As filed with the Securities and Exchange Commission on May 24, 2002

---

SECURITIES
  AND EXCHANGE COMMISSIONWashington,
  D.C. 20549

---

FORM
  20-F


|                                                    | REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(B) OR (G) 
      OF THE SECURITIES EXCHANGE ACT OF 1934
|--------------------------------------------------- | -----------------------------------------------------------------------------------------------------------
|or                                                 
|                                                    | ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THESECURITIES EXCHANGE ACT OF
      1934            
|for
        the fiscal year ended December 31, 2001
|or                                                 
|                                                    | TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE 
      SECURITIES EXCHANGE ACT OF 1934      

for
  the transition period from 
  to Commission file no:

---

VIVENDI
  ENVIRONNEMENT(Exact
  name of Registrant as specified in its charter)

|N/A                                  | 36-38
        avenue Kléber, | Republic
        of France            
|------------------------------------ | ---------------------------- | --------------------------------------
|(Translation
        of Registrants | 75116,
        Paris,        | (Jurisdiction
        of incorporation
|name
        into English)           | France                       | or
        organization)              

(Address
  of principal executive offices)

---

Securities registered or to be registered pursuant to Section 12(b) of the Act:

|Title
      of each class                                                                                                                                                                                                                                                        |  | Name
      of each exchange on which registered
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------
|                                                                                                                                                                                                                                                                                 |  |                                                
|Ordinary
        shares, nominal value€13.50
        per share
      represented
        by American Depositary Shares
      (as
        evidenced by American Depositary Receipts),
      each
        American Depositary Share representing one
      ordinary
        share* |  | The
        New York Stock Exchange            
|                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                

Securities
  registered or to be registered pursuant to Section 12(g) of the Act:NoneSecurities
  for which there is a reporting obligation pursuant to Section 15(d) of the Act:NoneIndicate
  the number of outstanding shares of each of the issuers classes of capital
  or common stock as of the close of the period covered by the annual report:346,175,772
  ordinary shares, nominal value€13.50 per share

Indicate
  by check mark whether the registrant (1) has filed all reports required to be
  filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
  preceding 12 months (or for such shorter period that the registrant was required
  to file such reports), and (2) has been subject to such filing requirements
  for the past 90 days: Yes            No Indicate
  by check mark which financial statement item the registrant has elected to follow:
  Item
  17Item
  18

*Listed,
  not for trading or quotation purposes, but only in connection with the registration
  of the American Depositary Shares pursuant to the requirements of the Securities
  and Exchange Commission.

---

FORWARD-LOOKING STATEMENTS

We
  make some forward-looking statements in this document. When we use the words
  aim(s), expect(s), feel(s), will,
  may, believe(s), anticipate(s) and similar
  expressions in this document, we are intending to identify those statements
  as forward-looking. Forward-looking statements are subject to risks and uncertainties
  that could cause actual results to differ materially from those projected. You
  should not place undue reliance on these forward-looking statements, which speak
  only as of the date of this document. In particular, from time to time in this
  document we state our expectations in terms of revenue to be generated under
  new contracts recently won or awarded or from new investments made and new assets
  or operations acquired, though we may have not yet commenced operations under
  these new contracts nor operating these new assets and operations at the time
  we make these statements. These revenue estimates are based on our managements
  current assumptions regarding future sales volumes and prices, which are subject
  to a number of risks and uncertainties that may cause actual sales volumes and
  prices to differ materially from those projected. As a result, actual revenue
  recorded under these new contracts or from these new investments, assets and
  operations may differ materially from those set forth in this document. Other
  than in connection with applicable securities laws, we undertake no obligation
  to publish revised forward-looking statements to reflect events or circumstances
  after the date of this document or to reflect the occurrence of unanticipated
  events. We urge you to review and consider the various disclosures we make concerning
  the factors that may affect our business carefully, including the disclosures
  made in Item 3. Key Information  Risk Factors, Item
  5. Operating and Financial Review and Prospects, and Item 11. Quantitative
  and Qualitative Disclosures About Market Risk.

Unless otherwise indicated, information and statistics presented herein regarding market trends and our market share relative to our competitors are based
on our own research and various publicly available sources.

EXPLANATORY NOTE

Approximately
  63% of our shares are currently owned by Vivendi Universal, a société
  anonyme incorporated under the laws of France. See Item 7. Major Shareholders
  and Related Party Transactions  Major Shareholders. From 1998 until
  December 2001, Vivendi Universal was known as Vivendi; before 1998
  it was known as Compagnie Générale des Eaux. In this
  document, we generally refer to our parent company as Vivendi Universal
  (rather than as Vivendi or Compagnie Générale
  des Eaux) even when discussing events that took place when that company
  was operating under a different name. In addition, except as otherwise indicated
  or as the context otherwise requires, we use the term Vivendi Universal
  to refer to our parent company exclusive of its subsidiaries.

Unless otherwise indicated, all references made in this document to our competitive positions are in terms of revenue generated.

---



---

TABLE OF CONTENTS


|                                                                 | Page | 
|---------------------------------------------------------------- | ---- | 
|                                                                 |      | 
|Identity
      of Directors, Senior Management and Advisers      | 1    | 
|Offer
      Statistics and Expected Timetable                    | 1    | 
|Key
      Information                                            | 1    | 
|Information
      on the Company                                 | 10   | 
|Operating
      and Financial Review and Prospects               | 45   | 
|Directors,
      Senior Management and Employees                 | 68   | 
|Major
      Shareholders and Related Party Transactions          | 78   | 
|Financial
      Information                                      | 83   | 
|The
      Offer and Listing                                      | 89   | 
|Additional
      Information                                     | 92   | 
|Quantitative
      and Qualitative Disclosures About Market Risk | 103  | 
|Description
      of Securities Other Than Equity Securities     | 105  | 
|Defaults,
      Dividend Arrearages and Delinquencies            | 106  | 
|Material
      Modifications to the Rights of Security Holders   | 106  | 
|Financial
      Statements                                       | F-1  | 



i

---

PART I

ITEM
  1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

ITEM
  2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

ITEM
  3. KEY INFORMATION

SELECTED FINANCIAL DATA

You should read the following selectedfinancial data together with the section entitledOperating and Financial Review and Prospectsand ourfinancial statements. Ourfinancial statements have been prepared in accordance with French GAAP, which differs in certain significant respects from U.S. GAAP. Note 27 to ourfinancial
statements describes the principal differences between French GAAP and U.S. GAAP as they relate to us. SeeItem 5. Operating and Financial Review and Prospectsfor a discussion of
accounting changes, business combinations and dispositions of business operations that affect the comparability of the information provided below.

For your convenience, we have converted certain euro amounts into U.S. dollars, using the December 31, 2001 rate of $1.00 =€1.136. This does not mean that we actually converted such amounts into U.S. dollars. For periods presented prior to
January 1, 1999, the selectedfinancial data presented below have been prepared in French Francs and
translated into euro using the officialfixed exchange rate of€1 = FF 6.55957, applicable since January 1, 1999 (see Note 2 to our consolidatedfinancial statements).

We changed our accounts in 2001 to present our income statement by function, as opposed to our previous method of presenting our income statement by
category of expense. SeeItem 5. Operating and Financial Review and ProspectsOverviewPresentation of Information in this SectionChanges in Income Statement Presentationfor a description of the principal
changes in the presentation of our consolidatedfinancial statements. Because 2001 is a year of transition
to our new accounting presentation, and because operating income under the new presentation is not available broken down by business segment for the years 2000 and 1999, we have presented our operating income under both the old presentation method
and the new presentation method. To distinguish between the old presentation and the new presentation, for purposes of this years discussion of our results of operations we have called the new version of operating incomeoperating income (new definition),retaining the termoperating incomefor the old
definition. We have also restated ourfinancial statements for 1999 and 2000 to reflect the new presentation method.

Because we have not restated ourfinancial statements for periods ending prior to December 31, 1999, the following tables present our selectedfinancial data based on the new accounting presentation for the periods ended December 31, 1999, 2000 and 2001, and our selectedfinancial data based on the old accounting presentation for the periods ended December 31, 1997, 1998, 1999 and 2000.

1

---

Selected Financial DataNew Accounting Presentation

|                                                 | At
and for the year ended December 31, |  
|------------------------------------------------ | -------------------------------------- | -
|                                                 | U.S.$                                  |  
|                                                 |                                        |  
|(millions,
except per share amounts)             | 2001                                   |  
|                                                 |                                        |  
|INCOME
STATEMENT DATA:                           |                                        |  
|Amounts
in accordance with French GAAP           |                                        |  
|Revenue                                          | 25,646.4                               |  
|Revenue
outside France                           | 14,752.7                               |  
|EBIT(1)                                          | 1,772.6                                |  
|Goodwill
amortization                            | (2,562.4                               | )
|Restructuring
costs                              | (43.5                                  | )
|Operating
income (loss) (new definition)         | (833.3                                 | )
|Minority
interest                                | (115.5                                 | )
|Net
income (loss)                                | (1,982.2                               | )
|Basic
earnings per share                         | (5.80                                  | )
|Dividends
per share                              | 0.48                                   |  
|Number
of shares (adjusted to reflect changes in |                                        |  
|capital)                                         | 346,175,772                            |  
|                                                 |                                        |  
|Amounts
in accordance with U.S. GAAP             |                                        |  
|Net
Sales                                        | 20,639.9                               |  
|Operating
income (loss) (new definition)         | 909.7                                  |  
|Net
income (loss)                                | 158.8                                  |  
|Basic
earnings per share                         | 0.46                                   |  
|Diluted
earnings per share                       | 0.46                                   |  
|                                                 |                                        |  
|BALANCE
SHEET DATA (AT PERIOD END):              |                                        |  
|Amounts
in accordance with French GAAP           |                                        |  
|Total
shareholders equity                       | 5,054.2                                |  
|Minority
interest                                | 2,228.7                                |  
|Total
assets                                     | 39,103.0                               |  
|Total
long term assets                           | 24,126.7                               |  
|Netfinancial
debt(2)                             | (12,576.4                              | )
|                                                 |                                        |  
|Amounts
in accordance with U.S. GAAP             |                                        |  
|Shareholders
equity                             | 5,970.5                                |  
|                                                 |                                        |  
|CASH
FLOW DATA:                                  |                                        |  
|Net
cash provided by operating activities        | 2,546.4                                |  
|Net
cash used in investing activities            | (2,987.1                               | )
|Net
cash provided by (used in)financing          |                                        |  
|activities                                       | 1,090.5                                |  
|Capital
expenditures                             | (2,534.6                               | )

---

|(1) | EBIT
is defined as operating income (loss) (new definition) before amortization of
goodwill and restructuring charges. EBIT is not a measurement of operating performance
calculated in accordance with accounting principles generally accepted in France
or the United States, and should not be considered a substitute for operating
income, net income, cash flows from operating activities or other statement of
operations or cash flow statement data prepared in accordance with accounting
principles generally accepted in France or the United States, or as a measure
of profitability or liquidity. Because of its recent adoption, EBIT is not indicative
of our historical operating results, nor is it meant to be predictive of potential
results. Because all companies do not calculate EBIT identically, the presentation
of EBIT contained in this document may not be comparable to similarly named measures
of other companies.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Net financial debt is defined as the sum of long-term debt, bank overdrafts and other short-term borrowings after deduction of short-term loans, cash, cash
equivalents and marketable securities and long-term loans. Long-term loans are included under the captionPortfolio investments held as financial assets.Long-term loans amounted to€349.5 million in 2001,€284.6 million in 2000 and€261.2 million in 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

2

---

Selected Financial DataPrior Accounting Presentation

|                                              | At
and for the year ended December 31, |  
|--------------------------------------------- | -------------------------------------- | -
|                                              | Euro                                   |  
|                                              |                                        |  
|(millions,
except per share amounts)          | 2000                                   |  
|                                              |                                        |  
|INCOME
STATEMENT DATA:                        |                                        |  
|Amounts
in accordance with French GAAP        |                                        |  
|Revenue                                       | 26,393.7                               |  
|Revenue
outside France                        | 15,351.9                               |  
|Operating
income                              | 1,909.6                                |  
|Exceptional
items, net(1)                     | 455.0                                  |  
|Goodwill
amortization                         | (306.3                                 | )
|Minority
interest                             | (161.4                                 | )
|Net
income                                    | 614.8                                  |  
|Basic
earnings per share                      | 2.24                                   |  
|Dividends
per share                           | 0.55                                   |  
|Number
of shares (adjusted to reflect changes |                                        |  
|in
capital)                                   | 346,174,955                            |  
|Amounts
in accordance with U.S. GAAP          |                                        |  
|Net
Sales                                     | 22,461.4                               |  
|Operating
Income                              | 903.3                                  |  
|Net
income                                    | 433.4                                  |  
|Basic
EPS                                     | 1.58                                   |  
|Diluted
EPS                                   | 1.57                                   |  
|                                              |                                        |  
|BALANCE
SHEET DATA (at period end):           |                                        |  
|Amounts
in accordance with French GAAP        |                                        |  
|Total
shareholders equity                    | 6,208.3                                |  
|Minority
interest                             | 2,031.1                                |  
|Total
assets                                  | 39,823.0                               |  
|Total
long term assets                        | 25,362.2                               |  
|Netfinancial
debt(2)                          | (13,183.3                              | )
|                                              |                                        |  
|Amounts
in accordance with U.S. GAAP          |                                        |  
|Shareholders
equity                          | 6,569.2                                |  
|                                              |                                        |  
|CASH
FLOW DATA:                               |                                        |  
|Net
cash provided by operating activities     | 1,638.0                                |  
|Net
cash used in investing activities         | (1,536.7                               | )
|Net
cash provided by (used in)financing       |                                        |  
|activities                                    | 71.6                                   |  
|Capital
expenditure                           | (2,586.2                               | )

---

|(1) | The
termexceptional itemsis defined
differently under French GAAP and U.S. GAAP. In the income statement under U.S.
GAAP, items classified as exceptional for French GAAP purposes under the prior
accounting presentation have been recategorized as necessary to comply with U.S.
GAAP. With the exception of gains and losses on sales of shares of affiliated
companies, which are recorded inother
income,exceptional
items relating to our operations have been primarily included in the determination
of operating income for U.S. GAAP purposes.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Net
      financial debt is defined as the sum of long-term debt, bank overdrafts
      and other short-term borrowings after deduction of short-term loans, cash,
      cash equivalents and marketable securities and long-term loans. Long-term
      loans amounted to€279.5
      million in 2000, €258.3 million in 1999 and €131.9 million in
      1998.                                                                                                                                                                                             

The number of shares outstanding at the end of 1997 and 1998 has been determined giving effect to the transactions completed to form our company as if
those transactions had occurred on January 1, 1997. SeeItem 7. Major Shareholders and Related
Party TransactionsRelated Party TransactionsFormationfor a description of those transactions.

3

---

Dividends     Under
  French law and our articles of association (statuts), our statutory net
  income in eachfiscal
  year, as increased or reduced, as the case may be, by any profits
  or losses carried forward from prior years, less any contributions to legal
  reserves, is available for distribution to our shareholders as dividends, subject
  to other applicable requirements of French law and ourstatuts.

At our general shareholdersmeeting
held on April 25, 2002 our shareholders approved a dividend payment of €0.55 per share in respect of our 2001fiscal year to persons who held our shares on January 1, 2002, which was paid on May 6, 2002. On May 10, 2001, we paid a dividend of€0.55 per share in respect of the 2000fiscal year to persons who held our shares on April 27, 2001. We did not pay dividends as a stand-alone company in respect offiscal years before 2000. Dividends paid to holders of ADSs will generally be subject to French withholding tax at a rate of
25% which, subject to certain procedures and exceptions, may be reduced to 15% for holders who are residents of the United States. Certain holders of ADSs who are residents of the United States may be entitled to receive a subsequent payment
representing the Frenchavoir fiscal, or tax credit, in an amount generally equal to 15% or
50% depending on the beneficiary of any dividends paid by us, less applicable French withholding tax. SeeItem 10. Additional InformationTaxationfor a summary of the material U.S. federal and French tax consequences to holders of ADSs. Holders of ADSs should consult their own tax advisors with respect to the tax consequences of an investment in the ADSs. Dividends paid to
holders of ADSs will be subject to a charge by the depositary for any expenses incurred by the depositary of the ADSs in the conversion of euro to dollars.

Exchange
  Rate Information     Under
  the provisions of the Treaty on European Union negotiated at Maastricht in 1991
  and signed by the then 11 member states of the European Union in early 1992,
  a European Monetary Union, known as EMU, was implemented on January 1, 1999
  and a single European currency, known as the euro, was introduced. As of December
  31, 2001, the following 12 member states had adopted the euro as their national
  currency: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy,
  Luxembourg, The Netherlands, Portugal and Spain. The legal rate of conversion
  between the French franc and the euro wasfixed
  on December 31, 1998 at€1.00 = FF 6.55957 and we have translated French francs
  into euro at that rate.

Share capital in our company is represented by ordinary shares with a nominal value of€13.50 per share (generally referred to asour shares). Our shares are denominated in
euro. Because we intend to pay cash dividends denominated in euro, exchange ratefluctuations will affect
the U.S. dollar amounts that shareholders will receive on conversion of dividends from euro to dollars.

The following table shows the French franc/U.S. dollar exchange rate for 1997 and 1998 based on the noon buying rate expressed in French francs per $1.00,
and the euro/U.S. dollar exchange rate for 1999 through 2001 based on the noon buying rate expressed in U.S. dollars per euro. The information concerning the U.S. dollar exchange rate is based on the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York
(theNoon Buying Rate). We provide the exchange rates below solely for your convenience. We do not represent that French francs or euro were, could have been, or could
be, converted into U.S. dollars at these rates or at any other rate. The Federal Reserve Bank of New York has ceased publishing the Noon Buying Rates for French francs and other constituent currencies of the euro. For information regarding the
effect of currencyfluctuations on our results of operations, seeItem 5. Operating and Financial Review and Prospects.

4

---

|Year                           |  | PeriodEnd |  | Averagerate* |  | High |  | Low  | 
|------------------------------ |  | --------- |  | ------------ |  | ---- |  | ---- | 
|                               |  |           |  |              |  |      |  |      | 
|U.S.
      dollar/Euro         |  |           |  |              |  |      |  |      | 
|April
      2002               |  | 0.90      |  | 0.89         |  | 0.90 |  | 0.88 | 
|March
      2002               |  | 0.88      |  | 0.88         |  | 0.89 |  | 0.86 | 
|February
      2002            |  | 0.87      |  | 0.87         |  | 0.88 |  | 0.86 | 
|January
      2002             |  | 0.86      |  | 0.88         |  | 0.90 |  | 0.86 | 
|2001                           |  | 0.89      |  | 0.89         |  | 0.95 |  | 0.84 | 
|December
      2001            |  | 0.89      |  | 0.89         |  | 0.90 |  | 0.88 | 
|November
      2001            |  | 0.90      |  | 0.89         |  | 0.90 |  | 0.88 | 
|2000                           |  | 0.93      |  | 0.92         |  | 1.04 |  | 0.83 | 
|1999                           |  | 1.00      |  | 1.06         |  | 1.18 |  | 1.00 | 
|                               |  |           |  |              |  |      |  |      | 
|U.S.
      dollar/French franc |  |           |  |              |  |      |  |      | 
|1998                           |  | 5.62      |  | 5.90         |  | 6.17 |  | 5.41 | 
|1997                           |  | 5.99      |  | 5.84         |  | 6.35 |  | 5.21 | 

---

Solely
  for the convenience of the reader, this annual report contains translations
  of certain euro amounts into U.S. dollars. These translations should not be
  construed as representations that the converted amounts actually represent such
  U.S. dollar amounts or could have been or will be converted into U.S. dollars
  at the rate indicated or at all. The translations from euros to U.S. dollars
  in this annual report are based on€1.136
  per U.S. dollar, the Noon Buying Rate in New York City for cable transfers in
  foreign currencies as certified
  for customs purposes by the Federal Reserve Bank of New York on December 31,
  2001. On May 14, 2002, the Noon Buying Rate was U.S.$0.90 per euro.

RISK
  FACTORS

You
  should carefully consider the risk factors described below in addition to the
  other information presented in this document.

Risks Relating
  to Our Operations 
       We
  may suffer reduced profits or losses as a result of intense competition
  
       Our
  business is highly competitive and requires substantial human and capital resources.
  Large international competitors and local niche companies serve each of the
  markets in which we compete. From time to time, our competitors may reduce their
  prices in an effort to expand market share or win a competitively bid contract.
  Competitors may also introduce new technology or services or improve the quality
  of their service. We may lose business if we are unable to match the prices,
  technologies or service quality offered by our competitors.

We perform a substantial portion of our business under contracts with governmental authorities and industrial and commercial clients. These contracts are
often awarded and renewed through periodic competitive bidding. We may not be the successful bidder in the competition to obtain or renew these contracts. Our inability to replace a significant number of contracts lost through the competitive bidding process with comparable contracts or other revenue sources within a reasonable time could be
harmful to our business andfinancial performance. Furthermore, we must commit substantial resources before
we are assured of winning or renewing a contract. We may not win or successfully renew a contract despite incurring substantial expenses.

Our
  business operations in some countries may be subject to additional risks
  
       While
  our operations are concentrated mainly in Europe, we conduct business in markets
  around the world. Sales generated in countries outside of Europe and North America
  represented approximately 5% of our total revenues in 2001. The risks associated
  with conducting business in some countries outside of western Europe, the United
  States and Canada can include slower payment of invoices, nationalization, social,
  political and economic instability, increased currency exchange risk and currency
  repatriation restrictions, among other risks. We may not

5

---

be able to insure or hedge against these risks. Furthermore,financing in countries with less than investment grade sovereign credit ratings may not be available. As a result, it may be difficult to create profit-making operations in developing
markets.

Changes
  in energy prices and taxes may reduce our profits 
       Fuel
  is a significant operating expense for our transportation and waste management
  businesses. Fuel prices are subject to sudden increases as a result of variations
  in supply and demand. Although most of our contracts contain tariff escalation
  provisions that are intended to compensate us for increased costs incurred as
  a result of increased fuel prices, there may be developments, including delays
  between fuel price increases and the time we are allowed to raise our prices
  to cover the additional costs, that prevent those provisions from entitling
  us to full compensation. A sustained increase in energy prices could hurt our
  business to the extent we are not able to increase our prices sufficiently
  to cover the additional costs. Furthermore, governmental authorities from time
  to time impose increases in fuel taxes. Increases in fuel prices or taxes could
  raise our costs and reduce our profitability.

Governmental
  authorities could terminate or modify some of our contracts 
       Contracts
  with governmental authorities make up a significant percentage of our revenue.
  We are subject to various laws that apply to companies contracting with governmental
  authorities that differ from laws governing private contracts. In civil law
  countries such as France, for instance, government contracts often allow the
  governmental entity to modify or terminate a contract unilaterally in certain
  circumstances. Although we are generally entitled to full indemnification
  in the event of a unilateral modification or termination
  of a contract by a governmental authority, such modifications or terminations could
  reduce our revenue and profits if full indemnification
  is not available.

We
  may incur environmental liability in connection with our past, present and future
  operations 
       Each
  of our businesses is subject to extensive and increasingly stringent environmental
  laws and regulations. These laws and regulations govern, among other things,
  the quality of water intended for human consumption, the collection, treatment
  and discharge of waste water, the operation of landfills, the collection and disposal
  of hazardous waste and the operation of municipal waste incineration and co-generation
  plants. In some circumstances, we could be required to payfines
  or damages under these environmental laws and regulations even if:

| |  | we
      exercise due care in conducting our operations;     
| | - | -------------------------------------------------------------
| |  | we
      comply with all applicable laws and regulations; and
| |  | the
      quantity of pollutant at issue is very small.      

In
  addition, courts or regulatory authorities may require us to undertake investigatory
  and/or remedial activities, curtail operations or close facilities temporarily
  or permanently in connection with applicable environmental laws and regulations.
  We could also become subject to claims for personal injury or property damage.
  Being required to take those actions, or to pay environmental damages, could
  hurt our business substantially or affect our ability to obtain new business.

Our
  compliance with environmental laws is costly and may become more so in the future
  
       We
  have made and will continue to make capital and other expenditures to comply
  with applicable environmental laws. For instance, governmental authorities may
  require us from time to time to incur expenditures for pollution control devices,
  or to upgrade, remove or retrofit equipment used in our operations. Each of our operations,
  moreover, may become subject to stricter laws, and correspondingly greater compliance
  expenditures, in the future. If we are unable to recover these expenditures
  through higher prices, this could adversely affect our operations and profitability.

6

---

We
  may not be able to retain or obtain required environmental licenses, permits
  and approvals 
       We
  need to maintain, renew or obtain a variety of permits and approvals from regulatory
  authorities to conduct each of our businesses. The process for renewing or obtaining
  these permits and approvals is often lengthy, complex and unpredictable. We
  may invest substantial resources in a project only to have a regulatory authority
  deny us a permit or approval necessary to complete or operate it. Moreover,
  a regulatory authority may grant a necessary permit or approval only after substantial
  delays and/or additional expenditures. The occurrence of any of these events
  could adversely affect our operations.

We
  may be required to sell our interest in FCC or to finance an investment in FCC.
  
       We
  have an indirect 27.9% stake in Fomento de Construcciones y Contratas (FCC),
  a leading provider of environmental management services in Spain and Latin America
  listed on the Madrid Stock Exchange. Our interest consists of a 49% stake in
  a holding company that owns 57% of FCCs outstanding shares. We have also created a number of
  joint ventures with FCC that operate a significant part of our environmental management business in Spain
  and Latin America. With our acquisition of our participation in FCC from Vivendi
  Universal, we became a party to an agreement with the controlling shareholder
  of FCC, Ms. Esther Koplowitz, who is a member of our supervisory board and owner
  of the remaining 51% of the holding company, pursuant to which Ms. Koplowitz
  has the right to buy our interest in FCCs
  holding company in the event that Vivendi Universal ceases to hold a majority
  interest in our company (thecall
  option). The exercise price of the
  call option would be equal to the purchase price we paid to Vivendi Universal
  or, if lower, the market value of FCCs
  shares. If the call option is exercised at a time when the market price of those
  shares is low, we would be required to sell our interest in FCC upon disadvantageous
  terms. In addition, a sale of our interest in FCC could impede our efforts to
  expand our activities in Spain.

The agreement also gives Ms. Koplowitz an option (theput option), exercisable at any time through October 6, 2008, to sell to Vivendi Universal the remaining interest in the holding company at a price based on the average market price of FCCs common stock over the three months prior to exercise. The exercise price of the put option is capped at the lower of seven times FCCs EBITDA and 29.5 times FCCs earnings per share in the lastfiscal year. We
have agreed to purchase from Vivendi Universal any stake it acquires under the put option. Pursuant to that agreement, if the put option is exercised, we would ultimately own 100% of the holding company that controls FCC. Under these circumstances,
Spanish law would require us to launch a public tender offer for all the shares of FCC not owned by the holding company, which represent approximately 43% of FCC outstanding shares. The price per share of the offer would be determined by the Spanish
stock exchange authorities. If based on the price of FCCs common stock on February 28, 2002, the
price for the remaining 43% would be approximately €1.29 billion, subject to adjustment by the Spanish stock exchange authorities. The costs of purchasing the
remaining interest in FCC and of consummating the tender offer for the remaining public interest in FCC may be substantial.

Currency
  exchange and interest rate fluctuations may negatively affect our financial
  results and the price of our shares 
       We
  hold assets and liabilities, earn income and pay expenses of our subsidiaries
  in a variety of currencies. Ourfinancial
  statements are presented in euro. Therefore, when we prepare ourfinancial
  statements, we must translate our assets, liabilities, income and expenses in
  other currencies into euro at then-applicable exchange rates. Consequently,
  increases and decreases in the value of the euro in respect of these other currencies
  will affect the value of these items in ourfinancial statements, even if
  their value has not changed in their original currency. For example, an increase
  in the value of the euro may result in a decline in the reported value, in euro,
  of our interestsheld in foreign currencies, particularly in the United States,
  where we have recently made a number of significant
  acquisitions of companies and assets that are valued in U.S. dollars. Although
  we seek to limit the impact of thesefluctuations
  in currency exchange rates byfinancing
  our local operations and acquisitions, to the extent possible, in local currency,
  we may not be able to fully offset the effects of thesefluctuations
  on ourfinancial statements.
  To the extent thesefluctuations have a negative effect on ourfinancial
  condition as presented in ourfinancial
  statements, the price of our shares could decline.

7

---

In addition, because we have a significant amount of debt outstanding, our results of operation andfinancial condition may be affected by changes in prevailing market rates of interest. We manage this exposure to interest rate risk by setting a targetfixed rate for a significant part of our debt, which we achieve either throughfixed rate debt or interest rate
hedging activities. Including debt covered by our hedging activities, at December 31, 2001 approximately€9 billion of our debt (representing 49% of our total debt outstanding) was subject tofixed interest rates. Fluctuations in interest rates may also affect our future growth strategy. A rise in interest rates may force us tofinance acquisitions or operations or refinance existing
debt at a higher cost in the future, which may lead us to decide to curtail or delay our then current expansion plans.

Risks Relating
  to Our Relationship with Vivendi Universal We
  are controlled by Vivendi Universal 
       Vivendi
  Universal owns approximately 63% of our outstanding shares. SeeItem
  7. Major Shareholders and Related Party TransactionsMajor
  Shareholders.Accordingly, under French law and our by laws (statuts), Vivendi
  Universal will be able to control all decisions to be taken by our shareholders
  (unless its ownership interest subsequently falls below 50%), except those that
  require a super-majority vote. The matters Vivendi Universal will continue to
  control, either directly through its majority voting power or indirectly through
  its control of the membership of our supervisory board and management board,
  include, but are not limited to, the following:

| |  | any
      transaction substantially affecting our scope of activities;                                                                                      
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any
      determinations with respect to mergers or other business combinations;                                                                            
| |  | our
      acquisition or disposition of substantial assets;                                                                                                 
| |  | ourfinancing and;                                                                                                                                           
| |  | changes
      to the agreements relating to our relationship with Vivendi Universal and
      the enforcement of those agreements against Vivendi Universal.

Members
  of our supervisory board and management board may have conflicts of interest
  
       Some
  of the members of our supervisory and management boards have a substantial amount
  of their personalfinancial
  portfolios in Vivendi Universal ordinary shares and options to purchase Vivendi
  Universal ordinary shares. Their ownership of Vivendi Universal ordinary shares
  could create conflicts
  of interest when they are faced with decisions that could have different implications
  for Vivendi Universal and us. Conflicts
  could arise when the supervisory or management boards make decisions with respect
  to, for example, dividends to be paid by our company and transactions between
  our company and Vivendi Universal.

We
  could lose use of the Vivendi trademark 
       We
  entered into a 5-year licensing contract with Vivendi Universal that allows
  us to use the nameVivendi
  Environnementon June 20, 2000, effective
  as of January 1, 2000, and which is renewable for additional 5-year periods.
  This contract, however, could be terminated in the event that Vivendi Universal
  ceases to hold a controlling interest in our company. SeeItem
  7. Major Shareholders and Related Party TransactionsRelated
  Party Transactions.If this
  contract is not renewed upon its expiration, or is terminated, we would be required
  to change our corporate name within two years of non-renewal or termination.

8

---

We
  are permitted to file less information with the SEC than a company incorporated
  in the United States 
       As
  aforeign private issuer,we are
  exempt from rules under the U.S. Securities Exchange Act of 1934 that impose
  some disclosure and procedural requirements for proxy solicitations under Section
  14 of the Exchange Act. Additionally, our officers, directors and
  principal shareholders are exempt from the reporting andshort-swingprofit
  recovery provisions of Section 16 of the Exchange Act and related rules with
  respect to their purchases and sales of our shares. Moreover, we are not required
  tofile
  periodic reports andfinancial
  statements with the U.S. Securities and Exchange Commission as frequently or
  as promptly as U.S. companies with securities registered under the Exchange
  Act. Accordingly, there may be less information concerning our company publicly
  available than there is for those U.S. companies.

The
  ability of holders of our ADSs to influence the governance of our company may
  be limited 
       Holders
  of our ADSs may not have the same ability to influence corporate governance
  with respect to our company as would shareholders in some U.S. companies. For
  example, the depositary may not receive voting materials in time to ensure that
  holders of our ADSs can instruct the depositary to vote their shares. In addition,
  the depositarys
  liability to holders of our ADSs for failing to carry out voting instructions
  or for the manner of carrying out voting instructions is limited by the deposit
  agreement. Finally, except under limited circumstances, our shareholders do
  not have the power to call shareholder meetings.

9

---

ITEM
  4: INFORMATION ON THE COMPANY

HISTORY
  AND DEVELOPMENT OF THE COMPANY

The
  legal and commercial name of our company isVivendi Environnement.Vivendi
  Environnement is asociété
  anonyme à directoire et conseil de surveillance,
  a form of stock corporation, incorporated in 1995 pursuant to the French commercial
  code for a term of 99 years. Our registered office is located at 36-38 avenue
  Kléber, 75116 Paris, France, and the phone number of that office
  is 33 1 71 75 0000. Our agent in the United States is Stephen P. Stanczak. He
  can be reached at United States Filter Corporation, 40-004 Cook Street, Palm
  Desert, CA 92211.

Historical
  Background 
       On
  December 14, 1853, Compagnie Généraledes Eaux was founded by Imperial decree and won itsfirst
  public service concession for the distribution of water in the city of Lyon,
  France. Compagnie Généraledes Eaux continued to develop its activities in France by obtaining concessions
  in Nantes (1854), Nice (1864), Paris (1860) and its suburbs (1869). The French
  model was quickly reproduced internationally with concessions won in Venice
  (1880) and Istanbul.

Compagnie
  Générale
  des Eaux expanded its business into the water treatment industry in 1884 by
  winning, among others, a contract with the city of Reims, France, and its research
  and development activities led to the construction near Nice, France, in 1909
  of thefirst
  water sterilization-by-ozone plant in the world. Compagnie Généraledes Eaux broadened the scope of its water activities with the creation of Sade,
  a water-related engineering and treatment company, in 1918 and the acquisition
  of Tuyaux Bonna in 1924.

Compagnie Généraledes Eaux experienced very strong growth during thefirst half of the 20th century in its water services business in France.

In 1967, Compagnie Généraledes Eaux broadened its expertise in environmental services with the
operations of itsfirst household waste incineration and composting plants. It reinforced its position in
the waste management industry and entered the transportation industry with its investment in Compagnie GénéraledEntreprises Automobiles (CGEA), a provider of transportation and
waste management services, which was followed by its acquisition in 1980. During the same year, Compagnie Généraledes Eaux regrouped all of its operating subsidiaries specializing in the
design, engineering and execution of potable water and wastewater treatment facilities in a single company under the nameOTV.

In 1981, Compagnie Généraledes Eaux became the leading provider of energy services in France with
the acquisition of Compagnie Généralede Chauffe.

Compagnie Généraledes Eaux accelerated its international expansion during the
1980s, particularly in the United States, where it acquired PSG and commenced operating the
worlds largest household waste incineration plant (Miami, Florida), and in Europe, where it acquired
General Utilities, a provider of water distribution services in the United Kingdom.

In
  parallel to the development of its environmental services, Compagnie Généraledes Eaux also developed its communication activities with
  the acquisition in 1983 of an interest in CANAL+, a French pay television operator,
  and the creation in 1987 of S.F.R., a French mobile phone operator. It continued
  to expand these activities during the 1990s
  with significant
  commercial developments on each of thefive continents.

In
  1998, Compagnie Généraledes Eaux changed its name toVivendiand renamed its water subsidiary Compagnie
  Généraledes Eauxto distinguish
  the separate existence of its two main operating segments: communications and
  environmental management services.

In October 1998, to further extend its geographic reach, Vivendi purchased a 49% interest in the holding company that controls FCC, a Spanish public
company that is the leading provider of urban waste management and the second largest provider of water and wastewater services in Spain.

In April 1999, Vivendi acquired United States Filter Corporation, the leading water treatment services and equipment company in the United States, followed
by the acquisition in July 1999 of Superior Waste Services, Inc.,

10

---

the fourth-largest solid waste treatment company in the United States, which it combined with the U.S. industrial services and hazardous waste-related operations of Waste Management
Inc. that it also acquired in 1999.

In 1999, Vivendi created Vivendi Environnement, to which it contributed or sold all of its environmental management operations, which are now conducted
under the namesVivendi Water(water),CGEA Onyx(waste management),Dalkia(energy services) andCGEA
Connex(transportation). Ourfirst fullfiscal
year as the main holding company for all of Vivendis environmental management businesses was
2000.

On July 20, 2000, our shares were listed on the Premier Marchéof Euronext Paris in connection with an initial public offering of our shares in France and in an international private placement. In August 2001, our shares were included in the CAC 40, the
main equity index published by Euronext Paris. In October 2001, we listed our shares, in the form of American Depositary Shares, for trading on The New York Stock Exchange.

In
  December 2000 Dalkia entered into an agreement with Eléctricité de France (EDF),
  the French state-owned electricity utility, pursuant to which Dalkias
  energy services operations were consolidated with those of EDF. In accordance
  with this agreement, EDF acquired in December 2000 and January 2001 an interest
  in Dalkia, while Dalkia purchased certain energy services operations from EDF.
  See Item 4. Information on the CompanyBusiness
  Overview Our Services
  Energy Servicesfor
  a description of these transactions.

In December 2001, our main shareholder, Vivendi Universal (the new name of Vivendi), sold a block of our shares representing 9.3% of our total share
capital, reducing its equity participation in our company from 72.3% to 63.05% of our total share capital. We also distributed in December 2001 free warrants to all of our shareholders, which are exercisable until March 2006. SeeItem 7. Major Shareholders and Related Party TransactionsMajor Shareholders.

Our
  principal capital expenditures and divestitures since we began operations in
  1999 are described under Operating and Financial Review and Prospects.Material
  capital expenditures currently in progress include those associated with the
  continued expansion of our existing businesses. These expenditures are being
  financed with cashflow
  from operating activities. Material divestitures currently in progress include
  the transfer of part of our interest in Dalkias parent company as part
  of the strategic transaction with EDF described above and several disposals
  of non-core assets in our water business described in Operating
  and Financial Review and Prospects.

