**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 20-F**

 

**(Mark One)**

 

**o****    ****REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR(g) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**OR**

** **

**ý****    ****ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the fiscal year ended December 31,2004**

** **

**OR**

** **

**o****    ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**Commissionfile number: 0-22628**

 

**ARCADIS N.V.**

(Exact name of Registrant asspecified in its charter)

 

**ARCADIS N.V.**

(Translation of Registrant’sname into English)

 

**TheNetherlands**

(Jurisdiction of incorporationor organization)

 

**Utrechtseweg68, 6812 AH Arnhem, the Netherlands**

(Address of principal executiveoffices)

 

Securities registered or to be registered pursuant to Section 12(b) ofthe Act: **None.**

 

Securities registered or to be registered pursuant to Section 12(g) ofthe Act:

 

**COMMONSTOCK, € 0.05 NOMINAL VALUE, PER SHARE**

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) ofthe Act: **None.**

 

Indicate the number of outstanding shares of each of the issuer’sclasses of capital or common stock as of the close of the period covered bythis annual report:

 

**20,308,742SHARES OF COMMON SHARES, € 0.05 NOMINAL VALUE**

 

**200PRIORITY SHARES, € 0.05 NOMINAL VALUE**

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

 

Yes ý    No o

 

Indicate by check mark which financial statement item the registranthas elected to follow.

 

o Item 17    ý Item 18

 

 

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**TABLEOF CONTENTS**

 
| ** **                                            | **Page**                                                                      |
|-------------------------------------------------------|-------------------------------------------------------------------------------|
| CAUTIONARY NOTE REGARDING FORWARD-LOOKING  STATEMENTS | i                                                                             |
| PRESENTATION OF CERTAIN INFORMATION                   | i                                                                             |
| **PART I**                                       | ** **                                                                    | ** ** | 1 |
| Item 1.                                               | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                         | 1 |
| Item 2.                                               | OFFER STATISTICS AND EXPECTED TIMETABLE                                       | 1 |
| Item 3.                                               | KEY INFORMATION                                                               | 1 |
|                                                  | A.                                                                            | Selected Financial Data | 1 |
|                                                  | B.                                                                            | Capitalization and Indebtedness | 3 |
|                                                  | C.                                                                            | Reasons for the Offer and Use of Proceeds | 3 |
|                                                  | D.                                                                            | Risk Factors | 4 |
| Item 4.                                               | INFORMATION ON THE COMPANY                                                    | 7 |
|                                                  | A.                                                                            | History and Development of the Company | 7 |
|                                                  | B.                                                                            | Business Overview | 9 |
|                                                  | C.                                                                            | Organizational Structure | 12 |
|                                                  | D.                                                                            | Property, Plant and Equipment | 13 |
| Item 5.                                               | OPERATING AND FINANCIAL REVIEW AND  PROSPECTS                                 | 13 |
|                                                  | A.                                                                            | Operating Results | 13 |
|                                                  | B.                                                                            | Liquidity and Capital Resources | 24 |
|                                                  | C.                                                                            | Research and Development, Patents and Licenses, etc. | 26 |
|                                                  | D.                                                                            | Trend Information | 26 |
|                                                  | E.                                                                            | Off-balance Sheet Arrangements | 31 |
|                                                  | F.                                                                            | Tabular Disclosure of Contractual  Obligations | 31 |
| Item 6.                                               | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    | 31 |
|                                                  | A.                                                                            | Directors  and Senior Management | 31 |
|                                                  | B.                                                                            | Compensation | 35 |
|                                                  | C.                                                                            | Board Practices | 37 |
|                                                  | D.                                                                            | Employees | 37 |
|                                                  | E.                                                                            | Share Ownership | 38 |
| Item 7.                                               | MAJOR SHAREHOLDERS AND RELATED PARTY  TRANSACTIONS                            | 41 |
|                                                  | A.                                                                            | Major Shareholders | 41 |
|                                                  | B.                                                                            | Related Party Transactions | 42 |
|                                                  | C.                                                                            | Interests of Experts and Counsel | 42 |
| Item 8.                                               | FINANCIAL INFORMATION                                                         | 42 |
|                                                  | A.                                                                            | Consolidated Financial Statements and Other  Financial Information | 42 |
|                                                  | B.                                                                            | Significant Changes | 43 |
| Item 9.                                               | THE OFFER AND LISTING                                                         | 43 |
| Item 10.                                              | ADDITIONAL INFORMATION                                                        | 44 |
|                                                  | A.                                                                            | Share Capital | 44 |
|                                                  | B.                                                                            | Memorandum and Articles of Association | 44 |
|                                                  | C.                                                                            | Material Contracts | 46 |
|                                                  | D.                                                                            | Exchange Controls | 46 |
|                                                  | E.                                                                            | Taxation | 46 |
|                                                  | F.                                                                            | Dividend and Paying Agents | 51 |
|                                                  | G.                                                                            | Statement of Experts | 51 |
|                                                  | H.                                                                            | Documents on Display | 51 |
|                                                  | I.                                                                            | Subsidiary Information | 51 |
| Item 11.                                              | QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK                   | 51 |
| Item 12.                                              | DESCRIPTION OF SECURITIES OTHER THAN EQUITY  SECURITIES                       | 51 |
| **PART II**                                      |                                                                          |   | 52 |
| Item 13.                                              | DEFAULTS, DIVIDEND ARREARAGES AND  DELINQUENCIES                              | 52 |
| Item 14.                                              | MATERIAL MODIFICATIONS TO THE RIGHTS OF  SECURITY HOLDERS AND USE OF PROCEEDS | 52 |
| Item 15.                                              | CONTROLS AND PROCEDURES                                                       | 52 |
| Item 16.                                              | [RESERVED]                                                                    | 52 |

 

1

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| Item 16A.          | AUDIT COMMITTEE FINANCIAL EXPERT                                         | 52     |
|--------------------|--------------------------------------------------------------------------|--------|
| Item 16B.          | CODE OF ETHICS                                                           | 52     |
| Item 16C.          | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                   | 52     |
| Item 16D.          | EXEMPTIONS FROM THE LISTING STANDARDS FOR  AUDIT COMMITTEES              | 53     |
| Item 16E.          | PURCHASERS OF EQUITY SECURITIES BY THE  ISSUER AND AFFILIATED PURCHASERS | 53     |
| **PART III**  |                                                                     |   | 54 |
| Item 17.           | FINANCIAL STATEMENTS                                                     | 54     |
| Item 18.           | FINANCIAL STATEMENTS                                                     | F-1    |
| Item  19.          | EXHIBITS                                                                 |   |
| SIGNATURES         |                                                                     |
| INDEX  OF EXHIBITS |                                                                     |
|                    |                                                                          |        |  |

 

2

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**CAUTIONARY NOTE REGARDING FORWARD****-LOOKING STATEMENTS**

 

This report, and documents incorporated byreference into this report, include forward-looking statements within themeaning of the United States Private Securities Litigation Reform Act of 1995.These statements are based on the beliefs and assumptions of management and oninformation available to management at the time such statements were made.Forward-looking statements include information concerning possible or assumedfuture results of operations, earnings, liquidity, cash flow and capitalexpenditures, industry or market conditions, assets under management,acquisition activities and the effect of completed acquisitions, debt levelsand the ability to obtain additional financing or make payments on our debt,regulatory developments, demand for and pricing of our services and otheraspects of its business, general economic conditions and statements that, ineach case, are preceded by, followed by, or include words such as “believes,” “expects,”“anticipates,” “intends,” “plans,” “estimates,” “may,” “could,” “should,” “would”or similar expressions.

 

Forward-looking statements are not guaranteesof performance. They involve risks, uncertainties and assumptions. Although wemake such statements based on assumptions we believe to be reasonable, ouractual results may differ materially from expectations. Many of the factorsthat will determine these results are beyond our ability to control or predict.We do not intend to review or revise any particular forward-looking statementsmade or incorporated by reference in this Form 20-F in light of futureevents, except as otherwise required by law. Investors are cautioned not torely unduly on any forward-looking statements.

 

The following important risk factors, andother important factors described elsewhere in this report or in our otherfilings with the Securities and Exchange Commission, among others, could causeour results to differ from any results that we may project, forecast, orestimate in any forward-looking statements:

 

•  cyclical downturns in the economy could havenegative effect on investments by private companies in new investments;

 

•  decreased tax revenues may limit the abilityof governments to invest in the types of public works for which we are engaged;

 

•  changes in legislation, regulation andpolitical priorities may weaken demand for our services;

 

•  changes in bidding procedures of our clientsmay put competitive pressures on the amounts we can charge for our services;

 

•  inaccurate estimates of the time or cost of aproject may result in project losses;

 

•  malfunctions in our information andcommunications technology may adversely affect our operations;

 

•  difficulties with the integration of acquiredbusinesses may distract the attention of our management and adversely affectour operations; and

 

•  declines in the exchange rates of non-Eurocountries may reduce the value of our assets.

 

**PRESENTATION OF CERTAIN INFORMATION**

 

Unless the context requires otherwise (1) referencesto “ARCADIS,” “we,” “us” and “our” refer to ARCADIS N.V. and its consolidatedsubsidiaries, (2) references to “the Netherlands” are to The Kingdom ofthe Netherlands, (3) references to “United States” or “U.S.” are to theUnited States of America, (4) references to “Euros,” “EUR” and “€” are tothe currency of the 12 European Union member states (including the Netherlands)participating in European Monetary Union, and (5) references to “dollars”or “$” are to the currency of the United States.

 

i

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**PART 1**

 

**ITEM 1. IDENTITY OF DIRECTORS****, SENIOR MANAGEMENT AND ADVISERS**

 

Not Applicable

 

**ITEM 2. OFFER STATISTICS****AND EXPECTED TIMETABLE**

 

Not Applicable

 

**ITEM 3. KEY INFORMATION**

 

**A.  *Selected financial data.***

 

The selected consolidated financial datapresented below as of and for each of the five years during the period ended December 31,2004 have been derived from our audited Consolidated Financial Statements. Theselected consolidated financial data as of and for each of the three yearsduring the period ended December 31, 2004 are derived from, and should beread in conjunction with, our Consolidated Financial Statements and the Notesset forth in Item 18 of this annual report.

 

For the convenience of the reader, theamounts reflected in our selected consolidated financial data as of and for theyear ending December 31, 2004 as presented in Euros have been translatedinto U.S. dollars. The exchange rate used is $1.00 = € 0.73416, theexchange rate as of December 31, 2004. We do not represent that thetranslated amounts actually represent such U.S. dollar amounts or could beconverted into U.S. dollars at the rates indicated or at any other rate.

 

We prepare our Consolidated FinancialStatements in accordance with accounting principles generally accepted in theNetherlands (Dutch GAAP), which differs in certain significant respects fromaccounting principles generally accepted in the United States (U.S. GAAP). SeeNote 17 to our Consolidated Financial Statements for the years ended December 31,2004, 2003 and 2002 included in Item 18 of this annual report for a descriptionof the principal differences between Dutch GAAP and U.S. GAAP as they relate tous and our consolidated subsidiaries, as well as a reconciliation to U.S. GAAPof net income and shareholders’ equity. Starting in 2005, ARCADIS applies the International Financial Reporting Standards(IFRS) as the basis for its financial reporting. This means that the quarterlyreports during 2005 will be presented in line with the IFRS standards. For thispurpose, the 2004 quarterly figures have been adjusted for comparison purposes.The impact of this change in valuation principles and related reporting is notmaterial to ARCADIS. For more information on the changes and the relatedfinancial effects please refer to Item 5.D of this annual report.

 

 
| ** **                                        | ** ** | **For the years ended December 31,**   | ** ** |
|---------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                        | ** ** | **2004**                                    | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                        | ** ** | **$**                                       | ** ** | **€** | ** ** | **€** | ** ** | **€** | ** ** | **€** | ** ** | **€** | ** ** |
| ** **                                        | ** ** | **(in millions, except per share amounts)** | ** ** |
| **Consolidated  Statement of Income Data (a)**    |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| *Amounts  in accordance with Dutch GAAP*          |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Gross  revenue                                    |       | 1,227.0                                     |       | 900.8 |   | 840.6 |   | 819.1 |   | 797.4 |   | 776.2 |   |
| Net revenue                                       |       | 861.6                                       |       | 632.5 |   | 595.4 |   | 577.8 |   | 563.5 |   | 550.9 |   |
| Operating  income                                 |       | 44.5                                        |       | 32.7 |   | 34.9 |   | 42.7 |   | 38.8 |   | 35.2 |   |
| Income from  operations before taxes              |       | 39.8                                        |       | 29.2 |   | 32.0 |   | 40.5 |   | 36.1 |   | 31.8 |   |
| Income from  operations after taxes               |       | 26.7                                        |       | 19.6 |   | 20.3 |   | 26.1 |   | 23.6 |   | 20.7 |   |
| Group income  from operations after taxes         |       | 30.0                                        |       | 22.0 |   | 22.9 |   | 26.7 |   | 24.2 |   | 21.5 |   |
| Net income                                        |       | 27.4                                        |       | 20.1 |   | 21.4 |   | 24.7 |   | 25.1 |   | 20.7 |   |
| Basic net  income per common share                |       | 1.36                                        |       | 1.00 |   | 1.07 |   | 1.23 |   | 1.24 |   | 1.04 |   |
| Diluted net  income per common share              |       | 1.34                                        |       | 0.99 |   | 1.06 |   | 1.22 |   | 1.23 |   | 1.04 |   |
| Average  number of shares                         |       | 20.140                                      |       | 20.140 |   | 20.005 |   | 20.129 |   | 20.280 |   | 20.022 |   |
| Dividend per  common share (b)                    |       | 0.65                                        |       | 0.48 |   | 0.48 |   | 0.48 |   | 0.44 |   | 0.39 |   |
| *Amounts  in accordance with U.S. GAAP*           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Gross  revenue(c)                                 |       | 1,111.4                                     |       | 815.9 |   | 776.2 |   | 754.3 |   | 739.6 |   | 729.4 |   |
| Net  revenue(c)                                   |       | 794.9                                       |       | 583.6 |   | 555.9 |   | 543.8 |   | 532.5 |   | 524.5 |   |
| Operating  income(c) (f)                     |       | 28.9                                        |       | 21.2 |   | 33.7 |   | 38.4 |   | 39.7 |   | 39.7 |   |
| Net income(d) (f)                            |       | 20.5                                        |       | 15.0 |   | 22.6 |   | 23.3 |   | 24.5 |   | 24.3 |   |
| Basic net  income per common share(e) (f)    |       | 1.02                                        |       | 0.75 |   | 1.13 |   | 1.16 |   | 1.21 |   | 1.21 |   |
| Diluted net  income per common share (e) (f) |       | 1.00                                        |       | 0.74 |   | 1.13 |   | 1.15 |   | 1.20 |   | 1.21 |   |

 

1

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| ** **                               | ** ** | **As of December 31,** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **2004**                    | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                               | ** ** | **$**                       | ** ** | **€** | ** ** | **€** | ** ** | **€** | ** ** | **€** | ** ** | **€** | ** ** |
| ** **                               | ** ** | **(in millions)**           | ** ** |
| **Consolidated  Balance Sheet Data (a)** |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| *Amounts  in accordance with Dutch GAAP* |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Total assets                             |       | 531.9                       |       | 390.5 |   | 347.3 |   | 343.8 |   | 309.9 |   | 298.8 |   |
| Long-term  debt                          |       | 16.4                        |       | 12.0 |   | 29.7 |   | 27.6 |   | 22.0 |   | 23.1 |   |
| Common stock                             |       | 1.4                         |       | 1.0 |   | 1.0 |   | 1.0 |   | 1.0 |   | 1.0 |   |
| Shareholders’  equity               |       | 198.4                       |       | 145.7 |   | 136.5 |   | 134.7 |   | 133.7 |   | 115.2 |   |
| *Amounts  in accordance with U.S. GAAP*  |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Shareholders’  equity (g)           |       | 215.7                       |       | 158.3 |   | 173.3 |   | 162.9 |   | 228.3 |   | 208.5 |   |

 

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(a)           The Dutch companyARCADIS Aqumen Facility Management B.V. and the Spanish company Grupo EP S.A.,in both of which we hold a 50% interest, are included in our consolidatedfinancial statements on a proportional basis in conformity with Dutch GAAP.Under U.S. GAAP, such investments would be accounted for under the equitymethod. This variance from U.S. GAAP has no effect on shareholders’ equity ornet income. Additional information is provided in Note 17****to our Consolidated Financial Statements.

 

(b)           Dividend per commonshare represents the amount relating to each year in which a dividend paymentis approved and paid in the following year. The dividend per common share inU.S. dollars is: $0.63****in 2004; $0.59for 2003; $0.56 for 2002, $0.42 for 2001, and $0.33 for 2000. The dividendpayment of € 0.48 per outstanding share of common stock for the year ended December 31,2004, was presented to and approved by our shareholders at the Annual GeneralMeeting of Shareholders on May 11, 2005.

 

(c)           Gross revenue, netrevenue and operating income as reported in accordance with U.S. GAAP arepresented excluding the 50% revenues or income from the proportionallyconsolidated companies Grupo EP and ARCADIS Aqumen Facility Management B.V. Formore information please refer to Note 17 of the financial statements in thisannual report.

 

(d)           Net income in 2001 of €25.1 million, calculated in accordance with Netherlands GAAP, includes thegain on the sale of the non-consolidated participation in Analytico of €4.0 million (€ 0.20 per share) and the charge related to the restructuringof our property valuation activities in the Netherlands of € 2.0 million(€ 0.10 per share).

 

(e)           Basic net income percommon share calculated in accordance with Dutch GAAP and U.S. GAAP is basedupon the weighted average number of common shares outstanding during theperiod. Diluted net income per common share calculated in accordance with DutchGAAP and U.S. GAAP is based upon the weighted average number of the commonshares outstanding during the period plus the dilutive effect of potentialcommon shares outstanding during the period.

 

2

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(f)            Over 2003,contributions made by employees to the pension fund were mistakenly presentedas costs accounted for by ARCADIS N.V. Net income in accordance with U.S. GAAP as restated is presented in thetable below:

 
| **U.S. GAAP Reconciliation  Adjustment  (Amounts in millions of Euros, except per share amounts)** | ** ** | **2003**   | ** ** |
|----------------------------------------------------------------------------------------------------|------------|------------|------------|
| Net income,  as reported earlier                                                                   |       | 20.342     |       |
| Adjustment  for decrease in pension costs                                                          |       | 3.480      |       |
| Tax effect                                                                                         |       | (1.218     | )          |
| ** **                                                                                         | ** ** | ** ** | ** ** |
| **Restated  net income**                                                                           | ** ** | **22.604** | ** ** |
|                                                                                               |       |       |       |
| Basic net  income per share, as reported earlier                                                   |       | 1.00       |       |
| Diluted net  income per share, as reported earlier                                                 |       | 1.00       |       |
|                                                                                               |       |       |       |
| **Restated  basic net income per share***                                                          | ** ** | **1.13**   | ** ** |
| **Restated  diluted net income per share***                                                        | ** ** | **1.13**   | ** ** |

 

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*       Thehigher per share income is not only caused by the adjustment in pension costs,but also by a reduction in the number of shares used to calculate income pershare, as shares purchased by the company for option plans are excluded fromthis calculation. The original number of shares used to calculate basic netincome per share in 2003 was 20,363,726, which mistakenly included 358,512treasury shares purchased for option plans. The corrected number of shares is20,005,214. The original number of shares used to calculate diluted net incomeper share in 2003 was 20,374,632. The corrected number of shares is 20,069,107.

 

(g)           The U.S. GAAPinformation for the four years ended December 31, 2003, has been adjustedrelated to prior reconciliations between Dutch and U.S. GAAP. For additionalinformation, see Note 17(c).

 

**ExchangeRate Information**

 

On March 31, 2005 the exchange ratebetween the Euro and U.S. dollar was €0.77****per $1.00. Thefollowing tables set forth, for the periods and dates indicated, informationregarding the exchange rate for the Euro expressed in Euros per $1.00. Therates used for the tables are based on quotes from the Amsterdam ForeignExchange.

 
| **Period**                         | ** ** | **High** | ** ** | **Low** | ** ** | **Average(1)** | ** ** | **End** | ** ** |
|------------------------------------|------------|----------|------------|---------|------------|----------------|------------|---------|------------|
| Year ended December 31,  2004 |       | €   | 0.85       |    | €     | 0.73           |       | €  | 0.80       |   | € | 0.73 |   |
| Year ended December 31,  2003 |       | 0.96     |       | 0.79    |       | 0.88           |       | 0.79    |       |
| Year ended December 31,  2002 |       | 1.17     |       | 1.06    |       | 1.06           |       | 0.95    |       |
| Year ended December 31,  2001 |       | 1.19     |       | 1.05    |       | 1.12           |       | 1.13    |       |
| Year ended December 31,  2000 |       | 1.21     |       | 0.96    |       | 1.09           |       | 1.07    |       |
|                                    |            |          |            |         |            |                |            |         |            |  |  |  |  |

 

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(1)           Average of the exchangerates on the last day of each month during the year presented.

 
| **Period**         | ** ** | **High** | ** ** | **Low** | ** ** |
|--------------------|------------|----------|------------|---------|------------|
| March 2005    |       | €   | 0.77       |    | €     | 0.75 |   |
| February 2005 |       | 0.78     |       | 0.75    |       |
| January 2005  |       | 0.77     |       | 0.75    |       |
| December 2004 |       | 0.76     |       | 0.73    |       |
| November 2004 |       | 0.78     |       | 0.75    |       |
| October 2004  |       | 0.82     |       | 0.78    |       |
|                    |            |          |            |         |            |  |  |

 

**B.  *Capitalization and indebtedness.***

 

Not applicable.

 

**C.  *Reasons for the offer and use of proceeds.***

 

Not applicable.

 

3

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**D.  *Riskfactors.***

 

Our risks can be generally categorized intomarket, operational, financial, and other risks.

 

***Market Risks***

 

**Decreases in government tax revenues, whichsupport large public works projects, could weaken demand for our services.**

 

Of our business, approximately 50% of ourrevenue is derived from clients in the public sector. These clients rely on taxrevenues to fund large public works projects of the type for which we are oftenretained. During an economic downturn, governmental entities collectsignificantly less tax revenues and often try to limit discretionaryexpenditures to balance their budgets. Government limits on spending in regardto environmental remediation, infrastructure expansion or enhancement, buildingprojects, real estate data services or telecommunications infrastructureinvestments, could have a negative material adverse effect on our ability toattract and/or retain business.

 

**A global recession could have an adverseaffect on our revenues.**

 

Approximately 50% of our revenues are derivedfrom our private sector clients. As a result, we are exposed to generaleconomic cycles which influence the willingness and ability of private sectorfirms to invest in the types of activities that require our services. Privatesector clients experiencing adverse economic conditions may attempt to defer orwithdraw from signed contracts. Our buildings service area, where mostinvestments are from private sector companies, is the most sensitive todeclines in economic activity.

 

**A decline in the financial markets mayadversely affect our revenue.**

 

A sharp decline in the capital markets canhave a very negative effect on companies’ abilities to invest. This occurredmost recently in the telecommunications area, where investment declinedconsiderably in a very short period, resulting in a substantial decrease in ourrevenue in the communications area for a number of years.

 

**Changes in the political priorities in thecountries in which we operate could adversely affect public spending on theservices that we provide.**

 

Changes in political priorities canconsiderably influence public spending and, therefore, impact spending on theservices we provide. Projects for which we are well positioned may be canceledor deferred. Elections can result in shifts in political relationships leadingto delays in the awarding of new contracts. The infrastructure area is the mostsensitive to this risk.

 

**Changes to existing regulations and newlegislation and/or regulations, could weaken demand for our services.**

 

We believe that demand for our principalenvironmental services is in part related to the response of governmentalauthorities to the public’s concern for environmental issues. If, however,public concern for environmental issues changes, or governmental entities incountries where we operate become less responsive to environmental issues,there could be substantially less demand for our environmental services, whichcould have a material adverse effect on our business. Changes in regulationsand legislation may also negativelyaffect certain other areas of our business, such as the infrastructure and buildings activities when it comes to substantialchanges in building codes and/or environmental requirements related to suchprojects.

 

**Political instability in the countries inwhich we operate can result in contracts being canceled or harm our employees.**

 

As a result of political instability,contract awards can cease or employee security can be at issue, resulting incontract work being stopped temporarily or permanently. This risk arisesparticularly in the donor-financed market, which is primarily the****market for development projects, generally financed bynon-governmental organizations such as the World Bank or regional developmentbanks, in which we achieve only a limited part of our revenues.

 

4

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**Changes in the bidding behavior of ourclients may result in competitive pricing pressure for our services.**

 

Changes in the bidding pattern of clients canhave a considerable effect on our revenue. Due to European Union regulations, atrend is developing in a number of countries to a more open bidding processwhere price competition is more important. Construction fraud in theNetherlands has resulted in greater scrutiny of the bidding procedures and hasresulted in delays in contract awards. Centralization and strengthening of thepurchasing function in large companies may also affect our opportunities tosecure profitable revenues.

 

**Concentration through mergers, acquisitionsor other forms of consolidation may lead to increased purchasing power on thepart of our clients.**

 

With the concentration of companies, clientsmay disappear, and the purchasing power of customers can increase. The samephenomenon can occur with the government. The combination of municipalities andwater boards results in fewer, but more powerful, administrative units that, ina number of cases, now conduct activities that were formerly put out to bid.

 

***Operational Risks***

 

**The services we provide can result inconsiderable liability which we may not be able to insure against.**

 

The services we provide are associated withconsiderable liability risks. These risks can arise from errors in executingactivities such as design or calculation errors, incorrect estimates ofcontamination, not meeting agreed schedules, exceeding cost estimates andimplementing budgets, not complying with legislation and regulations, or omissionsin quality guarantees that have been given. To protect against these risks wehave obtained general and professional liability insurance policies. Thesepolicies cover errors and omissions in the executing of projects and provideinsurance against possible claims that arise during the coverage period. If theinsurance carrier does not renew coverage at the end of the policy term and weare unable to obtain replacement insurance with retroactive coverage, it ispossible that claims will be denied even though the claims are related toevents or actions that occurred while coverage existed. Because insurancepolicies contain certain exclusions and have a maximum amount per claim, notall risks are covered. Additionally, our insurance carriers may not be able tomeet their obligations.

 

**We may incur losses because we underestimatethe time or the cost to complete a project.**

 

Depending on the type of contract, losses canoccur in projects as a result of inaccurate time and cost estimates, newtechniques with undocumented cost and performance results, inexperienced staff,performance delays, additional consulting services, the absence of informationthat was assumed would be available, or other unforeseen circumstances.Although many contracts also contain conditions regarding payment of additionalcosts in the event of unforeseen circumstances, substantial project losses canoccur, which may have a negative effect on our results of operations.

 

**If we underutilize our permanent employees,our profitability may be negatively affected.**

 

Many of our employees are permanentlyemployed by us to retain their talent. If we are not able to charge our clientsfor services performed by these employees or if we are not able to charge ourclients at the rates we have set for their services, our profitability could benegatively affected.

 

**If our partners fail to perform theircontractual obligations on a project, we could be exposed to legal liability,loss of reputation and reduced profit or loss on the project.**

 

We account for investments in joint venturesusing the proportionate method of consolidation, whereby our share of allassets, liabilities, revenues and expenses of the joint venture are included inour consolidated financial statements. Approximately 30% of our revenue isderived from projects in which we partner with others through joint ventures,subcontracting or other arrangements. Success on these joint projects dependsin large part on whether our partners fulfill their contractual obligationssatisfactorily. If any of our partners fails to satisfactorily perform theircontractual obligations as a result of financial or other difficulties, we maybe required to make additional investments and provide additional services inorder to make up for our partner’s shortfall. If we are unable to adequatelyaddress our partner’s performance issues, then our client could terminate thejoint project, exposing us to legal liability, loss of reputation and risk ofloss or reduced profit on the project.

 

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**The refusal or inability of our clients totimely pay for services we provide to them could cause us to have insufficientliquidity.**

 

We usually invoice clients for our servicesaccording to the progress of the work. If our clients refuse or are unable tomeet their contractual payment obligations, we may not have sufficient cash tosatisfy our liabilities, and our growth rate and continued operations could beadversely effected.

 

**If we are unable to accurately estimate theoverall risks, revenues or costs on a contract, we may incur a lower profit orloss on the contract.**

 

Some of the contracts we enter into with ourclients have a fixed price or a cap. Under cost-plus contracts that have a cap,we are reimbursed for allowable costs and fees, which may be fixed orperformance-based. If our costs exceed the contract cap or are not allowableunder the provisions of the contract or any applicable regulations, we may notbe able to obtain reimbursement for all such costs. Under fixed-pricecontracts, we receive a fixed price irrespective of the actual costs we incurand consequently, we will realize a profit on the fixed-price contract only ifwe can control our costs and prevent cost over-runs on the contract.

 

**When we enter into turnkey contracts andDesign, Build, Finance and Operate (DBFO) contracts, we face risks beyond thosenormally associated with our business relationships and contracts.**

 

Due to the nature of turnkey contracts andDBFO contracts, we take on additional responsibilities, such as providingengineering and constructions services, and arranging financing, that go beyondthe responsibilities normally associated with our business relationships andcontracts.  In particular, in turnkeycontracts, we face additional financial risks because of the size of thesecontracts, and the fact that many of the contracting services in thesecontracts are performed by third parties, who may not complete performance on atimely basis.  In DBFO contracts, we mayhave an equity interest in the project, which causes us to have substantiallymore risk.  We may face substantialdecreases in our revenues if we are unable to meet our obligations under eitherof these types of contracts

 

**If our information and communicationtechnology systems do not work properly, our operations and management may benegatively affected.**

 

Our operation and management are largelydependent on the use of information and communication technology systems.Limited access and/or malfunctioning of these systems, including both hardwareand software, can negatively effect our operations and management. Our securityand backup measures may not be sufficient to protect the integrity of oursystems or to ensure that important data is not lost.

 

**If we are unable to productively use leasedoffice space, our operating results may be negatively affected.**

 

We usually lease office space for periodsfrom five to ten years. A downturn in activities may leave us with unusedoffice space which we may not be able to sublet.

 

**Failure to integrate acquired businesses orassets successfully will prevent us from achieving the anticipated cost savingsand other financial benefits.**

 

We have completed 14 acquisitions in the pastthree years and we will continue to pursue growth through selective strategicacquisitions of businesses and assets. However, we will only achieve theefficiencies, cost reductions and other financial benefits, such asdiversification of our current portfolio of clients and services, which wewould expect to result from these acquisitions, if we successfully integratethe administrative, financial, technical and marketing organizations ofacquired businesses and assets, and implement appropriate operations, financialand management systems and controls. We may have insufficient managementresources to accomplish integrations, and even if we are able to do sosuccessfully, we may not realize the level of cost savings and other financialbenefits that we expected to achieve.

 

The integration of acquired operations withour own involves a number of risks, including:

 

•  the disruption of our business and thediversion of our management’s attention from other business concerns;

 

•  unanticipated expenses related tointegration;

 

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•  the potential failure to realize anticipatedrevenue opportunities associated with acquisitions;

 

•  the possible loss of our key professionalemployees or those of the acquired businesses;

 

•  the potential failure to replicate ouroperating efficiencies in the acquired businesses’ operations;

 

•  our increased complexity and diversitycompared to our operations prior to an acquisition;

 

•  the possible negative reaction of clients toany acquisitions; and

 

•  unanticipated problems or legal liabilities,including responsibility as a successor-in-interest for undisclosed orcontingent liabilities of acquired businesses or assets.

 

***Financial Risks***

 

**Our international operations expose us tosignificant currency risk.**

 

We do a substantial amount of business incountries that do not use the Euro as their functional currency. The currenciesin these countries may fluctuate in value against the Euro over time. Declinesin the value of these currencies as measured against the Euro could result in areduction in the value, as reflected on our balance sheet, of our assets.

 

**The seasonality of our business may cause ourrevenues and earnings to fluctuate, adversely effecting the price of our stock.**

 

Our results may fluctuate seasonally and overlonger periods of time. Some of the factors that contribute to suchfluctuations include: (1) the number of working days available and thenumber of our employees on leave, (2) the manner in which our publicsector clients allocate tax revenues, (3) the weather, which may limit theamount of time our professionals have in the field.

 

**Fluctuations in our working capital and anysubstantial acquisition we may make may cause us to violate obligations underour short-term credit facility and other financing arrangements.**

 

As of December 31, 2004, we had borrowed€9.8 million under our short-term credit facility and had a total of €172million available at year-end. Fluctuations in our working capital, which includes our work in progressand trade receivable less accounts payable, may cause us to exceed the limitsof our financing arrangements.  This maycause us to violate the covenants and obligations under our short-term creditfacility.  Additionally, if we make anysubstantial acquisitions, our borrowings under the credit facility may increaseand we may violate our financing arrangements.

 

***Other Risks***

 

**The loss of our experienced employees couldadversely affect revenue and results.**

 

Our success is, largely, dependent onattracting and keeping good employees. If for any reason we are not able torecruit enough people with the necessary expertise and skills from theemployment market, or retain them, our revenue and result could be adverselyaffected. The departure of experienced employees to competitors orself-employment can be accompanied by the loss of clients and lead to a loss ofwork for us.

 

**ITEM 4. INFORMATION ON THE COMPANY**

 

**A.  *History and development******of the company.***

 

**Introduction**

 

We are an international provider ofcomprehensive knowledge-based consulting services in the areas ofinfrastructure, environment and buildings. ARCADIS N.V. is a public companyorganized under the laws of the Kingdom of the Netherlands on August 16,1982. Our initial predecessor was incorporated in the Netherlands in 1888 underthe name Nederlandsche 

 

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Heidemaatschappij. Most of our commercial activities are undertakenunder the trade name ARCADIS. In some countries, we operate under differentlegal or commercial names for local competitive reasons.

 

Our principal office is located at:Utrechtseweg 68, 6812 AH, Arnhem, the Netherlands and our telephone number atthat address is 31-26-3778911. Our principal office in the United States islocated at 630 Plaza Drive, Suite 200, Highlands Ranch, Colorado 80129 andour telephone number at that address is 720-344-3500.

 

**Strategy and Strategic Developments**

 

Since mid-2000, our strategy has been focusedon the expansion of our position in our existing markets in Europe and Northand South America. Our strategy concentrates on strengthening profitable growthin these geographic markets. This strategy has four cornerstones:

 

•  Organic growth in the existing coreactivities;

 

•  Development of new products and services;

 

•  Margin improvements; and

 

•  Acquisitions.

 

Following is a brief description of theprogress made in each of these areas in 2004.

 

***Organic growth incore activities increases***

 

Organic growth represents the growth in ourgross revenue that we are able to generate from year to year in our existing,non-acquired businesses, excluding exchange rate differences. In 2004, ourorganic growth was 5%, compared to 1% in 2003, despite declines in theNetherlands and Germany due to market conditions.  We believe that the improvement in ourorganic growth rate is attributable to better use our internal knowledge baseto provide opportunities, such as with respect to our remediation and GRiP®program in the United States, our rail and water management expertise in theNetherlands, our bridge and tunnel experience in France, as well as expandingour relations with existing multinational clients.

 

***Development of newproducts and services***

 

The development of new products and serviceshas also increased organic growth.  In2004, all of our operating companies produced a list of the innovations theyhave under development.  They have alsoimplemented initiatives to develop new products and services on the basis ofexisting competencies in an effort to benefit from growth opportunities intheir respective markets. An example is the RECLAIMTM (Redevelopment, Closure,Asset and Industrial Management) program, a new approach to remediatingcontaminated industrial sites, in which we not only provide the remedialenvironmental solution but also facilitate site redevelopment.  Another new important activity is facilitymanagement, which is marketed through a joint venture with U.K.-based MowlemAqumen, a provider of facility management services in both the private andpublic sectors across a range of market sectors, including financial services,retail and defense, and a subsidiary of Mowlem plc.  We entered into several small facilitymanagement contracts in 2004, which contributed to organic growth, but we didnot achieve our goal of entering into a new large contract as we had withPhilips Nederland in 2003.  We havecontinued to focus on DBFO projects, which involve the delivery of a “totalsolution,” including designing, building, possibly financing, as well asoperating the business for a specific period. This area is developing slowly, and at the end of 2004, we decided tolet our operating companies play an increased role in growing these types ofprojects.

 

***Margin improvement***

 

Margin improvement is a key component of ourcorporate strategy introduced in 2000. By margin, we mean operating incomeexcluding amortization of goodwill and identifiable intangible assets as apercentage of net revenue. Excluding items that affect the comparability ofresults and excluding goodwill amortization, the margin increased to 6.3%,compared to 6.0% in 2003. Margin improvement in 2004 primarily focused on thecommunications and buildings service areas addressing the unfavorable marketconditions in the Netherlands.  Non-corebusinesses in communications were sold. A transition toward higher yielding management activities is ongoing inthe buildings area, while detailed engineering activities are being reduced oroutsourced.  In the Netherlands, asignificant restructuring was executed, in which non-core businesses were sold,the organization was 

 

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streamlined, headcount was reduced and the pension plan wasadjusted.  See Note 16 to ourConsolidated Financial Statements. We believe all of these actions will providea basis for future margin improvement.

 

***Acquisitions***

 

Acquisitions remain an important cornerstoneof our strategy. The purpose of acquisitions is to further strengthen our homemarket portfolios. We have the following financial criteria for all of ouracquisitions:

 

•  They are accretive to earnings per share;

 

•  The margin is equal to or higher than theARCADIS margin; and

 

•  They produce a return on investment of 15% ormore.

 

In 2004, we acquired the following fivecompanies, all of which met ourfinancial criteria:

 
| ** **                                  | ** ** | ** **      | ** ** | ** **    | ** ** | ** **        | ** ** | **Month**          | ** ** |
|---------------------------------------------|------------|-----------------|------------|---------------|------------|-------------------|------------|--------------------|------------|
| **Name**                                    | ** ** | **Country**     | ** ** | **Employees** | ** ** | **Gross revenue** | ** ** | **consolidated**   | ** ** |
| ** **                                  | ** ** | ** **      | ** ** | ** **    | ** ** | **(in millions)** | ** ** | ** **         | ** ** |
| Terence  Dudley                             |       | United  Kingdom |       | 25            |       | 2                 |       | July 2004     |       |
| Profil                                      |       | Poland          |       | 150           |       | 15                |       | October 2004  |       |
| Bessent,  Hammack & Ruckerman Inc. |       | United  States  |       | 100           |       | 10                |       | November 2004 |       |
| Diversity  Partners                         |       | United  States  |       | 130           |       | 18                |       | December 2004 |       |
| Witpaard                                    |       | Netherlands     |       | 35            |       | 3                 |       | November 2004 |       |
| **Total**                                   | ** ** | ** **      | ** ** | **440**       |       | **48**            |       |               |       |

 

*Terence Dudley*, specializing in civil engineering, and isan addition to our existing environmental activities in the English market.Through *Profil*, we gained astrong position in the Polish infrastructure market, which is expected to growstrongly because of Poland’s accession to the European Union. *Bessent, Hammack & Ruckman*strengthensour position in the Florida infrastructure market; Florida is one of thefastest growing states in the U.S. The acquisition of *Diversity Partners*adds program andconstruction management capabilities in the U.S., and are marketed under thenames *Construction Dynamics Group*and*Lewis & Zimmerman Associates*.*Witpaard*is an urban planningcompany, which we believe strengthens our position in the municipal market inthe Netherlands.

 

The total investment in acquisitions in 2004was € 18.3 million, which resulted in additional goodwill of € 13.3million. A goodwill amount of € 3.1 million is expected to be fullydeductible for tax purposes. The goodwill paid in 2004 was assigned to ourgeographic segments as follows (in millions):

 
| The  Netherlands     |   | € | 0.6    |   |
|----------------------|--------|--------|--------|--------|
| United  States       |   | 6.9    |   |
| Europe               |   | 5.2    |   |
| Other  regions       |   | 0.6    |   |
| Total  goodwill paid |   | € | 13.3   |   |

 

Of the € 18.3 million invested inacquisitions in 2004, up to € 3.5 million will be paid during 2005 and 2006.

