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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION






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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, 2002 | Commission File Number 0-11936



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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 x
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.
x

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

The aggregate market value of the voting stock held by
nonaffiliates of the company at June 30, 2002 was
$1,178,695,847.

There were 68,934,588 shares of Common Stock and 4,228,339
Exchangeable Preference Shares of our subsidiary, Lafarge Canada
Inc., outstanding as of March 12, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our definitive Proxy Statement for the 2003 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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TABLE OF CONTENTS



|                                                                                              |                                                                                                         |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                                       
|Item 1. BUSINESS                                                                             
|Item 2. PROPERTIES                                                                           
|Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                                                                      
|Item 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                         
|Item 6. SELECTED CONSOLIDATED FINANCIAL DATA                                                 
|Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                                                              | Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    
|                                                                                              | Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           
|PART III                                                                                     
|                                                                                              | Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY                                               
|                                                                                              | Item 11. EXECUTIVE COMPENSATION                                                                        
|                                                                                              | Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|                                                                                              | Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                
|                                                                                              | Item 14. CONTROLS AND PROCEDURES                                                                       
|PART IV                                                                                      
|                                                                                              | Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                               
|SIGNATURES                                                                                   
|CERTIFICATION                                                                                
|CERTIFICATION                                                                                
|Subsidiaries of the Company                                                                  
|Consent of Ernst & Young LLP                                                                 
|Certification of Chief Executive Officer                                                     
|Certification of Chief Financial Officer                                                     



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##### Table of Contents



LAFARGE NORTH AMERICA INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED


DECEMBER 31, 2002


TABLE OF CONTENTS

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|PART I  
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|Item 1.  |  | Business                                                                                           |  |      | 1  | 
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|         |  | Executive Officers of the Company                                                                  |  |      | 24 | 
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|Item 2.  |  | Properties                                                                                         |  |      | 26 | 
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|Item 3.  |  | Legal Proceedings                                                                                  |  |      | 26 | 
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|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                            |  |      | 28 | 
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|PART II 
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|Item 5.  |  | Market for our Common Equity and Related
    Stockholder Matters                                   |  |      | 28 | 
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|Item 6.  |  | Selected Consolidated Financial Data                                                               |  |      | 29 | 
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|Item 7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |  |      | 30 | 
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|Item 7A. |  | Quantitative and Qualitative Disclosures About
    Market Risk                                     |  |      | 48 | 
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|Item 8.  |  | Financial Statements and Supplementary Data                                                        |  |      | 50 | 
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|Item 9.  |  | Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure           |  |      | 89 | 
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|PART III
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|Item 10. |  | Directors and Executive Officers of the Company                                                    |  |      | 90 | 
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|Item 11. |  | Executive Compensation                                                                             |  |      | 90 | 
|        
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|Item 12. |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |  |      | 90 | 
|        
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|Item 13. |  | Certain Relationships and Related Transactions                                                     |  |      | 90 | 
|        
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|Item 14. |  | Controls and Procedures                                                                            |  |      | 90 | 
|        
|        
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|PART IV 
|        
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|Item 15. |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                                |  |      | 91 | 
|        
|        
|        
|        
|         |  | Signatures                                                                                         |  |      | 96 | 
|        
|        
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|         |  | Certifications                                                                                     |  |      | 98 | 

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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., together with its subsidiaries, 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 aggregate
(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. 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 2002, excluding
the Managed Assets, we generated net sales of $3.3 billion and
we shipped 117.1 million tons of aggregate,
11.1 million cubic yards of ready-mixed concrete,
13.8 million tons of cement and 2.0 billion square
feet of gypsum drywall.

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Our geographic and product diversity, although essential to
increasing and maintaining our leadership in the industry, is
only part of Lafarge. The other essential part of our business
is the more than 15,500 people we employ. Our employees provide
customers with technical, engineering, research and customer
service support to create, use and implement special types and
applications of our products to meet specified structural and
stringent environmental demands.

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 cementitious 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
54 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 2002, the
Lafarge Group generated sales in excess of $13.9 billion.

Among other things, the Lafarge Group provides marketing,
technical, research and development, and managerial assistance
to us. For example, the Lafarge Groups 30-year experience
in the gypsum business and building new plants around the world
supported our entry into the gypsum industry.

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. acquired 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.        

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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|1986 |  | We acquired National Gypsums Huron Cement Division,
    consisting of the Alpena, Michigan cement plant (North
    Americas largest 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 new state-of-the-art cement manufacturing
    plants to replace existing facilities in Richmond, British
    Columbia and Sugar Creek, Missouri. The Richmond plant,
    completed in 1999, increased annual clinker production capacity
    from approximately 600,000 tons to 1.1 million tons. The
    Sugar Creek plant and underground limestone mine, started
    production in the first half of 2002, and has a rated capacity
    of 1.1 million tons of cement a year.                                                                                                                                                                                                                               
|    
|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, two cement distribution
    facilities (one of which we subsequently sold) and a limestone
    quarry in British Columbia from Holnam, Inc.                                
|    
|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.                                                                                                                                                                                                              

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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 on that
    date. The agreement grants us management authority for most of
    Blue Circles U.S. business, which includes 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 time of the exercise. In addition
    to the assets covered under the management contract, we also
    purchased several Blue Circle construction material assets
    outright. These businesses include four sand and gravel
    operations in Ontario and one near Buffalo, New York, which have
    more than 2.5 million tons of sales annually, two
    ready-mixed concrete plants in Ontario and a cold patch asphalt
    business with operations in Canada and the U.S.
|    
|     |  | Also in 2001, we purchased substantially all of the assets of
    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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

What were our
acquisitions and capital improvements in 2002?

In January 2002, we acquired Continental Gypsum. The
purchase price for the Continental Gypsum plant and other assets
was approximately $90 per thousand square feet of annual
capacity, or $28.1 million. Based in Newark, New Jersey,
Continental Gypsum was an independent drywall manufacturer with
annual capacity of more than 300 million square feet.

Our business is relatively capital-intensive. During the
three-year period ended December 31, 2002, our capital
expenditures were $1,012.7 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
expended approximately 33 percent, 44 percent and
18 percent, respectively. During the same period, we also
invested approximately $481.9 million in various
acquisitions that expanded our market and product lines. Of this
amount, construction materials and gypsum expended approximately
93 percent and 7 percent, respectively. During the
three-year period ended December 31, 2002, operating cash
flows and divestment proceeds totaled $1.5 billion.

In 2002, operating cash flows and divestment proceeds totaled
$501 million, while investments (capital expenditures and
acquisitions) reached $279 million. During 2002, proceeds from
the sale of non-strategic

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In 2003, we expect capital expenditures to total approximately
$300 million to $350 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. The 2003
capital expenditures are scheduled to include the final
expenditures on the Sugar Creek cement plant and the Chicago
slag projects, distribution and storage projects in British
Columbia and Iowa, renewal of our construction materials mobile
equipment fleet, construction of a replacement rock shed at the
gypsum plant in Silver Grove, Kentucky, and ongoing upgrades of
our IT systems.

What is our business
strategy?

Our ambition is to lead the industry, set new standards and be a
step ahead of the competition. Leading requires a continued
advance into new territory, building bridges between people,
projects and possibilities.

Our core business strategy is defined by four fundamental
elements  growth and development, performance,
commitment to changeand leveraging our size.



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Growth and Development, both through acquisitions and
    internal development, is one of our highest priorities. We
    actively pursue acquisitions that create value for our
    shareholders and leverage our operational excellence. In 2002,
    we strengthened our competitive position through acquisitions
    and capital improvements in each of our three segments:
    construction materials, cement and cement-related products, and
    gypsum. These acquisitions and capital improvements are
    discussed previously in this Annual Report under What were
    our acquisitions and capital improvements in 2002?
    Further, in 2001 we obtained an option to acquire specific
    cement and construction materials businesses in the U.S. from
    Lafarge S.A., who obtained these assets in the acquisition of
    Blue Circle Industries PLC. We managed and operated these assets
    during 2002 (for an annual fee of $12 million).



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our strategy is to 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. Our ratio of long-term debt to total capitalization
    has decreased from 21.7 percent at the end of 2000 to
    20.6 percent in 2001 and 18.8 percent in 2002, levels
    well within our internal target range. We continue to pursue
    opportunities, particularly in the highly fragmented aggregate
    market where we are poised to be a major strategic player in
    this consolidating industry. In fact, we have become one of
    North Americas top four aggregate producers as our sales
    reached 117.1 million tons in 2002, almost three times the
    production level reached just six years earlier.
|
| | We blend market opportunity with environmental sustainability
    and partner with other industries to minimize waste.
    Sustainability is a major focus for Lafarge.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



|  |                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Performanceencompasses the range of programs we have
    established for manufacturing efficiency, cost control and
    continuous improvement.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our vision of operational excellence includes common operating
    models, the rigorous application of best business practices and
    the implementation of management information systems to improve
    our operating performance. These types of programs remain
    priorities for all of our product lines and are supported at the
    corporate level through our corporate technical services and our
    marketing departments for the cement and cement-related products
    segment and our aggregate, concrete and asphalt and paving
    performance departments in the construction materials segment.                                     
|
| | Our commitment to operational excellence was demonstrated
    through our ability to manage the assets of Blue Circle as we
    agreed to do in 2001. Throughout 2002, both organizations have
    worked on achieving savings and synergies that could be captured
    by networking our manufacturing, distribution and sales systems
    and applying the best practices of both companies. Further, our
    cement operations saw a decline in fixed manufacturing costs,
    particularly maintenance costs, as a result of cost reduction
    initiatives put into place at the plant level. In 2003, a
    continued focus on cement performance is

5



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##### Table of Contents



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | evidenced by the launch of the Advance performance
    program. Additionally, our construction materials operations are
    getting positive results from the across-the-board application
    of standardized operating models, focused both on revenue
    enhancement and cost reduction, in our nearly 1,000 locations.
    An example is the significant cost improvement in the aggregate
    product line, due to the full implementation of the Rock
    2002 performance program. Finally, in our gypsum
    operations we have launched a program to improve manufacturing
    performance, making significant inroads by reducing fixed costs
    and raw material costs, increasing line productivity, and
    supplying paper from our joint venture.
|
| | We have also developed a company-wide employee recognition
    program, the Presidents Award for Commitment to Excellence
    (PACE), to reward those who are leading the charge
    on innovation. In 2002, PACE awards were presented to individual
    employees and teams from around the company in recognition of
    their contributions that created value for the company and
    supported the strategic objectives of our business. The winning
    ideas captured a range of process improvements, ways to maintain
    and grow market share, and projects to capture savings through
    relatively simple, cost-effective fixes. In due course, we
    believe many of these ideas will be incorporated into best
    practices.                    



|  |                                                                          
|- | -------------------------------------------------------------------------
| | Commitment to Changeprovides a third pathway to superior
    performance.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective January 1, 2002, we launched a new organizational
    structure for the cement and cement-related products operations
    with the creation of five smaller regions in the U.S. and
    Canada, compared to two larger ones as before. We believe that
    this move to a more decentralized organization enables our
    employees to be much closer to their regional markets and
    customer base. In addition, this new organization allowed us to
    leverage efficiencies from our agreement to manage Blue
    Circles U.S. assets. Similarly, in 2002, to leverage
    efficiencies and best practices across our enlarged operational
    landscape, we have restructured our construction materials
    business with a product line focus  aggregates,
    concrete and asphalt and paving.                               
|
| | We continue to build on the launch of our Lafarge Leadership
    profile and related Performance Management programs to reinforce
    the development of our leadership capabilities. These actions
    complemented the acceleration of specific product line global
    approaches to improving operational performance. Our corporate
    leadership development programs, delivered across the range of
    management levels, are complimentary to the performance
    initiatives and associated training programs including
    Constructing our Future, the Profit
    Specialist (value creation), and Performance Management.
    The goal of these programs is to develop a deeper knowledge of
    our business, drive performance and reinforce the understanding
    of performance based recognition programs for our employees.
|
| | Development of advanced career management processes and tools,
    including utilizing new technology for recruiting, job posting,
    and on-line coaching, were further developed in 2002. These
    processes have promoted transfer of knowledge between sites and
    business lines  in some cases broadening career
    opportunities for employees by exposing them to other
    businesses, and increasingly more individual transfers between
    business lines. In addition to providing motivational and
    interesting careers for our managerial and professional
    employees, we see this knowledge transfer as a critical
    component of the development of our future leaders.                                                                                                                                             
|
| | Our approach with our employees is led by our management
    philosophy, the Lafarge Way. This approach strives to maintain
    and develop a workplace where employees are challenged,
    recognized for their performance, and provided an environment
    that encourages personal and career growth.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



|  |                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------
| | Leveraging our sizeis the final element that guides how
    we will plan and execute our core business strategy.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There is a clear competitive advantage associated with being a
    large company, but only if we can capitalize on synergies
    between our three operating segments. This requires
    communications, collaboration and teamwork. For example,
    purchasing activities that were once highly decentralized are
    now coordinated across product lines, leveraging the buying
    power of a $3.3 billion company so we can achieve
    substantial, permanent savings.

6



---



##### Table of Contents





| |                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our goal is to create an atmosphere of common business values,
    in which employees are constantly looking for opportunities and
    risks that may impact not just their business but other Lafarge
    product lines or geographic areas as well.

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 became 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
11.1 million tons and 3.0 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, New Mexico, Louisiana, Missouri, Ohio, Maryland,
Pennsylvania, New York and Michigan. 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 2002, 2001 and 2000, our construction materials segment
accounted for 60 percent, 62 percent and
56 percent, respectively, of consolidated net sales, after
the elimination of intracompany sales, and 45 percent,
50 percent and 41 percent, respectively, of
consolidated gross profit.

We offer a broad range of products, including:



|  |                                                                                     
|- | ------------------------------------------------------------------------------------
| | 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                                  
| 
| | 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).

7



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##### Table of Contents



Where are our
construction materials facilities located?

We own or have a majority interest in approximately 900
construction materials locations at December 31, 2002. In
the U.S., we have approximately 230 locations, including 120
aggregate facilities, 80 ready-mixed concrete plants, 30 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 670
locations from coast-to-coast, including 300 aggregate
facilities, 160 ready-mixed concrete plants, 65 asphalt
facilities and 50 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.

The 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.

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 lower, 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. 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. Precast concrete products
and concrete pipe are sold primarily to contractors engaged in
all types of construction activity.

The states in which we had our most significant U.S. sales of
construction materials in 2002 were Colorado, New Mexico and
Maryland. Other states in which we had significant sales of
construction materials included: Missouri, Ohio, Louisiana and
New York. In Canada, we had our most significant sales of
construction materials in Ontario, Alberta, British Columbia and
Quebec.

In 2002, no single unaffiliated customer accounted for more than
10 percent of our 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
railroads to transport our products to the customers. For our
aggregates operations located on the Great Lakes and the west
coast, we can also take advantage of the relatively low cost of
waterborne transportation.

8



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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 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
fourth 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 highly competitive
and 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
have over 100 mixer trucks. Some companies are vertically
integrated and also own cement plants and aggregate operations.

Both aggregates and asphalt markets are also highly competitive
and are 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. Most sales of
aggregates, ready-mixed concrete and asphalt compete 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.

The paving and road construction business is highly competitive
in nature mainly due to the tendering and bidding process and
the added mobility of the paving and road construction
operations and competes similarly on the basis of prices,
quality, service, and reliability.

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. In addition, we believe our
reserves of aggregate 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. 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.

9



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##### Table of Contents



We manufacture and distribute a diverse 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.

Our additional 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

10



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##### Table of Contents





During 2002, 2001 and 2000 cement and cement-related products
accounted for 33 percent, 33 percent and
39 percent, respectively, of our consolidated net sales,
after the elimination of intracompany sales, and
54 percent, 56 percent and 58 percent, respectively,
of consolidated gross profit.

What are the Managed
Assets?

On the cement side, the Managed Assets include five full
production cement manufacturing plants, 11 cement terminals and
a slag grinding facility. The following table indicates the
location, types of process and rated annual clinker production
capacity (based on managements estimates) of each of the
Managed Assets operating cement manufacturing plants at
December 31, 2002. The 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. The slag grinding facility located at Sparrows Point
near Baltimore, Maryland, ground approximately 850 thousand tons
of slag during 2002.

|                                                                              |  |         |     |           |  |  |     |   
|----------------------------------------------------------------------------- |  | ------- | --- | --------- |  |  | --- | --
|                                                                              |  |         |     | Clinker  
|Location                                                                      |  | Process |     | Capacity*
|                                                                              |  |         |     |          
|Ravena, New York                                                              |  |         | Wet |           |  |  | 2.0 |   
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Harleyville, South Carolina                                                   |  |         | Dry |           |  |  | 1.1 |   
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Roberta, Alabama                                                              |  |         | Dry |           |  |  | 1.4 | **
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Tulsa, Oklahoma                                                               |  |         | Dry |           |  |  | 0.7 |   
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Atlanta, Georgia                                                              |  |         | Dry |           |  |  | 0.3 |   
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Total capacity                                                                |  |         | 5.5 |          
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Total 2002 clinker production                                                 |  |         | 4.6 |          
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|2002 production as a percentage of total capacity
    as of December 31, 2002 |  |         | 82  | %        




|   |                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------
|*  | In million short tons. One short ton equals 2,000 pounds.                                          
|  
|** | During 2002, clinker capacity at the Roberta plant increased
    from 0.7 tons to 1.4 million tons.

For operating and managing the Managed Assets, including
ready-mixed concrete and aggregate businesses, we are paid an
annual fee of $12 million. The financial results of the
Managed Assets, on the other hand, are consolidated with Lafarge
S.A.s results and not ours.

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.

11



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##### Table of Contents



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, a binding agent that, when mixed
    with sand, stone or other aggregate and water, produces either
    concrete or mortar.                                                    

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 all cement plants
currently producing clinker will be adequate to permit
production at present capacities for at least 20 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.

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. We are the only
cement producer serving all regions of Canada. At
December 31, 2002, 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 two cement
grinding facilities and 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 owned and operated cement manufacturing
plants in the U.S. accounted for an estimated 13 percent of
total U.S. active industry clinker production capacity.

12



---



##### Table of Contents



The following table indicates the location, types of process and
rated annual clinker production capacity (based on
managements estimates) of each of our operating cement
manufacturing plants at December 31, 2002. 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
|                                                  |  |         |     |         
|Paulding, Ohio                                    |  |         | Wet |          |  |  | 0.5 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Fredonia, Kansas                                  |  |         | Wet |          |  |  | 0.4 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Whitehall, Pennsylvania                           |  |         | Dry | ***      |  |  | 0.8 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Alpena, Michigan                                  |  |         | Dry |          |  |  | 2.4 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Davenport, Iowa                                   |  |         | Dry | **       |  |  | 1.0 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Sugar Creek, Missouri                             |  |         | Dry |          |  |  | 1.1 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Joppa, Illinois                                   |  |         | Dry | ***      |  |  | 1.2 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Seattle, Washington                               |  |         | Wet |          |  |  | 0.4 | 
|                                                  |  |         |     |          |  |  |     | 
|                                                 
|                                                 
|                                                 
|                                                 
|Total capacity                                    |  |         | 7.8 |         
|                                                  |  |         |     |         
|                                                 
|                                                 
|                                                 
|                                                 
|Total 2002 clinker production                     |  |         | 7.0 |         
|                                                  |  |         |     |         
|                                                 
|                                                 
|                                                 
|                                                 
|2002 production as a percentage of total capacity |  |         | 91  | %       
|                                                  |  |         |     |         
|Brookfield, Nova Scotia                           |  |         | Dry |          |  |  | 0.5 | 
|                                                 
|                                                 
|                                                 
|                                                 
|St-Constant, Québec                               |  |         | Dry |          |  |  | 1.0 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Bath, Ontario                                     |  |         | Dry | ***      |  |  | 1.1 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Woodstock, Ontario                                |  |         | Wet |          |  |  | 0.6 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Exshaw, Alberta                                   |  |         | Dry | **       |  |  | 1.3 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Kamloops, British Columbia                        |  |         | Dry |          |  |  | 0.2 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Richmond, British Columbia                        |  |         | Dry | **       |  |  | 1.1 | 
|                                                  |  |         |     |          |  |  |     | 
|                                                 
|                                                 
|                                                 
|                                                 
|Total capacity                                    |  |         | 5.8 |         
|                                                  |  |         |     |         
|                                                 
|                                                 
|                                                 
|                                                 
|Total 2002 clinker production                     |  |         | 4.9 |         
|                                                  |  |         |     |         
|                                                 
|                                                 
|                                                 
|                                                 
|2002 production as a percentage of total capacity |  |         | 85  | %       
|                                                  |  |         |     |         




|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | 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 plants. The capacity of Joppas preheater kiln is
    55 percent of the plants clinker production capacity.                                 

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 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 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.

13



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##### Table of Contents



At December 31, 2002, we owned cement grinding plants for
the processing of clinker into cement at Port Manatee, Florida;
Tampa, Florida: Edmonton, Alberta; Montreal-East, Quebec and
Superior, Wisconsin. After being shut down for several years,
the Montreal-East grinding plant was retrofitted in 2000 and is
now used for grinding a Portland cement / slag blended product.
The Edmonton and Superior grinding plants have been shutdown for
several years because cement grinding has not been cost
efficient at these locations. The shutdown plants were used
during 2002 for the storage of cement. The Port Manatee and
Tampa plants include facilities for receiving clinker and cement
by water.

At December 31, 2002, we owned slag grinding facilities at
South Chicago, Illinois (new facility, started in 2002);
Spragge, Ontario and Stoney Creek, Ontario. We also have
slag-grinding capacity at our Joppa, Illinois plant and at our
Tampa, Florida and Montreal-East, Quebec grinding facilities. We
produced approximately 650 thousand short tons of slag cement
during 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,
2002, 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. In 2002, we have
completed a fuel flexibility project at our Exshaw, Alberta
plant to enable it to convert from natural gas to coal, which
resulted in savings during the year and should provide
additional savings in fuel cost in 2003.

Our use of fuel-quality waste supplied by Systech Environmental
Corporation also has resulted in substantial fuel cost savings.
At December 31, 2002, we used fuel-quality waste materials
obtained and processed by Systech as fuel at two of our U.S.
cement plants (Paulding, Ohio and Fredonia, Kansas).
Fuel-quality waste supplied by Systech constituted approximately
7 percent of the fuel used by us in all of our cement operations
during 2002. Our plants in Whitehall, Pennsylvania and
St.Constant, Quebec are equipped to burn tire-derived fuel.
Other plants that have the capability of using alternative fuel
sources are: Davenport, Iowa (fuel-quality waste); Seattle,
Washington (waste oil); Brookfield, Nova Scotia (fuel-quality
waste); St. Constant, Quebec (pitch fuel); Kamloops, British
Columbia (fuel-quality waste); and Richmond, British Columbia
(bio gas and fuel-quality waste).

Our two U.S. cement plants that utilize fuel-quality waste are
subject to emission limits and other requirements under the
Federal Resource Conservation and Recovery Act and Boiler and
Industrial Furnaces regulations. See Environmental Matters
 in this Item 1 of the Annual Report for further
discussion regarding these regulations.

In summary, at December 31, 2002, all of our cement
manufacturing plants in the U.S. and Canada, except our Exshaw,
Alberta plant (as explained above), have fuel flexibility
between at least three of the following four base sources: coal,
coke, natural gas and oil. This is in addition to any
alternative (waste) fuel sources described above. 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 unaffiliated 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.      

14



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##### Table of Contents



The states in which we had the most significant U.S. sales in
2002 were Michigan and Florida (which accounted for
20 percent of total U.S. cement sales). Other states in
which we had significant sales included: Wisconsin, Ohio,
Minnesota, Illinois, New York, Iowa, Washington and Louisiana.
In 2002, 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
58 percent of our total Canadian cement shipments in 2002.
Other provinces in which we had significant sales included
British Columbia and Quebec. Approximately 25 percent of
our cement shipments in Canada were made to affiliates.

No single unaffiliated customer accounted for more than
10 percent of our consolidated sales during 2002, 2001 or
2000.

How do we distribute
products to our customers?

At December 31, 2002, our U.S. sales offices were located
in Palmetto, Florida; Davenport, Iowa; Lansing, Michigan;
Lees Summit, Missouri; Orchard Park, New York; Valley
City, North Dakota; Maumee, Ohio; Nashville, Tennessee; Seattle,
Washington; Milwaukee, Wisconsin; Tulsa, Oklahoma; Baltimore,
Maryland; Whitehall, Pennsylvania; and Boston, Massachusetts.

At December 31, 2002, our Canadian sales offices were
located in Edmonton and Calgary, Alberta; Kamloops and Richmond,
British Columbia; Winnipeg, Manitoba; Richmond Hill, Ontario;
Montreal, Quebec; and Regina and Saskatoon, Saskatchewan.

We maintain distribution and storage facilities at all cement
manufacturing and finishing plants and at approximately 80 other
locations including four deep-water ocean terminals. 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. Our cement is
distributed primarily in bulk, but also in paper 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 plant or distribution
facility.

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 at
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.

15



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##### Table of Contents



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 report which was
prepared as of December 31, 2001.

Customer Orders

Sales of cement, as stated above, 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 one 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
lines 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 close to 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 2002, 2001 and 2000, our gypsum operations accounted for
seven percent, five percent and five percent, respectively, of
consolidated net sales. In 2002 and 2000 gypsums gross
profit represented one percent of consolidated amounts, compared
to negative gross profits in 2001.

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.

16



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##### Table of Contents



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;                                                                                                                                                                                                                                   
|
| |  | this slurry is extruded between two continuous sheets of paper
    at the forming station;                                                                                                                                                                                                                                
|
| |  | the product travels down a long 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 2.4 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). The
capacity utilization table below excludes the Wilmington plant,
which was idled in November 2002. The table references
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.

|                           |                                                                                                           |           |     |       |  
|-------------------------- | --------------------------------------------------------------------------------------------------------- | --------- | --- | ----- | -
|                           |                                                                                                           | Practical
|Location                   |                                                                                                           | Capacity*
|                           |                                                                                                           |          
|Buchanan, New York         |                                                                                                           |           | 340 |      
|                          
|                          
|                          
|                          
|Palatka, Florida           |                                                                                                           |           | 800 |      
|                          
|                          
|                          
|                          
|Silver Grove, Kentucky     |                                                                                                           |           | 800 |      
|                          
|                          
|                          
|                          
|Newark, New Jersey         |                                                                                                           |           | 340 |      
|                          
|                          
|                          
|                          
|Corner Brook, Newfoundland |                                                                                                           |           | 120 |      
|                           |                                                                                                           |           |     |      
|                           | Total practical capacity                                                                                  |           |     | 2,400 |  
|                           |                                                                                                           |           |     |      
|                           | Total 2002 drywall production (including
    Wilmington, Delaware plant which was idled in November 2002) |           |     | 1,989 |  
|                           |                                                                                                           |           |     |      
|                           | 2002 production as a percentage of practical
    capacity as of December 31,2002                          |           |     | 83    | %
|                           |                                                                                                           |           |     |      



---



|  |                        
|- | -----------------------
|* | 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 Wilmington facility is
located on leased property at the Port of Wilmington. The gypsum
manufacturing facility of Continental Gypsum is leased under an

17



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##### Table of Contents





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 2003, 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, 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 2002, our paperboard liner joint venture with Rock-Tenn
Company in Lynchburg, Virginia, named Seven Hills, LLC, produced
approximately two-thirds of our paper requirements, which
reduced our material costs in 2002.

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 2002, the shipping
distances for the Silver Grove and Palatka plants averaged
approximately 300 miles and 200 miles, respectively. 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

18



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##### Table of Contents





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 enjoy this competitive advantage with
respect to drywall produced at our Buchanan and Newark plants
because of their close proximity to their key markets.

Gypsum drywall is regarded as a commodity product. We intend to
compete with other producers based on price, product quality and
customer service.

Customer Orders

Sales of gypsum drywall products are made on the basis of
competitive prices in each market area, generally pursuant to
telephone orders from customers.

