<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 8-K/A


                                 CURRENT REPORT

                     Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

               Date of Report (Date of earliest event reported):

                                  JUNE 3, 1998


                              LAFARGE CORPORATION
             (Exact name of registrant as specified in its charter)


Maryland                            0-11936                      58-1290226
(State or other                   (Commission                   (IRS Employer
jurisdiction of                    File Number)              Identification No.)
incorporation)                  


         11130 Sunrise Valley Drive, Suite 300, Reston, Virginia 20191
            (Address of principal executive offices)        (Zip Code)


              Registrant's telephone number, including area code:

                                 (703) 264-3600

<PAGE>   2
Item 7.  Financial Statements and Exhibits.

         (a)  Financial Statements

<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>                                                                                       <C>
         Audited Consolidated Financial Statements for the year ended December
         31, 1997.                                                                        F-1

         Exhibit 27   - Financial Data Schedule
                        December 31, 1997
                        

</TABLE>

                                      -2-
<PAGE>   3
                                   SIGNATURES
 

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.



Date: October 2, 1998              LAFARGE CORPORATION


                                   By: /s/ Larry J. Waisanen
                                      ----------------------------------------
                                      Larry J. Waisanen, Executive Vice
                                      President and Chief Financial Officer





                                      -3-
     
<PAGE>   4
                              LAFARGE CORPORATION

                              AUDITED CONSOLIDATED
                           FINANCIAL STATEMENTS AS OF
                               DECEMBER 31, 1997




<PAGE>   5
Item 6.
                    SELECTED CONSOLIDATED FINANCIAL DATA

The table below summarizes the selected financial information for the Company.
As discussed in the footnotes to the December 31, 1997 financial statements,
1997 balance sheet information includes the Redland acquisition accounted for
similar to a pooling of interests.


<TABLE>
<CAPTION>
                                                                         SELECTED CONSOLIDATED FINANCIAL DATA
                                                                       (in millions except as indicated by an *)

                                                                                Years Ended December 31
                                                            -------------------------------------------------------------------
                                                               1997          1996          1995           1994          1993
                                                            -------------------------------------------------------------------
<S>                                                         <C>           <C>           <C>            <C>           <C>       
Operating Results
Net Sales                                                   $  1,806.4    $  1,649.3    $  1,472.2     $  1,563.3    $  1,494.5
                                                            ==========    ==========    ==========     ==========    ==========
Income Before the Following Items:                          $    300.9    $    236.4    $    185.4     $    141.9    $     70.2
Interest expense, net                                             (6.6)        (14.1)        (15.2)         (28.8)        (42.7)
Income taxes                                                    (112.3)        (81.4)        (40.6)         (32.5)        (21.6)
                                                            ----------    ----------    ----------     ----------    ----------
Net Income                                                       182.0         140.9         129.6           80.6           5.9

Depreciation, depletion and amortization                         106.3         100.5          94.3          103.6         115.0
Other items not affecting cash                                    47.7         (33.4)       (105.6)         (36.2)         34.0
                                                            ----------    ----------    ----------     ----------    ----------
Net Cash Provided by Operations                             $    336.0    $    208.0    $    118.3     $    148.0    $    154.9
                                                            ==========    ==========    ==========     ==========    ==========
Total Assets                                                $  2,774.9    $  1,813.0    $  1,713.9     $  1,651.4    $  1,687.7
                                                            ==========    ==========    ==========     ==========    ==========

Financial Condition at Year End
Working capital                                             $   (127.2)   $    394.9    $    448.6     $    402.3    $    315.4
Property, plant and equipment, net                             1,290.2         867.7         797.0          751.9         880.7
Other assets                                                     535.2         213.0         198.3          192.4         221.8
                                                            ----------    ----------    ----------     ----------    ----------
Total Net Assets                                            $  1,698.2    $  1,475.6    $  1,443.9     $  1,346.6    $  1,417.9
                                                            ==========    ==========    ==========     ==========    ==========

Long-term debt                                              $    135.2    $    161.9    $    268.6     $    290.7    $    373.2
Other long-term liabilities                                      307.3         203.2         194.3          214.5         253.0
Shareholders' equity                                           1,255.7       1,110.5         981.0          841.4         791.7
                                                            ----------    ----------    ----------     ----------    ----------
Total Capitalization                                        $  1,698.2    $  1,475.6    $  1,443.9     $  1,346.6    $  1,417.9
                                                            ==========    ==========    ==========     ==========    ==========

Common Equity Share Information
Net income - basic*                                         $     2.56    $     2.02    $     1.89     $     1.19    $     0.10
Net income - diluted*                                       $     2.54    $     1.95    $     1.82     $     1.18    $     0.10
Dividends*                                                  $     0.42    $     0.40    $    0.375     $     0.30    $     0.30
Book value at year end*                                     $    17.51    $    15.79    $    14.17     $    12.34    $    11.84
Average shares and equivalents outstanding                        71.1          69.8          68.7           67.7          61.1
Shares outstanding at year end                                    71.7          70.4          69.2           68.2          66.9
                                                            ==========    ==========    ==========     ==========    ==========

Statistical Data
Capital expenditures                                        $    124.0    $    124.8    $    121.9     $     95.4    $     58.4
Acquisitions                                                $      8.8    $     83.5    $     29.3     $      4.7    $     15.2
Net income as a percentage of net sales*                          10.1%          8.5%          8.8%           5.2%          0.4%
Return on average shareholders' equity       *                    15.4%         13.5%         14.2%           9.9%          0.8%
Long-term debt as a percentage of total capitalization*            8.0%         11.0%         18.6%          21.6%         26.3%
Number of employees at year end*                                 9,800         6,800         6,600          6,500         7,400
Exchange rate at year end (Cdn. to U.S.)*                        0.699         0.730         0.733          0.713         0.755
Average exchange rate for year (Cdn. to U.S.)*                   0.722         0.733         0.729          0.732         0.775
                                                            ==========    ==========    ==========     ==========    ==========
</TABLE>



                                      F-1
<PAGE>   6

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 summarize the Company's operating
performance for the past three years. To facilitate analysis, sales and
operating profit are discussed by product line and are summarized in the table
on page F-31, (in millions).

The Company's three product lines are:

Cement - the production and distribution of portland and specialty cements and
cementitious materials, and the processing of fuel-quality waste and alternative
raw materials for use in cement kilns.

Construction materials - the production and distribution of ready-mixed
concrete, construction aggregates, other concrete products, and the construction
and paving of roads.

Gypsum wallboard - the production and distribution of gypsum wallboard and
related products.

Product line results for 1996 and 1995 have been restated to reflect the
reclassification of fuel-quality waste and alternative raw materials from
Construction Materials to Cement.

                                                                  

                                      F-2





<PAGE>   7

<TABLE>
<CAPTION>
                                                                               Years Ended December 31
                                                                       ------------------------------------------
                                                                          1997            1996            1995
                                                                       ------------------------------------------
<S>                                                                    <C>             <C>             <C>       
Net Sales
      Cement                                                           $  1,050.5      $    996.2      $    928.0
      Construction materials                                                785.4           750.0           651.8
      Gypsum                                                                 92.1            24.0              --
      Eliminations                                                         (121.6)         (120.9)         (107.6)
                                                                       ----------      ----------      ----------
Total Net Sales                                                        $  1,806.4      $  1,649.3      $  1,472.2
                                                                       ==========      ==========      ==========
Gross Profit
      Cement                                                           $    329.9      $    291.2      $    252.7
      Construction materials                                                119.8           101.5            70.2
      Gypsum                                                                 21.5             4.7              --
                                                                       ----------      ----------      ----------
Total
                                                                            471.2           397.4           322.9
                                                                       ----------      ----------      ----------
Operational Overhead and
   Other Expenses
      Cement                                                                (71.1)          (66.3)          (66.9)
      Construction materials                                                (39.8)          (41.6)          (36.1)
      Gypsum                                                                 (8.3)           (2.3)             --
                                                                       ----------      ----------      ----------
Total                                                                      (119.2)         (110.2)         (103.0)
                                                                       ----------      ----------      ----------
Income From Operations
      Cement                                                                258.8           224.9           185.8
      Construction materials                                                 80.0            59.9            34.1
      Gypsum                                                                 13.2             2.4              --
                                                                       ----------      ----------      ----------
Total Operating Profit
                                                                            352.0           287.2           219.9
Corporate and unallocated
      expenses                                                              (51.1)          (50.8)          (34.5)
                                                                       ----------      ----------      ----------
Total Income From Operations                                           $    300.9      $    236.4      $    185.4
                                                                       ==========      ==========      ==========
Identifiable Assets
      Cement                                                           $    795.2      $    777.0      $    793.0
      Construction materials                                              1,455.4           615.6           565.2
      Gypsum                                                                 71.8            70.7              --
      Corporate and unallocated assets                                      452.5           349.7           355.7
                                                                       ----------      ----------      ----------
Total Assets                                                           $  2,774.9      $  1,813.0      $  1,713.9
                                                                       ==========      ==========      ==========
</TABLE>


                                      F-3









<PAGE>   8

YEAR ENDED DECEMBER 31, 1997

NET SALES

The Company's net sales increased 10 percent in 1997 to $1,806.4 million from
$1,649.3 million in 1996. Canadian net sales were $769.5 million, up 9 percent.
U.S. net sales increased 10 percent to $1,036.9 million. The improvement in both
Canada and the U.S. was primarily due to increased product shipments, higher
cement and ready-mixed concrete prices, and the Company's gypsum wallboard
operations which in its first full year of operation (acquired September 1996)
added $92.1 million of sales in the U.S.

Net sales from the Company's cement operations were $1,050.5 million, an
increase of 5 percent due to higher shipments and prices. Cement sales volumes
escalated 2 percent to 12.9 million tons, while net realization (delivered price
per ton to customer less freight) increased 4 percent. U.S. net sales increased
4 percent reflecting continued high levels of infrastructure spending and paving
work as well as strength in both the residential and nonresidential sectors.
Cement shipments advanced 1 percent as most major markets posted gains. Net
realization increased 4 percent. In Canada, net sales were 10 percent higher.
Cement shipments and net realization (excluding exchange rate fluctuation)
increased 6 percent and 4 percent, respectively. In eastern Canada, cement sales
volumes declined 2 percent; however, net realization increased 3 percent. Higher
shipments in Ontario (13 percent) due to an increase in residential and
commercial construction were offset by declines in Quebec (weak economic
conditions) and in the Atlantic provinces due to higher shipments in 1996 to the
Confederation Bridge project which was completed in early 1997. In western
Canada, cement shipments were 17 percent higher reflecting gains in all major
markets except British Columbia. Substantially higher shipments in the Prairie
provinces (up 31 percent) because of strong housing starts and higher spending
levels in the oil and gas and farming sectors more than offset a 3 percent
decline in British Columbia (softening of demand).

The Company's net sales from construction materials operations were $785.4
million, a 5 percent increase. The improvement was attributed to higher
ready-mixed concrete and aggregate shipments and increased ready-mixed concrete
prices partially offset by the divestment at mid-year of the Quebec construction
operation. Ready-mixed concrete and aggregate volumes both climbed 7 percent.
Ready-mixed concrete shipments reached 7.4 million cubic yards in 1997 while
aggregate volumes rose to 43.1 million tons. In Canada, net sales increased 7
percent reflecting the higher volumes and ready-mixed concrete prices in western
Canada. Ready-mixed concrete sales volumes increased 11 percent. In eastern
Canada, sales volumes were 4 percent higher because of increased demand in
Ontario partially offset by lower shipments in Quebec (weak economic conditions)
and completion of the Confederation Bridge project in the Canadian Maritimes. In
the west, higher demand in the Prairie provinces (shipments up 42 percent)
pushed ready-mixed concrete sales volumes 17 percent higher, offsetting 7
percent lower shipments in British Columbia due to a softening of demand.
Aggregate volumes increased 14 percent mainly due to an improving economy in
Ontario and the high level of activity throughout western Canada, offset
somewhat by declines in the Atlantic provinces and Quebec. In the U.S., net
sales declined 1 percent. Ready-mixed sales volumes increased slightly (1
percent) as all major markets posted gains except Milwaukee where shipments
dropped 10 percent due to a slowdown 


                                      F-4




<PAGE>   9

in the residential construction sector. Aggregate shipments declined 6 percent
reflecting the divestment in early 1996 of a sand and gravel operation in
Pittsburgh, Pennsylvania, the negative impact of a workers' strike at the Mingo,
Ohio plant of a raw materials supplier which was settled in July, and the
termination of operations at a plant in Cleveland, Ohio. These declines were
partially offset by aggregate shipments of approximately .4 million tons from an
April 1997 acquisition in Kansas City, Missouri and a 6 percent increase in the
Milwaukee division due to higher external sales.

Net sales from the Company's gypsum operations were $92.1 million. Strong market
demand in the residential and commercial construction sectors led to strong
pricing as well as higher volumes. Wallboard shipments totaled 705 million
square feet, with both plants achieving record production levels.

GROSS PROFIT AND COST OF GOODS SOLD

The Company's gross profit as a percentage of net sales increased to 26 percent
from 24 percent in 1996. Cement gross profit was 31 percent compared to 29
percent. The improvement was the result of higher volumes and prices as well as
a 1 percent reduction in cash costs (excluding depreciation) per ton.
Construction materials gross profit increased by 2 percentage points to 15
percent. Higher ready-mixed concrete and aggregate volumes, coupled with higher
ready-mixed concrete prices in the U.S. and western Canada, were partially
offset by lower aggregate prices and increased material costs. Operating costs
were lower in eastern Canada, and the U.S. Ready-mixed concrete operations gross
profit per cubic yard rose 10 percent while aggregate operations gross profit
per ton improved 8 percent. The gross profit for gypsum wallboard was 23
percent, up 3 percent.

The Company's cement cost per ton is heavily influenced by plant capacity
utilization. The following table summarizes the Company's cement production (in
millions of tons) and the clinker production capacity utilization rate:

<TABLE>
<CAPTION>
                                                    Years Ended December 31
                                               --------------------------------
                                                  1997                 1996
                                               -----------          -----------
<S>                                            <C>                  <C>  
Cement production                                    12.15                11.54
Clinker capacity utilization                            89%                  85%
                                               ===========          ===========
</TABLE>

Cement production was 5 percent higher than 1996. U.S. production totaled 7.4
million tons, up 5 percent. Clinker capacity utilization at U.S. plants
increased to 94 percent from 91 percent. The improvement was due to higher
production at a majority of the Company's U.S. cement plants as four plants
established clinker production records. However, the Company experienced
manufacturing setbacks at two U.S. plants which required higher purchases of
clinker to replace lost production. Canadian cement production was 4.7 million
tons, up 7 percent. Canadian clinker capacity utilization increased to 82
percent from 76 percent. These improvements were due to the record-setting kiln
performance at the Exshaw plant in western Canada.


                                        
                                      F-5





<PAGE>   10

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses were $161.0 million in 1997 compared with
$151.4 million in 1996. The increase was mainly due to the full year operation
of the Company's gypsum wallboard business in addition to higher professional
fees. Selling and administrative expenses as a percentage of net sales declined
to 8.9 percent in 1997 from 9.2 percent in 1996.