 

**B.  *Business overview.***

 

**Development by Service Area**

 

We provide consulting and engineeringservices in four principal geographic segments: the Netherlands, the UnitedStates, other European countries, and other regions. Our primary services areasin each of these geographic markets are infrastructure, environment, and buildings.Below please find a further detailing of the activities of the company in eachof these three service areas:

 

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***Infrastructure***

 

Our infrastructure area is focused ondesigning physical living environments for living, working, and recreationalactivities, as well as connecting these areas through highways, railroads, andwaterways. We are engaged in infrastructure activities in all of our geographicsegments. Water management, infrastructure development for the energy sectorand telecommunications activities are also a component of this business area.This service area’s share of total gross revenue was € 501 million, €485 million and € 418 million in 2004, 2003 and 2002, respectively,and accounted for 56%, 57% and 51% of our total gross revenue in those years,respectively.

 

Our principal activities in this service areainclude:

 

•  Planning and designing roads, highwaysystems, bridges, tunnels, harbors, railroads, airports, industrial sites andbusiness parks;

 

•  Traffic and transportation planning anddesign and traffic engineering studies;

 

•  Pedestrian and bicycle facilities design andparking analysis and design;

 

•  Surveying and geotechnical services forroads, railways and high-rise construction projects;

 

•  Consulting and mapping for cadastral purposesfor utilities, facilities such as airports and industrial complexes, as well asfor local governments;

 

•  Architecture;

 

•  Construction management, administration,supervision and physical construction services;

 

•  Project and program management, facilitiesprogramming, master planning;

 

•  Assistance with the financial and economicaspects of heavy infrastructure construction projects;

 

•  Quality control and operational assistance;

 

•  Feasibility studies;

 

•  Structural, mechanical, electrical andprocess engineering; and

 

•  Assistance with bidding processes and permitsapplications.

 

***Environment***

 

Our environment area is focused on theimprovement and maintenance of air, soil, and surface-water quality as well asprojects related to noise abatement, solid waste disposal and external safety.We are engaged in environment activities in all of our geographic segments.This service area’s share of total gross revenue was € 243 million, €223 million and € 227 million in 2004, 2003 and 2002, respectively,and accounted for 27%, 27% and 28% of our total gross revenue in those years,respectively.

 

Our principal activities in this service areainclude:

 

•  Investigation, identification and evaluationof sources of pollution and chemical contamination in groundwater, air andsoil, including the velocities and directions of contaminant migration;

 

•  Identification and evaluation of hydrologicfactors incident to the siting and operation of industrial plants, mines, powergenerating stations, and waste-storage and disposal facilities;

 

•  Formulation of remedial actions, includingthe design of groundwater monitoring and treatment systems at industrial wastetreatment and disposal sites, and the development and evaluation of strategiesfor the abatement of chemical contamination of groundwater from varioussources;

 

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•  Provision of technical guidance togovernmental agencies with respect to the significance of groundwater, andmethods for abating, controlling, and monitoring groundwater contamination;

 

•  Performance of feasibility studies,construction management, and the installation, operation and maintenance ofspecialized remedial technologies, including bioremediation, soil vaporextraction, air sparging, hydraulic barriers, free product control andrecovery, steam-enhanced soil-venting, contaminated surface and groundwaterrecovery and treatment, wastewater treatment, stabilization/solidification,landfill caps and containment, and air quality control;

 

•  Guaranteed Remediation Program, or GRiP®,which include the provision of a guaranteed maximum price for remediation ofcontaminated industrial sites, along with an insurance scheme that limits theclient’s risk exposure;

 

•  Redevelopment, Closure, Asset and IndustrialManagement, or RECLAIMTM, which is an integrated approach developed for companysites slated for closure.  The approachincludes a remedial plan, often based on GRiP®, combined with a plan forredevelopment.  The environmentalremediation can then be co-funded from the sale of the redeveloped property.

 

•  Comprehensive assessment, containment andremediation services for both surface and subsurface hydrocarbon releases, aswell as the design, installation, operation and maintenance of hydrocarbonremediation systems;

 

•  Environmental management consulting,including supporting clients implementing environmental policies, compliancewith legal requirements and reduction of environmental risks, environmentalaudits, environmental management systems, waste management, and assessment ofprocedures, materials and products;

 

•  Provision of special contracting services forthe construction and operation of remedial systems, focusing on theinstallation of systems and the subsequent long-term operation of the installedequipment, maintenance and sampling of the treatment processes;

 

•  Air quality services ranging frominvestigations through design to installation and operation, including sourceevaluation investigations, such as stack testing, compliance testing,diagnostic testing, continuous omissions monitoring, trial burn testing, airtoxins testing, testing of remedial systems, ambient air sampling, and airquality consulting services, such as permitting, omissions inventories,dispersion modeling;

 

•  Noise reduction services aimed at theinsulation of homes against noise from aviation, rail and road traffic; and

 

•  Other activities, including expert testimony,modeling, risk evaluation and risk assessment services, bioremediationservices, regulatory support, preparation of environmental statistics,geophysics, and community relations.

 

***Buildings***

 

Our buildings area is focused on buildings inwhich people live, work, or relax. We engage in the building area in most ofour geographic segments. This service area’s share of total gross revenue was €144 million, € 110 million and € 105 million in 2004, 2003 and 2002,respectively, and accounted for 16%, 13% and 13% of our total gross revenue in2004, 2003 and 2002, respectively.

 

Our activities in the buildings area include:

 

•  Project and program management, includingcost management and master planning;

 

•  Facility management, including technicalmaintenance of a client’s buildings, as well as security, procurement of energyand water, and catering;

 

•  Architectural design and architecturaldevelopment services;

 

•  Civil, structural, mechanical and electricalengineering;

 

•  Instrumentation and controls services;

 

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•  Industrial and manufacturing project services;

 

•  Feasibility studies and strategic planning;

 

•  Field operations;

 

•  Consulting services for constructionprocesses, project organization, as well as design specifications; and

 

•  Provision of temporary technical staff.

 

**Marketing and Distribution**

 

Our major marketing channels are our primaryoperating companies, which are ARCADIS G&M Inc., ARCADIS NederlandB.V., ARCADIS Deutschland GmbH, Grupo EP SA, ARCADIS Euroconsult B.V., ARCADISBelgium N.V. (including Gedas N.V.), ARCADIS FC International SAS, ARCADISLogos Engenharia SA, ARCADIS Geotecnica Consultores SA, PRC Holding B.V.,ARCADIS Aqumen Facility Management B.V., ARCADIS Geraghty&MillerInternational Ltd. and ARCADIS Polska.

 

Through our multinational client program, wehave increased organic growth by expanding our relationships with existingmultinational clients. For example, our multinational clients program hasresulted in the execution by several existing clients of master serviceagreements that establish the basis for providing international services tothese clients for extended periods.

 

**Competition**

 

We are engaged in highly competitive marketsin all of our geographic segments and service areas. In the Netherlands, theEuropean Union, the United States and outside the European Union, we competewith many other firms, ranging from small local firms to large national andinternational firms. In addition to price, we compete primarily on the basis ofquality of service, project management expertise, and ability to provideintegrated solutions. Other competitive factors include application ofstate-of-the-art technology, geographic location and availability of personnel.A significant portion of our revenue is generated through direct contact andnegotiations with clients resulting largely from existing relationships ratherthan through public or other bidding procedures. The development of new andmore efficient technology by our competitors may have an adverse effect on usif such technology is not accessible to us or is incompatible with the serviceswe provide.

 

**Effect of Government Regulation**

 

Of our business, approximately 50% of ourrevenue is derived from governmental entities. These clients rely on taxrevenues to fund large public works projects of the type for which we are oftenretained. During an economic downturn, governmental entities collectsignificantly less tax revenue and often try to limit discretionaryexpenditures to balance their budgets. Government limits on spending in regardto environmental remediation, infrastructure expansion or enhancement, buildingprojects, real estate data services or telecommunications infrastructureinvestments, could have a material adverse effect on our ability to attractand/or retain business.

 

Our business is also affected by the implementationand modification of governmental legislation and regulations in a number ofareas, but particularly with respect to the environment. We assist privatesector clients in complying with, or responding to, new governmentallegislation and regulations. Therefore, when government strengthens regulationof the environment, the demand for our services typically increases. Whenregulations are weakened or enforcement of such regulations seems less likely,our clients are less likely to need our services, which could materially andadversely affect our business. Changes in regulations and legislation may alsoaffect certain other areas of our business, including communications,infrastructure and, to a lesser extent, buildings.

 

**C.  *Organizational structure.***

 

ARCADIS N.V. is not directly or indirectlyowned or controlled by another corporation or by any government, foreign ordomestic. Only our major consolidated companies are listed below, stating thepercentage of ownership by ARCADIS N.V. and the country in which each isdomiciled.

 

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| **Company**                                                 | ** ** | **Percentage  Ownership** | ** ** | **Domicile**    |
|-------------------------------------------------------------|------------|---------------------------|------------|-----------------|
| ARCADIS  G&M Inc.                                       |       | 100                       |       | USA             |
| ARCADIS  Nederland B.V.                                     |       | 100                       |       | The Netherlands |
| ARCADIS  Deutschland GmbH                                   |       | 100                       |       | Germany         |
| Grupo EP  Ingenieria y Servicios Integrales SA(1)           |       | 50                        |       | Spain           |
| ARCADIS  Euroconsult B.V.                                   |       | 100                       |       | The Netherlands |
| ARCADIS  Belgium N.V. (including Gedas N.V.)                |       | 100                       |       | Belgium         |
| ARCADIS FC  International SAS                               |       | 100                       |       | France          |
| ARCADIS  Logos Engenharia SA                                |       | 50 plus 1  share          |       | Brazil          |
| ARCADIS  Geotecnica Consultores SA                          |       | 100                       |       | Chile           |
| PRC Holding  B.V.                                           |       | 100                       |       | The Netherlands |
| ARCADIS  Aqumen Facility Management B.V.(1)                 |       | 50                        |       | The Netherlands |
| ARCADIS  Geragthy & Miller International Ltd. (UK) |       | 100                       |       | United Kingdom  |
| ARCADIS  Polska                                             |       | 100                       |       | Poland          |

 

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(1)           Proportionatelyconsolidated

 

**D.  *Property,plant******and equipment.***

 

Our principal property and equipment consistsof land, offices, operating facilities, storage grounds, workshops, vehicles,equipment and software which, at December 31, 2004, representedapproximately 12% of our consolidated assets. We believe that our offices,operating facilities, vehicles and equipment are well maintained, suitable, andadequate for our current operations and that suitable additional or substitutespace will be available as needed to accommodate any expansion of ouroperations and for additional offices.

 

Our headquarters are leased and are locatedin Arnhem, the Netherlands. We own regional offices, workshops, storage groundsand land throughout the Netherlands. We lease approximately 220 local officesthroughout the Netherlands, Europe, the United States, Asia, Africa, and LatinAmerica. During fiscal 2004, aggregate annual rental payments on real estateleased by us approximated € 38 million.

 

The principal assets utilized in ourconsulting/engineering operations consist primarily of computer equipment andsoftware, instruments, operating equipment, workshop inventory, officeinventory and reproduction equipment. Some of the computer equipment is leased.The principal assets we utilized in contracting operations consist primarily ofoperating equipment such as earth-moving equipment, front loaders and trucks,mowers, tractors, drainage machines and office and workshop inventory as wellas computer equipment. Some of the operating equipment is leased.

 

At December 31, 2004, no environmental issuesexist at any of our facilities that may affect the utilization of suchfacilities.

 

**ITEM 5. OPERATING AND FINANCIAL****REVIEW AND PROSPECTS**

 

**A.  *Operating results.***

 

**Overview**

 

The following is a discussion of ourconsolidated financial condition and results of operations for the three yearsended December 31, 2004 and other factors that are expected to affect ourprospective financial condition. The following discussion and analysis shouldbe read in conjunction with “Selected financial data” and our ConsolidatedFinancial Statements which are included elsewhere in this annual report. OurConsolidated Financial Statements are prepared in accordance with theNetherlands law and Dutch GAAP. Dutch GAAP differs in certain respects fromU.S. GAAP.  See Note 17 to ourConsolidated Financial Statements. Our results may fluctuate from period toperiod due to project delays, occasioned by regulatory agency approvals orclient considerations, weather and the number of working days available.

 

We are an international provider ofconsulting and engineering services in four primary geographic segments: theNetherlands, the United States, other European countries, and other regionsoutside these areas. We provide these services in 

 

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three principal service areas: infrastructure, environment andbuildings.  We discontinued ourcommunications service area in 2004.

 

**Non-GAAP Financial Measures**

 

As noted above, ourfinancial results are primarily presented in this annual report under DutchGAAP.  However, certain of the financialinformation presented are not in accordance with Dutch GAAP, which we refer toas “non-GAAP”. The reconciliation of these non-GAAP measures to Dutch GAAPmeasures is presented in the table below the following description of thenon-GAAP measures:

 

•  *Organic. ** ***We use the term “organic” in this annual reportto refer to the internal growth of activities in subsidiaries that have beenconsolidated for more than one year. Internal growth in companies that have been consolidated for one year orless is accounted for as “growth through acquisitions”.

 

•  *Currency effect. ** ***The term “currency effect” refers to the effecton our results of changes in the value of currencies against the Euro *for* the production and reporting of quarterly and annualresults.  As the costs and revenues forour operating companies are customarily in the same currency, the currencyeffect is a translation effect.

 

•  *Acquisitions/Divestments*.  We describe revenue growth from “acquisitions/divestments”to refer revenue growth resulting from the purchase or sale of companies andthe internal growth in those companies as long as they have been consolidatedwithin ARCADIS for one year or less. After that period, internal growth inthese units is accounted for as organic growth.

 

•  *Non-operational*.  “Non-operational”refers to items that are not related to the actual operations of ourbusiness and that affect the comparability of results.

 

•  *Net income from operations*.  “Net income from operations” refers to netincome excluding theamortization of identifiable intangible fixed assets, excluding the costs related to pensions and excluding the costsrelated to option plans.

 

**Reconciliationof Non-GAAP Financial Measures (Dutch GAAP)**

 
| ** **                                                                                     | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ***Gross revenues***                                                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total gross revenues                                                                           |       | €     | 900.8      |       | €     | 840.6      |       | € | 819.1 |   |
| Increase from preceding year                                                                   |       | 60.2       |       | 21.5       |       | 21.7       |       |
|                                                                                           |       |       |       |       |       |       |       |
| *Breakdown of increases*                                                                       |       |       |       |       |       |       |       |
| Acquisitions/divestments                                                                       |       | 36.3       |       | 69.9       |       | 32.2       |       |
| Currency effect                                                                                |       | (24.6      | )          | (54.9      | )          | (24.1      | )          |
| Book gains on sale                                                                             |       | 6.5        |       | —     |       | —     |       |
|                                                                                           |       |       |       |       |       |       |       |
| Organic growth                                                                                 |       | 42.0       |       | 6.5        |       | 13.6       |       |
|                                                                                           |       |       |       |       |       |       |       |
| ***Operating income excluding amortization of goodwill and identifiable  intangible assets***  |       |       |       |       |       |       |       |
| Total  operating income excluding amortization of goodwill and identifiable  intangible assets |       | 35,214     |       | 36,019     |       | 42,921     |       |
| (Decrease)/increase from preceding year                                                        |       | (805       | )          | (6,902     | )          | 4,076      |       |
|                                                                                           |       |       |       |       |       |       |       |
| *Breakdown of (decreases)/increases*                                                           |       |       |       |       |       |       |       |
| Acquisitions/divestments                                                                       |       | 4,255      |       | 2,843      |       | 2,606      |       |
| Currency effect                                                                                |       | (1,230     | )          | (1,973     | )          | (1,956     | )          |
|                                                                                           |       |       |       |       |       |       |       |
| Organic growth                                                                                 |       | (3,830     | )          | (7,772     | )          | 3,426      |       |
| Non-operational                                                                                |       | (4,417     | )          | —     |       | —     |       |
| Operational                                                                                    |       | 587        |       | (7,772     | )          | 3,426      |       |
|                                                                                           |       |       |       |       |       |       |       |
| ***Net income***                                                                               |       |       |       |       |       |       |       |
| Net income                                                                                     |       | 20,139     |       | 21,368     |       | 24,668     |       |
| Amortization goodwill and identifiable intangible assets                                       |       | 2,558      |       | 1,157      |       | 191        |       |
| Net income from operations                                                                     |       | 22,697     |       | 22,525     |       | 24,859     |       |
| Increase/(decrease) from preceding year                                                        |       | 1 72       |       | (2,334     | )          | 1,684      |       |
|                                                                                           |       |       |       |       |       |       |       |
| *Breakdown of increases/(decreases)*                                                           |       |       |       |       |       |       |       |
| Acquisitions/divestments                                                                       |       | 1,987      |       | 1,142      |       | 1,884      |       |
| Currency effect                                                                                |       | (689       | )          | (1,365     | )          | (869       | )          |
|                                                                                           |       |       |       |       |       |       |       |
| Organic growth                                                                                 |       | (1,126     | )          | (2,111     | )          | 669        |       |
| Non-operational                                                                                |       | (1,366     | )          | —     |       | —     |       |
| Operational                                                                                    |       | 240        |       | (2,111     | )          | 669        |       |
|                                                                                                |            |            |            |            |            |            |            |  |  |  |

 

14

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**Developments by Geographic Segment**

 

Our organizational structure is primarilygeographic, usually with one (at most two) operating companies percountry.  These operating companiesreport directly to the Executive Board. We have grouped our operations into four geographic regions: theNetherlands, other European countries, the United States and other regions.

 

***The Netherlands***

 

During 2004, market conditions remaineddifficult in the Netherlands.  This wasthe result of low economic growth, reduced government spending, and longdiscussions about bidding procedures, leading to delays in project awards.Because of these conditions, organic gross revenue (gross revenue notattributable to acquisitions) in the Netherlands declined by 2%.  The strongest decline occurred in infrastructureactivities, while facility management developed positively.

 

PRC, which was acquired as of September 2003,was affected by the reduction in investments. In fall 2004, we acquired Witpaard, an urban development firm, tostrengthen our position in the municipal market.  The PRC acquisition and the sale of non-coreactivities on balance yielded 4% revenue growth.  As a whole, gross revenue increased 2% to €301 million in 2004, compared to € 296 million in 2003 and € 297 millionin 2002.  Gross revenue from theNetherlands represented approximately 34% of our total gross revenue for 2004.

 

Market conditions necessitated a thoroughrestructuring consisting of:

 

•      Sale of non-core activities in an effort tofocus on growth and margin improvement. We sold a part of our contracting activities, Kafi (property valuations)and Mandaat (collection agency) with a total of 275 employees and grossrevenues in 2003 totaling € 27 million.

 

•      Streamlining of the organization by reducingcapacity in response to lower market demand and increasing efficiency through,among other things, overhead reduction. After 275 jobs were eliminated in 2003, an additional reduction of 205jobs was necessary in 2004.

 

The restructuring had a negative effect on operatingincome, on balance of € 4.4 million. Reduced market demand resulted inincreased competition and margin pressure. Operating income before amortization of goodwill****was€ 6.8 million in 2004, or 19% of total operating income beforeamortization of goodwill. Excluding the effects of this restructuring whichaffect the comparability of results, operating income before amortization ofgoodwill declined to € 11.2 million, compared to € 12.1 million in 2003and € 16.9 million in 2002. The decline in 2004 includes an organic decline of€ 2.2 million, or 18%.

 

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***Other European countries***

 

Gross revenue in other European countries(Belgium, the Czech Republic, France, Germany, Poland, Spain, and the UnitedKingdom) increased 13% to € 254 million, compared to € 226 million in2003.  Nine percent of this increase wasdue to organic growth, but acquisitions, including the acquisition of Homola inGermany in 2003, Profil in Poland in 2004 and smaller acquisitions in Belgiumand the United Kingdom, contributed 4%. Gross revenue in 2002 was € 183 million.  Gross revenue from other European countriesrepresented approximately 28% of our total gross revenue for 2004.

 

Particularly in Belgium, France and the U.K.,organic growth was at a high level.  Dueto changes in government budget allocations, growth flattened in Spain.  In Belgium, France and Spain growth mainlyresulted from infrastructure and buildings. In the U.K., it was fully achievedin the environmental market. In Poland, solid growth was also reached inenvironment, while Profil provides an excellent base for growth in theinfrastructure market.  In the CzechRepublic, the buildings market recovered, and growth was continued ininfrastructure.  In Germany, the marketremained difficult, resulting in an organic decline, particularly ininfrastructure. In environment and project management for buildings growth wasachieved.

 

Operating income excluding amortization ofgoodwill and identifiable intangible assets grew by 12% to € 12.7million in 2004, compared to € 11.3 million in 2003 and €7.6 million in 2002.  Except for Germany, all countries contributedto this improvement. Organic growth for operating income excludingamortization of goodwill and identifiable intangible assets totaled € 0.4 million or 3%.  Operating income excludingamortization of goodwill and identifiable intangible assets from other European countries represented36% of our total operating income excluding amortization of goodwill andidentifiable intangible assets for2004.

 

***The United States***

 

Gross revenue for the United States increased 9% in2004 to € 267 million, compared to € 264 million in 2003 and € 255million in 2002.  Gross revenue from the United Statesrepresented approximately 30% of our total gross revenue for 2004. Organic growth was 9%, while acquisitionsalso contributed 9%.  This included threeacquisitions completed in 2003, the acquisition of *Bessent, Hammack & Ruckman, Inc.*(BHR) in October 2004and the acquisition of *Diversity Partners*inNovember 2004.  The decline of theU.S. dollar resulted in a considerable negative currency effect of 9%.

 

In the United States, activities in theenvironmental market developed very favorably. Infrastructure activities also saw growth.  In the buildings service area, the influenceof the shift in investment to low-wage countries was noticeable, resulting in astrong decline in the activities of this area.

 

Operating income excluding amortization ofgoodwill and identifiable intangible assets****roseconsiderably and totaled  € 13.4 million,compared to € 11.2 million in 2003, a 20% increase.  Operating income excludingamortization of goodwill and identifiable intangible assets in 2002 was € 12.5 million.  Thisincludes an organic increase of € 1.3 million, or 12%.  Operating income excludingamortization of goodwill and identifiable intangible assets from the United States represented 38% ofour total operating income excluding amortization of goodwill andidentifiable intangible assets for2004.

 

***Other regions***

 

Activities in other regions (including Chileand Brazil), include activities primarily in the infrastructure and environmentservice areas in Brazil and Chile, as well as projects in developing countries,financed by international donors such as the World Bank and the European Union.Gross revenue rose by 7% to € 78 million, compared to € 73 million in2003 and € 83 million in 2002.  Theorganic increase of 8% was primarily due to the market recovery in Brazil andChile. This resulted in strong activity growth in both infrastructureand environment. In projects for developing countries, a declineoccurred which was primarily due to unfavorable market conditions and theinsecure international political climate caused by, among other things, the warin Iraq.  However, we were awardedseveral projects by the Water Framework Directive of the European Union.  For 2004, operating income excludingamortization of goodwill and identifiable intangible assets in other regions was €2.3 million compared to € 1.4 million in 2003 and € 6.0 million in2002. In Brazil the contribution fromenergy projects (included in income from non-consolidated companies) was at thesame level as in 2003. Gross revenue from other regions representedapproximately 9% of our total gross revenue for 2004 and operating incomeexcluding amortization of goodwill and identifiable intangible assets fromother regions represented approximately 7% of our total operating incomeexcluding amortization of goodwill and identifiable intangible assets for the year.

 

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**Revenuesand Expenses**

 

We derive our gross revenue primarily fromthe provision of consulting and engineering services, as well as otherservices, generally under the categories of contracts described below, which insome circumstances may be combined.

 

•  *Fixedprice contracts.* Fixed price contracts provide for the payment of anegotiated fee that is fixed at the inception of the contract. When we enterinto these types of contracts we estimate the amount of time and the cost forus to perform the services under the contract. We may underestimate the actualtime and cost. Further, the information upon which the fee is based may changeor may be inaccurate. As a result, we may earn less under the contract than weanticipated or suffer a loss. Conversely, if we perform the services moreefficiently than we estimated, we may earn more under the contract thananticipated. With a well defined scope of work and schedule, these risks can belimited.

 

•  *Cost-pluscontracts.* Cost-plus contracts provide for payment based on the timespent to perform the contract, applying agreed upon rates for differentcategories of employees, and then adding out-of-pocket expenses. Our riskarising from this type of project is usually limited. Clients will choose thistype of contract when it is difficult to estimate in advance how much time willbe spent or when a client wishes to bring in a temporary staff to conductcertain activities under its management.

 

•  *Cost-pluscontracts with a cap.* Cost-plus contracts with a cap are similar tocost-plus contracts, but a maximum project cost is agreed to that cannot beexceeded without the prior agreement of the client. In principle, we cease workwhen the cap is reached unless a “performance agreement” has also beennegotiated. In that case, we may need to complete the additional work at noadditional cost to the client.

 

•  *Contractswith a building sum-related fee.* Contracts with a buildingsum-related fee are normally used when our activities are directly related tothe total completion of a construction project, such as a road, building orcivil engineering project. This type of project involves producing the design,developing the engineering, handling procurement, and supervising construction.With this type of contract, the total fee for the various activities isdetermined by a percentage of the sum of the total construction costs. Theactivities are budgeted on the basis of an estimate of the construction costs.Actual construction costs, because of overcapacity in the market, may be lowerthan we estimate, and as a result our fee could be lower. Conversely, if weefficiently manage the project, we can significantly enhance our margin.

 

•  *Turnkeycontracts.* Turnkey contracts are similar to the fixed pricecontracts described above. However, this type of contract also includes theengineering and construction components of the work (a design/build contract).These types of contracts require additional preparation for producingspecifications and determining price. The advantages for the client are pricecertainty at an early stage, efficiency in the preparation and quickerdeliverability. Because we do not usually perform the construction (building)component of the work, the risk that the work will not be completed is usuallycovered by a back-to-back contract with a contractor. In part due to size, thistype of contract may be riskier for us. Risks arise from design and engineeringmiscalculations, unclear specifications of the product, or contractors notmeeting their obligations. However, we may achieve greater profits bycompleting the project efficiently and under budget.

 

•  *GRiP®contracts.* GRiP® stands for Guaranteed Remediation Program. GRiP®contracts are a special type of turnkey contracts that are used in theenvironmental market for the remediation of contaminated property. Aremediation plan is prepared, and remediation costs are estimated based on anenvironmental study and a determination of the extent of contamination. Theperformance of the remediation plan is offered (under certain conditions) tothe client for a fixed price (turnkey). The risks of cost overruns are largelycovered by an insurance policy. We have very rigorous procedures and policiesfor project estimation and determination of insurance levels and works closelywith our insurers to minimize the total risk. However, there are always someinherent project estimation risks. Remaining risks can arise as a result ofdisputed settlements with the insurer and associated litigation.

 

•  *Design,Build, Finance and Operate contracts (DBFO).* DBFO contracts allow usto deliver a total product, including arranging financing and operating thebuilt product for a certain period of time. This type of project is normallyconducted as part of a consortium, with a partnership set up specifically forthe project, acting as the contract party. Our participation depends on theproject type, its scope, and the risk profile. Our participation is oftenrelated to the capitalized development effort provided by our employees. Weface risks under this type of contract when we make advance investment in thedevelopment of the project, have an equity interest in the partnership, as wellas risks 

 

17

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associated with obligations that are enteredinto for completing or operating the project. In this type of project, theoperating companies are assisted by a team at corporate level, who completesthe risk analysis.

 

•  *Frameworkcontracts or Master Service Agreements.* Framework contracts orMaster Service Agreements are service agreements that are negotiated for aspecified period of time. In a framework contract, projects may sometimes beput out to bid to a number of providers. Returned bids include estimates byproject or project components, or maximum amounts are set. Under the pressureof competition, unfavorable terms may be agreed upon, thereby producing anegative effect on our business result for a long time. However, this type ofcontract provides a stable source of revenue over a longer period of time.

 

•  *Contractswith a success fee.* Contracts with a success fee provide that we areeligible for an agreed payment that is linked to achieving agreed upon results,whether or not within a fixed time period. In theory, we can receive success-basedfees for each type of contract described above.

 

Our operating expenses include materials,services of third parties and subcontractors, operational costs anddepreciation.

 

•  *Materials,services of third parties and subcontractors*. Materials, services ofthird parties and subcontractors includes project-related costs of materialsand services charged by third parties including subcontractors.

 

•  *Operationalcosts*. Operational costs includes all costs relating to employees,as well as non-project-related out-of-pocket expenses.

 

•  *Depreciation.*Depreciation includes the depreciation of buildings, software, furniture, andfixtures.

 

**CriticalAccounting Policies**

 

For the financial years up to and including2004, we have presented our financial statements on a basis consistent withDutch GAAP.  Beginning in 2005, the newaccounting rules under the International Financial Reporting Standards, orIFRS go into effect. At the end of this Item 5, we have included a summary ofthe effects that the introduction of the IFRS will have on our balance sheetand statement of income.

 

The preparation of our financial statementsrequires us to make estimates and judgments that affect the reported amounts ofassets and liabilities, revenues and expenses, and related disclosure ofcontingent liabilities at the date of our financial statements. The policiesthat management considers to be most important to the presentation of ourfinancial condition and results of operations and to require the mostsignificant demands on management’s judgments and estimates about matters thatare inherently uncertain are discussed below. Management cautions that futureevents often vary from forecasts and that estimates routinely requireadjustment.

 

A more complete description of oursignificant accounting policies appears in Note 1 to our ConsolidatedFinancial Statements.

 

*Work in progress.*  Revenue is generally recognized as servicesare rendered. Revenue from fixed fee contracts is recognized on the percentageof completion method, measured generally by estimating the status of completionof the project and recognizing the related estimated percentage of revenue andgross profit expected from the project. Revenue from cost-plus contracts isrecognized as costs are incurred plus applicable fees. Revenue fromtime-and-material contracts is recognized at contract rates as work isperformed and material costs are incurred. Revenue is recognized on additionalservices requested by clients for which a formal change order has not beenobtained when the realization is probable and the amount can be reliablyestimated. Provisions for estimated losses on contracts are recorded when identified.Unbilled fees, at estimated billable amounts, represent revenue recognized forwhich billings have not yet been presented to customers.

 

*Costs.*  Contract costs include direct labor costs,subcontractor costs, other direct costs and indirect costs. Our method ofrevenue recognition requires us to prepare estimates of the costs to completecontracts in progress. In making such estimates, judgments are required toevaluate contingencies, such as potential variances in schedule and laborand other contract costs, liability claims, contract disputes or achievement ofcontractual performance standards. Changes in total estimated contract costsand losses, if any, are recognized in the period they are determined.

 

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*Impairment.*  Assets and liabilities acquired in a businesscombination are recorded at their estimated fair values as of their acquisitiondate. At December 31, 2004, we had approximately € 96.0 million ofgoodwill (U.S. GAAP amount), representing the cost of acquisitions in excess offair values assigned to the underlying net assets of acquired companies. Inaccordance with Statement of Financial Accounting Standards (SFAS) No. 142,“Goodwill and other intangible assets,” goodwill and intangible assets deemedto have indefinite lives are not amortized, but are subject to annualimpairment testing. Under Dutch GAAP, up to and including 2004, goodwill isamortized. The assessment of goodwill involves the estimation of the fair valueof the Company’s geographical assets. Management completed this assessmentduring the fourth quarter of 2004 based on the best information available as ofthe date of assessment and determined that no impairment existed. Future eventscould result in impairments of goodwill or other assets.

 

*Accounting forpensions (U.S. GAAP).* Retirement benefits represent obligations that will be settled in thefuture and require assumptions to project benefit obligations and fair valuesof plan assets. Retirement benefit accounting is intended to reflect therecognition of future benefit costs over the employee’s approximate serviceperiod, based on the terms of the plans and the investment and fundingdecisions we make. In accounting for these retirement benefits, management isrequired to make assumptions regarding variables such as discount rate, rate ofcompensation increase, return on assets, and mortality tables. Periodicallymanagement consults with outside actuaries regarding these assumptions. Changesin these key assumptions can have a significant impact on the projected benefitobligations, funding requirements and periodic cost incurred. Our policies andkey assumptions are included in Note 16 to our Consolidated FinancialStatements.

 

*Provisions forcontingent liabilities.*  By their nature, provisions for contingentliabilities are dependent upon estimates and assessments of whether thecriteria for recognition have been met, including estimates as to the outcomeand the amount of the potential cost of resolution. Contingent liabilities arerecognized by a charge against income when it is probable that a liability hasbeen incurred and the amount of such liability can be reasonably estimated. Themost likely amount is accrued for costs of future liabilities that mayultimately arise when such a range of possible loss is known.

 

Contingent liabilities and provisioning forreorganizations, other litigation, and tax disputes are discussed inNote 11—Other Long-Term Liabilities and in Note 13—Commitments andContingent Liabilities to our Consolidated Financial Statements. The provisionfor reorganizations is based on an estimate of the costs of dismissal ofpermanent staff, taking into account legal advice and the current facts andcircumstances. Provisions for other litigation and tax disputes are also basedon an estimate of the costs, taking into account legal advice and informationcurrently available.

 

Should the actual outcome differ from theassumptions and estimates, revisions to the estimated provisions would berequired, which could impact our financial position and results of operations.

 

*Accounting forincome taxes.* As part of the process of preparing our consolidated financialstatements, we are required to estimate income taxes in each of thejurisdictions in which we operate. This process involves estimating actualcurrent tax expense and temporary differences between tax and financialreporting. Temporary differences result in deferred tax assets and liabilities,which are included in our consolidated balance sheet. We must then assess thelikelihood that deferred tax assets will be recovered from future taxableincome. A valuation allowance is recognized to reduce deferred tax assets if,and to the extent, it is more likely than not that all or some portion of thedeferred tax assets will not be realized.

 

We have recorded a valuation allowance of €1.9 million as of December 31, 2004, based on estimates of taxableincome by jurisdiction in which we operate and the period over which deferredtax assets are recoverable. In the event actual results differ from theseestimates in future periods, and depending on the tax strategies that we may beable to implement, changes to the valuation allowance could be required, whichcould impact our financial position and results of operations.

 

*Allowances fordoubtful accounts.* Allowances for doubtful accounts are maintained for estimated lossesresulting from the inability of our customers to make required payments. If thefinancial condition of customers were to deteriorate, resulting in animpairment of their ability to make payments, additional allowances may berequired.

 

**Results of Operations**

 

The table below presents, for the periodsindicated, (1) the percentage relationship that certain items in ourConsolidated Statements of Income bear to net revenue and (2) thepercentage increase (decrease) in Euro amounts for such items from year to yearfor the three-year period ended December 31, 2004.

 

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| ** **                                                                  | ** ** | **Percentages** | ** ** | **Percent Change** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------|------------|--------------------|------------|
| ** **                                                                  | ** ** | **2004**        | ** ** | **2003**           | ** ** | **2002** | ** ** | **04/03** | ** ** | **03/02** | ** ** |
| Gross  revenue                                                              |       | 142.4           | %          | 141.2              | %          | 141.8 | % | 7.2 | % | 2.6 | % |
| Materials,  services of third parties and subcontractors                    |       | 42.4            |       | 41.2               |       | 41.8 |   | 9.4 |   | 1.6 |   |
| Net revenue                                                                 |       | 100.0           |       | 100.0              |       | 100.0 |   | 6.2 |   | 3.1 |   |
| Operational  costs                                                          |       | 92.0            |       | 91.3               |       | 89.8 |   | 7.1 |   | 4.7 |   |
| Depreciation                                                                |       | 2.5             |       | 2.7                |       | 2.8 |   | (2.9 | ) | 1.1 |   |
| Amortization  of goodwill                                                   |       | 0.4             |       | 0.2                |       | 0.0 |   | 121.1 |   | 506.0 |   |
| Operating  income                                                           |       | 5.1             |       | 5.8                |       | 7.4 |   | (6.3 | ) | (18.4 | ) |
| Financing  income/expenses net                                              |       | (0.5            | )          | (0.4               | )          | (0.4 | ) | 21.9 |   | 28.3 |   |
| Income from  operations before taxes                                        |       | 4.6             |       | 5.4                |       | 7.0 |   | (8.8 | ) | (21.0 | ) |
| Taxes                                                                       |       | 1.5             |       | 2.0                |       | 2.4 |   | (17.9 | ) | (19.0 | ) |
| Income of  consolidated companies from operations after taxes               |       | 3.1             |       | 3.4                |       | 4.6 |   | (3.6 | ) | (22.1 | ) |
| Income of  non-consolidated companies and long-term investments after taxes |       | 0.4             |       | 0.4                |       | 0.1 |   | (5.2 | ) | 291.2 |   |
| Group income  from operations after taxes                                   |       | 3.5             |       | 3.8                |       | 4.7 |   | (3.8 | ) | (14.3 | ) |
| Minority  interest                                                          |       | 0.3             |       | 0.2                |       | 0.4 |   | (23.7 | ) | 25.8 |   |
| Net income                                                                  |       | 3.2             |       | 3.6                |       | 4.3 |   | (5.8 | ) | (13.4 | ) |

 

***Year Ended December 31,2004 Compared to Year Ended December 31, 2003***

 

On the whole, operational results during 2004developed favorably.  If exchange ratedifferences are excluded, gross revenues increased by 10%, while net incomefrom operations (before goodwill amortization) improved by 4%. Especially theenvironmental service area produced excellent results. Considerablerestructuring was necessary in the Netherlands because of difficult marketconditions. Excluding the effects of this restructuring which affect thecomparability of results and excluding currency effects, net income fromoperations increased by 10%, or 9% per share. The decline of the U.S. dollarhad a negative effect of 3% on revenue and income.

 

***Grossrevenue***

 

Gross revenue in 2004 increased by 7% to €901 million, compared to € 841 million in 2003. Excluding currencyeffects, the increase in gross revenue was 10%. Of this increase, 1% came from proceeds of the sale of non-coreactivities in the Netherlands.  The remaining9% is in line with the goal to achieve an annual gross revenue growth of10%.  Acquisitions and divestmentscontributed a net of 4%, so organic growth totaled 5%, compared to 1% in2003.  The increase in organic growth wasprimarily the result of strong growth in the U.S. environmental market, thedevelopment of facility management in the Netherlands and market recovery inSouth America.

 

The geographic distribution of revenue remainedbasically unchanged from 2003. Even though activities in the United States wererelatively solid, that growth was partially offset by the decline of thedollar. In 2004, 30% of revenues came from the United States, compared to 29%in 2003, while the Netherlands contributed 34%, compared to 35% in 2003; otherEuropean countries contributed 28%, compared to 27% in 2003; and other regionscontributed 8%, compared to 9% in 2003.

 

Other factors affecting our gross revenue ineach of our service areas are described below.

 

•  *Infrastructurearea growth mainly through acquisitions—* Growth in the infrastructure service area in 2004 was 3%, mainly fromacquisitions, which contributed 5% to growth. Organically, activities declinedby 1%. The strong decline in the Netherlands and Germany was fully offset bythe continued growth in Belgium, France, Spain and the United States and themarket recovery in Brazil and Chile. The currency effect was a negative 2%.

 

•  *Environmentarea experiences strong growth—* After an organic growth of 10% in2003, organic growth further increased to 15% in 2004. With that, theenvironmental segment has by far experienced the strongest organic growth. Thecurrency effect was a negative 6%, resulting in a total growth of 9%. TheUnited States was the largest contributor to growth, experiencing an organicgrowth of 20%. Most European countries, as well as Brazil and Chile, also experiencedgrowth in environmental activities. In the United Kingdom, very strong growthwas achieved. The margin was maintained at a good level of 9.3%.

