variety of different unions. Ten agreements
are negotiated through multi-employer associations. During 2003,
13 collective bargaining agreements were successfully
re-negotiated without labor disruption. We continue to negotiate
8 collective bargaining agreements (including 5 multi-employer
agreements) that expired during 2003, with no work stoppage
anticipated. During 2004, a further 17 collective bargaining
agreements will expire. These agreements are expected to be
renewed without labor disruption.



| |                                   
| | ----------------------------------
| | Cement and Cement-Related Products

The majority of our U.S. hourly employees are
represented by labor unions. During 2003, labor agreements were
negotiated at the Duluth, Minnesota; Superior, Wisconsin;
Toledo, Ohio; Oswego, New York; and Chicago, Illinois
distribution terminals. During 2004, labor agreements will
expire at the Sugar Creek, Missouri and the Paulding, Ohio
cement plants. In addition the contract at the East Chicago,
Indiana slag plant and the distribution agreement at Saginaw,
Michigan will also expire. We expect the negotiations to be
successfully concluded without work stoppages.

Substantially all of our Canadian hourly
employees are covered by labor agreements. In 2003, the
collective agreements for our plants at Woodstock, Ontario and
Kamloops, British Columbia have been renewed without any work
stoppage. In 2004 the Richmond, British Columbia plant and the
Edmonton, Alberta terminal are up for renewal. These agreements
are expected to be renewed without labor disruption.



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

Approximately half of gypsums hourly
employees are covered by labor agreements. Both our Silver
Grove, Kentucky and Palatka, Florida facilities have non-union
workforces. Our relationship with our employees is good at these
facilities.

We successfully completed negotiations to renew
contracts with two unions at our Buchanan, New York plant. The
new agreements expire in 2007. We also have an agreement with
the union in Newark that extends through 2007. We consider
relations with our hourly employees to be good.

All of our hourly employees at our Corner Brook,
Newfoundland drywall manufacturing facility will be covered by a
new labor agreement that is currently in negotiation. Our
relationship with employees in our Canadian facilities is good.

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Environmental Matters

Our operations, like those of other companies
engaged in similar businesses, involve the use, release,
discharge, disposal and clean up of substances regulated under
federal, state, provincial and/or local environmental protection
laws and regulations. Many of these laws and regulations are
technically and legally complex and pose significant compliance
challenges. New laws are enacted and regulations adopted from
time to time. The cost to comply with such new rules cannot be
estimated until the manner in which they will be implemented is
more accurately defined. Nonetheless, we regularly monitor and
review our operations, procedures and policies for compliance
with existing laws and regulations, new rules that are
promulgated and laws and regulations that we anticipate will be
enacted from time to time.

Cement plants that burn fuel-quality wastes are
subject to emission limits and other requirements under the
federal Resource Conservation and Recovery Act
(RCRA) and Boiler and Industrial Furnaces
(BIF) regulations. Two of our U.S. cement plants
(Paulding, Ohio and Fredonia, Kansas) currently burn
fuel-quality wastes pursuant to existing applicable permits. We
are considering the use of waste-derived fuels at several other
cement plants. Before doing so, we will have to obtain
applicable permits and demonstrate compliance with all
applicable requirements.

Many of our cement manufacturing plants produce
cement kiln dust (CKD) as a by-product. To date, CKD
has been excluded from regulation as a hazardous waste under
RCRA. After several years of reviewing potential CKD regulatory
options, EPA proposed a state CKD management approach. If
finalized by EPA, this approach could result in no formal
federal regulation of CKD. EPA, however, would provide guidance
to states under a state CKD management approach. We regularly
assess our CKD management practices in both the U.S. and Canada
to minimize our potential costs of our CKD production. We have
voluntarily taken certain remedial steps and employed certain
industry best practices to manage our CKD. We also routinely
assess and modify our process operations, evaluate and use
alternative raw materials, and implement new technologies in an
attempt to reduce the generation of CKD.

Pursuant to the Clean Air Act Amendments of 1990,
the EPA in 1999 promulgated final air toxics regulations for a
broad spectrum of industrial sectors, including portland cement
manufacturing. The maximum achievable control technology
(MACT) standards require plants to install the best
feasible control equipment for certain hazardous air pollutants.
We assessed all our U.S. cement plants that are subject to the
new MACT requirements to determine what we needed to do to
comply with the new MACT requirements. Costs associated with
these actions have been incorporated in our operating and
capital budgets. We do not anticipate that ongoing MACT
compliance costs will materially impact our financial position,
results of operations or liquidity.

Pursuant to the federal operating permit and fee
program established under Title V of the 1990 Clean Air Act
Amendments, any U.S. operation of ours which is deemed to be a
major source of air pollution is required to submit
a detailed permit application and to pay recurring permit fees.
Our major sources (primarily in our cement
manufacturing, gypsum drywall and waste-fuel operations) have
been doing so for several years. We have timely submitted all
applicable permit applications. These requirements potentially
may impose significant capital expenditures and operational
expenses for various of our manufacturing operations. However,
we do not believe that they will materially impact our financial
position, results of operations or liquidity.

In the late 1990s, the EPA apparently
changed its interpretation of certain Clean Air Act new source
review/ permitting rules relating to changes in fuel employed in
certain U.S. operations, including those of cement companies.
Under the previous interpretation, use of new fuels was exempt
from new source review/ permitting requirements if the plant at
which new fuels are used was physically capable of using such
new fuels before January 6, 1975. Several of our cement
plants changed fuels in the early 1990s (e.g. to petroleum
coke or to a coal/ coke mixture). The EPA now contends that an
exemption for fuel changes is not available unless the plant at
which the fuel change occurs was built with the express
intention of accommodating the alternate fuel. In 2003, we
responded to requests for information from the EPA concerning
changes in fuel at our cement plants in Alpena, Michigan and
Joppa, Illinois and have held informal discussions with the EPA
concerning new source review compliance at all of our U.S.
cement plants. At this time, we cannot predict the

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impact that the EPAs apparent new rule
interpretation may have on our financial position, results of
operations or liquidity, or our operations in the future.


In 1997, the EPA promulgated revisions to two
National Ambient Air Quality Standards (NAAQS) under
the Clean Air Act. These revisions (regulation of particles 2.5
microns or less in diameter and of photochemical
oxidants  ozone - emissions) are of potential concern
to our operations. Subsequently, the U.S. Court of Appeals for
the District of Columbia refined how EPA is to regulate fine
particulates by level of size: less than 2.5 microns,
between 2.5 and 10 microns, and over 10 microns.
The regulations will require states to collect and analyze data
over several years to determine whether or not they comply with
the fine particulate standards. Non-compliant states must modify
their air quality implementation plans to meet the new
standards. States have until 2007 to submit applicable plans to
the EPA, and compliance is not required until sometime between
2010 and 2012. As required by the Clean Air Act, the EPA is
presently reconsidering the fine particulate NAAQS and a
schedule for future revisions thereto. We do not know when
revised NAAQS will be issued, whether the states in which we
operate will be able to meet new standards, how non-compliant
states will modify their implementation plans and how required
compliance may impact our operations.

In 1998, the EPA clarified its expectations
concerning NOx control strategies and ozone ambient
air quality standards for states in the ozone transport region
(22 states east of the Mississippi River plus Missouri),
ultimately leading to a determination that the NOx
State Implementation Program (SIP) revision call
would now be required to address attainment of the 8-hour ozone
standard in the 22 eastern states. These states have commenced
the NOx SIP revision process and most are to submit
new NOx state implementation plans and regulations to
the EPA by 2004. The EPA generally recommended to the states
that they only require cement plants to reduce NOx by
30 percent from a 1995 baseline. We do not believe that
costs associated with revised state NOx regulations
will materially impact our financial position, results of
operations or liquidity.

Global climate change, or CO2
stabilization/ reduction, remains an issue for large
manufacturing companies like us. Given the cement
industrys significant use of coal and petroleum coke and
that the cement manufacturing process releases CO2
from the calcining of limestone, the consequences of
CO2 reduction measures are potentially significant,
including potential raw material and production limitations
and/or fuel-use or carbon fuel taxes. The Canadian cement
industry, including Lafarge Canada, entered into a voluntary
commitment with the Canadian government to annually improve
energy efficiency by approximately 1 percent per ton of
clinker from 1990 to 2005. So far, we have been able to meet
this commitment. While the U.S. indicated in 2001 that it would
not be a party to the Kyoto Protocol, the Canadian government
ratified the protocol in December 2002. Should Russia ratify the
protocol, it will go into full force and effect. The Canadian
cement industry is now discussing with the Canadian government
how the protocol might be implemented for the cement sector
through some form of industry commitment. In the U.S. the
Portland Cement Association member companies, including Lafarge,
have voluntarily committed to reduce CO2 produced per
ton of cement-related materials by 10 percent between 1990
and 2020. We cannot predict the impact that global climate
change or CO2 stabilization/ reduction initiatives
may have on our operations in the future.

Like many U.S. and Canadian industrial companies,
we have been involved in remedial actions to clean up or to
close historical waste disposal and/or contaminated sites. As
described under Item 3 Legal Proceedings, we are currently
involved in the remediation of one such site. From time to time,
we also have initiated voluntary clean-up activities at certain
of our properties to mitigate long-term liability exposure
and/or in connection with the sale of property. Further, we
periodically review our properties to determine whether
remediation actions may be required and whether our accruals for
such remediation are adequate.

For the years ended December 31, 2003, 2002
and 2001, our capital expenditures and remediation expenses for
environmental matters were not material to our financial
position, results of operations or liquidity. Further, no
enforcement matters were initiated or resolved during, or
remained outstanding at the end of, the year ended
December 31, 2003 that we believe will materially affect
our financial position, results of operations or liquidity.
However, our expenditures for environmental matters have
increased and are likely

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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.


We record environmental accruals when it is
probable that we have incurred a reasonably estimable liability.
Environmental accruals are based on internal studies and
estimates, including estimates of shared third party liability.
We adjust accruals when further information or additional
studies warrant. Environmental accruals generally are
undiscounted estimates of required remediation costs, without
offset of potential insurance or other recoveries. When such
recoveries become probable, we reflect such amounts as
receivables in our financial statements, rather than netting
them against the recorded liability. Recorded environmental
liabilities at December 31, 2003 are not material to us and
while we believe the possibility of incurring material
environmental liabilities in excess of recorded amounts is
remote, we may incur environmental costs in excess of amounts
recorded at December 31, 2003.




Executive Officers of the Company

The following sets forth the name, age and
business experience for the last five years of each of our
executive officers and indicates all positions and offices with
Lafarge held by them.

|                    |  |                                                    |  |     |    | 
|------------------- |  | -------------------------------------------------- |  | --- | -- | 
|Name                |  | Position                                           |  | Age
|                    |  |                                                    |  |    
|Bertrand P. Collomb |  | Chairman of the Board                              |  |     | 61 | 
|Bernard L. Kasriel  |  | Vice Chairman of the Board                         |  |     | 57 | 
|Philippe R. Rollier |  | President and Chief Executive Officer              |  |     | 61 | 
|Dominique Calabrese |  | Executive Vice President and President            |  |     | 48 | 
|                    |  | Eastern Lafarge Construction Materials             |  |     |    | 
|Thomas G. Farrell   |  | Executive Vice President and
        President    |  |     | 47 | 
|                    |  | Western Lafarge Construction Materials             |  |     |    | 
|Jean-Marc Lechêne   |  | Executive Vice President and President            |  |     | 45 | 
|                    |  | Cement Operations                                  |  |     |    | 
|James J. Nealis III |  | Executive Vice President 
        Human Resources |  |     | 56 | 
|Larry J. Waisanen   |  | Executive Vice President and
        Chief         |  |     | 53 | 
|                    |  | Financial Officer                                  |  |     |    | 
|Yvon BrindAmour    |  | Senior Vice President and
        Controller       |  |     | 46 | 
|Todd W. Cunningham  |  | Senior Vice President 
        Strategy and       |  |     | 41 | 
|                    |  | Development                                        |  |     |    | 
|L. Philip McClendon |  | Senior Vice President 
        General Counsel    |  |     | 61 | 
|                    |  | and Secretary                                      |  |     |    | 
|Isaac Preston       |  | Senior Vice President and
        President       |  |     | 44 | 
|                    |  | Gypsum Division                                    |  |     |    | 

Bertrand P. Collomb was appointed to his current
position in January 1989. He has also served as Chairman of the
Board of Lafarge S.A. since August 1989. He served as Chief
Executive Officer of Lafarge S.A. from August 1989 to May 2003.
From January 1989 to August 1989 he was Vice Chairman of the
Board and Chief Operating Officer of Lafarge S.A., and from 1987
until January 1989 he was Senior Executive Vice President of
Lafarge S.A. He served as Vice Chairman of the Board and Chief
Executive Officer of Lafarge from February 1987 to January 1989.

Bernard L. Kasriel was appointed to his current
position in May 1996. He has also served as Vice Chairman of
Lafarge S.A. since January 1995 and as Chief Executive Officer
of Lafarge S.A. since May 2003. He also served as Chief
Operating Officer of Lafarge S.A. from January 1995 to May 2003.
Prior to that he

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served as Managing Director of Lafarge S.A. from
1989 to 1994, Senior Executive Vice President of Lafarge S.A.
from 1987 to 1989 and Executive Vice President of Lafarge S.A.
from 1982 until 1987.


Philippe R. Rollier was appointed to his current
position effective May 2001. He has also served as Executive
Vice President of Lafarge S.A. since 1999. He served as Regional
President of Lafarge S.A.  Central Europe and CIS for
Cement, Aggregates and Concrete, from 1995 to 2001.

Dominique Calabrese was appointed to his current
position in March 2002. Before that he served as Senior Vice
President, Performance and Strategy for the Aggregate and
Concrete Division at Lafarge S.A. from August 1999 to March
2002. Prior to that, from January 1995 to July 1999, he served
as Senior Vice President and President of Lafarge Construction
Materials Eastern Canada Region.

Thomas G. Farrell was appointed to his current
position in March 2002. He previously served as Chief Executive
Officer of Lafarge S.A.s operations in India from 1998 to
March 2002. From 1996 to 1998, he served as Vice President/
General Manager of the Southern Alberta Division of
Lafarges Construction Materials Western Canada Region, and
from 1992 to 1996, he served as Vice President/ General Manager
for an operating unit of Lafarge Betons Granulats in France.
Mr. Farrell joined Lafarge S.A. in 1990, serving as Vice
President of Strategy until 1992.

Jean-Marc Lechêne was appointed to his
current position in January 2002. He previously served as Senior
Vice President and President  Canadian Cement
Operations from September 1999 to December 2001. Prior to that
he served as Executive Vice President of Lafarge S.A.s
cement operations in China from March 1996 to September 2000,
and as Senior Vice President Cement Strategy of Lafarge S.A.
from November 1993 to March 1996.

James J. Nealis III was appointed to his current
position effective February 2004. Prior to that he was Senior
Vice President  Human Resources from January 1999 to
January 2004. From August 1996 to December 1998 he served as
Vice President  International Human Resources for
Lafarge S.A. From January 1994 to August 1996 he served as Vice
President  Human Resources, Cement Group.

Larry J. Waisanen was appointed to his current
position effective February 1998. He previously served as Senior
Vice President and Chief Financial Officer of Lafarge from
January 1996 to February 1998. He served as Assistant General
Manager of Lafarge S.A.s interests in Turkey from May 1992
to December 1995. Prior to that he served as Vice President
Controller of Lafarge S.A. from March 1989 to April 1992.

Yvon BrindAmour was appointed to his
current position in February 2004. Prior to that he was Vice
President and Controller from January 2002 to January 2004. From
July 1999 to December 2001 he served as Vice President and
Controller  Canadian Cement Operations. Prior to
joining Lafarge, he was Vice President  Finance of
Astec Advanced Power Services from December 1998 to July 1999,
and was Vice President  Finance (Europe) of Moore
Corp. from November 1995 to November 1998, and with Nortel
Networks from 1980 to 1995 in positions of increasing
responsibility in finance and human resources.

Todd W. Cunningham was appointed to his current
position effective March 2002. Prior to that he served as
Managing Director  Mergers and Acquisitions for
Marriott International, Inc. from October 1998 to December 2001
and Director of Financing for US Airways Group, Inc. from April
1996 to September 1998.

L. Philip McClendon was appointed to his
current position in January 2002. Prior to that he served as
Vice President, General Counsel and Secretary of Blue Circle
North America from 1992 through 2001. Mr. McClendon began
his career with Georgia-Pacific Corporation in 1974, where he
served as Resident Counsel until 1980, as Group Counsel until
1981, as Associate General Counsel  Litigation until
1983 and as Associate General Counsel  Distribution
Division until 1992.

Isaac Preston was appointed to his current
position in June 2002. He served as Senior Vice
President-Division Projects of Lafarge S.A.s Gypsum
Division from August 1999 to May 2002. From June 1997 to August
1999, he was Vice President Strategy and Development for Lafarge
S.A.s Gypsum Division. Prior to joining Lafarge, he served
as Vice President of Strategy for James Hardie Industries.

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There is no family relationship between any of
our executive officers. None was selected as an officer pursuant
to any arrangement or understanding between him and any other
person. The term of office for each executive officer expires at
the first meeting of the Board of Directors after the next
annual meeting of stockholders following his or her election or
appointment and until his or her successor is elected and
qualifies.

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, Board Governance, and Management
Compensation and Development 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.

All of our cement plant sites (active and closed)
and quarries (active and closed), as well as terminals, grinding
plants, gypsum drywall plants and miscellaneous properties, are
owned by us free of major encumbrances, except the Exshaw cement
plant, the Kamloops limestone and cinerite quarries, and the
Wilmington and Newark drywall plants.



| |   |                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 Kamloops limestone and cinerite quarries are
    located on land leased from the province of British Columbia
    until March 2022.                                                                                                                                                                                        
|
| |  | The Wilmington gypsum drywall facility, which we
    idled in November 2002, is located at the Port of Wilmington,
    Delaware. The site is leased from Diamond State Port
    Corporation, an entity of the Delaware Department of
    Transportation. Assuming no early termination, the lease expires
    in November 2020.
|
| |  | 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 land, quarry, buildings and construction in
progress 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.

Limestone quarry sites for our cement
manufacturing plants are owned and are conveniently located near
each plant, except for Joppa, Richmond and Seattle quarries
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.

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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 have ready-mixed concrete and construction
aggregate operations extending from coast-to-coast in Canada.
Our U.S. activities are concentrated in the Rocky Mountain,
midwestern, north-central and northeast states and Louisiana. We
have almost 1,000 locations that offer an extensive line of
construction materials, consisting primarily of crushed stone,
sand, gravel and other aggregate; ready-mixed concrete; concrete
products such as pipe, brick, block, paving stones and utility
structures; asphalt paving and road construction services; and
dry bagged goods.

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.




Item 3.     LEGAL
PROCEEDINGS

In June 2001, Lafarge Canada Inc.
(LCI) paid Canadian $15.6 million
(approximately U.S. $10 million), representing its share of
the damages awarded to the plaintiffs in a lawsuit originating
in 1992 arising from claims of building owners and other
plaintiffs regarding defective concrete foundations. In December
2002, the Ontario Court of Appeal confirmed the trial
courts decision on LCIs insurance coverage according
to which LCI is entitled to be reimbursed by its insurers for
most of the damages it paid to the plaintiffs, and for most of
the defense expenses and third party costs it paid in the
lawsuit. In August 2003, the Supreme Court of Canada dismissed
the application made by certain of LCIs excess insurers
for leave to appeal the Court of Appeals decision. We have
already expensed the amounts not payable by the insurers. LCI is
also involved as a defendant in a related class action initiated
in 1999. Approximately 215 homeowners have joined 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.

On March 28, 2001, Dunn Industrial Group,
Inc. (Dunn Industrial) filed a lawsuit against us
and the City of Sugar Creek, Missouri in the Circuit Court of
Jackson County, Missouri. In the suit, Dunn Industrial, the
general contractor for the construction of our new cement plant
in Sugar Creek, Missouri, alleges that we expanded the scope of
work expected of Dunn Industrial in the construction of the
plant without commensurate increases in time required for
performance and amounts to be paid to Dunn Industrial. In
connection therewith, the suit alleges breach of contract,
quantum meruit, breach of warranty and negligent
misrepresentation and seeks foreclosure of mechanics liens
against us and the City of Sugar Creek, Missouri as well as
damages. The trial court ruled that the issues raised by Dunn
Industrial need not be arbitrated but rather should be
litigated. In December 2002, the Missouri appellate court
reversed the trial courts ruling and agreed with us that
Dunn Industrial must arbitrate its claims. Upon further appeal
by Dunn Industrial, the Missouri Supreme Court upheld the lower
appellate courts ruling and agreed that Dunn Industrial
must arbitrate its claims. In its demand for relief in the
arbitration, Dunn Industrial claims damages in excess of
$120.5 million. We have filed certain counter claims, and
we believe that Dunn Industrials claims are without merit
and are vigorously defending our position in the arbitration.

Currently, we are 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 predecessors 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. We understand that the Department of Defense has
accepted a substantial share of responsibility for the
sites remediation and is pursuing a remediation plan with
the EPA. The suit has otherwise been dormant for several years.
We believe that this matter will not have a material impact on
our financial condition.

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On October 27, 2003, we received an order of
the Natural Resources and Environmental Protection Cabinet of
the Commonwealth of Kentucky assessing a $250,000 penalty for
certain air quality violations relating to our storage of
synthetic gypsum at our drywall manufacturing plant in Silver
Grove, Kentucky. The order also directed us to adopt adequate
air pollution control, monitoring and record keeping measures
with respect to our storage of gypsum at the plant, which we
have already implemented.

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. In the suit, USG seeks
unspecified damages and certain injunctive relief relating to
the patent. The suit is in the discovery stage and we are
defending against USGs allegations. We believe that this
matter will not have a material impact 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, 2003, liabilities recorded for the
environmental obligations and other legal actions are not
material to our financial statements. Although 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, 2003. However, we have concluded
that the possibility of material liability in excess of the
amount reported in the December 31, 2003 Consolidated
Balance Sheet is remote.

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.




Item 4.     SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS

None during the fourth quarter ended
December 31, 2003.




PART II




Item 5.     MARKET
FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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 February 20, 2004, 69,708,627 shares of
Common Stock (Common Stock) were outstanding and
held by 3,810 record holders. In addition, on February 20, 2004,
4,288,511 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 6,839 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.

26



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##### Table of Contents






Item 6.     SELECTED
CONSOLIDATED FINANCIAL DATA

|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |       |         |    
|--------------------------------------------- | ------------------------------------------------------- | -------------------------------------- | ------- | ----- | ------- | ---- | ------- | ----- | ------- | ---- | ------- | ----- | ------- | --- | ------- | ----- | ------- | --- | ------- | ----- | ------- | ---
|                                              |                                                         |                                       
|                                              |                                                         | Years Ended December 31               
|                                              |                                                         |                                       
|                                              |                                                         | 2003                                   |         | 2002  |         | 2001 |         | 2000  |         | 1999
|                                              |                                                         |                                        |         |       |         |      |         |       |         |     
|                                              |                                                         |                                       
|                                              |                                                         | (in millions except as indicated by *)
|Operating results                             |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|Net sales                                     |                                                         | $                                      | 3,318.9 |       |         | $    | 3,160.1 |       |         | $    | 3,323.0 | (a)   |         | $   | 2,787.6 | (a)   |         | $   | 2,721.6 | (a)  
|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|EBIT(d)                                       |                                                         | $                                      | 411.7   |       |         | $    | 400.9   |       |         | $    | 401.1   |       |         | $   | 430.7   |       |         | $   | 481.6   |      
|Interest expense, net                         |                                                         |                                        | (53.7   | )     |         |      | (42.7   | )     |         |      | (47.9   | )     |         |     | (26.9   | )     |         |     | (44.8   | )    
|Minority interests                            |                                                         |                                        | (7.4    | )     |         |      | (8.4    | )     |         |      | (7.0    | )     |         |     |        |       |         |     |        |      
|Income taxes                                  |                                                         |                                        | (133.2  | )     |         |      | (93.1   | )     |         |      | (112.1  | )     |         |     | (146.4  | )     |         |     | (161.4  | )    
|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|Earnings from continuing operations           |                                                         |                                        | 217.4   |       |         |      | 256.7   |       |         |      | 234.1   | (b)   |         |     | 257.4   | (b)   |         |     | 275.4   | (b)  
|Discontinued operations, net of tax           |                                                         |                                        | 66.3    |       |         |      | 11.7    |       |         |      |        |       |         |     |        |       |         |     |        |      
|Change in accounting principle, net of tax    |                                                         |                                        | (3.2    | )     |         |      |        |       |         |      |        |       |         |     |        |       |         |     |        |      
|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|Net Income                                    |                                                         |                                        | 280.5   |       |         |      | 268.4   |       |         |      | 234.1   |       |         |     | 257.4   |       |         |     | 275.4   |      
|                                              | Depreciation                                            |                                        |         | 192.8 |         |      |         | 182.2 |         |      |         | 194.2 |         |     |         | 168.3 |         |     |         | 168.3 |        
|                                              | Gain on sale of discontinued operations, net of
    tax |                                        |         | (55.2 | )       |      |         |      |         |      |         |      |         |     |         |      |         |     |         |      |        
|                                              | Other items not affecting cash                          |                                        |         | (11.7 | )       |      |         | (26.7 | )       |      |         | (5.2  | )       |     |         | 61.9  |         |     |         | (45.2 | )      
|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|Net Cash Provided by Operations               |                                                         | $                                      | 406.4   |       |         | $    | 423.9   |       |         | $    | 423.1   |       |         | $   | 487.6   |       |         | $   | 398.5   |      
|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|Net Cash Used for Investing                   |                                                         | $                                      | 83.5    |       |         | $    | 191.2   |       |         | $    | 383.2   |       |         | $   | 564.0   |       |         | $   | 390.0   |      
|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|Net Cash Provided (Consumed) by
    Financing |                                                         | $                                      | (126.2  | )     |         | $    | (85.8   | )     |         | $    | (42.9   | )     |         | $   | 61.1    |       |         | $   | (61.1   | )    
|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|Financial Condition at
    December 31        |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|Working Capital                               |                                                         | $                                      | 1,083.0 |       |         | $    | 597.9   |       |         | $    | 345.4   |       |         | $   | 336.1   |       |         | $   | 626.6   |      
|Property, plant and equipment, net            |                                                         |                                        | 2,346.0 |       |         |      | 2,217.9 |       |         |      | 2,195.1 |       |         |     | 2,122.4 |       |         |     | 1,618.3 |      
|Other assets                                  |                                                         |                                        | 754.4   |       |         |      | 696.4   |       |         |      | 738.5   |       |         |     | 703.6   |       |         |     | 539.6   |      
|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|                                              |                                                         | Total Net Assets                       |         | $     | 4,183.4 |      |         | $     | 3,512.2 | (c)  |         | $     | 3,279.0 | (c) |         | $     | 3,162.1 | (c) |         | $     | 2,784.5 | (c)
|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|Long-term debt                                |                                                         |                                        | 715.4   |       |         | $    | 671.0   |       |         | $    | 674.6   |       |         | $   | 687.4   |       |         | $   | 710.3   |      
|Other long-term liabilities and minority      |                                                         |                                        | 808.4   |       |         |      | 681.5   |       |         |      | 607.3   |       |         |     | 582.5   |       |         |     | 351.3   |      
|Shareholders equity                           |                                                         |                                        | 2,659.6 |       |         |      | 2,159.7 |       |         |      | 1,997.1 |       |         |     | 1,892.2 |       |         |     | 1,722.9 |      
|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|                                              |                                                         | Total Capitalization                   |         | $     | 4,183.4 |      |         | $     | 3,512.2 |      |         | $     | 3,279.0 |     |         | $     | 3,162.1 |     |         | $     | 2,784.5 |    
|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      
|Total Assets                                  |                                                         | $                                      | 4,766.7 |       |         | $    | 4,161.8 |       |         | $    | 4,117.6 |       |         | $   | 3,902.6 |       |         | $   | 3,293.4 |      
|                                              |                                                         |                                        |         |       |         |      |         |       |         |      |         |       |         |     |         |       |         |     |         |      



---



|    |                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Net sales from continuing operations include
    $90.2, $94.2 and $99.5 for the years ended December 31,
    2001, 2000 and 1999, respectively, related to the divested
    operations of Lafarge Florida Inc. (unaudited).                                                                                         
|   
|(b) | Earnings from continuing operations include
    $11.4, $13.0 and $10.7 for the years ended December 31,
    2001, 2000 and 1999, respectively, related to the divested
    operations of Lafarge Florida Inc. (unaudited).                                                                                          
|   
|(c) | Net assets include the divested operations of
    Lafarge Florida Inc., which constitute less than 1% of total net
    assets.                                                                                                                                                                                      
|   
|(d) | EBIT represents earnings from continuing
    operations before interest expense, minority interests and
    income taxes and includes $19.4, $21.8 and $17.8 for the years
    ended December 31, 2001, 2000 and 1999, respectively,
    related to the divested operations of Lafarge Florida Inc.
    (unaudited).