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 and as described above, we
manage most of Blue Circles U.S. businesses, including
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. 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 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
as of December 31, 2001 who operated the managed businesses
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

19



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##### Table of Contents





Trademarks and Patents

We have more than 180 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 cementitious 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.

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, $7.2 million and $7.2
million for 2002, 2001 and 2000, respectively. This includes
amounts we accrued for technical services rendered by Lafarge
S.A., under the terms of the agreements discussed above, of
$4.2 million, $5.8 million and $6.1 million
during 2002, 2001 and 2000, respectively. We also participate in
various trade associations that are involved in research and
development.

Who Are Our Employees?

As of December 31, 2002, we employed approximately 15,500
individuals, including 2,550 individuals operating the Managed
Assets. Approximately 10,250 of these were hourly employees, of
which approximately 7,850 were employed by construction
materials, 1,950 by cement and cement-related products, and 450
by gypsum. Salaried employees totaled approximately 5,250. These
employees generally act in administrative, managerial,
marketing, professional and technical capacities. Overall, we
consider our relations with our employees to be good.

Construction
Materials



| |   |                                       
| | - | --------------------------------------
| |  | U.S. Construction Materials Operations

Our approximately 4,850 U.S. construction materials employees
consist of approximately 3,450 hourly employees and 1,400
salaried employees.

In the U.S., our hourly workforce is covered by 47 collective
bargaining agreements with 12 major labor unions. During 2002,
20 collective bargaining and benefit agreements were
successfully negotiated with union bargaining groups. In 2003,
two labor and benefit agreements will expire. Both of these
agreements are expected to be successfully negotiated without a
work stoppage.

20



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##### Table of Contents





| |   |                                           
| | - | ------------------------------------------
| |  | Canadian Construction Materials Operations

Our employees in the Canadian construction materials operations
totaled approximately 6,000 at the end of 2002, with
approximately 4,400 hourly employees and 1,600 salaried
employees.

In eastern Canada, hourly employees are covered by some 122
collective bargaining agreements with a number of unions. There
are 53 non-union business units in which discussions are held
directly with employees. During 2002, some 32 collective
bargaining agreements became due and were renegotiated. One
collective bargaining agreement renewal, Montreal Ready Mix,
resulted in a strike by employees which lasted three months.
Some 31 collective bargaining agreements will expire throughout
eastern Canada in 2003. The collective bargaining for the
drivers of our Toronto ready mix operations was set to expire
during 2003, but was successfully renegotiated for a five year
term late in 2002. We do not anticipate any major disruptions as
a result of work stoppages during 2003.

In western Canada, there are 59 collective agreements with a
variety of different unions. Ten agreements are negotiated
through multi-employer associations. During 2002, 17 collective
bargaining agreements were successfully re-negotiated without
labor disruption and within the approved mandate. We continue to
negotiate two collective bargaining agreements that expired
during 2002, with no work stoppage anticipated. During 2003, a
further 21 collective bargaining agreements will expire. These
agreements are expected to be renewed without labor disruption.

Cement and
Cement-Related Products



| |   |                                                   
| | - | --------------------------------------------------
| |  | U.S. Cement and Cement-Related Products Operations

The majority of our 1,450 U.S. hourly employees are represented
by labor unions. During 2002, labor agreements were negotiated
at the Seattle, Washington cement plant, Waukegan, Illinois;
Cleveland, Ohio and Chicago, Illinois distribution terminals.
During 2003, the labor agreements will expire at the Duluth,
Minnesota; Superior, Wisconsin; Toledo, Ohio; Oswego, New York,
and Chicago, Illinois distribution terminals. We expect the
agreements to be successfully concluded without work stoppages.



| |   |                                                       
| | - | ------------------------------------------------------
| |  | Canadian Cement and Cement-Related Products Operations

Substantially all of our approximately 500 Canadian hourly
employees are covered by labor agreements. In 2002, the
collective agreements for Exshaw, Alberta; St. Constant,
Quebec; Brookfield, Nova Scotia; Winnipeg, Manitoba terminal and
Toronto, Ontario terminal were renewed without work stoppage.
The Bath, Ontario plant strike was settled in June 2002
with employees coming back to work July 1, 2002. For 2003,
collective bargaining agreements at our plants in Woodstock,
Ontario and Kamloops, British Columbia are up for renewal.

Gypsum



| |   |                               
| | - | ------------------------------
| |  | U.S. Gypsum Drywall Operations

Approximately 200 of gypsums 385 hourly employees are
covered by labor agreements. Information meetings are held
directly with employees. Both our Silver Grove, Kentucky and
Palatka, Florida facilities, have non-union workforces. Our
relationship with our employees is good at these facilities.

There are three local labor agreements in place with four unions
at our Buchanan, New York (two unions represent the employees
here), Newark, New Jersey and Wilmington, Delaware plants. The
Buchanan plants three-year agreement expires in
November 2003. When we acquired the Newark facility in
January 2002, we negotiated a five year collective
bargaining agreement, which was ratified prior to the
acquisition. When we idled the Wilmington plant in
November 2002, all hourly employees were laid off. An
agreement was negotiated and signed by the union in February
2003 with respect to the idling of the plant. Relations with
employees at the plants are good.

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##### Table of Contents



 Canadian Gypsum Drywall Operations

All of the approximately 40 hourly employees at our Corner
Brook, Newfoundland drywall manufacturing facility are covered
by a labor agreement, which is in the fourth year of a five year
contract that expires in 2004. There are approximately 25
non-union hourly employees at the Chambly, Quebec joint
treatment manufacturing plant. Our relationship with employees
in our Canadian facilities is good.

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 regulation, EPA in 1999
advocated a state management approach to CKD. If successful, the
state management approach could result in the cessation of
federal regulation of CKD. EPA has yet to announce its
determination as to whether the states management of CKD
warrants elimination of further federal oversight. Nonetheless,
we regularly assess our CKD management practices in both the
U.S. and Canada to mitigate anticipated future costs of CKD
regulation. We have also 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.
Upon start-up, our new Sugar Creek, Missouri cement plant was
required to meet the new MACT standards. Further, to comply with
the new standards, we upgraded and/or replaced emissions control
and monitoring equipment at several of our other U.S. plants. In
a few limited instances, we timely applied for a compliance
extension. 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.

22



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##### Table of Contents



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 the our operations. The
revisions require states to collect and analyze data over
several years to determine whether or not they comply with the
new standards. Non-compliant states then must modify their air
quality implementation plans to meet the new standards. The EPA
is presently reconsidering the NAAQS and a schedule for revising
them. We do not know when revised NAAQS will be issued, whether
the states in which we operate are likely to comply with the 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 petcoke and
that the cement manufacturing process releases CO2 from the
calcining of limestone, the consequence of CO2 reduction
measures are potentially significant, including potential raw
material and production limitations or fuel-use or carbon 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. In the U.S. the Portland Cement
Association member companies, including Lafarge, have
voluntarily committed to reduce CO2 produced per tonne of
cementitious materials by 10 percent between 1990 and 2020.
The Lafarge Groups 2000 voluntary environmental
partnership with the World Wildlife Fund (WWF)
included development of a voluntary CO2 reduction program. In
November 2001, the Lafarge Group, in conjunction with the
WWF, announced a voluntary commitment to reduce by 2010 absolute
CO2 production by 15 percent in the majority of developed
countries and by 20 percent per unit produced worldwide
from a 1990 baseline. We are studying how to assist the Lafarge
Group in meeting these target, primarily through reducing the
carbon intensity of our raw materials, improving our energy
efficiency and by using new blended products and alternate
fuels. 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 two such sites. From time to time, we also have
initiated voluntary cleanup 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, 2002, 2001 and 2000, 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, 2002 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 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,

23



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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, 2002 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, 2002.

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                    |  |     | 60 | 
|                   
|                   
|                   
|                   
|Bernard L. Kasriel  |  | Vice Chairman of the Board               |  |     | 56 | 
|                   
|                   
|                   
|                   
|Philippe R. Rollier |  | President and Chief Executive Officer    |  |     | 60 | 
|                   
|                   
|                   
|                   
|Dominique Calabrese |  | Executive Vice President and President  |  |     | 47 | 
|                    |  | Eastern Lafarge Construction Materials   |  |     |    | 
|                   
|                   
|                   
|                   
|Thomas G. Farrell   |  | Executive Vice President and President  |  |     | 46 | 
|                    |  | Western Lafarge Construction Materials   |  |     |    | 
|                   
|                   
|                   
|                   
|Jean-Marc Lechêne   |  | Executive Vice President and President  |  |     | 44 | 
|                    |  | Cement Operations                        |  |     |    | 
|                   
|                   
|                   
|                   
|Larry J. Waisanen   |  | Executive Vice President and Chief       |  |     | 52 | 
|                    |  | Financial Officer                        |  |     |    | 
|                   
|                   
|                   
|                   
|Todd W. Cunningham  |  | Senior Vice President  Strategy and     |  |     | 40 | 
|                    |  | Development                              |  |     |    | 
|                   
|                   
|                   
|                   
|L. Philip McClendon |  | Senior Vice President  General Counsel  |  |     | 60 | 
|                    |  | and Secretary                            |  |     |    | 
|                   
|                   
|                   
|                   
|James J. Nealis III |  | Senior Vice President  Human Resources  |  |     | 55 | 
|                   
|                   
|                   
|                   
|Isaac Preston       |  | Senior Vice President and President     |  |     | 43 | 
|                    |  | Gypsum Division                          |  |     |    | 
|                   
|                   
|                   
|                   
|Yvon BrindAmour    |  | Vice President and Controller            |  |     | 45 | 

Bertrand P. Collomb was appointed to his current position in
January 1989. He has also served as Chairman of the Board
and Chief Executive Officer of Lafarge S.A. since
August 1989. 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 and Chief
Operating Officer of Lafarge S.A. since January 1995. Prior
to that he 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 served as Regional President of Lafarge
S.A.  Central Europe and CIS for Cement, Aggregates
and Concrete, from 1995 to 2001, and as Group Executive Vice
President of Lafarge S.A. from 1999 to 2001.

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Dominique Calabrese was appointed to his current position in
March 2002. He has been with Lafarge for 23 years,
most recently serving 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
June 2002. Mr. Farrell joined Lafarge S.A. in 1990 as Vice
President of Strategy. He became Vice President/ General Manager
for an operating unit of Lafarge Betons Granulats in France in
1992. In 1996, he was appointed VP/ GM of the Southern Alberta
Division of Lafarges Construction Materials, a position he
held until 1998 when he was appointed CEO of Lafarges
activities in India. Prior to joining Lafarge, Mr. Farrell
was a corporate attorney with Shearman & Sterling, having
worked in both their New York City and Paris offices.

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 and as Executive Vice
President of Lafarge China from March 1996 to
September 2000. Prior to that he served as Senior Vice
President Cement Strategy of Lafarge S.A. from
November 1993 to March 1996.

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.

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.

James J. Nealis III was appointed to his current position
effective January 1999. 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.

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. Prior to joining Lafarge, he served as Vice
President of Strategy for James Hardie Industries.

Yvon BrindAmour was appointed to his current position in
January 2002. From July 1999 to January 2002 he
served as Vice President and Controller  Canadian Cement
Operations. Prior to that, 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.

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 chosen 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.

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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 leased 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 the cement plants currently
producing clinker will be adequate to permit production at
present capacities for at least 20 years. Other raw
materials, such as clay, shale, sandstone and gypsum are either
obtained from reserves owned by us or are purchased from
suppliers and are readily available.

We 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), including interest, representing its share of
the damages awarded to the plaintiffs in a lawsuit originating
in 1992 (the 1992 lawsuit) arising from claims of
building owners, the Ontario New Home Warranty Program and other
plaintiffs regarding defective concrete foundations. Earlier in
2001, the Ontario Court of Appeal confirmed the decision of the
trial court, which had attributed to LCI 80 percent of the

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##### Table of Contents





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. Dunn Industrial appears to be seeking in excess of
$67 million in damages. The trial court ruled that the
issues raised by Dunn Industrial need not be arbitrated but
rather could 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.
Dunn filed a Transfer Motion to the Missouri Supreme Court
seeking appeal of the Court of Appeals ruling, which motion the
Missouri Supreme Court has granted. We believe Dunn
Industrials claims are without merit and intend to
vigorously defend the suit.

Currently, we are involved in two matters 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 the first 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 new 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. At the second site, which the EPA has
also listed on the National Priority List and with respect to
which we have also been named a potentially responsible party
(PRP). EPA alleges that a predecessor of ours at
some undefined date sent waste diesel fuel to the site for
recycling, and this material may be present at the site. EPA has
identified several hundred PRPs, including us, as parties
eligible for deminimis settlements that would resolve all issues
for the company at this site. The deminimis parties settlement
is undergoing public review and comment and should be finalized
in 2003. 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, 2002, 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, 2002. However, we have
concluded that the possibility of material liability in excess
of the amount reported in the December 31, 2002
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

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

None during the fourth quarter ended December 31, 2002.




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 March 12, 2003, 68,934,588 shares of Common Stock
(Common Stock) were outstanding and held by 3,727
record holders. In addition, on March 12, 2003, 4,228,339
Exchangeable Preference Shares of Lafarge Canada Inc., which are
exchangeable at the option of the holder into Common Stock on a
one-for-one basis and have rights and privileges that parallel
those of the shares of Common Stock, were outstanding and held
by 7,378 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.

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##### Table of Contents






Item 6.     SELECTED
CONSOLIDATED FINANCIAL DATA

|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |         | 
|----------------------------------------------------------- | -------------------- | -------------------------------------- | ------- | ------- |  | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                            |                      |                                       
|                                                            |                      | Years Ended December 31               
|                                                            |                      |                                       
|                                                            |                      | 2002                                   |         | 2001    |  | 2000 |         | 1999    |  | 1998
|                                                            |                      |                                        |         |         |  |      |         |         |  |     
|                                                            |                      |                                       
|                                                            |                      | (in millions except as indicated by *)
|                                                           
|                                                           
|                                                           
|                                                           
|Operating results                                           |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|                                                           
|                                                           
|                                                           
|                                                           
|Net sales                                                   |                      | $                                      | 3,251.6 |         |  | $    | 3,323.0 |         |  | $    | 2,787.6 |         |  | $ | 2,721.6 |         |  | $ | 2,508.5 |        
|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|Income Before the
    Following Items                       |                      | $                                      | 420.6   |         |  | $    | 401.1   |         |  | $    | 430.7   |         |  | $ | 481.6   |         |  | $ | 407.0   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Interest expense, net                                       |                      |                                        | (43.1   | )       |  |      | (47.9   | )       |  |      | (26.9   | )       |  |   | (44.8   | )       |  |   | (27.2   | )      
|                                                           
|                                                           
|                                                           
|                                                           
|Minority interests                                          |                      |                                        | (8.3    | )       |  |      | (7.0    | )       |  |      |        |         |  |   |        |         |  |   |        |        
|                                                           
|                                                           
|                                                           
|                                                           
|Income taxes                                                |                      |                                        | (100.8  | )       |  |      | (112.1  | )       |  |      | (146.4  | )       |  |   | (161.4  | )       |  |   | (144.3  | )      
|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|Net Income                                                  |                      |                                        | 268.4   |         |  |      | 234.1   |         |  |      | 257.4   |         |  |   | 275.4   |         |  |   | 235.5   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Depreciation                                                |                      |                                        | 182.2   |         |  |      | 194.2   |         |  |      | 168.3   |         |  |   | 168.3   |         |  |   | 156.8   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Other items not affecting cash                              |                      |                                        | (26.7   | )       |  |      | (5.2    | )       |  |      | 61.9    |         |  |   | (45.2   | )       |  |   | (16.2   | )      
|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|Net Cash Provided by Operations                             |                      | $                                      | 423.9   |         |  | $    | 423.1   |         |  | $    | 487.6   |         |  | $ | 398.5   |         |  | $ | 376.1   |        
|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|Net Cash Used for Investing                                 |                      | $                                      | 191.2   |         |  | $    | 383.2   |         |  | $    | 564.0   |         |  | $ | 390.0   |         |  | $ | 163.0   |        
|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|Net Cash Provided (Consumed) by
    Financing               |                      | $                                      | (85.8   | )       |  | $    | (42.9   | )       |  | $    | 61.1    |         |  | $ | (61.1   | )       |  | $ | (95.6   | )      
|                                                           
|                                                           
|                                                           
|                                                           
|Financial Condition at
    December 31                      |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|                                                           
|                                                           
|                                                           
|                                                           
|Working Capital                                             |                      | $                                      | 597.9   |         |  | $    | 345.4   |         |  | $    | 336.1   |         |  | $ | 626.6   |         |  | $ | 524.4   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Property, plant and equipment, net                          |                      |                                        | 2,236.3 |         |  |      | 2,195.1 |         |  |      | 2,122.4 |         |  |   | 1,618.3 |         |  |   | 1,400.8 |        
|                                                           
|                                                           
|                                                           
|                                                           
|Other assets                                                |                      |                                        | 739.3   |         |  |      | 738.5   |         |  |      | 703.6   |         |  |   | 539.6   |         |  |   | 553.8   |        
|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|                                                            | Total Net Assets     |                                        | $       | 3,573.5 |  |      | $       | 3,279.0 |  |      | $       | 3,162.1 |  |   | $       | 2,784.5 |  |   | $       | 2,479.0 | 
|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|Long-term debt                                              |                      | $                                      | 671.0   |         |  | $    | 674.6   |         |  | $    | 687.4   |         |  | $ | 710.3   |         |  | $ | 740.4   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Other long-term liabilities and minority interests          |                      |                                        | 742.8   |         |  |      | 607.3   |         |  |      | 582.5   |         |  |   | 351.3   |         |  |   | 323.4   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Shareholders equity                                         |                      |                                        | 2,159.7 |         |  |      | 1,997.1 |         |  |      | 1,892.2 |         |  |   | 1,722.9 |         |  |   | 1,415.2 |        
|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|                                                            | Total Capitalization |                                        | $       | 3,573.5 |  |      | $       | 3,279.0 |  |      | $       | 3,162.1 |  |   | $       | 2,784.5 |  |   | $       | 2,479.0 | 
|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|Total Assets                                                |                      | $                                      | 4,234.2 |         |  | $    | 4,117.6 |         |  | $    | 3,902.6 |         |  | $ | 3,293.4 |         |  | $ | 2,892.5 |        
|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|Common Equity Share Information                             |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|                                                           
|                                                           
|                                                           
|                                                           
|Net income  basic*                                         |                      | $                                      | 3.69    |         |  | $    | 3.25    |         |  | $    | 3.51    |         |  | $ | 3.79    |         |  | $ | 3.27    |        
|                                                           
|                                                           
|                                                           
|                                                           
|Net income  diluted*                                       |                      | $                                      | 3.64    |         |  | $    | 3.21    |         |  | $    | 3.51    |         |  | $ | 3.77    |         |  | $ | 3.24    |        
|                                                           
|                                                           
|                                                           
|                                                           
|Dividends*                                                  |                      | $                                      | 0.60    |         |  | $    | 0.60    |         |  | $    | 0.60    |         |  | $ | 0.60    |         |  | $ | 0.51    |        
|                                                           
|                                                           
|                                                           
|                                                           
|Book value at December 31*                                  |                      | $                                      | 29.54   |         |  | $    | 27.70   |         |  | $    | 26.27   |         |  | $ | 23.55   |         |  | $ | 19.57   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Average shares and equivalents outstanding                  |                      |                                        | 72.8    |         |  |      | 72.0    |         |  |      | 73.3    |         |  |   | 72.6    |         |  |   | 72.1    |        
|                                                           
|                                                           
|                                                           
|                                                           
|Shares outstanding at December 31                           |                      |                                        | 73.0    |         |  |      | 72.1    |         |  |      | 72.0    |         |  |   | 73.2    |         |  |   | 72.3    |        
|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|Statistical Data                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|                                                           
|                                                           
|                                                           
|                                                           
|Capital expenditures                                        |                      | $                                      | 247.9   |         |  | $    | 333.2   |         |  | $    | 431.7   |         |  | $ | 315.7   |         |  | $ | 224.3   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Acquisitions                                                |                      | $                                      | 31.6    |         |  | $    | 80.6    |         |  | $    | 242.0   | (a)     |  | $ | 58.3    |         |  | $ | 99.3    | (b)    
|                                                           
|                                                           
|                                                           
|                                                           
|Net income as a percentage of net sales*                    |                      |                                        | 8.3     | %       |  |      | 7.0     | %       |  |      | 9.2     | %       |  |   | 10.1    | %       |  |   | 9.4     | %      
|                                                           
|                                                           
|                                                           
|                                                           
|Return on average shareholders equity*                     |                      |                                        | 12.9    | %       |  |      | 12.0    | %       |  |      | 14.2    | %       |  |   | 17.6    | %       |  |   | 17.6    | %      
|                                                           
|                                                           
|                                                           
|                                                           
|Long-term debt as a percentage of
    total capitalization* |                      |                                        | 18.8    | %       |  |      | 20.6    | %       |  |      | 21.7    | %       |  |   | 25.5    | %       |  |   | 29.9    | %      
|                                                           
|                                                           
|                                                           
|                                                           
|Number of employees at December 31*                         |                      |                                        | 15,500  |         |  |      | 15,600  |         |  |      | 14,300  |         |  |   | 10,500  |         |  |   | 10,400  |        
|                                                           
|                                                           
|                                                           
|                                                           
|Exchange rate at December 31 (Cdn
    to U.S.)*             |                      |                                        | 0.636   |         |  |      | 0.628   |         |  |      | 0.667   |         |  |   | 0.692   |         |  |   | 0.654   |        
|                                                           
|                                                           
|                                                           
|                                                           
|Average exchange rate for the year (Cdn
    to U.S.)*       |                      |                                        | 0.637   |         |  |      | 0.646   |         |  |      | 0.673   |         |  |   | 0.673   |         |  |   | 0.674   |        
|                                                            |                      |                                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        



---



|    |                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | 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.
|   
|(b) | Excludes the Redland acquisition for $690 million that was
    accounted for similar to a pooling of interests.                                                                                                       

29



---



##### Table of Contents








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

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. 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.

30



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##### Table of Contents



|                                                                  |       |                        |         |         |   |      |         |         |   |   |         |         |  
|----------------------------------------------------------------- | ----- | ---------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                  |       |                       
|                                                                  |       | Year ended December 31
|                                                                  |       |                       
|                                                                  |       | 2002                   |         | 2001    |   | 2000
|                                                                  |       |                        |         |         |   |     
|                                                                  |       |                        |         |        
|                                                                  |       | (in millions)          |         |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Net Sales                                                         |       |                        |         |         |   |      |         |         |   |   |         |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Construction materials                                            |       | $                      | 1,943.0 |         |   | $    | 2,073.8 |         |   | $ | 1,575.7 |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cement and cement-related products                                |       |                        | 1,218.7 |         |   |      | 1,238.4 |         |   |   | 1,215.4 |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Gypsum                                                            |       |                        | 232.7   |         |   |      | 152.4   |         |   |   | 134.1   |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Eliminations                                                      |       |                        | (142.8  | )       |   |      | (141.6  | )       |   |   | (137.6  | )      
|                                                                  |       |                        |         |         |   |      |         |         |   |   |         |        
|                                                                  | Total |                        | $       | 3,251.6 |   |      | $       | 3,323.0 |   |   | $       | 2,787.6 |  
|                                                                  |       |                        |         |         |   |      |         |         |   |   |         |        
|Gross Profit                                                      |       |                        |         |         |   |      |         |         |   |   |         |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Construction materials                                            |       | $                      | 328.6   |         |   | $    | 359.2   |         |   | $ | 281.8   |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cement and cement-related products                                |       |                        | 392.0   |         |   |      | 399.1   |         |   |   | 399.4   |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Gypsum                                                            |       |                        | 9.6     |         |   |      | (42.0   | )       |   |   | 7.1     |        
|                                                                  |       |                        |         |         |   |      |         |         |   |   |         |        
|                                                                  | Total |                        |         | 730.2   |   |      |         | 716.3   |   |   |         | 688.3   |  
|                                                                  |       |                        |         |         |   |      |         |         |   |   |         |        
|Operational Overhead and Other
    Expenses                       |       |                        |         |         |   |      |         |         |   |   |         |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Construction materials                                            |       |                        | (131.8  | )       |   |      | (123.6  | )       |   |   | (89.7   | )      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cement and cement-related products                                |       |                        | (81.2   | )       |   |      | (85.2   | )       |   |   | (81.1   | )      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Gypsum                                                            |       |                        | (25.9   | )       |   |      | (27.4   | )       |   |   | (25.1   | )      
|                                                                  |       |                        |         |         |   |      |         |         |   |   |         |        
|                                                                  | Total |                        |         | (238.9  | ) |      |         | (236.2  | ) |   |         | (195.9  | )
|                                                                  |       |                        |         |         |   |      |         |         |   |   |         |        
|Income From Operations                                            |       |                        |         |         |   |      |         |         |   |   |         |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Construction materials                                            |       |                        | 196.8   |         |   |      | 235.6   |         |   |   | 192.1   |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cement and cement-related products                                |       |                        | 310.8   |         |   |      | 313.9   |         |   |   | 318.3   |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Gypsum                                                            |       |                        | (16.3   | )       |   |      | (69.4   | )       |   |   | (18.0   | )      
|                                                                  |       |                        |         |         |   |      |         |         |   |   |         |        
|                                                                  | Total |                        |         | 491.3   |   |      |         | 480.1   |   |   |         | 492.4   |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Corporate and unallocated expenses                                |       |                        | (70.7   | )       |   |      | (79.0   | )       |   |   | (61.7   | )      
|                                                                  |       |                        |         |         |   |      |         |         |   |   |         |        
|                                                                 
|Earnings Before Minority Interests, Interest
    and Income Taxes |       | $                      | 420.6   |         |   | $    | 401.1   |         |   | $ | 430.7   |        
|                                                                  |       |                        |         |         |   |      |         |         |   |   |         |        
|                                                                 
|Assets                                                            |       |                        |         |         |   |      |         |         |   |   |         |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Construction materials                                            |       | $                      | 1,872.4 |         |   | $    | 1,972.7 |         |   | $ | 1,947.4 |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cement and cement-related products                                |       |                        | 1,241.7 |         |   |      | 1,097.8 |         |   |   | 1,052.1 |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Gypsum                                                            |       |                        | 310.4   |         |   |      | 260.4   |         |   |   | 279.4   |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Corporate, and unallocated assets                                 |       |                        | 809.7   |         |   |      | 786.7   |         |   |   | 623.7   |        
|                                                                  |       |                        |         |         |   |      |         |         |   |   |         |        
|                                                                  | Total |                        | $       | 4,234.2 |   |      | $       | 4,117.6 |   |   | $       | 3,902.6 |  
|                                                                  |       |                        |         |         |   |      |         |         |   |   |         |        

YEAR ENDED DECEMBER 31, 2002

Net Sales

Our net sales decreased 2 percent in 2002 to
$3,251.6 million from $3,323.0 million in 2001. The
increase in gypsum net sales partially offset the slight decline
in cement net sales and the more significant drop in sales of
our construction materials operations, driven mostly by lower
asphalt and paving sales and the absence of sales from recently
divested operations. By region, U.S. net sales increased
slightly to $2,026.8 million in 2002 compared to
$2,023.8 million in 2001, with Canadian net sales
decreasing 6 percent to $1,224.7 million in 2002. The
drop in Canadian net sales was 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

31



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##### Table of Contents





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 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 a slowing demand in the Colorado and New
Mexico highway paving markets, resulting in increased
competitive activity and decreased prices. Overall asphalt and
paving volumes were down 17 percent for the whole year, as
US operations showed a smaller decline compared to Canada.