 

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•  *Buildingsarea reflects transition*— Gross revenue in the buildings area roseby more than 30%.  Of this growth, 21%was generated by acquisitions completed in 2003 and 2004. Specifically, theacquisitions of PRC in the Netherlands and earlier of Homola in Germany contributedto growth. With these acquisitions, project and program management activitieswere added, which have higher margins and better growth potential. Organically,gross revenue rose by 11%, mainly because of growth in facility management inthe Netherlands. In other European countries, activities also grew. Offsettingthis was a considerable organic decline in the U.S. market. Currency effectshad a negative impact of 2%.

 

***Netrevenue***

 

Our net revenue, the part of sales producedby our own employees, increased 6% to € 633 million, compared to€ 595 million in 2003. Excluding the currency effect, growth was9%.  The sale of non-core activities inthe Netherlands produced 1% of the growth while 5% came from acquisitions anddivestments.  The 3% organic growth wassomewhat lower than gross revenue growth because a large part of the growthoccurred in activities that have a large component of third-party services,such as facility management and GRiP® projects.

 

***Operationalcosts***

 

Operational costs increased by 7% to € 582million in 2004, compared to € 543 million in 2003.  Acquisitions produced a 5% increase inoperational costs, while currency effects resulted in a 3% decline. The organicincrease of operational costs totaled 5%. The organic increase in operationalcosts, therefore, exceeded the organic development of net revenue. This wasprimarily the result of reorganization costs in the Netherlands. Because thefacility management activities of Dutch ARCADIS offices were contracted toARCADIS Aqumen Facility Management, a transfer of costs from personnel costs toother operation costs occurred. ARCADIS Aqumen Facility Management is a 50/50joint venture company (proportionally consolidated) between ARCADIS and Aqumenof the United Kingdom, which delivers facility management services andconsulting.

 

***Depreciationexpenses***

 

Depreciation decreased by 3%, depreciation(excluding amortization of goodwill) and totaled 2.5% of net revenue.  The decrease was the result of the sale of thecontracting activities in the Netherlands.

 

***Operatingincome***

 

Operating income as reported in ourconsolidated statements of income includes amortization of goodwill of € 2.6 in2004 compared to €1.2 million in 2003. The increase is the result of completed acquisitions.  Unlike U.S. GAAP, which discontinued theamortization of goodwill beginning in 2002, Dutch GAAP still requires goodwillto be amortized. For purposes of our internal management reporting, we focus onoperating income excluding amortization of goodwill and other identifiableintangible assets. We believe this is also the way most analysts and investorswould compare our results from year to year. The following table reconcilesoperating income in our financial statements to the measure we use in thisdiscussion and analysis (in thousands):

 
| ** **                                                                              | ** ** | **2004** | ** **   | **2003** | ** ** | **2002**     | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------|--------------|----------|------------|--------------|------------|
| Operating  income as reported                                                           |       | €   |  32,656 |     | €     |  34,862 |       | € |  42,730 |   |
| Goodwill  amortization                                                                  |       | 2,558    |         | 1,157    |       | 191          |       |
| Operating  income excluding amortization of goodwill and identifiable intangible assets |       | €   |  35,214 |     | €     |  36,019 |       | € |  42,921 |   |

 

Operating income excluding amortization ofgoodwill and identifiable intangible assets declined to € 35.2 million,compared to € 36.0 million in 2003. Excluding the effects resulting fromthe restructuring in the Netherlands which affect the comparability of results,operating income excluding amortization of goodwill and identifiableintangible assets rose 10% to €39.6 million. Acquisitions contributed 11% to this increase; currency effectswere negative at 3%. Excluding the effects of this restructuring which affectthe comparability of results, organic growth was 2%. After a strong decline in2003, 2004 saw a modest organic income growth. This was the result of the solidperformance in the U.S. market and market recovery in Brazil. The decline indemand produced margin pressure in the Netherlands and an income decline, alsoin [recurring] activities.

 

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***Margins***

 

Market conditions resulted in an increase inmargin (operating income excluding amortization of goodwill and identifiableintangible assets as a percentage of net revenue) from 6.0% in 2003 to 6.3% in2004.  Margins for infrastructure, theenvironment and buildings activities were 6.7%, 9.3% and 1.4%, respectively,compared to 7.1%, 9.3% and (1.1)%, respectively, in 2003.

 

***Financingexpenses***

 

Financing charges increased 22% primarily asa result of the financing of acquisitions completed in 2003 and 2004. Financingcharges totaled € 3.5 million in 2004, compared to € 2.8 million in2003.

 

***Taxrate***

 

The 32.9% tax rate was considerably lowerthan the rate of 36.5% in 2003.  Thereduction was the result of a largely tax-free book gain from the sale ofactivities.  In addition, the U.S. taxrate was lower because of tax cuts introduced by the administration tostimulate the economy.  In the UnitedStates, we may qualify for a tax credit for expenditures on research anddevelopment.  From 1999 to 2001, a totalof $5.4 million was included in the income statement .  We are awaiting a final settlement with theU.S. tax authorities regarding activities that qualify for this tax credit,and, therefore, no credits have been included in the results since 2002 as aprecautionary measure until this issue is resolved.

 

***Contributionof non-consolidated companies; minority interest***

 

The contribution from non-consolidatedcompanies declined from € 2.6 million in 2003 to € 2.4 million in 2004.  Minority interest is that part of net incomethat flows back to the other owners of non-fully owned ARCADIS companies.Minority interest rose 24% in 2004, reflecting a strong profit increase inBrazil, where we have a 50.01% ownership interest.

 

***Netincome***

 

Net income (after goodwill) totaled € 20.1million, or $1.00 per share, in 2004, compared to € 21.4 million, or € 1.07 pershare, in 2003.  Net income from operations (before goodwill amortization) was €22.7 million, or € 1.13 per share, compared to € 22.5 million, or €1.13 per share, in 2003.  Excluding itemsthat affect the comparability of results and currency effects, net income fromoperations increased 10%, or 9% per share.

 

Since 2001, goodwill paid on acquisitions iscapitalized and amortized over the economic lifetime of the asset. The effectof this on 2003 results was € 1.2 million, compared to € 0.2 millionin 2002.

 

***Numberof outstanding shares***

 

The number of issued shares rose slightly in2004 to 20.6 million shares, of which 20.3 million are outstanding. Theincrease by 215,000 shares was purely the result of the exercising of optionsunder the existing U.S. option plans. These plans result in a limited amount ofdilution. In 2004, to prevent dilution we began to repurchase our own sharesfor future issuance pursuant to our option plans. Under Dutch GAAP and U.S.GAAP these repurchased shares are not considered to be outstanding.  For an overview of options outstanding and additionalinformation on option plans, please refer to Item 6.E. of this annual report.

 

***Dividends***

 

Management proposed, and on May 11, 2005at the Annual General Meeting of Shareholders, our shareholders approved adividend of € 0.48 per share over 2004. The dividend will be paid out in cash. Thedividend for 2003 was at the same rate of € 0.48 per share. Calculated at the2004 closing price of our common shares on Euronext of € 13.70, the dividendyield is 3.5% in 2004, compared to 5.1% in 2003. This decrease was fully theresult of the increased price of the ARCADIS share.

 

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***Year Ended December 31,2003 Compared to Year Ended December 31, 2002***

 

***Grossrevenue***

 

Gross revenue in 2003 increased by 3% to €841 million, compared to € 819 million in 2002. Acquisitionscontributed 9% to growth, and organic growth was 1%. Exchange rate differences,especially the lower rate of the U.S. dollar against the Euro, exerted anegative effect of 7%. Organic growth in 2003 was primarily a result of ouractivities in the United States, Belgium and the United Kingdom. The solidperformance in the U.S. environmental market particularly contributed togrowth. However, this growth was offset by organic declines in the Netherlandsand Brazil as a result of poor market conditions and uncertainty in the donor-financedmarkets as a result of unstable international political conditions.

 

Acquisitions and exchange rate differencesproduced a considerable shift in the geographical distribution of grossrevenues. In 2003, revenues from the United States declined to 29% from 31% in2002, 35% of revenues were generated in the Netherlands compared to 36% in2002. The largest increase was in other European countries, which represented27% of revenue compared to 22% in 2002, while revenue from other regionsdeclined slightly from 10% in 2002 to 9% in 2003. Please see “Developments byGeographic Segment” in this Item 5 for a description of the trends affectinggross revenue by geographic segment.

 

***Netrevenue***

 

Our net revenue, the part of sales producedby our own employees, increased 3% to € 595 million in 2003 from €578 million in 2002. Exchange rate differences produced a 6% decline,while acquisitions contributed a 10% growth. The decline of 1%, in organicgrowth in net revenue was slightly lower than in gross revenue because netrevenue does not include the revenue received for services performed by thirdparties with whom we have subcontracted portions of the work to be performedunder our contracts. In the U.S. environmental market for GRiP® projects, inwhich we experienced organic growth in gross revenue, a large component of theservices were performed by third-parties.

 

***Operationalcosts***

 

Operational costs increased by 5% to €543 million in 2003, compared to € 519 million in 2002. Acquisitionsproduced a 10% increase in operational costs, while currency effects resultedin a 6% decline. The organic cost increase totaled 1%. The organic increase inoperational costs, therefore, exceeded the organic development of net revenue.This was primarily the result of developments in the Netherlands and Brazil. Inlight of the difficult market conditions, a cost-reduction program wasimplemented in the Netherlands. Despite an increase of € 6.0 million inpension charges, the cost-reduction measures led to an organic decrease inoperational costs. This decrease, however, was insufficient to compensate forthe decline in net revenue.

 

***Depreciationexpenses***

 

With an increase of 1%, depreciation(excluding amortization of goodwill) was almost unchanged. The increase isslightly lower than that of net revenue because the acquisitions are primarilyconsulting companies that have lower depreciation.

 

***Operatingincome***

 

Operating income as reported in ourconsolidated statements of income includes amortization of goodwill of€1.2 million, € 0.2 million and € 0.1 million for the years2003, 2002 and 2001 respectively. The increase in amortization is due to theincreases in goodwill resulting from the acquisitions we made during 2002 and2003.  Operating income declined to €36.0 million in 2003, compared to € 42.9 million in 2002. This 16%decline is largely attributable to conditions in the Netherlands and Brazil. Inthe Netherlands, the strong increase in pension charges could not be passed onin the pricing, and margins were under pressure as a result of poor marketconditions. In Brazil, the change in government caused delays in projectawards, resulting in a lack of work for some staff. Acquisitions (afteracquisition cost) yielded a positive effect of 10% on operating income. The2002 operating income included an incidental book gain on the sale of anactivity in the United States, resulting in a negative effect on operatingincome development in 2003 of 4%. The currency effect produced a decline of 7%in operating income.

 

***Margins***

 

Market conditions resulted in a decline inmargin (operating income as a percentage of net revenue) from 7.4% in 2002 to6.0% in 2003. As 2003 was the first year in which we report margins byactivity, it is not possible to measure the consistency of 

 

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these figures. Margins for infrastructure and environmental activitieswere 7.4% and 9.3%, respectively. Margins for buildings and communicationsactivities were (1.1)% and (0.6)%, respectively, reflective of marketconditions in these two service areas.

 

***Financingexpenses***

 

Financing charges increased 28% primarily asa result of the financing of acquisitions completed in 2002 and 2003. Financingcharges totaled € 2.8 million in 2003, compared to € 2.2 million in2002.

 

***Taxrate***

 

At 35.2%, the effective tax rate was almostunchanged from the 35.4% of 2002. In the United States, we may qualify for atax credit for expenditures on research and development. From 1999 through2001, a total of $5.4 million was included in operating income related tothis tax issue. We are awaiting a final settlement with the U.S. taxauthorities regarding activities that qualify for this tax credit, and,therefore, no credits have been included in the results since 2002 as aprecautionary measure until this issue is resolved.

 

***Contributionof non-consolidated companies; minority interest***

 

The contribution from non-consolidatedcompanies rose from € 0.7 million in 2002 to € 2.6 million in 2003.This increase is largely attributable to the contribution of € 1.8 millionfrom energy projects in Brazil that we developed in cooperation with otherparties. In these projects, we hold a minority interest through our Braziliansubsidiary ARCADIS Logos. It is expected that these energy projects willcontinue to positively contribute to results in the coming years. In addition,income from non-consolidated companies includes a dividend of €0.5 million, related to the liquidation of the Holland EnvironmentalVenture Fund.

 

Minority interest is that part of net incomethat flows back to the other owners of non-fully owned ARCADIS companies.Minority interest declined by 26% in 2003, mainly as a result of the decline inthe value of South American currencies.

 

***Netincome***

 

As a result of worsened economic conditions,profitability declined in 2003. Net income was € 21.4 million, or € 1.05per share, compared to € 24.7 million, or € 1.21 per share in 2002.Exchange rate differences produced a 5% decline. The decline can be almostentirely attributed to the difficult market conditions and higher pensioncharges in the Netherlands.

 

Since 2001, goodwill paid on acquisitions iscapitalized and amortized over the economic lifetime of the asset. The effectof this on 2003 results was € 1.2 million, compared to € 0.2 millionin 2002.

 

***Numberof outstanding shares***

 

The number of outstanding shares roseslightly in 2003 to 20.4 million. The increase by 134,000 was purely theresult of the exercising of options under the existing U.S. option plans. Theseoption plans still cause a limited amount of dilution.

 

***Dividends***

 

Management proposed, and on May 12, 2004at the Annual General Meeting of Shareholders our shareholders approved, adividend of € 0.48 per share over 2003. The dividend was paid out in cash. Thedividend for 2002 was at the same rate of € 0.48 per share. Calculated at the2003 closing price of our common shares on Euronext of € 9.34, the dividendyield is 5.1% in 2003, compared to 6.0% in 2002.

 

**B.  *Liquidity and capital resources.***

 

Working capital, consisting of work inprogress amounting to € 27.7 million (see Note 6) plus tradereceivables amounting to € 184.8 million (see Note 5) minus accountspayable amounting to € 75.8 million (see Consolidated Balance Sheet)declined as a percentage of gross revenue (amounting to € 900.8 million)from 16.3% in 2003 to 14.7% in 2004. However, in the opinion of management, thecompany has sufficient resources to meet its present requirements.

 

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Net cash provided by operating activities was€ 44.8 million for the year ended December 31, 2004 compared to netcash provided by operating activities of € 59.1 million for the year endedDecember 31, 2003 and € 45.8 million for the year ended December 31,2002.****The net cash flow activity related tooperating activities consisted primarily of adjustments to net income fornon-cash transactions, including depreciation and amortization, decreases inreceivables and other current assets as well as a decrease in inventories.

 

Net cash used in investing activities was €19.7 million for the year ended December 31, 2004 compared to net cashused in investing activities of € 60.4 million for the year ended December 31,2003 and € 28.0 million for the year ended December 31, 2002. The netcash flow activity related to investing activities consisted primarily ofinvestments in the acquisition of consolidated companies, investments inproperty, plant and equipment and investments in non-consolidatedcompanies.  In 2004, the divestment ofsome non-core activities in the Netherlands generated a net cash flow of € 8.0million.

 

Net cash used in financing activities was €6.7 million for the year ended December 31, 2004 compared to net cashused in financing activities of € 17.9 million for the year ended December 31,2003 and € 3.8 million for the year ended December 31, 2002. The netcash flow activity related to financing activities consisted primarily of netchanges in short-term borrowings and bank overdrafts, dividends paid andrepayment of long-term debt.

 

Cash at year-end 2004 was €48.2 million, compared to € 31.3 million in 2003 and € 53.2 millionat year-end 2002. This increase compared to year-end 2003 is, in large part,related to a relatively small amount used for investments in acquisitions, andthe amount received for the divestment of non-core activities.  Net cash (cash minus interest-bearing debt)at year-end 2004 was € 5.8 million against net debt (interest-bearing debtminus cash) at year-end 2003 of € 7.4 million, indicating that investmentsin acquisitions of € 15 million could be financed from operational cashflow.  In addition, there was a € 2.4million cash improvement from the exercise of stock options.

 

At year-end 2004, a total of €172 million in short-term credit facilities was available, compared to €154 million at year-end 2003.  As of December 31,2004, € 9.8 million of these facilities were used.  In addition, banks have pledged performancebonds and other guarantees related to projects for a total of €38.0 million. A performance bond is a guarantee that we give to our clientrelated to our performance under a contract. This secures the client with anincome, in case we do not perform according to the stipulations in the contractfor which the performance bond is issued. If, however, we fully meet all therequirements of the contract, the bond will be canceled. At year-end 2004, ourlong-term debt totaled € 12.0 million. See Notes 9 and 10****to our Consolidated Financial Statements for a moredetailed discussion of our short-term and long-term credit facilities.

 

**Other Balance Sheet Items**

 

Our total assets grew from € 347 millionat year-end 2003 to € 390 million at year-end 2004, mainly because ofexpansion through acquisitions.  As aresult of acquisitions completed in 2004, goodwill rose to € 48.1 million.compared to € 38.2 million in 2003. The identifiable assets of acquisitions are capitalized separately, andat year-end 2004, this totaled € 2.4 million. This generally relates to thevalue of the yet to be realized profit in the backlog of the acquiredcompanies. As of 2005, the goodwill is no longer amortized but subject to animpairment test once a year.

 

Shareholders’ equity increased by € 9.1 millionto € 145.7 million at year-end 2004. Because of the exercise of options, € 2.4 million was added (€ 1.7million from the issuance of new shares and € 0.7 million from the placement ofrepurchased shares).  The addition of netincome over the book-year 2004 resulted in an increase of € 20.1 million.Shareholders’ equity declined by € 9.6 million as a result of dividend paymentsover the book-year 2003. In addition, shareholders’ equity declined because ofexchange rate differences of € 3.6 million and of € 0.2 million for therepurchase of approximately 12,000 shares in the company to cover obligationsin option plans.

 

Concerning our balance sheet ratios, solvencycalculated as shareholders’ equity, amounting to € 145.7 million andminority interest amounting to € 9.0 million as a percentage of totalassets amounting to € 390.5 at year-end 2004 was 39.6%, compared to 41.5% atyear-end 2003. The debt to equity ratio at year-end 2003 was 0.1 as compared to0.2 in 2003. Return on average capital invested (shareholders’ equity plus netinterest bearing debt) was 16.5%, compared to 15.7% in 2003.

 

**Capital Expenditures**

 

Investments in tangible and intangible fixedassets, excluding acquisitions, declined by € 5.7 million to€ 12.5 million in 2004, compared to € 18.2 million in 2003 and € 14.2 millionin 2002.  The increase in 2003compared to 2002 included the effect from a office move in Amersfoort, theNetherlands of € 4.8 million. The amount for 2004 primarily related toinvestments 

 

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in communications and computer equipment.  In 2004, € 14.8 million, as compared to€ 41.8 million in 2003, was invested in the acquisition of consolidatedcompanies, and € 2.5 million, as compared to € 4.3 million in 2003,was invested in non-consolidated companies and other financial fixed assets.

 

**C.  *Research and development,******patents and licenses etc.***

 

We have spent between 0.5% and 1.0% of ourconsolidated gross revenue on research and development projects during each ofthe last three fiscal years. We expect that, consistent with past experience,most of our technological advances will be made in response to specific needsand opportunities. We have benefited from our understanding of soil and waterdynamics and from technological and knowledge advances realized in connectionwith specific analysis, planning, development, construction and treatmentprojects that it has conducted for its clients.

 

Our research specifically has resulted in thedevelopment of several field instruments for hydrocarbon detection that we usefor soil and groundwater investigation. Research continues to improve thesequick “no-lab” analysis methods. For environmental and ecological reports, datamanagement and detailed engineering, we undertake research in implementing andadjusting computer assisted design and software for geographical informationsystems.

 

We also have a group of research anddevelopment specialists who are involved in the performance of all remediationprojects. This group of specialists continuously maintains and improves ourcore competence in the fields of separations technology and understanding of particle sizedistribution in soils, treatment of surface water and contaminated groundwater,and biological degradation of hydrocarbons and biowaste.

 

**D.  *Trend information.***

 

We reported solid results for the first quarter of 2005. Net income rose21% compared to the same period last year. Gross revenues rose 8%. The declineof the U.S. dollar exerted a negative currency effect of 1 to 2% on both grossrevenues and net income. The solid results were primarily the result of organicgrowth and the effect of earlier measures to improve margins.

 

We are pleased that our organic growth exceeded our 5% target. Thisgrowth resulted from the continued positive developments in the environmentalmarket, steady growth in the buildings market and recovery in the Dutchinfrastructure market. In that market we saw the first signs of recovery, whichled to an improvement in our backlog. We believe that our policy to improvemargins is yielding results. As a result of the restructuring that wascompleted in the Netherlands last year, as well as the ongoing transition inthe buildings area to management and consultancy services with higher addedvalue, the margin has clearly improved.

 

**Key financial measures**

 
| ** **                                                  | ** ** | **First quarter** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|-------------------|------------|------------|------------|
| **(Amounts in millions of Euros  unless otherwise stated)** | ** ** | **2005**          | ** ** | **2004**   | ** ** | **%****Change** | ** ** |
| Gross  revenue                                              |       | 223.0             |       | 207.0      |       | 8 | % |
| Operating  income                                           |       | 10.1              |       | 8.1        |       | 25 | % |
| Net income                                                  |       | 5.5               |       | 4.6        |       | 21 | % |
| Net income  per share (1)                                   |       | 0.27              |       | 0.23       |       | 19 | % |
| Net income  from operations (2)                             |       | 5.9               |       | 4.5        |       | 30 | % |
| Net income  from operations per share (1)(2)                |       | 0.29              |       | 0.22       |       | 29 | % |

 

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(1)   In 2005 basedon 20.3 million shares outstanding (in 2004: 20.0 million).

(2)   Excludingamortization, pension adjustments and option costs.

 

**Analysis**

 

Beginning from the first quarter of 2005, ourresults are reported under IFRS (*International FinancialReporting Standards*). The comparable financial results for 2004 havebeen adjusted on this basis. The consequences of IFRS for us and theadjustments to our reported net income for 2004 on a quarterly basis are setforth in a table at the end of Item 5.D. The 

 

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table also includes the net income from operations, which is as definedby IFRS, corrected for non-operational items (amortization intangible fixedassets, adjustments related to pension plans and costs of options).

 

Gross revenues for the 2005 first quarter of2005 increased by 8%. The contribution from acquisitions was 2%. This wasoffset by a negative currency effect of 1% and a decline of 1% resulting fromthe proceeds of divestments in the first quarter of 2004. Organic growth was8%. The main contribution came from the United States and South America, whilein Europe the activities in France grew strongly. In the Netherlands, themodest organic growth from the fourth quarter of 2004 was continued, whichindicates a gradual market recovery.

 

Operating income in the first quarter of 2005was 25% higher. Excluding items that affect the comparability of results theincrease was 13% than the first quarter of 2004. Acquisitions and divestmentson balance yielded 2% growth, while the currency effect was a negative 2%. Therelatively small contribution from acquisitions was mainly the effect of theamortization of identifiable intangible assets under IFRS. The organic increasein operating income was 13%, mainly through revenue growth in combination withmargin improvement.

 

Net income rose 21%, which was somewhat lessthan operating income.  This can bemainly attributed to the lower contribution from non-consolidated companies asa result of the completion of a number of contracts for energy projects inBrazil. It is expected that in the course of this year new contracts will besigned. Because net income from operations excludes the amortization on acquisitions,net income from operations rose by 30%.

 

**Developments by Geographic Segment**

 

The financial results mentioned below relate to grossrevenue developments and, unless otherwise noted, discuss the comparisonbetween the first three months of 2005 and the same period of 2004.

 

•      ***The******Netherlands***

Gross revenue in the Netherlands increasedslightly in the first quarter of 2005, compared to the same period last year.Organic revenue growth was modest and comparable to that of the fourth quarterof 2004, indicating an emerging recovery in the Dutch market. Operating incomein the Netherlands was substantially higher, partially as a result of costsavings achieved by the 2004 restructuring of part of the Dutch operations.

 

•      ***Other******European******countries***

In most other European countries solid growthwas achieved with the exception of Germany, where market circumstances continueto be difficult. In France, rail infrastructure activities were the main driverfor growth, while in the U.K. market, environmental activities performed well.In Poland, the acquisition of Profil generated additional revenues, while inthe environmental field our first European GRiP® project was won. Operatingincome showed a solid increase on the back of good market conditions in most countriesand productivity improvements in some operating companies.

 

•      ***The United******States***

Substantial growth was achieved in the U.S.market, particularly in the environmental field, where an organic growth of 10%was achieved. This was offset by a substantial organic decline in detaileddesign revenues in the buildings business. As a result of the continued poorperformance of this activity, most of it was divested at the end of thequarter, involving the transfer of approximately 160 employees to the Canadianfirm of Ingenium.  In infrastructure theU.S. market performance was solid, particularly in land development andtransportation. Operating income in the U.S. increased substantially, partlydue to the newly acquired companies of Bessent, Hammack and Ruckman, andDiversity Partners, which have a higher yield because they are active inprogram and project management.

 

•      ***Other regions***

Other regions saw a good increase as theeconomic recovery in Brazil and Chile which started in 2004 continued into the2005 first quarter. Both in infrastructure as well as in environment goodgrowth was achieved in both countries. In donor-financed markets, growth also occurred, albeit at a somewhatlower level. Operating income increased significantly due to the solid growthin South America and partly due to cost savings in donor-financed activitiesachieved during 2004.

 

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**Developments by Service Area**

 

The financial results mentioned below relate to grossrevenue developments and, unless otherwise noted, discuss the comparisonbetween the first three months of 2005 and the same period of 2004.

 

•      ***Infrastructure***

Gross revenue growthwas 11%. Of this growth, 8% came from acquisitions completed last year. Organicgrowth was 6%, a considerable improvement compared to 2004, when there was anorganic decrease. In almost all countries, activities increased. The recoveryin Brazil and Chile that started last year, continued strongly. In France, weare involved in several rail projects which contributed to strong growth.

 

•      ***Environment***

With10%, organic growth continued at a good level. In the United States, growth wasstill solid but somewhat down from 2004 because of the start up of severallarge GRiP® projects in the first quarter of 2004. In Europe a solidperformance was achieved in Germany, Belgium and France, while in Poland, thefirst European GRiP® project was won. In the European market we believe thereis a significant interest in this approach, particularly for redevelopment ofcontaminated industrial sites. Activities in Brazil also saw strong growth.

 

•      ***Buildings***

Organic growth was 11% mainly from expansion in project management andfacility management. Thesemanagement services are less cyclical. In the United States, at the end of thefirst quarter, the sale of most of the detailed design and engineeringactivities for buildings was completed. This fits with our policy to focus onhigher margin activities in this segment.

 

**Outlook**

 

Improvementof infrastructure is an important trend in many countries. In the Netherlands,initiatives for public-private partnerships may have a positive effect oninfrastructure investment. The money from European investment funds is beingredirected to central Europe leading to strong growth in the markets for roadsand rail there. With strong positions in Poland and the Czech Republic, webenefit from this development. France has a large program for expansion of highspeed railway lines for which we are well positioned. In the United States, anagreement has been reached on federal infrastructure funding (SAFETEA) whichwill positively impact the market. In the American environmental market, themulti-year GRiP® contracts form a solid basis for further expansion of ouractivities. The GRiP® approach also offers good prospects in the Europeanenvironmental market. In the buildings area, growth should mainly come fromexpansion in management services as a result of outsourcing.

 

Theoutlook for full year 2005 is positive. In many markets in which we are active,conditions are favorable. In the Netherlands, our competitive position has beenstrengthened in a market that is recovering. Our policy is to use synergy togenerate additional organic growth. Excellent opportunities for synergy arepresent in services to multinational clients and in the areas of soilremediation, railroad, bridges and tunnels. A stringent focus on activitieswith higher added value has to lead to further margin improvement. Our policyto expand activities by way of acquisitions will be continued. Barringunforeseen circumstances, and excluding currency effects, we expect continuedgrowth in revenue and profits.

 

**Descriptionof adjustments resulting from the implementation of IFRS**

 

Starting in 2005, we apply IFRS (the International Financial Reporting Standards)as the basis for our financial reporting. This means that the quarterly reportsduring 2005 will be presented in line with the IFRS standards. For thispurpose, the 2004 quarterly figures have been adjusted for comparison purposes.The changes in valuation principles and related changes in the figures arenoted below. The numbers used are in thousands of Euros.

 

***Goodwill***

 

Under IFRS goodwill is no longer amortized. Instead an annual (or morefrequent if needed) impairmenttest is performed to assess if the expected cash flows still warrant thecapitalized amounts. The amounts that are paid at the time of acquisition for identifiableintangible fixed assets are activated and amortized over the economic lifetimeof the assets.

 

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Up to and including 2004,goodwill was amortized according to Dutch rules. The amount related to thisamortization was € 2,558. Of this amount, € 376 is amortization foridentifiable intangible fixed assets. The remaining amount of € 2,182 concernsgoodwill amortization. In the comparing figures for 2004 this amount has beenadded to income.

 

***Work-in-progress***

 

The implementation of IFRS resulted in two significant changes to ouraccounting of work-in-progress.  Thefirst concerns the treatment of proposal costs. Some operating companiespreviously treated proposal costs as work-in-progress by allocating these costsas project-related after the project contract had been signed. IFRS has a morestringent requirements for the activation of costs. As adjusted to reflect thischange, work-in-progress as of December 31, 2004 was reduced by € 2.634.Of this amount, and after subtraction of a deferred tax credit of € 830, anamount of € 1,804 has been charged to shareholders’ equity. The second****significant change****relates to thegeneral overhead cost as a pricing component that are charged to projects. IFRSprohibits the activation of general overhead cost in work-in-progress viapricing. We used to charge projects against an integral price, including anaddition for general indirect cost. Because we use the percentage-of-completionmethod for project assessment, the new valuation principle only has an effecton loss-making projects. In those cases, a provision was formed in which theamount of indirect cost was too high. As adjusted to reflect this change,work-in-progress as of December 31, 2004 increased by € 618, which hasbeen added to shareholders’ equity. After tax, this amount is € 423. These newvaluation principles do not change the amount of work-in-progress, only when itis recognized. Therefore, our income for 2004 has not been adjusted.

 

***Deferred compensation***

 

As of 2004 we had a pension plan which qualified as a defined contribution plan for most ofour Dutch employees. For the employees of PRC, a pension plan is in place whichqualifies as a defined benefit plan. For German and French companies limitedplans are in place which qualify as defined benefit plans. IFRS (IAS 19)requires that related to these defined benefit plans in the opening balancesheet for 2004 a provision is formed and charged to shareholders’ equity in theamount of € 14,960. After tax an amount of € 10,231 has been charged toshareholders’ equity. Net income for 2004 was increased by € 668, net, based onactuarial calculations related to these pension plans. For a relatively smallnumber of staff members, jubilee payments are in place. For these payments aprovision was formed on the balance sheet of € 1,000, which, after taxes, hasbeen charged to shareholders’ equity (€ 685).

 

***Option costs***

 

IFRS demands that costs for options that have been issued after November 7,2002 and that become vested after January 1, 2005, be included in theresults, spread over the period in which they vest, which for ARCADIS, is threeyears. The cost, amounting to € 365 in 2004 (after tax € 239) has been chargedto the 2004 result. Because in our option plans options can only be convertedinto shares, this amount has been added to shareholders’ equity.

 

***Provision for doubtful debtors***

 

IFRS prohibits the existence of a dynamic provision for doubtfuldebtors. The total provision has therefore been evaluated and distributed tooutstanding receivables. The surplus that remained after the evaluation to theamount of € 203 was added to shareholders’ equity.

 

***Exchange rate differences***

 

The cumulative reserve for exchange ratedifferences has been balanced as of January 1, 2004 with the generalreserve. Future exchange rate differences will be registered separately.

 

***Other changes***

 

The investigation into the effects of the introduction of IFRS has ledto small changes in income in different parts of the company, resulting in atotal net income reduction of € 55.

 

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***Change corporate tax percentagein the Netherlands***

 

Part of the items mentioned above relate to our Dutch operations.To the extent that these items caused deferred taxes, the percentage change incorporate tax in the Netherlands per January 1, 2005 affected thisdeferral. This caused a negative effect to the amount of € 519 on the adjustedincome statement of 2004.

 

**Adjustments to quarterly results for 2004**

 

As a result of the changes described above,the results for each quarter in 2004 have been adjusted as follows.

 
| **(Amounts in thousands)**                           | ** ** | **First    Quarter   2004** | ** ** | **Second**** ****Quarter   2004** | ** ** | **Third    Quarter   2004** | ** ** | **Fourth    Quarter   2004** | ** ** | **Total**** ****2004** | ** ** |
|------------------------------------------------------|------------|-----------------------------|------------|----------------------------------------|------------|-----------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Published net income                                 |       | €                      | 4,003      |                                   | €     | 4,913                       |       | €                       | 4,039      |                        | €     | 7,184 |   | € | 20,139 |   |
| *Adjustments*                                        | ** ** | ** **                  | ** ** | ** **                             | ** ** | ** **                  | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Amortization goodwill                                |       | 490                         |       | 541                                    |       | 529                         |       | 622                          |       | 2,182                       |       |
| Pensions                                             |       | 270                         |       | 271                                    |       | 270                         |       | 271                          |       | 1,082                       |       |
| Option costs                                         |       | (94                         | )          | (95                                    | )          | (98                         | )          | (78                          | )          | (365                        | )          |
| Other adjustments                                    |       | (13                         | )          | (14                                    | )          | (14                         | )          | (14                          | )          | (55                         | )          |
| Corporate tax                                        |       | (71                         | )          | (71                                    | )          | (70                         | )          | (77                          | )          | (289                        | )          |
| Change in tax percentage                             |       |                        |       |                                   |       |                        |       | (519                         | )          | (519                        | )          |
| *Total adjustments*                                  |       | 582                         |       | 632                                    |       | 617                         |       | 205                          |       | 2,036                       |       |
| **Adjusted net income**                              |       | 4,585                       |       | 5,545                                  |       | 4,656                       |       | 7,389                        |       | 22,175                      |       |
|                                                 |       |                        |       |                                   |       |                        |       |                         |       |                        |       |
| Amortization of identifiable intangible fixed assets |       | 33                          |       | 31                                     |       | 32                          |       | 282                          |       | 378                         |       |
| Pensions                                             |       | (270                        | )          | (271                                   | )          | (270                        | )          | (271                         | )          | (1,082                      | )          |
| Option costs                                         |       | 94                          |       | 95                                     |       | 98                          |       | 78                           |       | 365                         |       |
| Corporate  tax                                       |       | 71                          |       | 71                                     |       | 70                          |       | 596                          |       | 808                         |       |
| **Adjusted net income from operations**              |       | 4,513                       |       | 5,471                                  |       | 4,586                       |       | 8,074                        |       | 22,644                      |       |
|                                                      |            |                             |            |                                        |            |                             |            |                              |            |                             |            |  |  |  |  |  |

 

**Adjustments to balance sheet**

 

As a result of the changesdescribed above, thebalance sheet has been adjusted as follows.

 
| **(Amounts in thousands)**                                                | ** ** | **As of January 1,  2004** | ** ** | **As of December 31,  2004** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------|------------|-----------------------------------|------------|
| **Adjustments shareholder’s equity**                                 | ** ** | ** **                      | ** ** | ** **                        | ** ** |
| Published shareholder’s equity                                       |       | €                          | 136,538    |                              | €     | 145,669 |   |
| *Adjustments*                                                             |       |                            |       |                              |       |
| Adjustment net income 2004, excluding the  effect of a change in tax rate |       | —                          |       | 2,555                             |       |
| Option costs 2004 in favor of shareholder’s  equity                  |       | —                          |       | 239                               |       |
| Work in  progress, net                                                    |       | (1,320                          | )          | (1,381                            | )          |
| Provision  pensions, net                                                  |       | (9,802                          | )          | (10,231                           | )          |
| Provision jubilee payments, net                                           |       | (655                            | )          | (685                              | )          |
| General provision doubtful debtors                                        |       | 203                             |       | 203                               |       |
| *Total adjustments*                                                       |       | (11,574                         | )          | (9,300                            | )          |
| **Adjusted shareholder’s equity**                                    |       | 124,964                         |       | 136,369                           |       |
|                                                                           |            |                                 |            |                                   |            |  |  |

 

30

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**E. *****Off-balance sheet arrangements.***

 

Managementbelieves there are no transactions, arrangements and other relationships withunconsolidated entities that have or are reasonably likely to have a current orfuture effect on our financial condition, changes in financial condition,revenues, expenses, results of operations, liquidity, capital expenditures orcapital resources that is material to investors in our common shares.

 

**F. *****Tabular disclosure of contractualobligations.***

 

The followingtable sets forth, as of December 31, 2004, our commitments and contractualobligations for the following five years and thereafter. The long-term debtobligations are our cash debt service obligations. Operating lease obligationsare the future minimum rental payments required under the operating leases thathave initial or remaining noncancelable lease terms in excess of one year as ofDecember 31, 2004.

 
| ** **                                                   | ** ** | ** **         | ** **  | **Payments due by period** | ** ** |
|--------------------------------------------------------------|------------|--------------------|-------------|----------------------------|------------|
| **Contractual obligations**                                  | ** ** | **Total**          | ** **  | **Less than  1 year**      | ** ** | **1-3  years** | ** ** | **3-5  years** | ** ** | **More than  5 years** | ** ** |
| ** **                                                   | ** ** | **(in thousands)** | ** **  |
| Long-term  debt obligations (subordinated loans)             |       | €             |  1,787 |                       | €     |  1,038 |   | € |  460 |   | € |  180 |   | € |  109 |   |
| Operating  lease obligations                                 |       | 125,647            |        | 31,356                     |       | 57,948 |   | 23,788 |   | 12,555 |   |
| Capital  (finance) lease obligations                         |       | 2,066              |        | 291                        |       | 1,202 |   | 428 |   | 145 |   |
| Purchase  obligations                                        |       | 3,505              |        | 2,010                      |       | 1,495 |   | — |   | — |   |
| Other longer-term  liabilities reflected on under Dutch GAAP |       | 28,817             |        | 19,338                     |       | 8,092 |   | 689 |   | 698 |   |
| **Total**                                                    |       | 161,822            |        | 54,033                     |       | 69,197 |   | 25,085 |   | 13,507 |   |
|                                                              |            |                    |             |                            |            |  |  |  |  |  |  |  |  |  |  |  |

 

We believethat cash generated from operations, together with our existing financingarrangements will be sufficient to meet our working capital and capitalexpenditure requirements for 2005.

 

**ITEM 6.**** DIRECTORS,SENIOR MANAGEMENT AND EMPLOYEES**

 

**A.  *Directors******and senior management.***

 

None of themembers of our Supervisory Board and Executive Board, Corporate Directors, andSenior Management Committee have any family relationships between and amongsteach other. Additionally, none of the following individuals have entered intoany arrangement or understanding with a third party, pursuant to which theperson was selected for his respective position.