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|                                                            |  |                                        |        |      |  |      |        |      |  |      |        |  |  |   |        |     |  |   |        | 
|----------------------------------------------------------- |  | -------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | --- |  | - | ------ | 
|                                                            |  |                                       
|                                                            |  | Years Ended December 31               
|                                                            |  |                                       
|                                                            |  | 2003                                   |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                                            |  |                                        |        |      |  |      |        |      |  |     
|                                                            |  |                                       
|                                                            |  | (in millions except as indicated by *)
|Common Equity Share Information                             |  |                                        |        |      |  |      |        |      |  |      |        |  |  |   |        |     |  |   |        | 
|Net income  basic*                                         |  | $                                      | 3.83   |      |  | $    | 3.69   |      |  | $    | 3.25   |  |  | $ | 3.51   |     |  | $ | 3.79   | 
|Net income  diluted*                                       |  | $                                      | 3.79   |      |  | $    | 3.64   |      |  | $    | 3.21   |  |  | $ | 3.51   |     |  | $ | 3.77   | 
|Dividends*                                                  |  | $                                      | 0.70   |      |  | $    | 0.60   |      |  | $    | 0.60   |  |  | $ | 0.60   |     |  | $ | 0.60   | 
|Book value at December 31*                                  |  | $                                      | 36.11  |      |  | $    | 29.54  |      |  | $    | 27.70  |  |  | $ | 26.27  |     |  | $ | 23.55  | 
|Average shares and equivalents outstanding                  |  |                                        | 73.3   |      |  |      | 72.8   |      |  |      | 72.0   |  |  |   | 73.3   |     |  |   | 72.6   | 
|Shares outstanding at December 31                           |  |                                        | 73.7   |      |  |      | 73.1   |      |  |      | 72.1   |  |  |   | 72.0   |     |  |   | 73.2   | 
|Statistical Data                                            |  |                                        |        |      |  |      |        |      |  |      |        |  |  |   |        |     |  |   |        | 
|Capital expenditures                                        |  | $                                      | 173.9  |      |  | $    | 247.9  |      |  | $    | 333.2  |  |  | $ | 431.7  |     |  | $ | 315.7  | 
|Acquisitions                                                |  | $                                      | 16.7   |      |  | $    | 31.6   |      |  | $    | 80.6   |  |  | $ | 242.0  | (e) |  | $ | 58.3   | 
|Net income as a percentage of net sales*                    |  |                                        | 8.5%   |      |  |      | 8.5%   |      |  |      | 7.0%   |  |  |   | 9.2%   |     |  |   | 10.1%  | 
|Return on average shareholders equity*                     |  |                                        | 11.6%  |      |  |      | 12.9%  |      |  |      | 12.0%  |  |  |   | 14.2%  |     |  |   | 17.6%  | 
|Long-term debt as a percentage of total
    capitalization* |  |                                        | 17.1%  |      |  |      | 19.1%  |      |  |      | 20.6%  |  |  |   | 21.7%  |     |  |   | 25.5%  | 
|Number of employees at December 31*                         |  |                                        | 14,800 |      |  |      | 15,500 |      |  |      | 15,600 |  |  |   | 14,300 |     |  |   | 10,500 | 
|Exchange rate at December 31
    (Cdn to U.S.)*             |  |                                        | 0.778  |      |  |      | 0.636  |      |  |      | 0.628  |  |  |   | 0.667  |     |  |   | 0.692  | 
|Average exchange rate for the year
    (Cdn to U.S.)*       |  |                                        | 0.715  |      |  |      | 0.637  |      |  |      | 0.646  |  |  |   | 0.673  |     |  |   | 0.673  | 



---



|    |                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(e) | Excludes preferred shares and note payable
    totaling $127.7 million issued in conjunction with the
    Warren Paving & Materials Group merger treated as non-cash
    financing activities for cash flow reporting.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Lafarge North America produces cement,
ready-mixed concrete, aggregates and gypsum drywall. Our
customers are primarily construction contractors or other
businesses involved in the construction industry. Our sales and
earnings come from deliveries of our products or the sales of
construction services, and we receive cash from our customers
within normal payment terms. We are increasing our efforts to
move beyond being a traditional materials provider to competing
based on value. We seek to add value through the application of
our industry-leading expertise, development of new
high-performance materials, and creation of responsive solutions
to customer problems.

As the largest diversified supplier of
construction materials in the United States and Canada, Lafarge
North America operates in an industry in which capital
investment decisions and financial performance are viewed from a
long-term perspective. Because both the raw materials for our
products and the products themselves are expensive to transport,
our businesses are generally very local, with local customers
and local competitors. The structure of the markets in which we
compete, and the demand for individual products, vary for each
business line. In general, demand for our products is influenced
by national and regional economic conditions and trends in the
construction industry. Also, our significant presence in
northern geographic markets makes our operating results
sensitive to weather conditions.

Company management is focused primarily on two
key priorities: delivering higher performance and expanding the
company through disciplined growth and development. Through the
application of proprietary performance programs, management
seeks to leverage key strategic, operational, cost and revenue
drivers in

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each product segment to improve the quality of
our products and services, and mitigate negative cost and market
pressures on our financial results. In 2003, management
intensified our focus on customer orientation. Although we
completed few acquisitions during the year, management continues
to actively identify and evaluate opportunities for top-line
growth, particularly in aggregates, that meet our financial
return criteria.


Summary of 2003 Results and Outlook

Our operating performance in 2003 benefited
somewhat from the improvement in U.S. and Canadian economic
growth as well as the favorable Canadian exchange rate. Low
interest rates continued to stimulate residential construction,
but state fiscal deficits constrained highway construction and
other public projects. Our results have also been affected by
weather patterns, as the unusually wet winter and record spring
rainfall slowed construction and paving activities in many of
our markets in the first half year of 2003. The strong
improvement in market conditions in the second half of the year,
combined with good operating performance in our plants, allowed
us to recover almost all of the shortfall from the first half of
the year by year-end as we generated 88 percent of our full year
earnings in the last six months of the year.

Overall, our income from continuing operations,
before corporate and unallocated expenses, was in line with
2002. Although pension and postretirement expense increased
$34.6 million, our results were also favorably impacted by
the stronger Canadian dollar. Cement profitability was equal to
last year as higher volumes and higher prices in Canada offset
weaker U.S. cement prices and increased pension expense. Our
gypsum business returned to profitability in the second half of
the year for the first time since December 2000 due to a
combination of price and volume increases and improved
manufacturing performance. Construction materials operating
income was 7 percent below last year. Profitability of the
aggregate segment was in line with last year, but was offset by
lower results of ready-mixed concrete, primarily due to weak
conditions in western U.S. markets, as well as the negative
performance and our exit from portable highway paving activities
in some western states and higher pension costs.

Net income in 2003 was $280.6 million, or
$3.79 per share diluted, compared with net income of
$268.4 million, or $3.64 per share diluted in 2002. There
were a number of specific items affecting our earnings in both
2003 and 2002. In 2003, net income includes net income from
discontinued operations of $66.3 million, or $0.90 per
share diluted, compared with $11.7 million, or $0.16 per
share diluted in 2002. In addition, in 2003, net income includes
$11.3 million, or $0.15 per share related to a divestment
gain from the relocation of the companys Detroit, Michigan
cement terminal, offset by an increase in our Canadian deferred
tax provision due to the enactment in December 2003 of higher
corporate tax rates in Ontario. The 2002 results contain a net
gain of $28.7 million, or $0.39 per share diluted from
one-time tax adjustments and a gain on the sale of the
companys Canadian paving stone business, offset by a
charge for the idling of gypsum plant in Wilmington, Delaware.

Looking forward to 2004, our earnings comparison
will be negatively affected by the absence of income from
discontinued operations and the $31 million pre tax gain
realized on the Detroit cement terminal. Outside of these large
non-operating items, management is cautiously optimistic about
the companys 2004 prospects. At this time, we anticipate
that we can achieve price improvement in most of our products
and markets in 2004. In addition, we expect further cost and
revenue benefits in 2004 from continued implementation of our
performance programs in all of our product lines. We also expect
an increase in pension and post retirement expense of
approximately $20 million dollars in 2004.

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

29



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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:

Construction
Materials the production
and distribution of construction aggregate, ready-mixed
concrete, other concrete products and asphalt, and the
construction and paving of roads.

Cement and Cement-Related
Products 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.

|                                                                                             |       |                         |         |         |   |      |         |         |   |   |         |         |  
|-------------------------------------------------------------------------------------------- | ----- | ----------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                             |       |                        
|                                                                                             |       | Years ended December 31
|                                                                                             |       |                        
|                                                                                             |       | 2003                    |         | 2002    |   | 2001
|                                                                                             |       |                         |         |         |   |     
|                                                                                             |       |                        
|                                                                                             |       | (in millions)          
|Net Sales from Continuing Operations                                                         |       |                         |         |         |   |      |         |         |   |   |         |        
|Construction materials                                                                       |       | $                       | 2,032.5 |         |   | $    | 1,943.0 |         |   | $ | 2,073.8 |        
|Cement and cement-related products                                                           |       |                         | 1,198.3 |         |   |      | 1,127.2 |         |   |   | 1,238.4 | (a)    
|Gypsum                                                                                       |       |                         | 254.3   |         |   |      | 232.7   |         |   |   | 152.4   |        
|Eliminations                                                                                 |       |                         | (166.2  | )       |   |      | (142.8  | )       |   |   | (141.6  | )      
|                                                                                             |       |                         |         |         |   |      |         |         |   |   |         |        
|                                                                                             | Total |                         | $       | 3,318.9 |   |      | $       | 3,160.1 |   |   | $       | 3,323.0 |  
|                                                                                             |       |                         |         |         |   |      |         |         |   |   |         |        
|Gross Profit from Continuing
    Operations                                                  |       |                         |         |         |   |      |         |         |   |   |         |        
|Construction materials                                                                       |       | $                       | 335.5   |         |   | $    | 341.4   |         |   | $ | 377.1   |        
|Cement and cement-related products                                                           |       |                         | 384.9   |         |   |      | 368.7   |         |   |   | 399.1   |        
|Gypsum                                                                                       |       |                         | 19.3    |         |   |      | 9.6     |         |   |   | (42.0   | )      
|                                                                                             |       |                         |         |         |   |      |         |         |   |   |         |        
|                                                                                             | Total |                         |         | 739.7   |   |      |         | 719.7   |   |   |         | 734.2   |  
|                                                                                             |       |                         |         |         |   |      |         |         |   |   |         |        
|Operational Overhead and Other
    Expenses                                                  |       |                         |         |         |   |      |         |         |   |   |         |        
|Construction materials                                                                       |       |                         | (151.8  | )       |   |      | (144.6  | )       |   |   | (141.5  | )      
|Cement and cement-related products                                                           |       |                         | (94.4   | )       |   |      | (77.6   | )       |   |   | (85.2   | )      
|Gypsum                                                                                       |       |                         | (24.3   | )       |   |      | (25.9   | )       |   |   | (27.4   | )      
|                                                                                             |       |                         |         |         |   |      |         |         |   |   |         |        
|                                                                                             | Total |                         |         | (270.5  | ) |      |         | (248.1  | ) |   |         | (254.1  | )
|                                                                                             |       |                         |         |         |   |      |         |         |   |   |         |        
|Income From Continuing Operations                                                            |       |                         |         |         |   |      |         |         |   |   |         |        
|Construction materials                                                                       |       |                         | 183.7   |         |   |      | 196.8   |         |   |   | 235.6   |        
|Cement and cement-related products                                                           |       |                         | 290.5   |         |   |      | 291.1   |         |   |   | 313.9   | (b)    
|Gypsum                                                                                       |       |                         | (5.0    | )       |   |      | (16.3   | )       |   |   | (69.4   | )      
|                                                                                             |       |                         |         |         |   |      |         |         |   |   |         |        
|                                                                                             | Total |                         |         | 469.2   |   |      |         | 471.6   |   |   |         | 480.1   |  
|Corporate and unallocated expenses                                                           |       |                         | (57.5   | )       |   |      | (70.7   | )       |   |   | (79.0   | )      
|                                                                                             |       |                         |         |         |   |      |         |         |   |   |         |        
|Earnings from Continuing Operations before
    Minority Interests, Interest and Income Taxes |       | $                       | 411.7   |         |   | $    | 400.9   |         |   | $ | 401.1   |        
|                                                                                             |       |                         |         |         |   |      |         |         |   |   |         |        

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|                                   |       |                         |         |         |  |      |         |         |  |   |         |         | 
|---------------------------------- | ----- | ----------------------- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                   |       |                        
|                                   |       | Years ended December 31
|                                   |       |                        
|                                   |       | 2003                    |         | 2002    |  | 2001
|                                   |       |                         |         |         |  |     
|                                   |       |                        
|                                   |       | (in millions)          
|Assets                             |       |                         |         |         |  |      |         |         |  |   |         |        
|Construction materials             |       | $                       | 2,010.3 |         |  | $    | 1,872.4 |         |  | $ | 1,972.7 |        
|Cement and cement-related products |       |                         | 1,433.3 |         |  |      | 1,312.5 |         |  |   | 1,097.8 |        
|Gypsum                             |       |                         | 317.2   |         |  |      | 310.4   |         |  |   | 260.4   |        
|Corporate and unallocated assets   |       |                         | 1,005.9 |         |  |      | 645.1   |         |  |   | 786.7   |        
|Discontinued Operations            |       |                         |        |         |  |      | 21.4    |         |  |   |        |        
|                                   |       |                         |         |         |  |      |         |         |  |   |         |        
|                                   | Total |                         | $       | 4,766.7 |  |      | $       | 4,161.8 |  |   | $       | 4,117.6 | 
|                                   |       |                         |         |         |  |      |         |         |  |   |         |        



---



|    |                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Net sales from continuing operations of cement
    and cement-related products include $90.2 for the year ended
    December 31, 2001, related to the divested operations of
    Lafarge Florida Inc. (unaudited).                                                                
|   
|(b) | Earnings from continuing operations of cement and
    cement-related products before interest expense, minority
    interests and income taxes include $19.4 for the year ended
    December 31, 2001, related to the divested operations of
    Lafarge Florida Inc. (unaudited).

YEAR ENDED DECEMBER 31, 2003

Net Sales

Our 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 appeared
to remain 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. 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 construction materials operations. 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.



| |                       
| | ----------------------
| | Construction Materials

Net sales from construction materials operations
totaled $2,032.5 million in 2003, 5 percent higher
than the $1,942.9 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
$609.8 million, 15 percent higher than 2002 (9% 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.

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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 mix 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 (Atlantic, Montreal and
Vancouver). In addition, average Canadian prices (in local
currency) increased by 2 percent compared to last year due
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%, 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 New Mexico based portable
highway paving segment in the second quarter of 2003. Further
contributing to lower sales was lower demand in east Canada due
to a weather related slow start of the paving season and less
asphalt paving content in projects.



| |                                   
| | ----------------------------------
| | Cement and Cement-Related Products

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



| |                       
| | ----------------------
| | Construction Materials

Our construction materials operations 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 construction
materials reported profit for the year, was more than offset by
an $18.7 million dollar increase in pension and post
retirement costs. In addition, losses incurred in our western
U.S. portable highway paving business that we exited in the
first half of 2003 and lower levels of paving activities in
Colorado reduced profits for the year. As a result, construction
material operating income as a percentage of net sales was
9 percent in 2003 compared to 10 percent in 2002
levels.

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 increased pension
expenses ($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

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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% 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 and Cement-Related Products

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
dollars, which offset a $15.3 million dollar increase in
pension and post retirement 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 new plant near Kansas City and the Bath strike in 2002.
Variable 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, down from
26 percent in the prior year.



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

Our gypsum drywall operations returned to
profitability starting in 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, 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 now account 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. As a result,
gypsums operating result as a percentage of net sales was
negative 2 percent in 2003, a significant improvement over
the negative 7 percent in 2002.

Selling and Administrative Expenses

Selling and administrative expenses totaled
$353.1 million in 2003 compared with $328.4 million in
2002. As a percentage of net sales, selling and administrative
expenses reached 10.6 percent in 2003, an increase of
0.2 percent. The increase resulted primarily from the
unfavorable impact of the Canadian dollar ($16.8 million)
and higher pension expenses ($11.3 million).

Income from Managed Assets

Income from Managed Assets amounts 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

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payroll, pension and post-retirement costs and
allocated selling, general and administrative expenses. We are
fully reimbursed for these expenses under the terms of the
management agreement.


Other (Income) Expense, Net

Other expense (income), net was income of
$13.1 million in 2003 compared to expense of
$2.4 million in 2002. This variation includes, among
others, the absence of a $26 million provision in 2002 for
the idling of our gypsum drywall plant in Wilmington, Delaware,
a $4.4 million increase in gains on sale of fixed assets
and a $1.1 million decrease in the cost of our accounts
receivable securitization program. These favorable items were
mostly offset by a $10.1 million increase in foreign
exchange transaction losses and the absence of an
$8.1 million reversal in 2002 of the 2001 natural gas
derivative mark to market provision.

Earnings from Continuing Operations before
Minority Interests, Interest and Income Taxes (EBIT)

EBIT from continuing operations was
$411.7 million in 2003 compared to $400.9 million in
2002. Improved performance of our gypsum division, a reduction
in corporate and unallocated expenses of $13.2 million
(mainly resulting from changes in Other
(income) expense, net) and a $22.7 million
benefit from the stronger Canadian dollar contributed to the
higher earnings. These items helped offset a $34.6 million
increase in pension and other post-retirement expenses.

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 offset somewhat 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 $8 million deferred tax adjustment 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 non-recurring tax benefits related to the
reversal of a deferred tax 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
share diluted, compared with net income in 2002 of
$268.4 million or $3.64 per share diluted.

Net income in 2003 from continuing operations,
which excludes the results of the divested Florida operations,
was $217.4 million, or $2.93 per share diluted, compared
with $256.7 million, or $3.48 per share diluted in 2002.
The 2003 results include a net gain of $11.3 million, or
$0.15 per share related to the increase in the Canadian deferred
tax provision and a divestment gain from the relocation of the
companys Detroit, Michigan, cement terminal. The 2002
results contain a net gain of $28.7 million, or $0.39 per
share diluted from favorable tax adjustments and a gain on the
sale of the companys Canadian paving stone business,
offset by a charge for the idling of our gypsum plant in
Wilmington, Delaware.

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Net income from discontinued operations for the
full year 2003 was $66.3 million, or $0.90 per share
diluted (including the divestment gain after tax of
$58.0 million, or $0.79 per share diluted), compared with
$11.7 million, or $0.16 per share diluted, in 2002.

YEAR ENDED DECEMBER 31, 2002

The comparative information for the year 2002 has
been reclassified to present the divested operations of Lafarge
Florida Inc. as discontinued operations. The reclassification
was not made to the 2001 financial statements as the
reclassification of discontinued operations is not considered
material for 2001. To facilitate comparability, we have also
included relevant analysis of the performance of our cement
segment between 2002 and 2001, excluding Lafarge Florida Inc. in
both years.

Net Sales

Our net sales from continuing operations
decreased 5 percent in 2002 to $3,160.1 million from
$3,323.0 million in 2001. Net sales decreased
2 percent when sales of $90.2 million from Lafarge
Florida Inc. are excluded from 2001. The increase in gypsum net
sales partially offset the drop in sales of our construction
materials and cement operations. Lower construction materials
sales were driven mostly by lower asphalt and paving sales and
the absence of sales from recently divested operations. The
decline in cement sales was due to the absence of sales from our
discontinued operations in 2002. By region, U.S. net sales from
continuing operations decreased to $1,935.3 million in 2002
compared to $2,023.8 million in 2001, but are flat when
sales from Lafarge Florida Inc. are excluded from 2001. Canadian
net sales decreased 6 percent to $1,224.7 million in
2002, primarily due to significantly lower asphalt and paving
sales in the Ontario market.

Except for gypsum drywall and Canadian aggregate
and concrete volumes, sales volumes decreased in most of our
product lines due to weaker demand as a result of the sluggish
commercial building sector. These decreases were offset by
improved pricing, which held up in most of our business lines in
spite of slowing markets.



| |                       
| | ----------------------
| | Construction Materials

Net sales from construction materials operations
totaled $1,943.0 million in 2002, 6 percent lower than
the all-time high of $2,073.8 million reached in 2001, with
the most significant drop coming from asphalt and paving
activity. Asphalt and paving sales totaled $661.9 million,
down 11 percent from 2001. Demand in Canada was lower with
volumes off 23 percent compared to 2001 as a civil servants
strike in Ontario resulted in a slowdown in construction
activity and delays in project tendering. Further contributing
to the net sales decline was slower demand in the Colorado and
New Mexico highway paving markets, resulting in strong
competitive project bidding activity and decreased prices and
margins. Overall asphalt and paving volumes were down
17 percent for the whole year, as U.S. operations showed a
smaller decline compared to Canada.

Ready-mixed concrete sales totaled
$648.5 million, down 2 percent from 2001. Overall
ready mix concrete shipments were 11.1 million cubic yards
in 2002, 3 percent lower than the previous year. In the
U.S., volumes were down 10 percent to 5.1 million
cubic yards. Excluding divested Wisconsin operations, heritage
volumes in the U.S. were down 5 percent for the year, with
lower volumes reported in most of our markets. In the eastern
U.S., most of the shortfall occurred in the fourth quarter due
to a return to normal winter weather and slowing activity in
Maryland and New York. Western U.S. volumes dropped during the
last half of the year as economic conditions deteriorated in
Colorado and New Mexico. Average selling prices increased
2 percent during the year as increases in most of our key
markets were sufficient to offset lower prices in Toronto,
Colorado and New Mexico. In Toronto, a sharp decline in
commercial construction and overcapacity in the industry led to
a difficult pricing environment. Deterioration in the
construction economy in Colorado and New Mexico resulted in both
lower volume and prices.

Net sales of construction aggregates were
$530.7 million, 2 percent higher than 2001. Shipments
of construction aggregates were 4 percent lower in 2002 at
117.1 million tons, with U.S. volumes down 6 percent
as a result of weaker demand in the Great Lakes and western U.S.
markets. Canadian volumes were 1 percent

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higher than 2001 levels, as strong volumes in
western Canada offset a 5 percent drop in eastern Canada.
Average selling prices in 2002 were 3 percent higher than
last year.




| |                                   
| | ----------------------------------
| | Cement and Cement-Related Products

Cement net sales declined to
$1,127.2 million in 2002 from $1,238.4 million in
2001. Net sales in 2002 declined 2 percent, excluding
Lafarge Florida Inc. in 2001, as improved selling prices were
offset by a 4 percent shortfall in shipments. Excluding
Lafarge Florida Inc. in both periods, sales volumes in 2002
reached 12.8 million tons, down 4 percent from 2001.
Sales volumes in the U.S., excluding Lafarge Florida Inc., fell
14 percent in the fourth quarter as a series of winter
storms hampered construction activity in the Great Lakes and
eastern U.S. markets compared to mild winter weather during the
last three months of 2001. In Canada, the 4 percent decline
in sales volumes for the full year resulted from lower
consumption in western Canada, where we have our largest market
share, due in part to lower oil field activity early in the
year. For the full year, average prices in the U.S., excluding
Lafarge Florida Inc., increased 1 percent while average
selling prices in Canada were up 4 percent in local
currency, reflecting the impact of price increases implemented
earlier in the year as well as favorable product mix.



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

Net sales from gypsum operations increased by
53 percent to $232.7 million from $152.4 million
in 2001. Drywall sales volumes reached 2.0 billion square
feet, a 24 percent increase compared to prior year largely
because of added production from the Newark, New Jersey plant
that we acquired in January 2002. Shipments from heritage plants
were up 10 percent for the year. Production increased at
every plant in the network except at the Wilmington, Delaware
facility, which was idled in the fourth quarter of 2002.
Manufacturing performance continued to improve at our two
state-of-the-art plants in Kentucky and Florida, which shipped
1.2 billion square feet of drywall in 2002, or
62 percent of our total production. Additionally, drywall
prices averaged $95.80 per thousand square feet, a
33 percent improvement compared to last year following
industry price increases in March and September. Overall,
drywall demand weakened in the fourth quarter in our heritage
business, and prices declined to the lower $90s by
year-end.

Performance by Line of Business



| |                       
| | ----------------------
| | Construction Materials

Our construction materials operations (before
corporate and unallocated expenses) earned $196.8 million
on sales of $1.9 billion, down from 2001 earnings of
$235.6 million on sales of $2.1 billion. Asphalt and
paving operations accounted for $20 million of the earnings
decline, while the absence of profits from recent divestments
accounted for another $9 million. The balance of the
earnings decline of $10 million resulted primarily from
lower earnings of our ready-mix concrete business and higher
SG&A expense due in part to approximately $3 million in
reorganization costs incurred during the year. While volumes
generally declined in 2002, the combination of market price
increases and greater focus on higher value added products
enabled us to achieve year over year price improvement in most
of our product lines. As a result, construction materials
operating income as a percentage of net sales was 10% in 2002
compared to 11% in 2001.

In spite of a 4 percent decline in volumes,
aggregates profits for the year of $124 million equaled
those in 2001 as generally higher selling prices and improved
cost performance offset the negative volume impact.

Ready mix profits declined $9 million to
$40 million in 2002. This decline occurred primarily in
three markets  in the western U.S., where weak market
conditions throughout the second half of the year led to lower
volumes; in Toronto, where competitive activity and lower
commercial construction resulted in a significant drop in
selling prices; and in Montreal, where we experienced a
5 month concrete truck drivers strike. In several
other markets, the general decline in commercial construction
activity contributed to a deterioration in ready mix margins in
2002 as a greater proportion of our volumes were sold to the
lower margin residential construction market.

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Asphalt and paving operations earned
$38 million in 2002, about $20 million less than in prior
year. Margins deteriorated in Canada and the U.S. due to a
significant drop in volumes (14 percent for asphalt and
20 percent for paving), the effect of which was partially
offset by lower operating cost.



| |                                   
| | ----------------------------------
| | Cement and Cement-Related Products

Cement operating profit from continuing
operations declined 7 percent to $291.1 million in
2002. Excluding Lafarge Florida Inc.s operating profit of
$18.3 million from 2001, operating profit declined only
2 percent, in spite of lower sales volumes, as the volume
shortfall and $3 million of costs associated with a
six-month strike at the Bath, Ontario cement plant were
partially offset by improved prices, the favorable impact on
depreciation expense of a change in the estimated useful lives
of our cement plants and lower fixed manufacturing costs,
particularly in the area of maintenance. Overall, cement
operating margin from continuing operations of 26 percent
was slightly higher than the 25 percent in 2001.



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

Our gypsum drywall operations reported an
operating loss of $16.3 million, $53.1 million better
than the operating loss of $69.4 million incurred in 2001.
A combination of strong volume growth, 24 percent including
the Newark, New Jersey facility, higher selling prices and
improved operating efficiency helped the gypsum division reduce
its operating loss. Average U.S. selling prices for the year
were approximately $96 per msf, up from $70 in 2001. During the
year, progress was made in lowering our cost structure as
variable manufacturing costs per thousand square feet
(msf) were 10 percent lower than 2001 while
transportation and delivery costs were down 11 percent. The
reduction in variable costs was primarily attributable to lower
energy, paper and gypsum costs due to a combination of lower raw
material prices as well as improved efficiency. These cost
savings were partially offset by higher labor costs related to
the higher production levels of 2002. A portion of our natural
gas requirements was contracted at fixed prices for the year. In
2002, the fixed prices were higher than the market prices,
resulting in a $4 million unfavorable impact on our 2002
results. 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. Gypsum operating loss as a
percentage of net sales was at negative 7 percent in 2002,
a significant improvement compared to negative 46 percent
in 2001. This improvement resulted from a significant increase
in selling prices and reduced variable costs, reflecting lower
energy, paper and gypsum costs due to both raw material price
trends and improved efficiency.

Selling and Administrative Expenses

Selling and administrative expenses totaled
$328.4 million in 2002 compared with $314.0 million in
2001 ($311.8 excluding Lafarge Florida Inc.). As a percentage of
net sales, selling and administrative expenses reached 10
percent in 2002, an increase of 1 percent (flat to 2001,
excluding Lafarge Florida Inc.). The increase resulted primarily
from approximately $10 million in reorganization and
relocation costs incurred during the year in our businesses, as
well as programs to increase bench strength and to create and
improve shared services across our operations.

Goodwill Amortization

Our 2002 operating results reflect the new
Financial Accounting Standards Board (FASB) rules
under which we are no longer permitted to amortize goodwill. The
absence of goodwill amortization increased income from
operations by $20.6 million in 2002 compared to 2001.

Income from Managed Assets

Income from Managed Assets amounts to
$12 million in 2002 compared to $5.6 million in 2001,
which represents a full year of Blue Circle North America
management fees. The significant increase ($174.4 million)
in Direct and allocated cost and expenses to
$178.8 million in 2002 reflects the hiring of virtually all
of the employees of Blue Circle North America as of
January 1, 2002 and an increase in other cost and expenses

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that are directly allocated to the Managed
Assets. We are fully reimbursed for these expenses under the
terms of the management agreement.


Other (Income) Expense, Net

Other (income) expense, net was a
$2.4 million expense in 2002 compared to $4.2 million
($3.6 million excluding Lafarge Florida Inc.) in 2001. This
includes among others, $30.8 million divestment gains
(which is $7.6 million more than in 2001), the reversal of
the 2001 natural gas derivative mark to market provision of
$8.1 million and a $3.7 million decrease in the cost
of our accounts receivable securitization program. These
favorable items were mostly offset by the $26 million
provision for the idling of our gypsum drywall plant in
Wilmington, Delaware.