OTHER (INCOME) EXPENSE, NET

Other income and expense consists of items such as equity income, amortization
of intangibles and gains and losses from divestitures. Other expense, net was
$9.3 million in 1997 compared with $9.6 million in 1996.

PERFORMANCE BY LINE OF BUSINESS

The Company's operating profit from its cement operations (before corporate and
unallocated expenses) was $258.8 million, a $33.9 million improvement. Higher
sales volumes and prices were somewhat offset by higher plant costs and higher
clinker purchases in the U.S. The Company's Canadian operations reported an
operating profit of $100.9 million, $22.4 million better than in 1996 due to a 6
percent increase in cement shipments, 4 percent rise in net realization
(excluding exchange rate fluctuation) and higher prices for exports to U.S.
operations. Cement cash cost per ton was 3 percent lower due mostly to
improvements in operating efficiencies at the Exshaw plant in western Canada. In
the U.S., operating profit was $157.9 million, $11.5 million higher. The
improvement was due to moderately higher shipments (1 percent) and a 4 percent
increase in net realization partly offset by higher plant costs, clinker
purchases (to supplement production) and higher prices for imports from Canadian
operations. Three U.S. cement plants achieved lower cash costs per ton due to
improvements in operating efficiencies.

The Company's operating profit from construction materials operations (before
corporate and unallocated expenses) was $80.0 million, $20.1 million higher than
1996. The improvement was due to higher ready-mixed concrete and aggregate sales
volumes and an increase in ready-mixed concrete prices in the U.S. and western
Canada somewhat offset by higher material costs. The Canadian operations earned
$53.1 million, $15.0 million better, primarily reflecting higher ready-mixed
concrete and aggregate volumes. In eastern Canada, higher shipments in Ontario,
lower operating costs and increased prices in the Atlantic provinces were partly
offset by a slow Quebec economy and lower shipments in the Canadian Maritimes
due to completion of the Confederation Bridge project. Earnings in the west were
up because of increased demand in the Prairie provinces and higher ready-mixed
concrete prices somewhat offset by higher material and operating costs. U.S.
operations earned $26.9 million, $5.1 million better due to a 4 percent
improvement in ready-mixed concrete prices and lower operating costs resulting
from specific cost reduction initiatives implemented during 1996 and 1997. As a
result of these actions ready-mixed concrete and aggregate operating costs were
lower by 3 percent and 7 percent, respectively. These improvements were
partially offset by a 6 percent reduction in aggregate volumes.




                                      F-6
<PAGE>   11

The Company's gypsum wallboard operations reported an operating profit of $13.2
million due to the strength of the U.S. commercial and residential construction
sectors, favorable pricing environment and record setting production at both
plants.

TOTAL INCOME FROM OPERATIONS

In 1997 total income from operations was $300.9 million, $64.5 million better
which reflects better results in all Company operations. The gypsum wallboard
operations contributed $13.2 million in its first full year of operation.
Operating profit from Canadian operations was $136.3 million, $31.6 million
better. The operating profit in the U.S. was $164.6 million, $32.9 million
better.

INTEREST EXPENSE

Interest expense decreased by $4.2 million in 1997 mainly due to lower average
debt. Interest capitalized was $1.4 million and $1.2 million in 1997 and 1996,
respectively.

INTEREST INCOME

Interest income increased $3.2 million in 1997 due to higher levels of
short-term investments throughout the year.

INCOME TAXES

Income tax expense increased from $81.5 million in 1996 to $112.3 million in
1997. Income taxes increased due to higher profits in the U.S. and Canada. The
Company's effective income tax rate was 38.2 percent in 1997 and 36.6 percent in
1996.

NET INCOME

The Company reported net income of $182.0 million in 1997 compared to 1996
income of $140.9 million. The improvement resulted from higher volumes in all of
the Company's product lines, higher cement and ready-mixed concrete prices and
lower net interest expense. These increases were partially offset by higher
cement plant costs, increases in U.S. clinker purchases, higher materials costs
in construction materials and increased selling and administrative expenses.


                                      F-7








<PAGE>   12

GENERAL OUTLOOK

Certain sections of this document include "forward-looking" statements based
upon current expectations that involve a number of business risks and
uncertainties. Although the Company believes that the statements are based upon
reasonable assumptions, there can be no assurance as to future results. The
factors that could cause results to differ materially include, but are not
limited to, national and regional economic conditions, levels of construction
spending in major markets, supply/demand structure of the industry, unfavorable
weather conditions during peak construction periods, and changes in
environmental regulations.

In 1998 the North American construction industry is expected to remain strong.
In the U.S., the Commerce Department estimates a modest increase in total
construction put in place. In addition, the recent passage of the Transportation
Equity Act for the 21st century (TEA - 21) could increase infrastructure
investment more than 40 percent, thereby significantly increasing the demand for
cement, ready-mixed concrete, aggregates and asphalt. The favorable
supply/demand situation should continue in the U.S. Canada's recovery is
expected to continue. Low interest rates and low inflation should contribute to
increased construction spending in 1998.

The U.S. Portland Cement Association is forecasting a modest drop in cement
consumption in 1998; however, the Company's U.S. cement operations expect
shipments to remain fairly stable with prices improving moderately. The Canadian
Portland Cement Association predicts that Canadian cement consumption should
increase in all regions of the country. As a result, shipments and prices in the
Company's Canadian cement operations are expected to increase.

In the Company's construction materials operations, the outlook for 1998 is
positive. In Canada, with economic conditions and interest rates remaining
favorable, construction spending is anticipated to rise. In the U.S. markets,
the Company expects little growth in volumes but greater savings from cost
efficiencies and better pricing.

The outlook for 1998 in the Company's gypsum wallboard operations is positive
because of the continued high level of residential and commercial construction
activity that is expected.


                                      F-8





<PAGE>   13

YEAR ENDED DECEMBER 31, 1996

In the second quarter of 1995 the Company reached an agreement with Revenue
Canada Taxation related to the pricing of certain cement sales between its
operations in Canada and the U.S. for the years 1984 through 1994. The agreement
resulted in an increase in net sales and pre-tax income of U.S. $30.1 million in
Canada with corresponding adjustments in the U.S. Also because of this
agreement, during the third quarter of 1996 the Company recorded a U.S. $13.7
million adjustment for 1995. However, the impact of these adjustments on
consolidated net income was immaterial. Management's Discussion and Analysis
that follows excludes the impact of this agreement (except for the discussion on
income taxes).

NET SALES

The Company's net sales increased 12 percent in 1996 to $1,649.3 million from
$1,472.2 million in 1995. Canadian net sales were $706.4 million, up 7 percent,
while U.S. net sales increased 16 percent to $942.9 million. The improvement in
both Canada and the U.S. was primarily due to increased product shipments and
improved prices as well as the effect of acquisitions (in late 1995 and early
1996) in the construction materials operations. The purchase of two gypsum
wallboard plants in September 1996 also increased U.S. net sales.

The Company's net sales from cement operations were $996.2 million, an increase
of 7 percent due to higher shipments and prices. Cement sales volumes climbed
3.5 percent to 12.6 million tons, while net realization (delivered price per ton
to customer less freight) increased 4 percent from 1995 reflecting increases in
all three geographic regions served by the Company. Canadian net sales increased
8 percent mainly due to a 3 percent improvement in average selling prices
(excluding exchange rate fluctuation) coupled with a 5 percent rise in
shipments. In eastern Canada, cement sales volumes rose 2 percent due to higher
sales in the Atlantic provinces resulting from shipments to the Confederation
Bridge project. In Ontario, shipments were flat; however, in the last six months
of 1996, volumes rose 16 percent compared with those of the prior year. Quebec
showed a slight improvement in shipments of 1 percent. Net realization increased
4 percent due to a 6 percent and a 7 percent improvement in Ontario and Quebec,
respectively, partially offset by a 2 percent decline in the Atlantic provinces
due primarily to product and customer mix. Cement shipments in western Canada
were up 9 percent as all major markets posted increases, led by Alberta (up 13
percent). Construction activity in the Prairie provinces was positively impacted
by a bumper grain harvest, healthy oil drilling activity and demand from the
mining sector. In British Columbia, sales volumes increased 7 percent as the
economy showed steady improvement during 1996. In addition, the region benefited
from a work stoppage at a competitor's concrete operation. In the U.S., net
sales were 7 percent higher. Cement shipments and net realization increased 3
percent and 4 percent, respectively. Shipments increased despite weak activity
in the Northeast, the divestment of two cement terminals on the Ohio River and a
brief labor disruption on vessels that distribute the Company's products on the
Great Lakes.

Net sales from the Company's construction materials operations were $750.0
million, up 15 percent from 1995. The improvement was achieved by higher
ready-mixed concrete and aggregate shipments and an increase in ready-mixed
concrete prices in the U.S. From continuing 


                                      F-9




<PAGE>   14

operations, ready-mixed concrete volumes increased 16 percent to 6.9 million
cubic yards and aggregate volumes climbed 4 percent to 40.1 million tons. In
Canada, ready-mixed concrete volumes increased 19 percent reflecting improved
economic activity, particularly in Ontario, coupled with the impact of
acquisitions in western Canada. Shipments to the Confederation Bridge project in
the Atlantic provinces were also higher. Aggregate volumes increased 7 percent
mainly from strong shipments in Ontario and throughout western Canada. These
increases were offset by an 18 percent decline in Quebec. Net sales in Canada
were 7 percent higher, primarily reflecting higher volumes. Net sales in the
U.S. increased 41 percent, mostly due to acquisitions and higher ready-mixed
concrete prices. Ready-mixed concrete shipments from continuing operations
increased 10 percent due to higher shipments in the New Orleans market because
of acquisitions. These increases were partially offset by a decline in St. Louis
that was due to the restructuring of operations to strengthen the competitive
position in the market. From continuing operations, aggregate shipments declined
2 percent mostly due to the divestment, in early 1996, of a sand and gravel
operation in Pittsburgh, Pennsylvania.

Net sales from the Company's gypsum operations that were acquired in September
1996 were $24.0 million. Strong demand for wallboard kept the newly acquired
plants operating at capacity.

GROSS PROFIT AND COST OF GOODS SOLD

The Company's gross profit as a percentage of net sales increased to 24 percent
in 1996 from 22 percent in 1995. Cement gross profit improved 2 percentage
points to 29 percent because both volumes and prices improved. Construction
materials gross profit increased by 2 percentage points to 13 percent as a
result of higher ready-mixed concrete and aggregate volumes, higher ready-mixed
concrete prices in the U.S. and lower operating costs. The gross profit margin
for gypsum wallboard was 20 percent.

The Company's cement cost per ton is heavily influenced by plant capacity
utilization. The following table summarizes the Company's cement production from
continuing operations (in millions of tons) and the clinker production capacity
utilization rate:

<TABLE>
<CAPTION>
                                                            Years Ended December 31
                                                       ---------------------------------
                                                         1996                     1995
                                                       --------                 --------
<S>                                                     <C>                       <C>  
Cement production                                       11.54                     11.01
Clinker capacity utilization                               85%                       90%
                                                       =======                  =======
</TABLE>

Cement production increased 5 percent over 1995. U.S. production totaled 7.1
million tons, a 10 percent increase. Clinker capacity utilization at U.S. plants
was 91 percent in 1996 compared to 90 percent in 1995. In 1995 manufacturing
setbacks at some U.S. plants necessitated higher purchases of cement and clinker
to replace lost production. Canadian cement production was 4.4 million tons, a 3
percent decrease from 1995. Clinker capacity utilization in Canada fell to 76
percent in 1996 from 90 percent in 1995 primarily due to the planned extension
of kiln shutdowns at four plants because of high inventory levels at December
31, 1995.


                                      F-10
                                        




<PAGE>   15

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses were $151.4 million in 1996 compared to
$141.1 million in 1995. The increase resulted mainly from acquisitions coupled
with higher professional fees. Selling and administrative expenses as a
percentage of net sales declined to 9.2 percent in 1996 from 9.6 percent in
1995.

OTHER (INCOME) EXPENSE, NET

Other income and expense consists of items such as equity income, amortization
of intangibles and gains and losses from divestitures. Other expense, net was
$9.6 million in 1996 compared with income of $3.5 million in 1995. The change
primarily reflects lower gains from the sale of nonstrategic assets.

RESTRUCTURING

During 1996 and 1995 the Company spent $2.3 million and $4.6 million,
respectively, which was charged to the previously provided restructuring
accrual. The restructuring, which resulted in the separation of approximately
300 employees since inception of the plan, was completed in 1996. The savings
from the restructuring (mostly from the termination of employees), after
reduction for savings related to operations that have been divested, totaled
approximately $20 million pre-tax in 1996. This reduction is in line with
management's original expectations.

PERFORMANCE BY LINE OF BUSINESS

The Company's operating profit from cement operations (before corporate and
unallocated expenses) was $224.9 million, $39.1 million higher than in 1995.
Results were better primarily due to higher sales volumes and prices and lower
imports to supplement production at clinker producing plants in the Company's
U.S. market. Operating profit from Canadian operations was $78.5 million, $15.0
million better than 1995. The improvement was due to a 5 percent increase in
cement shipments, a 4 percent escalation in net realization (excluding exchange
rate fluctuation) and higher prices for exports to U.S. operations. Partially
offsetting these improvements were planned reductions in clinker production due
to high inventory levels at December 31, 1995, and higher fuel costs at the
Exshaw and Richmond plants in western Canada. The Company's U.S. operations
reported an operating profit of $146.4 million, a $24.1 million increase from
1995's profit due to an increase in shipments and prices and lower imports to
supplement production. This improvement was somewhat offset by higher prices for
imports from Canadian operations.

The Company's operating profit from construction materials operations (before
corporate and unallocated expenses) was $59.9 million, $25.8 million better than
1995. The improvement was achieved by higher ready-mixed concrete and aggregate
sales volumes, an increase in ready-mixed concrete prices in the U.S., lower
operating costs and lower expenses related to the implementation of a new
financial reporting and management information system. The Company's Canadian
operations contributed $38.1 million, up $16.6 million. Market conditions in the
second half of the year improved. Ready-mixed concrete and aggregate volumes
were 


                                      F-11




<PAGE>   16

higher and operating costs were lower due to specific cost reduction actions
implemented in each region. U.S. operations earned $21.8 million compared to
$12.6 million in 1995. Earnings improved in all markets, particularly in the
Midwest which was hampered in 1995 by flooding. Results were boosted by higher
ready-mixed concrete prices, lower operating costs, acquisition of the remaining
interest in a ready-mixed concrete and building materials supplier, and other
late 1995 and 1996 acquisitions.

The Company's recently acquired gypsum wallboard operations reported an
operating profit of $2.4 million. Earnings were greater than expected due to
favorable market conditions.

TOTAL INCOME FROM OPERATIONS

The 1996 total income from operations was $236.4 million, $51.0 million better
than 1995. All of the Company's six cement and construction materials regions
reported better results. The recently acquired gypsum wallboard operations added
to operating earnings. Divestment gains were lower. Operating profit from
Canadian operations was $104.7 million, $29.2 million better. The operating
profit from U.S. operations was $131.7 million, $21.8 million better.