Ready-mixed concrete sales totaled $648.5 million, down
2 percent from last year. 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 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 modestly from $1,238.4 million in
2001 to $1,218.7 million in 2002 as a 4 percent
shortfall in shipments was largely offset by improved selling
prices. Sales volumes for the year reached 13.8 million tons,
down 4 percent in both the US and Canada. Sales volumes,
which had spiked higher in the last three months of 2001 due to
mild winter weather, fell 11 percent in the fourth quarter
as a series of winter storms hampered construction activity in
the Great Lakes and eastern US markets. In Canada, the decline
in sales volumes 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 US increased slightly less than
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 a 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 we idled in the fourth quarter. 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 60 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

32



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##### Table of Contents





Gross Profit and Cost of Goods Sold

Gross profit as a percentage of net sales increased to
22.5 percent from 21.6 percent in 2001, primarily
reflecting a significant improvement in gypsum results.

Construction materials gross profit as a percentage of net sales
was 17 percent in 2002, in line with 2001 levels as improved
margins on aggregates offset some deterioration in asphalt and
paving.

Cement gross profit as a percentage of net sales was
32 percent in 2002, which is at the same level as in the
prior year. The following table summarizes our cement and
clinker production (in millions of tons) and our clinker
production capacity utilization rate:

|                             |  |             |       |      |  |  |       |  
|---------------------------- |  | ----------- | ----- | ---- |  |  | ----- | -
|                             |  |            
|                             |  | Years Ended
|                             |  | December 31
|                             |  |            
|                             |  | 2002        |       | 2001
|                             |  |             |       |     
|Cement production            |  |             | 13.52 |      |  |  | 13.60 |  
|                            
|                            
|                            
|                            
|Clinker production           |  |             | 11.97 |      |  |  | 11.72 |  
|                            
|                            
|                            
|                            
|Clinker capacity utilization |  |             | 88    | %    |  |  | 90    | %
|                             |  |             |       |      |  |  |       |  

Cement production was essentially in line with 2001, while
clinker production increased 2 percent. U.S. cement
production totaled 8.2 million tons, similar to 2001
levels, while Canadian cement production decreased 1 percent to
5.3 million tons. Clinker capacity increased with the
start-up of the new Sugar Creek plant, which was not fully
utilized for the entire year, resulting in a decrease in average
capacity utilization at U.S. plants to 91 percent in 2002 from
94 percent last year. Canadian clinker capacity utilization
decreased slightly to 85 percent in 2002 from
86 percent in 2001 largely the effect of a strike at our
Bath, Ontario plant during the first part of 2002.

Gypsum gross profit from operations as a percentage of net sales
was 4 percent in 2002, a turn-around from the negative gross
profit (minus 28 percent) from 2001. This improvement resulted
from to 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 $318.1 million
in 2002 compared with $296.1 million in 2001. As a
percentage of net sales, selling and administrative expenses
reached 10 percent in 2002, an increase of 1 percent. 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, net 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

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Other (Income) Expense, Net

Other (income) expense, net was $3.6 million in 2002
compared to $4.2 million in 2001. This includes among others,
$30.8 million divestment gains in 2002, 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 and an $8.3 million increase in
pension and other retirement benefits expenses.

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
non-recurring 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.

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 US, 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.

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),
which effect was partially offset by lower production costs.
While we do not foresee significant improvement in the western
U.S. highway paving market in 2003, it appears that Ontario is
poised to rebound from the low activity levels suffered in 2002.

Cement and
Cement-Related Products

In spite of lower sales volumes, cement operations reported only
a 1 percent decline in operating profits to $310.8 million,
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. Cement operating
margins of 26 percent were slightly higher than 2001. The
successful start up of our new plant near Kansas City and our
slag operations in Chicago and the conversion of the Exshaw,
Alberta plant to coal, should positively impact our cement
performance in 2003.

Gypsum

Our gypsum drywall operations reported an operating loss of
$16.3 million, $53.1 million better than last
years operating loss of $69.4 million. A combination
of strong volume growth, 24 percent including the Newark,
New Jersey facility, higher selling prices and improved
operating efficiency helped the gypsum

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Earnings Before Minority Interests, Interest and Income Taxes
(EBIT)

EBIT improved by $19.5 million or five percent to
$420.6 million in 2002 from $401.1 million in 2001.
The improved performance of our gypsum division helped offset
the decline in results of our construction materials and cement
businesses, resulting in an $11.2 million improvement in
profit from operations. 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 move is expected to save us
about $10 million per year in operating costs. 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.

EBIT from U.S. operations was $196.4 million,
$6.7 million lower than 2001. EBIT from Canadian operations
was $224.2 million, $26.2 million higher than 2001.

Interest Expense

Interest expense for the year was $52.8 million, down
$1.7 million 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.
With substantially all of our long-term construction projects
now completed, we do not expect to capitalize any significant
amounts of interest in 2003.

Interest Income

Interest income was $9.7 million, an increase of
$3.1 million from $6.6 million in 2001 as increased cash
from our Canadian operations generated higher interest income.

Income Taxes

Income tax expense decreased from $112.1 million in 2001 to
$100.8 million in 2002, including the recognition of
approximately $28 million in non-recurring US tax benefits
in the fourth quarter.

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 recorded
deferred tax asset will not be realized.

In addition, a favorable one-time 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 one-time tax benefits,
the effective tax rate for the full year was slightly over 34
percent.

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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 have improved in spite of
lower demand. Profitability and operating margins in the
aggregates business have been maintained and aggregate prices
have improved in a weaker market. Our gypsum business, while
still in a loss position, has significantly improved in terms of
volumes, prices and costs. We still need further improvement to
return the gypsum business to a profitable level, but we believe
that the programs we have put in place, including our decision
to idle the Wilmington plant, will enable us to achieve this
objective. 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.

General Outlook

Looking forward, at this time in the U.S. it appears that demand
for most of our products is likely to contract modestly in 2003.
While the housing market continues to perform well, commercial
construction is not expected to improve in 2003. Public works,
and in particular, road and highway construction is somewhat
uncertain. However, Congress and the U.S. president recently
approved fiscal 2003 TEA-21 funding in excess of
$31 billion. Budget constraints at the state level, are
likely to influence the actual level of public works activity
that is tendered in 2003. In Canada economic growth is expected
to continue to outpace the U.S. We believe that the Ontario
paving activity will recover from a weak 2002, which should
improve earnings in that sector. In 2003 the company intends to
maintain its emphasis on mitigating the effects of lower demand
through performance improvements including price improvements
wherever possible and further cost reduction measures.

In addition to likely weaker market conditions, two significant
factors will impact the comparability of our results in 2003.
First, we will not benefit from the $28 million of one-time
tax gains recorded in the fourth quarter of 2002 and our
effective tax rate should return to a more normal level of
approximately 34.5 percent in 2003. Secondly, our pension
expense is expected to increase by $25-30 million due to
both lower discount rates and a reduction in the expected return
on pension plan assets.

We expect to partly offset the adverse tax and pension impacts
with a number of positive items from our performance improvement
initiatives  such as improved efficiency, lower costs
and increased marketing focus. Some of the most significant
areas of expected performance improvement are the full year
benefits of our new cement plant near Kansas City, lower fuel
costs at the Exshaw, Alberta plant and the impact of the
Wilmington plant idling. In addition, our SG&A expenses
should be favorably impacted by the absence of approximately
$10 million in reorganization and relocation costs we
incurred in 2002.

YEAR ENDED DECEMBER 31, 2001

Net Sales

Our net sales increased 19 percent in 2001 to
$3,323.0 million from $2,787.6 million in 2000. U.S.
net sales were $2,023.8 million, an increase of
$119.4 million or six percent. Sales volumes increased in
all main product lines due to strong demand for our products and
acquisitions. Additionally, aggregate and ready-mixed concrete
selling prices increased as well. These increases were partly
offset by lower average selling prices for gypsum drywall and
cement. Despite the devaluation in the Canadian dollar, Canadian
net sales improved

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Construction
Materials

Net sales from construction materials operations reached a new
high of $2,073.8 million, a 32 percent increase from
2000, reflecting improved sales volumes and average selling
prices in both the U.S. and Canada. Overall ready-mixed concrete
shipments were 11.5 million cubic yards in 2001, seven
percent higher than 2000, and aggregate sales volumes were
120.9 million tons, 29 percent higher than 2000.
Asphalt and paving sales reached $740.0 million, up
97 percent from 2000. The Warren Paving & Materials
Group operations acquired in December 2000 and other recent
acquisitions accounted for most of the improvement in shipments
compared to last year. In the U.S., net sales increased by
$90.1 million, or 10 percent, to $983.6 million.
Ready-mixed concrete sales volumes increased by eight percent
mainly due to strong demand and the acquisition, in
February 2001, of Pine Hill Materials Corp. and American
Readi-Mix Concrete Corporation, partially offset by lower sales
volumes in Wisconsin where we sold our operations in the fourth
quarter of 2001. Average selling prices for ready-mixed concrete
in the U.S. increased by four percent due to implemented price
increases and increased sales of higher-value ready-mixed
concrete. Aggregate sales volumes in the U.S. increased by
13 percent due to the impact from recent acquisitions and a
three percent increase in our heritage operations. Aggregate
average selling prices increased by one percent compared to
2000. In Canada, net sales increased by $408.0 million, or
60 percent, to $1,090.2 million. Ready-mixed concrete
sales volumes in Canada increased six percent from 2000 levels
primarily due to increased demand brought on by the strength of
the Toronto economy and the absence of the effect of a
ready-mixed concrete drivers strike in Toronto in 2000.
Ready-mixed concrete average selling prices increased by three
percent in local currency, however, due to the devaluation of
the Canadian dollar, average selling prices declined one percent
in U.S. dollars. The increase in average selling price resulted
from general price increases and increased sales of higher value
ready-mixed concrete. Canadian aggregate sales volumes were 47
percent ahead of 2000 levels mainly due to the merger with the
Warren Paving & Materials Group at the end of 2000.
Excluding the impact of the Warren operations, aggregate sales
volumes increased six percent. Aggregate average selling prices
increased six percent in local currency, however, due to the
devaluation of the Canadian dollar, the effective increase in
U.S. dollars was reduced to two percent. The average selling
price was also favorably impacted by product and customer mix.
Asphalt and paving sales increased 300 percent to
$453.3 million, as heritage operations increased
16 percent with the Warren Paving & Materials Group
accounting for the balance of the improvement.

Cement and
Cement-Related Products

Net sales from cement operations increased by two percent to
$1,238.4 million from $1,215.4 million in 2000 due to
increased sales volumes. Cement sales volumes totaled
14.4 million tons, a two percent increase from 2000, while
the average selling price per ton in U.S. dollars, net of
freight costs (net realization), declined slightly.
U.S. net sales increased by $15.6 million to
$935.0 million, as the benefit from mild weather in the
fourth quarter led to a two percent increase in cement
shipments. Net realization in the U.S. declined one percent due
to competitive pressures in certain markets and product and
customer mix. Canadian cement net sales increased three percent
to $303.4 million from $296.0 million in 2000. Cement
shipments in Canada increased by four percent primarily due to
the strong economy in Ontario and favorable weather in the
fourth quarter. Net realization rose by four percent in local
currency, however, due to the devaluation of the Canadian
dollar, the effective increase in U.S. dollars was reduced to
one percent. The increase in net realization resulted from
annual price increases and improved product and market mix. Also
included in sales from our cement operations are sales of
cement-related products of $113.6 million, a seven percent
increase from 2000, representing 3.8 million tons of slag
and fly ash.

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Gypsum

Net sales from gypsum operations increased by 14 percent to
$152.4 million from $134.1 million in 2000. Drywall
sales volumes increased 77 percent while average selling
prices declined nearly 42 percent compared to 2000. The
volume increase reflects sales of 404 million square feet
of drywall from our new Palatka, Florida plant, which started
production in January 2001, as well as the ramp-up of
production at our Silver Grove, Kentucky plant, where sales
volumes increased 447 million square feet over last year.
Drywall prices continued the trend from 2000 and deteriorated
through the first half of 2001 due to increased industry
capacity. We implemented three price increases in the second
half of the year that have held fairly well; however, prices
softened slightly late in the fourth quarter, following the
normal seasonal pattern.

Gross Profit and Cost of Goods Sold

Gross profit as a percentage of net sales decreased to
22 percent from 25 percent in 2000, primarily reflecting a
significant decline in gypsum results.

Construction materials gross profit as a percentage of net sales
declined slightly to 17 percent in 2001 from
18 percent in 2000 due to a change in our product portfolio
to more asphalt and paving, which has lower margins, arising
from the December 2000 merger with the Warren Paving &
Materials Group.

Cement gross profit as a percentage of net sales decreased
slightly to 32 percent compared to 33 percent in 2000. The
average cash production cost per ton of cement in 2001 was equal
to 2000 as lower fixed costs resulting from continued emphasis
on performance improvement in our production facilities were
offset by higher variable costs, primarily energy. The cash
production cost per ton increased slightly in the U.S. due to
purchased clinker at our Sugar Creek, Missouri plant, but were
offset by operating efficiencies at our Canadian plants. The
following table summarizes our cement and clinker production (in
millions of tons) and the clinker production capacity
utilization rate:

|                             |  |             |       |      |  |  |       |  
|---------------------------- |  | ----------- | ----- | ---- |  |  | ----- | -
|                             |  |            
|                             |  | Years Ended
|                             |  | December 31
|                             |  |            
|                             |  | 2001        |       | 2000
|                             |  |             |       |     
|Cement production            |  |             | 13.60 |      |  |  | 13.53 |  
|                            
|                            
|                            
|                            
|Clinker production           |  |             | 11.72 |      |  |  | 11.93 |  
|                            
|                            
|                            
|                            
|Clinker capacity utilization |  |             | 90    | %    |  |  | 92    | %
|                             |  |             |       |      |  |  |       |  

Cement production was essentially in line with 2000, while
clinker production declined two percent. U.S. cement production
totaled 8.2 million tons, down one percent, while Canadian
cement production increased four percent to 5.4 million
tons. Clinker capacity utilization at U.S. plants declined to
94 percent from 96 percent due to slightly reduced
production at several plants. Canadian clinker capacity
utilization decreased slightly to 86 percent from
87 percent largely the result of decreased production at
our Exshaw, Alberta plant where we extended the normal winter
shutdown through the first quarter 2001 to help mitigate
exorbitant gas prices.

Gypsum operations reflect a negative gross profit as a
percentage of net sales of 28 percent, a decrease of
33 percentage points from 2000, due to the erosion of
selling prices during 2001, costs associated with the start-up
of a paper mill joint venture and the new production facility in
Palatka, Florida, and increased energy costs.

Selling and Administrative Expenses

Selling and administrative expenses were $296.1 million in
2001 compared with $269.4 million in 2000. The increase
resulted from growth in our construction materials operations
and costs associated with the implementation of the shared
service center for our construction materials group. However,
selling and administrative expenses as a percentage of net sales
decreased to 8.9 percent from 9.7 percent in 2000, as
efficiency programs helped to mitigate inflationary cost
increases.

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Goodwill Amortization

Amortization of goodwill was $20.6 million in 2001 and
$17.2 million in 2000. The increase reflects amortization
of goodwill resulting from the merger with the Warren Paving
& Materials Group.

Income from Managed Assets

Income from Managed Assets, net amounts to $5.6 million in
2001. This represents the Blue Circle North America management
fee which started in July 2001, when the management agreement
related to the Managed Assets took effect. Other direct and
allocated cost and expenses of $4.1 million related to the
Managed Assets were fully reimbursed under the terms of the
management agreement.

Other (Income) Expense, Net

Key categories (with amounts for 2001 and 2000, respectively)
include gains on sale of fixed assets ($8.0 million and
$9.5 million), gains on divestitures of businesses
($23.2 million and $6.3 million), loss on the sale of
receivables under our securitization program ($7.1 million
and $3.0 million), losses on natural gas commodity contracts
($8.1 million and zero), losses or gains for pension and
other postretirement benefit expense ($6.9 million loss and
$4.1 million gain), equity income ($2.8 million and
$6.9 million), expenses for restructuring ($7.1 million and
zero), foreign exchange transaction gains or losses
($0.3 million loss and $2.5 million gain), and other
miscellaneous gains or losses ($8.7 million loss and
$2.7 million net gain). Divestment gains in 2001 related
primarily to the disposal of our joint venture interest in
Centennial Concrete Pipe & Products and non-strategic
ready-mixed concrete businesses in Milwaukee, Wisconsin. The
loss on the natural gas forward contracts resulted from
recording a liability on the fair value of the commodity
contracts in accordance with SFAS No. 133 due to a decline
in forward gas prices below the fixed contractual amounts.
Pension and other post-retirement benefits expense increased by
$11 million mainly because of special termination benefits
of $4.6 million and a decrease in the discount rate for the
related liabilities. Restructuring costs in 2001 relate to the
costs associated with reorganizing the cement business in the
second half of 2001.

Performance by Line of Business

Construction
Materials

Operating profit from construction materials operations (before
corporate and unallocated expenses) was $235.6 million,
$43.5 million higher than 2000. This increase was driven by
$29.0 million of contribution from the Warren operations,
which were not part of Lafarge in 2000, positive contributions
from other recent acquisitions and improvements in our heritage
operations. Ready-mixed concrete and aggregate sales volumes and
average selling prices both increased compared to 2000. These
items were partially offset by a change in our product portfolio
as the paving business, which operates at lower margins,
represents a more significant portion of our total portfolio.
U.S. operations earned $131.2 million, $15.0 million
better than 2000. This increase was due to higher ready-mixed
concrete and aggregate sales volumes of eight percent and
13 percent, respectively, and higher average selling prices
for ready-mixed concrete and aggregate of four percent and one
percent, respectively. These improvements were partially offset
by increased rental expense and repair and maintenance costs.
Despite a $4.5 million reduction in earnings due to the
impact of the weaker Canadian dollar, the Canadian operations
earned $104.4 million, $28.5 million better than 2000.
The increased earnings were due to higher ready-mixed concrete
and aggregate sales volumes of six percent and 47 percent,
respectively, and higher average selling prices of three percent
and six percent, respectively, in local currency. However, due
to the devaluation of the Canadian dollar, ready-mixed concrete
average selling prices declined one percent in U.S. dollars and
aggregate average selling prices increased only two percent in
U.S. dollars. These items were partially offset by increased
repair and maintenance costs.

Cement and
Cement-Related Products

Operating profit from cement operations (before corporate and
unallocated expenses) was $313.9 million, a
$4.4 million or one percent decline from 2000. The decrease
resulted primarily from a decline in the Canadian dollar and
start-up-related costs for the new production line at our Sugar
Creek, Missouri plant.

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Gypsum

Our gypsum drywall operations reported an operating loss of
$69.4 million, $51.4 million higher than last
years operating loss of $18.0 million. The decrease
in profitability was due to depressed drywall prices, increased
energy costs, higher fixed costs associated with the start-up of
a paper mill joint venture and increased operating costs
associated with the start-up of the new Palatka, Florida drywall
plant. Our Silver Grove and Palatka drywall plants have both
consistently improved their efficiency throughout the year and
costs have progressively come down in both plants. In the fourth
quarter, the Silver Grove plant operated at a modest profit
while the Palatka plant was slightly below the breakeven level.

Earnings Before Minority Interests, Interest and Income Taxes
(EBIT)

In 2001, EBIT was $401.1 million, a $29.6 million or
seven percent decline from 2000. This drop in profitability was
affected by a $51.4 million decline in our gypsum
segments results as well as approximately $16 million
of non-recurring costs and a $8.9 million impact from a
decline in the value of the Canadian dollar. These were
partially offset by the $24.1 million gains on sale of
assets, including the sale of our joint venture interest in
Centennial Concrete Pipe & Products and certain
non-strategic ready-mixed concrete businesses in Wisconsin. The
non-recurring costs consisted of $8 million of natural gas
derivative expense that is expected to reverse in 2002 and $8
million of fixed costs related to the new Sugar Creek, Missouri
cement plant scheduled to start-up in the first half of 2002.
EBIT in the U.S. was $203.1 million, $72.8 million lower
than 2000. EBIT from Canadian operations was
$198.0 million, $43.2 million higher than 2000 despite
a devaluation in the Canadian dollar which had an impact of
$8.9 million.

Interest Expense

Interest expense increased by $3.9 million in 2001 to
$54.5 million primarily due to higher debt levels in 2001.
Interest capitalized was $11.1 million and $11.7 million in
2001 and 2000, respectively.

Interest Income

Interest income decreased $17.1 million in 2001, primarily
from the absence this year of the favorable impact on last
years results of the $11.5 million interest receivable
from the Canadian Customs and Revenue Agency recorded from the
settlement of transfer pricing and cost sharing issues for the
1986 to 1994 calendar years (see Note 16 Income
Taxes in the Notes to the Consolidated Financial
Statements for further information). The remaining decline
relates primarily to a decrease in short-term investments in
Canada (see Managements Discussion of Cash Flows) and a
reduction in interest rates.

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Income Taxes

Income tax expense decreased from $146.5 million in 2000 to
$112.1 million in 2001 mostly from lower 2001 U.S. pre-tax
income and the impact of lower federal and provincial tax rates
in Canada. The 2001 income tax benefited from a one-time
adjustment of approximately Canadian $23 million
(approximately U.S. $15 million) to reduce deferred tax
balances to reflect the reduction in Canadian tax rates. We
expect the multi-year relief plan to positively impact earnings
from Canadian operations going forward. Excluding this one-time
adjustment, our effective income tax rate increased to
36.8 percent for 2001 compared to 36.3 percent in 2000
due to the impact of non-tax deductible dividends paid to
minority interests in 2001.

Net Income

We reported net income of $234.1 million in 2001 compared
with $257.4 million in 2000. The major reason for the decline in
profitability was the losses incurred in our gypsum operations,
as well as non-recurring charges (consisting of a loss on
natural gas derivatives and fixed costs related to the new Sugar
Creek, Missouri cement plant which commenced production in the
first half of 2002) and a decline in the Canadian dollar.

OTHER FACTORS AFFECTING THE COMPANY

Critical Accounting Policies

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 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 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. 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 sum of the
expected future cash flows. 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 as
follows:

|                            |  |            |     |                |  |      |      |      |  |      |      |      |  |  |      |   |  |  |     |   |  |  |      |  
|--------------------------- |  | ---------- | --- | -------------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | --- | - |  |  | ---- | -
|                            |  |            |     |               
|                            |  | U.S. Plans |     | Canadian Plans
|                            |  |            |     |               
|                            |  | 2002       |     | 2001           |  | 2000 |      | 2002 |  | 2001 |      | 2000
|                            |  |            |     |                |  |      |      |      |  |      |      |     
|Long-Term Asset Return Rate |  |            | 8.5 | %              |  |      | 9.0  | %    |  |      | 9.0  | %    |  |  | 8.5  | % |  |  | 9.0 | % |  |  | 9.0  | %
|                           
|                           
|                           
|                           
|Liability Discount Rate     |  |            | 6.8 | %*             |  |      | 7.75 | %    |  |      | 7.75 | %    |  |  | 6.35 | % |  |  | 6.5 | % |  |  | 6.95 | %



---



|  |                                                                                      
|- | -------------------------------------------------------------------------------------
|* | Discount rate for other postretirement benefits for 2002 was
    established at 7.0%.

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

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The 2002 pension plan and other postretirement benefit expenses
are impacted by the year-end 2001 assumptions for the discount
rate and the return rate on assets (pension plan only). If the
2001 discount rate assumption had been lowered by one percent,
2002 pension plan and other postretirement benefit expenses
would have increased by approximately $10 million. If the
2001 asset returns rate assumption had been lowered by one
percent, 2002 pension plan expenses would have increased by
approximately $7 million.

We expect our pension plan and other postretirement benefit
expenses to increase by $25-30 million from 2002 to 2003,
and our minimum required cash contribution to defined benefit
pension plans to increase by $15-20 million, due to both
lower discount rates and a reduction in the expected return of
pension plan assets.

The Accumulated Benefit Obligation is also impacted by the 2002
discount rate. The impact of decreasing the discount rate
assumption by one percent as of December 31, 2002 would
have been to increase the Accumulated Benefit Obligation as of
December 31, 2002 by approximately $80 million, and
would have increased the Additional Minimum Pension Liability
amount by approximately $75 million.

The allocation of pension plan assets as of December 31,
2002 is as follows:

|                      |  |                   |       |                       |  |  |       | 
|--------------------- |  | ----------------- | ----- | --------------------- |  |  | ----- | 
|                      |  | U.S. Master Trust |       | Canadian Master Trust
|                      |  |                   |       |                      
|U.S. equity           |  |                   | 44.8% |                       |  |  | 32.5% | 
|                     
|                     
|                     
|                     
|Non-U.S. equity       |  |                   | 25.2% |                       |  |  | 22.8% | 
|                     
|                     
|                     
|                     
|Domestic fixed income |  |                   | 24.8% |                       |  |  | 43.6% | 
|                     
|                     
|                     
|                     
|Cash                  |  |                   | 5.2%  |                       |  |  | 1.1%  | 
|                      |  |                   |       |                       |  |  |       | 
|Total                 |  |                   | 100%  |                       |  |  | 100%  | 

Impairment or Disposal of Long-Lived Assets We account for 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 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 the fair value of the assets. Assets to be
disposed of are reflected at the lower of their carrying amount
or fair value less cost to sell.

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 may be capitalized. Other
environmental costs are expensed when incurred.

Revenue Recognition Revenue from the sale of
cement, cement-related, 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 the
seller for shipping and handling are classified as Cost of
goods sold.

Derivative Instruments and Hedging Activities
We use commodity-based derivatives to manage our exposure to
commodity price fluctuations. We periodically enter into forward
purchase agreements for a

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When the normal purchases or sales exception is not applied, the
derivatives are recognized on the balance sheet at their fair
value. We may execute derivatives for purposes of hedging
various commodity price and financial exposures. For those
derivatives that qualify for hedge accounting, on the date the
derivative contract is entered into we designate the derivative
as a hedge and document the hedge relationship as either a fair
value or cash flow hedge in accordance with the requirements of
SFAS No. 133. We formally document all relationships
between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking various
hedge transactions. This process includes linking all
derivatives that are designated as fair value, cash flow or
foreign currency hedges to specific assets and liabilities on
the balance sheet or to specific firm commitments or forecasted
transactions. We also formally assess, both at the hedge
relationships inception and on an ongoing basis, whether
the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of
hedged items. When it is determined that a derivative is not
highly effective as a hedge or that it has ceased to be a highly
effective hedge, we discontinue hedge accounting prospectively.
We will only apply hedge accounting to those relationships that
have been properly designated and documented and are anticipated
to be highly effective.

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.

Environmental Matters

Our operations, like those of our competitors, are subject to
federal, state, provincial and local environmental laws and
regulations that impose liability for cleanup or remediation of
environmental pollution and hazardous waste, require pollution
control and prevention measures to be undertaken and require
certain permits and approvals for us to conduct many of our
operations. As a consequence, we maintain an environmental
program designed to monitor and control environmental matters
relevant to us, including changes in applicable laws and
regulations as well as instances where corrective action may be
needed. We recruit, employ and train personnel experienced in
environmental matters who are responsible for identifying
developments relating to environmental matters and bringing them
to managements attention, including emergency reporting
and quarterly reporting of environmental matters. We routinely
audit our properties to determine whether environmental
remediation may be required, the amount of any necessary related
provisions, the status of remedial activities undertaken and
whether improvements may be required to meet current and future
environmental requirements.

We may capitalize environmental expenditures that extend the
life, increase the capacity, improve the safety or efficiency of
assets or that are incurred to mitigate or prevent future
environmental contamination. We expense other environmental
costs when incurred. Our environmental capital expenditures and
expenses were not material for the years ended December 31,
2002, 2001 and 2000 and we do not believe that the ultimate
resolution of our known environmental contingencies, for which
we have recorded provisions for

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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.
The changes in working capital are discussed in
Managements Discussion of Financial Position.

