EXHIBIT 10.1


LOGO





Société Anonyme with share capital of  1,292,324,754


Head office: 25, avenue Kléber  75116 Paris  France


R.C.S.: 389 058 447 Paris


Internet addresses: www.alstom.com


www.alstom.fr





ANNUAL
REPORT  FINANCIAL INFORMATION


FISCAL YEAR 2002





[Selected Pages]




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OPERATING AND FINANCIAL REVIEW AND PROSPECTS





You should read the following discussion together with our Consolidated Financial Statements for fiscal year 2002 and the notes
thereto, Description of Activities and Risk Factors, included elsewhere in this Annual Report. During the periods discussed in this section, we made several significant transactions that affected the comparability of our
financial results between periods. In order to allow you to compare the relevant periods, we present certain information both as it appears in our financial statements and adjusted to improve comparability. We describe these adjustments under
Financial Statements for the Years Ending 31 March 2000, 2001 and 2002  Changes in business composition below.





This document contains certain information about the markets in which we operate (market size, competitive position). Unless otherwise stated, we have prepared all market share and statistical data contained in this
Annual Report on the basis of internal sources and estimates.





OVERVIEW





Since our initial public offering in 1998, we have faced a dramatic transformation of the industries in which we operate, and have responded by reshaping our portfolio
of products, systems and services. These changes have been due principally to continued deregulation of our markets and privatisation, which has increasingly changed our customer base from one composed of large state-owned companies to one composed
of smaller private companies. We have addressed these developments by transforming our group. We have completed our technology base through a series of strategic acquisitions, most notably through the acquisitions of heavy-duty gas turbine
technology from ABB and tilting train technology through our acquisition of Fiat Ferroviaria. In February 2002, we entered into a technology agreement with Rolls Royce that we intend to exploit to further develop our heavy-duty gas turbines
technology. As a result of this transformation, our Power Sector represented 57% of our sales in fiscal year 2002, Transport 19%, Transmission & Distribution (T&D), when combined with Power Conversion, 17%, and Marine 6% (these figures
exclude sales of our former Contracting Sector, which we sold in July 2001). In the process, we have significantly improved the geographical balance of our sales, with approximately 62% of our fiscal year 2002 sales generated outside of Europe,
including 34% in the Americas (these figures exclude sales from our former Contracting Sector).





The following
table sets forth, on a consolidated basis, some of our key financial and operating data.





Year ended and at 31 March2000

2001

2002(in  million)Order backlog

23,701

39,429

35,815Orders received

17,259

25,727

22,686Sales

16,229

24,550

23,453Operating income

729

1,151

941Operating margin

4.5%

4.7%

4.0%Net income after goodwill amortisation

349

204

(139
)Earnings per share ()(1)

1.6

0.9

(0.6
)


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|(1) |  | Per share information is calculated on the basis of the weighted average number of outstanding shares.
|--- |  | ------------------------------------------------------------------------------------------------------




In fiscal year 2002, our results were generally disappointing. In the first six months of fiscal year 2002, orders and sales increased.
More difficult market conditions in Power and Marine appeared later in fiscal year 2002 as the economic downturn in the US was further impacted by the tragic events of 11 September 2001 and the bankruptcy proceedings of Enron. The lower levels
of global economic activity, notably in the US and Japan, are also affecting Asia. Due to this global economic environment, the orders we received in fiscal year 2002 declined whilst our sales were stable versus fiscal year 2001, in each case
on a comparable basis. The order book proved resilient overall and amounted to  35.8 billion at 31 March 2002, representing 19 months of




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sales (excluding sales from our former Contracting Sector). Orders and sales were negatively impacted by the disposals of our former Contracting Sector and our 51% interest in GT Railway
Maintenance Holdings Limited (GTRM), a UK rail maintenance company, by lower orders and deliveries in Marine and lower orders in Power. Operating margin decreased to 4.0% from 4.7% due mainly to delivery difficulties on several UK train
contracts, pricing pressure in our T&D activities and a drop in the Marine operating margin, as described below.





We incurred a net loss of  139 million in fiscal year 2002 versus a net profit of  204 million in fiscal year 2001. This net loss was due essentially to lower operating margins, higher restructuring costs, provision
charges for vendor financing and interest expense, partly offset by capital gains on disposals. Due to a net cash outflow as a result of several operational and working capital issues, our net debt at 31 March 2002 increased to approximately 
2.1 billion from  1.6 billion at 31 March 2001. The balance of future receivables sold under our securitisation programme rose to approximately  1.7 billion from  1.6 billion at 31 March 2001.





In response to this deterioration of our financial situation and market environment, we are implementing a strategic plan, Restore
Value, discussed later in this section.





OPERATIONAL ISSUES





Our results for the fiscal year ended 31 March 2002 were particularly influenced by three operational issues.





Power: Update on GT 24/26 Gas Turbine Issues





On
31 July 2000, we announced that we had experienced significant technical difficulties in the introduction of the new GT 24/26 heavy-duty gas turbines. GT 24/26 heavy-duty gas turbines are at the top end of our extensive range of gas turbines, with
respective outputs of 179 MW and 262 MW. They are among the largest individual products we sell and are typically sold as part of a larger power project involving other Power products. The GT 24/26 turbines are based upon technology developed by
ABB. ABB initiated the development and marketing of the GT 24/26 turbines in 1995, and also entered into the contracts for sales of these turbines. These turbines were based on an advanced and novel design concept. In connection with the start of
commercial operation of these turbines in 1999 and 2000, a number of significant technical problems were identified affecting all the 79 turbines previously sold.





In response to these technical problems, we are progressively designing and implementing modifications across the fleet of GT 24/26 turbines and we continue to negotiate
settlement agreements with our customers. Our plan is to modify all existing GT 24/26 turbines and to include the modifications to the 21 GT 24/26 turbines remaining to be delivered. Modifications that should deliver further enhancements to output
and efficiency over future years are also being designed, tested and then incorporated progressively into the turbines. In February 2002, we entered into a technology agreement with Rolls-Royce, in relation to use of their aero-engine technology, to
further develop our heavy-duty gas turbine technology, in particular the GT 24/26 turbines.





To date the
cumulative operating hours of the installed turbines had reached in excess of 250,000 hours. The improvement programme is on schedule and settlements have been agreed or are not required for 56 turbines. Of the remaining 23 turbines, settlement
negotiations are under way on 16 machines (including five that are subject to litigation) with seven still to be started. The settlements are agreements with our clients for penalties and remedial actions during the agreed interim period, until the
implementation of the performance improvement modifications at which time the agreements require the turbines to meet specified performance criteria.





We have established provisions to cover the anticipated costs of making modifications to the turbines and to allow for the additional expenditure not already covered within contract costs that we
expect to incur in reaching settlements with our customers, including the costs of fulfilling contractual conditions. We recorded, prior to 30 September 2000,  1,625 million of provisions and accrued contract costs in respect of projects
relating to the 79 GT 24/26 turbines. We retained  1,440 million of provisions and accrued contract costs at 31 March 2002 in respect of these turbines. See Notes 6 and 18 to the Consolidated Financial Statements for fiscal year 2002.




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Sales of GT 24/26 gas turbines represented approximately 14% of Powers sales during fiscal year 2002 versus 17% of
Powers sales during fiscal year 2001.





Transport: UK Trains





In 1997, shortly after the privatisation of the UK rail industry, we took five orders for a total of 119 new regional trains with an aggregate value of  670 million.
These contracts were part of the first series of orders following the rail deregulation in the UK.





The
difficulties that we encountered on these contracts are isolated but nevertheless significant. As part of the UK deregulation, responsibility for approving railway vehicle safety specifications shifted to a variety of new governmental agencies,
which delayed the receipt of necessary government approvals and authorisations. In addition, deregulation introduced a number of new rail operators each of whom had their own contractual and technical requirements. In order to meet our initial
delivery commitments, we were required to commence production prior to receipt of final government specifications and approvals. When these specifications were finalised, they differed from our expectations, which required costly and time-consuming
modifications. As a result, we did not meet our delivery schedules and are implementing action plans to gain customer acceptance of the remaining trains.





We have reorganised the business and put in place new management to resolve this issue quickly and comprehensively. At 31 March 2002, 90 of the 119 CORADIA and Juniper trains ordered by South West
Trains, Scotrail, Northwest Trains and Gatwick Express had been delivered. We expect to deliver the remaining 29 trains by the end of the 2002 calendar year.





Marine: Vendor Financing





We undertook financial assistance, which we refer to as
vendor financing, in support of the recovery plan for the Marine Sector from fiscal year 1996 to fiscal year 1998, which assisted us to obtain repeat orders for cruise-ships and increased the productivity of the shipyard. We provided
guarantees to financial institutions relating to indebtedness incurred by certain purchasers of our cruise-ships and fast ferries. At 31 March 2002, these guarantees related to a total of 13 ships, including six cruise-ships delivered to Renaissance
Cruises and seven for four other customers. In addition, two other cruise-ships were supplied to Renaissance Cruises (Renaissance) without vendor financing.





Renaissance filed for bankruptcy proceedings in September 2001. Thereafter, the lenders and we have undertaken actions to secure and maintain the ships and to restructure
their financing. Our overall exposure to Renaissance vendor financing at 30 September 2001 was  684 million in guarantees of financing made in connection with the delivery of the six ships.





As part of the restructuring, which was completed in fiscal year 2002, ownership of the six ships, including four that were previously owned by four special purpose
leasing entities in which we had an interest, was transferred to subsidiaries of Cruiseinvest (Jersey) Ltd., an entity in which we own no shares. Cruiseinvest financed this acquisition principally through bank borrowings, guaranteed in part by us.
In addition, we purchased subordinated limited recourse notes issued by Cruiseinvest, agreed to provide Cruiseinvest with a line of credit and met certain of our commitments under our pre-existing guarantees. Interest on the subordinated limited
recourse notes is payable only from amounts remaining after satisfaction of payments due on Cruiseinvests bank borrowings.





In parallel, the re-marketing of the ships has commenced, with the objective to charter the ships on a long-term basis or sell them on normal market terms. One of the ships, R8, has been chartered to P&O Princess. In the
meantime, alternative revenue generating uses for the other five ships are being put in place. Our overall exposure to Renaissance vendor financing was reduced from  684 million at 30 September 2001 to  432 million at 31 March
2002, consisting of  195 million relating to the limited recourse notes,  40 million relating to the line of credit, and  197 million relating to guarantees. We describe our exposure in greater detail in Notes 9, 23 and 26(b) of
the Consolidated Financial Statements for fiscal year 2002.




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In addition to our Renaissance vendor financing exposure of  432 million,
at 31 March 2002 our other remaining vendor financing exposure in Marine amounted to  612 million, relating to five cruise-ships and two ferries for four customers. Consequently, our total vendor financing exposure in relation to Marine
amounted to   1,044 million at 31 March 2002. In addition, after 31 March 2002, a guarantee was granted, for a total of   42 million, for the financing of one other cruise-ship ordered in 1998 which was delivered in April 2002.
There are no other vendor financing arrangements or commitments relating to cruise-ships in the order book.





During fiscal year 2002, we recorded a provision of  110 million above operating income relating to our exposure to Renaissance, of which we expensed  56 million, leaving a retained provision of  54 million for the
Renaissance exposures, and recorded an additional provision of  90 million under other expenses to cover risks relating to Marine vendor financing generally. Consequently, we retained a total of  144 million of provisions at 31 March
2002 to cover risks associated with Marine vendor financing. Given previously existing provisions to cover risks in our Marine Sector, part of which were released, the net impact on our consolidated net income for the year ended 31 March 2002, was
an additional expense of  90 million, corresponding to the  90 million provision recorded under other expenses.





The balance sheet impact of the Renaissance restructuring was limited due to the fact that at 31 March 2001 we had  346 million in dedicated deposits (recorded under long term deposits and retentions in Other Fixed Assets)
relating to our initial guarantees, which we used to finance in part the restructuring. At 31 March 2002, we had  169 million deposited in relation to our remaining guarantees. See Note 9 to the Consolidated Financial Statements for fiscal
year 2002.





RESTORE VALUE





On 14 March 2002 we presented our Restore Value plan with the key objective of strengthening our balance sheet and cash flow generation. Strengthening the balance sheet is necessary due to
the increase in our debt-to-equity ratio since our initial public offering resulting from increased working capital requirements and major acquisitions undertaken over the last four years, including the creation of ABB ALSTOM Power and subsequent
purchase of ABBs stake and the acquisition of Fiat Ferroviaria. We funded these investments substantially from cash and borrowings. As explained above, we have also faced several one-off issues such as the GT 24/26 technical difficulties and
delays in the delivery of UK trains. The Renaissance Cruises bankruptcy has highlighted our highly leveraged balance sheet. Over the next three years we will concentrate on the most profitable segments of our markets, improving operational
efficiency at all levels and substantially improving cash generation across the whole range of our businesses.





The Restore Value plan focuses on three elements: reinforcing management, strengthening our balance sheet and improving operational excellence.





Management





During fiscal year 2002, we made important
organisational changes and strengthened our management both at Corporate and Sector levels.





The Power Sector has
been fully integrated into ALSTOM following the acquisition from ABB, and the structure of our T&D and Transport Sectors has been reconfigured. More generally, the integration between Sectors and Corporate has been substantially reinforced and
tighter controls put in place.




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Cash Focus








| |  |  | Generate cash flow from operations.    Our objective is to generate  1.3 billion of cumulative free cash flow from operations
over the fiscal year 2003 to fiscal year 2005 period, although our ability to do so will depend on the operating performance of our Sectors and our ability to reduce working capital requirements;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Restructure debt and improve liquidity.    We and our banks have agreed changes to our covenants for a limited period and to our debt
structure and maturity. In addition, in March 2002, we secured   850 million of supplementary back-up lines of credit;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Real estate sales.    We intend to sign agreements for the sale of an estimated  750 million in real estate sales by December
2002. We have identified sites for sale located in seven western European countries. Advisers have been working on a three-stage plan consisting of a feasibility study, marketing and execution. We expect to remain the occupier of most properties,
and do not intend to enter into put or call arrangements in connection with the sales. We expect future savings on depreciation and interest expense to offset higher rent expense;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Disposal of non-core businesses.    Through a comprehensive strategic review of our portfolio, we have identified twelve non-core
assets for disposal. These assets generated total revenues of approximately   3.3 billion for the fiscal year 2002. At 31 March 2002, we had commenced the disposal process of nine businesses. Once the savings of tax, interest and goodwill
amortisation have been realised we expect that the impact on net income of the disposals will be negligible. If the proceeds of the disposals equal our estimates, we would realise a small capital gain before tax. This plan is based on selling
constituent businesses from different Sectors, and would not include the sale of an entire Sector; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Capital increase.    We intend to issue new shares through a capital increase with preferential subscription rights for existing
shareholders. The timing and the amount of the offering depend on market conditions and regulatory approvals.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Operational Excellence





Our strategic plan includes several objectives:





| |  |  | Improve our business mix with an increased emphasis on higher growth and margin activities in each Sectors portfolio;
| | - |  | ----------------------------------------------------------------------------------------------------------------------




| |  |  | Streamline our cost structure through continuous improvement of productivity with an estimated restructuring charge of  200 million per year over the
three-year plan period. We are seeking to reduce annual overhead expense by an estimated  250 million per year by the end of the three-year plan;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Improve operational excellence by further tightening risk management and focusing on improved quality; and
| | - |  | ----------------------------------------------------------------------------------------------------------




| |  |  | Rapidly resolve the operational issues discussed above in Power, Transport and Marine.
| | - |  | --------------------------------------------------------------------------------------




Power Strategy





In
order to boost our position in the competitive global market, Power continues to focus on a series of measures to improve our market position and product quality. Powers key strategies are as follows:





| |  |  | Increasing our emphasis on operational efficiency by reducing our cost structure, enhancing cash management and focusing on quality and process improvements. In
addition, implementation of the Quality Focus 6 Sigma programme  an operational excellence programme central to Powers performance improvement strategy  is being accelerated to increase on-time delivery of
high-quality products and services to customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Focusing on high-growth/high-margin activities, such as service, including information technology solutions, industrial gas turbines and emissions reduction
products and services;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Given the importance of new orders in the marketplace, we are strengthening our technological expertise in heavy-duty gas turbines, notably through a long-term
technology agreement we have entered into with Rolls-Royce; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Increased spending on gas turbine-related research and development will be directed to the enhancement of existing products and the development of new
competitive products in this area in the medium and long-term.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




T&D Strategy





In line with its market positioning as a leading solution provider, T&D intends to implement a
three-fold strategy as follows:





| |  |  | Strengthen core activities in order to sustain competitive advantage on conventional T&D products. This consists mainly of improving the current
profitability of conventional products, through product, cost and manufacturing base rationalisation. In addition, we are building foundations to grow in new market segments, and filling minor gaps in our product portfolio;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Grasp growth opportunities in the new, extended T&D market scope by developing value-added services and systems activities. This includes growing
information technology, developing network consultancy and building a field service activity; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Expand geographically and re-deploy the sales force to adapt coverage to market potential and leverage the Sectors strength on a world-wide basis. This
requires re-balancing presence to growing markets, including, more particularly, the US and China.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




To implement this strategy, we implemented a new organisation in fiscal year 2002. This new organisation, supported by an internal change programme, T&D On the Move, is based on the following:





| |  |  | An International Sales and Country Organisation (ISCO), which provides customers with a single point of contact for all of our T&D products and services,
whilst improving access of our rationalised manufacturing base to world-wide markets;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Our reorganised Businesses, which provide a wide range of T&D products and services for the energy supply chain  transforming voltage,
switching, protecting, measuring, managing energy flows and interconnecting networks; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Supporting functions, such as Strategy, Communications and Finance, will provide cohesive support across T&D, ensuring control of costs across the
Businesses.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------




Transport Strategy





We intend to sustain our leading market positions and ensure product superiority in our chosen markets by:





| |  |  | Taking advantage of the buoyant European markets;
| | - |  | -------------------------------------------------




| |  |  | Continuing to grow non-manufacturing activities such as service and signaling;
| | - |  | ------------------------------------------------------------------------------




| |  |  | Improving profitability and cash flow of our Rolling Stock activities, principally by improving our operating margin in Europe, whilst maintaining our current
market share, and continuing to increase our market share in the US; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Developing technological advantages by improving existing product ranges.
| | - |  | -------------------------------------------------------------------------



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Marine Strategy





To address further the recent difficulties in the cruise-ship market and capitalise on our efficient shipbuilding technology, our strategy in Marine seeks to:





| |  |  | Maintain our position as a world leader in cruise-ships by focusing on cost, technology and quality;
| | - |  | ----------------------------------------------------------------------------------------------------




| |  |  | Capitalise on growth in the LNG market through advanced technological solutions and strategic partnerships and alliances, possibly with a Chinese manufacturer;
and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Take advantage of opportunities in the supply of naval vessels.
| | - |  | ---------------------------------------------------------------




In addition to our Restore Value programme of operational excellence, Marine has initiated a new programme, CAP 21+, designed to capitalise on the results of its previous
major productivity initiative called the CAP 21 programme, which was launched in 1997. CAP 21+ relies on the same elements as Quality Focus, our company-wide programme, which emphasises reliability, performance, competencies and innovation. Our
objectives will require an increased focus on research and development and training, and reinforced co-operation with suppliers and subcontractors. As part of this effort, we have also developed a CAP performance plan that we believe will help us
optimise our relationships with suppliers and business partners.





OUTLOOK





In connection with the Restore Value plan, we have established a number of internal financial targets. Our targets are the following:





| |  |  | To increase operating margin from 4% to near 5% on broadly stable sales in fiscal year 2003 and to 6% by 2005.
| | - |  | --------------------------------------------------------------------------------------------------------------




The targets for each Sector are the following:





| |  |  | Power: operating margin to be 6% by end of fiscal year 2005;
| | - |  | ------------------------------------------------------------




| |  |  | T&D: operating margin to be 8% by end of fiscal year 2005 including Power Conversion;
| | - |  | -------------------------------------------------------------------------------------




| |  |  | Transport: operating margin to be 7% by end of fiscal year 2005; and
| | - |  | --------------------------------------------------------------------




| |  |  | Marine: operating margin to be 3% by end of fiscal year 2005 and 5% by end of fiscal year 2006;
| | - |  | -----------------------------------------------------------------------------------------------




| |  |  | To generate cumulative free cash flow from operations of  1.3 billion over the fiscal year 2003 to fiscal year 2005 period and for free cash flow from
operations to equal EBIT (earnings before interest and tax) by fiscal year 2005; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | To generate overall proceeds of  2.1 billion by the end of fiscal year 2003 from real estate sales, non-core disposals and a capital increase.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------




These actions, plus the other cash management actions described above, are intended to allow
us to achieve a gearing ratio (net financial debt divided by the sum of shareholders equity and minority interests) of around 20% by the end of fiscal year 2005.





The success of Restore Value and our actual operating margin and financial position could differ materially from the goals and targets expressed above if any of the risks
we describe in the Risk Factors section, or other unknown risks, materialise. These risks include, among other things, our exposure to the global level of infrastructure spending, the technological risks related to new products we
introduce and competition in our industries.





RECENT DEVELOPMENTS





In April 2002, we purchased the remaining 49% of ALSTOM Ferroviaria Spa (formerly Fiat Ferroviaria) for  154 million.




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In May 2002, we announced that Power had been awarded contracts to supply and
maintain for 20 years a gas fired power plant at Dunkirk, France to be owned by Gaz de France. These orders have a combined value of approximately  450 million and will be recorded in fiscal year 2003.





The cruise-ship European Stars was delivered on 24 April 2002.





FINANCIAL STATEMENTS FOR THE YEARS ENDING 31 MARCH 2000, 2001 AND 2002





Changes
in business composition





Our results of operations for the three years ended 31 March 2002 have been
significantly impacted by the acquisitions and disposals described below. The table below sets forth our main acquisitions and joint ventures during the periods indicated. Sales and number of employees are presented for the fiscal year preceding the
acquisition, except as otherwise indicated.





Company

Sectors

Country/Region

% of shares acquired

Sales (in  million)


Number of EmployeesFiscal year 2002Bitronics, Inc.

T&D

United States

100%

13


60Railcare Ltd.

Transport

UK

100%

53


633Ansaldo Coemsa SA

T&D/Power

Brazil

100%

40


516Fiscal year 2001ABB ALSTOM Power

Power

World-wide

Remaining 50%

7,706
(1)

58,000Norweb Contracting

Contracting/T&D

UK

Assets

65


300Scottish Power Contracting

Contracting/T&D

UK

Assets

100


1,100Sunvic

Contracting

Germany

100%

81


750Traxis

Transport

Netherlands

100%

37


240Fiat Ferroviaria(2)

Transport

Italy

51%

375


2,200Faceo (JV with property management Subsidiaries of Thales)

Contracting

France

50%

163


1,000Fiscal year 2000ABB ALSTOM Power

Power

World-wide

50%

7,706
(1)

58,000ALSTOM South Africa

Other

South Africa

Remaining 50%

187


3,181Missenard Quint

Contracting

France

100%

46


434Electricité et Technique

Contracting

France

100%

6


32ALTM S.A.

T&D

Brazil

51%

17


380ALSTOM Parafoudres (ex Soulé)

T&D

France

100%

8


55Télécité Inc.

Transport

Canada

100%

7


70


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|(1) |  | 100% of ABB ALSTOM Power sales for period from 1 July 1999 to 31 March 2000.
|--- |  | ----------------------------------------------------------------------------




|(2) |  | Fiat Ferroviaria consolidated with effect from 1 October 2000.
|--- |  | --------------------------------------------------------------






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The table below sets forth our main disposals during the periods indicated. Sales
are presented for the fiscal year preceding disposal.





Company

Sectors

Country/Region

% of shares disposed


Sales (in  million)

Number of EmployeesFiscal year 2002Contracting Sector

Contracting

World-wide

100
%

2,485

23,797GTRM

Transport

UK

51
%

229

4,203ALSTOM Power Boilers (waste to energy) business

Power

France

100
%

124

155Fiscal year 2001Various businesses reported within the Industry Sector

Industry

World-wide

100
%

281

2,800Fiscal year 2000ALSTOM Gas Turbines S.A. and ALSTOM Gas Turbines GmbH

Power

World-wide

100
%

609

2,500





Power





Under the terms of the agreement we signed on 23 March 1999, we sold our heavy-duty gas turbines business to General Electric (GE) for net proceeds of US$ 912 million. The
heavy-duty gas turbines business we sold to GE contributed  609 million to our sales for the year ended 31 March 1999. Also on 23 March 1999, we entered into an agreement with ABB to create a new joint venture company, ABB ALSTOM Power. On
 30 June 1999, we transferred to ABB ALSTOM Power all of our Energy operations, except for the heavy-duty gas turbines business that we had sold to GE. ABB transferred to ABB ALSTOM Power substantially all of its power generation business,
except for its nuclear operations, Combustion Engineering Inc. and its asbestos liabilities. At the time of the transaction, the combined sales of ABB ALSTOM Power amounted to approximately  9.9 billion, of which approximately  7.2
billion was contributed by ABB and approximately   2.7 billion by us. To offset the difference in the size of the contributions made by us and by ABB and to reach ownership parity, we paid ABB  1.48 billion, approximately US$ 1.53
billion at that date, upon the creation of the joint venture. On 11 May 2000, we acquired ABBs 50% interest in ABB ALSTOM Power. We paid ABB   1.25 billion in cash. This transaction included the resolution of all outstanding matters
related to the formation of the joint company. In these two transactions, we acquired substantially all of ABBs power generation business for approximately  2.7 billion.





As a result of this repositioning, the reported figures for Power in fiscal years 2000, 2001 and 2002 are not directly comparable. The data concerning Power for the year
ended 31 March 2000 include the figures of the former Energy Sector of ALSTOM for the period 1 April to 30 June 1999 (3 months), and 50% of the figures of ABB ALSTOM Power for the period 1 July 1999 to 31 March 2000 (9 months). For fiscal year 2001,
the figures reflect the 50% consolidation of ABB ALSTOM Power under the proportional consolidation method  from 1 April 2000 to 10 May 2000 and the 100% consolidation of Power from 11 May 2000 to 31 March 2001. The figures for fiscal year 2002
reflect the full consolidation for the entire year.





Power Conversion





Power Conversion was created on 1 July 1999 from the merger of our Drives and Controls, Motors and Generators and several smaller related businesses previously part of
our former Industry Sector. Power Conversion replaced Industry within our reporting structure from 1 April 2000. As mentioned above, we integrated this sector into T&D with effect from 1 April 2002.




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Contracting





We sold our former Contracting Sector on 20 July 2001 to CDC Equity Capital (CDC IXIS Group) and Charterhouse Development Capital, which financed a management buy-out. The
transaction was finalised with a sale price of  756 million.





Comparable figures for fiscal years 2001 and 2002





Adjustments have been made to evaluate orders received and sales on a comparable basis by removing material
acquisitions made during fiscal year 2002 (Bitronics Inc., Ansaldo Coemsa SA, and Railcare Ltd.), from results reported at 31 March 2002. Material disposals made during fiscal year 2002 (Contracting and GTRM) have also been removed from the figures
reported at 31 March 2001 and at 31 March 2002. For Fiat Ferroviaria, 51% of which was acquired in fiscal year 2001 and which was fully consolidated as of 1 October 2000, the figures have been removed from both fiscal year 2001 and 2002. For Power,
comparable figures have been calculated to illustrate the estimated effects of the full consolidation of ABB ALSTOM Power, as if the acquisition of ABBs 50% interest had occurred on 1 April 2000.





Fiscal Year 2001 Actual

Fiscal Year 2001 Comparable

Fiscal Year 2002 Actual

Fiscal Year 2002 Comparable

Variation on a historical basis


Variation on a comparable basis(in  million)Orders receivedPower

11,502

12,069

11,033

11,033

-4
%

-9
%T&D

2,882

2,882

3,210

3,142

11
%

9
%Transport

5,558

5,054

6,154

5,242

11
%

4
%Marine

1,835

1,835

462

462

-75
%

-75
%Power Conversion

737

737

667

667

-10
%

-10
%Contracting

2,840

0

909

0

-68
%Others(1)

373

373

251

251

-33
%

-33
%Total

25,727

22,950

22,686

20,797

-12
%

-9
%SalesPower

12,040

12,591

12,976

12,976

8
%

3
%T&D

2,792

2,792

3,164

3,096

13
%

11
%Transport

4,400

3,753

4,413

3,780

0
%

1
%Marine

1,841

1,841

1,240

1,240

-33
%

-33
%Power Conversion

617

617

650

650

5
%

5
%Contracting

2,485

0

759

0

-70
%Others(1)

375

375

251

251

-33
%

-33
%Total

24,550

21,969

23,453

21,993

-4
%

0
%


---

|(1) |  | The figures for fiscal years 2001 and 2002 represent the orders received and sales of the overseas entities in Australia, New Zealand, South Africa and India
not allocated to the Sectors.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Currency effect





Changes in the value of the Euro against other currencies had no significant effect on our results of operations during fiscal year 2002. The translation effect reduced our
consolidated orders and sales by less than 1% and had almost no effect on operating income. This impact was higher in the Power Sector, which has a wider geographical spread outside the Euro zone, particularly in the US and in the UK. Translation
effects created higher sales in Power that were offset by lower sales principally in T&D and Transport.




12




---




Order Backlog





Year ended 31 March2000

2001

2002(in  million)Power

8,161

17,740

15,404T&D

2,077

2,104

2,255Transport

7,137

13,124

14,505Marine

3,712

3,706

2,928Power Conversion

n/a

667

668Contracting

1,660

1,872

n/aOthers(1)

954

216

55Total ALSTOM

23,701

39,429

35,815


---

|(1) |  | The figure for fiscal year 2000 represents the order backlog of  954 million of our former Industry Sector. The figures for fiscal years 2001 and 2002
represent the orders of the overseas entities in Australia, New Zealand, South Africa and India not allocated to the Sectors.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Our order backlog at 31 March 2002 amounted to  35.8 billion, a decrease of  3.6 billion mainly due to the disposal of Contracting and GTRM. Excluding Contracting and GTRM, order backlog
increased due primarily to Transport and T&D, partially offset by a decline in Marine. The order backlog in terms of months of sales (calculated by dividing the order backlog by one twelfth of annual sales) remained stable at approximately 19
months, excluding Contracting. Order backlog at 31 March 2002 included  5.8 billion of operation and maintenance contracts.





Our order backlog consists of a mix of confirmed orders for short-term projects, particularly for our T&D Sector and for our various service activities, and confirmed orders for longer-term projects, particularly for our Power,
Marine and Transport Sectors. Our short-term projects are generally traded within one year of the date we record the order, whilst long-term projects generally are traded within three years. Operation and maintenance contracts can often have terms
of up to ten years and occasionally for much longer periods.