Major Developments
  in 2001 
       We
  were awarded a significant number of long-term contracts in 2001 that are expected
  to generate in aggregate€24.5 billion in total revenue over the life of these contracts.
  In particular, we announced the following developments during 2001 (the months
  indicated below correspond to the month in which the transaction was made public,
  the related contract was executed or the transaction was closed, as applicable):

| |  | In
January, we won a contract for the treatment and distribution of potable water
and the collection and treatment of wastewater in Prague, Czech Republic (approximately
1.2 million inhabitants) until 2013 (with expected average annual revenue of€110
million). We also won the renewal of our contract to operate the integrated urban
transportation network of the city of Bordeaux, France, until 2008, which includes
bus, boat and tram lines.                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In
February, we won two outsourcing contracts, as the lead member of a consortium,
for the provision of water, wastewater treatment and electricity services in the
cities of Tangiers and Tetouan, Morocco during 25 years (with expected total revenue
of€4.5
billion). We also participated in the privatization of 50% of the assets of Combus,
a Danish regional bus operator, with an investment of€30 million. We and Rhodia created
Eco Services Korea, a joint venture for the treatment of industrial hazardous
waste in South Korea.
| |  | In
March, we were chosen by the city of Inchon, South Korea (2.4 million inhabitants),
to build and operate two important wastewater treatment plants for 20 years (with
expected total revenue of€400
million). We entered into an industrial outsourcing contract with Hynix Semiconductors
in South Korea, to operate for 12 years four ultra-pure water production plants
and two wastewater and industrial effluents treatment facilities (with expected
total revenue of€900 million). We also won a contract to                         

11

---

| |   | provide
household waste collection services in the most important area of downtown Singapore
for 5 years (with expected average annual revenue of€10
million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In
April, we were awarded the partial privatization of the municipal services of
Görlitz,
Germany (with expected total revenue of€650 million) where we will
provide water, waste management, energy and transportation services. We also acquired
Liikor AS, a regional bus operator based in Tartu, Estonia, and an 85% participation
in the company responsible for the provision of municipal services in the city
of Kielce, Poland.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | In
May, our subsidiaries Onyx and Dalkia won a 30-year contract to provide integrated
management of municipal waste in the city of Sheffield, U.K., where they will
also provide waste-to-energy services and operate the urban heating network (with
expected average annual revenue of€67
million). We acquired 65% of Marius Pedersens waste management activities
in Denmark, the Czech Republic and Slovakia (with expected annual revenue of€174
million), which be conducted through Marius Pedersen Onyx Holding. Through Vivendi
Water, we entered into a 10-year contract with Millennium Chemicals Inc., the
second largest producer of titanium dioxide in the world, for the design, construction
and operation of industrial effluent
treatment facilities in France (with expected total revenue of€165
million, including expected equipment sales). We were also chosen by Westlake
Chemical Corporation, a U.S. chemicals group, to manage industrial effluents at
two of its production sites in Lake Charles for 15 years.
| |  | In
June, we were awarded, for ten years, thefirst outsourcing contract for water and wastewater services
granted in Sweden by the city of Norrtäjle (with expected total revenue of€25
million). Through the Aquirisfranco-belgian consortium
led by Vivendi Water, our main water subsidiary, we won a contract for the construction
and operation for 20 years of the wastewater treatment plant for northern Brussels,
Belgium (1.1 million inhabitants), which will be one of the largest wastewater
treatment facilities in Europe (with expected total revenue of€1.3 billion). We also
won a contract to build and operate for 15 years an energy co-generation plant
for Astra Zeneca in Macclesfield,
United Kingdom, with a capacity of 23MW.                                                                                                                                                                                                                                                                                      
| |  | In
July, a consortium led by Vivendi Water (and in which we have a 40% interest)
was selected by Ambito Territoriale Ottimale (ATO) de Latina, located to the south
of Rome, Italy, to manage the water and wastewater services of 38 municipalities
in the region (600,000 inhabitants) during 30 years (with expected average annual
revenue of€64.5
million) in the context of an outsourcing of public services. We also acquired
Yellow Transportation, a passenger transportation company based in Baltimore,
Maryland for€21.8
million, and we won a bid for the privatization of the BBA transportation network
in the Brabant region of The Netherlands (with expected total revenue of€700
million over 6 years), which currently carries over 50 million passengers each
year. Our contract for the operation of the light rail line in Sydney, Australia,
was also renewed for 7 years.                                                                                                                                            
| |  | In
August, we were selected by Spolchemie, a leading Czech chemicals company, to
collect and treat wastewater at its industrial site located at Usti Nad Labem,
in North Bohemia, Czech Republic, during 10 years (with expected average annual
revenue of€2
million). We also won a bid for the privatization of the Pekaes interurban transportation
networks of Sanok and Lancut, in Poland, and were chosen for the operation of
an urban transportation network in Tczew, Poland.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | In
September, we won, through a consortium, a contract to build and operate one of
the largest seawater desalination plants in the world at Ashkelon, Israel (with
expected total revenue of€900
million). We also won a public tender for the operation of the bus network of
Maastricht, The Netherlands for six years (with expected average annual revenue
of€25
million), and were chosen by Pfizer,
a U.S. pharmaceutical company, for the treatment of solvents at 400 of its laboratories
in the United Kingdom. We were also awarded a contract for the collection and
treatment of waste in Bromley, one of the most important urban areas in London,
for 14 years (with expected total revenue of€250
million) and commenced construction of thefirst
hazardous waste treatment center in continental China at Tianjin, which has over
8 million inhabitants. We also won a contract with the French Ministry of Defense
for                                                                                                        

12

---

| |   | the management
and maintenance of electrical heating and cooling systems at itsCitéde lAirsite
in Paris during three years (with expected total revenue of€5.5
million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In
October, we won a contract to design and build a complete water supply system
for the main industrial complex of Borregard Industries, an important Norwegian
chemicals group, in Sarpsborg, Norway. We also entered into an 10-year alliance
with the Australian Antarctic Division (which manages the activities of the Australian
government in the Australian zone of Antarctica) to participate in the preservation
of the Antarctica continent. We acquired a majority interest in two co-generation
plants that supply the heating network of the city of Usti Nad Labem in the Czech
Republic (with total thermal capacity of 534MW) and entered into a 7-year contract
to supply electricity to SCE, the Czech electricity distribution company (with
expected total revenue of€45 million). We also became the second largest energy services
supplier in Italy with the acquisition of SIRAM for€108 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | In
November, we were awarded the management of the regional bus lines in the city
of Ashdod and the bus network of the city of Tiberias, in Israel, and we won contracts
to manage the heating network of the city of Talinn, Estonia, for 30 years, and
the heating network of the cities of Vilnius and Alytus, Lithuania, for 15 years
(with expected average annual revenue of€84
million in Vilnius and €12.5
million in Alytus). We also won a contract to restore and expand three wastewater
treatment plants in the Illawara region, located to the south of Sydney, Australia
(with expected total revenue exceeding € 84
million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | In
December, we won a 25-year outsourcing contract in the context of the privatization
of the municipal provider of water services in the cities of Tarnowskie Gory and
Miasteczko Slaskie in Poland (with expected total revenue of€125
million), and a 15-year contract to provide a full range of environmental management
services for Usinors
new plant in Vega do Sul, Brazil (with expected average annual revenue exceeding€20
million). In France, we won a 20-year contract with the Marne departmental labor
union for the treatment of waste (with expected total revenue of€192 million). We also acquired a tri-generation plant and entered
into a contract to provide industrial services to the Videocolor plant in Anagni,
Italy, of Thomson Multimedia for 10 years (with expected total revenue of€93
million). We entered into three contracts for waste treatment and waste-to-energy
services in Taiwan for 20 years (with expected total revenue of€1.3
billion) and we won two public bids in the United States to operate urban bus
transportation networks in Columbia, South Carolina (with expected average annual
revenue of€6 million) and Fairfax, Virginia
(with expected average annual revenue of€7 million during 3 years).
We were also awarded the largest contract for the recovery of land in Europe,
relating to AGIPs
abandoned industrial site in Italy where hydrocarbonfiltration has resulted in high
levels of land contamination.

BUSINESS OVERVIEW

Our Market
  
       Traditionally,
  environmental management services, which include water treatment and distribution
  services, waste treatment and recovery services, energy services (excluding
  the production, trading and sale of electricity) and transportation services,
  have been provided in an uncoordinated manner, each by a different entity. A
  provider of energy services, for example, would not also offer water treatment
  or waste disposal services, nor would it integrate its services with those of
  a customers
  other environmental service providers. Public authorities and industrial and
  commercial companies, moreover, have typically met many of their own environmental
  needs without looking to privatefirms
  that specialize in these areas. This situation has changed fundamentally in
  recent years, however, as industrial and commercial companies have continued
  to expand on a global scale and increasingly require environmental management
  services providers with a global reach that matches the international scope
  of their customersoperations.

We are leading a trend toward the creation of comprehensive packages of large-scale, customized, integrated environmental management services to
governmental and private clients around the world. We believe that we possess the core competencies necessary to provide our environmental management services in an integrated, global manner, including:

13

---

| |  | long-term
contract managementthe ability to win and successfully manage long-term contracts
(12 to 30 years) with public authorities and industrial and commercial companies;                                                                                                   
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | operating
within highly regulated or contractually restricted conditionsthe ability to conduct
operations while satisfying complex legal requirements and to adapt quickly to
evolutions in those requirements;                                                                 
| |  | workforce
managementthe ability to successfully convert government employees or
non-core environmental services employees of an industrial or commercial company
through training and management into a competitive, technically expert, core environmental
services workforce; 
| |  | financial strength and the ability tofinance
large-scale environmental infrastructure projects to meet a wide range of customer
needs;                                                                                                                                           
| |  | technical
expertisethe ability to manage complex, technologically advanced environmental
operations at multiple sites creatively and efficiently and to coordinate those
operations so as to provide a seamless package of integrated services of consistently
high quality; and
| |  | global
scalethe
ability to bring all the foregoing skills to bear in key markets around the world.                                                                                                                                                                              

We
  believe that demand for integrated, customized packages of environmental management
  services is likely to grow around the world significantly
  for the following reasons:

| |  | Major
investment in environmental projects and services is needed because of increasingly
stringent environmental standards, the need to provide growing urban populations
with adequate environmental services and the aging of existing environmental infrastructure.
According to United Nations estimates, for example, there will be almost three
billion people without access to safe drinking water and more than four billion
people without adequate sanitation by 2025 if investment in environmental projects
does not increase. A related trend is increased public demand for high-quality
and extremely reliable environmental products and services.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Governments
throughout the world face budgetary constraints and often lack the technical and
operational skills of private sectorfirms
to address environmental issues efficiently, just as public
demand for high-quality, efficient environmental services is increasing. As a result, governmental
authorities are increasingly turning to the private sector to address their environmental
needs. For example, our revenue in transportation has grown by 800% over the last
ten years, in part because the European Commission encourages the delegation of
transit system management to private operators.                                                   
| |  | Industrial
and commercial companies are increasingly delegating tasks outside their core
areas of expertise to third parties in order to reduce costs and comply with increasingly
stringent environmental standards. Few industrial or commercial companies have
core competencies in environmental services; consequently, the market for outsourced
environmental services is expanding.                                                                                                                                                                                                                                                                         
| |  | Public
and private entities are increasingly attempting to simplify the administration
of their complex operations by outsourcing a wide variety of responsibilities
to a single partner, creating an opportunity for companies capable of offering
a broad range of environmental management services in an integrated fashion.                                                                                                                                                                                                                                                                                                                                    
| |  | Large
privatefirms
and public authorities increasingly recognize that aone
sizefits
allapproach will not meet their
unique and changing needs. As a result, demand for customized environmental management
services has grown.                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | The
increasingly multinational profile of many large industrial and commercialfirms
encourages them to outsource non-core activities to companies with similar geographic
reach to simplify administration and ensure they receive consistent service at
each of their facilities.                                                                                                                                                                                                                                                                                                                                                                                  

We think that each of these trends, taken individually, has created significant opportunities for companies with our expertise, and, taken as a whole, they allow us to provide innovative, integrated environmental management services
in markets around the world on a one-stop shopping basis. Our subsidiary, Global Environnement, pools the

14

---

resources of each of our four operating divisions for customer projects on the basis of each customers needs and each project sites environmental requirements. Global Environnement develops fully integrated service offerings and permits our customers to benefit from a relationship with a single counterparty that coordinates the application of the different skills required by each customer. For example, because each industrial sector faces different
specific environmental challenges, we have created specialized teams led by our Industrial Markets
Department to guarantee continuity in the solutions we offer. In addition, the employee training programs developed by ourInstitut de lEnvironnement Urbain(Urban Environment
Institute) allow us to integrate within our own personnel several designated employees of our
customers in order to form specialized teams that are particularly suited for a specific project.

Our Business
  
       We
  are the leading provider of environmental management services in the world and
  we increasingly provide our services in innovative, integrated and customized
  packages. We provide environmental management services to a wide range of public
  authorities, industrial and commercial customers and individuals around the
  world. Our revenue from services to public authorities represented 66% of our
  total revenue in 2001, while our industrial and commercial customers represented
  34% of total revenue in 2001.

In particular, the development of our industrial customer base has become a major growth factor in our business. Our expertise in multi-service solutions,
the complementary nature of the skills and capabilities of each of our operating divisions assembled in a single global offering and the ability to deliver customized solutions on each of thefive continents allow us to respond to the demands of our large industrial customers. As a result, services to industrial customers represent a steadily
increasing share of our revenue, growing by 15% from 2000 to 2001.

While we have sales worldwide, our largest market is Europe and, to a lesser extent, the United States. In 2001, we generated 42.5% of our revenue in
France, 30.8% in the rest of Europe, 21.4% in North and South America and 5.3% in the rest of the world. We are not materially dependent upon any particular customer, and no one contract represented more than 3% of our revenues in 2001.

Our Strategy
  
       Our
  overall strategy is to use our broad range of services and extensive experience
  to capitalize on increased demand for reliable, integrated and global environmental
  management services. The major elements of this strategy are to:

| |  | Leverage
our expertise, leading market positions and strongfinancial
position to deliver strong internal growthProviding
environmental services has been the core business of our company and its predecessor
for nearly 150 years. We have demonstrated technological, financial and management
expertise and routinely enjoy success in bidding for contracts offered through
public tenders by public authorities and industrial companies. We have vast experience
in the management of long-term relationships with public authorities. We also
have a track record of using our technological and management expertise to deliver
the highest quality of service at the most competitive cost. We intend to use
our broad range of expertise and experience to take advantage of increasing demand
for privatized and outsourced environmental management services. Our business
generated internal growth of 7.5% in 2001 and 11% in 2000.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Develop
unique, integrated, multi-service offeringsWe are integrating
our environmental operations to meet increasing demand for comprehensive environmental
management services. We expect that industrial and commercial companies will increasingly
seek a single one-stop environmental management services provider that coordinates
the performance of many of their non-core activities. In September 2000, for example,
we won a contract to provide integrated energy and waste services at Novartis
site in Basel, Switzerland, one of the largest industrial environmental services
contracts ever signed (with expected total revenue of €900 million over 7
years). Another more recent example is the outsourcing contract for environmental-related
industrial services that we won in December 2001 for Usinors new plant in
Vega do Sul, Brazil, which                                                                        

15

---

| |   | includes
      the transformation and distribution of electricity, the production and distribution
      of industrial gas and the integrated management of the entire water and
      waste cycles (with expected total revenue of €300
      million over 15 years and an investment of approximately€45
      million). We are also increasingly providing integrated environmental management
      services to public authorities. For example, we recently won an outsourcing
      contract for the municipal services of the city of Görlitz, Germany (which
      include water, waste management, energy services and transportation services),
      through the acquisition of 74.9% of the Stadtwerke, which has 420 employees
      that serve approximately 80,000 people and generated total consolidated
      revenue of 120 million deutsche marks (€65 million) in 2001 for 10 years.                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Achieve
and maintainbest-in-classperformance in each of our business segments by investing in
technology and personnelThe projects we
undertake require extensive technical know-how and excellent management capabilities.
We make significant
investments in both technology and personnel training to ensure that we deliver
the highest quality environmental services possible. Our goal is to achieve and
maintain best-in-class service across our business segments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | Seize
opportunities arising from our worldwide reachBecause our operations
span the globe, we can offer multinational industrial companies a uniform quality
of service, on the one hand, and centralized environmental services management,
on the other. We are one of the only environmental services companies with the
ability to offer services on a worldwide basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   | Our
worldwide presence also allows us to quickly seize opportunities to enter markets
that experience sustained growth of environmental management services in countries
outside western Europe and North America. The extensive experience we have acquired
in dealing with a wide variety of legal and political environments facilitates
our entry into these markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Focus
on high value-added environmental servicesWe intend to focus
on providing high value-added environmental services and to limit our exposure
to low-margin commodity supply businesses. This focus will also enable us better
to take advantage of our core strength: our ability to provide creative, customized,
integrated environmental services to clients with large, geographically diverse
and complex operations. In line with our strategy to focus on our environmental
services business, we launched a divestiture program for non-strategic assets
pursuant to which we generated proceeds of€598 million in 2001. For example,
in November 2001 our subsidiary U.S. Filter Corporation sold its interest in Johnson
Screen as thefirst
step in a process that led to the execution of an agreement for the sale of its
interest in Filtration and Separation Group (FSG) in 2002, which generated aggregate
proceeds (including proceeds from the sale of Johnson Screen) of approximately
U.S.$500 million. The closing of the sale of FSG is subject to approval by applicable
antitrust authorities, which are expected to render their decision in thefirst
half of 2002.
| |  | Make
opportunistic acquisitions to expand our service offerings and geographic reachWe intend to acquire
environment-related companies when the opportunity to do so on favorable terms
arises. The purpose of these acquisitions will be to expand the portfolio of services
we can offer clients and to extend our geographic reach. We believe that successful
acquisitions in key areas will significantly enhance our ability
to provide high value-added services in growing markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Our Services
  
       We
  are a world leader in services related to the environment. We have operations
  in over 100 countries on each of thefive
  continents providing water to over 110 million people, treating 47 million tons
  of waste and satisfying the energy requirements of hundreds of thousands of
  buildings for our industrial, municipal and individual customers.

We believe that we offer a more comprehensive array of environmental services than any other company in the world. We have the expertise, for example, to
supply water to and recycle wastewater in a customers facility,

16

---

collect, treat and recover waste generated in the facility, supply heating and cooling services and optimize industrial processes used in the facility, all in an integrated service
package designed to address the customers unique circumstances.

Our
  operations are conducted primarily through four subsidiaries, each of which
  specializes in a single business segment: Vivendi Water (for water), Dalkia
  (for energy services), Onyx (for waste management) and Connex (for transportation).
  We also have a 49% interest in, and shared control over, the holding company
  that controls FCC, a Spanish group that operates in the construction industry
  and provides a range of environmental-related services.

The following table shows the contribution of selected geographic markets to the revenue of our business segments and to our consolidated revenue for 2001,
after elimination of all inter-company transactions:

|2001
        Revenue (€ billions) |      | Water |      | Waste
        Management |      | Energy
        Services |      | Transportation |      | FCC  |      | Consolidated |      | %     | 
|--------------------------------- | ---- | ----- | ---- | ------------------------ | ---- | ----------------------- | ---- | -------------- | ---- | ---- | ---- | ------------ | ---- | ----- | 
|                                  |      |       |      |                          |      |                         |      |                |      |      |      |              |      |       | 
|Europe                            |      | 8.44  |      | 3.76                     |      | 3.94                    |      | 2.93           |      | 2.27 |      | 21.34        |      | 73.3% | 
|of
      which France             |      | 6.19  |      | 2.44                     |      | 2.73                    |      | 0.99           |      | 0.01 |      | 12.36        |      | 42.5% | 
|Americas                          |      | 4.23  |      | 1.76                     |      | 0.02                    |      | 0.04           |      | 0.18 |      | 6.23         |      | 21.4% | 
|Rest of
      the world           |      | 0.97  |      | 0.39                     |      | 0.06                    |      | 0.13           |      | 0.00 |      | 1.55         |      | 5.3%  | 
|of
      which Africa-Middle      |      |       |      |                          |      |                         |      |                |      |      |      |              |      |      
|East                              |      | 0.44  |      | 0.07                     |      | 0.04                    |      | 0.00           |      | 0.00 |      | 0.55         |      | 1.9%  | 
|of
      which Asia-Pacific       | 0.53 |       | 0.32 |                          | 0.02 |                         | 0.13 |                | 0.00 |      | 1.00 |              | 3.4% |      
|                                  |      |       |      |                          |      |                         |      |                |      |      |      |              |      |       | 
|Total                             |      | 13.64 |      | 5.91                     |      | 4.02                    |      | 3.10           |      | 2.45 |      | 29.12        |      | 100%  | 
|                                  |      |       |      |                          |      |                         |      |                |      |      |      |              |      |       | 
|in
      %                        |      | 46.9% |      | 20.3%                    |      | 13.8%                   |      | 10.6%          |      | 8.4% |      | 100%         |      |       | 

Water     Vivendi
  Water, our main water services subsidiary, is the worlds leading provider
  of water services and one of the leading designers and manufacturers of water
  treatment facilities, equipment and systems for industrial and commercial companies
  in the world. With its 86,000 employees around the world, Vivendi Water operates
  in over 100 countries and serves over 110 million people in the world through
  over 7,000 operating contracts. Vivendi Waters
  three main subsidiaries are Compagnie Générale des Eaux, which is the
  leading water and waste water services company in Europe and has operations
  worldwide, United States Filter Corporation, which, according to PW Financing,
  an industry publication, is North Americas
  leading water services and equipment company, and Vivendi Water Systems, a designer
  and provider of water treatment systems and installations.

The
  following table shows the consolidated revenues and operating income of our
  water operations in each of the last threefiscal
  years, after elimination of all inter-company transactions:

|Water
      (€ millions) |  | 2001(1) |  | 2000(1) |     | 1999   |    
|------------------------ |  | ------- |  | ------- | --- | ------ | ---
|                         |  |         |  |         |     |        |    
|Revenue                  |  | 13,641  |  | 12,768  | (2) | 10,467 | (2)
|Operating
      income   |  | 1,122   |  | 1,021   |     | 763    |    
|                         |  |         |  |         |     |        |    

|(1) | Includes
      50% of the results of the water services activities of Proactiva, our joint
      venture with FCC. SeeFomento de Construcciones y Contratas (FCC).                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Restated
      to reflect the changes in our accounting methods and presentation of accounts
      in 2001. SeeItem
      5. Operating and Financial Review and ProspectsOverviewPresentation
      of Information in this SectionChanges
      In Accounting Methods and Presentation of AccountsChanges
      in Income Statement Presentation.

We generated 69% of our water revenue in 2001 from contracts with municipalities, 26% from commercial and industrial customers and 5% from the individual
consumer sector.

Vivendi Water manages a large number of municipal water and wastewater services around the world, including, in France, Paris and its suburbs, Lyon and
Marseilles, and in the rest of the world, Berlin (Germany), Londons suburbs (U.K.), Budapest
(Hungary), Bucharest (Romania), Adelaide (Australia), Tampa Bay (U.S.),

17

---

Tianjin (China) and Libreville (Gabon). Vivendi Water also has approximately 40,000 industrial clients, including General Motors, Conoco, Hyundai, Danone and British Petroleum (BP).
About two-thirds of Vivendi Waters individual customers are in North America, with the remainder
located mainly in Europe.

Our
  water division possesses a strong and structured global network that enables
  our clients to benefit
  both from the same quality of service at each of our geographic sites and from
  a service offering adapted to each local context. With operations around the
  world, Vivendi Water contributes to limit the waste of water resources and to
  reduce pollution levels. We believe that our water activities will continue
  to benefit in 2002 from new contracts
  and plans to increase productivity that have been implemented. Vivendi Waters
  objective is to intensify the conquest of new industrial clients, while maintaining
  its position as strategic partner in the management of potable water and wastewater
  municipal services in Europe and the United States. We expect increased commercial
  penetration in the United States, as well of the continued implementation of
  our divestiture program relating to non-strategic assets of U.S. Filter Corporation.
  In Asia, Europe and Morocco, we hope to capitalize on our current growth dynamic
  and benefit from the significant
  growth potential of these markets. We also intend to consolidate Vivendi Waters
  leading position in the design and production of water treatment systems for
  industrial customers, continue to develop our research efforts to achieve constant
  technological advances, and develop new services for individuals. Regarding
  services to individuals, through Culligan we intend to pursue our development
  in United States and particularly in Europe.

We
  provide the following services and products:

| |  | Municipal
      and Industrial Outsourcing.
      The main focus of our water business is on the management and operation
      of water and waste water treatment and distribution services for public
      authorities and industrial customers. Through Vivendi Water, we provide
      integrated services that cover the entire water cycle, from collection from
      natural sources and treatment to storage and distribution to collection
      and treatment of waste water. Our activities include the design, construction,
      management and operation of large-scale, customized potable water plants,
      wastewater treatment and recycling plants, potable water distribution networks
      and wastewater collection networks. We also provide water purification-related services to
      end users.Municipal
      Outsourcing.
      Our company and its predecessor have provided outsourced water services
      to public authorities in France and in the rest of the world for more than
      150 years under long-term contracts adapted to local environments, and we
      use our experience, technology and know-how to capitalize on the worldwide
      trend towards privatization of municipal water and wastewater services.In France,
      Vivendi Water operates in over 8,000 municipalities in France under the
      trade nameGénérale
      des Eaux,where
      it distributes water to approximately 26 million people and treats wastewater
      generated by approximately 17 million people. In a competitive environment
      in which a number of municipalities choose to provide public services through
      concession contracts with private operators, Générale des
      Eaux won 41 new contracts in 2001. In addition, we obtained the renewal
      of 141 existing contracts out of 184 contracts that were reopened for public
      tender in 2001. The 43 contracts that were not renewed represent only 0.8%
      of our 2001 water revenues in France, which continued to grow despite these
      non-renewed contracts.In Europe,
      Vivendi Water is one of the leading companies in the market for services
      to public authorities by winning a number of significant
      contracts, including in:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

18

---

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Brussels
      (Belgium), where, through the franco-belgian Aquiris consortium, we will
      build and operate for 20 years one of the largest wastewater treatment plants
      in Europe serving 1.1 million people (with expected total revenue of€1.3
      billion).
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Vivendi
      Water was awarded itsfirst contracts in Poland, where it will manage the water
      and wastewater services of the cities Tarnowskie Gory and Miasteczko Slaskie
      for 25 years (with expected total revenue of€125
      million), and in Sweden in the city of Nortäjle,
      which is thefirst Swedish municipality to outsource its water and wastewater
      services (with expected total revenue of€25 million over 10 years). Together with its presence in
      Germany and Hungary, these services reinforce Vivendi Waters advances in municipal outsourcing
      in Europe.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | In
      Africa, Vivendi Water won, as the lead member of a consortium, the management
      of the water distribution, wastewater treatment and electricity services
      of the cities of Tangiers and Tetouan (Morocco) for 25 years (with expected
      total revenue of€4.5
      billion), where we will also work to develop and modernize related infrastructures,
      expand the local populations access to these essential services, reduce the wasteful use
      of water and energy and monitor the quality of water distributed. Our modernization
      efforts will include the training of approximately 2,000 people that will
      work locally in the context of this project. We were also awarded a 10-year
      concession for the country-wide distribution of water in Niger.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | In
      Israel, Vivendi Water, as a member of a consortium, was chosen to build
      and operate during 25 years in Ashkelon, Israel, one of the largest seawater
      desalination plants in the world, which will provide fresh water to approximately
      700,000 people (with expected total revenue of€900 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | In
      North America, Vivendi Water continued to develop its municipal outsourcing
      activities, where it won a number of contracts including a contract to build
      and operate during 20 years one of the most important sludge treatment plants
      in the district of Chicago, Illinois, and a contract to treat wastewater
      for the city of Naugatuck, Connecticut for 20 years (with expected total
      revenue of€76
      million). Vivendi Water will also provide supplemental equipment in the
      context of a contract signed in 1999 with the city of Palm Springs, California.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | In
      Asia, where we have operations in Thailand, Malaysia and China, Vivendi
      Water recently commenced operating the potable water plant in Chengdu, China,
      which serves approximately 3.2 million people, and was chosen to build and
      operate during 20 years two important wastewater treatment plants for the
      city of Inchon, South Korea, which has 2.4 million people inhabitants (with
      expected total revenue of€400
      million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Industrial
      Outsourcing.
      Despite the difficult
      economic conditions in 2001, Vivendi Waters
      industrial outsourcing activities in Europe and Asia were not affected.
      We won a number of major contracts in 2001, including an industrial effluent
      management contract with Millennium Chemicals, the second largest producer
      in the world of titanium oxide (according to Millennium Chemicalsestimates),
      to design, build and operate wastewater treatment facilities in Thann (Alsace)
      and Le Havre (Normandy) in France, which is the largest contract to date
      in France relating to industrial effluents (with expected total
      revenue of€165
      million over 10 years, including expected equipment sales). We also entered
      into contracts with Spolchemie, a leading Czech chemicals company, to collect
      and treat wastewater at its main production site at Usti Nad Labem (North
      Bohemia), in the Czech Republic, where Vivendi Water already has a strong
      presence (with expected average annual revenue of€2 million for 10 years), Hynix Semiconductors Corp., in South
      Korea, to operate for 12 years four ultra-pure water production plants and
      two wastewater treatment units (with expected total revenue of€900
      million), Westlake Chemical Corp., one of the principal global chemicals
      groups, to manage for 15 years its industrial effluents
      at two of its production sites in Lake Charles, U.S.A., and Equistar to
      manage its industrial water and effluents
      in Clinton, U.S.A.
| |  | Our
      contracts with industrial and commercial enterprises generally last three
      to ten years, but some last as long as 20 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

19

---

| |  | Water
      Treatment Systems and Equipment.
      Through United States Filter Corporation and Vivendi Water Systems, Vivendi
      Water is one of the worlds
      leading designers and manufacturers of water and waste water treatment equipment
      and systems for public authorities and private companies. Vivendi Water
      treats ground water, surface water and wastewater using a wide range of
      separation processes and technologies and we engineer customized systems
      to reduce or eliminate water impurities. Vivendi Waters
      recycle/re-use systems provide customers with the ability to circulate treated
      water back into plant processes, thereby reducing water usage, operating
      costs and environmental damage.Vivendi Water also designs, engineers, manufactures, installs, operates
      and manages standardized and semi-standardized water equipment and systems
      designed to treat water for particular public service and commercial and
      industrial uses. The large number of installations we construct and operate
      gives us a competitive advantage in terms of cost, performance and reliability,
      especially for services to commercial and industrialfirms.
      For example, many manufacturing processesparticularly
      those used in the food and beverage, pharmaceutical, microelectronics, paper,
      chemical processing and oil/petrochemical industriesrequire
      treated water to improve product quality and reduce equipment degradation.
      We use a broad range of physical, biological and chemical treatment technologies
      that can be combined and configured to treat water to a customers
      individual specifications.Through
      SADE and other subsidiaries of Compagnie Générale
      des Eaux, Vivendi Water also constructs and repairs urban and industrial
      water and wastewater networks in France and around the world.Vivendi Water experienced a good level of growth in its water treatment
      systems and equipment business in 2001. Despite a challenging economic environment
      in the United States, U.S. Filter Corporation was awarded a significant
      number of equipment contracts with municipalities and industrial customers.
      In the United States, we hope to capitalize on Vivendi Waters know-how in sophisticated water treatment to consolidate
      its market positions.Municipalities.
      In China, several municipalities, including Tianjin, Wujin, Xinxiang, Putian,
      Zhuhai, Dafang and Benghu, have chosen Vivendi Water to upgrade existing
      or install new potable water treatment plants. In Australia, Vivendi Water
      was chosen to restore and expand three water treatment plants in the Illawara
      region (300,000 inhabitants), located to the south of Sydney (with expected
      total revenue of€84 million). In Jordan, Vivendi Water won a contract to upgrade
      and enlarge the wastewater treatment plant of the city of Ramtha (with expected
      total revenue of€9.5
      million). In the United States, U.S. Filter Corporation won a contract to
      install a water micro-filtration
      system at the Snyderville Basin in Utah, which provided potable water to
      several sites of the Winter Olympic Games, and a contract to install an
      innovative sludge treatment system in Chattanooga, Michigan.Industrial
      and Commercial Companies.
      Vivendi Water was also awarded a number of contracts by industrial and commercialfirms
      around the world in 2001, including a contract to design and deliver a pretreatment
      system to TransAlta, a major electricity utility in Saint-Laurent du Quebec,
      Canada, a turnkey contract with Dead Sea Works, a world leader in the potassium
      industry, for the installation of a wastewater crystallization treatment
      system in Israel. In addition, Fujian Petrochemical Co. chose Vivendi Water
      for the installation of a wet air oxidation process for the wastewater treatment
      unit of its refinery,
      and Borregard Industries, an important Norwegian chemicals group, awarded
      Vivendi Water a contract to design and build the complete water supply system
      for its main industrial complex in Norway.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Services
      to Individuals.
      Through United States Filter Corporation, Vivendi Water provides bottled
      water to North American and European consumers under theCulliganbrand
      (serving approximately 5,000,000 homes around the world), as well as a variety
      of point-of-entry and point-of-use water treatment products such as water
      softeners. Through approximately 100 bottling locations, Culligan purifies directly its drinking water which is distributed through
      a wide network of over 820 dealerships, which include approximately 180
      company-owned dealerships in the United States, Canada and Europe and approximately
      640 franchises in North America. Our bottled water sales are made principally
      through short-term contracts that are often renewed, typically automatically.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

20

---

| | In 2001,
      despite limited growth in its overall sales, Culligan recorded an increase
      in sales of bottledwater,
      particularly in Europe, but also in the United States. In France, Vivendi
      Water formed Doméo, ajoint
      venture with the U.K. group Home Service Limited, which offers individuals
      an emergencyplumbing
      repair service under theGénérale des Eaux Services
      trademark.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Waste
  Management 
       Through Onyx and our participation in FCC, we are the third largest waste management
  company in the world and one of the largest in Europe, with over 70,000 employees around the world treating 47 million tons of waste each year and serving over
  74 million people in 48 countries onfive continents. Our principal
  markets are in Europe and North America. We also provide waste management services in the Asia/Pacific region, where we are one of the market leaders. We also conduct waste operations
  in Latin America through Proactiva, our joint venture with FCC. SeeFomento
  de Construcciones y Contratas (FCC).

The following table shows the consolidated revenues and operating income of our waste management operations in each of the last threefiscal years, after elimination of all inter-company transactions:

|Waste
Management (€ millions)(1) | 2001(2) |  | 2000(2) |     | 1999  |    
|-------------------------------- | ------- |  | ------- | --- | ----- | ---
|                                 |         |  |         |     |       |    
|Revenue                          | 5,914   |  | 5,260   | (3) | 3,475 | (3)
|Operating
income                 | 393     |  | 394     |     | 276   |    

---

|(1) | Does
not include results of FCC.                                                                                                                                                                                                                                                                                   
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes
50% of the results of the waste management activities of Proactiva, our joint
venture with FCC. SeeFomento
de Construcciones y Contratas (FCC).                                                                                                                                                        
|(3) | Restated to reflect
the changes in our accounting methods and presentation of accounts in 2001. SeeItem
5. Operating and Financial Review and ProspectsOverviewPresentation
of Information in this SectionChanges
In Accounting Methods and Presentation of AccountsChanges
in Income Statement Presentation.

Through Onyx and our participation in FCC, we have become the main global provider of integrated waste management serviceswhich include solid, liquid and hazardous waste managementto companies, on-site and off-site, around the world, including Ford, General Motors, Renault, Rhodia, Novartis, Bayer (with expected total revenue of€45 million over 5 years) and Motorola. Onyx also designs, builds and operates integrated solid
waste disposal, treatment and recycling systems for municipalities such as Hampshire County, the cities of Sheffield and Bromley (with expected total revenue of€250 million over 6 years) in the
United Kingdom and the district of Nantes in France. With a leading global treatment network that covers all technologies, Onyx is one of the few providers of on-site services to large industrial companies on thefive continents.

Excluding Proactivas waste management activities, we have waste management contracts with approximately 265,000 industrial and commercial clients worldwide, which represented approximately 62% of our waste management revenues in 2001 (with the
remaining 38% corresponding to contracts with local public authorities). Our contracts with industrial and commercial clients cover a broad range of waste management services, including collection, recovery and treatment.

We perform most municipal solid waste management services under contracts with municipalities or regional authorities. Waste contracts with public
authorities typically cover collection, transfer, recovery and treatment of waste. Municipalities and regional authorities in each of our markets are increasingly outsourcing a broad range of waste management and related services to service
providers that offer integrated waste services.

Onyxs
core business consists of the collection, recovery (sorting and recycling) and treatment of municipal, commercial and industrial waste (solid, liquid and hazardous). Onyx also provides a broad range of related services such as urban, commercial and
industrial cleaning and recovery and treatment of land in abandoned industrial sites. Our waste management operations fall into two broad categories: waste collection and related services and waste treatment. For example, Onyx, in association with
Dalkia, was chosen to take over the integrated management of waste and energy in the city of Sheffield,
U.K. (with 500,000 inhabitants and 260,000 tons of waste each year) for 30 years (with expected average annual revenue of€67 million). Pursuant to this contract, we will provide waste collection services and develop recycling services through selective collection, waste disposal site management and

21

---

the construction of a recycling unit. We will also operate a waste-to-energy plant and build a new plant with a capacity of 225,000 tons, and develop an existing urban heating
network.

The duration of our waste contracts usually depends upon the nature of the services we provide, applicable local regulations and the level of capital
expenditure the contract requires us to make. Collection contracts usually last from three tofive years.
The length of treatment contracts ranges from one year for operations in landfills that we own to up to 30
years for contracts involving the construction,financing and operation of new waste treatment facilities.
Collection contracts with industrial and commercial customers typically last one to three years, while treatment contracts with these customers last an average offive years.

Onyxs
main goals are to develop its waste treatment capabilities, strengthen its offering to industrial clients by capitalizing on its expertise in the complete waste management chain and its ability to generate synergies with our other operating
divisions, consolidate its international network and broaden its technological lead in waste treatment and recovery.

| |  | Waste
collection and related services
| | - | -------------------------------------
| |   |                                     
| |   |                                     

22

---

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | customers
to optimize their production chains by reusing certain waste by-products generated
in the manufacturing process, such as our glass recycling system that enables
electronic consumer products companies to reuse glass waste in their tube production
cycles after treatment at one of Onyxs recycling centers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Commercial
and Industrial Cleaning.
Onyx cleans industrial sites, primarily petrochemical, auto manufacturing and
food processing plants, offering specialized services such as ultra high-pressure
cleaning, clean-room cleaning and tank cleaning. Onyx also cleans a variety of
commercial facilities, including offices,
train stations, subways, airports, museums and supermarkets. Onyx offers its commercial
and industrial cleaning services in most industrialized countries, including the
United States, Canada, France, Germany, Australia, Sweden and Norway. Onyx has
developed advanced technological cleaning systems, including specialized robots,
that enhance the quality of the cleaning services offered, reduce the time required
to complete cleaning operations and increases the safety of employees. The quality
of our cleaning services for food-processing plants, which operate under strict
hygiene requirements and regulations, have recently been recognized with the granting
of an ISO 9001 certification.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Urban
Cleaning.
Onyx provides a broad range of urban cleaning services for over 4,000 cities around
the world, including London, Paris, Madrid and Chennai (formerly known as Madras),
India. In Chennai, for example, Onyx collects over 1,200 metric tons of waste
and cleans over 1,000 kilometers of urban streets each day. Onyxs
services include mechanized street cleaning, treatment of building façades
to eliminate graffiti and other markings and treatment
and deep-cleaning of surfaces to remove paint, solvents, oil, chewing gum and
other items. Onyx has developed a range of sophisticated mechanized cleaning equipment
to ensure the quality and efficiency
of our services. Onyx also provides cleaning services required after significant
road accidents.                                                                                                                                                                                                                                                            
| |  | Waste
      treatmentOnyx treated approximately
47 million metric tons of waste at its landfills,
its incineration and energy production centers, its composting centers and its
hazardous waste treatment centers in 2001. For example, Onyx recently became one
of the leading waste treatment companies in the Scandinavian region with the acquisition
of a 65% controlling interest in a new company created to conduct the waste management
operations of Marius Pedersen, a Danish foundation, particularly in Denmark, Czech
Republic and Slovakia. We expect that the alliance with Marius Pedersen will generate
an expected average annual revenue of€174 million.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Non-hazardous
Solid Waste.
Onyx treats approximately 43 million tons of non-hazardous solid waste each year
through landfill
deposits, incineration or composting. Industrial and commercial solid waste are
mainly deposited in landfills,
while household waste is also incinerated and composted. In 2001, Onyx was chosen
by Rhodia for the treatment of solid waste at six additional sited in France.
Onyx also won important waste management contracts with Huttenwerke Krupp Mannesmann,
in Germany, and with Worsley Alumina, one of the world leaders in aluminum production,
in Australia.                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Landfills.
Onyx treats 24 million tons of non-hazardous solid waste a year in 140 different
landfills.
Onyx has developed expertise in waste treatment methods that minimize emission
of liquid or gaseous pollutants, allowing Onyx to manage landfills
under strict environmental regulations. 88 landfills
are now equipped to recover and treat their biogas emissions, which experts estimate
produce a greenhouse effect 20 times greater than carbon dioxide emissions. At
23 of its landfills,
Onyx recycles biogas by converting it into energy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Waste-to-energy
      and Incineration.
      Onyx operates 68 waste-to-energy recovery and incineration plants to incinerate
      approximately 8.1 million tons of non-hazardous solid waste per year, the
      majority of which is urban waste. Energy is mostly generated by the heat
      created from incinerating waste at these plants. Onyx sells this energy
      principally to district thermal networks or electricity providers. Waste-to-energy
      recovery and incineration is often used in densely populated areas                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

23

---

| |  |   | where
landfill space is scarce or in cases where waste is not suitable
for recycling. Onyx continuously develops innovative waste-to-energy procedures
to broaden the range of waste materials that may be converted into energy and
to optimize the production of energy. Onyx has also developed techniques that
enable its waste-to-energy recovery and incineration plants to operate in strict
compliance with environmental regulations, such as its smoke and ash treatment
processes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | Composting.
Onyx composts approximately 2 million metric tons of waste a year at 80 composting
production units. Onyx sells a portion of the composted waste for use as fertilizer.
In addition, Onyx and Vivendi Water have jointly installed a sludge composting
unit within Vivendi Waters
wastewater treatment plant for the region of Saint-Cyprien, Western Pyrénées (80,000 inhabitants) in
France. Composted with Onyxs expertise, the sludge becomes a high-end composted waste
product that may be sold as an organic supplement. The commercialization of the
resulting compost product depends on the quality of sludge, which in turn depends
on the quality of the wastewater treatment procedure. Our composted sludge is
thefirst
type of composted sludge product approved and authorized for sale in France. Our
composted sludge solution contributes to the sustained fertility of agricultural
lands that are running out of organic elements.
| |  |  | Industrial
Hazardous Waste.
Onyx treats 3.2 million tons of industrial hazardous waste each year in 31 treatment
facilities, primarily in the United States, France, the United Kingdom, Hungary,
Israel, Taiwan and South Korea. Onyx also recently commenced the construction
of the first industrial hazardous waste treatment facility in continental China,
at the city of Tianjin (with over 8 million
people), and we and Rhodia created a joint venture company for the treatment of
industrial hazardous waste in South Korea under the name Eco Services Korea.The principal
methods used for treating industrial hazardous waste are:                                                                                                                                                                                                                                                                                                                   
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |  | Recovery
of Polluted Industrial Sites.
Onyx has recently commenced leveraging its expertise in waste management to provide
treatment and related services for the recovery of land in abandoned industrial
sites where unmanaged waste treatment or industrial accidents have resulted in
high levels of contamination. Onyxs
engineers design, develop and implement treatment and recovery strategies on a
case-by-case basis for each industrial site.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |  | Liquid
Waste Management.
Onyxs
liquid waste management operations focus principally on pumping and transporting
liquid effluent
associated with water treatment sewage networks and oil residues to treatment
centers. Onyx is one of the worlds
leaders in the collection of oil residues with approximately 115,000 tons collected
in 2001. Onyx also provides pumping and transportation services to industrial
and commercial companies on short notice following accidents and other incidents
involving liquid waste. Onyx has developed liquid waste management procedures
that emphasize environmental protection, such as the on-site collection, recycling
and reuse of water during the provision of its liquid waste management services.
In 2001, for example, Onyx began treating the solvents produced at 400 laboratories
of Pfizer
in the United Kingdom.                                                                                         

Energy
  Services 
       Dalkia,
  our main energy services subsidiary, is the leading provider of on-site energy
  management and transformation services in a rapidly growing European market.
  With operations in 30 countries, Dalkia employs approximately 37,000 people
  around the world. Dalkia also offers a wide range of industrial utilities and
  facilities

24

---

management services to respond to a growing demand, almost non-existent ten years ago, for outsourcing solutions for of these services.