 

**Supervisory Board**

 

The following table presents informationabout our Supervisory Board members as of December 31, 2004 and nomineesfor election to our Supervisory Board at the Annual General Meeting ofShareholders, which was held on May 11, 2005:

 
| **Name**                             | ** ** | **Year of   Birth** | ** ** | **Years Served  In Office** | ** ** | **Year Term   Expires** | ** ** | **Position**  | ** ** |
|--------------------------------------|------------|---------------------|------------|-----------------------------|------------|-------------------------|------------|---------------|------------|
| Rijnhard W.F. van Tets (a), (b), (c) |       | 1947                |       | 3                           |       | 2006                    |       | Chairman      |       |
| Ross A.  Webber (a)                  |       | 1934                |       | 12                          |       | 2006                    |       | Vice-Chairman |       |
| Thomas M.  Cohn (a)                  |       | 1942                |       | 1                           |       | 2008                    |       | Member        |       |
| Carlos Espinosa de los Monteros (b)  |       | 1944                |       | 7                           |       | 2006                    |       | Member        |       |
| George R.  Nethercutt, Jr. (d)  |       | 1944                |       |                        | (d)        | 2009                    |       | Member        |       |
| Jan Peelen (b)                       |       | 1940                |       | 5                           |       | 2008                    |       | Member        |       |
| Gerrit Ybema  (b), (c)               |       | 1945                |       | 2                           |       | 2007                    |       | Member        |       |

 

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(a)           Member of the AuditCommittee

(b)           Member of the Selectionand Remuneration Committee

(c)           Member of the IntegrityCommittee

(d)           Appointed at the AnnualGeneral Meeting of Shareholders held on May 11, 2005 to a term expiring in2009

 

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**Jhr.Drs. Rijnhard W.F. van Tets,** age 58, wasappointed to our Supervisory Board in 2002, and currently serves as ourChairman.  He also serves as a member ofour Supervisory Board’s Audit Committee, and chairman of the Selection andRemuneration Committee and the Integrity Committee.  Currently, Mr. van Tets serves as anadvisor to the Executive Board of ABN AMRO Bank, after serving as a member ofthe Executive Board from 1988 until 2001. He also served in a variety ofpositions while at ABN AMRO Bank, including: Chairman of the Investment BankingDivision from 1990 to 2001, Senior Executive Vice President from 1986 to 1988,and Executive Vice President of the Corporate Banking Division from 1983 to1986. From 1977 until 1983, Mr. van Tets served as Vice President ofCorporate Finance with First Boston Corporation. He currently serves as anon-executive board member of the following entities: Euronext Amsterdam N.V.,Equity Trust SARL, International Flavors & Fragrances I.F.F. (theNetherlands) Holding B.V., Wegener N.V., and Investment Committee Pension FundBuilding Industry. Mr. van Tets earned a Masters in Law and BusinessAdministration from the University of Leiden.

 

**Dr. RossA. Webber**, age 70, was appointed to our SupervisoryBoard in 1993, and currently serves as our Vice-Chairman.  He also serves as a member of our SupervisoryBoard’s Audit Committee. Currently, he serves as Professor Emeritus at theWharton School of the University of Pennsylvania. From 1991 until 1995, Dr. Webberserved as Chairman of the Management Department at the Wharton School of theUniversity of Pennsylvania. Dr. Webber served as Vice-President of theUniversity of Pennsylvania from 1981 until 1986.

 

**Mr. ThomasM.  Cohn**, age62, was appointed to our Supervisory Board in 2004.  He also serves as chairman of our SupervisoryBoard’s Audit Committee.  From 1994 until2003, Mr. Cohn served as Chairman of the Executive Board of SiemensNederland N.V. and Chief Executive Officer of the Siemens Group in the Netherlands.Mr. Cohn retired from our Executive Board in 2003. From 1987 until 1994, Mr. Cohnwas the Chief Financial Officer and an Executive Board member of SiemensNederland N.V. From 1967 until 1987, he held various positions, such asdirector of Economic Affairs, with Siemens Belgium. He started his career in1964 with Siemens AG in Germany. Mr. Cohn also serves as a non-executiveboard member of the following entities: Corus Nederland B.V., KEMA NV, AdvisoryBoard Fortis Bank Rotterdam, Recontec B.V., Tecosa (Spain), Pereira Van Vliet &Partners (Chairman), Monitoring Board University of Technology Delft,Foundation Techniques and Marketing-STEM, Dutch—German Chamber of Commerce, andBaden-Badener Unternehmergespräche (Germany).

 

**Mr. CarlosEspinosa de los Monteros,** age 61, was appointed to ourSupervisory Board in 1998. He also serves as a member of our Supervisory Board’sSelection and Remuneration Committee.  Mr. Espinosacurrently serves as Chairman and Chief Executive Officer of Mercedes Benz EspanaS.A. and Daimler Chrysler Espana Holding. He served as President of IBERIA S.A.from 1983 until 1985. From 1979 until 1983, Mr. Espinosa served Presidentof the National Institute for Industry (INI) in Spain. Mr. Espinosacurrently serves as a non-executive board member of Acciona S.A., Inditex S.A.(Zara) and Gonzalez Byass S.A.

 

**Mr. George R. Nethercutt, Jr.**, age 60, was appointed to our SupervisoryBoard by the General Meeting of shareholders held on May 11, 2005.  He currently serves as a member of the Boardof Directors of Hecla Mining Company, The Washington Policy Center andIsothermal Systems Research.  From 1994until January 2005, Mr. Nethercutt served as a member of the UnitedStates House of Representatives.  Heserved on the Appropriations Committee and the Defense, Interior andAgriculture Subcommittees.  From 1977 to1994, Mr. Nethercutt practiced law in the private sector, focusing oncorporate, estate and probate and adoption law.

 

**Drs. JanPeelen**, age 65, was appointed to our Supervisory Boardin 2000. He also serves as a member of our Supervisory Board’s Selection andRemuneration Committee.  Mr. Peelenretired from employment with the Unilever group of companies in 2000. From 1987until 2000, Mr. Peelen was a member of the Executive Board of UnileverN.V. and Unilever PLC, from 1996 till 2000 he also served as a member of theExecutive Committee of Unilever, as the director of Human Resources. Mr. Peelenhas served in several international management positions within Unilever or itssubsidiaries since 1966. Mr. Peelen also serves as a non-executive boardmember of the following entities: Albron B.V., Royal Friesland Foods N.V.,Buhrmann N.V., VVAA Group B.V. (Chairman), and National Regie-Orgaan Genomics.

 

**Drs. GerritYbema,** age 59, was appointed to our Supervisory Boardin 2003. He also serves as a member of our Supervisory Board’s IntegrityCommittee and Selection and Remuneration Committee. From 1998 until 2002, Mr. Ybemaserved as the Secretary of State for Economic Affairs in the Netherlands. Hehas served in a variety of governmental positions at the local and state levelfrom 1989 until 1998, including positions with the city of Enschede and theprovince of Friesland. He currently serves as a non-executive board member ofthe following entities: Monitoring Board Zorggroep Noorderbreedte, ROC FriesePoort, Consultative Organ Frisian Language and Culture, Fair Wear Foundation,and Foundation Frisian Harbour Days. Mr. Ybema earned an economics degree,with a specialization in economic relations from Rijksuniversiteit Groningen.

 

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**Executive Board**

 

                The followingtable presents information about our current Executive Board members:

 
| **Name**         | ** ** | **Year of   Birth** | ** ** | **Years Served   In Office** | ** ** | **Position** |
|------------------|------------|---------------------|------------|------------------------------|------------|--------------|
| Harrie L.J.  Noy |       | 1951                |       | 11                           |       | Chairman     |
| C. Michiel Jaski |       | 1959                |       | 5                            |       | Member       |

 

**HarrieL.J. Noy**, age 54, was appointed to our Executive Boardin 1994. He currently serves as Chairman of our Executive Board and has heldthis position since 2000. Prior to joining our Executive Board, Mr. Noyserved as Managing Director of Heidemij Advies B.V. from 1990 until 1994. Hejoined the company in 1975. Mr. Noy also serves as a non-executive boardmember of the following entities: Foundation Habiforum, Foundation PSIB, AdvisoryBoard Euronext, VEUO (The Dutch Association of Listed Companies), Dutch-GermanChamber of Commerce, Foundation Management Studies (SMS), VNO-NCW, SupervisoryBoard University of Arnhem-Nijmegen, and Supervisory Board FoundationRijnoeverhoven.

 

**C.Michiel Jaski**, age 46, was appointed to our ExecutiveBoard in 2000. Prior to joining us, he served in a variety of positions atPolyesters Plastics Packaging Shell Chemicals Ltd., including: Global VicePresident from 1999 to 2000, Global Marketing & Sales Director from1998 to 1999, Business Unit Manager Europa Shell Chemicals Ltd. from 1992to 1998, Sales Manager Benelux Shell Nederland Chemie from 1990 to 1992, andProduct Manager Shell Nederland Chemie from 1988 to 1990. From 1986 until 1987,Mr. Jaski served as the Project Manager of Information Technology PhilipsUK and Philips Belgium. Mr. Jaski also serves as a non-executive boardmember of the following entities: Vice-Chairman of the Foundation Delta(primary education), and the Netherlands Committee IUCN (The World ConservationUnion).

 

**Corporate Directors**

 

The followingtable presents information about our current Corporate Directors:

 
| **Name**              | ** ** | **Year of  Birth** | ** ** | **Years Served  In Office** | ** ** | **Position**                                    |
|-----------------------|------------|--------------------|------------|-----------------------------|------------|-------------------------------------------------|
| Hans van Dord         |       | 1944               |       | 4                           |       | Corporate Director of Business Development      |
| Ben A. van der  Klift |       | 1959               |       | 1                           |       | Corporate Director of Finance                   |
| Wim G.M. Rupert       |       | 1945               |       | 11                          |       | Corporate Director of Human Resources           |
| Craig E. Eisen        |       | 1951               |       | 3                           |       | Corporate Director of Mergers and  Acquisitions |

 

**Hansvan Dord,** age 60, was appointed Corporate Director ofBusiness Development in 2000. Prior to that appointment he has served invarious senior management positions in different ARCADIS operating companies. Mr. VanDord has been with our company since 1985. Prior to joining us, Mr. VanDord worked on urban and rural planning and design projects on behalf of theDutch government from 1972 to 1985.

 

**BenA. van der Klift**, age 45, was appointed Corporate Director of Finance in 2004. * *Prior to joiningARCADIS, Mr. Van der Klift served as Financial Director of PRC BouwcentrumB.V., a company that was acquired by ARCADIS in 2003. From 1991 to 1997, Mr. Vander Klift held several financial management positions at DHV, a Dutch-basedinternational engineering consultancy.

 

**WimG.M. Rupert**, age 59, was appointed as CorporateDirector of Human Resources in 1994. In 1987 Mr. Rupert joined us in thefunction of Training Manager. Prior to joining us, he held several positions inpublic education in the Netherlands.

 

**CraigE. Eisen**, age 53, was appointed as Corporate Directorof Mergers and Acquisitions in 2002. Prior to joining us, he held the positionof Vice President Corporate Programs and was a member of the Executive Board ofTetra Tech, Inc. from 1994 to 2002. From 1981 to 1996, Mr. Eisen alsoserved in a number of positions at Hydro-Search Inc., including asPresident from 1991 to 1997, as Vice President of Operations from 1988 to 1991and as a member of the Board of Directors from 1988 to 1994. Prior professionalpositions include Principal Hydrogeologist at the Water Resources ResearchInstitute, University of Wyoming from 1979 to 1981 and Hydrogeologist/ResidentEngineer for the U.S. Agency for International Development—Kenya from 1978 to1979.

 

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**Senior ManagementCommittee**

 

                The followingtable presents information about our current Senior Management Committeemembers:

 
| **Name**               | ** ** | **Year of   Birth** | ** ** | **Years Served  In Office** | ** ** | **Position**                         |
|------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------------------|
| Steven B. Blake        |       | 1956                |       | 1.5                         |       | CEO ARCADIS G&M                  |
| Javier Hurtado         |       | 1955                |       | 1                           |       | CEO ARCADIS Geotecnica               |
| Douwe Kras             |       | 1948                |       | 1                           |       | Managing  Director ARCADIS Nederland |
| Yann Leblais           |       | 1952                |       | 5                           |       | CEO ARCADIS FCI                      |
| Erhard Robold          |       | 1956                |       | 6                           |       | CEO ARCADIS Deutschland              |
| Antonio Rocha          |       | 1941                |       | 6                           |       | CEO ARCADIS  Logos                   |
| Kees T.  Slingerland   |       | 1960                |       | 3                           |       | Managing  Director ARCADIS Nederland |
| Ludo Smans             |       | 1947                |       | 9                           |       | Managing Director ARCADIS Belgium    |
| Luis Villarroya Alonso |       | 1953                |       | 10                          |       | CEO Grupo EP                         |
| Marek Adamek           |       | 1960                |       | 1                           |       | Managing  Director ARCADIS Polska    |
| Leo van der  Kemp      |       | 1956                |       | 1.5                         |       | Managing Director PRC                |

 

**StevenB. Blake**, age 48, was appointed to our SeniorManagement Committee in 1995. From 1999 until 2003, Mr. Blake served as amember of our Executive Board, from which he stepped down in November 2003on his own request. Since that date he serves (again) as the Chief ExecutiveOfficer of ARCADIS G&M, Inc. He has served in a number of positions atGeraghty & Miller, including: President from 1994 to 1996, VicePresident Programs & Strategic Operations from 1991 to 1994, andDirector of Hydrocarbon Services Division from 1989 to 1991. Following ouracquisition of Geraghty & Miller in 1994, Mr. Blake served asChief Executive Officer of ARCADIS Geraghty & Miller, Inc., from1996 until 1999. Mr. Blake also serves as a non-executive board member ofthe following entities: Construction Industry Roundtable, the U.S. NationalWater Well Association and the Federal Relations Committee (CIRT).

 

**JavierHurtado,** age 49, industrial engineer, was appointed asCEO of ARCADIS Geotécnica in February 2004. Prior to joining ARCADIS heacted as CEO in companies from different fields of activity like Real Estate;developing and managing private schools in Chile (2002-2003), developing andmanaging Hotels and tour agencies in Croatia (2000-2002); Ports(Ventanas—Chile), and Airports (Santiago International Airport) (1993-2000),Mining Companies (Cominor and ENAMI) (1992-1993); Insurance Companies (LesMutuelles du Mans Assurance—Chile)(1989-1992). Mr. Hurtado has been memberof the board of directors in a variety of companies in a broad range ofbusinesses.  He has also served as anadvisor for the chamber of industries, chamber of construction and other thinktanks in environmental issues, and currently holds the position of President ofthe Environmental Committee in the Chilean chamber of construction.

 

**DouweJ. Kras**, age 56, joined the company as a member of theBoard of ARCADIS Nederland B.V. in May 2004, and he has been appointedChairman of the Board of ARCADIS Nederland B.V. effective as of July 2004.Until 2004, Mr Kras was CEO of PRC B.V., a consultancy firm that we acquired in2003 and that specializes in project management. He worked with PRC B.V. for25 years. Mr Kras is member of several Supervisory Boards in the fields ofHealth Care, Social Housing and Culture.

 

**YannLeblais,** age 52, was appointed to our seniorManagement Committee in 2002. He currently serves as CEO in ARCADIS FCI and hasheld his position since 2000. He also serves as CEO of ARCADIS ESG (former EEGSIMECSOL before we acquired it in 2002) and has held his position from 1995. Hejoined SIMECSOL in 1979 and served in a number of positions, including:Executive Vice President from 1990 to 1995 and Head of the Geotechnical &Civil Division from 1985 to 1990. Yann Leblais is currently Chairman of theBoard of SYNTEC INGENIERIE, the French Consulting Association, and also servesin key positions in both French and International Tunneling Associations.

 

**ErhardRobold**, age 48, was appointed as managing director ofARCADIS in Germany in 1998; since 2001 he is member of the Senior ManagementCommittee. Mr. Robold joined the company in 1991 and served in a varietyof positions including Department Manager, Regional Manager South Germany andManaging Director. In 2001 he was appointed served as CEO of ARCADIS Germany.From 1984 until 1991 he worked as Project Manager for two other engineeringcompanies. Erhard Robold is civil engineer and member of several associationsof our branch.

 

**AntonioJoão Oliveira Rocha**, age 64, was appointed to theSenior Management Committee in 2000. He currently serves as Chief ExecutiveOfficer of Logos Engenharia S.A., our leading Brazilian company, and has heldthis position since 

 

34

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1999. Prior to becoming Logos’ CEO, from 1987to 1999 Mr. Rocha served as Technical Director, and from 1977 to 1986 heserved as Project Manager at Logos. From 1986 to 1987 he worked as deputysecretary in the Planning Secretariat of São Paulo State Government. Beforejoining Logos he worked at São Paulo Metro Company and Rhodia, Brazilian subsidiaryof French Rhône Poulenc. Mr. Rocha worked at two Brazilian universitiesfrom 1966 until 1972.

 

**KeesT. Slingerland,** age 45, was appointed to our SeniorManagement Committee in 2000. At that time, he joined us as managing directorof ARCADIS Heidemij Advies B.V.; from 2002 on he has been the managing directorof ARCADIS Netherlands B.V.. Before he joined us, Mr. Slingerland workedfor the Dutch Ministry of Agriculture, from 1985 to 1989, for the NEHEMConsulting Group in Hertogenbosch and in Budapest as director internationaldevelopment from 1989 to 1995 and as managing director for the Flower Auctionin Bleiswijk from 1995 to 2000. Mr. Slingerland also serves as anon-executive board member of CUR (Civil Centre for Engineering, Research andCodes) and of NOVIB Oxfam Netherlands (international developing aid) and asmember of the advisory board Rural Developments of the Innovation Network RuralAreas and Agricultural Systems.

 

**LudoSmans**, age 57, was appointed to our Senior ManagementCommittee in 1999. Founder and President of the former Gedas, which company wasacquired by Heidemij Group in 1995. He has held the position of Chief ExecutiveOfficer of ARCADIS Belgium since 1995. Prior to founding Gedas in 1981, Mr. Smansserved in a number of positions at VEHA Radiators Herentals (Rijn ScheldeVerolme) from 1971, including as Administrative Director from 1976 to 1981.

 

**LuisVillarroya Alonso**, age 51, has been a member of theSMC since 1995, when we acquired Grupo EP. He has served in a variety of positionsat Grupo EP, including Chief Executive Officer from 1999 through the present,Managing Director from 1995 to 1999, Deputy Director from 1990 to 1995, andManaging Director of Ibering and Intecasa from 1987 to 1990. Prior to joiningGrupo EP, he served at The Austin Company as Deputy Director from 1984 to 1987,and at Arthur Andersen as Manager of the Manufacturing Division and in theAuditing and Consulting Division from 1978 to 1984.

 

**MarekAdamek**, age 45, was appointed the Managing Director ofARCADIS Polska in 2005.  From 1991 to2004, he served as the Chief Executive Officer of Ekokonrem, an environmentalcompany which he established and was acquired by the Heidemij Group in 1994.  Prior to 1991, Mr. Adamek worked in ageological state-on company, as hydrogeologist and Project Manager.

 

**Leo vander Kemp**, age 49, was appointed the managing directorof PRC in 2004, He has a background in public services. From 1985 to 1992 hewas involved in the housing of Dutch Universities, University Hospitals and othereducational facilities. Until 1995 he was responsible fordecentralization-operations of the Dutch ministry of Education and Science.From 1995 until 2004 he was director of the division Projectmanagement andConsultancy of PRC B.V..

 

**B.  *Compens******ation.***

 

**Description ofCompensation**

 

The aggregatecompensation, including directors’ fees and bonuses, paid or accrued to all ofthe members of our Supervisory Board and Executive Board as a group (12persons) during the fiscal year ended December 31, 2004, was € 1.1****million.The aggregate amount set aside or accrued to provide pension, retirement andsimilar benefits for all of the members of our Supervisory Board and ExecutiveBoard as a group during the fiscal year ended December 31, 2004, was € 0.2****million. Please see Item 6.E for a description of ourvarious stock option plans and details of the options granted under thoseplans.

 

**Supervisory BoardMembers**

 

Compensationfor members of our Supervisory Board is determined by the General Meeting ofShareholders. For 2004, each of our Supervisory Board members was paid a baserate of compensation equal to € 25,000, while the Chairman’s compensation was €37,500. In addition, the members of the Supervisory Board receive annualcompensation for expenses, which for the Chairman is € 3,000, for Dutch membersis € 2,000, for the Spanish member is € 10,000 and for the U.S. member is$15,000 per year.  Supervisory Boardmembers who serve on our Audit Committee and our Selection and RemunerationCommittee will be paid annually € 5,000 per committee. Supervisory Boardmembers who serve on our Integrity Committee will be paid € 2,500 annually. OurSupervisory Board members are not eligible to receive options.

 

35

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The followingtable details the amount of compensation paid to each of our Supervisory Boardmembers in 2004.

 
| **Name**                        | ** ** | **Compensation**   | ** ** |
|---------------------------------|------------|--------------------|------------|
| ** **                      | ** ** | **(in thousands)** | ** ** |
| Rijnhard W.F. van Tets          |       | €             | 38         |   |
| Ross A.  Webber                 |       | 27                 |       |
| Thomas M.  Cohn                 |       | 15                 | (1)        |
| Carlos Espinosa de los Monteros |       | 27                 |       |
| Jan Peelen                      |       | 27                 |       |
| Gerrit Ybema                    |       | 29                 |       |
| Luck M. van Leeuwen             |       | 19                 | (2)        |
| Andre A. van der Louw           |       | 13                 | (2)        |
|                                 |            |                    |            |  |

 

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(1)           Representscompensation for six months of service, as Mr. Cohn was appointed to theSupervisory Board in May 2004.

(2)           Representscompensation for six months of service, until each of Messrs. Van Leeuwenand der Louw retired from the Supervisory Board in May 2004.

 

**Executive Board**

 

Thecompensation of members of our Executive Board is determined by the SupervisoryBoard based on recommendations of our Selection and Remuneration Committee. Ourpolicy is to compensate our senior executives at market rates while consideringour size and characteristics. The goal of our compensation scheme is to provideour Executive Board members with short-term and long-term incentives, so thattheir interests are aligned with those of our shareholders.  In the fall of 2004, we engaged an externalconsultant to make recommendations regarding our remuneration policy in lightof the demands imposed by the Dutch Corporate Governance Code.  Our new remuneration policy was presented toand approved by our shareholders at the General Meeting of Shareholders on May 11,2005.  For 2004, our compensationpackages include the following components:

 

• *Fixed salaries.* The fixedportion of the overall compensation package is adjusted annually by theSupervisory Board based on recommendations from the Selection and RemunerationCommittee. In 2004, the fixed portion paid to our Executive Board members wasnot increased.

 

• *Variable salaries.* Thevariable portion of the overall compensation package is adjusted annually bythe Supervisory Board based on recommendations from the Selection andRemuneration Committee. The bonuses for which members of our Executive Boardare eligible are based on meeting certain performance goals established at thebeginning of the fiscal year and the performance of the company. In 2004,bonuses paid varied between 33% and 44% of an Executive Board member’s fixedsalary.

 

• *Compensations and other fringe benefits.*Members of our Executive Board receive reimbursement for expenses and otherfringe benefits customary in the industry.

 

• *Pensions.* As of January 1,2004, our pension plan was changed to a defined contribution plan.  The premium paid by members of our ExecutiveBoard is based on the goal to achieve a target payment equal to what would havebeen received under our pension plan.

 

• *Options.* Members of ourExecutive Board are granted options by the Supervisory Board based on therecommendations of the Selection and Remuneration Committee. No options havebeen granted in 2004, as performance criteria were not met.

 

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The followingtable details the amount of compensation paid to each of our Executive Boardmembers in 2004.

 
| **Name**           | ** ** | **Fixed   Salary*** | ** ** | **Variable   Salary*** | ** ** | **Pension   Premium*** | ** ** | **Options   Granted** | ** ** |
|--------------------|------------|---------------------|------------|------------------------|------------|------------------------|------------|-----------------------|------------|
| Harrie L.J.  Noy   |       | €              |  331  |                   | €     |  100              |       | €                |  74   |   | 0 |   |
| C. Michiel Jaski   |       | €              |  248  |                   | €     |  100              |       | €                |  27   |   | 0 |   |
| Jan Zijlstra (1)   |       | €              |  248  |                   | €     |  25               |       | €                |  62   |   | 0 |   |
| Steven B. Blake(2) |       | 0                   |       | $                      | 99         |                   | 0          |                  | 0          |   |

 

----

*       in thousands

(1)    Mr. Zijlstraserved as a member of our Executive Board until January 1, 2004.  He continues to serve as an advisor to ourExecutive Board.

(2)    Mr. Blakeserved as a member of our Executive Board until November 1, 2003.  He continues to serve as a member of ourSenior Management Committee and chief executive officer of ARCADIS G&M, Inc.

 

***C.  Board pr******actices***

 

The length ofeach director’s and officer’s term in office, if applicable, is described abovein Section B. Our directors and officers have employment contracts thathave unlimited duration.  None of ouremployment agreements provide for benefits upon the termination of employment.

 

**Audit Committee**

 

Our Supervisory Board Audit Committee is responsiblefor reviewing and monitoring our financial statements and internal accountingprocedures, approving the scope and terms of audit services to be provided byour independent auditor and monitoring the services provided by our independentauditor. Our Audit Committee reviews all periodic financial reports andconducts separate meetings with management, and the independent auditors toreview the accuracy of such reports.  OurAudit Committee also discussed the consequences of implementing theInternational Financial Reporting Standards in 2005.  Our Supervisory Board adopted our AuditCommittee Charter and established the Audit Committee in November 2002,and our Audit Committee held its first meeting in January 2003.

 

For the year ended December 31, 2004, Mr. Cohn,Mr. van Tets, and Dr. Webber served as members of the AuditCommittee, and each member qualified as an independent member of the AuditCommittee as defined by the Nasdaq National Market and the United StatesSecurities and Exchange Commission.  Mr. Cohnserved as the Chairman of the Audit Committee during 2004 and will continue toserve as Chairman during 2005.  Our AuditCommittee has one member, Mr. van Tets, who qualifies as our “auditcommittee financial expert” as defined by the United States Securities andExchange Commission.

 

**Selection andRemuneration Committee**

 

OurSupervisory Board Selection and Remuneration Committee is charged withselecting and nominating candidates for appointment to the Supervisory Boardand the Executive Board. In addition, this committee advises the SupervisoryBoard on the following matters: the size and composition of our Supervisory Board,compensation of the members of our Executive Board and our Senior ManagementCommittee, our option plan policy, and the award of options under existingoption plans.  In 2004, the Selection andRemuneration Committee engaged an external consultant to make recommendationsregarding our remuneration policy in light of the demands imposed by the DutchCorporate Governance Code.

 

For the yearended December 31, 2004, Mr. van Tets, Mr. Espinosa, Mr. Peelen,and Mr. Ybema served as members of the Selection and RemunerationCommittee, and Mr. van Tets serves as Chairman.

 

**D.  *Employ******ees***.

 

As of December 31,2004, we had 9,638 employees, compared to 9,277 at the end of December 31,2003, and 8,503 at the end of December 31, 2002. For 2004, the averagenumber of employees was 9,419, compared to 8,827 in 2003 and 8,020 in 2002.

 

37

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As of December 31,2004, the geographic breakdown of our employees was as follows:

 
| **Region**                | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|----------|------------|
| Netherlands               |       | 2,346    |       | 2,774    |       | 2,772    |       |
| Other  European Countries |       | 4,000    |       | 3,446    |       | 2,988    |       |
| United  States            |       | 2,222    |       | 2,022    |       | 1,704    |       |
| Other  Regions            |       | 1,070    |       | 1,035    |       | 1,039    |       |

 

The decline inemployees in the Netherlands is the result of divestments andrestructurings.  The sharp increases inemployees in other European countries and in the United States are due toacquisitions completed in 2002 and 2003. In 2004, the percentage of our employees with a temporary contractincreased from 16% on January 1, 2004 to 22% on December 31, 2004.

 

A smallminority of our employees are members of a union. The relationship betweenmanagement and the labor unions is good.

 

**E.  *Share o******wnership.***

 

**Capital Stock**

 

The followingtable discloses, as of December 31, 2004, interests held in our sharecapital by members of our Supervisory Board and our Executive Board: 

 
| **Name**                        | ** ** | **Number of   Shares (1)** | ** ** | **Percentage of   Outstanding   Capital** | ** ** |
|---------------------------------|------------|----------------------------|------------|-------------------------------------------|------------|
| Rijnhard W.F. van Tets          |       | —                     |       | —                                    |       |
| Ross A.  Webber                 |       | 1,130                      |       |                                      | *     |
| Th. M.  (Thomas) Cohn           |       | —                     |       | —                                    |       |
| Carlos Espinosa de los Monteros |       | —                     |       | —                                    |       |
| J. (Jan) Peelen                 |       | —                     |       | —                                    |       |
| Gerrit Ybema                    |       | —                     |       | —                                    |       |
| Luck M. van Leeuwen (2)         |       | —                     |       | —                                    |       |
| Andre A. van der Louw (2)       |       | —                     |       | —                                    |       |
| Harrie L.J. Noy                 |       | 33,787                     |       |                                      | *     |
| C. Michiel Jaski                |       | 1,436                      |       |                                      | *     |
| Steven B. Blake (3)             |       | 10,522                     |       |                                      | *     |
| Jan Zijlstra  (4)               |       | 516                        |       |                                      | *     |

 

----

*              Lessthan 1%

(1)           Excludesstock options

(2)           Messrs. vanLeeuwen and van der Louw retired from our Supervisory Board at our GeneralMeeting of Shareholders on May 12, 2004.

(3)           Mr. Blakeserved as a member of our Executive Board until November 1, 2003.

(4)           Mr. Zijlstraserved as a member of our Executive Board until January 1, 2004.

 

The members ofour management hold our common shares and have no greater rights than thoseprovided to non-management holders of our shares.

 

38

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**Stock Options**

 

The followingtable discloses, as of December 31, 2004, stock options held by members orformer members of our Executive Board:

 
| **Name**           | ** ** | **Option  Plan** | ** ** | **Grant  Year** | ** ** | **Number  Granted** | ** ** | **Exercise  Price** | ** ** | **2004********Exercises** | ** ** | **Number  Outstanding** | ** ** | **Expiration  Date** | ** ** |
|--------------------|------------|------------------|------------|-----------------|------------|---------------------|------------|---------------------|------------|---------------------------|------------|-------------------------|------------|----------------------|------------|
| Harrie L.J.  Noy   |       | 2001             |       | 2001            |       | 30,000              |       | €              | 9.20       |                      | 20,000     |                    | 10,000     |                 | 05-22-2011 |   |
|               |       |             |       | 2002            |       | 15,000              |       | €              | 10.79      |                      | —     |                    | 15,000     |                 | 05-15-2012 |   |
|               |       |             |       | 2003            |       | 17,500              |       | €              | 8.93       |                      | —     |                    | 17,500     |                 | 05-13-2013 |   |
| Steven B. Blake(1) |       |             | (2)        |            | (3)        | 85,615              |       |                | (4)        | 58,240                    |       | 27,375                  |       | 03-17-2009           |       |
|               |       | 1996             |       | 2000            |       | 18,750              |       | $                   | 6.75       |                      | —     |                    | 18,750     |                 | 05-17-2010 |   |
|               |       |             |       | 2001            |       | 18,750              |       | $                   | 8.00       |                      | —     |                    | 18,750     |                 | 05-23-2011 |   |
|               |       | 2001             |       | 2001            |       | 25,000              |       | €              | 9.20       |                      | —     |                    | 25,000     |                 | 05-22-2011 |   |
|               |       |             |       | 2002            |       | 13,000              |       | €              | 10.79      |                      | —     |                    | 13,000     |                 | 05-15-2012 |   |
|               |       |             |       | 2003            |       | 15,000              |       | €              | 8.93       |                      | —     |                    | 15,000     |                 | 05-13-2013 |   |
| C. Michiel Jaski   |       | 2001             |       | 2001            |       | 17,500              |       | €              | 9.20       |                      | —     |                    | 17,500     |                 | 05-22-2011 |   |
|               |       |             |       | 2002            |       | 10,000              |       | €              | 10.79      |                      | —     |                    | 10,000     |                 | 05-15-2012 |   |
|               |       |             |       | 2003            |       | 14,000              |       | €              | 8.93       |                      | —     |                    | 14,000     |                 | 05-13-2013 |   |
| Jan Zijlstra  (5)  |       | 2001             |       | 2001            |       | 17,500              |       | €              | 9.20       |                      | —     |                    | 17,500     |                 | 05-22-2011 |   |
|               |       |             |       | 2002            |       | 10,000              |       | €              | 10.79      |                      | —     |                    | 10,000     |                 | 05-15-2012 |   |
|               |       |             |       | 2003            |       | 11,000              |       | €              | 8.93       |                      | —     |                    | 11,000     |                 | 05-13-2013 |   |

 

----

(1)           Mr. Blakeserved as a member of our Executive Board until November 1, 2003.

(2)           Variousplans from 1987-1994

(3)           Issuedfrom 1989 to 1999

(4)           Exerciseprice ranges from $6.75 to $11.50

(5)           Mr. Zijlstraserved as a member of our Executive Board until January 1, 2004.

 

The members ofour Supervisory Board held no stock options as of December 31, 2004.

 

**Option and Share Purchase Plans**

 

In order to align theinterests of our directors and management with those of our shareholders, wehave adopted a variety of stock option and stock incentive plans.

 

*ARCADISN.V. 1994 Incentive Plan and ARCADIS N.V. 1996 Incentive Plan*

 

When we merged with Geraghty &Miller, Inc. in 1993, we adopted, and later expanded, Geraghty &Miller’s existing stock option plans for our employees based in the UnitedStates. This group of plans includes the following plans: 1987 Stock OptionPlan, 1988 Stock Option Plan, Reed Option Plan, 1989 Stock Option Plan, 1991Stock Option Plan, ARCADIS 1994 Incentive Plan and ARCADIS 1996 Incentive Plan.

 

Under these plans, ourSupervisory Board is authorized to grant up to 1,370,000 shares of our commonshares to our employees based in the United States. Options granted under theseplans are exercisable for up to ten years and vest at various times.

 

*2001**ARCADIS**N.V. Long-Term Incentive Plan*

 

The objectiveof the 2001 ARCADISN.V. Long-Term Incentive Plan and the accompanying grant of awards to employeesand board members is to strengthen such persons ties with ARCADIS and topromote the success, and enhance the value, of ARCADIS, by linking the personalinterests of its employees and members of the Executive Board to those of theARCADIS shareholders.  The total numberof shares reserved and available for issuance pursuant to awards granted underthe plan is 2,500,000.  The plan authorizesthe Supervisory Board to grant awards to senior employees, board members ofARCADIS N.V. and its subsidiaries, and key officials of newly acquiredcompanies, within the framework of their entry into 

 

39

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employment with ARCADIS, in any of thefollowing forms: options, stock appreciation rights, incentive shares, andrestricted shares.

 

*ARCADISN.V. 1994 Employee Stock Purchase Plan*

 

This plan permitted ouremployees based in the United States to purchase up to 230,000 shares of ourcommon shares at a discount of 10% from the market price. The plan is notcurrently in use and was replaced by the ARCADIS N.V. 2002 Employee StockPurchase Plan. This Plan currently permits participation by the employees inthe United States, the Netherlands, Germany and Belgium.

 

*ARCADISN.V. 2002 Employee Stock Purchase Plan*

 

This plan was adopted incooperation with the Lovinklaan Foundation. Pursuant to this plan, ouremployees based in the United States, the Netherlands, Germany and Belgium canpurchase shares of our common shares from the foundation for a discountdepending on the local laws and regulations.

 

**Options Granted**

 

The followingtable provides aggregate information for all options granted pursuant to ouroption plans through 2004:

 
| **Option plan year** | ** ** | **Granted**   | ** ** | **Exercise  price** | ** ** | **Cancelled** | ** ** | **Exercised** | ** ** | **Outstanding** | ** ** | **Expiration** | ** ** |
|----------------------|------------|---------------|------------|---------------------|------------|---------------|------------|---------------|------------|-----------------|------------|----------------|------------|
| 1994                 |       | 92,868        |       | $                   | 9.50       |          | 54,628     |          | 38,240     |            | 0          |           | 1/4/04     |   |
|                 |       | 10,000        |       | $                   | 11.00      |          | 0          |          | 10,000     |            | 0          |           | 9/15/04    |   |
|                 |       | 159,750       |       | $                   | 11.00      |          | 92,050     |          | 67,700     |            | 0          |           | 9/22/04    |   |
|                 |       | 20,000        |       | $                   | 8.50       |          | 0          |          | 20,000     |            | 0          |           | 5/1/06     |   |
|                 |       | 98,622        |       | $                   | 9.13       |          | 64,906     |          | 33,716     |            | 0          |           | 3/26/06    |   |
|                 |       | 51,878        |       | $                   | 9.13       |          | 35,752     |          | 15,584     |            | 542        |           | 3/26/06    |   |
|                 |       | 10,000        |       | $                   | 10.63      |          | 0          |          | 10,000     |            | 0          |           | 8/19/06    |   |
|                 |       | 74,500        |       | $                   | 9.13       |          | 34,442     |          | 19,100     |            | 20,958     |           | 3/26/06    |   |
| 1996                 |       | 99,695        |       | $                   | 11.50      |          | 38,000     |          | 25,500     |            | 36,195     |           | 4/1/08     |   |
|                 |       | 305           |       | $                   | 11.50      |          | 0          |          | 0          |            | 305        |           | 4/1/08     |   |
|                 |       | 82,500        |       | $                   | 6.75       |          | 22,770     |          | 31,810     |            | 27,920     |           | 3/17/09    |   |
|                 |       | 11,374        |       | $                   | 8.25       |          | 0          |          | 11,374     |            | 0          |           | 7/1/09     |   |
|                 |       | 3,626         |       | $                   | 8.25       |          | 0          |          | 3,626      |            | 0          |           | 7/1/09     |   |
|                 |       | 122,123       |       | $                   | 6.75       |          | 25,400     |          | 28,395     |            | 68,328     |           | 5/17/10    |   |
|                 |       | 6,627         |       | $                   | 6.75       |          | 0          |          | 2,605      |            | 4,022      |           | 5/17/10    |   |
|                 |       | 110,937       |       | $                   | 8.00       |          | 31,000     |          | 12,890     |            | 67,047     |           | 5/23/11    |   |
|                 |       | 7,813         |       | $                   | 8.00       |          | 0          |          | 3,810      |            | 4,003      |           | 5/23/11    |   |
|                 |       | 31,779        |       | $                   | 9.44       |          | 0          |          | 14,217     |            | 17,562     |           | 6/14/12    |   |
|                 |       | 3,221         |       | $                   | 9.44       |          | 0          |          | 2,147      |            | 1,074      |           | 6/14/12    |   |
|                 |       | 10,000        |       | $                   | 10.25      |          | 0          |          | 0          |            | 10,000     |           | 5/9/13     |   |
|                 |       | 60,000        |       | $                   | 11.50      |          | 1,400      |          | 0          |            | 58,600     |           | 6/13/13    |   |
|                 |       | 30,000        |       | $                   | 8.70       |          | 0          |          | 0          |            | 30,000     |           | 8/18/13    |   |
|                 |       | 6,616         |       | $                   | 11.85      |          | 0          |          | 0          |            | 6,616      |           | 6/13/13    |   |
|                 |       | 13,232        |       | $                   | 11.85      |          | 0          |          | 0          |            | 13,232     |           | 6/13/13    |   |
|                 |       | 787           |       | $                   | 9.86       |          | 0          |          | 0          |            | 787        |           | 5/9/13     |   |
|                 |       | 1,573         |       | $                   | 9.86       |          | 0          |          | 1,573      |            | 0          |           | 5/9/13     |   |
|                 |       | 242           |       | $                   | 8.75       |          | 0          |          | 0          |            | 242        |           | 8/18/13    |   |
|                 |       | 7,623         |       | $                   | 8.75       |          | 0          |          | 5,243      |            | 2,380      |           | 8/18/13    |   |
|                 |       | 1,257         |       | $                   | 9.33       |          | 0          |          | 0          |            | 1,257      |           | 5/7/13     |   |
|                 |       | 2,511         |       | $                   | 9.33       |          | 0          |          | 2,511      |            | 0          |           | 5/7/13     |   |
|                 |       | 1,088         |       | $                   | 10.06      |          | 0          |          | 0          |            | 1,088      |           | 8/8/13     |   |
|                 |       | 30,800        |       | $                   | 10.19      |          | 0          |          | 8,000      |            | 22,800     |           | 10/16/13   |   |
|                 |       | 2,136         |       | $                   | 11.80      |          | 0          |          | 0          |            | 2,136      |           | 12/31/13   |   |
|                 |       | 7,864         |       | $                   | 11.80      |          | 0          |          | 0          |            | 7,864      |           | 12/31/13   |   |
|                 |       | 1,456         |       | $                   | 13.70      |          | 0          |          | 0          |            | 1,456      |           | 6/29/14    |   |
|                 |       | 4,525         |       | $                   | 14.00      |          | 0          |          | 0          |            | 4,525      |           | 9/24/14    |   |
|                 |       | 5,200         |       | $                   | 14.29      |          | 0          |          | 0          |            | 5,200      |           | 10/15/14   |   |
|                 |       | 8,000         |       | $                   | 14.60      |          | 0          |          | 0          |            | 8,000      |           | 11/03/14   |   |
|                 |       | 30,000        |       | $                   | 15.00      |          | 0          |          | 0          |            | 30,000     |           | 11/03/14   |   |
| 2001                 |       | 195,000       |       | €              | 9.20       |          | 5,000      |          | 70,000     |            | 120,000    |           | 5/23/11    |   |
|                 |       | 254,100       |       | €              | 10.79      |          | 54,900     |          | 0          |            | 199,200    |           | 5/22/12    |   |
|                 |       | 9,000         |       | €              | 8.50       |          | 0          |          | 0          |            | 9,000      |           | 8/9/12     |   |
|                 |       | 290,250       |       | €              | 8.93       |          | 36,000     |          | 0          |            | 254,250    |           | 5/16/13    |   |
|                 |       | 230,779       |       | €              | 8.50       |          | 10         |          | 0          |            | 230,769    |           | 10/16/13   |   |
| **Total**            | ** ** | **2,201,657** | ** ** | ** **          | ** ** | **496,258**   | ** ** | **438,041**   | ** ** | **1,267,358**   | ** ** | ** **     | ** ** |

 

40

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**ITEM 7. ****MAJORSHAREHOLDERS AND RELATED PARTY TRANSACTIONS**

 

**A. Major****shareholders.**

 

**Common Shares**

 

We are notdirectly or indirectly owned or controlled by another corporation or agovernmental entity. The total number of outstanding common shares as of March 31,2005 is 20,280,000.  Of our total numberof outstanding shares, 1,886,034 are traded on the Nasdaq National Market. Thenumber of record holders in the United States is 119.