Orders Received





Year ended 31 March2000

2001

2002(in  million)Power

5,569

11,502

11,033T&D

2,532

2,882

3,210Transport

3,918

5,558

6,154Marine

1,623

1,835

462Power Conversion

n/a

737

667Contracting

2,283

2,840

909Others(1)

1,334

373

251Total ALSTOM

17,259

25,727

22,686





|(1) |  | The figure for fiscal year 2000 represents  1,017 million of orders received by our former Industry Sector and  317 million of orders received by
the overseas entities in Australia, New Zealand, South Africa and India not allocated to the Sectors. The figures for fiscal years 2001 and 2002 represent orders received by the overseas entities.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13




---




Orders received during fiscal year 2002 decreased due to the disposal of our
Contracting Sector and GTRM and the lack of significant Marine orders following an exceptionally strong fiscal year 2001. This was partly offset by an increase in Transport and T&D. Power orders received decreased. In fiscal year 2001, orders
received amounted to  25,727 million, on a consolidated basis, an increase of 49% over the prior year due primarily to the full integration of Power.





We operate in more than 70 countries around the world. The table below sets forth the geographic breakdown of orders received by destination for the periods indicated.





Year ended 31 March2000

2001

2002(in  million)Orders received:European Union of which

7,776

9,536

8,517France

2,618

3,485

3,139UK

1,678

1,246

1,720Germany

1,335

1,648

1,330Rest of Europe

778

1,967

1,579North America of which

3,785

6,416

5,161US

3,186

4,736

4,370Central and South America

1,034

1,567

1,832Asia/Pacific

2,762

3,955

4,162Africa/Middle East

1,124

2,286

1,435Total ALSTOM

17,259

25,727

22,686





In fiscal year 2002, the geographic breakdown was generally the
same as in fiscal year 2001.





Europe remained the most important region in terms of orders received with 45% of
total orders, but decreased by 12% versus fiscal year 2001. This decrease resulted mainly from the disposals of Contracting and GTRM, each of which had a large presence in Europe, especially in the UK, Germany and France, and from a decline in
orders for Power projects in this region during fiscal year 2002. Even with the sale of Contracting, orders received increased in France due to a  506 million increase for Transport and a  317 million increase for Marine.





In fiscal year 2002, the decrease in North America was mainly due to Transport and Marine, which had won the exceptionally
large order for theQueen Mary 2 in fiscal year 2001, partly offset by T&D, whilst Power decreased slightly.





Growth in Central and South America in fiscal year 2002 was particularly strong in Power and T&D, whose impact was partially offset by Transport.





The growth in Asia/Pacific was attributable mainly to Power, Transport and T&D, offset by the disposal of Contracting.





The decrease in Africa/Middle East was due to Power and Transport, where several large projects were registered in fiscal year 2001. It
represented a growing market for T&D.




14




---




Power





Market conditions for Power were characterised during fiscal year 2002 by the end of the boom in gas turbine orders in the US. The collapse of Enron added to pressures on
independent power producers and merchant power plants. As a result, we believe that market liberalisation may slow as obstacles to deregulation grow. Underlying long-term demand is expected to continue to grow, essentially due to economic growth and
replacement of ageing equipment. We also expect that developments in both consumer and industrial markets should increase electricity consumption, over the long term, through growth in automation, motors and drives, electric transportation,
telecommunications and computers.





Added to economic demand growth, which we estimate at approximately 5% per
year, is the long-term market demand for new equipment coming from replacement of ageing plants. Overall we estimate underlying order demand for new equipment to have grown at an average rate of 7% per year over the last 15 years. Some estimates put
the demand at 100,000 MW to 150,000 MW per year for the next 50 years. Due to the expected slowdown in world-wide demand for new equipment, in particular, utility gas turbines and combined cycle plants in the US, our strategy over the next 3 years
is to concentrate on service, industrial gas turbines and environmental products businesses.





As we expect the
medium and long-term demand for new equipment to be dominated by gas turbines technology, we signed a long-term technology agreement with Rolls-Royce on 12 February 2002, which will enable us to use Rolls-Royce aero-engine technology in the
development of our heavy-duty gas turbine product range. This agreement is in line with our long-term strategy to offer a highly competitive heavy-duty gas turbine product range to address the global power generation equipment market.





Orders received by Power during fiscal year 2002 amounted to  11,033 million, a decrease of 4% versus   11,502
million for fiscal year 2001. Orders received decreased by 9% on a comparable basis.





Customer Service, Boilers
& Environment products and Industrial Gas Turbines segments saw significant increases in orders received. These increases were offset by declines in Steam Power Plants and Heavy-Duty Gas Turbines, due to the postponement of turnkey projects, and
in Hydro. Customer Service increased mainly due to the higher volumes of plant overhauls in the US, and higher long-term operation and maintenance bookings, particularly in the US and South American markets. Boiler & Environment had a strong
performance, especially in the heat recovery products associated with combined cycle plants and utility boilers in the US. Orders received for Steam power plants decreased following the lack of orders in turnkey projects, partly offset by the high
order intake for direct turbine and generator orders associated with combined cycle plants, mainly in the US. Industrial Turbines increased significantly due to the success of two new gas turbines, Cyclone and GTX100, mainly in the oil and gas
market. As a consequence of the significant decrease of the general market demand in the US in the second half of fiscal year 2002, we expect global market conditions in the new power equipment market, in the short term, to become more competitive.





Hydro Power registered fewer large orders in fiscal year 2002 than in fiscal year 2001, partly offset by more
mini-hydro projects.





By geography, the Americas grew 7% due to growth in the US and South America, particularly
in Brazil. The US market benefited from boiler and steam components for combined cycle plants as well as customer service activity, mainly offset by a decrease in Mexico and Canada. Overall orders in Europe dropped slightly despite Eastern Europe
growing due to three large steam orders in Poland. Asia/Pacific increased significantly and the Africa/Middle East decreased due to a major contract registered in fiscal year 2001 in Saudi Arabia.





Orders in the fourth quarter of fiscal year 2002 were impacted by developers reassessing their portfolios due to the downturn in the US
and as banks and insurers became more cautious following the collapse of Enron. In Europe, the UK market continues to be affected by low electricity prices, but this impact is partly offset by other European countries and the Middle East.




15




---




Orders received by Power during fiscal year 2001 amounted to  11,502
million, versus  5,569 million in fiscal year 2000. In fiscal year 2001 Power increased mainly as a result of the full consolidation of the former ABB ALSTOM Power business, and increased 2% on a comparable basis.





T&D





During fiscal year 2002, the transmission and distribution market continued to become more competitive and information driven and was subject to more environmental concerns. Deregulation world-wide continued to present new, complex
challenges for our clients. Orders received by T&D for fiscal year 2002 amounted to   3,210 million, which corresponds to an increase of 11% over the orders received in fiscal year 2001, during which orders received amounted to 
2,882 million. On a comparable basis, the increase was 9% over fiscal year 2001. This performance in a difficult market was achieved principally through the creation of a new international marketing and sales organisation and strategy.





Orders received from South America grew significantly, due to both the acquisition of Ansaldo Coemsa, a Brazilian transformer
manufacturer, and the high number of Brazilian transmission projects. North America orders continued to increase, representing 16% of T&D orders received. This was mainly due to a large project in Mexico. In the US, the continuing growth of the
high voltage equipment market offset the reduced number of large contracts in the Energy Management Markets, as customers delayed orders pending the anticipated introduction by the US Federal Energy Regulatory Commission of new regulations to
reorganise energy transmission markets. In Asia/Pacific, the Australian and Chinese markets continued to grow. The decreasing activity in Western Europe was more than offset by increases in the other regions mentioned above. The regional mix
changed, with Europe becoming less important whilst faster growing regions, such as the Americas, constituted a larger proportion of T&Ds orders.





Orders received by T&D in fiscal year 2001 amounted to  2,882 million, an increase of 14% over the orders received in fiscal year 2000. On a comparable basis, the increase in fiscal year 2001
was 12% over fiscal year 2000.





Transport





In Transport, anticipated or continued deregulation and privatisation of our customer base led to renewed investment in rail infrastructure and growth in demand for
passenger rolling stock in many of our markets, particularly in the field of urban and suburban transportation. In parallel, the trend towards increased outsourcing continues and we are exploiting these new business opportunities through our
dedicated customer service business world-wide. With safety concerns combined with asset utilisation improvements becoming a top priority, we also benefited from increased investment in signaling and train control systems.





Orders received by Transport in fiscal year 2002 amounted to  6,154 million, an increase of 11% over fiscal year 2001. Orders
received were generally stable at a high level due to the continued investment in European rail infrastructure. Orders received in fiscal year 2002 included several large orders received by GTRM, which we sold in September 2001. On a comparable
basis, Transport recorded order growth of 4%. Europe remains Transports biggest market representing 71% of the total. Asia is also an important market for Transport with 15% of the total, whilst orders received in the Americas decreased to
11%, versus 23% at the same period last fiscal year. Europe increased by 38% and Asia by 17% versus fiscal year 2001, whilst the Americas decreased by 46% due to the difficulties encountered in the US and Canadian freight service markets.





The growth in orders received was essentially due to the strong rolling stock and freight market, mainly in
Europe, as well as to demand for our information solutions and systems which more than doubled. The higher activity level in Europe was mainly the result of the continued revival of the French market in rolling stock and freight, where we have
maintained our market share. However, the UK market is sluggish due to the current regulatory uncertainty. Order intake was also strong in Asia due to contracts in Singapore for the Circle Line Metro.




16




---




Orders received by Transport in fiscal year 2001 amounted to  5,558
million, an increase of 42% versus orders received of


 3,918 million for fiscal year 2000. On a comparable basis, Transports orders received grew 31% in fiscal year
2001.





Marine





Due to the US economic slowdown and the effects of September 11, the cruise-ship market suffered a slowdown resulting in a temporary suspension of new orders. Marine had an exceptionally high level of
orders in fiscal year 2001, and the comparative data for fiscal year 2002 shows a sharp decline. As a result of the existing order backlog and the new orders in the fiscal year, our order book is full to the end of fiscal year 2004.





Orders received in fiscal year 2002 amounted to  462 million, versus  1,835 million in fiscal year 2001. The 2002
orders included sections for assault ships for the French navy and a liquid natural gas tanker for Gaz de France.





Orders received in fiscal year 2001 amounted to  1,835 million, versus  1,623 million in fiscal year 2000, an increase of 13%, mainly due to the active cruise-ship market, including the exceptional order for the super
liner Queen Mary 2, the order for a cruise ship for NYK/Crystal Cruise, and the order for two cruise-ships for Mediterranean Shipping Company (MSC).





Power Conversion





Orders received in fiscal year 2002 amounted to 
667 million, a decrease of 10% versus fiscal year 2001. This decrease was mainly due to the decline in industrial investment, partly offset by orders for marine propulsion systems for naval applications.





Orders received in fiscal year 2001 amounted to  737 million, an increase of 33% compared to fiscal  year 2000, on a comparable
basis.





INCOME STATEMENT





Sales





Year ended 31 March2000

2001

2002(in  million)Power

4,471

12,040

12,976T&D

2,649

2,792

3,164Transport

4,092

4,400

4,413Marine

1,318

1,841

1,240Power Conversion

n/a

617

650Contracting

2,276

2,485

759Others(1)

1,423

375

251Total ALSTOM

16,229

24,550

23,453


---

|(1) |  | The figure for fiscal year 2000 represents  1,110 million of sales recorded by our former Industry Sector and  313 million of sales recorded by the
overseas entities in Australia, New Zealand, South Africa and India not allocated to the Sectors. The figures for fiscal years 2001 and 2002 represent sales recorded by the overseas entities.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Sales were  23,453 million for fiscal year 2002 versus  24,550 million in fiscal year 2001, a decrease of 4%, due principally
to the disposal of Contracting. On a comparable basis, sales were stable from fiscal year 2001 to fiscal year 2002. Power achieved an increase of 8% in sales and T&D an increase of 13%. Transport was stable and the decline in Marine reflects the
timing of ship deliveries, as one ship was delivered in April 2002, and another planned in May, after the close of the fiscal year. No client represented more than 10% of our sales over the last three years.




17




---




Sales were  24,550 million in fiscal year 2001 versus  16,229 million
in fiscal year 2000. On a comparable basis sales increased 15%.





The table below sets forth the geographic
breakdown of sales by destination for the periods indicated.





Year ended 31 March2000

2001

2002(in  million)Sales:European Union of which

8,258

9,909

7,953France

3,278

2,939

1,867UK

1,713

2,436

1,862Germany

1,535

1,712

1,226Rest of Europe

723

1,169

1,360North America of which

3,073

6,863

6,255US

2,433

5,548

4,633Central and South America

681

952

1,439Asia/Pacific

2,299

3,957

4,521Africa/Middle East

1,195

1,700

1,925Total ALSTOM

16,229

24,550

23,453





Power





Sales amounted to  12,976 million in fiscal year 2002, versus  12,040 million in fiscal year 2001. On a comparable basis, sales increased by 3%. The main
contributors to this increase were Customer Service and Industrial Gas Turbines. This was offset by Boiler & Environment, Steam Power Plants and Gas Turbines. Hydro Power sales remained stable. By geography, North America continued to represent
the main region for Power, with deliveries of gas turbines, boiler and steam components as well as our strong service business. Europe remained an important market but decreased by 9%, whilst Asia/Pacific increased significantly following major
deliveries of gas turbines in Malaysia and Thailand.





Sales amounted to  12,040 million in fiscal year 2001,
versus  4,471 million in fiscal year 2000, due primarily to the full consolidation of ABB ALSTOM Power. On a comparable basis, sales increased by 25%, as a result of a significant order backlog built up over the past few years translating into
sales, particularly in the fields of steam power plants, gas turbines and boilers.





T&D





T&Ds sales amounted to  3,164 million in fiscal year 2002 versus  2,792 million in fiscal year 2001. On a comparable
basis, sales increased by 11%. The sales increase in fiscal year 2002 was particularly strong in the Americas, due to the important energy management contracts signed in previous years in the US and continuing growth in Brazil. The Middle East
increased, following the execution of transmission projects in Kuwait and in the United Arab Emirates. Europe remained stable, with increases in western Europe, eastern Europe, and the UK offsetting declines in Germany.





Sales in the fiscal year 2001 were  2,792 million versus  2,649 million in fiscal year 2000. On a comparable basis,
T&Ds sales increase was 4% over fiscal year 2000.





Transport





Sales in Transport amounted to  4,413 million in fiscal year 2002, stable versus  4,400 million registered in fiscal year
2001. On a comparable basis, sales in Transport increased by 1%. Europe remained the most important market with relatively flat sales. Slower deliveries, related to UK trains, were offset by increases in




18




---

France and eastern Europe. Excluding the UK, sales in Europe increased by 25%. Sales decreased in the Americas due to difficulties in the freight service market in North America. Sales in Asia
increased by 72% due to the Singapore metro contract and additional signaling contracts, notably in Australia.





Sales in Transport amounted to  4,400 million in fiscal year 2001, an increase of 8% versus fiscal year 2000. On a comparable basis, sales in Transport increased by 2%, to  4,164 million from  4,092 million. This
slight increase was due to the exceptionally high level of deliveries completed during fiscal year 2000, in particular deliveries for the Korean High Speed Link.





Marine





Sales amounted to  1,240 million in fiscal year 2002 versus
 1,841 million in fiscal year 2001, representing a decrease of 33% in sales. This decrease resulted from an exceptionally high level of deliveries (6 cruise-ships) in fiscal year 2001 and the delay in the delivery of the European Stars until
April 2002. In fiscal year 2002, Marine delivered two cruise-ships, the European Vision to Festival and the Summit to RCCL. In addition, Marine delivered a frigate to Morocco, and two high speed ferries to NEL lines in Greece.





Sales amounted to  1,841 million in fiscal year 2001 versus  1,318 million in fiscal year 2000. The
40% increase over that year was a result of higher deliveries.





Power Conversion





Sales amounted to  650 million during fiscal year 2002, versus  617 million in fiscal year 2001, a 5% increase. This growth
reflected the strong order intake in fiscal year 2001 and was particularly good for both the Marine & Offshore and Process Industries activities.





Contracting





Sales for fiscal year 2002 until the sale of the Sector on 20 July 2001
amounted to  759 million. Sales in fiscal year 2001 amounted to  2,485 million, an increase of 9%, versus fiscal year 2000. On a comparable basis, sales were stable in fiscal year 2001.





Cost of sales





Our
cost of sales amounted to  19,622 million (84% of sales) versus  20,428 million (83% of sales) in fiscal year 2001. This decline is due to the decline in sales. Our ratio of cost of sales to sales was relatively stable compared to fiscal
year 2001. The cost of sales amounted to  12,977 million in fiscal year 2000. The increase in our cost of sales in fiscal year 2001 over fiscal year 2000 was mainly attributable to the full integration of Power.





Our cost of sales consists primarily of labour, raw materials and components, transport and freight, and production overheads, including
depreciation. Cost of sales also includes provisions for risks and charges related to contracts, such as warranty claims, contract losses and project penalties. However, because of the diversity of the cost structure of our various activities, we
analyse the items that make up cost of sales only by business or by contract and do not analyse these items at a consolidated level.





Our cost reduction efforts have been further reinforced by the Quality Focus programme, which aims to reduce the cost of non-quality significantly over the long-term, through quality improvement in product designs,
industrial processes and project management.




19




---




Selling and administrative expenses





Selling expenses amounted to  1,078 million (4.6% of sales) in fiscal year 2002 versus  1,140 million (4.6% of sales) in fiscal year 2001. Administrative
expenses amounted to  1,236 million (5.3% of sales) in fiscal year 2002 versus  1,202 million (4.9% of sales) in fiscal year 2001. Selling and administrative expenses were slightly higher as a percentage of sales due to Power and
T&D. In absolute terms, however, these expenses decreased during fiscal year 2002.





Selling and administrative
expenses amounted to a smaller percentage of sales in fiscal year 2001, as a result of the continuous efforts to rationalise and optimise our commercial and management organisation.





Selling expenses amounted to  904 million (5.6% of sales) in fiscal year 2000 and administrative expenses amounted to  1,112 million (6.8% of sales).





Research and development





Research and development expenses amounted to  575 million (2.5% of sales) in fiscal year 2002 versus   629 million (2.6% of sales) in fiscal year 2001 and  506 million (3.1% of
sales) in fiscal year 2000. R&D expenses were reduced in all Sectors except for Power as we focused our efforts on key areas. They include expenses related to the research and development of basic technology. They exclude all research and
development activities that are specific to one particular customer or to one particular application, which are included in the cost of sales.





Research and development activities during fiscal year 2002 were focused on improving our existing products range, notably heavy-duty gas turbines and clean coal technologies in Power, new generation
control systems in T&D and new rolling stock, traction units, and improved maintenance and information systems in Transport.





Operating income and margin





Operating income is measured before restructuring costs,
goodwill and other acquired intangible assets amortisation expenses and other items, which include foreign exchange gains and losses, gains and losses on sales of assets, pension costs and employee profit sharing and before taxes, interest income
and expenses.





The following tables set out our operating income and operating margin (operating income as a
percentage of sales) by Sector for the periods indicated.





Year ended 31 March2000


2001


2002(in  million)Operating Income:Power

117


448


572T&D

233


235


203Transport

231


266


101Marine

71


80


47Power Conversion

n/a


40


23Contracting

91


123


30Others(1)

(14
)

(41
)

(35
)Total ALSTOM

729


1,151


941


---

|(1) |  | Fiscal year 2000 includes income of  21 million recorded by our former Industry Sector. The figures for fiscal years 2001 and 2002 represent operating
results due to the overseas entities, the internal sales network and corporate costs.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20




---




Year ended 31 March2000


2001


2002Operating Margin:Power

2.6
%

3.7
%

4.4
%T&D

8.8
%

8.4
%

6.4
%Transport

5.6
%

6.0
%

2.3
%Marine

5.4
%

4.3
%

3.8
%Power Conversion

n/a


6.5
%

3.5
%Contracting

4.0
%

4.9
%

4.0
%ALSTOM average

4.5
%

4.7
%

4.0
%





Operating income amounted to  941 million in fiscal year 2002
versus  1,151 million in fiscal year 2001, a decrease of 18%. Operating margin decreased to 4.0% from 4.7% in fiscal year 2001. The major impacts on operating income and operating margin for the fiscal year 2002 were:





| |  |  | Continued operating profit improvements in Power as costs savings and increased focus on higher value activities led to higher operating income;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | The significant decrease in T&D operating margin as a result of pricing pressure, despite an increase in sales;
| | - |  | ---------------------------------------------------------------------------------------------------------------




| |  |  | The significant decrease in operating margin in Transport due to delivery issues on our UK regional train contracts;
| | - |  | --------------------------------------------------------------------------------------------------------------------




| |  |  | Lower sales volume and decrease in margin in Marine versus fiscal year 2001; and
| | - |  | --------------------------------------------------------------------------------




| |  |  | Reduced operating income due to the sale of the Contracting Sector.
| | - |  | -------------------------------------------------------------------




Operating income amounted to  1,151 million in fiscal year 2001 versus  729 million in fiscal year 2000, an increase of 58%. Operating margin rose to 4.7% in
fiscal year 2001 versus 4.5% in fiscal year 2000 with improvements in all sectors except T&D and Marine.





Power





Operating income amounted to  572 million in fiscal year 2002, versus  448 million in fiscal
year 2001. The operating margin was 4.4% in fiscal year 2002, versus 3.7% in fiscal year 2001. Significant increases in Customer Service were due to higher margins and better volumes. To a lesser extent, sales and margins improved in steam turbine
components and in most of Steam Power Plants businesses. Industrial Gas Turbines operating income improved due to development of the new equipment sales and after-sales market. These improvements were partly offset by the financial effects of
delivery of GT 24/26 gas turbines and lower economies of scale in Boiler & Environment. Hydro Power was affected by the weakening of the Brazilian Real during the year.





Powers operating income amounted to  448 million in fiscal year 2001 versus  117 million in fiscal year 2000. The increase was mainly due to the full
integration of ABB ALSTOM Power.





T&D





Operating income amounted to  203 million in fiscal year 2002 versus  235 million in fiscal year 2001. The operating margin decreased to 6.4% in fiscal year
2002 from 8.4% in fiscal year 2001. The decrease in the operating margin is mainly attributable to price decreases in recent years, triggered by the globalisation and the deregulation of T&D markets.





Operating income amounted to  235 million in fiscal year 2001 versus  233 million in fiscal year 2000. The operating margin
slightly decreased to 8.4% in fiscal year 2001 from 8.8% in fiscal year 2000.




21




---




Transport





Transports operating income amounted to  101 million in fiscal year 2002, a decrease of 62% over   266 million in fiscal year 2001. The operating
margin declined to 2.3% in fiscal year 2002 versus the 6.0% margin in fiscal year 2001. The major negative impact on operating income was from the UK train contracts issues, as described above.





In fiscal year 2001, Transports operating income amounted to  266 million, an increase of 15% over   231 million in fiscal year 2000. The
operating margin improved to 6.0% in fiscal year 2001 versus the 5.6% margin recorded in fiscal year 2000. The delivery of certain contracts at higher margins and increased level of activity in the higher margin Service and Signaling businesses
contributed to the improvement.





Marine





Operating income amounted to  47 million in fiscal year 2002 (representing a margin of 3.8%) against   80 million in fiscal year 2001(representing a margin
of 4.3%). The drop is mainly due to a lower level of sales ( 1.2 billion versus  1.8 billion). The  110 million provision recorded in operating income for Renaissance Cruises described above under Operational Issues,
was fully offset by releases of provisions for risks on other contracts where such risks did not materialise.





Operating income amounted to  80 million in fiscal year 2001 (representing a margin of 4.3%) against   71 million in fiscal year 2000 (representing a margin of 5.4%).





Power Conversion





Operating income was  23 million in fiscal year 2002 versus  40 million in fiscal year 2001. The decrease in operating income versus our exceptionally high level of operating income in fiscal year 2001 was mainly due to
reduced parts and spares sales as a result of the world recession in industrial markets.





Operating income more
than doubled to  40 million in fiscal year 2001 versus  18 million in fiscal year 2000 on a comparable basis. The rise in operating income was mainly due to successful management of specific difficult contracts, reducing our risk
exposure. These improvements were partially offset by competitive pressures in the Process Industries and General Drives Businesses.





Contracting





Operating income amounted to  30 million in fiscal year 2002 up
to the sale of the business on  20 July 2001. Operating income amounted to  123 million in fiscal year 2001 versus  91 million in fiscal year 2000. The operating margin was 4.9% in fiscal year 2001 versus 4.0% in fiscal year 2000.





Other income (expense)





During fiscal year 2002 we incurred other expenses of  477 million versus other expenses of  256 million during fiscal year 2001 and other income of  72 million for fiscal year 2000.
The significant increase in other expenses was due to higher restructuring expenses and the provision for Marine vendor financing partly offset by capital gains. Other income and expenses include the following elements: gain on disposal of fixed
assets and investments, restructuring costs, pension costs, employee profit sharing, securitisation and other.





Capital Gains





In fiscal
year 2002, we earned net capital gains of  118 million. These capital gains included  106 million before tax ( 83 million after tax) for the sale of Contracting, and  43 million before tax for the disposal of GTRM. We
incurred a  42 million loss on the sale of parts of our waste-to-energy business.





We received no
significant capital gain in fiscal year 2001 but recorded a significant gain in fiscal year 2000 from the sale of our Heavy Duty Gas Turbine business to GE.




22




---




Restructuring





Restructuring costs for fiscal year 2002 were  227 million versus  81 million for fiscal year 2001 and   442 million for fiscal year 2000. The
increase in fiscal year 2002 versus fiscal year 2001 was mainly due to continued company-wide cost rationalisation, especially product rationalisation, streamlining manufacturing and optimising staffing levels in Power. We also increased our
restructuring costs for cost reduction programmes in T&D and Power Conversion. This increase was partly offset by lower restructuring costs in Transport.





Pensions





Pension expenses increased to  139 million in fiscal year
2002 versus  112 million in fiscal year 2001 and costs of  66 million during fiscal year 2000. The increase in fiscal year 2002 was due to increased contributions to multi-employer and defined contribution schemes, primarily in the US.





Securitisation costs and other





Expenses related to the asset-backed financing programmes amounted to  87 million in fiscal year 2002, versus  90 million in fiscal year 2001.





Other expenses in this category in fiscal year 2002 included the additional provision of  90 million for Marine vendor financing.





Goodwill and other acquired intangible assets amortisation





Goodwill and other acquired intangible assets amortisation amounted to  350 million in fiscal year 2002, versus  360 million in fiscal year 2001. In fiscal year
2000, goodwill amortisation was  244 million. The slight decrease from fiscal year 2001 to fiscal year 2002 was mainly due to the disposals of Contracting and GTRM. The increase from fiscal year 2000 to 2001 was mainly attributable to our
acquisition of ABBs 50% share in ABB ALSTOM Power, including the finalisation of the purchase price allocation as described in Note 6 to the Consolidated Financial Statements for fiscal year 2002, as well as to our acquisition of 51% of Fiat
Ferroviaria.





Financial income (expense)





Our net financial expenses in fiscal year 2002 were  207 million versus  116 million in fiscal year 2001 and  62 million in fiscal year 2000.





The major impact on financial expenses for fiscal year 2002 was mainly the higher net interest expense due to the higher level of net debt
as well as the increase in other financial items, which consisted principally of fees paid on bonds, guarantees and credit lines.





Income tax





Income tax expenses for fiscal year 2002 were  10 million at an effective
rate of 4%. Such expenses were  174 million in fiscal year 2001, and  119 million in fiscal year 2000. The low expense in fiscal year 2002 is due to a current income tax expense of  97 million (lower than in previous years due
to decreased operating income), which was significantly offset by deferred tax income of


 87 million.





In fiscal year 2001, our effective tax rate was 22%. This low level was due to the recognition of deferred tax assets mainly in France, Germany, Spain, Brazil and the US.





Share in income (loss) of equity investments





Our share in income of equity investments was  1 million in fiscal year 2002 versus a  4 million loss in fiscal year 2001. In fiscal year 2000, our share in
income of equity investment amounted to a negative   13 million.




23




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Dividends on redeemable preference shares





A wholly owned indirect ALSTOM subsidiary issued redeemable preference shares with a face value of   205 million at the end of fiscal year 2001. The first
dividend of  14 million on these shares was paid in fiscal year 2002.





Minority interests





Minority interests decreased from  37 million in fiscal year 2001 to  23 million in fiscal year 2002 due to the disposal of
GTRM.





Net income (loss)





Net loss in fiscal year 2002 amounted to  139 million versus net income of  204 million in fiscal year 2001 and  349 million in fiscal year 2000.





BALANCE SHEET





Goodwill and other
acquired intangible assets





Goodwill and other acquired intangible assets at 31 March 2002 was  5,782
million versus  6,498 million at 31 March 2001. Power accounted for  4,694 million of goodwill and other acquired intangibles at  31 March 2002. Total annual amortisation of goodwill and other acquired intangibles ( 350
million) and the disposal of Contracting ( 681 million) are the main reasons for the reduction of goodwill at 31 March 2002. This was partly offset by an increase in goodwill related to a decrease in our valuation of the net assets ( 198
million) in Power, acquired from ABB, following final determination of the purchase price allocation made in connection with the acquisitions. See Note 6 to the Consolidated Financial Statements for fiscal year 2002.





Working capital





Working capital requirements (defined as inventories and contracts in progress, trade receivables and other accounts receivable, less provisions for risks and charges, customers deposits and advances, trade payables and other
accrued contract costs, other payables and accrued expenses) amounted to  (6,280) million at  31 March 2002 versus  (6,555) million at 31 March 2001, and


 (4,031) million at 31 March 2000.





The variation in fiscal year 2002 is due to the sale of
our former Contracting Sector and to the continuous optimisation of asset management throughout the Company as discussed further under Liquidity and capital resources  Net cash provided by operating activities.





Working capital requirements increased significantly in fiscal year 2001 mainly because of the full consolidation of Power
Sector.





Pension liability





Accrued pension and retirement benefits liability has decreased to  994 million at 31 March 2002, versus   1,058 at 31 March 2001.





Shareholders equity





At 31 March 2002
shareholders equity amounted to  1,752 million, or  1,844 million including minority interests, versus


 2,090 million, at 31 March 2001, or  2,193
million including minority interests. The decrease was due to the net loss for fiscal year 2002, the payment of dividends for fiscal year 2001 and the negative impact of the cumulative translation adjustments.