In December 2000 Dalkia entered into an agreement with EDF that enables it to provide its energy services in strategic partnership with EDF. Recent changes
to the European regulatory framework applicable to electricity providers have lifted a number of limitations on the ability of these utilities to provide other energy-related services. Traditionally, European electricity providers have been operated
as monopolies under a regulatory framework designed to prevent their monopoly in power generation from giving them unfair advantages in other markets. A recent European Union directive, which was transposed into French law in February 2000, requires
member states to deregulate their electricity production, transportation and distribution markets. In the new regulatory environment, a growing number of electricity users will be allowed to deal with the power provider of their choice. At the
European Summit on Market Liberalization held in March 2002, European leaders issued a joint statement thatthe Council and Parliament will adopt, as soon as possible in 2002, proposal permitting European consumers other than individual homes to freely choose their [power] provider from 2004.We believe that this evolving regulatory environment presents a major opportunity for companies that can provide
integrated energy services and that through a combination of our energy, industrial utilities and facilities management services operations and EDFs power generation assets, we will be well placed to take advantage of it.

Pursuant to Dalkias agreement with EDF, EDF acquired in December 2000 and January 2001 a 28% stake in Dalkia in exchange for a contribution of approximately€850 million. In early 2001, EDF obtained an additional 6% interest in exchange for contributing one of its subsidiaries to Dalkia. In addition, Dalkia purchased certain energy services
operations of EDF for€103 million, and EDF purchased interests in two of Dalkias subsidiaries for a total of€627 million. As the deregulation process continues and limits on EDFs ability to provide energy services are further removed, we have agreed that EDFs stake in Dalkia will eventually rise to 50% (onfinancial terms that are based on the then market value of Dalkia).

Dalkia provides its energy services primarily through three subsidiaries: Dalkia France, Dalkia International and Edenkia. Because EDF has retained a
monopoly on providing power in France to individuals and to businesses that use less than 16 gigawatts of electricity per hour, EDF is prohibited from providing integrated energy services to those customers. Such customers are therefore served by
Dalkia France, an entity owned 100% by Dalkia. EDF is not represented on the board of directors or management of Dalkia France. Dalkia International serves foreign customers that are eligible to purchase integrated energy services. EDF owns 24% of
Dalkia International. The third subsidiary, Edenkia, provides customized integrated energy services, including supply and management of energy at each site, to eligible industrial and commercial customers in France and to strategic clients in other
countries.

The strategic partnership with EDF contributes to strengthen the spirit of service that characterizes Dalkia. In addition, Dalkias ability to customize its service offerings is greatly enhanced by the complementary expertise of each of our other
operating divisions. Dalkias extensive international network enables it to accompany its clients in
their international expansion and to offer the same quality of service through local teams. The broad range of services offered by Dalkia enables its clients to optimize their energy management from the production of energy through the operation of
systems and equipment maintenance.

The following table shows the consolidated revenues and operating income of our energy services operations in each of the last threefiscal years, after elimination of all inter-company transactions:

|Energy
      Services (€ millions) | 2001  |  | 2000  |     |  | 1999  |    
|---------------------------------- | ----- |  | ----- | --- |  | ----- | ---
|                                   |       |  |       |     |  |       |    
|Revenue                            | 4,017 |  | 2,988 | (1) |  | 2,671 | (1)
|Operating
      income             | 224   |  | 191   |     |  | 169   |    

---

|(1) | Restated to reflect the changes in our accounting methods and presentation of accounts in 2001. SeeItem 5. Operating and Financial Review and ProspectsOverviewPresentation of Information in
this SectionChanges In Accounting Methods and Presentation of AccountsChanges in Income Statement Presentation.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Public
  authorities represented 59% of Dalkias revenue in 2001, with the
  remaining 41% reflecting
  revenue generated by services to industrial customers.

25

---

Dalkias
  main goals are to strengthen its leadership in its core energy services business,
  particularly by seeking to obtain the approval in 2002 of a 100% increase in
  its 2001 research and development expense budget, to accelerate its international
  development by offering services of the same quality through local teams, and
  to continue to develop its services for industrial customers, principally through
  itsenergy
  supply plus servicesoffering on a global scale
  as a result of its strategic partnership with EDF.

We
  provide the following energy services:

| |  | Energy
      Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Energy
      management consists of operating heating and cooling systems to provide
      comfortable living and working environments and redesigning and operating
      existing energy systems to maximize their efficiency.
      Dalkia manages some 55,000 heating systems in France and 10,000 elsewhere
      in Europe, representing 65,000 heating systems in Europe. Dalkia provides
      integrated energy services, including in most cases system construction
      and improvement, energy supply, system management and maintenance, to about
      40,000 private, industrial, commercial and residential customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   | Dalkia
      is also Europes leading operator of largedistrictheating
      and cooling systems. In district systems, thermal energy is generally produced
      centrally and distributed through pipes to dispersed locations. Dalkia does
      not ordinarily own the systems it operates. Rather, in most cases, public
      authorities own the systems and delegate to Dalkia the responsibility of
      building, managing, maintaining and repairing them. The systems operated
      by Dalkia heat and cool a wide variety of public and private facilities,
      including schools, hospitals, office buildings and residences.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   | Dalkia
      currently manages more than 250 district heating and cooling systems in
      Europe, mainly in France, the United Kingdom, Germany, Italy and central
      and eastern Europe. In France, Dalkia operates 180 district heating and
      cooling systems, about half of those in existence. Dalkia continued to strengthen
      its presence in Italy with the acquisition of SIRAM, the second largest
      Italian heating management company, for€108
      million in 2001. SIRAM possesses an undisputed expertise in the management
      of complex contracts with public and commercial clients, particularly in
      the health industry. Dalkia is also expanding rapidly in central Europe.
      For example, in 2001 Dalkia acquired, in the Czech Republic, a majority
      interest in two co-generation plants (with a total generation capacity of
      594 thermal MW) that supply the heating network of the city of Usti Nad
      Labem, located to the north of Prague, and won a 7-year electricity supply
      contract with SCE, the Czech electricity distribution company. Dalkia has
      also held majority interests in two major participants in the Czech district
      heating market since 1998. As a result of these acquisitions, according
      to Bohemia Invicta, a Czech industry association, Dalkia is currently the
      leading heat producer and the second largest power producer in the Czech
      Republic. In addition, Dalkia has set up a number of energy services companies
      in central and eastern Europe, in many cases in partnership with the European
      Bank for Reconstruction and Development. These companies include Prometheus
      RT (Hungary), Dalkia Romania Srl (Romania), UAB Litesko (Lithuania), Dalkia
      Termika S.A. (Poland), Dalkia a.s. (Slovakia) and AS Eraküte
      (Estonia).
| |   | Dalkia
      offers innovative multi-energy and remote management solutions to ensure
      cost effectiveness, reliability and environmental protection. When practicable,
      Dalkia uses renewable energy and alternative energy sources such as geothermal
      energy, biomass (organic material), heat recovered from household waste
      incineration,processheat (heat produced by industrial processes) and thermal energy
      produced by co-generation projects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   | According
      to a study by the French Ministry of Economy, Finance and Industry based
      on 2000 data, Dalkia is the French leader in co-generation (the simultaneous
      production of electricity and heat) and on-site power production. Under
      a typical co-generation contract, Dalkia provides a governmental or private
      customer with heat at a favorable price in exchange for the right to produce
      electricity through co-generation on the customers
      premises. French law requires EDF to purchase co-generated power at specified
      rates. Dalkia sells EDF the power it produces through co-generation under
      a 12-year contract. Dalkias
      total electric power production capacity (including co-generation facilities,
      peaking plants and stand-by generating units) is 3,000 MW in Europe, including
      2,000 MW in France.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

26

---

| |  | Industrial
      Utilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Dalkia
      started providing industrial utilities services several years ago as many
      of its customers were beginning to outsource non-core industrial activities
      such as the production and distribution of steam heat and compressed air.
      Dalkia has become a leading provider of industrial utilities services in
      France and the United Kingdom, and has developed expertise in the analysis
      of industrial processes, productivity enhancement and the operation, maintenance
      and servicing of equipment. Dalkias expertise and services offerings were increased in 2001 with
      the integration of Clemessy, an industrial services subsidiary of EDF, into
      Dalkias
      industrial utilities business and the creation of Dalkia Technologies, in
      which Dalkia holds a 67% interest, through an alliance with Faure Ingénierie,
      a French company specializing in the design, construction and operation
      of controlled-atmosphere and clean room facilities. Dalkia Technologies
      provides services relating to the design and operation of controlled-atmosphere
      and clean room facilities for computer, electronics, food processing, chemical
      and pharmaceutical companies.
| |   | In
      2001, Dalkia won a contract to build and operate for 15 years a new energy
      co-generation plant for Astra Zeneca in Macclesfield,
      United Kingdom. With a capacity of 23MW, this new plant is expected to commence
      operating at the end of 2002 and will supply steam and electricity to Astra
      Zenecas
      pharmaceutical production facilities. Because this new plant will operate
      using natural gas, which is acleanfuel
      supply, it is expected to contribute significantly
      to the reduction of carbon emissions in accordance with the objectives of
      the Kyoto protocol.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   | In
      addition, in December 2001 Dalkia entered into an energy and industrial
      services contract with Videocolor, a subsidiary of Thomson Multimedia, which
      operates a technology-intensive plant in Anagni, Italy, that produces approximately
      3 million cathodic tubes for screens and televisions each year. In connection
      with the outsourcing by Videocolor of its energy generation activities and
      industrial services, Dalkia acquired the tri-generation plant (with a capacity
      of 12MW) that generates electricity, heat and cold air for Videocolors production processes and
      entered into a services contract with Videocolor for 10 years (with expected
      total revenue of€93
      million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   | Dalkia
      and EDF are also developing a broad range of comprehensive energy solutions
      for eligible industrial and commercial customers that combine power generation
      with industrial services, which Dalkia and EDF believe will be increasingly
      demanded by our customers. In 2001, Dalkia and EDF jointly created Edenkia,
      through which they aim to enable eligible customers to improve the performance
      of industrial sites in terms of management of energy, cost and production
      efficiency. Shortly after its creation, Edenkia was awarded a contract by
      the French Ministry of Defense for the management and maintenance of electrical
      heating and cooling systems at itsCitéde lAirsite
      in Paris, which houses the French Air Forces headquarters, to reduce
      energy costs, improve the reliability of electricity distribution and upgrade
      and optimize the operation and maintenance of facilities (with expected
      total revenue of€5.5
      million over 3 years).                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Facilities
      Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   | In
      a further response to the increasing popularity of outsourcing, Dalkia has
      recently added facilities management to its portfolio of services. The support
      services Dalkia offers range from electrical and mechanical equipment maintenance
      to secretarial services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

27

---

potentially an important market for Dalkias facilities management business, as is the Asia/Pacific region for its heating and
cooling system activities.

The majority of Dalkias energy services contracts involve heating systems management. Contracts to operate district heating systems are typically long-term, lasting up to 20 years. Contracts to operate other heating systems for public or private
clients may last up to 16 years. Industrial utilities management contracts usually expire after three tofive years, but occasionally run as long as 12 years if Dalkia provides co-generation services as well. We estimate that contracts in the facilities management sector are generally in the three- tofive-year range. The average remaining term of Dalkias energy services contracts is approximately seven years.

Transportation
  
       With
  49,000 employees around the world, Connex, our main transportation subsidiary,
  is the leading European private operator of ground passenger transportation
  services. Connex operates 236 rail and road networks in 20 countries (compared
  to 14 countries in 2000) and provides integrated and customized transportation
  solutions involving bus, train, tramway, metro, maritime and other complementary
  networks.

The
  following table shows the consolidated revenues and operating income of our
  transportation operations in each of the last threefiscal
  years, after elimination of all inter-company transactions:

|Transportation
      (€ millions) | 2001  |  | 2000  |     |  | 1999  |    
|--------------------------------- | ----- |  | ----- | --- |  | ----- | ---
|                                  |       |  |       |     |  |       |    
|Revenue                           | 3,099 |  | 3,131 | (1) |  | 2,416 | (1)
|Operating
      income            | 112   |  | 105   |     |  | 94    |    

|   
|---
|(1)

Public authorities represented 95% of our transportation revenue in 2001, with the remaining 5% corresponding to services to industrial customers.

Connex
  operates road and rail passenger transportation networks under contract with
  national, regional and local transit authorities. The public authority with
  which Connex contracts generally owns the infrastructure Connex uses and typically
  establishes schedules, routes and fare structures for the networks that Connex
  operates and manages. The fares Connex charges passengers on its transportation
  networks are usually insufficient
  to cover its costs, and the public authority typically provides Connex a guaranteed
  minimum revenue payment or pays Connex a subsidy. Connex is also beginning to
  develop its rail freight operations with industrial and commercial clients by
  leveraging its experience in the operation of transportation networks and the
  relationship with industrial and commercial customers established by other operating
  divisions of our company. Connex seeks to increase profitability by reducing its operating
  costs and increasing traffic through improvements in system speed and reliability, service
  customization and vehicle comfort and safety. Connex also tries to reduce costs
  by rationalizing previously government-run operations.

The
  vast majority of Connexs transportation customers are the national, regional and local
  public authorities responsible for providing public transit services, which
  have been outsourcing the operation and maintenance of public transportation
  systems on a more frequent basis in recent years. In France and, increasingly,
  in other countries, contracts are usually based on the delegated public service
  management model. In France, recent legislative changes have implemented a policy
  of regionalization of transportation systems, under which French regional public
  authorities have increasing autonomy on the management of transportation services.
  In the United Kingdom, private operators run transportation networks under franchise
  agreements. The rail transportation network in the United Kingdom is regulated
  by the Strategic Rail Authority, which has broad power to impose rules regarding
  schedules, fare structure and safety. Ordinarily, Connexs
  rail contracts last up to 20 years, while its road contracts typically last
  from four to 12 years, a disparity mainly due to the greater investment required
  in the rail transportation sector.

Connex has contracts with over 4,200 public authorities to operate 236 rail and road networks (including 26 rail networks ranging from urban underground
systems to regional networks), 20 integrated networks and 6 tramway

28

---

networks.
  Connex expects that the outsourcing trend by public authorities will continue
  in the near future, particularly in Europe as European Union institutions are
  considering issuing regulations within the next two to three years that would
  require member states to introduce regulated competition in the provision of
  transportation services through the use of the delegated public service management
  model.

In
  France, Connex expects that its transportation network will be strengthened
  with the recent acquisition of the Verney transportation group in 2002. In Europe,
  Connex expects that the development of transportation services will continue
  in Northern and Eastern Europe, where the critical mass required for profitable operations has been reached.
  Connex also expects to capitalize the synergies between our different operating
  divisions in Germany, which is the most important European market with the largest
  European public transportation network, and in the United States, where we expect
  to leverage the expertise acquired in the management of transportation networks
  for large European cities.

Connexs
  main goal is to promote public transportation by continuously enhancing quality
  of service and developing less expensive pricing formulas for public authorities.
  Connex hopes to extend this concept of public transportation at competitive
  prices to Latin American and Asian cities. On a global scale, Connex seeks to
  improve the profitability
  of its networks through increased control over operating costs.

| |  | Urban
      Transportation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Connex
      operates a number ofright-of-waytransit
      systems and bus networks and provides integrated services and alternative
      services. Connex operates 13,500 road vehicles and is responsible for driving,
      inspecting, cleaning and providing security on these vehicles, marketing,
      providing customer service, and maintaining, cleaning and providing security
      in the stations on its networks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   | Right-of-way
      system operation.Connex
      operates tram and light rail lines in cities including Stockholm (Sweden),
      Sydney (Australia), Görlitz
      and Berlin (Germany) and Rouen and Saint-Etienne (France). Connex also operates
      a high frequency right-of-way bus route in Bogotá, Colombia that currently services approximately 700,000 people
      each day. This route has been specifically designed to improve traffic
      conditions in large cities in developing countries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |   | Bus
      network operation.Connex
      is the exclusive bus operator in a number of French cities, including Nice,
      Bordeaux, Nancy and Toulon as well as 40 other cities in France. Connex
      also operates lines in other European cities including London, Stockholm,
      Frankfurt and Warsaw, and was recently awarded a contract to operate the
      bus network in Maastricht, The Netherlands, for 6 years (with expected average
      annual revenue of€25 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   | Integrated
      services.Connex
      provides combinations of bus, tram, metro and train services in many cities
      on an integrated basis using coordinated ticketing systems. In Stockholm,
      for instance, Connex operates the metro, four tram lines and 20% of the
      bus network, all as part of a single system. In 2001, Connex was awarded
      a contract to operate a tramway network under construction in Barcelona,
      Spain with two local bus network operators in an integrated tram and bus
      transportation system. In other cities, Connex provides unimodal services
      that are integrated into a system served by multiple operators. Connex provides
      such integrated services in areas including suburban Paris, Rouen, London,
      Stockholm (operation of the Lidingöban network comprising the metro and
      other public transportation means, where Connex has agreed to guarantee
      punctuality, cleanliness, information and traffic
      increase), Sydney and Düsseldorf
      and was awarded contracts in 2001 to provide integrated tramway, trolley
      and bus transportation services in Görlitz,
      Germany and Saint-Etienne, France.
| |   | Alternative
      services.In
      a number of cities, Connex provides innovative, non-traditional transportation
      services to supplement conventional services. For example, Connex currently
      provides transportation-on-demand services throughCréabus,a
      minibus tracked by a global positioning system (GPS) that replaces large buses
      during off-peak hours, and pedestrian-zone transportation services throughIciéla,
      a transportation system that uses small electric cars to serve urban areas
      that are restricted to other vehicles. TheCréabusservice has been successfully introduced in Dieppe, Montluçon
      and several cities in the Ile de France department, in France, and theIciélasystem is currently being used
      in Amiens and Melun in France.                                                                                                                                                                                                                                                                                                                                                                                                

29

---

| |   | Connex
      also entered the urban transportation services market in the United States
      in 2001 with the acquisition of Yellow Transportation for€21.8
      million, a transportation company based in Baltimore, Maryland, which has
      urban transportation operations in Washington, D.C., the second largest
      urban area in terms of traffic
      in the U.S. Connex currently offers urban transportation services in Washington,
      D.C. through Yellow Transportationsfleet
      of vehicles. Yellow Transportation has 1,500 employees, operates 1,200 vehicles
      and carries approximately 7 million passengers each year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | Regional
      transportation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   | Connex
      provides regional transportation services through the operation of road
      and rail networks. As with urban transportation services, Connex is responsible
      for designing, planning, operating, maintaining and providing security on
      the vehicles and stations it uses in its regional networks, as well as for
      ticket sales and customer service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |   | Rail
      transportation.Connexs
      most significant rail networks are in the
      United Kingdom, Germany, France and Australia. In the United Kingdom, Connex
      operates regional rail networks serving southern England through its subsidiary
      Connex South Eastern (under a contract that expires in October 2011). Connex
      is currently introducing new trains and upgrading existing trains (including
      by introducing a number of passenger amenities such as air conditioning
      and telephone and internet access) on the rail networks operated by Connex
      South Eastern. Another Connex subsidiary, Connex Transport UK, is currently
      preparing bids for a number of public tenders for the operation of other
      networks in the United Kingdom.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   | In
      Germany, Connex operates six regional rail networks, representing over 1,000
      kilometers of rail lines, in six German states orLänder,
      including the NordWestBahn rail system in Lower Saxony and the NordOstseeBahn
      rail system in Schleswig-Holstein. In France, Connex operates a number of
      regional rail networks, covering approximately 850 kilometers, through contracts
      with local public authorities and SociétéNationale des Chemins de Fer (SNCF), the French national railroad
      company. In Australia, Connex acquired a 50% participation in West Coast
      Railways, which operates several regional rail networks in the State of
      Victoria, in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   | Road
      transportation.In
      regional road transportation, Connex operates networks in France, Germany,
      Norway, Sweden, Finland, Belgium, Spain and the Czech Republic. In 2001,
      Connex acquired 50% of the assets of Combus, a Danish regional bus operator
      with 580 vehicles, from Arriva plc, a U.K. transportation service provider,
      for€30
      million. This acquisition provided Connex with additional revenue from its
      Danish operations of approximately€64
      million in 2001, representing an increase of 50% in its activities in Denmark.
      Connex also acquired regional bus networks in Israel, Poland (through the
      privatization of the Pekaes interurban networks in Sanok and Lancut), Estonia
      (with the acquisition of AS Liikor, a bus operator based in Tartu) and the
      Czech Republic in 2001. In The Netherlands, Connex was awarded in July 2001
      the privatization of the BBA transportation network in the Brabant region,
      which transports over 50 million passengers each year through 450 buses
      over 153 bus lines (with expected total revenue of€700
      million over 6 years). BBA, which also operates 160 taxis, employees approximately
      1,500 people and generated revenue of€113
      million in 2001. As a result of these transactions, Connex believes that
      its Dutch operations will generate total annual revenue of€170
      million in the future.
| |   | In
Spain, Connex and FCC have created a joint venture company, Corporación
Española de Transporte, to conduct passenger road transportation
operations. We expect that Corporación Española
de Transporte will be contributed to FCC-Connex, a holding company recently created
jointly by FCC and Connex. In 2001, Corporación
Española
de Transporte acquired Portillo, one of the largest operators of regional transportation
services in southern Spain. Corporación
Española
de Transporte currently provides regional transportation services to over 43 million
passengers through approximately 550 vehicles in Spain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   | Through
      its acquisition of Yellow Transportation in 2001, Connex also offers regional
      road transportation services in the District of Columbia, Maryland, Virginia
      and Connecticut in the United States. In December 2001, Connex won two public
      bids to operate bus networks in Columbia, South                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

30

---

| |   | Carolina
      (with 44 vehicles and expected average annual revenue of€6
      million) and Fairfax County, Virginia (with 85 vehicles and expected average
      annual revenue of€7
      million during 3 years).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Freight                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   | Connex
      recently begun developing rail freight operations, primarily in France and
      Germany, with the intention of expanding these operations significantly
      in order to expand our industrial and commercial client base for our other
      environmental services and to implement our strategy of providing a complete
      range of services to industrial and commercial customers. Connex provides
      rail freight services primarily through the following three activities:                                                                                                                                                                                                                                                                                                                                                       
| |   | Regional
      Freight Networks.Connex
      operates a number of regional freight trains for customers such as the SNCF
      in France.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   | Management
      of private branch lines.Connex
      manages branch lines for customers in the automobile, petrochemical and
      refining
      industries that have plants connected to a national rail network. Facilities
      served include the Eisenach Opel plant in Thuringia, Germany, the Bitterfeld
      chemical complex in Saxony-Anhalt, Germany, the Claas agricultural machinery
      plant in Gütersloh,
      Germany and approximately 30 industrial and commercial sites in France and
      Germany.                                                                                                                                                                                                                                                                                                                               
| |   | Multi-modal
      transportation.Connex
      began providing multi-modal shipping services (or shipment of freight in
      containers that can be carried by either trains or trucks) in 2000. Daily
      multi-modal service between Paris and Milan began in October 2000, following
      Connexs
      acquisition of an interest in multimodal operator TAB and the creation of
      T3M, Connexs
      joint subsidiary with TAB. In Germany, service between Ulm, Stuttgart and
      Mannheim began in February 2001.                                                                                                                                                                                                                                                                                                                           
| |   | In
      addition, Connex provides its industrial and commercial customers with passenger
      transportation services for their employees from and to its customerssites.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Information
      Services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   | Growth
      in our transportation business depends on increased use of public transportation
      networks, which in turn is closely related to the quality of service provided
      by these networks. To increase passenger frequentation on its networks,
      Connexs
      efforts focus on adequately matching service offerings with demand for these
      services, improving the reception of passengers and the user-friendliness
      of stations, making available more confortable vehicles and the development
      of local information services relating to transportation systems for travelers.                                                                                                                                                                                                                                     
| |   | Connex
      has developedOptio,a
      complete information system for passengers (through a central telephone
      operator, internet site, wireless text messages, such as SMS, and wireless
      internet access, such as WAP) on available public transportation in a region,
      through which a single representative provides information to the customer
      on the entire itinerary, regardless of the operator. The Optio service is
      currently offered in the Oise region in France and in the cities of Bordeaux
      (France), London (U.K.) and Melbourne (Australia). In addition, Connex has
      developedConnector
      Plus,a real-time information
      system for Australian subscribers that enables it to notify users of service
      interruptions or delays through wireless text message systems, such as SMS.
| |   | Connex
      has also recently launched several Internet sites that allow users tofind
      their itineraries on local transportation systems in France, the United
      Kingdom and Australia. Connex has also commenced providing real-time information
      on available transportation systems to its subscribers through internet-enabled
      mobile phones or WAP mobile phones in the United Kingdom.                                                                                                                                                                                                                                                                                                                                                                                                                                             

Fomento
  de Construcciones y Contratas (FCC) 
       FCC,
  a public company listed on the Madrid Stock Exchange since 1900, is one of Spains
  largest companies with over 52,000 employees and a market capitalization of€2.91
  billion as of December 31, 2001. FCC operates in a number of different environmental
  and construction-related industries. FCCs
  principal markets are located in Spain

31

---

(where it is the leading waste management operator with a market share exceeding 40%) and Latin America, though it also has significant operations in the rest of Western Europe and the United States.

In
  October 1998, to exploit the growing demand for integrated environmental management
  services, Vivendi Universal acquired a 49% interest in the holding company that
  owns 57% of FCC from the controlling shareholder of the holding company. In
  December 1999, Vivendi Universal transferred its interest to us. Our partner
  in FCC owns the remaining 51% of the holding company.

Our
  interest in the holding company that controls FCC is subject to a shareholdersagreement
  pursuant to which we share equally with our partner the holding companys
  right to be represented in the main executive bodies of FCC, i.e., the board
  of directors and executive committees of FCC and its subsidiaries. The holding
  companys
  articles of association also provide that certain important decisions, such
  as increases or decreases of share capital, amendments to the articles of association,
  mergers, spin-offs or dissolutions, require supermajority shareholder approval.
  None of these decisions, therefore, could be taken without the consent of both
  major shareholders. See Item 7. Major Shareholders and Related Party TransactionsRelated
  Party Transactions.

The following table shows our consolidated revenues and operating income from FCCs activities in each of the last threefiscal years, after elimination of all inter-company transactions:

|FCC
      (€ millions)(1) | 2001  |  | 2000  |     |  | 1999  |    
|------------------------- | ----- |  | ----- | --- |  | ----- | ---
|                          |       |  |       |     |  |       |    
|Revenue                   | 2,455 |  | 2,115 | (2) |  | 1,902 | (2)
|Operating
      income    | 231   |  | 208   |     |  | 185   |    

|   
|---
|(1)
|(2)

|FCCs main activities are:
|--------------------------
|                          
|                          
|                          
|                          
|                          

We
  have created a number of joint ventures with FCC to operate or participate in
  different segments of our business, such as Proactiva, in which we have consolidated
  most of our water and waste treatment businesses in Latin America and the Caribbean
  with FCCs water and waste treatment operations in these regions, and
  Corporación
  Española
  de Transporte, which operates our transportation business in Spain.

| |  | Waste
      management and water services.FCC
      is the leading waste management company and the second largest water and
      waste water treatment company in Spain, where it conducts the bulk of its
      operations. FCC collects, processes and disposes of household waste and
      provides a full range of waste management services, including urban and
      commercial cleaning services, to Spanish public authorities. FCC provides
      waste management services to approximately 1,500 municipalities in Spain,
      including the main urban centers such as Madrid, Barcelona, Valencia, Bilbao,
      Málaga
      and Zaragoza. FCCs waste management operations
      currently serve over 21 million people. Typically, in Spain, a private operator
      disposes of waste in publicly-owned landfills
      that it manages. There is, however, a growing trend toward the use of incineration
      plants and recycling of waste. In Barcelona, FCC is currently constructing
      thefirst
      recycling plant in Spain capable of recycling specific
      types of residential, industrial and commercial waste
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32

---

| |   | consisting
      of electric and electronic products (television sets and computers). FCC
      expects this plant, which will have an annual recycling capacity of approximately
      15,000 metric tons, to commence operations in June 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Industrial,
      commercial and hazardous waste collection and treatment, which has traditionally
      represented a minor portion of FCCs
      waste management business, was strongly developed in 2001 with the acquisition
      of Grupo Ekonor, one of the leading Spanish providers of hazardous waste
      management services, which collects, transfers, recycles, treats and/or
      disposes of over 150,000 tons of waste each year around the country, including
      in the main urban centers such as Madrid, Valencia, Vitoria and Córdoba.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   | FCCs
water and wastewater treatment activities cover the full water cycle, including
treatment, distribution and recycling. In 1999, FCC acquired Vivendi Waters Spanish operations,
doubling its market share in this sector. FCC provides water services to approximately
300 municipalities in Spain, including urban centers such as Almería,
Ávila, Badajoz, Jaén,
Lérida,
Oviedo, Salamanca and Vigo (with expected total revenue in Vigo of€220
million over 16 years). As the second largest water treatment company, FCC supplies
drinking water to 6 million people in Spain and treats wastewater of 9 million
people. In 2001, FCC was awarded a number of new service concessions, particularly
Blanes in the province of Barcelona, and commenced providing all of its water
services under theAqualianame.                                                                                                                                                                                                                                                                                                                                                                                       
| |   | Through
      Proactiva, FCC provides a significant number of water and waste
      management services to public authorities and municipalities in Argentina,
      Brazil, Colombia, Chile, the Dominican Republic, Mexico and Puerto Rico.
      Proactiva serves over 46 million people in these countries. In 2001, Proactiva
      was awarded a contract to construct and operate a landfill for the treatment of residential waste collected in 23 municipalities
      in Santiago de Chile, with a population of 1.5 million people, which will
      have a capacity of at least 45,000 metric tons of waste per month.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Construction.FCC
      is one of thefive
      leading construction companies in Spain. FCCs projects include the construction
      of roads, high-speed railway lines, airports, offices, commercial centers and
      residences. Its projects have included over 100 kilometers of railway lines
      for the new high-speed train service from Madrid to the French border and
      a new passenger terminal for Madrids
      Barajas international airport, which is expected to cover over 500,000 square
      meters. FCC has recently obtained several important construction contracts
      in the context of a new investment plan implemented by public authorities
      for the construction of transportation infrastructure in Spain. The investment
      plan forecasts works costing a total of€114
      billion, of which up to 18% is to befinanced
      by the private sector through concessions and other mixed systems. In 2001,
      FCC was awarded the construction of the high-speed train station in Zaragoza
      and the expansion of the subway systems in Madrid and Barcelona, and is
      participating in the construction of a new dike for the port of Barcelona.
| |  | Cement
      Production.FCC
      has a 48.2% interest in Portland Valderrivas, a holding company that owns
      58.7% of Cementos Portland, the second largest cement manufacturer in Spain
      according to the Cement Association Report. Cementos Portland currently
      operates 6 cement plants in Northern, Northeastern and Central Spain, with
      a production capacity of over 8 million tons of cement per year. In 1999,
      FCC began to expand internationally in this segment with its acquisition
      of Giant Cement in the United States. Giant Cement currently operates 3
      cement plants on the East Coast in the United States, with a production
      capacity of approximately 1.4 million metric tons of cement per year.                                                                                                                                                                                                                                                                                                                                                                                                                                                 

FCC
  also manufactures urbanfixtures, manages car parks, provides airport handling and vehicle
  inspection services in Europe, particularly Spain, Latin America, the United
  States and, to a lesser extent, North Africa. FCC is also involved in real estate
  activities in Spain through its 50% interest in Realia. In addition, FCC participates
  in the industrial logistics and other services sectors (through its approximately
  80% holding in Grucysca), in telecommunications through its 31.28% stake with
  Vivendi Telecom International in Xfera Moviles, a member of the consortium holding
  a license to provide advanced UMTS mobile telecommunications services in Spain,
  and the transportation services sector through Corporación
  de Transporte Española, its joint venture with
  Connex.

33

---

Competition
  
       Most
  markets for environmental services are very competitive and are characterized
  by increasing technological challenges, regulatory changes and experienced competitors.
  Competition in each of the markets we serve is primarily on the basis of the
  quality of the products and services provided, reliability, customer service,financial
  strength, technology, price, reputation and experience in providing services,
  adapting to changing legal and regulatory environments, and managing employees
  accustomed to working for governmental authorities or non-outsourced divisions
  of commercial enterprises. In each of the markets in which we operate, our competitive
  strengths are our high level of technological and technical expertise, ourfinancial
  position, our geographical reach and our experience in providing environmental
  management services, managing privatized and outsourced employees and meeting
  regulatory requirements.

With regard to integrated, large-scale environmental management services in particular, our main competitors are Suez and RWE. Our primary competitive
strength is our demonstrated ability to provide innovative, integrated environmental services that are tailored specifically to the needs of individual clients and offered on a global basis. We anticipate that other enterprises that compete with us in individual sectors will, in the coming years, seek to expand their activities to become
integrated environmental management services providers.

Water
  
       Vivendi
  Water is the worlds leading private provider of water services to municipalities
  and industrial and commercialfirms. Its principal competitors are Suez (through its water
  business Ondeo), RWE (through its U.K. subsidiary Thames Water), Anglian Water,
  Severn Trent and Saur. Vivendi Water has a prominent position in the European
  and North American markets and a strong base for growth in Latin America and
  the Asia/Pacific
  region, especially Australia and China. Vivendi Water is a leading competitor
  in the rapidly growing industrial and commercial outsourcing market. Vivendi
  Water also has a leading position in the highly fragmented water treatment equipment
  market.

Waste
  Management 
       Our
  waste management operations are carried out mainly in Europe, where Onyx is
  one of the market leaders in the collection and treatment of household, commercial,
  industrial and hazardous waste. Onyxs
  main pan-European competitor is Suez. Onyx ranks among the top providers of
  household, commercial and industrial waste management services in the United
  Kingdom, along with Suez, Biffa and Shanks. Onyx also has a prominent market
  position in France, Norway, Switzerland, Israel, Ireland, Denmark, Portugal
  and Czech Republic. In Germany, where Onyx focuses on services to industrial
  and commercial customers, its biggest competitors are RWE Umwelt and Rethmann.

Onyx has taken significant steps toward consolidating its market position in North America through Onyx North America, which provides household, industrial and commercial solid and hazardous waste collection, recovery and treatment services, industrial
and commercial services and waste-to-energy services to customers in 30 states in the United States and 3 provinces in Canada. Onyxs major competitors in the United States include Waste Management, Allied Waste, Republic Services and Safety Kleen.

In Latin America, Onyxs operations are concentrated in Brazil, Venezuela, Mexico, Columbia, Argentina and Chile, where it primarily competes with Suez and a variety of local companies. Onyx operates its activities in South America through Proactiva, a
joint venture with FCC.

Onyx is one of the leading waste management service providers in the Asia/Pacific region, where its main competitors are Cleanaway, Suez and various local companies.

Energy
  Services 
       Dalkias
  traditional competitor in district thermal management is Suez through its subsidiary
  Elyo. Dalkia increasingly faces competition from large European gas and electricity
  companies such as Tractebel, RWE, E.on, Texas Utilities and Power Gen, especially
  for large district heating contracts in Eastern and Central Europe and for integrated
  energy services contracts. Outside France, Dalkia competes with local service
  providers such as the municipal utilities in Germany, which operate district
  heating systems and electricity and/or gas distribution systems. Dalkias
  competitors in co-generation consist primarily of large utilities companies
  such as RWE, E.on,

34

---

Texas Utilities, Endesa, National Power and Power Gen. Dalkia competes primarily with largefirms such as Honeywell and Johnson Control for facilities management business.

Transportation
  
       Most
  passenger transportation companies serve a limited geographic area. Connexs
  major competitors are companies that provide passenger transportation services
  in a number of different countries, including Stagecoach, National Express,
  First Group and Arriva. Connex also competes with local transportation service
  providers in a number of countries, including Go Ahead in the United Kingdom
  and Kéolis
  and Transdev in France. We anticipate that new competitors may seek to enter
  the market, including civil engineering companies, rolling stock manufacturers
  and government-owned operators seeking to expand into contiguous regions.

FCC
  
       FCC
  is the leading private provider of waste management services in Spain, with
  a share of the overall market (including the public and private markets) for
  waste management services of more than 40%. FCCs
  primary competitor in this market is Cespa. After Aguas de Barcelona, FCC is
  the leading private operator in the water and waste water treatment market in
  Spain.

The cement production sector in Spain is relatively concentrated. Through Cementos Portland, FCC is the second largest Spanish cement producer, with
approximately 16% of the Spanish market, according to Cement UnionOFICEMEN. Its main competitors
are Spanish branches of multinational cement manufacturers such as Cemex, Holderbank and Lafarge. Through Giant Cement, FCC is ranked as the 15th largest cement producer in the United States.

The construction market in Spain has recently undergone a process of consolidation. Five major competitors, one of which is FCC, have emerged. With
numerous small companies and a number of larger international companies vying for business, however, the market remains competitive.

Contracts
  
        The
  vast majority of our contracts to provide individual environmental services
  are medium and long-term agreements with municipal and industrial and commercial
  clients. Our contracts vary widely in terms of size, duration and the degree
  of responsibility and/or risk they impose on our company. Some require us to
  provide specific
  services on a one-time basis in exchange for a set fee; others give us broad
  responsibility for the implementation of large, long-term projects. Some require
  us to make substantial capital expenditures. Some of our contracts provide mechanisms
  through which particular risksfor example, the risk that
  passengers on a transportation network will fall to an uneconomic levelwill be shared by our counterparty.
  Others provide for renegotiation of terms in the event of a material change
  in circumstances. For example, contracts for outsourced water services typically
  require us to meet specified
  service requirements and are usually on afixed-price
  basis, subject to adjustments for inflation
  and other cost increases, while our water treatment equipment and systems services
  are usually provided under turnkey contracts for design and installation of
  systems that typically require customers pay a lump sum in several installments
  based on a predetermined schedule. The duration of a contract, which tends to
  increase with the level of responsibility and risk we assume, is generally based
  on the time needed to depreciate the investments made, set in place an efficient
  organization and achieve the expected improvements in the service provided.

We have a large number of contracts with governmental authorities, particularly in France. Contracts with governmental authorities often differ in a number
of respects from contracts with private parties, especially in civil law countries. Governmental contracts for essential community services such as water supply, waste water treatment and household waste treatment typically obligate the private
operator to provide a service to a given population, often on an exclusive basis, in accordance with operating conditions, including fees, that are defined by the governmental authority. The private operator also has a contractual relationship with individual service users, but that relationship is defined by the contractual terms established by the governmental authority.