INTEREST EXPENSE

Interest expense decreased by $3.0 million in 1996 mainly due to lower average
debt and capitalized interest on construction in progress. Capitalized interest
was $1.2 million and $2.1 million in 1996 and 1995, respectively.

INTEREST INCOME

Interest income declined $1.8 million in 1996 due to lower interest rates.

INCOME TAXES

The following analysis of income taxes includes the impact of the Revenue Canada
Taxation agreement related to the pricing of certain cement sales between the
Company's operations in the U.S. and Canada. Income tax expense increased from
$40.6 million in 1995 to $81.5 million in 1996. In the U.S., taxes were $37.4
million higher due to improved earnings, the absence of a non-recurring credit
recorded in 1995 and the impact of adjustments relative to the Revenue Canada
Taxation agreement. In the third quarter of 1995, the U.S. tax provision was
lowered by $23.0 million due to a reduction of the valuation allowance recorded
in 1992 against the Company's U.S. deferred tax assets. In Canada, taxes
increased $3.5 million due to higher earnings that were mostly offset by the
impact of adjustments relative to the Revenue Canada Taxation agreement. The
Company's effective income tax rate was 36.6 percent in 1996 and 23.8 percent in
1995.

NET INCOME

Net income in 1996 was $140.9 million compared to net income of $129.6 million
in 1995. Excluding the effect of the non-recurring tax credit of $23.0 million
taken in the third quarter of 


                                      F-12





<PAGE>   17

1995, earnings in 1996 were $34.3 million better than 1995. The improvement was
mainly due to higher volumes in the Company's major product lines, higher cement
and U.S. ready-mixed concrete prices, lower operating costs in construction
materials operations and lower imports to supplement production in the U.S.
These increases were partially offset by lower divestments gains and lower
clinker production in Canada.





                                      F-13
<PAGE>   18

OTHER FACTORS AFFECTING THE COMPANY

YEAR 2000

Like many companies, the Company has business application software programs that
were developed over the years and computer infrastructure including computerized
devices that could be affected by the "Year 2000" issue. These programs, which
include operational and financial systems, were generally written using two-year
digits to define the applicable year rather than four-year digits. Any of the
programs that have time sensitive software may recognize a date using "00" as
the Year 1900 rather than the Year 2000. This error could result in the computer
shutting down or performing incorrect computations.

Excluding the acquisition of Redland, the Company has completed an initial
Compliance Assessment of the potential impact of the Year 2000 on computer
applications, operating software and hardware and has developed an
implementation plan to resolve the issue. The plan includes the replacement of
certain equipment and modification of certain software to recognize the turn of
the century. The plan is currently expected to result in estimated non-recurring
spending over the next two years of approximately $9 million to $15 million. 

The Company is currently completing the process of identifying the systems and
infrastructure within the Redland operations that could be affected by the Year
2000 and developing an implementation program.

The Company believes, with appropriate replacement or modification, it will be
able to operate its time-sensitive business-application software programs and
infrastructure through the turn of the century.

ENVIRONMENTAL MATTERS

The Company's operations, like those of other companies engaged in similar
businesses, involve the use, release, discharge, disposal, and cleanup of
substances regulated under increasingly stringent federal, state, provincial,
and/or local environmental protection laws. Many of the regulations are
technically and legally complex, posing significant compliance challenges. The
Company's environmental compliance program includes an environmental policy and
an environmental ethics policy that are designed to provide corporate direction
for all operations and employees, an environmental audit and follow-up program,
routine compliance oversight of the Company's facilities, environmental guidance
on key issues confronting the Company, routine training and exchange of
information by environmental professionals, an environmental recognition award
program, and routine and emergency reporting systems.

The Company has been and is presently involved in certain environmental
enforcement matters in both the U.S. and Canada. Management's practice is to
attempt to actively resolve such matters with the appropriate government
authorities. In certain circumstances, notwithstanding management's belief that
a particular alleged violation poses no significant threat to the environment,
the Company may decide to resolve such matters by entering into a consent
agreement and/or paying a penalty.






                                      F-14
<PAGE>   19

The Company currently operates three U.S. cement plants using fuel-quality
wastes that are subject to emission limits and other requirements under the
federal Resource Conservation and Recovery Act (RCRA) and Boiler and Industrial
Furnaces (BIF) regulations (Alpena, Michigan; Paulding, Ohio; and Fredonia,
Kansas). The other BIF requirements include a permitting process, extensive
recordkeeping of operational parameters and raw materials and waste-derived
fuels use, demonstration of financial capability to cover future closures and
spill cleanups, and corrective action requirements for other solid waste
management units at the facilities. The Company's three BIF cement plants have
submitted, in a timely manner, formal Part B permit applications, which is the
first step in the permitting process. The Fredonia plant has completed its trial
burn to establish permit limitations to be incorporated into the second step,
the final Part B permit. The Company received a draft of the proposed Part B
permit in December of 1997 and anticipates a public hearing during the first
quarter of 1998. The Paulding plant will be conducting its trial burn in May
1998; the Alpena plant, in 1999.

The U.S. Environmental Protection Agency (EPA) is in the process of revising its
BIF regulations. Proposed revisions of the BIF regulations were published in May
1996, citing both RCRA and Clean Air Act authority. The proposal relies heavily
on maximum achievable control technology (MACT) requirements of Title III of the
Clean Air Act Amendments of 1990 in conjunction with the risk-based authority of
RCRA. The proposed standards are based on technologies from a "pool" of the top
12 environmental performers of existing facilities that use fuel-quality waste
as a fuel. The Company's Alpena plant was a MACT pool facility; it
uses a baghouse as its primary air pollution control device. The Paulding plant
recently installed a baghouse and is in the process of installing a bypass
system that will likely enable it to meet the final standards when they are
promulgated. The Company has actively participated in the regulatory process to
help formulate revised BIF standards that are reasonable, cost-effective, and
comply with the RCRA and Clean Air Act. In the past year, EPA has reopened the
rulemaking process to solicit public comment on new data and proposed regulatory
approaches, i.e., particulate matter continuous emission monitoring systems. A
final regulation is not anticipated before December 1998; existing BIF
facilities would then have up to three years to meet the new standards or cease
using hazardous waste as a fuel.

A by-product of many of the Company's cement manufacturing plants is cement kiln
dust (CKD). CKD has been excluded from regulations as a hazardous waste under
the so-called Bevill amendment to the RCRA until the EPA completes a study of
CKD, determines whether it should be regulated as a hazardous waste, and issues
appropriate implementing regulations. In January 1995 the EPA issued a
regulatory determination in which it found that certain CKD management practices
create unacceptable risks that require additional regulation. The EPA
specifically identified the potential for groundwater contamination from CKD
management in karst terrain, fugitive emissions from CKD handling and
management, and surface water/stormwater runoff from CKD management areas. In
March 1995 the Company joined other cement manufacturers in submitting to the
EPA a proposed enforceable agreement for managing CKD. After a lengthy legal
review, the EPA decided that it lacks the legal authority to enter into an



                                      F-15
<PAGE>   20

enforceable agreement. In 1996 the EPA announced that it was recommencing the
process of developing CKD management standards using industry standards as the
technical starting point and Subtitle C of RCRA as its legal authority. The
Company believes it is inappropriate for the EPA to develop CKD standards under
Subtitle C of RCRA. The Company and other cement manufacturers, through their
trade association, have been working with the EPA and various states to develop
an approach for implementation of CKD management standards using state solid
waste authority rather than federal Subtitle C authority.

The EPA has advised that it will likely propose some form of a CKD management
standard in 1998. Should the EPA ultimately proceed to promulgate highly
tailored CKD management standards, the Company is likely to incur additional
capital costs and operational expenses to meet these new standards. In order to
mitigate the longer-term impact of CKD regulation at the federal and/or state
levels, the Company has undertaken a program to assess its management practices
for CKD at operational and inactive facilities in both the U.S. and Canada. The
Company has also been voluntarily taking remedial steps and instituting
management practices consistent with the industry practices for CKD management
as well as assessing and modifying process operations, evaluating and using
alternative raw materials, and implementing new technologies to reduce the
generation of CKD.

As with many industrial companies in the U.S. and Canada, the Company has been
involved in certain remedial actions to clean up or to close certain historical
waste disposal and/or contaminated sites, as required by federal, provincial,
and/or state laws. In addition, the Company has voluntarily initiated cleanup
activities at certain of its properties in order to mitigate long-term liability
exposure and/or to facilitate the sale of such property. The Company routinely
reviews all its active properties, as well as its idle properties, to determine
whether remediation is required, the adequacy of accruals for such remediation,
and the status of all remediations. It has been the Company's experience that,
over time, sites are added to and removed from the remediation list as cleanup
actions are finalized and, where necessary, governmental signoff is obtained, or
when it is determined that no governmental action will be initiated.

The Company is currently involved in two federal Superfund remediations. At one
site the remedial activities are complete, long-term maintenance and monitoring
are under-way, partial contribution has been obtained from financially viable
parties and claims against insurance carriers are being pursued. At the other
site, the potentially responsible parties named by the EPA have initiated a
third-party action against some 47 other parties including the Company. The suit
alleges that in 1969 a predecessor company of the Company sold equipment that
may have contained hazardous substances that may now be present at the site. It
appears that the largest disposer of hazardous substances at this site is the
U.S. Department of Defense, and that numerous other large disposers of hazardous
substances are associated with this site. Because this matter relates to events
far in the past by a predecessor entity, and because of the large number of
parties involved in the site, it is difficult to evaluate potential liability
with respect to this site. However, the Company believes that its ultimate
liability will not be material.





                                      F-16
<PAGE>   21

The Clean Air Act Amendments of 1990 require the EPA to develop air toxics
regulations for a broad spectrum of industrial sectors, including portland
cement manufacturing. New MACT standards are to be established that will require
plants to install the best feasible control equipment for certain hazardous air
pollutants, thereby significantly reducing air emissions. The Company is
actively participating with other cement manufacturers in working with the EPA
to define test protocols, better define the scope of MACT standards, determine
the existence and feasibility of various technologies, and develop realistic
emission limitations and continuous emissions monitoring/reporting requirements
for the cement industry. It is expected that the EPA will develop proposed
standards for existing and new facilities and publish them for review and public
comment by early 1998. Final MACT regulations are anticipated in 1999 and
existing facilities will then have three years to meet the standards or close
down operations. The Company's proposed new Sugar Creek, Missouri, plant must
meet the new MACT standards at the time of startup. Management believes that
several of its plants will likely be required to upgrade and/or replace existing
air pollution control and/or emissions monitoring equipment as a result of MACT
regulations. Management will not be able to determine the cost of such new
equipment until the EPA proposes the MACT emission standards.

Title V of 1990 Clean Air Act Amendments may potentially result in significant
capital expenditures and operational expenses for the Company. The Clean Air Act
Amendments established a new federal operating permit and fee program for many
manufacturing operations. Under the Act, the Company's U.S. operations deemed to
be "major sources" of air pollution must submit detailed permit applications and
pay recurring permit fees. As part of this process, the Company's
representatives have been discussing permit application requirements with the
respective state agencies having ultimate responsibility for review and issuance
of federal and/or state operating permits. The new permitting requirements
primarily affect the Company's cement manufacturing, gypsum wallboard and
waste-fuel operations. The Company has submitted or will be submitting
applicable permit applications.

In July 1997 the EPA promulgated revisions to two National Ambient Air Quality
Standards under the Clean Air Act -- particulate matter and photochemical
oxidants (ozone). Because of the nature of the Company's operations, the
proposed addition of a particulate matter standard that will regulate particles
2.5 microns or less in diameter, and the regulation of nitrogen oxides emissions
as the precursor pollutants to ozone, is of potential concern. Implementation of
these new standards will not immediately have an impact on industrial
operations. The first step is a several-year data collection and analysis
activity by the states to determine whether or not the state will be able to
meet the new standards. If a state is unable to demonstrate that it attains the
standards, it will then be required to modify its air quality implementation
plan to describe actions to meet the new standards. This initial phase will take
several years to complete. It is presently unknown whether states in which the
Company operates will be able to meet the new standards, how the states will
modify their implementation plans to demonstrate compliance and/or the ultimate
technology and cost impact on the Company's operations.





                                      F-17
<PAGE>   22

An evolving issue of significance to the Company in the U.S. and Canada is
global climate change, or CO2 stabilization/reduction. In December 1997 the
United Nations held an international convention in Kyoto, Japan to take further
international action to ensure CO2 stabilization and/or reduction after the turn
of the century. The conference agreed to a protocol to the United Nations
Framework Convention on Climate Change originally adopted in May 1992. The
protocol establishes quantified emission reduction commitments for certain
developed countries, including the U.S. and Canada, and certain countries that
are undergoing the process of transition to a market economy. These reductions
are to be obtained by 2008-2012. The protocol will be available for signature by
member countries starting in the spring of 1998. The protocol will require
Senate ratification and enactment of implementing legislation before it becomes
effective in the United States. The conference will resume in November 1998 to
continue work on issues not fully resolved in the Kyoto Protocol. The
consequences of CO2 reduction measures for cement producers are potentially
significant because CO2 is generated from combustion of fuels such as coal and
coke in order to generate the high temperatures necessary to manufacture cement
clinker (which is then ground with gypsum to make cement). In addition, CO2 is
generated in the calcining of limestone to make cement clinker. Any imposition
of raw material or production limitations or fuel-use or carbon taxes could have
a significant impact on the cement manufacturing industry. The Canadian cement
industry, including the Company, has entered into a voluntary commitment with
the Canadian government to annually improve energy efficiency 0.7% per ton of
clinker from 1990 to 2000. In the U.S., the Company in 1996 joined the EPA's
Climate Wise program. This voluntary program is geared to promote energy
efficiency in industrial operations and thereby reduce or stabilize the CO2
emissions that result from the generation of electricity. It will not be
possible to determine the impact on the Company until governmental requirements
are defined and/or the Company can determine whether emission offsets and/or
credits are obtainable, and whether alternative cementitious products can be
substituted.

Because of differences between requirements in the U.S. and Canada and the
complexity and uncertainty of existing and future environmental requirements,
permit conditions, costs of new and existing technology, potential remedial
costs and insurance coverages, and/or enforcement-related activities and costs,
it is difficult for management to estimate the ultimate level of Company
expenditures related to environmental matters. While amounts accrued and paid in
the past have not been material, the Company's capital expenditures and
operational expenses for environmental matters have increased and are likely to
increase in the future. The Company cannot determine at this time whether
capital expenditures and other remedial action that the Company may be required
to undertake to comply with the changing environmental protection laws will
materially affect its capital expenditures or earnings. However, with respect to
known environmental contingencies, the Company has recorded provisions for
estimated probable liabilities and does not believe that the ultimate resolution
of such matters will have a material effect on the Consolidated 
Financial Statements.







                                      F-18
<PAGE>   23

MANAGEMENT'S DISCUSSION OF CASH FLOWS

The Consolidated Statements of Cash Flows summarize the Company's
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.