 

The followingtable lists any person/entity who has notified us that he is the owner of morethan five percent of our outstanding common shares as of March 31, 2005.These shareholders do not receive any preferential voting rights.

 
| **Identity of Person or Group**                                                     | ** ** | **Percent of  Class** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------|------------|
| Delta Deelnemingen Fonds                                                            |       | 5.2                   | %          |
| First Eagle  Funds                                                                  |       | 10.3                  |       |
| Fortis N.V.                                                                         |       | 5.8                   |       |
| Koninklijke Nederlandsche Heidemaatschappij (a)                                     |       | 6.2                   |       |
| Smoorenburg B.V.                                                                    |       | 5.1                   |       |
| Stichting Lovinklaan (b)                                                            |       | 21.3                  |       |
| Members of  our Executive Board, Supervisory Board and other Executive Officers (c) |       |                  | *          |

 

----

*              Lessthan 1%.

 

(a)           KoninklijkeNederlandsche Heidemaatschappij (KNHM) is an independent non-profit associationdedicated to environmental awareness and education.  KNHM is governed by a board of trusteescomposed of 12 members. ARCADIS N.V. has the right to nominate one boardmember.

 

(b)           StichtingLovinklaan currently has five directors. The directors are elected by and fromour Dutch staff members. None of the directors are members of our SupervisoryBoard or Executive Board.  StichtingLovinklaan has agreed not to dispose of or pledge 4,000,000 shares of ourcommon shares that it holds without the prior approval of the holder of theARCADIS Priority Shares (Stichting Prioriteit ARCADIS N.V.). StichtingLovinklaan funds the ARCADIS N.V. 2002 Employee Stock Purchase Plan, which iscurrently operational in the Netherlands, Belgium, Germany and the UnitedStates. In 2005 the ARCADIS N.V. 2002 Employee Stock Purchase Plan will also beintroduced to employees in our French subsidiary.

 

(c)           Certainmembers of our Supervisory Board, Executive Board, our Corporate Directors andSenior Management Committee own our common shares. The number of shares listedonly reflects those shares owned directly.

 

In 2001,Luplan Holding B.V. sold its 6.6% stake in ARCADIS.  In 2001, Delta Deelnemingen Fonds reported ithad acquired 5.17% of our shares. In 2002, KNHM brought down its ownership from11.1% to 6.2% in pursuit of portfolio diversification.  In 2002, Fortis N.V. reduced its holdings inARCADIS from 9.89% to 6.6% at year-end, as its larger position was the resultof a merger with another fund.  In 2003,Smoorenburg B.V. reported that it had acquired a 5.08% position in our outstandingstock.  In 2004,****FirstEagle Funds reported that it had acquired a 10.2% position in our outstandingstock, while Stichting Lovinklaan reported that it had reduced its position to21.3% from our outstanding stock.

 

41

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**Priority Shares**

 

All 200 of ourpriority shares are owned by Stichting Prioriteit ARCADIS N.V., a priorityshare foundation which has 20 directors. To take action, the affirmative voteof 12 of the directors is required. Seven of the directors are members of ourSupervisory Board, three are members of our Executive Board, and ten areARCADIS employees who have been elected to serve as directors of the BellevueFoundation (a Foundation representing our international staff members). StichtingPrioriteit ARCADIS N.V. has committed not to dispose of the priority sharesexcept in the event of dissolution, which is an event that must be approved bythe directors.

 

**Cumulative PreferredShares**

 

In 1995 theFoundation Preferred Stock ARCADIS N.V. was established. The Foundation has asits objective the protection and promotion of the interests of ARCADIS and itsaffiliated companies and all parties involved, particularly to protect ARCADISfrom any hostile takeover attempts by another entity.  The cumulative preferred shares will only beissued to the Foundation Preferred Stock ARCADIS N.V. in the event that ARCADISis threatened by a hostile takeover.  Inorder to achieve this, the Foundation has been granted the right to acquire ourcumulative preferred shares up to a maximum equal to the number of outstandingshares issued at the date in question. Additionally, Our Supervisory Board hasthe right to issue the same number of preferred shares to the Foundation.

 

The board ofthis Foundation consists of four persons who all qualify as independentaccording to Dutch regulations, to be appointed by our Executive Board. At theend of 2004 no cumulative preferred shares were outstanding.

 

**CumulativeFinancing Preferred Shares**

 

Our Articlesof Association authorize the issuance of cumulative financing preferredstock.  As of March 31, 2005, nocumulative financing preferred stock have been issued.

 

**Change in Control**

 

We do not knowof any arrangements, other than those referred to above, which may result in ourchange of control.

 

**B.  *Relate******d party transactions.***

 

There havebeen no material transactions during our most recent fiscal year, nor are therepresently any proposed material transactions to which we or any of oursubsidiaries is a party and in which any member of our Supervisory Board orExecutive Board or any relative or spouse thereof had or will have a direct orindirect material interest. On December 30, 2002, the Foundation PensionFund ARCADIS received a EUR 5.0 million subordinated loan from StichtingLovinklaan, a 21% shareholder. The loan was granted to provide additionalequity to the Foundation Pension Fund ARCADIS the reserves of which haddecreased due to the decreased value of its investments in the stock market.The loan matures on December 30, 2007 and bears interest at a rate that isadjusted annually. The interest rate for 2004 was 4.245%.

 

During ourmost recent fiscal year, there has been no, and at present there is no,outstanding indebtedness to us owed or owing by any member of our SupervisoryBoard or Executive Board.

 

**C.  *Intere******sts of experts and counsel***

 

NotApplicable.

 

**ITEM 8.**** FINANCIALINFORMATION**

 

**A.  *Cons******olidated Financial Statements andOther Financial Information.***

 

Our auditedconsolidated financial statements and audit report are included pursuant toItem 18 of this document.

 

42

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**Export Sales**

 

Export salesdo not constitute a significant portion of our total sales volume.

 

**Legal or ArbitrationProceedings**

 

As wepreviously disclosed in our Annual Report on Form 20-F for the year ended December 31,2003, we determined as a result of both parliamentary and internalinvestigations that one of our Dutch operating companies, ARCADISPlanrealisatie B.V., was not operating entirely in compliance with the Dutchcompetition rules and regulations with regards to bidding for projects inthe contracting sector.  The portion ofour contracting activities awarded through public bids representedapproximately 1% of our total gross revenues. During 2002 and 2003, the DutchCompetition Authority investigated one specific case of possible involvement byARCADIS Planrealisatie B.V. in connection with the construction of syntheticathletic tracks in the Netherlands from 1998 to 2000.  The Dutch Competition Authority released itsreport, indicating that ARCADIS Planrealisatie B.V. was guilty of violatingcompetition laws, and on December 19, 2003, fined ARCADIS PlanrealisatieB.V. € 369,000. This fine was paid in 2004.

 

When the Dutchgovernment, on the basis of new reports of fraud, called upon companies toprovide openness, we cooperated fully. The information gathered in this investigation, as well as the outcomeof the internal investigation conducted in 2002, was given to the DutchCompetition Authority on April 29, 2004, which in the second half of 2004has lead to a business wide investigation by the Dutch Competition Authority oninfringements of competition laws in relation to infrastructure projects. In March 2005,ARCADIS Planrealisatie, together with approximately 450 other competitors, wasdeclared guilty by the Dutch Competition Authority for violation of thecompetition laws in infrastructure projects performed in 2001.  ARCADIS Planrealisatie has not objected andthe fine of € 220,000 has been paid.

 

This issue hasbeen intensely deliberated over by the Supervisory Board and others at ARCADIS.Internally, in 2002 all those involved were told irrefutably that we wouldconduct our business within the confines of laws and regulations. A decisionwas made to cease those contracting activities acquired by public bidding inwhich price is the sole determination for project award. In addition, we implementedworldwide a code of ethics, referred to as the ARCADIS General BusinessPrinciples, which helps ensure that our business operations are conducted in atransparent manner. See Item 16B for further discussion regarding the ARCADISGeneral Business Principles.

 

From time totime, we are involved in routine litigation. We believe that the outcome ofcurrent and pending litigation will not have a material effect on our financialcondition, results of operations or cash flows.

 

**Policy on DividendDistribution**

 

Our dividend policy aims to provide ourshareholders with an attractive and stable return on their investment while, atthe same time, providing us with the cash necessary to finance further growthof our business. We aim to make an annual dividend payment ranging from 30% to40% of our income from operations as reported under Dutch GAAP, although ourdividend for 2004 is equal to 43% of our income from operations.  An important consideration is that thestrategy of the company is focused on growth, partly through acquisitions. Thedividend policy is designed to offer shareholders an attractive dividend yield,while at the same time leaving us sufficient resources to finance growth.

 

**B.  *Sign******ificantchanges.***

 

Since December 31,2004, no significant changes in our financial condition have occurred. Our mostrecently issued interim financial statements were included with our FirstQuarter Report for 2005, which was published on May 3, 2005 and wasfurnished on a Form 6-K on May 4, 2005.  Since the end of our first quarter of 2005,no significant changes in our financial condition have occurred.

 

**ITEM 9****.  THE OFFER ANDLISTING**

 

**Markets**

 

Our commonshares are traded on the Nasdaq National Market under the symbol “ARCAF” andare traded on the Amsterdam Stock Exchange under the symbol “ARCAD.”

 

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**Stock PriceInformation**

 

The followingtable sets forth the high and low closing prices for our common shares tradedon the Nasdaq National Market and on the Amsterdam Stock Exchange since 2000:

 
| ** **           | ** ** | **Nasdaq National Market ($)** | ** ** | **Amsterdam Stock Exchange (€)** | ** ** |
|----------------------|------------|--------------------------------|------------|---------------------------------------|------------|
| ** **           | ** ** | **High**                       | ** ** | **Low**                               | ** ** | **High** | ** ** | **Low** | ** ** |
| **Period**           | ** ** | ** **                     | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| 2000                 |       | 8.00                           |       | 6.13                                  |       | 9.10 |   | 7.00 |   |
| 2001                 |       | 8.88                           |       | 7.31                                  |       | 9.75 |   | 8.00 |   |
| 2002                 |       | 10.35                          |       | 8.00                                  |       | 11.19 |   | 7.94 |   |
| **2003**             |       |                           |       |                                  |       |   |   |   |   |
| 1st  Quarter         |       | 8.80                           |       | 6.42                                  |       | 8.75 |   | 6.43 |   |
| 2nd  Quarter         |       | 10.75                          |       | 6.51                                  |       | 10.50 |   | 6.43 |   |
| 3rd  Quarter         |       | 9.14                           |       | 7.18                                  |       | 9.00 |   | 7.58 |   |
| 4th  Quarter         |       | 9.37                           |       | 7.66                                  |       | 9.34 |   | 7.95 |   |
| **2004**             |       |                           |       |                                  |       |   |   |   |   |
| 1st  Quarter         |       | 13.00                          |       | 11.65                                 |       | 10.44 |   | 9.40 |   |
| 2nd  Quarter         |       | 14.68                          |       | 12.10                                 |       | 12.02 |   | 10.30 |   |
| 3rd  Quarter         |       | 14.90                          |       | 13.23                                 |       | 12.00 |   | 10.92 |   |
| 4th  Quarter         |       | 18.70                          |       | 14.29                                 |       | 13.75 |   | 11.45 |   |
| **Last Six  Months** |       |                           |       |                                  |       |   |   |   |   |
| October 2004    |       | 15.00                          |       | 14.29                                 |       | 12.00 |   | 11.45 |   |
| November 2004   |       | 16.23                          |       | 14.62                                 |       | 12.28 |   | 11.50 |   |
| December 2004   |       | 18.70                          |       | 16.05                                 |       | 13.75 |   | 12.10 |   |
| January 2005    |       | 18.35                          |       | 16.78                                 |       | 14.00 |   | 13.08 |   |
| February 2005   |       | 21.15                          |       | 18.45                                 |       | 16.15 |   | 14.50 |   |
| March 2005      |       | 21.70                          |       | 19.40                                 |       | 16.58 |   | 14.98 |   |

 

As of March 31,2005, approximately 9% of our outstanding common shares were listed on theNasdaq National Market and we had 119 holders in the United States.

 

**ITEM 10****.  ADDITIONALINFORMATION**

 

**A.  *Shar******e capital.***

 

Notapplicable.

 

**B.  *Memoran******dum and articles of association.***

 

ARCADIS is apublic limited company established under the laws of the Netherlands inaccordance with Book 2 of Dutch Civil Law. Our shareholders at a SpecialGeneral Meeting of Shareholders adopted our Articles of Association on June 5,2003.  The following is a summary of ourArticles of Association, which were filed as Exhibit 1.1 to our AnnualReport on Form 20-F for the year ended December 31, 2003 and isincorporated herein by reference, and such summary is qualified in its entiretyby reference thereto.

 

**Purpose**

 

Article 2of our Articles of Association describes our purpose, which is to participateand otherwise acquire an interest in other companies and enterprises, ofwhatever nature, to conduct the management of such companies and enterprises,and to finance third parties and to furnish security in any manner or bindourselves for the obligations of third parties and, finally, to do all suchthings as may be incidental or conducive to the attainment of any of theforegoing.

 

**Management**

 

ARCADIS ismanaged by our Supervisory Board and our Executive Board.  The members of the Supervisory Board and ourExecutive Board are elected by the holders of our common shares.  The members of our Executive Board arerequired to retire at the close of the Annual General Meeting of Shareholdersheld in the financial year in which they attains the age of sixty-

 

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five years, unless the Supervisory Boardexpressly decides otherwise with respect to the member.  Our Supervisory Board members do not have amandatory retirement age.

 

**Capital and Shares**

 

Our authorizedshares consist of (1) 40,000,000 ordinary shares, each with a € 0.05 parvalue, (2) 50,000,000 cumulative preference shares, each with a € 0.05 parvalue, (3) 10,000,000 cumulative financing preference shares, each with a€ 0.05 par value, subdivided into four series, numbered 1 to 4, each seriesconsisting of 2,500,000 shares; and (4) 200 priority shares, each with a €0.05 par value.

 

The 200priority shares are held by the Stichting Prioriteit ARCADIS N.V., afoundation. Major corporate decisions require prior approval from the holder ofthese priority shares, including the issuance, acquisition, or disposal ofshares of ARCADIS, amendments to our Articles of Association, the dissolutionof ARCADIS, filing for bankruptcy, entering a joint venture of a material size,and material investments or acquisitions. The Board of Stichting PrioriteitARCADIS N.V. has 20 members, including 10 members from our Executive andSupervisory Boards and 10 representatives elected by and from our employees. Inorder to approve any action requiring approval of the holder of the priorityshares, a 60% absolute majority of the board is required.  This effectively gives our employees theability to veto certain major corporate events. The board meets twice a year todiscuss the strategic development of ARCADIS.

 

Our Articlesalso permit us to issue shares of cumulative financing preferred stock.  As of March 31, 2005, there are noshares of cumulative financing preferred stock outstanding.  At our 2005 Annual General Meeting ofShareholders, however, our shareholders approved a proposal authorizing ourSupervisory Board to issue common shares and cumulative financing preferredshares in an amount equal to 10% of our common shares and/or equal to theamount of cumulative financing preferred stock outstanding as of the date ofthe resolution adopted by the Supervisory Board to issue the shares.  The amount of shares to be issued may beincreased by an additional 10% when the issuance of shares relates to theconsideration to be given in a merger or acquisition.

 

At our 2005Annual General Meeting of Shareholders, our shareholders approved a proposalauthorizing our Supervisory Board to issue shares of cumulative preferredstock, up to a maximum amount equal to 100% of our total capital stock issuedand outstanding as of the date of the resolution adopted by the SupervisoryBoard to issue the shares. This stock will serve to limit any hostile takeoverattempt by another entity. These shares would only be issued if we arethreatened by a hostile takeover. In such an event, the shares would be issuedto Stichting Preferente Aandelen ARCADIS N.V.

 

**Dividends**

 

Our ExecutiveBoard, subject to the approval of our Supervisory Board, determines the amountof profits set aside as reserves. The Annual General Meeting of Shareholdersdetermines the amount of profit remaining which can be distributed as adividend to the holders of the common shares. The priority shares are entitled,to the extent possible, to receive 5% of the nominal amount per priority sharebefore the holders of our common shares receive any dividend payment. Thepriority shares are not entitled to any further distribution.

 

**Liquidation**

 

If there is aliquidation, the holders of the outstanding priority shares will be entitled toa distribution before the holders of the outstanding common shares.

 

**Repurchase of Shares**

 

Our Articlesauthorize the Executive Board to repurchase shares of our capital stock ifcertain conditions are met. The Supervisory Board and our shareholders mustauthorize such a repurchase. The authorization must specify the number ofshares that may be repurchased, the manner in which they shall be acquired andthe price ranges at which they may be repurchased. Our shareholders approved aproposal to permit our Executive Board to repurchase shares of our capitalstock at our 2005 Annual General Meeting of Shareholders.

 

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**Meetings of Shareholders**

 

Our Articlesrequire us to have an Annual General Meeting of Shareholders before the firstof July of each year. The Dutch Civil Law also requires us to hold ameeting of our shareholders each year. Any person who is a shareholder on thedate of the annual meeting is entitled to attend and vote at the annualmeeting. Extraordinary meetings are held upon the adoption of a resolution byour Executive Board or Supervisory Board. Additionally, shareholders holding atleast 10% of our issued capital may also call extraordinary meetings ofshareholders.

 

**C.  *Material******contracts.***

 

Our option andshare purchase plans are described above in Item 6.E. Otherwise, we have notentered into any material contracts, other than contracts entered into in theordinary course of business.

 

**D.  *Exchang******e controls.***

 

There arecurrently no Netherlands laws, decrees or regulations that restrict the exportor import of capital and there are no exchange control restrictions onremittances of dividends imposed by law on dividends, interest or otherpayments to non-resident holders of our common shares.

 

There arecurrently no limitations on the right of non-resident or foreign owners to holdor vote our common shares imposed by the Netherlands law or by our Articles ofAssociation or other constituent documents.

 

**E.  *Taxatio******n.***

 

**Netherlands Taxation**

 

The following is a summaryof Netherlands tax consequences to an owner of our common shares who is not, oris not deemed to be, a resident of The Netherlands or has not opted to betreated as a resident of The Netherlands for purposes of the relevant tax codes(a “non-resident Shareholder”). The summary does not address taxes imposed byThe Netherlands and its political subdivisions, other than the transfer tax,dividend withholding tax, individual income tax, corporate income tax, netwealth tax, and gift and inheritance tax.

 

***TransferTax***

 

No value added tax, stamp,documentary or registration duty or similar charge, will be imposed under thelaws of The Netherlands upon execution, delivery, transfer, combination orsplit-up of our common shares.

 

***DividendWithholding Tax***

 

To the extent that cashdividends are distributed by ARCADIS, such dividends would be subject underNetherlands tax law to withholding tax at a rate of 25%.

 

Dividends include:

 

•      distributions in cash or in kind, includingdeemed and constructive distributions;

 

•      liquidation proceeds on redemption of ourcommon shares in excess of the average paid-in capital as recognized forNetherlands dividend withholding tax purposes and, as a rule, the considerationfor the repurchase of the our common shares by us in excess of the averagepaid-in capital recognized for Netherlands dividend withholding tax purposes,unless such repurchase is (a) for temporary investment or (b) exempton the basis of the Dividend Tax Act 1965;

 

•      the par value in respect of the issue of ourcommon shares to a holder of our common shares, or an increase in the par valueof our common shares, in exchange for a lower consideration, except where theissue or increase is funded out of our paid-in capital as recognized forNetherlands dividend withholding tax purposes; and

 

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•      partial redemption of our common shares tothe extent this constitutes a repayment of contributed capital (as understoodunder the Dividend Tax Act 1965), and to the extent we have net profits (asthat expression is understood for Netherlands dividend withholding taxpurposes), unless our common shareholders have resolved in a general meeting tomake such repayment, and the par value of our common shares concerned has beenreduced by a corresponding amount by way of an amendment of the Articles ofAssociation.

 

Holders of our common sharesresiding outside The Netherlands may be entitled to a full or partial exemptionfrom or refund of Netherlands dividend withholding tax under an applicabledouble taxation convention depending on its terms and conditions and subject tocompliance by the shareholder with those terms and conditions.

 

Holders of our common sharesresiding in the United States may be entitled to a reduction of Netherlandsdividend withholding tax, in general to a Netherlands dividend withholding taxof 15%, under the double tax convention between The Netherlands and the UnitedStates with respect to income (the “Treaty”) subject to compliance by suchshareholders with the applicable terms and conditions of the Treaty. Generally,a holder of our common shares will qualify for benefits under the Treaty(subject to compliance with the procedures for claiming benefits) if theholder:

 

•  isthe beneficial owner of the dividends paid;

 

•  isresident in the United States according to the Treaty;

 

•  doesnot hold our common shares in connection with the conduct of business in TheNetherlands; and

 

•  isnot restricted in claiming the benefit of the Treaty under article 26(Limitation on Benefits).

 

Dividends paid in respect ofour common shares to an exempt pension trust or similar organization, mayqualify for an exemption from or, as the case may be, a complete refund ofDutch dividend withholding tax under the Treaty, subject to compliance with theapplicable terms and conditions.

 

On November 23,2004, the European Free Trade Association Court of Justice (EFTA Court) issuedits decision in the so-called Fokus Bank case. The EFTA Court decided that theNorwegian tax rules, that treat outbound dividend payments to foreignshareholders less favorably than dividend payments to domestic shareholders,constitute a forbidden restriction on the free movement of capital. It may beexpected that the European Court of Justice (ECJ) will come to an identicaldecision in a similar case if asked to interpret the freedom of capital as laiddown in the EC-Treaty. In this respect we mention that currently a case ispending at the ECJ regarding the compatibility of France’s dividend withholdingtax on outbound dividends with the EC-Treaty. The freedom of capital generally does not only apply to capitalmovements between EU Member States but also to capital movements to and fromthird countries, such as the United States.

 

Although theNetherlands tax system is different from the Norwegian tax system, the decisionof the EFTA Court may have significant implications for certain non-residentshareholders that receive dividends that are subject to Netherlands dividendwithholding tax, or that have received such dividends in the past three years.Especially the following non-resident shareholders may be affected and may as aresult be entitled to refund of Netherlands dividend withholding tax.

 

•      Legalentities that could have invoked the participation exemption with respect tothe dividends received in case they would have been a resident of theNetherlands for tax purposes. In general, the participation exemption appliesin case of shareholdings of 5% or more. In case of a shareholding of less than5% the participation exemption may be applicable if the shares are not held asa mere portfolio investment. In case of legal entities resident in theNetherlands, in effect no Netherlands dividend withholding tax is due withrespect to dividends on shareholdings that apply for the participationexemption.

 

•      Naturalpersons where the shares do not belong to the assets of a business enterpriseor do not belong to a substantial interest. In case such a natural person wouldhave been a resident of the Netherlands, the dividend as such would not besubject to individual income tax. Instead, the individual would be taxed on adeemed income, calculated at 4% of his net equity, whereas the dividend taxwithheld would have been credited in full against the individual income taxdue.

 

The freedom ofcapital movements to and from third countries is generally subject tograndfathering (stand-still) provisions in the EC-Treaty, but based on case lawof the ECJ it may be held that these provisions do not apply in the specificcase of claiming a refund of the Netherlands dividend withholding tax.

 

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Dividend payments can besubject to Dutch dividend-stripping rules. Under these rules, a recipient of adividend is not considered the beneficial owner if it is plausible that:

 

•  therecipient paid consideration (in cash or in kind) in connection with thedividend distribution, and the payment forms part of a sequence oftransactions;

 

•  anindividual or company benefited, in whole or in part, directly or indirectly,from the dividend, where that individual or company is entitled to a lessfavorable relief from dividend withholding tax than the recipient of thedividend distribution; and

 

•  theindividual or company directly or indirectly retains or obtains a position inthe shares, profit rights, or profit sharing bonds that is comparable to itsposition in similar shares, profit rights or profit sharing bonds before thesequence of transactions commenced.

 

The proposed legislationexplicitly states that the term “sequence of transactions” includes cases of asole acquisition of one or more dividend rights and of the establishment ofshort-term rights of enjoyment on shares, while the transferor retainsownership of the shares. The proposed legislation states that the anti-dividend-strippingrules also apply to transactions entered into on the public stock market.

 

***IndividualIncome Tax and Corporate Income Tax***

 

A shareholder that is not aresident nor deemed to be a resident of The Netherlands for Netherlands taxpurposes will not be subject to The Netherlands income tax or corporate incometax in respect of dividends received from, or capital gains realized in respectof a disposal of, our common shares, provided that:

 

•  thecommon shares are not attributable to a business or part of a business of theshareholder that is carried out through a permanent establishment or apermanent representative in The Netherlands (“Netherlands business”);

 

•  theholder of the common shares does not have a substantial interest (a holding ofat least 5% of the share capital) or a deemed substantial interest in us asdefined in the Income Tax Act 2001, or in the event that such holder does havesuch interest, it forms part of the business assets of a business, other than aNetherlands business; and

 

•  inthe case of an individual holder of our common shares, the dividends receivedfrom with respect to our common shares and capital gain realized in respect ofa disposal of our common shares are not regarded, on the basis of the IncomeTax Act 2001, as “taxable income from one or more activities performed in TheNetherlands not being activities that generate taxable profit or taxable wages”.

 

***Gift andInheritance Taxes***

 

No gift or inheritance taxeswill arise in The Netherlands with respect to a gift or inheritance of ourcommon shares from a person who is neither a resident nor deemed to be aresident of The Netherlands, unless:

 

•  suchholder, at the time of the gift has, or at the time of death had, a business oran interest in a business that is or was, in whole or in part, carried outthrough a permanent establishment or a permanent representative in TheNetherlands and to which business or part thereof, as the case may be, thecommon shares are or were attributable; or

 

•  inthe case of a gift of the common shares by an individual who at the date of thegift was neither resident nor deemed to be resident of The Netherlands, suchindividual dies within 180 days after the date of the gift, while at thetime of death being resident or deemed to be resident of The Netherlands.

 

For purposes of Netherlandsgift, estate and inheritance tax, an individual who holds The Netherlandsnationality will be deemed to be resident in The Netherlands if he has been residentin The Netherlands at any time during the ten years preceding the date of thegift or death. For purposes of Netherlands gift tax, an individual not holdingNetherlands nationality will be deemed to be resident in The Netherlands if hehas been resident in The Netherlands at any time during the twelve months 

 

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preceding the date of the gift. Note that courtcases are pending whether the deemed resident stipulations are contrary toEuropean Union-law.

 

**United StatesTaxation**

 

The followingis a summary of certain U.S. federal income tax considerations relevant to thepurchase, ownership and disposition of common shares by a holder that is acitizen or resident of the United States, a corporation organized under thelaws of the U.S. or any state thereof (or Washington, DC), an estate the incomeof which is subject to U.S federal income tax regardless of its source, or atrust if a court within the U.S. is able to exercise primary supervision overits administration and one or more U.S. persons have the authority to controlall substantial decisions of the trust (a “U.S. holder”). This summary does notpurport to be a comprehensive description of all of the tax considerations thatmay be relevant to a decision to purchase common shares. In particular, thissummary deals only with U.S. holders that will hold common shares as capitalassets and does not address the tax treatment of U.S. holders that may besubject to special tax rules, such as banks, tax-exempt entities, insurancecompanies, securities dealers, expatriates, persons that hold common shares aspart of an integrated investment (including a “straddle”) comprised of commonshares and one or more other positions, persons whose functional currency isnot the U.S. dollar, and holders (including indirect and constructiveownership) of 10% or more of our voting shares. In addition, this summary doesnot address any alternative minimum tax or any state, local or non-U.S. taxconsequences. This summary is based on the U.S./NL Income Tax Treaty and thetax laws of the United States, including judicial and administrativeinterpretations, in effect on the date hereof, which are subject to change,potentially retroactively. Except as discussed under “United States Taxation — *Passive Foreign Investment Company Rules*,” this discussionassumes that we are not, and will not become, a passive foreign investmentcompany (“PFIC”).  Prospective purchasersof our common shares should consult their own advisors as to the taxconsequences of the purchase, ownership and disposition of the common shares inlight of their own particular circumstances, including the effect of anyfederal, state, local or other non-U.S. tax laws to which they may be subject.

 

***Taxation of Dividends***

 

Distributionspaid out of our current or accumulated earnings and profits (as determinedunder U.S. federal income tax principles) in respect of our common shares(including the amounts withheld in respect of Dutch withholding tax) generallywill be subject to U.S. federal income taxation as foreign source dividendincome by the U.S. holder. Distributions will not be eligible for the dividendsreceived deduction generally allowed to U.S. corporations. Dividends receivedby non-corporate U.S. holders generally are eligible for a 15% maximum federalincome tax rate through taxable years beginning on or before December 31,2008, so long as certain holding period requirements are met. Dividendsreceived from “qualified foreign corporations” generally qualify for thereduced rate. A non-U.S. corporation (other than a passive foreign investmentcompany) generally will be considered to be a qualified foreign corporation if (1) theshares of the non-U.S. corporation are readily tradable on an established securitiesmarket in the United States or (2) the non-U.S. corporation is eligiblewith respect to substantially all of its income for the benefits of acomprehensive income tax treaty with the United States that contains anexchange of information program. The U.S./NL Income Tax Treaty has beenidentified as a qualifying treaty. Individual U.S. holders should consult theirtax advisors regarding the impact of the provisions of this recent taxlegislation on their particular situations.

 

Subject togenerally applicable limitations and the discussion below, Dutch withholdingtax imposed on dividends at the treaty rate will be treated as a foreign incometax eligible for credit against a U.S. holder’s U.S. federal income taxliability (or, at a U.S. holder’s election, may be deducted in computingtaxable income). Foreign tax credits may not be allowed for withholding taxesimposed in respect of certain short-term or hedged positions in securities orin respect of arrangements in which a U.S. holder’s expected economic profit,after non-U.S. taxes, is insubstantial. Holders should consult their ownadvisors concerning the implications of these rules in light of theirparticular circumstances.

 

Foreign taxcredits are determined based on income in particular limitationcategories.  For these purposes,dividends we pay generally constitute passive income or, in the case of certainholders, financial services income. Recently enacted legislation eliminates the “financial services income”limitation category for taxable years beginning after December 31,2006.  U.S. holders should consult theirtax advisors regarding the availability of, and limitations on, any suchforeign tax credit.

 

We expect tofund dividend distributions on our common shares with dividends received fromour subsidiaries organized outside The Netherlands. Under special Netherlandstax rules applicable to international holding company structures, we willbe entitled in certain circumstances to reduce the amount of taxes that weotherwise would be obliged to pay to the Dutch tax authorities by an amountequal to 3% of the lesser of the dividends that we receive from our foreignsubsidiaries and the net dividends that we pays to our shareholders. There isno authority directly addressing the implications of these special tax rules forthe taxation of dividends paid to U.S. holders. It is possible that the foreigntax credits otherwise allowable for U.S. tax purposes 

 

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in respect of Dutch withholding taxes ondividend income would be reduced by the proportion of the Dutch tax savingrealized by us that is measured by reference to those dividends. We will adviseU.S. holders if we claim the benefit of this reduction in respect of dividendson our common shares.

 

The amount ofthe dividend distribution includible in income of a U.S. holder should be theU.S. dollar value of the foreign currency (e.g. Euro) paid, determined by thespot rate of exchange on the date received, regardless of whether the paymentis in fact converted into U.S. dollars. Generally, any gain or loss resultingfrom currency exchange fluctuations during the period from the date thedividend payment is includible in income to the date such payment is convertedinto U.S. dollars will be treated as ordinary income or loss. Such gain or losswill generally will be income from sources within the United States for U.S.foreign tax credit purposes. Distributions in excess of current accumulatedearnings and profits, as determined for U.S. federal income tax purposes, willbe treated as a non-taxable return of capital to the extent of the U.S. holder’sbasis in the common shares and thereafter as taxable capital gain.

 

***Taxation of Sales of Common Shares***

 

Gains orlosses realized by a U.S. holder on the sale or other disposition of commonshares generally will be treated for U.S. federal income tax purposes ascapital gains or losses and generally will be long-term gains or losses if thecommon shares have been held for more than one year. Long-term capital gainrecognized by a non-corporate U.S. holder before January 1, 2009,generally is subject to federal income taxation at a maximum rate of 15%. Thedeductibility of capital losses is subject to limitations for U.S. federalincome tax purposes. Gain, if any, realized by a U.S. holder on the sale orother disposition of common shares generally will be treated as U.S. sourceincome for U.S. foreign tax credit purposes.

 

***Passive Foreign InvestmentCompany Rules***

 

The rules governing “passive foreigninvestment companies” (PFICs) can have significant tax effects on U.S. holders.We could be classified as a PFIC if, for any taxable year, either (a) 75%or more of our gross income is “passive income”, which generally includesinterest, dividends, certain gains from the sale or exchange of shares orsecurities and some types of rents and royalties, or (b) on average, 50%or more of our assets, by fair market value, or, in some cases, by adjusted taxbasis, produce or are held for the production of “passive income.” We believethat we were not a PFIC for U.S. federal income tax purposes for our 2004taxable year.****However, since PFIC statusdepends upon the composition of a company’s income and assets and the marketvalue of its assets (including, among others, less than 25% owned equityinvestments) from time to time, there can be no assurance that we will not beconsidered a PFIC for any taxable year. If we were treated as a PFIC for anytaxable year during which a U.S. holder held a common share, certain adversetax consequences could apply to the U.S. holder.

 

If we are treated as a PFIC for any taxableyear, gain recognized by a U.S. Holder on a sale or other disposition of acommon share would be allocated ratably over the U.S. holder’s holding periodfor the share. The amounts allocated to the taxable year of the sale or otherdisposition and to any year before we became a PFIC would be taxed as ordinaryincome. The amount allocated to each other taxable year would be subject to taxat the highest rate in effect for individuals or corporations, as appropriate,and an interest charge would be imposed on the amount allocated to such taxableyear. Further, any distribution in respect of our common shares in excess of125% of the average of the annual distributions on shares received by the U.S.holder during the preceding three years or the U.S. holder’s holding period,whichever is shorter, would be subject to taxation as described above. Certainelections may be available (including a mark-to-market election) to U.S.holders that may mitigate the adverse tax consequences resulting from PFICstatus.

 

In addition, if we were to be treated as aPFIC in a taxable year in which it pays a dividend or the prior taxable year,the 15% dividend rate discussed above with respect to dividends paid to certainnon-corporate U.S. holders would not apply.

 

***U.S. Backup Withholding and Information Reporting***

 

A U.S. holdermay be subject to “backup withholding” at the rate of 28% with respect topayments of dividends or proceeds from a sale of common shares, unlessthe holder (1) is a corporation or other “exempt recipient,” anddemonstrates this fact when so required, or (2) provides a correcttaxpayer identification number, certifies that it is not subject to backupwithholding, and otherwise complies with applicable requirements of the backupwithholding rules. Any amount withheld under these rules will becreditable against the U.S. holder’s U.S. federal income tax liability.In addition, a U.S. holder may be subject to information reporting to the IRSwith respect to payment of dividends or proceeds from a sale of common shares.

 

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**F.  *Dividen******d and paying agents.***

 

Notapplicable.

 

**G.  *Statem******ent by experts.***

 

Notapplicable.

 

**H.  *Docum******ents on display.***

 

We willprovide copies of our 2004 annual report in English or Dutch, as requested, andour 2004 annual report on Form 20-F, without charge.  Copies of the exhibits to this 2004 annualreport on Form 20-F are available for a duplication fee.  If an exhibit is not in English, or has notbeen previously translated into English, a summary of such exhibit in Englishwill be provided.  To obtain copies ofthese documents, please contact ARCADIS N.V, Corporate Development Department, P.O. Box33, 6800 LE Arnhem, the Netherlands (tel. +31 26 377 8286), or ARCADIS N.V.,Investor Relations, 88 Duryea Road, Melville, NY 11747, USA(tel. (631) 391-5262).

 

**I.  *Subsidi******ary information.***

 

In accordancewith articles 379, 392 and 414 Book 2 of the Dutch Civil Code, the list ofsubsidiaries is filed with the Chamber of Commerce in Arnhem, theNetherlands.  We have also filed a listof our subsidiaries as an exhibit to this annual report on Form 20-F.

 

**ITEM 11.****  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

**Foreign Exchange Risk**

 

We do asubstantial amount of business in non-Euro countries. The currencies in thesecountries may vary in value against the Euro, posing a possible risk to us.This risk is predominantly limited to a translation risk in that our revenuesand costs are usually in the same currency. Because the economic risk to thecompany is limited, this risk is not hedged. The currency-risk in the balancesheet may lead to a depreciation of the value of certain foreign assets and liabilities,but the net effect of these depreciations on our economic position is limited.

 

There is onlya limited risk that net cash flow, denominated in the currencies in which theoperating companies perform their purchasing and selling activities, will benegatively influenced by exchange rate changes.

 

Financialinstruments are not used to cover the risk associated with the conversion intoEuros of equity and income from foreign operations and non-consolidatedcompanies outside the Euro-zone.

 

**Interest Rate Risk**

 

We manageinterest rate risks by financing fixed assets and part of current assets withshareholders’ equity, provisions and long-term debt. The remainder of currentassets is financed with short-term debt including revolving bank credits withvariable interest rates. Based on our interest risk profile, financialinstruments were not used during 2004 (as well as 2003) to cover the risk. Thisrisk is only applicable to long-term debt and bank overdrafts in our balancesheet (see our Consolidated Balance Sheets included in Item 18) amountingto € 21.8 million at year-end 2004. A movement in interest rate by 100basis points would, based on our financial instruments that are subject tochanges in interest rates, have a negative or positive effect on net income ofless than € 0.2 million.