Earnings from Continuing Operations before
Minority Interests, Interest and Income Taxes (EBIT)

EBIT from continuing operations of
$400.9 million in 2002 compared to $401.1 million in
2001. EBIT, when excluding Lafarge Florida Inc. from 2001,
increased $18.1 million in 2002 as improved performance of
our gypsum division helped offset the decline in results of our
construction materials and cement businesses. In addition, a
reduction in corporate and unallocated expenses of
$8.3 million was recorded in 2002. We recognized a pre-tax
charge to earnings of $26 million related to the idling of
our gypsum drywall plant in Wilmington, Delaware. This provision
together with increased pension and other post-retirement
expenses ($8.3 million) were offset by the absence of
$20.6 million in goodwill amortization (under new FASB
rules), the reversal of the $8.1 million derivative loss
for our natural gas contracts recorded in 2001 and a
$7.6 million increase in divestment gains due primarily to
the sale of our paving stones business.

Interest Expense

Interest expense for the year was
$52.4 million, down $2.1 million ($1.7 million
excluding Lafarge Florida Inc.) from 2001 due to a combination
of lower debt and lower interest rates. Capitalized interest was
$4 million in 2002, down from $11.1 million in 2001.

Interest Income

Interest income was $9.7 million, an
increase of $3.1 million from 2001 as increased cash from
our Canadian operations generated higher interest income.

Income Taxes

Income tax expense from continuing operations
decreased from $112.1 million in 2001 to $93.1 million in
2002, including the recognition of approximately
$28 million in favorable U.S. tax adjustments in the fourth
quarter. Income tax expense in 2001, excluding Lafarge Florida
Inc., was $105.6 million.

We reversed a $23 million deferred tax
valuation allowance in the fourth quarter of 2002. Considering
the continued favorable long-term outlook of the U.S. market for
our products, particularly in light of our ability to generate
taxable income during the recent economic downturn, and our
projection of future taxable income in the U.S., we have
determined that there is no longer sufficient reason to believe
that the related deferred tax asset will not be realized.

In addition, a favorable tax adjustment totaling
$5 million was recorded in the fourth quarter to reflect
the final settlement of various issues with both U.S. and
Canadian tax authorities. Excluding these tax adjustments, the
effective tax rate for the full year was approximately
35 percent. This compared to an effective tax rate of
36.8 percent in 2001, excluding the favorable one-time
adjustment of approximately Canadian $23 million (U.S.
$15 million) in deferred tax balances due to reduction in
Canadian taxes.

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Net Income

Net income improved by 15 percent to
$268.4 million ($3.64 per diluted share) in 2002, despite
the prolonged economic slowdown and return to normal winter
weather conditions in the last three months of the year. In
2001, we recorded net income of $234.1 million ($3.21 per
diluted share).

Overall, in a difficult environment, our
performance in most product lines was solid and our results
demonstrate the benefits of our geographic and product line
diversification. Our full year profitability held up very well
in spite of a contraction of the market, and U.S. cement prices
improved in spite of lower demand. Profitability and operating
margins in the aggregates business were maintained and aggregate
prices improved in a weaker market. Our gypsum business, while
still in a loss position, significantly improved in terms of
volumes, prices and costs. Our weakest performance in 2002 was
in our paving business. The deterioration in the Ontario market,
due largely to the civil servants strike and its related impact
on project tendering, and a very competitive market place and
lower demand in the western U.S. resulted in a significant
deterioration in the profitability of this product line.
Finally, in certain markets, such as metropolitan Toronto, metro
Denver, Montreal and New Mexico our ready-mix concrete
profitability suffered in 2002.

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 was issued in June 2001 and requires that
goodwill no longer be amortized but 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 recorded 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.

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 2003 pension plan and other postretirement
benefit expenses are impacted by the year-end 2002 assumptions
for the discount rate and the return rate on assets (pension
plan only). If the 2002 discount rate assumption had been
lowered by one percent, 2003 pension plan and other
postretirement benefit expenses would have increased by
approximately $15 million. If the 2002 asset returns rate
assumption had been lowered by one percent, 2003 pension plan
expenses would have increased by approximately $7 million.

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We expect our pension plan and other
postretirement benefit expenses to increase by approximately
$20 million from 2003 to 2004, and our minimum required
cash contribution to defined benefit pension plans to increase
by approximately $15 million, due to both lower discount
rates and a reduction in the expected return of pension plan
assets. Also, an additional discretionary contribution of
$43 million was made to certain Canadian defined benefit
plans in February 2004.

The Accumulated Benefit Obligation is also
impacted by the 2003 discount rate. The impact of decreasing the
discount rate assumption by one percent as of December 31,
2003 would have been to increase the Accumulated Benefit
Obligation as of December 31, 2003 by approximately
$105 million, and would have increased the Additional
Minimum Pension Liability amount by approximately
$102 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 and recognize any impairment
during 2003. In November 2002, an impairment 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.

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.

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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, 2003, 2002 and 2001 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, if ratified. 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.

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
non-cash items. Significant non-cash 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 2003 increased by
$10.7 million due to 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 decrease of $12.0 million in 2002 was due to
the absence of goodwill amortization ($20.6 million) and
the change in useful lives of our cement plants in July 2002
(reduction of $8.5 million in depreciation expense),
partially offset by increased depreciation related to the new
Sugar Creek cement plant (put in service during 2002) and the
Newark gypsum plant (acquired in January 2002). The non-cash
adjustment for gain on sale of assets 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. The adjustment for
Other non-cash charges and (credits), net in 2003
was only $5.5 million, as no significant non-recurring
activity occurred in the other long-term liability accounts. In
2002 Other non-cash charges and (credits), net
increased to $34.7 million from negative $11.2 million
in 2001, mainly related to the provision of $26.0 million
related to the idling of the Wilmington plant.

Cash Flows from Investing

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

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decreased $14.8 million to
$16.7 million as only a few small acquisitions were made.
Purchases of short-term investments, net, increased
$47.3 million from 2002, as more of the excess cash in
Canada was invested in short-term investments exceeding a
maturity of 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.


In 2002, net cash used for investing was
$191.2 million compared to $383.2 million in 2001. Capital
expenditures decreased $85.3 million in 2002 largely
because ongoing development projects, such as the construction
of the Palatka, Florida gypsum drywall plant and the Sugar
Creek, Missouri plant, were completed in early 2001 and early
2002, respectively. Spending on acquisitions decreased
$49.1 million in 2002 to $31.6 million, as we only had
one sizable acquisition in 2002 (Continental Gypsum). Proceeds
from the sale of non-strategic assets and property, plant and
equipment totaled $77.0 million in 2002 compared to
$66.2 million in 2001, with the 2002 proceeds mainly coming
from the divestment of the pressure pipe and paving stone
operations in eastern Canada.

Cash Flows from Financing

In 2003, net cash consumed by financing was
$126.2 million compared to $85.8 million in 2002. This
increase of $40.1 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 an Industrial
Revenue Bond ($47 million) related to the Sugar Creek,
Missouri plant.

In 2002, net cash consumed by financing was
$85.8 million compared to $42.9 million in 2001. This
change of $42.9 million resulted from the net repayment of
short-term borrowings of $65.4 million in 2002 versus net
proceeds from the issuance of short-term borrowings of
$23.7 million in 2001 offset by an increase in the issuance
of equity securities of $12.8 million, a decrease in
repayment of long-term debt ($3.8 million) and the 2001
repurchase of common stock of $29.0 million (none in 2002).

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 $300 million commercial paper
facility 100% backed by a syndicated, 364-day committed bank
revolver, as well as a second, $300 million multi-year
committed bank revolver maturing in 2007. At December 31,
2003 and 2002, no amounts were outstanding under the multi-year
facility: commercial paper borrowings as of December 31,
2003 and 2002 were zero and $125 million, respectively.

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 continue to
service, administer and collect the receivables sold, which as
of December 31, 2003 and 2002, totaled $82.0 million and
$143.4 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 2003, the strengthening of the Canadian dollar
resulted in a positive effect of $82.8 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, 2003 and 2002.

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. As more fully described in the
Notes to Consolidated Financial Statements, we primarily use
fixed-rate debt

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instruments to reduce the risk of exposure to
changes in interest rates and have used forward treasury lock
agreements in the past to hedge interest rate changes on
anticipated debt issuances. The value reported for Canadian
dollar denominated net assets increased from December 31,
2002 as a result of a rise in the value of the Canadian dollar
relative to the U.S. dollar. At December 31, 2003, the U.S.
dollar equivalent of a Canadian dollar was $0.78 versus $0.64 at
December 31, 2002. Based on 2003 results, if the value of
the Canadian dollar relative to the U.S. dollar changed by
10 percent, our consolidated net assets would change by
approximately 4 percent and net income would change by
approximately 5 percent. Liquidity is not materially
impacted, however, since Canadian earnings are considered to be
permanently invested in Canada.


Working capital, excluding cash, short-term
investments, short-term borrowings, current portion of long-term
debt and the impact of exchange rate changes ($52.4 million
increase), decreased $24.3 million from December 31,
2002 to December 31, 2003. Receivables, net (including
Due from affiliates), excluding an exchange rate
increase of $58.7 million, increased $33.6 million
primarily due to a decrease in receivables sold under our
securitization program. Inventories decreased
$24.4 million, excluding the exchange rate increase of
$32.7 million, due to increased levels of sales in the
fourth quarter of 2003 compared to 2002. Accounts payable and
accrued liabilities, excluding the exchange rate increase of
$43.0 million, increased $7.4 million mainly to an
increase in amounts payable under our receivable sales
agreement. Income taxes payable increased $21.8 million,
due to stronger earnings in the fourth quarter, resulting in
higher income taxes payable.

Net property, plant and equipment decreased
$22.2 million during 2003, excluding the exchange rate
increase of $164.9 million, as depreciation outpaced
capital expenditures. No significant acquisitions were made in
2003. Goodwill relates primarily to the Redland, Warren and
Presque Isle transactions.

Our capitalization is summarized in the following
table:

|                                                   |                      |             |      |       |   |  |      |       |  
|-------------------------------------------------- | -------------------- | ----------- | ---- | ----- | - |  | ---- | ----- | -
|                                                   |                      |            
|                                                   |                      | December 31
|                                                   |                      |            
|                                                   |                      | 2003        |      | 2002 
|                                                   |                      |             |      |      
|Long-term debt                                     |                      |             | 17.1 | %     |   |  | 19.1 | %    
|Other long-term liabilities and minority interests |                      |             | 19.3 | %     |   |  | 19.4 | %    
|Shareholders equity                               |                      |             | 63.6 | %     |   |  | 61.5 | %    
|                                                   |                      |             |      |       |   |  |      |      
|                                                   | Total capitalization |             |      | 100.0 | % |  |      | 100.0 | %
|                                                   |                      |             |      |       |   |  |      |      

No major changes in our capitalization occurred
for the year ended December 31, 2003 as compared to
December 31, 2002. The companys 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. The company maintains 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 its 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, the
company intends to use internal cash flow, existing, committed,
short-term debt capacity, or a new long-term public debt issue
to repay the bond. In addition, beginning on December 29,
2005, Canadian $166.4 million (approximately
$129 million) in preferred shares issued by a Canadian
subsidiary in 2000, in connection with the Warren merger, will
be redeemable at the option of the holder (classified as
minority interest obligation). The company has sufficient
liquidity in Canada, including over Canadian $700 million
(approximately $550 million) in invested cash and
short-term investments, to meet this potential obligation.

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Our summary of contractual obligations as of
December 31, 2003 is as follows (in thousands):

|                              |  |       |           |           |  |           |        |           |  |          |         |  |  |   |         |  |  |   |         | 
|----------------------------- |  | ----- | --------- | --------- |  | --------- | ------ | --------- |  | -------- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                              |  |       |           | Less than |  |           |        |           |  |         
|                              |  | Total |           | one year  |  | 2-3 years |        | 4-5 years |  | >5 years
|                              |  |       |           |           |  |           |        |           |  |         
|Long-term debt                |  | $     | 717,166   |           |  | $         | 1,775  |           |  | $        | 261,294 |  |  | $ | 200,259 |  |  | $ | 253,838 | 
|Minority interest obligations |  |       | 136,808   |           |  |           |       |           |  |          | 136,808 |  |  |   |        |  |  |   |        | 
|Operating lease               |  |       | 286,700   |           |  |           | 47,300 |           |  |          | 65,000  |  |  |   | 38,600  |  |  |   | 135,800 | 
|Purchase Obligations          |  |       | 241,842   |           |  |           | 42,026 |           |  |          | 53,149  |  |  |   | 25,567  |  |  |   | 121,100 | 
|                              |  |       |           |           |  |           |        |           |  |          |         |  |  |   |         |  |  |   |         | 
|Total                         |  | $     | 1,382,516 |           |  | $         | 91,101 |           |  | $        | 516,251 |  |  | $ | 264,426 |  |  | $ | 510,738 | 
|                              |  |       |           |           |  |           |        |           |  |          |         |  |  |   |         |  |  |   |         | 

The amounts included in the line Purchase
Obligations are based upon contractual purchase obligations
related to gas, power, fuel and other significant raw material
commitments.

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
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
for $7.7 million. These were partially offset by dividend
payments, net of reinvestments, of $45.6 million, and the
recognition of a $22.3 million minimum pension liability,
net of income taxes.

In 2002, shareholders equity increased by
$162.6 million, mainly from net income of
$268.4 million, the exercise of stock options for
$26.8 million and a foreign currency translation adjustment
of $13.7 million (resulting from a 1.2 percent increase in
the value of the Canadian dollar relative to the U.S. dollar).
These were partially offset by the recognition of a
$112.9 million additional minimum pension liability, net of
income taxes, and dividend payments, net of reinvestments, of
$39.2 million.

Common equity interests include our $1.00 par
value per share Common Stock and the Lafarge Canada Inc.
Exchangeable Preference 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 Preference shares on the
Toronto Stock Exchange under the ticker symbol
LCI.PR.E.

The following table reflects the range of high
and low closing prices of Common Stock by quarter for 2003 and
2002 as quoted on the New York Stock Exchange:

|                  |      |                |   |        |  |        |   |        |  |  |   |       |  |  |   |       | 
|----------------- | ---- | -------------- | - | ------ |  | ------ | - | ------ |  |  | - | ----- |  |  | - | ----- | 
|                  |      |               
|                  |      | Quarters Ended
|                  |      |               
|                  |      | 31-Mar         |   | 30-Jun |  | 30-Sep |   | 31-Dec
|                  |      |                |   |        |  |        |   |       
|2003 Stock Prices |      |                |   |        |  |        |   |        |  |  |   |       |  |  |   |      
|                  | High |                | $ | 33.88  |  |        | $ | 32.35  |  |  | $ | 35.73 |  |  | $ | 40.85 | 
|                  | Low  |                | $ | 26.46  |  |        | $ | 29.14  |  |  | $ | 31.00 |  |  | $ | 34.48 | 
|2002 Stock Prices |      |                |   |        |  |        |   |        |  |  |   |       |  |  |   |      
|                  | High |                | $ | 43.24  |  |        | $ | 44.70  |  |  | $ | 34.77 |  |  | $ | 32.85 | 
|                  | Low  |                | $ | 37.50  |  |        | $ | 35.15  |  |  | $ | 28.40 |  |  | $ | 26.06 | 

Dividends are summarized in the following table
(in thousands, except per share amounts):

|                                  |  |                         |        |      |  |      |        |   |  |   |        |  
|--------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                  |  |                        
|                                  |  | Years Ended December 31
|                                  |  |                        
|                                  |  | 2003                    |        | 2002 |  | 2001
|                                  |  |                         |        |      |  |     
|Common equity dividends           |  | $                       | 50,963 |      |  | $    | 43,815 |   |  | $ | 43,290 |  
|Less dividend reinvestments       |  |                         | (5,374 | )    |  |      | (4,664 | ) |  |   | (3,527 | )
|                                  |  |                         |        |      |  |      |        |   |  |   |        |  
|Net cash dividend payments        |  |                         | 45,589 |      |  |      | 39,151 |   |  |   | 39,763 |  
|                                  |  |                         |        |      |  |      |        |   |  |   |        |  
|Common equity dividends per share |  | $                       | 0.70   |      |  | $    | 0.60   |   |  | $ | 0.60   |  
|                                  |  |                         |        |      |  |      |        |   |  |   |        |  

As of the third quarter of 2003, the dividend
rate was changed from 15 cents to 20 cents per quarter.

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MANAGEMENTS DISCUSSION OF
SELECTED

CONSOLIDATED FINANCIAL DATA


The Selected Consolidated Financial Data
highlights certain significant trends in our financial condition
and results of operations.

In 2000, net sales increased by two percent due
to acquisitions throughout our operations and improving economic
conditions. In 2001, net sales increased by 19 percent
mainly due to acquisitions (primarily Warren Paving &
Materials Group in Canada), increased volumes from our heritage
operations as well as increased average selling prices for
ready-mixed concrete and aggregate and Canadian cement. These
were partially offset by reduced average selling prices for
cement in the U.S. and gypsum drywall. In 2002, net sales
decreased 5 percent (2 percent excluding Lafarge Florida
Inc.) as decreased volumes in most of our product lines, except
for Gypsum, were only partially offset by price improvements.
See Managements Discussion of Income for additional
details.

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
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.

Net cash provided by operations consists of net
income adjusted primarily for depreciation and changes in
operating working capital. We are in a capital-intensive
industry and, as a result, we recognize large amounts of
depreciation. We have used our cash provided by operations to
expand our markets, improve the performance of our plants and
other operating equipment, and to reduce our net debt position.

Capital expenditures and acquisitions totaled
$1,931.6 million over the past five years. These included:
the construction of new drywall plants in Kentucky and Florida;
acquisition of the Newark gypsum drywall plant; cement plant
projects to increase production capacity and reduce costs,
including the new Richmond, British Columbia cement plant and
the Sugar Creek, Missouri cement plant; the installation of
receiving and handling facilities at cement plants for
substitute fuels and raw materials; the building and purchasing
of additional cement distribution terminals and water
transportation facilities to extend markets and improve existing
supply networks; the expansion of our cement-related products
operations; the expansion of asphalt, paving and aggregate
operations through the merger with the Warren Paving &
Materials Group; the acquisition of ready-mixed concrete plants
and aggregate operations, including our acquisition of the
Presque Isle quarry, Rocky Mountain Materials, Pine Hill
Materials Corp., American Readi-Mix Concrete Corporation and
several other small tuck-in acquisitions; and the renewal of the
construction materials mobile equipment fleet.




Item 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

We are exposed to 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 have instituted management rules based on a
segregation of operations, financial and administrative control,
and risk measurement.

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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 risk with respect to
price changes principally in coal, coke, natural gas,
electricity and diesel fuel. 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 high-quality counter parties.

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, 2003 consolidated net assets and the 2003
consolidated other comprehensive income by less than
$5 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
Loss.



| |                      
| | ---------------------
| | Foreign Currency Risk

Translation Risks 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, 2003 and for the year then
ended, approximately 50 percent of our consolidated net
assets and 41 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 $134 million and $12 million,
net of any other impact, respectively.

Transaction Risks 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.

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| |                   
| | ------------------
| | 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.

At December 31, 2003, we had no derivative
instruments related to interest rates. However, on
February 5, 2004, we entered into $200 million
interest rate swap as disclosed in a separate paragraph below.

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, 2003, 96 percent of our
consolidated indebtedness was at fixed rates. For a further
discussion of our financial policy and interest rate exposure,
see the Note 8 Debt of the Notes to
Consolidated Financial Statements reported in Item 8 of
Part II of the Annual Report, which is incorporated herein by
reference.

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.

We use variable-rate debt to finance our
operations.At December 31, 2003,
approximately 4 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 2003 consolidated net income of less than $1
million, net of any other impact.

Interest rate swap in 2004 On February 5, 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% to a floating rate coupon at six
month LIBOR plus a fixed spread of 2.43%. The initial interest
rate setting is 3.6%. Subsequent interest settings will result
in floating interest rates at a fixed spread of 2.43% above
LIBOR.

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Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

The comparative information for the year 2002 has
been reclassified to present the divested operations of Lafarge
Florida Inc. as discontinued operations. The reclassification
was not made to the 2001 financial statements as the
reclassification of discontinued operations is not considered
material for 2001. In addition, such a reclassification, if
made, would require a full reaudit of the 2001 financial
statements by our current auditor, Ernst & Young LLP,
as the previous auditor, Arthur Andersen LLP, has ceased
operations. We believe that a reaudit would have placed a
significant administrative and financial burden on the company
while adding no material benefit to the users of the financial
statements.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND

FINANCIAL STATEMENT SCHEDULE


|                                   |                                                                                                                           |      |  |    | 
|---------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                                   |                                                                                                                           | Page
|                                   |                                                                                                                           |     
|Financial Report:                  |                                                                                                                           |      |  |   
|                                   | Report of Independent Auditors, Ernst & Young
    LLP                                                                     |      |  | 49 | 
|                                   | Report of Independent Public Accountants, Arthur
    Andersen LLP                                                         |      |  | 50 | 
|Consolidated Financial Statements: |                                                                                                                           |      |  |   
|                                   | Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                                          |      |  | 51 | 
|                                   | Consolidated Statements of Income for the Years
    Ended December 31, 2003, 2002 and 2001                                |      |  | 52 | 
|                                   | Consolidated Statements of Shareholders
    Equity for the Years Ended December 31, 2003, 2002 and 2001                  |      |  | 53 | 
|                                   | Consolidated Statements of Comprehensive Income
    for the Years Ended December 31, 2003, 2002 and 2001                  |      |  | 54 | 
|                                   | Consolidated
        Statements of Cash Flows for the  Years Ended December 31, 2003,
        2002 and 2001               |      |  | 55 | 
|                                   | Notes to Consolidated Financial Statements                                                                                |      |  | 56 | 
|Financial Statement Schedule:      |                                                                                                                           |      |  |   
|                                   | Schedule II  Consolidated
    Valuation and Qualifying Accounts for the Years Ended
    December 31, 2003, 2002 and 2001 |      |  | 90 | 
|                                  
|                                   | All other schedules are omitted because they are
    not applicable.                                                      |      |  |    | 

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REPORT OF INDEPENDENT AUDITORS

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, 2003 and
2002, and the related consolidated statements of income,
shareholders equity, comprehensive income and cash flows
for the years then ended. Our audit also included Financial
Statement Schedule II for the years ended December 31,
2003 and 2002 on page      of this
Form 10-K. 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 based on our audits. The consolidated
financial statements and financial statement schedule of Lafarge
North America Inc. as of December 31, 2001 were audited by
other auditors who have ceased operations and whose report dated
January 22, 2002 expressed an unqualified opinion on those
statements and schedule before the restatement disclosures
described in Note 5.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform an 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 2003 and 2002 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, 2003 and
2002, and the consolidated results of their operations and their
cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule
for the years ended December 31, 2003 and 2002, when
considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the
information set forth therein.

As discussed above, the financial statements of
Lafarge North America, Inc. and subsidiaries for the year ended
December 31, 2001 were audited by other auditors who have
ceased operations. As described in Note 1, these financial
statements have been revised to include the transitional
disclosures required by Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets,
which was adopted by the Company as of January 1, 2002. Our
audit procedures with respect to the disclosures in Note 5 with
respect to 2001 included (a) agreeing the previously
reported net income to the previously issued financial
statements and the adjustments to reported net income
representing amortization expense (including any related tax
effects) recognized in those periods related to goodwill and
intangible assets that are no longer being amortized to the
Companys underlying records obtained from management, and
(b) testing the mathematical accuracy of the reconciliation
of adjusted net income to reported net income, and the related
earnings-per-share amounts. In our opinion, the disclosures for
2001 in Note 5 are appropriate. However, we were not engaged to
audit, review, or apply any procedures to the 2001 financial
statements of the Company other than with respect to such
disclosures and, accordingly, we do not express an opinion or
any form of assurance on the 2001 financial statements taken as
a whole.

As discussed in Note 1 to the consolidated
financial statements, in 2002 the Company changed its method of
accounting for goodwill and other intangibles. Also, in 2003 the
Company changed its method of accounting for asset retirement
obligations.



| |                  
| | -----------------
| | ERNST & YOUNG LLP

McLean, Virginia

January 21, 2004


49



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##### Table of Contents



This is a copy of the audit report previously
issued by Arthur Andersen LLP in connection with the
companys filing of its Annual Report on Form 10-K for
the fiscal year ended December 31, 2001. This audit report
has not been reissued by Arthur Andersen LLP in connection with
this Annual Report on Form 10-K, nor has Arthur Andersen
LLP provided a consent to include its report in this Annual
Report on Form 10K. The registrant hereby discloses that
the lack of a consent by Arthur Andersen LLP may impose
limitations on recovery by investors.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To Lafarge North America Inc.:

We have audited the accompanying consolidated
balance sheets of Lafarge North America Inc. (formerly Lafarge
Corporation) (a Maryland corporation) and subsidiaries as of
December 31, 2001 and 2000, 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, 2001. These financial statements are the
responsibility of the companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform an 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 financial
position of Lafarge North America Inc. and subsidiaries as of
December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole.
Schedule II in this Item 8 of Part II of the
Annual Report is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part
of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set
forth therein in relation to the basic financial statements
taken as a whole.



| |                    
| | -------------------
| | ARTHUR ANDERSEN LLP



|                 | 
|---------------- | 
|Vienna, Virginia | 
|January 22, 2002 | 

50



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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)


|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |           |          |           | 
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---------------------------------------------- | --------- | -------- | --------- | --------- | --------- | -------- | --------- | 
|                                                                |                                                                                                                                       |                             
|                                                                |                                                                                                                                       | December 31                 
|                                                                |                                                                                                                                       |                             
|                                                                |                                                                                                                                       | 2003                         |                                                | 2002     
|                                                                |                                                                                                                                       |                              |                                                |          
|Assets                                                          |                                                                                                                                       |                              |                                                |           |          |           |           |          
|Cash and cash equivalents                                       |                                                                                                                                       | $                            | 630,644                                        |           |          | $         | 351,110   |          
|Short-term investments                                          |                                                                                                                                       |                              | 68,573                                         |           |          |           | 22,260    |          
|Receivables, net                                                |                                                                                                                                       |                              | 467,840                                        |           |          |           | 376,066   |          
|Due from affiliates                                             |                                                                                                                                       |                              | 49,187                                         |           |          |           | 48,662    |          
|Inventories                                                     |                                                                                                                                       |                              | 374,144                                        |           |          |           | 365,889   |          
|Deferred tax assets                                             |                                                                                                                                       |                              | 41,576                                         |           |          |           | 42,369    |          
|Other current assets                                            |                                                                                                                                       |                              | 34,250                                         |           |          |           | 34,472    |          
|Net current assets of discontinued operations                   |                                                                                                                                       |                              |                                               |           |          |           | 6,732     |          
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|Total current assets                                            |                                                                                                                                       |                              | 1,666,214                                      |           |          |           | 1,247,560 |          
|Property, plant and equipment, net                              |                                                                                                                                       |                              | 2,345,994                                      |           |          |           | 2,203,320 |          
|Goodwill, net                                                   |                                                                                                                                       |                              | 503,972                                        |           |          |           | 471,495   |          
|Other assets                                                    |                                                                                                                                       |                              | 250,484                                        |           |          |           | 224,722   |          
|Net noncurrent assets of discontinued operations                |                                                                                                                                       |                              |                                               |           |          |           | 14,719    |          
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                                |                                                                                                                                       |                              | Total Assets                                   |           | $        | 4,766,664 |           |           | $        | 4,161,816 | 
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|Liabilities and Shareholders
    Equity                        |                                                                                                                                       |                              |                                                |           |          |           |           |          
|Accounts payable and accrued liabilities                        |                                                                                                                                       | $                            | 548,563                                        |           |          | $         | 498,144   |          
|Income taxes payable                                            |                                                                                                                                       |                              | 32,907                                         |           |          |           | 11,059    |          
|Short-term borrowings and current portion of
    long-term debt |                                                                                                                                       |                              | 1,775                                          |           |          |           | 136,120   |          
|Current liabilities of discontinued operations                  |                                                                                                                                       |                              |                                               |           |          |           | 4,338     |          
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                                |                                                                                                                                       |                              | Total current liabilities                      |           |          | 583,245   |           |           |          | 649,661   | 
|Long-term debt                                                  |                                                                                                                                       |                              | 715,391                                        |           |          |           | 671,048   |          
|Minority interests                                              |                                                                                                                                       |                              | 136,808                                        |           |          |           | 111,516   |          
|Deferred income taxes                                           |                                                                                                                                       |                              | 151,378                                        |           |          |           | 124,633   |          
|Other long-term liabilities                                     |                                                                                                                                       |                              | 520,200                                        |           |          |           | 445,307   |          
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                                |                                                                                                                                       |                              | Total Liabilities                              |           |          | 2,107,022 |           |           |          | 2,002,165 | 
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|Shareholders Equity:                                           |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                                | Common stock ($1.00 par value; authorized
    150.0 million shares;
    issued 69.4 and 68.9 million shares, respectively)            |                              |                                                | 69,359    |          |           |           | 68,885    |         
|                                                                | Exchangeable shares (no par or stated value;
    authorized 15.7 million shares; issued 4.3 and
    4.2 million shares, respectively) |                              |                                                | 33,577    |          |           |           | 32,909    |         
|                                                                | Additional paid-in capital                                                                                                            |                              |                                                | 734,227   |          |           |           | 719,084   |         
|                                                                | Retained earnings                                                                                                                     |                              |                                                | 1,882,071 |          |           |           | 1,652,477 |         
|                                                                | Accumulated other comprehensive gain/(loss):                                                                                          |                              |                                                |           |          |           |           |           |         
|                                                                |                                                                                                                                       | Foreign currency translation |                                                |           | 87,836   |           |           |           | (188,956 | )        
|                                                                |                                                                                                                                       | Minimum pension liability    |                                                |           | (148,404 | )         |           |           | (126,088 | )        
|                                                                |                                                                                                                                       | Derivative adjustment        |                                                |           | 976      |           |           |           | 1,340    |          
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                                |                                                                                                                                       |                              | Total Shareholders Equity                     |           |          | 2,659,642 |           |           |          | 2,159,651 | 
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                                |                                                                                                                                       |                              | Total Liabilities and Shareholders
    Equity |           | $        | 4,766,664 |           |           | $        | 4,161,816 | 
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          

See the Notes to Consolidated Financial
Statements.

