UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

Commission File Number 0-11936

Lafarge North America Inc.

Incorporated in Maryland

12950 Worldgate Dr., Suite 500
Herndon, Virginia 20170
(703) 480-3600

I.R.S. Employer Identification No.
58-1290226

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

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

     There were 70,138,567 shares of our Common Stock and 4,125,062  Exchangeable Preference Shares of our subsidiary, Lafarge Canada Inc., outstanding as of April 30, 2004, the latest practicable date. The Exchangeable Preference Shares are exchangeable at any time into our Common Stock on a one-for-one basis, entitle their holders to dividend and other rights economically equivalent to those of the Common Stock, and through a voting trust, vote at meetings of our stockholders.

LAFARGE NORTH AMERICA INC.

FORM 10-Q FOR THE QUARTER
ENDED MARCH 31, 2004

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LAFARGE NORTH AMERICA INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited and in thousands, except per share amounts)

See the Notes to Condensed Consolidated Financial Statements.

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LAFARGE NORTH AMERICA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

See the Notes to Condensed Consolidated Financial Statements.

2

LAFARGE NORTH AMERICA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)

See the Notes to Condensed Consolidated Financial Statements.

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LAFARGE NORTH AMERICA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.		Lafarge North America Inc., together with its subsidiaries (“Lafarge” or the “company”), is the United States’ and Canada’s largest diversified supplier of construction materials such as cement and cement-related products, aggregates, ready-mixed concrete and concrete products, asphalt and gypsum drywall. We also provide road paving and construction services. Lafarge materials are used for residential, commercial, institutional and public works construction. Our business is organized into three operating segments: Construction Materials, Cement and Cement-Related Products, and Gypsum. Each represents a separately managed strategic business unit with different capital requirements and marketing strategies. For information regarding our operating segments, see Note 12.
		We have over 1,000 operations doing business in most states and throughout Canada, where we conduct our business through our subsidiary, Lafarge Canada Inc. (“LCI”). Lafarge S.A., a French company, and its affiliates hold approximately 53 percent of our common stock.
2.		The condensed consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. We believe that the disclosures made are adequate to make the information presented not misleading. In our opinion, the accompanying condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of the applicable dates and the results of our operations and our cash flows for the interim periods presented and all of the adjustments reflected in the condensed consolidated financial statements are of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our 2003 Annual Report on Form 10-K. Certain reclassifications have been made to prior periods to conform to the 2004 presentation.
3.		Most of our markets are affected by seasonal, weather-related conditions, which impact construction activity. In addition, substantial portions of the year’s major maintenance projects are performed during periods of low plant utilization with the associated costs expensed as incurred. Due to seasonal, weather-related conditions, earnings of any one quarter should not be considered indicative of results to be expected for a full year or any other interim period.
4.		The company accounts for employee stock options using the method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and the associated interpretations using the intrinsic method. Generally, no expense is recognized related to the company’s stock options because the option’s exercise price is set at the stock’s fair market value on the date the option is granted.

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If the company had recognized compensation expense for the fixed stock option plan based on the fair value at the grant dates for awards, pro forma income statements would be as follows (in thousands, except per share amounts):

		In addition to the impact above, compensation expense related to options granted to employees working in former Blue Circle operations would be $170,000 and $485,000 for the three and twelve months ended March 31, 2004 and $105,000 and $282,000 for the three and twelve months ended March 31, 2003. These amounts would be reported in “Income from managed assets” on the Condensed Consolidated Statements of Income as both a cost and cost reimbursement (i.e. with no impact on net income and per share amounts), as such expenses are fully reimbursable under the management agreement with Lafarge S.A.
		The pro forma compensation cost may not be representative of that to be expected in future years.
5.		The change in the carrying value of goodwill, net for the three months ended March 31, 2004, is as follows (in thousands):

Goodwill is recorded as of the date of acquisition based upon a preliminary purchase price allocation. We typically make adjustments to the preliminary purchase price allocation during the allocation period (generally not exceeding one year) as we finalize the fair value of certain assets and liabilities

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		such as property, plant and equipment, intangible assets, pension and other post-retirement benefit obligations, contingent liabilities, and deferred and current income tax balances.
6.		Under our receivables securitization program, we agreed to sell, on a revolving basis, certain of our accounts receivable to a wholly-owned, special purpose subsidiary (the “SPS”). The SPS in turn entered into an agreement to transfer, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable to unrelated third-party purchasers, through the use of a qualified special purpose entity, up to a maximum of $200 million. Under the agreements, new receivables are added to the pool as collections reduce previously sold receivables. We service, administer and collect the receivables sold.
		In accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125,” the receivables securitization transactions were accounted for as sales and, as a result, the related receivables and debt have been excluded from the accompanying Condensed Consolidated Balance Sheets. We received proceeds from the sale of trade receivables totaling $197.1 million and $301.2 million for the three months ended March 31, 2004 and 2003, respectively, and $1,440.9 million and $1,943.9 million for the twelve months ended March 31, 2004 and 2003, respectively. At March 31, 2004 and 2003 and at December 31, 2003, we administered $77.6 million, $100.2 million and $82.0 million, respectively, of receivables outstanding that were sold under this arrangement. The related fees and discounting expense are recorded as “other (income) expense, net” in the accompanying Condensed Consolidated Statements of Income (Loss) and amounted to $0.4 million and $0.6 million for the three months ended March 31, 2004 and 2003, respectively, and $2.1 million and $3.4 million for the twelve months ended March 31, 2004 and 2003, respectively. The SPS holds a subordinated retained interest in the receivables not sold to third parties amounting to $53.0 million, $35.2 million and $96.3 million at March 31, 2004 and 2003 and at December 31, 2003, respectively. The subordinated interest in receivables is recorded at fair value, which is determined based on the present value of future expected cash flows estimated using management’s best estimates of credit losses and discount rates commensurate with the risks involved. Due to the short-term nature of trade receivables, the carrying amount, less allowances, approximates fair value. Variations in the credit and discount assumptions would not significantly impact fair value.
7.		We value our inventories at the lower of cost or market. Other than maintenance and operating supplies, we value the majority of our U.S. cement inventories using the last-in, first-out method. We value all other inventories at average cost. At March 31, 2004 and 2003 and at December 31, 2003, our inventories from continuing operations consisted of the following (in thousands):