24




---




Financial debt





We define net financial debt as financial debt minus short-term investments, cash and cash equivalents. The table below provides a breakdown of financial debt.





At 31 March2000

2001

2002(in  million)Bonds and notes issued

651

1,200

1,200Bank debt and other

1,466

1,680

2,434Commercial paper

622

1,611

455Bank overdrafts

821

162

211Total

3,560

4,653

4,300Total cash, cash equivalents and short-term investments

2,421

3,020

2,236Net financial debt

1,139

1,633

2,064





Net financial debt at 31 March 2002 was  2,064 million versus
 1,633 million at 31 March 2001 and  1,139 million at 31 March 2000. The increase for fiscal year 2002 was due mainly to an increase in our bank debt due to net cash outflow from operations as described below. The large reduction in
our commercial paper outstanding at 31 March 2002 compared with 31 March 2001 was due mainly to a general decline in liquidity in the commercial paper market, resulting in increased bank debt.





LIQUIDITY AND CAPITAL RESOURCES





Consolidated statements of cash
flows





The following table sets out selected data concerning the movements in cash flows for the periods
shown.





Year ended 31 March2000


2001


2002(in  million)Net cash provided by operating activities

439


592


(418
)Net cash provided by (used in) investing activities

(1,259
)

(1,590
)

124Net cash provided by (used in) financing activities

(111
)

370


(136
)Net (increase) decrease in net debt

(908
)

(494
)

(431
)





Cash flows from operating activities





Net cash provided by operating activities for fiscal year 2002 was affected by the net loss for the year and by a net outflow from changes
in working capital of  759 million, to produce a net outflow of  418 million.





The principal movements
in working capital were due to:





| |  |  | Decreases in customer deposits and advances of  1,255 million due principally to Power, and to a much lesser extent, Transport. This movement was offset
by improvements in inventories and accounts receivable, through better management. These flows are reported after netting of customer advances and deposits with receivables and inventories. Large contracts obtained prior to fiscal year 2002 provided
substantial up front payments to Power on three such contracts and to Transport on one contract. Such circumstances created non-recurring favourable effects at the start of the contracts but resulted in future cash consumption as the contracts were
undertaken and working capital was funded;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Decreases in contract-related provisions of  948 million due to the application of provisions, particularly relating to penalties and claims. These
decreases mainly concerned Power (gas and steam businesses), Transport and Marine; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | The application of  123 million of restructuring provisions, principally in Power.
| | - |  | -----------------------------------------------------------------------------------



25




---




Such outflows in working capital were only partly compensated for by positive
changes resulting from:





| |  |  | A decrease in trade and other receivables of  668 million, especially in Power, offset partially in Transport and T&D. This includes an increase of
 142 million in the sale of trade receivables (see Note 11 of the Consolidated Financial Statements for fiscal year 2002);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | An increase in trade and other payables, accrued contract costs and accrued expenses, of  681 million, mainly in Power, but also for T&D;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Increase in securitisation of future receivables of  161 million, essentially in Transport; and
| | - |  | ------------------------------------------------------------------------------------------------




| |  |  | Reduction in inventories, of  54 million mainly in Transport and T&D, offset partially by one UK train contract and other Sectors.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------




Cash flows from investing activities





Net cash generated from investing activities was  124 million in fiscal year 2002. The net cash inflow was due to  772 million from sale of investments,
principally Contracting ( 689 million) and GTRM ( 66 million) and  119 million from disposals of plant and equipment. Capital expenditure was  550 million. Our capital expenditure relates principally to acquisitions of
machinery, equipment, tools and fixtures for maintaining our manufacturing base. Power had  286 million in capital expenditure in fiscal year 2002, T&D  61 million, Transport  105 million, Marine  24 million, Power
Conversion  12 million, and Corporate and other


 62 million. The changes in property, plant and equipment are shown in greater detail in Note 7 to the
Consolidated Financial Statements for fiscal year 2002. Cash expenditures for acquisition of investments, net of net cash acquired, was  113 million and cash outflow from increases in fixed assets was  104 million.





We spent  1,595 million in investing activities in fiscal year 2001, and  1,273 million in fiscal year 2000, due
principally to the acquisitions described above under Changes in business composition.





Cash flows from financing
activities





Net cash used in financing activities for fiscal year 2002 was  136 million due to
dividends paid, including dividends paid to minority interests of  18 million.





In fiscal year 2001, the
 370 million generated from financing activities included issuance of undated subordinated notes for a total amount of  250 million and redeemable preference shares for an amount of   205 million decreased by the dividend
payment of  118 million. In fiscal year 2000, net cash used in financing activities was  111 million.





Change in Net
Debt





As a result, the net debt increased by  431 million in fiscal year 2002,  494 million in
fiscal year 2001 and  908 million in fiscal year 2000.





Maturity and liquidity profile





Total line


Amounts drawn


Less than 1 year

1-2 years

2-3 years

4-5 years

5+ years(in  million)At 31 March 2002Bonds

1,200


1,200




550



650Commercial paper

455
(1)

455


455Bank debt & Overdrafts

4,305
(2)

2,645


2,050



1,250

805

200Totals

5,960


4,300


2,505

550

1,250

1,455

200Cash at 31 March 2002




(2,236
)Net Debt




2,064


---




|(1) |  | The total authorised commercial paper programme is  2,500 million, however availability is subject to market conditions.
|--- |  | -------------------------------------------------------------------------------------------------------------------------




|(2) |  | Includes  812 million of various credit lines to Sector businesses.
|--- |  | --------------------------------------------------------------------



26




---




At 31 March 2002 we had total gross outstanding debt of  4,300 million
including bonds of  550 million maturing February 2004 and  650 million maturing July 2006. Commercial paper (French billets de trésorerie)accounted for  455 million. We have adequate alternative unused bank
facilities should the commercial paper market weaken. Net debt was  2,064 million after netting


 2,236 million of available cash and cash equivalents and short term
investments.





Available committed bank lines at 31 March 2002 amounted to  1,660 million. This includes
 850 million of supplemental back-up lines we arranged during the last quarter of fiscal year 2002, which expire at  31 March 2003. This amount of available committed lines may fluctuate significantly during the course of the year
depending on our cash needs.





Those facilities maturing before 31 March 2003 total approximately  1,238
million of corporate facilities, including the supplemental back-up lines but excluding credit lines to Sector businesses, which comprise a large number of relatively small overdraft and similar facilities for day to day operations. We intend to
cover maturing facilities via one or more of:





| |  |  | Proceeds from disposals and real estate sales under the Restore Value programme;
| | - |  | --------------------------------------------------------------------------------




| |  |  | Proceeds from the planned capital increase;
| | - |  | -------------------------------------------




| |  |  | Drawing upon unutilised availability in other facilities; and
| | - |  | -------------------------------------------------------------




| |  |  | Cash generation from operations.
| | - |  | --------------------------------




We describe above the impact of the Restore Value plan on liquidity, which is designed to generate one-off short-term cash inflow of approximately  2.1 billion by 31 March 2003 and to produce net
additional operating cash of approximately  1.3 billion by 31 March 2005. Our ability to meet these objectives is subject to risk, including those described in Risk Factors.





Redeemable preference shares





The terms of the
 205 million redeemable preference shares provide that a mandatory redemption in full is made at the fifth anniversary date, being 30 March 2006, upon the occurrence of the issue of any equity or equity linked securities (whether shares,
bonds, options, warrants or rights to subscribe for, exchange or convert into any shares) to any person or entity where the proceeds of any such issue(s) either individually or in aggregate is equal to or exceeds the principal amount outstanding.
Such redemption would most likely be triggered by the proposed increase in capital referred to under Operating and Financial Review and ProspectusRestore Value.





Customer deposits and advances





On average we estimate that
40% of our contracts relate to Long-Term Projects, defined as those projects which are completed over more than one year, 25% relate to products or individual items of equipment typically supplied within one year, and the remaining 35%
is split between long-term service agreements (15%) and short-term contracts such as the supply of spares and service and overhauls of equipment. Our long-term projects are principally in Power, Transport and Marine.





Customer deposits and advances include the preliminary advances by customers as well as customers progress payments during the
construction of the project as contractually agreed. Taking customer advances serves to protect our interests by improving our control over adverse outcomes. In the case of contract




27




---

cancellation by the customer, such advances and deposits are generally used to cover our expenses and any penalties we may be due. Proceeds from the securitisation of future receivables are
recorded initially as cash on the assets side of our balance sheet and as customer deposits and advances on the liabilities side.





We record customer deposits and advances on our balance sheet upon receipt as gross customer deposits and advances. The gross amounts were  15,895 million,  14,344 million and  9,397 million for fiscal years 2002,
2001 and 2000, respectively. At the balance sheet date, we apply these deposits first to reduce any related gross accounts receivable and then to reduce any inventories and contracts in progress relating to the project for which we received the
deposit or advance. Any remaining deposit or advance is recorded as Customer deposits and advances on our balance sheet as described in Note 2 (p) of the Consolidated Financial Statements for fiscal year 2002. As of 31 March 2002, our
net customer deposits and advances, including securitisation of future receivables, were  5,956 million, compared with  7,783 million as of 31 March 2001.





Long-term projects experience a disbursement of expenses over the life of the project which can take two to five years to complete, depending upon the nature of the
contract. Major transport projects tend towards the longer end of the range. The cash disbursement pattern for a project usually starts slowly through the design and mobilisation stages, then accelerates through project construction tailing off at
the end of the project during the installation and commissioning stages. Such disbursement pattern is often referred to as the spend-curve or S-Curve. When pricing our projects and negotiating the payment terms we carefully
analyse both the spend-curve and also the liability curve. This liability curve is only partially represented by cash and records the forward commitments we need to make on long-lead supply items that require our suppliers to enter into forward
commitments themselves.





Obtaining customer deposits and advances assists us in managing the following risks:





| |  |  | Risk of negative cash flows for us in performing the contract;
| | - |  | --------------------------------------------------------------




| |  |  | Risk of payment default due to client credit risk, which is mitigated via larger down payments and progress payments; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------




| |  |  | Foreign exchange risks.
| | - |  | -----------------------




Securitisation





The net amount of future receivables we had sold under our securitisation
programme amounted to   1,735 million at 31 March 2002,  1,578 million at 31 March 2001 and  1,167 million at 31 March 2000. The securitisation of future receivables applies to our Marine and Transport Sectors.





Marine





Our shipbuilding business typically operates on terms of trade that produce initial payments to us, which for cruise-ships represent around 15% in aggregate of the total contract value, followed by a final balancing payment
on delivery. This creates a funding need once the initial payments have been consumed in work in progress, which can happen at a relatively early stage. In order to finance working capital, we sell to third parties the future receivables due from
our customers. This action has the additional benefit of reducing the credit risk of the customer.





Such
transactions provide for limited recourse to us in the event of customer default prior to the delivery of the cruise-ships. The amount of the recourse covers a pre-agreed portion of the eventual losses of the investors upon the resale of the
cruise-ship in question, subject to pre-agreed caps.





At 31 March 2002 the amount of future receivables
securitised in our Marine sector was  1,072 million. Recourse against us for these future receivables was capped at  348 million, comprising up to  98 million in




28




---

respect of a customers order for one cruise-ship,  82 million in respect of a cruise-ship to a second customer and up to  168 million in respect of two cruise-ships sold to
third customer. At 31 March 2001 the amount of future receivables securitised amounted to  1,061 million with recourse to us of  357 million and  at 31 March 2000 the amount of  486 million with recourse to us of up
to  168 million.





Transport





Payments from our customers are usually linked to milestones achieved under the contract or percentages paid according to a pre-agreed payment schedule against evidenced
performance of the contract. Nevertheless, sales of future receivables assists in mitigating lower cash payment profiles on some contracts. At 31 March 2002 we had  675 million of future receivables securitised versus  542 million at 31
March 2001 and  567 million at 31 March 2000. We have no recourse liability to the third party purchasers assuming that we perform our contractual obligations in the ordinary course of business.





COMMITMENTS AND CONTINGENCIES





Guarantees related to contracts





There are contingent liabilities at 31 March 2002 in
respect of bonds, guarantees and indemnities entered into in the ordinary course of business. These bonds, guarantees and indemnities relate primarily to long-term contracts and are given to support our contractual relationships with our
customers.





The amounts of guarantees given relating to contracts totalled  11,535 million at 31
March 2002,   14,156 million at 31 March 2001 and  7,291 million at 31 March 2000, the increase between 31 March 2001 and 31 March 2000 being largely due to our aquisition of ABBs remaining interest in ABB ALSTOM Power.





The process of undertaking the contract naturally results in us keeping in close regular contact with our
customers. Where circumstances arise that result in the threat of calling a bond, then we seek to negotiate acceptable alternative arrangements. Bonds are typically called only where there is no other remedy acceptable to our customer. Our
experience to date has been that bonds are very rarely called. In general we establish provisions to cover any anticipated loss arising from our contractual obligations.





Bid bonds are given at tender or bid submission stage and are usually released once the equipment or services supply contracts become effective. If the tender does not
succeed the bonds are cancelled. Performance bonds related to our contractual obligations are usually not for the full amount of the maximum theoretical contractual liability but the precise amounts are subject to individual negotiation. Performance
bonds would usually be released upon delivery of the supplied equipment into service following successful completion of commissioning of the equipment to pre-agreed standards as measured by pre-agreed performance tests, which could include a trial
running period.





Warranty bonds are given to cover risks for the customer following acceptance of the equipment by
the customer. Retention bonds are similar in nature and affect to payments due at completion of a contract and are released at the end of the contract.





Vendor financing





We provide certain financial assistance to institutions that finance some
of our customers and also, in some cases, directly to our customers for their purchases of our products. We refer to this financial assistance as vendor financing. Vendor financing totalled


 1,493 million at 31 March 2002 versus  1,404 million  at 31 March 2001.





We have decided that we will not make commitments to provide additional vendor financing guarantees to our customers.




29




---




The table below provides a breakdown of our vendor financing by Sector at 31
March 2002.





Year ended 31 March2001

2002(in  million)Vendor financing:Power

31

29Transport

341

416T&D

4

4Marine

1,028

1,044of whichRenaissance Cruises

605

432
(1)Others

423

612Totals

1,404

1,493





|(1)    This |  | amount includes  195 million of limited recourse notes which are in Other Fixed Assets (see Note 9 to the Consolidated Financial Statements for fiscal
year 2002).
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------




Marine





The situation relating to Renaissance Cruises and other Marine vendor financing has already been addressed above under Operational Issues. The table above does
not include the  42 million vendor financing provided after 31 March 2002 for a ship delivered in April. There are no other vendor financing arrangements or commitments relating to cruise-ships in the order book.





Transport





Transport has entered into certain vendor financing arrangements to support a small proportion of their sales. Such arrangements are tailored to the specific requirements of each transaction. In every case, the potential exposure is
capped as to time and as to amount, as shown in the table above.





In 1995 Transport sold and leased back 103
trains and related equipment to two leasing entities under  a 30-year lease agreement. Such trains are made available to London Underground in the UK for use on its Northern Line under a contact entered into in 1995, known as the Usage
Contract. The Usage Contract has an initial term of 20 years, and can be extended for an additional 10 years at London Undergrounds option.





The terms of the Usage Contract required us to arrange finance for and to make available the trains and related equipment for delivery into service. All the trains had been delivered by 31 August 1999.
We also maintain the trains and receive, from London Underground, payments which cover all the costs of supplying and maintaining the trains. These payments can vary depending upon performance including both bonuses and deductions for performance
above or below the prescribed levels. Such performance is substantially dependent upon making the trains available for use to London Underground. We are currently substantially above the minimum performance levels.





The lease arrangements require us to perform the Usage Contract and also to guarantee the residual value of the trains and related
equipment at September 2017 in circumstances where London Underground does not exercise its option to extend the Usage Contract beyond the initial period.





The net amount of the Residual Value Guarantee is  289 million at September 2017. Under the terms of the leasing arrangements the lenders take the risk of London Underground default without
recourse to us.





CRITICAL ACCOUNTING POLICIES





The preparation of our consolidated financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of commitments and contingencies, including financing arrangements. On a regular, ongoing basis, we evaluate our estimates,




30




---

including those relating to projects, products, parts and other after-market operations, and included in accrued contract costs, provisions for risks and charges, bad debts, inventories,
investments, intangible assets, including goodwill and other acquired intangibles, taxation including deferred tax assets and liabilities, warranty obligations, restructuring, long-term service contracts, pensions and other post retirement benefits,
commitments, contingencies and litigation. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the
carrying value of assets and liabilities. Actual results may differ from those estimates under different circumstances, assumptions or conditions.





Accounting policies important to an understanding of the financial statements include business combinations, consolidation methods, goodwill, other acquired intangible assets and restructuring that may
be subject to the application of differing accounting principles. We believe the following critical accounting policies are most affected by our judgements and estimates in preparing our consolidated financial statements.





Revenue recognition





We recognise revenue and profit as work in progress progresses on long-term, fixed-price contracts using the percentage of completion method, based on contract milestones which relies on estimates of total expected contract revenue
and cost. We follow this method because we believe we can make reasonably dependable estimates of the revenue and costs applicable to various defined stages, or milestones, of a contract. Recognised revenues and profit taken are subject to revisions
as the contract progresses to completion. Revisions to profit estimates are charged to income in the period in which the facts that give rise to the revision become known. When we book revenue, we also book certain contract costs (including direct
materials and labour costs and indirect costs related to the contract) so that the contract margin, on a cumulative basis, equals the total contract gross margin determined during the latest project review. Selling and administrative expenses are
charged to expenses as incurred. If a project review indicates a negative gross margin, we recognise the entire expected loss on the contract when we identify the negative gross margin. Estimates of future costs reflect our current best estimate of
the probable outflow of financial resources that will be required to settle contractual obligations. These estimates are assessed on a contract by contract basis.





We provide for the estimated cost of product warranties at the time revenue is recognised. Our warranty obligations are affected by product failure rates, material usage
and service delivery costs incurred in correcting any failures. Should actual failure rates, material usage or service delivery cost of the products differ from current estimates, revisions to the estimated warranty liability would be required. The
introduction of technologically advanced products exposes us to risk of product failure significantly beyond the terms of standard contractual warranties applying to suppliers of equipment only. Should adverse changes to product failure rates occur,
additional cost to complete may be required and result in actual financial consequences different from our estimates.





Inventories





We write down our inventories for estimated obsolescence or unmarketability in an amount equal to the
difference between the cost of the inventory and the estimated market value based on assumptions about future demand and market conditions. If actual market conditions are less favourable than those we project, additional inventory write-downs may
be required.





Doubtful accounts





We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial conditions of our customers were to
deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required.




31




---




Impairment of fixed assets and valuation of deferred tax assets





We review our fixed assets, both tangible and intangible, on an annual basis and record an impairment charge when we believe an asset has
experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results from underlying assets could result in losses or an inability to recover the carrying value of the assets that may not
be reflected in the current carrying value. This could require us to record an impairment charge in the future.





We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realised. We take into account future taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance. If we were to determine that we would be able to realise our deferred tax assets in the future in excess of our net recorded amount, we would make an adjustment to the deferred tax asset, which would
increase income in the period that such determination was made. Likewise, should we determine that we would not be able to realise all or part of our net deferred tax assets in the future, an adjustment to the deferred tax asset would be charged to
income in the period such determination was made.





Pension benefits





We sponsor pension and other retirement plans in various forms covering substantially all employees who meet eligibility requirements. Several statistical and other factors
that attempt to anticipate future events are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as
determined by us, within certain guidelines.





In addition, our actuarial consultants also use subjective factors
such as withdrawal and mortality rates to estimate these factors. The actuarial assumptions we use may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life
spans of participants. These differences could result in a significant change to the amount of pension expense recorded.





Other
significant accounting policies





Other significant accounting policies are important to an
understanding of the financial statements. Policies related to purchase accounting, consolidation policies, provisions and financial debt require difficult judgements on complex matters that are often subject to multiple sources of authoritative
guidance.





SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN FRANCE AND IN THE US





As a foreign registrant on the New York Stock Exchange, we prepare a reconciling table of net income and shareholders
equity from French GAAP to US GAAP for inclusion in our Annual Report on Form 20-F filed with the Securities and Exchange Commission (SEC).





US GAAP financial statements are not available at the time we file our Annual Report with the Commission des opérations de bourse(COB). The main differences related to net income,
liabilities and shareholders equity are as follows:





Accounting for restructuring costs  The
conditions under which a liability can be recorded are different than those that prevail under French GAAP. We record a liability related to a restructuring plan whenever the plan is finalized, approved by management and announced before the closing
of the financial statements. In US GAAP, exit costs are accrued as a liability when an announcement is made to employees prior to the closing date. In addition, some costs that are recorded as restructuring costs under French GAAP are classified
under cost of goods sold in US GAAP (inventories write off which result from restructuring plans).




32




---




Valuation and accounting of financial instruments  Under French
GAAP, profit and losses on financial instruments considered as hedges of our interest rate and forward exchange rate risks are recorded in the same period as the hedged item. The US standard SFAS 133, which is applicable to us from 1 April 2001,
requires that all derivatives are recorded at their fair values in the balance sheet. The change in fair value of these derivatives is recorded in the income statement. If, under certain criteria, the derivative is qualified as a hedge, the effect
in the income statement resulted from the change in fair values is compensated by the income or loss generated by the change of the value of the underlying item.





Business combination  The allocation of purchase price to assets and liabilities acquired or assumed following an acquisition can be revised under French GAAP until the end of the fiscal year
following the fiscal year of an acquisition, whereas, according to US GAAP, such revision can only be made until the end of the fiscal year in which the acquisition occurred. This difference in principles may result in material differences between
goodwill recorded under each set of norms.





Stock compensation  Under US GAAP, employee compensation may
have to be recorded in the income statement following the issuance of employee stock-based instruments.





Financial
debt  Certain items which are not necessarily recorded as financial debt under French GAAP, such as capital leases or securitisations of future receivables, are recorded as financial debt under US GAAP. Financial debt is also
increased under US GAAP with the consolidation of special purpose entities which are not consolidated under French GAAP and with the US treatment of the remaining 49% acquisition of Fiat Ferroviaria as a financial debt for  146 million in
addition to the items referred to above.





In addition to the matters described above that impact net income,
liabilities and shareholders equity, there are other differences in accounting principles between French GAAP and US GAAP that may materially affect the presentation of the balance sheet and income statement.





We expect to file our Annual Report on Form 20-F for the fiscal year ended 31 March 2002 with the SEC during May 2002. An electronic
version of our Annual Report on Form 20-F will be available on our internet site at www.finance.alstom.com.








IMPACT OF EXCHANGE RATE AND INTEREST RATE FLUCTUATIONS





Our policy is to use derivatives,
such as forward foreign exchange contracts in order to hedge exchange rate fluctuations and, to a much lesser extent, interest rate fluctuations. Our policy does not permit any speculative market position.





Exchange rate risks





In the course of our operations, we are exposed to currency risk arising from tenders for business remitted in foreign currency, and from awarded contracts or firm commitments under which revenues are denominated in
foreign currency. The principal currencies to which we had significant exposure in fiscal year 2002 were US dollars, Pounds sterling and Swiss francs. We hedge risks related to firm commitments and tenders as follows:





| |  |  | By using forward contracts for firm commitments;
| | - |  | ------------------------------------------------




| |  |  | By using foreign exchange derivatives instruments, for tenders, usually pursuant to strategies involving combinations of purchased and written options; or
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | By entering into specific insurance policies, such as with Coface in France or Hermes in Germany.
| | - |  | -------------------------------------------------------------------------------------------------




The purpose of these hedging activities is to protect us against any adverse currency movements which may affect contract revenues should
the tender be successful, and to minimise the cost of having to unwind the




33




---

strategy in the event of an unsuccessful tender. The decision whether to hedge tender volumes is based on the probability of the transaction being awarded to us, expected payment terms and our
assessment of market conditions. Under our policy, only senior management may make such decisions. See Notes 2(g) and 27 to the Consolidated Financial Statements for fiscal year 2002.





When a tender results in the award of a contract, we hedge the resulting net cash flows mainly in the forward markets or, in some exceptional cases, keep them covered under
insurance policies. Due to the long-term nature of our business, the average duration of these forward contracts is approximately 12-14 months.





We do not hedge our net assets invested in foreign operations. We monitor our market positions closely and regularly analyse market valuations. We also have in place counter-party risk management
guidelines. In addition, all derivative transactions other than forward exchange contracts, which our Sectors are independently authorised to execute, are designed and executed by our central corporate treasury department.





Interest rate risks





Currently, we do not have a dynamic interest rate risk management policy. However, we may enter into transactions in order to cover our interest rate risk on a case-by-case basis according to market opportunities under the
supervision of the executive committee. The bond issue, nominal value of  650 million, was initially swapped up to  600 million from fixed to floating rates.  280 million were returned to a fixed rate exposure and  320
million remain swapped at March 31, 2002. Some other long-term financial debts are also swapped for a notional amount of  153 million as at 31 March 2002.





We have implemented a centralised treasury policy in order to make better use by pooling of our available cash, thereby reducing the amount of external debt required and permitting us to obtain better
terms under our various financing arrangements.




34




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[THIS
PAGE HAS BEEN INTENTIONALLY LEFT BLANK]




35




---




VALUE OF FINANCIAL INSTRUMENTS





These tables set forth the nominal value and the fair value of our financial instruments (including insurance contracts).





Nominal value





At 31 March 2002 Maturing in
year ending 31 MarchTotal

2003

2004

2005

2006

2007

>5 years(in  million)Balance sheet items:Assets:Loans to cost basis investees

251.3

8.5









242.8Long-term deposits

527.1

96.4

67.2

72.4





291.1Other financial assets

78.6

30.9









47.7Short-term investments

331.4

135.1

164.3







32.0Highly liquid investments

491.0

491.0Liabilities:Long-term debt

2,762.9



611.6

1,153.7

3.6

787.5

206.5Off balance sheet items:Interest rate instrumentsInterest rate swaps: pay fixed(1)US dollars

69.0

6.7









62.3Indian Rupee

4.0

4.0Interest rate swaps: receive fixed(2)Euro

398.9

12.5

33.2





353.2US dollars

73.8

7.1

15.7

19.8

16.1

10.9

4.7Cap

1.8











1.8Foreign exchange instruments:Currency swaps  currency purchasedUS dollars

623.7

619.1

4.6Swiss Francs

479.9

470.9

5.9

3.1Pound sterling

178.0

162.3

15.7Swedish Krona

54.4

54.4Japanese Yen

51.8

51.8Other currencies

192.9

191.5

1.4Currency swaps  currency soldUS dollars

3,391.0

2,984.9

190.4

186.4

21.6

6.0

1.7Swiss Francs

1,945.7

1,649.6

146.3

147.4

2.4Pound sterling

1,070.2

1,032.5

37.7Singapore dollars

187.8

52.9

3.4

87.9

43.6Canadian dollars

128.9

127.9

1.0Swedish Krona

118.3

118.3Japanese yen

110.1

98.7

10.7

0.7Other currencies

190.9

178.6

12.3


---

|(1) |  | Average fixed rate 11.92%.
|--- |  | --------------------------




|(2) |  | Average fixed rate 5.30%.
|--- |  | -------------------------



36




---







At 31 March 2002 Maturing in
year ending 31 MarchTotal

2003

2004

2005

2006

2007

>5 years(in  million)Foreign exchange contracts purchasedSwiss Francs

356.1

345.1

2.7

8.3US dollars

237.7

201.2

31.7

4.3

0.3

0.2Polish Zloty

124.6

94.7

29.3

0.6Pound sterling

95.6

72.5

19.6

2.5

1.0Swedish Krona

81.9

81.4

0.5Other currencies

74.6

60.6

10.7

3.1

0.2Foreign exchange contracts  soldUS dollars

3,028.6

1,920.8

511.6

357.0

30.3

1.1

207.8Swiss Francs

1,236.4

790.5

152.3

257.7

35.9Pound sterling

347.4

288.0

25.2

34.1

0.1Japanese Yen

90.0

38.2

29.9

12.6

9.3Malaysian Rupee

68.6

68.6United Arab Emirates Dinar

62.2

59.6

2.6Canadian dollars

60.8

47.1

12.5

1.2Danish Krona

25.1

18.3

3.2

3.6Other currencies

253.4

212.3

33.9

7.0

0.2Insurance contracts  contracts purchasedUS dollars

0.4

0.4Insurance contracts  contracts soldUS dollars

198.9

167.9

26.6

3.7

0.7Japanese Yen

22.5

10.7

9.9

1.9Other currencies

5.5

5.5Currency options  purchasedCallEuro

311.2

311.2US dollars

78.6

78.6Pound sterling

48.1

48.1PutEuro

268.3

268.3US dollars

129.7

129.7Pound sterling

17.8

17.8Currency options  salesCallEuro

25.9

25.9US dollars

6.9

6.9Pound sterling

112.9

112.9PutEuro

338.8

338.8US dollars

13.4

13.4Japanese Yen

0.6

0.6Pound sterling

48.1

48.1




37




---




Fair value





At 31 March 2002 Maturing in
year ending 31 MarchTotal


2003


2004


2005


2006


2007


>5 years(in  million)Balance sheet items:Assets:Loans to cost basis investees

251.3

















242.8Long-term deposits

499.0


96.4


67.2


79.3








256.1Other financial assets

78.6


30.9














47.7Short-term investments

332.8


136.5


164.3











32.0Highly liquid investments

491.0


491.0Liabilities:Long-term debt

2,675.7





595.9


1153.6


3.6


716.1


206.5Off balance sheet items:Interest rate instrumentsInterest rate swaps: pay fixedUS dollars

(6.0
)

(0.3
)













(5.7
)Interest rate swaps: receive fixed







(0.9
)Euro

10.9














11.8US dollars

(0.7
)

(0.7
)Cap



















40Foreign exchange instruments:Currency swaps  currency purchasedUS dollars

8.4


8.2


0.2Swiss Francs

0.7


0.6


0.1Pound sterling

2.9


2.3


0.6Swedish Krona

0.8


0.8Other currencies

3.6


3.0


0.6Currency swaps  currency soldUS dollars

(73.4
)

(60.3
)

(10.3
)

(2.3
)

(0.3
)

(0.2
)Swiss Francs

(2.0
)

0.5


(0.8
)

(1.7
)Pound sterling

2.0


2.0Singapore dollars

(2.7
)







(1.6
)

(1.1
)Canadian dollars

(3.3
)

(3.3
)Swedish Krona

(1.1
)

(1.1
)Japanese yen

13.8


11.1


2.7Other currencies

(2.9
)

(2.2
)

(0.7
)




38




---




At 31 March 2002 Maturing in
year ending 31 MarchTotal


2003


2004


2005


2006


2007

>5 years(in  million)Foreign exchange contracts purchasedSwiss Francs

1.5


1.0





0.5US dollars

15.6


12.5


2.9


0.2Polish Zloty

13.9


10.0


3.9Pound sterling

1.2


0.8


0.4Swedish Krona

1.9


1.9Other currencies

4.4


3.4


0.7


0.3Foreign exchange contracts  soldUS dollars

(214.5
)

(95.4
)

(57.1
)

(53.0
)

(4.1
)



(4.9
)Swiss Francs

7.8


3.0


0.7


4.8


(0.7
)Pound sterling

(1.3
)

(1.0
)




(0.3
)Japanese Yen

16.5


7.0


5.3


2.5


1.7Canadian dollars

1.7


1.1


0.6Other currencies

(6.9
)

(4.5
)

(1.4
)

(1.0
)Insurance contracts  contracts purchasedUS dollars

(0.1
)

(0.1
)Insurance contracts  contracts soldUS dollars

3.9


5.0


(0.6
)

(0.5
)Japanese Yen

(1.5
)

(1.2
)




(0.3
)Currency options  purchasedCallEuro

0.7


0.7US dollars

0.3


0.3PutEuro

5.3


5.3US dollars

1.1


1.1Currency options  salesCallPound sterling

(1.5
)

(1.5
)PutEuro

(11.8
)

(11.8
)




39




---




DESCRIPTION OF ACTIVITIES





Overview





We serve the energy market through our
activities in the fields of power generation and power transmission and distribution, as well as the transport market through our activities in rail and marine. We design, supply and service a complete range of technologically advanced products and
systems for our customers, and possess a unique expertise in systems integration and through-life maintenance and service.