The Company's liquidity requirements arise primarily from the funding of its
capital expenditures, working capital needs, debt service obligations and
dividends. The Company has met its operating liquidity needs primarily through
internal generation of cash and expects to do so in the future. However, because
of the seasonality of the Company's business, cash balances decline in the first
two calendar quarters. Short-term borrowings are generally used to fund seasonal
operating requirements.

The net cash provided by operations for each of the three years presented
reflects the Company's net income adjusted for noncash items. Depreciation and
depletion increased in 1997 due to the full year impact of the gypsum wallboard
acquisition and other capital projects completed in 1996 and in 1997.
Depreciation and depletion increased from 1995 to 1996 due to higher capital
spending and acquisitions. Deferred income taxes affected the operating cash
flow primarily because of a 1995 decrease in the valuation allowance and the
1996 and 1997 realization of certain deferred tax assets. The changes in working
capital are discussed in Management's Discussion of Financial Position.

Cash flows from investing consist primarily of capital expenditures and
acquisitions offset by proceeds from property, plant and equipment dispositions.
Investing activities include $11.1 million of cash obtained through the Redland
acquisition. Capital investments by product line, including acquisitions, were
as follows (in millions):

<TABLE>
<CAPTION>
                                               Years Ended December 31
                                        ----------------------------------------
                                            1997           1996           1995
                                        ----------     ----------     ----------
<S>                                     <C>            <C>            <C>       
Cement                                  $     74.2     $     74.2     $     97.1
Construction materials                        52.4           68.3           53.0
Gypsum                                         3.3           63.8             --
Other                                          2.9            2.0            1.1
                                        ==========     ==========     ==========
Total capital investments               $    132.8     $    208.3     $    151.2
                                        ==========     ==========     ==========
</TABLE>

Capital expenditures (including the Redland acquisition and other acquisitions
already completed or in process) are expected to be approximately $1.07 billion
in 1998. The Company intends to invest in projects that maintain or improve the
performance of its plants as well as in acquisition opportunities that will
enhance the Company's competitive position in the U.S. and Canada. In September
1996 the Company acquired G-P Gypsum Corp.'s (a subsidiary of Georgia Pacific
Corporation) gypsum wallboard manufacturing plants in Buchanan, New York, and
Wilmington, Delaware. In October 1995 the Company announced plans to build
cement plants to replace existing facilities in Richmond, British Columbia, and
Sugar Creek, Missouri. The Company projects a capital investment of
approximately $105 million for the Richmond plant, which is





                                      F-19
<PAGE>   24

expected to be completed in 1999. The Sugar Creek plant and a deep limestone
quarry are expected to cost approximately $150 million and to become operational
in the year 2000.

On June 3, 1998, the Company consummated the acquisition of a number of
construction materials businesses from Lafarge S.A., its majority shareholder,
for $690 million, subject to working capital adjustments. A short-term loan of
$650 million was obtained from Lafarge S.A. on June 3, 1998 to finance the
acquisition. Interest on the loan was at LIBOR plus 30 basis points. The Company
expects to repay the loan through the issuance of $650 million in long-term
public debt expected to be completed in the third quarter. 

Capital spending and dividend requirements are anticipated to be funded by
existing cash and cash flows from operations, supplemented by short-term
borrowings as needed. In August 1996 the Company sold two cement terminals on
the Ohio River and in May 1996 the Company sold a sand and gravel operation in
Pittsburgh, Pennsylvania. In 1995 the Company sold its equity interest in a
Texas aggregate operation. During 1997 and 1996, the Company's proceeds from the
sale of nonstrategic assets, surplus land and other miscellaneous items totaled
$18.9 million and $29.1 million, respectively.

Excluding the additional Redland debt reflected on the next page, the Company
has reduced its net debt by $146.4 million during the three years ended December
31, 1997. This reduction was the result of improved earnings from operations,
proceeds from the divestment of nonstrategic assets and moderate levels of
capital spending. The reduction of debt in 1997 is mainly attributable to the
retirement of medium-term notes and $50 million of related party debt. In
December 1996 the Company redeemed all the $100 million outstanding 7%
Convertible Debentures dated July 1, 1988. The redemption price was 101.4% of
the principal amount plus accrued interest. As a result of the redemption, the
Company incurred a pretax charge of $2.2 million in the fourth quarter of 1996
($1.3 million after taxes).

The Company has access to a wide variety of short-term and long-term financing
alternatives in both the U.S. and Canada and has bilateral revolving credit
facilities with six institutions for total commitments of $150 million. At
December 31, 1997 no amounts were outstanding under these credit facilities.





                                      F-20
<PAGE>   25

MANAGEMENT'S DISCUSSION OF FINANCIAL POSITION


The Consolidated Balance Sheets summarize the Company's financial position at
December 31, 1997 and 1996.

Lafarge S.A., the majority stockholder of the Company acquired Redland PLC in
December 1997. The Company acquired Redland from Lafarge S.A. on June 3, 1998
for $690 million, subject to working capital adjustments. Since the Company
acquired Redland from its parent, the acquisition was accounted for similar to a
pooling of interests for financial reporting purposes. Accordingly, Redland
assets and liabilities acquired by the Company from Lafarge S.A. were
transferred to the Company at Lafarge S.A.'s historical cost, which approximates
the purchase price paid by the Company. The accompanying consolidated balance
sheet for the year ended December 31, 1997 includes a combination of the
accounts of Redland and the Company retroactive to the date of acquisition of
Redland by Lafarge S.A.

The following table illustrates the combination of the financial statements of
Lafarge Corporation and the Redland businesses acquired.

<TABLE>
<CAPTION>
                                                          Year Ended December 31, 1997
                                          -----------------------------------------------------------
                                            Lafarge                     Acquisition         Total
                                          Corporation    Redland(A)    Adjustments(B)   Consolidated
                                          ----------     ----------    --------------   ------------
<S>                                       <C>            <C>            <C>              <C>       
Current assets                            $  815,968     $  133,478    $        --       $  949,446
Property, plant and  equipment, net          876,744        413,438             --        1,290,182
Excess of cost over net tangible
   assets of businesses acquired, net         27,859        307,628             --          335,487
Other assets                                 178,486         21,250             --          199,736
                                          ----------     ----------    -----------       ----------
Total Assets                              $1,899,057     $  875,794    $        --       $2,774,851
                                          ==========     ==========    ===========       ==========

Current liabilities                       $  295,732     $  201,415    $  (110,563)      $  386,584
Payable to Lafarge S.A.                           --             --        690,000          690,000
Long-term debt                               132,337        102,020        (99,114)         135,243
Other long-term liabilities                  215,300         92,036             --          307,336
                                          ----------     ----------    -----------       ----------
Total liabilities                            643,369        395,471        480,323        1,519,163
                                          ----------     ----------    -----------       ----------

Total Shareholders' Equity                 1,255,688        480,323       (480,323)       1,255,688
                                          ----------     ----------    -----------       ----------

Total Liabilities and Shareholders'
   Equity                                 $1,899,057     $  875,794    $         --      $2,774,851
                                          ==========     ==========    ============      ==========
</TABLE>

The items in columns (A) and (B) above represent the changes in the Lafarge
Corporation balance sheet related to the Redland businesses acquired by the
Company.






                                      F-21
<PAGE>   26

The following discussion addresses changes within the Company's balance sheet
from December 31, 1996 to December 31, 1997, excluding the impact of the
Redland acquisition unless otherwise noted.

The value reported for Canadian dollar denominated net assets decreased from
December 31, 1996 as a result of a decline in the value of the Canadian dollar
relative to the U.S. dollar. At December 31, 1997 the U.S. dollar equivalent of
a Canadian dollar was $.70 versus $.73 at December 31, 1996.

Working capital, excluding cash, short-term investments, current portion of
long-term debt and the impact of exchange rate changes, decreased $40.4 million
from December 31, 1996 to December 31, 1997. Accounts receivable decreased $25.9
million primarily due to improved collections, mainly in eastern Canada.

Net property, plant and equipment increased $9.0 million during 1997. The impact
of exchange rate changes was approximately $14.5 million. Depreciation and
divestments were $99.9 million and $9.0 million, respectively. Capital
expenditures and acquisitions of fixed assets totaled $132.4 million. The excess
of cost over net tangible assets of businesses acquired relates primarily to a
1981 U.S. acquisition and the 1997 acquisition of Redland.

The Company's capitalization, after considering the Redland acquisition, is
summarized in the following table:

<TABLE>
<CAPTION>
                                                           December 31
                                                 ------------------------------
                                                    1997                1996
                                                 ------------------------------
<S>                                              <C>                 <C>  
Long-term debt                                          8.0%               11.0%
Other long-term liabilities                            18.1%               13.8%
Shareholders' equity                                   73.9%               75.2%
                                                 ----------          ----------   
Total capitalization                                  100.0%              100.0%
                                                 ==========          ==========
</TABLE>

The increase in shareholders' equity is discussed in Management's Discussion of
Shareholders' Equity. The decline in long-term debt is discussed in
Management's Discussion of Cash Flows.






                                      F-22
<PAGE>   27

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 1997 shareholders' equity increased by $145.1 million, mainly from
net income of $182.0 million and $18.7 million from exercise of stock options
partially offset by a decrease in foreign currency translation adjustments of
$34.0 million (resulting from a decrease in the value of the Canadian dollar
relative to the U.S. dollar) and dividend payments, net of reinvestments, of
$23.0 million.

Shareholders' equity increased $129.6 million in 1996 due to net income of
$140.9 million partially offset by dividend payments, net of reinvestments, of
$12.2 million.

Common equity interests include common shares and the Lafarge Canada Inc.
exchangeable shares, which have comparable voting, dividend, and liquidation
rights. Common shares are traded on the New York Stock Exchange under the ticker
symbol "LAF" and on the Toronto Stock Exchange and the Montreal Exchange. The
exchangeable shares are traded on the Montreal Exchange and the Toronto Stock
Exchange under the ticker symbol "LCI.PR.E."

The following table reflects the range of high and low closing prices of common
shares by quarter for 1997 and 1996 as quoted on the New York Stock Exchange:

<TABLE>
<CAPTION>
                                                              Quarters Ended
                                        -----------------------------------------------------------
                                         March            June              Sept.           Dec.
                                          31               30                30              31
                                        -------          -------           -------        ---------
<S>                                     <C>              <C>               <C>            <C>  
1997 Stock Prices
            High                        $24 3/8          $25 7/8           $33            $33  9/16
            Low                          20 1/8           22 1/8            24 3/4         25 13/16
1996 Stock Prices
            High                        $19 3/8          $21 3/4           $20 7/8        $20  3/8
            Low                          18 1/4           18 5/8            18 1/8         18  1/4
</TABLE>

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

<TABLE>
<CAPTION>
                                                     Years Ended December 31
                                           ------------------------------------------
                                             1997            1996            1995
                                           ----------      ----------      ----------
<S>                                        <C>             <C>             <C>       
Common equity dividends                    $   30,019      $   28,008      $   25,898

Less dividend reinvestments                    (7,010)        (15,843)        (15,784)
                                           ----------      ----------      ----------

Net cash dividend payments                 $   23,009      $   12,165      $   10,114
                                           ==========      ==========      ==========

Common equity dividends per share          $      .42      $      .40      $     .375
                                           ==========      ==========      ==========
</TABLE>






                                      F-23
<PAGE>   28

MANAGEMENT'S DISCUSSION OF SELECTED FINANCIAL DATA

The Selected Consolidated Financial Data (F-29) provide  both a reference for
some data frequently requested about the Company and a useful record for
reviewing trends.

The Company's net sales increased by 5 percent from 1993 to 1994 due to
increases in cement and ready-mixed concrete shipments and higher cement prices.
Net sales were reduced by the declining value of the Canadian dollar relative to
the U.S. currency and divestments. Net sales declined 6 percent in 1995 due to
divestments, weak construction activity in Canada and poor weather in the fourth
quarter relative to 1994, partially offset by higher cement prices. The
Company's net sales increased 12 percent in 1996 due to higher product shipments
and prices as well as the effect of acquisitions (in late 1995 and early 1996)
in the construction materials operations. Net sales also improved from the entry
into the gypsum wallboard business. Net sales in 1997 increased 10 percent
mainly due to increased product shipments, higher cement and ready-mixed
concrete prices, and full year operation of the gypsum wallboard business. See
Management's Discussion of Income for additional details on net sales.

Inflation has not been a significant factor in the Company's sales or earnings
growth because of low inflation rates in recent years and because the Company
continually attempts to offset the effect of inflation by improving operating
efficiencies, especially in the areas of selling and administrative expenses,
productivity and energy costs. The ability to recover increasing costs by
obtaining higher prices for the Company's products varies with the level of
activity in the construction industry and the availability of products to supply
a local market.

Net cash provided by operations consists of net income (loss) adjusted primarily
for depreciation and a restructuring provision and related payments in 1994 and
1993. The Company is in a capital-intensive industry and as a result recognizes
large amounts of depreciation. The Company has used the cash provided by
operations essentially to expand its markets, improve the performance of its
plants and other operating equipment, and to reduce debt.

Capital expenditures and acquisitions, excluding the Redland acquisition,
totaled $666.0 million over the past five years. Significant investments during
the period included: the purchase of two gypsum wallboard manufacturing
facilities; a variety of cement plant projects to increase production capacity
and reduce costs; the installation of receiving and handling facilities of
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 acquisition of ready-mixed concrete plants
and aggregate operations; and the modernization of the construction materials
mobile equipment fleet.





                                      F-24
<PAGE>   29

Item. 8.

     CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


The following financial information is included on the pages indicated:

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
Report of Independent Public Accountants                                   F-26

Consolidated Balance Sheets                                                F-27

Consolidated Statements of Income                                          F-28

Consolidated Statements of Shareholders' Equity                            F-29

Consolidated Statements of Cash Flows                                      F-30

Notes to Consolidated Financial Statements                                 F-31

Consolidated Valuation and Qualifying Accounts                             F-54
</TABLE>







                                      F-25
<PAGE>   30

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Lafarge Corporation:

We have audited the accompanying consolidated balance sheets of Lafarge
Corporation (a Maryland corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lafarge Corporation
and its subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated Schedule II
(appearing on page F-54) is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated 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
consolidated financial statements taken as a whole.