The non-cash adjustment for depreciation, depletion and
amortization in 2002 decreased $12.0 million due to the
absence of goodwill amortization this year ($20.6 million)
and the change in useful lives of our cement plants (reduction
of $8.5 million in depreciation expense), partially offset
by increased depreciation related to recent capital expenditures
including the new Sugar Creek cement plant and the acquired
Newark gypsum plant. The $25.9 million increase in depreciation,
depletion and amortization in 2001 was due to higher capital
expenditures and acquisitions. Gains on sale of assets increased
$11.1 million in 2002 of which $7.6 million was
attributable to the increase in gains on divested businesses.
The adjustment for Other non-cash charges and (credits),
net increased to $34.7 million in 2002 from negative
$11.2 million in 2001, mainly related to the provision of
$26.0 million related to the idling of the Wilmington plant
and the increase in pension and other post-retirement benefit
expenses.

Cash Flows from Investing

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). Capital
expenditures are expected to total approximately
$300 million to $350 million in 2003 excluding
acquisitions. We intend to invest in projects that maintain or
improve the performance of our plants as well as in acquisition
opportunities that we believe will enhance our competitive
position in the U.S. and Canada. 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.

In 2001, net cash used for investing decreased
$180.8 million compared to 2000. Capital expenditures
decreased $98.5 million in 2001 largely because ongoing
development projects, such as the construction of the

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Cash Flows from Financing

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 and have a
syndicated, committed, five-year revolving credit facility with
eleven participants totaling $300 million. At December 31,
2002 and 2001, no amounts were outstanding under these credit
facilities.

During 2000, we entered into 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, 2002 and 2001,
totaled $143.4 million and $116.5 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.

MANAGEMENTS DISCUSSION OF FINANCIAL POSITION

The Consolidated Balance Sheets summarize our financial position
at December 31, 2002 and 2001.

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 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, 2001 as a result of
a rise in the value of the Canadian dollar relative to the U.S.
dollar. At December 31, 2002, the U.S. dollar equivalent of
a Canadian dollar was $0.64 versus $0.63 at December 31,
2001. Based on 2002 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, current
portion of long-term debt and the impact of exchange rate
changes ($3.0 million), increased $38.9 million from
December 31, 2001 to December 31, 2002. Receivables,
net (including Due from affiliates), excluding an
exchange rate impact of $3.4 million, decreased
$64.5 million primarily due to decreased levels of sales in
the fourth quarter of 2002 compared to 2001 and an increase in
receivables sold under our securitization program. Inventories
increased $20.7 million, excluding the exchange rate impact
of $2.0 million, due to decreased levels of sales in the
fourth quarter of 2002 compared to 2001 and additional inventory
in Gypsum related to the acquisition of the Newark, New Jersey
plant and an increase in raw material sourcing. The decrease of
$54.9 million in accounts payable and accrued liabilities,
excluding the exchange rate impact of $2.4 million,
resulted mainly from lower

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Net property, plant and equipment increased $32.0 million
during 2002, excluding the exchange rate impact of
$9.1 million, primarily due to the Continental Gypsum
acquisition and the expansion of the Sugar Creek, Missouri
cement plant and the construction of slag production and
grinding operations in Chicago. Capital expenditures and
acquisitions of fixed assets totaled $279.4 million in 2002.
Goodwill relates primarily to the Redland, Warren and Presque
Isle transactions.

Our capitalization is summarized in the following table:

|                                                       |                      |             |      |       |   |  |      |       |  
|------------------------------------------------------ | -------------------- | ----------- | ---- | ----- | - |  | ---- | ----- | -
|                                                       |                      |            
|                                                       |                      | December 31
|                                                       |                      |            
|                                                       |                      | 2002        |      | 2001 
|                                                       |                      |             |      |      
|Long-term debt                                         |                      |             | 18.8 | %     |   |  | 20.6 | %    
|                                                      
|                                                      
|                                                      
|                                                      
|Other long-term liabilities and
    minority interests |                      |             | 20.8 | %     |   |  | 18.5 | %    
|                                                      
|                                                      
|                                                      
|                                                      
|Shareholders equity                                   |                      |             | 60.4 | %     |   |  | 60.9 | %    
|                                                       |                      |             |      |       |   |  |      |      
|                                                       | Total capitalization |             |      | 100.0 | % |  |      | 100.0 | %
|                                                       |                      |             |      |       |   |  |      |      

No major changes in our capitalization occurred for the year
ended December 31, 2002 as compared to December 31,
2001. The increase in the percentage of Other long-term
liabilities and minority interests can mainly be
attributed to the increase in the minimum pension liability.

Our summary of contractual obligations as of December 31,
2002 is as follows (in thousands):

|                              |  |       |           |           |  |           |         |           |  |          |         |  |  |   |        |  |  |   |         | 
|----------------------------- |  | ----- | --------- | --------- |  | --------- | ------- | --------- |  | -------- | ------- |  |  | - | ------ |  |  | - | ------- | 
|                              |  |       |           | Less than |  |           |         |           |  |         
|                              |  | Total |           | one year  |  | 2-3 years |         | 4-5 years |  | >5 years
|                              |  |       |           |           |  |           |         |           |  |         
|Long-term debt                |  | $     | 807,168   |           |  | $         | 136,120 |           |  | $        | 254,305 |  |  | $ | 8,668  |  |  | $ | 408,075 | 
|                             
|                             
|                             
|                             
|Minority interest obligations |  |       | 111,516   |           |  |           |         |           |  |          | 111,516 |  |  |   |        |  |  |   |         | 
|                             
|                             
|                             
|                             
|Operating lease               |  |       | 268,600   |           |  |           | 43,500  |           |  |          | 59,200  |  |  |   | 40,200 |  |  |   | 125,700 | 
|                             
|                             
|                             
|                             
|Purchase Obligations          |  |       | 233,206   |           |  |           | 34,089  |           |  |          | 37,086  |  |  |   | 34,029 |  |  |   | 128,002 | 
|                              |  |       |           |           |  |           |         |           |  |          |         |  |  |   |        |  |  |   |         | 
|Total                         |  | $     | 1,420,490 |           |  | $         | 213,709 |           |  | $        | 462,107 |  |  | $ | 82,897 |  |  | $ | 661,777 | 
|                              |  |       |           |           |  |           |         |           |  |          |         |  |  |   |        |  |  |   |         | 

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 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.

In 2001, shareholders equity increased by
$104.9 million, mainly from net income of
$234.1 million and the exercise of stock options for
$16.3 million. These were partially offset by dividend
payments, net of reinvestments, of $39.8 million, a change
in the foreign currency translation adjustment of $65.7 million
(resulting from a six percent decrease in the value of the
Canadian dollar relative to the U.S. dollar), share repurchases
of $29.0 million and the recognition of a
$13.2 million minimum pension liability, net of income
taxes.

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

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The following table reflects the range of high and low closing
prices of Common Stock by quarter for 2002 and 2001 as quoted on
the New York Stock Exchange:

|                  |      |                |   |        |  |        |   |        |  |  |   |       |  |  |   |       | 
|----------------- | ---- | -------------- | - | ------ |  | ------ | - | ------ |  |  | - | ----- |  |  | - | ----- | 
|                  |      |               
|                  |      | Quarters Ended
|                  |      |               
|                  |      | Mar 31         |   | Jun 30 |  | Sep 30 |   | Dec 31
|                  |      |                |   |        |  |        |   |       
|2002 Stock Prices |      |                |   |        |  |        |   |        |  |  |   |       |  |  |   |      
|                 
|                 
|                 
|                 
|                  | High |                | $ | 43.24  |  |        | $ | 44.70  |  |  | $ | 34.77 |  |  | $ | 32.85 | 
|                 
|                 
|                 
|                 
|                  | Low  |                |   | 37.50  |  |        |   | 35.15  |  |  |   | 28.40 |  |  |   | 26.06 | 
|2001 Stock Prices |      |                |   |        |  |        |   |        |  |  |   |       |  |  |   |      
|                 
|                 
|                 
|                 
|                  | High |                | $ | 32.90  |  |        | $ | 34.87  |  |  | $ | 37.75 |  |  | $ | 39.00 | 
|                 
|                 
|                 
|                 
|                  | Low  |                |   | 22.69  |  |        |   | 29.00  |  |  |   | 31.98 |  |  |   | 33.74 | 

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

|                                  |  |                         |        |      |  |      |        |   |  |   |         |  
|--------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                  |  |                        
|                                  |  | Years Ended December 31
|                                  |  |                        
|                                  |  | 2002                    |        | 2001 |  | 2000
|                                  |  |                         |        |      |  |     
|Common equity dividends           |  | $                       | 43,815 |      |  | $    | 43,290 |   |  | $ | 43,986  |  
|                                 
|                                 
|                                 
|                                 
|Less dividend reinvestments       |  |                         | (4,664 | )    |  |      | (3,527 | ) |  |   | (25,324 | )
|                                  |  |                         |        |      |  |      |        |   |  |   |         |  
|Net cash dividend payments        |  |                         | 39,151 |      |  |      | 39,763 |   |  | $ | 18,662  |  
|                                  |  |                         |        |      |  |      |        |   |  |   |         |  
|Common equity dividends per share |  | $                       | 0.60   |      |  | $    | 0.60   |   |  | $ | 0.60    |  
|                                  |  |                         |        |      |  |      |        |   |  |   |         |  

There have been no changes in the dividend rate since
October 1998.

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 1999, net sales increased by eight percent primarily due to
favorable economic conditions supporting demand in most segments
and increased average selling prices. 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 recent 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 2 percent as
decreased volumes in most of our product lines, except for
Gypsum, were only partially off-set 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 selling and
administrative expenses, productivity and energy costs. 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.

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Capital expenditures and acquisitions, excluding the Redland
assets that were acquired for $690 million in 1998 but were
accounted for similar to a pooling of interests, totaled
$2,064.6 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; acquisition of a
cement plant and related limestone quarry; 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 for substitute fuels and raw materials; the
building and purchasing of additional 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.

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 and increasing our
use of alternative fuels. We occasionally use commodity-based
derivatives to manage our exposure to commodity price
fluctuations. We execute these commodity-based derivatives 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, 2002 consolidated net assets and the 2002
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.

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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, 2002 and for the year then ended,
approximately 45 percent of our consolidated net assets and
53 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 $97 million and $14 million, net of any
other impact, respectively.

Transaction Risks We are subject to limited
foreign currency exchange risks as a consequence of commercial
exposures as a result of purchase and sale transactions in
currencies other than our operating currencies. Our exposure to
changes in foreign currency exchange risks related to
transactions is insignificant.

Interest Rate Risk

We are exposed to interest rate risk exposure through our debt.
In the past we have entered into interest rate forward
agreements to reduce our exposure to market risks from changing
interest rates related to anticipated debt issuances. These
contracts were terminated in 1998 when the hedged forecasted
debt was issued, and any resulting hedging gains and losses from
these contracts are reported as a component of the carrying
amount of the hedged debt and are being recognized as a yield
adjustment over the remaining debt terms. At December 31,
2002, we had no derivative instruments related to interest rates.

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. We maintain risk management
control systems to monitor interest rate cash flow risk
attributable to both our outstanding or forecasted debt
obligations. The risk management control systems involve the use
of analytical techniques, including cash flow sensitivity
analysis, to estimate the expected impact of changes in interest
rates on our future cash flows.

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, 2002, 79 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, 2002, approximately 21 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 2002 consolidated
net income of approximately $1 million, net of any other impact.

49



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##### Table of Contents






Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND

FINANCIAL STATEMENT SCHEDULE


|                                   |                                                                                                                           |      |  |    | 
|---------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                                   |                                                                                                                           | Page
|                                   |                                                                                                                           |     
|Financial Report:                  |                                                                                                                           |      |  |   
|                                  
|                                  
|                                  
|                                  
|                                   | Report of Independent Auditors, Ernst &
    Young LLP                                                                     |      |  | 51 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Report of Independent Public Accountants, Arthur
    Andersen LLP                                                         |      |  | 52 | 
|                                  
|                                  
|                                  
|                                  
|                                  
|Consolidated Financial Statements: |                                                                                                                           |      |  |   
|                                  
|                                  
|                                  
|                                  
|                                   | Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                                          |      |  | 53 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Consolidated Statements of Income for the Years
    Ended December 31, 2002, 2001 and 2000                                |      |  | 54 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Consolidated Statements of Shareholders
    Equity for the Years Ended December 31, 2002, 2001
    and 2000              |      |  | 55 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Consolidated Statements of Comprehensive Income
    for the Years Ended December 31, 2002, 2001 and 2000                  |      |  | 56 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2002, 2001 and 2000                            |      |  | 57 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Notes to Consolidated Financial Statements                                                                                |      |  | 58 | 
|                                  
|                                  
|                                  
|                                  
|                                  
|Financial Statement Schedule:      |                                                                                                                           |      |  |   
|                                  
|                                  
|                                  
|                                  
|                                   | Schedule II  Consolidated
    Valuation and Qualifying Accounts for the Years Ended
    December 31, 2002, 2001 and 2000 |      |  | 89 | 
|                                  
|                                   | All other schedules are omitted because they are
    not applicable.                                                      |      |  |    | 

50



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders



We have audited the accompanying consolidated balance sheet of
Lafarge North America Inc. (a Maryland corporation) and
subsidiaries as of December 31, 2002, and the related
consolidated statement of income, shareholders equity,
comprehensive income and cash flows for the year ended
December 31, 2002. Our audit also included Financial
Statement Schedule II for the year ended December 31, 2002
on page 89 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 audit. The consolidated financial
statements and financial statement schedule of Lafarge North
America Inc. as of December 31, 2001 and for each of the
two years in the period then ended 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 audit 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 audit provides a reasonable basis for our
opinion.

In our opinion, the 2002 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, 2002, and the results of their operations and
their cash flows for the year ended December 31, 2002, in
conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial
statement schedule for the year ended December 31, 2002,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.

As discussed above, the financial statements of Lafarge North
America, Inc. and subsidiaries for the years ended
December 31, 2001 and 2000 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 and 2000 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 and 2000 in Note 5 are
appropriate. However, we were not engaged to audit, review, or
apply any procedures to the 2001 or 2000 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 or 2000 financial statements taken as a
whole.

As discussed in Note 1 to the consolidated financial statements,
effective January 1, 2002, the company adopted Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets.



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

McLean, Virginia



51



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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 | 

52



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |           |          |           | 
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ---------------------------------------------- | --------- | -------- | --------- | --------- | --------- | -------- | --------- | 
|                                                                |                                                                                                                                       |                             
|                                                                |                                                                                                                                       | December 31                 
|                                                                |                                                                                                                                       |                             
|                                                                |                                                                                                                                       | 2002                         |                                                | 2001     
|                                                                |                                                                                                                                       |                              |                                                |          
|Assets                                                          |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|Cash and cash equivalents                                       |                                                                                                                                       | $                            | 351,110                                        |           |          | $         | 202,446   |          
|                                                               
|                                                               
|                                                               
|                                                               
|Short-term investments                                          |                                                                                                                                       |                              | 22,260                                         |           |          |           | 23,264    |          
|                                                               
|                                                               
|                                                               
|                                                               
|Receivables, net                                                |                                                                                                                                       |                              | 386,183                                        |           |          |           | 492,271   |          
|                                                               
|                                                               
|                                                               
|                                                               
|Due from affiliates                                             |                                                                                                                                       |                              | 48,662                                         |           |          |           | 3,685     |          
|                                                               
|                                                               
|                                                               
|                                                               
|Inventories                                                     |                                                                                                                                       |                              | 373,479                                        |           |          |           | 350,860   |          
|                                                               
|                                                               
|                                                               
|                                                               
|Deferred tax assets                                             |                                                                                                                                       |                              | 42,369                                         |           |          |           | 54,224    |          
|                                                               
|                                                               
|                                                               
|                                                               
|Other current assets                                            |                                                                                                                                       |                              | 34,577                                         |           |          |           | 57,258    |          
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                                |                                                                                                                                       |                              | Total current assets                           |           |          | 1,258,640 |           |           |          | 1,184,008 | 
|                                                               
|                                                               
|                                                               
|                                                               
|Property, plant and equipment, net                              |                                                                                                                                       |                              | 2,236,255                                      |           |          |           | 2,195,114 |          
|                                                               
|                                                               
|                                                               
|                                                               
|Goodwill, net                                                   |                                                                                                                                       |                              | 471,495                                        |           |          |           | 474,401   |          
|                                                               
|                                                               
|                                                               
|                                                               
|Other assets                                                    |                                                                                                                                       |                              | 267,838                                        |           |          |           | 264,078   |          
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                                |                                                                                                                                       |                              | Total Assets                                   |           | $        | 4,234,228 |           |           | $        | 4,117,601 | 
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|Liabilities and Shareholders
    Equity                        |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|Accounts payable and accrued liabilities                        |                                                                                                                                       | $                            | 502,482                                        |           |          | $         | 555,496   |          
|                                                               
|                                                               
|                                                               
|                                                               
|Income taxes payable                                            |                                                                                                                                       |                              | 22,139                                         |           |          |           | 72,640    |          
|                                                               
|                                                               
|                                                               
|                                                               
|Short-term borrowings and current portion of
    long-term debt |                                                                                                                                       |                              | 136,120                                        |           |          |           | 210,447   |          
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                                |                                                                                                                                       |                              | Total current liabilities                      |           |          | 660,741   |           |           |          | 838,583   | 
|                                                               
|                                                               
|                                                               
|                                                               
|Long-term debt                                                  |                                                                                                                                       |                              | 671,048                                        |           |          |           | 674,616   |          
|                                                               
|                                                               
|                                                               
|                                                               
|Minority interests                                              |                                                                                                                                       |                              | 111,516                                        |           |          |           | 109,604   |          
|                                                               
|                                                               
|                                                               
|                                                               
|Deferred income taxes                                           |                                                                                                                                       |                              | 124,633                                        |           |          |           | 206,940   |          
|                                                               
|                                                               
|                                                               
|                                                               
|Other long-term liabilities                                     |                                                                                                                                       |                              | 506,639                                        |           |          |           | 290,797   |          
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                                |                                                                                                                                       |                              | Total Liabilities                              |           |          | 2,074,577 |           |           |          | 2,120,540 | 
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|Shareholders Equity:                                           |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Common stock ($1.00 par value; authorized 150.0
    million shares; issued 68.9 and 67.9 million shares,
    respectively)            |                              |                                                | 68,885    |          |           |           | 67,890    |         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Exchangeable shares (no par or stated value;
    authorized 15.7 million shares; issued 4.1 and 4.2 million
    shares, respectively) |                              |                                                | 32,362    |          |           |           | 32,375    |         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Additional paid-in capital                                                                                                            |                              |                                                | 719,631   |          |           |           | 684,700   |         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Retained earnings                                                                                                                     |                              |                                                | 1,652,477 |          |           |           | 1,427,917 |         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Accumulated other comprehensive loss:                                                                                                 |                              |                                                |           |          |           |           |           |         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                                                                                       | Foreign currency translation |                                                |           | (188,956 | )         |           |           | (202,608 | )        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                                                                                       | Minimum pension liability    |                                                |           | (126,088 | )         |           |           | (13,213  | )        
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                                                                                       | Derivative adjustment        |                                                |           | 1,340    |           |           |           |         |          
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                                |                                                                                                                                       |                              | Total Shareholders Equity                     |           |          | 2,159,651 |           |           |          | 1,997,061 | 
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          
|                                                                |                                                                                                                                       |                              | Total Liabilities and
    Shareholders Equity |           | $        | 4,234,228 |           |           | $        | 4,117,601 | 
|                                                                |                                                                                                                                       |                              |                                                |           |          |           |           |          

See the Notes to Consolidated Financial Statements.

53



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME



|                             |                             |                                         |                          |           |          |           |           |           |        |           |           |           |   |           | 
|---------------------------- | --------------------------- | --------------------------------------- | ------------------------ | --------- | -------- | --------- | --------- | --------- | ------ | --------- | --------- | --------- | - | --------- | 
|                             |                             |                                        
|                             |                             | Years Ended December 31                
|                             |                             |                                        
|                             |                             | 2002                                    |                          | 2001      |          | 2000     
|                             |                             |                                         |                          |           |          |          
|Net Sales                    |                             | $                                       | 3,251,555                |           |          | $         | 3,323,020 |           |        | $         | 2,787,629 |          
|                            
|                            
|                            
|                            
|Costs and expenses:          |                             |                                         |                          |           |          |           |           |           |        |           |           |          
|                            
|                            
|                            
|                            
|                             | Cost of goods sold          |                                         |                          | 2,521,317 |          |           |           | 2,606,681 |        |           |           | 2,099,332 |  
|                            
|                            
|                            
|                            
|                             | Selling and administrative  |                                         |                          | 318,072   |          |           |           | 296,091   |        |           |           | 269,368   |  
|                            
|                            
|                            
|                            
|                             | Amortization of goodwill    |                                         |                          |          |          |           |           | 20,641    |        |           |           | 17,213    |  
|                            
|                            
|                            
|                            
|                             | Income from managed assets: |                                         |                          |           |          |           |           |           |        |           |           |           |  
|                            
|                            
|                            
|                            
|                             |                             | Management fees and cost reimbursement  |                          |           | (190,833 | )         |           |           | (9,704 | )         |           |           |  |          
|                            
|                            
|                            
|                            
|                             |                             | Direct and allocated costs and expenses |                          |           | 178,833  |           |           |           | 4,059  |           |           |           |  |          
|                            
|                            
|                            
|                            
|                             | Other (income) expense, net |                                         |                          | 3,570     |          |           |           | 4,197     |        |           |           | (29,036   | )
|                            
|                            
|                            
|                            
|                             | Minority interests          |                                         |                          | 8,368     |          |           |           | 7,007     |        |           |           |          |  
|                            
|                            
|                            
|                            
|                             | Interest expense            |                                         |                          | 52,791    |          |           |           | 54,507    |        |           |           | 50,620    |  
|                            
|                            
|                            
|                            
|                             | Interest income             |                                         |                          | (9,720    | )        |           |           | (6,615    | )      |           |           | (23,697   | )
|                             |                             |                                         |                          |           |          |           |           |           |        |           |           |          
|                             |                             |                                         | Total costs and expenses |           |          | 2,882,398 |           |           |        | 2,976,864 |           |           |   | 2,383,800 | 
|                             |                             |                                         |                          |           |          |           |           |           |        |           |           |          
|Earnings before income taxes |                             |                                         | 369,157                  |           |          |           | 346,156   |           |        |           | 403,829   |          
|                            
|                            
|                            
|                            
|Income taxes                 |                             |                                         | 100,782                  |           |          |           | 112,066   |           |        |           | 146,462   |          
|                             |                             |                                         |                          |           |          |           |           |           |        |           |           |          
|                             | Net Income                  |                                         | $                        | 268,375   |          |           | $         | 234,090   |        |           | $         | 257,367   |  
|                             |                             |                                         |                          |           |          |           |           |           |        |           |           |          
|Net Income Per Share-Basic   |                             | $                                       | 3.69                     |           |          | $         | 3.25      |           |        | $         | 3.51      |          
|                             |                             |                                         |                          |           |          |           |           |           |        |           |           |          
|Net Income Per Share-Diluted |                             | $                                       | 3.64                     |           |          | $         | 3.21      |           |        | $         | 3.51      |          
|                             |                             |                                         |                          |           |          |           |           |           |        |           |           |          
|Dividends Per Share          |                             | $                                       | 0.60                     |           |          | $         | 0.60      |           |        | $         | 0.60      |          
|                             |                             |                                         |                          |           |          |           |           |           |        |           |           |          

See the Notes to Consolidated Financial Statements.

54



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY



|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  |  |        |       | 
|---------------------------------------- | ------------------------------------------------------------- | --------------------------------- | ---------------------------- | --------- | ------- | ------ |  | ------ | ------ | ------ | --------- | --------- | ------- | ----- |  |  | ------ | -- | --------- | --------- | ------- | ------ |  |  | ------ | ----- | 
|                                         |                                                               |                                  
|                                         |                                                               | Years Ended December 31          
|                                         |                                                               |                                  
|                                         |                                                               |                                   |                              |           |         |       
|                                         |                                                               | 2002                              |                              | 2001      |         | 2000  
|                                         |                                                               |                                   |                              |           |         |       
|                                         |                                                               | Amount                            |                              | Shares    |         | Amount |  | Shares |        | Amount |           | Shares   
|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |          
|Common Stock                             |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               | Balance at January 1              |                              | $         | 67,890  |        |  |        | 67,890 |        |           | $         | 67,492  |       |  |  | 67,492 |    |           | $         | 68,686  |        |  |  | 68,686 |      
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               | Share repurchases                 |                              |           |        |        |  |        |       |        |           |           | (905    | )     |  |  | (905   | )  |           |           | (2,469  | )      |  |  | (2,469 | )    
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               | Issuance of shares for:           |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  |  |        |      
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               |                                   | Dividend reinvestment plans  |           |         | 121    |  |        |        | 121    |           |           |         | 99    |  |  |        | 99 |           |           |         | 1,173  |  |  |        | 1,173 | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               |                                   | Employee stock purchase plan |           |         | 55     |  |        |        | 55     |           |           |         | 66    |  |  |        | 66 |           |           |         | 61     |  |  |        | 61    | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               | Conversion of exchangeable shares |                              |           | 56      |        |  |        | 56     |        |           |           | 337     |       |  |  | 337    |    |           |           | 13      |        |  |  | 13     |      
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               | Exercise of stock options         |                              |           | 763     |        |  |        | 763    |        |           |           | 801     |       |  |  | 801    |    |           |           | 28      |        |  |  | 28     |      
|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|                                         |                                                               | Balance at December 31            |                              | $         | 68,885  |        |  |        | 68,885 |        |           | $         | 67,890  |       |  |  | 67,890 |    |           | $         | 67,492  |        |  |  | 67,492 |      
|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|Exchangeable Shares                      |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               | Balance at January 1              |                              | $         | 32,375  |        |  |        | 4,196  |        |           | $         | 34,402  |       |  |  | 4,523  |    |           | $         | 32,957  |        |  |  | 4,472  |      
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               | Issuance of shares for:           |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  |  |        |      
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               |                                   | Dividend reinvestment plan   |           |         | 378    |  |        |        | 10     |           |           |         | 333   |  |  |        | 10 |           |           |         | 699    |  |  |        | 31    | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               |                                   | Employee stock purchase plan |           |         |       |  |        |        |       |           |           |         |      |  |  |        |   |           |           |         | 837    |  |  |        | 33    | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               | Conversion of exchangeable shares |                              |           | (391    | )      |  |        | (56    | )      |           |           | (2,360  | )     |  |  | (337   | )  |           |           | (91     | )      |  |  | (13    | )    
|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|                                         |                                                               | Balance at December 31            |                              | $         | 32,362  |        |  |        | 4,150  |        |           | $         | 32,375  |       |  |  | 4,196  |    |           | $         | 34,402  |        |  |  | 4,523  |      
|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|Additional Paid-In Capital               |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Balance at January 1                                          |                                   | $                            | 684,700   |         |        |  |        |        |        | $         | 690,072   |         |       |  |  |        |    | $         | 697,324   |         |        |  |  |       
|                                        
|                                        
|                                        
|                                        
|                                         | Share repurchases                                             |                                   |                              |          |         |        |  |        |        |        |           | (28,065   | )       |       |  |  |        |    |           | (47,407   | )       |        |  |  |       
|                                        
|                                        
|                                        
|                                        
|                                         | Issuance of shares for:                                       |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  |  |       
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               |                                   | Dividend reinvestment plans  |           |         | 4,165  |  |        |        |        |           |           |         | 3,095 |  |  |        |    |           |           |         | 23,452 |  |  |        |       | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                                               |                                   | Employee stock purchase plan |           |         | 4,441  |  |        |        |        |           |           |         | 2,083 |  |  |        |    |           |           |         | 1,493  |  |  |        |       | 
|                                        
|                                        
|                                        
|                                        
|                                         | Conversion of exchangeable shares                             |                                   |                              | 335       |         |        |  |        |        |        |           | 2,023     |         |       |  |  |        |    |           | 78        |         |        |  |  |       
|                                        
|                                        
|                                        
|                                        
|                                         | Exercise of stock options                                     |                                   |                              | 25,990    |         |        |  |        |        |        |           | 15,492    |         |       |  |  |        |    |           | 696       |         |        |  |  |       
|                                        
|                                        
|                                        
|                                        
|                                         | Issuance of common stock warrant                              |                                   |                              |          |         |        |  |        |        |        |           |          |         |       |  |  |        |    |           | 14,436    |         |        |  |  |       
|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|                                         |                                                               | Balance at December 31            |                              | $         | 719,631 |        |  |        |        |        |           | $         | 684,700 |       |  |  |        |    |           | $         | 690,072 |        |  |  |        |      
|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|Retained Earnings                        |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Balance at January 1                                          |                                   | $                            | 1,427,917 |         |        |  |        |        |        | $         | 1,237,117 |         |       |  |  |        |    | $         | 1,023,736 |         |        |  |  |       
|                                        
|                                        
|                                        
|                                        
|                                         | Net income                                                    |                                   |                              | 268,375   |         |        |  |        |        |        |           | 234,090   |         |       |  |  |        |    |           | 257,367   |         |        |  |  |       
|                                        
|                                        
|                                        
|                                        
|                                         | Dividends  common equity interests                           |                                   |                              | (43,815   | )       |        |  |        |        |        |           | (43,290   | )       |       |  |  |        |    |           | (43,986   | )       |        |  |  |       
|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|                                         | Balance at December 31                                        |                                   | $                            | 1,652,477 |         |        |  |        |        |        | $         | 1,427,917 |         |       |  |  |        |    | $         | 1,237,117 |         |        |  |  |       
|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|Accumulated Other
    Comprehensive Loss |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Balance at January 1                                          |                                   | $                            | (215,821  | )       |        |  |        |        |        | $         | (136,914  | )       |       |  |  |        |    | $         | (99,819   | )       |        |  |  |       
|                                        
|                                        
|                                        
|                                        
|                                         | Foreign currency translation adjustments                      |                                   |                              | 13,652    |         |        |  |        |        |        |           | (65,694   | )       |       |  |  |        |    |           | (37,095   | )       |        |  |  |       
|                                        
|                                        
|                                        
|                                        
|                                         | Minimum pension liability adjustment, net of
    income taxes |                                   |                              | (112,875  | )       |        |  |        |        |        |           | (13,213   | )       |       |  |  |        |    |           |          |         |        |  |  |       
|                                        
|                                        
|                                        
|                                        
|                                         | Derivative adjustment, net of income taxes                    |                                   |                              | 1,340     |         |        |  |        |        |        |           |          |         |       |  |  |        |    |           |          |         |        |  |  |       
|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|                                         | Balance at December 31                                        |                                   | $                            | (313,704  | )       |        |  |        |        |        | $         | (215,821  | )       |       |  |  |        |    | $         | (136,914  | )       |        |  |  |       
|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 
|Total Shareholders Equity               |                                                               | $                                 | 2,159,651                    |           |         |        |  |        |        | $      | 1,997,061 |           |         |       |  |  |        | $  | 1,892,169 |           |         |        |  | 
|                                         |                                                               |                                   |                              |           |         |        |  |        |        |        |           |           |         |       |  |  |        |    |           |           |         |        |  | 

See the Notes to Consolidated Financial Statements.