We began operations in 1989 as the GEC ALSTHOM group, a 50/50 joint venture company between The General Electric Company (now known as Marconi) of the United Kingdom and Alcatel of France. On  22 June 1998, as part of our
initial public offering on the Paris, New York and London stock exchanges, all the activities previously carried out by GEC ALSTHOM were transferred to ALSTOM, a société anonyme à conseil dadministration, a form of
limited liability company incorporated in France.





In fiscal year 2002, we had sales of  23,453 billion. As
of 31 March 2002, we employed approximately 120,000 people in over 70 countries.





Since our initial public
offering in 1998, we have almost doubled our sales, essentially through a number of strategic acquisitions, whilst during the same period disposing of a number of non-core businesses. The total value of our acquisitions since 1998 is  4.5
billion, while the total value of our disposals is  2.5 billion. For a further discussion of these acquisitions, see Operating and Financial Review and Prospects.





Our most significant transaction involved the acquisition of the power generation activities of ABB in two separate transactions. In July 1999 we combined our power
generation activities with ABBs in a 50/50 joint venture called ABB ALSTOM Power. We acquired ABBs share of the joint venture in May 2000. The transaction gave us full control of heavy-duty gas turbine technology, as well as
strengthening our position in service, boilers and other activities.





Another key component of this strategy was
our acquisition of Fiat Ferroviaria, which gave us access to advanced tilting train technology. We acquired 51% of Fiat Ferroviaria in October 2000 and the remaining 49% in April 2002.





Our divestitures have allowed us to focus on our core activities. The most significant divestiture was the sale of our former heavy-duty gas turbine business to General
Electric in July 1999. Another major divestiture was the disposal of our former Contracting Sector in July 2001. Before this divestiture, we transferred some of our Contracting activities to other Sectors, including most significantly service and
software activities that are now part of our Transmission & Distribution Sector.





As part of our Restore Value
programme, we are planning to dispose of additional non-core assets in fiscal year 2003. We are currently seeking to realise net proceeds of approximately  900 million from these disposals, although our ability to do so will depend on a number
of factors outside our control, including in particular whether we will be able to find buyers willing to purchase the relevant activities for the values we are seeking.





POWER





We are one of the worlds leading suppliers to
the power generation industry. We offer a comprehensive range of power generation solutions from turnkey power plants to all types of turbines (gas, steam, hydro), generators, boilers, emissions reduction systems, and control systems, as well as a
full range of services including plant modernisation, maintenance and long-term operation.





In fiscal year 2002,
our Power Sector reported sales of  12,976 million (equivalent to 55% of ALSTOM sales), and as of 31 March 2002, had 49,097 employees in over 50 countries (41% of ALSTOMs total employees).




80




---

In the table below, the figures for fiscal year 2000 comprise 50% of the former ABB ALSTOM Power. For fiscal year 2001, the figures comprise 50% of the former ABB ALSTOM Power for the period from
1 April to 11 May 2000, and 100% for the period from 11 May 2000 to 31 March 2001.





Year ended 31 March2000

2001

2002(in  million, except employees)Orders received

5,569

11,502

11,033Sales

4,471

12,040

12,976Operating income

117

448

572Research and development expenses

190

370

349Capital expenditures

254

326

286Employees

26,107

48,219

49,097





The following table sets forth the breakdown of sales by each of
the Power Sectors Segments for fiscal year 2002:





Year ended 31 March 2002Gas Turbine

25%Steam Power Plant

23%Boilers & Environment

16%Customer Service

21%Industrial Turbine

9%Hydro Power

6%Total

100%





The following table sets forth the geographic breakdown of Power
Sector sales for the periods indicated:





Year ended 31 March2000


2001


2002European Union

31
%

23
%

18
%of whichFrance

7
%

4
%

3
%UK

10
%

5
%

3
%Germany

5
%

3
%

2
%Rest of Europe

8
%

7
%

7
%North America

25
%

35
%

36
%of which US

21
%

28
%

26
%Central & South America

5
%

4
%

7
%Asia/Pacific

19
%

22
%

23
%Africa/Middle East

12
%

9
%

9
%Total

100
%

100
%

100
%





Industry characteristics





The worlds installed power generation capacity currently stands at over 3,500 GW. In fiscal year 2002, conventional steam
technologies represented approximately 52% of installed capacity, hydropower 21%, nuclear 11%, gas turbines 14%, and others 2%. As gas turbines continue to dominate new orders, we expect that gas will become a more significant part of the installed
base.




81




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Demand for power generation equipment tends to be driven by a variety of complex
and inter-related factors, notably:





| |  |  | Economic growth;
| | - |  | ----------------

| |  |  | Deregulation and liberalisation;
| | - |  | --------------------------------

| |  |  | Globalisation;
| | - |  | --------------

| |  |  | Environmental concerns;
| | - |  | -----------------------

| |  |  | The need for replacement and refurbishment of aging plants; and
| | - |  | ---------------------------------------------------------------

| |  |  | Fossil fuel prices.
| | - |  | -------------------




Economic Growth.    Responding to growth in demand for electricity, global demand for power generation equipment has tended to be strongest in those regions where economic growth is high. Historically,
there has been a strong correlation between growth in the installed base of power plants and worldwide real GDP growth, although on a short term basis power generation demand can fluctuate significantly. We believe that power generation demand is
also driven by changing consumption patterns that favour electricity as a power source, including the development of computers, telecommunication products and more electricity-based transportation.





Following a period of intense growth of investment in energy infrastructure in the US from the late 1990s into 2002, which we refer
to as the gas bubble, in the second half of fiscal year 2002 the economic slowdown in the US and evidence of increasing capacity as a result of ongoing power plant construction triggered a sharp decline in orders for power generation
equipment. Developers have also started to cut capital investment to strengthen their balance sheets following Enrons collapse. We believe that pockets of demand still exist, however, due to gridlocks in the US transmission and distribution
infrastructure.





Deregulation and Liberalisation.    Deregulation and liberalisation of
electricity markets have transformed our customer base and also impacted demand, especially in North America, where demand for new power generation equipment comes principally from merchant developers, which are private power plant operators that
sell their electricity independently. Besides driving new investment, liberalisation has resulted in considerable price pressure on power plant costs over the last decade and has led to a need for more efficient and environmentally-friendly plants
with higher operating profitability. In deregulated markets, the allocation of technical and financial risks has also changed, with more risks currently being supported by suppliers such as ALSTOM.





The roles and requirements of traditional utilities, independent power producers (IPPs) and other actors in the industry are converging
further as the electricity market becomes increasingly competitive. Additionally, numerous mergers are taking place among utilities in the US and Europe. Large national utilities, following a period of low investment whilst liberalisation changed
the market rules in their respective home countries, are currently re-deploying their assets internationally.





In
addition, the end-consumer is beginning to influence market demand. With increased choice as a result of liberalisation, there is growing interest in distributed power and cleaner, environmentally-friendly power generation.





Globalisation.    Suppliers with global capabilities, such as ALSTOM, are well placed to serve customers who
are themselves becoming more global. This globalisation has also helped suppliers to cope with major shifts in regional demand. For example, the decrease in investment in power plants in Asia since 1998, following more than 10 years of continuous
growth in the region, was offset by the upsurge in demand from the US during the gas bubble. Europe and Latin America have had generally consistent demand overall and are also showing signs of growth in demand.





Environmental Concerns.    Concerns about security of energy supply combined with increasing pressure to reduce
greenhouse gas emissions are reviving discussions on new nuclear power stations. More generally,




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environmental concerns are creating demand for clean-coal technologies, which allow inexpensive, low-grade coal to be used as fuel whilst minimising emissions (mainly in Eastern Europe and Asia,
but also in the US). In addition, the Clear Skies initiative recently announced by the Bush administration in the US set ambitious targets to reduce emissions from power plants.





In addition, environmental concerns, higher fossil fuel prices and government subsidies are making renewable energy a potentially viable option for small-scale generation.
This is most noticeable in wind generation. Demand for large hydro projects exists mainly in Asia and South America, where a large number of natural sites have not yet been exploited, whilst refurbishment and mini-hydro markets are developing
rapidly.





Replacement and Refurbishment of Aging Plants.    In recent years, demand for
maintenance and refurbishment has been strengthened by a general trend among power producers to increase efficiency, lower operating costs and extend the useful lives of their existing plants. This increase in demand to upgrade facilities has
particularly benefited original equipment suppliers, and we believe it will be a significant source of future growth for the Power Sector due to its large installed base.





Fossil Fuel Prices.    Determination of plant type, particularly the choice between gas-fired and coal-fired plants, is determined in part by the
medium and long-term anticipation of the relative cost of fuel. Demand for coal-fired plants fluctuates with the anticipated relative cost of gas as compared to coal.Better plant economics combined with reasonable natural gas prices and
environmental concerns have favoured gas over coal as fuel in recent years. However, tighter natural gas supply resulting from higher demand and increasing concerns about security of energy supplies could make the construction of new coal-fired
plants a more viable option.





Power Strategy





In order to boost our position in the competitive global market, Power continues to focus on a series of measures to improve our market position and product quality.
Powers key strategies are as follows:





| |  |  | Increasing our emphasis on operational efficiency by reducing our cost structure, enhancing cash management and focusing on quality and process improvements. In
addition, implementation of the Quality Focus 6 Sigma programme  an operational excellence programme central to Powers performance improvement strategy  is being accelerated to increase on-time delivery of
high-quality products and services to customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Focusing on high-growth/high-margin activities, such as service, including information technology solutions, industrial gas turbines and emissions reduction
products and services;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Given the importance of new orders in the marketplace, we are strengthening our technological expertise in heavy-duty gas turbines, notably through a long-term
technology agreement we have entered into with Rolls-Royce; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Increased spending on gas turbine-related research and development will be directed to the enhancement of existing products and the development of new
competitive products in this area in the medium and long-term.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Competitive position





The power generation equipment market has been characterised in recent years by industry consolidation among the main
suppliers. We are a world leader in many of our power activities such as steam turbines, boilers and hydro power, and have the largest installed base of power generation equipment of any supplier (based on data released by McCoy 1998-2000, and
Utility Data Institute of the US (UDI), a subsidiary of McGraw-Hill, in 2001). According to the same McCoy data, we were ranked number two globally in gas turbines below 15 MW and number three globally in gas turbines over 15 MW for 1998-2000.





In gas and steam turbines, we compete mainly against two other major groups: General Electric and Siemens, and to
a lesser extent, the Japanese groups Mitsubishi, Toshiba and Hitachi. In the utility boiler and




83




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emissions control products markets, we compete with several other players. In utility boilers, our main competitors are Foster Wheeler, Babcock Borsig Power and Babcock & Wilcox. In emissions
control systems for the power industry, our main competitors are Babcock Borsig and its affiliates, Babcock & Wilcox, Lurgi and its affiliates, Mitsubishi Heavy Industries (MHI), FLS Miljo, Wheelabrator and Hamon/Research Cottrell. In emissions
control systems for industry, Foster Wheeler, Black & Veatch, IHI, Kawasaki Heavy Industries and Rafako compete in selected areas. In the hydro power market our main competitors are Voith-Siemens, VA-Tech and General Electric Hydro.





The success factors in the power generation industry are principally technology, quality, cost, size and
international presence. Our competitive strengths include our leading market position in a number of technologies (for example, steam turbines and industrial gas turbines), our size and extensive geographic presence (a global marketing and sales
network in more than 70 countries), our broad range of products and services covering the full range of power generation technologies, as well as our considerable experience with a large installed base of all types of power plants in every major
market in the world (including the US).





Based on internal estimates, we believe the overall world power
generation market was approximately  $125 billion in calendar year 2001. Approximately 48% of this market consisted of new equipment sales, whilst approximately 36% represented service (counting only outsourced service activities, and not those
conducted by utilities themselves). The rest of the market consisted mainly of civil construction works. We believe that the service market is growing rapidly, driven by increased trends towards outsourcing and the large volume of older plants,
particularly coal plants, in need of modernisation.





Activities  Segments





As of 31 March 2002, Power had 50 manufacturing sites and major service centres globally, with main locations in France, UK, Germany,
Spain, Switzerland, Sweden, Poland, the Czech Republic, the US, Canada, Brazil, China and India. As of 31 December 2001, we had installed the equivalent of approximately 18.5% of the worlds power generation capacity (over 650 GW) according to
UDI. We believe this installed base will be key in securing higher-margin spare parts and customer service or support sales in the future.





Power offers a comprehensive range of power generation equipment and services, unique in the industry. This broad scope of supply increases market flexibility and the ability to balance the business with changing market
demands.





The Power Sector is currently organised into the following six Segments:





| |  |  | Gas Turbine;
| | - |  | ------------




| |  |  | Steam Power Plant;
| | - |  | ------------------




| |  |  | Boilers & Environment;
| | - |  | ----------------------




| |  |  | Customer Service;
| | - |  | -----------------




| |  |  | Industrial Turbine; and
| | - |  | -----------------------




| |  |  | Hydro Power.
| | - |  | ------------




Gas Turbine





Powers Gas Turbine Segment supplies the following products and services:





| |  |  | Gas turbines ranging from 50 mega-watts, or MW, to 262 MW;
| | - |  | ----------------------------------------------------------




| |  |  | Turnkey power plants (engineering-procurement-construction) for simple cycle and combined cycle applications (standardised and tailor-made solutions); and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Re-powering services.
| | - |  | ---------------------



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The Segments main markets are Asia, Latin America and Europe. In fiscal
year 2002, the Gas Turbine Segment represented 16% of the Power Sectors orders.





Our gas turbine product
range includes various products, with output from 58MW for the GT8C2 unit to 262 MW for the GT26, our largest unit. As part of our strategy for fiscal year 2002, we have successfully refocused our sales efforts on a number of our mid-range gas
turbine engines with proven track records, particularly the GT11N2 and GT13E2 machines. We received orders for  1.4 billion in fiscal year 2002 for our principal mid-range gas turbines (GT13 and GT11) in Brazil, Malaysia, Bahrain and
Australia.





In fiscal year 2002, a central focus was to continue to address problems with our GT 24/26 gas
turbines. For further information regarding the GT 24/26 issue, please see Operating and Financial Review and Prospects. Because of technological and developmental problems associated with these gas turbines, we did not benefit greatly
from the gas bubble in the US. During that time, however, we did benefit from the boom in combined-cycle plants through the sale of steam turbines and Heat Recovery Steam Generators (HRSG). As a result, we believe we have limited exposure to project
cancellations as a result of the termination of the gas bubble and the current economic conditions in the US. We are currently re-emphasising our sales efforts on both the GT24 and GT26, whilst work is on-going to re-design certain components of the
machines and obtain performance improvements.





In pursuit of our goal to continue to strengthen our technological
expertise in heavy-duty gas turbines, we entered into an agreement in February 2002, which enables us to use Rolls-Royce aero-engine technology in the development of our heavy-duty gas turbine product range. This agreement will provide us with
access to Rolls-Royces technical base, notably very high temperature technologies, advanced aerodynamics and very high strength/high temperature materials. Through this agreement, the expertise and knowledge gained by Rolls-Royce in developing
its globally-recognized aero-engines (which use the same base technology as gas turbines) will be applied to our heavy-duty gas turbines to improve efficiency, power output and durability. We believe that access to these enhanced technology
solutions will strengthen our position in the heavy-duty gas turbine market and lead to economies of scale in our R&D spending. The agreement is also expected to accelerate over the medium term the introduction of new products in this area. In
addition to technology access, Rolls-Royce may also provide engineers to assist us in the application of technology on specific development projects. For example, a joint design team is currently in place in the Power Sectors Derby office in
the UK.





Steam Power Plant





The Steam Power Plant Segment supplies the following products and services:





| |  |  | Steam turbines from 100 MW to 1,560 MW, including turbines for combined-cycle gas fired plants;
| | - |  | -----------------------------------------------------------------------------------------------




| |  |  | Turnkey fossil-fired power plants and conventional turbine islands for nuclear power plants;
| | - |  | --------------------------------------------------------------------------------------------




| |  |  | Turnkey steam add-ons converting single-cycle gas-fired plants to combined-cycle;
| | - |  | ---------------------------------------------------------------------------------




| |  |  | Standardised range of turbo-generators (40-1,500 MW) and large air-cooled generators up to 400 MW;
| | - |  | --------------------------------------------------------------------------------------------------




| |  |  | Electrical and control systems for all types of plants; and
| | - |  | -----------------------------------------------------------




| |  |  | Retrofit and rehabilitation services.
| | - |  | -------------------------------------




The Segments main markets are the US and Europe. In fiscal year 2002, the Steam Power Plant Segment represented 12% of the Power Sectors orders.





This Segment has recently been the focus of a major restructuring programme, announced in 1999, which is now in its final phase of
implementation. The aim of this programme was to reduce overcapacity in the steam- related business. As a result, employee numbers in the Segment as well as in the Boilers and Environment Segment have been reduced by a combined total of
approximately 10,000. We are also currently focusing on a single technology for large steam turbines.




85




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Until recently, this Segment benefited from the gas bubble in the US through the
supply of steam turbines and generators for gas-fired combined-cycle plants. We are a leading manufacturer of steam turbines, having supplied close to 27% of steam turbines for combined-cycle plant applications ordered worldwide in the 1998-2000
period, according to data published by McCoy.





During the past year, the turnkey market has been slow, but the
downturn has been partly offset by a high order intake for direct turbine and generator orders, mainly in the US. We sold a total of 50 steam turbines during fiscal year 2002, confirming our leading position in this market. In Chile, a turnkey order
was received to convert the Nehuenco II power station to combined-cycle operation. Major orders were also won for steam turbine retrofit in Canada, the US, Italy and India. Other significant orders were registered in Poland for rehabilitation of the
Turow power plant and a supercritical unit at Patnow.





In electrical and control systems, where the Segment is a
leading player according to a report published by ARC Advisory Group in 2001, we focused particularly on developing the steam turbine and generator control business. Several contracts were also secured for electrical systems for emergency diesel
generator sets in nuclear power plants in Taiwan and Romania.





In addition, more than 120 generators were ordered
during the year, including one TOPAIR 25, a recently launched generator based on our superior air-cooled technology.





Boilers & Environment





The Boilers & Environment Segment supplies the following
product and service range:





| |  |  | Advanced sub-critical and advanced high-temperature supercritical boilers up to 1,000 MW;
| | - |  | -----------------------------------------------------------------------------------------




| |  |  | Circulating Fluidised Bed boilers, which allow low grade fuels to be burned whilst minimising emissions;
| | - |  | --------------------------------------------------------------------------------------------------------




| |  |  | Heat recovery steam generators for gas turbines in combined-cycle and industrial applications;
| | - |  | ----------------------------------------------------------------------------------------------




| |  |  | Mills, firing equipment, air pre-heaters, condensers and heat exchangers;
| | - |  | -------------------------------------------------------------------------




| |  |  | Clean coal technologies designed for low-grade/waste coal;
| | - |  | ----------------------------------------------------------




| |  |  | Asset enhancement (retrofit and rehabilitation services);
| | - |  | ---------------------------------------------------------




| |  |  | Energy recovery products for petrochemical processes;
| | - |  | -----------------------------------------------------




| |  |  | Emissions control systems, which are products, systems and services that reduce the adverse environmental impact of a wide range of industrial processes (power
plants, waste incineration, pulp and paper plants, metal plants, cement plants, oil refineries and chemical factories);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Waste-to-energy systems for municipal and industrial applications; and
| | - |  | ----------------------------------------------------------------------




| |  |  | Environmental management and consultancy services.
| | - |  | --------------------------------------------------




Demand for the Boilers & Environment Segments products has been strongest for heat recovery steam generators in North America, China, India and Europe, and an important market for equipment
and plant enhancement is emerging. In fiscal year 2002, the Boilers & Environment Segment represented 22% of the Power Sectors orders. In addition, demand for emissions control systems has benefited from increased environmental regulation.





We are one of the worlds leading boiler manufacturers according to data published by McCoy in 1998-2000,
and supply a wide range of energy recovery and emissions control systems able to reduce emissions below levels stipulated by the most demanding environmental regulations.





During fiscal year 2002, the Boilers & Environment Segment benefited from renewed interest in coal-fired plants in the US. The Segment was notably awarded a major
contract to design, supply and build a 268 MW power plant in Kentucky based on its world-leading Circulating Fluidised Bed (CFB) clean coal technology. The




86




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project will also leverage the Segments emissions control systems expertise by including a system which integrates several flue gas desulphurisation functions into one unit and will allow
the plant to achieve nearly 98% sulphur dioxide (SO 2 ) removal. A major contract was also awarded in Italy
to engineer, design and supply a similar CFB boiler for a project in Portoscuso, Sardinia. Producing over 300MW of electricity, this will be the largest CFB in the world when completed, according to information published by McCoy for the 10-year
period ended in 2000. Similar CFB plants are currently under construction in Mississippi, US, and in Guayama, Puerto Rico.





In North America, demand for boiler upgrades continued to be strong in fiscal year 2002, with the Segment winning a large number of orders. Demand was particularly strong for pressure part replacements/upgrades and retrofits of
firing systems to significantly reduce nitrogen oxide (NOx) emissions. Substantial orders were received for boiler rehabilitations in the Middle East and Latin America.





Our Energy Recovery Systems and Heat Exchange Businesses performed well, the latter winning its largest single order to date for the supply of equipment to a power plant in
Taiwan. The Environmental Control Systems Business also registered a major order for the supply of a Selective Catalytic Reduction system in the US.





We are a leading supplier of large Heat Recovery Steam Generators (HRSG), with orders booked for over 50 large HRSGs for gas-fired combined-cycle and cogeneration plants mainly in the US. Many of these
units have a high degree of supplemental duct firing (a method to increase the output of a combined cycle plant) and are installed in plants using gas turbines supplied by us and our competitors.





We sold or closed down the French portions of our waste-to-energy business in fiscal year 2000.





Customer Service





The Customer Service Segment promotes the
service activities relating to the Gas Turbine, Steam Power Plant and Boilers & Environment Segments and promotes services to customers in all geographic markets. In particular this Segment supplies the following product and service range:





| |  |  | Portfolio of services from spare parts and field services to full operation and maintenance packages;
| | - |  | -----------------------------------------------------------------------------------------------------




| |  |  | Refurbishment and modernisation of existing plants;
| | - |  | ---------------------------------------------------




| |  |  | Technical consultancy services;
| | - |  | -------------------------------




| |  |  | Tailor-made services and value packages (integrated solutions designed to achieve improved plant availability and reliability; improved plant
efficiency and capacity; lower production costs and environmental compatibility); and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | New service development.
| | - |  | ------------------------




The Segments orders and sales volumes are generally divided equally between the US, Europe and the rest of the world. The Segment has grown significantly since 1999, when it was first established as a separate Segment.
In fiscal year 2002, the Latin American market also developed strongly with the booking of several large contracts. In fiscal year 2002, the Customer Service Segment represented 28% of the Power Sectors orders.





The Customer Service Segment was established to increase our service business and to gain a sustainable competitive advantage through
dedicated resources. The Segments regional structure, embracing 20 Service Execution Centers (SECs) and over 50 Local Service Centers (LSCs), ensures that the Segment operates as close as possible to its customers.





The strategy to move towards plant services with the objective of becoming an integrated service provider has enabled the Segment to
quickly follow and adjust to the dynamics of the power service market. Traditional services such as parts supply as well as product and system maintenance have been complemented by long-term service contracts, including plant assessment services
(ECORAM), and support in Operation and Maintenance management (O&M).




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The Internet also continued as a strategic focus during the past year for this
Segment. Our Customer Service Portal (www.service.power.alstom.com) has been developed for online transactions and information sharing. Customers can use the portal to receive news and technical information, to request quotes, to order parts and
services, to view inventory status and to plan outages. Over 1,000 users are now registered representing 391 plant sites. Around 16% of all our transactions in the US are now handled via the Customer Service Portal.





In fiscal year 2002, we received more than 100 new long-term service contracts. As a result of these new O&M contracts, the Segment
currently has over 20,000 MW under contract.





Industrial Turbine





The Industrial Turbine Segment supplies the following products and services:





| |  |  | Gas turbines up to 43 MW and steam turbines up to around 100 MW for oil & gas production and distribution, industrial power generation, co-generation,
combined cycle, mechanical drive and marine propulsion applications;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Power plants (turnkey contracting and service);
| | - |  | -----------------------------------------------




| |  |  | Retrofit, rehabilitation and gas turbine service (up to 43 MW turbines); and
| | - |  | ----------------------------------------------------------------------------




| |  |  | Pre-insulated pipe systems and networks (district heating and cooling, oil and gas).
| | - |  | ------------------------------------------------------------------------------------




This Segments main geographic markets are Europe, the Middle East and North America. In fiscal year 2002, the Industrial Turbine Segment represented 14% of the
Power Sectors orders.





In fiscal year 2002, we saw strong growth in this Segment, with sales of
approximately 120 gas turbines and 50 steam turbines. The Segment performed particularly well in the oil & gas market, with orders for 50 gas turbine compressor sets in Iran and 15 Tornado pump sets in Algiers.





The first two operational 13 MW Cyclone gas turbines were commissioned during fiscal year 2001. Orders for this machine currently total
30. This high-efficiency turbine has demonstrated excellent emissions characteristics by using dry low NO x combustors. During fiscal year 2002, 10 Cyclones were sold for power generation and mechanical drive, including four for the US and two for UK gas transmission.





A total of 16 43MW GTX100 gas turbines have been sold following the machines introduction in fiscal year 2002. An order was also received to supply four such machines
together with two steam turbines for a new 225 MW combined cycle plant in Moscow. Additionally, the inauguration of the first GTX100 gas-fired combined-cycle plant took place at Helsingborg in Sweden during the period.





The opening of our Houston industrial gas turbine packaging facility in fiscal year 2002 signalled our commitment to further strengthening
our presence in the North American market. In fiscal year 2002, a new test facility was also opened there and 18 gas turbines were sold. Another gas turbine test facility was also opened in Finspong, Sweden, equipped for dual fuel testing, with the
primary purpose of testing the 30 MW GT10C. The GT10C has undergone extensive performance testing, successfully reaching full load whilst achieving low emissions.





We are also focusing on biomass fuel, which could become increasingly important due to environmental concerns. Two 20 MW turnkey biomass projects, using the expertise of
our Boilers & Environment Segment, were awarded in Germany in fiscal year 2002.




88




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Hydro Power





The Hydro Power Segment supplies the following product and service range:





| |  |  | Hydraulic turbines and pump turbines up to 800 MW;
| | - |  | --------------------------------------------------




| |  |  | Hydro generators up to 800 MW;
| | - |  | ------------------------------




| |  |  | Generator motors, salient pole generators, gates and valves;
| | - |  | ------------------------------------------------------------




| |  |  | Turnkey contracting including control systems covering the complete range of plants from 2 MW to  800 MW;
| | - |  | ---------------------------------------------------------------------------------------------------------




| |  |  | Refurbishment of hydro power plants; and
| | - |  | ----------------------------------------




| |  |  | Water pumping stations and hydromechanical equipment for water transportation.
| | - |  | ------------------------------------------------------------------------------




The Hydro Power Segment has a global manufacturing network in countries with high hydro power potential such as Canada, Brazil and China, where the market for new hydro
power plants was particularly strong this year. In fiscal year 2002, the Hydro Power Segment represented 8% of the Power Sectors orders.





We are the leading supplier of hydro power equipment and services worldwide according to data published in 2001 by UDI, a subsidiary of McGraw-Hill.





The Segments scope has widened following the integration of the Water Business from the former Contracting Sector, and we now offer
a full range of equipment and services in the hydro market, together with a full range of pumping equipment for the transport and control of water.





In fiscal year 2002, major orders included a turnkey contract for a 708 MW hydro power plant by Grupo de Empresas Associadas de Barra Grande in Brazil, and a pumping station order at Beni Haroun in
Algeria. In the US, an order for the Rocky Reach hydro power plant refurbishment was received from Chelan County, and in Canada a contract for the complete refurbishment of the Outardes 3 power plant was awarded by Hydro Quebec. The Segment also
recorded a breakthrough in the after-sales market, with Operations and Maintenance contract awards for the Santa Clara project in Brazil (five years) and the Beni Haroun hydro power plant in Algeria (ten years).





The Hydro Power Segment also recently launched a new range of mini-hydro products, named Mini-Aqua  (2-15MW). Since its introduction in June 2001, 55 orders have been received and market demand for these products continues to grow.





Research & Development





R&D has been, and continues to be a strategic priority in the Power Sector. Powers R&D programmes focus particularly on gas turbines and more generally on anticipating customer
requirements for low life-cycle cost, environmentally-friendly solutions with shorter delivery times. Our emphasis on new product and technology developments continues to be price competitiveness (notably through design standardisation), enhanced
product efficiency and performance, and reduced adverse environmental consequences.