                                                             ARTHUR ANDERSEN LLP



Washington, D.C.
June 3, 1998






                                      F-26
<PAGE>   31

                      LAFARGE CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS
(in thousands)

<TABLE>
<CAPTION>
                                                                                    December 31
                                                                           ----------------------------
                                                                               1997             1996
                                                                           -----------      -----------
<S>                                                                        <C>              <C>        
Assets
Cash and cash equivalents                                                  $   174,163      $   116,847
Short-term investments                                                         155,368           92,496
Receivables, net                                                               327,612          287,692
Inventories                                                                    233,972          205,804
Deferred tax asset                                                              33,126           13,438
Other current assets                                                            25,205           15,953
                                                                           -----------      -----------
Total current assets                                                           949,446          732,230
Property, plant and equipment, net                                           1,290,182          867,723
Excess of cost over net tangible assets of businesses acquired, net            335,487           31,657
Other assets                                                                   199,736          181,369
                                                                           ===========      ===========
    Total Assets                                                           $ 2,774,851      $ 1,812,979
                                                                           ===========      ===========

Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities                                   $   321,450      $   214,393
Income taxes payable                                                            35,364           28,151
Short-term borrowings and current portion of long-term debt                     29,770           44,821
Short-term borrowings from related parties                                          --           50,000
Payable to Lafarge S.A.                                                        690,000               --
                                                                           -----------      -----------
Total current liabilities                                                    1,076,584          337,365
Long-term debt                                                                 135,243          161,934
Other long-term liabilities                                                    307,336          203,141
                                                                           -----------      -----------
    Total liabilities                                                        1,519,163          702,440
                                                                           -----------      -----------
Commitments and Contingencies

Common Equity Interests
   Common shares ($1.00 par value; authorized 110.1 million
      shares; issued 65.3 and 62.6 million shares, respectively)                65,268           62,590
   Exchangeable shares (no par or stated value; authorized 24.3
      million shares; issued 6.4 and 7.8 million shares, respectively)          45,259           53,817
Additional paid-in capital                                                     649,082          615,993
Retained earnings                                                              593,438          441,481
Foreign currency translation adjustments                                       (97,359)         (63,342)
                                                                           -----------      -----------
    Total shareholders' equity                                               1,255,688        1,110,539
                                                                           -----------      -----------
Total Liabilities and Shareholders' Equity                                 $ 2,774,851      $ 1,812,979
                                                                           ===========      ===========
</TABLE>

See Notes to Consolidated Financial Statements





                                      F-27
<PAGE>   32

                      LAFARGE CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                         Years Ended December 31
                                               ---------------------------------------------
                                                   1997             1996             1995
                                               -----------      -----------      -----------
<S>                                            <C>              <C>              <C>        
Net Sales                                      $ 1,806,351      $ 1,649,280      $ 1,472,159

Costs and expenses

   Cost of goods sold                            1,335,206        1,251,886        1,149,168

   Selling and administrative                      160,963          151,442          141,112

   Amortization                                      3,748            2,996            2,361

   Other expense (income), net                       5,536            6,578           (5,868)

   Interest expense                                 19,949           24,118           27,086

   Interest income                                 (13,285)         (10,068)         (11,867)
                                               -----------      -----------      -----------

Total costs and expenses                         1,512,117        1,426,952        1,301,992
                                               -----------      -----------      -----------

Pre-tax income                                     294,234          222,328          170,167

Income taxes                                       112,258           81,462           40,554
                                               -----------      -----------      -----------

Net Income                                     $   181,976      $   140,866      $   129,613
                                               ===========      ===========      ===========

Net Income Per Common Equity Share-Basic       $      2.56      $      2.02      $      1.89
                                               ===========      ===========      ===========

Net Income Per Common Equity Share-Diluted     $      2.54      $      1.95      $      1.82
                                               ===========      ===========      ===========

Dividends Per Common Equity Share              $      0.42      $      0.40      $     0.375
                                               ===========      ===========      ===========
</TABLE>


See Notes to Consolidated Financial Statements





                                      F-28
<PAGE>   33

                      LAFARGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)

<TABLE>
<CAPTION>
                                                                         Years Ended December 31
                                         --------------------------------------------------------------------------------------
                                                    1997                           1996                         1995
                                         --------------------------------------------------------------------------------------
                                            Amount        Shares         Amount         Shares         Amount          Shares
                                         -----------    -----------    -----------    -----------    -----------    -----------
<S>                                      <C>            <C>            <C>            <C>            <C>            <C>   
Common Equity Interests
   Common Shares
     Balance at January 1                $    62,590         62,590    $    60,735         60,735    $    59,694         59,694
     Issuance of Common Shares for:
       Dividend reinvestment plans               256            256            814            814            812            812
       Employee stock purchase plan               33             33             36             36             36             36
     Exchange of Exchangeable Shares           1,421          1,421            810            810             59             59
     Exercise of stock options                   968            968            195            195            134            134
                                         -----------    -----------    -----------    -----------    -----------    -----------
Balance at December 31                   $    65,268         65,268    $    62,590         62,590    $    60,735         60,735
                                         ===========    ===========    ===========    ===========    ===========    ===========

   Exchangeable Shares
    Balance at January 1                 $    53,817          7,764    $    58,311          8,501    $    57,805          8,494
    Issuance of Exchangeable
     Shares for:
       Dividend reinvestment plans             1,035             40            827             45            722             39
       Employee stock purchase plan              180             26            190             28            182             27
   Exchange of Exchangeable Shares            (9,773)        (1,421)        (5,511)          (810)          (398)           (59)
                                         -----------    -----------    -----------    -----------    -----------    -----------
Balance at December 31                   $    45,259          6,409    $    53,817          7,764    $    58,311          8,501
                                         ===========    ===========    ===========    ===========    ===========    ===========

Additional Paid-In Capital
   Balance at January 1                  $   615,993                   $   593,310                   $   576,054
   Issuance of Common and/or
      Exchangeable Shares for:
       Dividend reinvestment plans             5,719                        14,203                        14,250
       Employee stock purchase plan            1,241                         1,154                         1,001
   Exchange of Exchangeable Shares             8,352                         4,701                           339
   Exercise of stock options                  17,777                         2,625                         1,666
                                         -----------    -----------    -----------    -----------    -----------    -----------
Balance at December 31                   $   649,082                   $   615,993                   $   593,310
                                         ===========    ===========    ===========    ===========    ===========    ===========

Retained Earnings
   Balance at January 1                  $   441,481                   $   328,623                   $   224,908
   Net Income                                181,976                       140,866                       129,613
   Dividends-common equity interests         (30,019)                      (28,008)                      (25,898)
                                         -----------    -----------    -----------    -----------    -----------    -----------
Balance at December 31                   $   593,438                   $   441,481                   $   328,623
                                         ===========    ===========    ===========    ===========    ===========    ===========

Foreign Currency Translation
Adjustments
   Balance at January 1                  $   (63,342)                  $   (60,001)                  $   (77,007)
   Translation adjustments                   (34,017)                       (3,341)                       17,006
                                         -----------    -----------    -----------    -----------    -----------    -----------
Balance at December 31                   $   (97,359)                  $   (63,342)                  $   (60,001)
                                         ===========    ===========    ===========    ===========    ===========    ===========
Total Shareholders' Equity               $ 1,255,688                   $ 1,110,539                   $   980,978
                                         ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>

See Notes to Consolidated Financial Statements





                                      F-29
<PAGE>   34

                      LAFARGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
                                                                         Years Ended December 31
                                                                 -----------------------------------------
                                                                     1997           1996           1995
                                                                 -----------    -----------    -----------
<S>                                                              <C>            <C>            <C>        
Cash Flows from Operations
   Net income                                                    $   181,976    $   140,866    $   129,613
   Adjustments to reconcile net income to net cash provided by
      operations
      Depreciation, depletion, and amortization                      106,304        100,507         94,321
      Provision for bad debts                                          2,365            255            588
      Deferred income taxes                                            9,815          8,491        (25,101)
      Gain on sale of assets                                          (6,038)        (4,085)       (14,585)
      Other noncash charges and credits, net                           2,512           (156)        (2,918)
      Net change in operating working capital (see below)*            39,052        (37,847)       (63,651)
                                                                 -----------    -----------    -----------
Net Cash Provided by Operations                                      335,986        208,031        118,267
                                                                 -----------    -----------    -----------

Cash Flows from Investing
   Capital expenditures                                             (123,970)      (124,790)      (121,882)
   Acquisitions                                                       (8,817)       (83,484)       (29,319)
   Purchases of short-term investments, net                          (62,872)        (7,980)       (34,016)
   Proceeds from property, plant and equipment dispositions           18,947         29,126         34,628
   Other                                                               7,110           (203)         2,920
                                                                 -----------    -----------    -----------
Net Cash Used for Investing                                         (169,602)      (187,331)      (147,669)
                                                                 -----------    -----------    -----------

Cash Flows From Financing
   Repayment of long-term debt                                       (16,758)      (109,021)       (24,314)
   Short-term borrowings                                             (77,850)        77,850             --
   Issuance of equity securities, net                                 20,199          4,201          3,019
   Dividends, net of reinvestments                                   (23,009)       (12,165)       (10,114)
                                                                 -----------    -----------    -----------
Net Cash Consumed by Financing                                       (97,418)       (39,135)       (31,409)
                                                                 -----------    -----------    -----------

Effect of exchange rate changes                                      (11,650)        (1,153)         4,189
                                                                 -----------    -----------    -----------

Net Increase (Decrease) in Cash and Cash Equivalents                  57,316        (19,588)       (56,622)

Cash and Cash Equivalents at Beginning of Year                       116,847        136,435        193,057

                                                                 -----------    -----------    -----------
Cash and Cash Equivalents at End of Year                         $   174,163    $   116,847    $   136,435
                                                                 ===========    ===========    ===========

*Analysis of Changes in Operating Working Capital Items
   Receivables, net                                              $    22,779    $   (20,015)   $     7,550
   Inventories                                                        (7,692)        11,249        (31,147)
   Other current assets                                               (2,287)           (97)          (773)
   Accounts payable and accrued liabilities                           19,262        (25,479)       (30,870)
   Income taxes payable                                                6,990         (3,505)        (8,411)
                                                                 -----------    -----------    -----------
Net Change in Operating Working Capital                          $    39,052    $   (37,847)   $   (63,651)
                                                                 ===========    ===========    ===========
</TABLE>

See Notes to Consolidated Financial Statements





                                      F-30
<PAGE>   35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Together with its subsidiaries, Lafarge Corporation (Lafarge or the Company), a
Maryland corporation, is engaged in the production and sale of cement,
ready-mixed concrete, aggregates, other concrete products and gypsum wallboard.
Lafarge operates in the U.S. and its major operating subsidiary, Lafarge Canada
Inc. (LCI), operates throughout Canada. The primary U.S. markets are in the
midwestern, midsouth, northeastern, north-central and northwestern areas.
Lafarge's wholly owned subsidiary, Systech Environmental Corporation, supplies
cement plants with substitute fuels and raw materials. Lafarge S.A., a French
corporation, and certain of its affiliates (Lafarge S.A.) own a majority of the
voting securities of Lafarge.

Lafarge S.A., the majority stockholder of Lafarge acquired Redland PLC in
December 1997. The Company acquired certain Redland PLC businesses in North
America (Redland) from Lafarge S.A. on June 3, 1998 for $690 million, subject to
working capital adjustments. Since the Company acquired Redland from its parent,
the acquisition was accounted for similar to a pooling of interests for
financial reporting purposes. Accordingly, Redland assets and liabilities
acquired by the Company from Lafarge S.A. were transferred to the Company at
Lafarge S.A.'s historical cost, which approximated the purchase price paid by
the Company. The accompanying consolidated balance sheet, statement of cash
flows and statement of shareholders' equity for the year ended December 31, 1997
include a combination of the accounts of Redland and the Company retroactive to
the date of acquisition by Lafarge S.A. A payable to Lafarge S.A. for $690
million was recorded for the acquisition. There was no change to the 1997
statement of income as the impact was not material.

The Redland businesses acquired consist of the businesses of Western Mobile Inc.
of Denver, Colorado; Redland Genstar Inc. of Towson, Maryland; and the aggregate
operations of Redland Quarries Inc. of Hamilton, Ontario. The operations
acquired posted combined revenues of approximately $517 million in 1997.

Redland is engaged in the production and sale of aggregates, ready-mixed
concrete, asphalt and performs paving and related contracting services. Redland
operates primarily in the U.S. and owns two quarry operations in Ontario,
Canada. The primary U.S. markets are in the western states of Colorado and New
Mexico and the northeast (Maryland and New York).






                                      F-31
<PAGE>   36

ACCOUNTING AND FINANCIAL REPORTING POLICIES

Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses. Actual results could differ from
these estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of Lafarge and all of
its majority-owned subsidiaries (the Company), after the elimination of
intercompany transactions, and the December 31, 1997 balance sheet accounts of
Redland. Investments in affiliates in which the Company has less than a majority
ownership are accounted for by the equity method. Certain reclassifications have
been made to the prior year financial statements to conform to the 1997
presentation.

Foreign Currency Translation

The assets and liabilities of LCI and the Canadian operations of Redland are
translated at the exchange rate prevailing at the balance sheet date. Related
revenue and expense accounts for these subsidiaries are translated using the
average exchange rate during the period. Foreign currency translation
adjustments are disclosed as a separate item in shareholders' equity.

Revenue Recognition

Revenue from the sale of cement, concrete products, aggregates, and gypsum
wallboard is recorded when the products are shipped. Revenue from waste recovery
and disposal is recorded 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 percentage-of-completion method.

Derivative Financial Instruments

The Company, at times, uses derivative financial instruments (Derivatives) in
order to hedge the impact of changes in interest rates. These Derivatives are
not held or issued for trading purposes.

The Company is a party to an interest rate swap contract (Interest Swap)
requiring the Company to make a fixed interest rate payment and to receive a
floating interest rate payment from a commercial bank. This Interest Swap was
transacted in order to hedge a portion of the Company's floating interest rate
borrowings from significant changes in interest rates. The net difference in
interest payments is recognized over the life of the Interest Swap as a
component in the "Interest Expense" caption in the Consolidated Statements of
Income. 

The Company also enters into forward contracts used to hedge interest rate
changes on debt. The differentials to be received or paid under such contracts
designated as forward interest rate hedges are recognized in income over the
life of the associated debt as adjustments to Interest Expense.

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.





                                      F-32
<PAGE>   37

Short-Term Investments

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

Inventories

Inventories are valued at lower of cost or market. 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

Depreciation of property, plant and equipment is computed for financial
reporting purposes by 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 on which depletion is recorded using the units-of-production
method.

Excess of Cost Over Net Tangible Assets of Businesses Acquired

The excess of cost over fair value of net tangible assets of businesses acquired
(goodwill) is amortized using the straight-line method over periods not
exceeding 40 years. Goodwill related to Redland businesses acquired will be
amortized over lives averaging 30 years. The Company continually evaluates
whether events and circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision or that the remaining
balance of goodwill may not be recoverable. In evaluating impairment, the
Company estimates the sum of the expected future cash flows, undiscounted and
without interest charges, derived from such goodwill over its remaining life.
The Company believes that no impairment exists at December 31, 1997. The
amortization recorded for 1997, 1996 and 1995 was $3.7 million, $3.0 million and
$2.4 million, respectively. Accumulated amortization at December 31, 1997 and
1996 was $44.3 million and $40.6 million, respectively.

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.

Income Taxes

Deferred income taxes are determined by the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109).

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 financial
statements, without offset of potential insurance recoveries. Costs that extend
the life, 





                                      F-33
<PAGE>   38

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. All other environmental costs are expensed when incurred.

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 $7.2 million, $6.3 million and $6.6 million
for 1997, 1996 and 1995, respectively.

Interest

Interest of $1.4 million, $1.2 million and $2.1 million was capitalized in 1997,
1996, and 1995, respectively.