 

**ITEM 12.****  DESCRIPTION OFSECURITIES OTHER THAN EQUITY SECURITIES**

 

Notapplicable.

 

51

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**PART II**

 

**ITEM 13. ****DEFAULTS,DIVIDEND ARREARAGES AND DELINQUENCIES**

 

Notapplicable.

 

**ITEM 14. ****MATERIALMODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS**

 

Notapplicable.

 

**ITEM 15. ****CONTROLSAND PROCEDURES**

 

(a) *Disclosure Controls and Procedures.* Ourmanagement, including our Chairman and Chief Executive Officer and ourCorporate Director of Finance, has evaluated the effectiveness of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) ofthe United States Securities Exchange Act of 1934, as amended) as of December 31,2004, and concluded that, as of such date, our disclosure controls andprocedures were effective.

 

(b) *Changes in**InternalControl Over Financial Reporting.* There were no changes in our internal controlover financial reporting that occurred during the year ended December 31,2004, that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**ITEM 16. ****[RESERVED]**

 

**ITEM 16A.**** AUDIT COMMITTEEFINANCIAL EXPERT**

 

OurSupervisory Board has determined that Mr. van Tets, one of our SupervisoryBoard Audit Committee members, qualifies as an “audit committee financialexpert” as defined by the United States Securities and ExchangeCommission.  In making thisdetermination, the Supervisory Board took into consideration the experience of Mr. vanTets set out under his biography found in Item 6 of this annual report.

 

**ITEM 16B.**** CODE OF ETHICS**

 

We haveadopted a code of ethics, which is entitled the “ARCADIS General BusinessPrinciples.” This code serves as a guideline for our business decisions andactivities around the world.  The codeapplies to all of our employees, including our principal executive officer,principal financial officer, and principal accounting officer or controller.These principles highlight our commitment to conducting business withintegrity, which is one of our three core values. The ARCADIS General BusinessPrinciples are available on our website located at, www.ARCADIS-global.com.  We intend to disclose any amendmentsor waivers to our code of ethics that are required to be disclosed by postingsuch information on our website, at the address specified above.

 

**ITEM 16C.****  PRINCIPALACCOUNTANT FEES AND SERVICES**

 

*Fees and Services.*  The following table details the aggregatefees billed by our principal accountant, KPMG Accountants N.V., for the lasttwo fiscal years for various services (in thousands):

 
| **Type of Services Provided** | ** ** | **2004** | ** ** | **2003** | ** **  |
|-------------------------------|------------|----------|------------|----------|-------------|
| Audit Fees                    |       | 1,318    |       | €   |  1,004 |   |
| Audit-Related  Fees (a)       |       | 402      |       | 301      |        |
| Tax Fees (b)                  |       | 231      |       | 395      |        |
| All Other  Fees (c)           |       | —   |       | 4        |        |
|                               |            |          |            |          |             |  |

 

----

(a)*           Audit-relatedfees* for the years ended December 31, 2004 and 2003 consist of feesfor services that are traditionally performed by the independent accountants.These services include accounting consultations, internal control reviews onimplementation of information systems, services related to the implementation § 404of the Sarbanes-Oxley Act of 2002 regarding management’s report over internal controlsover financial reporting, and other similar services, consultations concerningfinancial accounting and reporting standard (especially related to thetransition to International Financial Reporting Standards), due diligence andaudits in connection with acquisitions or divestments.

 

52

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(b)*           Taxfees* as of the years ended December 31, 2004 and 2003 consist of feesexpensed for tax planning services and tax advice.

 

(c)*           Allother fees* mainly consist of fees for information systems services andsecurity review, and for reviews and process improvement and advice.

 

*Audit Committee Pre-Approval Policies and Procedures.*  The Audit Committee of our Supervisory Boardhas adopted a charter which details the duties and responsibilities of ourAudit Committee. These duties and responsibilities include, among other things,reviewing and monitoring our financial statements and internal accountingprocedures, approving the scope and terms of audit services to be provided byour independent auditor and monitoring the services provided by our independentauditor. All non-audit services provided by our independent auditor must bepre-approved by our Audit Committee. The Audit Committee will consider whetherthe provision of such services by our auditor is compatible with our auditor’sindependence. The Chairman of our Audit Committee may approve additionalnon-audit services in amounts up to a maximum of € 50,000, but such approvalmust be disclosed to the full Audit Committee at its next meeting.

 

**ITEM 16D.****  EXEMPTIONSFROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.**

 

NotApplicable.

 

**ITEM 16E.****  PURCHASES OFEQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS**

 

**ISSUERPURCHASES OF EQUITY SECURITIES**

 
| ** **          | ** ** | **(a)**                                               | ** ** | **(b)**                                     | ** ** | **(c)**                                                                                                  | ** ** | **(d)**                                                                                                                             | ** ** |
|---------------------|------------|-------------------------------------------------------|------------|---------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Period**          | ** ** | **Total Number of  Shares (or Units)  Purchased (1)** | ** ** | **Average Price Paid per  Share (or Unit)** | ** ** | **Total Number of  Shares (or Units)  Purchased as Part of  Publicly Announced  Plans or Programs** | ** ** | **Maximum Number (or  Approximate Dollar  Value) of Shares or  Units that May Yet Be  Purchased Under the  Plans or Programs** | ** ** |
| January 2004   |       | 500                                                   |       | €                                      |  8.65 |                                                                                                     | —     |                                                                                                                                | —     |   |
| February 2004  |       | —                                                |       | —                                      |       | —                                                                                                   |       | —                                                                                                                              |       |
| March 2004     |       | —                                                |       | —                                      |       | —                                                                                                   |       | —                                                                                                                              |       |
| April 2004     |       | —                                                |       | —                                      |       | —                                                                                                   |       | —                                                                                                                              |       |
| May 2004       |       | —                                                |       | —                                      |       | —                                                                                                   |       | —                                                                                                                              |       |
| June 2004      |       | —                                                |       | —                                      |       | —                                                                                                   |       | —                                                                                                                              |       |
| July 2004      |       | —                                                |       | —                                      |       | —                                                                                                   |       | —                                                                                                                              |       |
| August 2004    |       | —                                                |       | —                                      |       | —                                                                                                   |       | —                                                                                                                              |       |
| September 2004 |       | —                                                |       | —                                      |       | —                                                                                                   |       | —                                                                                                                              |       |
| October 2004   |       | —                                                |       | —                                      |       | —                                                                                                   |       | —                                                                                                                              |       |
| November 2004  |       | —                                                |       | —                                      |       | —                                                                                                   |       | —                                                                                                                              |       |
| December 2004  |       | 11,400                                                |       | $                                           | 18.46      |                                                                                                     | —     |                                                                                                                                | —     |   |

 

----

(1)  All shares purchased were purchased by ARCARDIS N.V. on theopen market.  Our Articles ofAssociation provide that our Executive Board may acquire fully paid-up sharesof our capital stock if: (a) the amount of our shareholders’ equityreduced by the amount paid for the repurchased shares is not less than thepaid-up and issued portion of our share capital increased by the reservesmaintained pursuant to Netherlands law, and (b) the aggregate par value ofthe shares to be acquired and of the shares already held by us or any of oursubsidiaries does not exceed one-tenth (1/10th) of the issued capital.

 

On May 11, 2005, our shareholders approved therepurchase of our shares by the Executive Board and this authorization will bevalid for a term not to exceed 18 months. Our Articles of Associationfurther provide that the authorization to repurchase shares must specify thenumber of shares that may be repurchased, the manner in which they shall beacquired and the price ranges at which they may be repurchased. Noauthorization is required if we repurchase our shares in order to transfer theshares to our employees, such as under our employee stock option plans.

 

53

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The Executive Board is permitted to purchase, for aperiod of 18 months commencing on July 1, 2005, to repurchase, in thediscretion of the Executive Board, any and all of our paid-up shares of capitalstock and any shares of cumulative financing preferred stock, up to the maximumamount authorized under applicable law and our Articles of Association.

 

We may purchase any and all paid-up shares of ourcapital stock on the public markets, or by other means such as a purchasedirectly from a holder of our shares, at a price per share between (a) theshare’s nominal value (€ 0.05 per share) and (b) an amount equal to10% above the average market price of such shares on Euronext Amsterdam N.V.The market price shall be determined based on the average of the highesttrading price per share of our capital stock, as published by the OfficialPrijscourant of Euronext Amsterdam N.V., for each of the 5 trading daysimmediately preceding the day of repurchase by us.

 

Shares of our cumulative financing preferred stockmay be purchased at a price per share between (1) the share’s nominalvalue (€ 0.05 per share) and (2) the amount paid-up as nominal valueand premium (*agio*), increased bythe amount of profit which would have been distributed to the holders of sharesof cumulative financing preferred stock upon redemption of such shares, inaccordance with our Articles of Association.

 

**PART III**

 

**ITEM 17. ****FINANCIALSTATEMENTS**

 

We have elected to report under Item 18.

 

54

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**ITEM 18. ****FINANCIALSTATEMENTS**

 

**INDEXTO FINANCIAL STATEMENTS**

 
| Report of Independent Registered Public  Accounting Firm                                                        |   |   |
|-----------------------------------------------------------------------------------------------------------------|--------|--------|
| Financial Statements:                                                                                           |   |   |
| Consolidated  Balance Sheets as of December 31, 2004 and 2003                                              |   |   |
| Consolidated  Statements of Income for the years ended December 31, 2004, 2003 and  2002                   |   |   |
| Consolidated Statements of Cash Flows for  the years ended December 31, 2004, 2003 and 2002                |   |   |
| Consolidated Statements of Shareholders’  Equity for the years ended December 31, 2004, 2003 and 2002 |   |   |
| Notes to the Consolidated Financial Statements                                                                  |   |   |

 

F-1

----

 

Report of Independent Registered PublicAccounting Firm

 

The Executive Board, Supervisory Board andShareholders of ARCADIS N.V.

 

We have audited the accompanying consolidatedbalance sheets of ARCADIS N.V. and subsidiaries as of December 31, 2004and 2003, and the related consolidated statements of income, stockholders’equity and comprehensive income, and cash flows for each of the years in thethree-year period ended December 31, 2004. These consolidated financial statements are the responsibility of theCompany’s management.  Our responsibilityis to express an opinion on these consolidated financial statements based onour audits.

 

We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance 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 financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, the consolidated financialstatements referred to above present fairly, in all material respects, thefinancial position of ARCADIS N.V. and subsidiaries as of December 31,2004 and 2003, and the results of their operations and their cash flows foreach of the years in the three-year period ended December 31, 2004, inconformity with Netherlands generally accepted accounting principles.

 

Accounting principles generally accepted in theNetherlands vary in certain significant respects from accounting principlesgenerally accepted in the United States of America. Information relating to thenature and effect of such differences is presented in Note 17 to theconsolidated financial statements. As discussed in Note 17, the disclosures ofthe nature and effect of such differences with respect to the years 2003 and2002 have been restated to correct certain errors in the disclosures made inprevious years.

 

 

KPMG Accountants N.V.

 

Utrecht, The Netherlands

 

March 4, 2005

 

F-2

----

 

**ARCADISN.V.**

**CONSOLIDATEDBALANCE SHEETS**

**(inthousands of EUR, except share amounts)**

 
| ** **                                                                                                                                                                         | ** ** | **At December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                                                                                                                         | ** ** | **2004**                 | ** ** | **2003** | ** ** |
| **ASSETS**                                                                                                                                                                         |       |                     |       |   |   |
| ** **                                                                                                                                                                         |       |                     |       |   |   |
| Current  Assets:                                                                                                                                                                   |       |                     |       |   |   |
| Cash and  cash equivalents (Note 4)                                                                                                                                                |       | 48,219                   |       | 31,258 |   |
| Receivables  (Note 5)                                                                                                                                                              |       | 184,807                  |       | 186,813 |   |
| Inventories  (Note 6)                                                                                                                                                              |       | 27,715                   |       | 15,208 |   |
| Other  current assets                                                                                                                                                              |       | 20,616                   |       | 15,321 |   |
|                                                                                                                                                                               |       |                     |       |   |   |
| Total current  assets                                                                                                                                                              |       | 281,357                  |       | 248,600 |   |
|                                                                                                                                                                               |       |                     |       |   |   |
| Property,  plant and equipment (Note 7)                                                                                                                                            |       | 42,328                   |       | 44,872 |   |
| Intangible assets (Note 7)                                                                                                                                                         |       | 53,095                   |       | 41,391 |   |
| Investments  in non-consolidated companies (Note 8)                                                                                                                                |       | 6,238                    |       | 5,281 |   |
| Other  long-term investments                                                                                                                                                       |       | 456                      |       | 1,051 |   |
| Other assets                                                                                                                                                                       |       | 6,991                    |       | 6,059 |   |
|                                                                                                                                                                               |       |                     |       |   |   |
| Total assets                                                                                                                                                                       |       | 390,465                  |       | 347,254 |   |
|                                                                                                                                                                               |       |                     |       |   |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                     |       |                     |       |   |   |
| ** **                                                                                                                                                                         |       |                     |       |   |   |
| Current  Liabilities:                                                                                                                                                              |       |                     |       |   |   |
| Accounts  payable                                                                                                                                                                  |       | 77,472                   |       | 61,482 |   |
| Accrued  expenses                                                                                                                                                                  |       | 5,712                    |       | 7,723 |   |
| Other  current liabilities (Note 9)                                                                                                                                                |       | 99,891                   |       | 81,312 |   |
| Current  portion of long-term debt (Note 10)                                                                                                                                       |       | 20,667                   |       | 2,950 |   |
|                                                                                                                                                                               |       |                     |       |   |   |
| Total  current liabilities                                                                                                                                                         |       | 203,742                  |       | 153,467 |   |
|                                                                                                                                                                               |       |                     |       |   |   |
| Long-term  debt (Note 10)                                                                                                                                                          |       | 12,004                   |       | 29,724 |   |
| Other  long-term liabilities (Note 11)                                                                                                                                             |       | 20,075                   |       | 19,968 |   |
|                                                                                                                                                                               |       |                     |       |   |   |
| Total  liabilities                                                                                                                                                                 |       | 235,821                  |       | 203,159 |   |
|                                                                                                                                                                               |       |                     |       |   |   |
| Minority  Interest                                                                                                                                                                 |       | 8,975                    |       | 7,557 |   |
| Shareholders’  equity (Note 12):                                                                                                                                              |       |                     |       |   |   |
| Priority  shares - EUR 0.05 par value – Authorized, issued and outstanding 200 shares  as of December 31, 2004 and 2003, respectively.                                   |       | —                   |       | — |   |
| Cumulative  Financing preferred stock - EUR 0.05 par value– 10,000,000 shares Authorized.  No shares issued or outstanding at December 31, 2004 and 2003                 |       | —                   |       | — |   |
| Cumulative  preferred stock - EUR 0.05 par value– 50,000,000 shares Authorized. No shares  issued or outstanding at December 31, 2004 and 2003                           |       | —                   |       | — |   |
| Common stock  - EUR 0.05 par value– 40,000,000 shares Authorized. Issued and outstanding  20,308,742 and 20,027,404 shares at December 31, 2004 and 2003,  respectively. |       | 1,030                    |       | 1,022 |   |
| Additional  paid-in capital                                                                                                                                                        |       | 37,644                   |       | 35,985 |   |
| Revaluation  reserve group companies                                                                                                                                               |       |                     |       |   |   |
| Foreign  currency translation adjustment                                                                                                                                           |       | (17,283                  | )          | (13,709 | ) |
| Retained  earnings                                                                                                                                                                 |       | 124,278                  |       | 113,240 |   |
|                                                                                                                                                                               |       |                     |       |   |   |
| Total  shareholders’ equity                                                                                                                                                   |       | 145,669                  |       | 136,538 |   |
| Total  liabilities and shareholders’ equity                                                                                                                                   |       | 390,465                  |       | 347,254 |   |

 

**SeeAccompanying Notes to the Consolidated Financial Statements**

 

F-3

----

 

**ARCADISN.V.**

**CONSOLIDATEDSTATEMENTS OF INCOME**

**(in thousandsof EUR, except share and per share amounts)**

 
| ** **                                                                     | ** ** | **For the years ended December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                     | ** ** | **2004**                                  | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                           |       |                                      |       |   |   |   |   |
| Gross  revenue                                                                 |       | 900,781                                   |       | 840,643 |   | 819,137 |   |
| Materials,  services of third parties and subcontractors                       |       | 268,244                                   |       | 245,221 |   | 241,358 |   |
| Net revenue                                                                    |       | 632,537                                   |       | 595,422 |   | 577,779 |   |
| Operational  cost (Note 14)                                                    |       | 581,675                                   |       | 543,285 |   | 518,913 |   |
| Depreciation                                                                   |       | 15,648                                    |       | 16,118 |   | 15,945 |   |
| Amortization  goodwill and identifiable intangible assets                      |       | 2,558                                     |       | 1,157 |   | 191 |   |
|                                                                           |       |                                      |       |   |   |   |   |
| Operating  income                                                              |       | 32,656                                    |       | 34,862 |   | 42,730 |   |
| Financing  income/(expense) net                                                |       | (3,464                                    | )          | (2,842 | ) | (2,215 | ) |
|                                                                           |       |                                      |       |   |   |   |   |
| Income from  operations before taxes                                           |       | 29,192                                    |       | 32,020 |   | 40,515 |   |
| Taxes on  income (Note 15)                                                     |       | 9,593                                     |       | 11,691 |   | 14,427 |   |
|                                                                           |       |                                      |       |   |   |   |   |
| Income of  consolidated companies from operations, after taxes                 |       | 19,599                                    |       | 20,329 |   | 26,088 |   |
| Income from  non-consolidated companies and long-term investments, after taxes |       | 2,448                                     |       | 2,583 |   | 660 |   |
|                                                                           |       |                                      |       |   |   |   |   |
| Group income  from operations after taxes                                      |       | 22,047                                    |       | 22,912 |   | 26,748 |   |
|                                                                           |       |                                      |       |   |   |   |   |
| Minority  interest                                                             |       | (1,908                                    | )          | (1,544 | ) | (2,080 | ) |
|                                                                           |       |                                      |       |   |   |   |   |
| Net income                                                                     |       | 20,139                                    |       | 21,368 |   | 24,668 |   |
|                                                                           |       |                                      |       |   |   |   |   |
| **Earnings  per share:**                                                       | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic net  income per share of common stock                                    |       | 1.00                                      |       | 1.07 |   | 1.23 |   |
| Diluted net  income per share of common stock                                  |       | 0.99                                      |       | 1.06 |   | 1.22 |   |
| Basic  weighted average number of shares outstanding                           |       | 20,140                                    |       | 20,005 |   | 20,129 |   |
| Diluted  weighted average number of shares outstanding                         |       | 20,417                                    |       | 20,069 |   | 20,198 |   |

 

**See Accompanying Notes to the Consolidated Financial Statements.**

 

F-4

----

 

**ARCADIS N.V.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(in thousands of EUR)**

 
| ** **                                                                         | ** ** | **For the years ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                         | ** ** | **2004**                             | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Cash flow from operating activities**                                            |       |                                 |       |   |   |   |   |
| Net income                                                                         |       | 20,139                               |       | 21,368 |   | 24,668 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                 |       |   |   |   |   |
| Minority interest                                                                  |       | 1,908                                |       | 1,544 |   | 2,080 |   |
| Depreciation and amortization                                                      |       | 18,206                               |       | 17,275 |   | 16,136 |   |
| Income from non-consolidated companies                                             |       | (349                                 | )          | (1,179 | ) | (364 | ) |
| Sale of activities, net of cost                                                    |       | (3,990                               | )          |   |   |   |   |
| Decrease / (increase) of receivables and  other current assets                     |       | (3,087                               | )          | 12,439 |   | (5,116 | ) |
| Decrease / (increase) of inventories                                               |       | (8,731                               | )          | 7,035 |   | 3,368 |   |
| (Decrease) / increase of current  liabilities                                      |       | 18,714                               |       | (5,664 | ) | 6,302 |   |
| (Decrease) / increase of long-term  liabilities                                    |       | 1,964                                |       | 6,308 |   | (1,307 | ) |
|                                                                               |       |                                 |       |   |   |   |   |
| Net cash provided by operating activities                                          |       | 44,774                               |       | 59,126 |   | 45,767 |   |
|                                                                               |       |                                 |       |   |   |   |   |
| **Cash flow used in investing activities**                                         |       |                                 |       |   |   |   |   |
| Investments in property, plant &  equipment and intangible assets              |       | (12,470                              | )          | (18,238 | ) | (14,195 | ) |
| Divestments of property, plant &  equipment and intangible assets              |       | 713                                  |       | 1,449 |   | 932 |   |
| Investments in non-consolidated companies                                          |       | (2,526                               | )          | (4,313 | ) | (4,992 | ) |
| Divestments of non-consolidated companies                                          |       | 1,308                                |       | 1,921 |   | 1,493 |   |
| Investments in consolidated interests, net  of cash acquired                       |       | (14,759                              | )          | (41,768 | ) | (11,247 | ) |
| Divestments of consolidated companies, net  of cash sold                           |       | 8,006                                |       | 549 |   | (36 | ) |
|                                                                               |       |                                 |       |   |   |   |   |
| Net cash used in investing activities                                              |       | (19,728                              | )          | (60,400 | ) | (28,045 | ) |
|                                                                               |       |                                 |       |   |   |   |   |
| **Cash flow used in financing activities**                                         |       |                                 |       |   |   |   |   |
| Exercises of options                                                               |       | 704                                  |       |   |   |   |   |
| Purchase of own shares                                                             |       | (158                                 | )          | (917 | ) | (3,225 | ) |
| Dividends paid                                                                     |       | (10,204                              | )          | (9,754 | ) | (9,322 | ) |
| Proceeds from issuance of common stock                                             |       | 1,727                                |       | 1,214 |   | 112 |   |
| Increase in long-term debt                                                         |       | 3,018                                |       | 7,722 |   | 6,929 |   |
| Repayment of long-term debt                                                        |       | (4,034                               | )          | (5,457 | ) | (1,504 | ) |
| Net change in short-term borrowings and  bank overdrafts                           |       | 2,248                                |       | (10,746 | ) | 3,172 |   |
|                                                                               |       |                                 |       |   |   |   |   |
| Net cash provided by (used in) financing  activities                               |       | (6,699                               | )          | (17,938 | ) | (3,838 | ) |
|                                                                               |       |                                 |       |   |   |   |   |
| Effect of exchange rate differences on cash  balances                              |       | (1,386                               | )          | (2,778 | ) | (4,315 | ) |
|                                                                               |       |                                 |       |   |   |   |   |
| **Cash and cash equivalents:**                                                     |       |                                 |       |   |   |   |   |
| Net increase (decrease) during the year                                            |       | 16,961                               |       | (21,990 | ) | 9,569 |   |
| Balance at beginning of year                                                       |       | 31,258                               |       | 53,248 |   | 43,679 |   |
|                                                                               |       |                                 |       |   |   |   |   |
| Balance at end of year                                                             |       | 48,219                               |       | 31,258 |   | 53,248 |   |

 

**See Accompanying Notes to the ConsolidatedFinancial Statements**

 

F-5

----

 

**ARCADIS N.V.**

**CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY**

**(in thousands of EUR, except per share amounts)**

 
| ** **                                | ** ** | **Priority  Shares** | ** ** | **Common  Shares** | ** ** | **Share  Capital** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Foreign  Currency  translation  adjustment** | ** ** | **Retained  Earnings** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|----------------------|------------|--------------------|------------|--------------------|------------|----------------------------------|------------|------------------------------------------------|------------|------------------------|------------|-----------|------------|
| Balance at  December 31, 2001             |       | 200                  |       | 20,284,441         |       | 1,014              |       | 34,954                           |       | 7,901                                          |       | 89,868                 |       | 133,737   | ** ** |
| Net income                                |       |                 |       |               |       |               |       |                             |       |                                           |       | 24,668                 |       | 24,668    | ** ** |
| Dividends  declared (EUR 0.48 per share)  |       |                 |       |               |       |               |       |                             |       |                                           |       | (8,925                 | )          | (8,925    | )          |
| Issuance of  shares of common stock       |       |                 |       | 12,233             |       |               |       | 112                              |       |                                           |       |                   |       | 112       | ** ** |
| Own share  purchase for granted options   |       |                 |       |               |       |               |       |                             |       |                                           |       | (3,225                 | )          | (3,225    | )          |
| Foreign currency  translation adjustments |       |                 |       |               |       |               |       |                             |       | (11,666                                        | )          |                   |       | (11.666   | )          |
|                                      |       |                 |       |               |       |               |       |                             |       |                                           |       |                   |       |      | ** ** |
| Balance at  December 31, 2002             |       | 200                  |       | 20,296,674         |       | 1,014              |       | 35,066                           |       | (3,765                                         | )          | 102,386                |       | 134,701   | ** ** |
| Net income                                |       |                 |       |               |       |               |       |                             |       |                                           |       | 21,368                 |       | 21,368    | ** ** |
| Dividends  declared (EUR 0.48 per share)  |       |                 |       |               |       |               |       |                             |       |                                           |       | (9,597                 | )          | (9,597    | )          |
| Own share  purchase for granted options   |       |                 |       |               |       |               |       |                             |       |                                           |       | (917                   | )          | (917      | )          |
| Issuance of  shares of common stock       |       |                 |       | 133,703            |       | 8                  |       | 919                              |       |                                           |       |                   |       | 927       | ** ** |
| Foreign currency  translation adjustments |       |                 |       |               |       |               |       |                             |       | (9,944                                         | )          |                   |       | (9,944    | )          |
|                                      |       |                 |       |               |       |               |       |                             |       |                                           |       |                   |       |      | ** ** |
| Balance at  December 31, 2003             |       | 200                  |       | 20,430,377         |       | 1,022              |       | 35,985                           |       | (13,709                                        | )          | 113,240                |       | 136,538   | ** ** |
| Net income                                |       |                 |       |               |       |               |       |                             |       |                                           |       | 20,139                 |       | 20,139    | ** ** |
| Dividends  declared (EUR 0.48 per share)  |       |                 |       |               |       |               |       |                             |       |                                           |       | (9,647                 | )          | (9,647    | )          |
| Own share purchase  for granted options   |       |                 |       |               |       |               |       |                             |       |                                           |       | (158                   | )          | (158      | )          |
| Exercises of  options                     |       |                 |       |               |       |               |       |                             |       |                                           |       | 704                    |       | 704       | ** ** |
| Issuance of  shares of common stock       |       |                 |       | 215,238            |       | 8                  |       | 1.659                            |       |                                           |       |                   |       | 1,667     | ** ** |
| Foreign currency  translation adjustments |       |                 |       |               |       |               |       |                             |       | (3,574                                         | )          |                   |       | (3,574    | )          |
|                                      |       |                 |       |               |       |               |       |                             |       |                                           |       |                   |       |      |       |
| Balance at  December 31, 2004             |       | 200                  |       | 20,645,615         |       | 1,030              |       | 37,644                           |       | (17,283                                        | )          | 124,278                |       | 145,669   |       |

 

**See Accompanying Notes to the Consolidated Financial Statements**

 

F-6

----

 

**NOTES TO THE CONSOLIDATED****FINANCIALSTATEMENTS**

 

**NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**General**

 

ARCADIS N.V. is a public company organized under the laws of theKingdom of The Netherlands. Its principal office is located at: Utrechtseweg68, 6812 AH, Arnhem, the Netherlands. Phone: *31-26-3778911.

 

ARCADIS N.V. and its consolidated subsidiaries (“ARCADIS” or the “Company”),is an international provider of comprehensive knowledge-based consultingservices in the areas of infrastructure, environment and buildings.

 

The Consolidated Financial Statements of ARCADIS have been prepared inaccordance with generally accepted accounting principles in the Netherlands (“NLGAAP” or “Netherlands GAAP”). Note 17 includes a summary of the differencesbetween Netherlands GAAP and U.S. GAAP that have a material effect on netincome and shareholders’ equity. Unless otherwise stated, and except for shareand per share amounts, all amounts are presented in thousands of EUR.

 

**Use ofEstimates in the Preparation of Financial Statements**

 

Management of the Company has made a number of estimates andassumptions relating to the reporting of assets and liabilities and thedisclosure of contingent assets and liabilities to prepare these financialstatements. Actual results could differ from those estimates.

 

Significant estimates in these financial statements include work inprogress, impairment of goodwill and other assets, pensions, provisions forcontingent liabilities, income taxes and allowances for doubtful accountsreceivable.

 

**Principlesof Consolidation**

 

The Consolidated Financial Statements include the accounts of ARCADISand the companies which ARCADIS directly and/or indirectly controls. Allintercompany transactions have been eliminated. On December 31, 1995, theCompany acquired a 50% interest in Grupo EP Eptisa, Spain. The investment isaccounted for on a proportionate basis under NL GAAP, by recording the Company’s50% share of the assets, liabilities and revenues and expense items of Grupo EPEptisa.

 

In 2003, the joint venture ARCADIS Aqumen Facility Management B.V. wasset up. This 50% participation is also accounted for on a proportionate basisunder NL GAAP.

 

**Conversionof Foreign Currencies**

 

Asset andliabilities denominated in foreign currencies are converted into EUR at ratesof exchange on the respective balance sheet dates. For statement of incomedata, amounts in foreign currencies are converted into EUR at the average rateover the respective reporting period. Exchange rate differences are included inincome, except those arising from the translation of shareholders’ equity offoreign entities outside the EUR countries, which are directly added to ordeducted from equity.

 

**Principles of Valuation of Assets and Liabilities**

 

**Goodwill**

 

Goodwill,calculated as the difference between the purchase price of the acquisition andthe equity at fair value of the acquiree, paid in the years up to and including2000 was charged directly to equity. Goodwill paid from

 

F-7

----

 

2001 onward for new acquisitionsis capitalized and amortized on a straight-line basis, based on its estimatedeconomic life. The goodwill is evaluated annually for impairment. Thisevaluation is performed per reporting unit and based on valuation models thatincorporate expected future cash flows and profitability projections. To date,there has been no impairment of these assets.

 

**Intangible fixed assets**

 

Software acquired for internal use is valued at historical cost. Annualdepreciation on a straight-line basis is 20% to 33%, unless software becomesobsolete, in which case the entire book value is written off.

 

**Tangible fixed assets**

 

Real estate is valued at historical cost. The level of annualdepreciation of buildings is determined by the estimated economic life andamounts in general to 3% of the book value at the beginning of the year. Landand rural properties are not depreciated.

 

Furniture andfixtures are valued at historical cost. Historical cost is reduced by annualdepreciation, based on the estimated economic life. For furniture and fixtures,annual depreciation is 12% to 33% of historical cost.

 

**Financial fixed assets**

 

Non-consolidated companies in which ARCADIS has significant influence,are valued at net equity value. Non-consolidated companies in which ARCADISdoes not have significant influence, and long-term receivables are valued atpurchase price. If necessary, a deduction is made for permanent devaluation.

 

**Inventories**

 

Goods for resale, raw materials, and supplies are valued at the lowerof cost or market value on balance sheet date.

 

Work in progress is valued at full cost of the work performed perproject, less advances, and increased by the related share of expected profiton the project, calculated according to the percentage-of-completion method, inwhich the actual full costs are calculated as percentage of the expected costsup to the end of the project. Included in this cost is a systematicallydetermined surcharge for indirect costs. When valuing work in progress,provisions are made for expected losses on current projects, which arecalculated up to the completion of the project. Furthermore, projects for whichno confirmation of order has been received are valued at zero.

 

**Receivables**

 

Outstanding amounts due from customers for deliveries and work performedhave been included under “Receivables’’ and are valued at nominal value, lessprovisions for doubtful debts or for debts which are outstanding for longerperiods than is generally accepted in the respective countries.

 

**Provisions**

 

Provisions are calculated at nominal value, except for provisions forpensions and similar obligations, which in principle are based on actuarialcalculations. Provisions for deferred taxes are based on the timing differencesbetween book value and value for tax purposes of assets and liabilities atcurrently enacted rates.

 

**Others**

 

Other assets and liabilities are stated at nominal value.

 

F-8

----

 

**Method of Determination of Income**

 

**Gross revenue**

 

Gross revenue are the total amounts charged to customers, lesssales-related taxes. To provide a correct presentation of the Company’sactivities, net sales are adjusted for changes in work in progress. The changein work in progress includes the results of the current projects.

 

Revenues and profits on projects are recorded according to thepercentage-of-completion method. Losses, calculated up to the completion of theproject, are recorded as soon as the loss situation is known. The balances ofthe projects on which no confirmation of order has been received are charged toincome.

 

**Materials, services of third parties, andsubcontractors**

 

This amount represents all project- related costs of material andservices charged by third parties including the costs of subcontractors.

 

**Operational cost**

 

All costs in relation to employees, as well as non-project-relatedout-of-pocket expenses are taken into account as operational cost in the yearto which these items relate.

 

**Depreciation**

 

Depreciation of buildings is calculated on the basis of the book valueat the beginning of the year. For software, furniture, and fixtures, the levelof depreciation is determined by the estimated economic life and the historicalcost is taken as the basis.

 

**Identifiable intangible assets and Goodwill**

 

Identifiableintangible assets are amortized on a straight-line basis over the estimatedeconomic life. Up to December 31, 2004, goodwill is amortized over theestimated economic life of the acquisitions and, in principle, is set at 20years.

 

**Taxes**

 

Income taxes comprise both current and deferred taxes. No taxes arecharged to profits to the extent that they can be offset against losses inprior years. Taxes are deducted from losses to the extent that they candefinitely be offset.

 

**Income from non-consolidated companies**

 

The proportionate share in earnings from non-consolidatedparticipations is accounted for in the year these earnings are booked by thoseparticipations. For non-consolidated companies in which ARCADIS does not havesignificant influence, annual dividends received are included in income.

 

**Other**

 

Non-project-related costs, financing income/expenses, and extraordinaryitems are accounted for in the year to which these items relate.

 

F-9

----

 

**Earnings per share**

 

Basic earnings per share are computed using the weighted average numberof ordinary shares outstanding during the period. Diluted earnings per shareare computed using the weighted average number of ordinary shares andexercisable options outstanding during the period, as far as the exercise priceof these options is lower than the share price. The calculations are done byexcluding the number of own shares purchased by the Company to cover grantedoptions.

 

**Net IncomePer Share of Common Stock**

 

The weightedaverage number of shares outstanding, and the weighted average number ofdiluted shares for the years presented were as follows:

 
| **Year** | ** ** | **Priority Shares** | ** ** | **Shares of Common  Stock** | ** ** | **Diluted Number of   Shares of Common   Stock** | ** ** |
|----------|------------|---------------------|------------|-----------------------------|------------|--------------------------------------------------|------------|
| 2004     |       | 200                 |       | 20,140,195                  |       | 20,417,230                                       |       |
| 2003     |       | 200                 |       | 20,005,214                  |       | 20,069,107                                       |       |
| 2002     |       | 200                 |       | 20,129,251                  |       | 20,197,732                                       |       |

 

The dilutednumber of shares is calculated by using the monthly number of optionsoutstanding and the monthly average stock price on the Amsterdam Stock Exchangeand the Nasdaq National Market. Only options with exercise prices below theaverage stock price are taken into account.

 

**NOTE 2.   ACQUISITIONS AND DIVESTMENTS**

 

The following5 companies were acquired in 2004:

 

•    Terence Dudley inthe U.K. specializes in civil engineering and is an addition to the existingenvironmental activities in the English market.

 

•    With theacquisition of the firm Profil in Poland, ARCADIS improved its position in thePolish infrastructure market.

 

•    The acquisitionBessent, Hammack & Ruckman strengthens ARCADIS’ position in the Floridainfrastructure market.

 

•    The acquisitionof Diversity Partners adds program and construction management capabilities inthe U.S, and are marketed under the names Construction Dynamics Group and Lewis& Zimmerman Associates.

 

•    Witpaard is anurban planning company, which strengthens ARCADIS’ position in the municipalmarket in the Netherlands.

 

During 2004 the following interests have been sold (see note 17f):

 

•    KAFIB.V. (The Netherlands)

 

•    MandaatB.V. (The Netherlands)

 

•    InvolonB.V. (The Netherlands)

 

The totalinvestment for acquisitions in 2004 was € 18.3 million, and resultedin goodwill of € 13.3 million. A goodwill amount of EUR3.1 million is expected to be fully deductible for tax purposes.  The goodwill paid in 2004 was assigned asfollows (in millions):

 

F-10

----

 
| **Geographical Area** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|----------|------------|
| The Netherlands       |       | 0.6      |       | 13.5     |       | —   |       |
| United States         |       | 6.9      |       | 12.0     |       | —   |       |
| Europe                |       | 5.2      |       | 3.7      |       | 7.3      |       |
| Other regions         |       | 0.6      |       | 1.7      |       | 0.1      |       |
| Total goodwill paid   |       | 13.3     |       | 30.9     |       | 7.4      |       |

 

There are nocontingent payments to be made in relation to these acquisitions. In theinvestment amount mentioned above, an amount of € 3.5 million has not been paidyet.

 

In 2003, eightcompanies were acquired:

 

•      Fallyin Belgium brings expansion to ARCADIS’ presence in the Walloon provinces. Theacquisition of the firm Domus Nitida, also in Belgium, added expertise in thefield of facility management.

 

•      HomolaProjektmanagement in Germany specializes in project and program management andis an addition to the existing activities in the German market.

 

•      BrazilianTetraplan provides consulting services in the area of ecology and environmentalpolicy to the Brazilian government and strengthens our position in that market.

 

•      Inthe United States, three companies were added; all active in the infrastructuremarket: Finkbeiner, Pettis & Strout, involved in wastewater treatmentand active in Ohio, Michigan, North Carolina and Virginia, and Reese Macon andLawson, Noble & Webb, both active in the growing Floridainfrastructure market.

 

•      Theacquisition of PRC Bouwcentrum in The Netherlands added project management andconsulting capabilities, as well as access to new market segments such ashealth care and education.

 

In 2002,ARCADIS acquired, through its Spanish subsidiary Grupo EP, a 100% interest inCasta S.A. Casta.The total amount paid for this acquisition was EUR 1.7 million, includingapproximately EUR 1.5 million of goodwill. In 2002, ARCADIS also acquired FCInternational SA. The total amount paid for this acquisition was EUR 12million, including EUR 5.8 million of goodwill.

 

Allacquisitions during 2004, 2003, and 2002 were accounted for by the purchasemethod. In 2003 EUR 12.0 million goodwill paid is deductible for tax purposesand in 2004 EUR 3.1 million, while only the goodwill paid on the United Statesacquisitions is tax deductible.