In fiscal year 2002, work
continued on developing common cross-Segment control systems and on development and enhancement initiatives in the field of gas turbines. More particularly, R&D in the Power Sector focused on the following in fiscal year 2002:





| |  |  | Continued operating improvement relating to the GT 24/26 gas turbines;
| | - |  | ----------------------------------------------------------------------




| |  |  | The use of Rolls-Royces aero-engine technology in the development of our heavy-duty gas turbine product range through access to enhanced technology
solutions  very high temperature technologies, advanced aerodynamics and high strength/high-temperature materials; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



89




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| |  |  | Further improvements in the environmental performance and efficiency of our products, such as development of new clean coal combustion processes. We are working
on advanced power plant concepts with the goal of making future coal plants up to 50% more efficient by optimising steam cycles, plant performance, boiler design and operating costs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




For customer service, our research and development focus has been on development of differentiating products and services in anticipation
or response to customers key drivers, including improvement packages, advanced repair solutions, upgrade packages, component life-time optimisation, retrofit products, on-site repair capabilities and monitoring and diagnostics.





In addition to the foregoing, we continue to work on new technologies in co-operation with a number of universities. These
technologies are currently concentrated on four main areas:





| |  |  | High efficiency cycles;
| | - |  | -----------------------




| |  |  | Advanced electrical insulation materials;
| | - |  | -----------------------------------------




| |  |  | Instrumentation and control; and
| | - |  | --------------------------------




| |  |  | Mitigation of emissions, including CO2.
| | - |  | ---------------------------------------




Significant orders





The table below sets forth the most significant orders received by the Power Sector as of 7 May 2002:





Customer

OrderFiscal Year 2003Gas TurbineGaz de France (France)

Combined Cycle power plantFiscal Year 2002Gas TurbinePetrobras, Petroleo Brasilero SA (Brazil)

3xGT11 N 2-2 Cogen Gas TurbinesTechnology Tenaga Perlis Consort (Malaysia)

1xGT 13 E2-3 Combined CycleMinistry of Electricity & Water (Bahrain)

1xGT 13 E2-3 Combined CycleSenoko Power (Singapore)

2xGT 26-1 Combined CycleWestern Power Kwinana (Australia)

1xGT 13 E2-1 Combined CycleElectricity of Vietnam (Vietnam)

Conversion to combined cycle plantPetrobras, Petroleo Brasilero SA (Brazil)

2xGT 11 N2KHI/Mitsui (Brazil)

2xGT 11 N2Steam Power PlantElektrownia (Poland)

1x260MW steam turbine generator setsMirant (US)

4x250MW steam turbine generator setsElektrownia Turow (Poland)

Upgrade steam turbine plant (Unit 6)Elektrim Megadex SA (Poland)

Steam turbine rehabilitationColbun (Chile)

1x135MW steam turbine generator setConnective Mid Merit Inc (US)

2x260MW steam turbine generator setsSouthern Energy (US)

2x280MW steam turbine generator sets




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Customer

OrderBoilers & EnvironmentReliant Energy (US)

2x250MW CFB BoilersEast Kentucky Power (US)

1x268MW CFB BoilerNEPCO/Panda (US)

8x Heat Recovery Steam GeneratorsSC&G Williams (US)

Installation of Selective Catalyst Reduction technologyENEL (Italy)

1 x 300MW CFB BoilerWngmen (Taiwan)

2 Condensing units for nuclear power plantCustomer ServiceCompanhia Hidroelectrica do Sao Francisco (Brazil)

Gas turbine serviceTechnology Tenaga Perlis Consort (Malaysia)

Gas turbine serviceMidlothian Cogen (US)

Operation & MaintenanceIndustrial TurbineNational Iranian Gas Company (Iran)

15x24.6MW Gas Turbines (15xGT10)General Aviation AG (Russia)

2x43MW Combined cycle plant (2xGTX100)Spie Capag (Algeria)

15x6.75MW Tornado Gas TurbinesE-on Kraftwerke (Germany)

2x20MW Biomass plantsCity of Vernon (US)

2x43MW Combined cycle plant (2xGTX100)Hydro PowerGrupo De Empresas Associadas de Barra Grande (Brazil)

708MW Hydro Power PlantChelan County (US)

Installation of 7x117MW Generator Stators and RotorsHydro Quebec (Canada)

Complete plant rehabilitationNational Agency of Algerian Dams (Algeria)

Pumping Station





TRANSMISSION & DISTRIBUTION





The Transmission & Distribution Sector (T&D) provides products, equipment and services for the medium and high voltage markets.
Transmission & Distribution products and services cover the total range from design through equipment and systems supply to global support.





In fiscal year 2002, T&D had sales of  3,164 million (13% of ALSTOMs total sales), and as of 31 March 2002, had 27,736 employees in over 40 countries (23% of ALSTOMs total
employees). The following table sets forth selected financial information as well as the number of employees of T&D for the periods indicated:





Year ended 31 March2000

2001

2002(in  million, except employees)Orders received

2,532

2,882

3,210Sales

2,649

2,792

3,164Operating income

233

235

203Research and development expenses

117

97

106Capital expenditures

73

75

61Employees

26,629

26,384

27,736




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The following table sets forth the geographic breakdown of T&Ds sales
for the periods indicated:





Year ended 31 March2000


2001


2002European Union

42
%

42
%

37
%of whichFrance

13
%

11
%

10
%UK

5
%

6
%

6
%Germany

17
%

15
%

13
%Rest of Europe

7
%

6
%

6
%North America

14
%

17
%

17
%of whichUS

4
%

8
%

10
%Central and South America

8
%

7
%

8
%Asia/Pacific

16
%

17
%

19
%Africa/Middle East

13
%

11
%

13
%Total

100
%

100
%

100
%





Industry characteristics





Demand in the power transmission and distribution industry is driven by numerous factors, namely:





| |  |  | Economic growth;
| | - |  | ----------------

| |  |  | Deregulation; and
| | - |  | -----------------

| |  |  | Environmental concerns.
| | - |  | -----------------------




Economic Growth.    Demand is closely correlated with the increase in the gross domestic product and related investment in the power generation sector. We expect that the recent inflow of
investment in the US power generation industry will be followed by an increase in the demand for transmission equipment, as a result of the need there for expanded transmission capacity.





Deregulation.    Long-term development of the T&D market has been heavily impacted by the progressive deregulation and privatisation of the
energy market. This driver is reshaping market structures differently from one region to another, from one country to another and even from one customer to another. Deregulation has led to the unbundling of the transmission and distribution customer
base, as independent, specialized and often privatized companies have in many countries replaced integrated, heavily regulated utilities. These new actors are focused on operating efficiency and cost reduction. Additionally, by permitting the
creation of energy trading markets, deregulation has led to the creation of regional electricity markets, creating the need for interconnection equipment between local transmission and distribution networks. Deregulation has also prompted, we
believe, increased development and sales of power generation equipment, which we expect will be followed by increases in transmission investment.





The world-wide deregulation process is now well advanced. Whereas ten years ago the energy industry of only three countries was deregulated, today we estimate that 32 countries have started the
deregulation process, representing approximately 62% of the worlds generation capacity. Deregulation is most advanced in North America, as well as in parts of South America and Western Europe, whilst other countries are only just beginning the
process, notably in Asia (China, South Korea), central Europe (Czech Republic, Russia, Romania and Bulgaria), the Middle East (Egypt) and Africa (Algeria, Kenya).





Environmental Concerns.    Concerns over the visual impact of new transmission lines favour solutions that permit greater energy flows through
existing infrastructure, thus avoiding the need to build new lines. Likewise, certain insulating materials traditionally used in the industry are no longer considered appropriate, leading to a need to replace installed equipment.




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As a result of these industry characteristics, customers have become more cost
conscious, while competitive pressures increase. There are, however, new market opportunities, such as:





| |  |  | Modernisation and upgrading of existing networks. Power grids in many parts of the world will need to upgrade significantly as post-privatisation conditions
generate a demand for improved power quality and efficiency. We expect that demand for higher value-added products and services such as network automation and power quality solutions will increase as deregulation progresses;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Increased access to service segment. As new customers attempt to optimise their return on investment, they increasingly outsource activities such as
engineering, maintenance and project management to transmission and distribution specialists. In addition, these customers increasingly require value added services such as technical consulting, network design and planning; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Development of energy trading. The unbundling of electricity generation requires metering equipment, energy management software systems to monitor and manage
flows, exchange and clear transactions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




T&D Strategy





In line with its market positioning as a leading solution-provider, T&D intends to implement a three-fold strategy as follows:





| |  |  | Strengthen core activities in order to sustain competitive advantage on conventional T&D products. This consists mainly of improving the current
profitability of conventional products, through product, cost and manufacturing base rationalisation. In addition, we are building foundations to grow in new market segments, and filling minor gaps in our product portfolio;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Grasp growth opportunities in the new, extended T&D market scope by developing value-added services and systems activities. This includes growing our
information technology, developing network consultancy and building a field service activity; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Expand geographically and re-deploy the sales force to adapt coverage to market potential and leverage the Sectors strength on a world-wide basis. This
requires re-balancing presence to growing markets, including, more particularly, the US and China.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




T&D
Reorganisation





To implement this strategy, we implemented a new organisation in fiscal year 2002. This
new organisation, supported by an internal change programme, T&D On the Move, is based on the following:





| |  |  | An International Sales and Country Organisation (ISCO) which provides customers with a single point of contact for all of our T&D products and services,
whilst improving access of our rationalised manufacturing base to world-wide markets;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Our reorganised Businesses, each as described below, which provide a wide range of T&D products and services for the energy supply
chain  transforming voltage, switching, protecting, measuring, managing energy flows and interconnecting networks; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Supporting functions, such as Strategy, Communications and Finance, which provide cohesive support across T&D, ensuring control of costs across the
Businesses.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------




Competitive position





T&D ranks among the top suppliers world-wide in the field of power transmission and distribution, with leading positions in the field of high voltage, or HV,
switchgear, protection and control and energy management systems. Our main competitors currently include ABB, Siemens, Schneider, VA Tech and a number of Japanese groups (Hitachi, Mitsubishi and Toshiba).





Based on internal estimates, we believe the overall T&D market (including traditional sectors as well as energy management systems,
distributed generation, protection and control systems, network planning and




93




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field services) had sales of approximately  36 billion world-wide in calendar year 2001. We also believe that the overall transmission and distribution market (including in Businesses such
as Energy Management Markets and Service) will grow steadily between 2001 and 2004. We anticipate the growth rates will vary between the markets in which our Businesses operate, as higher rates of growth are expected in the energy management
markets, service and protection and control, and in high voltage and medium voltage product lines markets. We anticipate lower growth rates in high voltage switchgear, medium voltage switchgear and power transformers markets. We also estimate uneven
growth rates in different geographic markets in the 2001-2004 period, with growth in the Americas and the Asia/Pacific region probably stronger than in the more mature European market. We currently estimate that the African and Middle-Eastern
markets will match average world-wide growth rates.





T&D is among the top suppliers on the market offering
integrated solutions which are based on their own product offering. Capitalising on world-wide coverage and expertise in all market segments, the Sector is able to meet the needs of the market, whether customers act locally or trans-nationally.





Barriers to market entry remain high in the T&D Sector. These barriers include the necessity for products to
be qualified by the user, the need to demonstrate operational experience, and the conservative attitude of power operators towards innovation. The final barrier is due mainly to the strategic nature of the reliability of power transmission for
national economies and concerns for safety. As a result, the T&D market is concentrated, with the largest five players currently accounting for approximately 50% of sales. The market has also experienced increasing consolidation in recent years.





Activities  Businesses





Since its creation, T&D has grown organically and by the acquisition of selected activities with complementary technologies and/or geographic markets.





Today, T&D benefits from global operations. For instance, in fiscal years 2001 and 2002 we sold our equipment in more than
130 countries. The Sector is organised around 15 regions as part of the International Sales and Country Organisation, and 86 industrial sites world-wide are managed under the eight Businesses described below.





T&D operates in the following eight Businesses  four Product Businesses, three Systems Businesses and our Service
Business:





Product Businesses


| |  |  | High Voltage Switchgear;
| | - |  | ------------------------

| |  |  | Medium Voltage Switchgear;
| | - |  | --------------------------

| |  |  | Power Transformers; and
| | - |  | -----------------------

| |  |  | Protection and Control.
| | - |  | -----------------------




Systems Businesses


| |  |  | Transmission Projects;
| | - |  | ----------------------

| |  |  | Electrical Distribution Systems; and
| | - |  | ------------------------------------

| |  |  | Energy Management Markets.
| | - |  | --------------------------




Service Business


| |  |  | Service
| | - |  | -------




As of 1 April 2002, Protection and Control merged into Energy Management Markets, which remains a Systems Business. On that date, Power Conversion, formerly a separate Sector, was incorporated into T&D as a Systems Business.




94




---




High Voltage Switchgear





High Voltage Switchgear equipment regulates electricity flows within a transmission grid and is used in the transmission of power from
power plants to the distribution network before the voltage is stepped down for distribution to end users. The High Voltage Switchgear Business offers a complete range of:





| |  |  | Air insulated switchgear;
| | - |  | -------------------------




| |  |  | Gas insulated switchgear; and
| | - |  | -----------------------------




| |  |  | Instrument transformers (conventional and optical designs).
| | - |  | -----------------------------------------------------------




This Business is focused on winning orders in the higher growth markets in Asia and the Americas. In fiscal year 2002, notable orders received were: in China and Indonesia,
for our new generation of 500kV circuit breakers and disconnectors; in Brazil, as part of that countrys network reinforcement programme; in Mexico, for 400/220 kV switchgear; and in the US, for dead tank circuit-breakers. The GIS design, which
is a compact high voltage switch that manages the flow of power in a transmission substation, received large orders for 220/145 kV substations in the Middle East (for the Abu Dhabi, Qatar and Oman electricity utilities), as well as 145 kV
substations for the UK network.





Medium Voltage Switchgear





This Business focuses essentially on medium voltage switchgear and distribution transformers. Medium voltage switchgear regulates the flow
of power on the distribution network before it is stepped down to a low voltage level for the end-user. Distribution transformers are used at the end of the distribution process to step down power from high voltage to lower voltage levels for the
end-user. The Medium Voltage Switchgear Business provides low and medium voltage products, pre-engineered and industrialised solutions featuring:





| |  |  | Medium voltage, or MV, switchgear and components for indoor and outdoor applications;
| | - |  | -------------------------------------------------------------------------------------




| |  |  | Low voltage, or LV, switchboards;
| | - |  | ---------------------------------




| |  |  | Distribution transformers (cast resin and oil immersed type);
| | - |  | -------------------------------------------------------------




| |  |  | Instruments transformers and capacitors;
| | - |  | ----------------------------------------




| |  |  | Prefabricated substations; and
| | - |  | ------------------------------




| |  |  | MV solutions for underground or overhead line distribution networks with distribution automation systems.
| | - |  | ---------------------------------------------------------------------------------------------------------




In fiscal year 2002, the Medium Voltage Switchgear Business continued to develop in key growth markets such as China, whilst retaining
market share in countries such as France, where markets are declining slightly.





Power Transformers





Power Transformers are used to step up the voltage of the power generated by power plants to a voltage that
can be carried efficiently on the power network and subsequently to step down voltages to the levels of end-users. The Power Transformers Business provides a technology covering the complete range of power transformers, including all types up to
800kV, including High Voltage Direct Current (HVDC), transformers and special transformers such as phase-shifters, reactors and traction transformers.





In line with our strategy to rationalise our product line and costs, the Power Transformers Business launched an important programme of standardisation in fiscal year 2002, with the objective of
improving production output and lead times as well as reducing production costs. In line with this strategy, we intend to expand our manufacturing in low labour cost countries, such as Turkey and Brazil.





We extended the global presence of the Power Transformers Business through the acquisition in April 2001, of Ansaldo Coemsa S.A., a power
transformer company in Brazil specialised in power transformer, auto-transformer and shunt reactor technologies.




95




---




Protection and Control





The Protection and Control Business provides equipment for power networks and substation protection, control and monitoring featuring:





| |  |  | Protection equipment for HV and MV electrical power networks;
| | - |  | -------------------------------------------------------------




| |  |  | Control products for electrical substations;
| | - |  | --------------------------------------------




| |  |  | Metering products and power quality meters for electrical power networks;
| | - |  | -------------------------------------------------------------------------




| |  |  | Substation control and monitoring systems for electrical substations; and
| | - |  | -------------------------------------------------------------------------




| |  |  | Control systems for secondary distribution networks.
| | - |  | ----------------------------------------------------




In June 2001, T&D acquired a leader in metering in the US, Bitronics Inc., thereby integrating the transducers and instruments of this company into Protection and Control Business global
presence and reinforcing the Business presence in North America.





One of the major achievements in
Protection and Control in fiscal year 2002 was the completion of its MiCOM ® range, which includes
protection relays and measurement equipment as well as the latest controllers and substation control systems for power system networks.





As discussed below, the Protection and Control Business merged into our Energy Management Markets Business on 1 April 2002.





Transmission Projects





Transmission Projects range of
products, systems and services concentrates on turnkey solutions and packages for high voltage substations, conversion substations and transmission lines, featuring:





| |  |  | Design and construction of turnkey high voltage alternating current, or AC, substations;
| | - |  | ----------------------------------------------------------------------------------------




| |  |  | Provision of high voltage direct current, or DC, links; and
| | - |  | -----------------------------------------------------------




| |  |  | Transmission lines.
| | - |  | -------------------




Electrical Distribution Systems





The Electrical Distribution Systems Business was created
in fiscal year 2001. This Business provides an organisation for delivering extended value solutions to industrial and commercial customers. The Electrical Distribution Systems Business offers systems and solutions in the electricity distribution and
distributed energy markets featuring:





| |  |  | Distribution substations;
| | - |  | -------------------------




| |  |  | Power system projects and grid connections; and
| | - |  | -----------------------------------------------




| |  |  | Distributed power generation.
| | - |  | -----------------------------




Energy Management Markets





The Energy Management Markets Business supplies
equipment and information technology systems, including computerised power management systems used to operate power transmission networks, determine customer needs and regulate the flow of power from power plants to the distribution network. In
particular, the Energy Management Markets Business provides information system solutions for deregulated energy industry applications, SCADA systems (large information technology control systems) and telecommunications equipment for power lines
featuring:





| |  |  | HV networks management software;
| | - |  | --------------------------------




| |  |  | Low/medium voltage networks management software;
| | - |  | ------------------------------------------------




| |  |  | Software applications for deregulated electricity industries (trading and settlement);
| | - |  | --------------------------------------------------------------------------------------




| |  |  | Power line carriers;
| | - |  | --------------------



96




---




| |  |  | Teleprotections;
| | - |  | ----------------




| |  |  | System architecture consulting; and
| | - |  | -----------------------------------




| |  |  | Application services provider.
| | - |  | ------------------------------




In fiscal year 2002, this Business was among the market leaders in the delivery of strategic information system solutions for operation, trading and security of energy infrastructures.





More than 55% of activity in this Business has been generated in North America, where local presence was significantly reinforced in the
wholesale and distribution energy market segment. Among its major contracts, the Energy Management Markets Business delivered an integrated control centre system for the Midwest Independent System Operator, a grid operator in the mid-west region of
the US. This computer system operates electric transmission systems that are owned by many different transmission owners and ensures reliable delivery in the mid-western states of the US. The SCADA e-terra ®  platform, which is a supervisory control and data acquisition system, has been adopted by major electrical operators in the
Middle-East, Asia/Pacific and Brazil.





This Business also accelerated its penetration of the European deregulated
energy market through the award of significant contracts in Iceland and France.





On 1 April 2002, we merged the
Protection and Control Business and the Energy Management Markets Business to create a new Business, Energy Automation and Information Solutions. The mission of this new combined Business is to provide our T&D customers with information and
automation systems, control and protection products, and value-added services. The offerings of this Business will be customised to provide efficiency and better monitor the energy infrastructure of our customers.





Service





The Service Business provides a global approach to service, built on network consulting, product service and field service, featuring:





| |  |  | Consulting and expertise;
| | - |  | -------------------------




| |  |  | Erection and commissioning;
| | - |  | ---------------------------




| |  |  | Maintenance, including spare parts;
| | - |  | -----------------------------------




| |  |  | Repair and emergency support;
| | - |  | -----------------------------




| |  |  | Renovation, rehabilitation, modernisation;
| | - |  | ------------------------------------------




| |  |  | Operation, asset management; and
| | - |  | --------------------------------




| |  |  | Training.
| | - |  | ---------




In view of the growing outsourcing market which is developing as a result of the deregulation of markets worldwide, the Service Business, created in April 2001, consolidates all existing T&D service resources
worldwide from erection, commissioning and maintenance, to modernisation, rehabilitation, renovation, asset management and consulting. The Service Business is focused on developing a fully-fledged service approach to the market, with a country-based
organisation providing us with a presence in numerous locations world-wide.





In fiscal year 2002, this Business
successfully developed long-term contracts in the UK, taking full responsibility for the operation and maintenance of power supply systems and providing 24-hour, 365-day service.





Research & Development





R&D efforts in the
T&D Sector concentrate on the following main challenges:





| |  |  | The reduction of the manufacturing and operating costs of our traditional products to keep them competitive;
| | - |  | ------------------------------------------------------------------------------------------------------------




| |  |  | The deregulation of energy markets; and
| | - |  | ---------------------------------------




| |  |  | The development of environmentally-friendly solutions.
| | - |  | ------------------------------------------------------



97




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Significant orders





The majority of T&Ds sales in fiscal year 2002 were achieved through a high number of small orders, generally carried out in less than a year. The table below
sets forth a representative sample of major projects as of 7 May 2002, many of which involved more than one Business from this Sector. The estimated contract value of these projects ranges from  15 million to  50 million.





Customer

OrderNational Grid Company (NGC), West Midlands Upgrade (UK)

400kV gas insulated substation and 4000kV air insulated substationPower Grid (India)

12 Control Centres and 164 Remote Terminal UnitsENELPower Spa ( Ras Laffan power station) (Qatar)

2 x 220kV gas insulated substationsAqualectra Curaçao N.A (Carribean Island of Curaçao)

66kV transmission systemGeneral Electric & Water Corporation (New Trade Centre) (Qatar)

66/11 kV gas insulated substationPLN, Indonesian Utility (Indonesia)

500kV substationVolkswagen Kraftwerk GmbH (Germany)

Upgrade of 110kV and 20/6kV networks for the production plantsNational Grid Company (NGC), Hams Hall (UK)

132kV substationISO New England (US)

Market systemCeylon Electricity Board (Sri Lanka)

Two 132kV substationsDuke Fluor Daniels (US)

220MVA-360MVA power transformersEletronoporte, Brazilian National Utility (Brazil)

550kV gas insulated substation and capacitive transformers





TRANSPORT





Transport designs, manufactures and supplies a broad range of products, systems and services to rail customers world-wide. This range includes fully integrated transport
systems, rolling stock of all types (such as trains, tramways and metros), electromechanical infrastructure, as well as customer services for rolling stock and infrastructure equipment and a wide range of customer support services in the fields of
customer training, technical consultancy, project management and asset management.





Transport has successfully
established an international presence through a strategy of increased organic growth in new geographic markets, complemented by selected acquisitions and alliances.





Transports main customers today in terms of sales include SNCF, Virgin, SNCB, FS/Trenitalia, DBAG, Amtrak, KHRC, CTA-Chicago and NYCT. The French railway operator,
SNCF, and the Parisian metro operator, RATP, together represented approximately 13% of Transports sales in fiscal year 2002. By comparison, they represented less than 6% of Transports sales in fiscal year 2001.





In fiscal year 2002, Transport had sales of  4,413 million (19% of ALSTOMs total sales), and as of 31 March 2002, had
29,119 employees in more than 40 countries (24% of ALSTOMs total employees).





The following table sets forth
selected financial and other information for Transport for the periods indicated:





Year ended 31 March2000

2001

2002(in  million, except employees)Orders received(1)

3,918

5,558

6,154Sales

4,092

4,400

4,413Operating income

231

266

101Research and development expenses

122

101

75Capital expenditures

131

114

105Employees

27,866

29,804

29,119


---

|(1) |  | The figure for 2001 includes orders of Fiat Ferroviaria, which we consolidated from 1 October 2000, and also reflects the inclusion for the first time of
long-term maintenance contracts.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



98




---




The following table sets forth the geographic breakdown of Transports sales
for the periods indicated:





Year ended 31 March2000


2001


2002European Union

64
%

66
%

61
%of whichFrance

17
%

10
%

15
%UK

20
%

33
%

20
%Germany

8
%

7
%

5
%Rest of Europe

2
%

2
%

3
%North America

15
%

18
%

14
%of whichUS

13
%

14
%

11
%South and Central America

3
%

3
%

4
%Asia/Pacific

14
%

9
%

16
%Africa/Middle East

2
%

2
%

2
%Total

100
%

100
%

100
%





Transport is a global player with 32 production and service sites
around the world and a dedicated sales force in 40 countries. Transports principal production sites are in France, Spain, Germany, Italy, the UK, Belgium, the Netherlands, Brazil, Canada, the US and Poland.





Industry characteristics





The rail market experienced strong growth in fiscal year 2002, and we expect that the market will continue to grow strongly for at least the next three years in terms of orders received by the major rolling stock manufacturers.
Several factors are responsible for this growth, namely:





| |  |  | The number of passengers has been increasing in several European countries, resulting in increased demand for rail and metro travel;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Main European networks that had delayed major procurement of rail equipment during the industry slowdown in the mid-1990s have placed orders to replace
existing rolling stock and expand their networks;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | New signaling systems are being developed to increase the capacity of existing lines; and
| | - |  | -----------------------------------------------------------------------------------------




| |  |  | Environmental policies continue to favour more efficient means of transport provided by rail and metro systems.
| | - |  | ---------------------------------------------------------------------------------------------------------------




The trends described above result in part from fundamental changes in the rail industry in recent years in terms of customer base,
customer behaviour and product and/or service requirements. The main trends currently affecting the industry include:





| |  |  | Deregulation;
| | - |  | -------------




| |  |  | Urbanisation;
| | - |  | -------------




| |  |  | Globalisation and localisation;
| | - |  | -------------------------------




| |  |  | Government subsidies and local manufacturing presence; and
| | - |  | ----------------------------------------------------------




| |  |  | Technological development.
| | - |  | --------------------------



99




---




Deregulation.    In many countries during the last
five years, the processes of deregulation of the industry and/or privatisation of rail operating companies have changed our customer base and made the market more competitive. Many traditional state-owned networks have been replaced by private
enterprises operating parts of a given network. These new types of enterprises include pure operators, local authorities, leasing companies and private sector infrastructure owners. Because of this change, customers orders are increasingly
based upon functional specifications, requiring guarantees of availability and performance to be backed by support services. Furthermore, customers may require equipment suppliers to share risk and, in exceptional cases, participate in the equity
investment. Faced with competitive pressures, customers have changed their procurement practices and are requiring greater product scope from their suppliers. Customers in deregulated markets tend to concentrate on their core businesses as operators
and increasingly outsource maintenance and service.





The process of deregulation and privatisation is most
advanced in the US, Canada, UK, Spain, Italy, Argentina, Brazil, Australia, Japan, Sweden, Mexico and New Zealand. Even in countries where this process has not yet begun or where it is in its early stages, such as France, Germany, the Netherlands
and South Africa, where the railways are still operated by state-owned entities, customers are also adopting a more commercial, profit-oriented approach, leading to changes in customer requirements, pricing and payment terms.





Urbanisation.    Urbanisation in many parts of the world is also affecting the structure of the rail
supply industry. Within the rolling stock market, for example, demand for mass transit systems is increasing, as local operators seek solutions to ease automobile traffic congestion and address environmental concerns in urban and suburban areas.
Demand for high-speed trains that link major urban centers is currently experiencing a turn-around following a period of decline in the 1990s. Previously focused in Western Europe, the high-speed rail market today increasingly depends on upon the
progress of large projects outside Europe  in Korea, China and Taiwan, for example. Certain rail projects however, despite government political support, have not advanced due to a lack of public financing.





Globalisation and Localisation.    The rail supply industry has also, during the past five years, changed as a
result of globalisation. This change has occurred partly as a result of the deregulation/privatisation process following the emergence of global private operators and the opening of national markets to international competition, and partly also as a
result of the importance of local content requirements in major rail equipment orders. It has led suppliers to seek growth opportunities in new geographic zones beyond their traditional domestic markets and to establish a local commercial and/or
industrial presence. Despite the globalisation, most railway systems have their own specific requirements that oblige suppliers to customise products, which limits the ability of suppliers to develop global economies of scale. The globalisation of
the suppliers has increased pricing pressure, but this is offset to a degree by the concentration of the suppliers that has occurred.





Government Subsidies and Local Manufacturing Presence.    Railway operators have been characterised by their need for local, state/regional and central government subsidies in order to maintain
their financial equilibrium. This need for subsidies is particularly required by urban and suburban railway operators and to a lesser extent by freight and intercity railway operators. As a result, rolling stock orders depend generally on the level
of government spending on railways, and order selection often favours to those suppliers with local manufacturing bases, thus creating and/or sustaining local employment.





Technological Development.    Traditional and new operators alike, around the world, have shown growing interest in the proven benefits of new
train control and train management systems, including increased safety, higher rail traffic density, lower maintenance costs and greater international harmonisation. As a result, the signaling market still continues to benefit from annual volume
growth above the railway supply industry average.





Transport Strategy





We intend to sustain our leading market positions and ensure product superiority in our chosen markets by:





| |  |  | Taking advantage of the buoyant European markets;
| | - |  | -------------------------------------------------



100




---




| |  |  | Continuing to grow non-manufacturing activities such as service and signaling;
| | - |  | ------------------------------------------------------------------------------




| |  |  | Improving profitability and cash flow of our Rolling Stock activities, principally by improving our operating margin in Europe, whilst maintaining our current
market share, and continuing to increase our market share in the US; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Developing technological advantages by improving existing product ranges.
| | - |  | -------------------------------------------------------------------------




We have encountered significant project management difficulties with our regional train contracts in the UK. These difficulties stem from a delay in recognising and
adapting to the rapidly changing risk environment following deregulation of that market. To address these problems, this Sector has been reorganised and management changes have been implemented. We currently expect the trains under these contracts
to be delivered by the last quarter of calendar year 2002. For a further discussion of these UK rail contracts, see Operating and Financial Review and Prospects.





Competitive Position





Based on a tally of firm orders, we are one of the worlds three leading providers in the railway supply industry. In particular, Transport has strong positions in high-speed trains, electrical
and diesel multiple units, metros, traction systems, customer service and signaling.