Net Income Per Common Equity Share

In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128). This new
standard replaces primary earnings per share (EPS) with basic EPS and fully
diluted EPS with diluted EPS. The Company adopted this standard in 1997 and has
restated all prior periods (see Earnings Per Share note).

The calculation of basic net income per common equity share is based on the
weighted average number of Lafarge's common shares and the Exchangeable
Preference Shares of LCI (exchangeable shares) outstanding in each period. The
weighted average number of shares and share equivalents outstanding was (in
thousands) 71,128, 69,783 and 68,666 in 1997, 1996 and 1995, respectively.

The weighted average number of shares and share equivalents outstanding,
assuming dilution, was (in thousands) 71,695, 74,377 and 73,504 in 1997, 1996
and 1995, respectively, and assumed conversion of the Convertible Subordinated
Debentures (convertible debentures) in 1996 and 1995. The convertible debentures
were redeemed in 1996 as further explained in the Debt note.

Accounting for Stock-Based Compensation

The Company accounts for employee stock options using the method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
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.

Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), by
making the required note disclosures (see Stock Option and Purchase Plans note).
Accordingly, adoption of this new standard has no impact on the Company's
reported financial position or operating results.

Accounting Pronouncements Not Yet Effective

In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) and
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related 




                                      F-34
<PAGE>   39

Information" (SFAS 131). SFAS 130 requires that an enterprise display
comprehensive income, which for the Company is the total of net income and the
current year foreign currency translation adjustment, in its financial
statements. SFAS 131 requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. Application
of these new standards is required in financial statements for fiscal years
beginning after December 15, 1997.

Acquisitions

In September 1996, the Company acquired G-P Gypsum Corp.'s (a subsidiary of
Georgia-Pacific Corporation) gypsum wallboard plants in Buchanan, New York and
Wilmington, Delaware.

On June 3, 1998, the Company acquired Redland from its majority shareholder,
Lafarge S.A., for $690 million, subject to working capital adjustments. The
Company financed the purchase through available cash resources and a $650
million short-term note from Lafarge S.A. The Company anticipates repaying the
Lafarge S.A. short-term note through the issuance of $650 million in long-term
public debt.

Lafarge S.A. acquired Redland as part of its purchase of Redland PLC in December
1997. The following table illustrates Lafarge S.A.'s preliminary allocation of
the overall Redland PLC purchase price to Redland and the net book values
transferred to Lafarge as of December 31, 1997. This allocation, which is based
on outside appraisals, is preliminary and may be adjusted.

<TABLE>
<S>                                                         <C>        
Current assets                                              $   133,478
Property, plant and equipment, including
   $154,807 of mineral deposits                             $   413,438
Goodwill (to be amortized over an average life
   of 30 years)                                             $   307,628
Other assets                                                $    21,250
Other current liabilities                                   $    90,852
Long-term debt                                              $     2,906
Other long-term liabilities                                 $    92,036
</TABLE>

The following unaudited 1997 pro forma financial information for the Company
gives effect to the Redland acquisition as if Lafarge S.A. had purchased it on
January 1, 1997 (in thousands except for per share amounts). These pro forma
results have been prepared for comparative purposes only and include certain
adjustments, such as additional depreciation and depletion expense as a result
of a step-up in the basis of property, plant and equipment, and additional
amortization expense as a result of goodwill. The pro forma results of
operations is not necessarily indicative of the combined earnings and results of
operations had the acquisition been completed at the beginning of the year, nor
is such information necessarily indicative of future results of operations.





                                      F-35
<PAGE>   40

<TABLE>
<CAPTION>
                                                                 1997
                                                               -----------
                                                               (UNAUDITED)
<S>                                                            <C>         
PRO-FORMA:
Net Sales                                                      $  2,323,407
Net Income                                                     $    184,434
Net Income per share - Basic                                   $       2.59
Net Income per share - Diluted                                 $       2.57
</TABLE>

RECEIVABLES

Receivables consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                             December 31
                                                       ------------------------
                                                          1997          1996
                                                       ----------    ----------
<S>                                                    <C>           <C>       
Trade and notes receivable                             $  342,760    $  305,471
Retainage on long-term contracts                           12,933         4,765
Allowances                                                (28,081)      (22,544)
                                                       ----------    ----------
Total receivables, net                                 $  327,612    $  287,692
                                                       ==========    ==========
</TABLE>

INVENTORIES

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                              December 31
                                                       ------------------------
                                                             1997          1996
                                                       ----------    ----------
<S>                                                    <C>           <C>       
Finished products                                      $  123,774    $  100,900
Work in process                                             8,483        13,711
Raw materials and fuel                                     55,341        45,550
Maintenance and operating supplies                         46,374        45,643
                                                       ----------    ----------
Total inventories                                      $  233,972    $  205,804
                                                       ==========    ==========
</TABLE>

Included in the finished products, work in process and raw materials and fuel
categories are inventories valued using the LIFO method of $72.3 million and
$61.1 million at December 31, 1997 and 1996, respectively. If these inventories
were valued using the average cost method, such inventories would have decreased
by $5.1 million and $5.0 million, respectively.






                                      F-36
<PAGE>   41

PROPERTY, PLANT AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                        December 31
                                                               --------------------------
                                                                  1997           1996
                                                               -----------    -----------
<S>                                                            <C>            <C>        
Land and mineral deposits                                      $   370,111    $   166,060
Buildings, machinery and equipment                               1,908,653      1,652,942
Construction in progress                                            79,345         74,254
                                                               -----------    -----------
Property, plant and equipment, at cost                           2,358,109      1,893,256
Less accumulated depreciation and depletion                     (1,067,927)    (1,025,533)
                                                               -----------    -----------
Total property, plant and equipment, net                       $ 1,290,182    $   867,723
                                                               ===========    ===========
</TABLE>

OTHER ASSETS

Other assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                        December 31
                                                               --------------------------
                                                                  1997           1996
                                                               -----------    -----------
<S>                                                            <C>            <C>        
Long-term receivables                                          $    20,328    $    17,082
Investments in unconsolidated companies                             22,301         22,646
Prepaid pension asset                                               92,900         88,157
Property held for sale                                              29,880         19,594
Other                                                               34,327         33,890
                                                               -----------    -----------
Total other assets                                             $   199,736    $   181,369
                                                               ===========    ===========
</TABLE>

Property held for sale represents certain permanently closed cement plants and
land that are carried at the lower of cost or estimated net realizable value.


ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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

<TABLE>
<CAPTION>
                                                                        December 31
                                                               --------------------------
                                                                  1997           1996
                                                               -----------    -----------
<S>                                                            <C>            <C>        
Trade accounts payable                                         $   117,777    $    67,284
Accrued payroll expense                                             49,385         35,862
Bank overdrafts                                                     10,076         14,328
Other accrued expenses                                             144,212         96,919
                                                               -----------    -----------
Total accounts payable and accrued liabilities                 $   321,450    $   214,393
                                                               ===========    ===========
</TABLE>






                                      F-37
<PAGE>   42

DEBT

Debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                        December 31
                                                                                   ----------------------
                                                                                      1997         1996
                                                                                   ---------    ---------
<S>                                                                                <C>          <C>      
Medium-term notes maturing in various amounts between 1998 and 2006, bearing
   interest at fixed rates which range from 9.2 percent to 9.8 percent             $ 122,000    $ 138,000

Tax-exempt bonds maturing in various amounts between 1998 and 2026, bearing
   interest at floating rates which range from 4.2 percent to 6.8 percent             38,917       39,450

Short-term borrowings maturing in various amounts                                         --       27,850

Short-term borrowings from Lafarge S.A. and subsidiaries                                  --       50,000

Other                                                                                  4,096        1,455
                                                                                   ---------    ---------

Subtotal                                                                             165,013      256,755

Less short-term borrowings and current portion of long-term debt                     (29,770)     (94,821)
                                                                                   ---------    ---------
Total long-term debt                                                               $ 135,243    $ 161,934
                                                                                   =========    =========
</TABLE>

   
The fair value of debt at December 31, 1997 and 1996, respectively, was
approximately $179.1 million and $267.7 million compared with $165.0 million and
$256.8 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.
    





                                      F-38
<PAGE>   43

The scheduled annual principal payment requirements on debt for each of the five
years in the period ending December 31, 2002 are as follows (in millions):

<TABLE>
<CAPTION>
                                            Repayments
                                            ----------
<S>       <C>                                <C>  
          1998                                29.8
          1999                                24.6
          2000                                35.7
          2001                                30.5
          2002                                15.8
          Thereafter                          28.6
</TABLE>

A short-term loan of $650 million was obtained from Lafarge S.A. on June 3, 1998
to finance the acquisition. Interest on the loan is at LIBOR plus 30 basis
points. The Company expects to repay the loan through the issuance of $650
million of long-term public debt.

The Company has similar, bilateral revolving credit facilities with six
institutions for total commitments of $150 million extending through June 1,
2001. At the end of 1997 no amounts were outstanding. The Company is required to
pay annual commitment fees of 0.10 percent of the total amount of the
facilities. Borrowings made under the revolving credit facilities will bear
interest at variable rates based on a bank's prime lending rate or the
applicable LIBOR rate.

The Company's debt agreements require the maintenance of certain financial
ratios relating to fixed charge coverage and leverage. At December 31, 1997, the
Company was in compliance with these requirements.

In December 1996, the Company redeemed all of the outstanding $100 million 7%
Convertible Debentures dated July 1, 1988. The redemption price was 101.4
percent of the principal amount plus interest accrued to the redemption date.

As a result of the redemption, the Company incurred a pre-tax charge of $2.2
million in the fourth quarter 1996 ($1.3 million after tax or $.02 per share).
Approximately $.8 million of the pre-tax charge represented previously
unamortized debt issuance cost. If the redemption of the debentures had taken
place on January 1, 1996, diluted earnings per share would have increased by
$.06 to $2.01 for the year ended December 31, 1996.

At December 31, 1997, the Company maintained one $25 million (notional amount)
Interest Swap contract which matures in 1999. As of December 31, 1997, it
required the Company to pay a fixed rate of 8.7 percent in exchange for a
floating rate receipt of 5.8 percent. Throughout 1997, outstanding floating
interest rate borrowings exceeded the amount of this Interest Swap. Therefore,
no mark-to-market provision was recorded during the year.

The differences in swapped interest rates are paid every three months pursuant
to the Interest Swap contract. Although the Company is exposed to credit loss in
the event of nonperformance by the other party to the Interest Swap contract, it
does not anticipate nonperformance.





                                      F-39
<PAGE>   44

Based on interest rates at December 31, 1997, the net termination cost for the
Company to unwind its Interest Swap was approximately $1.0 million.

As of June 3, 1998, Lafarge had entered into $600 million of interest rate
hedges known as "Treasury Rate Locks" for the purpose of fixing the interest
expense for the debt securities to be issued for the permanent financing of the
Redland acquisition. These will be unwound on the day that the debt securities
are priced on the public markets, generating a cash receipt or a cash payment,
depending upon the level of the appropriate Treasury rate on that day relative
to the day that the Treasury rate lock was executed. This amount, which will be
added or subtracted from the gross issuance proceeds, will change the effective
Treasury rate upon which the coupon for the securities is based, to the rate at
which the hedge instruments were executed. The Treasury locks were executed at
an average blended rate of 5.6595%.

The counterparties to derivative transactions are major financial institutions
with investment grade or better credit ratings; however, the Company is exposed
to credit risk with these institutions. This credit risk is generally limited to
the unrealized gains in such contracts should any of these counterparties fail
to perform as contracted. The Company considers the risk of counterparty default
to be minimal.

OTHER LONG-TERM LIABILITIES

Other long-term liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               December 31
                                                        ------------------------
                                                          1997          1996
                                                        ----------    ----------
<S>                                                     <C>           <C>       
Deferred income taxes                                   $  111,969    $   48,709
Minority interests                                           6,252         7,573
Accrued postretirement benefit cost                        147,647       124,867
Accrued pension liability                                   21,800        16,898
Other                                                       19,668         5,094
                                                        ----------    ----------

Total other long-term liabilities                       $  307,336    $  203,141
                                                        ==========    ==========
</TABLE>

COMMON EQUITY INTERESTS

Holders of exchangeable shares have voting, dividend and liquidation rights that
parallel those of holders of the Company's common shares. The exchangeable
shares may be converted to the Company's common shares 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 Company's common shares. The Company has agreed
not to pay dividends on its common shares 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, 1997, the Company had reserved for issuance approximately 8.2
million common shares for the exchange of outstanding exchangeable shares.
Additional common equity shares are reserved to cover grants under the Company's
stock option program (4.3 million), employee stock purchase plan (.6 million)
and issuances pursuant to the Company's optional stock dividend plan (2.1
million).

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.





                                      F-40
<PAGE>   45

STOCK OPTION AND PURCHASE PLANS

At December 31, 1997, the Company maintained two stock-based compensation plans
- a fixed stock option plan and an employee stock purchase plan. The Company
applies APB Opinion No. 25 and related interpretations in accounting for these
plans. Accordingly, generally no compensation cost has been recognized for these
plans. If compensation cost for the Company's stock-based compensation plans had
been determined based on the fair value at the grant dates for awards under
those plans consistent with the method described by SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated as follows:

<TABLE>
<CAPTION>
                                               Years Ended December 31
                                         ---------------------------------------
                                             1997          1996          1995
                                         -----------   -----------   -----------
<S>                                      <C>           <C>           <C>        
NET INCOME
   As reported                           $   181,976   $   140,866   $   129,613
   Pro forma                             $   180,402   $   139,803   $   129,090

BASIC EARNINGS PER SHARE
   As reported                           $      2.56   $      2.02   $      1.89
   Pro forma                             $      2.54   $      2.00   $      1.88

DILUTED EARNINGS PER SHARE
   As reported                           $      2.54   $      1.95   $      1.82
   Pro forma                             $      2.51   $      1.94   $      1.82
</TABLE>

The method of accounting under SFAS No. 123 has not been applied to options
granted prior to January 1, 1995. The pro forma compensation cost may not be
representative of that to be expected in future years.

Under the stock option plan, options to purchase the Company's common shares
have been granted to key employees and directors of the Company at option prices
based on the market price of the securities at the date of grant. One-fourth of
the employee options granted are exercisable at the end of each year following
the date of grant. Director options are exercisable based on the length of a
director's service on the Company's Board of Directors and become fully
exercisable when a director has served on the Board for over four years. The
options expire ten years from the date of grant.

The fair value of each option grant is estimated on the date of grant for
purposes of the pro forma disclosures shown above using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants made in 1997, 1996 and 1995, respectively: dividend yield of 1.90, 2.12
and 2.08 percent; expected volatility of 26.0, 37.0 and 38.4 percent; risk-free
interest rates of 6.47, 5.65, and 7.55 percent; and expected lives of 5.4 for
all three years.