55



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



|                     |                                                               |                         |         |          |   |      |         |         |   |   |         |         |  
|-------------------- | ------------------------------------------------------------- | ----------------------- | ------- | -------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                     |                                                               |                        
|                     |                                                               | Years Ended December 31
|                     |                                                               |                        
|                     |                                                               | 2002                    |         | 2001     |   | 2000
|                     |                                                               |                         |         |          |   |     
|Net Income           |                                                               | $                       | 268,375 |          |   | $    | 234,090 |         |   | $ | 257,367 |        
|                    
|                    
|                    
|                    
|                     | Foreign currency translation adjustments                      |                         |         | 13,652   |   |      |         | (65,694 | ) |   |         | (37,095 | )
|                    
|                    
|                    
|                    
|                     | Minimum pension liability adjustment, net of
    income taxes |                         |         | (112,875 | ) |      |         | (13,213 | ) |   |         |        |  
|                    
|                    
|                    
|                    
|                     | Derivative adjustment, net of income taxes                    |                         |         | 1,340    |   |      |         |        |   |   |         |        |  
|                     |                                                               |                         |         |          |   |      |         |         |   |   |         |        
|Comprehensive Income |                                                               | $                       | 170,492 |          |   | $    | 155,183 |         |   | $ | 220,272 |        
|                     |                                                               |                         |         |          |   |      |         |         |   |   |         |        

See the Notes to Consolidated Financial Statements.

56



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                            |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |          |         |  
|----------------------------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------------------------------- | -------- | -------- | ------- | ---- | -------- | -------- | ------- | - | -------- | -------- | ------- | -
|                                                            |                                                                            |                                                                  
|                                                            |                                                                            | Years Ended December 31                                          
|                                                            |                                                                            |                                                                  
|                                                            |                                                                            | 2002                                                              |          | 2001     |         | 2000
|                                                            |                                                                            |                                                                   |          |          |         |     
|Cash Flows from Operations                                  |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Net income                                                                 |                                                                   | $        | 268,375  |         |      | $        | 234,090  |         |   | $        | 257,367  |        
|                                                            | Adjustments to reconcile net income to net cash
    provided by operations |                                                                   |          |          |         |      |          |          |         |   |          |          |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                                                            | Depreciation, depletion and amortization                          |          |          | 182,154 |      |          |          | 194,160 |   |          |          | 168,294 |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                                                            | Provision for bad debts                                           |          |          | 2,921   |      |          |          | 6,106   |   |          |          | 2,451   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                                                            | Deferred income taxes                                             |          |          | 9,947   |      |          |          | 30      |   |          |          | 12,156  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                                                            | Gain on sale of assets                                            |          |          | (35,181 | )    |          |          | (24,051 | ) |          |          | (12,769 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                                                            | Other noncash charges and (credits), net                          |          |          | 34,723  |      |          |          | (11,211 | ) |          |          | (16,723 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                                                            | Net change in operating working capital (see
    Analysis below)* |          |          | (39,087 | )    |          |          | 23,941  |   |          |          | 76,810  |  
|                                                            |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|Net Cash Provided by Operations                             |                                                                            |                                                                   | 423,852  |          |         |      | 423,065  |          |         |   | 487,586  |         
|                                                            |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|Cash Flows from Investing                                   |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Capital expenditures                                                       |                                                                   |          | (247,873 | )       |      |          | (333,170 | )       |   |          | (431,698 | )      
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Acquisitions, net of cash acquired                                         |                                                                   |          | (31,566  | )       |      |          | (80,615  | )       |   |          | (242,036 | )      
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Redemptions (purchases) of short-term
    investments, net                 |                                                                   |          | 1,004    |         |      |          | (23,264  | )       |   |          | 91,626   |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Proceeds from asset dispositions                                           |                                                                   |          | 76,993   |         |      |          | 66,163   |         |   |          | 29,083   |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other                                                                      |                                                                   |          | 10,221   |         |      |          | (12,350  | )       |   |          | (10,990  | )      
|                                                            |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|Net Cash Used for Investing                                 |                                                                            |                                                                   | (191,221 | )        |         |      | (383,236 | )        |         |   | (564,015 | )       
|                                                            |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|Cash Flows from Financing                                   |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Repayment of long-term debt                                                |                                                                   |          | (12,491  | )       |      |          | (16,340  | )       |   |          | (30,317  | )      
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Issuance (repayment) of short-term
    borrowings, net                     |                                                                   |          | (65,404  | )       |      |          | 23,698   |         |   |          | 156,804  |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Issuance of equity securities                                              |                                                                   |          | 31,249   |         |      |          | 18,442   |         |   |          | 3,115    |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Repurchase of common stock                                                 |                                                                   |          |         |         |      |          | (28,970  | )       |   |          | (49,876  | )      
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Dividends, net of reinvestments                                            |                                                                   |          | (39,151  | )       |      |          | (39,763  | )       |   |          | (18,662  | )      
|                                                            |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|Net Cash Provided (Consumed) by Financing                   |                                                                            |                                                                   | (85,797  | )        |         |      | (42,933  | )        |         |   | 61,064   |         
|                                                            |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|Effect of exchange rate changes                             |                                                                            |                                                                   | 1,830    |          |         |      | (8,539   | )        |         |   | (8,358   | )       
|                                                            |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|Net Increase (Decrease) in Cash and
    Cash Equivalents    |                                                                            |                                                                   | 148,664  |          |         |      | (11,643  | )        |         |   | (23,723  | )       
|                                                           
|                                                           
|                                                           
|                                                           
|Cash and Cash Equivalents at January 1                      |                                                                            |                                                                   | 202,446  |          |         |      | 214,089  |          |         |   | 237,812  |         
|                                                            |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|Cash and Cash Equivalents at December 31                    |                                                                            | $                                                                 | 351,110  |          |         | $    | 202,446  |          |         | $ | 214,089  |         
|                                                            |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|*Analysis of Changes in Operating Working
    Capital Items |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Receivables, net (including Due from
    affiliates)                     |                                                                   | $        | 84,359   |         |      | $        | (144,370 | )       |   | $        | 148,562  |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Inventories                                                                |                                                                   |          | (21,770  | )       |      |          | 9,524    |         |   |          | (48,077  | )      
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other current assets                                                       |                                                                   |          | 17,440   |         |      |          | 9,567    |         |   |          | 746      |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Accounts payable and accrued liabilities                                   |                                                                   |          | (68,139  | )       |      |          | 74,917   |         |   |          | (7,932   | )      
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Income taxes payable                                                       |                                                                   |          | (50,977  | )       |      |          | 74,303   |         |   |          | (16,489  | )      
|                                                            |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         
|Net Change in Operating
    Working Capital                 |                                                                            | $                                                                 | (39,087  | )        |         | $    | 23,941   |          |         | $ | 76,810   |         
|                                                            |                                                                            |                                                                   |          |          |         |      |          |          |         |   |          |         

See the Notes to Consolidated Financial Statements.

57



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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 the Note 17 Segment and Related Information
herein.

Lafarge operates in the U.S. and throughout Canada, where it
operates through a major operating 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 for the cement plants.
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 was renewed on its first expiration date
(December 31, 2002) in accordance with the terms of the
agreement and is renewable for one-year periods each year at the
option of the company. The assets that the company manages
include five full-production cement plants; a slag grinding
facility; 11 cement terminals; 13 pits and quarries for
producing aggregate (crushed stone, sand and gravel); 61
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
performance 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 2002 presentation.

58



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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 $188,956 and $202,608 at
December 31, 2002 and 2001, 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.

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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
will continue to be amortized over their useful lives. In
accordance with SFAS No. 142s transitional
requirements, the amortization provisions were applied
immediately 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 accounts for 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

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LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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, Lafarge recorded as a component of
Other (income) expense, net, a pretax charge to
earnings of approximately $26 million, which includes
$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, 2002,
payments of approximately $1 million were recorded against
the liability.

No other impairments were recorded for the years ended
December 31, 2002, 2001 and 2000.

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.

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.

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 may be 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 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, $7.2 million and
$7.2 million for 2002, 2001 and 2000, respectively.

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LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Other (Income) Expense,
Net

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

|                                                                     |  |                         |       |      |  |      |       |   |  |   |       |  
|-------------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                                     |  |                        
|                                                                     |  | Years Ended December 31
|                                                                     |  |                        
|                                                                     |  | 2002                    |       | 2001 |  | 2000
|                                                                     |  |                         |       |      |  |     
|Gain on sale of fixed assets                                         |  | $                       | (7.8  | )    |  | $    | (8.0  | ) |  | $ | (9.5  | )
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Gain on divestitures of businesses                                   |  |                         | (30.8 | )    |  |      | (23.2 | ) |  |   | (6.3  | )
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Loss on the sale of receivables under our
    securitization program |  |                         | 3.4   |      |  |      | 7.1   |   |  |   | 3.0   |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|(Gain) loss on natural gas
    commodity contracts                   |  |                         | (8.1  | )    |  |      | 8.1   |   |  |   |      |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Pension and other postretirement benefits expense
    (income)       |  |                         | 15.2  |      |  |      | 6.9   |   |  |   | (4.1  | )
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Equity income                                                        |  |                         | (0.3  | )    |  |      | (2.8  | ) |  |   | (6.9  | )
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Expenses for restructuring                                           |  |                         |      |      |  |      | 7.1   |   |  |   |      |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Foreign exchange transaction (gains) losses                          |  |                         | 0.9   |      |  |      | 0.3   |   |  |   | (2.5  | )
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Loss on idling of Wilmington plant                                   |  |                         | 26.0  |      |  |      |      |   |  |   |      |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Other miscellaneous (gains) losses                                   |  |                         | 5.1   |      |  |      | 8.7   |   |  |   | (2.7  | )
|                                                                     |  |                         |       |      |  |      |       |   |  |   |       |  
|Total other income
    (expense), net                                |  | $                       | 3.6   |      |  | $    | 4.2   |   |  | $ | (29.0 | )
|                                                                     |  |                         |       |      |  |      |       |   |  |   |       |  

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. Interest of $4.2 million, $11.1
million and $11.7 million was capitalized in 2002, 2001 and
2000, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability
method. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. This method also
requires the recognition of future tax benefits such as net
operating loss carryforwards, to the extent that realization of
such benefits is more likely than not. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.

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) 72,824,
72,043 and 73,254 in 2002, 2001 and 2000, respectively.

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LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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) 73,814, 72,910 and 73,379 in 2002, 2001 and 2000,
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 2002, 2001, and 2000, respectively, are as follows:
dividend yield of 1.5 percent, 2.0 percent, and
2.6 percent; expected volatility of 38.0 percent,
43.0 percent, and 33.0 percent; risk-free interest rates of
4.9 percent, 4.9 percent, and 6.7 percent; and
expected lives of 5.4 years for all three years.

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 2002, 2001 and 2000
would be as follows:

|                             |                                                                        |                                          |   |         |   |      |   |         |   |  |   |         |  
|---------------------------- | ---------------------------------------------------------------------- | ---------------------------------------- | - | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|                             |                                                                        |                                         
|                             |                                                                        | Years Ended December 31                 
|                             |                                                                        |                                         
|                             |                                                                        | 2002                                     |   | 2001    |   | 2000
|                             |                                                                        |                                          |   |         |   |     
|                             |                                                                        |                                         
|                             |                                                                        | (in thousands, except per share amounts)
|                            
|                            
|                            
|                            
|Net Income                   |                                                                        |                                          |   |         |   |      |   |         |   |  |   |        
|                            
|                            
|                            
|                            
|                             | As reported                                                            |                                          | $ | 268,375 |   |      | $ | 234,090 |   |  | $ | 257,367 |  
|                            
|                            
|                            
|                            
|                             | Deduct fair value of stock-based employee
    compensation, net of tax |                                          |   | (8,288  | ) |      |   | (6,350  | ) |  |   | (4,562  | )
|                            
|                            
|                            
|                            
|                             | Pro forma                                                              |                                          | $ | 260,087 |   |      | $ | 227,740 |   |  | $ | 252,805 |  
|                            
|                            
|                            
|                            
|Basic Net Income Per Share   |                                                                        |                                          |   |         |   |      |   |         |   |  |   |        
|                            
|                            
|                            
|                            
|                             | As reported                                                            |                                          | $ | 3.69    |   |      | $ | 3.25    |   |  | $ | 3.51    |  
|                            
|                            
|                            
|                            
|                             | Pro forma                                                              |                                          | $ | 3.57    |   |      | $ | 3.16    |   |  | $ | 3.45    |  
|                            
|                            
|                            
|                            
|Diluted Net Income Per Share |                                                                        |                                          |   |         |   |      |   |         |   |  |   |        
|                            
|                            
|                            
|                            
|                             | As reported                                                            |                                          | $ | 3.64    |   |      | $ | 3.21    |   |  | $ | 3.51    |  
|                            
|                            
|                            
|                            
|                             | Pro forma                                                              |                                          | $ | 3.52    |   |      | $ | 3.12    |   |  | $ | 3.45    |  

The SFAS No. 123 method of accounting does not apply to
options granted before January 1, 1995. The pro forma
compensation cost may not be representative of that to be
expected in future years.

Accounting
Pronouncements Not Yet Effective

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

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LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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 will be required to implement SFAS
No. 143 on January 1, 2003. We are in the process of
finalizing our evaluation of the impact of this new standard on
the consolidated financial statements. SFAS No. 143s
primary impact on us relates to our accounting for quarry
reclamation obligations. Currently, the company provides for our
estimated quarry reclamation obligation over the life of the
quarry based on the units of production. Based upon our
preliminary estimates, a pre-tax charge of less than
$10 million will be 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.

In July 2002 the FASB issued SFAS No. 146
Accounting for Costs Associated with Exit or Disposal
Activities. This statement addresses financial accounting
and reporting for costs associated with exit or disposal
activities and nullifies EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The principal
difference between Statement 146 and Issue 94-3 relates to
Statement 146s requirements for recognition of a liability
for a cost associated with an exit or disposal activity.
Statement 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the
liability is incurred. Under Issue 94-3, a liability for an exit
cost was recognized at the date an entity committed to an exit
plan.

The provisions of this Statement are effective for exit or
disposal activities that are initiated after December 31,
2002. The adoption of this standard is not expected to have a
material impact on the consolidated financial statements of the
company.

FASB interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others (FIN
45), requires the guarantor to recognize a liability for
the fair value of the obligation at the inception of the
guarantee. The disclosure requirements of FIN 45, which are
already effective, are disclosed in Note 20 Commitments
and Contingencies, while the recognition provisions will
be applied on a prospective basis to guarantees issued after
December 31, 2002. The provisions of FIN 45 are applicable
no later than July 1, 2003. The company is currently
reviewing the provisions of the pronouncement and its impact on
the Consolidated Financial Statements.

FIN 46, Consolidation of Variable Interest Entities,
clarified the application of Accounting Research Bulletin
No. 51, Consolidated Financial Statements, to
certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. The provisions of FIN 46 are applicable no
later than July 1, 2003. The company does not expect this
Interpretation to have an effect on the Consolidated Financial
Statements.

Acquisitions,
Dispositions and Significant Capital Developments

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

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LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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.

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.

In late December 2000, the company completed its merger of
Kilmer Van Nostrand Co. Limiteds (KVN) wholly-owned
subsidiary, the Warren Paving & Materials Group Limited
(Warren), with the companys construction
materials operations in Canada. Warren was a supplier of
construction aggregate and provided asphalt and paving services
in five Canadian provinces. The transaction, in which a
subsidiary of LCI acquired all of the outstanding shares of
Warren for cash, preferred stock and a note, was valued at
$259.9 million. The acquisition was recorded under the purchase
method of accounting and, therefore, the purchase price has been
allocated to assets acquired and liabilities assumed based on
estimated fair values.

The following unaudited pro forma financial information for the
company gives effect to the Warren merger as if the transaction
had been completed as of the beginning of 2000. These pro forma
results have been prepared for comparative purposes only and
include certain adjustments, such as depreciation and depletion
on the revalued property, plant and equipment and amortization
of goodwill but do not reflect any benefits which might be
attained from combining the operations. The pro forma results of
operations do not necessarily reflect the actual results that
would have occurred, nor is such information necessarily
indicative of future results of operations below (in thousands,
except per share amounts).

|                       |                                |                        |   |           | 
|---------------------- | ------------------------------ | ---------------------- | - | --------- | 
|                       |                                | Year Ended December 31
|                       |                                | 2000                  
|                       |                                |                       
|Pro forma (unaudited): |                                |                        |   |          
|                      
|                      
|                      
|                      
|                       | Net sales                      |                        | $ | 3,192,194 | 
|                      
|                      
|                      
|                      
|                       | Net income                     |                        | $ | 259,776   | 
|                      
|                      
|                      
|                      
|                       | Net income per share  basic   |                        | $ | 3.55      | 
|                      
|                      
|                      
|                      
|                       | Net income per share  diluted |                        | $ | 3.54      | 

Note 2 Receivables

Receivables consist of the following (in thousands):

|                                     |                        |             |         |         |  |   |         |         | 
|------------------------------------ | ---------------------- | ----------- | ------- | ------- |  | - | ------- | ------- | 
|                                     |                        |            
|                                     |                        | December 31
|                                     |                        |            
|                                     |                        | 2002        |         | 2001   
|                                     |                        |             |         |        
|Trade and notes receivable           |                        | $           | 314,512 |         |  | $ | 403,812 |        
|                                    
|                                    
|                                    
|                                    
|Subordinated interest in receivables |                        |             | 54,601  |         |  |   | 87,004  |        
|                                    
|                                    
|                                    
|                                    
|Retainage on long-term contracts     |                        |             | 20,603  |         |  |   | 18,947  |        
|                                    
|                                    
|                                    
|                                    
|Other receivables                    |                        |             | 24,815  |         |  |   | 16,233  |        
|                                    
|                                    
|                                    
|                                    
|Allowances                           |                        |             | (28,348 | )       |  |   | (33,725 | )      
|                                     |                        |             |         |         |  |   |         |        
|                                     | Total receivables, net |             | $       | 386,183 |  |   | $       | 492,271 | 
|                                     |                        |             |         |         |  |   |         |        

During 2000, the company entered into a receivables
securitization program to provide a cost-effective source of
working capital and short-term financing. Under the program, the
company agreed to sell, on a revolving basis, certain of its
accounts receivable to a wholly-owned, special purpose
subsidiary (the SPS). The SPS in turn entered 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

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LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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 $1,889.2 million and
$1,990.9 million for the years ended December 31, 2002
and 2001, respectively. At December 31, 2002 and 2001, the
company administered $143.4 million and
$116.5 million, respectively, of outstanding receivables
that were sold under this arrangement. In 2002 and 2001, related
fees and discounting expense of $3.4 million and
$7.1 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 $54.6 million and $87.0 million at
December 31, 2002 and 2001, 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.

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, 2002 and 2001, we have amounts
payable under this arrangement of $42.3 million and
$68.7 million, respectively.

Note 3 Inventories

Inventories consist of the following (in thousands):

|                                   |                   |             |         |         |  |   |         |         | 
|---------------------------------- | ----------------- | ----------- | ------- | ------- |  | - | ------- | ------- | 
|                                   |                   |            
|                                   |                   | December 31
|                                   |                   |            
|                                   |                   | 2002        |         | 2001   
|                                   |                   |             |         |        
|Finished products                  |                   | $           | 201,695 |         |  | $ | 199,156 |        
|                                  
|                                  
|                                  
|                                  
|Work in process                    |                   |             | 29,999  |         |  |   | 23,187  |        
|                                  
|                                  
|                                  
|                                  
|Raw materials and fuel             |                   |             | 71,434  |         |  |   | 60,214  |        
|                                  
|                                  
|                                  
|                                  
|Maintenance and operating supplies |                   |             | 70,351  |         |  |   | 68,303  |        
|                                   |                   |             |         |         |  |   |         |        
|                                   | Total inventories |             | $       | 373,479 |  |   | $       | 350,860 | 
|                                   |                   |             |         |         |  |   |         |        

Included in the finished products, work in process and raw
materials and fuel categories are inventories valued using the
LIFO method of $83.2 million and $73.2 million at
December 31, 2002 and 2001, respectively. The value of
inventory calculated by the LIFO method approximates the value
using the average cost method.

66



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Note 4 Property, Plant and Equipment

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

|                                       |                                              |             |            |           |  |   |            |           | 
|-------------------------------------- | -------------------------------------------- | ----------- | ---------- | --------- |  | - | ---------- | --------- | 
|                                       |                                              |            
|                                       |                                              | December 31
|                                       |                                              |            
|                                       |                                              | 2002        |            | 2001     
|                                       |                                              |             |            |          
|Land and mineral deposits              |                                              | $           | 547,324    |           |  | $ | 525,742    |          
|                                      
|                                      
|                                      
|                                      
|Buildings, machinery and equipment     |                                              |             | 3,324,033  |           |  |   | 2,780,576  |          
|                                      
|                                      
|                                      
|                                      
|Construction in progress               |                                              |             | 149,859    |           |  |   | 378,303    |          
|                                       |                                              |             |            |           |  |   |            |          
|Property, plant and equipment, at cost |                                              |             | 4,021,216  |           |  |   | 3,684,621  |          
|                                      
|                                      
|                                      
|                                      
|Accumulated depreciation and depletion |                                              |             | (1,784,961 | )         |  |   | (1,489,507 | )        
|                                      
|                                      
|                                      
|                                      
|                                       | Total property, plant and
    equipment, net |             | $          | 2,236,255 |  |   | $          | 2,195,114 | 
|                                       |                                              |             |            |           |  |   |            |          

Depreciation expense for the years 2002, 2001 and 2000 was
$180.1 million, $171.4 million and
$149.4 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) is approximately $5.6 million or $0.08
per share.

Note 5 Goodwill

The changes in the carrying value of goodwill, net for the years
ended December 31, 2002 and 2001, are as follows (in thousands):

|                                        |  |              |         |            |  |         |        |             |  |       |        |  |  |   |         |   |  |   |         |  
|--------------------------------------- |  | ------------ | ------- | ---------- |  | ------- | ------ | ----------- |  | ----- | ------ |  |  | - | ------- | - |  | - | ------- | -
|                                        |  |              |         | 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 |  
|                                        |  |              |         |            |  |         |        |             |  |       |        |  |  |   |         |   |  |   |         |  

|                                        |  |              |         |            |  |         |        |             |  |       |       |   |  |   |        |   |  |   |         |  
|--------------------------------------- |  | ------------ | ------- | ---------- |  | ------- | ------ | ----------- |  | ----- | ----- | - |  | - | ------ | - |  | - | ------- | -
|                                        |  |              |         | Cement and |  |         |        |             |  |      
|                                        |  |              |         | Cement-    |  |         |        |             |  |      
|                                        |  | Construction |         | Related    |  |         |        | Corporate   |  |      
|                                        |  | Materials    |         | Products   |  | Gypsum  |        | and         |  |      
|                                        |  | Segment      |         | Segment    |  | Segment |        | Unallocated |  | Total
|                                        |  |              |         |            |  |         |        |             |  |      
|Balance at January 1, 2001              |  | $            | 413,528 |            |  | $       | 14,357 |             |  | $     | 9,079 |   |  | $ | 1,381  |   |  | $ | 438,345 |  
|                                       
|                                       
|                                       
|                                       
|Goodwill acquired (divested)            |  |              | 36,206  |            |  |         |       |             |  |       |      |   |  |   |       |   |  |   | 36,206  |  
|                                       
|                                       
|                                       
|                                       
|Amortization                            |  |              | (17,160 | )          |  |         | (1,855 | )           |  |       | (571  | ) |  |   | (1,055 | ) |  |   | (20,641 | )
|                                       
|                                       
|                                       
|                                       
|Purchase accounting adjustments         |  |              | 24,755  |            |  |         | (162   | )           |  |       | (61   | ) |  |   | 2,074  |   |  |   | 26,606  |  
|                                       
|                                       
|                                       
|                                       
|Foreign currency translation adjustment |  |              | (5,529  | )          |  |         | (4     | )           |  |       | (112  | ) |  |   | (470   | ) |  |   | (6,115  | )
|                                        |  |              |         |            |  |         |        |             |  |       |       |   |  |   |        |   |  |   |         |  
|Balance at
    December 31, 2001        |  | $            | 451,800 |            |  | $       | 12,336 |             |  | $     | 8,335 |   |  | $ | 1,930  |   |  | $ | 474,401 |  
|                                        |  |              |         |            |  |         |        |             |  |       |       |   |  |   |        |   |  |   |         |  

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

67



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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, 2002 and 2001 include adjustments to the
opening balance sheets of acquired entities to reflect acquired
tangible assets (primarily property) and liabilities (primarily
quarry remediation obligations) 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 our recent
quantification of this adjustment. Certain tax contingencies
related to a past acquisition have not been finalized. 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. 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, 2002, and determined that no goodwill
impairment existed.