8.

In April 2002, we entered into commercial paper agreements, under which we may from time to time issue up to an aggregate principal amount of $300 million in unsecured, short-term promissory notes

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		through private placements. At March 31, 2004, we had $135 million of commercial paper outstanding under the agreements with a weighted-average interest rate of 1.47 percent and maturity dates ranging from 1 to 35 days. The agreements which were renewed in April 2004 and, which now expire in April 2007, require the maintenance of certain financial ratios, among other restrictions. At March 31, 2004, the company was in compliance with these requirements.
		In addition to the commercial paper, we also had $25 million in short term borrowings outstanding on our uncommitted bilateral lines of credit at March 31, 2004 at an average floating rate of 1.57 percent.
		On February 5, 2004, the company entered into a $200 million interest rate swap which effectively converts our $200 million senior notes, maturing in July 2013, from a fixed rate coupon of 6.9 percent to a floating rate coupon at six month LIBOR plus a fixed spread of 2.43 percent. The initial interest rate is 3.6 percent.
9.		The components of net periodic pension cost are as follows (in millions):

		The company previously disclosed in its December 31, 2003 financial statements that it expected to contribute $55 million to its pension plans in 2004 plus a discretionary contribution of $43 million. The company contributed $74 million to pension plans during the first quarter of 2004. Expected contributions for the remainder of 2004 are $17 million, for a total expected annual contribution of $91 million.
		The company has decided to defer recognition of the financial impact of prescription drug coverage to be provided by the federal government under the new Medicare Prescription Drug Improvement and Modernization Act of 2003. There is not yet enough detailed guidance from the government on how the legislation will be implemented, or from the Financial Standards Accounting Board on the appropriate accounting treatment for the legislation’s impact. Based upon information available at this time, the company estimates that the legislation will reduce the company’s Accrued Postretirement Benefit Obligation by $16 — $25 million and reduce its annual Net Periodic Benefit Cost by $2 — $4 million (excluding BCNA Mirror Plans, which are reimbursed to the company).
10.		Net income per share from continuing operations for the three and twelve months ended March 31, 2004 and 2003 are as follows (in thousands, except per share amounts):

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		Basic net income per common equity share was computed by dividing net income from continuing operations by the weighted average number of shares of common stock outstanding during the period. For each period presented, diluted net income per common equity share assumes the exercise of stock options and stock warrant, to the extent such conversion is dilutive.
11.		Comprehensive income consists of the following (in thousands):

12.

The operating segments reported below are those for which separate financial information is available and for which executive management regularly evaluates operating income or loss amounts (before other postretirement benefit expense for retirees, foreign exchange gains and losses, minority interests, interest and income taxes ) in deciding how to allocate resources and in assessing performance. Each of our three reportable operating segments, Construction Materials, Cement and Cement-Related Products, and Gypsum, represents a separately managed strategic business unit with its own capital requirements and marketing strategies. The basis of segmentation is consistent with our year-end

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		consolidated financial statements. We account for intersegment sales and transfers at market prices. We attribute revenue to geographic areas based on the location of the assets producing the revenue.
		Operating segment information consists of the following (in millions):

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Condensed consolidated geographic information consists of the following (in millions):

Assets by operating segment consist of the following (in millions):

13.		Our sale of Lafarge Florida Inc. to Florida Rock Industries, Inc. closed on August 12, 2003. The assets and operations of Lafarge Florida Inc. were classified within our cement segment. The sale price of approximately $124 million resulted in a pretax gain of approximately $93 million which is included in “Income from discontinued operations, net of tax” in the consolidated statements of income for the twelve months ended March 31, 2004.
		In accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the company reclassified the results of operations and the assets and liabilities of Lafarge Florida Inc. as discontinued operations as of March 31, 2003. As the sale of Lafarge Florida Inc. closed on August 12, 2003, there are no assets and liabilities of discontinued operations as of March 31, 2004 and December 31, 2003.
		Net sales and earnings before income tax from our discontinued Florida operations are as follows (in thousands):