There are a number of features common to French governmental contracts, including provisions that:

| |  | entitle
the governmental authority to modify or terminate the contract unilaterally if
the public interest so requires. If the contract is so modified
or terminated, the governmental authority must fully
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

35

---



| |  | compensate
      the private operator. In practice, unilateral termination of a contract
      by a governmental authority is extremely rare because it generally obligates
      the authority to pay a substantial indemnity and tofind
      alternative solutions to ensure continuity in the provision of the public
      service; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | allow,
      in long-term contracts, periodic review to ensure it remains fair to both
      sides.                                                                                                                                                                                                                                         

There
  are two major types of contracts recognized by European Community law that may
  be entered into with a governmental authority:

| |  | Concession
      contracts (also calleddelegated public service managementcontracts)
      are awarded by governmental authorities or other entities governed by administrative
      law. Under a concession contract, the private operator provides the public
      a service in return for fees or rates paid by the users of the service,
      the private operator assuming all managerial responsibility andfinancial
      risk. The private operator is generally responsible for maintenance of the
      plant and equipment used in providing the service. The private operator
      is typically required to construct the necessary facilities (and tofinance the construction),
      but ownership of the facilities generally reverts to the governmental authority
      at the end of the contract. During the life of the contract, the private
      operator holds the facilities in its books asfixed
      assets and depreciates them over the life of the contract. A concession
      contract in which the private operator is not required to invest in (but
      only to maintain and refurbish) the facilities it uses is typically referred
      to in France as anaffermagecontract.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Under
a public procurement (ormarché
public) contract, the private operator
agrees to provide a service for a set fee that is paid by the governmental authority.
Public procurement contracts are typically used when the governmental authority
itself is the recipient of the services provided, or when the governmental authority
desires the support of a private operator in providing public services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Under French law, neither concession nor public procurement contracts can be awarded without competitive bidding. European Community law, however, requires
competitive bidding only for public procurement contracts and contracts for building,financing and
operating facilities. Nevertheless, it is becoming increasingly common across Europe for contractsespecially major contractsbetween governmental authorities and private operators
to be awarded only after competitive bidding, even where it is not required.

The criteria used by public authorities to assess competitive bids include price, the investments candidates offer to make, the candidatesexperience and ability to provide high quality service while complying with applicable regulatory standards, and
the candidatesability to adapt to new regulatory standards. Regulatory authorities ensure that
public authorities delegating public services adhere strictly to applicable regulations. Those authorities may also invalidate a contract several years after it is entered into if those regulations have been violated (although the private operator
is entitled to compensation in the event of such invalidation).

The duration of public contracts depends primarily on the size of the investments to be made. Although European Community law does not limit the duration
of contracts with municipal authorities, French law provides that a contract may not exceed the period over which the private operator depreciates the investments it makes, if any. Accordingly, concession contracts typically last about 20 years, andaffermagecontracts usually last around 12 years. Management contracts with limited risks do
not generally exceedfive years.

Private operators are accountable to several governmental authorities with regard to the services provided. In some instances, these authorities may
publish statements critical of the private operators performance.

Outside of France, other countries with civil law systems, such as Spain and Italy, have adopted the French system of delegated management of public
services. Public authorities in these countries typically delegate services to private operators through contracts similar to concession,affermageor public procurement contracts.

In common law countries such as the United Kingdom and the United States, the law governing public contracts is less rigid than in civil law countries, and
the types of contract under which public authorities in such countries delegate the operation of services are more varied. Among the types of contract common in such countries are build-operate-transfer contracts, under which the private operator
undertakes to construct and operate the requisite facilities and assumes an obligation to transfer the installation to the public authority at the end of the contract; franchise contracts, which require the contractor to invest in equipment and to
operate the service in accordance with specifications established by a regulatory body; and service
contracts, under which the operator makes no investments and operates the service for afixed fee and/or a
share of the profit generated.

36

---

There is a growing trend in both developed and developing countries to adopt systems similar to the delegated public service management system used in
France. We believe that our experience with the French system gives us a competitive advantage.

Environmental
  Regulation and Policies 
       Environmental Regulation 
       Our
  businesses are subject to extensive, evolving and increasingly stringent environmental
  regulations in developing countries as well as in Western Europe and North America.

Water
       The
  water and waste water treatment industries are highly sensitive to governmental
  regulation. In Europe and the United States, governments have enacted significant
  environmental laws at the national and local level in response to public concern
  over the environment. The quality of drinking water and the treatment of waste
  water are increasingly subject to regulation in developing countries as well,
  both in urban and rural areas.

The quality of potable water is strictly regulated at the European Union level by the Directive on Drinking Water, which was transposed into French law in
December 2001. The collection, treatment and discharge of urban, industrial and commercial waste water is governed by the Directive on Urban Waste Water. Public authorities also impose strict regulations upon industrial and commercial waste water
that enters collection systems and the waste water and sludge from urban waste water treatment plants.

France has numerous laws and regulations concerning water pollution, as well as numerous governmental agencies involved in the enforcement of those laws
and regulations. Certain discharges, disposals, and other actions with a potentially negative impact on the quality of surface or underground water sources require authorization or notification. For instance, public authorities must be notified of any facility that pumps underground water in amounts that exceed specified volumes and French law prohibits or restricts release of certain substances in water. Individuals and companies are subject to civil and criminal penalties under these laws and regulations.

In the United States, the primary federal laws affecting the provision of water and waste water treatment services are the Water Pollution Control Act of
1972, the Safe Drinking Water Act of 1974 and related regulations promulgated by the Environmental Protection Agency (EPA). These laws and regulations establish standards for drinking water and liquid discharges. Each U.S. state has the right to
establish criteria and standards stricter than those established by the EPA and a number of states have done so.

Waste
  Management    In
  numerous countries, waste treatment facilities are subject to laws that require
  us to obtain permits to operate most of our facilities from governmental authorities.
  The permitting process requires us to complete environmental impact studies
  and risk assessments with respect to the relevant facility. Landfill operators must provide specificfinancial
  guarantees (which typically take the form of bank guarantees) that cover the
  monitoring and recovery of the site during, and up to 30 years after, its operation.
  Operators must comply with standards for landfills.
  Incineration plants are usually subject to rules that limit the emission of
  pollutants.

At the European Union level, the framework for waste management regulation is provided by directives that set overall regulatory goals of waste prevention,
collection, recycling and reuse. European Union member states must prohibit the uncontrolled discarding, discharge and treatment of waste. Entities that store or dump waste for another party must obtain an authorization from the relevant authority
that prescribes the types and quantities of waste to be treated, the general technical requirements to be satisfied and the precautions to be taken. Regulatory authorities frequently check compliance with those requirements. Additionally, specific European Union directives govern the operation of landfill sites, the collection and treatment of hazardous waste, and the operation of municipal waste-to-energy and incineration plants.

In
  France, pursuant to the provisions of the Environment Code relating to facilities
  registeredfor the protection of the environment, decrees and ministerial and administrative
  orders establish standards for treatment sites for household, industrial, commercial
  and hazardous waste. These orders govern, among other things, the design and
  the construction of waste treatment centers. Hazardous waste is subject to strict
  monitoring at all stages of the treatment

37

---

process. Waste-to-energy centers are subject to concessions that limit the amount of pollutant emissions of each center.

Our U.K. waste management operations and facilities are subject to the Environmental Protection Act of 1990, which requires local authorities to transfer
their waste treatment operations either to a specialized waste treatment entity owned by the local authority or to a private contractor, and the Environment Act of 1995, which addresses pollution control, land waste and nuisances. We are also
subject to the Pollution Prevention Control Act of 1999, which implements the requirements of European directive 96/61/EC relating to integrated pollution prevention control.

The major statutes governing our waste management activities in the United States include the Resource Conservation and Recovery Act of 1976, the Clean
Water Act, the Toxic Substances Control Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (also known asCERCLAorSuperfund), and the Clean Air Act, all of which are administered either by the EPA or state agencies to which the EPA
delegates enforcement powers. Each state in which we operate also has its own laws and regulations governing the generation, collection and treatment of waste, including, in most cases, the design, operation, maintenance, closure and post-closure
maintenance of landfills and other solid and hazardous waste management facilities. In order to develop and
operate a landfill, transfer station, hazardous waste treatment/storage facility or other solid waste
facility, we must typically undergo several difficult governmental review processes and obtain one or more
permits that may not ultimately be issued.

In view of the fact that the waste management business is subject to risks of liability for property damage and personal injury caused by pollution and
other hazards, we carry insurance policies covering what we believe to be the most important casualty risks. However, we cannot provide assurance that the coverage provided by these policies will be sufficient to cover any liability to which we may be subject. SeeItem 3. Key InformationRisk Factors.

Energy
  Services
        Our
  energy-related activities in Europe (primarily the supply of thermal and independent
  energy) are subject to a European directive that establishes emission limits
  for sulphur dioxide, nitrogen oxides and dust and regulates the construction
  of combustion plants. The European Parliament is considering an amendment to
  this directive that, if adopted, would impose emission thresholds twice as strict
  as those currently in effect. The new thresholds would apply to all new installations
  put into operation after a date that is yet to be determined. Other existing
  directives require the implementation of national emission ceilings for certain
  atmospheric pollutants such as sulphur dioxide, nitrogen oxide, volatile organic
  compounds and ammonia.

The use of gas and other combustible material in France is subject in some instances to a domestic natural gas tax. Energy produced by a co-generation
facility is exempt from this tax for a period offive years after the facility begins operations. The law
providing for this exemption was renewed in 1999; any co-generation plant we build before 2004 will therefore be eligible for the exemption.

Transportation    Our
  transportation service activities are subject to a number of European Union
  directives that limit emissions from petrol and diesel engines and require us
  to obtain certain permits. One directive sets forth guidelines for the laws
  of the member states with respect to the emissions of gas pollutants from diesel
  engines used in vehicles. Another directive sets forth guidelines for the laws
  of the member states with respect to emissions of gas and particulate pollutants
  from internal combustion engines installed in mobile equipment other than road
  vehicles. Stricter limitations on emissions of pollutants were adopted by the
  European Commission in October 2001, with further limitations expected to be
  adopted in 2005 which will require the installation of sophisticated fuel injection
  systems with particlefilters
  and carbon catalysts.

Environmental
  Policies 
       Our
  mission is to contribute to the enhancement of quality of life where we are
  present. As the leading provider of environmental management services in the
  world, we face the global need for development and have placed the challenges
  of durable development at the heart of our strategy. To this end, we do not
  focus only on the preservation of the environment and the protection of natural
  resources, but also assume our economic and social

38

---

responsibilities, particularly at a local level where we are committed to stimulating progress. Our environmental policies are described in our2001 Report for a Responsible Service Commitment to the Environment and Durable Developmentthat our company has published.

Durable development as a corporate value. We believe that development
will not be durable if it conflicts with economic growth and quality of life. We have raised the notion of
durable development into a common value for all of our 295,000 employees. Although the nature of our activities is oriented to the protection of the environment, we attempt to go beyond our professional expertise and are committed to development for
the good of future generations. We have adopted aCharter for Durable Developmentsetting forth our ten main commitments in this area, as well as practical methods of implementation of
these commitments in our day-to-day operations. We created an Environmental Management System in 2001 to implement action plans adapted to specific designated challenges. We intend to reinforce this system in 2002 with the adoption of quantitative targets that will allow us to measure our progress in this area.

Preserving ecological balances. Whether through the limitation of
water dissipation, the enhancement of the quality of our waste, the use of alternative energies in our heating operations, the recovery and treatment of biogas emissions at our landfills or the use of low-emission fuels in ourfleet of vehicles, our company has raised to the challenge of the main environmental problems currently affecting our planet by applying our excellent know-how, technological capabilities and research
potential to these problems. We contribute to the enhancement of quality of life and sanitary conditions of local populations in our day-to-day operations. For example, by supplying potable water to impoverished areas we help to reduce infant
mortality, as more than 2.5 million children die each year due to lack of access to potable water. Improvements in waste management also have a positive impact on quality of life and on human health. As a result, environmental management services
can be an important factor of accelerating a sociological revolution.

Preserving economic and social balances. We also consider the economic
and social factors that underlie the course of development in the countries in which we operate, and we work to develop solutions that are adapted to local constraints and know-how transfers. For example, we have developed integration strategies in
Tianjin, China, that have allowed our local employees to better understand the challenges in the provision of water services. We give preference to a partnership approach with non-governmental organizations (NGOs), local authorities and associations
in the implementation of action plans for the population of emerging countries, which permits the development of model plans that can be reproduced. In each of our projects, we seek to create a beneficial and educational dimension for the improvement of public health. For example, in Durban, South Africa, we have a launched a series of initiatives in
partnership local NGOs and under the supervision of the World Bank to promote education on public health and hygiene in order to ensure a better use of water. At a seminar held in December 2001 in Durban in which we and over 70 mayors and
environmental directors from around Africa participated, we agreed to continue to pursue our local activities by training customer service representatives to provide mostly educational and social services, particularly disseminating best practices
relating to water and waste.

We also launched the Aquadev world network in 2001. The goal of this network is to allow interested parties to exchange information and experiences on
water problems in impoverished areas of the planet and to propose answers to questions relating to environmental matters, including how to supply water to populations respecting the different economic constraints and using local associations, and
the nature of the role of NGOs in the development of these services.

In addition, we entered into an alliance with the Australian Antarctic Division (AAD) in 2001, which manages the activities of the Australian government in
the Australian zone of Antarctica, to participate in the preservation of Antarctica. Pursuant to this alliance, we have agreed to provide the AAD with our know-how and 240 special containers at no cost to enable the collection of approximately
300,000 tons of waste. We expect that this partnership will last for at least 10 years and that it will be extended to other zones of the Antarctic region.

The Vivendi Environnement Institute: a tool for durable development.
Human management of the environment represents a major challenge that requires the mobilization of a large number of resources, the support of the public at large and close cooperation among international, national and local participants. To address
this challenge, Vivendi Environnement created in 2001 the Vivendi Environnement Institute to encourage prospective reflection on

39

---

a number of issues relating to durable development, as well as progressively shed light on the principal trends that will influence the provision of environmental management services over the next decade.

Through its Prospects Committee, which is exclusively composed of individuals of international reputation and standing, the Vivendi Environnement Institute
benefits from the contribution of leading external expertise on different key subjects (including public
health, economy and human sciences) while maintaining a presence in the daily realities through our companys different activities. This dual capability represents both the originality and the strength of the Institute, which intends to be at the heart of the main environmental debates and issues of the 21st century. The main themes to
be considered within the Institute, which are guided and defined by the members of the Prospects Committee,
will include sanitary norms, the combat against the greenhouse effect and urban development. The work of the Institute should permit the creation of a platform for dialogue and exchanges on the main environmental, social and economic issues in the
near future to respond to the expectations of the public. As of the date hereof, the members of the Prospects Committee are:

| |  | Amartya
      Sen, economist, winner of the Nobel Prize for Economics in 1998 and a distinguished
      professor of economics at Trinity College, Cambridge, and of philosophy
      at Harvard University,                   
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Hélène
      Ahrweiler, historian, President of the University of Europe and an expert
      for UNESCO on human and social sciences,                                                                                          
| |  | Philippe
      Kourilsky, biologist, President of the Pasteur Institute in Paris, France,
      Director of Research at theCentre nationale de
      recherche scientifique(CNRS)
      and professor at the Collège de France,
| |  | Pierre-Marc
      Johnson, attorney, ex-Prime Minister of Quebec, Canada, and expert on environmental
      matters, and                                                                                                       
| |  | Harvey
      Fineberg, President of the Institute of Medicine of the United States.                                                                                                                                            

Intellectual
  Property 
       We
  currently own a significant number of patents in France, the United States and other
  countries around the world. Although we believe that the patents and trademarks
  associated with our various operations are of value, we do not consider any
  of them to be essential to our business.

We use the trademarkVivendi Environnementunder the terms of a trademark license agreement with
Vivendi Universal. SeeItem 7. Major Shareholders and Related Party TransactionsRelated Party Transactions.

Property,
  Plants and Equipment 
       We
  rent a building located at 36-38 avenue Kléber, 75116, Paris, France for
  use as our headquarters building. We are making certain improvements to the
  building, which are expected to be complete by May 2002. We will occupy approximately
  15,000 square meters of the building, using it for offices
  for members of our management and senior managers of our principal subsidiaries.

We generally conduct our water treatment, waste management, energy services and transportation operations at premises owned by our customers; as a result,
we do not own any important physical properties in connection with those operations. In connection with our waste management services, Onyx owns or operates approximately 184 sorting, recycling and transfer facilities, 140 solid waste
landfill sites and 68 waste-to-energy and incineration facilities worldwide. Onyx owns approximately
two-thirds of the solid waste landfill sites it operates.

In
  our transportation business, governmental authorities in France typically own
  the buses used on urban networks and lease them to Connex under the applicable
  operating contract. However, Connex usually owns the buses used on regional
  road networks. In the other countries in which we operate, Connex typically
  owns the buses used in both urban and regional road networks. With regard to
  rail networks, Connex usually rents, rather than owns, the trains it uses. In
  Sweden, for example, Connex operates the Stockholm metro under contract with
  the local transit authority, which owns the trains. In the United Kingdom, the
  trains are owned by rolling stock companies. In Germany, the trains are owned
  either by regional authorities (Länder) or by the local operator.

40

---

Marketing
  Channels
       We
  market our products and services primarily by taking advantage of our reputation
  and by continuously offering to provide a more comprehensive range of environmental
  services to existing clients. We analyze the environmental service needs of
  prospective and existing industrial and commercial customers and demonstrate
  to them how our services could improve the efficiency of their operations. The
  marketing efforts we direct toward public authorities comes primarily in the
  form of bids we submit for contracts to provide public services. See  Contracts.
  For more information regarding marketing channels used by each of our business
  segments, see  Our Services.

Seasonality
  
       Because
  of the nature of our operations and our worldwide presence, our business is
  typically not subject to material seasonal variations.

Raw Materials
  
       We
  purchase raw materials on a worldwide basis from numerous suppliers. We seek
  to accumulate and maintain a reserve inventory of raw materials and supplies,
  qualify new suppliers, and develop production processes in our own facilities.
  We undertake to secure strategic materials through medium-term and long-term
  contracts. We have not experienced difficulties
  in obtaining sufficient amounts of raw materials
  and supplies in recent years and we anticipate that we will be able to do so
  in the future. The price of raw materials and supplies may vary substantially
  in the future. For example, the price of fuel has, in recent years, exhibited
  considerable volatility. Significant
  increases in fuel prices are possible in the future as a result of increased
  demand, greater coordination among oil-producing nations and other factors.
  Our operations historically have not been, and are not expected to be in the
  future, materially affected by changes in the price or availability of fuel
  or other raw materials, as our contracts typically contain provisions designed
  to compensate us for increases in the cost of providing our services.

Insurance
  
       All
  of our operating divisions (water, waste management, energy services and transportation)
  maintain damage insurance policies that cover the assets and facilities that
  we own as well as those for which we have contractual responsibility. These
  policies typically provide for deductibles of€1 million for significant
  losses and of €100,000
  to€500,000 for all other
  losses. We are currently setting up an excess coverage line of€100 million, which may be increased
  to up to€200
  million for certain new sites, including, for example, Vivendi Waters
  Mery-sur-Oise site and Onyxs
  Halluin and Rouen sites in France, and our Taho site in Taiwan and our MST site
  in the Czech Republic.

Our
  operating divisions also maintain business loss policies for certain activities,
  which cover losses on assets and facilities that we own as well as those for
  which we have contractual responsibility. These policies are taken out in respect
  of large outsourcing contracts under which we do not have complete control over
  the regularity of services and volumes that are entrusted to us under these
  contracts.

Our
  main subsidiaries outside France, particularly in the United States, have coverage
  under damage and civil liability insurance policies that provide separate coverage
  in amounts ranging from US$ 50 million to US$ 250 million annually depending
  on the nature of the activity. Moreover, our rail transportation operations
  are covered by a specific civil liability program with a dedicated pool of 155 million British pounds.

Our
  operating divisions are also covered by a general civil liability policy that covers up to €30 million per insurable event, limited to €60 million on an annual basis,
  with a deductible of €30,000 per insurable event. In addition, because the coverage threshold of this policy for our subsidiaries outside France amounts to €1.5 million, we control
  the triggering of any guarantee greater than this amount. In light of the increase in insurance costs as a result of the major events at the end of 2001, and particularly
  the terrorist attacks in the United States on September 11 and the accident at the AZF plant in Toulouse, France, on September 21, we launched an international
  civil liability insurance program to enhance our protection regarding catastrophic events, optimize our insurance costs, simplify the management of our insurance
  coverage and adopt a global approach regarding insurance protection with coherent guarantees throughout all of our operating divisions.

41

---

In addition, we and Vivendi Universal have jointly entered into a civil liability excess policy that provides all of our subsidiaries with coverage of up
to U.S.$400 million. We also maintain a joint policy with Vivendi Universal covering management liability for all of our subsidiaries in an amount of U.S.$200 million.

We also maintain a specific policy covering civil pollution and environmental liabilities that provides all of our operating divisions with coverage of up to€30 million per insurable event each year.

Some
  of our important activities outside of France are covered by damage, business
  loss and civil liability policies that we are required to maintain either by
  contract or by the institutions thatfinance
  these activities. In addition, some investments abroad are covered by political
  risk policies with the Compagnie dAssurance
  Française
  pour le Commerce Exterieur (COFACE).

ORGANIZATIONAL STRUCTURE

Our company is divided into four operating divisions corresponding to each of our four business segments and a number of centralized corporate departments
that lead and coordinate the actions of teams present in each of the four operating divisions. Each of our operating divisions has one representative on our management board. We believe that this organizational structure encourages the coherent
development of our group by reinforcing its identity, maintaining solidarity and cohesion, favoring economies of scale and encouraging professionalism through the sharing of best practices.

SeeHistory and Development of the CompanyandItem 7. Major Shareholders and Related Party TransactionsMajor Shareholdersfor a description of the history of the creation of our organizational structure.

RESEARCH
  AND DEVELOPMENT

Research and development is a critical component of our ongoing effort to provide our customers with cost-effective and environmentally sound products and
services. Through our Research and Development Department, we coordinate our research and development efforts conducted by a total of 600 scientists and other researchers in several research centers around the world, particularly:

| |  | Anjou
Recherche and its affiliated centers in Germany, Australia and the United States,
which specialize in water related research,  
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | Centre
de Recherche pour lEnvironnement, lEnergie
et les Déchets
(CREED),
which focuses on waste and energy related research, and
| |  | Eurolum,
which focuses on transportation related research.                                                                           

Environment
  and Health     Our
  researchers are addressing, in coordination with our Health Department, a number
  of new risks to which populations are exposed despite the progress made over
  the past decades to improve public health and increase life expectancy around
  the world. In particular, our researchers rely on:

| |  | models
that optimize the supervision of the installations that we operate;                                                                                                                                                                                                                                                                                                                           
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
recognized and accredited analytical expertise of our laboratories, where, faced
with new environmental or sanitary concerns, our research teams pool their resources
to characterize substances that are often present in minuscule quantities (including,
for example, the measurement of dioxins that are semi-continuously in smoke and
the detection of endocrinal disrupters in water); and
| |  | the
development of treatment solutions, including new techniques to deactivate bacteria
in water, to optimize combustion and to treat smoke.                                                                                                                                                                                                                                                         

Our research efforts in this area also address the environmental, sanitary security and quality of life issues relating to our employees, including, for
example, one research program that focuses on improving working conditions within the facilities that we operate and reinforcing the security of our personnel employed in our waste collection and sorting activities.

42

---

The preservation of natural resources in the context of a durable development is a priority in our research and development efforts. Our research programs
address a number of different environmental domains, including:

| |  | the
preservation of water resources, including our dedicated program for Berlin, Germany;                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
preservation of land, including efforts to develop new uses or applications for
products derived from composted waste and the development of solutions to the
recognized deficit
of organic components in certain areas of land;                              
| |  | preservation
of raw materials through the development of waste recovery solutions; and                                                                                                                                                                            
| |  | preservation
of air and eradication of the causes of the greenhouse effect, including through
the containment of biogaz emissions at our landfills,
research oncleanor low-pollution
vehicles and new transportation logistics, and the use of renewable energy.

Our research and development efforts in passenger transportation focus on quality of air and environmental protection by encouraging passengers to use the
means of public transportation and to limit the use of individual vehicles. Our research programs seek simultaneously to improve our vehicles (use ofcleanenergy sources, electric
vehicles and tram and trains without catenary) and our passenger services (transportation on demand, multi-modal information, design and management of transit infrastructure and inter-modal title management).

Innovation
  to enhance quality of life     Our
  research programs allow us to develop new services and new processes to preserve
  the environment and enhance quality of life, including, for example:

| |  | in
the treatment of industrial effluents in the titanium industry, we have developed a solution
(MERIT procedure) that prevents the production of red gypsum, which until recently
was accumulated in lakes or disposed of at sea, and enables the production of
a usable sub-product;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | in
energy services, we arefinalizing the development of energy storage solutions and new
co-generation systems to limit the emission of greenhouse gases;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | in
transportation, we have recently developed an information system (PHOEBUS) that
optimizes the performance and reliability of transportation networks. Based on
GSM mobile communication technologies, this system, which has already been implemented
in the Ile-de-France department in France, was conceived primarily for small and
medium-size transportation networks to facilitate the management of the network
and vehiclefleets,
to provide real-time information to passengers and to interact with local traffic
controllers, such as traffic lights, to give priority
to public transportation vehicles. The simplicity of the systems components and techniques
used will enable us to quickly generalize the application of the PHOEBUS concept
and service.

Our solutions for the treatment of sludge, in particular, shows our will to be a leader in innovation in our industry. We have developed a range of
solutions for the treatment of this sub-product, which is produced in increasingly large quantities. We have also developed a number of sludge-related solutions, including procedures to reduce the production of sludge by-products (BIOTHELYS
procedures), to enhance the quality of sludge by-products (SAPHYR procedures to sanitize and reduce odors from sludge), and to recover and recycle sludge by-products (PYROMIX co-incineration procedure and ATHOS procedure). In particular, our ATHOS
procedure, which was developed by Anjou Recherche based on Vivendi Waters experience with wet air
oxidation process for industrial effluents, is a type of combustion that does not produceflames or smoke and that emits acleangas by-product, an organic liquid by-product that is eliminated through biological procedures used in water treatment, and a solid by-product. In 2001, the ATHOS procedure was chosen for the treatment of sludge generated by the
new wastewater treatment plant in northern Brussels, Belgium.

We
  also devote a part of our research efforts to ensure that our new solutions
  are accessible to the largest number of people possible. A significant
  number of our research programs focus on optimizing existing techniques and
  solutions. For example, we are currently developing a methane index sensor that
  improves the performance, in terms of energy and environmental protection, of
  co-generation facilities. Also, based on the experience we have acquired at
  our potable water production facilities, including our Méry-sur-Oise
  plant in France (with a treatment capacity of 140,000 m3per
  day) and our Clay-Lane center in the United Kingdom (with a treatment capacity
  of

43

---

160,000 m3 per day), we are deploying our membrane filtration techniques in potable water and wastewater treatment and recycling. Our
Australian researchers have recently developed a new generation of membranes for filtration, which are being used in our Australian potable water treatment facilities (with a treatment capacity of 126,000 m3 of potable water per day) and will be installed shortly in our Singapore wastewater recycling facilities (with a treatment capacity of 30,000 m3 of wastewater per day).

We believe that research and development enables us to enhance our competitiveness by focusing on new technologies that allow us to meet our
customers demands and improve the quality of the environment. In particular, our research efforts allow us to develop new processes for our industrial customers, which we believe will be an important growth factor for our company in the next few years.

44

---

ITEM
  5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our operations should be read in conjunction with ourfinancial statements and related notes included elsewhere in this document. The following discussion contains forward-looking statements that involve risks and
uncertainties, including, but not limited to, those described underItem 3. Key
InformationRisk Factors.Our results may differ materially from those anticipated in the forward-looking statements.

OVERVIEW

Our company has grown substantially over the period from 1999 to 2001, with revenue increasing by almost half over this period and operating income also
increasing substantially excluding the impact of a non-recurring goodwill write-down in 2001. Part of our growth has resulted from the combination of our energy service assets with those of EDF and our selective acquisitions in strategic areas. We
have also generated significant organic growth since 1999 as a result of an increasing number of contracts
that we have won during the past three years, and we anticipate that our newest contracts should permit us to continue to record significant growth in the next several years.

Major Developments
  in 2001Developments
  Relating to Our Shares     In
  August 2001, our shares were included in the CAC 40, the main equity index for
  French companies published by Euronext Paris. In October 2001, we listed our
  shares on The New York Stock Exchange in the form of American Depositary Shares.

In February 2001, our controlling shareholder, Vivendi Universal, issued approximately€1.8 billion principal amount of bonds that are exchangeable for shares representing 9.3% of our share capital, which had been purchased by Vivendi
Universal at the time of our initial public offering. In December 2001, Vivendi Universal sold a block of our shares representing 9.3% of our share capital, as a result of which Vivendi Universals shareholding in our company decreased from 72.3% to 63.05%. In addition, in December 2001 we distributed one free warrant for each of our shares.
Subject to adjustments, each 7 warrants will entitle the holder to subscribe one share of our company at a subscription price of€55 per share at any time on or prior to March 8, 2006.

Developments
  Relating to Our Business
       The
  year 2001 marked a period of strong growth for our company despite the global
  economic downturn. Our revenue increased by 10.9% in 2001 principally as a result
  of organic revenue growth of 7.5% in our business segments, which reflected
  organic revenue growth of 7.4% in France and 7.6% outside of France. The implementation
  in 2001 of the strategic partnership we entered into with EDF at the end of
  2000 and, to a lesser extent, our selective acquisitions of medium-sized strategic
  companies to complement and reinforce our international operations contributed
  3.2% of external revenue growth to our company in 2001.

We achieved substantial operating growth and results despite a difficult business environment attributable mainly to the economic slowdown in the United States, which worsened in the second half of 2001, a significant decline in paper prices in Europe and the transfer of our contract to operate the South Central rail network in the United Kingdom. We also won a
significant number of new outsourcing contracts in 2001 with public authorities and industrial customers,
including several contracts that combine the services of our various operating divisions.

Major
  Contracts with Public AuthoritiesThe
  major contracts we won in 2001 with public authorities include contracts relating
  to:

| |  | the
treatment and distribution of potable water and the collection and treatment of
wastewater in Prague, Czech Republic, with expected average annual revenue of€110
million for 13 years,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | water,
wastewater treatment and electricity services in the cities of Tangiers and Tetouan,
Morocco, with expected total revenue of€4.5
billion over 25 years,                             
| |  | household
waste collection in the most important area of downtown Singapore, with expected
average annual revenue of€10
million for 5 years,                                               

45

---

| |  | the
construction and operation of a wastewater treatment plant in North Brussels,
Belgium, for 20 years, with expected total revenue of€1.3
billion,                                                                                                      
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
management of the complete water cycle in the Ambito Territoriale Ottimale (ATO)
of Latina, Italy, with expected average annual revenue of€64.5
million for 30 years, which was awarded to a consortium led by us and in which
we hold a 40% interest,
| |  | the
heating network in Alytus, Lithuania, with expected average annual revenue of€12.5
million for 15 years,                                                                                                                                              
| |  | the
operation of the BBA bus network, with expected total revenue of€720 million over 6 years,
and                                                                                                                                                        
| |  | the
integrated management of municipal waste and waste-to-energy services and the
operation of an urban heating network in Sheffield,
U.K., with expected average annual revenue of€67
million for 30 years.                                              

The revenue amounts that we expect to earn from these contracts take into account updates to our volume and price assumptions since the date these
contracts were publicly announced. As a result, announced revenue amounts may differ from the amounts of expected revenue contained in this document. In the case of combined contracts to build and operate facilities, expected revenue amounts
reflect total revenue expected to be generated from both services.

Significant Growth in Outsourcing Services to Industrial Customers     We
  won a number of significant contracts to provide outsourcing services to industrial
  customers, including contracts relating to:

| |  | the
operation of four plants for the production of ultra-pure water and of two plants
for the treatment of wastewater and effluents
for Hynix Semiconductors Corporation, with expected total revenue of€900
million over 12 years,
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
design, construction and operation of industrial effluents treatment facilities
in France of Millennium Chemicals Inc. for 10 years, with expected total revenue
of€165
million, including expected equipment sales,           
| |  | the
collection and treatment of wastewater generated by Spolchemie in Czech Republic,
with expected average annual revenue of€2
million for 10 years,                                                                              
| |  | the
outsourcing of industrial services for Usinors new site in Vega do Sul,
Brazil, with expected average annual revenue of over€20 million for 15 years, and                                                                     
| |  | the
co-generation of 23MW for Astra Zenecas site in Macclesfield,
U.K., for 15 years.                                                                                                                                             

Strategic
  Acquisitions
       We
  continued to pursue our policy of making selective strategic acquisitions of
  assets and medium-sized companies in 2001. Our main acquisitions in 2001 were:

| |  | in
the waste management sector, a 65% interest in a new company created to conduct
the waste management operations of Marius Pedersen, a Danish foundation, particularly
in Denmark, Czech Republic and Slovakia, for€85
million, which was mostly effected through a capital increase in the acquired
company;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | in
the energy services sector, Siram, an Italian energy services provider, for€81.8
million (which represents our proportional share of the total purchase price based
on our stake in Dalkia); and                                                                                                            
| |  | in
the transportation sector:                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                               

46

---

In addition, in thefirst half of 2001 our company and EDF consummated the transactions contemplated in our agreement signed in December 2000 pursuant to which EDF contributed its energy services operations to Dalkia, our main energy services
subsidiary, in exchange for a 34% equity interest in Dalkia. As the French electricity deregulation process continues, we expect EDFs stake in Dalkia to eventually rise to 50%. SeeItem 4. Information on the CompanyBusiness OverviewOur ServicesEnergy Servicesfor a more detailed
description of the EDF contract.

We also launched a divestiture program for non-strategic assets in 2001. We generated proceeds from sales of non-strategic assets in 2001 of€598 million, reflecting€206 million of sales of operating assets
and€392 million of sales offinancial assets. Our sales were the result of two principal factors. Thefirst was the implementation of our agreement with EDF, which resulted in a net sale of€92 million after the consummation of all purchase and sale transactions between our company and EDF. The second was our effort to refocus our business on our environmental management services. In
2001, our sale of Johnson Screen, a subsidiary of the Filtration and Separation division of United States Filter Corporation, our main water subsidiary in the United States, represented thefirst phase of our divestiture program relating to non-strategic assets held by this subsidiary. We expect to continue pursuing this divestiture program in the
United States in 2002. For the same reasons, we also disposed of our minority interest in Midkent, a U.K. water distribution company, and FCC disposed of its participation in Safei, afinancial services company.

Presentation
  of Information in this Section 
       Definition
  of organic and external growth    As
  used in this document, the termorganic growthincludes
  growth resulting from (1) the expansion of existing contractual arrangements
  through increases in prices and/or volumes delivered, (2) new contracts and
  (3) acquisitions of assets dedicated to a particular project for use pursuant
  to particular contracts. Regarding the latter category, we frequently offer,
  in the course of bidding on a contract, to acquire operating assets related
  to the performance of the contract. The termexternal
  growthincludes growth resulting from acquisitions (net of disposals)
  of entities and assets used in multiple markets and/or the performance of multiple
  contracts.

Changes
  in Accounting Methods and Presentation of AccountsChanges
  in Income Statement Presentation     To
  harmonize the presentation of our accounts with international practices, and
  in compliance with Regulation 99-02 of the French Accounting Regulation Committee(Comité
  de la Règlementation Comptable),
  we have changed our accounts to present our income statement by function, as
  opposed to our previous method of presenting our income statement by category
  of expense. This change in classification has two principal consequences
  for the presentation of our consolidated income statement:

| |  | We
no longer record construction for internal use assets as a component of revenue
under French GAAP. Instead, construction for internal use assets is now recorded
as a deduction from cost of sales in the same manner as it is recorded under U.S.
GAAP. As a result, our revenue only reflects services invoiced to third parties.             
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our
operating income is presented in a traditional international format as our revenue,
less cost of sales, selling, general and administrative expenses, other operating
expenses, goodwill amortization and restructuring expenses. Certain expenses that
we previously classified as exceptional items are now classified
as operating expenses.

Because 2001 is a year of transition to our new accounting presentation, and because operating income under the new presentation is not available broken
down by business segment for 2000 and 1999, we have presented our operating income under both the old presentation method and the new presentation method. To distinguish between the old presentation and the new, for purposes of this years discussion of our results of operations we have called the new version of operating incomeoperating income (new definition),retaining the termoperating incomefor the old definition. In Note 2 to our consolidatedfinancial statements, we present a reconciliation
of our operating income (new definition) and our operating income under the prior presentation method. We
have also restated ourfinancial statements for 1999 and 2000 to reflect the new presentation method.

47

---

For the purpose of our French accounts, we have also adopted a new measure of operating performance, which we refer to asEBIT.This new measure of performance is not computed for our U.S. accounts. We define EBIT as operating income (loss) (new definition) before amortization of goodwill
and restructuring charges. EBIT is not a measurement of operating performance calculated in accordance with accounting principles generally accepted in France or the United States, and should not be considered a substitute for operating income, net
income, cashflows from operating activities or other statement of operations or cashflow statement data prepared in accordance with accounting principles generally accepted in France or the United States, or as
a measure of profitability or liquidity. Because of its recent adoption, EBIT is not indicative of our
historical operating results, nor is it meant to be predictive of potential results. Because all companies do not calculate EBIT identically, the presentation of EBIT contained in this document may not be comparable to similarly named measures of
other companies.

The following table shows our revenue, EBIT, operating income and operating income (new definition) forfiscal years 1999, 2000 and 2001:

|(in
      millions of€)                                                              | 2001   |   | 2000                                          |  | 1999   | 
|------------------------------------------------------------------------------------ | ------ | - | --------------------------------------------- |  | ------ | 
|                                                                                     |        |   |                                               |  |        | 
|                                                                                     |        |   | (restated
      exceptoperating
      income) | 
|Revenue                                                                              | 29,127 |   | 26,263                                        |  | 20,930 | 
|EBIT                                                                                 | 2,013  |   | 1,650                                         |  | 1,376  | 
|Operating
      Income                                                               | 2,053  |   | 1,910                                         |  | 1,476  | 
|Operating
      Income (Loss) (New Definition) before goodwill
         amortization | 1,707  |   | 1,364                                         |  | 1,158  | 
|Operating
      Income (Loss) (New Definition)                                       | (946   | ) | 1,289                                         |  | 962    | 

Changes
  in Accounting for Goodwill 
     Until
  the end of 1999, and in accordance with French GAAP, we recorded the portion
  of goodwill attributable to acquisitions which were completed through the issuance
  of shares as a charge to our shareholdersequity
  up to the amount of the related share premium. We listed our shares on the New
  York Stock Exchange in October 2001, as a result of which we are required tofile with the U.S. Securities and Exchange Commission each year
  an Annual Report on Form 20-F that includes a reconciliation of equity and net
  income recorded under French GAAP to equity and net income as adjusted for the
  approximate effects of the application of US GAAP. One of these adjustments
  was the reclassification
  of the goodwill recorded under French GAAP as a reduction of shareholders equity
  to the assets under US GAAP.

Pursuant
  to the French Commercial Code, the listing of our shares on The New York Stock
  Exchange constitutes a new event that requires us to improve the quality of
  our publicly-availablefinancial
  information by minimizing the differences between our accounts under French
  and U.S. GAAP. Accordingly, we will no longer record any goodwill as a reduction
  of shareholdersequity as permitted under French GAAP. Because we paid for
  the acquisition of United States Filter Corporation in 1999 through the issuance
  of shares to the former shareholders of the acquired company, we had allocated
  a significant
  portion of the goodwill recorded in connection with this acquisition to reduce
  shareholdersequity
  in 1999 in accordance with French GAAP. In 2001, we reversed this allocation
  for an amount of€2.037
  billion, net of deemed amortization from the date of acquisition and recorded
  this amount of goodwill as an asset on our balance sheet. We then recorded an
  exceptional charge of€2.611 billion for the write-off of goodwill. We believe that
  the methodology we used in determining the amount of the write-off is similar
  to the impairment test that we will be required to use beginning with our 2002financial
  statements under US GAAP pursuant to SFAS 141 and 142. However, the amount of
  impairment, if any, that we record in 2002 under US GAAP will be based on circumstances
  that will exist when we prepare our 2002financial statements, and could differ from the amount of our
  French GAAP write-down in 2001.