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                   
|                                              |                                   |                                           
|                                              |                                   | 2002                                       |         | 2001 |         | 2000
|                                              |                                   |                                            |         |      |         |     
|Reported Income                               |                                   | $                                          | 268,375 |      |         | $    | 234,090 |      |         | $ | 257,367 |     
|                                             
|                                             
|                                             
|                                             
|Add back amortization of goodwill, net of tax |                                   |                                            |        |      |         |      | 19,710  |      |         |   | 16,372  |     
|                                              |                                   |                                            |         |      |         |      |         |      |         |   |         |     
|                                              |                                   | Adjusted net income                        |         | $    | 268,375 |      |         | $    | 253,800 |   |         | $    | 273,739 | 
|                                              |                                   |                                            |         |      |         |      |         |      |         |   |         |     
|Net income per share  basic:                 |                                   |                                            |         |      |         |      |         |      |         |   |         |     
|                                             
|                                             
|                                             
|                                             
|                                              | Reported net income               |                                            | $       | 3.69 |         |      | $       | 3.25 |         |   | $       | 3.51 |        
|                                             
|                                             
|                                             
|                                             
|                                              | Add back amortization of goodwill |                                            |         |     |         |      |         | 0.27 |         |   |         | 0.22 |        
|                                              |                                   |                                            |         |      |         |      |         |      |         |   |         |     
|                                              |                                   | Adjusted net income per share 
    basic  |         | $    | 3.69    |      |         | $    | 3.52    |   |         | $    | 3.73    | 
|                                              |                                   |                                            |         |      |         |      |         |      |         |   |         |     
|Net income per share  diluted:               |                                   |                                            |         |      |         |      |         |      |         |   |         |     
|                                             
|                                             
|                                             
|                                             
|                                              | Reported net income               |                                            | $       | 3.64 |         |      | $       | 3.21 |         |   | $       | 3.51 |        
|                                             
|                                             
|                                             
|                                             
|                                              | Add back amortization of goodwill |                                            |         |     |         |      |         | 0.27 |         |   |         | 0.22 |        
|                                              |                                   |                                            |         |      |         |      |         |      |         |   |         |     
|                                              |                                   | Adjusted net income per share
    -diluted |         | $    | 3.64    |      |         | $    | 3.48    |   |         | $    | 3.73    | 
|                                              |                                   |                                            |         |      |         |      |         |      |         |   |         |     

68



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Note 6 Other Assets

Other assets consist of the following (in thousands):

|                                        |                    |             |         |         |  |   |         |         | 
|--------------------------------------- | ------------------ | ----------- | ------- | ------- |  | - | ------- | ------- | 
|                                        |                    |            
|                                        |                    | December 31
|                                        |                    |            
|                                        |                    | 2002        |         | 2001   
|                                        |                    |             |         |        
|Long-term receivables                   |                    | $           | 19,337  |         |  | $ | 22,699  |        
|                                       
|                                       
|                                       
|                                       
|Investments in unconsolidated companies |                    |             | 30,305  |         |  |   | 31,210  |        
|                                       
|                                       
|                                       
|                                       
|Intangible and prepaid pension assets   |                    |             | 146,691 |         |  |   | 140,537 |        
|                                       
|                                       
|                                       
|                                       
|Intangible assets                       |                    |             | 15,531  |         |  |   | 16,845  |        
|                                       
|                                       
|                                       
|                                       
|Property held for sale                  |                    |             | 15,994  |         |  |   | 12,619  |        
|                                       
|                                       
|                                       
|                                       
|Other                                   |                    |             | 39,980  |         |  |   | 40,168  |        
|                                        |                    |             |         |         |  |   |         |        
|                                        | Total other assets |             | $       | 267,838 |  |   | $       | 264,078 | 
|                                        |                    |             |         |         |  |   |         |        

Property held for sale is carried at the lower of cost or
estimated net realizable value.

The following tables present details of intangible assets (in
thousands):

|                      |       |                   |        |                   |  |       |       |          |  |              |        |        |  |   |        |        |  |   |       |        |  |   |        |        | 
|--------------------- | ----- | ----------------- | ------ | ----------------- |  | ----- | ----- | -------- |  | ------------ | ------ | ------ |  | - | ------ | ------ |  | - | ----- | ------ |  | - | ------ | ------ | 
|                      |       |                   |        |                  
|                      |       | December 31, 2002 |        | December 31, 2001
|                      |       |                   |        |                  
|                      |       | Gross             |        |                   |  | Gross |       |         
|                      |       | Carrying          |        | Accumulated       |  |       |       | Carrying |  | Accumulated  |        |       
|                      |       | Amount            |        | Amortization      |  | Net   |       | Amount   |  | Amortization |        | Net   
|                      |       |                   |        |                   |  |       |       |          |  |              |        |       
|Customer lists        |       | $                 | 16,190 |                   |  | $     | 6,062 |          |  | $            | 10,128 |        |  | $ | 16,659 |        |  | $ | 5,772 |        |  | $ | 10,887 |       
|                     
|                     
|                     
|                     
|Mineral rights        |       |                   | 2,901  |                   |  |       | 564   |          |  |              | 2,337  |        |  |   | 2,901  |        |  |   | 380   |        |  |   | 2,521  |       
|                     
|                     
|                     
|                     
|Non-compete contracts |       |                   | 2,204  |                   |  |       | 768   |          |  |              | 1,436  |        |  |   | 2,634  |        |  |   | 744   |        |  |   | 1,890  |       
|                     
|                     
|                     
|                     
|Other                 |       |                   | 4,344  |                   |  |       | 2,714 |          |  |              | 1,630  |        |  |   | 4,821  |        |  |   | 3,274 |        |  |   | 1,547  |       
|                      |       |                   |        |                   |  |       |       |          |  |              |        |        |  |   |        |        |  |   |       |        |  |   |        |       
|                      | Total |                   | $      | 25,639            |  |       | $     | 10,108   |  |              | $      | 15,531 |  |   | $      | 27,015 |  |   | $     | 10,170 |  |   | $      | 16,845 | 
|                      |       |                   |        |                   |  |       |       |          |  |              |        |        |  |   |        |        |  |   |       |        |  |   |        |       

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, 2002 and 2001 was $3.7 million and
$3.6 million, respectively. The following presents the
estimated amortization expense for intangible assets for each of
the next five years (in thousands):

| |      |  |  |   |       | 
| | ---- |  |  | - | ----- | 
| | 2003 |  |  | $ | 1,955 | 
| | 2004 |  |  | $ | 2,228 | 
| | 2005 |  |  | $ | 2,250 | 
| | 2006 |  |  | $ | 2,000 | 
| | 2007 |  |  | $ | 1,826 | 

69



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Note 7 Accounts Payable and Accrued Liabilities

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

|                                                      |                                                    |             |         |         |  |   |         |         | 
|----------------------------------------------------- | -------------------------------------------------- | ----------- | ------- | ------- |  | - | ------- | ------- | 
|                                                      |                                                    |            
|                                                      |                                                    | December 31
|                                                      |                                                    |            
|                                                      |                                                    | 2002        |         | 2001   
|                                                      |                                                    |             |         |        
|Trade accounts payable                                |                                                    | $           | 188,364 |         |  | $ | 232,300 |        
|                                                     
|                                                     
|                                                     
|                                                     
|Accrued payroll expense                               |                                                    |             | 83,407  |         |  |   | 77,391  |        
|                                                     
|                                                     
|                                                     
|                                                     
|Payable to bank under receivables
    sales agreement |                                                    |             | 42,353  |         |  |   | 68,689  |        
|                                                     
|                                                     
|                                                     
|                                                     
|Bank overdraft                                        |                                                    |             | 22,112  |         |  |   |        |        
|                                                     
|                                                     
|                                                     
|                                                     
|Self insurance reserves                               |                                                    |             | 49,167  |         |  |   | 53,569  |        
|                                                     
|                                                     
|                                                     
|                                                     
|Other accrued liabilities                             |                                                    |             | 117,079 |         |  |   | 123,547 |        
|                                                      |                                                    |             |         |         |  |   |         |        
|                                                      | Total accounts payable and
    accrued liabilities |             | $       | 502,482 |  |   | $       | 555,496 | 
|                                                      |                                                    |             |         |         |  |   |         |        

Note 8 Debt

Debt consists of the following (in thousands):

|                                                                                                                                                                                                                                                                                                                                                                                  |                      |             |          |         |  |   |          |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ----------- | -------- | ------- |  | - | -------- | ------- | 
|                                                                                                                                                                                                                                                                                                                                                                                  |                      |            
|                                                                                                                                                                                                                                                                                                                                                                                  |                      | December 31
|                                                                                                                                                                                                                                                                                                                                                                                  |                      |            
|                                                                                                                                                                                                                                                                                                                                                                                  |                      | 2002        |          | 2001   
|                                                                                                                                                                                                                                                                                                                                                                                  |                      |             |          |        
|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 |                      | $           | 639,543  |         |  | $ | 637,483  |        
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|Medium-term note maturing in 2006, bearing fixed
    rate interest at 9.58 percent                                                                                                                                                                                                                                                                                                |                      |             | 2,000    |         |  |   | 12,000   |        
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|Tax-exempt bonds maturing in various amounts
    between 2005 and 2026, bearing interest at floating rates that
    range from 1.1 percent to 3.4 percent                                                                                                                                                                                                                         |                      |             | 20,750   |         |  |   | 26,383   |        
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|Short-term borrowings, including
    commercial paper                                                                                                                                                                                                                                                                                                                             |                      |             | 131,543  |         |  |   | 180,502  |        
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|Other                                                                                                                                                                                                                                                                                                                                                                             |                      |             | 13,332   |         |  |   | 28,695   |        
|                                                                                                                                                                                                                                                                                                                                                                                  |                      |             |          |         |  |   |          |        
|Subtotal                                                                                                                                                                                                                                                                                                                                                                          |                      |             | 807,168  |         |  |   | 885,063  |        
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                 
|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                                                                                                                                                                                                                   |                      |             | (136,120 | )       |  |   | (210,447 | )      
|                                                                                                                                                                                                                                                                                                                                                                                  |                      |             |          |         |  |   |          |        
|                                                                                                                                                                                                                                                                                                                                                                                  | Total long-term debt |             | $        | 671,048 |  |   | $        | 674,616 | 
|                                                                                                                                                                                                                                                                                                                                                                                  |                      |             |          |         |  |   |          |        

The fair value of debt at December 31, 2002 and 2001,
respectively, was approximately $872.5 million and
$839.0 million compared with $807.2 million and
$885.1 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.

70



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

The scheduled annual principal payment requirements on debt for
each of the five years in the period ending December 31,
2007 are as follows (in thousands):

|                                                                              |       |   |         |         | 
|----------------------------------------------------------------------------- | ----- | - | ------- | ------- | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|2003                                                                          |       | $ | 138,180 |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|2004                                                                          |       |   | 3,164   |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|2005                                                                          |       |   | 251,141 |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|2006                                                                          |       |   | 8,501   |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|2007                                                                          |       |   | 167     |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Thereafter                                                                    |       |   | 416,471 |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Less deferred losses on forward treasury lock and
    original issue discount |       |   | (10,456 | )      
|                                                                              |       |   |         |        
|                                                                              | Total |   | $       | 807,168 | 
|                                                                              |       |   |         |        

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, 2002, the company had
$125 million of commercial paper outstanding under the
agreements with a weighted-average interest rate of
1.7 percent and maturity dates ranging from 4 to
31 days. These borrowings are backed by a
$300 million, syndicated, committed 364-day bank revolver
which will expire in April 2003. The bank revolver requires
the maintenance of certain financial ratios, among other
restrictions. Other short-term borrowings outstanding at
December 31, 2002 of $6.6 million were made under
various credit facilities that bear interest at variable rates
(2.1 percent as of December 31, 2002) based on a
banks prime lending rate or the applicable federal funds
rate and are subject to certain conditions.

The company also has a syndicated, committed five-year revolving
credit facility totaling $300 million extending through
April 2007. At the end of 2002, 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, 2002,
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. $105 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 2002
and 2001, respectively, the company paid $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.

71



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LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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
|                                    |                                       |            
|                                    |                                       | 2002        |         | 2001   
|                                    |                                       |             |         |        
|Accrued postretirement benefit cost |                                       | $           | 194,855 |         |  | $ | 175,408 |        
|                                   
|                                   
|                                   
|                                   
|Accrued pension liability           |                                       |             | 238,763 |         |  |   | 49,708  |        
|                                   
|                                   
|                                   
|                                   
|Other                               |                                       |             | 73,021  |         |  |   | 65,681  |        
|                                    |                                       |             |         |         |  |   |         |        
|                                    | Total other
    long-term liabilities |             | $       | 506,639 |  |   | $       | 290,797 | 
|                                    |                                       |             |         |         |  |   |         |        

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, 2002 and 2001, 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, 2002 certain contracts
qualify for hedge accounting, resulting in a $1.3 million gain,
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.
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 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, 2002, 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

72



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

reserved to cover grants under the companys stock option
program (11.0 million) and issuances pursuant to the
employee stock purchase plan (1.3 million).

In July 2000, 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
$100 million of the Common Stock from time to time on the
market or through privately negotiated transactions. In 2002,
the company did not buy back any shares of Common Stock. For the
year ended December 31, 2001, the company bought back
approximately 0.9 million shares of Common Stock at an
average cost of $31.83 per share. The Common Stock buy back
program expired in February 2002.

In connection with the Warren merger, 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 ratably over a
four-year period. The options expire 10 years after the
date of grant. There were approximately 4.3 million and
4.0 million of outstanding options at December 31,
2002 and 2001, respectively.

The employee stock purchase plan allows substantially all
employees to purchase Common Stock, through payroll deductions,
at 90 percent of the lower of the beginning or end of the
plan year market prices. During 2002, 55,024 shares were issued
under the plan at a share price of $29.46; in 2001, 65,555
shares were issued under the plan at a share price of $22.95;
and in 2000, 93,500 shares were issued at a price of $22.95. At
December 31, 2002 and 2001, approximately $2.0 million
and $1.4 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.

73



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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, 2002, 2001, and 2000, and changes
during the years ended on these dates, is presented below:

|                                                                   |  |                         |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|------------------------------------------------------------------ |  | ----------------------- | --------- | -------- |  | ------ | ----- | -------- |  | ------ | --------- | -------- |  | - | ----- |  |  |  | --------- | - |  | - | ----- | 
|                                                                   |  |                        
|                                                                   |  | Years Ended December 31
|                                                                   |  |                        
|                                                                   |  |                         |           |          |  |       
|                                                                   |  | 2002                    |           | 2001     |  | 2000  
|                                                                   |  |                         |           |          |  |       
|                                                                   |  |                         |           | Average  |  |        |       | Average  |  |        |           | Average 
|                                                                   |  |                         |           | Exercise |  |        |       | Exercise |  |        |           | Exercise
|                                                                   |  | Shares                  |           | Price    |  | Shares |       | Price    |  | Shares |           | Price   
|                                                                   |  |                         |           |          |  |        |       |          |  |        |           |         
|Balance outstanding at January 1                                   |  |                         | 3,978,950 |          |  | $      | 29.12 |          |  |        | 3,835,175 |          |  | $ | 27.08 |  |  |  | 2,987,875 |   |  | $ | 28.32 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Options granted                                                    |  |                         | 1,167,500 |          |  |        | 41.11 |          |  |        | 1,088,750 |          |  |   | 30.09 |  |  |  | 938,800   |   |  |   | 23.00 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Options exercised                                                  |  |                         | (762,720  | )        |  |        | 27.90 |          |  |        | (801,850  | )        |  |   | 20.42 |  |  |  | (28,852   | ) |  |   | 19.36 | 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Options canceled                                                   |  |                         | (123,437  | )        |  |        | 31.16 |          |  |        | (143,125  | )        |  |   | 30.84 |  |  |  | (62,648   | ) |  |   | 30.13 | 
|                                                                   |  |                         |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|Balance outstanding at
    December 31                             |  |                         | 4,260,293 |          |  | $      | 32.59 |          |  |        | 3,978,950 |          |  | $ | 29.12 |  |  |  | 3,835,175 |   |  | $ | 27.08 | 
|                                                                   |  |                         |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|Options exercisable at
    December 31                             |  |                         | 1,775,593 |          |  | $      | 29.94 |          |  |        | 1,716,933 |          |  | $ | 28.42 |  |  |  | 1,840,716 |   |  | $ | 24.62 | 
|                                                                   |  |                         |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |  |           |   |  |   |       | 
|Weighted average fair value of options granted
    during the year |  |                         |           |          |  | $      | 15.07 |          |  |        |           |          |  | $ | 11.43 |  |  |  |           |   |  | $ | 7.45  | 
|                                                                   |  |                         |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |  |           |   |  |   |       | 

The following table summarizes information about stock options
outstanding as of December 31, 2002:

|                         |  |                     |           |                     |  |             |       |           |  |          |             |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | ----------- | ----- | --------- |  | -------- | ----------- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                     |           |                    
|                         |  | 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 |  | 12/31/02            |           | Price               |  | Life        |       | 12/31/02  |  | Price   
|                         |  |                     |           |                     |  |             |       |           |  |         
|$15.75 - $23.00          |  |                     | 1,005,325 |                     |  | $           | 21.80 |           |  |          | 5.72  years |  |  |  | 590,175   |  |  | $ | 20.96 | 
|                        
|                        
|                        
|                        
|$24.13 - $29.97          |  |                     | 978,442   |                     |  | $           | 29.58 |           |  |          | 7.68  years |  |  |  | 245,317   |  |  | $ | 28.52 | 
|                        
|                        
|                        
|                        
|$33.19 - $38.13          |  |                     | 1,138,526 |                     |  | $           | 36.18 |           |  |          | 5.78  years |  |  |  | 928,101   |  |  | $ | 35.87 | 
|                        
|                        
|                        
|                        
|$41.05 - $43.87          |  |                     | 1,138,000 |                     |  | $           | 41.11 |           |  |          | 9.11  years |  |  |  | 12,000    |  |  | $ | 41.05 | 
|                         |  |                     |           |                     |  |             |       |           |  |          |             |  |  |  |           |  |  |   |       | 
|                         |  |                     | 4,260,293 |                     |  | $           | 32.59 |           |  |          | 7.10  years |  |  |  | 1,775,593 |  |  | $ | 29.94 | 
|                         |  |                     |           |                     |  |             |       |           |  |          |             |  |  |  |           |  |  |   |       | 

74



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)



|        |                                   
|------- | ----------------------------------
|Note 15 | Net Income Per Common Equity Share

|                                         |                                         |        |   |         |  |           |  |        |  |  |   |      | 
|---------------------------------------- | --------------------------------------- | ------ | - | ------- |  | --------- |  | ------ |  |  | - | ---- | 
|Years ended December 31                  |                                         |        |   |         |  | Per Share
|(in thousands, except per share amounts) |                                         | Income |   | Shares  |  | Amount   
|                                         |                                         |        |   |         |  |          
|2002                                     |                                         |        |   |         |  |           |  |        |  |  |   |     
|                                        
|                                        
|                                        
|                                        
|Basic                                    |                                         |        |   |         |  |           |  |        |  |  |   |     
|                                        
|                                        
|                                        
|                                        
|                                         | Net income                              |        | $ | 268,375 |  |           |  | 72,824 |  |  | $ | 3.69 | 
|                                         |                                         |        |   |         |  |           |  |        |  |  |   |     
|Diluted                                  |                                         |        |   |         |  |           |  |        |  |  |   |     
|                                        
|                                        
|                                        
|                                        
|                                         | Options                                 |        |   |         |  |           |  | 431    |  |  |   |      | 
|                                        
|                                        
|                                        
|                                        
|                                         | Stock warrant                           |        |   |         |  |           |  | 559    |  |  |   |      | 
|                                         |                                         |        |   |         |  |           |  |        |  |  |   |     
|                                         | Income available to common stockholders |        | $ | 268,375 |  |           |  | 73,814 |  |  | $ | 3.64 | 
|                                         |                                         |        |   |         |  |           |  |        |  |  |   |     
|2001                                     |                                         |        |   |         |  |           |  |        |  |  |   |     
|                                        
|                                        
|                                        
|                                        
|Basic                                    |                                         |        |   |         |  |           |  |        |  |  |   |     
|                                        
|                                        
|                                        
|                                        
|                                         | Net income                              |        | $ | 234,090 |  |           |  | 72,043 |  |  | $ | 3.25 | 
|                                         |                                         |        |   |         |  |           |  |        |  |  |   |     
|Diluted                                  |                                         |        |   |         |  |           |  |        |  |  |   |     
|                                        
|                                        
|                                        
|                                        
|                                         | Options                                 |        |   |         |  |           |  | 505    |  |  |   |      | 
|                                        
|                                        
|                                        
|                                        
|                                         | Stock warrant                           |        |   |         |  |           |  | 362    |  |  |   |      | 
|                                         |                                         |        |   |         |  |           |  |        |  |  |   |     
|                                         | Income available to common stockholders |        | $ | 234,090 |  |           |  | 72,910 |  |  | $ | 3.21 | 
|                                         |                                         |        |   |         |  |           |  |        |  |  |   |     
|2000                                     |                                         |        |   |         |  |           |  |        |  |  |   |     
|                                        
|                                        
|                                        
|                                        
|Basic                                    |                                         |        |   |         |  |           |  |        |  |  |   |     
|                                        
|                                        
|                                        
|                                        
|                                         | Net income                              |        | $ | 257,367 |  |           |  | 73,254 |  |  | $ | 3.51 | 
|                                         |                                         |        |   |         |  |           |  |        |  |  |   |     
|Diluted                                  |                                         |        |   |         |  |           |  |        |  |  |   |     
|                                        
|                                        
|                                        
|                                        
|                                         | Options                                 |        |   |         |  |           |  | 125    |  |  |   |      | 
|                                         |                                         |        |   |         |  |           |  |        |  |  |   |     
|                                         | Income available to common stockholders |        | $ | 257,367 |  |           |  | 73,379 |  |  | $ | 3.51 | 
|                                         |                                         |        |   |         |  |           |  |        |  |  |   |     

Basic net income per common equity share was computed by
dividing net income by the weighted average number of shares of
Common Stock and Exchangeable Shares outstanding during the
year. Diluted net income 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
|                             |  |                        
|                             |  | 2002                    |         | 2001 |  | 2000
|                             |  |                         |         |      |  |     
|U.S.                         |  | $                       | 148,735 |      |  | $    | 143,526 |  |  | $ | 248,476 | 
|                            
|                            
|                            
|                            
|Canada                       |  |                         | 220,422 |      |  |      | 202,630 |  |  |   | 155,353 | 
|                             |  |                         |         |      |  |      |         |  |  |   |         | 
|Earnings before income taxes |  | $                       | 369,157 |      |  | $    | 346,156 |  |  | $ | 403,829 | 
|                             |  |                         |         |      |  |      |         |  |  |   |         | 

75



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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
|          |        |                        
|          |        | 2002                    |                    | 2001   |        | 2000   
|          |        |                         |                    |        |        |        
|Current:  |        |                         |                    |        |        |         |   |        |         |         |   |       
|         
|         
|         
|         
|          | U.S.   |                         | $                  | 17,259 |        |         | $ | 45,355 |         |         | $ | 88,501 |        
|         
|         
|         
|         
|          | Canada |                         |                    | 73,576 |        |         |   | 66,681 |         |         |   | 45,805 |        
|          |        |                         |                    |        |        |         |   |        |         |         |   |       
|          |        | Total current           |                    |        | 90,835 |         |   |        | 112,036 |         |   |        | 134,306 |        
|          |        |                         |                    |        |        |         |   |        |         |         |   |       
|Deferred: |        |                         |                    |        |        |         |   |        |         |         |   |       
|         
|         
|         
|         
|          | U.S.   |                         |                    | 4,786  |        |         |   | 6,271  |         |         |   | 3,277  |        
|         
|         
|         
|         
|          | Canada |                         |                    | 5,161  |        |         |   | (6,241 | )       |         |   | 8,879  |        
|          |        |                         |                    |        |        |         |   |        |         |         |   |       
|          |        | Total deferred          |                    |        | 9,947  |         |   |        | 30      |         |   |        | 12,156  |        
|          |        |                         |                    |        |        |         |   |        |         |         |   |       
|          |        |                         | Total income taxes |        | $      | 100,782 |   |        | $       | 112,066 |   |        | $       | 146,462 | 
|          |        |                         |                    |        |        |         |   |        |         |         |   |       

With the exception of 1997 for which the company has already
extended the statute of limitations until September 30,
2003, the Federal Statue of Limitations has closed for all U.S.
income tax returns through 1998. The companys Canadian
federal tax liability for all taxation years through 1997 has
been reviewed and finalized by Canada Customs and Revenue Agency
(CCRA). During 1995, an agreement was reached with
CCRA related to the pricing of certain cement sales between the
companys operations in Canada and the U.S. Under the terms
of the Canada-US Income tax Convention, the agreement was
submitted to the Competent Authorities of Canada and the U.S.
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 are currently under review by the Internal Revenue
Service. During 2002 an Advance Pricing Agreement was concluded
among the company, LCI and the tax authorities of Canada and the
U.S. related to the above noted transfer prices for the years
1995 to 2000.

In 2002 and 2001, the income tax expense was reduced by deferred
tax adjustments resulting from the lowering of federal and
provincial tax rates in Canada. Enactments in December 2002
and June 2001 reduced income tax expense by approximately
Canadian $3 million (approximately U.S. $2 million)
and $23 million (approximately U.S. $15 million) in 2002
and 2001, respectively.