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		Included in earnings before income tax are allocated interest expenses of $100,000 on a quarterly basis ($400,000 annually), based upon the book value of the net assets sold.
14.		In November 2002 and in accordance with EITF 94-3 “Liability Recognition for Costs to Exit an Activity”, the company recorded a reserve of approximately $11 million in connection with the idling of our gypsum drywall operations in Wilmington, Delaware. As of March 31, 2004, cash payments of approximately $5.0 million had been charged to the reserve, leaving a balance at March 31, 2004 of approximately $6.0 million.
15.		On March 28, 2001, Dunn Industrial Group, Inc. (“Dunn Industrial”) filed a lawsuit against us and the City of Sugar Creek, Missouri in the Circuit Court of Jackson County, Missouri. In the suit, Dunn Industrial, the general contractor for the construction of our new cement plant in Sugar Creek, Missouri, alleges that we expanded the scope of work expected of Dunn Industrial in the construction of the plant without commensurate increases in time required for performance and amounts to be paid to Dunn Industrial. In connection therewith, the suit alleges breach of contract, quantum meruit, breach of warranty and negligent misrepresentation and seeks foreclosure of mechanic’s liens against us and the City of Sugar Creek, Missouri as well as damages. The trial court ruled that the issues raised by Dunn Industrial need not be arbitrated but rather should be litigated. In December 2002, the Missouri appellate court reversed the trial court’s ruling and agreed with us that Dunn Industrial must arbitrate its claims. Upon further appeal by Dunn Industrial, the Missouri Supreme Court upheld the lower appellate court’s ruling and agreed that Dunn Industrial must arbitrate its claims. In its demand for relief in the arbitration, Dunn Industrial claims damages in excess of $120.5 million. We have filed certain counter claims, and we believe that Dunn Industrial’s claims are without merit and are vigorously defending our position in the arbitration.
		In June 2001, Lafarge Canada Inc. (“LCI”) paid Canadian $15.6 million (approximately U.S. $10 million), representing its share of the damages awarded to the plaintiffs in a lawsuit originating in 1992 arising from claims of building owners and other plaintiffs regarding defective concrete foundations. In December 2002, the Ontario Court of Appeal confirmed the trial court’s decision on LCI’s insurance coverage according to which LCI is entitled to be reimbursed by its insurers for most of the damages it paid to the plaintiffs, and for most of the defense expenses and third party costs it paid in the lawsuit. In August 2003, the Supreme Court of Canada dismissed the application made by certain of LCI’s excess insurers for leave to appeal the Court of Appeal’s decision. We have already expensed the amounts not payable by the insurers. LCI is also involved as a defendant in a related class action initiated in 1999. Approximately 215 homeowners have joined in the class action. We believe that any liability that LCI may incur arising from the class action (net of anticipated insurance recoveries) will not have a material adverse effect on our financial condition.
		Currently, we are involved in one matter under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, which together are referred to as Superfund, and the corrective action provisions of the Resource Conservation and Recovery Act of 1976. At this site, which the U.S.

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		Environmental Protection Agency (“EPA”) has listed on the National Priority List, some of the potentially responsible parties named by the EPA have initiated a third-party action against 47 parties, including us. We also have been named a potentially responsible party for this site. The suit alleges that in 1969 one of our predecessors sold equipment containing hazardous substances that may now be present at the site. It appears that the largest disposer of hazardous substances at this site is the U.S. Department of Defense. We understand that the Department of Defense has accepted a substantial share of responsibility for the site’s remediation and is pursuing a remediation plan with the EPA. The court has scheduled a July 2, 2004 status conference in this suit, which has otherwise been dormant for several years. We believe that this matter will not have a material impact on our financial condition.
		On August 26, 2003, United States Gypsum Corporation (“USG”) filed a lawsuit against us in the United States District Court for the Northern District of Illinois alleging our infringement of a USG patent relating to the production of gypsum drywall. In the suit, USG seeks unspecified damages and certain injunctive relief relating to the patent. The suit is in the discovery stage and we are defending against USG’s allegations. We believe that this matter will not have a material impact on our financial condition.
		When we determine that it is probable that a liability for environmental matters or other legal actions has been incurred and the amount of the loss is reasonably estimable, an estimate of the costs to be incurred is recorded as a liability in our financial statements. As of March 31, 2004, liabilities recorded for our environmental obligations and other legal actions are not material to our financial statements. Although we believe our accruals for environmental liabilities and other legal actions are adequate, we may incur costs in excess of the amounts provided at March 31, 2004. However, we have concluded that the possibility of material liability in excess of the amount reported in the March 31, 2004 Condensed Consolidated Balance Sheet is remote.
		In the ordinary course of business, we are involved in certain legal actions and claims, including proceedings under laws and regulations relating to environmental and other matters. Because such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the total amount of these legal actions and claims cannot be determined with certainty. We believe that all pending legal and environmental matters will be resolved without material adverse impact to our financial condition, results of operations or liquidity.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

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

As the largest diversified supplier of construction materials in the United States and Canada, Lafarge North America operates in an industry in which capital investment decisions and financial performance are viewed from a long-term perspective. Because both the raw materials for our products and the

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products themselves are expensive to transport, our businesses are generally very local, with local customers and local competitors. In order to expand our market coverage, we also employ large shipping vessels to transport cement and aggregates to terminals in strategic geographic locations. This allows us to ship products economically over considerably greater distances. The structure of the markets in which we compete, and the demand for individual products, vary for each business line. In general, demand for our products is influenced by national and regional economic conditions and trends in the construction industry. Also, our significant presence in northern geographic markets makes our operating results sensitive to weather conditions.