51



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except amounts per common equity
share)


|                                                                            |                             |                                         |                          |           |          |           |           |           |          |           |           |           |        |           | 
|--------------------------------------------------------------------------- | --------------------------- | --------------------------------------- | ------------------------ | --------- | -------- | --------- | --------- | --------- | -------- | --------- | --------- | --------- | ------ | --------- | 
|                                                                            |                             |                                        
|                                                                            |                             | Years Ended December 31                
|                                                                            |                             |                                        
|                                                                            |                             | 2003                                    |                          | 2002      |          | 2001     
|                                                                            |                             |                                         |                          |           |          |          
|Net Sales                                                                   |                             | $                                       | 3,318,936                |           |          | $         | 3,160,094 |           |          | $         | 3,323,020 |          
|Costs and expenses:                                                         |                             |                                         |                          |           |          |           |           |           |          |           |           |          
|                                                                            | Cost of goods sold          |                                         |                          | 2,579,262 |          |           |           | 2,440,357 |          |           |           | 2,588,781 |       
|                                                                            | Selling and administrative  |                                         |                          | 353,056   |          |           |           | 328,449   |          |           |           | 313,991   |       
|                                                                            | Amortization of goodwill    |                                         |                          |          |          |           |           |          |          |           |           | 20,641    |       
|                                                                            | Income from managed assets: |                                         |                          |           |          |           |           |           |          |           |           |           |       
|                                                                            |                             | Management fees and cost reimbursement  |                          |           | (206,431 | )         |           |           | (190,833 | )         |           |           | (9,704 | )        
|                                                                            |                             | Direct and allocated costs and expenses |                          |           | 194,431  |           |           |           | 178,833  |           |           |           | 4,059  |          
|                                                                            | Other (income) expense, net |                                         |                          | (13,100   | )        |           |           | 2,419     |          |           |           | 4,197     |       
|                                                                            | Minority interests          |                                         |                          | 7,371     |          |           |           | 8,368     |          |           |           | 7,007     |       
|                                                                            | Interest expense            |                                         |                          | 54,813    |          |           |           | 52,391    |          |           |           | 54,507    |       
|                                                                            | Interest income             |                                         |                          | (1,111    | )        |           |           | (9,720    | )        |           |           | (6,615    | )     
|                                                                            |                             |                                         |                          |           |          |           |           |           |          |           |           |          
|                                                                            |                             |                                         | Total costs and expenses |           |          | 2,968,291 |           |           |          | 2,810,264 |           |           |        | 2,976,864 | 
|                                                                            |                             |                                         |                          |           |          |           |           |           |          |           |           |          
|Earnings from continuing operations before income
    taxes                 |                             |                                         | 350,645                  |           |          |           | 349,830   |           |          |           | 346,156   |          
|Income taxes                                                                |                             |                                         | 133,198                  |           |          |           | 93,148    |           |          |           | 112,066   |          
|                                                                            |                             |                                         |                          |           |          |           |           |           |          |           |           |          
|Net Income from continuing operations                                       |                             |                                         | 217,447                  |           |          |           | 256,682   |           |          |           | 234,090   |          
|Income from discontinued operations, net of tax                             |                             |                                         | 66,324                   |           |          |           | 11,693    |           |          |           |          |          
|Cumulative effect of change in accounting
    principle, net of tax         |                             |                                         | (3,214                   | )         |          |           |          |           |          |           |          |          
|                                                                            |                             |                                         |                          |           |          |           |           |           |          |           |           |          
|Net Income                                                                  |                             | $                                       | 280,557                  |           |          | $         | 268,375   |           |          | $         | 234,090   |          
|                                                                            |                             |                                         |                          |           |          |           |           |           |          |           |           |          
|                                                                           
|Net income per share from continuing
    operations  basic                 |                             | $                                       | 2.97                     |           |          | $         | 3.53      |           |          | $         | 3.25      |          
|Per share effect of discontinued
    operations  basic                     |                             |                                         | 0.90                     |           |          |           | 0.16      |           |          |           |          |          
|Per share cumulative effect of change in
    accounting principle  basic   |                             |                                         | (0.04                    | )         |          |           |          |           |          |           |          |          
|                                                                            |                             |                                         |                          |           |          |           |           |           |          |           |           |          
|Net Income Per Share-Basic                                                  |                             | $                                       | 3.83                     |           |          | $         | 3.69      |           |          | $         | 3.25      |          
|                                                                            |                             |                                         |                          |           |          |           |           |           |          |           |           |          
|                                                                           
|Net income per share from continuing
    operations  diluted               |                             | $                                       | 2.93                     |           |          | $         | 3.48      |           |          | $         | 3.21      |          
|Per share effect of discontinued
    operations  diluted                   |                             |                                         | 0.90                     |           |          |           | 0.16      |           |          |           |          |          
|Per share cumulative effect of change in
    accounting principle  diluted |                             |                                         | (0.04                    | )         |          |           |          |           |          |           |          |          
|                                                                            |                             |                                         |                          |           |          |           |           |           |          |           |           |          
|Net Income Per Share-Diluted                                                |                             | $                                       | 3.79                     |           |          | $         | 3.64      |           |          | $         | 3.21      |          
|                                                                            |                             |                                         |                          |           |          |           |           |           |          |           |           |          
|Dividends Per Share                                                         |                             | $                                       | 0.70                     |           |          | $         | 0.60      |           |          | $         | 0.60      |          
|                                                                            |                             |                                         |                          |           |          |           |           |           |          |           |           |          

See the Notes to Consolidated Financial
Statements.

52



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

(in thousands)


|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |        |    | 
|----------------------------------------------- | ------------------------------------------------------------ | ---------------------------- | --------- | --------- | ----- | ------ |  | ------ | --- | ------ | --------- | --------- | ----- |  |  | ------ | --- | - | --------- | --------- | ----- |  |  | ------ | -- | 
|                                                |                                                              |                             
|                                                |                                                              | Years Ended December 31     
|                                                |                                                              |                             
|                                                |                                                              |                              |           |           |       |       
|                                                |                                                              | 2003                         |           | 2002      |       | 2001  
|                                                |                                                              |                              |           |           |       |       
|                                                |                                                              | Amount                       |           | Shares    |       | Amount |  | Shares |     | Amount |           | Shares   
|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |          
|Common Stock                                    |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|                                                | Balance at January 1                                         |                              | $         | 68,885    |       |        |  | 68,885 |     |        | $         | 67,890    |       |  |  | 67,890 |     |   | $         | 67,492    |       |  |  | 67,492 |   
|                                                | Share repurchases                                            |                              |           | (28       | )     |        |  | (28    | )   |        |           |          |       |  |  |       |     |   |           | (905      | )     |  |  | (905   | ) 
|                                                | Issuance of shares for:                                      |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |        |   
|                                                |                                                              | Dividend reinvestment plans  |           |           | 164   |        |  |        | 164 |        |           |           | 121   |  |  |        | 121 |   |           |           | 99    |  |  |        | 99 | 
|                                                |                                                              | Employee stock purchase plan |           |           | 82    |        |  |        | 82  |        |           |           | 55    |  |  |        | 55  |   |           |           | 66    |  |  |        | 66 | 
|                                                | Conversion of exchangeable shares                            |                              |           |          |       |        |  |       |     |        |           | 56        |       |  |  | 56     |     |   |           | 337       |       |  |  | 337    |   
|                                                | Exercise of stock options                                    |                              |           | 256       |       |        |  | 256    |     |        |           | 763       |       |  |  | 763    |     |   |           | 801       |       |  |  | 801    |   
|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|                                                | Balance at December 31                                       |                              |           | 69,359    |       |        |  | 69,359 |     |        |           | 68,885    |       |  |  | 68,885 |     |   |           | 67,890    |       |  |  | 67,890 |   
|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|Exchangeable Shares                             |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|                                                | Balance at January 1                                         |                              |           | 32,909    |       |        |  | 4,228  |     |        |           | 32,640    |       |  |  | 4,234  |     |   |           | 34,402    |       |  |  | 4,523  |   
|                                                | Issuance of shares for:                                      |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |        |   
|                                                |                                                              | Dividend reinvestment plan   |           |           | 264   |        |  |        | 8   |        |           |           | 378   |  |  |        | 10  |   |           |           | 333   |  |  |        | 10 | 
|                                                |                                                              | Employee stock purchase plan |           |           | 404   |        |  |        | 58  |        |           |           | 282   |  |  |        | 40  |   |           |           | 265   |  |  |        | 38 | 
|                                                | Conversion of exchangeable shares                            |                              |           |          |       |        |  |       |     |        |           | (391      | )     |  |  | (56    | )   |   |           | (2,360    | )     |  |  | (337   | ) 
|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|                                                | Balance at December 31                                       |                              |           | 33,577    |       |        |  | 4,294  |     |        |           | 32,909    |       |  |  | 4,228  |     |   |           | 32,640    |       |  |  | 4,234  |   
|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|Additional Paid-In Capital                      |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|                                                | Balance at January 1                                         |                              |           | 719,084   |       |        |  |        |     |        |           | 684,435   |       |  |  |        |     |   |           | 690,072   |       |  |  |        |   
|                                                | Share repurchases                                            |                              |           | (839      | )     |        |  |        |     |        |           |          |       |  |  |        |     |   |           | (28,065   | )     |  |  |        |   
|                                                | Issuance of shares for:                                      |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |        |   
|                                                |                                                              | Dividend reinvestment plans  |           |           | 4,946 |        |  |        |     |        |           |           | 4,165 |  |  |        |     |   |           |           | 3,095 |  |  |        |    | 
|                                                |                                                              | Employee stock purchase plan |           |           | 3,606 |        |  |        |     |        |           |           | 4,159 |  |  |        |     |   |           |           | 1,818 |  |  |        |    | 
|                                                | Conversion of exchangeable shares                            |                              |           |          |       |        |  |        |     |        |           | 335       |       |  |  |        |     |   |           | 2,023     |       |  |  |        |   
|                                                | Exercise of stock options                                    |                              |           | 7,430     |       |        |  |        |     |        |           | 25,990    |       |  |  |        |     |   |           | 15,492    |       |  |  |        |   
|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|                                                | Balance at December 31                                       |                              |           | 734,227   |       |        |  |        |     |        |           | 719,084   |       |  |  |        |     |   |           | 684,435   |       |  |  |        |   
|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|Retained Earnings                               |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|                                                | Balance at January 1                                         |                              |           | 1,652,477 |       |        |  |        |     |        |           | 1,427,917 |       |  |  |        |     |   |           | 1,237,117 |       |  |  |        |   
|                                                | Net income                                                   |                              |           | 280,557   |       |        |  |        |     |        |           | 268,375   |       |  |  |        |     |   |           | 234,090   |       |  |  |        |   
|                                                | Dividends  common equity interests                          |                              |           | (50,963   | )     |        |  |        |     |        |           | (43,815   | )     |  |  |        |     |   |           | (43,290   | )     |  |  |        |   
|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|                                                | Balance at December 31                                       |                              |           | 1,882,071 |       |        |  |        |     |        |           | 1,652,477 |       |  |  |        |     |   |           | 1,427,917 |       |  |  |        |   
|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|Accumulated Other Comprehensive
    Gain/(Loss) |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|                                                | Balance at January 1                                         |                              |           | (313,704  | )     |        |  |        |     |        |           | (215,821  | )     |  |  |        |     |   |           | (136,914  | )     |  |  |        |   
|                                                | Foreign currency translation adjustments                     |                              |           | 276,792   |       |        |  |        |     |        |           | 13,652    |       |  |  |        |     |   |           | (65,694   | )     |  |  |        |   
|                                                | Minimum pension liability adjustment,net of
    income taxes |                              |           | (22,316   | )     |        |  |        |     |        |           | (112,875  | )     |  |  |        |     |   |           | (13,213   | )     |  |  |        |   
|                                                | Derivative adjustment, net of income taxes                   |                              |           | (364      | )     |        |  |        |     |        |           | 1,340     |       |  |  |        |     |   |           |          |       |  |  |        |   
|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|                                                | Balance at December 31                                       |                              |           | (59,592   | )     |        |  |        |     |        |           | (313,704  | )     |  |  |        |     |   |           | (215,821  | )     |  |  |        |   
|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       
|Total Shareholders Equity                      |                                                              | $                            | 2,659,642 |           |       |        |  |        |     | $      | 2,159,651 |           |       |  |  |        |     | $ | 1,997,061 |           |       |  |  |       
|                                                |                                                              |                              |           |           |       |        |  |        |     |        |           |           |       |  |  |        |     |   |           |           |       |  |  |       

See the Notes to Consolidated Financial Statements

53



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME

(in thousands)


|                     |                                                               |                         |         |         |   |      |         |          |   |   |         |         |  
|-------------------- | ------------------------------------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | -------- | - | - | ------- | ------- | -
|                     |                                                               |                        
|                     |                                                               | Years Ended December 31
|                     |                                                               |                        
|                     |                                                               | 2003                    |         | 2002    |   | 2001
|                     |                                                               |                         |         |         |   |     
|Net Income           |                                                               | $                       | 280,557 |         |   | $    | 268,375 |          |   | $ | 234,090 |        
|                     | Foreign currency translation adjustments                      |                         |         | 276,792 |   |      |         | 13,652   |   |   |         | (65,694 | )
|                     | Minimum pension liability adjustment, net of
    income taxes |                         |         | (22,316 | ) |      |         | (112,875 | ) |   |         | (13,213 | )
|                     | Derivative adjustment, net of income taxes                    |                         |         | (364    | ) |      |         | 1,340    |   |   |         |        |  
|                     |                                                               |                         |         |         |   |      |         |          |   |   |         |        
|Comprehensive Income |                                                               | $                       | 534,669 |         |   | $    | 170,492 |          |   | $ | 155,183 |        
|                     |                                                               |                         |         |         |   |      |         |          |   |   |         |        

See the Notes to Consolidated Financial
Statements.

54



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(in thousands)


|                                                            |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |          |         |  
|----------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------------------------------------- | -------- | -------- | ------- | ---- | -------- | -------- | ------- | - | -------- | -------- | ------- | -
|                                                            |                                                                            |                                                                    
|                                                            |                                                                            | Years Ended December 31                                            
|                                                            |                                                                            |                                                                    
|                                                            |                                                                            | 2003                                                                |          | 2002     |         | 2001
|                                                            |                                                                            |                                                                     |          |          |         |     
|Cash Flows from Operations                                  |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|                                                            | Net income                                                                 |                                                                     | $        | 280,557  |         |      | $        | 268,375  |         |   | $        | 234,090  |        
|                                                            | Adjustments to reconcile net income to net cash
    provided by operations |                                                                     |          |          |         |      |          |          |         |   |          |          |        
|                                                            |                                                                            | Depreciation, depletion and amortization                            |          |          | 192,819 |      |          |          | 182,154 |   |          |          | 194,160 |  
|                                                            |                                                                            | Cumulative effect of change in accounting
    principle, net of tax |          |          | 3,214   |      |          |          |        |   |          |          |        |  
|                                                            |                                                                            | Provision for bad debts                                             |          |          | 2,106   |      |          |          | 2,921   |   |          |          | 6,106   |  
|                                                            |                                                                            | Deferred income taxes                                               |          |          | 22,921  |      |          |          | 9,947   |   |          |          | 30      |  
|                                                            |                                                                            | Gain on sale of assets                                              |          |          | (38,800 | )    |          |          | (35,181 | ) |          |          | (24,051 | )
|                                                            |                                                                            | Gain on sale of discontinued operations                             |          |          | (93,126 | )    |          |          |        |   |          |          |        |  
|                                                            |                                                                            | Tax on sale of discontinued operations                              |          |          | 37,899  |      |          |          |        |   |          |          |        |  
|                                                            |                                                                            | Other noncash charges and (credits), net                            |          |          | (5,515  | )    |          |          | 34,723  |   |          |          | (11,211 | )
|                                                            |                                                                            | Net change in operating working capital (see
    Analysis below)*   |          |          | 4,328   |      |          |          | (39,087 | ) |          |          | 23,941  |  
|                                                            |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|Net Cash Provided by Operations                             |                                                                            |                                                                     | 406,403  |          |         |      | 423,852  |          |         |   | 423,065  |         
|                                                            |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|Cash Flows from Investing                                   |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|                                                            | Capital expenditures                                                       |                                                                     |          | (173,918 | )       |      |          | (247,873 | )       |   |          | (333,170 | )      
|                                                            | Acquisitions, net of cash acquired                                         |                                                                     |          | (16,701  | )       |      |          | (31,566  | )       |   |          | (80,615  | )      
|                                                            | (Purchases) redemptions of short-term
    investments, net                 |                                                                     |          | (46,313  | )       |      |          | 1,004    |         |   |          | (23,264  | )      
|                                                            | Proceeds from asset dispositions                                           |                                                                     |          | 71,210   |         |      |          | 76,993   |         |   |          | 66,163   |        
|                                                            | Proceeds received from sale of discontinued
    operations                 |                                                                     |          | 123,891  |         |      |          |         |         |   |          |         |        
|                                                            | Income tax payments on gain from sale of
    discontinued operations       |                                                                     |          | (37,899  | )       |      |          |         |         |   |          |         |        
|                                                            | Other                                                                      |                                                                     |          | (3,792   | )       |      |          | 10,221   |         |   |          | (12,350  | )      
|                                                            |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|Net Cash Used for Investing                                 |                                                                            |                                                                     | (83,522  | )        |         |      | (191,221 | )        |         |   | (383,236 | )       
|                                                            |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|Cash Flows from Financing                                   |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|                                                            | Issuance (repayment) of long-term debt                                     |                                                                     |          | 39,563   |         |      |          | (12,491  | )       |   |          | (16,340  | )      
|                                                            | Issuance (repayment) of short-term
    borrowings, net                     |                                                                     |          | (131,079 | )       |      |          | (65,404  | )       |   |          | 23,698   |        
|                                                            | Issuance of equity securities                                              |                                                                     |          | 11,777   |         |      |          | 31,249   |         |   |          | 18,442   |        
|                                                            | Repurchase of common stock                                                 |                                                                     |          | (867     | )       |      |          |         |         |   |          | (28,970  | )      
|                                                            | Dividends, net of reinvestments                                            |                                                                     |          | (45,588  | )       |      |          | (39,151  | )       |   |          | (39,763  | )      
|                                                            |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|Net Cash Used for Financing                                 |                                                                            |                                                                     | (126,194 | )        |         |      | (85,797  | )        |         |   | (42,933  | )       
|                                                            |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|Effect of exchange rate changes                             |                                                                            |                                                                     | 82,847   |          |         |      | 1,830    |          |         |   | (8,539   | )       
|                                                            |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|Net Increase (Decrease) in Cash and Cash
    Equivalents    |                                                                            |                                                                     | 279,534  |          |         |      | 148,664  |          |         |   | (11,643  | )       
|Cash and Cash Equivalents at January 1                      |                                                                            |                                                                     | 351,110  |          |         |      | 202,446  |          |         |   | 214,089  |         
|                                                            |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|Cash and Cash Equivalents at December 31                    |                                                                            | $                                                                   | 630,644  |          |         | $    | 351,110  |          |         | $ | 202,446  |         
|                                                            |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|*Analysis of Changes in Operating Working
    Capital Items |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|                                                            | Receivables, net (including Due from
    affiliates)                     |                                                                     | $        | (59,131  | )       |      | $        | 84,359   |         |   | $        | (144,370 | )      
|                                                            | Inventories                                                                |                                                                     |          | 24,836   |         |      |          | (21,770  | )       |   |          | 9,524    |        
|                                                            | Other current assets                                                       |                                                                     |          | 2,608    |         |      |          | 17,440   |         |   |          | 9,567    |        
|                                                            | Accounts payable and accrued liabilities                                   |                                                                     |          | 14,713   |         |      |          | (68,139  | )       |   |          | 74,917   |        
|                                                            | Income taxes payable                                                       |                                                                     |          | 21,302   |         |      |          | (50,977  | )       |   |          | 74,303   |        
|                                                            |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         
|Net Change in Operating Working
    Capital                 |                                                                            | $                                                                   | 4,328    |          |         | $    | (39,087  | )        |         | $ | 23,941   |         
|                                                            |                                                                            |                                                                     |          |          |         |      |          |          |         |   |          |         

See the Notes to Consolidated Financial
Statements.

55



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Lafarge North America Inc., together with its
subsidiaries (Lafarge or the company),
is North Americas largest diversified supplier of
aggregate, concrete and concrete products, cement and
cement-related products, gypsum drywall, and other construction
materials used for residential, commercial, institutional and
public works construction. The companys business is
organized into three operating segments: Construction Materials,
Cement and Cement-Related Products, and Gypsum. Each represents
a separately managed strategic business unit with different
capital requirements and marketing strategies. For information
regarding the companys operating segments and products,
see Note 17 Segment and Related Information
herein.

Lafarge operates in the U.S. and throughout
Canada, where it operates through a major subsidiary, Lafarge
Canada Inc. (LCI). The primary U.S. markets are in
the northeast, midsouth, midwest, northcentral, mountain and
northwest areas. Lafarges 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 the companys outstanding common stock, par value
$1.00 per share (the Common Stock), and LCIs
exchangeable preference shares (the Exchangeable
Shares).

Effective July 11, 2001, the company entered
into an agreement with Lafarge S.A. to manage and operate
certain U.S. cement and construction materials businesses that
Lafarge S.A. obtained in its acquisition of U.K.-based Blue
Circle Industries PLC on that date (the Blue Circle Asset
Management Agreement). The Blue Circle Asset Management
Agreement grants the company management authority for most of
Blue Circles U.S. business and provides for a fixed annual
management fee plus incentives for improving operating results.
The management contract is renewable for one-year periods each
year at the option of the company and was renewed through
December 31, 2004. The assets that the company manages
include five full-production cement plants; a slag grinding
facility; 11 cement terminals; 15 pits and quarries for
producing aggregate (crushed stone, sand and gravel); 72
ready-mixed concrete plants and several concrete block
operations. A majority of the operations are situated in the
southeastern U.S. These assets remain the property of Lafarge
S.A. and therefore neither these assets nor their operating
results are consolidated into these financial statements.
Further, in conjunction with the Blue Circle Asset Management
Agreement, Lafarge S.A. granted the company an option to
purchase the assets being managed, anytime between July 1,
2002 and December 31, 2004, at a fixed price of
$1.4 billion, subject to certain adjustments at the time of
the exercise.

Note 1 Summary of Significant
Accounting Policies



| |          
| | ---------
| | 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.



| |                            
| | ---------------------------
| | Principles of Consolidation

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 the company has
less than a majority ownership are accounted for by the equity
method and included in Other assets in the
Consolidated Balance Sheets. Certain reclassifications have been
made to prior years to conform to the 2003 presentation.

56



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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)



| |                             
| | ----------------------------
| | Foreign Currency Translation

The company uses the U.S. dollar as its
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 currency translation adjustments of $87,836 and
($188,956) at December 31, 2003 and 2002, respectively, are
included in Accumulated other comprehensive loss in
the Consolidated Balance Sheets and in the Consolidated
Statements of Shareholders Equity.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

The company considers liquid investments
purchased with an original maturity of three months or less to
be cash equivalents. Because of the short maturity, their
carrying amounts approximate fair value.



| |                       
| | ----------------------
| | Short-Term Investments

Short-term investments consist primarily of
commercial paper with original maturities beyond three months,
but less than 12 months. Such short-term investments are
carried at cost, which approximates fair value due to the short
period of time to maturity.



| |                                                  
| | -------------------------------------------------
| | Derivative Instruments and Hedging
    Activities

The company applies the provisions of Statement
of Financial Accounting Standards (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, the company will elect to
apply the normal purchases or sales exception in accordance with
SFAS No. 133. Normal purchases and normal sales 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
the company over a reasonable period in the normal course of
business. Often this exception will apply to purchases of
commodities used in the companys production process that
would otherwise be considered derivative instruments. When
applied, this exception allows the company 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. The company 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
the company designates the derivative and documents the hedge
relationship as either a fair value or cash flow hedge in
accordance with the requirements of SFAS No. 133. The
company formally documents 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. The
company also formally assesses, both at the hedge
relationships 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, the
company discontinues hedge accounting prospectively. The company
will only apply hedge accounting to those relationships that
have been properly designated and documented and are anticipated
to be highly effective.

57



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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 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.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments that potentially subject
the company to concentrations of credit risk are primarily cash
equivalents, short-term investments, receivables and
derivatives. The company places its cash equivalents and
short-term investments primarily in investment grade, short-term
debt instruments. The company performs ongoing credit
evaluations of its customers financial condition and
generally requires no collateral from its 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 the companys 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, the company fully
adopted the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 was issued in June
2001 and requires that goodwill and intangible assets with
indefinite lives no longer be amortized but reviewed annually
(or more frequently if impairment indicators arise) for
impairment. Intangible assets that are not deemed to have
indefinite lives continue to be amortized over their useful
lives. These lives can range from three years for short-lived
intangibles (such as customer lists and non-compete contracts)
to more than 60 years for certain mineral rights. In
accordance with SFAS No. 142s transitional
requirements, the amortization provisions were applied to
goodwill and intangible assets that were recognized in
acquisitions initiated after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1,
2001, we adopted the provisions of SFAS No. 142 effective
January 1, 2002.



| |                                                
| | -----------------------------------------------
| | Impairment or Disposal of Long-Lived
    Assets

The company evaluates the recoverability of its
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

58



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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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 the companys 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, Lafarge idled
manufacturing operations at its 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, Lafarge
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 restore the property. The fair
value of impaired assets was determined using the expected net
realizable value. As of December 31, 2003 and 2002,
payments of approximately $4.7 million and $1 million
had been made against the liability of $11 million,
respectively. The remaining liability as of December 31,
2003 is $6.3 million.

No other impairments were recorded for the years
ended December 31, 2003, 2002 and 2001.



| |                             
| | ----------------------------
| | Asset Retirement Obligations

In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 143,
Accounting for Asset Retirement Obligations. This
statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The
purpose of this statement is to develop consistent accounting
for asset retirement obligations and related costs in financial
statements and provide more information about future cash
outflows, leverage and liquidity regarding retirement
obligations and the gross investment in long-lived assets. The
company implemented SFAS No. 143 on January 1, 2003.
SFAS No. 143s primary impact on us relates to our
accounting for quarry reclamation obligations. Previously, the
company provided for its 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 companys adoption of SFAS
No. 143.



| |                                          
| | -----------------------------------------
| | Environmental Remediation
    Liabilities

When the company determines 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.



| |                              
| | -----------------------------
| | Other Postretirement Benefits

The company accrues the expected cost of retiree
health care and life insurance benefits and charges it to
expense during the years that the employees render service.

59



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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

In addition, the company accrues 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

The company is committed to improving its
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 $5.1 million,
$5.1 million and $7.2 million for 2003, 2002 and 2001,
respectively.



| |                            
| | ---------------------------
| | Other (Income) Expense, Net

Other (income) expense, net consists of the
following (in millions):

|                                                                     |  |                         |       |      |  |      |       |   |  |   |       |  
|-------------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                                     |  |                        
|                                                                     |  | Years Ended December 31
|                                                                     |  |                        
|                                                                     |  | 2003                    |       | 2002 |  | 2001
|                                                                     |  |                         |       |      |  |     
|Gain on sale of fixed assets                                         |  | $                       | (12.2 | )    |  | $    | (7.8  | ) |  | $ | (8.0  | )
|Gain on divestitures                                                 |  |                         | (28.8 | )    |  |      | (30.8 | ) |  |   | (23.2 | )
|Loss on the sale of receivables under our
    securitization program |  |                         | 2.3   |      |  |      | 3.4   |   |  |   | 7.1   |  
|(Gain) loss on natural gas commodity contracts                       |  |                         |      |      |  |      | (8.1  | ) |  |   | 8.1   |  
|Pension and other postretirement benefits expense                    |  |                         | 10.2  |      |  |      | 15.2  |   |  |   | 6.9   |  
|Equity income                                                        |  |                         | (2.5  | )    |  |      | (0.3  | ) |  |   | (2.8  | )
|Expenses for restructuring                                           |  |                         |      |      |  |      |      |   |  |   | 7.1   |  
|Foreign exchange transaction losses                                  |  |                         | 11.0  |      |  |      | 0.9   |   |  |   | 0.3   |  
|Loss on idling of Wilmington plant                                   |  |                         |      |      |  |      | 26.0  |   |  |   |      |  
|Other miscellaneous losses                                           |  |                         | 6.9   |      |  |      | 3.9   |   |  |   | 8.7   |  
|                                                                     |  |                         |       |      |  |      |       |   |  |   |       |  
|Total other (income) expense
    net                                 |  | $                       | (13.1 | )    |  | $    | 2.4   |   |  | $ | 4.2   |  
|                                                                     |  |                         |       |      |  |      |       |   |  |   |       |  



| |         
| | --------
| | Interest

The company capitalizes interest costs incurred
during the construction of new facilities as an element of
construction in progress and amortizes such costs over the
assets estimated useful lives. There was no interest
capitalized during 2003. Interest of $4.2 million and
$11.1 million was capitalized in 2002 and 2001,
respectively.