Transfer
  of Assets from Vivendi Universal 
       During
  2000, Vivendi Universal transferred to us a number of water distribution and
  wastewater treatment assets pursuant to agreements described underMajor
  Shareholders and Related Party TransactionsRelated
  Party Transactions.To facilitate
  comparisons with previous periods, we have restated our income statements and
  balance sheets for 1999 to include the income generated by these assets as determined
  under French GAAP. Vivendi

48

---

Universal did not transfer any significant
assets to us during 2001. This is in addition to our restatement to reflect our changed accounting
presentation described above.

Critical
  Accounting Policies 
       We
  prepare our consolidatedfinancial statements in conformity with accounting principles
  generally accepted (commonly referred to as GAAP) in France. Our consolidatedfinancial statements are impacted
  by the accounting policies used and the estimates, judgments and assumptions
  made by management during their preparation. These estimates and assumptions
  affect the reported amounts of assets and liabilities at the date of thefinancial
  statements and the reported amounts of revenue and expenses during the periods
  presented. The significant
  accounting policies that we believe are the most critical to aid in fully understanding
  and evaluating our reportedfinancial
  results are those relating to public service contracts, revenue recognition,
  facilities and asset maintenance and those relating to goodwill recognized in
  connection with businesses transferred to us by Vivendi Universal.

Public
  Service Contracts 
       Revenue
  Recognition.We
  provide our municipal water, waste management, energy and transportation services
  through public service contracts with public authorities. Revenue is recognized
  on these contracts when services are rendered in accordance with the terms of
  the contracts. On an exceptional basis, we may also operate management contracts
  in which we manage a public service for afixed
  fee as well as an incentive which is calculated in relation to the performance
  of the contract. For these contracts, we recognize billing to customers as revenue
  and all related costs as operating expenses. Revenue resulting from government
  subsidies associated with long-term operating agreements is recorded ratably
  over the year.

Facilities.Facilities that we operate are generallyfinanced by and remain the property of local authorities throughout the contract period. Individual facilitiesfinanced by us as a consequence of specific contractual terms are recorded asfixed assets and depreciated to their estimated residual value, if any, on the shorter of their economic useful lives or the contracts term. If the term of the contract is shorter than the economic useful life of the asset, this depreciation is classified as a liability as afinancial depreciation under French GAAP.

Fees paid to local authorities.We do not have any obligation for
compensation payments to local authorities during the contract period, except for fees that have been agreed upon by both parties and formally defined by the contract. We expense ratably fees that are paid annually and amortize these costs on a straight line basis over the life of the contract when the fees consist of payments at the beginning
of the contract.

Commitments to Maintain and Repair Assets and Planned Maintenance Projects.We generally assume a contractual obligation to maintain and repair facilities managed through public service contracts. Corresponding repair and maintenance costs are expensed as incurred, except for some investments in joint
ventures where costs are accrued in advance. We expense costs relating to planned maintenance projects as they are incurred.

Landfill Capitalization and Depletion.Landfill sites are carried at cost and amortized ratably using the units of production method over the estimated useful life of the
site as the airspace of the landfill is consumed. Landfill costs include capitalized engineering and other professional fees paid to third parties incurred to obtain a disposal facility permit. When we determine
that the facility cannot be developed or the likelihood of grant of the permit cannot be determined before itsfinal authorization, as it is the case in France and in the United Kingdom, these costs are expensed as incurred.

Landfill Closure and Post-closure Costs.We havefinancial obligations relating to closure and post-closure costs and the remediation of disposal facilities we operate or for
which we are otherwise responsible. Landfillfinal closure and post-closure accruals consider estimates for costs of thefinal cap and cover for the site, methane gas control, leachate management, groundwater monitoring, and other monitoring and maintenance to be incurred after
the site discontinues accepting waste. The cost estimates are prepared by engineers based on the applicable local, state and federal regulations and site specific permit requirements. These estimates do not take into account discounts for the present value of total estimated costs. We accrue a reserve for these estimated future costs pro rata over
the estimated useful life of the sites. Accruals for environmental remediation obligations are recognized when such costs are probable and reasonably estimable. These liabilities are classified as reserves and allowances.

49

---

Goodwill
  Related to Businesses Transferred by Vivendi Universal
       Businesses
  Transferred by Contribution.
  Assets or operating entities that Vivendi Universal contributed to us have been
  recorded at net book value, and we have recorded them in our consolidatedfinancial statements at historical value.

Businesses Transferred by Sale. Sales of assets or operating entities
by Vivendi Universal to us or our subsidiaries were made at market value which, in certain cases, has resulted in the generation of additional goodwill. The most significant portion of the additional goodwill resulted from the creation of our water segment and the transfer of the remaining stake of our energy segment to its
holding company. This goodwill is reflected in our consolidatedfinancial statements.

See Note 2 to our consolidatedfinancial statements for additional information on the significant accounting policies
used in preparing ourfinancial statements. See alsoChanges in Accounting Methods and Presentation of AccountsandTransfer of Assets from Vivendi Universalfor other material information
regarding the presentation of our accounts.

U.S.
  GAAP Reconciliation
       Our
  consolidatedfinancial statements have been prepared in accordance with French
  GAAP, which differs in certain significant respects from U.S. GAAP. Under U.S. GAAP, we had net income
  of€180.3
  million for the year ended December 31, 2001 and of€433.4
  million for the year ended December 31, 2000 and a net loss of€348.3
  million for the year ended December 31, 1999, compared to a net loss of€2,251.2
  million and net income of€614.8
  million and net loss of€42.3 million respectively under
  French GAAP. Under U.S. GAAP, shareholdersequity was €6,780.7 million at December 31, 2001,€6,569.2 million at December 31, 2000 and€1,767.5 million at December 31, 1999, compared to€5,740.0 million,€6,208.3 million and€678.1 million under French GAAP.

The most significant item in reconciling French GAAP and U.S. GAAP in 2001, as applied to our company, relates to the impairment of goodwill. See Note 26 of our consolidatedfinancial statements. In 2001, the method used to evaluate goodwill under U.S. GAAP, as defined by SFAS No. 121 in force until December 31, 2001, led us to reverse under U.S. GAAP, a portion of the goodwill impairments recorded under French GAAP. As
a result, our writedown of€2.6 billion in goodwill recorded in connection with the acquisition of
United States Filter Corporation has been adjusted under U.S. GAAP. The most significant item in
reconciling French GAAP and U.S. GAAP for the years 2000 and 1999, as applied to our Company, was related to goodwill accounting. Until December 31, 1999 and in accordance with French GAAP, for acquisitions which were completed through the issuance
of capital, the portion of goodwill attributable to such proceeds could be charged to shareholdersequity, up to the amount of the related share premium (this option was adopted for the acquisition of U.S. Filter). Under U.S. GAAP, this option is not permitted and goodwill is recorded as an asset and amortized over the
estimated useful life, not to exceed 40 years.

Other significant reconciling items relate to the use of the proportionate consolidation method, intangible assets,financial instruments, public service contracts and stock based compensation. These items are further described in Note 26 to our consolidatedfinancial statements.

Under U.S. GAAP we had operating income of€1,033.2 million for the year ended December 31, 2001, €903.3 million for the year ended December 31, 2000 and€558.0 million for the year ended December 31, 1999, compared to operating loss (new definition) of€946.4 million, operating income (new definition) of€1,289.3 million and operating income (new definition) of€961.9 million, respectively, under French GAAP.

The most significant differences between our French GAAP operating income (loss) (new definition) and
our U.S. GAAP operating income are due to:

| |  | the
      impairment in the year 2001 of the goodwill related to United States Filter
      Corporation, which has been adjusted under U.S. GAAP as described above;
      and                                             
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
      proportionate consolidation of investments in joint ventures that would
      be accounted for under the equity method pursuant to U.S. GAAP (impact of€401.4
      million for the year ended December 31, 2001,

50

---



| |  | €314.5
      million for the year ended December 31, 2000 and€123.6
      million for the year ended December 31, 1999);
| |  | ------------------------------------------------------------------------------------------------------------------------



RESULTS OF OPERATIONS

Year ended
  December 31, 2001 compared to year ended December 31, 2000Revenue
  Overview
  
       We
  generated revenue of€29.1 billion in 2001, an increase of 10.9% from revenue of€26.3
  billion in 2000 (as restated to take into account our new accounting presentation).
  This increase is principally attributable to organic growth in our businesses
  (7.5%), the full-year impact of acquisitions made in 2000 and the consolidation
  of revenue generated by companies acquired in 2001 (3.2%), and the impact of
  exchange ratefluctuations
  (0.2%).

The full-year impact of acquisitions made in 2000 represents an increase in revenue of approximately€111 million in 2001, mainly attributable to:

| |  | the
      acquisition of Pacific Waste Management, a Hong Kong-based operator, consolidated
      over 12 months in 2001 and 6 months in 2000, which contributed an additional€48 million in revenue
      in 2001;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | several
      acquisitions in the United States, which contributed an additional€41
      million in revenue 2001; and                                                                                             
| |  | the
      acquisition of RIMSA, a Mexican waste management company, consolidated over
      12 months in 2001 and 6 months in 2000, which contributed an additional€6
      million in revenue in 2001.            

Operations acquired in 2001 contributed a total of approximately€1.1 billion to our revenue in 2001, mainly attributable to:

| |  | the
      consolidation of EDFs energy services operations in Dalkia pursuant to the implementation
      of our strategic partnership agreement with EDF, which contributed an additional€838
      million in revenue in 2001;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
      acquisition of 65% of the waste management operations of Marius Pedersen,
      a Danish foundation, which contributed an additional€94
      million in revenue in 2001;                                              
| |  | the
      acquisition of Siram, an Italian energy services provider, which contributed
      an additional€43
      million in revenue in 2001; and                                                                              
| |  | the
      acquisition of a number of waste management operations in Norway, which
      in aggregate contributed an additional€25
      million in revenue in 2001;                                                              
| |  | the
      acquisition of Yellow Transportation, a U.S. operator, which contributed
      an additional€24
      million in revenue in 2001.                                                                                      

51

---

The following table shows a breakdown of our 2001 revenue by business segment, both in France and elsewhere:

|                       | 2001   |  | 2000(1)              | 
|---------------------- | ------ |  | -------------------- | 
|                       |        |  |                     
|(€
      billions)     | France |  | Outside
      France | 
|                       |        |  |                      | 
|Water                  | 6.2    |  | 7.4                  | 
|Waste
      management | 2.4    |  | 3.5                  | 
|Energy                 | 2.7    |  | 1.3                  | 
|Transportation         | 1.0    |  | 2.1                  | 
|FCC(2)                 |       |  | 2.5                  | 
|                       |        |  |                      | 
|Total                  | 12.3   |  | 16.8                 | 
|                       |        |  |                      | 

|   
|---
|(1)
|(2)

Revenue generated outside France totaled€16.8 billion in 2001, an increase of 8.7% compared with revenue generated outside France in 2000, representing 57.5% of the total, which reflects growth in all of our operating segments.

The following table shows a breakdown of our 2001 revenue by business segment and by geographical region outside of France:

|                       | 2001                         |  | 2000(1)                      | 
|---------------------- | ---------------------------- |  | ---------------------------- | 
|                       |                              |  |                              | 
|(€
      billions)     | Euro
      zoneoutsideFrance |  | Europeoutsideeuro
      zone | 
|                       |                              |  |                              | 
|Water                  | 1.2                          |  | 1.0                          | 
|Waste
      management | 0.3                          |  | 1.1                          | 
|Energy                 | 0.5                          |  | 0.7                          | 
|Transportation         | 0.4                          |  | 1.5                          | 
|FCC(2)                 | 2.2                          |  | 0.1                          | 
|                       |                              |  |                              | 
|TOTAL                  | 4.6                          |  | 4.4                          | 
|                       |                              |  |                              | 

|   
|---
|(1)
|(2)

Revenue from the euro zone outside France increased by 8.9% in 2001, principally due to strong growth of our transportation business and FCC. The
substantial growth in transportation services in this region was attributable primarily to the full-year impact of the acquisition in 2000 of the Taeter group, a German operator, and strong growth in Germany, where we benefited from rail contracts won in 2000, The Netherlands, where we commenced operating BBAs contract, Finland and Denmark. Growth in FCCs business, which increased by 15.6% in 2001, was principally attributable to strong demand in Spain.

52

---

The growth of approximately 7.6% in Europe outside the euro zone countries was driven by our water services and waste management businesses, which offset
the 10.8% decline in our transportation business in 2001. Growth in our water services business was mainly attributable to the commencement of operations under contracts won in 2000 and 2001, including our contracts in Prague, Bucharest and Ploiesti
(Romania). Growth in our waste management business was mainly due to the acquisition of Marius Pedersens operations in Denmark and Central Europe. The decline in our transportation business in this region in 2001 resulted principally from the transfer of our South Central line contract in the United Kingdom during the second half
of 2001, which was partially offset by growth in our transportation services in Denmark.

In the Americas, our revenue grew 6.1% in 2001. We experienced our strongest growth in this region in North America, where our revenue increased by over
11.2%, which more than offset a decrease in revenue of 21% in Latin America, and particularly in Mexico. This increase was mainly due to the full-year impact of the waste operations of Allied Waste acquired in 2000 and of waste operations acquired
by Superior Services in 2000, and, to a lesser extent, to the impact offluctuations in the U.S. dollar
exchange rate. Revenue from our water services business only increased by 1.8% in 2001 due to the difficult
economic conditions in North America.

We experienced growth of 15.6%, in the Asia-Pacific region in 2001, primarily due to new waste management contracts and the commencement of operations under contracts awarded to Vivendi Water in 2000 and 2001, particularly by Hyundai Petrochemicals
and Hynix Semiconductors.

Water
  
       During
  2001, our water business posted revenue of€13.6 billion, an increase of
  6.8% compared with 2000. This increase is mainly attributable to organic growth,
  which represents 5.5% of the increase, and the impact offluctuations
  in currency exchange rates, particularly with respect to the U.S. dollar, which
  represents 0.9% of the increase. External growth resulting from the transfer
  by Vivendi Universal to us of Sociétédes
  Eaux de Guadeloupe in 2001 represents the remaining 0.4% of the increase in
  our water revenue.

Revenue recorded by Vivendi Water Systems grew by 9.2% to€1.3 billion in 2001. This growth was driven mainly by a solid operating performance in a very competitive market, particularly in France.

In France, our water distribution and engineering operations posted a 4.9% increase in revenue to€5.9 billion. Water distribution revenue grew by 4% as a result of price indexing mechanisms and a small increase in volumes. Revenue generated by our
specialized engineering subsidiaries grew by 9%, mainly as a result of substantial cyclical demand. Our 2001 revenue also benefited from an overall increase in services provided to industrial customers.

Outside France, water revenue amounted to€7.4 billion, an increase of 7.4% (€450 million)
over water revenue recorded outside France in 2000, reflecting strong growth in ourRest of Worldsegment (24.9%) due to the commencement of operations under new contracts, particularly in continental Europe and Asia. Revenue generated in North America, and particularly the United States,
remained stable in dollars, whilefluctuations in currency exchange rates had a positive impact of€134 million that resulted in an increase of 1.8% in revenue in euro. Within Vivendi Water North
America, strong growth in municipal and industrial outsourcing revenue, which increased by 8.2% in 2001, more than offset lower sales of water equipment and Culligan products as a result of the economic slowdown in North America.

Waste
  Management
       Our
  waste management operations continued to show strong growth as revenue rose
  to€5.9
  billion in 2001, an increase of 12.4% compared with 2000, of which organic growth
  represented 8.3%.

In France, our waste management revenue increased by 3.7% despite a decline in paper prices. Revenue growth was mainly attributable to strong operating
performance, particularly in selective collection, incineration and industrial waste services, with significant increases in volumes and price renegotiations in 2001, as well as to the impact of new contracts won and existing contracts renewed in 2001.

Revenue generated outside France increased by 19.5% to€3.5 billion, reflecting the increasing
internationalization of our waste management operations, which represented 58.7% of our waste management revenue in 2001 compared to 55.2% in 2000. Growth in revenue outside France was concentrated mainly in Europe

53

---

with the acquisition of 65% of the waste management operations of Marius Pedersen in Northern and Central Europe in May 2001, and in Asia with a number of new contracts won in 2001 and
the full-year consolidation of Pacific Waste Management acquired in 2000.

Energy
  Services 
       Our
  energy services revenue was€4.0 billion in 2001, an increase
  of 34.4% from revenue of€3.0 billion in 2000. Revenue growth resulted mainly from organic
  growth of 15.1% and external growth of 19.8%, which more than offset a 0.4%
  decline in revenue due to the negative impact of changes in currency exchange
  rates, particularly the depreciation of the British pound and the Swedish krona.

In France, organic growth resulted primarily from the favorable impact of an increase in energy prices on the billing for certain of our services and from
new co-generation contracts and other heating and industrial facilities management contracts won in 2001. Outside France, organic growth resulted mainly from the expansion of existing businesses in Eastern Europe and the commencement of operations
under new contracts with industrial customers signed in 2000, including energy services provided by Dalkia under our multi-service contract with Novartis.

External growth in 2001 resulted primarily from the consolidation of EDFs energy services operations in Dalkia pursuant to our strategic partnership agreement with EDF (€838 million of additional revenue) and the acquisition of Siram (€43 million of additional revenue), which was consolidated over 3 months in 2001. These factors more than offset the negative impact of the transfer of
25% of our ownership interest in Dalkia International to EDF in 2001, which resulted in a loss of€296 million in revenue generated by Dalkia International in 2001.

Transportation
  
       Our
  transportation business revenue remained stable at€3.1 billion in 2001, compared
  to€3.1
  billion in 2000. Our strong operating performance offset the negative impact
  of our disposal of Barraqueiro, a Portuguese operator, in 2000 (with€79 million in revenue in 2000)
  and the loss of our South Central contract in the United Kingdom in August 2001
  (which resulted in a decrease in revenue of€234
  million in 2001). This operating performance resulted primarily from organic
  growth of 5.5% in France and significant
  new contracts and acquisitions outside France, including:

| |  | strong
      organic growth in Northern Europe with the award of contracts to operate
      the regional transportation networks in the Brabant region and the city
      of Maastricht, The Netherlands, which in aggregate contributed€74
      million in revenue in 2001, and the acquisition of 50% of the regional bus
      operations of Combus in Denmark, which contributed an additional€54 million in revenue in 2001;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | new
      rail contracts and the development of our bus operations in Germany, where
      our transportation revenue grew by€54
      million in 2001; and                                                                                                                                                                                                                                                                       
| |  | the
      development of our transportation activities in the United States (€35 million in additional
      revenue in 2001) and in Spain (€10 million in additional revenue in 2001).                                                                                                                                                                                                                                           

FCC
  
       Excluding
  the results of Proactiva, which are included in the results of our water and
  waste management segments, FCCs
  revenue grew by 16.1% in 2001. Our consolidated 49% share of FCCs
  total revenue was € 2.5
  billion.

FCCs
services business generated total revenue of€1.8 billion in 2001, an increase of 12.5% over total
revenue in 2000, primarily due to the strengthening of FCCs passenger transportation operations in
southern Spain and the acquisition of Grupo Ekonor, one of the leading Spanish providers of hazardous waste management services.

FCCs
construction activities posted total revenue of€2.4 billion in 2001, an increase of 16.6% over
total revenue of€2.1 billion in 2000, mainly due to very favorable business conditions in
Spain.

FCCs
  cement business, conducted through its 48% interest in Portland Valderrivas,
  posted total revenue of €808
  million in 2001, an increase of 20.1% over total revenue of€673
  million in 2000, largely as a result of strong growth in Spain and in the United
  States.

54

---

Operating
  Expenses
        Our
  operating expenses amounted to€27.1 billion in 2001, an increase of 12% over operating expenses
  of€24.3
  billion in 2000, as restated to take into account our new accounting presentation.
  The increase in operating expenses reflected
  mainly an increase of 11% in cost of sales from€21.1
  billion in 2000 to€23.6 billion in 2001,
  which was primarily due to costs incurred in connection with the commencement
  of operations under new contracts won in 2001. Research and development expenses
  amounted to€0.1
  billion in 2001, sales and marketing expenses were€0.9
  billion, and general and administrative expenses amounted to€2.7
  billion.

Operating
  Income (New Definition) and EBIT
       We
  recorded an operating loss (new definition) of €946.4
  million in 2001, compared to operating income (new definition) of €1,289.3
  million in 2000. The difference was due primarily to the write-down of goodwill
  related to US Filter, as described below. Our restructuring costs and costs
  incurred in connection with anticipated future profitability enhancements decreased
  slightly, from €54.4
  million in 2000 to €49.4
  million in 2001. These expenses in 2001 related mainly to the restructuring
  of Vivendi Waters
  activities in the United States (€33.7 million), which are conducted
  through United States Filter Corporation, and of Onyxs waste managements
  information technology services and Medicare operations (€12.3
  million). Expenses in 2000 amounted to €54
  million and related mainly to the reorganization of our corporate headquarters.
  Our water business posted an operating loss (new definition) of €1.7
  billion and Proactiva recorded an operating loss (new definition) of€4 million in 2001, while costs
  incurred by our holding companies and not reimbursed by our operating subsidiaries
  contributed an operating loss (new definition)
  of€77 million. These losses were partially offset by operating
  income (new definition)
  of€294
  million in our waste management business,€207
  million in our energy services business,€98 million in our transportation
  business and€231 million contributed by FCC.

Our EBIT increased from€1,650.0 million in 2000 to€2,013.1 million in 2001. EBIT reflects our operating income (loss) (new definition) before goodwill amortization and restructuring costs. In 2001, we recorded€1,090 million of EBIT in our water segment, representing 8.0% of revenue,€391 million in our waste management segment, representing 6.6% of revenue,€221 million in our energy services business, representing 5.5% of revenue, and€112 million in our transportation business, representing 3.6% of revenue. Our share of EBIT generated by FCC amounted to€229 million in 2001, or 9.2% of our share of FCCs revenue. Costs incurred by our holding companies and not reimbursed by our operating companies had a negative impact of€30 million on our EBIT in 2001. We recorded 31.7% of our total EBIT in 2001 in France, 33.6% in Europe (excluding France), 30.1% in the Americas and 4.6%
in the rest of the world. EBIT breakdowns for 2000 are not available.

As
  a percentage of our revenue, EBIT increased from 6.3% in 2000 to 6.9% in 2001.
  The improvement in our EBIT margin resulted principally from a reduction in
  ourother
  net operating expenses,from€251.0 million in 2000 to€6.0
  million in 2001. This category consists principally of non-recurring charges
  that were previously recorded asexceptional
  itemsunder
  our former accounting presentation.

Operating
  Income
       Our
  operating income amounted to€2.1 billion in 2001, an increase of 7.5% over operating income
  of€ 1.9
  billion, resulting from different levels of growth in each of our operating
  segments in 2001.

Operating income generated by our water business grew 9.9% from€1.0 billion in 2000 to€1.1 billion in
2001. This increase was primarily due to strong operating performance in France, where we implemented productivity plans and experienced a slight growth in volumes, the implementation by Vivendi Water Systems of a restructuring plan and, outside
Europe and the Americas, to improvements in existing contracts, the award of a significant number of new
contracts and the development of our industrial customer base. As a result, our operating margin improved slightly from 8.0% in 2000 to 8.2% in 2001.

Operating income contributed by our waste management business remained stable at€393 million in 2001, compared to operating income of€394 million in 2000. Our operating income in this segment was affected by a decline in paper prices (with a negative impact of€20 million) and the economic slowdown in North America and, to a lesser extent, Australia, which was partially offset by additional operating income
contributed by acquired operations and an improvement in profitability in our U.K. subsidiary. As a result,
our operating margin declined from 7.5% in 2000 to 6.6% in 2001.

55

---

Our energy services business contributed operating income of€224 million in 2001, an increase of 17.1% over operating income of€191 million in 2000. This increase was primarily due to an improvement in the operating margins of our traditional activities in France, the integration of EDFs energy services operations and the development of our activities outside France. Our operating margin, however,
declined from 6.3% in 2000 to 5.6% in 2001, mainly as a result of lower operating margins generated by EDFs energy services operations that were integrated into our energy services business, which more than offset an improvement in our operating margins outside France principally due to new contracts won in Eastern Europe.

Our transportation business contributed operating income of€112 million in 2001, representing an increase of 6.5% over operating income of€105 million in 2000, principally as a result of the extraordinary indemnities received in connection with our eviction from the South Central contract in the United Kingdom. Operating margins in our
transportation business improved slightly, increasing from 3.4% in 2000 to 3.6% in 2001.

FCCs
contribution to our operating income amounted to€231 million in 2001, representing an increase of
11.2% over operating income of€208 million in 2000. This increase was mainly attributable to a
cyclical increase in demand for environmental services in Spain during 2001. FCCs operating margin
declined slightly from 9.8% in 2000 to 9.4% in 2001.

Goodwill
  Amortization     Our
  goodwill amortization increased sharply from€306 million in 2000 to€2.9
  billion in 2001, principally due to:

| |  | a
slight increase in recurring goodwill amortization from€232.3 million in 2000 to€257
million in 2001 as a result of acquisitions made in 2000 and 2001; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an
      increase in non-recurring goodwill amortization from€74 million in 2000, which is
      primarily related to the impairment of the goodwill associated with Onyxs U.K. operations, to€2.7
      billion in 2001, which includes an exceptional goodwill write-off of€2.6
      billion relating to an adjustment of goodwill recorded in connection with
      the acquisition of United States Filter Corporation. Our management determined
      that the goodwill recorded for this transaction was impaired and wrote down
      a significant
      portion of this goodwill based upon an estimate of discounted cashflows. This analysis was
      based on a 10-year projection at a discount rate of 7% and a terminal value.
      Our management has reviewed the estimated cashflows
      as a result of the evolution of the U.S. economy. SeeOverviewPresentation of Information in this SectionChanges
      in Accounting Methods and Presentation of AccountsChanges
      in Goodwill Amortization.

Financial
  Income (Expense)
       We
  incurred net financial expense (which includes dividends received, profit or loss on sales of marketable securities, foreign exchange profit
  or loss and financing
  costs) of €798 million in 2001, compared with net financial
  expense of €892
  million in 2000 (as restated to take into account our new accounting presentation).
  The decrease in net financial
  expense was principally due to a decline in our average financing
  costs from €875 million in 2000 to €764
  million in 2001. The decrease in our financing
  costs is attributable to a reduction in the principal amount outstanding under
  our long-term indebtedness as a result of our capital increase in 2000, as well
  as a decline in interest rates for euro- and dollar-denominated debt and the
  early termination of part of our financial transactions with Vivendi Universal. The average cost
  of our debt decreased from 5.1% in 2000 to 4.9% in 2001.

Excludingfinancing costs, our netfinancial expense amounted to€34 million in 2001, compared to netfinancial expense of€17 million in 2000. This increase is due to an increase in ourfinancial provisions of€54 million in 2001 (compared to a decrease of€20 million in 2000), which more than offset a net foreign exchange gain of€16 million in 2001 (compared to a foreign exchange loss of€12 million in 2000).

Other
  Income (Expense)
       We
  record non-recurring results and charges asother income (expense),including
  capital gains and losses. We posted net other income of€39
  million in 2001, compared with net other income of€777
  million in 2000. The amount for 2001 included a total capital gain and dilution
  gain of€121
  million recorded in connection with the implementation of our strategic partnership
  agreement with EDF, a capital gain of€23
  million recorded by FCC in

56

---

connection with the disposal of its interest in Safei and a capital gain of€11 million in connection with the disposal of our interest in Midkent. These gains more than offset€100 million in other expense incurred in connection with the impairment of certain non-strategic assets of Berliner Wasser Betriebe that we plan to sell in 2002. The amount for 2000 included a total
capital gain and dilution gain recorded in connection with our strategic partnership agreement with EDF (€729 million).

Tax
  Expense
       Our
  tax expense in 2001 was€462 million, compared with tax expense of€459.2
  million in 2000. Our tax expense remained stable following the gradual implementation,
  not yet completed, of a group-wide tax policy, which includes the creation of
  a tax consolidation group in France.

Our effective corporate income tax rate in 2001 amounted to 38.4% of our consolidated profit before amortization of goodwill compared to 31.2% in 2000.

Our
  Share in Net Earnings of Companies Accounted For by the Equity Method
  
       Our
  share in net earnings of companies accounted for by the equity method reached€47.8
  million in 2001, compared to€60.6 million in 2000. The largest
  contributions were provided by companies accounted for by FCC using the equity
  method (€16.2
  million), U.K. water distribution companies (€13.7 million) and U.S.-based
  water company Philadelphia Suburban Corporation (€11.9 million).

Minority
  Interest
       Our
  minority interest expense totaled€131.2 million in 2001, compared
  to€161.4
  million in 2000. The principal minority interests are related to FCC and Proactiva
  (€88.1
  million), Dalkia (€39.3
  million), our waste management subsidiaries (€31.7
  million) and Connex (€4.3 million), which
  more than offset minority interest income from our water activities amounting
  to€32.2
  million.

Consolidated
  Net Income
      We
  recorded a consolidated net loss of €2.3 billion in 2001, compared with consolidated net income
  of €615 million in 2000. Excluding exceptional goodwill write-offs and other non-recurring
  charges, our recurring consolidated net income amounted to €420
  million in 2001, compared to recurring consolidated net income of €342
  million in 2000. The increase in recurring consolidated net income is mainly
  attributable to the increase in our EBIT and the decrease in our financing
  costs in 2001.

Based on our average number of shares outstanding during the year (346.2 million), recurring net earnings per share was €1.21, compared to recurring net earnings per share of €1.24 in 2000 (based on 275.7 million shares outstanding on average over 2000).

Year ended
  December 31, 2000 compared to year ended December 31, 1999
       The
  following discussion is based on our results of operations in 2000 and 1999
  prior to the restatement of our results to reflect
  the changes in our accounting methods and presentation of accounts in 2001.
  As a result, the information set forth in the following discussion may not correspond
  to the information provided in our consolidatedfinancial
  statements. The principal differences between the information in the discussion
  below and the information set forth in our restated 2000 and 1999financial statements include:

| |  | the
restatement of our 2000 and 1999 revenue and operating income to reflect our new accounting methods
and presentation of accounts adopted in 2001;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
reclassification
of certain expenses and charges formerly recorded asexceptional
itemsas
operating expenses or restructuring costs; and        
| |  | the
deduction of goodwill amortization charges in calculating operating income and
the adoption of EBIT as a new indicator of operating performance. 

57

---

SeeOverviewPresentation of Information in this SectionChanges in Accounting Methods and Presentation of Accountsand note 2 to our consolidatedfinancial statements for a description of the main differences between the information discussion below and our restated 2000 and 1999financial statements.

Revenue
  
       Overview
  
       We
  generated strong growth in 2000, raising revenue of€26.4 billion, an increase of 25% over revenue of€21.0
  billion in 1999. This increase was the result of organic growth (11.0%), the
  impact of exchange rate fluctuations (4.7%), particularly increases in the value
  of the U.S. dollar and the British pound against the euro, and acquisitions
  (10.1%). With regard to the latter, the full-year impact of acquisitions made
  in 1999 accounted for an increase in revenue of approximately€1.85
  billion as follows:

| |  | United
States Filter Corporation, consolidated over 12 months in 2000 and eight months
in 1999, contributed an additional€1.32
billion in revenue in 2000;      
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Waste
Managements
toxic waste management activities, consolidated over 12 months in 2000 and six
months in 1999, contributed an additional€171 million in 2000;
| |  | Superior
Services, consolidated over 12 months in 2000 andfive months of 1999, contributed
an additional€203
million in 2000; and                               
| |  | Norsk
Gjenvinning, consolidated for the full year in 2000 but for no portion of 1999,
contributed an additional€164
million in 2000.                            

Operations acquired in 2000 contributed a total of approximately€630 million to our revenue. The largest contributions were from GTI (€234 million), Haniel (€83 million), Pacific Waste Management (€55 million) and RIMSA (€45 million).

The following table shows a breakdown of our 2000 revenue by business segment, both in France and elsewhere:

|                 | 2000   |  | 1999          | 
|---------------- | ------ |  | ------------- | 
|                 |        |  |               | 
|(€
billions)     | France |  | OutsideFrance | 
|                 |        |  |               | 
|Water            | 5.7    |  | 7.1           | 
|Waste management | 2.4    |  | 2.9           | 
|Energy           | 2.0    |  | 1.2           | 
|Transportation   | 0.9    |  | 2.1           | 
|FCC              |       |  | 2.1           | 
|                 |        |  |               | 
|Total            | 11.0   |  | 15.4          | 
|                 |        |  |               | 

Revenue generated outside France totaled €15.4 billion in 2000, up 40% compared with 1999, accounting for 58% of the total. Our rapid growth outside of France, the result of both new contracts and acquisitions, continues a strong trend of
recent years.

58

---

The following table shows a breakdown of our 2000 revenue by business segment and by geographical region outside of France:

|                       | 2000                         |  | 1999                  | 
|---------------------- | ---------------------------- |  | --------------------- | 
|                       |                              |  |                       | 
|(€
      billions)     | Euro
      zoneoutsideFrance |  | Europeoutsideeurozone | 
|                      
|                      
|                      
|                       |                              |  |                       | 
|Water                  | 1.3                          |  | 0.8                   | 
|Waste
      management | 0.3                          |  | 0.8                   | 
|Energy                 | 0.5                          |  | 0.7                   | 
|Transportation         | 0.3                          |  | 1.7                   | 
|FCC                    | 1.8                          |  |                      | 
|                       |                              |  |                       | 
|Total                  | 4.2                          |  | 4.0                   | 
|                       |                              |  |                       | 

Revenue from the euro zone outside France (eleven countries in Western Europe) increased by 37% in 2000. The substantial growth in water services in this
region was attributable primarily to the full-year impact of contracts won in 1999 and 2000, the Berlin water contract in particular. Waste management operations in the region were strengthened by the purchase of Haniel in Germany, which added€83 million in revenue. Growth in the energy business came most from Germany and Portugal, while
expansion in Germany was the main source of revenue growth in transportation.

The growth of almost 15% in Europe outside the euro zone countries was driven by waste management, which posted a 44% revenue increase, and, to a lesser
extent, our transportation and energy operations. Waste management revenue was increased€164
million by the addition of Norsk Gjenvinnings operations in Norway, while transportation
benefited from the full-year impact of the Stockholm metro contract: Revenue generated under that contract
increased from€99 million to€221 million, due primarily to its inclusion for the full year and to increased passenger traffic. Our energy services business also expanded significantly in Eastern Europe.

In the Americas, our revenue grew by over 60% in 2000. The increase was particularly strong in waste management, where growth was almost 160%, primarily
because Superior Services was consolidated for the full year for thefirst time. Growth in American waste
management revenue also increased due to acquisitions made in North America as well as organic growth in Superior Services, operations acquired by Superior Services, Onyx North America, and Proactivas waste management business. Water revenue benefited from the full-year consolidation of United States Filter Corporation.

We experienced revenue growth of€75 million, or 90%, in the Asia-Pacific region in 2000,
primarily due to the new transportation contracts won in Sydney and Melbourne. Also contributing to growth in this region was our acquisition of Pacific Waste Management in Hong Kong, which was consolidated over six months, and the 21% organic growth generated by Collex, Onyxs Australian subsidiary.

Our
  exposure to emerging market risks remained limited in 2000, as revenue generated
  in developing countries was approximately€800
  million, or 3% of our total for the year.

Water
       During
  2000, our water business posted revenue of€12.8 billion, up 22% compared
  to 1999. Organic growth reached 10%, with the remaining increase resulting from
  currency effects (6%), particularly from the appreciation of the U.S. dollar,
  and acquisitions, primarily the full-year impact of the United States Filter
  Corporation acquisition.

In France, our water operations posted a 2% increase in revenue to€5.7 billion in 2000. Water distribution revenue grew by over 3% as a result of a small increase in volumes and increases in prices as a result of
indexation mechanisms. Our specialized engineering subsidiaries delivered a growth rate of over 10%, largely because of substantial cyclical demand.

59

---

Following the combination of OTVs activities with those of United States Filter Corporation International, the revenue contribution of the new combined entity, Vivendi Water Systems, increased by€0.2 billion compared with 1999 to€1.1 billion in 2000. This growth was driven mainly by the impact of the full-year consolidation of the international subsidiaries of United States Filter
Corporation and a solid operational performance in a very competitive market, particularly in France.

Outside France, water revenue was almost€5.9 billion, an increase of 34.7% (€1.5 billion)
compared with 1999. This revenue growth was driven mainly by the full-year impact of the United States Filter Corporation acquisition (€1.0 billion) and the organic growth United States Filter Corporation generated, partially offset by the divestment of Kinetics. In the United States, growth in municipal and industrial outsourcing
was over 25% for the year. In addition, our consumer water business continued to expand, as did ourfiltration and surface preparation operations.

Waste
  Management
       Our
  waste management revenue rose to€5.3 billion in 2000, up 50%
  compared with 1999. Organic growth of 13.4% was the product of strong operating
  performance, particularly in France, with significant
  increases in the volume of waste collected and processed. Unlike 1999, the paper
  salvage and recycling market also saw high price levels in 2000, which peaked
  in June and July 2000. Gains in France and elsewhere were partially offset by
  weakness in our U.K. operations, where significant restructuring measures
  were undertaken to improve performance, primarily through a rationalization
  of the corporate structure of our businesses there.

Revenue generated outside France increased by 92% to€2.9 billion in 2000, primarily due to acquisitions. In keeping with our overall policy, we continued to expand in key markets in 2000, with the full-year consolidation of our North American waste
activities and the acquisition of Norsk Gjenvinning in Norway at the beginning of the year, followed by the purchase of a controlling interest in Waste Management Internationals activities in Hong Kong and Mexico. The expansion drive also led to the acquisition of some smaller companies in Europe and Asia.

Revenue generated by our French waste operations increased due to the operating performance mentioned above and also due to several mid-size acquisitions,
including the FASSA group (which previously belonged to GTI) and the Neturba group in the Greater Paris area.

Energy
  Services 
       Our
  energy services revenue was€3.2 billion in 2000, an increase
  of 13.4% over revenue of€2.8 billion in 1999. Organic growth was 9.5%, external growth
  was 2.6%, and changes in currency exchange rates, particularly the appreciation
  of the British pound against the euro, added 1.3%. Organic growth derived primarily
  from new co-generation contracts, the development of other heating and industrial
  facilities management contracts in France and the expansion of existing businesses
  in international markets, particularly the United Kingdom, Spain and Portugal.
  The partnership with EDF, which began to be implemented on December 27, 2000,
  did not have any effect on our 2000 revenue.

Transportation
       Our
  transportation business recorded revenue of€3.1 billion in 2000, up 28.6%
  compared with 1999. Of this increase, 13.1% was attributable to organic growth,
  11.0% to acquisitions and 4.5% to currency effects deriving from appreciation
  in the British pound and the Swedish krona against the euro. Organic growth
  was driven chiefly
  by Connexs
  international activities; we generated organic growth of 14.5% outside France.
  The main growth drivers outside France were the full-year impact of contracts
  won in 1999 (particularly in Stockholm and Melbourne), as well as the expansion
  of existing contracts (e.g., through increases in passenger volumes). Organic
  revenue growth was particularly strong in Scandinavia, eastern Europe, Germany
  and Australia. Organic growth in France was 9.5%, due largely to the new Saint
  Etienne contract, which contributed an additional€26
  million in revenue in 2000, and a 9.8% rise in revenue at our subsidiary Sud
  Cars.

FCC
       To
  harmonize thefinancial information presented in this document with thefinancial
  information published by FCC, we have based our discussion of FCCs
  operating results in 2001 above on FCCs
  total revenue and operating

60

---

income, while the discussion of FCCs
operating results in 2000 and 1999 below only take into consideration our proportionate share of FCCs
revenue and operating income. As a result, revenue and operating income of FCC presented in the discussion below may not be comparable to the same measures of operating result presented in our 2001 discussion above.

FCC (excluding Proactiva) generated revenue growth of 11% in 2000. Our consolidated 49% share of FCCs revenue was€2.1 billion in 2000. FCCs services business, which generated revenue of€570 million, experienced brisk growth during the year. Its construction activities, aided by very
favorable business conditions in Spain, posted revenue of€1.0 billion (up 10.1%). Revenue growth in
Spain was approximately 12.5%. FCCs cement business, conducted through its 48% interest in Portland
Valderrivas, posted revenue of€330 million (up 54.7%), largely as a result of strong growth in
Spain (11%) and the full-year consolidation of U.S.-based Giant.

Operating
  Expenses
       During
  2000, operating expense before amortization and depreciation totaled€23.6 billion, compared with
  €19.2
  billion in 1999. Payroll costs grew from€5.9
  billion to€7.3 billion, with purchases and external services rising from€10.2
  billion to€13
  billion. All these increases were attributable primarily to the impact of acquisitions.
  Purchases and external services accounted for 49.4% of net revenue (compared
  with 50.4% in 1999 including United States Filter Corporation and Superior Services
  for the full year), while payroll costs accounted for 28.3% of net revenue (compared
  with 29.3% in 1999). These trends reflected
  efficiency
  gains and tight cost control.