Company management is focused primarily on two key priorities: delivering higher performance and expanding the company through disciplined growth and development. Through the application of proprietary performance programs, management seeks to leverage key strategic, operational, cost and revenue drivers in each product segment to improve the quality of our products and services, and mitigate negative cost and market pressures on our financial results. In 2003, we initiated efforts to further strengthen our performance culture by intensifying our focus on customer orientation. This effort involves identifying how we can tailor product and service offerings to create greater value for customers, making them more successful in their businesses. We believe that offering this type of superior service and product quality will set Lafarge apart from our competition, and will strengthen our ability to improve prices in the future. Management also continues to actively identify and evaluate opportunities for top-line growth, particularly in aggregates, that meet our financial return criteria.

Three Months Ended March 31, 2004

During the three months ended March 31, 2004, we recorded a net loss of $70.8 million, or $0.96 per share diluted. The results compare with first quarter 2003 net loss of $87.0 million, or $1.19 per share diluted, which included $3.6 million, or $0.05 per share diluted, income from cement-related discontinued operations as well as negative $3.2 million, or $0.04 per share diluted, cumulative effect of change in accounting principle. Excluding the effects of discontinued operations as well as the cumulative effect of change in accounting principle, net loss for the first quarter 2004 improved 19.1 percent compared to the same period last year.

Our cement and construction materials businesses reported lower seasonal losses year-over-year, as volumes generally improved given stronger demand and more favorable weather than last year. The year 2004 had more normal winter weather compared to 2003, which was a harsher than typical winter both in temperature and precipitation. Consequently, volumes across all our product lines were much stronger compared to 2003, but the increase is more moderate when compared to previous years. In addition, our gypsum segment recorded its third quarterly profit following its return to profitability in the third quarter of 2003. Our earnings before interest and income taxes in the first quarter were negatively impacted by a $6.4 million increase in pension and post-retirement expenses and a $6.2 million unfavorable exchange rate effect from the translation of our Canadian losses into U.S. dollars.

Net sales from continuing operations were $508.9 million, an increase of 23.6 percent compared to the same period in 2003. Excluding the impact of the stronger Canadian dollar, consolidated net sales increased 17.3 percent in the quarter. U.S. net sales increased 18.8 percent to $303.5 million compared to $255.5 million in 2003, while Canadian net sales increased by 14.9 percent in local currency.

Construction Materials

Our construction materials segment reported an operating loss of $63.6 million compared with a loss of $67.3 million during the first quarter 2003. Excluding the unfavorable exchange rate effect, operating results were $9.2 million better than 2003. Strong volumes in aggregates and ready-mix, higher prices in aggregates and lower overall operating costs contributed to this improvement. This gain was partially offset by an additional $2.7 million pension expense and higher maintenance expense as we accelerated some of our annual maintenance projects to optimize our production to meet expected demand. Seasonal losses from construction aggregates, ready-mix concrete and concrete products were significantly lower

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compared with last year as sales volumes improved across all product lines due to generally stronger market conditions and better weather, while losses from asphalt and paving were in line with last year. Total construction materials revenue during the quarter was $286.7 million, up 25.4 percent over last year. Excluding the impact of the exchange rate, revenues were 16.7 percent higher than the same period in 2003.

Construction aggregates (crushed stone, sand and gravel) recorded an operating loss of $23.1 million, $1.3 million better than last year due to higher volumes and prices as well as lower fuel and energy costs, partially offset by higher repair costs due in part to timing, higher pension expense and unfavorable exchange rate impact. Shipments of construction aggregates of 16.1 million tons were 27.6 percent above last year. Volumes in the U.S. were up 38.7 percent compared with the year-ago quarter, due to strengthening market conditions and weather in the Great Lakes Region, continued strong demand in Maryland, and higher sales in Colorado. In the Canadian markets, sales volumes were up 17.8 percent due to stronger ready mix demand in Vancouver and higher levels of project work in central Ontario. Average selling prices increased 4.4 percent over last year, with the successful implementation of price increases in most regions.

Ready-mix concrete recorded a $7.8 million operating loss, an improvement of $2.7 million compared to the prior year, mainly driven by increased volumes. Overall, shipments of ready mixed concrete improved 10.3 percent in the quarter to 1.9 million cubic yards, due to favorable weather. Volumes in Canada increased 13.2 percent to 1.0 million cubic yards due to sustained residential construction, particularly in Vancouver. In the U.S., volumes increased 7.3 percent to 0.9 million cubic yards in the quarter, primarily in Maryland. The impact of higher volumes was partially offset by higher pension expense. Average selling prices were down slightly in the quarter as continued price degradation in metro Denver offset general price increases in Maryland as well as margin improvements in Canada.

Asphalt and paving operations registered a $27.4 million operating loss for the quarter, in line with the prior year, benefiting from the absence of losses from unprofitable portable highway paving in western U.S. which we exited in the second quarter of 2003, offset by the unfavorable Canadian dollar exchange rate impact. First quarter asphalt and paving operations represent less than 5 percent of full year activity and consequently the first quarter trends are not significant.