60



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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)



| |             
| | ------------
| | 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.



| |              
| | -------------
| | Restructuring

In the second half of 2001, the company adopted a
plan to reorganize its cement operations into five geographic
regions. The new organization, which was designed primarily to
better serve our customers, was implemented effective
January 1, 2002. The company recorded $7.1 million in
costs related to this restructuring in Other
(income) expense, net in the Consolidated Statements
of Income for the year ended December 31, 2001.



| |                                   
| | ----------------------------------
| | Net Income Per Common Equity Share

The calculation of basic net income per common
equity 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) 73,304, 72,824 and 72,043 in 2003, 2002 and 2001,
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) 74,014, 73,814 and 72,910 in 2003, 2002 and
2001, respectively.



| |                                            
| | -------------------------------------------
| | Accounting for Stock-Based
    Compensation

The company accounts 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 the
companys stock options because the options exercise
price is set at the stocks fair market value on the date
the option is granted.

In accordance with SFAS No. 123,
Accounting for Stock Compensation, the company
discloses the compensation cost based on the estimated fair
value at the date of grant.

As of December 31, 2002, the company 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 ratably over the vesting period. The weighted average
assumptions used in the Black-Scholes model to value the option
awards in 2003, 2002, and 2001, respectively, are as follows:
dividend yield of 2.0 percent, 1.5 percent, and
2.0 percent; expected volatility of 34.0 percent,
38.0 percent, and 43.0 percent; risk-free interest
rates of 3.6 percent, 4.9 percent, and
4.9 percent; and expected lives of 5.1 years,
5.4 years and 5.4 years.

61



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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

If the company 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
2003, 2002 and 2001 would be as follows:

|                             |                                                                        |                                          |   |         |   |      |   |         |   |  |   |         |  
|---------------------------- | ---------------------------------------------------------------------- | ---------------------------------------- | - | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|                             |                                                                        |                                         
|                             |                                                                        | Years Ended December 31                 
|                             |                                                                        |                                         
|                             |                                                                        | 2003                                     |   | 2002    |   | 2001
|                             |                                                                        |                                          |   |         |   |     
|                             |                                                                        |                                         
|                             |                                                                        | (in thousands, except per share amounts)
|Net Income                   |                                                                        |                                          |   |         |   |      |   |         |   |  |   |        
|                             | As reported                                                            |                                          | $ | 280,557 |   |      | $ | 268,375 |   |  | $ | 234,090 |  
|                             | Deduct fair value of stock-based employee
    compensation, net of tax |                                          |   | (7,459  | ) |      |   | (8,288  | ) |  |   | (6,350  | )
|                             |                                                                        |                                          |   |         |   |      |   |         |   |  |   |        
|                             | Pro forma                                                              |                                          | $ | 273,098 |   |      | $ | 260,087 |   |  | $ | 227,740 |  
|                             |                                                                        |                                          |   |         |   |      |   |         |   |  |   |        
|Basic Net Income Per Share   |                                                                        |                                          |   |         |   |      |   |         |   |  |   |        
|                             | As reported                                                            |                                          | $ | 3.83    |   |      | $ | 3.69    |   |  | $ | 3.25    |  
|                             | Pro forma                                                              |                                          | $ | 3.73    |   |      | $ | 3.57    |   |  | $ | 3.16    |  
|Diluted Net Income Per Share |                                                                        |                                          |   |         |   |      |   |         |   |  |   |        
|                             | As reported                                                            |                                          | $ | 3.79    |   |      | $ | 3.64    |   |  | $ | 3.21    |  
|                             | Pro forma                                                              |                                          | $ | 3.69    |   |      | $ | 3.52    |   |  | $ | 3.12    |  



| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

The Financial Accounting Standards Board (FASB)
issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, in
January 2003 and amended the Interpretation in December 2003.
FIN 46 requires an investor with a majority of the variable
interests (primary beneficiary) in a variable interest entity
(VIE) to consolidate the entity and also requires majority and
significant variable interest investors to provide certain
disclosures. A VIE is an entity in which the voting equity
investors do not have a controlling financial interest or the
equity investment at risk is insufficient to finance the
entitys activities without receiving additional
subordinated financial support from the other parties. The main
provisions of FIN 46 are effective in financial statements
for periods ending after March 15, 2004 (except for certain
VIE structures that had an earlier effective date). The company
does not expect this Interpretation to have an effect on the
Consolidated Financial Statements.



| |                        
| | -----------------------
| | Discontinued Operations

On July 3, 2003, the company agreed to sell
Lafarge Florida Inc. to Florida Rock Industries, Inc. The assets
and operations of Lafarge Florida Inc. were classified within
our cement segment. The sale closed on August 12, 2003. The
sale price of approximately $124 million resulted in a
pretax gain of approximately $93 million which is included
in Income from discontinued operations, net of tax
in the consolidated statements of income for the year ended
December 31, 2003.

In accordance with SFAS 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, the
company has 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 and liabilities of discontinued
operations as of December 31, 2003. Because the
reclassification of discontinued operations is not considered
material for the year ended December 31, 2001, this
reclassification was not made to the 2001 financial statements.

62



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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Net sales and earnings before income tax from our
discontinued Florida operations are as follows (in thousands):

|                                                                                 |  |                         |         |      |  |             |        |  |  |   |        | 
|-------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ----------- | ------ |  |  | - | ------ | 
|                                                                                 |  |                        
|                                                                                 |  | Years Ended December 31
|                                                                                 |  |                        
|                                                                                 |  | 2003                    |         | 2002 |  | 2001       
|                                                                                 |  |                         |         |      |  |            
|                                                                                 |  |                         |         |      |  | (unaudited)
|Net Sales                                                                        |  | $                       | 60,625  |      |  | $           | 91,461 |  |  | $ | 90,240 | 
|Earnings before income tax (including a
    divestiture gain of $93,126 in 2003) |  | $                       | 106,486 |      |  | $           | 19,327 |  |  | $ | 17,860 | 

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
to be sold. Income taxes associated with discontinued operations
was $40.2 million and $7.6 million for the years ended
December 31, 2003 and 2002, respectively.

The following net assets of Lafarge Florida Inc.
are classified as discontinued operations at December 31,
2002 (in thousands):

|                                                        |                                             |             |        |        | 
|------------------------------------------------------- | ------------------------------------------- | ----------- | ------ | ------ | 
|                                                        |                                             | December 31
|                                                        |                                             | 2002       
|                                                        |                                             |            
|Accounts receivable, net (including
    securitization) |                                             | $           | (963   | )     
|Inventories                                             |                                             |             | 7,590  |       
|Other current assets                                    |                                             |             | 105    |       
|Property, plant and equipment, net                      |                                             |             | 14,719 |       
|Accounts payable and accrued liabilities                |                                             |             | (4,338 | )     
|                                                        |                                             |             |        |       
|                                                        | Net assets from discontinued
    operations |             | $      | 17,113 | 
|                                                        |                                             |             |        |       



| |                                                                    
| | -------------------------------------------------------------------
| | Acquisitions, Dispositions and Significant
    Capital Developments

On July 3, 2003, we sold our Detroit cement
terminal and received $38.0 million 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.

In July 2001, the company purchased for
$14.3 million certain of Blue Circle Industries PLCs
North American assets from Lafarge S.A. that are not part of the
Blue Circle Asset Management Agreement. Those businesses include
sand and gravel operations in Ontario and near Buffalo, New
York, two Ontario ready-mixed concrete plants and a cold patch
asphalt business with operations in Canada and the U.S.
Additionally, the company completed other acquisitions in 2001
totaling $66.3 million in cash. These acquisitions included
the February 2001 purchase of substantially all of the assets of
Pine Hill Materials Corp. and American Readi-Mix Concrete
Corporation, New York-based construction materials companies,
and in June 2001, Rocky Mountain Construction Materials, an
aggregate and ready-mixed concrete company based in Colorado.

63



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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

In December 2001, the company sold its joint
venture interest in Centennial Concrete Pipe & Products for
approximately $31 million and sold non-strategic
ready-mixed concrete businesses in Wisconsin for approximately
$19 million.

Note 2 Receivables

Receivables consist of the following (in
thousands):

|                                     |                        |             |         |         |  |   |         |         | 
|------------------------------------ | ---------------------- | ----------- | ------- | ------- |  | - | ------- | ------- | 
|                                     |                        |            
|                                     |                        | December 31
|                                     |                        |            
|                                     |                        | 2003        |         | 2002   
|                                     |                        |             |         |        
|Trade and notes receivable           |                        | $           | 296,906 |         |  | $ | 274,293 |        
|Subordinated interest in receivables |                        |             | 96,329  |         |  |   | 54,601  |        
|Unbilled receivables                 |                        |             | 34,893  |         |  |   | 30,065  |        
|Retainage on long-term contracts     |                        |             | 32,197  |         |  |   | 20,603  |        
|Other receivables                    |                        |             | 38,787  |         |  |   | 24,815  |        
|Allowances                           |                        |             | (31,272 | )       |  |   | (28,311 | )      
|                                     |                        |             |         |         |  |   |         |        
|                                     | Total receivables, net |             | $       | 467,840 |  |   | $       | 376,066 | 
|                                     |                        |             |         |         |  |   |         |        

The company has a receivables securitization
program to provide a cost-effective source of working capital
and short-term financing. Under the program, the company agrees
to sell, on a revolving basis, certain of its 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. The company services, administers and collects the
receivables sold.

On April 1, 2001, the company adopted the
provisions of SFAS No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities, a replacement of FASB Statement No. 125,
which was effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after
March 31, 2001. Under the terms of the companys
securitization arrangement, the company does 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, 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 company has received proceeds from the sale
of trade receivables totaling $1,545.0 million and
$1,889.2 million for the years ended December 31, 2003
and 2002, respectively. At December 31, 2003 and 2002, the
company administered $82.0 million and $143.4 million,
respectively, of outstanding receivables that were sold under
this arrangement. In 2003 and 2002, related fees and discounting
expense of $2.3 million and $3.4 million,
respectively, have been 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
amounting to $96.3 million and $54.6 million at
December 31, 2003 and 2002, respectively. 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.

64



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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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, 2003 and 2002, we have
amounts payable under this arrangement of $54.2 million and
$42.3 million, respectively.

Note 3 Inventories

Inventories consist of the following (in
thousands):

|                                   |                   |             |         |         |  |   |         |         | 
|---------------------------------- | ----------------- | ----------- | ------- | ------- |  | - | ------- | ------- | 
|                                   |                   |            
|                                   |                   | December 31
|                                   |                   |            
|                                   |                   | 2003        |         | 2002   
|                                   |                   |             |         |        
|Finished products                  |                   | $           | 213,775 |         |  | $ | 199,026 |        
|Work in process                    |                   |             | 29,516  |         |  |   | 28,960  |        
|Raw materials and fuel             |                   |             | 60,521  |         |  |   | 68,471  |        
|Maintenance and operating supplies |                   |             | 70,332  |         |  |   | 69,432  |        
|                                   |                   |             |         |         |  |   |         |        
|                                   | Total inventories |             | $       | 374,144 |  |   | $       | 365,889 | 
|                                   |                   |             |         |         |  |   |         |        

Included in the finished products, work in
process and raw materials and fuel categories are inventories
valued using the LIFO method of $64.3 million and
$83.2 million at December 31, 2003 and 2002,
respectively. The value of inventory calculated by the LIFO
method approximates the value using the average cost method.

Note 4 Property, Plant and
Equipment

Property, plant and equipment consist of the
following (in thousands):

|                                       |                                              |             |            |           |  |   |            |           | 
|-------------------------------------- | -------------------------------------------- | ----------- | ---------- | --------- |  | - | ---------- | --------- | 
|                                       |                                              |            
|                                       |                                              | December 31
|                                       |                                              |            
|                                       |                                              | 2003        |            | 2002     
|                                       |                                              |             |            |          
|Land and mineral deposits              |                                              | $           | 584,088    |           |  | $ | 524,180    |          
|Buildings, machinery and equipment     |                                              |             | 3,660,084  |           |  |   | 3,287,280  |          
|Construction in progress               |                                              |             | 151,949    |           |  |   | 149,106    |          
|                                       |                                              |             |            |           |  |   |            |          
|Property, plant and equipment, at cost |                                              |             | 4,396,121  |           |  |   | 3,960,566  |          
|Accumulated depreciation and depletion |                                              |             | (2,050,127 | )         |  |   | (1,757,246 | )        
|                                       |                                              |             |            |           |  |   |            |          
|                                       | Total property, plant and
    equipment, net |             | $          | 2,345,994 |  |   | $          | 2,203,320 | 
|                                       |                                              |             |            |           |  |   |            |          

Depreciation expense for the years 2003, 2002 and
2001 was $184.9 million, $178.1 million and
$171.4 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.

65



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Note
5     Goodwill

The changes in the carrying value of goodwill,
net for the years ended December 31, 2003 and 2002, are as
follows (in thousands):

|                                        |  |              |         |            |  |         |        |             |  |       |        |  |  |   |         |   |  |   |         | 
|--------------------------------------- |  | ------------ | ------- | ---------- |  | ------- | ------ | ----------- |  | ----- | ------ |  |  | - | ------- | - |  | - | ------- | 
|                                        |  |              |         | Cement and |  |         |        |             |  |      
|                                        |  |              |         | Cement-    |  |         |        |             |  |      
|                                        |  | Construction |         | Related    |  |         |        | Corporate   |  |      
|                                        |  | Materials    |         | Products   |  | Gypsum  |        | and         |  |      
|                                        |  | Segment      |         | Segment    |  | Segment |        | Unallocated |  | Total
|                                        |  |              |         |            |  |         |        |             |  |      
|Balance at January 1, 2003              |  | $            | 452,507 |            |  | $       | 12,337 |             |  | $     | 19,454 |  |  | $ | (12,803 | ) |  | $ | 471,495 | 
|Goodwill acquired                       |  |              | 10,315  |            |  |         |       |             |  |       |       |  |  |   |        |   |  |   | 10,315  | 
|Purchase accounting adjustments         |  |              | 215     |            |  |         |       |             |  |       |       |  |  |   |        |   |  |   | 215     | 
|Foreign currency translation adjustment |  |              | 21,206  |            |  |         | 13     |             |  |       | 389    |  |  |   | 339     |   |  |   | 21,947  | 
|                                        |  |              |         |            |  |         |        |             |  |       |        |  |  |   |         |   |  |   |         | 
|Balance at December 31, 2003            |  | $            | 484,243 |            |  | $       | 12,350 |             |  | $     | 19,843 |  |  | $ | (12,464 | ) |  | $ | 503,972 | 
|                                        |  |              |         |            |  |         |        |             |  |       |        |  |  |   |         |   |  |   |         | 

|                                        |  |              |         |            |  |         |        |             |  |       |        |  |  |   |         |   |  |   |         |  
|--------------------------------------- |  | ------------ | ------- | ---------- |  | ------- | ------ | ----------- |  | ----- | ------ |  |  | - | ------- | - |  | - | ------- | -
|                                        |  |              |         | Cement and |  |         |        |             |  |      
|                                        |  |              |         | Cement-    |  |         |        |             |  |      
|                                        |  | Construction |         | Related    |  |         |        | Corporate   |  |      
|                                        |  | Materials    |         | Products   |  | Gypsum  |        | and         |  |      
|                                        |  | Segment      |         | Segment    |  | Segment |        | Unallocated |  | Total
|                                        |  |              |         |            |  |         |        |             |  |      
|Balance at January 1, 2002              |  | $            | 451,800 |            |  | $       | 12,336 |             |  | $     | 8,335  |  |  | $ | 1,930   |   |  | $ | 474,401 |  
|Goodwill acquired (divested)            |  |              | (710    | )          |  |         |       |             |  |       | 10,460 |  |  |   |        |   |  |   | 9,750   |  
|Purchase accounting adjustments         |  |              | 340     |            |  |         |       |             |  |       | 637    |  |  |   | (14,835 | ) |  |   | (13,858 | )
|Foreign currency translation adjustment |  |              | 1,077   |            |  |         | 1      |             |  |       | 22     |  |  |   | 102     |   |  |   | 1,202   |  
|                                        |  |              |         |            |  |         |        |             |  |       |        |  |  |   |         |   |  |   |         |  
|Balance at December 31, 2002            |  | $            | 452,507 |            |  | $       | 12,337 |             |  | $     | 19,454 |  |  | $ | (12,803 | ) |  | $ | 471,495 |  
|                                        |  |              |         |            |  |         |        |             |  |       |        |  |  |   |         |   |  |   |         |  

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 post-retirement benefit obligations,
contingent liabilities, and deferred and current income tax
balances.

The purchase accounting adjustments reflected in
the change in the carrying value of goodwill for the years ended
December 31, 2003 and 2002 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
addition, in the column Corporate and Unallocated
for 2002, we recorded an adjustment for pre-existing tax
contingencies associated with a past acquisition, upon the
quantification of this adjustment. When we make acquisitions,
certain tax contingencies may not have been finalized within the
twelve month period. Once finalized, we will adjust goodwill to
reflect their ultimate disposition.

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
the companys 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 management at the
component level. Our reporting units are cement and
cement-related products, aggregate, ready-mixed 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, 2003 and 2002, and determined that no goodwill
impairment existed.

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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

The following table provides a reconciliation
from reported net income to net income adjusted to exclude
goodwill amortization expense, including any tax-related
benefits (in thousands, except amounts per common equity share):

|                                              |                                   |                                             |         |      |         |      |         |      |         |   |         |      |         | 
|--------------------------------------------- | --------------------------------- | ------------------------------------------- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | - | ------- | ---- | ------- | 
|                                              |                                   |                                            
|                                              |                                   | Years Ended December 31                    
|                                              |                                   |                                            
|                                              |                                   | 2003                                        |         | 2002 |         | 2001
|                                              |                                   |                                             |         |      |         |     
|Reported Income                               |                                   | $                                           | 280,557 |      |         | $    | 268,375 |      |         | $ | 234,090 |     
|Add back amortization of goodwill, net of tax |                                   |                                             |        |      |         |      |        |      |         |   | 19,710  |     
|                                              |                                   |                                             |         |      |         |      |         |      |         |   |         |     
|                                              |                                   | Adjusted net income                         |         | $    | 280,557 |      |         | $    | 268,375 |   |         | $    | 253,800 | 
|                                              |                                   |                                             |         |      |         |      |         |      |         |   |         |     
|Net income per share  basic:                 |                                   |                                             |         |      |         |      |         |      |         |   |         |     
|                                              | Reported net income               |                                             | $       | 3.83 |         |      | $       | 3.69 |         |   | $       | 3.25 |        
|                                              | Add back amortization of goodwill |                                             |         |     |         |      |         |     |         |   |         | 0.27 |        
|                                              |                                   |                                             |         |      |         |      |         |      |         |   |         |     
|                                              |                                   | Adjusted net income per share 
    basic   |         | $    | 3.83    |      |         | $    | 3.69    |   |         | $    | 3.52    | 
|                                              |                                   |                                             |         |      |         |      |         |      |         |   |         |     
|Net income per share  diluted:               |                                   |                                             |         |      |         |      |         |      |         |   |         |     
|                                              | Reported net income               |                                             | $       | 3.79 |         |      | $       | 3.64 |         |   | $       | 3.21 |        
|                                              | Add back amortization of goodwill |                                             |         |     |         |      |         |     |         |   |         | 0.27 |        
|                                              |                                   |                                             |         |      |         |      |         |      |         |   |         |     
|                                              |                                   | Adjusted net income per share 
    diluted |         | $    | 3.79    |      |         | $    | 3.64    |   |         | $    | 3.48    | 
|                                              |                                   |                                             |         |      |         |      |         |      |         |   |         |     

Note 6     Other
Assets

Other assets consist of the following (in
thousands):

|                                        |                    |             |        |         |  |   |        |         | 
|--------------------------------------- | ------------------ | ----------- | ------ | ------- |  | - | ------ | ------- | 
|                                        |                    |            
|                                        |                    | December 31
|                                        |                    |            
|                                        |                    | 2003        |        | 2002   
|                                        |                    |             |        |        
|Long-term receivables                   |                    | $           | 37,715 |         |  | $ | 19,336 |        
|Investments in unconsolidated companies |                    |             | 31,756 |         |  |   | 30,305 |        
|Intangible and prepaid pension assets   |                    |             | 91,255 |         |  |   | 85,359 |        
|Intangible assets, net                  |                    |             | 39,418 |         |  |   | 36,571 |        
|Property held for sale                  |                    |             | 6,099  |         |  |   | 15,994 |        
|Other                                   |                    |             | 44,241 |         |  |   | 37,157 |        
|                                        |                    |             |        |         |  |   |        |        
|                                        | Total other assets |             | $      | 250,484 |  |   | $      | 224,722 | 
|                                        |                    |             |        |         |  |   |        |        

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, except average amortization
period amounts):

|                      |       |                   |        |              |  |     |       |        |  |   |        |        | 
|--------------------- | ----- | ----------------- | ------ | ------------ |  | --- | ----- | ------ |  | - | ------ | ------ | 
|                      |       |                  
|                      |       | December 31, 2003
|                      |       |                  
|                      |       | Gross             |        |             
|                      |       | Carrying          |        | Accumulated  |  |    
|                      |       | Amount            |        | Amortization |  | Net
|                      |       |                   |        |              |  |    
|Customer lists        |       | $                 | 19,254 |              |  | $   | 7,726 |        |  | $ | 11,528 |       
|Mineral rights        |       |                   | 25,191 |              |  |     | 1,714 |        |  |   | 23,477 |       
|Non-compete contracts |       |                   | 4,003  |              |  |     | 2,372 |        |  |   | 1,631  |       
|Other                 |       |                   | 5,304  |              |  |     | 2,522 |        |  |   | 2,782  |       
|                      |       |                   |        |              |  |     |       |        |  |   |        |       
|                      | Total |                   | $      | 53,752       |  |     | $     | 14,334 |  |   | $      | 39,418 | 
|                      |       |                   |        |              |  |     |       |        |  |   |        |       

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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

|                      |       |                   |        |              |  |     |       |        |  |   |        |        | 
|--------------------- | ----- | ----------------- | ------ | ------------ |  | --- | ----- | ------ |  | - | ------ | ------ | 
|                      |       |                  
|                      |       | December 31, 2002
|                      |       |                  
|                      |       | Gross             |        |             
|                      |       | Carrying          |        | Accumulated  |  |    
|                      |       | Amount            |        | Amortization |  | Net
|                      |       |                   |        |              |  |    
|Customer lists        |       | $                 | 16,190 |              |  | $   | 6,062 |        |  | $ | 10,128 |       
|Mineral rights        |       |                   | 24,611 |              |  |     | 1,234 |        |  |   | 23,377 |       
|Non-compete contracts |       |                   | 2,204  |              |  |     | 768   |        |  |   | 1,436  |       
|Other                 |       |                   | 4,344  |              |  |     | 2,714 |        |  |   | 1,630  |       
|                      |       |                   |        |              |  |     |       |        |  |   |        |       
|                      | Total |                   | $      | 47,349       |  |     | $     | 10,778 |  |   | $      | 36,571 | 
|                      |       |                   |        |              |  |     |       |        |  |   |        |       

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, 2003 and 2002 was
$5.0 million and $3.7 million, respectively. The
following presents the estimated amortization expense for
intangible assets for each of the next five years (in thousands):

| |      |  |  |   |       | 
| | ---- |  |  | - | ----- | 
| | 2004 |  |  | $ | 4,762 | 
| | 2005 |  |  | $ | 4,783 | 
| | 2006 |  |  | $ | 4,534 | 
| | 2007 |  |  | $ | 4,288 | 
| | 2008 |  |  | $ | 1,921 | 

Note 7     Accounts
Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist
of the following (in thousands):

|                                                  |                                                    |             |         |         |  |   |         |         | 
|------------------------------------------------- | -------------------------------------------------- | ----------- | ------- | ------- |  | - | ------- | ------- | 
|                                                  |                                                    |            
|                                                  |                                                    | December 31
|                                                  |                                                    |            
|                                                  |                                                    | 2003        |         | 2002   
|                                                  |                                                    |             |         |        
|Trade accounts payable                            |                                                    | $           | 214,113 |         |  | $ | 186,253 |        
|Accrued payroll expense                           |                                                    |             | 92,555  |         |  |   | 82,680  |        
|Payable to bank under receivables sales agreement |                                                    |             | 54,241  |         |  |   | 42,353  |        
|Bank overdraft                                    |                                                    |             | 18,537  |         |  |   | 21,461  |        
|Self insurance reserves                           |                                                    |             | 47,386  |         |  |   | 49,167  |        
|Other accrued liabilities                         |                                                    |             | 121,731 |         |  |   | 116,230 |        
|                                                  |                                                    |             |         |         |  |   |         |        
|                                                  | Total accounts payable and accrued
    liabilities |             | $       | 548,563 |  |   | $       | 498,144 | 
|                                                  |                                                    |             |         |         |  |   |         |        

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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 31
|                                                                                                                                                                                                                                                                                                                                                                                  |                      |            
|                                                                                                                                                                                                                                                                                                                                                                                  |                      | 2003        |         | 2002   
|                                                                                                                                                                                                                                                                                                                                                                                  |                      |             |         |        
|Senior 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 deferred losses on forward treasury lock and original issue
    discount. The weighted average effective interest rate is 6.6
    percent |                      | $           | 641,603 |         |  | $ | 639,543  |        
|Medium-term note maturing in 2006, bearing fixed
    rate interest at 9.58 percent                                                                                                                                                                                                                                                                                                |                      |             | 2,000   |         |  |   | 2,000    |        
|Tax-exempt bond maturing in 2037, bearing
    interest at a fixed rate of 5.65 percent, stated net of
    issue discount                                                                                                                                                                                                                                                          |                      |             | 46,292  |         |  |   |         |        
|Tax-exempt bonds maturing in various amounts
    between 2005 and 2026, bearing interest at floating rates that
    range from 1.0 percent to 1.5 percent                                                                                                                                                                                                                         |                      |             | 19,550  |         |  |   | 20,750   |        
|Short-term borrowings, including commercial paper                                                                                                                                                                                                                                                                                                                                 |                      |             |        |         |  |   | 131,543  |        
|Other                                                                                                                                                                                                                                                                                                                                                                             |                      |             | 7,721   |         |  |   | 13,332   |        
|                                                                                                                                                                                                                                                                                                                                                                                  |                      |             |         |         |  |   |          |        
|Subtotal                                                                                                                                                                                                                                                                                                                                                                          |                      |             | 717,166 |         |  |   | 807,168  |        
|Less short-term borrowings and current portion of
    long-term debt, net of deferred losses on forward treasury lock
    and original issue discount of $2,060                                                                                                                                                                                                                   |                      |             | (1,775  | )       |  |   | (136,120 | )      
|                                                                                                                                                                                                                                                                                                                                                                                  |                      |             |         |         |  |   |          |        
|                                                                                                                                                                                                                                                                                                                                                                                  | Total long-term debt |             | $       | 715,391 |  |   | $        | 671,048 | 
|                                                                                                                                                                                                                                                                                                                                                                                  |                      |             |         |         |  |   |          |        

The fair value of debt at December 31, 2003
and 2002, respectively, was approximately $772.1 million
and $872.5 million compared with $717.2 million and
$807.2 million included in the Consolidated Balance Sheets.
This fair value was estimated based on quoted market prices or
current interest rates offered to the company 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, 2008 are as follows (in thousands):

|                                                                              |       |   |         |         | 
|----------------------------------------------------------------------------- | ----- | - | ------- | ------- | 
|2004                                                                          |       | $ | 1,775   |        
|2005                                                                          |       |   | 252,793 |        
|2006                                                                          |       |   | 8,501   |        
|2007                                                                          |       |   | 126     |        
|2008                                                                          |       |   | 200,133 |        
|Thereafter                                                                    |       |   | 262,946 |        
|Less deferred losses on forward treasury lock and
    original issue discount |       |   | (9,108  | )      
|                                                                              |       |   |         |        
|                                                                              | Total |   | $       | 717,166 | 
|                                                                              |       |   |         |        

In March 2001, the company entered into
commercial paper agreements, under which the company 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, 2003, the
company did not have any commercial paper outstanding under the
agreements as compared to $125 million outstanding as of
December 31, 2002 with a weighted-average interest rate of
1.7 percent and maturity dates ranging from 4 to
31 days. Borrowings are backed by a $300 million,
syndicated, committed 364-day bank revolver which will expire in
April 2004. The bank revolver requires the maintenance of
certain financial ratios, among other restrictions. No other
short-term borrowings were outstanding at December 31,
2003, as compared to

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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

$6.6 million at December 31, 2002,
under various credit facilities with interest at variable rates
(2.1 percent as of December 31, 2002).