Our weighted average number of employees was 215,000, up from 171,000 in 1999. This increase was primarily attributable to the full-year impact of United
States Filter Corporation and Superior Services and the acquisitions made during 2000.

Operating
  Income
       Our
  operating income for 2000 totaled€1.9 billion, representing an
  increase of 29.4% compared with 1999. Organic growth was 11%. The effect of
  changes in currency exchange rates accounted for 6.4% of the growth; the remainder
  was due to acquisitions made during 2000 and the full-year consolidation of
  United States Filter Corporation and Superior Services. The operating margin
  improved slightly from 7.0% to 7.2%.

Our water businesses contributed€1.0 billion to our operating income in 2000, representing an increase of 33% over 1999. Organic growth in operating income was 11.5%. The operating income generated by water activities outside of
France and the United States more than doubled due to the impact of the contracts won or acquired since 1999. The water business posted an operating margin of 8.1% compared with 7.3% in 1999. This increase was mainly due to improved cost controls,
particularly in our international water operations. The personnel expenses associated with our water business represented 23.6% of 2000 revenue, down from 24.4% in 1999.

Our waste management business contributed€399 million to our operating income in 2000, an increase of 44.5% over operating income of€275 million in 1999. Excluding the effect of acquisitions/disposals and at constant currency exchange rates, our waste-related operating profit grew by 2.2%. Excluding our U.K. operations, however, organic growth in operating income was almost 14%.

Our energy services business contributed€191 million to our operating income in 2000, representing an increase of approximately 14% over 1999. Growth in operating income remained basically in line with revenue growth. The partnership with
EDF, which began to be implemented on December 27, 2000, did not have any effect on our 2000 operating income.

Our transportation business contributed€107.8 million to our operating income in 2000, an increase of 14.6% over the previous year. This increase reflected the impact of new acquisitions, the healthy performance of our Stockholm metro operations and contracts in the United Kingdom, which together more than offset a significant increase in diesel oil prices across Europe. Organic growth in operating income was 7.5% in 2000.

Our 49% share of operating income generated by FCC (excluding Proactiva) was€208 million in 2000, an increase of 12.2% from 1999. Organic growth in operating income was 18.9% in 2000. Our consolidated share of FCCs overall growth was less than organic growth due to the sale of a majority interest in FCCs real estate operations, as a result of which we did not continue consolidating the results of these operations in
2000.

61

---

Goodwill
  Amortization
       Our
  goodwill amortization decreased slightly from€367 million in 1999 to€306
  million in 2000. The 2000 amount includes a goodwill write-off of€58
  million, primarily related to the impairment of the goodwill associated with
  Onyxs
  U.K. operations. These operations consist of both dry and wet waste collection,
  landfill,
  and waste treatment facilities. The business is conducted with both industrial
  and municipal customers under short and long-term contracts. During 1999, operating
  results began to decline due to industry overcapacity and strong competitive
  pricing pressure. Our U.K. management began to respond to this situation by
  reducing costs. At the end of 1999, profitability
  had declined significantly,
  but our U.K. operations were still sufficiently profitable
  to recover the carrying value of its long-lived assets, including goodwill.
  Because operating results continued to decline during 2000, our U.K. management
  team performed an analysis of the business and overall industry conditions and
  implemented several additional actions in 2000. These actions included the closure
  of several treatment facilities, the termination of certain unprofitable
  long-term municipal contracts and further cost reductions. The actions were
  taken because management believed that the prevailing industry conditions would
  continue for the foreseeable future. Management also revised the operating forecast
  to reflect
  the estimated effect of its actions and its view of long-term industry conditions.
  Based upon the resulting forecast of estimated undiscounted future cashflows,
  management determined that our goodwill was impaired and wrote down an amount
  of goodwill based upon an estimate of discounted future cashflow.
  This analysis was performed at the lowest level of identifiable
  assets. Recurring goodwill amortization amounted to€232
  million in 2000, compared with€165
  million in 1999. This increase resulted from the full-year consolidation of
  United States Filter Corporation and our 2000 acquisitions.

Financial
  Income (Expense)
       In
  2000, we incurred net financial expense (which includes dividends received, profit
  or loss on sales of marketable securities, foreign exchange profit or loss andfinancing
  costs) of €884 million, compared with€623
  million in 1999. The rise infinancial
  expense was attributable principally to the increase in the average net long-term
  debt resulting from thefinancing
  of acquisitions made in 1998 and 1999. The increase in interest costs was offset
  in part by a reduction of the amortization of the redemption premium of our
  convertible bonds. Our indebtedness declined as a result of the capital increase
  and asset disposals that occurred in the second half of 2000. The average cost
  of our debt was 5.1% in 2000.

Exceptional
  Items
       We
  posted net exceptional income before tax of €445 million in 2000, compared
  with net exceptional expense of €181 million in 1999. The amount for 2000 included a total capital
  gain and dilution
  gain of €799 million, including a €729 million capital gain recorded in connection with the
  EDF/Dalkia transaction described under Item 4. Information
  on the CompanyBusiness
  OverviewOur ServicesEnergy
  Services. This
  gain more than offset €184
  million in costs incurred in connection with anticipated future profitability
  enhancements. The latter amount related primarily to the closure of unprofitable
  waste management and energy services businesses as well as the termination of
  several contracts in the United Kingdom, which, in the aggregate, resulted in
  costs of €86
  million. Of these costs, €68.7
  million were related to the waste management segment and consisted primarily
  of impairments of assets (€32.6
  million), losses on contracts we terminated (€9.8
  million) and payments or provisions related to disposals of assets and site
  restoration (€23.2
  million) and other miscellaneous costs (€3.1
  million). The remaining €17.3
  million consisted of losses on contracts we terminated in the energy services
  business. An additional €63
  million in expenses was incurred in connection with the reorganization of our
  headquarters, of which €45
  million was recorded as a restructuring reserve. This amount includes severance
  costs associated with the consolidation of several regional offices
  into our new corporate headquarters. The remaining €18
  million was expensed over the period as restructuring activities, in addition
  to existing plans, in our energy and water businesses. Another €4.5
  million of costs related to various minor plans were accrued under French GAAP,
  of which €4.1
  million does not comply with the provisions of EITF 94-3. Finally, several non-recurring
  individual amounts have been recorded at affiliateslevels
  for a total of€92.5 million.

Tax
  Expense
       Our
  tax expense in 2000 was€468 million, compared with tax expense of€275
  million in 1999. Deferred tax showed a net gain of€7
  million in 2000, compared with a net charge of€24
  million in 1999.

62

---

Following the initial public offering of our shares, we and our French subsidiaries left Vivendi Universals consolidated tax group. Consequently, our 2000 French tax expense corresponds to the aggregate tax payable by us and our French subsidiaries on an
individual basis.

The corporate income tax expense in 2000 amounted to 31.2% of our consolidated profit before tax and amortization of goodwill not deductible for tax purposes (compared to 44.4% in 1999). The level of the effective tax rate was lower than the
French statutory rate of 37.77% due largely to the reduced rate of tax payable on the capital gain recorded on the sale of the interest in Dalkia Holding.

Our
  Share in Net Earnings of Companies Accounted For by the Equity Method
       Our
  share in net earnings of companies accounted for by the equity method amounted
  to€60.6
  million in 2000, up from€44.5 million in 1999. The largest
  contributions were provided by some of FCCs subsidiaries (€16.9
  million), U.K. water distribution companies held through General Utilities (€16.3
  million) and U.S.-based water company Philadelphia Suburban (€10.5
  million). The inclusion of earnings from FCCs
  real estate activities and Sanepar-Dominos
  water distribution activities in Brazil was largely responsible for the growth
  in this category.

Minority
  Interest
       The
  minority interest expense totaled€161.4 million in 2000, compared
  to€93.4
  million in 1999. The principal minority interest is related to FCC (€90.2
  million), Berliner Wasser Betriebe (€18
  million) and Budapest Water (€6
  million).

Consolidated
  Net Income
       As
  a result of the factors discussed above, our consolidated net income was€614.8
  million in 2000, compared with a net loss of€42.3 million in 1999. Based
  on our average number of shares outstanding during the year (275.1 million),
  net earnings per share was €2.24.
  Net income excluding exceptional income and related taxes was€342
  million, or €1.24
  per share, and exceptional income net of tax and minority interests was €273
  million, or €0.99
  per share.

63

---

LIQUIDITY
  AND CAPITAL RESOURCES

Cash
  Flows
       Net
  cashflow
  from operating activities increased by€1.3
  billion, from€1.6
  billion in 2000 to€2.9 billion in 2001.
  Net cashflow
  from operating activities includes funds generated from operations and changes
  in operating assets and liabilities. Excluding net changes in working capital,
  which strongly improved in 2001 due to the implementation of a receivables sales
  program, net cashflow
  from operating activities rose to€2.0
  billion in 2000 and€2.5 billion in 2001. This increase of€502
  million was primarily due to an increase in profitability
  in each of our business segments, which contributed€363
  million, and a decrease in borrowing costs of€111
  million in 2001.

Net
  cashflow
  from investing activities includes cashflows
  resulting from acquisitions and divestitures of tangible andfinancial
  assets, acquisitions and disposals of businesses, equity-method investments
  and net changes in other investments and marketable securities. Cash outflows
  from investing activities were€3.4
  billion in 2001, compared to an outflow
  of€1.5 billion in 2000. Cash outflow
  in 2001 was primarily attributable to an increase in cash used in industrial
  investments, which totaled€2.9
  billion, and infinancial
  investments, which totaled
€1.3 billion, net of cash generated by asset disposals, which totaled€392 million. Cash outflow in 2000 benefited from an increase in cash generated
from disposals, particularly the sale of an interest in Dalkia to EDF.

Net cash inflow fromfinancing activities was€1.2 billion in 2001, mainly due to an increase in our long-term debt to improve the average maturity of our indebtedness (currently 3.5 years). We also
recorded cash inflows totaling€411 million primarily attributable to increases in Dalkias capital due to the implementation of our strategic partnership agreement with EDF (€177 million) and otherfinancing activities described
underSources of Fundsbelow. In 2000, we recorded€2.7 billion in cash inflows associated with an increase
in our share capital that permitted us to reduce our outstanding indebtedness.

Sources of
  Funds 
       We
  meet our long-termfinancing and refinancing
  needs through bank loans and debt instruments. To deal with short-termfluctuations
  in ourfinancing
  requirements, we issue commercial paper and draw on short-term loan facilities.
  During 2001, we entered into a number of newfinancings
  including:

| |  | A€3
      billion syndicated credit facility in March 2001, under which we have drawn€737.5
      million in short-term loans that matured in March 2002 and€590
      million in long-term loans that mature in March 2006 and bear interest at
      afloating
      rate generally based on EURIBOR or LIBOR;                                                                                                                                                   
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The
      issuance of several series of bonds, including€2 billion in bonds due in June
      2008 that bear interest at afloating rate based on 3-month EURIBOR (after giving effect to
      an interest rate swap relating to these bonds),€250 million in bonds due in
      February 2003 that bear interest at afloating rate based on 3-month EURIBOR, and€500
      million in bonds due in November 2005 that bear interest at afixed
      rate of 4.87%;
| |  | A
      sharp increase in the use of our commercial paper program, the maximum amount
      of which was increased from€2
      billion to€4 billion in 2001. As of December 31, 2001, our outstanding
      commercial paper amounted to€2.0 billion with maturities ranging from 30 to 180 days, with
      interest capitalized on half of the outstanding principal amount at afloating rate based on EONIA
      and the other half at afixed
      rate; and 
| |  | In
      December 2001, we issued€300 million company-obligated mandatorily redeemable securities
      of a subsidiary (VEFOVivendi Environnement Financière de lOuest),
      which is fully controlled by us. These securities, which mature on December 28, 2006 and are accounted for as minority interests under French GAAP, enabled us to strengthen our financial position.                                                                             

We used the proceeds of thesefinancial transactions to repay debt that we owed to Vivendi Universal and to refinance
our existing debt to extend the average maturity of our outstanding indebetdness. SeeContractual Obligations and Other Commercial Commitmentsfor a description
of our outstanding indebtedness as of December 31, 2001, after giving effect to these refinancing
transactions.

64

---

We also participated indirectly in the issuance by Vivendi Universal of bonds that are to be repaid either in existing shares of Vinci held by us and
Vivendi Universal or cash, at the option of Vivendi Universal. In connection with this transaction, we received a loan from Vivendi Universal in a principal amount of€120 million relating to 1,552,305 shares of Vinci held by our subsidiary Dalkia France. The terms of the loan are identical to the terms of the
exchangeable bonds issued by Vivendi Universal, which bear interest at a rate of 1% per year and mature in March 2006. We transferred the economic benefits of the loan to Dalkia France.

To optimize the management of our working capital, we adopted a receivables sales program at the end of 2001 relating to receivables generated by our water
business in an aggregate amount of€928 million. Pursuant to this program, in 2001 several of our
U.S. water subsidiaries sold receivables amounting to U.S.$155 million and several of our French water subsidiaries sold receivables amounting to€752 million to a French securitization fund. We have retained a subordinated interest in the pool of receivables transferred to the French securitization fund that entitles us to receive collections
on the sold receivables after all amounts due to the fund have been fully paid. Under the sale documents, we have agreed to provide billing and collection services in respect of the sold receivables in the ordinary course. We do not have any
obligation to guarantee or otherwise provide funds to cover shortfalls in collections. In addition, we sold€520 million in receivables at face value, less charges and expenses, tofinancial
institutions in the context of factoring transactions in 2001. We have no further obligations in respect of the receivables sold to thesefinancial institutions.

Following
  these transactions, our total outstanding net debt (financial debt net of cash and receivables) stood at
  €14.3
  billion at December 31, 2001. Our net debt consisted primarily of our convertible
  bonds (€1.5
  billion), other bonds and debt instruments (€3.2
  billion), bank loans (€3.4 billion) and commercial paper (€2
  billion). Our cash and receivables amounted to€2.1
  billion at December 31, 2001. Most of our debt instruments and loan agreements
  contain covenants that require us to maintain certain minimumfinancial
  ratios, including historic and forward debt service coverage ratios and interest
  coverage and debt payout ratios based on annual earnings before interest, taxes,
  depreciation and amortization, as defined
  in the relevant agreements. Each agreement contains different ratios and coverage
  amounts, and would allow our creditors to require us to repay all outstanding
  amounts in the event we cease to comply with one or more of these covenants.
  We are currently in compliance with all of thefinancial covenants set forth
  in our debt instruments and agreements.

We believe that our future capital requirements, including those for organic growth and certain acquisitions, can be met from operating cashflow, disposals of non-core assets and, if necessary, a moderate increase in debt. We are exposed, however, to certain
risks relating to the availability or use of our sources of funds, particularly the risk of a downgrade in our credit ratings. The main credit rating agencies, Moodys and Standard & Poors, have assigned investment-grade credit ratings to our company. However, on May 3, 2002, Moodys placed our credit rating on watch with negative implications, while on May 7, 2002, Standard & Poors revised its outlook on our company from stable to negative. A downgrade in our credit ratings could lead to a significant increase in the cost of our outstanding debt and our future borrowing costs, which in turn could negatively affect ourfinancial condition and our ability to incur additional debt tofinance our operations or refinance maturing debt in the
future. We are currently not subject to any material credit rating downgrade covenants, except for a guarantee that we granted for the benefit of certain lenders of one of our subsidiaries in respect of a€800 million loan, which becomes immediately payable in the event our credit rating is lower than BBB+ (Standard & Poors) or Baa2 (Moodys). Our credit ratings are
currently BBB+ (Standard & Poors) and A3 (Moodys).

Use of Funds
  
       Capital
  Expenditures 
       Capital
  expenditures totaled€2.9 billion in 2001, representing an increase of 10.2%
  over capital expenditures of€2.6 billion in 2000. Our capital expenditures were made in
  our different business segments in the following manner:

| |  | Capital
      expenditures in our water business amounted to€1.2 billion in 2001 (an increase
      of 17% over capital expenditures of€1.0 billion in 2000), of which€655
      million were for growth-related spending and€533
      million were for replacement and maintenance spending;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

65

---

| |  | Capital
      expenditures in our waste management business amounted to€794 million in 2001 (a decrease
      of 8.7% over capital expenditures of€870 million in 2000), of which€343
      million were for growth-related spending and€451
      million were for replacement and maintenance spending;                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Capital
      expenditures in our energy services business amounted to€402 million in 2001 (an increase
      of 11% over capital expenditures of€362 million in 2000), of which€276
      million were for growth-related spending and€126
      million were for replacement and maintenance spending;                       
| |  | Capital
      expenditures in our transportation business amounted to€288 million in 2001 (an increase
      of 58.5% over capital expenditures of€182 million in 2000), of which€114
      million were for growth-related spending and€174
      million were for replacement and maintenance spending; and                  
| |  | The
      attributable portion of FCCs (49%) and Proactivas
      capital expenditures amounted to€207
      million (an increase of 12.1% over capital expenditures of€184
      million in 2000), of which€109 million were for growth-related
      spending and€98 million were for replacement and maintenance spending.

Financial
  InvestmentsOurfinancial
  investments, which consist of equity-method investments and other equity participations,
  totaled €1.2
  billion in 2001, representing an increase of 26.8% overfinancial
  investments of€0.9 billion in 2000. Many of
  ourfinancial
  investments consist of acquisitions of local entities or interests in local
  entities in connection with new contracts won outside France. Ourfinancial investments were made
  in our different business segments in the following manner:

| |  | Financial
      investments in our water business amounted to€508 million in 2001 (an increase
      of 209% compared with 2000), primarily relating to our contracts in Prague
      (€177
      million), Görlitz (€57
      million), and Bucharest (€35
      million) and our contract with HEI, a South Korean industrial group (€71
      million);
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Financial
      investments in our waste management business amounted to€123 million in 2001 (a decrease
      of 79% compared with 2000, during which a number of acquisitions were made
      in the United States), including€23
      million in connection with our contract with Novartis;                                                          
| |  | Financial
      investments in our energy services business amounted to€303 million in 2001 (compared
      to€40
      million in 2000), primarily relating to the transfer of EDFs energy
      services operations (€165
      million) and our acquisition of Siram (€81.8
      million);                                                           
| |  | Financial
      investments in our transportation business amounted to€144 million in 2001 (an increase
      of 55% compared with 2000), primarily relating to our acquisition of BBA
      (€48 million), Yellow
      Transportation (€21.8
      million) and Portillo.                                                                               

Contractual
  Obligations and Other Commercial Commitments 
       We
  have various contractual obligations and other commercial commitments arising
  from our operations. These obligations and commitments are more fully described
  in this document under various headings inOperating
  and Financial Review and Prospectsas well
  as in the notes to our consolidatedfinancial
  statements.

66

---

The following table lists the aggregate maturities of our long-term debt and operating leases at December 31, 2001 (in millions of euro):

|Contractual
      Obligations |  | Total             |  | Less
        than1
        year |  | Payments
        Due by Period | 
|----------------------------- |  | ----------------- |  | ------------------------------- |  | ------------------------------ | 
|1-2
        years             |  | 2-5
        years |  | After
        5years            | 
|                              |  |                   |  |                                 |  |                                | 
|Long-Term
      Debt(1)       |  | 13,134.0          |  | N/A                             |  | 1,227.4                        | 
|Operating
      Leases        |  | 2,693.7           |  | 349.7                           |  | 616.3                          | 
|                              |  |                   |  |                                 |  |                                | 
|Total                         |  | 16,648.2          |  | 469.2                           |  | 2,014.7                        | 
|                              |  |                   |  |                                 |  |                                | 

---

The following table lists the aggregate expiration amounts of various classes of commitments related to our operations at December 31, 2001 (in millions of
euro):

|Other
      Commercial Commitments         |  | TotalAmountsCommitted | 
|------------------------------------------ |  | --------------------- | 
|                                           |  |                       | 
|Lines
      of Credit                      |  |                      | 
|Performance
      Bonds and Guarantees(1)  |  | 3,116.0               | 
|Undertakings
      for Fixed Assets(2)     |  | 2,400.0               | 
|Fees Payable
      to Local Authorities(3) |  | 222.9                 | 
|Other
      Commercial Commitments(4)      |  | 613.0                 | 

---

|(1) | Includes€0.8
billion in guarantees for the benefit of insurance companies that have agreed
to issue performance bonds from time to time in connection with our activities
in the United States. There are no outstanding performance bonds issued by these
insurance companies.                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Pursuant
to certain concession contracts with public authorities, we assume responsibility
for the replacement of fixed assets of the networks we manage under these concessions.
This amount reflects our estimates of the aggregate amount of expenditures required
for this purpose over the duration of the relevant contracts.
|(3) | Reflects
the minimum amount of fees payable to local authorities pursuant to certain outsourcing
contracts, of which€37.0
million are due in 2002,€32.8
million in 2003,€29.9 million in 2004,€26.8
million in 2005,€23.0
million in 2006 and€73.4 million in 2007
and thereafter.                                                 
|(4) | Reflects
the maximum amount of indemnities that we may be required to pay certain previous
land owners in the context of a water services contract with local authorities
in Berlin, Germany.                                                                                                                                      

The large majority of our performance bonds and guarantees represent guarantees by one company in our consolidated group of the performance obligations of
other companies in our consolidated group, typically subsidiaries of the company giving the guarantee. As a result, they represent primarily guarantees of the performance of our own contractual obligations, when considered on a consolidated
basis.

We may also be required to acquire the remaining interest in the holding company that owns 57% of FCCs outstanding shares under certain circumstances, the other shareholder in the holding company. In addition, if we purchase the remaining interest in
this holding company, the Spanish stock market authorities may require us to launch a public tender offer for the remaining 43% of FCC not held by the holding company. SeeItem 3. Risk FactorsRisks Relating to Our OperationsWe may be required to sell our interest in
FCC or tofinance an investment in FCC.

RESEARCH
  AND DEVELOPMENT, PATENTS AND LICENSES

SeeInformation on the CompanyBusiness OverviewResearch and DevelopmentandInformation on the CompanyBusiness OverviewIntellectual Property.

67

---

ITEM
  6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

In
  accordance with French law applicable to asociété
  anonyme à directoire et conseil de surveillance,a
  form of stock corporation, we have a two-tier management structure pursuant
  to which a management board (directoire)
  manages our day-to-day affairs under the general supervision of a supervisory
  board (conseil
  de surveillance),
  the members of which are elected by shareholders. We refer to the members of
  our management board and the members of our supervisory board collectively as
  directors.

Supervisory
  Board 
       The
  supervisory board has the responsibility of supervising the management of our
  company. Throughout the year it carries out such inspections as it considers
  appropriate and is given access to any documents it considers necessary. The
  supervisory board also reviews the annual report and accounts prepared by the
  management board and presents its review of the report and accounts to the shareholders
  at the annual shareholders meeting. It authorizes the management board to take
  certain actions related to strategic decisions, including consummating transactions
  that could substantially affect the scope of our activities and executing significant
  agreements. In addition, under French law, the supervisory board holds certain
  specific
  powers, including the power to appoint the members of the management board.

Pursuant to ourstatuts, which were adopted at a shareholdersmeeting held on April 21, 2000, the
supervisory board must have between three and 24 members. Our supervisory board currently consists of 14 members, four of which are independent members. Ourstatutsprovide that each member is elected by the shareholders at an ordinary general meeting of the shareholders for a renewable four year term. Members of the supervisory board
can be removed from office by a majority shareholder vote at any time. They meet as often as the interests
of our company require. During 2001, our supervisory board met six times. Under the French commercial code, members of our supervisory board can be held civilly liable for unlawful actions and omissions taken in connection with their duties as
directors, in particular, for failing to supervise adequately the management of our company. Unlike members of a management board, however, supervisory board members cannot be held liable for unlawful actions of the company. Also unlike members of
the management board, supervisory board members are not subject to joint and several liability. Ourstatutsprovide that each member of our supervisory board must own at least 750 of our shares.

68

---

The following table sets forth the names of the members of the supervisory board, their current function in our company and their principal business
activities outside of our company. At meetings held during 2000, Vivendi Universal, as our majority shareholder, elected all current members of the supervisory board, which appointed the members of the management board.

|Name                                              |  | Function
      inVivendiEnvironnement            |  | Principal
      BusinessActivities
      OutsideVivendi Environnement                                                                                               |  | ExpirationDate ofCurrent Term |  | Date
      InitiallyAppointed
|------------------------------------------------- |  | ------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- |  | -----------------------------
|                                                  |  |                                                  |  |                                                                                                                                                                     |  |                               |  |                              
|Jean-Marie
      Messier                          |  | Chairman
      of thesupervisory
      board     |  | Chairman
      and CEO of VivendiUniversal                                                                                                                          |  | April
      2004              |  | April
      2000             
|Eric Licoys                                       |  | Vice Chairman
      ofthe
      supervisoryboard |  | Chairman
      and CEO of HavasMultimedia;
      COO of VivendiUniversal                                                                                            |  | April
      2004              |  | April
      2000             
|Daniel
      Bouton                               |  | Director                                         |  | Chairman
      and CEO of SociétéGénérale                                                                                                                           |  | October
      2004            |  | October
      2000           
|Jean-Marc
      Espalioux                         |  | Director                                         |  | Chairman
      of the managementboard
      of Accor                                                                                                                |  | September
      2004          |  | September
      2000         
|Paul-Louis
      Girardot                         |  | Director                                         |  | Director
      of the Committee ofthe
      Seine-Normandy BasinWater Authority                                                                                     |  | October
      2004            |  | October
      2000           
|Catherine
      Gros                              |  | Director                                         |  | Executive
      Vice PresidentPublic Relations of VivendiUniversal                                                                                                 |  | October
      2004            |  | October
      2000           
|Guillaume
      Hannezo                           |  | Director                                         |  | Senior
      Executive VicePresident
      and CFO of VivendiUniversal, Vice Chairman ofthe supervisory board ofViventures Partners                                 |  | April
      2004              |  | April
      2000             
|Richard
      Heckman                             |  | Director                                         |  | Member
      of the board ofdirectors of K-2, Inc., UnitedRentals Inc., Station Casinosand Philadelphia SuburbanInc.; Chairman of the ListingCommittee of the NYSE |  | October
      2004            |  | October
      2000           
|Esther
      Koplowitz                            |  | Director                                         |  | Chairwoman
      of B 1998 SL                                                                                                                                       |  | September
      2004          |  | September
      2000         
|Arthur
      Laffer                               |  | Director*                                        |  | Founding
      member of theCongressional
      Policy AdvisoryBoard                                                                                                |  | September
      2004          |  | September
      2000         
|Serge
      Michel                                |  | Director*                                        |  | Chairman
      of Soficot                                                                                                                                           |  | October
      2004            |  | October
      2000           
|Georges
      Ralli                               |  | Director*                                        |  | Managing
      Director, the LazardGroup                                                                                                                            |  | October
      2004            |  | October
      2000           
|Murray
      Stuart                               |  | Director*                                        |  | Director
      of Royal Bank ofScotland Group plc, OldMutual plc and CMG plc                                                                                        |  | October
      2004            |  | October
      2000           
|Antoine
      Zacharias                           |  | Director                                         |  | Chairman and CEO
      of Vinci                                                                                                                                     |  | September
      2004          |  | September
      2000         
|                                                 
|* Independent
      members of supervisory board.



69

---

Jean-Marie
  Messierholds
  degrees from the Ecole Polytechnique and the Ecole Nationale dAdministration
  (theENA). After holding several
  positions in the French Finance Ministry from 1982 to 1988, he became a partner
  at Lazard Freres & Cie. In 1994, he was appointed President and Chief Executive
  Officer
  of Vivendi Universal. Mr. Messier can be contacted at Vivendi Universal, 42
  avenue de Friedland, 75380 Paris Cedex 08. Mr. Messier is also a director of
  Alcatel, BNP Paribas, Compagnie de Saint Gobain, LVMH, UGC, FCC, Vinci, Echostar
  Communications, USA Networks, The New York Stock Exchange and Vizzavi Europe.

Eric
  Licoyshas
  degrees in political science, law and economics and has served in senior positions
  in a variety of companies. From 1962 to 1970, he was successively Deputy Director
  at Crédit Naval, Crédit
  Vendome and Banque Occidentale pour lIndustrie
  et le Commerce. In the 1970s and early 1980s, he served as Chairman and Chief
  Executive Officer
  of SociétéEuropéenne
  des Grands Restaurants (Laurent) and Union de Participations Immobilières,
  Executive Vice President of Banque Occidentale pour lIndustrie
  et le Commerce and Senior Vice President of Occidentale Finances. He became
  Senior Vice President at Compagnie Financiere Barclays in 1982 and Chairman
  and Chief Executive Officer in 1986. In 1990, he was
  appointed Director and Executive Vice President of Fonds Partenaires Gestion
  (Lazard Group), where he became Chairman in 1995. He became Chief Operating
  Officer
  of Vivendi Universal in 1999. Mr. Licoys can be contacted at Vivendi Universal
  Publishing, 31, rue du Colisée
  75008 Paris. Mr. Licoys is also a director of Banque Eurofin,
  Cegetel Groupe and Intermediate Capital Group plc.

Daniel Boutonholds a degree in political science and is an
alumnus of the ENA. As part of the Frenchfinancial controllerscivil service corps, he occupied a number of different positions in the French Finance Ministry, including that of
Budget Director, between 1988 and 1991. Since 1991 he has worked at SociétéGénérale, serving as Managing Director from 1993
to 1997, and as President from 1997 to the present. Mr. Bouton can be contacted at SociétéGénérale, Tour SociétéGénérale, 17 cours Valmy 92972 Paris, La Defense Cedex. Mr. Bouton is also a director of Schneider Electric and
TotalFinaElf.

Jean Marc Espaliouxholds degrees in political science, law
and economics, is an alumnus of the ENA and served in the Frenchfinancial controllerscivil service corps from 1978 to 1983. In 1984 he joined Vivendi Universal, where he served as Chief Financial
Officer from 1987 to 1996 and as Deputy Managing Director from 1996 to 1997. In 1997 he was appointed to
his current position as President of the Management Board of Accor. Mr. Espalioux can be contacted at Accor, Tour Maine Montparnasse 33, avenue du Maine 75755 Paris Cedex 15. Mr. Espalioux is also a director of Air France, Fiat France and Vivendi
Universal.

Paul Louis Girardotwas a Managing Director of Vivendi
Universal until 1998. A specialist in the development of public service outsourcing activities, he has been very involved in the development not only of our water services, but also in telecommunications (particularly radio-telephony) and energy
services (particularly co-generation). Mr. Girardot can be contacted at 7, rue de Tilsitt 75008 Paris.

Catherine Groswas trained as a journalist in the French
Centre de Formation des Journalistes and the London School of Journalism. She joined Vivendi Universals communications department in 1990 after having begun her career as a journalist. Ms. Gros can be contacted at Vivendi Universal, 42 avenue de Friedland, 75380 Paris Cedex 08.

Guillaume Hannezois an alumnus of the Ecole Normale Supérieure, the Paris Institute of Political Science (IEP) and the ENA. He worked in the French Finance
Ministry from 1985 to 1993 serving as economics advisor to the French Presidents office from 1991 to 1993. He then became Director of Strategy and Management Control at Assurances Générales de France, where he was appointed Chief Financial Officer in 1994. He became Chief Financial Officer of Vivendi Universal in 1997. Mr. Hannezo
can be contacted at Vivendi Universal, 42 avenue de Friedland, 75380 Paris Cedex 08. Mr. Hannezo is also a director of UGC.

Richard Heckmann, a Harvard Business School graduate, is
the founder of United States Filter Corporation and its President since 1990. Prior to founding United States Filter Corporation, Mr. Heckmann was Vice President of Prudential Bache Securities. He has also served as Assistant Director for Finance
and Investment at the Small Business Administration in Washington D.C. Mr. Heckmann can be contacted at United States Filter Corporation, 40-004 Cook Street, Palm Desert, CA 92211, U.S.A. Mr. Heckmann is also a director of K-2 Inc., United Rentals
Inc. and Philadelphia Suburban Corp.

70

---

Esther Koplowitzbecame Vice President of Construcciones y
Contratas in 1991. That company, founded by her father, merged with Fomento de Obras y Construcciones under Ms. Koplowitzs leadership to create FCC. Ms. Koplowitz is also involved in social work through her foundation Ayuda al Desvalido. Ms. Koplowitz can be contacted at FCC, Torre Picasso Plaza Pablo Ruiz Picasso, 28020 Madrid, Spain. Mrs.
Koplowitz is also a director of Vivendi Universal.

Arthur Laffer, Ph.Dholds degrees in economics from Yale
and Stanford Universities. He has a long and distinguished career in academia as well as in public service. He has held professorships at the Universities of Chicago, Southern California and Pepperdine. He has been Economic Director of the Federal
Office of Management and Budget (1970), special advisor to the Secretary of the Treasury and to the
Secretary of Defense (1972-1977) and a member of the Presidential Council of Economic Advisors (1981 to 1989). Professor Laffer can be contacted at Laffer Investments, Institutional Asset Managers, 5405 Morehouse Drive, Suite 340, San Diego, CA
92121, U.S.A. Mr. Laffer is also a director of MasTec Inc., Neff Corp., Oxigene Inc., Nicholas-Applegate Growth Equity Fund, ProFlowers, eDelights.com, Direct Stock Markets, ValuBond.com, Sonic Telecom, VirtualCom, Pointivity, U.S. Script LLC and
Castle Creek.

Serge
  Michelhas
  spent his entire career in the construction and public works business, having
  served as Deputy Managing Director and President of SOGEA, President of Vinci,
  President of CISE and, until 1992, Deputy Managing Director of Vivendi Universal.
  He is currently President of Soficot,
  CIAM and Carrédes Champs
  Elysées.
  Mr. Michel can be contacted at Soficot,
  103 boulevard Haussmann, 75008 Paris. Mr. Michel is also a director of Vinci,
  FCC and Eiffage.

Georges
  Ralliholds
  degrees infinance,
  political science (from the Paris Institute of Political Science (IEP)) and
  business. He has been a partner of Lazard Frères since 1993, having joined
  the bank in 1986. He began his banking career at Crédit
  Lyonnais (1970-1981) and later headed the department offinancial
  negotiations at Crédit
  du Nord. In 1982 he served as Secretary of the Commission for the Development
  and Protection of Savings. Mr. Ralli can be contacted at Lazard Frères,
  121, boulevard Haussmann, 75008 Paris. Mr. Ralli is also a director of Chargeurs,
  Silic, Eurafrance, Direct Finance and Eurazeo.

Murray Stuartholds degrees in literature and law from the
University of Glasgow, and is also trained as an accountant. Mr. Stuart has worked for International Computers Plc. (as Chief Financial Officer and Deputy Director), Carnaud Metalbox (as Managing Director and President) and Scottish Power Plc. (as President from 1992 to 2000). He has also served as President of Trust Hammersmith
Hospitals NHS, an important public health education and research center in London. Mr. Stuart can be contacted at Longacre, Guildford Road, Chobham, Woking, Surrey, GU24 8EA, United Kingdom. Mr. Stuart is also a director of Royal Bank of Scotland
Group plc, Old Mutual plc and CMG plc.

Antoine Zachariashas been with Vivendi Universal since
1971. In 1991 he was appointed Managing Director of Vinci, where he has served as Chairman of the Board of Directors of Vinci and of Vinci Deutscheland since 1997. Mr. Zacharias can be contacted at Vinci, 1, cours Ferdinand de Lesseps 92851, Reuil
Malmaison, France. Mr. Zacharias is also a director of Eurohypo and Nexity.

Management
  Board 
       Under
  French law and ourstatuts, the management board has
  broad powers to act on behalf of our company to further our corporate purposes
  and to define
  and implement our companys policies, subject to those powers expressly granted by law
  or ourstatutsto the supervisory board or our shareholders. Pursuant to ourstatuts,
  the management board must obtain the authorization of the supervisory board
  to enter into a number of material transactions and to take certain significant actions. However, these
  restrictions cannot be enforced against third parties who have entered into
  such a transaction in good faith. Whenever a transaction requires the authorization
  of the supervisory board and such authorization is refused, the management board
  may refer the matter to a general meeting of shareholders, at which the shareholders
  may override the supervisory board and grant the authorization.

Pursuant to ourstatuts, the management board must have at least two but no more than seven members, each of whom shall be appointed for a renewable four year term by a majority of the supervisory board. The chairman of our management board has the
power to represent our company before third parties. Our management board currently consists of 6 members. Management board members serve until the expiration of their respective terms, or

71

---

until their resignation, death, passing of the legal age limit, appointment as a member of the supervisory board, or removal by the shareholders. Our supervisory board mayfill any vacancies on the management board due to resignation or death within two months. The supervisory board also
appoints one of the members of the management board as President of the management board. Under French law and ourstatuts, the President of the management board may be removed as President (but not as a member of the management board) at any time by the supervisory board with or without cause. A member of the
management board may be removed by our shareholders or our supervisory board. A member of the management board cannot be a member of the supervisory board as well.

The management board meets as often as the interests of our company requires. During 2001, our management board met ten times. Under French law, a member
of the management board must be an individual, but need not be a shareholder of our company. There is no limitation, other than applicable age limits, on the number of terms that a member of the management board may serve. Pursuant to ourstatuts, the age limit applicable to each member of the management board is 65 but the
supervisory board has the power to extend this age limit to 67. The French commercial code requires the management board to manage our company properly and to avoid actions contrary to our interests. Members of the management board are subject to
liability if these requirements are not satisfied. In addition, in some circumstances, management board
members can be held jointly and severally liable for damages incurred by third parties as a result of our companys violation of applicable law or ourstatuts. Management board members can
be held criminally liable for some serious violations of applicable law by our company.

The following table sets forth the names of the members of the management board, their current function in our company, their principal business activities
outside of our company, the date their term is scheduled to expire and the date they were initially appointed. The members of our management board are also our senior managers.

|Name                    |  | Function
      inVivendiEnvironnement                           |  | Principal
      BusinessActivities OutsideVivendi Environnement |  | Expiration
      Dateof CurrentTerm |  | Date
      InitiallyAppointed
|----------------------- |  | --------------------------------------------------------------- |  | --------------------------------------------------------------- |  | ----------------------------------- |  | -----------------------------
|                        |  |                                                                 |  |                                                                 |  |                                     |  |                              
|Henri
      Proglio     |  | Chairman
      of themanagement boardand ChiefExecutive Officer |  | None                                                            |  | April
      2004                    |  | April
      2000             
|Jérôme Contamine        |  | Executive
      VicePresident, Finance                          |  | None                                                            |  | April
      2004                    |  | September
      2000         
|Antoine
      Frérot    |  | Chief
      ExecutiveOfficer
      of Connex                    |  | None                                                            |  | April
      2004                    |  | April
      2000             
|Denis
      Gasquet     |  | Chief
      ExecutiveOfficer
      of Onyx                      |  | None                                                            |  | April
      2004                    |  | April
      2000             
|Jean-Pierre
      Denis |  | Chief
      ExecutiveOfficer of Dalkia                          |  | None                                                            |  | April
      2004                    |  | April
      2000             
|Andy Seidel             |  | Chief
      ExecutiveOfficer of VivendiWater NorthAmerica       |  | None                                                            |  | April
      2004                    |  | April
      2000             

Henri
  Progliois
  a graduate of the HEC business school in Paris. He joined Compagnie Générale
  des Eaux in 1972 and was appointed President and Chief Executive Officer
  of CGEA in 1990. He was appointed Executive Vice President of Vivendi Universal
  and President and Chief Executive Officer of Vivendi Water in 1999. He became
  President of our management board in 2000. Mr. Proglio can be contacted at Vivendi
  Environnement, 36-38 avenue Kléber, 75116 Paris. Mr. Proglio is also
  a director of Vinci, FCC and EDF International.

Jérôme
  Contamineholds
  degrees from the Ecole Polytechnique, the Ecole Nationale de la Statistique
  et de lAdministration
  Economique and the ENA. He served as auditor for the Cour Des Comptes from 1984
  to 1988 and held a variety of senior positions with Elf (and later TotalFinaElf)
  between 1988 and 2000. He became Chief Financial Officer
  and Deputy Managing Director of our company in June, 2000. Mr. Contamine can
  be contacted at Vivendi Environnement,36-38 avenue Kléber, 75116 Paris. Mr. Contamine is also a director of
  Statoil and FCC.