Cement and Cement-Related Products

The operating loss from cement and cement-related product operations, excluding discontinued operations related to Lafarge Florida Inc., was $18.2 million. This was a $12.3 million improvement compared to the first quarter 2003 loss of $30.5 million. The lower loss is due to increased sales volumes and production partially offset by higher energy costs and increased pension expenses.

Net sales, excluding Lafarge Florida Inc., were $177.0 million, an increase of 18.9 percent compared with the first quarter 2003. Excluding the favorable impact of the exchange rate, revenues were up 13.2 percent from the same period last year. Cement volumes were up 14.6 percent compared to last year driven by favorable weather and solid demand. Canadian shipments improved by 8.5 percent while U.S. shipments grew by 17.5 percent. Canadian demand appears strong overall, with British Columbia registering the greatest improvement. U.S. demand improved in all regions with Pacific Northwest and Mid-South districts showing the greatest gains. Compared to 2002, a more comparable year with respect to weather, volumes were up 4.7 percent. Average prices (excluding the impact of exchange and Lafarge Florida) were slightly lower than 2003 as a result of degradation experienced in certain U.S. markets

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during the last three quarters of 2003, and geographic mix. Price increases were implemented in several Canadian markets in January, resulting in a 0.5 percent increase over last year. Increases in the remaining Canadian markets are expected to be implemented in the second quarter. U.S. prices were down 1.2 percent, due to lower prices in the Great Lakes, the River and West U.S. Price increases in virtually all of our U.S. markets have been implemented in early April.

Gypsum

Gypsum recorded $4.5 million in operating income in the first quarter of 2004, continuing its return to profitability in the last two quarters of 2003. Strong sales volumes, higher selling prices and improved plant performance contributed to the $9.9 million improvement in the first quarter compared to the same period last year. Unit variable costs were higher than prior year as lower energy prices were offset by higher prices of paper and gypsum. Fixed costs were higher than prior year due to higher labor and environmental costs. The plants ran at full operating schedules for the entire quarter to meet demand levels.

Net sales increased $16.9 million to reach $74.1 million, an increase of 29.5 percent compared to the same period last year. Wallboard sales volumes increased to 542 million square feet, 11.1 percent higher compared to the same period last year, mainly due to continued strength in residential construction. The average mill net price of $112 per msf (thousand square feet) during the quarter was 21.8 percent higher than last year as the full impact of the January 5 price increase as well as the partial impact of the March 15 price increase were realized in addition to price increases effected in 2003. The first quarter average price also represented an increase of $7 per msf compared to the 2003 fourth quarter average of $105 per msf.

Selling and Administrative

Selling and administrative expenses of $90.6 million increased $8.6 million from 2003 and, as a percentage of net sales, decreased from 19.9 percent in 2003 to 17.8 percent in 2004. Excluding the unfavorable impact of the Canadian dollar, expenses increased by $3.2 million, mainly due to higher pension expenses.

Income from Managed Assets

During the three months ended March 31, 2004 and March 31, 2003, income from managed assets amounts to $3.0 million in management fees related to our agreement with Lafarge S.A. to manage certain U.S. cement and construction materials businesses that Lafarge S.A. obtained in its acquisition of Blue Circle Industries PLC. Gross proceeds from the management of these assets totaled $55.8 million and $50.2 million in 2004 and 2003, respectively, which included pro-rata billings for the annual management fee ($3.0 million), direct payroll, pension and post-retirement costs and allocated selling, general and administrative expenses.

Other (Income) Expense, Net

Other (income) expense, net amounted to an expense of $11.1 million in 2004 compared to $5.5 million in 2003. The increase is due to divestment losses related to certain non-strategic construction materials operations ($1.8 million in 2004 compared to a $0.5 million gain in 2003) and higher litigation expenses.

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Interest Expense, Net

Net interest expense of $7.2 million was lower than the prior year by $5.8 million, due to lower interest expense associated with lower debt levels as well as higher interest income and an exchange gain on U.S. dollar investments in Canada, as the Canadian dollar declined somewhat from year-end levels.

Income Taxes

For the three months ended March 31, 2004, we recorded an income tax benefit from continuing operations of $37.4 million, $9.8 million lower than the prior year quarter due to lower seasonal losses in our U.S. and Canada operations. Our effective income tax rate was 34.6 percent in 2004 and 35.1 percent in 2003. The lower effective income tax rate resulted from lower tax rates in Canada, as we benefited from general rate decreases of federal as well as some provincial current tax rates, although these were partially offset by higher tax rates enacted in Ontario in late 2003.

For the Twelve Months Ended March 31, 2004

For the twelve months ended March 31, 2004, we recorded net income of $296.8 million, or $3.98 per share diluted, compared with net income of $234.7 million, or $3.18 per share diluted during the same period last year. There were a number of specific items affecting our earnings for the twelve months ended March 31, 2004 and 2003. In 2004, net income included net income from discontinued operations amounting to $62.7 million, or $0.84 per share diluted. In addition, in 2004, net income included $11.3 million, or $0.15 per share diluted, related to a divestment gain from the relocation of the company’s Detroit, Michigan cement terminal, offset by an increase in our Canadian deferred tax provision due to the enactment in December 2003 of higher corporate tax rates in Ontario. The 2003 results contained a net gain of $28.7 million, or $0.39 per share diluted from one-time tax adjustments and a gain on the sale of the company’s Canadian paving stone business, offset by a charge for the idling of the gypsum plant in Wilmington, Delaware.