The key competitive factors
for Transport are:





| |  |  | Product scope;
| | - |  | --------------




| |  |  | Technological compliance;
| | - |  | -------------------------




| |  |  | Performance achievement;
| | - |  | ------------------------




| |  |  | Customer service and assistance;
| | - |  | --------------------------------




| |  |  | Life cycle costs competitiveness; and
| | - |  | -------------------------------------




| |  |  | World-wide presence.
| | - |  | --------------------




Product scope, size and international presence are necessary for a supplier to participate in major project-based undertakings, to sustain a steady revenue stream that counterbalances the effects of investment cycles in individual
economies, and to adequately cover the necessary sales, marketing and research and development costs. As a result of deregulation and privatisation, a supplier may also develop a competitive advantage through its ability to provide bundled offerings
(e.g., the supply of trains, plus a signaling system, plus associated services, all as one package), after-sales service support and increased added value to customers in the form of product and component standardisation. However, products and
services in our industry are still highly customised, as national or private rail operators continue to have specific requirements and infrastructure constraints.





We estimate that the overall size of the existing market for rolling stock, signalling and infrastructure was approximately  40 billion in each of fiscal year 2001
and fiscal year 2002. Maintenance and renovation work performed by rail networks has also remained steady recently. We believe this market had a value of approximately  12 billion in each of fiscal year 2001 and fiscal year 2002,
representing a source of potential future growth if rail networks decide to outsource this work. We also believe that the development of new signaling systems and other transport information solutions represents a source of potential future growth.





Our principal competitors in the field of rail transport are Bombardier and Siemens, both of which also
offer a full range of products and services. Bombardier acquired ADtranz in 2001, the rail manufacturing subsidiary of Daimler-Chrysler. In certain geographic regions and/or world-wide for specific products (primarily rolling stock), we also compete
with CAF, Ansaldobreda, General Electric, General Motors, plus other competitors mainly from Japan and Korea. In signaling and information solutions, we also compete with non-rail specialists including Alcatel, General Electric Transportation,
Lockheed Martin and Invensys.




101




---




Activities  Segments





In 1996 Transport created world-wide Businesses which brought together similar product and service offerings under a single international management team. In fiscal
year 2001, Transport took the concept of internationalisation further into our organisation: all of our six Businesses, now called Segments, are generally organised by global offering or product line. Transport currently has six Segments, comprised
of three new Segments that focus on Rolling Stock, namely:





| |  |  | Transit;
| | - |  | --------




| |  |  | Intercity; and
| | - |  | --------------




| |  |  | Americas,
| | - |  | ---------




and the three
pre-existing Segments, namely:





| |  |  | Transport Information Solutions;
| | - |  | --------------------------------




| |  |  | Service; and
| | - |  | ------------




| |  |  | Systems.
| | - |  | --------




The
Rolling Stock Segments





The principal challenge in the rolling stock market-place is to balance the need for
price competitiveness and the demand for local customisation. Often each country and occasionally each customer orders a highly customised product. This may be due to technical or physical requirements or to individual customer preferences. A
significant proportion of our sales and orders continues to be for customised products. However, to meet this challenge, Transports research and development efforts over the past five years have been to realise the OPTIONIC DESIGN © concept. This allows us to deliver value to our customers through standardisation, while still meeting the
necessary level of rail car-design customisation to deal with the physical constraints of existing railway infrastructure (varying track and tunnel gauges, platform heights and lengths, railroad signaling interfaces and electrification voltages).





Fiscal year 2002 saw the continued success of Transports family of standardised rolling stock products
based on this approach, namely:





| |  |  | CITADIS for tramways and light rail vehicles;
| | - |  | ----------------------------------------------




| |  |  | METROPOLIS for mass urban transport;
| | - |  | -------------------------------------




| |  |  | XTRAPOLIS for suburban trains;
| | - |  | --------------------------------




| |  |  | CORADIA for regional trains;
| | - |  | -----------------------------




| |  |  | TGV for very high-speed networks;
| | - |  | ----------------------------------




| |  |  | PENDOLINO for high-speed trains;
| | - |  | ---------------------------------




| |  |  | PRIMA for locomotives;
| | - |  | -----------------------




| |  |  | ONIX for traction drives; and
| | - |  | ------------------------------




| |  |  | TILTRONIX for tilting bogies.
| | - |  | ------------------------------




The Rolling Stock Transit Segment





The Rolling Stock Transit Segment
offers:





| |  |  | Mass transit (tramways, metros, light rail vehicles, electrical and diesel multiple units);
| | - |  | -------------------------------------------------------------------------------------------




| |  |  | Conventional passenger trains for regional networks, such as double deckers;
| | - |  | ----------------------------------------------------------------------------




| |  |  | Freight cars;
| | - |  | -------------



102




---




| |  |  | Bogies (wheel and suspension assemblies for railcars); and
| | - |  | ----------------------------------------------------------




| |  |  | Components.
| | - |  | -----------




This Segment addresses urban, suburban and regional passenger transportation needs world-wide (except for North and South America, which are served by our Rolling Stock Americas Segment). It includes light rail vehicles, tramways,
metros, electrical and diesel multiple units, conventional passenger trains for regional networks, as well as related equipment such as propulsion systems and bogies. This Segment continues to have strong demand, particularly in Europe. In fiscal
year 2002, the Transit Segment received orders in France, Germany, Spain, Belgium, Italy, the Netherlands, Luxemburg, Singapore and Russia.





Significant orders for fiscal year 2002 include:





Urban:





| |  |  | RATP ordered a prototype train for the new generation of metro cars. This contract includes an option for 161 trains, to replace part of the current metro
fleet; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | The Mass Rapid Transit line in Singapore ordered 99 METROPOLIS driverless metro cars as part of the second and third stages of a project for
the Circle Line.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------




Suburban:





| |  |  | The German National Railways (DBAG) ordered 71 electrical railcars to replace part of the existing fleet in the Munich suburban area.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------




Regional:





| |  |  | SNCF placed a follow-on order for 99 new regional diesel railcars from the CORADIA product line;
| | - |  | -------------------------------------------------------------------------------------------------




| |  |  | German rail authority (LNVG) signed a contract for 16 diesel multiple units from the CORADIA product line, including an option for 30
additional trains. The trains will be used on the Nord West Bahn network to meet increasing passenger volume; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | The Belgian National Railways placed a follow-on order for 16 diesel multiple units from the CORADIA product line.
| | - |  | -------------------------------------------------------------------------------------------------------------------




Equipment:





| |  |  | The Dutch National Railways selected ALSTOM electrical equipment for the refurbishment of 60 suburban trains.
| | - |  | -------------------------------------------------------------------------------------------------------------




The Rolling Stock Intercity Segment





The Rolling Stock Intercity Segment addresses both passenger main line and freight transport needs world-wide. It includes:





| |  |  | Very high-speed and high-speed trains, such as the TGV and the Pendolino;
| | - |  | -------------------------------------------------------------------------




| |  |  | Conventional passenger trains for main lines;
| | - |  | ---------------------------------------------




| |  |  | Tilting trains;
| | - |  | ---------------




| |  |  | Diesel and electrical locomotives;
| | - |  | ----------------------------------




| |  |  | Freight cars; and
| | - |  | -----------------




| |  |  | Related equipment such as propulsion systems and bogies.
| | - |  | --------------------------------------------------------



103




---




This Segment is a pioneer and a world leader in very high-speed and high-speed
trains. According to Janes World Railways (2001 edition), since 1976 we have sold approximately 55% of the fleet of trains travelling over 270 km per hour currently in service throughout the world. With the advent of airport/airway congestion
and highway congestion, high-speed intercity rail travel is becoming a more viable alternative. Our technology, particularly our tilting bogies (TILTRONIX  ), is selling well in Europe and is in operation in the US.





Significant orders in this Segment for fiscal year 2002 include:





High-speed/very high-speed
trains:





| |  |  | The French National Railways placed a follow-on order for 18 TGVDuplex trains to complement their initial order of 22 trains;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------




| |  |  | The Spanish National Railways selected us to supply 20 high-speed trains, including the maintenance of the new fleet over 14 years; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------




| |  |  | The Italian National Railways ordered 21 high-speed coaches from the PENDOLINOproduct family.
| | - |  | ----------------------------------------------------------------------------------------------




Locomotives:





| |  |  | Locomotives from the PRIMAproduct line have been ordered by the Egyptian National Railways (30 units), the Italian private operating company, DFG (25 units), and the Israeli National Railways (5 units as a follow-on order).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Freight:





| |  |  | Recent orders in the freight market include a contract to supply 300 sliding-wall freight cars to the international freight operator Transwaggon in Germany.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------




The Rolling Stock Americas Segment





The Rolling Stock Americas Segment aims to provide a full range of specific products and services to address the North and South American
rail businesses, where product requirements are substantially different from those in Europe. The main challenge for this Segment currently is to adapt proven ALSTOM products to meet current and future local needs in terms of performance,
reliability, and regulatory requirements in North and South America.





Recent success in the Americas Segment
includes:





| |  |  | New Jersey Transit Corporation (NJT) awarded ALSTOM a contract for the design and manufacture of 33 new diesel-electrical passenger locomotives; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | The City of New York selected ONIXtraction systems for 350 new metro cars.
| | - |  | ---------------------------------------------------------------------------




Transport Information
Solutions





The Transport Information Solutions Segment offers:





| |  |  | Train control and supervision systems;
| | - |  | --------------------------------------




| |  |  | Train control and passenger information systems (hardware & software);
| | - |  | ----------------------------------------------------------------------




| |  |  | Control centres; and
| | - |  | --------------------




| |  |  | Signaling products, including point machines, level crossings, signal lights and interlocking.
| | - |  | ----------------------------------------------------------------------------------------------




The Transport Information Solutions Segment is an innovative solutions provider of complete train control and train management systems.
Its offering ranges from system analysis and design through the realisation, supply, installation, integration and commissioning of equipment and associated sub-systems, to fully integrated and scalable (upgradable) solutions for railways and mass
transit applications. It also covers full fixed asset management, including full signaling and train control maintenance and on-site assistance.




104




---




In order to meet new challenges and new opportunities, the Signaling Segment was
reorganised in fiscal year 2001, and is now known as the Transport Information Solutions Segment. This Segment is focused mainly on Europe, with the UK and Switzerland accounting for a large portion of the activity as a result of the deregulation
and investment requirements in these markets.





Transport Information Solutions is at the forefront of the creation
of new standards for the interoperability of European networks, notably with the award of Europe Rail Traffic Management Systems (ERTMS) contracts for high-speed lines in France, Italy and the UK. These systems will allow operators to establish
compatibility between the control and signaling systems of the different European rail networks. In fiscal year 2001, successful demonstrations of the ERTMS project were given in Italy, for the Italian State-owned rail company, Ferrovie dello Stato,
in Florence, and in other European countries. In fiscal year 2002, we received a strategically important order from the Swiss Federal Railways for a European Train Control System for the Mattstetten-Rothrist rail line between Zurich and Bern. This
landmark project is the largest order to date for this next-generation technology, which will greatly improve rail network performance, not only in Switzerland but ultimately throughout Europe. For this turnkey project, we will supply components
from our ATLAS  system for signaling and train control. Specifically, we will provide the on-board
equipment, the radio-block system and peripherals, and the on-board cab-radio system.





Significant orders received
in fiscal year 2002 include:





| |  |  | Signaling for West Coast Main Line TCS (Train Control Systems) (UK);
| | - |  | --------------------------------------------------------------------




| |  |  | Signaling for the Norton Bridge line (UK);
| | - |  | ------------------------------------------




| |  |  | Signaling system for the Delhi Metro (India);
| | - |  | ---------------------------------------------




| |  |  | Signaling for the Shanghai Metro Line 3 (China);
| | - |  | ------------------------------------------------




| |  |  | Signaling for Hiawatha Minneapolis (US); and
| | - |  | --------------------------------------------




| |  |  | A seat entertainment system for Sweden and a Passenger Information System for Marina Line (Singapore).
| | - |  | ------------------------------------------------------------------------------------------------------




In fiscal year 2002 we also received significant orders from Italy and a contract from SNCF (France) for a cab radio system.





Service





The Service Segment offers public and private rail transport operators a broad menu of services for train life management, including:





| |  |  | Maintenance;
| | - |  | ------------




| |  |  | Renovation;
| | - |  | -----------




| |  |  | Technical support and assistance;
| | - |  | ---------------------------------




| |  |  | Replacement parts; and
| | - |  | ----------------------




| |  |  | Supply chain management.
| | - |  | ------------------------




The Service Segments expertise now also covers financial engineering solutions and both infrastructure and rolling stock asset management.





Although Service activities are mostly in Europe and North America, the Segment operates through a network of local sites in 17 countries world-wide, supported by global
centres of excellence. Service is currently




105




---

integrating and leveraging its newest internal activities, including the acquisition of Railcare (UK) in fiscal year 2002, and consolidating its market position in the UK and in continental
Europe. Service is also broadening its geographical reach in maintenance through Australia, New Zealand and Romania, and developing new concepts in facilities management (Calgary, Canada) and supply chain management.





In fiscal year 2002, significant orders linked to Service include a seven-year maintenance contract for 295 locomotives for Transrail in
New Zealand, continuing maintenance works in Australia for the Hillside commuter rail network in Melbourne, on the Madrid-Sevilla high-speed line in Spain, various maintenance contracts in the UK, a renovation contract in Caracas, Venezuela, and a
maintenance contract with LNVG, a regional operator in Germany, for 46 regional CORADIA  trains
ordered in 2001.





Systems





The Systems Segment offers:





| |  |  | Complete rail transport systems (including infrastructure, signaling and rolling stock) from construction to operation;
| | - |  | -----------------------------------------------------------------------------------------------------------------------




| |  |  | Infrastructure, such as track installation, overhead power lines, power supplies, workshops, station equipment and other railway infrastructure products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Infrastructure maintenance;
| | - |  | ---------------------------




| |  |  | System maintenance; and
| | - |  | -----------------------




| |  |  | Concession development (including Build-Operate-Transfer projects).
| | - |  | -------------------------------------------------------------------




This Segment acts as project manager and co-ordinator in conjunction with other Transport Segments, allowing us to offer our customers complete multi-discipline integrated
solutions. The Systems Segment is strong in Asia and Europe.





In fiscal year 2002, Systems received the following
significant orders:





| |  |  | Singapore Marina Line lots 1 & 2, including 21 METROPOLIScars, fully automated signaling and infrastructure (Singapore);
| | - |  | -------------------------------------------------------------------------------------------------------------------------




| |  |  | Lots 3, 4 and 5 for the Circle Line (Singapore); and
| | - |  | ----------------------------------------------------




| |  |  | A full Electrical & Mechanical order for Barcelona including 19 CITADIStramways and infrastructure (Spain).
| | - |  | ------------------------------------------------------------------------------------------------------------




In September 2001, we sold our 51% share in GTRM, the UK rail infrastructure maintenance company owned jointly by our company and Carillion plc, to Carillion plc. Our decision to dispose of our share
of GTRM was in line with our portfolio review.





Research and Development





Transport R&D programmes address developments in rolling stock and electrical equipment as well as signaling and services. The main
R&D programmes in the Sector are as follows:





| |  |  | The recent launch of the CORADIATM700 product for the intercity market, which is designed to improve comfort levels, speed and acceleration;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Development of the AGVTM, which combines the high-speed TGV concept of an articulated train with multiple motors to increase passenger capacity;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Development of the New ONIXTM, the standard traction platform whose technical and industrial performance in terms of cost, weight and volume enables us to satisfy the new needs of the tramway, metro and electrical multiple unit markets;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



106




---




| |  |  | Implementation of improved maintenance systems and associated services pursued with research and development programmes of the Service Segment. The first
developments in this area consist of the definition of sophisticated methodologies and information systems for the assistance in diagnostics, direct access to documentation and a remote access to maintenance data on board trains; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | The Transport Information Solutions Segment pursued its new families of integrated systems adapted to main lines or urban/suburban or main lines networks
(URBALISTMand ATLASTMproducts).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Significant orders





This table sets forth Transports most significant orders received as of 7 May 2002:





Customer

OrderFiscal Year 2003TransitNanjing Metro Company (China)

20 METROPOLIScarsFiscal Year 2002TransitMarina Line (Singapore)

21 METROPOLIScars + signaling + infrastructureCircle Line (Singapore)

Lots 3, 4 , 5Melbourne (Australia)

58 XTRAPOLISEMUs (x3 cars)Barcelona (Spain)

19 CITADIStramways + infrastructureKassel (Germany)

28 regional tram-trains (including 10 diesel-hybrid)SNCF (France)

113 A-TER railcars (options)Bordeaux (France)

32 CITADIS(follow-on contract)SNCF (France)

29 Z-TER for French regions (+ options)CFL (Luxemburg)

12 TER Coradia Double-Deck EMU carsRATP (France)

MF 2000 Design + 1 preseries train (x5 cars)NSR (Netherlands)

V-IRM electrical equipment for 124 cars (option)LNVG (Germany)

16 Coradia LINT + 15-year maintenanceTranswaggon (Germany)

300 sliding wall wagons Hirrs 6IntercitySNCF (France)

18 TGV-2N Duplex trainsets (option 2)RENFE (Spain)

20 regional High Speed Trains LanzaderasSNCF (France)

22 Z2N EMUs (x4 cars) optionsTrenitalia (Italy)

2 DMUs + 8 EMUs (option on former contracts)SNCB (Belgium)

16 DMUs (x2 cars) (extension)FS (Italy)

Interlocking for Verona-Brennero lineSBB (Switzerland)

140 tilting motor bogies for ICTRENFE (Spain)

12 High Speed Trains with variable trackAmericasNJT (US)

33 new diesel-electric locomotivesNYCTA (US)/Bombardier

350 metro propulsion setsTransport Information SolutionsRailtrack (UK)

West Coast Main Line signalingSBB/CFF/FFS (Switzerland)

European Train Control System for the Mattstetten-Rothrist lineDMRC (India)

Delhi metro signaling system + equipmentServiceRENFE (Spain)

Lanzaderas EMUs maintenance over 14 yearsVirgin (UK)

West Coast Main Line car maintenanceFGC (UK)

Maintenance of 14 Coradia EMUs




107




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MARINE





Our Marine Sector is a specialist shipbuilder focusing on complex, high value-added segments of the marine market such as:





| |  |  | Passenger ships, notably cruise-liners, high-speed ferries and large private yachts;
| | - |  | ------------------------------------------------------------------------------------




| |  |  | LNG (liquefied natural gas) carriers and FPSO (Floating Production, Storage and Offloading) vessels or structures;
| | - |  | ------------------------------------------------------------------------------------------------------------------




| |  |  | Surface naval vessels; and
| | - |  | --------------------------




| |  |  | Research and scientific vessels.
| | - |  | --------------------------------




In fiscal year 2002, Marine had sales of  1,240 million (5% of ALSTOMs total sales) and as of 31 March 2002, had 4,978 employees in one country, France (4% of ALSTOMs total
employees). The following table sets forth selected financial and other information for Marine for the periods indicated:





Year ended 31 March2000

2001

2002(in  million, except employees)Orders received

1,623

1,835

462Sales

1,318

1,841

1,240Operating income

71

80

47R&D expenses

7

13

12Capital expenditures

35

29

24Employees

4,404

4,914

4,978





Industry Characteristics





The main trends currently affecting the industry include:





| |  |  | The cruise-ship market generally;
| | - |  | ---------------------------------

| |  |  | Subsidies; and
| | - |  | --------------

| |  |  | Customer financing
| | - |  | ------------------




Cruise-Ship Market.    The strength of the cruise-ship market is based principally on the market for cruise holidays, although the relationship is not direct, as orders are generally placed as much as three
years prior to delivery. The largest share of cruise-ship passengers is in the US. Penetration in that market is still low, however, as only 2.2% of the US population were cruise holidays customers in 2000, according to GP Wild. The cruise-ship
market in 2001 was adversely affected by the events of 11 September 2001. As a result, occupancy rates on cruises in the fourth quarter of calendar year 2001 decreased slightly, down to 97% according to Carnival. This decrease was mitigated somewhat
due in part to discount pricing policies. We believe that this period of discounting has now ended, however, and that profits are recovering strongly. GP Wild has forecast that worldwide cruise holiday passenger volumes will increase by
approximately 8% per year through 2010.





Subsidies.    The world shipbuilding industry
was, until recently, characterised by direct and indirect government subsidies and various other forms of state aid in favour of shipbuilders. In December 2000, the European Council of Ministers for Industry confirmed the suppression of all direct
government shipbuilding subsidies within the European Union. This ruling applies to all shipbuilding contracts signed and performed since 1 January 2001. The Council also asked the European Commission to monitor shipbuilding. As a result, we receive
no subsidies for any orders taken after 1 January 2001 or deliverable after 31 December 2003. Consequently, orders for which subsidies were received will trade out of our backlog completely over the next two years.




108




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Customer Financing.    Some Marine clients request
financing assistance in connection with the purchase of new cruise-ships. Therefore, in addition to shipbuilding and project management expertise, Marine has in the past offered assistance to its customers in obtaining appropriate financing for
their projects. Whilst this element of customer support has allowed Marine to increase the number of its clients, it has also resulted in increased financial exposure for us. This was manifested most recently in the bankruptcy of Renaissance,
previously one of our largest customers. For further information on Marine vendor financing and its impact on us, please see Operating and Financial Review and Performance.





Marine Strategy





To further address the recent
difficulties in the cruise-ship market and capitalise on our efficient shipbuilding technology, our strategy in Marine seeks to:





| |  |  | Maintain our position as a world leader in cruise-ships by focusing on cost, technology and quality;
| | - |  | ----------------------------------------------------------------------------------------------------




| |  |  | Capitalise on growth in the LNG market through advanced technological solutions and strategic partnerships and alliances, possibly with a Chinese manufacturer;
and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Take advantage of opportunities in the supply of naval vessels.
| | - |  | ---------------------------------------------------------------




In addition to our Restore Value programme of operational excellence, Marine has initiated a new programme, CAP 21+, designed to capitalise on the results of its previous
major productivity initiative called the CAP 21 programme which was launched in 1997. CAP 21+ relies on the same elements as Quality Focus, our company-wide programme, which emphasises reliability, performance, competencies and innovation. Our
objectives will require an increased focus on research and development, and training, and reinforced co-operation with suppliers and subcontractors. As part of this effort, we have also developed a CAP performance plan that we believe will help us
optimise our relationships with suppliers and business partners.





Competitive Position





The main competitors in the cruise-ship market are European and include Fincantieri (Italy), Meyer Werft (Germany) and Kvaerner Masa Yards
(Finland). In calendar 2001, the four major European shipyards, including those of the three competitors mentioned above and our subsidiary, Chantiers de lAtlantique, have maintained their combined share of 75% to 85% of the world cruise-ship
orderbook. For the LNG tankers market, our main competitors are Korean, namely Daewoo, Hyundai and Samsung.





Marine currently ranks number two globally based on the publicly disclosed number of cruise-ships to be delivered in the next three years.





Activity





Cruise-Ships.    Following a peak in
sales in fiscal year 2001, sales remained strong in Marine in fiscal year 2002. We delivered two cruise-ships, the Summit for Renaissance/Celebrity and the European Vision for Festival, as well as two high-speed ferries for
Greeces NEL Lines. In addition, we delivered the European Stars, a 750 cabins cruise-ship, in April 2002 following the fiscal year end. Despite declining orders in fiscal year 2002, we currently have a full order book until the end of
2004, including the Queen Mary 2 which, when completed, will be the longest cruise-ship ever built.





LNG
Carriers.    Between 1997 and 2001, Marine was unable to secure orders in this market due to very aggressive pricing by Asian shipyards. More recently, Marine was successful in returning to the market with an order for one
74,000m 3 membrane-type LNG carrier from Gaz de France in February 2002, which includes an
option for a sister ship. The market remains very active, in particular in China, which is building LNG terminals as part of its overall energy diversification policy. With only one ship delivered in 2001, the world fleet of LNG carriers now
includes 128 ships, with 47 new ships in the orderbooks world-wide.




109




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We are exploring opportunities to find a joint venture partner to develop further
vessels. In particular, we are considering the advantages of a possible joint venture with a Chinese partner to capitalise on growth in the LNG market in China and to benefit from Chinas lower labour and production costs.





Naval Vessels.    As part of our strategy, we are currently seeking to expand our activities in
naval vessel construction. As the European defence industry progresses, the number of trans-national opportunities for European-based naval vessels will likely increase. We will seek opportunities to work in partnership with DCN, the French
State-owned Navy yards, and some systems providers to develop alliances necessary to meet the special requirements of military vessels. In fiscal year 2002, we received an order from the French Navy to build two vessels for its Projection and
Command Forces in conjunction with DCN, which develops the military components of the vessels. In addition, we delivered the Mohammed V frigate to the Royal Moroccan Navy in fiscal year 2002.





Research Scientific Vessels.    As part of our focus on providing high value-added ships, we will continue to seek orders for research and
scientific vessels such as the oceanographic and hydrographic ship we are currently constructing, the Beautemps Beaupré, which will be delivered in fiscal year 2003 to the French Navy.





Facilities.    With facilities and employees all located on the French Atlantic coast, Marine operates:





| |  |  | One of the largest European shipyards, able to build the largest and most complex vessels. This facility is operated through our wholly-owned subsidiary,
Chantiers de lAtlantique, located in Saint-Nazaire, France;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Two substantially smaller yards, able to build sophisticated ships up to 140 metres long. These yards are operated through our wholly-owned subsidiary, ALSTOM
Leroux Naval, located in Lorient and Saint-Malo, France; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Ateliers de Montoir, a specialist supplier of joinery, small steelwork and electrical apparatus for shipbuilding and other industries, located close to
Saint-Nazaire, France.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



110




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Significant orders





The table below sets forth details of orders included in Marines order book as of 31 March 2002. Generally, the individual contract value for cruise-ships included in
these orders ranges from approximately  250 million to  450 million (other than for extraordinary orders such as the Queen Mary 2). Depending on the size and speed criteria, the range for high speed ferries is generally  30
million to  70 million.





Customer

Order (hull number, name and vessel type)Cruise-shipsFestival Cruises

X31 European Stars 750 passenger cabinsRCCL/Celebrity

U31 Constellation 1,025 passenger cabinsP&O Princess

C32 Coral Princess 1,000 passenger cabinsMediterranean Shipping Co (MSC)

K32 MSC Symphony 780 passenger cabinsP&O Princess

D32 Island Princess 1,000 passenger cabinsNYK / Crystal

H32 Crystal Serenity 550 passenger cabinsCarnival / Cunard

G32 Queen Mary 2 1,400 passenger cabinsM.S.C

L32 (yet unnamed) 780 passenger cabinsLNG TankersGaz de France

74,000 cubic meter liquid natural gas tanker (LNG)Naval VesselsRoyal Moroccan Navy

B32 Hassan II 93 m surveillance frigateFrench Navy

ALN 827 Beautemps-Beaupré Hydrographical and Oceanographical
vesselDCN (French Navy)

Two Forces Projection and Command Vessels





POWER CONVERSION





The Power Conversion Sector focuses on converting electrical energy into productive plant and machine performance. The Sectors focus includes electrical engineering,
systems integration and associated services for the control and automation of industrial processes. We also manufacture and supply a wide range of electrical products and power electronic equipment, including motors and generators, drives and drive
systems.





Power Conversion was created on 1 July 1999 from the merger of our Drives & Controls, Motors and
Generators and several smaller related Businesses, including our robotics activity, in order to facilitate joint development efforts and a seamless approach to a common customer base. The former Industry Sector completed a major strategic
re-organisation during fiscal year 2001. By August 2000, we had transferred to other Sectors or disposed of all of the internal businesses that did not significantly contribute to Power Conversions core competencies or strategy and, from 1
April 2000, Power Conversion replaced Industry within our reporting structure.




111




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Due to the growing number of complementary products and markets, and following a
strategic review, we integrated Power Conversion into the T&D Sector as of 1 April 2002. This new organisation offers our businesses access to T&Ds sales force, which should provide wider entry to the market.





In fiscal year 2002, Power Conversion had sales of  650 million (3% of ALSTOMs total sales) and as of 31 March 2002, Power
Conversion had 4,784 employees in 11 countries (4% of ALSTOMs total employees). The table below sets forth selected financial and other information for Power Conversion for the fiscal year 2002. The disposals and transfers described above are
reflected in the figures for the year ended 31 March 2000. Fiscal year 2000 figures correspond to the former Industry Sector.





Year ended 31 March2000

2001

2002(in  million, except employees)Orders received

1,017

737

667Sales

1,110

617

650Operating income

21

40

23Research and development expenses

29

38

31Capital expenditure

36

14

12Employees

10,030

5,020

4,784





The table below sets forth the geographic breakdown of Power
Conversions sales for the fiscal years indicated. Fiscal year 2000 figures correspond to the former Industry sector.





Year ended 31 March2000


2001


2002European Union:

55
%

51
%

56
%of whichFrance

10
%

11
%

11
%UK

28
%

12
%

11
%Germany

11
%

15
%

19
%Rest of Europe

4
%

4
%

4
%North America

15
%

23
%

19
%of which US

13
%

18
%

17
%Central and South America

3
%

4
%

5
%Asia/Pacific

12
%

10
%

10
%Africa/Middle East

11
%

8
%

6
%Total

100
%

100
%

100
%





Power Conversion Strategy





Power Conversions strategy is to improve profitability through a global rationalisation programme, which we have begun to implement.
We intend to improve profitability and cash generation through design for quality and project management excellence initiatives. Our consolidation with the T&D Sector should also help us improve our costs. We plan to
optimise our organisation in the US to meet the challenges of the market, particularly for the naval marine activity and the anticipated upturn of the North American steel
industry.





Competitive Position





We compete world-wide across our various market segments with a limited number of international groups, including ABB, Siemens
and Toshiba-GE. In the metals market, competitors also include mechanical suppliers such as SMS Demag, Danieli and VA Tech.




112




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Activities  Businesses





Power Conversion was completely reorganised in September 2001 into four Businesses to make best use of international resources and to be
closer to customers. Power Conversion is now made up of the following Businesses:





| |  |  | Process Industries;
| | - |  | -------------------




| |  |  | Marine and Offshore;
| | - |  | --------------------




| |  |  | General Drives; and
| | - |  | -------------------




| |  |  | Motors and Generators.
| | - |  | ----------------------




Process Industries.    The Process Industries Business provides control and automation equipment and solutions for metals production and processing in addition to equipment for pulp and paper
manufacturing and bulk material handing systems. The main market for this Business is the steel industry, which is currently facing many difficulties resulting from the depressed state of the North American industry and the consolidation of the main
players in the European Industry. Both factors result in less investment by our potential customers. However, we believe the demand for steel in developing countries such as China and Brazil will result in new investment in these regions.





In fiscal year 2002, the main contract in the Process Industries Business was for turn-key electrical and
automation equipment and a production management system for the new cold mill complex of Vega do Sul, a Brazilian steel producer. Under this contract, we will supply a complete power distribution system and electrical and automation equipment,
together with all erection, cabling, commissioning and training.