The company also has a syndicated, committed
revolving credit facility totaling $300 million extending
through April 2007. At the end of 2003, no amounts were
outstanding. The company is required to pay annual commitment
fees of 0.11 percent of the total amount of the facilities.

The companys debt agreements require the
maintenance of certain financial ratios relating to fixed charge
coverage and leverage, among other restrictions. At
December 31, 2003, the company was in compliance with these
requirements.

Note 9     Minority
Interests

Minority interests primarily 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 the
Warren merger. No gain or loss was recognized as a result of the
issuance of these securities, and the company 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.
$129 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 the total after-tax proceeds
received by Warren from the sale of certain assets during each
quarter. During 2003, 2002 and 2001, respectively, the company
paid $0.2 million, $2.1 million and $0.6 million
in additional dividends resulting from these sales, which are
included in Minority interests 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, the
company 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 31
|                                    |                                   |            
|                                    |                                   | 2003        |         | 2002   
|                                    |                                   |             |         |        
|Accrued postretirement benefit cost |                                   | $           | 212,057 |         |  | $ | 194,855 |        
|Accrued pension liability           |                                   |             | 219,091 |         |  |   | 177,431 |        
|Other                               |                                   |             | 89,052  |         |  |   | 73,021  |        
|                                    |                                   |             |         |         |  |   |         |        
|                                    | Total other long-term liabilities |             | $       | 520,200 |  |   | $       | 445,307 | 
|                                    |                                   |             |         |         |  |   |         |        

Included in Other Long-Term Liabilities-Other are
asset retirement obligations. Effective January 1, 2003,
the company 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.

This statement required legal obligations
associated with the retirement of long-lived assets to be
recognized at their fair value at the time that the obligations
are incurred. Upon initial recognition of a

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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

liability, that cost is capitalized as part of
the related long-lived asset. The asset is depreciated over the
useful life of the asset and the liability is accreted through
the date of its settlement. Most of Lafarge North Americas
asset retirement obligations are incurred as reclamation
liabilities related to its mining process.

Previously, the company accrued for 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.

The analysis of asset retirement obligations for
the year ended December 31, 2003 is as follows (in
millions):

|                           |                               |                              |      |      |      | 
|-------------------------- | ----------------------------- | ---------------------------- | ---- | ---- | ---- | 
|Balance at January 1, 2003 |                               | $                            | 25.7 |     
|                           | Accretion expense             |                              |      | 2.0  |     
|                           | New obligations incurred      |                              |      | 6.5  |     
|                           | Payments                      |                              |      | (0.8 | )   
|                           | Currency exchange rate impact |                              |      | 3.1  |     
|                           |                               |                              |      |     
|                           |                               | Balance at December 31, 2003 |      | $    | 36.5 | 
|                           |                               |                              |      |     

Pro-forma effects for the periods presented,
assuming adoption of SFAS No. 143 retroactively, were not
material to net income or per-share amounts.

Note
11     Derivative Instruments and
Hedging Activities

The company maintains 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 of
certain of the companys products requires significant
consumption of fuel and power. Price fluctuations in natural gas
and electrical power can cause the spot market price to differ
from the fixed price in forward supply agreements.

The company uses commodity-based derivatives to
manage its exposure to commodity price fluctuations. The company
executes these commodity-based derivatives for the purpose of
hedging its economic exposure to commodity price changes, not
for trading or speculative purposes.

The company periodically enters into natural gas
forward purchase agreements for a portion of its anticipated gas
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 natural
gas purchases. As of December 31, 2003 and 2002, the
company has 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 business
exception and are not subject to hedge or mark-to-market
accounting. As of December 31, 2003 and 2002 certain
contracts qualify for hedge accounting, resulting in a
$0.4 million loss and a $1.3 million gain,
respectively net of tax, in Other Comprehensive Income. Certain
outstanding contracts as of December 31, 2001, did not
qualify for hedge accounting and an $8.1 million loss on
these contracts is reflected in Other
(income) expense, net in the accompanying
Consolidated Statement of Income for 2001. In 2002 these
contracts expired, resulting in an $8.1 million gain in
Other (income) expense, net.

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. Dividends on the
Exchangeable Shares are cumulative and payable at the same time
as any dividends declared

71



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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

on the Common Stock. The company has 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.

At December 31, 2003, the company had
reserved for issuance approximately 8.5 million shares of
Common Stock for the exchange of outstanding Exchangeable
Shares. Additional common equity shares are reserved to cover
grants under the companys stock option program
(7.1 million) and issuances pursuant to the employee stock
purchase plan (1.2 million).

In May 2003, the company announced a buyback
program of Common Stock over the following 18 months. The
plan allowed the company, at managements discretion, to
buy back up to $50 million of the Common Stock from time to
time on the market or through privately negotiated transactions.
For the year ended December 31, 2003, the company bought
back approximately 28 thousand shares of Common Stock at an
average cost of $30.96 per share. The Common Stock buy back
program will expire in December 2004.

In connection with the Warren merger in December
2000, the company 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

The company has 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

The company maintains a fixed stock option plan
and an employee stock purchase plan. Under the fixed stock
option plan, 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 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 options vest
in annual 25% increments beginning one year after the grant
date. The options expire 10 years after the date of grant.
There were approximately 5.0 million and 4.3 million
of outstanding options at December 31, 2003 and 2002,
respectively.

The employee stock purchase plan allows
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 2003, 139,380 shares were issued
under the plan at a share price of $28.24; in 2002, 95,299
shares were issued under the plan at a share price of $29.46;
and in 2001, 103,464 shares were issued at a price of $22.95. At
December 31, 2003 and 2002, approximately $2.2 million
and $2.0 million, respectively, were subscribed for future
share purchases.

The company accounts for its 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 148 is presented in Note 1 Summary of Significant
Accounting Policies.

72



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

A summary of the status of the companys
fixed stock option plans as of December 31, 2003, 2002, and
2001, and changes during the years ended on these dates, is
presented below:

|                                                                   |  |                         |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|------------------------------------------------------------------ |  | ----------------------- | --------- | -------- |  | ------ | ----- | -------- |  | ------ | --------- | -------- |  | - | ----- |  |  |  | --------- | - |  | - | ----- | 
|                                                                   |  |                        
|                                                                   |  | Years Ended December 31
|                                                                   |  |                        
|                                                                   |  |                         |           |          |  |       
|                                                                   |  | 2003                    |           | 2002     |  | 2001  
|                                                                   |  |                         |           |          |  |       
|                                                                   |  |                         |           | Average  |  |        |       | Average  |  |        |           | Average 
|                                                                   |  |                         |           | Exercise |  |        |       | Exercise |  |        |           | Exercise
|                                                                   |  | Shares                  |           | Price    |  | Shares |       | Price    |  | Shares |           | Price   
|                                                                   |  |                         |           |          |  |        |       |          |  |        |           |         
|Balance outstanding at January 1                                   |  |                         | 4,260,293 |          |  | $      | 32.59 |          |  |        | 3,978,950 |          |  | $ | 29.12 |  |  |  | 3,835,175 |   |  | $ | 27.08 | 
|Options granted                                                    |  |                         | 1,279,750 |          |  | $      | 29.82 |          |  |        | 1,167,500 |          |  | $ | 41.11 |  |  |  | 1,088,750 |   |  | $ | 30.09 | 
|Options exercised                                                  |  |                         | (256,426  | )        |  | $      | 25.31 |          |  |        | (762,720  | )        |  | $ | 27.90 |  |  |  | (801,850  | ) |  | $ | 20.42 | 
|Options canceled                                                   |  |                         | (146,313  | )        |  | $      | 33.88 |          |  |        | (123,437  | )        |  | $ | 31.16 |  |  |  | (143,125  | ) |  | $ | 30.84 | 
|                                                                   |  |                         |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|Balance outstanding at December 31                                 |  |                         | 5,137,304 |          |  | $      | 32.23 |          |  |        | 4,260,293 |          |  | $ | 32.59 |  |  |  | 3,978,950 |   |  | $ | 29.12 | 
|                                                                   |  |                         |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|Options exercisable at December 31                                 |  |                         | 2,391,104 |          |  | $      | 29.81 |          |  |        | 1,775,593 |          |  | $ | 29.94 |  |  |  | 1,716,933 |   |  | $ | 28.42 | 
|                                                                   |  |                         |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|Weighted average fair value of options granted
    during the year |  |                         |           |          |  | $      | 8.66  |          |  |        |           |          |  | $ | 15.07 |  |  |  |           |   |  | $ | 11.43 | 
|                                                                   |  |                         |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |  |           |   |  |   |       | 

The following table summarizes information about
stock options outstanding as of December 31, 2003:

|                         |  |                     |           |                     |  |             |       |           |  |          |            |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | ----------- | ----- | --------- |  | -------- | ---------- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                     |           |                    
|                         |  | Options Outstanding |           | Options Exercisable
|                         |  |                     |           |                    
|                         |  |                     |           | Weighted            |  |            
|                         |  |                     |           | Weighted            |  | Average     |       |           |  | Weighted
|                         |  | Number of           |           | Average             |  | Remaining   |       | Number of |  | Average 
|                         |  | Shares at           |           | Exercise            |  | Contractual |       | Shares at |  | Exercise
|Range of exercise prices |  | 12/31/03            |           | Price               |  | Life        |       | 12/31/03  |  | Price   
|                         |  |                     |           |                     |  |             |       |           |  |         
|$15.75 - $23.00          |  |                     | 871,025   |                     |  | $           | 21.91 |           |  |          | 4.81 years |  |  |  | 684,825   |  |  | $ | 21.61 | 
|$24.13 - $29.97          |  |                     | 2,100,129 |                     |  | $           | 29.85 |           |  |          | 8.27 years |  |  |  | 420,129   |  |  | $ | 29.86 | 
|$33.19 - $38.13          |  |                     | 1,057,525 |                     |  | $           | 36.17 |           |  |          | 4.83 years |  |  |  | 1,032,525 |  |  | $ | 36.23 | 
|$41.05 - $43.87          |  |                     | 1,108,625 |                     |  | $           | 41.11 |           |  |          | 8.11 years |  |  |  | 288,750   |  |  | $ | 41.11 | 
|                         |  |                     |           |                     |  |             |       |           |  |          |            |  |  |  |           |  |  |   |       | 
|                         |  |                     | 5,137,304 |                     |  | $           | 32.23 |           |  |          | 6.94 years |  |  |  | 2,426,229 |  |  | $ | 31.58 | 
|                         |  |                     |           |                     |  |             |       |           |  |          |            |  |  |  |           |  |  |   |       | 

73



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)



|        |                                                                  
|------- | -----------------------------------------------------------------
|Note 15 | Net Income from Continuing Operations Per
    Common Equity Share

|                                         |                                         |        |         |         |  |        |        |        |  |   |      |      | 
|---------------------------------------- | --------------------------------------- | ------ | ------- | ------- |  | ------ | ------ | ------ |  | - | ---- | ---- | 
|                                         |                                         |        |         |         |  |       
|                                         |                                         |        |         |         |  |       
|                                         |                                         |        |         |         |  |       
|                                         |                                         |        |         |         |  |       
|                                         |                                         |        |         |         |  |       
|                                         |                                         |        |         |         |  |       
|                                         |                                         |        |         |         |  |       
|                                         |                                         |        |         |         |  | Per   
|Years ended December 31                  |                                         |        |         |         |  | Share 
|(in thousands, except per share amounts) |                                         | Income |         | Shares  |  | Amount
|                                         |                                         |        |         |         |  |       
|2003                                     |                                         |        |         |         |  |        |        |        |  |   |      |     
|Basic                                    |                                         |        |         |         |  |        |        |        |  |   |      |     
|                                         | Net income from continuing operations   |        | $       | 217,447 |  |        |        | 73,304 |  |   | $    | 2.97 | 
|                                         |                                         |        |         |         |  |        |        |        |  |   |      |     
|Diluted                                  |                                         |        |         |         |  |        |        |        |  |   |      |     
|                                         | Options                                 |        |         |         |  |        |        | 356    |  |   |      |      | 
|                                         | Stock warrant                           |        |         |         |  |        |        | 354    |  |   |      |      | 
|                                         |                                         |        |         |         |  |        |        |        |  |   |      |     
|                                         | Income available to common stockholders |        | $       | 217,447 |  |        |        | 74,014 |  |   | $    | 2.93 | 
|                                         |                                         |        |         |         |  |        |        |        |  |   |      |     
|2002                                     |                                         |        |         |         |  |        |        |        |  |   |      |     
|Basic                                    |                                         |        |         |         |  |        |        |        |  |   |      |     
|                                         | Net income from continuing operations   |        | $       | 256,682 |  |        |        | 72,824 |  |   | $    | 3.53 | 
|                                         |                                         |        |         |         |  |        |        |        |  |   |      |     
|Diluted                                  |                                         |        |         |         |  |        |        |        |  |   |      |     
|                                         | Options                                 |        |         |         |  |        |        | 431    |  |   |      |      | 
|                                         | Stock warrant                           |        |         |         |  |        |        | 559    |  |   |      |      | 
|                                         |                                         |        |         |         |  |        |        |        |  |   |      |     
|Income available to common stockholders  |                                         | $      | 256,682 |         |  |        | 73,814 |        |  | $ | 3.48 |     
|                                         |                                         |        |         |         |  |        |        |        |  |   |      |     
|2001                                     |                                         |        |         |         |  |        |        |        |  |   |      |     
|Basic                                    |                                         |        |         |         |  |        |        |        |  |   |      |     
|                                         | Net income from continuing operations   |        | $       | 234,090 |  |        |        | 72,043 |  |   | $    | 3.25 | 
|                                         |                                         |        |         |         |  |        |        |        |  |   |      |     
|Diluted                                  |                                         |        |         |         |  |        |        |        |  |   |      |     
|                                         | Options                                 |        |         |         |  |        |        | 505    |  |   |      |      | 
|                                         | Stock warrant                           |        |         |         |  |        |        | 362    |  |   |      |      | 
|                                         |                                         |        |         |         |  |        |        |        |  |   |      |     
|                                         | Income available to common stockholders |        | $       | 234,090 |  |        |        | 72,910 |  |   | $    | 3.21 | 
|                                         |                                         |        |         |         |  |        |        |        |  |   |      |     

Basic net income from continuing operations per
common equity share 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 from continuing operations per common
equity share assumed the exercise of in-the-money stock options
and stock warrant for all years presented.

Note 16 Income Taxes

Earnings before income taxes is summarized by
country in the following table (in thousands):

|                                                            |  |                         |         |      |  |      |         |  |  |   |         | 
|----------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                            |  |                        
|                                                            |  | Years Ended December 31
|                                                            |  |                        
|                                                            |  | 2003                    |         | 2002 |  | 2001
|                                                            |  |                         |         |      |  |     
|U.S.                                                        |  | $                       | 151,086 |      |  | $    | 129,408 |  |  | $ | 143,526 | 
|Canada                                                      |  |                         | 199,559 |      |  |      | 220,422 |  |  |   | 202,630 | 
|                                                            |  |                         |         |      |  |      |         |  |  |   |         | 
|Earnings from continuing operations before
    income taxes |  | $                       | 350,645 |      |  | $    | 349,830 |  |  | $ | 346,156 | 
|                                                            |  |                         |         |      |  |      |         |  |  |   |         | 

74



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

The provision for income taxes includes the
following components (in thousands):

|          |        |                         |                    |        |         |         |   |        |        |        |   |        |         |         | 
|--------- | ------ | ----------------------- | ------------------ | ------ | ------- | ------- | - | ------ | ------ | ------ | - | ------ | ------- | ------- | 
|          |        |                        
|          |        | Years Ended December 31
|          |        |                        
|          |        | 2003                    |                    | 2002   |         | 2001   
|          |        |                         |                    |        |         |        
|Current:  |        |                         |                    |        |         |         |   |        |        |        |   |       
|          | U.S.   |                         | $                  | 28,523 |         |         | $ | 9,419  |        |        | $ | 45,355 |        
|          | Canada |                         |                    | 73,607 |         |         |   | 73,576 |        |        |   | 66,681 |        
|          |        |                         |                    |        |         |         |   |        |        |        |   |       
|          |        | Total current           |                    |        | 102,130 |         |   |        | 82,995 |        |   |        | 112,036 |        
|          |        |                         |                    |        |         |         |   |        |        |        |   |       
|Deferred: |        |                         |                    |        |         |         |   |        |        |        |   |       
|          | U.S.   |                         |                    | 23,668 |         |         |   | 4,992  |        |        |   | 6,271  |        
|          | Canada |                         |                    | 7,400  |         |         |   | 5,161  |        |        |   | (6,241 | )      
|          |        |                         |                    |        |         |         |   |        |        |        |   |       
|          |        | Total deferred          |                    |        | 31,068  |         |   |        | 10,153 |        |   |        | 30      |        
|          |        |                         |                    |        |         |         |   |        |        |        |   |       
|          |        |                         | Total income taxes |        | $       | 133,198 |   |        | $      | 93,148 |   |        | $       | 112,066 | 
|          |        |                         |                    |        |         |         |   |        |        |        |   |       

The Federal Statue of Limitations has closed for
all U.S. income tax returns through 1999. The Companys
Canadian federal tax liability for all taxation years through
1997 has been reviewed and finalized by Canada Customs and
Revenue Agency. During 2002, under the terms of the Canada-U.S.
Income Tax Convention, an Advance Pricing Agreement was
concluded among the Company, LCI and the tax authorities of
Canada and the U.S. related to the pricing of certain cement
sales between the Companys operations in Canada and U.S.
for the years 1995 to 2000. The Competent Authorities reached an
agreement in 2000 that resulted in reductions of the above noted
transfer prices and certain administrative expenses for 1986 to
1994 and granted compensating adjustments in the U.S. for the
same years. Amended U.S. returns reflecting the Competent
Authority compensating adjustments were reviewed by the Internal
Revenue Service and approved in March 2003.

In 2003, income tax expense was increased and in
2002 and 2001 decreased, by adjustments we made to the valuation
of our deferred taxes resulting from changes in provincial tax
rates in Canada. Enactments in December 2003 increased income
tax expense in 2003 by approximately Canadian $11 million
(approximately U.S. $7.7 million). Enactments in December
2002 and June 2001 reduced income tax expense by
approximately Canadian $3 million (approximately U.S.
$2 million) and Canadian $23 million (approximately
U.S. $15 million) in 2002 and 2001, respectively.

75



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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

A reconciliation of taxes at the U.S. federal
income tax rate to the companys actual income taxes is as
follows (in millions):

|                                                                            |  |                         |       |      |  |      |       |   |  |   |       |  
|--------------------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                                            |  |                        
|                                                                            |  | Years Ended December 31
|                                                                            |  |                        
|                                                                            |  | 2003                    |       | 2002 |  | 2001
|                                                                            |  |                         |       |      |  |     
|Taxes at the U.S. federal income tax rate                                   |  | $                       | 122.7 |      |  | $    | 122.3 |   |  | $ | 121.2 |  
|U.S./ Canadian tax rate differential                                        |  |                         | 6.0   |      |  |      | 6.9   |   |  |   | 5.0   |  
|Canadian tax incentives                                                     |  |                         | (14.2 | )    |  |      | (14.5 | ) |  |   | (11.7 | )
|U.S. state and Canadian provincial income taxes,
    net of federal benefit |  |                         | 9.4   |      |  |      | 8.0   |   |  |   | 9.2   |  
|U.S. state net operating loss realization                                   |  |                         | (10.4 | )    |  |      |      |   |  |   |      |  
|Enacted tax rate changes                                                    |  |                         | 7.7   |      |  |      | (2.0  | ) |  |   | (15.2 | )
|Dividends on the Preferred Shares                                           |  |                         | 2.5   |      |  |      | 2.9   |   |  |   | 3.9   |  
|Reversal of valuation allowance                                             |  |                         |      |      |  |      | (23.3 | ) |  |   |      |  
|Transfer pricing adjustments                                                |  |                         |      |      |  |      | (6.2  | ) |  |   |      |  
|Other items                                                                 |  |                         | 9.5   |      |  |      | (1.0  | ) |  |   | (0.3  | )
|                                                                            |  |                         |       |      |  |      |       |   |  |   |       |  
|Provision for income taxes                                                  |  | $                       | 133.2 |      |  | $    | 93.1  |   |  | $ | 112.1 |  
|                                                                            |  |                         |       |      |  |      |       |   |  |   |       |  

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 31
|                                            |                                |            
|                                            |                                | 2003        |         | 2002   
|                                            |                                |             |         |        
|Deferred tax assets:                        |                                |             |         |         |  |   |         |        
|                                            | Reserves and other liabilities |             | $       | 60,867  |  |   | $       | 56,069  | 
|                                            | Other postretirement benefits  |             |         | 78,848  |  |   |         | 73,139  | 
|                                            | Tax loss carry forwards        |             |         | 24,293  |  |   |         | 3,630   | 
|                                            | Minimum pension liability      |             |         | 86,581  |  |   |         | 78,792  | 
|                                            |                                |             |         |         |  |   |         |        
|Gross deferred tax assets                   |                                |             | 250,589 |         |  |   | 211,630 |        
|Valuation allowance                         |                                |             | (2,155  | )       |  |   |        |        
|                                            |                                |             |         |         |  |   |         |        
|Net deferred tax assets                     |                                |             | 248,434 |         |  |   | 211,630 |        
|                                            |                                |             |         |         |  |   |         |        
|Deferred tax liabilities:                   |                                |             |         |         |  |   |         |        
|                                            | Property, plant and equipment  |             |         | 302,809 |  |   |         | 233,488 | 
|                                            | Prepaid pension asset          |             |         | 38,269  |  |   |         | 44,309  | 
|                                            | Other                          |             |         | 17,158  |  |   |         | 16,097  | 
|                                            |                                |             |         |         |  |   |         |        
|Gross deferred tax liabilities              |                                |             | 358,236 |         |  |   | 293,894 |        
|                                            |                                |             |         |         |  |   |         |        
|Net deferred tax liability                  |                                |             | 109,802 |         |  |   | 82,264  |        
|Net deferred tax asset  current            |                                |             | 41,576  |         |  |   | 42,369  |        
|                                            |                                |             |         |         |  |   |         |        
|Net deferred tax liability 
    noncurrent |                                | $           | 151,378 |         |  | $ | 124,633 |        
|                                            |                                |             |         |         |  |   |         |        

76



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

At December 31, 2003, the company had
deferred tax assets on net operating loss carryforwards of
$17.4 million in the U.S. (mainly related to state net
operating loss carryforwards) and $6.9 million in Canada.
The net operating loss carryforwards are limited to use in
varying annual amounts through 2023.

At December 31, 2003, cumulative
undistributed earnings of LCI were $1,191.9 million. No
provision for U.S. income taxes or Canadian withholding taxes
has been made since the company considers the undistributed
earnings to be permanently invested in Canada. Management has
decided that the determination of the amount of any unrecognized
deferred tax liability for the cumulative undistributed earnings
of LCI is not practical to determine since it would depend on a
number of factors that cannot be known until such time as a
decision to repatriate the earnings might be made.

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, EBIT
(earnings from continuing operations before minority interests,
interest and income taxes), fixed assets and net assets.

Revenues from the major products sold to external
customers include: cement, ready-mixed concrete, aggregate,
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 construction materials, cement and
cement-related products, and gypsum. Construction materials
produces and distributes construction aggregate, ready-mixed
concrete, other concrete products (gravity and pressure pipe,
precast structures, pavers and masonry units) and asphalt, and
also constructs and paves roads. Cement and cement-related
products 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, minority interests,
interest, income taxes and foreign exchange gains and losses.

77



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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 31         
|                                      |                                     |                                 
|                                      |                                     | 2003                             |                                                | 2002   |         | 2001   
|                                      |                                     |                                  |                                                |        |         |        
|Net sales from continuing operations: |                                     |                                  |                                                |        |         |         |  |        |         |         |  |       
|                                      | Construction materials:             |                                  |                                                |        |         |         |  |        |         |         |  |        |        
|                                      |                                     | Revenues from external customers |                                                | $      | 2,027.8 |         |  | $      | 1,938.6 |         |  | $      | 2,073.8 |        
|                                      |                                     | Intersegment revenues            |                                                |        | 4.7     |         |  |        | 4.4     |         |  |        |        |        
|                                      | Cement and cement-related products: |                                  |                                                |        |         |         |  |        |         |         |  |        |        
|                                      |                                     | Revenues from external customers |                                                |        | 1,036.8 |         |  |        | 988.8   |         |  |        | 1,096.8 |        
|                                      |                                     | Intersegment revenues            |                                                |        | 161.5   |         |  |        | 138.4   |         |  |        | 141.6   |        
|                                      | Gypsum:                             |                                  |                                                |        |         |         |  |        |         |         |  |        |        
|                                      |                                     | Revenues from external customers |                                                |        | 254.3   |         |  |        | 232.7   |         |  |        | 152.4   |        
|                                      | Eliminations                        |                                  |                                                | (166.2 | )       |         |  | (142.8 | )       |         |  | (141.6 | )      
|                                      |                                     |                                  |                                                |        |         |         |  |        |         |         |  |       
|                                      |                                     |                                  | Total net sales from continuing
    operations |        | $       | 3,318.9 |  |        | $       | 3,160.1 |  |        | $       | 3,323.0 | 
|                                      |                                     |                                  |                                                |        |         |         |  |        |         |         |  |       

|                                          |                                                                   |                                                             |   |       |       |      |   |       |       |  |   |       |       | 
|----------------------------------------- | ----------------------------------------------------------------- | ----------------------------------------------------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                          |                                                                   |                                                            
|                                          |                                                                   | Years Ended December 31                                    
|                                          |                                                                   |                                                            
|                                          |                                                                   | 2003                                                        |   | 2002  |       | 2001
|                                          |                                                                   |                                                             |   |       |       |     
|Income (loss) from continuing operations: |                                                                   |                                                             |   |       |       |      |   |       |       |  |   |      
|                                          | Construction materials (a)                                        |                                                             | $ | 183.7 |       |      | $ | 196.8 |       |  | $ | 235.6 |      
|                                          | Cement and cement-related products (a)                            |                                                             |   | 290.5 |       |      |   | 291.1 |       |  |   | 313.9 |      
|                                          | Gypsum (a)                                                        |                                                             |   | (5.0  | )     |      |   | (16.3 | )     |  |   | (69.4 | )    
|                                          |                                                                   |                                                             |   |       |       |      |   |       |       |  |   |      
|                                          | Total                                                             |                                                             |   | 469.2 |       |      |   | 471.6 |       |  |   | 480.1 |      
|                                          | Corporate and unallocated expenses                                |                                                             |   | (57.5 | )     |      |   | (70.7 | )     |  |   | (79.0 | )    
|                                          |                                                                   |                                                             |   |       |       |      |   |       |       |  |   |      
|                                          | Earnings before minority interests, interest and
    income taxes |                                                             |   | 411.7 |       |      |   | 400.9 |       |  |   | 401.1 |      
|                                          | Minority interests                                                |                                                             |   | (7.4  | )     |      |   | (8.4  | )     |  |   | (7.0  | )    
|                                          | Interest expense, net                                             |                                                             |   | (53.7 | )     |      |   | (42.7 | )     |  |   | (47.9 | )    
|                                          |                                                                   |                                                             |   |       |       |      |   |       |       |  |   |      
|                                          |                                                                   | Earnings from continuing operations before
    income taxes |   | $     | 350.6 |      |   | $     | 349.8 |  |   | $     | 346.2 | 
|                                          |                                                                   |                                                             |   |       |       |      |   |       |       |  |   |      



---



|    |                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Excludes gains and losses on divestments of
    operations, other postretirement benefit expense for retirees,
    goodwill amortization related to the Redland acquisition (2001
    only), minority interests, interest, income taxes, foreign
    exchange gains and losses and a $26 million charge in 2002
    related to idling of Wilmington plant.