Overall, our income from continuing operations before interest and income taxes increased by $78.2 million to $432.4 million in 2004, with improved profitability across all our businesses, except for asphalt and paving. Although pension and post retirement expense increased by $34.4 million, the stronger Canadian dollar positively contributed $19.3 million to our operating results. Cement profitability was higher than last year as higher volumes, starting in the fourth quarter of 2003 in most regions, and higher prices in Canada offset modest price degradation in some U.S. markets. Our gypsum business returned to profitability in the second half of 2003 and continued its turnaround throughout the first quarter, supported by strong residential demand. Profitability of our construction materials business improved as increased aggregates and ready-mix operating results offset lower profits in our asphalt and paving segment.

Consolidated net sales for the twelve months ended March 31, 2004 were $3,416.1 million, up 8.6 percent from $3,144.8 million for the twelve months ended March 31, 2003.

Construction Materials

Our construction materials operations reported operating income of $187.4 million, $5.7 million higher than last year, while net sales of $2,090.6 million were 7.9 percent higher than 2003. Higher earnings in our aggregate and ready-mixed concrete businesses, driven by increased volumes and higher average

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selling prices, offset earnings shortfalls in our asphalt and paving businesses. The stronger Canadian dollar resulted in a $7.1 million dollar improvement in earnings of the construction materials business.

Construction aggregates recorded operating income of $125.2 million, $8.5 million higher than last year due to higher volumes and increased selling prices. Shipments of construction aggregates increased 5.0 percent to 122.4 million tons compared with 2003. In the U.S., volumes increased 11.3 percent to 61.4 million tons with increases in the Great Lakes, Maryland, Missouri and New Mexico markets partially offset by weaker conditions in Colorado and western New York. Canadian volumes were down 0.7 percent to 60.9 million tons due to lower shipments in most of our western Canadian markets as well as lower exports to U.S. west coast markets. Average selling prices of construction aggregates were up 4.2 percent in the U.S. and 3.5 percent in Canada, in local currency.

Ready-mix concrete recorded $37.4 million of operating income, $2.0 million higher than last year, benefiting from higher volumes and prices. Shipments were 11.2 million cubic yards, 1.2 percent higher than last year. Volumes were up 5.4 percent in Canada with sustained project work in the energy and mineral/mining sector and improved residential construction particularly in Vancouver. Also, volumes were up 3.1 percent in eastern U.S. markets, particularly in Louisiana and Maryland which benefited from favorable weather and project work. However, continued weak conditions in our western U.S. markets more than offset these gains resulting in a 4.0 percent decrease in overall U.S. volumes in 2004. Average selling prices increased 3.4 percent in Canada, while prices in the U.S. were 1.3 percent lower than 2003, mainly driven by competitive pressures in the Denver metro market.

Asphalt and paving recorded $30.7 million of operating income, $5.1 million lower than the previous year. Most of the shortfall in earnings occurred in our western U.S. markets, due to weak construction activity in our principal western U.S. markets as well as our exit from our New Mexico portable highway paving segment in the second quarter of 2003.

Cement and Cement-Related Products

Operating income from our cement business was $302.8 million, $34.0 million higher than 2003, benefiting from strong shipments starting in the fourth quarter of 2003 and continuing into the first quarter of 2004. The stronger Canadian dollar resulted in a $16.3 million improvement in earnings. Net sales of $1,226.5 million were up 9.3 percent from 2003. Cement shipments of 13.4 million tons were up 5.9 percent, with a 6.7 percent increase in Canada as demand was up sharply in the western provinces and Ontario. Volumes in the U.S., excluding Lafarge Florida Inc., were up 5.6 percent. Average Canadian selling prices were up slightly at 0.6 percent in local currency while in the U.S., average prices declined 2.0 percent in 2004 as some price degradation occurred due to competitive activity in several markets.

Gypsum

Our gypsum business reported operating income of $4.9 million on net sales of $271.2 million, compared to an operating loss of $19.3 million on net sales of $231.6 million for the twelve months ended March 31, 2003. A combination of strong volume growth, higher selling prices and improved operating efficiency contributed to the improved operating results. Total drywall sales volumes increased 9.7 percent, reaching a level of 2,139 million square feet with favorable weather and strong residential demand throughout 2004. Average mill net selling prices increased 6.8 percent due to several market price increases, including the most recent increase in March 2004. The 2003 operating loss of $19.3 million excludes a $26 million charge recorded in “Other (income) expense, net” for the idling of our Wilmington, Delaware plant in November 2002.

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Selling and Administrative

Selling and administrative expenses of $361.7 million increased $24.3 million from the twelve months ended March 31, 2003 and, as a percentage of net sales, decreased slightly to 10.6 percent in 2004 from 10.7 percent in 2003. This increase was mainly due to the unfavorable impact of the Canadian dollar ($20.3 million) and higher pension expenses ($11.1 million), partially offset by cost savings.