76



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##### Table of Contents



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
|                                                                            |  |                        
|                                                                            |  | 2002                    |       | 2001 |  | 2000
|                                                                            |  |                         |       |      |  |     
|Taxes at the U.S. federal income tax rate                                   |  | $                       | 129.2 |      |  | $    | 121.2 |   |  | $ | 141.3 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|U.S./ Canadian tax rate differential                                        |  |                         | 6.9   |      |  |      | 5.0   |   |  |   | 4.3   |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Canadian tax incentives                                                     |  |                         | (14.5 | )    |  |      | (11.7 | ) |  |   | (9.2  | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|U.S. state and Canadian provincial income taxes,
    net of federal benefit |  |                         | 8.7   |      |  |      | 9.2   |   |  |   | 15.0  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Enacted tax rate changes                                                    |  |                         | (2.0  | )    |  |      | (15.2 | ) |  |   |      |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Dividends on the Preferred Shares                                           |  |                         | 2.9   |      |  |      | 3.9   |   |  |   |      |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Reversal of valuation allowance                                             |  |                         | (23.3 | )    |  |      |      |   |  |   |      |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Transfer pricing adjustments                                                |  |                         | (6.2  | )    |  |      |      |   |  |   |      |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Other items                                                                 |  |                         | (0.9  | )    |  |      | (0.3  | ) |  |   | (4.9  | )
|                                                                            |  |                         |       |      |  |      |       |   |  |   |       |  
|Provision for income taxes                                                  |  | $                       | 100.8 |      |  | $    | 112.1 |   |  | $ | 146.5 |  
|                                                                            |  |                         |       |      |  |      |       |   |  |   |       |  

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 carryforwards that give rise to
deferred tax assets and liabilities are as follows (in
thousands):

|                                            |                                |             |         |         |  |   |         |         | 
|------------------------------------------- | ------------------------------ | ----------- | ------- | ------- |  | - | ------- | ------- | 
|                                            |                                |            
|                                            |                                | December 31
|                                            |                                |            
|                                            |                                | 2002        |         | 2001   
|                                            |                                |             |         |        
|Deferred tax assets:                        |                                |             |         |         |  |   |         |        
|                                           
|                                           
|                                           
|                                           
|                                            | Reserves and other liabilities |             | $       | 56,069  |  |   | $       | 59,971  | 
|                                           
|                                           
|                                           
|                                           
|                                            | Other postretirement benefits  |             |         | 73,139  |  |   |         | 70,374  | 
|                                           
|                                           
|                                           
|                                           
|                                            | Tax loss carry forwards        |             |         | 3,630   |  |   |         | 3,654   | 
|                                           
|                                           
|                                           
|                                           
|                                            | Minimum pension liability      |             |         | 78,792  |  |   |         | 7,600   | 
|                                            |                                |             |         |         |  |   |         |        
|Gross deferred tax assets                   |                                |             | 211,630 |         |  |   | 141,599 |        
|                                           
|                                           
|                                           
|                                           
|Valuation allowance                         |                                |             |        |         |  |   | (23,296 | )      
|                                            |                                |             |         |         |  |   |         |        
|Net deferred tax assets                     |                                |             | 211,630 |         |  |   | 118,303 |        
|                                            |                                |             |         |         |  |   |         |        
|Deferred tax liabilities:                   |                                |             |         |         |  |   |         |        
|                                           
|                                           
|                                           
|                                           
|                                            | Property, plant and equipment  |             |         | 233,488 |  |   |         | 214,534 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Prepaid pension asset          |             |         | 44,309  |  |   |         | 42,264  | 
|                                           
|                                           
|                                           
|                                           
|                                            | Other                          |             |         | 16,097  |  |   |         | 14,221  | 
|                                            |                                |             |         |         |  |   |         |        
|Gross deferred tax liabilities              |                                |             | 293,894 |         |  |   | 271,019 |        
|                                            |                                |             |         |         |  |   |         |        
|Net deferred tax liability                  |                                |             | 82,264  |         |  |   | 152,716 |        
|                                           
|                                           
|                                           
|                                           
|Net deferred tax asset  current            |                                |             | 42,369  |         |  |   | 54,224  |        
|                                            |                                |             |         |         |  |   |         |        
|Net deferred tax liability 
    noncurrent |                                | $           | 124,633 |         |  | $ | 206,940 |        
|                                            |                                |             |         |         |  |   |         |        

A valuation allowance for the deferred tax asset has decreased
from $23.3 million in 2001 to zero in 2002. Considering the
continued favorable long-term outlook of the U.S. market for the
companys products, particularly in light of the
companys ability to generate taxable income during the
recent economic downturn,

77



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

and managements projections of future taxable income in
the U.S., management has determined that there is no longer
sufficient reason to believe that the recorded deferred tax
asset will not be realized. Based on the provisions of SFAS 109,
this change in judgment about the realizability of the deferred
tax asset in future years is treated as arising from continuing
operations and was recognized in Net Income in 2002.

At December 31, 2002, the company had net operating loss
carryforwards of $12.0 million. The net operating loss
carryforwards are limited to use in varying annual amounts
through 2008.

At December 31, 2002, cumulative undistributed earnings of
LCI were $1,088.1 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 and fixed 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.

78



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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         
|           |                                     |                                 
|           |                                     | 2002                             |                 | 2001   |         | 2000   
|           |                                     |                                  |                 |        |         |        
|Net sales: |                                     |                                  |                 |        |         |         |  |        |         |         |  |       
|          
|          
|          
|          
|           | Construction materials:             |                                  |                 |        |         |         |  |        |         |         |  |        |        
|          
|          
|          
|          
|           |                                     | Revenues from external customers |                 | $      | 1,938.6 |         |  | $      | 2,073.8 |         |  | $      | 1,575.4 |        
|          
|          
|          
|          
|           |                                     | Intersegment revenues            |                 |        | 4.4     |         |  |        |        |         |  |        | 0.3     |        
|          
|          
|          
|          
|           | Cement and cement-related products: |                                  |                 |        |         |         |  |        |         |         |  |        |        
|          
|          
|          
|          
|           |                                     | Revenues from external customers |                 |        | 1,080.3 |         |  |        | 1,096.8 |         |  |        | 1,078.1 |        
|          
|          
|          
|          
|           |                                     | Intersegment revenues            |                 |        | 138.4   |         |  |        | 141.6   |         |  |        | 137.3   |        
|          
|          
|          
|          
|           | Gypsum:                             |                                  |                 |        |         |         |  |        |         |         |  |        |        
|          
|          
|          
|          
|           |                                     | Revenues from external customers |                 |        | 232.7   |         |  |        | 152.4   |         |  |        | 134.1   |        
|          
|          
|          
|          
|           | Eliminations                        |                                  |                 | (142.8 | )       |         |  | (141.6 | )       |         |  | (137.6 | )      
|           |                                     |                                  |                 |        |         |         |  |        |         |         |  |       
|           |                                     |                                  | Total net sales |        | $       | 3,251.6 |  |        | $       | 3,323.0 |  |        | $       | 2,787.6 | 
|           |                                     |                                  |                 |        |         |         |  |        |         |         |  |       

|                               |                                                                   |                              |   |       |       |      |   |       |       |  |   |       |       | 
|------------------------------ | ----------------------------------------------------------------- | ---------------------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                               |                                                                   |                             
|                               |                                                                   | Years Ended December 31     
|                               |                                                                   |                             
|                               |                                                                   | 2002                         |   | 2001  |       | 2000
|                               |                                                                   |                              |   |       |       |     
|Income (loss) from operations: |                                                                   |                              |   |       |       |      |   |       |       |  |   |      
|                              
|                              
|                              
|                              
|                               | Construction materials (a)                                        |                              | $ | 196.8 |       |      | $ | 235.6 |       |  | $ | 192.1 |      
|                              
|                              
|                              
|                              
|                               | Cement and cement-related products (a)                            |                              |   | 310.8 |       |      |   | 313.9 |       |  |   | 318.3 |      
|                              
|                              
|                              
|                              
|                               | Gypsum (a)                                                        |                              |   | (16.3 | )     |      |   | (69.4 | )     |  |   | (18.0 | )    
|                               |                                                                   |                              |   |       |       |      |   |       |       |  |   |      
|                               | Total                                                             |                              |   | 491.3 |       |      |   | 480.1 |       |  |   | 492.4 |      
|                              
|                              
|                              
|                              
|                               | Corporate and unallocated expenses                                |                              |   | (70.7 | )     |      |   | (79.0 | )     |  |   | (61.7 | )    
|                               |                                                                   |                              |   |       |       |      |   |       |       |  |   |      
|                               | Earnings before minority interests, interest and
    income taxes |                              |   | 420.6 |       |      |   | 401.1 |       |  |   | 430.7 |      
|                              
|                              
|                              
|                              
|                               | Minority interests                                                |                              |   | (8.3  | )     |      |   | (7.0  | )     |  |   |      |      
|                              
|                              
|                              
|                              
|                               | Interest expense, net                                             |                              |   | (43.1 | )     |      |   | (47.9 | )     |  |   | (26.9 | )    
|                               |                                                                   |                              |   |       |       |      |   |       |       |  |   |      
|                               |                                                                   | Earnings before income taxes |   | $     | 369.2 |      |   | $     | 346.2 |  |   | $     | 403.8 | 
|                               |                                                                   |                              |   |       |       |      |   |       |       |  |   |      



---



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

|        |                                    |                         |   |         |         |      |   |         |         |  |   |         |         | 
|------- | ---------------------------------- | ----------------------- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|        |                                    |                        
|        |                                    | Years Ended December 31
|        |                                    |                        
|        |                                    | 2002                    |   | 2001    |         | 2000
|        |                                    |                         |   |         |         |     
|Assets: |                                    |                         |   |         |         |      |   |         |         |  |   |        
|       
|       
|       
|       
|        | Construction materials             |                         | $ | 1,872.4 |         |      | $ | 1,972.7 |         |  | $ | 1,947.4 |        
|       
|       
|       
|       
|        | Cement and cement-related products |                         |   | 1,241.7 |         |      |   | 1,097.8 |         |  |   | 1,052.1 |        
|       
|       
|       
|       
|        | Gypsum                             |                         |   | 310.4   |         |      |   | 260.4   |         |  |   | 279.4   |        
|       
|       
|       
|       
|        | Corporate and unallocated assets   |                         |   | 809.7   |         |      |   | 786.7   |         |  |   | 623.7   |        
|        |                                    |                         |   |         |         |      |   |         |         |  |   |        
|        |                                    | Total assets            |   | $       | 4,234.2 |      |   | $       | 4,117.6 |  |   | $       | 3,902.6 | 
|        |                                    |                         |   |         |         |      |   |         |         |  |   |        

79



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

|                      |                                    |                            |   |       |       |      |   |       |       |  |   |       |       | 
|--------------------- | ---------------------------------- | -------------------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                      |                                    |                           
|                      |                                    | Years Ended December 31   
|                      |                                    |                           
|                      |                                    | 2002                       |   | 2001  |       | 2000
|                      |                                    |                            |   |       |       |     
|Capital expenditures: |                                    |                            |   |       |       |      |   |       |       |  |   |      
|                     
|                     
|                     
|                     
|                      | Construction materials             |                            | $ | 105.7 |       |      | $ | 126.6 |       |  | $ | 100.8 |      
|                     
|                     
|                     
|                     
|                      | Cement and cement-related products |                            |   | 123.0 |       |      |   | 152.2 |       |  |   | 172.4 |      
|                     
|                     
|                     
|                     
|                      | Gypsum                             |                            |   | 7.6   |       |      |   | 34.0  |       |  |   | 135.8 |      
|                     
|                     
|                     
|                     
|                      | Corporate and unallocated          |                            |   | 11.6  |       |      |   | 20.4  |       |  |   | 22.7  |      
|                      |                                    |                            |   |       |       |      |   |       |       |  |   |      
|                      |                                    | Total capital expenditures |   | $     | 247.9 |      |   | $     | 333.2 |  |   | $     | 431.7 | 
|                      |                                    |                            |   |       |       |      |   |       |       |  |   |      

|                                          |                                    |                                                    |   |      |       |      |   |       |       |  |   |      |       | 
|----------------------------------------- | ---------------------------------- | -------------------------------------------------- | - | ---- | ----- | ---- | - | ----- | ----- |  | - | ---- | ----- | 
|                                          |                                    |                                                   
|                                          |                                    | Years Ended December 31                           
|                                          |                                    |                                                   
|                                          |                                    | 2002                                               |   | 2001 |       | 2000
|                                          |                                    |                                                    |   |      |       |     
|Depreciation, depletion and amortization: |                                    |                                                    |   |      |       |      |   |       |       |  |   |     
|                                         
|                                         
|                                         
|                                         
|                                          | Construction materials             |                                                    | $ | 87.9 |       |      | $ | 102.0 |       |  | $ | 82.4 |      
|                                         
|                                         
|                                         
|                                         
|                                          | Cement and cement-related products |                                                    |   | 74.0 |       |      |   | 73.0  |       |  |   | 75.4 |      
|                                         
|                                         
|                                         
|                                         
|                                          | Gypsum                             |                                                    |   | 17.6 |       |      |   | 16.5  |       |  |   | 7.8  |      
|                                         
|                                         
|                                         
|                                         
|                                          | Corporate                          |                                                    |   | 2.7  |       |      |   | 2.7   |       |  |   | 2.7  |      
|                                          |                                    |                                                    |   |      |       |      |   |       |       |  |   |     
|                                          |                                    | Total depreciation, depletion and
    amortization |   | $    | 182.2 |      |   | $     | 194.2 |  |   | $    | 168.3 | 
|                                          |                                    |                                                    |   |      |       |      |   |       |       |  |   |     

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

|                                   |                                    |                         |   |         |         |      |   |         |         |  |   |         |         | 
|---------------------------------- | ---------------------------------- | ----------------------- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                   |                                    |                        
|                                   |                                    | Years Ended December 31
|                                   |                                    |                        
|                                   |                                    | 2002                    |   | 2001    |         | 2000
|                                   |                                    |                         |   |         |         |     
|Net sales from external customers: |                                    |                         |   |         |         |      |   |         |         |  |   |        
|                                  
|                                  
|                                  
|                                  
|                                   | Cement and cement-related products |                         | $ | 1,080.3 |         |      | $ | 1,096.8 |         |  | $ | 1,078.1 |        
|                                  
|                                  
|                                  
|                                  
|                                   | Ready-mixed concrete               |                         |   | 648.5   |         |      |   | 664.3   |         |  |   | 636.5   |        
|                                  
|                                  
|                                  
|                                  
|                                   | Aggregate                          |                         |   | 530.7   |         |      |   | 519.0   |         |  |   | 516.7   |        
|                                  
|                                  
|                                  
|                                  
|                                   | Asphalt and paving                 |                         |   | 661.9   |         |      |   | 740.0   |         |  |   | 376.3   |        
|                                  
|                                  
|                                  
|                                  
|                                   | Gypsum drywall                     |                         |   | 232.7   |         |      |   | 152.4   |         |  |   | 134.1   |        
|                                  
|                                  
|                                  
|                                  
|                                   | Other miscellaneous products       |                         |   | 97.5    |         |      |   | 150.5   |         |  |   | 45.9    |        
|                                   |                                    |                         |   |         |         |      |   |         |         |  |   |        
|                                   |                                    | Total net sales         |   | $       | 3,251.6 |      |   | $       | 3,323.0 |  |   | $       | 2,787.6 | 
|                                   |                                    |                         |   |         |         |      |   |         |         |  |   |        

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

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

|       |  |                         |         |         |  |        |       |       |  |         |         |        |  |       |         |         |  |        |       |  |  |   |         |  |  |   |         |  |  |   |       |  |  |   |         | 
|------ |  | ----------------------- | ------- | ------- |  | ------ | ----- | ----- |  | ------- | ------- | ------ |  | ----- | ------- | ------- |  | ------ | ----- |  |  | - | ------- |  |  | - | ------- |  |  | - | ----- |  |  | - | ------- | 
|       |  |                        
|       |  | Years Ended December 31
|       |  |                        
|       |  |                         |         |         |  |       
|       |  | 2002                    |         | 2001    |  | 2000  
|       |  |                         |         |         |  |       
|       |  | Net                     |         |         |  | Fixed  |       | Net   |  |         |         | Fixed  |  | Net   |         |         |  | Fixed 
|       |  | Sales                   |         | EBIT(a) |  | Assets |       | Sales |  | EBIT(a) |         | Assets |  | Sales |         | EBIT(a) |  | Assets
|       |  |                         |         |         |  |        |       |       |  |         |         |        |  |       |         |         |  |       
|U.S.   |  | $                       | 2,026.8 |         |  | $      | 196.4 |       |  | $       | 1,478.5 |        |  | $     | 2,023.8 |         |  | $      | 203.1 |  |  | $ | 1,458.4 |  |  | $ | 1,904.4 |  |  | $ | 275.9 |  |  | $ | 1,355.7 | 
|      
|      
|      
|      
|Canada |  |                         | 1,224.8 |         |  |        | 224.2 |       |  |         | 757.8   |        |  |       | 1,299.2 |         |  |        | 198.0 |  |  |   | 736.7   |  |  |   | 883.2   |  |  |   | 154.8 |  |  |   | 766.7   | 
|       |  |                         |         |         |  |        |       |       |  |         |         |        |  |       |         |         |  |        |       |  |  |   |         |  |  |   |         |  |  |   |       |  |  |   |         | 
|       |  | $                       | 3,251.6 |         |  | $      | 420.6 |       |  | $       | 2,236.3 |        |  | $     | 3,323.0 |         |  | $      | 401.1 |  |  | $ | 2,195.1 |  |  | $ | 2,787.6 |  |  | $ | 430.7 |  |  | $ | 2,122.4 | 
|       |  |                         |         |         |  |        |       |       |  |         |         |        |  |       |         |         |  |        |       |  |  |   |         |  |  |   |         |  |  |   |       |  |  |   |         | 



---



|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(a) | EBIT represents earnings before minority interests, interest and
    income taxes.

Net sales exclude intersegment revenues.

80



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Note 18 Supplemental Cash Flow Information

Non-cash investing and financing activities included the
issuance of 131,000, 109,000 and 1,204,000 common and
exchangeable equity shares on the reinvestment of dividends
totaling $4.7 million, $3.5 million and
$25.3 million in 2002, 2001 and 2000, respectively. Cash
paid for acquisitions in 2000 does not reflect the Preferred
Shares or a $16.7 million note payable issued in
conjunction with the Warren merger. Financing activities do not
reflect the $14.4 million common stock warrants issued in
2000 for a note receivable.

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

|                                      |  |                         |         |      |  |      |        |  |  |   |         | 
|------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------ |  |  | - | ------- | 
|                                      |  |                        
|                                      |  | Years Ended December 31
|                                      |  |                        
|                                      |  | 2002                    |         | 2001 |  | 2000
|                                      |  |                         |         |      |  |     
|Interest (net of amounts capitalized) |  | $                       | 52,944  |      |  | $    | 55,851 |  |  | $ | 56,812  | 
|                                     
|                                     
|                                     
|                                     
|Income taxes (net of refunds)         |  | $                       | 128,757 |      |  | $    | 27,923 |  |  | $ | 161,701 | 
|                                      |  |                         |         |      |  |      |        |  |  |   |         | 

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.

For 2002 and 2001, the assumed settlement interest rates for
pension plans were 6.8 percent and 7.75 percent,
respectively, for the companys U.S. plans, and
6.4 percent and 6.5 percent, respectively, for the
Canadian plans. For 2002 and 2001, the assumed settlement
interest rates for other postretirement benefit plans were
7.0 percent and 7.75 percent, respectively, for the
U.S. plans, and 6.4 percent and 6.5 percent,
respectively, for the Canadian plans. For 2002 and 2001, the
assumed rates of increase in future compensation levels used in
determining the actuarial present values of the projected
benefit obligations were 4 percent for the companys
U.S. plans and 3.5 percent for the Canadian plans. The
benefit multiplier increase rate was 2.0 percent for the
companys U.S. hourly plans and 3.5 percent for the
Canadian hourly plans. In both the U.S. and Canada, the expected
long-term rate of investment return on pension assets, which
includes listed stocks, and fixed income securities, was
8.5 percent for 2002 and 9 percent for the prior years
presented.

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, some units have maximums, but in most cases there are no
lifetime maximums. In some units in Canada, spouses of retirees
have lifetime medical coverage.

81



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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 2002, the pre-65 assumed rate was
13.0 percent, decreasing to 5.5 percent over ten
years, in the U.S. plan, and 9.8 percent, decreasing to
4.7 percent over seven years, in the Canadian plan. In
2001, the pre-65 assumed rate was 10.0 percent, decreasing to
5.5 percent over ten years, in the U.S. plan, and 10.2
percent, decreasing to 4.7 percent over seven years in the
Canadian plan. For post-65 retirees in the U.S., the assumed
rate was 13.0 percent, decreasing to 5.5 percent over
ten years, in 2002, and 10.0 percent, decreasing to 5.5
percent over ten years, in 2001, with a Medicare assumed rate
for the same group of 13.0 percent, decreasing to
5.5 percent over ten years, in 2002, and 10.0 percent,
decreasing to 5.5 percent over ten years, in 2001. For
post-65 retirees in Canada, the assumed rate was
9.8 percent, decreasing to 4.7 percent over seven
years, in 2002, and 10.2 percent, decreasing to
4.7 percent over seven years, in 2001.

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 pension asset, accrued pension liability
and accrued postretirement benefit cost recorded on the
companys Consolidated Balance Sheets at December 31,
2002 and 2001 (in millions):

|                                                                          |                                        |                  |       |                               |   |      |       |       |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |        |  
|------------------------------------------------------------------------- | -------------------------------------- | ---------------- | ----- | ----------------------------- | - | ---- | ----- | ----- | - | ---- | ----- | ----- | - | - | ------ | ------ | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                          |                                        |                  |       |                              
|                                                                          |                                        | Pension Benefits |       | Other Postretirement Benefits
|                                                                          |                                        |                  |       |                              
|                                                                          |                                        | 2002             |       | 2001                          |   | 2000 |       | 2002  |   | 2001 |       | 2000 
|                                                                          |                                        |                  |       |                               |   |      |       |       |   |      |       |      
|Amounts recognized in the Statement of Financial
    Position consist of: |                                        |                  |       |                               |   |      |       |       |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Prepaid asset                          |                  | $     | 118.4                         |   |      | $     | 138.2 |   |      | $     | 136.4 |   |   | $      |       |   |   | $      |       |   |   | $      |       |  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued liability                      |                  |       | (238.8                        | ) |      |       | (49.7 | ) |      |       | (33.1 | ) |   |        | (194.9 | ) |   |        | (175.4 | ) |   |        | (174.2 | )
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Intangible asset                       |                  |       | 28.3                          |   |      |       | 2.3   |   |      |       |      |   |   |        |       |   |   |        |       |   |   |        |       |  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accumulated other comprehensive income |                  |       | 204.9                         |   |      |       | 20.8  |   |      |       |      |   |   |        |       |   |   |        |       |   |   |        |       |  
|                                                                          |                                        |                  |       |                               |   |      |       |       |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|Net amount recognized at
    December 31                                  |                                        | $                | 112.8 |                               |   | $    | 111.6 |       |   | $    | 103.3 |       |   | $ | (194.9 | )      |   | $ | (175.4 | )      |   | $ | (174.2 | )     
|                                                                          |                                        |                  |       |                               |   |      |       |       |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       

|                                         |                                           |                  |      |                               |   |      |      |       |   |      |      |       |   |   |      |      |   |   |      |      |   |   |      |      |  
|---------------------------------------- | ----------------------------------------- | ---------------- | ---- | ----------------------------- | - | ---- | ---- | ----- | - | ---- | ---- | ----- | - | - | ---- | ---- | - | - | ---- | ---- | - | - | ---- | ---- | -
|                                         |                                           |                  |      |                              
|                                         |                                           | Pension Benefits |      | Other Postretirement Benefits
|                                         |                                           |                  |      |                              
|                                         |                                           | 2002             |      | 2001                          |   | 2000 |      | 2002  |   | 2001 |      | 2000 
|                                         |                                           |                  |      |                               |   |      |      |       |   |      |      |      
|Components of Net Periodic Benefit Cost: |                                           |                  |      |                               |   |      |      |       |   |      |      |       |   |   |      |      |   |   |      |      |   |   |      |     
|                                        
|                                        
|                                        
|                                        
|                                         | Service cost                              |                  | $    | 24.8                          |   |      | $    | 20.0  |   |      | $    | 17.6  |   |   | $    | 4.7  |   |   | $    | 3.3  |   |   | $    | 2.8  |  
|                                        
|                                        
|                                        
|                                        
|                                         | Interest cost                             |                  |      | 45.4                          |   |      |      | 42.5  |   |      |      | 37.9  |   |   |      | 15.8 |   |   |      | 11.8 |   |   |      | 11.2 |  
|                                        
|                                        
|                                        
|                                        
|                                         | Expected return on plan assets            |                  |      | (63.3                         | ) |      |      | (63.7 | ) |      |      | (57.1 | ) |   |      |     |   |   |      |     |   |   |      |     |  
|                                        
|                                        
|                                        
|                                        
|                                         | Amortization of prior service cost (gain) |                  |      | 3.1                           |   |      |      | 0.1   |   |      |      | 1.6   |   |   |      | (0.8 | ) |   |      | (0.6 | ) |   |      | (0.6 | )
|                                        
|                                        
|                                        
|                                        
|                                         | Amortization of transition asset          |                  |      | (0.1                          | ) |      |      | 2.6   |   |      |      | (1.4  | ) |   |      |     |   |   |      |     |   |   |      |     |  
|                                        
|                                        
|                                        
|                                        
|                                         | Amortization of actuarial loss (gain)     |                  |      | 1.1                           |   |      |      | (5.0  | ) |      |      | (5.5  | ) |   |      | 0.8  |   |   |      |     |   |   |      |     |  
|                                        
|                                        
|                                        
|                                        
|                                         | Settlement                                |                  |      |                              |   |      |      |      |   |      |      | (0.2  | ) |   |      |     |   |   |      |     |   |   |      |     |  
|                                        
|                                        
|                                        
|                                        
|                                         | Special termination benefits              |                  |      | 0.5                           |   |      |      | 4.2   |   |      |      |      |   |   |      | 0.2  |   |   |      | 0.4  |   |   |      |     |  
|                                        
|                                        
|                                        
|                                        
|                                         | Other                                     |                  |      | (1.5                          | ) |      |      | (1.3  | ) |      |      | (1.0  | ) |   |      | (1.2 | ) |   |      |     |   |   |      |     |  
|                                         |                                           |                  |      |                               |   |      |      |       |   |      |      |       |   |   |      |      |   |   |      |      |   |   |      |     
|Net periodic benefit cost (benefit)      |                                           |                  | 10.0 |                               |   |      | (0.6 | )     |   |      | (8.1 | )     |   |   | 19.5 |      |   |   | 14.9 |      |   |   | 13.4 |     
|                                        
|                                        
|                                        
|                                        
|Defined contribution plan cost           |                                           |                  | 9.5  |                               |   |      | 7.8  |       |   |      | 7.1  |       |   |   |     |      |   |   |     |      |   |   |     |     
|                                         |                                           |                  |      |                               |   |      |      |       |   |      |      |       |   |   |      |      |   |   |      |      |   |   |      |     
|Net retirement cost (benefit)            |                                           | $                | 19.5 |                               |   | $    | 7.2  |       |   | $    | (1.0 | )     |   | $ | 19.5 |      |   | $ | 14.9 |      |   | $ | 13.4 |     
|                                         |                                           |                  |      |                               |   |      |      |       |   |      |      |       |   |   |      |      |   |   |      |      |   |   |      |     

82



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

|                                                  |                                           |                                 |       |                      |        |      |       |       |       |   |        |       |        |   |        |       |        |  
|------------------------------------------------- | ----------------------------------------- | ------------------------------- | ----- | -------------------- | ------ | ---- | ----- | ----- | ----- | - | ------ | ----- | ------ | - | ------ | ----- | ------ | -
|                                                  |                                           |                                 |       |                      |        |     
|                                                  |                                           |                                 |       | Other Postretirement
|                                                  |                                           | Pension Benefits                |       | Benefits            
|                                                  |                                           |                                 |       |                     
|                                                  |                                           | 2002                            |       | 2001                 |        | 2002 |       | 2001 
|                                                  |                                           |                                 |       |                      |        |      |       |      
|Change in Benefit Obligation:                     |                                           |                                 |       |                      |        |      |       |       |       |   |        |       |        |   |        |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Projected benefit obligation at January 1 |                                 | $     | 624.1                |        |      | $     | 595.9 |       |   | $      | 192.7 |        |   | $      | 167.1 |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Exchange rate changes           |       |                      | 3.7    |      |       |       | (18.1 | ) |        |       | 0.4    |   |        |       | (2.0   | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Service cost                    |       |                      | 18.6   |      |       |       | 13.5  |   |        |       | 4.7    |   |        |       | 3.3    |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Interest cost                   |       |                      | 45.4   |      |       |       | 42.5  |   |        |       | 15.8   |   |        |       | 11.8   |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Employee contributions          |       |                      | 3.1    |      |       |       | 2.9   |   |        |       |       |   |        |       |       |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Plan amendments                 |       |                      | 22.9   |      |       |       |      |   |        |       | (2.2   | ) |        |       |       |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Assumed from Managed Assets     |       |                      |       |      |       |       |      |   |        |       | 13.0   |   |        |       |       |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Special termination benefits    |       |                      | 0.5    |      |       |       | 4.2   |   |        |       | 0.2    |   |        |       | 2.2    |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Benefits paid                   |       |                      | (43.8  | )    |       |       | (40.5 | ) |        |       | (13.3  | ) |        |       | (11.9  | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Actuarial loss                  |       |                      | 63.9   |      |       |       | 23.6  |   |        |       | 32.3   |   |        |       | 22.2   |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Other                           |       |                      |       |      |       |       | 0.1   |   |        |       |       |   |        |       |       |  
|                                                  |                                           |                                 |       |                      |        |      |       |       |       |   |        |       |        |   |        |      
|Projected Benefits Obligation at
    December 31  |                                           | $                               | 738.4 |                      |        | $    | 624.1 |       |       | $ | 243.6  |       |        | $ | 192.7  |      
|                                                  |                                           |                                 |       |                      |        |      |       |       |       |   |        |       |        |   |        |      
|Change in Plan Assets:                            |                                           |                                 |       |                      |        |      |       |       |       |   |        |       |        |   |        |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Fair value of plan assets at January 1    |                                 |       | 615.7                |        |      |       | 748.5 |       |   |        |       |        |   |        |       |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Exchange rate changes           |       |                      | 3.1    |      |       |       | (17.7 | ) |        |       |        |   |        |       |        |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Actual return on plan assets    |       |                      | (55.1  | )    |       |       | (78.5 | ) |        |       |        |   |        |       |        |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Employer contributions          |       |                      | 5.4    |      |       |       | 4.2   |   |        |       |        |   |        |       |        |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Employee contributions          |       |                      | 3.1    |      |       |       | 2.9   |   |        |       |        |   |        |       |        |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Benefits paid                   |       |                      | (43.8  | )    |       |       | (40.5 | ) |        |       |        |   |        |       |        |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Administrative expenses         |       |                      | (3.6   | )    |       |       | (3.2  | ) |        |       |        |   |        |       |        |  
|                                                  |                                           |                                 |       |                      |        |      |       |       |       |   |        |       |        |   |        |      
|Fair Value of Plan Assets at
    December 31      |                                           | $                               | 524.8 |                      |        | $    | 615.7 |       |       |   |        |       |        |   |        |      
|                                                  |                                           |                                 |       |                      |        |      |       |       |       |   |        |       |        |   |        |      
|Reconciliation of Prepaid (Accrued) Benefit Cost: |                                           |                                 |       |                      |        |      |       |       |       |   |        |       |        |   |        |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Funded status                   |       | $                    | (213.6 | )    |       | $     | (8.4  | ) |        | $     | (243.6 | ) |        | $     | (192.7 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Unrecognized actuarial loss     |       |                      | 298.7  |      |       |       | 112.2 |   |        |       | 50.7   |   |        |       | 17.9   |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Unrecognized transition asset   |       |                      | 8.7    |      |       |       | 5.8   |   |        |       |       |   |        |       |       |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                           | Unrecognized prior service cost |       |                      | 19.0   |      |       |       | 2.0   |   |        |       | (2.0   | ) |        |       | (0.6   | )
|                                                  |                                           |                                 |       |                      |        |      |       |       |       |   |        |       |        |   |        |      
|Prepaid (Accrued) Benefit Cost at
    December 31 |                                           | $                               | 112.8 |                      |        | $    | 111.6 |       |       | $ | (194.9 | )     |        | $ | (175.4 | )    
|                                                  |                                           |                                 |       |                      |        |      |       |       |       |   |        |       |        |   |        |      

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.