Marine and
Offshore.    The Marine and Offshore Business provides electrical power and propulsion systems, automation and dynamic positioning systems for merchant ships, offshore vessels, semi-submersibles and naval vessels.





During fiscal year 2002, Power Conversions main order came from BAE Systems for integrated power and
propulsion systems for the new Royal Navy Anti-Air Warfare Type 45 Destroyers. The contract is for the first three vessels, which are being built as part of a programme to build up to 12 ships for the UK Ministry of Defence. The largest ocean liner
ever to be built, the Queen Mary 2, will be fitted with four 21.5 MW Mermaid    electric podded propulsion units. The Queen Mary 2s propulsion, with a combined output of 86 MW,
will be the first four-pod installation on a cruise vessel to date. We have recently experienced problems with electric podded propulsion units which are produced by a consortium created between Power Conversion and Rolls-Royce. Problems such as
these are not unusual in the introduction of new highly sophisticated and technologically complex products. We have identified and resolved problems with most of our customers and continue to do so with the remaining ones. We believe that costs and
expenses associated with this issue will not have a material adverse impact on our financial condition or results of operations.





General Drives.    The General Drives Business provides a full range of Alternating Current and Direct Current drives, drive systems and automation systems for all variable speed applications,
ranging in power from a few kilowatts to multi-megawatts. The drives are used in a myriad of applications and in a variety of industries such as cement, oil and gas, mining, water and wind energy. In fiscal year 2002, we received orders for
frequency converters for 412 wind turbines, double the number compared to last year. The total number of wind turbines we equipped with frequency converters since 1993 produce more than 1 GW, the equivalent of the annual electricity consumption of
about one million European homes.





Motors and Generators.    The Motors and
Generators Business designs and manufactures large rotating electrical machines (for industries such as mining, oil & gas, water, marine propulsion and wind energy), gas, steam and diesel-driven high voltage generators, excitation control
systems and a highly specialised range of wires, cables and magnets for the superconductivity market. We are part of a consortium that was selected to supply CERN, the




113




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European Organisation for Nuclear Research, with one third of the required super-conducting dipole magnets for the Large Hadron Collider, a new European particle accelerator, which will be
constructed near Geneva, Switzerland in 2006. The order comprises the supply of 386 dipole magnets, each fifteen metres long.





Research and Development





To boost Power Conversions position in an
increasingly complex and global market, we invest in new technologies and products to enable us to be positioned in our target markets in the medium and long term. We are also refocusing our resources towards our core technologies, which are power
electronics, electrical machines, process know-how and process engineering.





Development programmes are oriented
towards continuous product improvement in drive systems, controllers and rotating machines. In fiscal year 2002 we completed the development of the Mermaid TM electric podded propulsion system for ships. In addition, specific developments have included work on long-life brush gear for offshore windmill generators and high temperature
super-conducting machines.





Significant Orders





This table set forth Power Conversions most significant orders received as of 7 May 2002:





Customer

OrderBAE Systems (UK)

3 ship sets of integrated power and propulsion systemsCERN (France)

386 super-conducting dipole magnetsVega do Sul (Brazil)

Electrical & automation equipment for cold mill complexRepower, Südwind, Enron Wind, Nordex (Germany)

Frequency converters for wind turbinesNASSCO (USA)

Electric propulsion & automation systems for crude oil tanker





ALSTOM Employees





The tables below set forth the number of employees (i) for each Sector and (ii) by geographic location. From 31 March 2000, the numbers reflect only full-time equivalent
employees.





Year ended 31 March2000

2001

2002Employees:Power

26,107

48,219

49,097Transmission & Distribution

26,629

26,384

27,736Transport

27,866

29,804

29,119Marine

4,404

4,914

4,978Power Conversion

n/a

5,020

4,784Contracting

24,119

23,797

n/aOthers(1)

11,553

4,876

3,281Total ALSTOM

120,678

143,014

118,995


---

|(1) |  | Others includes employees of the Network for the three years and, for fiscal years 2000 and 2001 only, employees of the overseas entities in
Australia, New Zealand, South Africa and India, not allocated to the Sectors. 10,030 employees of our former Industry Sector are also included in others in fiscal year 2000.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



114




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Year ended 31 March2000


2001


2002Employees:RegionsEuropean Union

66
%

63
%

54
%of whichFrance

32
%

30
%

23
%UK

15
%

13
%

11
%Germany

10
%

10
%

9
%Rest of Europe

8
%

12
%

14
%North America

7
%

7
%

9
%of whichUS

4
%

4
%

6
%Central and South America

4
%

4
%

6
%Asia/Pacific

11
%

11
%

14
%Africa/Middle East

4
%

3
%

3
%Total ALSTOM

100
%

100
%

100
%





During fiscal year 2002, the number of our employees decreased
principally due to the sale of the Contracting Sector.





Our management organisation is based on Sectors,
each of which has global responsibility in their respective domains. A President, who is responsible to our Chairman and Chief Executive Officer, manages each of the Sectors, and constituent Segments, Businesses or other legal entities within their
Sectors.





We have an International Network that co-ordinates all ALSTOM group sales and marketing activities, and
represents us throughout the world. The International Network is organised into five geographic regions: Western Europe, Eastern and Northern Europe, the Americas, Asia/Pacific and Africa/Middle East. This Network covers more than 70 countries
through over 50 local offices.





Membership of our employees in trade unions varies from country to country, and we
have entered into various collective bargaining agreements. It is our practice to renew or replace our various labour arrangements relating to continuing operations as and when they expire and we are not aware of any material arrangements whose
expiry is pending and which is not expected to be satisfactorily renewed or replaced in a timely manner. In France, the five principal French labour unions are represented at our facilities. As required by French law, management holds annual
meetings with a delegation of union representatives in order to negotiate salary movements and working conditions, including the organisation of the working week. Management also holds other periodic consultations with representatives of the
employees. In 1997, we and relevant trade unions established a European Works Forum, a European employer-employee consultative body, pursuant to EU law. We have in the past experienced strikes and work stoppages, principally in France, although we
believe that relations with our employees are currently generally satisfactory.





France: Introduction of 35-hour work week





We have addressed the reduction in working hours in France to 35 hours per week within our operating units
located in France. Preliminary discussions with the unions and employee representative bodies began in the autumn of 1998 and continued with the publication of the provisions of the second Law Aubry (French Loi Aubry). Given the number of
issues that needed to be addressed, it was decided that all negotiations relating to the 35-hour working week would, to the extent possible, be conducted on a decentralised basis at local levels. This approach has allowed us to negotiate agreements
covering each of our Sectors.




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All the changes that we have implemented or will implement in connection with the
adoption of the 35-hour working week in France are carefully negotiated. The agreements that we have signed in this regard reflect, we believe, the necessary economic and social balances within each of our operating entities. These agreements are
not expected, individually or in the aggregate, to have a material adverse impact on our competitiveness.





Manufacturing Facilities





We have production facilities in Europe, North and South America, Asia and Africa. We own or lease
all of our principal manufacturing facilities and substantially all of the land on which these facilities are located. Since our formation, we have focused on consolidating facilities and on shifting production to low-cost sites. In a number of
areas, we have also sought to outsource low value added manufacturing activities.





Power has manufacturing and
service sites located mainly in France, the UK, Germany, Switzerland, Sweden, Spain, Romania, the US, Canada, Mexico, Argentina, Brazil, Japan, China, India, Australia and South Africa. T&D (including Power Conversion, which was integrated into
T&D on 1 April 2002) has manufacturing sites and service locations in France, the UK, Germany, Belgium, Luxembourg, Austria, Greece, Hungary, Norway, Spain, Switzerland, Italy, Poland, Sweden, Russia, Turkey, the US, Canada, Mexico, Brazil,
Argentina, Colombia, Venezuela, India, China, Thailand, Singapore, Indonesia, Malaysia, Pakistan, Australia and South Africa. Transport has manufacturing sites and service locations in France, the UK, Germany, Belgium, Spain, Poland, Romania, Italy,
China, the US, Canada, Mexico and Brazil. Marine has manufacturing sites and service locations in France.





We
believe that our principal manufacturing facilities are suitable and adequate for their use. Use of these facilities may vary with economic and other business conditions, but none of the principal plants is substantially idle. We believe that these
facilities generally have sufficient capacity for existing needs and expected near term growth.




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RISKS





MAIN RISK FACTORS





Our sales depend on the level of infrastructure spending and
GDP growth generally.





In fiscal year 2002, we generated 55.3% of our sales in Power, 13.5% in Transmission
& Distribution and 18.8% in Transport. These Sectors depend largely upon the level of infrastructure spending, much of which comes from public bodies. Infrastructure spending in these Sectors has historically closely paralleled long-term growth
in gross domestic product. Consequently, growth in our major activities has often come from those regions experiencing the highest long-term GDP growth rates. Poor economic and political conditions or downturns in broad economic trends in our
markets may therefore have a negative effect on our sales, results of operations and financial condition. Although short-term changes in GDP may affect our orders received, in the past such changes have had less of an impact on our sales due to the
size of our order backlog (19 months of sales at 31 March 2002, excluding sales from our former Contracting Sector) and the length of our product delivery cycles. In addition, the level of infrastructure spending is significantly affected by
customers expectations about a variety of other factors, such as their ability to generate funds for capital expenditures, their ability to raise financing for their businesses and changes in applicable laws, including the deregulation and
liberalisation of infrastructure services.





Our products often incorporate advanced and complex technologies and sometimes require
modifications after they have been delivered.





We design, manufacture and sell several products of large
individual value that are used in major infrastructure projects. We are sometimes required to introduce new, highly sophisticated and technologically complex products on increasingly short timetables. This necessarily limits the time available for
testing and increases the risk of product defects and their financial consequences. We occasionally discover the need to fine tune or modify products after we begin manufacturing them or after our customers begin operating them. Because we produce
some of our products in series, we may need to make such modifications in a large number of products. At the same time, when we sell our products we are increasingly required to accept onerous after-sales warranties and penalties related to
performance, availability and delay. Our contracts also occasionally include clauses allowing the customer to terminate the contract or reject the equipment if performance specifications or delivery schedules are not met. As a result of these
contractual provisions and the pressures of accelerated new product development, design and manufacturing, problems encountered with our products may result in material unanticipated expenditures.





We experienced significant technical difficulties in the introduction of the new GT 24/26 heavy-duty gas turbines and are continuing to
design and implement modifications across the fleet progressively. We are in litigation proceedings with several customers regarding this matter and are negotiating settlement agreements with others. Under these settlement agreements, we would be
required to pay liquidated damages if the modified gas turbines do not meet certain performance criteria. We discuss the financial impact of the GT 24/26 problems in greater detail in Operating and Financial Review and
Prospects  Operational Issues, and in Notes 6 and 18 to the Consolidated Financial Statements for fiscal year 2002.





We cannot guarantee that the total costs that we ultimately incur in connection with the GT 24/26 problems will not exceed the estimates that we have provisioned, nor can we guarantee that the rate of
spending will be in


line with our current estimates. The total amount and timing of actual expenditures, including penalties and damages, may vary as a result of a number of
factors, including the following:





| |  |  | The outcome of litigation or settlement negotiations with customers;
| | - |  | --------------------------------------------------------------------




| |  |  | The acceptance by customers of the redesigned and modified GT 24/26 turbines;
| | - |  | -----------------------------------------------------------------------------




| |  |  | The performance of the modified turbines over time;
| | - |  | ---------------------------------------------------



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| |  |  | Our ability to develop subsequent modifications that will further improve the performance of the GT 24/26 turbines;
| | - |  | -------------------------------------------------------------------------------------------------------------------




| |  |  | Delays in the implementation of modifications and the delivery of modified machines; and
| | - |  | ----------------------------------------------------------------------------------------




| |  |  | Cost overruns in the manufacture of modified components.
| | - |  | --------------------------------------------------------




We began making modifications to a small number of GT 24/26 turbines in August 2000 and are progressively rolling out these modifications across the installed fleet.
Consequently, the operating history of the modified turbines remains relatively limited and monitoring of the performance of the modified turbines is ongoing. Ongoing monitoring may reveal the need to make further modifications and/or to implement
further reductions in performance and efficiency output.





Given the technical sophistication of some of our
products, we can give no assurance that we will not encounter new problems with the GT 24/26 gas turbines or with our other products. Any such problems could be costly, could harm our business reputation or affect our ability to sell other products
and could have a material adverse impact on our financial condition or results of operations or cause our products to be less competitive than those of our competitors.





Our financial performance could be adversely impacted by a limited number of high value contracts and significant fixed price contracts.





Each year, a substantial portion of our business is conducted under a limited number of major long-term contracts. Variations in activity levels under these contracts
can result in significant variations in our sales and operating income from year to year. At 31 March 2002, our ten largest projects in terms of order backlog represented approximately 16% of our total order backlog. The revenue that we recognise on
a major project will vary significantly from period to period in accordance with the state of advancement of that project. As a result of this variability and of the relatively high concentration of our orders, the profitability of a small number of
major contracts may significantly impact our operating income in any given period. In addition, the profitability of any contract and/or our overall sales, operating results and cash flow may be affected by the following:





| |  |  | Failure to obtain individual major contracts;
| | - |  | ---------------------------------------------




| |  |  | Delays in awards of major contracts;
| | - |  | ------------------------------------




| |  |  | Postponement of previously awarded major contracts;
| | - |  | ---------------------------------------------------




| |  |  | Unanticipated technical problems with the equipment being supplied;
| | - |  | -------------------------------------------------------------------




| |  |  | Customers difficulties in obtaining adequate financing on reasonable terms;
| | - |  | ----------------------------------------------------------------------------




| |  |  | Difficulties in obtaining required governmental permits;
| | - |  | --------------------------------------------------------




| |  |  | Unanticipated costs due to project modifications;
| | - |  | -------------------------------------------------




| |  |  | Performance defaults by suppliers, subcontractors or consortium partners;
| | - |  | -------------------------------------------------------------------------




| |  |  | Customer payment defaults and / or bankruptcy; and
| | - |  | --------------------------------------------------




| |  |  | Changes in laws or taxation.
| | - |  | ----------------------------




A significant portion of our business is performed under long-term fixed price contracts that were awarded on a competitive bid basis. In addition to the general factors listed above, the profit margins realised on such
fixed price contracts may vary from our original estimates as a result of changes in costs and productivity over their term.





It is customary in the energy and transport industry for suppliers such as us to post bid bonds, advance payment bonds, performance bonds and surety bonds. In recent months, it has become more difficult for us and




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other companies in our industry to obtain such bonds in amounts and for terms as had previously been customary. Were such bonds no longer to be available or were no longer to be available on
commercially reasonable terms, it would be necessary to establish alternative methods of guaranteeing performance. This could lead to a general decline in orders for us and throughout the industry if we and industry participants were unable to adopt
new efficient methods. Because of the significant fixed costs of our operations, such a development could materially adversely affect our results of operations.





In addition, we sometimes bear the risk of delays caused by unexpected conditions or events, including difficulties in attaining availability requirements or governmental approvals. For example, we
recently incurred significant losses in connection with delivery delays under certain UK train contracts. We discuss this issue in greater detail in Operating and Financial Review and Prospects  Operational
Issues  Transport: UK Trains. We believe that our resources, experience and project management skills allow us in most cases to estimate costs accurately and to control costs effectively. However, certain of our projects have
been subject to delays and penalties. There can be no assurance that we can profitably complete all of our fixed price contracts.





We
have a high level of indebtedness.





Over the past four years, we have substantially changed our group through
a series of strategic acquisitions and disposals. We have financed these acquisitions principally through an increase in our total consolidated indebtedness. In addition our working capital requirements have increased significantly, due in part to
the GT 24/26 situation (discussed below) and to deterioration in payment terms with our customers. These factors have contributed to a significant increase in our total consolidated net indebtedness, which under French GAAP amounted to 
2,064 million at 31 March 2002, representing 112% of our total shareholders equity plus minority interests, compared with  1,358 million at 31 March 1998. Our financial income (expense) has changed from net
financial income of  76 million for the year ended 31 March 1998 to net financial expense of  208 million for the year ended 31 March 2002.





We have fixed a goal of significantly reducing our debt in the short-term through our Restore Value plan. We intend to sign agreements for the sale of approximately  750 million in
real estate assets by 31 December 2002 and to dispose of approximately


 900 million in identified non-core businesses by 31 March 2003. The amount and timing of these
disposals depend on market conditions that are not within our control. We expect to lease back a substantial majority of the real estate assets that we intend to sell. We have a further objective of generating  1.3 billion of
cumulative free cash flows from operations from fiscal year 2003 to fiscal year 2005, although we can give no assurance that we will be successful in doing so. In addition, we intend to raise additional funds through a capital increase. The amount
and timing of the capital increase will depend on market conditions.





To increase our available liquidity, we have
entered into supplementary back-up lines of credit. At 31 March 2002, we had


 1,660 million of available credit under our various lines of credit. These lines of credit,
as well as certain of our other financing agreements, contain covenants requiring us to maintain certain financial ratios, which we have renegotiated in order to give us greater flexibility during the period in which we plan to
implement our Restore Value plan. Our ability to maintain these financial ratios, and to re-establish and improve compliance with the original ratios at the expiration of the period during which the negotiated ratios apply, depends in part on the
successful execution of our Restore Value plan. If we are unsuccessful, we could exceed these limits and would have to renegotiate terms, to the extent possible, with our banks in order to be able to continue to access these lines of credit.





We may be unable to reduce our indebtedness significantly. We may be unable to sell all of the real estate assets
and non-core businesses that we have identified for sale, and we may not obtain the prices we anticipate for such assets. The proceeds of our planned capital increase depend on market conditions. Our inability to obtain the proceeds we expect from
our various initiatives would prevent us from meeting our debt reduction targets according to our planned calendar, and would prevent us from reducing our interest expense as much as we have planned.




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Our high degree of leverage could limit our ability to borrow additional amounts
for working capital, capital expenditures, debt service requirements or other purposes and could limit our ability to invest operating cash flow in our business. If we cannot pay our debt service or if we fail to meet our covenants, we could have
substantial liquidity problems, which could require us to sell assets, delay planned investments, obtain additional equity capital or restructure our debt. Depending on the circumstances at the time, we may not be able to accomplish any of these
actions on favourable terms or at all.





The unavailability of any of our sources of liquidity could harm our financial condition or
profitability.





In addition to cash flows from operations, we depend on a variety of external sources to
finance our operations: bank loans, lines of credit, issuances of publicly traded debt, including billets de trésorerie (French commercial paper), sales of receivables, mainly in securitisation transactions (both with and without
recourse to us). The availability of our lines of credit depends in part on our ability to maintain certain financial covenants. In the fourth quarter of fiscal year 2002, we renegotiated our lines of credit in order to amend the financial
covenants. Our results for the year ended 31 March 2002 are in compliance with these amended covenants. Our access to the French commercial paper market depends in part on our financial condition, and also on the continued functioning of the
markets. Although we have not experienced any difficulties specific to our company in accessing this market in the recent past it has become difficult for some issuers to sell commercial paper in the US market, and such difficulties could spread to
the French market and to other classes of issuers without regard to their particular financial condition. Certain of our sales of receivables are financed in the commercial paper market, and are thus also subject to this risk. Similarly, we cannot
be sure that we will continue to have access to the securitisation market on terms comparable to those we have enjoyed in the past. We have selected our sources of liquidity in order to maximise our flexibility whilst minimising our financial costs
and have recently negotiated supplementary back-up lines of credit which we believe will enable us to meet all our cash requirements in the reasonably foreseeable future. If one or more of these sources were to become unavailable, our financing
costs could increase and it could become more difficult for us to finance our activities.





If we are unable to manage our working
capital effectively and negotiate appropriate payment terms with our customers and suppliers or, if we apply existing provisions more quickly than expected, we may be required to seek new sources of financing in the future.





In the recent past we have not observed any deterioration in our gross customer advances or payment conditions. The structure
of customer down payments and progress payments is particularly important in our long-term project activity, which represents approximately 40% of our sales. If we were required to accept payment conditions which are worse than those we have today,
and if we are unable to reflect these more difficult terms in contracts with our suppliers, our cash requirements would continue to grow, our net cash position may be reduced and our need for financing increased.





At 31 March 2002, we had approximately  3,849 million of provisions for risks and charges. If the applications of these provisions
resulted in earlier or higher than expected cash outflows, or if we had to increase them due to unforeseen events or contingencies, we could have to increase our borrowings significantly.





We have given financial assistance in connection with the purchase of some of our products by our customers.





In the energy and transport infrastructure markets, customers have occasionally required suppliers such as us to assist in financing purchases or projects. This has been
particularly true in the Marine Sector, and to a lesser extent in Power, Transport and T&D. This assistance may take the form of guarantees of indebtedness or taking partial equity ownership of entities operating the projects on a long-term
basis. This evolution exposes us to longer-term risks of customer defaults or bankruptcy resulting in our guarantees being called or the value of our equity investment being reduced. We no longer intend to make commitments to provide guarantees of
our customers indebtedness.




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At 31 March 2002, our vendor financing exposure amounted to 
1,493 million, of which  1,044 million related to our Marine Sector ( 432 million relating to Renaissance Cruises, which entered into bankruptcy proceedings in September 2001) and  416
million related to our Transport Sector. We describe our vendor financing exposure in greater detail in Operating and Financial Review and Prospects  Operational Issues.





We have retained  144 million of provisions at 31 March 2002 to cover risks associated with Marine Vendor financing. There can be no
assurance that such provisions will be satisfactory to cover all future exposures relating to Marine vendor financing. We could incur losses in excess of the provisions we have established, which could have a material adverse impact on our financial
condition and results of operations.





We are exposed to credit risk with respect to some of our customers.





We are exposed to the credit risk of our customers. To the extent our customers do not advance us sufficient funds to finance
our expenses during the construction phase of our projects, we are exposed to the risk that they will be unable to accept delivery or that they will be unable to make payment at the time of delivery. If this were to occur, we could be unable to
recoup the expenses we incurred in the project and could be unable to obtain the operating margins we expected upon entering the contract. We intend to mitigate this risk by progress payments and risk management procedures.





In fiscal year 2002, our ten largest customers accounted for 15% of our sales. If one of our largest customers were unable to meet its
commitments, due to bankruptcy or any other reason, we could be unable to recover some or all of the costs we incur on these projects, which could have a material adverse effect on our results of operations.





Our results, cash flows and the price of our listed securities are exposed to currency exchange rate movements.





A significant percentage of our sales and expenditures are realised and incurred in currencies other than the euro. The principal
currencies to which we had significant exposures in fiscal year 2002 were US dollars, Pounds sterling and Swiss francs. Our policy is to manage transaction exposure as follows:





| |  |  | By matching the currencies of our sales with the specific currencies in which we incur related costs; and
| | - |  | ---------------------------------------------------------------------------------------------------------




| |  |  | To the extent that we anticipate having unmatched foreign currency exposure, by hedging exchange rate risks.
| | - |  | ------------------------------------------------------------------------------------------------------------




We do not specifically hedge our net assets invested in foreign operations. We monitor our market position closely and regularly analyse
market valuations. In addition, our central corporate treasury department designs and executes all derivative transactions other than forward currency exchange contracts. Our Sectors are independently authorised to execute forward currency exchange
contracts.





For consolidation purposes, the balance sheets of our consolidated foreign subsidiaries are translated
into euro at the period-end exchange rate, and their income statements and cash flow statements are converted at the average exchange rate for the period. The balance sheet impact of such translation may be material. Period-to-period changes in the
average exchange rate for a particular currency can significantly affect reported sales and operating and other expenses incurred in such currency as reflected in our income statement, and therefore can significantly affect our results of
operations.





Currency exchange rate fluctuations in those currencies in which we incur our principal manufacturing
expenses (the euro, the Pound sterling and the Swiss franc) may have the effect of distorting competition between us and other competitors whose costs are incurred in other currencies. To the extent that our principal currencies appreciate in value
against such other currencies, our competitiveness against our competitors may be eroded. Changes in the value of the euro against other currencies had no significant effect on our results of operations during fiscal year 2002.




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Our shares trade in euro on the Premier Marché of Euronext Paris,
our ADSs trade in US dollars on the NYSE and our UKDSs trade in Pounds sterling on the LSE. The value of the shares, ADSs and UKDSs could fluctuate as the euro, US dollar and Pound sterling exchange rates fluctuate. Since any dividends we may
declare are denominated in euro, exchange rate fluctuations will affect the US dollar equivalent of dividends received by ADS holders and the Pound sterling equivalent of dividends received by UKDS holders.





We are subject to environmental regulations.





We are subject to a broad range of environmental laws and regulations in each of the jurisdictions in which we operate, including local, national and international laws and regulations for the
protection of the environment relating to the emission, handling, transport and disposal of hazardous materials.





There can be no assurance that we will not incur any environmental liabilities in the future and we cannot guarantee that our reserves for environmental remediation and capital expenditures for environmental-related projects will be
sufficient to cover the intended loss or expenditure. In addition, the discovery of new facts or conditions or future changes in environmental laws, regulations or case law may result in increased environmental liabilities that could have a material
effect on our business, results of operations and financial condition.





Detailed information regarding industrial
risks linked to the environment and our exposure to asbestos-related liability is provided in the section Other risks  Compliance with environmental regulations and remediation, health and safety issues and in note 26 to
the Consolidated Financial Statements for fiscal year 2002.





Sales to emerging markets represent a significant proportion of our total
sales.





In fiscal year 2002, we generated 19% of our sales in the emerging markets of Asia/Pacific, 8% in
Africa and the Middle East and 6% in Central and South America. We expect that sales to emerging markets will continue to be a significant portion of total sales. Although we are generally covered by credit export guarantees from the governments of
the countries in which we have our main manufacturing bases, emerging market operations present several risks, including extreme volatility in GDP, civil disturbances, economic and governmental instability, nationalisation and expropriation of
private assets, significant fluctuations in interest rates and currency exchange rates, the imposition of taxes or other payments by foreign governments or agencies, and exchange controls and other adverse actions or restrictions imposed by foreign
governments. There can be no assurance that our financial condition and results of operations will not be materially adversely affected by a downturn in the economic conditions in any of these countries or by any regional emerging market crisis.





We operate in competitive markets.





We face competition in our markets, both from large international competitors and, in a number of markets, from smaller niche players. Industry consolidation is increasing globally and the main players
are adopting a strategy of global expansion. This competition has generally resulted in lower selling prices and a deterioration of terms of payment in favour of our customers, which in turn has significantly reduced cash generated by operations. In
response, we have adopted several ongoing programmes to cut costs and improve efficiency and have adopted other strategic initiatives.





Although we believe we compete effectively in most of our major markets, there can be no assurance that we will be able to continue to do so.





Preferential rights may not be exercisable by ADS holders and US shareholders.





Under French law, shareholders have preferential rights (which may be waived) to subscribe on a pro rata basis for cash issuances of new shares or other securities giving rights, directly or indirectly, to subscribe for
additional shares. US holders of ADSs may not be able to exercise any preferential rights derived from the shares




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underlying their ADSs, and US holders of shares may not be able to exercise any preferential rights derived from such shares, in each case unless a registration statement under the Securities Act
is effective for such preferential rights or an exemption from such registration requirements is available. There can be no assurance that any registration statement would be filed. If an ADS holder cannot exercise its preferential rights, the
depositary of our American depositary receipt facility will, if possible, sell such ADS holders preferential rights and distribute the net proceeds of the sale to the holder. If the depositary determines, in its discretion, that such rights
cannot be sold, the depositary may allow such rights to lapse. In either case the ADS holders interest in ALSTOM will be diluted and, if the depositary allows rights to lapse, the ADS holder will not realise any value from preferential rights
available to shareholders. This would also be the case for a US holder of shares whose rights cannot be exercised or sold.





OTHER RISKS





Legal risk





Significant matters and legal proceedings





We are involved
in several legal proceedings as a plaintiff or a defendant, mostly contract disputes, that have arisen in the ordinary course of business. Contract disputes, often involving claims for contract delays or additional work, are common in the area in
which we operate, particularly for large, long-term projects. In some cases the amounts claimed against us in these proceedings and disputes are significant, ranging up to  207 million.





We believe that we have made adequate provisions to cover both current and contemplated general and specific litigation risks. To date and
to our knowledge, there are no other proceedings pending or threatened that are expected to have a material adverse effect on our financial condition and results of operations. See Note 26 to the Consolidated Financial Statements for fiscal year
2002.





Other legal risks





We have not experienced any material adverse impact on our financial condition and results of operations relating to national, European Union or US competition and antitrust laws. However, there can be
no assurance that the application of such laws will not have a material adverse effect on our reputation, financial condition or results of operations in the future.





We are subject to laws which prohibit certain payments to foreign governmental officials, political parties and others. Some of our subsidiaries operate in countries known
to experience corruption, which creates the risk of a prohibited payment by our employees or agents. A limited number of former employees and agents of our group have been or are currently being investigated with respect to alleged illegal payments.
We have established internal compliance programmes which we believe control the risk of illegal activity. Any determination that ALSTOM or its subsidiaries violated such laws could have a material adverse impact on our results of operations or
financial condition.





Some entities of our group are bound by confidentiality agreements entered into in the
normal course of their activities and that are normally linked to major contracts. Breach of such confidentiality obligations could lead to the payment of indemnities or other recourse that could have a material adverse impact on our financial
condition.





Intellectual property





We own or have licenses to use various trademarks, patents and other intellectual property rights which are of value in the conduct of its business, but to date no such license is, by itself, material
to our activities.




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Market risks





We are exposed to a variety of market risks, including currency risk, interest rate risk and credit risk, in the course of our business. Detailed information regarding this
exposure is provided in Operating and Financial Review and Prospects  Impact of Exchange Rate and Interest Rate Fluctuations and in Note 27 to the Consolidated Financial Statements for fiscal year 2002.





Environment, Health & Safety Management (E.H.S.)





We recognise our obligation to our stakeholders, employees, customers, suppliers and the communities at large in which we operate, to provide a safe working place and safe
products, to minimise the impact of our operations on the environment and to protect our industrial and commercial assets.





To this end, we have put in place a global policy covering the management of Environment, Health and Safety risks at an individual operating unit level, to achieve a high level of performance including strict compliance of local
norms and regulations. The global policy is designed and co-ordinated at the corporate level and is adapted and implemented locally. We have selected independent risk specialists, Factory Mutual Global (FMG) and URS to carry out throughout the world
the Corporate EHS annual audit programme of our manufacturing sites. FMG and URS are also supporting the operating units in the creation of specific action and improvement plans. The completion of the action plan is measured and followed up through
a monthly corporate reporting process. Through our environmental management programme, we seek primarily to:





| |  |  | Develop products and services that have an acceptable impact on the environment along the product life cycle from manufacturing through product use and at the
end of their useful lives;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Evaluate the environmental impact of new industrial processes prior to their implementation as well as the discontinuation of existing processes or the disposal
of existing sites;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Improve technology in order to reduce the consumption of energy and natural resources and to minimise waste and pollution; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------




| |  |  | Promote the application of our environmental management principles to our sub-contractors and suppliers.
| | - |  | --------------------------------------------------------------------------------------------------------




Health and Safety programmes are implemented at each of our operating units. Such programmes typically cover health and safety issues,
both at the design stage of the workplace and product equipment through to their implementation and use, as well as accident and disease prevention programmes.