Income from Managed Assets

During the twelve months ended March 31, 2004 and March 31, 2003, we realized $12.0 million in management fees related to our agreement with Lafarge S.A. to manage certain U.S. cement and construction materials businesses that Lafarge S.A. obtained in its acquisition of Blue Circle Industries PLC. Gross proceeds from the management of these assets totaled $212.0 million and $193.2 million in 2004 and 2003, respectively, which included pro-rata billings for the annual management fee ($12.0 million), direct payroll, pension and post-retirement costs and allocated selling, general and administrative expenses.

Other (Income) Expense, Net

Other (income) expense, net amounted to income of $7.6 million in the twelve months ended March 31, 2004 compared to an expense of $10.9 million in the twelve months ended March 31, 2003. This variation includes, among others, the absence of a $26 million provision in November 2002 for the idling of our gypsum drywall plant in Wilmington, Delaware and higher equity income ($5.9 million). These favorable items were mostly offset by higher foreign exchange losses of $9.6 million in the twelve months ended March 31, 2004 and the absence of a $3.5 million reversal in the twelve months ended March 31, 2003 of the 2001 natural gas mark to market provision.

Interest Expense, Net

Net interest expense of $47.9 million was $1.8 million higher than in the twelve months ended March 31, 2003. The favorable impact of lower interest rates and lower debt levels was more than offset by a $3.8 million impact of increased foreign currency losses on U.S. dollar investments in Canada and a reduction of $1.4 million in capitalized interest (none capitalized in 2004).

Income Taxes

Income tax expense from continuing operations increased to $143.0 million in the twelve months ended March 31, 2004 compared to $74.8 million in the twelve months ended March 31, 2003, including an $8 million deferred tax adjustment in the fourth quarter of 2003 due to provincial tax changes legislated in both Ontario and Alberta as well as the higher tax rate applicable to the Detroit cement terminal in the third quarter 2003. The results in the twelve months ended March 31, 2003 benefited from the recognition of approximately $28 million in non-recurring tax benefits related to the reversal of a deferred tax valuation allowance ($23 million) and a favorable final tax settlement of various tax issues with both U.S. and Canadian authorities ($5 million) in the fourth quarter 2002.

Excluding these tax adjustments, the effective tax rate for 2004 was 36 percent compared with approximately 34 percent in 2003.

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Cumulative Effect of Change in Accounting Principle

Effective January 1, 2003, we adopted SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. The statement requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recognition of a liability, that cost should be capitalized as part of the related long-lived asset. The asset is depreciated and the liability is accreted over the useful life of the asset. Most of our asset retirement obligations are incurred as reclamation liabilities related to its mining process. Previously, we accrued for reclamation costs on the units of production basis. Application of the new rules resulted in an increase in net property, plant and equipment of $4.0 million, an increase in the asset retirement obligation liability of $8.8 million, and a pre-tax cumulative charge of $4.8 million, as of the effective date of January 1, 2003.

Liquidity and Capital Resources

In April 2002, we entered into commercial paper agreements under which we may from time to time issue up to an aggregate principal amount of $300 million in unsecured, short-term promissory notes through private placements. At March 31, 2004, we had $135 million of commercial paper outstanding under the agreements. These borrowings are backed by a $300 million, syndicated, committed revolver which expired in April 2004 and was renewed with similar terms. The new agreement expires in April 2007.

We also have a syndicated, committed revolving credit facility totaling $300 million extending through April 2007. At March 31, 2004, no amounts were outstanding under the facility. We are required to pay annual commitment fees of 0.125 percent of the total amount of the facility. Borrowings made under the revolving credit facility will bear interest at variable rates based on a bank’s prime lending rate or the applicable federal funds rate and are subject to certain conditions.

The company’s debt agreements require the maintenance of certain financial ratios relating to fixed charge coverage and leverage, among other restrictions. At March 31, 2004, the company was in compliance with these requirements.

Under our receivables securitization program, which we began in 2000, we agreed to transfer, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable to unrelated third-party purchasers up to a maximum of $200 million. Under the agreements, new receivables are added to the pool as collections reduce previously sold receivables. We continue to service, administer and collect the receivables sold, which as of March 31, 2004 and 2003 and December 31, 2003 totaled $77.6 million, $100.2 million and $82.0 million, respectively. Since this program is accounted for as a sale of receivables, the related cash flows are included in net cash provided by operations.

At March 31, 2004, we have cash and short-term investment of approximately $490 million and cumulative undistributed earnings of approximately $1.2 billion in Lafarge Canada Inc. No provision for U.S. income taxes or Canadian withholding taxes has been made since the company considers the undistributed earnings to be permanently invested in Canada. Management has decided that the determination of the amount of any unrecognized deferred tax liability for the cumulative undistributed earnings of LCI is not practical to determine since it would depend on a number of factors that cannot be known until such time as a decision to repatriate the earnings might be made.

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Net cash of $254.8 million was used in operating activities in the first three months of 2004 compared with $175.7 million during the same period in 2003. The increase in cash used by operations was primarily due to an increase in pension contribution of approximately $70 million as well as a higher increase in net working capital ($37 million). The higher increase in net working capital was primarily due to lower sales of receivables under the accounts receivable securitization program and an increase in receivables due from affiliates.