83



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##### Table of Contents



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 tables above include the following amounts as of
December 31, 2002 for ex-BCNA employees related to Pension
Benefits and Other Post-Retirement Benefits respectively: Net
Amount (accrued) recognized in the Statement of Financial
Position of $(5.1) million and $(14.9) million, Intangible asset
of $1.1 million and zero, Net Periodic Benefit Cost of
$5.1 million and $1.9 million, Projected Benefit Obligation
of $13.7 million and $23.4 million, and
Prepaid/(Accrued) Benefit Cost of $(5.1) and $(14.9) million.
Funding for the pension plans will begin in 2003 and will be
reimbursed to the company under the terms of the management
agreement.

As of December 31, 2002, the company recorded a minimum
pension liability of $233.2 million related to the
accumulated benefit obligation in excess of the fair value of
the plan assets and a $28.3 million intangible asset
reflecting the portion of the minimum pension liability
generated from unamortized prior service costs. The remaining
$204.9 million of the minimum liability was recorded as
Accumulated other comprehensive loss in the
Consolidated Balance Sheets and in the Consolidated Statements
of Shareholders Equity, net of income taxes of
$78.8 million.

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
$686.0 million, $614.6 million and $439.1 million
respectively, as of December 31, 2002, and
$128.9 million, $117.6 million and $68.6 million,
respectively, as of December 31, 2001.

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. In conjunction with the Sugar Creek severance
arrangements, special postretirement benefits were provided to
employees, which increased the other postretirement projected
benefit obligation by $2.2 million, increased net periodic
benefit cost by $0.4 million and increased unrecognized
actuarial loss by $1.8 million for the year ended
December 31, 2001.

Certain employees are also covered under multi-employer pension
plans administered by unions. Amounts included in the preceding
table as defined benefit plans retirement cost include
contributions to such plans of $6.2 million for 2002 and
$6.5 million for 2001 and 2000. 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.

The defined contribution plan costs in the preceding table
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.

84



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##### Table of Contents



LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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 (stated in
millions of dollars):

|                                                                                      |  |                      |      |          |  |   |       |  
|------------------------------------------------------------------------------------- |  | -------------------- | ---- | -------- |  | - | ----- | -
|                                                                                      |  |                     
|                                                                                      |  | One-percentage-point
|                                                                                      |  |                     
|                                                                                      |  | Increase             |      | Decrease
|                                                                                      |  |                      |      |         
|Increase (decrease) in postretirement
    benefit obligation at December 31, 2002     |  | $                    | 19.3 |          |  | $ | (16.8 | )
|                                                                                     
|                                                                                     
|                                                                                     
|                                                                                     
|Increase (decrease) in the total of service
    and interest cost components for 2002 |  | $                    | 2.0  |          |  | $ | (1.7  | )

Note 20 Commitments and Contingencies

The company leases certain land, buildings and equipment. Total
rental expenses under operating leases was $39.3 million,
$34.6 million and $24.6 million for each of the three years
ended December 31, 2002, 2001 and 2000, respectively. The
table below shows the future minimum lease payments (in
millions) due under noncancelable operating leases at
December 31, 2002. Such payments total $268.6 million.

|                 |  |                          |      |      |  |      |      |      |  |      |      |             |  |  |      |  |  |  |      |  |  |  |       | 
|---------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | ----------- |  |  | ---- |  |  |  | ---- |  |  |  | ----- | 
|                 |  |                         
|                 |  | Years Ending December 31
|                 |  |                         
|                 |  | 2003                     |      | 2004 |  | 2005 |      | 2006 |  | 2007 |      | Later Years
|                 |  |                          |      |      |  |      |      |      |  |      |      |            
|Operating leases |  |                          | 43.5 |      |  |      | 33.5 |      |  |      | 25.7 |             |  |  | 20.6 |  |  |  | 19.6 |  |  |  | 125.7 | 

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. The agreements call for minimum
annual purchases of $7.7 million over a 20-year period
ending in 2020. The present value of these commitments
approximates $83 million at December 31, 2002.

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
8 years.

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, we execute contracts
involving indemnifications standard in the industry and
indemnifications specific to a transaction such as sale of a
business. These indemnifications might include claims relating
to any of the following: environmental and tax matters;
intellectual property rights; governmental regulations and
employment-related matters; customer, supplier, and other
commercial contractual relationships; and financial matters,
such as securitizations. While the maximum amount to which 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, 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 the
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. Dunn
Industrial appears to be seeking in excess of $67 million in
damages. The amount of the companys liability in
connection with this suit remains uncertain. The

85



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LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

trial court ruled that the issues raised by Dunn Industrial need
not be arbitrated but rather could 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. Dunn filed a Transfer
Motion to the Missouri Supreme Court seeking appeal of the Court
of Appeals ruling, which motion the Missouri Supreme Court has
granted. The company believes Dunn Industrials claims are
without merit and intends to vigorously defend the suit.

In June 2001, LCI paid Canadian $15.6 million
(approximately U.S. $10 million), including interest,
representing its share of the damages awarded to the plaintiffs
in a lawsuit originating in 1992 (the 1992 lawsuit)
arising from claims of building owners, the Ontario New Home
Warranty Program and other plaintiffs regarding defective
concrete foundations. Earlier in 2001, the Ontario Court of
Appeal confirmed the decision of the trial court, which had
attributed to LCI 80 percent of the liability for the
damages incurred by the plaintiffs on the basis that the
problems in the concrete foundations were caused by a product
supplied by LCI. In December 2002, the Ontario Court of
Appeal confirmed the trial courts decision on the
insurance coverage of LCI. Based on the Court of Appeals
decision, LCI should be reimbursed by its insurers for most of
the damages it paid to the plaintiffs, and most of the defense
expenses and third party costs arising from the 1992 lawsuit. We
have already expensed or taken reserves for 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 probable insurance recoveries) will not have a material
adverse effect on our financial condition.

Currently, the company is involved in two matters 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 the first 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 new 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. The company believes that this
matter will not have a material impact on its financial
condition. At the second site, which the U.S. Environmental
Protection Agency has also listed on the National Priority List,
and the company also has been named a potentially responsible
party (PRP) for the site, the EPA alleges that a
predecessor company at some undefined date sent waste diesel
fuel to the site for recycling, and this material may be present
at the site. The EPA has identified several hundred PRPs,
including the company, as parties eligible for deminimis
settlements that would resolve all issues for the company at
this site. The deminimis parties settlement is undergoing public
review and comment and should be finalized in 2003. 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, 2002, 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 adequate,
the company may incur costs in excess of the amounts provided at
December 31, 2002. However, the company has concluded that
the possibility of material liability in excess of the amount
reported in the December 31, 2002 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

86



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LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

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

Included in Income from managed assets for the years
ended December 31, 2002 and 2001 is $12.0 million and
$5.6 million, respectively, of fees 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
$178.8 million and $4.1 million for payroll and other
cost reimbursement for the years ended December 31, 2002
and 2001, respectively. In accordance with the terms of the Blue
Circle Asset Management Agreement, a payment of
$2.5 million was made to Blue Circle North America as
compensation for actions taken to optimize the profitability of
the combined assets. 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 asset management agreement.

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
$4.2 million, $5.8 million and $6.1 million
during 2002, 2001 and 2000, respectively. In addition, the
company purchases various products from and sells various
products to Lafarge S.A. Such purchases totaled
$40.3 million, $52.2 million and $67.7 million in
2002, 2001 and 2000, respectively; such sales totaled
$4.0 million, $2.4 million and $1.8 million in 2002,
2001 and 2000, respectively. Management believes all
transactions the company conducted with Lafarge S.A. were
conducted on an arms-length basis.

In 2002 and 2001, Lafarge SA was paid its portion of dividends
it was entitled to receive on the companys Common Stock
and Exchangeable Shares amounting to $23.5 million for both
years.

The company purchases products from and sells products to
certain of its unconsolidated subsidiaries. Such purchases
totaled $59.1 million in 2002, $33.3 million in 2001
and $25.8 million in 2000; such sales totaled $20.7 million
in 2002, $43.3 million in 2001 and $19.7 million in
2000. The company also received dividends from certain of these
affiliates of $1.9 million and $2.1 million in 2002
and 2001, respectively. Management believes all transactions
with the companys affiliates were conducted on an
arms-length basis.

In conjunction with the Warren merger, a subsidiary of the
company issued the Preferred Shares to KVN (see Note 9), on
which cash dividends amounting to $8.4 million and
$7.0 million were paid in 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, 2002 and 2001, amounts outstanding under these
loan agreements totaled $7.0 million and $6.6 million,
respectively. Since July 30, 2002, no such loans have been
granted to executive officers of the company.

87



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LAFARGE NORTH AMERICA INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

Note 22 Quarterly Data (unaudited)

The following table summarizes financial data by quarter for
2001 and 2000 (in millions, except per share information):

|                                                  |         |       |     |        |   |       |     |        |  |       |       |      |  |   |     |      |  |   |       |      | 
|------------------------------------------------- | ------- | ----- | --- | ------ | - | ----- | --- | ------ |  | ----- | ----- | ---- |  | - | --- | ---- |  | - | ----- | ---- | 
|                                                  |         | First |     | Second |   | Third |     | Fourth |  | Total
|                                                  |         |       |     |        |   |       |     |        |  |      
|2002                                              |         |       |     |        |   |       |     |        |  |       |       |      |  |   |     |      |  |   |       |     
|                                                 
|                                                 
|                                                 
|                                                 
|Net sales                                         |         | $     | 450 |        |   | $     | 892 |        |  | $     | 1,099 |      |  | $ | 811 |      |  | $ | 3,252 |     
|                                                 
|                                                 
|                                                 
|                                                 
|Gross profit (loss)                               |         |       | (4  | )      |   |       | 229 |        |  |       | 314   |      |  |   | 191 |      |  |   | 730   |     
|                                                 
|                                                 
|                                                 
|                                                 
|Net income (loss)                                 |         |       | (53 | )      |   |       | 107 |        |  |       | 143   |      |  |   | 71  |      |  |   | 268   |     
|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 | 
|                                                  |         |       |     |        |   |       |     |        |  |       |       |      |  |   |     |      |  |   |       |     
|2001                                              |         |       |     |        |   |       |     |        |  |       |       |      |  |   |     |      |  |   |       |     
|                                                 
|                                                 
|                                                 
|                                                 
|Net sales                                         |         | $     | 443 |        |   | $     | 927 |        |  | $     | 1,102 |      |  | $ | 851 |      |  | $ | 3,323 |     
|                                                 
|                                                 
|                                                 
|                                                 
|Gross profit (loss)                               |         |       | (9  | )      |   |       | 213 |        |  |       | 298   |      |  |   | 214 |      |  |   | 716   |     
|                                                 
|                                                 
|                                                 
|                                                 
|Net income (loss)                                 |         |       | (66 | )      |   |       | 87  |        |  |       | 131   |      |  |   | 82  |      |  |   | 234   |     
|Net income (loss) per common equity
    share (a) |         |       |     |        |   |       |     |        |  |       |       |      |  |   |     |      |  |   |       |     
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Basic   |       |     | (0.92  | ) |       |     | 1.20   |  |       |       | 1.83 |  |   |     | 1.14 |  |   |       | 3.25 | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Diluted |       |     | (0.92  | ) |       |     | 1.19   |  |       |       | 1.80 |  |   |     | 1.12 |  |   |       | 3.21 | 
|                                                  |         |       |     |        |   |       |     |        |  |       |       |      |  |   |     |      |  |   |       |     



---



|    |                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

88



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##### Table of Contents



Schedule II

LAFARGE NORTH AMERICA AND SUBSIDIARIES

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS


Years Ended December 31, 2002, 2001 and 2000


(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:        |              |  |             |        |              |  |          |        |                |  |   |         |   |  |   |      |   |  |   |       
|                                         
|                                         
|                                         
|                                         
|                                          |                               | 2002         |  | $           | 28,898 |              |  | $        | 2,921  |                |  | $ | (8,206  | ) |  | $ | 117  |   |  | $ | 23,730 | 
|                                         
|                                         
|                                         
|                                         
|                                          |                               | 2001         |  | $           | 25,630 |              |  | $        | 6,106  |                |  | $ | (2,358  | ) |  | $ | (480 | ) |  | $ | 28,898 | 
|                                         
|                                         
|                                         
|                                         
|                                          |                               | 2000         |  | $           | 24,632 |              |  | $        | 2,451  |                |  | $ | (1,195  | ) |  | $ | (258 | ) |  | $ | 25,630 | 
|                                         
|                                         
|                                         
|                                         
|                                          | For cash and other discounts: |              |  |             |        |              |  |          |        |                |  |   |         |   |  |   |      |   |  |   |       
|                                         
|                                         
|                                         
|                                         
|                                          |                               | 2002         |  | $           | 4,827  |              |  | $        | 20,307 |                |  | $ | (20,542 | ) |  | $ | 26   |   |  | $ | 4,618  | 
|                                         
|                                         
|                                         
|                                         
|                                          |                               | 2001         |  | $           | 1,799  |              |  | $        | 27,139 |                |  | $ | (24,015 | ) |  | $ | (96  | ) |  | $ | 4,827  | 
|                                         
|                                         
|                                         
|                                         
|                                          |                               | 2000         |  | $           | 3,040  |              |  | $        | 32,550 |                |  | $ | (33,707 | ) |  | $ | (84  | ) |  | $ | 1,799  | 




|    |                                                               
|--- | --------------------------------------------------------------
|(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.

89



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##### Table of Contents






PART III






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

The section captioned Item 1-Election of
Directors in our Proxy Statement for the 2003 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 2003 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 2003 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 Executive Compensation 
Compensation Committee Interlocks and Insider
Participation 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 2003 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. | CONTROLS AND PROCEDURES

Within 90 days prior to the filing date of this report and
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. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are
effective in timely accumulating and communicating to management
information required to be disclosed in the reports that we file
with the SEC. There have been no significant changes in our
internal controls or in other factors that could significantly
affect those controls subsequent to the date of our last
evaluation.

90



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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                                                                     |      |  | 51 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Report of Independent Public Accountants, Arthur
    Andersen LLP                                                         |      |  | 52 | 
|                                  
|                                  
|                                  
|                                  
|Consolidated Financial Statements: |                                                                                                                           |      |  |   
|                                  
|                                  
|                                  
|                                  
|                                   | Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                                          |      |  | 53 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Consolidated Statements of Income for the Years
    Ended December 31, 2002, 2001 and 2000                                |      |  | 54 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Consolidated Statements of Shareholders
    Equity for the Years Ended December 31, 2002, 2001
    and 2000              |      |  | 55 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Consolidated Statements of Comprehensive Income
    for the Years Ended December 31, 2002, 2001 and 2000                  |      |  | 56 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2002, 2001 and 2000                            |      |  | 57 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Notes to Consolidated Financial Statements                                                                                |      |  | 58 | 
|                                  
|                                  
|                                  
|                                  
|Financial Statement Schedule:      |                                                                                                                           |      |  |   
|                                  
|                                  
|                                  
|                                  
|                                   | Schedule II  Consolidated
    Valuation and Qualifying Accounts for the Years Ended
    December 31, 2002, 2001 and 2000 |      |  | 89 | 
|                                   | 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 Exhibit
|        |     |                       
|        | 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].

91



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|Exhibit |      |                       
|------- | ---- | ----------------------
|Number  |      | Description of Exhibit
|        |      |                       
|        | 4.2  |                       
|        | 4.3  |                       
|        | 9.1  |                       
|        | 9.2  |                       
|        | 10.1 |                       
|        | 10.2 |                       
|        | 10.3 |                       
|        | 10.4 |                       
|        | 10.5 |                       
|        | 10.6 |                       
|        | 10.7 |                       
|        | 10.8 |                       
|        | 10.9 |                       

92



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|        |       |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | ----- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                       
|Number  |       | Description of Exhibit
|        |       |                       
|        | 10.10 |                        |  | Amendment No. 1 to Option Agreement for Common Stock dated as of
    May 2, 2001 between Lafarge North America and Lafarge S.A.
    [incorporated by reference to Exhibit 10.1 to the Quarterly
    Report on Form 10-Q filed by the company for the fiscal quarter
    ended June 30, 2001].                                                                                                                                                                 
|        | 10.11 |                        |  | 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].                                                                                                                                                           
|        | 10.12 |                        |  | 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].                                                                                                                  
|        | 10.13 |                        |  | 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].                                                                                                                                                                                                                                      
|        | 10.14 |                        |  | 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].                                                                        
|        | 10.15 |                        |  | 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].                                                                                                                             
|        | 10.16 |                        |  | 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].                                                                                                                                                                                                                      
|        | 10.17 |                        |  | 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].                                                                                                                                                                                                    
|        | 10.18 |                        |  | 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]                                                                                                                                 
|        | 10.19 |                        |  | 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].                                                                                                                                                                                                              
|        | 10.20 |                        |  | 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].
|        | 10.21 |                        |  | 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].                                                                                                     
|        | 10.22 |                        |  | 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].                                         

93



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|        |       |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ----- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                       
|Number  |       | Description of Exhibit
|        |       |                       
|        | 10.23 |                        |  | 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].                                                                                 
|        | 10.24 |                        |  | 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].                                                                                                                                                                                                                                                       
|        | 10.25 |                        |  | 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].                                                                                                                                                                                                                                          
|        | 10.26 |                        |  | 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].                                                                                                                                                                                                                                      
|        | 10.27 |                        |  | 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].                                                                                                                                                                                                                                                       
|        | 10.28 |                        |  | 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].                                                   
|        | 10.29 |                        |  | 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].                                                                    
|        | 10.30 |                        |  | 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].                                                                                                                                                                                                                    
|        | 10.31 |                        |  | 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].
|        | 10.32 |                        |  | 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].                                                                                                                                                                                                                                                               
|        | 10.33 |                        |  | 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].                                                                                                                                                                                                                                                                             
|        | 10.34 |                        |  | 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.                                                                                                                                                                                                                                                                                                                    
|        | 10.35 |                        |  | Agreement made and entered into as of the 25th
    day of April 2001 by and between Lafarge Corporation and John M.
    Piecuch [incorporated by reference to Exhibit 10.3 to our report
    on Form 10-Q for the quarter ended June 30, 2001].                                                                                                                                                                                                                                                                    

94



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|        |       |                        |  |                                                                                                                                                                                                                                                                                                                           
|------- | ----- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                       
|Number  |       | Description of Exhibit
|        |       |                       
|        | 10.36 |                        |  | Agreement made and entered into as of the 21st
    day of May 2001, by and among Lafarge Corporation, Lafarge
    Canada Inc. and Edward T. Balfe [incorporated by reference to
    Exhibit 10.4 to our report on Form 10-Q for the quarter ended
    June 30, 2001].                                                     
|        | 10.37 |                        |  | Agreement made and entered into as of the 21st
    day of May 2001 by and between Lafarge Corporation and Larry J.
    Waisanen [incorporated by reference to Exhibit 10.5 to our
    report on Form 10-Q for the quarter ended June 30, 2001].                                                                           
|        | 10.38 |                        |  | Lafarge North America Inc. 2002 Stock Option
    Plan, as amended [incorporated by reference to Exhibit 10.1 to
    our Report on Form 10-Q for the quarter ended March 31, 2002].                                                                                                                                        
|        | 10.39 |                        |  | 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].  
|        | 10.40 |                        |  | 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.                                                                                                                                                                                                                                                                   
|        | *99.1 |                        |  | Certification of Chief Executive Officer required
    by Section 906 of the Sarbanes  Oxley Act of 2002                                                                                                                                                                                                                  
|        | *99.2 |                        |  | Certification of Chief Financial Officer required
    by Section 906 of the Sarbanes  Oxley Act of 2002                                                                                                                                                                                                                  




|  |               
|- | --------------
|* | Filed herewith



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

No reports on Form 8-K were filed during the last quarter
of the fiscal year covered by this Annual Report.

95



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##### Table of Contents






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 27, 2003

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 27, 2003
|                                          
|/s/ LARRY J. WAISANENLarry J. Waisanen     |  | Executive Vice President and Chief Financial
    Officer |  | March 27, 2003
|                                          
|/s/ YVON BRINDAMOURYvon BrindAmour       |  | Vice President and Controller                            |  | March 27, 2003
|                                          
|/s/ BERTRAND P. COLLOMBBertrand P. Collomb |  | Chairman of the Board                                    |  | March 27, 2003
|                                          
|/s/ MARSHALL A. COHENMarshall A. Cohen     |  | Director                                                 |  | March 27, 2003
|                                          
|/s/ PHILIPPE P. DAUMANPhilippe P. Dauman   |  | Director                                                 |  | March 27, 2003
|                                          
|/s/ BERNARD L. KASRIELBernard L. Kasriel   |  | Director                                                 |  | March 27, 2003
|                                          
|/s/ JACQUES LEFÈVREJacques Lef-vre         |  | Director                                                 |  | March 27, 2003
|                                          
|/s/ PAUL W. MACAVOYPaul W. MacAvoy         |  | Director                                                 |  | March 27, 2003

96



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|                                               |  |          |  |               
|---------------------------------------------- |  | -------- |  | --------------
|Signature                                      |  | Title    |  | Date          
|                                               |  |          |  |               
|/s/ CLAUDINE B. MALONEClaudine B. Malone       |  | Director |  | March 27, 2003
|                                              
|/s/ GWYN MORGANGwyn Morgan                     |  | Director |  | March 27, 2003
|                                              
|/s/ ROBERT W. MURDOCHRobert W. Murdoch         |  | Director |  | March 27, 2003
|                                              
|/s/ BERTIN F. NADEAUBertin F. Nadeau           |  | Director |  | March 27, 2003
|                                              
|/s/ JOHN D. REDFERNJohn D. Redfern             |  | Director |  | March 27, 2003
|                                              
|/s/ JOE M. RODGERSJoe M. Rodgers               |  | Director |  | March 27, 2003
|                                              
|/s/ MICHEL ROSEMichel Rose                     |  | Director |  | March 27, 2003
|                                              
|/s/ LAWRENCE M. TANENBAUMLawrence M. Tanenbaum |  | Director |  | March 27, 2003
|                                              
|/s/ GERALD H. TAYLORGerald H. Taylor           |  | Director |  | March 27, 2003

97



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CERTIFICATION

I, Philippe R. Rollier, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1) | I have reviewed this annual report on Form 10-K of Lafarge
    North America Inc.;                                                                                                                                                                                                                                                          
|  
|2) | Based on my knowledge, this annual report does not contain any
    untrue statement of a material fact or omit to state a material
    fact necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|  
|3) | Based on my knowledge, the financial statements, and other
    financial information included in this annual report, fairly
    present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4) | The registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in exchange act rules 13a-14 and
    15d-14) for the registrant and we have:                                                                                                       



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Designed such disclosure controls and procedures to ensure that
    material information relating to the registrant, including its
    consolidated subsidiaries, is made known to us by others within
    those entities, particularly during the period in which this
    annual report is being prepared,
|
| | b) | Evaluated the effectiveness of the registrants disclosure
    controls and procedures as of a date within 90 days prior
    to the filing date of this annual report (the evaluation
    date), and                                                                                                      
|
| | c) | Presented in this annual report our conclusions about the
    effectiveness of the disclosure controls and procedures based on
    our evaluation as of the evaluation date;                                                                                                                                



|   |                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5) | The registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of the
    registrants board of directors:



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | All significant deficiencies in the design or operation of
    internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | Any fraud, whether or not material that involves management or
    other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                     



|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6) | The registrants other certifying officers and I have
    indicated in this annual report whether or not there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.

March 27, 2003

| |                                      
| | -------------------------------------
| | /s/ PHILIPPE R. ROLLIER              
| |                                      
| | Philippe R. Rollier                  
| | President and Chief Executive Officer

98



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##### Table of Contents






CERTIFICATION

I, Larry J. Waisanen, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1) | I have reviewed this annual report on Form 10-K of Lafarge
    North America Inc.;                                                                                                                                                                                                                                                          
|  
|2) | Based on my knowledge, this annual report does not contain any
    untrue statement of a material fact or omit to state a material
    fact necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|  
|3) | Based on my knowledge, the financial statements, and other
    financial information included in this annual report, fairly
    present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4) | The registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in exchange act rules 13a-14 and
    15d-14) for the registrant and we have:                                                                                                       



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Designed such disclosure controls and procedures to ensure that
    material information relating to the registrant, including its
    consolidated subsidiaries, is made known to us by others within
    those entities, particularly during the period in which this
    annual report is being prepared,
|
| | b) | Evaluated the effectiveness of the registrants disclosure
    controls and procedures as of a date within 90 days prior
    to the filing date of this annual report (the evaluation
    date), and                                                                                                      
|
| | c) | Presented in this annual report our conclusions about the
    effectiveness of the disclosure controls and procedures based on
    our evaluation as of the evaluation date;                                                                                                                                



|   |                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5) | The registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of the
    registrants board of directors:



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | All significant deficiencies in the design or operation of
    internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | Any fraud, whether or not material that involves management or
    other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                     



|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6) | The registrants other certifying officers and I have
    indicated in this annual report whether or not there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.

March 27, 2003

| |                                                     
| | ----------------------------------------------------
| | /s/ LARRY J. WAISANEN                               
| |                                                     
| | Larry J. Waisanen                                   
| | Executive Vice President and Chief Financial Officer

99