78



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

|        |                                    |              |   |         |         |  |   |         |         | 
|------- | ---------------------------------- | ------------ | - | ------- | ------- |  | - | ------- | ------- | 
|        |                                    |             
|        |                                    | December 31 
|        |                                    |             
|        |                                    | 2003         |   | 2002   
|        |                                    |              |   |        
|Assets: |                                    |              |   |         |         |  |   |        
|        | Construction materials             |              | $ | 2,010.3 |         |  | $ | 1,872.4 |        
|        | Cement and cement-related products |              |   | 1,433.3 |         |  |   | 1,312.5 |        
|        | Gypsum                             |              |   | 317.2   |         |  |   | 310.4   |        
|        | Corporate and unallocated assets   |              |   | 1,005.9 |         |  |   | 645.1   |        
|        | Discontinued operations            |              |   |        |         |  |   | 21.4    |        
|        |                                    |              |   |         |         |  |   |        
|        |                                    | Total assets |   | $       | 4,766.7 |  |   | $       | 4,161.8 | 
|        |                                    |              |   |         |         |  |   |        

|                      |                                    |                            |   |      |       |      |   |       |       |  |   |       |       | 
|--------------------- | ---------------------------------- | -------------------------- | - | ---- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                      |                                    |                           
|                      |                                    | Years Ended December 31   
|                      |                                    |                           
|                      |                                    | 2003                       |   | 2002 |       | 2001
|                      |                                    |                            |   |      |       |     
|Capital expenditures: |                                    |                            |   |      |       |      |   |       |       |  |   |      
|                      | Construction materials             |                            | $ | 63.3 |       |      | $ | 105.7 |       |  | $ | 126.6 |      
|                      | Cement and cement-related products |                            |   | 74.0 |       |      |   | 123.0 |       |  |   | 152.2 |      
|                      | Gypsum                             |                            |   | 16.8 |       |      |   | 7.6   |       |  |   | 34.0  |      
|                      | Corporate and unallocated          |                            |   | 19.8 |       |      |   | 11.6  |       |  |   | 20.4  |      
|                      |                                    |                            |   |      |       |      |   |       |       |  |   |      
|                      |                                    | Total capital expenditures |   | $    | 173.9 |      |   | $     | 247.9 |  |   | $     | 333.2 | 
|                      |                                    |                            |   |      |       |      |   |       |       |  |   |      

|                                          |                                    |                                                    |   |      |       |      |   |      |       |  |   |       |       | 
|----------------------------------------- | ---------------------------------- | -------------------------------------------------- | - | ---- | ----- | ---- | - | ---- | ----- |  | - | ----- | ----- | 
|                                          |                                    |                                                   
|                                          |                                    | Years Ended December 31                           
|                                          |                                    |                                                   
|                                          |                                    | 2003                                               |   | 2002 |       | 2001
|                                          |                                    |                                                    |   |      |       |     
|Depreciation, depletion and amortization: |                                    |                                                    |   |      |       |      |   |      |       |  |   |      
|                                          | Construction materials             |                                                    | $ | 92.2 |       |      | $ | 87.9 |       |  | $ | 102.0 |      
|                                          | Cement and cement-related products |                                                    |   | 77.1 |       |      |   | 74.0 |       |  |   | 73.0  |      
|                                          | Gypsum                             |                                                    |   | 16.9 |       |      |   | 17.6 |       |  |   | 16.5  |      
|                                          | Corporate                          |                                                    |   | 6.6  |       |      |   | 2.7  |       |  |   | 2.7   |      
|                                          |                                    |                                                    |   |      |       |      |   |      |       |  |   |      
|                                          |                                    | Total depreciation, depletion and
    amortization |   | $    | 192.8 |      |   | $    | 182.2 |  |   | $     | 194.2 | 
|                                          |                                    |                                                    |   |      |       |      |   |      |       |  |   |      

Information concerning product net sales was as
follows (in millions):

|                                   |                                    |                         |   |         |         |      |   |       |         |  |   |         |         | 
|---------------------------------- | ---------------------------------- | ----------------------- | - | ------- | ------- | ---- | - | ----- | ------- |  | - | ------- | ------- | 
|                                   |                                    |                        
|                                   |                                    | Years Ended December 31
|                                   |                                    |                        
|                                   |                                    | 2003                    |   | 2002    |         | 2001
|                                   |                                    |                         |   |         |         |     
|Net sales from external customers: |                                    |                         |   |         |         |      |   |       |         |  |   |        
|                                   | Cement and cement-related products |                         | $ | 1,036.8 |         |      | $ | 988.8 |         |  | $ | 1,096.8 |        
|                                   | Ready-mixed concrete               |                         |   | 689.6   |         |      |   | 648.5 |         |  |   | 664.3   |        
|                                   | Aggregate                          |                         |   | 609.8   |         |      |   | 530.7 |         |  |   | 519.0   |        
|                                   | Asphalt and paving                 |                         |   | 637.8   |         |      |   | 661.9 |         |  |   | 740.0   |        
|                                   | Gypsum drywall                     |                         |   | 254.3   |         |      |   | 232.7 |         |  |   | 152.4   |        
|                                   | Other miscellaneous products       |                         |   | 90.6    |         |      |   | 97.5  |         |  |   | 150.5   |        
|                                   |                                    |                         |   |         |         |      |   |       |         |  |   |        
|                                   |                                    | Total net sales         |   | $       | 3,318.9 |      |   | $     | 3,160.1 |  |   | $       | 3,323.0 | 
|                                   |                                    |                         |   |         |         |      |   |       |         |  |   |        

No single customer represented more than
10 percent of the companys revenues.

79



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Information concerning principal geographic areas
was as follows (in millions):

|       |  |                         |         |         |  |        |       |        |  |       |         |         |  |        |         |        |  |       |         |         |  |   |       |  |  |   |         |  |  |   |         |  |  |   |         |  |  |   |       | 
|------ |  | ----------------------- | ------- | ------- |  | ------ | ----- | ------ |  | ----- | ------- | ------- |  | ------ | ------- | ------ |  | ----- | ------- | ------- |  | - | ----- |  |  | - | ------- |  |  | - | ------- |  |  | - | ------- |  |  | - | ----- | 
|       |  |                        
|       |  | Years Ended December 31
|       |  |                        
|       |  |                         |         |         |  |       
|       |  | 2003                    |         | 2002    |  | 2001  
|       |  |                         |         |         |  |       
|       |  | Net                     |         |         |  | Fixed  |       | Net    |  | Net   |         |         |  | Fixed  |         | Net    |  | Net   |         |        
|       |  | Sales                   |         | EBIT(a) |  | Assets |       | Assets |  | Sales |         | EBIT(a) |  | Assets |         | Assets |  | Sales |         | EBIT(a)
|       |  |                         |         |         |  |        |       |        |  |       |         |         |  |        |         |        |  |       |         |        
|U.S.   |  | $                       | 1,882.0 |         |  | $      | 202.6 |        |  | $     | 1,461.1 |         |  | $      | 1,323.8 |        |  | $     | 1,935.3 |         |  | $ | 176.7 |  |  | $ | 1,445.5 |  |  | $ | 1,194.3 |  |  | $ | 2,023.8 |  |  | $ | 203.1 | 
|Canada |  |                         | 1,436.9 |         |  |        | 209.1 |        |  |       | 884.9   |         |  |        | 1,335.8 |        |  |       | 1,224.8 |         |  |   | 224.2 |  |  |   | 757.8   |  |  |   | 965.3   |  |  |   | 1,299.2 |  |  |   | 198.0 | 
|       |  |                         |         |         |  |        |       |        |  |       |         |         |  |        |         |        |  |       |         |         |  |   |       |  |  |   |         |  |  |   |         |  |  |   |         |  |  |   |       | 
|       |  | $                       | 3,318.9 |         |  | $      | 411.7 |        |  | $     | 2,346.0 |         |  | $      | 2,659.6 |        |  | $     | 3,160.1 |         |  | $ | 400.9 |  |  | $ | 2,203.3 |  |  | $ | 2,159.6 |  |  | $ | 3,323.0 |  |  | $ | 401.1 | 
|       |  |                         |         |         |  |        |       |        |  |       |         |         |  |        |         |        |  |       |         |         |  |   |       |  |  |   |         |  |  |   |         |  |  |   |         |  |  |   |       | 



---



|    |                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | EBIT represents earnings from continuing
    operations before minority interests, interest and income taxes.
    EBIT is reconciled to the closest GAAP measure on page 75.

Net sales exclude intersegment revenues.

Note 18 Supplemental Cash Flow
Information

Non-cash investing and financing activities
included the issuance of 172,000, 131,000 and 109,000 Common and
Exchangeable Shares on the reinvestment of dividends totaling
$5.4 million, $4.7 million and $3.5 million in
2003, 2002 and 2001, respectively.

Cash paid during the year for interest and income
taxes was as follows (in thousands):

|                                      |  |                         |         |      |  |      |         |  |  |   |        | 
|------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------ | 
|                                      |  |                        
|                                      |  | Years Ended December 31
|                                      |  |                        
|                                      |  | 2003                    |         | 2002 |  | 2001
|                                      |  |                         |         |      |  |     
|Interest (net of amounts capitalized) |  | $                       | 54,887  |      |  | $    | 52,944  |  |  | $ | 55,851 | 
|Income taxes (net of refunds)         |  | $                       | 124,302 |      |  | $    | 128,757 |  |  | $ | 27,923 | 
|                                      |  |                         |         |      |  |      |         |  |  |   |        | 

Note 19 Pension Plans and Other
Postretirement Benefits

The company has 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. The companys funding policy is to contribute
amounts that are deductible for income tax purposes.

The weighted-average assumptions used to
determine benefit obligations as at December 31, 2003 and
2002 were:

U.S. Plans:

|                                                           |  |          |     |                |  |      |     |      |  |  |     |   |  |  |     |  
|---------------------------------------------------------- |  | -------- | --- | -------------- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | -
|                                                           |  |          |     |                |  |     
|                                                           |  |          |     | Other         
|                                                           |  | Pension  |     | Postretirement
|                                                           |  | Benefits |     | Benefits      
|                                                           |  |          |     |               
|                                                           |  | 2003     |     | 2002           |  | 2003 |     | 2002
|                                                           |  |          |     |                |  |      |     |     
|Discount Rate                                              |  |          | 6.0 | %              |  |      | 6.8 | %    |  |  | 6.0 | % |  |  | 7.0 | %
|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 |  

80



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Canadian Plans:

|                                                           |  |          |     |                |  |      |     |      |  |  |     |   |  |  |     |  
|---------------------------------------------------------- |  | -------- | --- | -------------- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | -
|                                                           |  |          |     |                |  |     
|                                                           |  |          |     | Other         
|                                                           |  | Pension  |     | Postretirement
|                                                           |  | Benefits |     | Benefits      
|                                                           |  |          |     |               
|                                                           |  | 2003     |     | 2002           |  | 2003 |     | 2002
|                                                           |  |          |     |                |  |      |     |     
|Discount Rate                                              |  |          | 6.0 | %              |  |      | 6.4 | %    |  |  | 6.0 | % |  |  | 6.4 | %
|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, 2003 and 2002 were:

U.S. Plans:

|                                         |  |          |     |                |  |      |     |      |  |  |     |   |  |  |     |  
|---------------------------------------- |  | -------- | --- | -------------- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | -
|                                         |  |          |     |                |  |     
|                                         |  |          |     | Other         
|                                         |  | Pension  |     | Postretirement
|                                         |  | Benefits |     | Benefits      
|                                         |  |          |     |               
|                                         |  | 2003     |     | 2002           |  | 2003 |     | 2002
|                                         |  |          |     |                |  |      |     |     
|Discount Rate                            |  |          | 6.8 | %              |  |      | 7.8 | %    |  |  | 7.0 | % |  |  | 7.8 | %
|Expected long-term return on plan assets |  |          | 8.5 | %              |  |      | 9.0 | %    |  |  | N/A |   |  |  | N/A |  
|Rate of Compensation Increase            |  |          | 4.0 | %              |  |      | 4.5 | %    |  |  | 4.0 | % |  |  | 4.5 | %

Canadian Plans:

|                                         |  |          |     |                |  |      |     |      |  |  |     |   |  |  |     |  
|---------------------------------------- |  | -------- | --- | -------------- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | -
|                                         |  |          |     |                |  |     
|                                         |  |          |     | Other         
|                                         |  | Pension  |     | Postretirement
|                                         |  | Benefits |     | Benefits      
|                                         |  |          |     |               
|                                         |  | 2003     |     | 2002           |  | 2003 |     | 2002
|                                         |  |          |     |                |  |      |     |     
|Discount Rate                            |  |          | 6.4 | %              |  |      | 6.5 | %    |  |  | 6.4 | % |  |  | 6.5 | %
|Expected long-term return on plan assets |  |          | 8.5 | %              |  |      | 9.0 | %    |  |  | N/A |   |  |  | N/A |  
|Rate of Compensation Increase            |  |          | 3.5 | %              |  |      | 3.5 | %    |  |  | 3.5 | % |  |  | 3.5 | %

The companys plan weighted-average asset
allocations as at December 31, 2003 and 2002 were as
follows:

|                  |  |                |     |      |  |  |     |  
|----------------- |  | -------------- | --- | ---- |  |  | --- | -
|                  |  |               
|                  |  | Plan assets at
|                  |  | December 31   
|                  |  |               
|                  |  | 2003           |     | 2002
|                  |  |                |     |     
|Equity Securities |  |                | 69  | %    |  |  | 65  | %
|Debt Securities   |  |                | 30  | %    |  |  | 34  | %
|Other             |  |                | 1   | %    |  |  | 1   | %
|                  |  |                |     |      |  |  |     |  
|Total             |  |                | 100 | %    |  |  | 100 | %
|                  |  |                |     |      |  |  |     |  

The target allocation for both years was: equity,
67%; debt, 32%; other, 1%.

The company uses 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 seven 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.

The company uses 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

81



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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.

The measurement date for all of the
companys defined benefit plans is December 31. In
order to ensure timely reporting, actual asset values as of
October 31 are used and rolled forward to December 31
using approximate returns by asset category.

The company expects to make required cash
contributions to the defined benefit plans in 2004 of
approximately $55 million, although this number could be
reduced somewhat by pending legislative action.

The company provides 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 the company 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 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 with no maximum lifetime. The majority of
hourly retirees in Canada does not have medical coverage. Only
certain Cement hourly retirees and dependents are offered
medical coverage with no maximum lifetime.

The company has decided to defer recognition of
the financial impact of prescription drug coverage to be
provided by the federal government under the new Medicare
Prescription Drug Improvement and Modernization Act of 2003.
There is not yet enough detailed guidance from the government on
how the legislation will be implemented, or from the Financial
Standards Accounting Board on the appropriate accounting
treatment for the legislations impact. Based upon
information available at this time, the company estimates that
the legislation will reduce the companys Accrued
Postretirement Benefit Obligation by
$16 - $25 million and reduce its annual Net
Periodic Benefit Cost by $2 - $4 million
(excluding BCNA Mirror Plans, which are reimbursed to the
company).

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 2003, the pre-65 and
post-65 assumed rate was 12.0 percent in the U.S. plan,
decreasing to 5.5 percent over ten years, and
9.3 percent in the Canadian plan, decreasing to
4.7 percent over seven years. In 2002, the pre-65 and
post-65 assumed rate was 13.0 percent in the U.S. plan,
decreasing to 5.5 percent over ten years, and
9.8 percent in the Canadian plan, decreasing to
4.7 percent over seven years. The assumed rate for Medicare
health cost trends was the same as for the companys U.S.
plan.

The following table summarizes the consolidated
funded status of the companys defined benefit retirement
plans and other postretirement benefits and provides a
reconciliation to the consolidated prepaid

82



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

pension asset, accrued pension liability and
accrued postretirement benefit cost recorded on the
companys Consolidated Balance Sheets at December 31,
2003 and 2002 (in millions):

|                                                                          |                                        |                  |       |                      |   |      |       |        |   |   |        |        |   |   |        |        |  
|------------------------------------------------------------------------- | -------------------------------------- | ---------------- | ----- | -------------------- | - | ---- | ----- | ------ | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                          |                                        |                  |       |                      |   |     
|                                                                          |                                        |                  |       | Other Postretirement
|                                                                          |                                        | Pension Benefits |       | Benefits            
|                                                                          |                                        |                  |       |                     
|                                                                          |                                        | 2003             |       | 2002                 |   | 2003 |       | 2002  
|                                                                          |                                        |                  |       |                      |   |      |       |       
|Amounts recognized in the Statement of Financial
    Position consist of: |                                        |                  |       |                      |   |      |       |        |   |   |        |        |   |   |        |       
|                                                                          | Prepaid asset                          |                  | $     | 70.3                 |   |      | $     | 57.0   |   |   | $      |       |   |   | $      |       |  
|                                                                          | Accrued liability                      |                  |       | (219.1               | ) |      |       | (177.4 | ) |   |        | (212.1 | ) |   |        | (194.9 | )
|                                                                          | Intangible asset                       |                  |       | 21.0                 |   |      |       | 28.3   |   |   |        |       |   |   |        |       |  
|                                                                          | Accumulated other comprehensive income |                  |       | 258.1                |   |      |       | 204.9  |   |   |        |       |   |   |        |       |  
|                                                                          |                                        |                  |       |                      |   |      |       |        |   |   |        |        |   |   |        |       
|Net amount recognized at
    December 31                                  |                                        | $                | 130.3 |                      |   | $    | 112.8 |        |   | $ | (212.1 | )      |   | $ | (194.9 | )     
|                                                                          |                                        |                  |       |                      |   |      |       |        |   |   |        |        |   |   |        |       

|                                         |                                           |                  |      |                      |   |      |      |       |   |      |      |       |   |   |      |      |   |   |      |      |   |   |      |      |  
|---------------------------------------- | ----------------------------------------- | ---------------- | ---- | -------------------- | - | ---- | ---- | ----- | - | ---- | ---- | ----- | - | - | ---- | ---- | - | - | ---- | ---- | - | - | ---- | ---- | -
|                                         |                                           |                  |      |                      |   |      |      |      
|                                         |                                           |                  |      | Other Postretirement
|                                         |                                           | Pension Benefits |      | Benefits            
|                                         |                                           |                  |      |                     
|                                         |                                           | 2003             |      | 2002                 |   | 2001 |      | 2003  |   | 2002 |      | 2001 
|                                         |                                           |                  |      |                      |   |      |      |       |   |      |      |      
|Components of Net Periodic Benefit Cost: |                                           |                  |      |                      |   |      |      |       |   |      |      |       |   |   |      |      |   |   |      |      |   |   |      |     
|                                         | Service cost                              |                  | $    | 31.1                 |   |      | $    | 24.8  |   |      | $    | 20.0  |   |   | $    | 5.7  |   |   | $    | 4.7  |   |   | $    | 3.3  |  
|                                         | Interest cost                             |                  |      | 50.8                 |   |      |      | 45.4  |   |      |      | 42.5  |   |   |      | 16.7 |   |   |      | 15.8 |   |   |      | 11.8 |  
|                                         | Expected return on plan assets            |                  |      | (58.6                | ) |      |      | (63.3 | ) |      |      | (63.7 | ) |   |      |     |   |   |      |     |   |   |      |     |  
|                                         | Amortization of prior service cost (gain) |                  |      | 3.5                  |   |      |      | 3.1   |   |      |      | 0.1   |   |   |      | (0.6 | ) |   |      | (0.8 | ) |   |      | (0.6 | )
|                                         | Amortization of transition asset          |                  |      |                     |   |      |      | (0.1  | ) |      |      | 2.6   |   |   |      |     |   |   |      |     |   |   |      |     |  
|                                         | Amortization of actuarial loss (gain)     |                  |      | 15.4                 |   |      |      | 1.1   |   |      |      | (5.0  | ) |   |      | 2.2  |   |   |      | 0.8  |   |   |      |     |  
|                                         | Curtailment loss                          |                  |      | 0.1                  |   |      |      |      |   |      |      |      |   |   |      |     |   |   |      |     |   |   |      |     |  
|                                         | Special termination benefits              |                  |      | 1.3                  |   |      |      | 0.5   |   |      |      | 4.2   |   |   |      | 1.0  |   |   |      | 0.2  |   |   |      | 0.4  |  
|                                         | Other                                     |                  |      |                     |   |      |      | (1.5  | ) |      |      | (1.3  | ) |   |      | (0.3 | ) |   |      | (1.2 | ) |   |      |     |  
|                                         |                                           |                  |      |                      |   |      |      |       |   |      |      |       |   |   |      |      |   |   |      |      |   |   |      |     
|Net periodic benefit cost (benefit)      |                                           |                  | 43.6 |                      |   |      | 10.0 |       |   |      | (0.6 | )     |   |   | 24.7 |      |   |   | 19.5 |      |   |   | 14.9 |     
|Defined contribution plan cost           |                                           |                  | 12.0 |                      |   |      | 9.5  |       |   |      | 7.8  |       |   |   |     |      |   |   |     |      |   |   |     |     
|                                         |                                           |                  |      |                      |   |      |      |       |   |      |      |       |   |   |      |      |   |   |      |      |   |   |      |     
|Net retirement cost                      |                                           | $                | 55.6 |                      |   | $    | 19.5 |       |   | $    | 7.2  |       |   | $ | 24.7 |      |   | $ | 19.5 |      |   | $ | 14.9 |     
|                                         |                                           |                  |      |                      |   |      |      |       |   |      |      |       |   |   |      |      |   |   |      |      |   |   |      |     

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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

|                                                  |                                           |                                 |       |                      |        |      |       |       |        |   |        |       |        |   |        |       |        |  
|------------------------------------------------- | ----------------------------------------- | ------------------------------- | ----- | -------------------- | ------ | ---- | ----- | ----- | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | -
|                                                  |                                           |                                 |       |                      |        |     
|                                                  |                                           |                                 |       | Other Postretirement
|                                                  |                                           | Pension Benefits                |       | Benefits            
|                                                  |                                           |                                 |       |                     
|                                                  |                                           | 2003                            |       | 2002                 |        | 2003 |       | 2002 
|                                                  |                                           |                                 |       |                      |        |      |       |      
|Change in Benefit Obligation:                     |                                           |                                 |       |                      |        |      |       |       |        |   |        |       |        |   |        |      
|                                                  | Projected benefit obligation at January 1 |                                 | $     | 738.4                |        |      | $     | 624.1 |        |   | $      | 243.6 |        |   | $      | 192.7 |       
|                                                  |                                           | Exchange rate changes           |       |                      | 79.0   |      |       |       | 3.7    |   |        |       | 10.4   |   |        |       | 0.4    |  
|                                                  |                                           | Service Cost                    |       |                      | 23.4   |      |       |       | 18.6   |   |        |       | 5.7    |   |        |       | 4.7    |  
|                                                  |                                           | Interest cost                   |       |                      | 50.8   |      |       |       | 45.4   |   |        |       | 16.7   |   |        |       | 15.8   |  
|                                                  |                                           | Employee contributions          |       |                      | 4.2    |      |       |       | 3.1    |   |        |       |       |   |        |       |       |  
|                                                  |                                           | Plan amendments                 |       |                      | 0.5    |      |       |       | 22.9   |   |        |       | (3.5   | ) |        |       | (2.2   | )
|                                                  |                                           | Assumed from Managed Assets     |       |                      |       |      |       |       |       |   |        |       |       |   |        |       | 13.0   |  
|                                                  |                                           | Special termination benefits    |       |                      | 1.3    |      |       |       | 0.5    |   |        |       | 1.0    |   |        |       | 0.2    |  
|                                                  |                                           | Benefits paid                   |       |                      | (51.0  | )    |       |       | (43.8  | ) |        |       | (13.5  | ) |        |       | (13.3  | )
|                                                  |                                           | Actuarial loss                  |       |                      | 68.3   |      |       |       | 63.9   |   |        |       | 37.8   |   |        |       | 32.3   |  
|                                                  |                                           | Other                           |       |                      | 0.1    |      |       |       |       |   |        |       | (0.3   | ) |        |       |       |  
|                                                  |                                           |                                 |       |                      |        |      |       |       |        |   |        |       |        |   |        |      
|Projected Benefits Obligation at
    December 31  |                                           | $                               | 915.0 |                      |        | $    | 738.4 |       |        | $ | 297.9  |       |        | $ | 243.6  |      
|                                                  |                                           |                                 |       |                      |        |      |       |       |        |   |        |       |        |   |        |      
|Change in Plan Assets:                            |                                           |                                 |       |                      |        |      |       |       |        |   |        |       |        |   |        |      
|                                                  | Fair value of plan assets at January 1    |                                 |       | 524.8                |        |      |       | 615.7 |        |   |        |       |        |   |        |       |       
|                                                  |                                           | Exchange rate changes           |       |                      | 49.5   |      |       |       | 3.1    |   |        |       |        |   |        |       |        |  
|                                                  |                                           | Actual return on plan assets    |       |                      | 78.1   |      |       |       | (55.1  | ) |        |       |        |   |        |       |        |  
|                                                  |                                           | Employer contributions          |       |                      | 50.9   |      |       |       | 5.4    |   |        |       |        |   |        |       |        |  
|                                                  |                                           | Employee contributions          |       |                      | 4.2    |      |       |       | 3.1    |   |        |       |        |   |        |       |        |  
|                                                  |                                           | Benefits paid                   |       |                      | (51.0  | )    |       |       | (43.8  | ) |        |       |        |   |        |       |        |  
|                                                  |                                           | Administrative expenses         |       |                      | (2.5   | )    |       |       | (3.6   | ) |        |       |        |   |        |       |        |  
|                                                  |                                           |                                 |       |                      |        |      |       |       |        |   |        |       |        |   |        |      
|Fair Value of Plan Assets at December
    31      |                                           | $                               | 654.0 |                      |        | $    | 524.8 |       |        |   |        |       |        |   |        |      
|                                                  |                                           |                                 |       |                      |        |      |       |       |        |   |        |       |        |   |        |      
|Reconciliation of Prepaid (Accrued) Benefit Cost: |                                           |                                 |       |                      |        |      |       |       |        |   |        |       |        |   |        |      
|                                                  |                                           | Funded status                   |       | $                    | (261.0 | )    |       | $     | (213.6 | ) |        | $     | (297.9 | ) |        | $     | (243.6 | )
|                                                  |                                           | Unrecognized actuarial loss     |       |                      | 364.2  |      |       |       | 298.7  |   |        |       | 88.5   |   |        |       | 50.7   |  
|                                                  |                                           | Unrecognized transition asset   |       |                      |       |      |       |       | 8.7    |   |        |       |       |   |        |       |       |  
|                                                  |                                           | Unrecognized prior service cost |       |                      | 27.1   |      |       |       | 19.0   |   |        |       | (2.7   | ) |        |       | (2.0   | )
|                                                  |                                           |                                 |       |                      |        |      |       |       |        |   |        |       |        |   |        |      
|Prepaid (Accrued) Benefit Cost at
    December 31 |                                           | $                               | 130.3 |                      |        | $    | 112.8 |       |        | $ | (212.1 | )     |        | $ | (194.9 | )    
|                                                  |                                           |                                 |       |                      |        |      |       |       |        |   |        |       |        |   |        |      
|Accumulated Benefit Obligation at
    December 31 |                                           | $                               | 829.9 |                      |        | $    | 666.1 |       |        |   |        |       |        |   |        |      
|                                                  |                                           |                                 |       |                      |        |      |       |       |        |   |        |       |        |   |        |      

On January 1, 2002 the company hired
virtually 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, the company has
also become the sponsor for the existing medical plans that
cover ex-BCNA employees now employed by the company. On that
date, the company assumed a liability of $13.0 million to
recognize its Accumulated Post-Retirement Benefit Obligation,
under the Lafarge medical plan, for all ex-BCNA employees who
retire after January 1, 2002. This amount has been charged
to BCNA under the terms of the management agreement discussed
below.

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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Under the terms of the management agreement
between Lafarge S.A. and the company, BCNA reimburses the
company for all Net Periodic Benefit Costs, including pension
benefit expenses and other post-retirement expenses, accrued
under the Mirror plans and the Lafarge medical plans. New
employees hired to work in Blue Circle operations will join a
mirror plan and the Lafarge medical plan.

The table above includes the following amounts
for ex-BCNA employees related to Pension Benefits (in millions):

|                             |  |             |      |      |  |   |      | 
|---------------------------- |  | ----------- | ---- | ---- |  | - | ---- | 
|                             |  |            
|                             |  | Years Ended
|                             |  | December 31
|                             |  |            
|                             |  | 2003        |      | 2002
|                             |  |             |      |     
|Accrued Liability            |  | $           | 2.3  |      |  | $ | 5.1  | 
|Intangible Asset             |  | $           | 1.4  |      |  | $ | 1.1  | 
|Net Periodic Benefit Cost    |  | $           | 4.8  |      |  | $ | 5.1  | 
|Projected Benefit Obligation |  | $           | 19.2 |      |  | $ | 13.7 | 
|Fair Value of Plan Assets    |  | $           | 7.3  |      |  |   |     | 

The table above includes amounts for ex-BCNA
employees related to Other Post-Retirement Benefits:

|                             |  |             |      |      |  |   |      | 
|---------------------------- |  | ----------- | ---- | ---- |  | - | ---- | 
|                             |  |            
|                             |  | Years Ended
|                             |  | December 31
|                             |  |            
|                             |  | 2003        |      | 2002
|                             |  |             |      |     
|Accrued Liability            |  | $           | 16.9 |      |  | $ | 14.9 | 
|Net Periodic Benefit Cost    |  | $           | 2.5  |      |  | $ | 1.9  | 
|Projected Benefit Obligation |  | $           | 28.4 |      |  | $ | 23.4 | 

The Consolidated Balance Sheet as of
December 31, 2003 and 2002, includes a minimum pension
liability of $279.1 and $233.2 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 $21.0 and $28.3 million
is recorded as of December 31, 2003 and 2002, respectively.
The balance of these amounts, net of tax is recorded under
Accumulated other comprehensive gain/(loss) in the
Consolidated Balance Sheets and in the Consolidated Statements
of Shareholders Equity.

The projected benefit obligation, accumulated
benefit obligation and fair value of plan assets for the pension
plans with accumulated benefit obligations in excess of plan
assets were $857.3 million, $773.3 million and
$554.8 million respectively, as of December 31, 2003,
and $686.0 million, $614.6 million and
$439.1 million, respectively, as of December 31, 2002.