Our industrial risk management programmes are designed to minimise exposure to loss or damage to our assets and to ensure business continuity. This includes exposure to fire, breakdown and natural
catastrophes as well as theft or deliberate damage.





We have established Environmental, Health and Safety
co-ordination in order to improve the coherence of the prevention programmes. We have created Environmental, Health and Safety follow-up indicators as well as a system of reporting.





During fiscal year 2002, 341 EHS audits were carried out by FMG and URS and have been reviewed by the local Managing Directors in order to validate the areas of improvement
suggested by the auditors.





Compliance with environmental regulations and remediation, health and safety issues





We are subject to a broad range of environmental laws and regulations in each of the jurisdictions in which we operate. These
laws and regulations impose increasingly stringent environmental protection standards on us regarding, among other things, air emissions, wastewater discharges, the use and handling of hazardous




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waste or materials, waste disposal practices and the remediation of environmental contamination. These standards expose us to the risk of substantial environmental costs and liabilities,
including liabilities associated with divested assets and past activities. In most of the jurisdictions in which we operate, our industrial activities are subject to obtaining permits, licences or/and authorisations, or to prior notification. Most
facilities must comply with these permits, licences or authorisations and are subject to regular administrative inspections.





We invest significant amounts to ensure that we conduct our activities in order to reduce the risks of impacting the environment and regularly incur capital expenditures in connection with environmental compliance requirements.
Although we are involved in the remediation of contamination of certain properties and other sites, we believe that our facilities are in compliance with their operating permits and that our operations are generally in compliance with environmental
laws and regulations.





The outcome of environmental matters cannot be predicted with certainty and there can be no
assurance that the amounts we have budgeted and provided will be adequate. In addition, future developments, such as changes in law or environmental conditions, could result in increased environmental costs and liabilities that could have a material
effect on our financial condition or results of operations. To date, no significant liability has been asserted against us, and compliance with environmental regulations has not had a material effect on the results of operations.





We are also subject to regulations, including in France, the UK and the US, regarding the control and removal of
asbestos-containing material and identification of potential exposure of employees to asbestos. It has been our policy to abandon definitively the use of products containing asbestos by all of our operating units world-wide and to promote the
application of this principle to all of our suppliers, including in those countries where the use of asbestos is permitted. In the past we have used and sold some products containing asbestos, particularly in France in our Marine Sector and to a
lesser extent in our other Sectors. As a result, we are currently subject to approximately 1,300 asbestos-related cases in France from employees, former employees or third parties. We believe, however, based in part on a number of court decisions,
that compensation for most of such cases, including cases where we may be found to be at fault, is or will be borne by the general French social security (medical) funds and by the publicly funded Indemnification Fund for Asbestos Victims. We
believe that for the cases where this may not be the case, we either have adequate insurance coverage or have made adequate provisions to cover any such current or contemplated claims. We are also subject to a small number of asbestos-related or
other harmful substance claims in other countries, including in the United States, which we are currently litigating. We do not expect such cases to increase substantially in number and believe we have good defences available and may also have
adequate insurance available. We can, however, give no assurances that such cases will not grow in number or that those we have at present or may face in the future, may not have a material adverse impact on our results of operations.





Insurance





Our policy is to purchase insurance policies covering risks of a catastrophic nature from insurers presenting excellent solvency criteria. The amount of insurance purchased varies according to an estimation of the maximum foreseeable
loss. This estimate is made within the framework of the industrial risk management for property damage and depends on the evaluation of the maximum legal risk considering the various activities of our group for our civil liability. We believe that
our insurance programmes in force at present have satisfactory limits. In the future our ability to maintain adequate insurance coverage will depend on the available capacity in the insurance market. Following the events of 11 September 2001, the
insurance industry is continuing to consolidate and insurers are generally reducing their exposure to any particular customer, increasing premiums, reducing insurance coverage and requiring higher deductibles. Our principal insurance policies expire
at the end of calendar year 2002 and we expect that we will be unable to renew our policies on financial terms as favourable as those which we enjoy today. In addition, there can be no assurance that we will be able to continue to procure the same
scope of coverage which we have today.





We generally self-insure risks which have higher frequency and lower
severity.




125




---




Two insurance programmes covering respectively the Power Sector and other Sectors
are in force. These global and centralised programmes include coverage for property damage and subsequent business interruption, transportation, damage during construction or installation of projects as well as coverage for liability before and
after delivery. Both of these programmes will be merged at their renewal date on 1 January 2003.





In addition, we
purchase in the various countries where we are present, policies of insurance of a mandatory nature or to cover specific risks such as automobile or workers compensation or employers liability.




126




---




SHARE CAPITAL  OWNERSHIP OF THE SHARE CAPITAL  STOCK
MARKETS





As of 7 May 2002, ALSTOMs share capital amounted to  1,292,324,754 consisting of
215,387,459 shares, with a nominal value of  6 per share, all of the same class and fully paid.





Authorisations to increase the
share capital





The ordinary and extraordinary meeting of the shareholders held on 24 July 2001 has approved
the following authorisations:





Authorisations to increase the share capital

Maximum nominal amounts
authorised

Outstanding amount

DurationIssuance of shares and/or securities redeemable, convertible or exchangeable into capital shares of ALSTOM, with maintenance or without preferential
subscription rights. (resolutions n°12 and 13)

Capital increase:  400 million

Capital increase:  400
million

26 months as from 24 July
2001Issuance of shares in connection with the issuance of debt securities with share purchase warrants and of composite securities by subsidiaries of
ALSTOM. (resolution n°14)

Issuance of debt securities:  1
billion

Issuance of debt securities:  1 billionIncorporation of capital reserves, profits or premiums (resolution
n°16)

Capital increase:  200
million

Capital increase:  200
million

26 months as from 24 July 2001Granting of stock options giving rights to subscribe new shares of ALSTOM or to purchase existing shares of ALSTOM. (resolution n°17)

Capital increase: 5% of the
share capital as of the date of grant by the board of directors

Capital increase: 0.96% (*)

38 months as from 24 July 2001Issuance of shares and/or other securities giving access to ALSTOM shares, reserved for employees participating in a group savings plan. (resolution n°18)

Capital increase:  100
million

Capital increase:  100
million

5 years as from 24 July 2001Issuance of ALSTOM shares reserved for ALSTOM Employee Participations Ltd, constituted in favour of employees of foreign subsidiaries belonging to a group
savings plan. (resolution n°19)





2 years as from 24 July 2001


|(*) |  | On the basis of the share capital as of 7 May 2002.
|--- |  | ---------------------------------------------------




It will be proposed to the next shareholders meeting, scheduled for 21 June 2002 on first call and 3 July 2002 on second call if the quorum is not met on first call, to cancel authorisations
n°12, 13 and 14 to the extent they remain unused by the board of directors, to cancel authorisation n°18 and to renew these authorisations under the following conditions:





| |  |  | Authorisation to issue shares and/or any other securities giving access to the share capital, with maintenance of the preferential subscription rights, within
the limit of a nominal amount of capital increase of  600 million and of a nominal amount of debt securities which could be issued of  1 billion. This authorisation would be granted for a period of 26 months;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



144




---




| |  |  | Authorisation to issue the securities referred to in the above authorisation, without preferential subscription rights, within the limit of a nominal amount of
capital increase of  300 million and   1 billion for the issuance of debt securities. This authorisation would be granted for a period of 26 months;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Global limitation of the total increase in share capital which could be realised pursuant to the two authorisations above to  600 million, and global
limitation of the nominal amount of debt securities which could be issued pursuant to these two authorisations to  1 billion; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Authorisation to issue shares and/or securities giving access to the share capital reserved for members of a Company savings plan within the limit of a nominal
amount of capital increase of  100 million. This authorisation would be granted for a period of 5 years.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Changes in share capital





Number of shares issued

Nominal amount

Paid in capital amount

Resulting total number of shares

Total amount of share
capital(in FRF)

(in FRF)



(in FRF)31 March 1998







2,500

250,000Stock split and exchange of 5 new shares nominal value FRF 40 for 2 old shares nominal value FRF 100

6,250





6,250

250,000Increase of share capital with preferential subscription rights

6,250

250,000

2,000,000

12,500

500,000Capital increase resulting from the contribution in kind made by Marconi plc.

99,993,750

3,999,750,000

17,498,906,250

100,006,250

4,000,250,000Capital increase resulting from the contribution in kind made by Alcatel

93,947,534

3,757,901,360

16,440,818,450

193,953,784

7,758,151,360Capital increase resulting from the contribution in kind made by Société Kléber
Lauriston

5,996,651

239,866,040

1,049,413,925

199,950,435

7,998,017,400Capital increase reserved for Alcatel

49,565

1,982,600

8,673,875

200,000,000

8,000,000,000Capital increase offered to the public at the time of the IPO

9,756,098

390,243,920

1,609,756,170

209,756,098

8,390,243,920Capital increase resulting from the exercise of the warrants

1,000,436

40,017,440

165,071,940

210,756,534

8,430,261,360Capital increase reserved for employees

2,941,869

177,674,760

373,617,363

213,698,403

8,547,936,12031 March 1999







213,698,403

8,547,936,120(in )

(in )



(in )31 March 2000







213,698,403

1,282,190,418Capital increase reserved for employees

1,689,056

10,134,336

30,403,008

215,387,459

1,292,324,75431 March 2001







215,387,459

1,292,324,75431 March 2002







215,387,459

1,292,324,754




145




---




Ownership of ALSTOM shares over the last three fiscal years





% of the share capitaland voting rights31 March 2002


31 March 2001


31 March 2000Franklin Resources Inc(1)

12.8
%

7.0
%

Atout France

2.1
%




Caisse des Dépôts et Consignations

2.0
%




Groupe Société Générale(2)

1.5
%

1.5
%

Crédit Agricole Asset Management(3)

1.5
%




Marconi Corporation plc




5.7
%

24.0
%Alcatel




5.7
%

24.0
%Employees(4)

1.9
%

1.9
%

1.3
%Public

78.2
%

78.2
%

50.7
%Total

100
%

100
%

100
%





---

|(1) |  | Shares held through various investment funds and unit trusts (shareholding threshold notification received after the end of the fiscal year on 2 April 2002:
13.32%).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Shareholding threshold notification received after the end of the fiscal year on 18 April 2002: 2.03%,
|--- |  | ------------------------------------------------------------------------------------------------------




|(3) |  | Shares held through various investment funds (shareholding threshold notification received after the end of the fiscal year on 11 April 2002: 0.88%).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------




|(4) |  | Shares held by employees participating in the ALSTOM Group savings plan.
|--- |  | ------------------------------------------------------------------------




To the knowledge of ALSTOM, on the basis of declarations previously received, there is no shareholder holding, directly or indirectly, more than 5% of the share capital and
voting rights of the Company.





Further to the public offering carried out jointly between Alcatel and Marconi plc,
in the course of which they sold 35,538,930 shares each (representing 16.5% of the share capital of ALSTOM each) on 14 February 2001, Alcatel and Marconi plc each sold in June 2001 all their remaining 5.7% shareholding in the capital of
ALSTOM.





To the knowledge of ALSTOM, there is no shareholders agreement concerning its share capital and the
shares held by the directors and members of the executive committee represent approximately 0.05% of ALSTOMs share capital.





ALSTOM does not hold, directly or indirectly (through companies controlled by it), any of its own shares and each director holds at least the number of shares required by the Articles of Association.





A request made by ALSTOM to obtain information on the holders of its bearer shares showed that there were approximately 250,000
shareholders as of December 2001.





Securities or rights giving access to ALSTOMs share capital  Stock options
plans





There are no securities or rights that give access to the share capital, other than the options to
subscribe for new shares which have been granted by ALSTOM.





Stock options plans are decided by the board of
directors upon proposals by the nominations and remuneration committee, which reviews all conditions of these plans, including the granting criteria.





For each plan, beneficiaries of stock options are selected among the executives of profit centres, functional executives, country presidents, managers of large projects and, more generally, holders of
key salaried positions in ALSTOM and its subsidiaries which have made a significant contribution to ALSTOMs results.




146




---




The choice of beneficiaries and the number of options granted are based on the
position, the job performance and the potential of each person. For each plan, the subscription price of the options never includes any discount (nor any surcharge) and corresponds to the average price of the shares during the twenty trading days
preceding the day on which the options are granted by the board of directors. In addition, the exercise of options is always subject to the condition that the employment contract or the mandate of the beneficiary is still in force as of the date the
options are exercised with some exceptions.





The main characteristics of all stock option plans implemented by
ALSTOM are summarised below. No other company of the group has implemented stock option plans giving right to ALSTOM shares.





Main
characteristics of ALSTOM s stock options plans





Plan no. 1

Plan no. 2

Plan no. 3

Plan no. 4

Plan no. 5Creation date

22 April 1999

14 February 2000

24 July 2001


24 July 2001


8 January 2002Exercise price(1)

 27.40

 30.00

 33.00


33.00


13.09Beginning of exercise period(2)

22 April 2004

14 February 2003

24 July 2002


24 July 2002


8 January 2003Expiration date

21 April 2007

13 February 2008

23 July 2009


23 July 2009


7 January 2010Number of beneficiaries

850

1,683

1,703


8


1,653Number of options granted

2,035,000

4,450,000

4,200,000


285,000


4,200,000Number of options granted to the members of the Executive Committee(3)

175,000

250,000

160,000


285,000


255,000Number of options cancelled

116,200

379,500

184,700


142,500


116,000Number of remaining options

1,918,800

4,070,500

4,015,300


142,500


4,084,000


Terms and conditions of exercise

Average opening price of shares to reach  38, for 40 consecutive trading days (between 22 April 1999 and 21 April 2004).  If this condition is not fulfilled, the options will no longer be valid. As of today, this condition has not been met.

Operating margin of ALSTOM to reach 5.5% for fiscal year 2002 or, if not reached, 6% for fiscal year 2003. 
If this condition is not fulfilled, the options will no longer be valid. For fiscal year 2002, the condition is not met.

  1/3 of options exercisable as from 24 July 2002   2/3
of options exercisable as from 24 July 2003   all options exercisable as from 24 July 2004.

  1/2 of options exercisable as from 24 July 2002   1/2 of the options exercisable as from 24 July 2003.  The exercise of each tranche
is subject to the fulfilment of specific financial objectives defined for each beneficiary.  If the financial objectives are not
fulfilled, the options will no longer be valid. For fiscal year 2002, the financial objectives are not met and the first tranche of options (142,500 options) is cancelled.

  1/3 of options exercisable as from 8 January 2003   2/3 of options exercisable as from 8 January 2004   all options exercisable as from 8 January 2005.


---

|(1) |  | Subscription price corresponding to the average opening price of the shares during the twenty trading days preceding the day on which the options were granted
by the board (no discount or surcharge).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Except specific conditions mentioned in Terms and conditions of exercise.
|--- |  | ---------------------------------------------------------------------------

|(3) |  | Members of the executive committee as of 31 March 2002.
|--- |  | -------------------------------------------------------



147




---




During fiscal year 2002, three stock option plans have been exceptionally
implemented: plans n° 3 and n° 4 decided on 24 July 2001, and plan n° 5 decided on 8 January 2002.





As
underlined in the above table, under plan n° 3 and plan n° 5, the exercise of the options is not subject to specific conditions, except that the options are exercisable by tranches of 1/3 a year during a three year period beginning from the
date of grant. For French tax residents (résidents fiscaux français), the sale of the corresponding shares will be possible only after the expiration of the four year tax blocking period set up by French regulation.





The implementation of plan n° 5 has been decided in anticipation of the annual granting timetable in the
middle of the year, to accompany the exceptional mobilisation effort undertaken by the ALSTOMs management last autumn.





Plan n° 4 is an exceptional plan which concerns only members of the executive committee. Provided that specific financial objectives set up for the fiscal years 2002 and 2003 are reached, half of the options granted are
exercisable as of July 2002 and for the other half as of July 2003. If these conditions are not fulfilled at the given dates, the options will no longer be valid. Due to the results of fiscal year 2002, the first tranche of 142,500 options is
consequently cancelled.





Stock options granted to the ten employees who are not executive or non executive directors and who
received the largest number of options during fiscal year 2002





The relevant plans are plans n° 3 and
n° 4, for which the exercise price is  33 and expiration date 23 July 2009 and plan n° 5, for which the exercise price is  13.09 and the expiration date is 7 January 2010.





Members of the executive committee





Mr Salmon
received 20,000 options under plan n° 3; 40,000 options under plan n° 4 (condition of exercise: ALSTOM s consolidated net income) of which 20,000 are cancelled; and 40,000 options under plan n° 5.





Mr Boissier received 20,000 options under plan n° 3; 25,000 options under plan n° 4 (condition of exercise: Marine EBIT) of which
12,500 are cancelled; and 30,000 options under plan n° 5.





Mr Fries received 20,000 options under plan n°
3; 40,000 options under plan n° 4 (condition of exercise: Power EBIT) of which 20,000 are cancelled; and 40,000 options under plan n° 5.





Mr Joubert received 20,000 options under plan n° 3; 30,000 options under plan n° 4 (condition of exercise: T&D EBIT) of which 15,000 are cancelled; and 40,000 options under plan n° 5.





Mr Moreau received 20,000 options under plan n° 3; 30,000 options under plan n° 4 (condition of exercise:
Transport EBIT) of which 15,000 are cancelled; and 20,000 options under plan n° 5.





Mr Newey received 20,000
options under plan n° 3; 20,000 options under plan n° 4 (condition of exercise: ALSTOMs consolidated net income) of which 10,000 are cancelled; and 20,000 options under plan n° 5.





Mr Hibbert received 20,000 options under plan n° 3; 20,000 options under plan n° 4 (condition of exercise: ALSTOMs
consolidated net income) of which 10,000 are cancelled; and 25,000 options under plan n° 5.





Other executive officers





Mr Kruit received 18,000 options under plan n° 3 and 18,000 options under plan n° 5.




148




---




Mr Barrett received 18,000 options under plan n° 3 and 18,000 options under
plan n° 5.





Mr Graenicher received 18,000 options under plan n° 3 and 18,000 options under plan n° 5.





No options have been exercised by the ten employees listed above during fiscal year 2002, no options granted
under plans implemented by ALSTOM being exercisable.





Stock options granted to executive and non executive directors of ALSTOM
during fiscal year 2002





The relevant plans are plans n° 3 and n° 4 for which the exercise price
is  33 and the expiration date is 23 July 2009 and plan n° 5 for which the exercise price is  13.09 and the expiration date is 7 January 2010.





During fiscal year 2002, the chairman and chief executive officer received 20,000 stock options under plan n°3; 80,000 options under the plan n°4, for which
exercise is subject to a specific condition mentioned above (achievement of ALSTOM s targeted consolidated net income for fiscal years 2002 and 2003) of which 40,000 options are cancelled and 40,000 stock options under plan n°5.





No options have been granted to the chairman and chief executive officer by any other company of the Group.





No options have been granted to the other directors of ALSTOM in 2002 or under plans previously implemented by
ALSTOM.





No options have been exercised by the chairman and chief executive officer during fiscal year 2002, no
options granted under plans set up by ALSTOM being exercisable.





In fiscal year 2000, the chairman and chief
executive officer received 60,000 options under plan n°1 and 75,000 options under plan n°2 for which the specific conditions are described in the table above.





Authorisations to issue debt securities





The ordinary and
extraordinary shareholders meeting held on 24 July 2001 authorised the board of directors, for a period of five years, as from the date of the shareholders meeting to issue any kind of debt securities within the limit of a total nominal
amount of


 2.5 billion.





This
authorisation has not been used during fiscal year 2002.





Repurchase of shares





The ordinary and extraordinary shareholders meeting held on 24 July 2001 authorised the board of directors, pursuant to article L.
225-209 of the Code de commerce, to purchase through a stock exchange or otherwise, and by any means, ALSTOM s shares within the limit of a number of shares representing 10% of  ALSTOMs share capital as at 31 March 2001, i.e.
21,538,745 shares.





Acquisitions of shares may be made with a view towards stabilising share prices,
distributing shares to current and former employees, or executive officers of the Group, and in particular in connection with stock option plans that may be granted, and in order to hold, sell, transfer or exchange the shares purchased in connection
with any financial transactions as well as in connection with the general and financial management of the share capital and ALSTOMs stockholders equity, in particular with respect to its financing needs. The shares acquired may also be
cancelled under the conditions laid down by law.




149




---




The purchase, resale or transfer of shares may occur on or off the stock
exchange, at any time, including at the time of any take-over bid, and by all means, including through the use of any financial instrument notably through optional transactions such as the purchase and sale of put or call options. The purchase price
shall not exceed  50 per share (including costs), and the sale price shall be at least  20 per share (including costs), except in the case of a particular legal provision.





This share purchase programme, for which ALSTOM issued an information memorandum which received the visa no. 01-803 from the Commission des opérations de
bourse on 15 June 2001, has not been implemented by ALSTOM.





The cancellation of this authorisation and its
renewal for a period of one year within the conditions set forth in COB regulations number 98-02 and 98-04 as amended will be proposed to the next shareholders general meeting scheduled on 21 June 2002 on first call and if the quorum is not
met on 3 July 2002 on second call. The number of shares which could be purchased under this authorisation would not exceed 10% of the share capital as of 31 March 2002, i.e. 21,538,745 shares. The maximum purchase price and the minimum sale price
proposed are  40 and  10 respectively.





Stock market information





The ALSTOM shares are listed on Euronext Paris (Premier Marché  Euroclear France code 12019), on the London Stock Exchange (Official
List) and on the New York Stock Exchange. The shares have been excluded from the CAC 40 Index since 3 April 2002.





Volumes and
share prices on EURONEXT Paris (Premier Marché)





Months

Total Volume in shares

Daily average Volume in shares

Total Volume

Daily average amount

Opening price on the last day of the month

High price of the month

Low price of the month(in  thousand)

(in  thousand)

(in )

(in )

(in )2000October

9,167,570

416,708

237,873.77

10,812.44

25.20

28.00

24.00November

14,262,998

648,318

385,066.56

17,503.03

27.85

28.70

24.65December

7,631,931

401,681

204,088.72

10,741.51

27.39

28.10

25.412001January

18,066,272

818,467

455,433.17

20,701.50

25.49

27.90

23.80February

47,073,166

2,353,658

1,324,095.51

66,204.78

30.50

30.63

25.35March

27,843,365

1,265,608

820,172.63

37,280.57

31.60

31.70

27.11April

19,898,739

1,047,302

636,272.61

33,488.03

33.00

33.80

29.30May

36,162,086

1,643,731

1,192,698.14

54,211.28

34.90

35.88

30.10June

60,320,792

3,016,040

1,980,517.43

99,025.88

32.50

36.00

32.00July

29,403,253

1,336,512

957,006.70

43,500.30

32.50

34.50

31.00August

21,368,438

929,063

668,070.19

29,046.53

29.52

33.36

29.10September

65,858,023

3,292,901

1,380,697.53

69,034.88

19.39

30.25

15.37October

78,108,043

3,396,002

1,212,119.15

52,700.83

17.20

17.90

12.85November

99,832,046

4,537,820

1,331,924.15

60,542.00

13.51

17.60

11.46December

38,907,441

2,161,525

499,946.68

27,774.82

12.09

14.30

11.642002January

49,782,341

2,628,342

665,863.49

30,266.52

13.38

14.69

12.25February

28,381,219

1,419,061

365,775.90

18,288.79

13.43

13.98

12.36March

62,034,282

3,101,716

930,355.52

46,517.78

15.40

16.30

13.45April

37,842,946

1,802,045

55,568.30

26,458.01

14.45

15.50

14.00





---

Source: Euronext Paris.




150




---




Average volumes and share prices on the London Stock Exchange and on the New York Stock Exchange





London Stock Exchange

New York Stock exchange (ADS)volume

Daily average Price
high

Price low

volume

Daily average Price
high

Price low(£)

(£)



(US$)

(US$)2000Fourth quarter

1,197

1,650

1,325

6,665

26.75

20.502001First quarter

1,923

1,825

1,450

33,856

28.75

22.13Second quarter

1,523

2,125

1,825

16,106

30.30

26.70Third quarter

863

2,100

1,175

20,754

29.40

14.40Fourth quarter

774

1,225

737.5

52,625

15.75

10.352002First quarter

874

850

725

31,573

14.29

10.77


---

Source: Bloomberg.




151




---




MANAGEMENT  CONTROL





Compensation of directors and members of the executive committee





Directors





The ordinary and extraordinary general meeting of 24 July 2001
has raised the maximum annual amount of directors fees to


 400,000 which can be distributed among the members of the board of directors.





The granting conditions of the directors fees were not modified by the board of directors for fiscal year 2002 upon recommendation
of the nominations and remuneration committee. Each of the director is paid a fixed amount of  15,000. The vice chairman of the board of directors is paid an additional amount of  5,000 and the chairs of the audit committee and of the
nominations and remuneration committee each receive an additional amount of  7,500 per year. In addition, each director is paid


 2,500 per actual presence at each
of the meetings of the board or one of the committees of which he is member. The fixed component is paid in September of each fiscal year and the variable component is paid in April of the following fiscal year.





Based on these granting conditions, the amount of directors fees paid in respect of fiscal year 2002, amounts to  300,000.





All compensations and benefits of any kind paid during fiscal year 2002 to members of the board of directors are
mentioned in the table hereunder.





(in )Pierre Bilger(1)

1,202,744Sir William Purves(2)

42,500Jean-Paul Béchat(2)

15,000Candace Beinecke(2)

15,000James B. Cronin(2)

15,000Dr. Klaus Esser(2)

37,500Jean-Pierre Halbron(2)

27,500Patrick Kron(2)

15,000John Mayo(2) (3)

12,500Paolo Scaroni(2) (4)

15,000Lord Simpson(2)

32,500Serge Tchuruk(2) (5)

15,000


---

|(1) |  | Compensation and benefit only, no directors fees being paid to the chairman and chief executive officer.
|--- |  | ---------------------------------------------------------------------------------------------------------




|(2) |  | Directors fees only.
|--- |  | ---------------------




|(3) |  | Director and member of the audit committee until 14 March 2001.
|--- |  | ---------------------------------------------------------------




|(4) |  | Director and member of the audit committee until 12 December 2001.
|--- |  | ------------------------------------------------------------------




|(5) |  | Director and member of the nominations and remuneration committee until 8 March 2001.
|--- |  | -------------------------------------------------------------------------------------




No compensation of any kind are paid to directors by any company controlled by ALSTOM as defined under article L.233-16 of the French Code de commerce.





Chairman and Chief Executive Officer





The compensation of the chairman and chief executive officer is decided by the board of directors upon the recommendation of the nominations and remuneration committee and
consists of a fixed component and a variable component. The variable component is tied to ALSTOMs consolidated net income.





The chairman and chief executive officer received for fiscal year 2002 a global compensation amounting to  1,200,000 (compared to an amount of  1,300,000 the previous year) and consisting of a fixed component of
 880,000 and a variable component of  320,000 tied to fiscal year 2001 (compared to an amount of  500,000 the previous year which was tied to fiscal year 2000). No variable component will be paid to the chairman and chief
executive officer in connection with fiscal year 2002 and the fixed component for fiscal year 2003 will not be increased over that for fiscal year 2002.




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The chairman and chief executive officer does not receive directors fees.
The stock options which have been granted to him are mentioned on page 149 of this annual report.





Members of the Executive
Committee





Each of the members of the executive committee of ALSTOM receives a compensation consisting of
a fixed component and a variable component tied to the financial results of the fiscal year and/or to the realisation of individual objectives determined at the beginning of the fiscal year. The variable component linked to a fiscal year is paid
during the next fiscal year.





Total compensation packages are tied to both ALSTOMs financial performance and
individual and team contributions. They are based on best practices within the industry, compensation surveys and advice from human resources professionals.





The nominations and remuneration committee makes recommendations regarding the compensation of the members of the executive committee.





During fiscal year 2002, the global amount of the compensation paid to the members of the executive committee amounted to


 5,200,000. The fixed component represents  3,900,000 (8 members of the executive committee as of 31 March 2002) and the variable component tied to the results of fiscal year 2001 (paid in fiscal year 2002)
represents  1,300,000 (8 members of the executive committee as of 31 March 2002). The fixed component of the compensation paid to members of the executive committee for fiscal year 2003 will not be increased over that for fiscal year 2002.







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OTHER INFORMATION





LOGO




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Employee profit sharing plans





All the French subsidiaries to which the French law of 7 November 1990 applies have entered into employee profit sharing agreements.





As of today, approximately ten French subsidiaries of the group have entered into a profit sharing plan.





The amounts due to the employees under the legal and agreed employees profit sharing schemes for the last three fiscal years are indicated
under the line employees profit sharing of note 3 to the consolidated accounts.





Concurrently with its
initial public offering, in June of 1998 ALSTOM implemented a share capital increase reserved for the employees participating in an ALSTOM savings plan. A total of 2,491,869 shares were issued at a price of FRF 167 (or  25.46) per share.
During fiscal year 2001, a further capital increase reserved for employees of ALSTOM and its subsidiaries participating in an ALSTOM savings plan was approved. As a result of this increase of the share capital on 8 August 2000, 1,689,056 new shares,
nominal value  6 per share, were issued at a price of  24 per share.





Information on related party agreements





During fiscal year 2002 and since its end, no agreement referred to in article L.225-38 of the French Code
de Commercehave been entered into.





The agreements entered into during previous fiscal years and which have
continued during fiscal year 2002 are described in the special auditors report as included in this annual report.





No director or executive officer or any of his or her associates was indebted to ALSTOM.





Communications Policy





ALSTOM Investor Relations Team can be contacted at ALSTOM s Head Office:





Robert Shaw or


Elisabeth Rocolle-Teyssier


Vice President, Investor Relations





ALSTOM


25 Avenue Kléber


75116 Paris


France





Tel: +33 01 47 55 25 78


Fax: +33 01 47 55 28 61





Information for
shareholders including current share price, recent press releases and details of shareholder events can be found on ALSTOMs web site.





http:www.alstom.com





English and French language versions of ALSTOM s annual
report 2001/02 are available on request from the Investor Relations team.




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