Net cash used for investing activities for the three months ended March 31, 2004 was $41.0 million higher than the same period last year primarily due to increased sustaining capital expenditures, small acquisitions ($7.6 million) and increased purchases of short-term investments in 2004.

In the first three months of 2004, net cash provided by financing activities was $158.7 million, only a $2.5 million decrease from last year. In the first quarter of 2004, the company repurchased $5.1 million of common stock (none in the first quarter of 2003) and issued $12.4 million of equity securities mainly related to the exercise of stock options (only $0.2 million in first quarter of 2003).

Historically, we have funded our first quarter operating loss and working capital requirements through proceeds from short-term borrowings.

During the first quarter of 2004, the most significant uses of cash were a net loss of $70.8 million, a net increase in operating working capital of $175.1 million, pension contributions of $74.3 million and capital expenditures of $40.6 million. The most significant source of funds was net short-term borrowings of $160.2 million. This compares with a net loss of $87.0 million, a net increase in operating working capital of $138.1 million, capital expenditures of $19.2 million and a net increase in borrowings of $170.8 million during the first quarter of 2003.

Net cash provided by operating activities for the twelve months ended March 31, 2004 decreased by $52.2 million over the same period in 2003 mainly due to increased pension contributions somewhat offset by an improvement in net operating working capital.

Net cash used for investing activities of $124.5 million decreased from $142.0 million due to proceeds from the sale of the Florida discontinued operations ($86.0 million, net of income taxes paid), partially offset by increases in acquisitions expenditures and the purchase of short-term investments. Spending on acquisitions increased to $24.3 million (from $2.3 million) due to several smaller acquisitions. Capital expenditures remained stable at $195 million.

During the twelve months ended March 31, 2004, net cash consumed by financing activities totaled $128.7 million, compared to $119.5 million in the 2002 period. The $57.1 million higher decrease in net short-term borrowings was partially offset by the increase in long-term debt of $44.0 million due to the issuance of an Industrial Revenue Bond related to the Sugar Creek, Missouri plant. In addition, the repurchase of common stock and increased dividend payments were somewhat offset by an increase in common stock issued under employee stock option plans.

Capital expenditures (including acquisitions already completed or in process) are expected to be approximately $250 million to $300 million in 2004.

We are exposed to foreign currency exchange rate risk inherent in our Canadian revenues, expenses, assets and liabilities denominated in Canadian dollars, as well as interest rate risk inherent in our debt. The strengthening of the Canadian dollar during the twelve months ended March 31, 2004 has resulted in

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an increase in shareholders’ equity of $168.4 million from positive foreign currency translation adjustments.

Historically, we primarily use fixed-rate debt instruments to reduce the risk of exposure to changes in interest rates. However, to achieve a better balance of fixed and floating interest rates, on February 5, 2004, we entered into a $200 million interest rate swap which effectively converts our $200 million senior notes, maturing in July 2013, from a fixed rate coupon of 6.9 percent to a floating rate coupon at six month LIBOR plus a fixed spread of 2.43 percent. The initial interest rate setting is 3.6 percent.

Safe Harbor for Forward-Looking Statements

Statements made in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may be identified by the context of the statement and generally arise when we are discussing our beliefs, estimates or expectations. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions (“Factors”) that are difficult to predict. Some of the Factors that could cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to: the cyclical nature of our business; national and regional economic conditions in the U.S. and Canada; Canadian currency fluctuations; seasonality of our operations; levels of construction spending in major markets; supply/demand structure of our industry; competition from new or existing competitors; unfavorable weather conditions during peak construction periods; changes in and implementation of environmental and other governmental regulations; our ability to successfully identify, complete and efficiently integrate acquisitions; our ability to successfully penetrate new markets; and other Factors disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. In general, we are subject to the risks and uncertainties of the construction industry and of doing business in the U.S. and Canada. The forward-looking statements are made as of this date, and we undertake no obligation to update them, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information required by this Item is contained in “Liquidity and Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations reported in Item 2 of Part I of this Quarterly Report on Form 10-Q and is incorporated herein by reference.

Item 4. Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in reasonably assuring the timely accumulation and communication to management of information required to be disclosed in the reports that we file with the SEC.

There was no change in our internal control over financial reporting during the first quarter of 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information presented in Note 15 of the “Notes to Condensed Consolidated Financial Statements (unaudited)” is incorporated herein by reference, pursuant to Rule 12b-23.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

	10.1		Three-Year Credit Agreement dated as of April 16, 2004 by and between Lafarge North America Inc. and certain of its subsidiaries and certain banks, financial institutions and other institutional lenders, including Wachovia Bank, National Association, as syndication agent, Citigroup Global Markets Inc. and Wachovia Securities, Inc., as joint lead arrangers and joint bookrunners, and Citibank, N.A. (“Citibank”), as administrative agent (the “Agent”).
	31.1		Certification of Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002
	31.2		Certification of Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002
	32.1		Certification of Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002
	32.2		Certification of Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K.

     On February 6, 2004, we filed a Form 8-K dated February 5, 2004, in which we announced our earnings for the fiscal quarter and year ended December 31, 2003.

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SIGNATURE

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

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