 

F-11

----

 

**NOTE 3.   SEGMENT INFORMATION**

 

**GeographicalArea Information**

 

Presentedbelow is the geographical segmentation which coincides with the Company’sreporting structure. There is almost no differentiation in the type of servicesprovided by the various group companies. Therefore no other segmentationinformation is included. The information presented below illustrates theperformance in the geographical areas in terms of gross revenue, operatingincome, identifiable assets, and expenditures and depreciation with respect toproperty, plant & equipment and intangible assets, and extraordinary items.Financing expenses and taxes on income, among others, are not presented,because the Company manages its segments on an operating income basis.

 
| ** **                                                | ** ** | **The  Netherlands** | ** ** | **Europe** | ** ** | **United  States** | ** ** | **Other  regions** | ** ** | **Intra  group** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------|------------|----------------------|------------|------------|------------|--------------------|------------|--------------------|------------|------------------|------------|------------------|------------|
| **(Amounts in millions of Euros)**                        | ** ** | **2004**             | ** ** | **2003**   | ** ** | **2002**           | ** ** | **2004**           | ** ** | **2003**         | ** ** | **2002**         | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Gross revenue                                             |       | 301.3                |       | 296.2      |       | 297.3              |       | 254.4              |       | 225.9            |       | 183.1            |       | 267.3 |   | 245.6 |   | 255.4 |   | 77.9 |   | 72.9 |   | 83.4 |   |   |   |   |   |   |   | 900.8 |   | 840.6 |   | 819.1 |   |
| Revenue between  regions                                  |       | 3.3                  |       | 1.6        |       | 4.7                |       | 1.2                |       | 1.1              |       | 1.3              |       | 0.0 |   | 0.3 |   | 0.2 |   | 0.1 |   | 0.1 |   | 0.0 |   | (4.7 | ) | (3.1 | ) | (6.2 | ) | — |   | — |   | — |   |
| Total revenue  regions                                    |       | 304.6                |       | 297.8      |       | 302.0              |       | 255.6              |       | 227.0            |       | 184.3            |       | 267.3 |   | 245.9 |   | 255.6 |   | 78.0 |   | 73.0 |   | 83.4 |   | (4.7 | ) | (3.1 | ) | (6.2 | ) | 900.8 |   | 840.6 |   | 819.1 |   |
| Materials,  services of third parties and subcontractors  |       | 83.2                 |       | 75.2       |       | 74.9               |       | 70.8               |       | 66.2             |       | 62.2             |       | 82.9 |   | 73.7 |   | 73.6 |   | 36.0 |   | 33.1 |   | 36.8 |   | (4.7 | ) | (3.1 | ) | (6.2 | ) | 268.2 |   | 245.2 |   | 241.4 |   |
| Net revenue                                               |       | 221.3                |       | 222.6      |       | 227.1              |       | 184.8              |       | 160.7            |       | 122.1            |       | 184.5 |   | 172.2 |   | 181.9 |   | 41.9 |   | 39.9 |   | 46.6 |   |   |   |   |   |   |   | 632.5 |   | 595.4 |   | 577.8 |   |
| Operating costs  regions                                  |       | 207.7                |       | 203.2      |       | 202.4              |       | 167.8              |       | 145.5            |       | 111.1            |       | 167.4 |   | 156.9 |   | 165.4 |   | 38.9 |   | 37.8 |   | 40.0 |   |   |   |   |   |   |   | 581.7 |   | 543.3 |   | 518.9 |   |
| Depreciation regions                                      |       | 6.9                  |       | 7.3        |       | 7.9                |       | 4.3                |       | 3.9              |       | 3.4              |       | 3.7 |   | 4.1 |   | 4.1 |   | 0.7 |   | 0.8 |   | 0.6 |   |   |   |   |   |   |   | 15.6 |   | 16.1 |   | 15.9 |   |
| EBITA                                                     |       | 6.8                  |       | 12.1       |       | 16.9               |       | 12.7               |       | 11.3             |       | 7.6              |       | 13.4 |   | 11.2 |   | 12.5 |   | 2.3 |   | 1.4 |   | 6.0 |   |   |   |   |   |   |   | 35.2 |   | 36.0 |   | 42.9 |   |
| Amortization  goodwill and identifiable Intangible assets |       | 1.1                  |       | 0.3        |       | 0                  |       | 0.8                |       | 0.5              |       | 0.1              |       | 0.5 |   | 0.2 |   | 0.0 |   | 0.2 |   | 0.1 |   | 0.1 |   |   |   |   |   |   |   | 2.6 |   | 1.2 |   | 0.2 |   |
| Operating income(1)                                       |       | 5.7                  |       | 11.7       |       | 16.9               |       | 11.9               |       | 10.9             |       | 7.5              |       | 12.9 |   | 11.0 |   | 12.5 |   | 2.1 |   | 1.3 |   | 5.9 |   |   |   |   |   |   |   | 32.6 |   | 34.9 |   | 42.7 |   |
| Financing items  net                                      |       |                 |       |       |       |               |       |               |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (3.4 | ) | (2.8 | ) | (2.2 | ) |
| Income of non-consolidated  companies                     |       | 0.5                  |       | 0.8        |       | 0.2                |       | 0.0                |       | 0.1              |       | 0.1              |       | 0.0 |   | (0.1 | ) | 0.0 |   | 1.9 |   | 1.8 |   | 0.4 |   |   |   |   |   |   |   | 2.4 |   | 2.6 |   | 0.7 |   |
| Taxes                                                     |       |                 |       |       |       |               |       |               |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (9.6 | ) | (11.7 | ) | (14.4 | ) |
| Group income from  operations after taxes                 |       |                 |       |       |       |               |       |               |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 22.0 |   | 22.9 |   | 26.7 |   |
| Minority interest                                         |       |                 |       |       |       |               |       |               |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (1.9 | ) | (1.5 | ) | (2.1 | ) |
| Net income excluding  extraordinaries                     |       |                 |       |       |       |               |       |               |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 20.1 |   | 21.4 |   | 24.7 |   |
| Net income from  operations                               |       |                 |       |       |       |               |       |               |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 22.7 |   | 22.5 |   | 24.9 |   |

 

----

(1) adjusted for comparison purposes

 

F-12

----

 

 
| ** **                         | ** ** | **The  Netherlands** | ** ** | **Europe** | ** ** | **United  States** | ** ** | **Other  regions** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------|------------|----------------------|------------|------------|------------|--------------------|------------|--------------------|------------|------------------|------------|------------------|------------|
| **(Amounts in millions of Euros)** | ** ** | **2004**             | ** ** | **2003**   | ** ** | **2002**           | ** ** | **2004**           | ** ** | **2003**         | ** ** | **2002**         | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Total assets                       |       | 232.2                |       | 211.5      |       | 225.4              |       | 162.4              |       | 122.0            |       | 115.8            |       | 101.5 |   | 82.3 |   | 79.0 |   | 33.1 |   | 34.9 |   | 36.9 |   | (138.6 | ) | (103.4 | ) | (113.2 | ) | 390.5 |   | 347.3 |   | 343.8 |   |
| Total financial  fixed assets      |       | (6.0                 | )          | (4.7       | )          | (5.7               | )          | 9.5                |       | 8.1              |       | 7.8              |       | 3.6 |   | 3.0 |   | 3.1 |   | 6.5 |   | 6.1 |   | 4.3 |   |   |   |   |   |   |   | 13.7 |   | 12.4 |   | 9.6 |   |
| Total liabilities                  |       | 86.2                 |       | 76.6       |       | 100.2              |       | 163.5              |       | 129.4            |       | 126.5            |       | 51.1 |   | 38.5 |   | 32.4 |   | 21.7 |   | 25.2 |   | 28.2 |   | (86.7 | ) | (66.6 | ) | (75.6 | ) | 235.8 |   | 203.2 |   | 211.7 |   |
| Total investments                  |       | 3.1                  |       | 9.1        |       | 5.2                |       | 4.4                |       | 5.1              |       | 3.4              |       | 3.8 |   | 3.6 |   | 5.0 |   | 0.6 |   | 0.4 |   | 0.6 |   |   |   |   |   |   |   | 11.8 |   | 18.2 |   | 14.2 |   |
| Total number of  employees         |       | 2346                 |       | 2774       |       | 2772               |       | 4000               |       | 3446             |       | 2988             |       | 2222 |   | 2022 |   | 1704 |   | 1070 |   | 1035 |   | 1039 |   |   |   |   |   |   |   | 9638 |   | 9277 |   | 8503 |   |

 

 

 

Presented below is ourgross revenue by service area. We do not consider these service areas to bereportable segments. We discontinued our communications service area in 2004and combined the remaining activities with our infrastructure service area.

 
| **Gross revenue by Service Area** | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|-----------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Infrastructure                    |       | 501.5      |       | 485.4      |       | 461.8      |       |
| Environment                       |       | 242.9      |       | 223.3      |       | 227.3      |       |
| Buildings                         |       | 144.3      |       | 110.2      |       | 104.7      |       |
| Communications                    |       | 12.1       |       | 21.7       |       | 25.3       |       |
|                              |       | 900.8      |       | 840.6      |       | 819.1      |       |

 

F-13

----

 

**NOTE 4.   CASH AND CASH EQUIVALENTS**

 

The Company’spolicy is to invest cash in excess of operating requirements in highly liquidinvestments with a maturity of three months or less. Cash and cash equivalentsat December 31, 2004, and 2003 consisted of the following:

 
| ** **                                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                         |       |     |       |     |       |
| Cash in banks and on hand                                    |       | 46,549   |       | 30,102   |       |
| Cash in banks restricted for taxes/social  security premiums |       | 633      |       | 576      |       |
| Time deposits                                                |       | 1,037    |       | 580      |       |
|                                                         |       |     |       |     |       |
| Total cash and cash equivalents                              |       | 48,219   |       | 31,258   |       |

 

**NOTE 5.   RECEIVABLES**

 

Receivablesmaturing within one year as of December 31, 2004 and 2003 consisted of:

 
| ** **                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
|                                        |       |     |       |     |       |
| Trade receivables                           |       | 194,505  |       | 194,673  |       |
| Provision for bad debts                     |       | (13,348  | )          | (10,879  | )          |
| Receivables from non-consolidated companies |       | 3,650    |       | 3,019    |       |
|                                        |       |     |       |     |       |
| Total receivables                           |       | 184,807  |       | 186,813  |       |

 

The provisionfor bad debts has developed as follows:

 
| ** **                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                         |       |     |       |     |       |     |       |
| Balance at beginning of year |       | 10,879   |       | 8,828    |       | 9,866    |       |
| Addition charged to income   |       | 4,432    |       | 2,864    |       | 2,330    |       |
| Exchange rate results        |       | (110     | )          | (408     | )          | (473     | )          |
| Deductions                   |       | (1,746   | )          | (2,723   | )          | (2,895   | )          |
| Acquisitions / divestments   |       | (107     | )          | 2,318    |       | —   |       |
| Balance at end of year       |       | 13,348   |       | 10,879   |       | 8,828    |       |

 

F-14

----

 

**NOTE 6.   INVENTORIES**

 

Inventories atDecember 31, 2004 and 2003 consisted of:

 
| ** **                 | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
|                       |       |     |       |     |       |
| Raw materials and supplies |       | 342      |       | 64       |       |
| Work in process            |       | 27,247   |       | 15,008   |       |
| Goods for resale           |       | 126      |       | 136      |       |
|                       |       |     |       |     |       |
| Total inventories          |       | 27,715   |       | 15,208   |       |

 

Costs andEstimated Earnings on Uncompleted Contracts are as follows:

 
| ** **                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|
|                                    |       |     |       |     |       |
| Costs incurred on uncompleted contracts |       | 563,037  |       | 637,802  |       |
| Estimated earnings                      |       | 20,667   |       | 23,169   |       |
| Subtotal                                |       | 583,704  |       | 660,971  |       |
| Less: Billings to date                  |       | 556,457  |       | 645,963  |       |
| Total work in process                   |       | 27,247   |       | 15,008   |       |

 

All amounts are expected to be collectedwithin 1 year

 
| ** **                                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|
| Costs incurred and estimated earnings in  excess of billings |       | 67,520   |       | 55,051   |       |
| Billings in excess of costs incurred and  estimated earnings |       | (40,273  | )          | (40,043  | )          |
| Total work in process (see note 17(c))                       |       | 27,247   |       | 15,008   |       |
| Amount of advances received                                  |       | 13,543   |       | 12,492   |       |
| Amount of retentions held by clients                         |       | 2,801    |       | 2,547    |       |

 

F-15

----

 

**NOTE 7.   PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLEASSETS**

 

Property,plant and equipment at December 31, 2004 and 2003 consisted of:

 
| ** **               | ** ** | **Land  and  Buildings** | ** ** | **Furniture  and  Fixtures** | ** ** | **Rural  Properties** | ** ** | **Total**  | ** ** |
|--------------------------|------------|--------------------------|------------|------------------------------|------------|-----------------------|------------|------------|------------|
| ** **               | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| **At December 31, 2004** | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Historical cost          |       | 19,129                   |       | 114,976                      |       | 40                    |       | 134,145    |       |
| Accumulated depreciation |       | (6,616                   | )          | (85,201                      | )          | —                |       | (91,817    | )          |
|                     |       |                     |       |                         |       |                  |       |       |       |
| Net book value           |       | 12,513                   |       | 29,775                       |       | 40                    |       | 42,328     |       |
|                     |       |                     |       |                         |       |                  |       |       |       |
| **At December 31, 2003** |       |                     |       |                         |       |                  |       |       |       |
| Historical cost          |       | 17,338                   |       | 113,860                      |       | 40                    |       | 131,238    |       |
| Accumulated depreciation |       | (5,177                   | )          | (81,180                      | )          | (9                    | )          | (86,366    | )          |
|                     |       |                     |       |                         |       |                  |       |       |       |
| Net book value           |       | 12,161                   |       | 32,680                       |       | 31                    |       | 44,872     |       |

 

Ruralproperties consist of real estate which is not directly utilized by ARCADIS inits normal operations. At December 31, 2004, the book value of property, plant& equipment financed by mortgages or capital leases was EUR 1,753 (2003:EUR 1,799).

 

**IntangibleAssets**

 

Intangibleassets consist of capitalized goodwill, identifiable intangibles and purchasedsoftware. The book value based on historical cost was as follows:

 
| ** **                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|
| **Goodwill**                 |       |     |       |     |       |
| Historical cost              |       | 51,838   |       | 39,595   |       |
| Accumulated amortization     |       | (3,719   | )          | (1,412   | )          |
| Book value                   |       | 48,119   |       | 38,183   |       |
|                         |       |     |       |     |       |
| **Identifiable intangibles** |       |     |       |     |       |
| Historical cost              |       | 2,451    |       | —   |       |
| Accumulated amortization     |       | (251     | )          | —   |       |
| Book value                   |       | 2,200    |       | —   |       |
|                         |       |     |       |     |       |
| **Software**                 |       |     |       |     |       |
| Historical cost              |       | 18,021   |       | 15,915   |       |
| Accumulated depreciation     |       | (15,245  | )          | (12,707  | )          |
| Book value                   |       | 2,776    |       | 3,208    |       |
|                         |       |     |       |     |       |
| Total book value             |       | 53,095   |       | 41,391   |       |

 

F-16

----

 

**NOTE 8.   INVESTMENTS INNON-CONSOLIDATED COMPANIES**

 

The principal non-consolidated interests at December 31, 2004 werethe Brazilian companies Breitener Energética SA (5.5% owned), Biogás EnergiaAmbiental SA (33.33% owned) and PIE-RP Termelétrica SA (25.0% owned), and anumber of Dutch joint ventures.

 

Accounts receivable from and payables to non-consolidated companies areincluded in the financial statements as current assets and current liabilities,respectively, and amount to EUR 3,650 and EUR 825, respectively.

 

**SummarizedFinancial Information of Non-Consolidated Companies**

 

The followingtables present summarized financial information of ARCADIS non-consolidatedcompanies in millions of EUR for fiscal years 2004 and 2003

 
| **Balance  sheet data**                          | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current assets                                   |       | 26.5       |       | 41.4       |       |
| Non-current assets                               |       | 94.6       |       | 107.1      |       |
| Total assets                                     |       | 121.1      |       | 148.5      |       |
| Current liabilities                              |       | 24.0       |       | 66.1       |       |
| Non-current liabilities                          |       | 12.6       |       | 10.5       |       |
| Shareholders’ equity                        |       | 84.5       |       | 71.9       |       |
| Total liabilities and shareholders’ equity  |       | 121.1      |       | 148.5      |       |
|                                             |       |       |       |       |       |
| Arcadis’ share in shareholders’ equity |       | 6.2        |       | 5.3        |       |

 
| **Income statement data**      | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                           |       |     |       |     |       |     |       |
| Gross revenue                  |       | 98.0     |       | 122.4    |       | 46.3     |       |
|                           |       |     |       |     |       |     |       |
| Income before tax              |       | 42.5     |       | 43.7     |       | 0.7      |       |
|                           |       |     |       |     |       |     |       |
| Net Income                     |       | 30.0     |       | 40.7     |       | 0.3      |       |
|                           |       |     |       |     |       |     |       |
| ARCADIS’ share net income |       | 2.4      |       | 2.6      |       | 0.0      |       |

 

F-17

----

 

The financial condition and results of operations of the followingsnon-consolidated companies are included in the Balance Sheet Data and IncomeStatement Data presented above:

 
| ** **                                   | ** ** | **% of Equity** | ** ** |
|----------------------------------------------|------------|-----------------|------------|
| ** **                                   | ** ** | **and Net**     | ** ** |
| **Non-Consolidated Company Name**            | ** ** | **Income**      | ** ** |
| Murta  Energética SA                    |       | 34.0            | %          |
| PIE-RP  Termelétrica SA                 |       | 25.0            | %          |
| Breitener  Energética SA                |       | 5.5             | %*         |
| Biogás Energia  Ambiental SA            |       | 33.33           | %          |
| Dynamicon B.V.                               |       | 40.0            | %          |
| Ecosystems B.V.                              |       | 20.0            | %          |
| Combinatie  Oost-Achterhoek B.V.             |       | 20.0            | %          |
| Urbanet B.V.                                 |       | 25.0            | %          |
| Parkeergroep  Nederland B.V.                 |       | 46.0            | %          |
| Brainliner B.V.                              |       | 33.3            | %          |
| Waterwolf  Dienstverlening Buitenruimte B.V. |       | 40.0            | %          |
| Siberië CV                              |       | 50.0            | %          |
| Bioscience Park CV                           |       | 50.0            | %          |
| Grubbenvorst VOF                             |       | 33.3            | %          |
| Combiflora VOF                               |       | 50.0            | %          |
| VOF Meinga.                                  |       | 50.0            | %          |
| VOF  Stationseiland                          |       | 50.0            | %          |
| VOF De  Ruijterkade                          |       | 50.0            | %          |
| VOF X-pact                                   |       | 12.0            | %*         |
| VOF Modislab                                 |       | 33.3            | %          |

 

----

*These companies are valued against equity value, because ARCADIS’ operationalinfluence is higher than its formal participation.

 

**NOTE 9.   OTHER CURRENT LIABILITIES**

 

Other currentliabilities includes items maturing within one year and at December 31, 2004and 2003 consisted of:

 
| ** **                                | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
|                                      |       |     |       |     |       |
| Taxes and social security contributions   |       | 38,218   |       | 28,510   |       |
| Payable to employees                      |       | 14,172   |       | 13,624   |       |
| Bank overdrafts and short term borrowings |       | 9,772    |       | 5,992    |       |
| Other liabilities                         |       | 37,729   |       | 33,186   |       |
| Total other current liabilities           |       | 99,891   |       | 81,312   |       |

 

F-18

----

 

**NOTE 10.   LONG-TERM DEBT**

 

Long-term debtat December 31, 2004 and 2003 consisted of:

 
| ** **                                                        | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                              |       |     |       |     |       |
| Bank loans (interest rates between 2.7% and  6.6%)                |       | 29,655   |       | 18,152   |       |
| Financial lease contracts (interest rates  between 2.0% and 7.2%) |       | 2,048    |       | 2,178    |       |
| Other long-term debt (interest rates  between 0% and 16.8%)       |       | 968      |       | 12,344   |       |
| Subtotal                                                          |       | 32,671   |       | 32,674   |       |
| Current portion                                                   |       | 20,667   |       | (2,950   | )          |
| Total long-term debt                                              |       | 12,004   |       | 29,724   |       |

 

The weightedaverage interest rate for 2004 and 2003 on interest bearing debt was 4.7%****and****6.0%,respectively.

 

The aggregatematurity of long-term debt as of December 31, 2004 is as follows:

 

| **Years ending December 31,** | ** ** | **Amount** | ** ** |
|-------------------------------|------------|------------|------------|
| ** **                    | ** ** | ** ** | ** ** | ** ** |
| 2005                          |       |       | 20,667     |   |
| 2006                          |       |       | 6,820      |   |
| 2007                          |       |       | 2,935      |   |
| 2008                          |       |       | 971        |   |
| 2009                          |       |       | 326        |   |
| Thereafter                    |       |       | 952        |   |
|                          |       |       |       |   |
| Total                         |       |       | 32,671     |   |

 

ARCADIS and its consolidated companies have short-term creditfacilities available in the amount of EUR 172 million (2003: EUR154 million) under arrangements with banks at interest rates whichapproximate the bank’s prime rates. At December 31, 2004, an amount of EUR9.8 million (2003: EUR 6.0 million) was utilized from these creditfacilities, and approximately EUR 38 million was used for guarantees(performance bonds), leaving approximately EUR 124.2 million available. Aperformance bond is a guarantee given by ARCADIS to the client related to theperformance to be provided by ARCADIS. This secures the client with an income,in case ARCADIS would not perform according to the stipulations in the contractfor which the performance bond is issued. If, however, ARCADIS fully meets allthe requirements, the bond will be canceled.

 

F-19

----

 

**NOTE 11.   OTHER LONG-TERM LIABILITIES**

 
| ** **                                  | ** ** | **Deferred  Taxes** | ** ** | **Pension  obligations** | ** ** | **Restructuring** | ** ** | **Others** | ** ** | **Total** | ** ** |
|---------------------------------------------|------------|---------------------|------------|--------------------------|------------|-------------------|------------|------------|------------|-----------|------------|
| Balance at January 1, 2003                  |       | 5,611               |       | 3,105                    |       | 2,279             |       | 2,542      |       | 13,537    |       |
| Changes 2003 as a result of Consolidations  |       | 1,017               |       | —                   |       | —            |       | 197        |       | 1,214     |       |
| Deconsolidations                            |       | (324                | )          | —                   |       | —            |       | —     |       | (324      | )          |
| Additions                                   |       | 4,990               |       | 771                      |       | 2,340             |       | 82         |       | 8,183     |       |
| Deductions                                  |       | (349                | )          | (201                     | )          | (620              | )          | (705       | )          | 1,875     | )          |
| Exchange  rate differences                  |       | (380                | )          | (358                     | )          | —            |       | (29        | )          | (767      | )          |
| Balance at  December 31, 2003               |       | 10,565              |       | 3,317                    |       | 3,999             |       | 2,087      |       | 19,968    |       |
| Changes 2004  as a result of Consolidations |       | 703                 |       |                     |       |              |       |       |       | 703       |       |
| Deconsolidations                            |       | (376                | )          | —                   |       | (1,079            | )          | —     |       | (1,455    | )          |
| Additions                                   |       | 46                  |       | 1,902                    |       | 9,451             |       | 1,204      |       | 12,603    |       |
| Deductions                                  |       | (2,725              | )          | (205                     | )          | (7,911            | )          | (235       | )          | (11,076   | )          |
| Exchange  rate differences                  |       | (504                | )          | (164                     | )          | —            |       | —     |       | (668      | )          |
| Balance at  December 31, 2004               |       | 7,709               |       | 4,850                    |       | 4,460             |       | 3,056      |       | 20,075    |       |

 

The long-termliability for pensions are taken by foreign group companies based on locallabor conditions. The long-term liability for deferred taxes is almostcompletely based on the fact that the projects are valued according to thepercentage-of-completion method for accounting purposes and the completedcontract method for tax purposes. Therefore, the terms vary per project, but intotal the nature is long-term. The long-term liability for reorganizations andrestructuring will mostly be used during 2005. The other long-term liabilitiesconsist largely of a liability for litigation, and primarily are of a long-termnature.

 

**NOTE 12.****   ****SHAREHOLDERS’ EQUITY**

 

***Share capital. ***At December 31,2004, ARCADIS’ authorized share capital was EUR 5,000,010, divided into 200priority shares, par value EUR 0.05; 50,000,000 shares of cumulative preferredstock, par value EUR 0.05; 10,000,000 shares of cumulative financing preferredstock (divided over four series of 2,500,000 shares each), and 40,000,000shares of common stock, par value EUR 0.05. At December 31, 2004, the number ofshares issued consisted of 200 priority shares, and 20,645,615 shares of commonstock. No shares of preferred stock are issued or outstanding.

 

The priorityshares are held by the “Stichting Prioriteit ARCADIS N.V.”, a non-profitfoundation which currently has 20 board members: seven members of the ARCADIS’Supervisory Board, three members of the ARCADIS’ Executive Board and ten membersfrom the Board of the Foundation Bellevue, a foundation established in Arnhem,who’s board members are appointed by and from ARCADIS’ international employeebase of the ARCADIS group. Under the Articles of Association, certaintransactions by ARCADIS must be approved by vote of at least eleven of thedirectors of the Stichting Prioriteit ARCADIS N.V. Actions which requireapproval of the Foundation are as follows:

 

(1)     The issuance, acquisition anddisposal of shares in the Company;

(2)     Amendments to the Articles ofAssociation;

(3)     The dissolution of theCompany and the filing for bankruptcy;

(4)     The entry into or terminationof long-term cooperative ventures of substantial significance; and

(5)     Investments (includingentering into participations) for an amount equal to at least 25% ofshareholders’ equity.

 

The StichtingPreferente Aandelen ARCADIS N.V. (Preferred Stock Foundation ARCADIS N.V.)established in Arnhem since 1995, has as its objective the protection andpromotion of the interests of ARCADIS N.V. and its affiliated companies and allparties involved. The Board of this Foundation consists of four persons

 

F-20

----

 

appointed by the Company’sExecutive Board. The Foundation has been granted the right to acquire theARCADIS’ preferred (protection) shares up to a maximum equal to the number ofoutstanding shares issued at the date in question.  ARCADIS N.V. hasbeen granted the right to issue the same number of preferred shares to theFoundation. Both options may only be exercised provided the interests ofARCADIS N.V., its affiliated enterprises, and all parties involved were towarrant this.

 

***Stock options.  ***Priorto the 1993 merger with ARCADIS, the consolidated subsidiary ARCADIS Geraghty& Miller, Inc. had various stock option plans (“ARCADIS Geraghty &Miller Stock Option Plans”) which provided for the issuance of incentive ornon-qualified stock options to eligible employees. As part of the Merger,ARCADIS assumed all of the outstanding options pursuant to the ARCADIS Geraghty& Miller Stock Option Plans and all of such outstanding options wereconverted into options to acquire ARCADIS Common Stock. In addition, ARCADISadopted a new stock option plan which provides for the issuance of incentive ornon-qualified stock options to eligible employees of ARCADIS. In general,ARCADIS options become exercisable over a three-year period and are subject toforfeiture in certain circumstances . Each of the plans provide for anexpiration date of 10 years, with exceptions in the case of death, disability,termination or retirement.

 

A summary ofthe combined activities under ARCADIS Stock Option Plans for each year in thethree-year period ended December 31, 2004 is as follows:

 
| ** **                  | ** ** | **Number of   ARCADIS   Shares** | ** ** | **Exercise price  range in US$** | ** ** | **Number of   ARCADIS   Shares** | ** ** | **Exercise price  range in  EUR** | ** ** |
|-----------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|
| ** **                  | ** ** | ** **                       | ** ** | ** **                       | ** ** | ** **                       | ** ** | ** **                        | ** ** |
| Balance - January 1, 2002   |       | 691,515                          |       | 6.75 to 15.10                    |       | 195,000                          |       | €                            | 9.20       |   |
| Granted                     |       | 35,000                           |       | 9.44                             |       | 263,100                          |       | 8.50 to 10.79                     |       |
| Exercised                   |       | (7,993                           | )          | 8.58 to 9.125                    |       | —                           |       | —                            |       |
| Cancelled                   |       | (42,498                          | )          | 6.75 to 15.10                    |       | —                           |       | —                            |       |
| Balance - December 31, 2002 |       | 676,024                          |       | 6.75 to 11.50                    |       | 458,100                          |       | 8.50 to 10.79                     |       |
| Granted                     |       | 133,841                          |       | 8.70 to 11.85                    |       | 521,029                          |       | 8.50 to 8.93                      |       |
| Exercised                   |       | (133,703                         | )          | 6.75 to 11.50                    |       | —                           |       | —                            |       |
| Cancelled                   |       | (68,394                          | )          | 6.75 to 11.50                    |       | (26,000                          | )          | 8.93 to 10.79                     |       |
| Balance - December 31, 2003 |       | 607,768                          |       | 6.75 to 11.85                    |       | 953,129                          |       | 8.50 to 10.79                     |       |
| Granted                     |       | 91,069                           |       | 10.06 to 15.00                   |       | —                           |       | —                            |       |
| Exercised                   |       | (223,238                         | )          | 6.75 to 11.50                    |       | (70,000                          | )          | 9.20                              |       |
| Cancelled                   |       | (21,460                          | )          | 6.75 to 11.50                    |       | (73,327                          | )          | 8.50 to 10.79                     |       |
| Balance - December 31, 2004 |       | 454,139                          |       | 6.75 to 15.00                    |       | 809,802                          |       | 8.50 to 10.79                     |       |
|                             |            |                                  |            |                                  |            |                                  |            |                                   |            |  |

 

At December 31, 2004 and 2003, options to purchase 346,421 and 294,159shares, respectively, were exercisable.

 

F-21

----

 

Total optionsoutstanding and exercisable at December 31, 2004 were as follows:

 
| ** **                  | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**    | ** ** |
|-----------------------------|------------|-------------------------|------------|----------------------------|------------|
| **Option Price Per  Share** | ** ** | **Number**              | ** ** | **Weighted  Average Life** | ** ** | **Weighted  Average Exercise  Price Per Share** | ** ** | **Number** | ** ** | **Weighted  Average Exercise  Price Per Share** | ** ** |
| $6.75-8.50                  |       | 171,320                 |       | 5.6                        |       | $ | 7.27 |   | 171,320 |   | $ | 7.27 |   |
| $8.51-10.00                 |       | 74,802                  |       | 6.2                        |       | 9.03 |   | 21,500 |   | 9.13 |   |
| $10.01-11.50                |       | 208,017                 |       | 7.6                        |       | 12.10 |   | 36,500 |   | 11.50 |   |
| Total                       |       | 454,139                 |       |                       |       | Average  9.03 |   | 229,320 |   | Average 9.13 |   |
|                        |       |                    |       |                       |       |   |   |   |   |   |   |
| EUR 8.50                    |       | 236,352                 |       | 8.5                        |       | EUR 8.50 |   | — |   | — |   |
| EUR 8.93                    |       | 254,250                 |       | 8.5                        |       | EUR 8.93 |   | — |   | — |   |
| EUR 9.20                    |       | 120,000                 |       | 6.5                        |       | EUR 9.20 |   | 120,000 |   | EUR 9.20 |   |
| EUR 10.79                   |       | 199,200                 |       | 7.5                        |       | EUR 10.79 |   | — |   | — |   |
| Total                       |       | 809,802                 |       |                       |       | Average EUR 9.20 |   |   |   |   |   |
|                             |            |                         |            |                            |            |  |  |  |  |  |  |  |  |

 

*Additionalpaid-in capital**.*** Additionalpaid-in capital represents the premium paid in excess of par value of shares atthe time of issuance of new shares or exercise of stock options. If ARCADISdeclared a distribution to shareholders of additional paid-in-capital, at leastEUR 17.6 million of the additional paid-in capital would not be taxable underthe 1964 Dutch income tax legislation.

 

*Retainedearnings.  *TheExecutive Board is authorized to propose to the Annual General Meeting ofShareholders, with the approval of the Supervisory Board, which part of theprofit shall be paid as dividend. That which remains shall be added to theequity of the Company. The holder of the priority shares is entitled to adividend of 5% of the par value of the priority shares. For fiscal year 2004,the Executive Board with the approval of the Supervisory Board proposes topresent for approval by the Annual General Meeting of Shareholders a dividendamount of EUR 9,909,991 which represents a dividend of EUR 0.48 per outstandingshare of common stock. On May 11, 2005, the Annual General Meeting ofShareholders of ARCADIS N.V. approved the 2004 dividend proposal. For fiscalyear 2003, a dividend was proposed and accepted amounting to EUR 0.48 peroutstanding share of common stock. There are no restrictions on thedistribution of retained earnings.

 

**NOTE 13.   COMMITMENTS AND CONTINGENT LIABILITIES**

 

Banks haveissued guarantees (performance bonds) up to the amount of€ 37.7 million (2003: € 41.0 million).

 

Payments made under non-cancelable operating leases during 2004, 2003and 2002 were EUR 32.8 million, 29.9 million and EUR30.2 million, respectively. Commitments on account of rent and operationallease contracts amount to € 121.6 million (2003:€ 124.9 million). The average duration of these contracts isapproximately 3.4 years. Future minimum payments for these non-cancellableoperating leases during the next five years and thereafter are as follows (inmillions of EUR):

 
| **Years ending December 31,** | ** ** | **Amount  Operational  Lease** | ** ** | **Amount  Financial  Lease** | ** ** |
|-------------------------------|------------|--------------------------------|------------|------------------------------|------------|
|                          |       |                           |       |                         |       |
| 2005                          |       |                           | 29.6       |                         | 0.3        |   |
| 2006                          |       |                           | 24.4       |                         | 0.9        |   |
| 2007                          |       |                           | 18.0       |                         | 0.3        |   |
| 2008                          |       |                           | 14.0       |                         | 0.3        |   |
| 2009                          |       |                           | 15.5       |                         | 0.1        |   |
| Thereafter                    |       |                           | 20.1       |                         | 0.1        |   |
|                          |       |                           |       |                         |       |   |
| Total                         |       |                           | 121.6      |                         | 2.0        |   |

 

F-22

----

 

At December31, 2004, ARCADIS had EUR 3.5 million commitments arising from acquisitions andparticipations.

 

**Litigation**

 

ARCADIS N.V.and its group companies are from time to time involved in litigation issues,all of which are contested. Also based on legal advice, management believesthat the outcome of pending cases will not have a material effect on theconsolidated financial condition of Arcadis N.V. but could be material to theCompany’s operational results in any one accounting period.

 

**NOTE 14.****OPERATIONAL COST**

 

Theoperational cost for the years 2004, 2003 and 2002 consist of following items:

 
| ** **                                       | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                             |       |     |       |     |       |     |       |
| Salaries and wages                               |       | 325,501  |       | 311,839  |       | 301,935  |       |
| Social charges                                   |       | 51,152   |       | 47,617   |       | 42,903   |       |
| Pension and early retirement charges             |       | 17,508   |       | 17,448   |       | 11,014   |       |
| Other personnel costs including temporary  labor |       | 55,280   |       | 51,865   |       | 57,555   |       |
| Total personnel cost                             |       | 449,441  |       | 428,769  |       | 413,407  |       |
| Occupancy expenses                               |       | 42,919   |       | 33,282   |       | 33,900   |       |
| Travel expenses                                  |       | 29,615   |       | 30,698   |       | 29,309   |       |
| Office expenses                                  |       | 19,659   |       | 23,363   |       | 23,240   |       |
| Other operational cost                           |       | 40,041   |       | 27,173   |       | 19,057   |       |
|                                             |       | 581,675  |       | 543,285  |       | 518,913  |       |

 

**NOTE 15. TAXES ON INCOME**

 

The taxeffects of significant timing differences that give rise to year-end deferredtax assets and liabilities are offset within each taxable entity. Deferred taxassets in excess of these amounts are recognized if their realization is morelikely than not.

 

The geographicbreakdown of income before taxes, including income before taxes from non-consolidatedcompanies and long-term investments and including gross extraordinary items in2004, 2003 and 2002 are as follows:

 
| ** **          | ** ** | **2004** | ** ** | **2003** | ** ** | **2001** | ** ** |
|---------------------|------------|----------|------------|----------|------------|----------|------------|
|                |       |     |       |     |       |     |       |
| The Netherlands     |       | 6,064    |       | 13,073   |       | 16,080   |       |
| Foreign             |       | 25,576   |       | 21,530   |       | 25,095   |       |
|                |       |     |       |     |       |     |       |
| Income before taxes |       | 31,640   |       | 34,603   |       | 41,175   |       |

 

F-23

----

 

The geographicbreakdown of income taxes in the Consolidated Statements of Income is asfollows:

 
| ** **      | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------|------------|----------|------------|----------|------------|----------|------------|
|            |       |     |       |     |       |     |       |
| Current tax     |       |     |       |     |       |     |       |
| The Netherlands |       | 1,877    |       | 3,215    |       | 6,011    |       |
| Foreign         |       | 10,395   |       | 3,835    |       | 9,840    |       |
|            |       | 12,272   |       | 7,050    |       | 15,851   |       |
| Deferred tax    |       |     |       |     |       |     |       |
| The Netherlands |       | (943     | )          | 194      |       | (1,130   | )          |
| Foreign         |       | (1,736   | )          | 4,447    |       | (294     | )          |
|            |       | (2,679   | )          | 4,641    |       | (1,424   | )          |
| Total taxes     |       | 9,593    |       | 11,691   |       | 14,427   |       |

 

At December31, 2004, operating loss carry-forwards for tax purposes amounted to EUR 1.9million****which can be carried forward indefinitely.Net operating losses of EUR 0.0 million, EUR 0.0 million and EUR 0.8 millionwere utilized during 2004, 2003 and 2002, respectively. In 2002, operating losscarry-forwards amounting to EUR 4.3 million was eliminated because ofdeconsolidation.

 

The componentsof deferred taxes included in the Consolidated Balance Sheets at December 31,2004 and 2003 are as follows:

 
| ** **                                | ** ** | **December 31, 2004** | ** ** | **December 31, 2003** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
|                                      |       |                  |       |                  |       |   |   |   |   |
| Deferred tax assets:                      |       |                  |       |                  |       |   |   |   |   |
| Net operating losses                      |       | 1,885                 |       |                  |       | 1,938 |   |   |   |
| Less valuation allowance                  |       | (1,885                | )          |                  |       | (1,938 | ) |   |   |
| Net deferred tax assets                   |       |                  |       | —                |       |   |   | — |   |
| Deferred tax liabilities:                 |       |                  |       |                  |       |   |   |   |   |
| Work in process (included in inventories) |       | 7,619                 |       |                  |       | 10,191 |   |   |   |
| Other                                     |       | 90                    |       |                  |       | 374 |   |   |   |
| Total gross deferred tax liabilities      |       |                  |       | 7,709                 |       |   |   | 10,565 |   |
| Net deferred tax liabilities              |       |                  |       | 7,709                 |       |   |   | 10,565 |   |

 

The valuationallowance has been established to reserve for recognition of tax benefits onnet operating losses of certain subsidiary companies. The gross operatinglosses which might be compensated by future profits amount to EUR 5,172 in 2004and EUR 5,266 in 2003. The change in valuation allowance for fiscal 2004amounted to a decrease of EUR 0.1 million, in 2003 amounted to a decrease ofEUR 1.8 million, and in 2002 to an decrease of EUR 0.2 million. The decrease of2003 of EUR 1.8 million was caused by a new loss in 2003, which probably cannot be compensated by future profits.

 

F-24

----

 

The followingtable reconciles the normal corporate tax rate in the Netherlands to theeffective consolidated rates:

 
| ** **                             | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                   |       |     |       |     |       |     |       |
| Corporate tax rate in the Netherlands  |       | 34.5     | %          | 34.5     | %          | 34.5     | %          |
| Foreign tax rate differences           |       | 0.7      |       | 1.5      |       | 1.8      |       |
| New loss carry forwards                |       | 0.2      |       | 0.9      |       | 0.4      |       |
| Settlements                            |       | (1.0     | )          | (2.0     | )          | (1.0     | )          |
| Amortization goodwill                  |       | 2.8      |       | 1.2      |       | 0.2      |       |
| Income from non-consolidated companies |       | (2.7     | )          | (2.6     | )          | 0.6      |       |
| Non-taxable  profits                   |       | (4.7     | )          | (0.7     | )          | 1.1      |       |
| Non-deductible  expenses               |       | 0.5      |       | 1.0      |       | 0.8      |       |
| Effective tax rates                    |       | 30.3     | %          | 33.8     | %          | 35.0     | %          |

 

Non taxable items relatemainly to income from non-consolidated companies and long-terminvestments, amortization of goodwill and the gain on the sale of investments.

 

At December31, 2004, approximately EUR 90.6 million of retained earnings were consideredto be permanently reinvested by certain foreign subsidiaries. It is notpracticable to estimate the amount of the unrecognized deferred tax liabilityfor these undistributed earnings. Consequently, deferred taxes have not beenprovided for unremitted earnings of these subsidiaries.