                                      F-41
<PAGE>   46

A summary of the status of the Company's fixed stock option plans as of December
31, 1997, 1996 and 1995, and changes during the years ended on these dates is
presented below:

<TABLE>
<CAPTION>
                                                      Years Ended December 31
                         ------------------------------------------------------------------------------
                                   1997                      1996                        1995
                         ------------------------------------------------------------------------------
                                         Average                    Average                     Average
                                         Option                      Option                     Option 
                          Shares         Price        Shares         Price        Shares        Price
                         ----------    ----------   ----------    ----------   ----------    ----------
<S>                       <C>          <C>           <C>          <C>           <C>          <C>       
Balance outstanding at
   beginning of year      2,481,287    $    17.87    2,319,837    $    17.33    2,153,720    $    17.06
Options granted             541,000         21.43      492,000         18.88      483,800         18.00
Options exercised          (967,612)        16.50     (194,925)        14.47     (134,308)        13.41
Options canceled            (70,625)        20.05     (135,625)        19.11     (183,375)        19.11
                         ----------    ----------   ----------    ----------   ----------    ----------
Balance outstanding at
   end of year            1,984,050    $    19.43    2,481,287    $    17.87    2,319,837    $    17.33
                         ==========    ==========   ==========    ==========   ==========    ==========
Options exercisable at
   end of year              886,650    $    18.35    1,452,937    $    16.83    1,379,037    $    16.09
                         ==========    ==========   ==========    ==========   ==========    ==========
Weighted-average fair
   value of options
   granted during the
   year                                $     6.50                 $     6.65                 $     7.09
                                       ==========                 ==========                 ==========
</TABLE>

As of December 31, 1997, the 1.98 million fixed stock options outstanding under
the plans have an exercise price between $12.63 and $24.13 and a
weighted-average remaining contractual life of 6.93 years.

The Company's employee stock purchase plan permits substantially all employees
to purchase the Company's common equity interests through payroll deductions at
90 percent of the lower of the beginning or end of plan year market prices. In
1997, 59,316 shares were issued to employees under the plan at a share price of
$19.24 and in 1996, 64,345 shares were issued at a share price of $17.33. At
December 31, 1997 and 1996, $.7 million was subscribed for future share
purchases.





                                      F-42
<PAGE>   47

EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                                                                              Per-Share
                                                                        Income            Shares                Amount
                                                                       -----------------------------------------------
                                                                              For the Year Ended 1997
                                                                       -----------------------------------------------
<S>                                                                     <C>                 <C>                 <C>  
BASIC EARNINGS PER SHARE
   Net Income                                                           $181,976            71,128              $2.56
                                                                                                                =====
DILUTED EARNINGS PER SHARE
   Options                                                                    --               567
                                                                        --------            ------  
   Income available to common stockholders
     plus assumed conversions                                           $181,976            71,695              $2.54
                                                                        ========            ======              =====
</TABLE>

<TABLE>
<CAPTION>
                                                                                   For the Year Ended 1996
                                                                       -----------------------------------------------
<S>                                                                     <C>                 <C>                 <C>  
BASIC EARNINGS PER SHARE
   Net Income                                                           $140,866            69,783              $2.02
                                                                                                                =====
DILUTED EARNINGS PER SHARE
   Options                                                                    --               309
   Add after tax interest expense applicable                                 
     to convertible debentures                                             4,153             4,285
                                                                        --------            ------  
   Income available to common stockholders
     plus assumed conversions                                           $145,019            74,377              $1.95
                                                                        ========            ======              =====
</TABLE>

<TABLE>
<CAPTION>
                                                                                    For the Year Ended 1995
                                                                       -----------------------------------------------
<S>                                                                     <C>                 <C>                 <C>  
BASIC EARNINGS PER SHARE
   Net Income                                                           $129,613            68,666              $1.89
                                                                                                                =====
DILUTED EARNINGS PER SHARE
   Options                                                                    --               318
   Add after tax interest expense applicable
     to convertible debentures                                             4,473             4,520
                                                                        --------            ------  
   Income available to common stockholders
     plus assumed conversions                                           $134,086            73,504              $1.82
                                                                        ========            ======              =====
</TABLE>

Basic earnings per common share were computed by dividing net income by the
weighted-average number of shares of common stock outstanding during the year.
Diluted earnings per common share assumed the exercise of stock options and in
1996 and 1995, assumed conversion of the convertible debentures. The Company's
reported earnings per share for 1996 and 1995 were restated as a result of
adopting SFAS No. 128, "Earnings Per Share" in 1997.





                                      F-43
<PAGE>   48

INCOME TAXES

Pre-tax income is summarized by country in the following table (in thousands):

<TABLE>
<CAPTION>
                                                 Years Ended December 31
                                        ----------------------------------------
                                           1997           1996           1995
                                        ----------     ----------     ----------
<S>                                     <C>            <C>            <C>       
United States*                          $  151,634     $   97,267     $   57,908
Canada*                                    142,600        125,061        112,259
                                        ----------     ----------     ----------
Pre-tax income                          $  294,234     $  222,328     $  170,167
                                        ==========     ==========     ==========
</TABLE>


*     The 1997, 1996 and 1995 amounts shown for Canada and the United States
      include $6.1 million, $13.7 million and $30.1 million, respectively, of
      adjustments resulting from an agreement reached with Revenue Canada
      Taxation (as described below). If these adjustments were not reflected,
      1997, 1996 and 1995 pre-tax income in Canada would be decreased and
      pre-tax income in the U.S. would be increased by $6.1 million, $13.7
      million and $30.1 million, respectively.

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

<TABLE>
<CAPTION>
                                                  Years Ended December 31
                                         --------------------------------------
                                            1997          1996          1995
                                         ----------    ----------    ----------
<S>                                      <C>           <C>           <C>       
Current
   United States                         $   46,012    $   27,600    $   25,300
   Canada                                    56,431        45,371        40,355
                                         ----------    ----------    ----------
Total current                               102,443        72,971        65,655
                                         ----------    ----------    ----------

Deferred
   United States                             12,200         8,800       (26,300)
   Canada                                    (2,385)         (309)        1,199
                                         ----------    ----------    ----------
Total deferred                                9,815         8,491       (25,101)
                                         ----------    ----------    ----------

Total income taxes                       $  112,258    $   81,462    $   40,554
                                         ==========    ==========    ==========
</TABLE>

The Company's U.S. federal tax liability has not been finalized by the Internal
Revenue Service for any year subsequent to 1983 due to the existence prior to
1995 of significant tax net operating loss and credit carryforwards. During
1995, an agreement was reached with Revenue Canada Taxation related to the
pricing of certain cement sales between the Company's operations in Canada and
the U.S. for the years 1984 through 1994. The result was an increase in net
sales and pre-tax income in Canada by U.S. $30.1 million with corresponding
adjustments in the U.S. During 1997 and 1996 the Company recorded $6.1 million
and $13.7 million adjustments for the years 1996 and 1995, respectively, based
on the aforementioned agreement with Revenue Canada Taxation. The impact of
these adjustments was immaterial to consolidated net income. Under the terms of
the Canada-U.S. Income Tax Convention, the agreement has been submitted to the
Competent Authorities of Canada and the U.S. and is subject to adjustment. The
purpose of the Competent Authorities is to reach agreement for the elimination
of double taxation that is not in accordance with the Convention. The Company's







                                      F-44
<PAGE>   49

Canadian federal tax liability for all taxation years through 1994 has been
reviewed and finalized by Revenue Canada Taxation.

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

<TABLE>
<CAPTION>
                                                         Years Ended December 31
                                                  --------------------------------------
                                                     1997          1996          1995
                                                  ----------    ----------    ----------
<S>                                               <C>           <C>           <C>       
Taxes at the U.S. federal income tax rate         $    103.0    $     77.8    $     59.6
U.S./Canadian tax rate differential                      4.3           3.7           3.4
Canadian tax incentives                                 (8.8)         (8.0)         (7.0)
State and Canadian provincial income taxes,
   net of federal benefit                               11.4           8.6           8.2
Change in valuation allowance                             --            --         (23.0)
Tax effect of certain operating losses and
   other tax credits, primarily U.S.                      --            --          (1.8)
Other items                                              2.4          (0.6)          1.2
                                                  ----------    ----------    ----------
Provision for income taxes                        $    112.3    $     81.5    $     40.6
                                                  ==========    ==========    ==========
</TABLE>

Deferred income taxes reflect the tax consequences of "temporary differences"
between the amounts of assets and liabilities, including deferred taxes related
to the Redland acquisition, for financial reporting purposes and such amounts as
measured by tax law. These temporary differences are determined in accordance
with SFAS No. 109.

Temporary differences and carryforwards that give rise to deferred tax assets
and liabilities, including deferred taxes related to the Redland acquisition,
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                     December 31
                                                               ----------------------
                                                                 1997         1996
                                                               ---------    ---------
<S>                                                            <C>          <C>      
Deferred tax assets:
   Reserves and other liabilities                              $  73,226    $  48,980
   Other postretirement benefits                                  60,074       49,785
   Tax loss carryforwards                                          7,621        4,745
   Tax credit carryforwards                                           69        2,558
                                                               ---------    ---------
Gross deferred tax assets                                        140,990      106,068
Valuation allowance                                              (24,525)     (23,296)
                                                               ---------    ---------
Net deferred tax assets                                          116,465       82,772
                                                               ---------    ---------
Deferred tax liabilities:
   Property, plant and equipment                                 160,739       85,875
   Prepaid pension asset                                          28,168       27,587
   Other                                                           6,401        4,505
                                                               ---------    ---------
Gross deferred tax liabilities                                   195,308      117,967
                                                               ---------    ---------
Net deferred tax liability                                        78,843       35,195
Net deferred tax asset--current                                   33,126       13,514
                                                               ---------    ---------
Net deferred tax liability--noncurrent                         $ 111,969    $  48,709
                                                               =========    =========
</TABLE>







                                      F-45
<PAGE>   50

A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not under the rules of SFAS No. 109, will be realized.

At December 31, 1997, the Company had net operating loss carryforwards of $10.5
million, excluding Redland. Redland had federal net operating loss carryforwards
of approximately $5.9 million and state net operating loss carryforwards of
approximately $28.9 million. The net operating loss carryforwards are limited to
use in varying annual amounts through 2012.

Deferred tax assets include approximately $9.2 million that represents the tax
effect of transfer pricing adjustments that have not been deducted in the U.S.
pending settlement between the U.S. and Canadian Competent Authorities as
previously noted.

At December 31, 1997, cumulative undistributed earnings of LCI were $796.8
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. The Company's management has decided that the
determination of the amount of any unrecognized deferred tax liability for the
cumulative undistributed earnings of LCI is impracticable 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.

SEGMENT INFORMATION

The Company's single business segment includes the manufacture and sale of
cement and ready-mixed concrete, precast and prestressed concrete components,
concrete block and pipe, aggregates, reinforcing steel and gypsum wallboard. In
addition, the Company is engaged in road building and other construction that
use many of its own products, and in supplying cement plants with substitute
fuels and raw materials.

Sales between the United States and Canada are accounted for at fair market
value. Income from operations equals net sales plus other income less cost of
goods sold, and selling and administrative expenses. It excludes interest
expense, interest income and income taxes. Financial information by country is
as follows (in millions):





                                      F-46
<PAGE>   51

<TABLE>
<CAPTION>
                                                   Years Ended December 31
                                             ----------------------------------
                                               1997         1996         1995
                                             --------     --------     --------
<S>                                          <C>          <C>          <C>     
Net Sales (1)
   United States                             $1,046.8     $  953.6     $  821.1
   Canada                                       828.9        777.5        722.3
   Eliminations                                 (69.3)       (81.8)       (71.2)
                                             --------     --------     --------
Total net sales                              $1,806.4     $1,649.3     $1,472.2
                                             ========     ========     ========

Income from operations (1)
   United States                             $  170.7     $  131.7     $  109.9
   Canada                                       130.2        104.7         75.5
                                             --------     --------     --------
Total income from operations                 $  300.9     $  236.4     $  185.4
                                             ========     ========     ========

Identifiable assets (2)
   United States                             $1,737.8     $  889.7     $  868.3
   Canada                                     1,037.1        923.3        845.6
                                             --------     --------     --------
Total identifiable assets                    $2,774.9     $1,813.0     $1,713.9
                                             ========     ========     ========
</TABLE>

(1)   The 1997, 1996 and 1995 amounts shown as income from operations for Canada
      and the United States exclude $6.1 million, $13.7 million and $30.1
      million, respectively, of adjustments resulting from an agreement reached
      with Revenue Canada Taxation (as described in the Income Taxes note). If
      these adjustments were reflected, net sales and income from operations in
      Canada would be increased with corresponding adjustments in the U.S. There
      would be no impact on consolidated income from operations.

(2)   Assets for the year ended December 31, 1997 include the assets acquired in
      the Redland acquisition.

CASH FLOW INFORMATION

Non-cash investing and financing activities included the issuance of 296,000,
859,000 and 851,000 common equity shares on the reinvestment of dividends
totaling $7.0 million, $15.8 million and $15.8 million in 1997, 1996 and 1995,
respectively. Also, the acquisition of certain Redland construction materials
businesses discussed in the Acquisition footnote, which is accounted for similar
to a pooling-of-interests, does not impact cash except for $11.1 million of cash
in the acquired businesses at December 31, 1997. A payable to Lafarge S.A. was
recorded in connection with the transfer of Redland assets and liabilities to
the Company.

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

<TABLE>
<CAPTION>
                                               Years Ended December 31
                                      ------------------------------------------
                                          1997           1996           1995
                                      ------------   ------------   ------------
<S>                                   <C>            <C>            <C>         
Interest                              $     20,415   $     17,595   $     15,944
Income taxes
   (net of refunds)                   $     93,045   $     74,188   $     75,218
                                      ============   ============   ============
</TABLE>





                                      F-47
<PAGE>   52

PENSION PLANS

The Company has several defined benefit and defined contribution retirement
plans covering substantially all employees. Benefits paid under the defined
benefit plans are generally based on either years of service and the employee's
compensation over the last few years of employment or years of service
multiplied by a contractual amount. The Company's funding policy is to
contribute amounts that are deductible for income tax purposes.

The following table summarizes the consolidated funded status of the Company's
defined benefit retirement plans and provides a reconciliation to the
consolidated prepaid pension asset and accrued pension liability recorded on the
Company's Consolidated Balance Sheets at December 31, 1997 and 1996 (in
millions). For 1997, the assumed settlement interest rates for the Company's
U.S. plans ranged from 6.75 percent to 7.0 percent while the 1996 rate was 7.5
percent. The assumed settlement interest rates for the Canadian plans for 1997
and 1996 were 6.75 percent and 7.5 percent, respectively. For 1997 and 1996, the
assumed rates of increase in future compensation levels used in determining the
actuarial present values of the projected benefit obligations ranged from 4.0
percent to 4.5 percent for the Company's U.S. plans and 4.25 percent for the
Canadian plans. The expected long-term rate of investment return on pension
assets, which includes listed stocks, fixed income securities and real estate,
for each country ranged from 8.5 percent to 9.0 percent for each year presented.