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. In 2001, a
$1.3 million special termination charge was incurred for
pension enhancements triggered when affected employees at the
Sugar Creek, Missouri cement plant accepted enhanced pension
benefits negotiated in connection with severance arrangements
related to the new cement line at the plant. Additionally, the
company incurred a $2.9 million special termination charge
upon the retirement of its President and Chief Executive Officer
in May 2001.

Certain employees are also covered under
multi-employer pension plans administered by unions. Amounts
included as service cost in the table of net retirement cost
include contributions to such plans of $7.7 million for
2003, $6.2 million for 2002, and $6.5 million for
2001. 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.

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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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.

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-point
|                                                                                       |  |                     
|                                                                                       |  | Increase             |      | Decrease
|                                                                                       |  |                      |      |         
|Increase (decrease) in postretirement
    benefit obligation at
    December 31, 2003  |  | $                    | 27.0 |          |  | $ | (22.7 | )
|Increase (decrease) in the total of service
    and interest cost components for 2003. |  | $                    | 2.5  |          |  | $ | (2.1  | )

Note 20 Commitments and
Contingencies

The company leases certain land, buildings and
equipment. Total expenses under operating leases was
$46.3 million, $39.3 million and $34.6 million
for each of the three years ended December 31, 2003, 2002
and 2001, respectively. The table below shows the future minimum
lease payments (in millions) due under noncancelable operating
leases at December 31, 2003. Such payments total
$286.7 million.

|                 |  |                          |      |      |  |      |      |      |  |      |      |             |  |   |      |  |  |   |      |  |  |   |       | 
|---------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | ----------- |  | - | ---- |  |  | - | ---- |  |  | - | ----- | 
|                 |  |                         
|                 |  | Years Ending December 31
|                 |  |                         
|                 |  | 2004                     |      | 2005 |  | 2006 |      | 2007 |  | 2008 |      | Later Years
|                 |  |                          |      |      |  |      |      |      |  |      |      |            
|Operating leases |  | $                        | 47.3 |      |  | $    | 36.1 |      |  | $    | 28.9 |             |  | $ | 20.0 |  |  | $ | 18.6 |  |  | $ | 135.8 | 

The company has entered into supply agreements
for the procurement of synthetic gypsum, which is utilized in
the production process at its Silver Grove, Kentucky and
Palatka, Florida gypsum drywall plants. Under the agreements we
are required to purchase all production of certain utility
companies. The agreements call for minimum annual purchases of
$7.7 million over a 20-year period ending in 2020.

The company also entered into a power supply
contract for one of the cement plants. This contract calls for
minimum annual purchases of approximately $14.7 million for
the next 7 years.

The company also holds miscellaneous purchase
obligations related to gas, power, fuel and other significant
raw material commitments.

The company maintains 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, the company
executes 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 the
company 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 the companys consolidated financial position or
results of operations.

On March 28, 2001, Dunn Industrial Group,
Inc. (Dunn Industrial) filed a lawsuit against the
company and the City of Sugar Creek, Missouri in the Circuit
Court of Jackson County, Missouri. In the suit,

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SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Dunn Industrial, the general contractor for the
construction of the companys new cement plant in Sugar
Creek, Missouri, alleges that the company expanded the scope of
work expected of Dunn Industrial in the construction of the
plant without commensurate increases in time required for
performance and amounts to be paid to Dunn Industrial. In
connection therewith, the suit alleges breach of contract,
quantum meruit, breach of warranty and negligent
misrepresentation and seeks foreclosure of mechanics liens
against the company and the City of Sugar Creek, Missouri as
well as damages. The trial court ruled that the issues raised by
Dunn Industrial need not be arbitrated but rather should be
litigated. In December 2002, the Missouri appellate court
reversed the trial courts ruling and agreed with the
company that Dunn Industrial must arbitrate its claims. Upon
further appeal by Dunn Industrial, the Missouri Supreme Court
upheld the lower appellate courts ruling and agreed that
Dunn Industrial must arbitrate its claims. In its demand for
relief in the arbitration, Dunn Industrial claims damages in
excess of $120.5 million. The company has filed certain
counter claims, and the company believes that Dunn
Industrials claims are without merit and is vigorously
defending its position in the arbitration.

In June 2001, LCI paid Canadian
$15.6 million (approximately U.S. $10 million),
representing its share of the damages awarded to the plaintiffs
in a lawsuit originating in 1992 arising from claims of building
owners, and other plaintiffs regarding defective concrete
foundations. In December 2002, the Ontario Court of Appeal
confirmed the trial courts decision on LCIs
insurance coverage according to which LCI is entitled to be
reimbursed by its insurers for most of the damages it paid to
the plaintiffs, and for most of the defense expenses and third
party costs it paid in the lawsuit. In August 2003, the Supreme
Court of Canada dismissed the application made by certain of
LCIs excess insurers for leave to appeal the Court of
Appeals decision. The company has already expensed amounts
that it believes will not be paid by the insurers. LCI is also
involved as a defendant in a related class action initiated in
1999. Approximately 215 homeowners have joined in the class
action. The company believes 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
its financial condition.

On August 26, 2003, United States Gypsum
Corporation (USG) filed a lawsuit against the
company in the United States District Court for the Northern
District of Illinois alleging the companys infringement of
a USG patent relating to the production of gypsum drywall. In
the suit, USG seeks unspecified damages and certain injunctive
relief relating to the patent. The suit is in the discovery
stage, and the company is defending against USGs
allegations. The company believes that this matter will not have
a material impact on the companys 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 the company.
The company also has been named a potentially responsible party
for this site. The suit alleges that in 1969 one of the
companys 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. The company
understands that the Department of Defense has accepted a
substantial share of responsibility for the sites
remediation and is pursuing a remediation plan with the EPA. The
suit has otherwise been dormant for several years. The company
believes that this matter will not have a material impact on its
financial condition.

When the company determines 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, 2003, the liabilities recorded for the
environmental obligations and other legal actions are not
material to the companys financial statements. Although
the company believes its accruals for environmental liabilities
and other legal actions are

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LAFARGE NORTH AMERICA INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

adequate, the company may incur costs in excess
of the amounts provided at December 31, 2003. However, the
company has concluded that the possibility of material liability
in excess of the amount reported in the December 31, 2003
Consolidated Balance Sheet is remote.

In the ordinary course of business, the company
is 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 the companys financial
condition, results of operations or liquidity.

Note 21 Related Party
Transactions

Income from managed assets for the
years ended December 31, 2003, 2002 and 2001 is
$12.0 million, $12.0 million and $5.6 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 the company on the behalf of Blue Circle North America. The
company charged Blue Circle North America $194.4 million,
$178.8 million and $4.1 million for payroll and other
cost reimbursements for the years ended December 31, 2003,
2002 and 2001, respectively. In accordance with the terms of the
Blue Circle Asset Management Agreement, payments of
$4.9 million and $2.5 million were made to Blue Circle
North America for 2003 and 2002, respectively, as compensation
for actions taken to optimize the profitability of the combined
assets which benefited the company to the detriment of Blue
Circle North America.

The company is 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 $4.5 million, $4.2 million and
$5.8 million during 2003, 2002 and 2001, respectively. In
addition, the company purchases various products from and sells
various products to Lafarge S.A. Such purchases totaled
$23.1 million, $40.3 million and $52.2 million in
2003, 2002 and 2001, respectively; such sales totaled
$6.3 million, $4.0 million and $2.4 million in 2003,
2002 and 2001, respectively. Management believes all
transactions the company conducted with Lafarge S.A. were on
terms similar to those that would be obtained in transactions
with unrelated parties.

The company purchases products from and sells
products to certain of its unconsolidated subsidiaries. Such
purchases totaled $61.1 million in 2003, $60.2 million
in 2002 and $33.3 million in 2001; such sales totaled $30.0
million in 2003, $20.7 million in 2002 and
$43.3 million in 2001. The company also received dividends
from certain of these affiliates of $2.5 million and
$1.9 million in 2003 and 2002, respectively. Management
believes all transactions with the companys affiliates
were on terms similar to those that would be obtained in
transactions with unrelated parties.

In conjunction with the Warren merger, a
subsidiary of the company issued the Preferred Shares to Kilmer
Van Norstrand Co. Limited (KVN) (see Note 9), on which cash
dividends amounting to $7.4 million, $8.4 million and
$7.0 million were paid in 2003, 2002 and 2001,
respectively. KVN is 100 percent owned by a member of the
companys board of directors, his family and certain family
trusts.

The company provides certain officers and
employees housing assistance loans, which generally do not bear
interest. At December 31, 2003 and 2002, amounts
outstanding under these loan agreements totaled
$7.8 million and $7.0 million, respectively. Since
July 30, 2002, no such loans have been granted to executive
officers of the company.

88



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##### Table of Contents



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 2003 and 2002 (in millions, except per share
information):

|                                                                             |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |      | 
|---------------------------------------------------------------------------- | ------- | ----- | --- | ------ | - | ----- | --- | ------ |  | ----- | ----- | ------ | - | - | --- | ---- |  | - | ----- | ---- | 
|                                                                             |         | First |     | Second |   | Third |     | Fourth |  | Total
|                                                                             |         |       |     |        |   |       |     |        |  |      
|2003                                                                         |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|Net sales from continuing operations                                         |         | $     | 411 |        |   | $     | 862 |        |  | $     | 1,163 |        |   | $ | 883 |      |  | $ | 3,319 |     
|Gross profit (loss) from continuing
    operations                           |         |       | (36 | )      |   |       | 220 |        |  |       | 338   |        |   |   | 218 |      |  |   | 740   |     
|Net income (loss) from continuing operations                                 |         |       | (88 | )      |   |       | 71  |        |  |       | 166   |        |   |   | 68  |      |  |   | 217   |     
|Net income from discontinued operations, net of
    tax                      |         |       | 4   |        |   |       | 3   |        |  |       | 59(b  | )      |   |   |    |      |  |   | 66    |     
|Net income (loss)                                                            |         |       | (86 | )      |   |       | 74  |        |  |       | 225   |        |   |   | 68  |      |  |   | 281   |     
|Net income (loss) from continuing operations
    per common equity share (a) |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|                                                                             | Basic   |       |     | (1.20  | ) |       |     | 0.96   |  |       |       | 2.26   |   |   |     | 0.93 |  |   |       | 2.97 | 
|                                                                             | Diluted |       |     | (1.20  | ) |       |     | 0.96   |  |       |       | 2.24   |   |   |     | 0.91 |  |   |       | 2.93 | 
|                                                                             |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|Net income from discontinued operations per
    common equity share (a)      |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|                                                                             | Basic   |       |     | 0.05   |   |       |     | 0.05   |  |       |       | 0.81(c | ) |   |     |     |  |   |       | 0.90 | 
|                                                                             | Diluted |       |     | 0.05   |   |       |     | 0.04   |  |       |       | 0.80(c | ) |   |     |     |  |   |       | 0.90 | 
|                                                                             |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|Net income (loss) per common equity share (a)                                |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|                                                                             | Basic   |       |     | (1.19  | ) |       |     | 1.01   |  |       |       | 3.07   |   |   |     | 0.93 |  |   |       | 3.83 | 
|                                                                             | Diluted |       |     | (1.19  | ) |       |     | 1.00   |  |       |       | 3.04   |   |   |     | 0.91 |  |   |       | 3.79 | 
|                                                                             |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|2002                                                                         |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|Net sales                                                                    |         | $     | 427 |        |   | $     | 868 |        |  | $     | 1,076 |        |   | $ | 789 |      |  | $ | 3,160 |     
|Gross profit (loss)                                                          |         |       | (6  | )      |   |       | 226 |        |  |       | 312   |        |   |   | 188 |      |  |   | 720   |     
|Net income (loss) from continuing operations                                 |         |       | (56 | )      |   |       | 104 |        |  |       | 140   |        |   |   | 69  |      |  |   | 257   |     
|Net income from discontinued operations, net of
    tax                      |         |       | 3   |        |   |       | 3   |        |  |       | 3     |        |   |   | 3   |      |  |   | 12    |     
|Net income (loss)                                                            |         |       | (53 | )      |   |       | 107 |        |  |       | 143   |        |   |   | 71  |      |  |   | 268   |     
|Net income (loss) from continuing operations
    per common equity share (a) |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|                                                                             | Basic   |       |     | (0.78  | ) |       |     | 1.43   |  |       |       | 1.92   |   |   |     | 0.94 |  |   |       | 3.53 | 
|                                                                             | Diluted |       |     | (0.78  | ) |       |     | 1.40   |  |       |       | 1.90   |   |   |     | 0.94 |  |   |       | 3.48 | 
|                                                                             |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|Net income from discontinued operations per
    common equity share (a)      |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|                                                                             | Basic   |       |     | 0.04   |   |       |     | 0.04   |  |       |       | 0.04   |   |   |     | 0.04 |  |   |       | 0.16 | 
|                                                                             | Diluted |       |     | 0.04   |   |       |     | 0.04   |  |       |       | 0.04   |   |   |     | 0.04 |  |   |       | 0.16 | 
|                                                                             |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|Net income (loss) per common equity share (a)                                |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     
|                                                                             | Basic   |       |     | (0.74  | ) |       |     | 1.47   |  |       |       | 1.96   |   |   |     | 0.98 |  |   |       | 3.69 | 
|                                                                             | Diluted |       |     | (0.74  | ) |       |     | 1.44   |  |       |       | 1.94   |   |   |     | 0.98 |  |   |       | 3.64 | 
|                                                                             |         |       |     |        |   |       |     |        |  |       |       |        |   |   |     |      |  |   |       |     



---



|    |                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The sum of these amounts may not equal the annual
    amount because of changes in the average number of common equity
    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 common equity share includes $0.79
    related to the gain on sale of discontinued operations.

89



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##### Table of Contents



Schedule II

LAFARGE NORTH AMERICA AND
SUBSIDIARIES

CONSOLIDATED VALUATION AND QUALIFYING
ACCOUNTS


Years Ended December 31, 2003, 2002 and
2001


(in thousands)


|                                          |                               |              |  |             |        |              |  |          |        |                |  |   |         |   |  |   |       |   |  |   |        | 
|----------------------------------------- | ----------------------------- | ------------ |  | ----------- | ------ | ------------ |  | -------- | ------ | -------------- |  | - | ------- | - |  | - | ----- | - |  | - | ------ | 
|                                          |                               |              |  |             |        |              |  |         
|                                          |                               |              |  | Additions   |        | Deductions   |  |         
|                                          |                               |              |  |             |        |              |  |         
|                                          |                               |              |  |             |        | From Reserve |  |          |        |               
|                                          |                               |              |  |             |        | for Purposes |  |          |        |               
|                                          |                               | Balance at   |  | Charge to   |        | for Which    |  |          |        |               
|                                          |                               | Beginning of |  | Cost and    |        | Reserve Was  |  |          |        | Balance at End
|Descriptions                              |                               | Year         |  | Expenses(2) |        | Created      |  | Other(1) |        | of Year       
|                                          |                               |              |  |             |        |              |  |          |        |               
|Reserve applicable to current receivables |                               |              |  |             |        |              |  |          |        |                |  |   |         |   |  |   |       |   |  |  
|                                          | For doubtful accounts:        |              |  |             |        |              |  |          |        |                |  |   |         |   |  |   |       |   |  |   |       
|                                          |                               | 2003         |  | $           | 23,730 |              |  | $        | 2,106  |                |  | $ | (3,546  | ) |  | $ | 1,936 |   |  | $ | 24,226 | 
|                                          |                               | 2002         |  | $           | 28,898 |              |  | $        | 2,921  |                |  | $ | (8,206  | ) |  | $ | 117   |   |  | $ | 23,730 | 
|                                          |                               | 2001         |  | $           | 25,630 |              |  | $        | 6,106  |                |  | $ | (2,358  | ) |  | $ | (480  | ) |  | $ | 28,898 | 
|                                          | For cash and other discounts: |              |  |             |        |              |  |          |        |                |  |   |         |   |  |   |       |   |  |   |       
|                                          |                               | 2003         |  | $           | 4,618  |              |  | $        | 22,722 |                |  | $ | (20,748 | ) |  | $ | 454   |   |  | $ | 7,046  | 
|                                          |                               | 2002         |  | $           | 4,827  |              |  | $        | 20,307 |                |  | $ | (20,542 | ) |  | $ | 26    |   |  | $ | 4,618  | 
|                                          |                               | 2001         |  | $           | 1,799  |              |  | $        | 27,139 |                |  | $ | (24,015 | ) |  | $ | (96   | ) |  | $ | 4,827  | 




|    |                                                                   
|--- | ------------------------------------------------------------------
|(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

On May 6, 2002, we decided to dismiss our
independent auditors, Arthur Andersen LLP, and to engage Ernst
& Young LLP to serve as our new independent auditors for the
fiscal year ended December 31, 2002. This decision was
initiated because of the problems surrounding Arthur Andersen
LLP. The change in auditors became effective May 15, 2002
upon the filing of our Form 10-Q for the quarter ended
March 31, 2002 with the U.S. Securities and Exchange
Commission. This decision was recommended by the Audit Committee
of our Board of Directors and was approved by our Board of
Directors.

Arthur Andersens reports on our
consolidated financial statements for each of the years ended
December 31, 2001 and December 31, 2000 did not
contain an adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or
accounting principles.

During the years ended December 31, 2001 and
2000 and the interim period between December 31, 2001 and
the effective date of Arthur Andersens dismissal, there
were no disagreements between us and Arthur Andersen on any
matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if
not resolved to Arthur Andersens satisfaction, would have
caused them to make reference to the subject matter of the
disagreement in connection with their report for such years; and
there were no reportable events as defined in
Item 304(a)(1)(v) of Regulation S-K.

We provided Arthur Andersen with a copy of the
foregoing disclosures. Arthur Andersens letter, dated
May 15, 2002, stating its agreement with such statements
was filed as Exhibit 16 to the Form 8-K/ A dated
May 6, 2002 which we filed with the Securities and Exchange
Commission on May 16, 2002.

During the years ended December 31, 2001 and
2000 and through the date of their appointment as our
independent auditors, neither we nor anyone acting on our behalf
consulted Ernst & Young LLP with respect to the application
of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might
be rendered on our consolidated financial statements, or any
other matters or reportable events listed in Items 304(a)(2)(i)
and (ii) of Regulation S-K.

90



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##### Table of Contents








|         |                        
|-------- | -----------------------
|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 2003 that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.




PART III






|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE
    COMPANY

The section captioned Election of
Directors in our Proxy Statement for the 2004 Annual
Meeting of Stockholders sets forth certain information with
respect to the directors and nominees for election as directors
of the company and is incorporated herein by reference. Pursuant
to General Instruction G (3) of Form 10-K and Instruction 3
to Item 401 (b) of Regulation S-K, certain
information with respect to persons who are or may be deemed to
be executive officers of the company is set forth under the
caption Executive Officers of the Company in Part I
of this Annual Report.






|         |                       
|-------- | ----------------------
|Item 11. | EXECUTIVE COMPENSATION

The section captioned Executive
Compensation in our Proxy Statement for the 2004 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 section captioned Stock Ownership
in our Proxy Statement for the 2004 Annual Meeting of
Stockholders sets forth certain information with respect to the
ownership of our securities 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 2004 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 2004 Annual
Meeting of Stockholders sets forth certain information with
respect to principal accountant fees and services and is
incorporated herein by reference.

91



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##### Table of Contents






PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
    REPORTS ON FORM 8-K



| |         |                                                                                                                                                                                                                                                                                                                                             
| | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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


|                                   |                                                                                                                           |      |  |    | 
|---------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                                   |                                                                                                                           | Page
|                                   |                                                                                                                           |     
|Financial Report:                  |                                                                                                                           |      |  |   
|                                   | Report of Independent Auditors, Ernst & Young
    LLP                                                                     |      |  | 49 | 
|                                   | Report of Independent Public Accountants, Arthur
    Andersen LLP                                                         |      |  | 50 | 
|Consolidated Financial Statements: |                                                                                                                           |      |  |   
|                                   | Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                                          |      |  | 51 | 
|                                   | Consolidated Statements of Income for the Years
    Ended December 31, 2003, 2002 and 2001                                |      |  | 52 | 
|                                   | Consolidated Statements of Shareholders
    Equity for the Years Ended December 31, 2003, 2002 and 2001                  |      |  | 53 | 
|                                   | Consolidated Statements of Comprehensive Income
    for the Years Ended December 31, 2003, 2002 and 2001                  |      |  | 54 | 
|                                   | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2003, 2002 and 2001                            |      |  | 55 | 
|                                   | Notes to Consolidated Financial Statements                                                                                |      |  | 56 | 
|Financial Statement Schedule:      |                                                                                                                           |      |  |   
|                                   | Schedule II  Consolidated
    Valuation and Qualifying Accounts for the Years Ended
    December 31, 2003, 2002 and 2001 |      |  | 90 | 
|                                   | All 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.

|        |     |                         |  |                                                                                                                                                                                                                                                                                                                                                                                            
|------- | --- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |                        
|Number  |     | Description of Exhibits
|        |     |                        
|        | 3.1 |                         |  | 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, 2001 [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
    October 15, 2000 [incorporated by reference to
    Exhibit 3.2 to the Annual Report on Form 10-K filed by the
    company for the fiscal year ended December 31, 2000].                                                                                                                                                                     
|        | 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].

92



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|        |       |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | ----- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Exhibits
|        |       |                        
|        | 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].                                                                                                                                                                                                                                                                      
|        | 4.3   |                         |  | 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  |                         |  | Director Fee Deferral Plan of the company
    [incorporated by reference to Exhibit 10.21 to the
    Registration Statement on Form S-1 (Registration
    No. 2-86589) of the company, filed with the Securities and
    Exchange Commission on September 16, 1983].                                                                                                                                                                                                                                                                           
|        | 10.5  |                         |  | 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].                                                                                                                                                                                                                                                                                                    
|        | 10.6  |                         |  | 1983 Stock Option Plan of the company, as amended
    and restated May 2, 1989 [incorporated by reference to
    Exhibit 28 to our report on Form 10-Q for the quarter ended
    June 30, 1989].                                                                                                                                                                                                                                                                                                                                               
|        | 10.7  |                         |  | Optional Stock Dividend Plan of the company dated
    September 2000 [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].                                                                                                                                                                                                                                                                                                                   
|        | 10.8  |                         |  | 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].                                                                                                                                                                                                                                                                               
|        | *10.9 |                         |  | Control Option Agreement dated as of
    November 1, 2003 between Lafarge North America Inc. and
    Lafarge S.A.                                                                                                                                                                                                                                                                                                                                                                                                                              

93



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|        |       |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ----- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Exhibits
|        |       |                        
|        | 10.10 |                         |  | 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].                                                                                                                                                           
|        | 10.11 |                         |  | 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].                                                                                                                      
|        | 10.12 |                         |  | 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].                                                                                                                                                                                                                                          
|        | 10.13 |                         |  | 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].                                                                         
|        | 10.14 |                         |  | 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].                                                                                                                             
|        | 10.15 |                         |  | 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].                                                                                                                                                                                                                      
|        | 10.16 |                         |  | Description of Nonemployee Director Retirement
    Plan of the company, effective January 1, 1989
    [incorporated by reference to Exhibit 10.40 to the Annual
    Report on Form 10-K filed by the company for the fiscal
    year ended December 31, 1989].                                                                                                                                                                                                    
|        | 10.17 |                         |  | 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]                                                                                                                                 
|        | 10.18 |                         |  | 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].                                                                                                                                                                                                              
|        | 10.19 |                         |  | 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].
|        | 10.20 |                         |  | 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].                                                                                                         
|        | 10.21 |                         |  | 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].                                             

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|        |       |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ----- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Exhibits
|        |       |                        
|        | 10.22 |                         |  | 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].                                                                                     
|        | 10.23 |                         |  | 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].                                                                                                                                                                                                                                                           
|        | 10.24 |                         |  | Credit Agreement dated as of December 8,
    1998 between the company and nine separate banking institutions
    [incorporated by reference to Exhibit 10.25 to the Annual Report
    on Form 10-K filed by the company for the fiscal year ended
    December 31, 1998].                                                                                                                                                                                                                                              
|        | 10.25 |                         |  | Amendment dated August 1, 1998 to
    Nonemployee Director Retirement Plan of the company filed as
    Exhibit 10.16.[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].                                                                                                                                                                                                                                          
|        | 10.26 |                         |  | 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].                                                                                                                                                                                                                                                           
|        | 10.27 |                         |  | 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].                                                       
|        | 10.28 |                         |  | 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].                                                                    
|        | 10.29 |                         |  | Commercial Paper Issuing and Paying Agent
    Agreement dated as of March 2, 2001 between Citibank, N.A.
    and Lafarge North America [incorporated by reference to
    Exhibit 10.30 to the Annual Report on Form 10-K filed
    by the company for the fiscal year ended December 31, 2000].                                                                                                                                                                                                                        
|        | 10.30 |                         |  | Credit agreement dated as of March 2, 2001
    among Lafarge North America as borrower, the initial lenders
    named therein, Citibank, N.A. as administrative agent, Salomon
    Smith Barney Inc. as arranger and Bayerische Landesbank
    Girozentrale, BNP Paribas, SunTrust Bank and Westdeustche
    Landesbank Girozentrale as syndication agents [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, 2000].
|        | 10.31 |                         |  | 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].                                                                                                                                                                                                                                                               
|        | 10.32 |                         |  | Option Agreement made and entered into as of
    July 11, 2001 by and between Lafarge S.A. and Lafarge
    Corporation [incorporated by reference to Exhibit 10.2 to
    our report on Form 10-Q for the quarter ended June 30,
    2001].                                                                                                                                                                                                                                                                             
|        | 10.33 |                         |  | 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.                                                                                                                                                                                                                                                                                                                        
|        | 10.34 |                         |  | 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].                                                                                                                                                                                                                                                                                                                                 

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|        |       |                         |  |                                                                                                                                                                                                                                                                                                                               
|------- | ----- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Exhibits
|        |       |                        
|        | 10.35 |                         |  | 364-Day 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 10.2 to our Report on Form 10-Q for the
    quarter ended March 31, 2002].  
|        | 10.36 |                         |  | 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].
|        | *21   |                         |  | Subsidiaries of the company.                                                                                                                                                                                                                                                                                                  
|        | *23   |                         |  | Consent of Ernst & Young LLP, independent
    auditors.                                                                                                                                                                                                                                                                       
|        | *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



| |     |                     
| | --- | --------------------
| | (b) | Reports on Form 8-K.

On October 31, 2003, we filed a
Form 8-K dated October 30, 2003, in which we announced
our earnings for the fiscal quarter ended September 30, 2003.

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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/ LARRY J. WAISANEN

| |                             
| | ----------------------------
| |                             
| | Larry J. Waisanen           
| | Executive Vice President and
| | Chief Financial Officer     

Date:  March 12, 2004

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. ROLLIERPhilippe R. Rollier |  | President and Chief Executive Officer and Director       |  | March 12, 2004
|                                          
|/s/ LARRY J. WAISANENLarry J. Waisanen     |  | Executive Vice President and Chief Financial
    Officer |  | March 12, 2004
|                                          
|/s/ YVON BRINDAMOURYvon BrindAmour       |  | Senior Vice President
    and Controller                 |  | March 12, 2004
|                                          
|/s/ BERTRAND P. COLLOMBBertrand P. Collomb |  | Chairman of the Board                                    |  | March 12, 2004
|                                          
|/s/ MARSHALL A. COHENMarshall A. Cohen     |  | Director                                                 |  | March 12, 2004
|                                          
|/s/ PHILIPPE P. DAUMANPhilippe P. Dauman   |  | Director                                                 |  | March 12, 2004
|                                          
|/s/ BERNARD L. KASRIELBernard L. Kasriel   |  | Director                                                 |  | March 12, 2004
|                                          
|/s/ BRUNO LAFONTBruno Lafont               |  | Director                                                 |  | March 12, 2004
|                                          
|/s/ PAUL W. MACAVOYPaul W. MacAvoy         |  | Director                                                 |  | March 12, 2004

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|                                               |  |          |  |               
|---------------------------------------------- |  | -------- |  | --------------
|Signature                                      |  | Title    |  | Date          
|                                               |  |          |  |               
|/s/ CLAUDINE B. MALONEClaudine B. Malone       |  | Director |  | March 12, 2004
|                                              
|/s/ GWYN MORGANGwyn Morgan                     |  | Director |  | March 12, 2004
|                                              
|/s/ ROBERT W. MURDOCHRobert W. Murdoch         |  | Director |  | March 12, 2004
|                                              
|/s/ BERTIN F. NADEAUBertin F. Nadeau           |  | Director |  | March 12, 2004
|                                              
|/s/ JOHN D. REDFERNJohn D. Redfern             |  | Director |  | March 12, 2004
|                                              
|/s/ JOE M. RODGERSJoe M. Rodgers               |  | Director |  | March 12, 2004
|                                              
|/s/ MICHEL ROSEMichel Rose                     |  | Director |  | March 12, 2004
|                                              
|/s/ LAWRENCE M. TANENBAUMLawrence M. Tanenbaum |  | Director |  | March 12, 2004
|                                              
|/s/ GERALD H. TAYLORGerald H. Taylor           |  | Director |  | March 12, 2004

98