 

**NOTE 16.   PENSION PLANS**

 

For a minorpart of its employees ARCADIS has pension plans which under Dutch GAAP qualifyas defined benefit plans. The benefits under these plans are based primarily onyears of service and employees’ compensation near retirement. The fundingpolicy of the plans is consistent with local requirements. Obligations underthe defined benefit plans are met by systematically depositing funds with thetrustees or separate foundations, under insurance policies, or by financialstatement accruals.

 

Pension costsincluded in the Consolidated Statements of Income for the principal definedbenefit plans amounted to EUR 15.5 million charge in 2004, EUR 14.2 millioncharge in 2003 and EUR 5.1 million charge in 2002 as computed under NetherlandsGAAP.

 

Pension costsfor these defined benefit plans computed in compliance with U.S. GAAP inaccordance with Financial Accounting Standards Board Statement No. 87, “Employer’sAccounting for Pensions” (“SFAS 87”) for each of the years ended December 31,2004, 2003, and 2002 were as follows:

 
| ** **                                      | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                            |       |     |       |     |       |     |       |
| Service cost-benefit earned during the  period  |       | 13,200   |       | 11,900   |       | 13,755   |       |
| Interest cost on projected benefit  obligations |       | 33,900   |       | 29,700   |       | 31,878   |       |
| Expected return on plan assets                  |       | (36,600  | )          | (30,747  | )          | (36,769  | )          |
| Net amortization, deferral and other*           |       | 15,400   |       | 3,177    |       | (1,323   | )          |
| Net pension cost                                |       | 25,900   |       | 14,030   |       | 7,541    |       |

 

----

* is including, for 2004, arevision of the estimate of the net projected benefit obligation associatedwith PRC acquisition.

 

F-25

----

 

The fundedstatus of these defined benefit pension plans was as follows:

 
| ** **                                              | ** ** | **2004**                                | ** ** | **2003**                                | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| ** **                                              | ** ** | **Accumulated benefits  exceed assets** | ** ** | **Accumulated benefits  exceed assets** | ** ** |
|                                                    |       |                                    |       |                                    |       |
| **Change in Projected Benefit Obligation**              |       |                                    |       |                                    |       |
| Benefit Obligation at beginning of the year             |       | 590,200                                 |       | 563,300                                 |       |
| Addition PRC                                            |       | 56,800                                  |       | —                                  |       |
| Service cost                                            |       | 16,700                                  |       | 15,400                                  |       |
| Interest cost                                           |       | 33,900                                  |       | 29,700                                  |       |
| Benefits paid                                           |       | (29,400                                 | )          | (27,900                                 | )          |
| Actuarial (gain)loss, including changes in  assumptions |       |                                    |       |                                    |       |
| Benefit obligation at end of the year                   |       | 29,100                                  |       | 9,700                                   |       |
|                                                    |       | 697,300                                 |       | 590,200                                 |       |
| ** **                                              |       |                                    |       |                                    |       |
| **Change in plan assets**                               |       |                                    |       |                                    |       |
| Fair value of plan assets at beginning of  year         |       | 561,700                                 |       | 513,800                                 |       |
| Addition PRC                                            |       | 42,500                                  |       | —                                  |       |
| Actual return on plan assets                            |       | 49,200                                  |       | 58,147                                  |       |
| Employer contribution                                   |       | 15,900                                  |       | 14,173                                  |       |
| Plan participants’ contributions                   |       | 3,100                                   |       | 3,480                                   |       |
| Benefits paid                                           |       | (29,400                                 | )          | (27,900                                 | )          |
| Fair value of plan assets at end of year                |       | 643,000                                 |       | 561,700                                 |       |
|                                                    |       |                                    |       |                                    |       |
| **Prepaid /(accrued) benefit costs**                    |       |                                    |       |                                    |       |
| Funded status                                           |       | (54,300                                 | )          | (28,500                                 | )          |
| (Asset) at transition                                   |       | (51                                     | )          | (1,051                                  | )          |
| Unrecognized actuarial loss                             |       | 120,600                                 |       | 102,000                                 |       |
| Unrecognized prior service cost                         |       | (5,552                                  | )          | (1,352                                  | )          |
| Prepaid/accrued benefit cost                            |       | 60,697                                  |       | 71,097                                  |       |
|                                                    |       |                                    |       |                                    |       |
| **Classification of the net balances is as  follows:**  |       |                                    |       |                                    |       |
| Prepaid benefit costs                                   |       | —                                  |       | —                                  |       |
| Accrued benefit liability                               |       | (38,900                                 | )          | (6,700                                  | )          |
| Accumulated other comprehensive income                  |       | 99,597                                  |       | 77,797                                  |       |
| Prepaid benefit costs, net                              |       | 60,697                                  |       | 71,097                                  |       |

 

The Accumulated Benefit Obligation (ABO) amounted to EUR681.9 million at December 31, 2004 and EUR 568.4 million atDecember 31, 2003.

 

F-26

----

 

The pension plan asset allocation for the years 2004 and 2003, and thetarget allocation for 2005 for the pension plan in the Netherlands by assetcategory are as follows:

 
| ** **                             | ** ** | **Target  allocation 2005** | ** ** | **Percentage of plan  assets at December  31, 2004** | ** ** | **Percentage of plan  assets at December  31, 2003** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
|                                   |       |                        |       |                                                 |       |                                                 |       |
| Equity securities                      |       | 43                          | %          | 62                                                   | %          | 56                                                   | %          |
| Long-term interest earning investments |       | 40                          |       | 33                                                   |       | 35                                                   |       |
| Real estate                            |       | 5                           |       | 5                                                    |       | 2                                                    |       |
| Other                                  |       | 12                          |       | —                                               |       | 7                                                    |       |
| Total                                  |       | 100                         | %          | 100                                                  | %          | 100                                                  | %          |

 

Theobligations with respect to pension plans were determined using the followingrates:

 
| ** **                                        | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                              |       |     |       |     |       |     |       |
| Discount  rate                                    |       | 4.50     | %          | 5.25     | %          | 5.25     | %          |
| Assumed  long-term rate of compensation increase  |       | 2.00     |       | 2.25     |       | 2.25     |       |
| Expected  long-term rate of return on plan assets |       | 5.50     | %          | 6.00     | %          | 6.00     | %          |

 

Plan assetsprincipally consist of long-term interest earning investments, quoted andlisted securities, and real estate assets.

 

The principaldefined benefit plans referred to above cover approximately 22% of ARCADISemployees. The remaining plans primarily represent defined contribution plans.Expenses for these plans totaled EUR 2.0 million in 2004, EUR 6.3 million in2003, and EUR 5.9 million in 2002, under both Netherlands and U.S. GAAP.

 

Due to thesubstantial decline of stock markets in 2002, the accumulated benefitobligation for the defined benefit plan exceeded the value of plan assets. As aconsequence, the Company recognized additional provisions for minimum pensionliabilities. This provision amounted to € 99.6 million and € 77.8 millionbefore taxes at December 31, 2004 and December 31, 2003, respectively, and wascreated through a direct charge against shareholders’ equity. After taxes, theamounts were € 65.5 million and € 50.6 million. At the end of 2001, thevalue of plan assets exceeded the accumulated benefit obligations.

 

**NOTE 17.APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OFAMERICA**

 

The Netherlands’ accounting principles (Netherlands GAAP) applied inthe preparation of the Consolidated Financial Statements of ARCADIS N.V. differin some respects from those generally accepted in the United States of America(U.S. GAAP). Those differences which have a material effect on net incomeand/or shareholders’ equity are as follows:

 

(a) Under U.S. GAAP, the excess of the purchase price over the fairvalue of identifiable net assets acquired (“goodwill”) is capitalized. Prior tothe adoption of SFAS 141 and SFAS 142, goodwill was amortized overits estimated useful life ranging between 10 and 25 years. Since theadoption of SFAS 141, which applies to all business combinations completedafter June 30, 2001, and the adoption of SFAS 142, which applies toall existing goodwill since January 1, 2002, goodwill is no longeramortized, but an annual impairment test is performed on the remainingunamortized goodwill. At year-end 2004, an amount of EUR 41.2 million wascapitalized under U.S. GAAP, 

 

F-27

----

 

compared toEUR 42.9 million at the end of 2003. The Company performs its annualimpairment test as of the end of December each year. Under Netherlands GAAP, upto and including 2000, goodwill was directly charged to shareholders’ equity.From 2001 onward, goodwill arising from new acquisitions is capitalized andamortized, based on its estimated economic life, which is usually20 years.

 

(b) Pension costs included in the Consolidated Statements of Income arecomputed in accordance with Netherlands GAAP. For defined benefit plans, thoseamounts are based on the premiums which ARCADIS is required to pay to theARCADIS Pension Fund (the “Fund”). These premiums are calculated usingactuarial assumptions, which among others, do not take into account futuresalary increases or employee turnover due to resignations, dismissals ordisability. The present value is calculated by applying a discount rate of 4%.These amounts are not reduced by credits relating to overfunding of the Fund,which under Netherlands GAAP is computed by valuing assets at fair marketvalue, unless refunds are actually received from the Fund.

 

Under U.S. GAAP service costs are based on calculations using actuarialassumptions which, among others, include estimated future salary increases andestimated employee turnover related to resignations, dismissals and disability,and the present value is calculated by applying a discount rate of 4.50% for2004 and 5.25% for 2003 and 2002. Moreover, net periodic pension costs arereduced by credits, if any, representing amortization of overfunding of theFund, which is calculated by valuing plan assets at fair market value.

 

The difference between the pension cost computed under SFAS 87 (U.S.GAAP) and the one computed under Netherlands GAAP is shown in Note 16, andrelates principally to the difference in accounting treatment for over- orunder funded plans.

 

(c) In thecourse of preparing its annual report on Form 20-F for the year ended December31, 2004 for filing with the U.S. Securities and Exchange Commission, ARCADISN.V. identified some errors in its prior reconciliation of certain financialmeasures as prepared in accordance with Netherlands GAAP to accountingprinciples generally U.S. GAAP. Following this review, ARCADIS N.V. hasrecognized the need to restate the U.S. GAAP reconciliations of its financialstatements for these periods. In total, the effect of the reconciliationadjustments has resulted in:

 

•      AEUR 2.3 million increase in net income in accordance with U.S. GAAP for 2003 toEUR 22.6 million, from the previously reported EUR 20.3 million; and

 

•      Adecrease in shareholder’s equity in accordance with U.S. GAAP of EUR 1.7million for each of 2000, 2001 and 2002, and an increase in shareholders’equity in accordance with U.S. GAAP of EUR 0.4 million for 2003.

 

***Net Income in Accordance withU.S. GAAP***

 

The first adjustment relates toan actuarial accounting issue. Over 2003, contributions made by employees tothe pension fund were mistakenly presented as costs accounted for by ARCADISN.V. Net income in accordance with U.S. GAAP as restated is presented in thetable below:

 
| **U.S. GAAP Reconciliation  Adjustments  (Amounts in millions of Euros, except per share amounts)** | ** ** | **2003**   | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------|------------|
| Net income, as reported earlier                                                                     |       | 20.342     |       |
| Adjustment for decrease in pension costs                                                            |       | 3.480      |       |
| Tax effect                                                                                          |       | (1.218     | )          |
| ** **                                                                                          | ** ** | ** ** | ** ** |
| **Restated net income**                                                                             | ** ** | **22.604** | ** ** |
|                                                                                                |       |       |       |
| Basic net income per share, as reported  earlier                                                    |       | 1.00       |       |
| Diluted net income per share, as reported  earlier                                                  |       | 1.00       |       |
|                                                                                                |       |       |       |
| **Restated basic net income per share***                                                            | ** ** | **1.13**   | ** ** |
| **Restated diluted net income per share***                                                          | ** ** | **1.13**   | ** ** |

 

----

*       The higher per share incomeis not only caused by the adjustment in pension costs, but also by a reductionin the 

 

F-28

----

 

number ofshares used to calculate income per share, as shares purchased by the companyfor option plans are excluded from this calculation. The original number ofshares used to calculate basic net income per share in 2003 was 20,363,726,which mistakenly included 358,512 treasury shares purchased for option plans.The corrected number of shares is 20,005,214. The original number of sharesused to calculate diluted net income per share in 2003 was 20,374,632. Thecorrected number of shares is 20,069,107.

 

***Shareholders’ Equity in Accordance with U.S. GAAP***

 

The second adjustment relates to certain items identified during the company’simplementation of International Financial Reporting Standards (IFRS).

 

To comply with EU regulationsARCADIS has to prepare its Dutch financial statements over 2005 (includingcomparative figures over 2004) in accordance with IFRS. In the course ofpreparing the IFRS opening balance sheet as of January 1, 2004 some accountingissues came to our attention that should have been taken into account in pastU.S. GAAP reconciliations. The effect on the shareholders’ equity in accordancewith U.S. GAAP would not have been affected materially and there would not havebeen any effect on net income.

 

In the Form 20-F for the yearended December 31, 2004 all items are taken into account as reconciling itemsin the reconciliation of shareholders’ equity from Netherlands GAAP to U.S.GAAP. The comparative figures over 2003 have been adjusted as well as theshareholders’ equity for fiscal years 2000, 2001 and 2002.

 

***Work-in-progress***

For ARCADIS there are twodifferences between Netherlands GAAP and U.S. GAAP in accounting for work inprogress. Under Netherlands GAAP, proposal cost are capitalized asproject-related costs. These costs may not be capitalized under U.S. GAAP and,as a consequence, the work in progress should be reduced by EUR 2,5million. The second difference relates to general overhead costs. UnderNetherlands GAAP general overhead costs were considered as costs for projects,resulting, in case of loss making projects, in an excess loss provision of EUR0.6 million. Overall, the adjustments to work in progress lead to a reconcilingitem in the reconciliation of shareholders’ equity in the five-year periodended 2004 of EUR 1.9 million before taxes.

 

***Deferred compensation***

For a relatively small numberof staff members, jubilee payments are in place. For these payments a provisionshould be accounted for under U.S. GAAP of EUR 1.0 million.

 

***Doubtful debtors***

Under Netherlands GAAP someprovisions for doubtful debtors were accounted for that do not qualify underU.S. GAAP. Therefore an amount of EUR 0.2 million has been taken into accountas a reconciling item in shareholders’ equity.

 

***Taxes***

The tax amount reflects theamount of income tax over the above-mentioned reconciling items.

** **
| **U.S. GAAP Reconciliation  Adjustments  (Amounts are in millions of Euros.)** | ** ** | **2003**  | ** ** | **2002**  | ** ** | **2001**  | ** ** | **2000**  | ** ** |
|--------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|-----------|------------|
| Shareholder’s equity, as reported earlier                                 |       | 172.9     |       | 164.6     |       | 230.0     |       | 210.2     |       |
| Adjustments:                                                                   |       |      |       |      |       |      |       |      |       |
| Pensions                                                                       |       | 3.3       |       | —    |       | —    |       | —    |       |
| Work in progress                                                               |       | (1.9      | )          | (1.9      | )          | (1.9      | )          | (1.9      | )          |
| Deferred compensation                                                          |       | (1.0      | )          | (1.0      | )          | (1.0      | )          | (1.0      | )          |
| Provision for doubtful debtors                                                 |       | 0.2       |       | 0.2       |       | 0.2       |       | 0.2       |       |
| Taxes                                                                          |       | (0.2      | )          | 1.0       |       | 1.0       |       | 1.0       |       |
|                                                                           |       |      |       |      |       |      |       |      |       |
| **Restated shareholder’s equity**                                         | ** ** | **173.3** | ** ** | **162.9** | ** ** | **228.3** | ** ** | **208.5** | ** ** |

 

(d) Under Netherlands GAAP, the total balances of work in process arepresented on a net basis. Under U.S. GAAP, the gross amount of projects wherecosts incurred and estimated earnings exceed billings must be shown as anasset, and the gross amount of projects with billings in excess of costsincurred and estimated earnings must be 

 

F-29

----

 

recorded as aliability. If ARCADIS would present the balance sheet applying this U.S. GAAPmethod, the balance sheet total would increase by EUR 40.3 million in2004, and by EUR 40.0 million in 2003.

 

(e) Under Netherlands GAAP, net deferred tax liabilities are classifiedas provision. Under U.S. GAAP, deferred tax liabilities are classified ascurrent or noncurrent and offset based on the classification of the relatedasset or liability for financial reporting. Deferred tax assets related tocarryforwards are classified according to the expected reversal date of thecarryforward.

 

(f) The companies Grupo EP (Spain) and AAFM B.V. (Netherlands) in whichARCADIS holds a 50% interest, are included in the consolidated financialstatements on a proportional basis in conformity with Netherlands GAAP. UnderU.S. GAAP, the investment in a joint venture should be accounted for under theequity method. This departure from U.S. GAAP would have no effect onshareholders’ equity and net income. The financial statements prepared inconformity with Netherlands GAAP include the following amounts in respect ofthose investments:

 
| **Pro rata summarized financial information** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                          |       |     |       |     |       |     |       |
| Current assets                                |       | 44,126   |       | 41,064   |       | 33,813   |       |
| Non-current  assets                           |       | 15,869   |       | 11,046   |       | 9,030    |       |
| Total assets                                  |       | 59,994   |       | 52,110   |       | 42,843   |       |
| Current liabilities                           |       | 40,926   |       | 33,191   |       | 24,013   |       |
| Non-current liabilities                       |       | 6,101    |       | 8,430    |       | 8,905    |       |
| Minority interest                             |       | 1,302    |       | 1,259    |       | 1,151    |       |
| Total liabilities                             |       | 48,329   |       | 42,880   |       | 34,069   |       |
| Shareholders’ Equity                     |       | 11,666   |       | 9,230    |       | 8,774    |       |
| Gross revenue                                 |       | 88,307   |       | 64,373   |       | 64,785   |       |
| Group income from operations                  |       | 2,015    |       | 1,416    |       | 1,396    |       |

 

(g) The grossrevenue, net income and basic net income per share of 2004, 2003 and 2002 areinfluenced by in 2004 discontinued operations as follows:

 
| **Influence of discontinued operations**                 | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                     |       |     |       |     |       |     |       |
| Gross revenue of continued operations                    |       | 891,966  |       | 815,012  |       | 787,748  |       |
| Gross revenue of discontinued operations                 |       | 8,815    |       | 25,631   |       | 31,389   |       |
|                                                     |       |     |       |     |       |     |       |
| Net income of continued operations                       |       | 20,602   |       | 21,526   |       | 23,232   |       |
| Net income of discontinued operations                    |       | (463     | )          | (158     | )          | 1,436    |       |
|                                                     |       |     |       |     |       |     |       |
| Basic net income per share from continued  operations    |       | 1.02     |       | 1.08     |       | 1.16     |       |
| Basic net income per share from  discontinued operations |       | (0.02    | )          | (0.01    | )          | 0.07     |       |

 

(h) Under Netherlands GAAP, the balance sheet item Cash and Cashequivalents includes an amount of EUR 0.6 million at December 31,2004 (EUR 0.6 million at December 31, 2003) which is restricted forpayments of taxes and social securities, and therefore not freely available.Restricted amounts would not be included in cash and cash equivalents underU.S. GAAP.

 

F-30

----

 

***Reconciliation of Net Income***

 
| ** **                                                                                     | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                           |       |     |       |     |       |     |       |
| Net income in accordance with Netherlands  GAAP                                                |       | 20,139   |       | 21,368   |       | 24,668   |       |
| Adjustments:                                                                                   |       |     |       |     |       |     |       |
| Amortization of goodwill (a)                                                                   |       | 2,182    |       | 1,157    |       | 191      |       |
| Pensions (b)                                                                                   |       | (10,400  | )          | 122      |       | (2,362   | )          |
| Income tax effect of above adjustments                                                         |       | 3,276    |       | (43      | )          | 827      |       |
| Effect from change in tax rate                                                                 |       | (156     | )          | —   |       | —   |       |
| Net income in accordance with U.S. GAAP                                                        |       | 15,041   |       | 22,604   |       | 23,324   |       |
| Basic net income per common share in  accordance with U.S. GAAP                                |       | 0.75     |       | 1.13     |       | 1.16     |       |
| Diluted net income per common share in  accordance with U.S. GAAP                              |       | 0.74     |       | 1.13     |       | 1.15     |       |
| Weighted average number of shares of common  stock in accordance with U.S. GAAP (in thousands) |       | 20,140   |       | 20,005   |       | 20,129   |       |

 

Basic netincome per common share amounts in accordance with U.S. GAAP are based upon theweighted average number of the common shares outstanding during the period.Diluted net income per common share amounts in accordance with U.S. GAAP arebased upon the weighted average number of the common shares outstanding duringthe period plus the dilutive effect of potential common shares outstandingduring the period.

 

The dilutiveeffect of outstanding share options is as follows (in thousands):

 

| ** **                                | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------------|------------|------------------------------|------------|
| ** **                                | ** ** | **2004**                     | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                      |       |                         |       |   |   |   |   |
| Weighted average number of common shares  |       | 20,140                       |       | 20,005 |   | 20,129 |   |
| Common shares issuable under option plans |       | 258                          |       | 18 |   | 65 |   |
|                                      |       | 20,398                       |       | 20,023 |   | 20,194 |   |

 

At December 31,2004, options to purchase 285,486 shares of common stockat prices ranging from US$6.75 to US$15.00 and options to purchase 653,147shares of common stock at prices ranging from EUR 8.50 to EUR 10.79 wereoutstanding, but not included in the computation of diluted earnings per sharefor the year ended December 31, 2004 because their effect would beanti-dilutive. The exercise price of these options was greater than the averagemarket price of the common shares

 

At December 31,2003, options to purchase 535,404 shares of common stockat prices ranging from US$6.75 to US$11.50 and options to purchase 952,074shares of common stock at prices ranging from EUR 8.50 to EUR 10.79 wereoutstanding, but not included in the computation of diluted earnings per sharefor the year ended December 31, 2003 because their effect would be anti-dilutive.The exercise price of these options was greater than the average market priceof the common shares.

 

At December 31, 2002, options to purchase 611,077 shares of commonstock at prices ranging from US$6.75 to US$11.50 and options to purchase458,100 shares of common stock at prices ranging from EUR 8.50 to EUR 10.79were outstanding, but not included in the computation of diluted earnings pershare for the year ended December 31, 2002. The exercise price of theseoptions was greater than the average market price of the common shares.

 

**Stock-BasedCompensation**

 

Statement ofFinancial Accounting Standards No. 123, Accounting for Stock-Based Compensationestablishes financial accounting and reporting standards for stock-basedemployee compensation plans. This 

 

F-31

----

 

statement defines a fair valuebased method of accounting for employee stock options. However, it also allowsan entity to continue to measure compensation cost for those plans using theintrinsic value based method of accounting prescribed by APB Opinion No. 25.ARCADIS accounts for stock-based compensation plans under APB Opinion No. 25and has recorded no stock-based compensation expense under U.S. GAAP in 2002,2003 and 2004. Companies that continue to follow the intrinsic value basedmethod must disclose pro-forma earnings and earnings per share informationunder the fair value method.

 

If the fairvalue based method of accounting had been applied, pro-forma net earnings andearnings per share would have been as follows:

 
| ** **                                                                        | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|-----------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net earnings for the year in accordance  With U.S. GAAP as calculated above       |       | 15,041     |       | 22,604     |       | 23,324     |       |
|                                                                              |       |       |       |       |       |       |       |
| Effect of recording stock-based  compensation expense under the fair value method |       | (131       | )          | (691       | )          | (460       | )          |
|                                                                              |       |       |       |       |       |       |       |
| Pro-forma net earnings after application of  SFAS 123                             |       | 14,910     |       | 21,913     |       | 22,864     |       |
|                                                                              |       |       |       |       |       |       |       |
| Pro-forma net earnings per common share  after application of SFAS 123 in Euros   |       | 0.74       |       | 1.10       |       | 1.13       |       |

 

In calculatingthe foregoing pro-forma amounts, the fair value of each option grant wasestimated as of the date of grant using the Black-Scholes option-pricing modelwith the following weighted average assumptions:

 
| ** **              | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|-------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Dividend                |       | 0.48       |       | 0.48       |       | 0.48       |       |
| Expected volatility     |       | 35.0       | %          | 35.0       | %          | 50.0       | %          |
| Risk-free interest rate |       | 4.0        | %          | 4.0        | %          | 3.5        | %          |
|                    |       |       |       |       |       |       |       |
| Expected life of option |       | 5 years    |       | 5 years    |       | 3 years    |       |
| Expected forfeitures    |       | 15         | %          | 15         | %          | 0          | %          |

 

***Reconciliation of Shareholders’Equity***

 
| ** **                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                            |       |     |       |     |       |
| Shareholders’ equity in accordance with  Netherlands GAAP  |       | 145,670  |       | 136,538  |       |
| Adjustments to reported shareholders’  equity, net of tax: |       |     |       |     |       |
| Goodwill (a)                                                    |       | 41,076   |       | 42,870   |       |
| Pensions (b)                                                    |       | (38,900  | )          | (6,701   | )          |
| Work in progress (c)                                            |       | (1,866   | )          | (1,866   | )          |
| Deferred compensation (c)                                       |       | (1,000   | )          | (1,000   | )          |
| Others (c)                                                      |       | 203      |       | 203      |       |
| Income tax effect of above adjustments                          |       | 13,152   |       | 3,255    |       |
|                                                            |       |     |       |     |       |
| Shareholders’ equity in accordance with  U.S. GAAP         |       | 158,335  |       | 173,299  |       |

 

F-32

----

 

**Comprehensiveincome**

 

Comprehensiveincome/(loss) encompasses all changes in shareholders’ equity (except thosearising from transactions with owners). The comprehensive income andaccumulated other comprehensive income as show below, are presented based onU.S. GAAP numbers, and for the years ended December 31, 2004, 2003 and 2002were as follows:

 
| ** **                          | ** ** | **Comprehensive  Income (net of tax)** | ** ** | **Accumulated other  comprehensive  income** | ** ** |
|-------------------------------------|------------|----------------------------------------|------------|----------------------------------------------|------------|
| ** **                          | ** ** | ** **                             | ** ** | ** **                                   | ** ** |
| Balance - January 1, 2002           |       |                                   |       | 12,545                                       |       |
| Comprehensive income                |       |                                   |       |                                         |       |
| Net income                          |       | 23,324                                 |       |                                         |       |
| Provision minimum pension liability |       | (62,920                                | )          | (62,920                                      | )          |
| Foreign currency translation        |       | (13,668                                | )          | (13,668                                      | )          |
| Other changes                       |       | 87                                     |       | 87                                           |       |
| Comprehensive income                |       | (53,177                                | )          |                                         |       |
|                                |       |                                   |       |                                         |       |
| Balance - December 31, 2002         |       |                                   |       | (63,956                                      | )          |
| Comprehensive income                |       |                                   |       |                                         |       |
| Net income                          |       | 22,604                                 |       |                                         |       |
| Provision minimum pension liability |       | 12,352                                 |       | 12,352                                       |       |
| Foreign currency translation        |       | (10,103                                | )          | (10,103                                      | )          |
| Other changes                       |       | 70                                     |       | 70                                           |       |
| Comprehensive income                |       | 24,923                                 |       |                                         |       |
|                                |       |                                   |       |                                         |       |
| Balance - December 31, 2003         |       |                                   |       | (61,637                                      | )          |
| Comprehensive income                |       |                                   |       |                                         |       |
| Net income                          |       | 15,041                                 |       |                                         |       |
| Provision minimum pension liability |       | (14,933                                | )          | (14,933                                      | )          |
| Foreign currency translation        |       | (7,550                                 | )          | (7,550                                       | )          |
| Other changes                       |       | 59                                     |       | 59                                           |       |
| Comprehensive income                |       | (7,383                                 | )          |                                         |       |
|                                |       |                                   |       |                                         |       |
| Balance - December 31, 2004         |       |                                   |       | (84,061                                      | )          |

 

Pension additional minimum liability includes tax effects charged/addeddirectly to shareholders’ equity of € 6.9 million (added) for the year endedDecember 31, 2004, EUR 6.7 million (charged) in 2003 and € 33.9 million (added)in 2002.

 

Foreign currency translation adjustments have no tax effect.

 

**RECENT U.S. ACCOUNTING PRONOUNCEMENTS**

 

In January 2003, the FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities, an interpretation of ARBNo. 51. This Interpretation addresses the consolidation by businessenterprises of variable interest entities as defined in the Interpretation. TheInterpretation applies immediately to variable interests in variable interestentities created after January 31, 2003, and to variable interests invariable interest entities obtained after January 31, 2003. For nonpublicenterprises, such as the Company, with a variable interest in a variableinterest entity created before February 1, 2003, the Interpretation isapplied to the enterprise no later than the end of the first annual reportingperiod beginning after June 15, 2003. The application of this Interpretationis not expected to have a material effect on the Company’s financialstatements. The Interpretation requires certain disclosures in financialstatements issued after January 31, 2003 if it is reasonably possible thatthe Company will consolidate or disclose information about variable interestentities when the Interpretation becomes effective. The adoption of thisinterpretation did not have any impact on the 2003 financial statements.

 

F-33

----

 

**NOTE 18.DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS**

 

In view of the short-term turnaround times involved, the book value ofcash and cash equivalents, receivables and current liabilities approximatesfair value.

 

The fair value of ARCADIS’ long term debt does not materially differfrom the carrying value because the main part of the outstanding long term debtis maturing in 2005 and 2006.

 

**NOTE 19.SUPPLEMENTAL CASH FLOW DISCLOSURES**

 

Changes in inventories, receivables and other current assets, currentliabilities, long-term liabilities and long-term debt, as reported on theconsolidated statements of cash flows, can be reconciled to changes in therespective balance sheet amounts between December 31, 2003 and 2004 asfollows. Changes in the balance sheet items caused by new consolidations,deconsolidations and changes because of conversion of foreign currencies areeliminated. Investments in and divestments of consolidated companies arepresented net of cash.

** **

***Cash flow from operations***

 
| ** **                    | ** ** | ** **      | ** ** | ** **         | ** ** | **Other long-** | ** ** | ** **    | ** ** | ** **      | ** ** |
|-------------------------------|------------|-----------------|------------|--------------------|------------|-----------------|------------|---------------|------------|-----------------|------------|
| ** **                    | ** ** | ** **      | ** ** | **Receivables+**   | ** ** | **term**        | ** ** | **Long term** | ** ** | **Current**     | ** ** |
| ** **                    | ** ** | **Inventories** | ** ** | **current assets** | ** ** | **liabilities** | ** ** | **debt**      | ** ** | **liabilities** | ** ** |
| Changes in balance sheet      |       | 12,508          |       | 3,290              |       | 106             |       | (17,720       | )          | 50,275          |       |
| Eliminations                  |       |            |       |               |       |            |       |          |       |            |       |
| Exchange rate differences     |       | 790             |       | 3,093              |       | 678             |       | (1            | )          | 2,069           |       |
| (De) consolidations           |       | (4,183          | )          | (2,599             | )          | 750             |       | (965          | )          | (2,891          | )          |
| Other non-operational changes |       | (384            | )          | (697               | )          | 430             |       | 17,670        |       | (28,491         | )          |
| Bank overdrafts               |       |            |       |               |       |            |       |          |       | (2,248          | )          |
| **Operational change 2004**   | ** ** | **(8,731**      | **)**      | **(3,087**         | **)**      | **1,964**       | ** ** | **(1,016**    | **)**      | **18,714**      | ** ** |

 

F-34

----

 

*Issued shares*

 
| ** **                                 | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|
|                                       |       |       |       |       |       |
| ARCADIS N.V.  stock purchase plans         |       |       | —     |       | —     |   |
| ARCADIS N.V.  stock options exercised      |       | ** ** | **1,668**  | ** ** | **926**    | ** ** |
| Capital  increase to minority shareholders |       | ** ** | **59**     | ** ** | **288**    | ** ** |
| ** **                                 | ** ** | **1,727**  | ** ** | **1,214**  |       |

 

*Dividends paid*

 
| ** **                                               | ** ** | **2004**   | ** ** | **2003**  | ** ** |
|----------------------------------------------------------|------------|------------|------------|-----------|------------|
|                                                     |       |       |       |      |       |
| Paid to shareholders of ARCADIS N.V.                     |       | 9,647      |       | 9,597     |       |
| Paid to minority shareholders of  consolidated companies |       | 557        |       | 157       |       |
| ** **                                               | ** ** | **10,204** | ** ** | **9,754** |       |

 
| ** **                     | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------|------------|------------------------------|------------|
| ** **                     | ** ** | **2004**                     | ** ** | **2003** | ** ** | **2002** | ** ** |
| Cash paid during the year for: |       |                         |       |   |   |   |   |
| Interest                       |       | 5,066                        |       | 5,521 |   | 4,870 |   |
| Income Taxes                   |       | 9,593                        |       | 11,691 |   | 14,427 |   |

 

Acquisitionsof consolidated interests during 2004, 2003 and 2002 are summarized as follows:

 
| ** **                                                          | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                |       |     |       |     |       |     |       |
| Property, plant and equipment                                       |       | 3,030    |       | 4,523    |       | 6,287    |       |
| Working capital                                                     |       | 2,257    |       | 6,808    |       | 2,174    |       |
| Others, including goodwill                                          |       | 9,472    |       | 30,437   |       | 2,786    |       |
| Total acquisitions of consolidated  interests, net of cash acquired |       | 14,759   |       | 41,768   |       | 11,247   |       |

 

F-35

----

 

**ITEM19. EXHIBITS**

 
| **Exhibit  No.** | ** ** | **Exhibit  Description**                                                                                                                                                                                                                                                  |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1              |       | Articles of Association of ARCADIS N.V. (Incorporated herein by  reference from Exhibit 1.1 of ARCADIS N.V.’s Annual Report on Form 20-F for  the year ended December 31, 2004).                                                                                     |
| 4.1              |       | Employment Agreement, dated January 27, 1994, by and between ARCADIS  N.V. and Harrie L.J. Noy, as amended on June 19, 2000 (Incorporated herein by  reference from Exhibit 4.1 of ARCADIS N.V.’s Annual Report on Form 20-F for  the year ended December 31, 2004). |
| 4.2              |       | Employment Agreement, dated January 20, 2000, by and between ARCADIS  N.V. and C. Michiel Jaski (Incorporated herein by reference from Exhibit 4.2  of ARCADIS N.V.’s Annual Report on Form 20-F for the year ended December 31,  2004).                             |
| 4.3              |       | The ARCADIS G&M, Inc. 2002 Officer Stock Purchase Plan  (Incorporated herein by reference from Exhibit 4.1 of ARCADIS N.V.’s  Registration Statement on Form S-8, filed on April 28, 2003).                                                                      |
| 4.4              |       | ARCADIS N.V. 2002 Employee Stock Purchase Plan (Incorporated herein  by reference from Exhibit 4.1 of ARCADIS N.V.’s Registration Statement on  Form S-8, filed on June 28, 2002).                                                                                   |
| 4.5              |       | ARCADIS N.V. 2001 Long-Term Incentive Share Option Plan (Incorporated  herein by reference to Exhibit 4.1 to ARCADIS N.V.’s Registration Statement  on Form S-8 (File No. 333-99489) filed on September 6, 2002).                                                    |
| 4.6              |       | Heidemij N.V. 1996 Incentive Plan. (Incorporated herein by reference  from Exhibit 4.1 of ARCADIS N.V.’s Registration Statement on Form S-8, filed  on January 14, 1997).                                                                                            |
| 4.7              |       | Heidemij N.V. 1994 Incentive Plan (Incorporated herein by reference  from Exhibit 4.3 of ARCADIS N.V.’s Registration Statement on Form S-8, filed  on March 11, 1994).                                                                                               |
| 8.1              |       | Subsidiaries of ARCADIS N.V. as of December 31, 2004.                                                                                                                                                                                                                     |
| 11.1             |       | ARCADIS General Business Principles (Incorporated herein by reference  from Exhibit 11.1 of ARCADIS N.V.’s Annual Report on Form 20-F for the year  ended December 31, 2004).                                                                                        |
| 12.1             |       | Certificate of Principal Executive Officer Pursuant to §302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                      |
| 12.2             |       | Certification of Principal Financial Officer Pursuant to §302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                    |
| 13.1             |       | Certificate of Principal Executive Officer Pursuant to §906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                      |
| 13.2             |       | Certificate of Principal Financial Officer Pursuant to §906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                      |
| 14.1             |       | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                 |

 

----

 

**SIGNATURES**

 

Pursuant tothe requirements of Section 12 of the Securities Exchange Act of 1934, theregistrant certifies that it meets all of the requirements for filing onForm 20-F and has duly caused this annual report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
| ** **                | **ARCADIS N.V.** |
|---------------------------|------------------|
| ** **                | ** **       |
| Dated: June 13, 2005 | By:              |   /s/ Harrie L.J. Noy |   |
|                      |             | Harrie L.J. Noy |
|                      |             | Chairman of the Executive Board |

 

----

 

**INDEX OF EXHIBITS**

 
| **Exhibit No.** | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                   |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1             |       | Articles of Association of ARCADIS N.V. (Incorporated herein by  reference from Exhibit 1.1 of ARCADIS N.V.’s Annual Report on Form 20-F for  the year ended December 31, 2004).                                                                                     |
| 4.1             |       | Employment Agreement, dated January 27, 1994, by and between ARCADIS  N.V. and Harrie L.J. Noy, as amended on June 19, 2000 (Incorporated herein by  reference from Exhibit 4.1 of ARCADIS N.V.’s Annual Report on Form 20-F for  the year ended December 31, 2004). |
| 4.2             |       | Employment Agreement, dated January 20, 2000, by and between ARCADIS  N.V. and C. Michiel Jaski (Incorporated herein by reference from Exhibit 4.2  of ARCADIS N.V.’s Annual Report on Form 20-F for the year ended December 31,  2004).                             |
| 4.3             |       | The ARCADIS G&M, Inc. 2002 Officer Stock Purchase Plan  (Incorporated herein by reference from Exhibit 4.1 of ARCADIS N.V.’s  Registration Statement on Form S-8, filed on April 28, 2003).                                                                      |
| 4.4             |       | ARCADIS N.V. 2002 Employee Stock Purchase Plan (Incorporated herein  by reference from Exhibit 4.1 of ARCADIS N.V.’s Registration Statement on  Form S-8, filed on June 28, 2002).                                                                                   |
| 4.5             |       | ARCADIS N.V. 2001 Long-Term Incentive Share Option Plan (Incorporated  herein by reference to Exhibit 4.1 to ARCADIS N.V.’s Registration Statement  on Form S-8 (File No. 333-99489) filed on September 6, 2002).                                                    |
| 4.6             |       | Heidemij N.V. 1996 Incentive Plan. (Incorporated herein by reference  from Exhibit 4.1 of ARCADIS N.V.’s Registration Statement on Form S-8, filed  on January 14, 1997).                                                                                            |
| 4.7             |       | Heidemij N.V. 1994 Incentive Plan (Incorporated herein by reference  from Exhibit 4.3 of ARCADIS N.V.’s Registration Statement on Form S-8, filed  on March 11, 1994).                                                                                               |
| 8.1             |       | Subsidiaries of ARCADIS N.V. as of December 31, 2004.                                                                                                                                                                                                                     |
| 11.1            |       | ARCADIS General Business Principles (Incorporated herein by reference  from Exhibit 11.1 of ARCADIS N.V.’s Annual Report on Form 20-F for the year  ended December 31, 2004).                                                                                        |
| 12.1            |       | Certificate of Principal Executive Officer Pursuant to §302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                      |
| 12.2            |       | Certification of Principal Financial Officer Pursuant to §302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                    |
| 13.1            |       | Certificate of Principal Executive Officer Pursuant to §906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                      |
| 13.2            |       | Certificate of Principal Financial Officer Pursuant to §906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                      |
| 14.1            |       | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                 |

 

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