72

---

Antoine Frérotis a graduate of the Ecole
Polytechnique and holds a doctorate from the Ecole Nationale des Ponts et Chaussées. He began his
career as an engineer and joined Cergrene, a research center, in 1983, becoming a director in 1984. He joined Compagnie Générale des Eaux in 1990, and was appointed Managing Director in charge of
public transport of Connex in 1995. Mr. Frérot can be contacted at CGEA-Connex, Parc des Fontaines,
169 avenue Georges Clemenceau, 92735 Nanterre Cedex.

Denis Gasquetis a graduate of the Ecole Polytechnique and
the Centre de Perfectionnement aux Affaires. From 1979 to 1989, he served in a variety of positions in the Office National des Forets. He joined Compagnie Générale des Eaux in 1989, becoming Chief Executive Officer of Onyx in 1996. Mr. Gasquet can be contacted at CGEA-Onyx, Parc des Fontaines, 163-169 avenue Georges Clemenceau, 92735 Nanterre Cedex.

Jean-Pierre Denisis a graduate of the HEC business school
in Paris and the ENA. He joined the Frenchfinancial controllerscivil service corps, and, afterwards, was appointed deputy director of the Paris mayors office (1992-1995) and deputy general secretary of the office of the President of the French Republic (1995-1997). He joined Compagnie Générale des Eaux in 1997, becoming Chief Executive Officer of Dalkia in 1999. Mr. Denis can be contacted at Dalkia, Quartier Valmy-Espace 21, 33 Place Ronde 92981, Paris, La Defense Cedex.

Andy Seidelholds a B.S. in chemical engineering from the
University of Pennsylvania and an M.B.A. from the Wharton School. He helped found United States Filter Corporation and served as President and Chief Operating Officer of its water and waste water group when it was acquired by Vivendi Universal in 1999. Mr. Seidel can be contacted at United States Filter Corporation, 40-004 Cook Street, Palm Desert, CA
92211, U.S.A.

COMPENSATION

The members of our supervisory board received the following compensation during the 2001fiscal year for services to our company and its subsidiaries, including compensation in kind and compensation paid for attending meetings of our supervisory
board (jetons de présence):

|                    | Compensation
paid (in€)
by | 
|------------------- | -------------------------- | 
|                    |                            | 
|                    | Our
company                | 
|                    |                            | 
|Jean-Marie
Messier  | 43,750                     | 
|Eric Licoys         | 31,250                     | 
|Daniel Bouton       | 31,250                     | 
|Jean-Marc
Espalioux | 43,750                     | 
|Paul-Louis
Girardot | 31,250                     | 
|Catherine
Gros      | 31,250                     | 
|Guillaume
Hannezo   | 40,625                     | 
|Richard Heckmann    | 31,250                     | 
|Esther Koplowitz    | 40,625                     | 
|Arthur Laffer       | 31,250                     | 
|Serge Michel        | 40,625                     | 
|Georges Ralli       | 40,625                     | 
|Murray Stuart       | 31,250                     | 
|Antoine Zacharias   | 31,250                     | 

73

---

The members of our management board received the following gross compensation (including compensation in kind) during the 2001fiscal year for services to our company and its subsidiaries:

|                        | Compensation
      paid (in€)
      by | 
|----------------------- | -------------------------------------- | 
|                        |                                        | 
|                        | Our                                    | 
|                        | company                                | 
|                        |                                        | 
|Henri
      Proglio     | 997,313                                | 
|Jérôme Contamine        | 383,084                                | 
|Jean-Pierre
      Denis | 497,115                                | 
|Antoine
      Frérot    | 483,810                                | 
|Denis
      Gasquet     | 466,790                                | 
|Andrew
      Seidel     | 856,920                                | 

BOARD PRACTICES

None of our directors and senior managers are parties to contracts with our company or its subsidiaries that provide for the grant of benefits upon the termination of their employment.

Our
  supervisory board has established three independent committeesan audit and transaction
  committee, a directorscommittee and a commitment committee:

| |  | the
      audit and transaction committee reviews ourfinancial statements before they
      are submitted to our supervisory board; transactions between us and Vivendi
      Universal; our accounting policies and methods; the quality of our internal
      control procedures and the working programs of our internal and external
      auditors. As part of its mission, the committee is entitled to meet with
      the statutory auditors and senior management responsible for preparing the
      statements and internal procedures without the presence of the other members
      of the supervisory board and the members of the management board. The audit
      and transaction committee currently consists of Jean-Marc Espalioux (chairman),
      Guillaume Hannezo and Georges Ralli. The audit and transaction committee
      held 3 meetings during 2001.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
      directorscommittee reviews the compensation of our directors and senior
      managers and our policies relating to the granting of options and subscription
      rights on our shares to our executive officers.
      The committee must also be consulted on the selection of our directors.
      The directorscommittee
      currently consists of Jean-Marie Messier (chairman), Esther Koplowitz and
      Serge Michel. The directorscommittee
      held 3 meetings during 2001.                                                                                                                                                                                                                                                                                                                                                                             
| |  | the
      commitment committee reviews and advises the supervisory board on requests
      made by the management board for the approval by the supervisory board of
      any guarantees and other liabilities for third-party obligations to be issued
      or assumed by our company. The commitment committee also receives a periodic
      report on the execution of these commitments for third-party obligations.
      The commitment committee currently consists of Jean-Marc Espalioux (chairman),
      Guillaume Hannezo and Georges Ralli. The commitment committee held itsfirst meeting in February 2002.                                                                                                                                                                                                                                                         

In addition, our company has created an executive committee that is consulted and makes specific proposals on the main issues facing our company. The executive committee comprises all of the members of our management board and ten other members of
senior management from each of our four operating divisions and each of our centralized corporate departments. Each member of the committee takes the necessary actions to ensure that the guidelines adopted by the committee are implemented in the
relevant operating division or corporate department for which it is responsible.

74

---

EMPLOYEES

As of December 31, 2001, we employed approximately 295,000 people worldwide (including 100% of the employees of FCC and Proactiva). Our weighted average
number of employees (including our proportional share of employees in operations that are proportionally consolidated by our company) was approximately 239,000 as of December 31, 2001 (compared to 215,000 in 2000 and 171,000 in 1999). Approximately
10% of our employees are members of management and 53% are less than 40 years old. Excluding the effects of changes in our consolidation of companies, our employees increased by over 9,000 in 2001.

The
  following table shows the distribution of our employees by activity and geographic
  location as of December 31, 2001:

|                   | Water  |  | Waste  |  | EnergyServices |  | Transportation |  | FCC*   |  | Total   |  | %     | 
|------------------ | ------ |  | ------ |  | -------------- |  | -------------- |  | ------ |  | ------- |  | ----- | 
|                   |        |  |        |  |                |  |                |  |        |  |         |  |       | 
|Europe             | 55,068 |  | 46,381 |  | 34,064         |  | 46,314         |  | 45,361 |  | 227,188 |  | 76.9% | 
|of
which France    | 26,694 |  | 29,903 |  | 17,970         |  | 19,628         |  | 151    |  | 94,346  |  | 32%   | 
|North America      | 17,546 |  | 8,921  |  |               |  | 1,200          |  | 1,085  |  | 28,752  |  | 9.7%  | 
|South America      | 8,875  |  | 4,451  |  | 2,116          |  | 294            |  | 6,313  |  | 22,049  |  | 7.5%  | 
|Africa/Middle
East | 2,099  |  | 4,963  |  |               |  | 138            |  | 34     |  | 7,234   |  | 2.5%  | 
|Asia/Pacific       | 2,118  |  | 6,079  |  | 366            |  | 1,500          |  |       |  | 10,063  |  | 3.4%  | 
|                   |        |  |        |  |                |  |                |  |        |  |         |  |       | 
|Total              | 85,706 |  | 70,795 |  | 36,546         |  | 49,446         |  | 52,793 |  | 295,286 |  | 100%  | 
|%                  | 29%    |  | 24%    |  | 12.4%          |  | 17%            |  | 17.9%  |  | 100%    |  |       | 

---

Our goal is to guarantee sustained economic growth accompanied by quantitative and qualitative employment improvement, an ambitious policy to manage our
human resources and greater social cohesion, while at the same time being actively involved with our employees in solidarity actions.

Promoting
  capabilities at a local level
       The
  environmental services business is essentially a local business that is organized
  around multiple autonomous units that are responsible for the improvement of
  their own local environments. These units must be able to anticipate the needs
  of customers and provide innovative services. We encourage decentralization
  in the management of our employees and favor promotion within our company by
  helping each employee to develop his or her sense of autonomy and responsibility
  and to become actively involved in our business and in the evolution of his
  or her professional career. Because we consider that our employees are our true
  representatives with our clients, we pay particular attention to the development
  of their skills within our company.

Favoring
  the training of all of our employees     Our
  investments in employee training result from our strong ambition to pursue the
  economic and social development of our company, which in turn benefits
  our employees and our customers. Our investments in employee training represented
  approximately 2% of total wages paid worldwide by our company and approximately
  2.5% of total wages paid in France in 2001. More than half of our employees
  around the world benefited from at least one
  of our training programs in 2001.

Our employee training programs seek to achieve a number of objectives. Employee training increases the technical performance and profitability of our company by identifying and developing the capabilities of our employees in anticipation of the foreseeable
evolution of our business. It also enables us to optimize the quality of services offered to our customers due to the availability of employees that are continuously more competent, diverse and capable of generating synergies, particularly in the
preparation and implementation of industrial projects in which our social engineering is well recognized and appreciated. Our training programs also reinforce the identity and the cohesion of our company and encourage the mobility of our employees,
including on an international level.

75

---

The
  main tools of our training programs are theInstitut
  de lEnvironnement Urbain(Institute
  of Urban Environment or IEU) and, more recently, our network of establishments
  and partnerships that have been created around the IEU in a number of regions
  throughout the world. Our establishments and partnerships are located in the
  United Kingdom, Germany, Australia, the United States, Gabon, Hong Kong, Malaysia
  and we are currently in the process of opening new ones in the Czech Republic
  and Morocco. The IEU is involved in all levels of training, while favoring vocational
  training that enables our employees to obtain degrees, including the CAP, thebac professioneland
  the university diplomas created in coordination with the Universities of Cergy-Pontoise
  and Paris-Dauphine and the ESSEC in France. With its 250 graduates, the IEU
  also contributes to the development of the recognition of professional training
  in partnership with the French National Education department, in the same manner
  as Dalkia has done in partnership with the French Ministry of Employment. In
  2001, the IEU inaugurated theWaterand
  Energydepartments, which join
  thePropertyandTransportationdepartments. The IEU is now able to deliver global training
  programs covering all aspects of the environmental services business. The IEU
  is capable of providing long-term training, internships and seminars to 710
  people each year and has also become a training center for apprentices (411
  apprentices trained in 2001), a professional training center (5,000 interns
  received in 2001) and a center for research and dialogue uniting all of our
  employees.

Organizing
  mobility 
       One
  of the main elements of our social policies is the mobility of our employees,
  which we organize both at a professional level within an operating division
  as well as at a company-wide level within our various divisions and geographic
  locations.

We have established a common classification system for our 30,000 executives around the world, which facilitates the management and follow-up of their careers, while at the same time adapting to the development of our activities and the dynamism of our
organization. We have also taken other measures to disseminate information on our company among our employees, including, for example, the creation of an internet site that proposes employment positions within our company to enhance our
employeesinformation on available positions within our company. We have also created a pension fund
for our international executives guaranteeing pension coverage throughout their professional life to promote the development of international careers within our company. We are also creating a contingency pooling system in order to advocate, in each
country, interesting coverage levels for retirement, disability and death, as well as to group existing retirements plans.

Innovating
  
       We
  make commitments and implement actions that go beyond our regulatory and contractual
  obligations in several areas. Regarding health and security, we take voluntary
  actions and deploy innovating means to create a culture of prevention that will
  lead to a higher degree of security, risk control and health protection at our
  work sites and to improved working conditions.

In terms of profit sharing, we intend to establish a corporate savings plan that is available to the largest possible number of our employees. We have also created a social observatory that has been assigned to produce data, studies and research
and conduct experiments that enable us to address current socioeconomic issues facing our employees around the world.

Becoming
  involved in the local environment 
       As
  a result of the individual and collective dedication of our employees, we make
  significant
  contributions to local or national communities by showing our commitment and
  solidarity, in particular in the most disfavored areas. Our employees are very
  active in their communities in developing countries, particularly by participating
  in the emergency aid missions of Waterforce, through which approximately 50
  of our employees provided aid and assistance to disaster areas in 2001. Our
  employeesinvolvement
  is also illustrated by their participation in education activities for local
  populations regarding environmental preservation and sanitary issues.

76

---

SHARE OWNERSHIP

None of our directors and senior managers owns 1% or more of our shares. Our directors and senior managers as a group own less than one percent of our
shares. As of December 31, 2000, our directors and senior managers as a group owned options to purchase 295,410 of our shares with an exercise price of€32.50, which vest in June 2003 and expire in June 2008. In addition, during 2001 we granted our directors and senior managers options to subscribe shares of our company as follows:

|                  | Number
ofShares |  | ExercisePrice |  | Expiration
Date    |  | Vesting
Date      
|----------------- | --------------- |  | ------------- |  | ------------------ |  | ------------------
|                  |                 |  |               |  |                    |  |                   
|Henri Proglio     | 208,000         |  | €42           |  | February
  8, 2009 |  | February
  9, 2004
|Jérôme Contamine  | 41,600          |  | €42           |  | February
  8, 2009 |  | February
  9, 2004
|Jean-Pierre
Denis | 41,600          |  | €42           |  | February
  8, 2009 |  | February
  9, 2004
|Antoine Frérot    | 41,600          |  | €42           |  | February
  8, 2009 |  | February
  9, 2004
|Denis Gasquet     | 41,600          |  | €42           |  | February
  8, 2009 |  | February
  9, 2004
|Andrew
Seidel     | 41,600          |  | €42           |  | February
  8, 2009 |  | February
  9, 2004

As of December 31, 2001, none of the options granted to our directors and senior managers had been exercised.

On June 21, 2000, our shareholders gave our management board a three-year authorization to grant options to purchase or to subscribe to shares of our
company to members of our management and other employees. The shares purchasable upon exercise of the options must be either newly issued or held as treasury shares following the implementation of a share repurchase program. The purchasable shares
may not represent, in the aggregate, more than 2.5% of our total capital.

Pursuant to this authority, on June 23, 2000 our management board decided to implement anoutperformancestock option program. Under the program, we granted 30 of our principal managers options to purchase 780,000 treasury shares at€32.50 per share. The options will become exercisable if, three years after they are granted, the market performance of our shares has exceeded that of our main competitors by not less than 25%.
Options granted pursuant to this plan will expire in June 2008. As of December 31, 2001 10,000 options had been exercised.

On
  February 8, 2001, our management board decided to implement a stock option plan
  pursuant to which 1,500 of our employees will be entitled to receive options to subscribe to a total
  of 3,462,000 of newly-issued shares of our company at €42
  per share, which was the fair market value of our shares at the time the options
  were granted. Options granted pursuant to this plan will expire in February
  2009. As of December 31, 2001 none of these options had been exercised.

77

---

ITEM
  7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

Vivendi Universal owns 218,278,926 of our shares, representing 63.05% of our total share capital. SNEGE, a wholly owned subsidiary of Vivendi Universal,
held 99.99% of our shares from the time of our incorporation in 1995 until March 31, 1999, when Vivendi Universal acquired 100% of our shares for their nominal value in a series of transactions that were completed on April 9, 1999. In July, 2000,
Vivendi Universals interest in our company was reduced to approximately 63% as a result of an initial
public offering in France and an international private placement of our shares and the conversion of our convertible bonds into our shares. Following the public offering, private placement and bond conversion, Vivendi Universal purchased an
additional 9% of our shares on the open market, increasing its interest in our company to approximately 72%.

On February 8, 2001, Vivendi Universal issued€1.809 billion principal amount of bonds that are exchangeable for shares of our company held by Vivendi Universal, representing 9.3% of our share capital. The 2%five-year bonds were issued at a price of€55.90, a 30% premium to the closing price of our shares on Euronext Paris on February 7, 2001. Each bond is exchangeable for one of our shares.

On
  December 4, 2001, Vivendi Universal sold 32.4 million of our shares, representing
  9.3% of our total share capital, on the open market at a price of€38
  per share. On December 17, 2001, we distributed one free warrant for each of
  our 346,174,955 shares to persons who held our shares on December 14, 2001.
  The warrants are listed on thePremier
  Marchéof Euronext Paris. Subject to adjustments, each 7 warrants
  will entitle the holder to subscribe one share of our company at a subscription
  price of€55
  per share. Altogether, the warrants may be exercised for up to 49,453,565 of
  our shares, subject to anti-dilution adjustments. The warrants may be exercised
  at any time from December 17, 2001 to and including March 8, 2006. As of December
  31, 2001, 5,719 warrants had been exercised, which resulted in the issuance
  of 817 new shares and an increase in share capital of€11,029.50
  Warrants distributed in respect of shares held in the form of ADSs were sold
  on Euronext Paris by The Bank of New York, acting as depositary for our ADSs,
  and the proceeds were distributed to holders of ADSs. As a result of the issuance
  of our warrants, Vivendi Universal may subscribe and purchase shares representing
  up to 9.3% of our total share capital.

In March 2002, Vivendi Universal publicly stated that it may cease consolidating thefinancial accounts of our company in the future in order to clearly distinguish its media and communications business and its environmental services business,
but that it would remain our main shareholder. Under applicable French and U.S. accounting principles, Vivendi Universal would need to hold less than a majority of our shares in order to not consolidate ourfinancial accounts. Vivendi Universal also indicated that it had notfixed any timetable for any reduction in its share ownership in our company.

To the best of our knowledge, no person other than Vivendi Universal holds 5% or more of our shares. Vivendi Universal does not have different voting
rights than our other shareholders except by virtue of the greater number of shares it holds. We believe that approximately 32% of our outstanding shares are held by a large number of institutional investors, including 10% held by French
institutional investors and a significant portion by UK institutional investors, and the remaining 5% are
held by individual investors. As of December 31, 2001, our treasury shares represented approximately 1.25% of our share capital. We believe that we had approximately 300,000 shareholders as of November 19, 2001.

We estimate that less than 5% of our shares are currently held in the United States by fewer than 1,000 holders.

RELATED PARTY TRANSACTIONS

Formation         Vivendi
  Universal created our company in 1999 by grouping together the majority of its
  existing environment-related operations as follows:

| |  | transferring
to us its 49% interest in the Spanish company B 1998 SL, a holding company that
owns 56.53% of FCC, at market value (€691
million);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------

78

---

| |  | contributing
to us its 100% interest in Compagnie GénéraledEntreprises
Automobiles for €633.9 million, its 100% interest in Dalkia Holding for €915.0
million, its 4.19% interest in Dalkia for €58.9 million, its 100% interest
in Compagnie Générale des Eaux for €1,307.7 million and its
14.3% interest in Philadelphia Suburban Corporation for €51.9 million. Each
contribution was made for the book value of the interest contributed. On the same
date, we transferred the interests in Compagnie Générale des Eaux
and Philadelphia Suburban Corporation to Vivendi Water at book value in exchange
for shares of Vivendi Water stock; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | transferring
      securities representing its interest in United States Filter Corporation
      to Vivendi Water for €2.7
      billion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

As of December 31, 1999, at the closing of these transactions, Vivendi Universal owned 100% of our capital and, after various debt transfers within the
environment sector, our company (exclusive of our subsidiaries) owed Vivendi Universal€8,122
million, net of loans owed by Vivendi Universal in connection with the convertible bonds in an aggregate amount of€2,807 million.

Vivendi
  Universal also transferred a number of intangible water assets, including the
  brandCompagnie
  Générale
  des Eaux,the
  related logo and various related trademarks to Compagnie Générale des Eaux.

Transfer
  of Water Distribution and Treatment Operations to Compagnie Générale
  des Eaux     Vivendi
  Universal sold its water-related operations in France (with the exception of
  certain water-related contracts, as described below) to our wholly-owned subsidiary
  Compagnie Générale
  des Eaux at book value in a transaction that took effect on November 1, 1999
  (thewater
  transfer). For accounting purposes, the water transfer was made
  effective as of January 1, 1999.

Some of Vivendi Universals contracts to provide water-related services contain provisions that limit its ability to transfer those contracts without the permission of the other parties. Vivendi Universal has transferred to us all assets and liabilities
associated with those contracts that it was permitted to transfer, as well as the right to receive the operating income generated after January 1, 1999 under those contracts. Accordingly, the operating income generated by Vivendi
Universals water operations after January 1, 1999 was transferred to Compagnie Généraledes Eaux.

During 2000 and 2001, Vivendi Universal transferred to us the remaining contracts as it received the required consents from the other parties to these
contracts. In 2000, Vivendi Universal transferred to us contracts with a book value of€240 million,
while in 2001 the book value of contracts transferred to us was€2.9 million. As of December 31,
2001, Vivendi Universal had not yet transferred 90 contracts with a book value of€22.2 million,
representing approximately 0.02% of the water-related operations transferred by Vivendi Universal to Compagnie Généraledes Eaux.

Vivendi Universal has agreed that, upon expiration of any contracts not transferred to us, our company, and not Vivendi Universal, will be entitled to
submit a bid for the renewal of these contracts. Vivendi Universal has also agreed that it will not bid for water contracts with public authorities for 25 years from the execution of the transfer agreements, and will assist us in obtaining new
contracts and renewals of existing contracts. As a result, we believe that the renewal ratio of contracts not transferred to our company by Vivendi Universal will not vary significantly from the renewal ratio of contracts that have been transferred to our company.

Financial
  Agreements     We
  have entered into a number of agreements with Vivendi Universal and some of
  its affiliates
  in connection with our formation and the initial public offering of our shares.
  These agreements, which establish thefinancial
  relationship between Vivendi Universal and our company, include:

| |  | an
intercompany short-term loan agreement;                                                                               
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | an
infrastructure renewal and maintenance guarantee agreement relating to our water
and heat distribution activities; and

79

---

| |  | a
counter-guarantee agreement related to guarantees granted by Vivendi Universal
in favor of our subsidiaries on or prior to July 20, 2000.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

Our
  supervisory board approved these contracts on June 19, 2000.

We have also entered into a number of indebtedness and otherfinancial transactions with Vivendi Universal that are not related to our formation, including an interest rate swap and a loan relating to a bond issued by Vivendi Universal that is exchangeable for
shares of Vinci held by one of our subsidiaries.

Loan
  Agreement 
       In
  connection with the contribution and sale by Vivendi Universal to us of its
  interests in several companies in the course of our formation, at December 31,
  1999, our company (exclusive of our subsidiaries) owed Vivendi Universal€8.1
  billion (net of debts owed by Vivendi Universal in connection with the convertible
  bonds) through a shareholders
  current account, which had been reduced to€1.2
  billion as of December 31, 2000.

On June 20, 2000, this shareholders account was consolidated for a period offive years
under a credit line extended to us by Vivendi Universal for a maximum amount of€10.5 billion, less€2.4 billion in net proceeds of the increase in our capital stock effected in connection with our
initial public offering. Amounts drawn under this€8.1 billion credit line are repayable by us to
Vivendi Universal at maturity on December 31, 2004, except that if Vivendi Universal ceases to hold at least 50% of our shares, we would be obligated to fully repay the amounts drawn immediately. On May 2, 2001, we reimbursed in full all outstanding
amounts due by our company to Vivendi Universal under this shareholders account credit line.

Under the terms of this agreement, amounts made available to us by Vivendi Universal under this credit line bear interest at a rate of 5.70% per annum from
January 1, 2000, less afixed quarterly amount of€10.3 million duringfive years, except in the event of a default or a public tender offer for our company. During 2001, we paid Vivendi Universal a total net amount of€38.5 million under the terms of this credit line, compared to€408.1 million in 2000.

We and Vivendi Universal have entered into an agreement to amend several provisions of the credit line agreement on the basis of valuation criteria at
December 12, 2001, which include:

| |  | a
reduction in the notional amount of our interest rate swap agreement with Vivendi
Universal by€1.7
billion (resulting in a notional amount of€3.3 billion), subject to the
payment by our company of a cash settlement amount equal to€58 million, which corresponds
to the market value of the cancelled notional amount of our interest rate swap
agreement (seeInterest
Rate Swap Agreement); and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a
decrease in the amount of thefixed quarterly payments made by us under the credit line agreement
from€10.3
million to€5.15
million, in exchange for an indemnity payment by Vivendi Universal to our company
equal to€58
million, which corresponds to the present value of the future payments foregone
by our company.                                                                               

In addition, the aggregate amount available under the credit line will be increased, subject to the maximum total amount available, each time that a holder
of our exchangeable bonds exercises its right to exchange its bonds into shares of Vivendi Universal on the basis of the principal amount due and accrued interest on its bonds. We have agreed to exercise our right to redeem these exchangeable bonds
prior to their maturity if instructed to do so by Vivendi Universal. We may exercise this early redemption right at any time after January 1, 2002.

Guarantee
  Agreement 
       In
  connection with the formation of our company and Vivendi Universals
  contribution or sale to us of its interests in its water and energy services
  operations, we have replaced Vivendi Universal as managing partner (associé
  commandité)
  of substantially all Vivendi Universals
  water and energy services subsidiaries. As managing partner of these subsidiaries,
  we have assumed Vivendi Universals
  obligations to reimburse those subsidiaries for expenses related to the maintenance
  and replacement of equipment, in exchange for annual indemnity payments and
  statutory dividends from these subsidiaries.

80

---

As
  managing partner of the subsidiaries, we have the power to appoint managers
  (gérants).
  We are also jointly liable for those subsidiariesobligations.
  Under a guarantee agreement dated June 20, 2000, Vivendi Universal will pay
  us up to €381
  million for any loss that we suffer over a period of 12 years as a result of
  our undertaking to reimburse the subsidiaries for expenses associated with the
  maintenance or replacement of equipment. This guarantee covers both recurring
  expenses (those incurred in accordance with budgeted amounts and charges recorded
  in previous years) and exceptional expenses. Recurring expenses are guaranteed
  up to an initial limit of €15.9
  million a year (subject to adjustment), a limit that is indexed to the cost
  of equipment maintenance and repair. The
  maximum total amount we can recover for recurring expenses is €228.7 million. Exceptional
  expenses are guaranteed up to a maximum total amount of €381.1 million less any sums
  already paid to us under the guarantee. If the amount we claim under this provision
  is over €228.7
  million, we will repay the excess to Vivendi Universal over a period of five
  years.

In the event of a successful bid for our company that is not approved by our management board, Vivendi Universals obligations under the guarantee agreement will automatically terminate. However, our obligation to repay Vivendi
Universal any amount due in excess of€229 million will be unaffected by such an event.

Counter-Guarantee
  Agreement     Prior
  to our formation, Vivendi Universal granted a variety of guarantees (subject
  to a cap of€6
  billion) to third parties on behalf of our subsidiaries, generally in connection
  with those subsidiariesbids
  for public auctions, transfers of contracts by Vivendi Universal to Vivendi
  Water, receipt of funds from bankfinancing
  and sales of assets (thesubsidiary
  guarantees). As of December 31, 2001,
  the total amount potentially due under the subsidiary guarantees was approximately€2.3
  billion.

Due to the potentially high cost of renegotiating each subsidiary guarantee, we have entered into a counter-guarantee agreement dated June 20, 2000,
pursuant to which we will indemnify Vivendi Universal for any costs, losses or expenses it incurs in connection with the subsidiary guarantees. Under the counter-guarantee agreement, we are also required to use our best efforts to obtain the consent
of beneficiaries of the subsidiary guarantees to the transfer of the subsidiary guarantees from Vivendi
Universal to us. When such a transfer occurs, we are released from our obligations under the counter-guarantee agreement as they relate to the transferred guarantee.

Interest
  Rate Swap     We
  entered into an interest rate swap agreement with Vivendi Universal dated September
  15, 2000 that covers a notional amount of up to€5
  billion, which expires on December 31, 2004. Pursuant to this agreement, Vivendi
  Universal pays afloating
  rate based on 3-month EURIBOR and we pay afixed
  rate of 5.20% per annum, in each case in respect of the notional amount. As
  a result, we will pay afixed
  rate of 5.20% per annum on debt we incur to refinance our debt to Vivendi Universal.
  As of December 31, 2001, the amount covered by the agreement was€3.3 billion.

Vinci
  Exchangeable Bond     We
  also participated indirectly in the issuance by Vivendi Universal of bonds that
  are to be repaid either in existing shares of Vinci held by us and Vivendi Universal
  or cash, at the option of Vivendi Universal. In connection with this transaction,
  we received a loan from Vivendi Universal in a principal amount of€120
  million relating to 1,552,305 shares of Vinci held by our subsidiary Dalkia
  France. The terms of the loan are identical to the terms of the exchangeable
  bonds issued by Vivendi Universal, which bear interest at a rate of 1% per year
  and mature in March 2006. We transferred the economic benefits of the loan to Dalkia France.

Other AgreementsFCC
  Agreement    Vivendi
  Universal transferred to us its 49% interest in B 1998 SL, a holding company
  that owns 57% of FCC, a Spanish company listed on the Madrid stock exchange,
  for€691
  million. Consequently, we indirectly own 27.9% of FCC. Ms. Esther Koplowitz,
  a member of our supervisory board and a member of Vivendi Universals
  board of directors, holds the remaining 51% of B 1998 SL.

81

---

On October 6, 1998, Vivendi Universal and Ms. Koplowitz signed a shareholdersagreement establishing shared control of the economic activity of B 1998 SL, FCC, and FCCs subsidiaries (theFCC
group). Upon the transfer by Vivendi Universal of its interest in the FCC group to Vivendi
Environnement, we replaced Vivendi Universal as a party to this shareholdersagreement.
Specifically, the agreement provides that Vivendi Environnement and Ms. Koplowitz are to be equally
represented in the main executive bodies of the FCC group, i.e., the boards of directors and executive committees of FCC and its subsidiaries. B 1998 SLs articles of association also provide that certain important decisions with respect to the FCC group, such as increases or decreases of capital, amendments to articles of association, mergers,
spin-offs or dissolutions, require supermajority shareholder approval. None of those decisions, therefore, could be taken without the consent of both Vivendi Environnement and Ms. Koplowitz.

Under
  the terms of an option agreement also dated October 6, 1998, Ms. Koplowitz has
  an option to sell to Vivendi Universal, at any time through October 6, 2008,
  Ms. Koplowitzs 51% interest in B 1998 SL at a price based on the average
  market value of FCCs shares during the three months preceding the exercise
  of the option (up to seven times FCCs EBITDA or 29.5 times FCCs
  earnings per share for the previous year, whichever is lower).

Vivendi
  Universal has agreed to sell to us, and we have agreed to buy, Ms. Koplowitzs
  51% interest in B 1998 SL if Ms. Koplowitz exercises the option. If we purchase
  this interest, we will own 100% of B 1998 SL. Under these circumstances, Spanish
  law would require us to launch a public tender offer for the 43.5% of FCC not
  owned by B 1998 SL. The price per share of the offer would be determined by
  the Spanish stock exchange authorities. If based on the price of FCCs
  common stock on February 28, 2002, the price for the 43.5% interest would be
  approximately €1.29
  billion, subject to adjustment by the Spanish stock exchange authorities.

B 1998 SLs statuts provide for reciprocal rights offirst refusal in the event of the sale of the
B 1998 SL shares to a third party. In the event Vivendi Universal ceases to own a majority of our capital, Ms. Koplowitz has the right to buy our interest in B 1998 SL at a price equal to the lower of the purchase price we paid to Vivendi Universal
and the market value of the interest in B 1998 SL. Based on the market value of our interest in B 1998 SL as of April 18, 2002, the price payable by Ms. Koplowitz for our interest would have been equal to the purchase price we paid to Vivendi
Universal (€691 million).

Services
  Agreement     In
  2000, we paid Vivendi Universal€40.4 million for the services
  it rendered pursuant to a services agreement, which expired on December 31,
  2000. This payment was based on the cost to Vivendi Universal of providing those
  services. Our need for services of the sort described above decreased significantly
  upon completion of our corporate headquarters in 2001, and we did not enter
  into any services agreements with Vivendi Universal in 2001.

Trademark
  License Agreement     We
  entered into a trademark license agreement with Vivendi Universal on June 20,
  2000 (with effect as of January 1, 2000) that grants us the right to use the
  trademarkVivendi
  Environnementin
  France and in all other countries in which the trademark is registered for a
  license fee of€30,490
  per year, excluding taxes. Under the terms of the agreement, we may not grant
  a sub-license to any of our subsidiaries. The license has a term offive
  years, and is renewable automatically for sucessive 5-year periods, unless terminated
  by either party with six monthsprior
  notice. If Vivendi Universal ceases to hold, directly or indirectly, shares
  carrying a majority of our voting power, the agreement will be automatically
  terminated, and we will be required to change our corporate name, and to otherwise
  stop using the trademark, within two years.

Domino
  Holding Sale     In
  connection with the formation of Proactiva, our 50/50 joint venture with FCC,
  we acquired Vivendi Universals
  30% interest in Domino Holding, a Brazilian waterfirm,
  in 2000.

Sale
  of Plane to Richard Heckmann     In
  May 2001, United States Filter Corporation sold a used Canadair Challenger aircraft
  to Richard Heckmann, President of United States Filter Corporation and a member
  of our supervisory board, for $8,000,000.

82

---

ITEM
  8: FINANCIAL INFORMATION

CONSOLIDATED
  STATEMENTS AND OTHER FINANCIAL INFORMATION

Please
  refer to the consolidatedfinancial
  statements and the notes and exhibits thereto in Item 18.

Barbier Frinault & Cie., Member of Andersen Worldwide and one of our two independent auditors, has informed us that on March 14, 2002, an indictment
was unsealed charging Arthur Andersen LLP, the U.S. Member of Andersen Worldwide, with federal obstruction of justice arising from the U.S. governments investigation of Enron Corp. Arthur Andersen LLP has indicated that it intends to contest vigorously the indictment.

As a U.S.-listed company, we are required tofile with the SEC annualfinancial statements audited by
our independent statutory auditors. Our access to the U.S. capital markets and our ability to make timely SECfilings could be impaired if the SEC ceases acceptingfinancial statements audited by
Members of Andersen Worldwide or if for any reason any Member of Andersen Worldwide performing auditing services for us is unable to perform such services for us.

Litigation
  
       In
  the ordinary course of our business, we are involved, from time to time, in
  various legal proceedings. We maintain liability insurance and believe that
  our coverage is sufficient
  to protect us adequately from any materialfinancial
  loss as a result of any legal claims made against us or in which we become involved.

On
  June 21, 2000, the French competition commission opened an investigation into
  the state of competition in drinking water and wastewater treatment markets
  in France. On February 27, 2001, Compagnie Générale
  des Eaux was served with a complaint alleging that it had illicitly cooperated
  with its competitors in the course of bidding for certain water services contracts,
  particularly by declining to bid for contracts that were also subject to bids
  by joint ventures Compagnie Générale des Eaux had formed with
  other water companies. In June 2001, Compagnie Généraledes Eaux responded to the complaint by explaining, on a case-by-case basis,
  its lawful reasons for declining to bid for the contracts in question. In January
  2002, Compagnie Généraledes Eaux submitted an additional brief to the court in response to the conclusions
  submitted by the French competition commission. We cannot predict what the final
  result of this proceeding will be nor the amount of financial penalties, if
  any, that might be imposed in connection with this proceeding.

On April 12, 2000, a large number of French construction companies, including Sade-CGTH, a subsidiary of Vivendi Water, received a complaint from the
French competition commission alleging that the construction companies had unlawfully agreed to restrict competition in bidding for 44 public sector construction contracts in the Paris metropolitan area. Sade-CGTHfiled an answer to the complaint denying the allegations on September 13, 2000. The French competition commissionfiled a supplemental complaint in November 2001, which replaces its original complaint and reduces the number of
construction contracts subject to scrutiny to 32 contracts, 4 of which involve Sade-CGTH. In January 2002, Sade-CGTH and the other construction companiesfiled an answer to the complaint which contests the commissions complaint on the merits and on the basis of irregularities in the complaint procedure that have affected the companiesright of defense. We cannot predict what thefinal
result of this proceeding will be nor the amount offinancial penalties, if any, that might be imposed in
connection with this proceeding.

On November 27, 1998, the French general direction for consumers, competition and the prevention of fraud (DGCCRF) obtained an order from a French court authorizing it to perform an inspection on the premises of our transportation subsidiaries CGEA Transport, Transdev, CGFTE and ViaGTI, with the objective of obtaining elements of proof
relating to possible anti-competitive practices in the urban transportation market. The DGCCRF proceeded to perform these inspections and seizures on December 17, 1998. We appealed the order of the French court authorizing these inspections, which
was rejected by the French Supreme Court on June 14, 2000. We alsofiled a motion with the French court
that authorized the inspections contesting the legality of the procedures used by the DGCCRF in performing the inspections and seizures. The French court declined its jurisdiction to decide on the legality of the procedures on March 24, 2000, on the
grounds that this subject-matter falls within the jurisdiction of the French competition commission. We appealed the decision of the court on March 24, 2000 on the grounds that

83

---

the legality of the procedures falls within the jurisdiction of the court that issued the order. The Supreme Court has not yet rendered a verdict on this issue. We have not made any
provision for this claim.

In April 1998, Onyx and JANCOM International Development Projects (JANCOM), a Philippine company, concluded an agreement with the government of the Philippines to plan to participate jointly in a contract to construct and manage a waste management center in the San Mateo area of Manila, The
Philippines. This agreement was subject to the condition that the contract with the Philippine government become effective, which was in turn subject to a number of conditions that were not fulfilled. On November 4, 1999, the Government of the Philippines declared that the project was abandoned. On May 4, 2001, Onyx received an arbitration demand
from the secretary of the International Chamber of Commerce (ICC) in which JANCOM alleges that Onyx violated a contractual exclusivity clause and requests the payment of damages
amounting to US$100 million, without specifying the basis for the amount of the damages claimed. Onyx rejected JANCOMs claims on the grounds, among others, that neither the contract with the Philippine government nor the agreement concluded with JANCOM became effective. In addition, Onyx hasfiled a counterclaim against JANCOM for damages amounting to US$1 million. We do not expect this claim to have any material impact on our operations orfinancial results and have not established any reserves in our accounts.

On
  September 22, 1999 and February 10, 2000, several lawsuits were filed in the
  Commonwealth Court in Arecibo, Puerto Rico against, among others, Compañía de Aguas de Puerto
  Rico (CAPR). CAPR was a subsidiary of Aqua Alliance
  until 2000, when it was transferred to Proactiva, our joint venture with FCC.
  The complaints allege that CAPR, which operated numerous water production and
  waste water treatment facilities in Puerto Rico until May 2002, unlawfully allowed
  its Barceloneta plant to emit offensive odors and hazardous substances into
  the environment and thus damaged the health of the plaintiffs, a group of local
  residents. The suits are currently in the discovery stage, which is scheduled
  to end in July 2002. We do not believe that the suits will have a material adverse
  effect on our business and intend to defend them vigorously.

Dividend
  Policy 
       Subject
  to the approval of our shareholders and applicable provisions of the French
  commercial code and ourstatuts,
  we currently intend to pay dividends in the future as determined by the management
  board and approved by our shareholders. The payment and amount of any future
  dividends will depend on a number of factors, including ourfinancial performance and net income, general business conditions
  and our business plans and investment policies. SeeItem 10. Additional InformationMemorandum
  and Articles of AssociationRights,
  Preferences and Restrictions Applicable to Our Ordinary SharesDividendsandItem
  3. Key InformationSelected
  Financial DataDividends.

SIGNIFICANT CHANGES

The following discussion should be read in conjunction with our discussion of the evolution of our business, ourfinancial condition, our results of operations and a comparison of our operating results andfinancial condition in preceding periods included inItem 5. Operating and Financial Review and Prospects.

The following discussion contains forward-looking statements that involve risks and uncertainties, including, but not limited to, those described underKey InformationRisk Factors.Our
results may differ materially from those anticipated in the forward-looking statements.

Recent Developments
  
       Results
  of Operations for the Fiscal Quarter ended March 31, 2002 
       On
  April 29, 2002, we announced our results of operations for thefiscal quarter ended March
  31, 2002 compared to thefiscal quarter ended March 31, 2001. Our consolidated revenue
  for thefirst
  quarter of 2002 was €7.5
  billion, an increase of 12.4% compared to consolidated revenue of€6.7
  billion in thefirst quarter of 2001. This increase
  is mainly attributable to organic growth, which accounted for 6.2% of the increase,
  external growth, which accounted for 4.7% of the increase, and the impact offluctuations
  in currency exchange rates, which accounted for the remaining 1.5% of the increase.
  Excluding non-core activities that we intend to divest in 2002, our consolidated
  revenue grew by 14% in thefirst
  quarter of 2002 compared to thefirst
  quarter of 2001, including organic growth of 6.6%.