<TABLE>
<CAPTION>
                                                      December 31, 1997                   December 31, 1996
                                              -----------------------------------------------------------------------
                                               Assets Exceed       Accumulated      Assets Exceed        Accumulated
                                                Accumulated      Benefits Exceed     Accumulated       Benefits Exceed
                                                 Benefits            Assets           Benefits            Assets
                                              ---------------    ---------------    ---------------   ---------------
<S>                                           <C>                <C>                <C>               <C>            
Actuarial present value of:
   Vested benefit obligations                 $         368.1    $          50.7    $         316.4   $          36.0
   Accumulated benefit obligations                      375.3               52.6              319.7              39.4
                                              ===============    ===============    ===============   ===============
Projected benefit obligation
   for service rendered to date               $         457.3    $          57.0    $         354.5   $          43.1
Market value of plan assets                             546.7               24.8              433.4              17.2
                                              ---------------    ---------------    ---------------   ---------------
Plan assets in excess of (less than)
   projected benefit obligations                         89.4              (32.2)              78.9             (25.9)
Unrecognized net (gain) loss due to
   past experience different from prior
   assumptions made                                       (.3)               9.0                6.3               6.7
Unrecognized prior service costs                          9.5                 .8               11.1               1.2
Unrecognized net (assets)
   obligations at transition
   to SFAS No. 87                                        (5.7)                .6               (8.1)              1.1
                                              ---------------    ---------------    ---------------   ---------------
Prepaid pension asset
   (accrued pension liability)                $          92.9    $         (21.8)   $          88.2   $         (16.9)
                                              ===============    ===============    ===============   ===============
</TABLE>





                                      F-48
<PAGE>   53

Net retirement cost for the years indicated includes the following components
(in millions):

<TABLE>
<CAPTION>
                                                        Years Ended December 31
                                                    -----------------------------
                                                     1997       1996       1995
                                                    -------    -------    -------
<S>                                                 <C>        <C>        <C>    
Service cost of benefits earned during the period   $  10.7    $   9.7    $   8.5
Interest cost on projected benefit obligation          28.9       28.5       28.1
Actual gain on plan assets                            (70.9)     (50.9)     (61.3)
Net amortization and deferral                          37.0       17.3       26.4
                                                    -------    -------    -------
Total defined benefit plans cost                        5.7        4.6        1.7
Defined contribution plans cost                         3.8        3.8        3.6
                                                    -------    -------    -------

Net retirement cost                                 $   9.5    $   8.4    $   5.3
                                                    =======    =======    =======
</TABLE>

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 $4.0
million, $3.7 million and $3.2 million for 1997, 1996 and 1995, respectively.
The data available from administrators of the multi-employer plans are not
sufficient to determine the accumulated benefit obligation nor the net assets
attributable to the multi-employer plans in which Company employees participate.

The defined contribution plans 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.

OTHER POSTRETIREMENT BENEFITS

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 Canada and the U.S. Benefits, eligibility and cost-sharing provisions
for hourly employees vary by location and/or bargaining unit. Generally, the
health plans pay a stated percentage of most medical/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 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 $1,000,000
health care lifetime maximum benefit. At age 65 or over, the maximum is $50,000.
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.





                                      F-49
<PAGE>   54

In Canada, both salaried and nonsalaried employees are generally eligible for
life insurance benefits. In the U.S., life insurance is provided for a number of
hourly retirees as stipulated in their hourly bargained agreements but not for
salaried retirees except those of certain acquired companies.

The following table sets forth the plans' combined status reconciled with the
accrued postretirement benefit cost included in the Company's Consolidated
Balance Sheets (in thousands):

<TABLE>
<CAPTION>
                                                                 December 31
                                                             -------------------
                                                               1997       1996
                                                             --------   --------
<S>                                                          <C>        <C>     
Accumulated postretirement benefit obligation
   Retirees                                                  $ 99,073   $ 74,832
   Fully eligible active participants                          17,766     13,417
   Other active participants                                   24,890     19,646
                                                             --------   --------

Total accumulated postretirement benefit obligation           141,729    107,895
Unrecognized net gain                                           2,871     13,320
Unrecognized prior service cost                                 3,047      3,652
                                                             --------   --------

Accrued postretirement benefit cost                          $147,647   $124,867
                                                             ========   ========
</TABLE>

Net periodic postretirement benefit cost includes the following components (in
thousands):

<TABLE>
<CAPTION>
                                                        Years Ended December 31
                                                    --------------------------------
                                                      1997        1996        1995
                                                    --------    --------    --------
<S>                                                 <C>         <C>         <C>     
Service cost of benefits earned during the period   $  1,624    $  1,412    $  1,285
Interest cost on accumulated postretirement
   benefit obligation                                  7,989       7,683       8,046
Net amortization                                        (846)     (1,109)     (1,390)
                                                    --------    --------    --------
Net periodic postretirement benefit cost            $  8,767    $  7,986    $  7,941
                                                    ========    ========    ========
</TABLE>

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation differs between U.S. and Canadian plans. For
plans in both the U.S. and Canada, the pre-65 assumed rate ranged from 7.1 to
9.5 percent, decreasing to 5.5 percent over 10 years. For post-65 retirees in
the U.S., the assumed rate ranged from 7.0 to 7.5 percent, decreasing to 5.5
percent over 10 years with a Medicare assumed rate for the same group of 6.8 to
6.9 percent, decreasing to 5.5 percent over 10 years. For post-65 retirees in
Canada the assumed rate ranged from 8.8 to 9.2 percent, decreasing to 5.5
percent over 10 years. If the health care cost trend rate assumptions were
increased by one percent, the accumulated postretirement benefit obligation as
of December 31, 1997 would be increased by 0.5 to 21.1 percent. The effect of
this change on the net periodic postretirement benefit cost for 1997 would be an
increase ranging from 9.0 to 23.8 percent.




                                      F-50
<PAGE>   55

For 1997 and 1996, the weighted average discount rates used to determine the
accumulated postretirement benefit obligations were 7.0 and 7.5 percent,
respectively, for U.S. plans and 6.75 and 7.5 percent, respectively, for
Canadian plans.

COMMITMENTS AND CONTINGENCIES

The Company leases office space and certain equipment. Total lease expenses for
1997, 1996 and 1995 were $12.0 million, $15.1 million and $14.1 million,
respectively. Future minimum annual lease commitments for all noncancelable
leases are as follows (in thousands):

<TABLE>
<S>                     <C>                                              <C>    
                        1998                                             $15,766
                        1999                                              13,998
                        2000                                              11,808
                        2001                                              10,508
                        2002                                              10,892
                        Thereafter                                        35,405
                                                                        --------
                           Total                                        $ 98,377
                                                                        ========
</TABLE>

The Company self insures for 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.

Since 1992, a number of owners of buildings located in eastern Ontario, Canada,
most of whom are residential homeowners, filed actions in the Ontario Court
(General Division) against Bertrand & Frere Construction Company Limited
(Bertrand) and a number of other defendants seeking damages as a result of
allegedly defective footings, foundations and floors made with ready-mixed
concrete supplied by Bertrand. There are presently approximately 168 plaintiffs
whose claims involve 104 foundations, which are embodied in ten lawsuits. In two
of these actions, the plaintiffs have added LCI as a party defendant; in the
others, LCI is either a third or fourth party. The damages claimed total more
than Cdn. $62 million. In the largest of these actions, approximately 119
plaintiffs are complaining about 81 basement foundations, including a 20-unit
condominium, and claiming approximately Cdn. $51.7 million, each plaintiff
seeking Cdn. $200,000 for costs of repairs and loss of capital value of their
respective home or building, Cdn. $200,000 for punitive and exemplary damages
and Cdn. $20,000 for hardship, inconvenience and mental distress, together with
interest and costs. LCI has also been served with cross-claims or third or
fourth party claims by Bertrand in the referenced lawsuits. Bertrand is seeking
indemnity for its liability to the owners as a result of the supply by LCI of
allegedly defective flyash. Bertrand amended its claims to allege that the
cement supplied by LCI is also defective. In 1995, the Ontario New Home
Warranty Program instituted a lawsuit against Bertrand, LCI and certain other
defendants to recover approximately Cdn. $3 million in costs for replacing or
repairing the foundations of 29 houses which were covered under the warranty
program. The amount of LCI's liability, if any, is uncertain. LCI has denied
liability and is defending the lawsuits vigorously. It has introduced third and
fourth party claims against its insurers to have the insurance coverage issues
dealt with by the Court at the same time as the liability case. The Company
believes it has substantial insurance coverage that will respond to defense
expenses and liability, if any, in the lawsuits. Trial on this matter convened
in early September 1997 and is expected to continue during 1998.





                                      F-51
<PAGE>   56

In late August 1996 the Company, among others, was served with original
petitions from two sets of plaintiffs in two similar lawsuits brought in state
courts in Starr and Duval Counties, Texas. In the first suit, approximately 180
plaintiffs sued approximately 170 defendants involved in the production,
transportation and use of cement, concrete, additives, sand and gravel alleging
that these materials contain toxic substances, that the plaintiffs were exposed
to the toxic substances in their work areas where they breathe the fumes, inhale
the particles and absorb the materials from them which caused injury to their
respiratory and nervous systems and brain damage. The plaintiffs claim
negligence, gross negligence, and products and strict liability and seek, among
other things, both past and future damages, exemplary damages and cost of the
suit in an unspecified amount. In the second suit, approximately 70 plaintiffs
sued approximately 225 defendants alleging claims similar to those contained in
the first suit with an added claim that plaintiffs suffered exposure to
defendants' toxic substances in their homes. While the amount of liability, if
any, to the Company is uncertain, the Company filed general denials to both
suits in late October 1996 and is vigorously defending the lawsuits. Although
significant discovery and venue issues have been decided, plaintiffs have filed
motions in both cases seeking recusal of the presiding judge, this has
effectively stayed all progress in both cases pending resolution of the motions.

On March 18, 1998, a shareholder derivative lawsuit was filed in Circuit Court
for Montgomery County, Maryland against all of the directors of the Company
alleging breach of fiduciary duty, corporate waste, and gross negligence in
connection with the Company's planned purchase of a number of construction
materials businesses in North America from Lafarge S.A., its majority
shareholder (the "Transaction"). Lafarge S.A. took control of these businesses
in late 1997 when it acquired the British construction materials firm Redland
PLC. A special committee of independent directors of the Company's Board of
Directors was appointed to evaluate the Transaction. Based upon extensive due
diligence and the advice of independent professionals retained by the special
committee, including an investment banking firm which advised the committee
regarding the fairness of the price and terms of the proposed Transaction, the
special committee recommended the Transaction for approval by the full Board of
Directors of the Company. On March 16, 1998, the full Board, consisting of a
majority of independent directors, approved the Transaction and the Company
publicly announced the Transaction on March 17, 1998. The Company has been
advised that the directors believe that the lawsuit against them with respect to
the Transaction is without merit and intend to vigorously defend the lawsuit.

The Company has been notified by the EPA that it is one of several potentially
responsible parties for clean-up costs at waste disposal sites. The ultimate
costs related to such matters and the Company's degree of responsibility in some
of these matters is not presently determinable.

When the Company determines that it is probable that a liability for
environmental matters or other legal actions has been incurred, an estimate of
the required remediation costs is recorded as a liability in the financial
statements. As of December 31, 1997 and 1996, the liabilities recorded for
environmental obligations are not material. Management has concluded that the
possibility of material liability in excess of the amounts reported in the
balance sheet is remote.

In addition, the Company is involved in certain other legal actions and claims.
It is the opinion of management that all legal and environmental matters will be
resolved without material effect on the Company's consolidated financial
statements.






                                      F-52
<PAGE>   57

RELATED PARTY TRANSACTIONS

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 accrued for
these services were $6.3 million, $5.7 million and $5.5 million during 1997,
1996 and 1995, respectively. In addition, the Company purchases various products
from Lafarge S.A. Such purchases totaled $52.5 million, $52.1 million and $27.7
million in 1997, 1996 and 1995, respectively. All transactions with Lafarge S.A.
were conducted on an arms-length basis.

Lafarge S.A. reinvested a portion of dividends it was entitled to receive on the
Company's common shares during 1997, 1996 and 1995. These reinvestments totaled
$3.9 million, $13.2 million and $12.4 million, respectively. The Company's $50
million of short-term borrowings from Lafarge S.A. and its subsidiaries at
December 31, 1996 were repaid in 1997.

QUARTERLY DATA (UNAUDITED)

The following table summarizes financial data by quarter for 1997 and 1996 (in
millions, except per share information):

<TABLE>
<CAPTION>
                              First       Second     Third      Fourth      Total
                             --------    --------   --------   --------   --------
<S>                          <C>         <C>        <C>        <C>        <C>     
1997
Net sales                    $    244    $    477   $    612   $    473   $  1,806
Gross profit (loss)               (11)        143        202        137        471
Net income (loss)                 (34)         60         97         59        182
Net income (loss) per
   common equity share (a)
     Basic                      (0.48)       0.84       1.36       0.83       2.56
     Diluted                    (0.48)       0.84       1.35       0.82       2.54
                             ========    ========   ========   ========   ========

1996
Net sales                    $    204    $    421   $    576   $    448   $  1,649
Gross profit (loss)               (20)        114        182        121        397
Net income (loss)                 (38)         43         85         51        141
Net income (loss) per
   common equity share (a)
     Basic                      (0.55)       0.62       1.21       0.73       2.02
     Diluted                    (0.55)       0.59       1.15       0.70       1.95
                             ========    ========   ========   ========   ========
</TABLE>



(a) The sum of these amounts does not equal the annual amount because of changes
in the average number of common equity shares outstanding during the year.






                                      F-53
<PAGE>   58

                                                                     Schedule II

                      LAFARGE CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                    Years Ended December 31, 1997, 1996, 1995
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                            Additions               Deductions
                                                          ------------   ------------------------------
                                                                          From Reserve
                                                                          for Purposes
                                             Balance at     Charge to       for Which
                                            Beginning of    Cost and       Reserve Was                   Balance at End
              Descriptions                     Year         Expenses        Created        Other (1)       of Year
----------------------------------------   ------------   ------------   -------------   --------------  --------------
<S>       <C>                              <C>            <C>            <C>             <C>             <C>        
Reserve applicable to current receivable

     For doubtful accounts:

          1997                             $     18,793   $      2,365   $     (3,177)   $      6,918(2) $    24,899

          1996                             $     20,685   $        255   $     (2,108)   $        (39)   $    18,793

          1995                             $     22,698   $        588   $     (2,843)   $        242    $    20,685

     For cash and other discounts:

          1997                             $      3,750   $     37,147   $    (36,786)   $       (929)   $     3,182

          1996                             $      3,542   $     30,909   $    (30,583)   $       (118)   $     3,750

          1995                             $      5,649   $     30,691   $    (32,985)   $        187    $     3,542
</TABLE>

-----------------------------

(1) Primarily foreign currency translation adjustments

(2) Includes $7,299 of allowance for doubtful accounts at December 31, 1997
    related to the acquisition of Redland






                                      
                                      F-54
<PAGE>   59


                                    EXHIBIT
                                     INDEX



<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           DESCRIPTION
-------                          -----------
<S>                              <C>
  27                             Financial Data Schedule
</TABLE>