84

---

Under French GAAP, our consolidated EBIT for thefirst quarter of 2002 was€481 million,
representing growth of 8.1% compared to thefirst quarter of 2001. Excluding non-core activities that we
intend to divest in 2002, our EBIT in thefirst quarter of 2002 grew by 10.3% compared to thefirst quarter of 2001.

Organic growth in thefirst quarter of 2002 is mainly attributable to the commencement of operations under new contracts won in 2001. Excluding the impact of the termination of the South Central transportation contract in August 2001, organic growth in
our core activities was 8.5%.

External
  growth includes:

| |  | in
      our energy services activities, the consolidation of EDFs energy service subsidiaries
      (€205
      million) and the impact of the acquisition of SIRAM in Italy;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | in
      our waste management activities, the consolidation of the activities of
      the Marius Pedersen foundation in Denmark and Central Europe; and                       
| |  | in
      our transportation activities, the acquisition of the Verney group in France.                                                                                         

External growth was partially offset by divestments of non-core activities in our water business, including the disposal of Johnson Screen in the United
States, pursuant to our strategy to focus on core activities and divest non-strategic assets and operations.

Fluctuations
  in exchange rates related mainly to the increase in value of the U.S. dollar
  against the euro.

Revenue generated outside France amounted to€4.2 billion in thefirst quarter of 2002, representing
56% of our total revenue during this period, which is approximately the same proportion of revenue generated outside France in thefirst quarter of 2001.

Water
  
       Our
  water business recorded revenue of€3.3 billion in thefirst
  quarter of 2002, an increase of 6.5% compared to revenue of€3.1
  billion in thefirst
  quarter of 2001. Organic growth accounted for 6.1% of the increase andfluctuations
  in currency exchange rates accounted for 2.0%, which was partially offset by
  the negative impact (1.6%) resulting from divestments of non-core activities.
  Excluding non-core activities that we intend to divest in 2002, organic growth
  amounted to 6.9%. In France, Vivendi Waters operating performance remained
  stable at 5%.

Growth
  outside France was 8.7%, mainly due to a 24.5% increase in outsourcing services
  in the Rest of the World region (which excludes the United States) as a result
  of the commencement or development of operations under new contracts won in
  2000 and 2001 in Central Europe (Bucharest, Prague), Germany (Görlitz), Morocco (Tangiers and
  Tetouan), and in Asia (Ulpu, Gusco and Hynix).

In the United States, revenue from our water business increased slightly on a comparable basis. Equipment sales in our water business showed signs of
recovery, while non-core equipment sales have not yet returned to their early 2001 level.

Waste
  Management 
       Our
  waste management business recorded revenue of€1.5 billion in thefirst
  quarter of 2002, an increase of 9.5% compared to revenue of€1.3
  billion in thefirst
  quarter of 2001. Organic growth accounted for 5.0% of the increase, external
  growth accounted for 2.6% andfluctuations
  in currency exchange rates accounted for 1.9%.

Revenue growth in our waste management business was mainly due to a strong increase of 15.2% in revenues generated outside France and less robust growth of
2.1% in France. Outside France, growth as attributable mainly to the development of business in Northern Europe (Bromley and Sheffield in the U.K., and in Norway) and in the Asia-Pacific region through our contracts
with Pacific Waste Management and Collex. External growth was primarily due to the acquisition of the waste
management activities of the Marius Pedersen foundation in 2001.

85

---

Energy
  services 
       Our
  energy services business recorded revenue of€1.3 billion in thefirst
  quarter of 2002, an increase of 39.7% compared to revenue of€0.9
  billion in thefirst
  quarter of 2001. External growth accounted for 28.7% of the increase, while
  organic growth accounted for 10.3% andfluctuations
  in currency exchange rates accounted for 0.7%.

Our energy services generated organic growth in France (7.1%), as a result of the continued development of our co-generation activities, and outside France
(17.9%) as a result of the commencement or the development of our operations under contracts won in 2001, particularly in the city of Tallinn, Estonia.

Strong external growth recorded by our energy services activities in thefirst quarter of 2002 is due primarily to the consolidation of EDFs energy service subsidiaries transferred to Dalkia in 2001, the acquisition of SIRAM in Italy and the acquisition of the two co-generation units in Usti nad Labem, Czech Republic.

Transportation
  
       Our
  transportation business recorded revenue of€829 million in thefirst
  quarter of 2002, an increase of 9.6% compared to revenue of€756
  million in thefirst
  quarter of 2001. External growth accounted for 6.3% of the increase, organic
  growth accounted for 2.8% andfluctuations
  in currency exchange rates accounted for 0.4%.

In France, revenue recorded by our transportation business rose 28%, of which organic growth accounted for 14%. External growth resulted primarily from the
consolidation of the Verney group, which contributed additional revenue of€31.5 million in thefirst quarter of 2002.

Outside France, the net impact of the loss of the South Central contract was almost entirely offset by new contracts won in Northern and Eastern Europe, in
the United States (through Yellow Transportation) and in the Asia-Pacific region. Excluding the loss of the
South Central contract, organic growth in our transportation business outside France was 27%.

FCC
  
       FCC
  contributed€582 million to our consolidated revenue in thefirst
  quarter of 2002, an increase of 9.3% compared to€533
  million in thefirst
  quarter of 2001. Organic growth accounted for 8.1% of the increase and external
  growth accounted for the remaining 1.2%.

The increase in revenue contributed by FCC was principally due to organic growth in municipal services and good operating performance in the cement
business due to an increase in average sales prices in thefirst quarter of 2002.

Major
  Business Developments 
       Since
  the date of our consolidatedfinancial statements, we have pursued our strategic goals
  to increase organic growth, obtain new contracts, enter into new partnerships
  and alliances and continue to divest non-strategic assets. The following are
  the most significant
  business developments in each of our operating segments since the close offiscal
  year 2001.

Water
  
       U.S.
  Filter Corporation entered into an agreement in February 2002 for the sale of
  the Filtration and Separation Group (FSG) for approximately U.S.$360 million.
  This sale represents the last stage in the divestiture process of these U.S.
  activities commenced with the sale of Johnson Screen in 2001. This divestiture
  process has generated aggregate proceeds of U.S.$500 million. The sale is currently
  awaiting approval by the relevant antitrust authorities.

Vivendi Water sold its minority interest in Bristol Water, a U.K. water distribution company, for€38 million as part of our divestiture program for non-strategic assets.

U.S. Filter Corporation entered into a contract with Orange County, California (U.S.) to build the largest microfiltration treatment site in the world, which will use our Memcor membranes.

86

---

Through U.S. Filter Corporation, we were awarded a contract in March 2002 to operate the potable water network of Indianapolis, the twelfth largest city in
the United States with 1.1 million people, for 20 years (with expected total revenue of approximately $1.5 billion).

In
  April 2002, First Aqua (JVCo) Limited acquired Southern Water, a U.K. water
  and wastewater operator, from Scottish Power at an enterprise value of £2.0
  billion, which is equivalent to Southern Waters estimated average gross
  regulatory asset value as at March 2002. In May 2002, Vivendi Water UK, a wholly-owned
  subsidiary of Vivendi Water entered into an agreement with First Aqua Holdings
  Limited to acquire First Aqua (JVCo) Limited, the holding company of Southern
  Water. The acquisition by Vivendi Water UK is still subject to separate approvals
  by the European Union and U.K. antitrust authorities and to the availability
  of satisfactory long-term non-recourse financing to refinance
  existing debt of First Aqua (JVCo) Limited and Southern Water. The acquisition
  is expected to be consummated at the end of 2002. The consideration is based
  on the same enterprise value used for the acquisition of Southern Water by First
  Aqua (JVCo) Limited. However, the acquisition by Vivendi Water UK, which will
  be effected through an investment in First Aqua (JVCo) Limited, will be limited
  to an investment of £420 million (€680 million) following the
  debt refinancing. The balance will be provided by financial participants unrelated
  to Vivendi Water. Following the consummation of the acquisition and the implementation
  of the refinancing, Vivendi Water UK will hold a majority of the capital stock
  of First Aqua (JVCo) Limited and will fully consolidate the results of Southern
  Water. The remaining equity interests held by the financial participants will
  be considered as minority interests. We expect that this acquisition, which
  allows Vivendi Water to enter the wastewater services market and commence developing
  integrated water management services in the U.K., will provide us with a platform
  to further develop our industrial outsourcing activities in the U.K.

In
  May 2002, Compañía de Aguas de Puerto Rico (CAPR),
  a subsidiary of Vivendi Water, was not awarded the renewal of a contract to
  operate the water and wastewater services of the Commonwealth of Puerto Rico
  that had been subject to an international offer for tenders.

In May 2002, we announced that we have started exclusive negotiations with AXA Private Equity for the sale of Bonna Sabla, a French subsidiary of Vivendi
Water that manufacturers pre-cast concrete products primarily for water and wastewater systems, as part of our divestiture program for non-strategic assets.

In May 2002, Vivendi Water was chosen to operate and maintain the water services in the business district of Pudong in the city of Shanghai for 50 years
(with expected total revenue of€10 billion), which is thefirst outsourcing contract in the Peoples Republic of China that grants a foreign company the responsibility for the entire water cycle from potable water production, network distribution and
customer services. Under the terms of this contract, Vivendi Water will acquire a 50% interest in Shanghai Pudong Vivendi Water Corporation, a new joint venture company, for approximately€266 million. At the start of operations, the joint venture will supply potable water to 550,000 customers with an average daily consumption of 1.2
million cubic meters.

Waste
  Management 
       In
  March 2002, Onyx was awarded an industrial waste management contract in Australia,
  which is expected to generate total revenue of€10
  million over 3 years.

Energy
  Services 
       Edenkia,
  in association with Onyx, won a contract for the management of technical maintenance,
  cleaning services, waste treatment and logistics at the Futuroscope site in
  France, which is the fifth largest theme park in Europe with approximately 2.5
  million visitors in 2000. We expect this contract to generate total revenue
  of €40
  million over 5 years. The 211 members of Futuroscopes
  personnel that were employed in these activities will join our company in the first half of 2002.

In
  March 2002, Dalkia International announced that the municipal council of the
  city of Poznan (600,000 inhabitants) had chosen it to acquire a controlling
  interest in PEC Poznan, which operates the urban heating network of the city.
  Pursuant to the terms of the contract, Dalkia International will acquire a 51%
  interest in PEC Poznan for€44
  million.

87

---

Transportation
  
       In
  Sweden, Connex won two contracts in the city of Eskilstuna, which are expected
  to generate annual revenue of€9
  million over 6 years, and a 4-year contract in the Scania region, which we expect
  will increase our annual revenue in this region to€34
  million in 2002.

In France, Connex acquired the Verney transportation group, which recorded revenue exceeding€150 million in 2001.

In Germany, Connex won a contract to operate a number of rail lines in North Rhineland which is expected to generate average annual revenue of€20 million over 10 years.

In
  Ireland, Connex won a contract to operate Dublins light rail line for 5 years (with expected total revenue
  of€77
  million).

FCC
  
       In
  April 2002, we approved the principle of a proposed merger between FCC and Portland
  Valderrivas S.A., which is expected to simplify the holding structure of FCCs
  cement activities by removing a holding layer that has had a negative impact
  on FCCs
  stock price in the past. This transaction, which is expected to have a positive
  impact on the earnings per share of both companies, will not change our joint
  control of FCC with Mrs. Esther Koplowitz.

Outlook
  
        Markets
  
       Our
  market continues to suffer the effects of the short-term economic difficulties
  in North America that affected our business in 2001. However, we believe that
  our European markets show favorable prospects for 2002, particularly outside
  of Western Europe. We also believe that the Asian region, particularly China
  and South Korea, offer exceptional growth opportunities for environmental management
  services and continue to show signs of economic growth.

More generally, we expect that demand for our services by our private and public customers will continue to rise, primarily due to increasingly strict
norms, investment requirements, and the need to outsource increasingly complex and integrated tasks to the best professionals.

Guidance
  
       During
  2002, we intend to continue to develop our industrial and governmental outsourcing
  operations and to continue to make selective acquisitions to broaden our international
  businesses. We expect that our business will continue to win new contracts and
  will benefit from our recent restructuring initiatives.

We
  currently anticipate that in 2002 we will benefit from the consolidation of
  contracts won and the integration of operations acquired in 2001. In addition,
  we expect that the implementation in 2002 and 2003 of our cost-restructuring
  program adopted in 2001 will lead to an increase in profitability
  throughout our businesses. We have also decided to accelerate our divestiture
  program for non-strategic assets in the United States to focus on our core municipal
  and private outsourcing business and services to individuals. Consequently,
  our goal is to increase our revenue, excluding non-strategic activities, by
  35% to 40% over the 2000-2004 period and to improve our operating performance
  with growth at least equal to growth in our revenue. In 2002, the anticipated
  evolution of the economic environment and the contracts won or expected to be
  won allow us to raise our revenue growth target to more than 10%, excluding
  non-strategic activities. A variety of factors, however, including those described
  under Key
  InformationRisk
  Factors,could
  cause our expectations not to be realized, affect our ability to generate revenue,
  cause us to implement changes in our operations (and incur related costs) or
  have other negative effects on our operating results.

88

---

ITEM
  9: THE OFFER AND LISTING

TRADING MARKETS

Our
  ordinary shares are listed on thePremier
  Marchéof Euronext Paris. Since August 8, 2001, our shares have been included in the
  CAC 40, a widely followed equity index of 40 major French stocks published by
  Euronext Paris. Our shares have been listed on The New York Stock Exchange in
  the form of American Depositary Shares (ADSs)
  since October 5, 2001. Each ADS represents one ordinary share.

Trading On
  The Premier MarchéGeneral
  
       On
  September 22, 2000, theSociété
  des Bourses Françaises S.A.(known
  as the ParisBourseSBFS.A.), Amsterdam Exchange N.V.
  and theSocieté
  de la Bourse de Valeurs Mobilières de Bruxelles S.A.merged
  to create Euronext N.V., a Dutch holding company and thefirst pan-European stock exchange.
  Subsequently, ParisBourseSBFS.A. changed its name to Euronext Paris. Securities quoted
  on any of the stock exchanges participating in Euronext will be traded through
  a common Euronext platform, with central clearinghouse, settlement and custody
  structures. However, these securities will remain listed on their respective
  local exchanges. Euronext Paris retains responsibility for the admission of
  securities to its trading markets, as well as the regulation of these markets.

Securities approved for listing by Euronext Paris are traded in one of two regulated markets, theBourse de Paris, which in turn comprises thePremier Marchéand theSecond Marché, and theNouveau Marché. These markets are all operated and
managed by Euronext Paris, a market operator (entreprise de Marché) responsible for
the admission of securities and the supervision of trading in listed securities. Euronext Paris publishes a daily official price list that includes price information on listed securities. The securities of most large public companies are listed on thePremier
Marché, with theSecond Marchéavailable for small and medium-sized companies. Trading on theNouveau Marchéwas introduced in March 1996 to allow small capitalization and start-up companies to access the stock market. In addition, the securities of certain other companies are traded on a non-regulated,
over-the-counter market, theMarché Libre OTC.

Premier
  Marché 
       Securities
  listed on thePremier
  Marchéof Euronext Paris are officially
  traded through authorizedfinancial
  institutions that are members of Euronext Paris. Securities are traded continuously
  on each business day from 9:00 a.m. to 5:25 p.m. (Paris time), with a pre-opening
  session from 7:15 a.m. to 9:00 a.m. and a post-closing session from 5:25 p.m.
  to 5:30 p.m. (during which time trades are recorded but not executed), and an
  opening auction at 9:00 a.m. and a closing auction at 5:30 p.m. Any trade of
  a security that occurs after a stock exchange session closes is recorded on
  the next business day at the previous sessions
  closing price for that security. Euronext Paris has introduced continuous electronic
  trading during trading hours for most listed securities.

Euronext Paris places securities listed on thePremier Marchéin one of two categories, depending on their trading volume. Our shares trade in the category known asContinu, which includes the most actively traded securities.

Euronext
  Paris may restrict trading in a security listed on thePremier
  Marchéif
  the quoted price of the security increases or decreases beyond the specific price limits defined
  by its regulations (réservation
  à la hausse ou à la baisse).
  In particular, trading is automatically restricted in a security whose quoted
  price varies by more than 10 % from the last price determined in an auction
  or by more than 2 % from the last traded price. If the order that has caused
  the restriction is cancelled within the following minutes, the trading of this
  security resumes. If the order is not cancelled, an auction is organized after
  a call phase offive minutes, during which orders are entered in the central
  order book but not executed. Euronext Paris may also suspend trading of a security
  listed on thePremier Marchéin
  other limited circumstances (suspension de la cotation), in particular to prevent
  or halt disorderly market conditions. In addition, in exceptional cases including,
  for example, in the context of a takeover bid, the CMF may also suspend trading
  of the security concerned.

Trades
  of securities listed on thePremier
  Marchéare settled on a cash
  basis on the third day following the trade. Market intermediaries are also permitted
  to offer investors a deferred settlement service (service de règlement

89

---

différé)
  for a fee. The deferred settlement service is only available for trades in securities
  that either (1) are a component of the SBF 120 Index or (2) have both a total
  market capitalization of at least€1 billion and a daily average volume of trades of at least€1
  million. Investors can elect on the determination date (date
  de liquidation),
  which is thefifth
  trading day before the end of the month, either to settle by the last trading
  day of the month or to pay an additional fee and postpone the settlement decision
  to the determination date of the following month. Our shares are currently eligible
  for the deferred settlement service.

Equity securities traded on a deferred settlement basis are considered to have been transferred only after they have been registered in the
purchasers account. Under French securities regulations, any sale of a security traded on a deferred
settlement basis during the month of a dividend payment is deemed to occur after the dividend has been paid. If the sale takes place before, but during the month of, a dividend payment date, the purchasers account will be credited with an amount equal to the dividend paid and the sellers account will be debited by the same amount.

Trading
  by Vivendi Environnement in its Shares 
       Under
  French law, a company may not issue shares to itself, but it may purchase its
  own shares in the limited cases described in Item 10 underAdditional
  InformationMemorandum
  and Articles of AssociationTrading in Our Own Shares.

Trading
  History 
       The
  table below sets forth, for the periods indicated, the reported high and low
  sales prices (in euro) and the trading volume (in shares) of our shares on thePremier
  Marchéof
  Euronext Paris.

|                                   | High  |  | Low   |  | TradingVolume | 
|---------------------------------- | ----- |  | ----- |  | ------------- | 
|                                   |       |  |       |  |               | 
|2002                               |       |  |       |  |               | 
|April                              | 39.10 |  | 34.66 |  | 19,147,026    | 
|First
      Quarter                | 39.20 |  | 33.55 |  | 57,297,156    | 
|March                              | 37.87 |  | 33.55 |  | 24,538,663    | 
|February                           | 38.90 |  | 36.25 |  | 12,200,709    | 
|January                            | 39.20 |  | 35.27 |  | 20,557,784    | 
|2001                               |       |  |       |  |               | 
|Fourth
      Quarter               | 44.50 |  | 36.10 |  | 120,996,762   | 
|December                           | 40.78 |  | 36.10 |  | 92,132,110    | 
|November                           | 44.50 |  | 40.16 |  | 14,431,156    | 
|October                            | 44.30 |  | 41.10 |  | 14,433,496    | 
|Third
      Quarter                | 51.25 |  | 40.00 |  | 40,825,017    | 
|Second
      Quarter               | 51.40 |  | 46.91 |  | 25,040,547    | 
|First
      Quarter                | 50.25 |  | 38.50 |  | 55,241,583    | 
|2000                               |       |  |       |  |               | 
|Fourth
      Quarter               | 49.00 |  | 39.50 |  | 26,287,055    | 
|Third
      Quarter (from July 20) | 46.00 |  | 32.50 |  | 119,020,919   | 

---

Our shares were offered at€32.50 per share in our initial public offering in France and at€34 per share
in our international private placement.

90

---

Trading On
  The New York Stock Exchange 
       The
  table below sets forth, for the periods indicated, the reported high and low
  sales prices (in U.S. dollars) and the trading volume (in ADSs) of our ADSs
  on The New York Stock Exchange.

|                                      | High  |  | Low   |  | TradingVolume | 
|------------------------------------- | ----- |  | ----- |  | ------------- | 
|                                      |       |  |       |  |               | 
|2002                                  |       |  |       |  |               | 
|April                                 | 34.20 |  | 30.75 |  | 60,692        | 
|First
      Quarter                   | 34.20 |  | 29.53 |  | 128,785       | 
|March                                 | 33.50 |  | 29.53 |  | 62,700        | 
|February                              | 33.80 |  | 31.79 |  | 22,390        | 
|January                               | 34.20 |  | 32.30 |  | 43,695        | 
|2001                                  |       |  |       |  |               | 
|Fourth
      Quarter (from October 5) | 39.45 |  | 32.40 |  | 294,495       | 
|December                              | 36.00 |  | 32.40 |  | 126,693       | 
|November                              | 39.00 |  | 36.74 |  | 53,994        | 
|October
      (from October 5)        | 39.45 |  | 37.00 |  | 113,798       | 

---

We
  urge you to obtain current market quotations.

91

---

ITEM
  10: ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

Objects and
  Purposes
       Under
  Article three of ourstatuts, our corporate purpose is
  to engage, directly or indirectly, in France and in all other countries, in:

| |  | the
      management, whether for private, business or public sector customers, of
      all service activities related to the environment, and in particular, water,
      waste water treatment, energy, transportation and waste management services;                                                   
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
      acquisition, licensing and operation of all patents, licenses, trademarks
      and models pertaining directly or indirectly to our operations;                                                                                                                                                  
| |  | the
      acquisition of all share interests, by way of subscription, purchase, contribution,
      exchange or through any and all other means, of bonds, shares and all other
      corporate securities, whether existing or to be issued in the future, and
      the right to dispose of the same; and
| |  | all
      transactions, whether commercial, industrial,financial or involving real or
      personal property and related directly or indirectly to the purposes stated
      above.                                                                                                                       

Directors
  
       Ourstatutsprovide that each member of our supervisory board must own
  at least 750 of our shares, but impose no share ownership requirements on members
  of our management board.

The French commercial code provides that each director is eligible for reappointment upon the expiration of his or her term of office. Ourstatutsfix the term of reappointment at four years, provided that no member of the management board may be older than 65.

Under the French commercial code, any transaction directly or indirectly between a company and a member of its supervisory or management board that cannot
be reasonably considered to be in the ordinary course of business of the company is subject to the supervisory boards prior consent. Any such transaction concluded without the prior consent of the supervisory board can be nullified if it causes prejudice to the company. The interested director can be held liable on this basis. The statutory auditor must be informed of the transaction within one month following its
conclusion and must prepare a report to be submitted to the shareholders for approval at their next meeting. At the meeting, the interested director may not vote on the resolution approving the transaction, nor may his or her shares be taken into
account in determining the outcome of the vote or whether a quorum is present. In the event the transaction is not ratified by the shareholders at a shareholdersmeeting, it will remain enforceable by
third parties against the company, but the company may in turn hold the interested director and, in some circumstances, other members of the management board, liable for any damages it may suffer as a result. In addition, the transaction may be
canceled if it is fraudulent. In the case of transactions with directors that can be considered within the companys ordinary course of business, the interested director must provide a copy of the governing agreement to the chairman of the supervisory board, who must inform the members of the supervisory board and the statutory auditor of the
principal terms of each such transaction. Moreover, certain transactions between a corporation and one of its directors who is a natural person are prohibited under the French commercial code. Our directors are not authorized, in the absence of an
independent quorum, to vote compensation to themselves or other directors. Ourstatutscontain no provisions specifically concerning loans from our company to our
directors.

Transactions
  with Major Shareholders
       The
  limitations imposed by the French commercial code on transactions between a
  company and interested directors, described in the preceding paragraph, also
  apply to transactions between a company and a holder of shares carrying 5% or
  more of its voting power (or, if such shareholder is a legal entity, the entitys
  parent, if any) and to transactions between companies with common directors
  or executive officers.
  Accordingly, transactions between our company and Vivendi Universal are subject
  to those limitations.

92

---

Rights, Preferences
  and Restrictions Applicable to Our Ordinary SharesDividends
  
       Dividends
  on our shares are distributed to shareholderspro
  rata.
  The dividend payment date is decided by the shareholders at an ordinary general
  meeting (or by the management board in the absence of such a decision by the
  shareholders). Under the French commercial code, we must pay any dividends within
  nine months of the end of ourfiscal year unless otherwise authorized by court order. Subject
  to certain conditions, our management board can determine the distribution of
  interim dividends during the course of thefiscal
  year, but in any case before the approval of the annual accounts by the annual
  ordinary general meeting of shareholders. Dividends on shares that are not claimed
  withinfive
  years of the date of declared payment revert to the French State.

Voting
  Rights
        Each
  of our shares carries the right to cast one vote in shareholder elections.

Liquidation
  Rights
       If
  our company is liquidated, any assets remaining after payment of our debts,
  liquidation expenses and all of our remaining obligations will be distributedfirst
  to repay in full the nominal value of our shares. Any surplus will be distributedpro
  rataamong
  shareholders in proportion to the nominal value of their shareholdings.

Preferential
  Subscription Rights
       Under
  the French commercial code, if we issue additional shares, or any equity securities
  or other specific
  kinds of additional securities carrying a right, directly or indirectly, to
  purchase equity securities issued by our company for cash, current shareholders
  will have preferential subscription rights to these securities on a pro rata
  basis. These preferential rights will require us to give priority treatment
  to those shareholders over other persons wishing to subscribe for the securities.
  The rights entitle the individual or entity that holds them to subscribe to
  an issue of any securities that may increase our share capital by means of a
  cash payment or a set-off of cash debts. Preferential subscription rights are
  transferable during the subscription period relating to a particular offering.
  These rights may also be listed on the Paris Bourse. A two-thirds majority of
  our shares entitled to vote at an extraordinary general meeting may vote to
  waive preferential subscription rights with respect to any particular offering.
  French law requires a companys
  governing board and independent auditors to present reports that specifically
  address any proposal to waive preferential subscription rights. In the event
  of a waiver, the issue of securities must be completed within the period prescribed
  by law. The shareholders may also decide at an extraordinary general meeting
  to give the existing shareholders a non-transferable priority right to subscribe
  for the new securities during a limited period of time. Shareholders may also
  waive their own preferential subscription rights with respect to any particular
  offering.

Amendments
  to Rights of Holders 
       Rights
  of a given class of shareholders can be amended only by action of an extraordinary
  general meeting of the class of shareholders affected. Two-thirds of the shares
  of the affected class voting either in person or by mail or proxy must approve
  any proposal to amend shareholder rights. The quorum requirements for a special
  meeting are 50% of the voting shares, or 25% upon resumption of an adjourned
  meeting.

Ordinary
  and Extraordinary Meetings
       In
  accordance with the French commercial code, there are two types of general shareholdersmeetings:
  ordinary and extraordinary.

Ordinary
  general meetings of shareholders are required for matters that are not specifically
  reserved by law to extraordinary general meetings, such as:

| |  | electing,
      replacing and removing members of the supervisory board;    
| | - | ----------------------------------------------------------------------------
| |  | appointing
      independent auditors;                                      
| |  | declaring
      dividends or authorizing dividends to be paid in shares; and

93

---



| |  | issuing
      debt securities.
| | - | ------------------------------

Extraordinary
  general meetings of shareholders are required for approval of matters such as
  amendments to ourstatuts,
  including any amendment required in connection with extraordinary corporate
  actions. Extraordinary corporate actions include:

| |  | changing
      our companys name or corporate purpose;                                             
| | - | ----------------------------------------------------------------------------------------------------
| |  | increasing
      or decreasing our share capital;                                                   
| |  | creating
      a new class of equity securities;                                                    
| |  | authorizing
      the issuance of investment certificates or convertible or exchangeable securities;
| |  | establishing
      any other rights to equity securities;                                           
| |  | selling
      or transferring substantially all of our assets; and                                  
| |  | the
      voluntary liquidation of our company.                                                     

Convening
  Shareholders Meetings
       The
  French commercial code requires our management board to convene an annual ordinary
  general meeting of shareholders to approve our annual accounts. This meeting
  must be held within six months of the end of eachfiscal
  year. This period may be extended by an order of the President of theTribunal
  de Commerce.
  The management board and the supervisory board may also convene an ordinary
  or extraordinary meeting of shareholders upon proper notice at any time during
  the year. If the management board and the supervisory board fail to convene
  a shareholdersmeeting,
  our independent auditors or a court-appointed agent may call the meeting. Any
  of the following may request the court to appoint an agent:

| |  | one
      or several shareholders holding at least 5% of our share capital;                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | in
      cases of urgency, designated employee representatives or any interested
      party;                                                                                                                     
| |  | duly
      qualified
      associations of shareholders who have held their shares in registered form
      for at least two years and who together hold at least 1% of the voting rights
      of our company; or
| |  | in
      a bankruptcy, our liquidator or court-appointed agent may also call a shareholdersmeeting
      in some instances.                                                                                      

Shareholders holding more than 50% of our share capital or voting rights may also convene a shareholdersmeeting after a public offer or a sale of a controlling stake of our capital.

Notice
  of Shareholders Meetings
       We
  must announce general meetings at least 30 days in advance by means of a preliminary
  notice published in theBulletin des Annonces
  Légales Obligatoires(BALO). The preliminary notice mustfirst
  be sent to the Commission des Opérations
  de Bourse (theCOB). The COB also recommends that the preliminary notice be published
  in a newspaper of national circulation in France. The preliminary notice must
  disclose, among other things, the time, date, and place of the meeting, whether
  the meeting will be ordinary or extraordinary, the agenda, a draft of the resolutions
  to be submitted to the shareholders, a description of the procedures which holders
  of bearer shares must follow to attend the meeting, the procedure for voting
  by mail, and a statement informing the shareholders that they may propose additional
  resolutions to the management board within ten days of the publication of the
  notice.

We must send afinal notice containing the agenda and other information about the meeting at least 15 days prior to the meeting or at least six days prior to the resumption of any meeting adjourned for lack of a quorum. Thefinal notice must be sent by mail to all registered shareholders who have held shares for more than one month prior to the date
of the preliminary notice. Thefinal notice must also be published in BALO and in a newspaper
authorized

94

---

to publish legal announcements in the local administrative department in which our company is registered, with prior notice having been given to the COB.

In general, shareholders can take action at shareholdersmeetings only on matters listed in the agenda for the meeting. One exception to this rule is that shareholders may take action with respect to the dismissal of members of the supervisory board
regardless of whether these actions are on the agenda. Additional resolutions to be submitted for approval by the shareholders at the meeting may be proposed to the management board (within ten days of the publication of the preliminary notice in
the BALO) by:

| |  | designated
      employee representatives;                                                                                                                                                 
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | one
      or several shareholders holding a specified percentage of shares; or                                                                                                             
| |  | a
      duly qualified
      association of shareholders who have held their shares in registered form
      for at least two years and who together hold at least 1% of our voting rights.

The
  management board must submit properly proposed resolutions to a vote of the
  shareholders.

During the two weeks preceding a meeting of shareholders, any shareholder may submit written questions to the management board relating to the agenda for
the meeting. The management board must respond to these questions during the meeting.

Attendance
  and Voting at Shareholders Meetings
       Each
  share confers on the shareholder the right to cast one vote. Shareholders may
  attend ordinary meetings and extraordinary meetings and exercise their voting
  rights subject to the conditions specified
  in the French commercial code and ourstatuts.
  In particular, a holder must have accurately disclosed any substantial interest
  in our company (as described underAnti-Takeover
  ProvisionsDisclosure
  of Substantial StakeholdingsandAnti-Takeover
  Effects of Applicable Law and Regulations)
  and the holders
  shares must be fully paid up. In addition, a shareholder is not permitted to
  vote on specific
  resolutions that would confer a particular benefit on that shareholder. There
  is no requirement that shareholders have a minimum number of shares in order
  to attend or to be represented at an ordinary or extraordinary general meeting.

To participate in any general meeting, a holder of shares held in registered form must have shares registered in his or her name in a shareholder account
maintained by us or on our behalf by an agent appointed by us at least two days prior to the date set for the meeting. A holder of bearer shares must obtain an account certificate indicating indicate the number of bearer shares the holder owns from the accredited intermediary with whom the holder has deposited his or her shares.
The holder must deposit this certificate at the place specified in the notice of the meeting at least two days before the meeting. The board of directors may extend these deadlines for the benefit of all shareholders.

Proxies
  and Votes by Mail
       In
  general, all shareholders who have properly registered their shares or duly
  presented a certificate
  from their accreditedfinancial intermediary may participate in general meetings. Shareholders
  may participate in general meetings either in person or by proxy. Shareholders
  may vote in person, by proxy or by mail.

Proxies will be sent to any shareholder on request. To be counted, such proxies must be received at our registered office, or at any other address indicated on the notice convening the meeting, prior to the date of the meeting. A shareholder
may grant proxies to his or her spouse or to another shareholder. A shareholder that is a corporation may grant proxies to a legal representative. Alternatively, the shareholder may send us a blank proxy without nominating any representative. In
this case, the chairman of the meeting will vote blank proxies in favor of all resolutions proposed by the management board and against all others.

With respect to votes by mail, we are required to send shareholders a voting form. The completed form must be returned to us, in paper format or in
electronic form, at least three days prior to the date of the shareholdersmeeting.

95

---

Quorum
  
       The
  French commercial code requires that shareholders having at least 25% of the
  shares entitled to voting rights must be present in person or be voting by mail
  or by proxy to fulfill
  the quorum requirement for:

| |  | an
      ordinary general meeting; or                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an
      extraordinary general meeting where an increase in our share capital is
      proposed through incorporation of reserves, profits
      or share premium.

The
  quorum requirement is one third of the shares entitled to voting rights, on
  the same basis, for any other extraordinary general meeting.

If a quorum is not present at a meeting, the meeting is adjourned. When an adjourned meeting is resumed, there is no quorum requirement for an ordinary
meeting or for an extraordinary general meeting where an increase in our share capital is proposed through incorporation of reserves, profits or share premium. However, only questions that were on the agenda of the adjourned meeting may be discussed and voted upon. In the case of any other reconvened extraordinary general meeting,
shareholders having at least 25% of outstanding voting rights must be present in person or be voting by mail or proxy for a quorum. If a quorum is not present, the reconvened meeting may be adjourned for a maximum of two months. Any deliberation by
the shareholders taking place without a quorum is void.

Majority
  
       A
  simple majority of shareholders present or represented may pass any resolution
  on matters required to be considered at an ordinary general meeting, or concerning
  a capital increase by incorporation of reserves, profits
  or share premium at an extraordinary general meeting. At any other extraordinary
  general meeting, a two-thirds majority of the shareholder votes cast is required.

A
  unanimous shareholder vote is required to increase liabilities of shareholders.

Abstention from voting by those present or those represented by proxy or voting mail is counted as a vote against the resolution submitted to the
shareholder vote.

In general, a shareholder is entitled to one vote per share at any general meeting. Under the French commercial code, shares of a company held by entities
controlled directly or indirectly by that company are not entitled to voting rights and are not considered for quorum purposes.

Limitations
  on Right to Own Securities
       Ourstatutscontain no provisions that limit the right of shareholders
  to own our securities or hold or exercise voting rights associated with those
  securities. SeeExchange
  Controlsfor a description of certain
  requirements imposed by the French commercial code.

Trading in
  Our Own Shares
       Under
  French law, our company may not issue shares to itself. However, we may, either
  directly or through afinancial
  intermediary acting on our behalf, purchase shares representing up to 10% of
  Vivendi Environnements
  share capital for the purpose of optimizing our companys asset andfinancial
  management, providing shares to our employees under a profit-sharing
  plan or stock option plan, or delivering shares to third parties in exchange
  offers or acquisitions or upon exercise of options, warrants, exchangeable bonds
  or other instruments granting rights to our shares. To acquire our own , shares,
  Vivendi Environnementfirst
  mustfile anote
  dinformationthat
  has received the approval (visa)
  of the COB and obtain the approval of our shareholders at an ordinary general
  meeting.

Pursuant to a resolution approved by our shareholders at the general meeting held on April 25, 2002, we are authorized to purchase and sell our shares by
any means, including block trades and combinations offinancial derivative instruments, within the 10%
limit provided by law (representing 34,617,577 shares at February 20, 2002), for an 18-month period from the date of the general meeting, at a maximum purchase price of€60 (or the corresponding amount in any other currency) and at the minimum sale price of€32.50 (or the corresponding amount in any other currency). We are only permitted to make payments up to an aggregate amount of€2.1 billion for our

96

---

shares. In the context of this authorization, our management board is permitted to issue trade orders, execute sale or transfer documents, enter into agreements and options, and to
cancel shares and reduce our share capital as appropriate and handle any related formalities. Our management board may delegate any of these powers to its chairman. On April 5, 2002, the COB approved anote dinformationrelating to this share repurchase program.

Anti-Takeover
  ProvisionsDisclosure of Substantial Shareholdings
       Ourstatutsprovide that any person or group that fails to notify us within
  15 days of acquiring, directly or indirectly, or disposing of 0.5% or any multiple
  of 0.5% of our shares will be deprived of voting rights for shares in excess
  of the unreported fraction. In addition, accredited intermediaries that hold
  shares on behalf of non-French resident shareholders are required to comply
  with this notification obligation in
  respect of the total amount of shares held on behalf of the non-French resident
  shareholders.

Anti-Takeover
  Effects of Applicable Law and Regulations
       In
  addition, the French commercial code provides that any individual or entity,
  acting alone or in concert with others, that becomes the owner, directly or
  indirectly, of more than 5%, 10%, 20%, one-third, 50% or two-thirds of the outstanding
  shares or voting rights of a listed company in France, such as our company,
  or that increases or decreases its shareholding or voting rights above or below
  any of those percentages, must notify the company within 15 calendar days of
  the date it crosses such thresholds of the number of shares it holds and their
  voting rights. The individual or entity must also notify theConseil des Marches
  Financiers(CMF) withinfive
  trading days of the date it crosses these thresholds.

French law and COB regulations impose additional reporting requirements on persons who acquire more than 10% or 20% of the outstanding shares or voting
rights of a listed company. These persons mustfile a report with the company, the COB and the CMF withinfifteen days of the date they cross the threshold. In the report, the acquiror must specify its intentions
for the following 12-month period, including whether or not it intends to continue its purchases, to acquire control of the company in question or to nominate candidates for the board of directors. The CMF makes the notice public. The acquiror must
also publish a press release stating its intentions in afinancial newspaper of national circulation in
France. The acquiror may amend its stated intentions, provided that it does so on the basis of significant
changes in its own situation or that of its shareholders. Upon any change of intention, it mustfile a new
report.

To permit holders to give the required notice, we are required to publish in the BALO no later than 15 calendar days after the annual ordinary general
meeting of shareholders information with respect to the total number of voting rights outstanding as of the date of such meeting. In addition, if the number of outstanding voting rights changes by 5% or more between two annual ordinary general
meetings, we are required to publish in the BALO, within 15 calendar days of such change, the number of voting rights outstanding and provide the CMF with written notice of such information. The CMF publishes the total number of voting rights so
notified by all listed companies in a weekly notice, noting the date each such number was last
updated.

If any person fails to comply with the legal notification requirement, the shares or voting rights in excess of the relevant threshold will be deprived of voting rights for all shareholdersmeetings until the end of a two-year period following the date on which their owner complies with the notification requirements. In addition, any shareholder who fails to comply with these requirements may have all or part of its
voting rights suspended for up tofive years by the Commercial Court at the request of the chairman, any
shareholder or the COB, and may be subject to afine.

Under CMF regulations, and subject to limited exemptions granted by the CMF, any person or persons acting in concert that own in excess of one-third of the
share capital or voting rights of a French listed company must initiate a public tender offer for the remaining outstanding share capital of such company.

In addition, a number of provisions of the French commercial code allow corporations to adoptstatutsthat have anti-takeover effects, including provisions that allow:

| |  | shares
      with double voting rights;                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | a
      companys
      board of directors to increase the companys
      share capital during a tender offer; and

97

---



| |  | limitations
        on the voting power of shareholders.
| | - | --------------------------------------------------------

MATERIAL CONTRACTS

In view of the size and scope of our operations, we believe that the only contract to which we are a party that could be considered material to our company
as a whole is our contract with EDF, the principal terms of which are described underInformation on the CompanyBusiness OverviewOur ServicesEnergy Services.

EXCHANGE CONTROLS

The French commercial code currently does not limit the right of nonresidents of France or non-French persons to own and vote shares. However, nonresidents
of France mustfile an administrative notice with French authorities in connection with the acquisition of
a controlling interest in our company. Under existing administrative rulings, ownership of 20% or more of our share capital or voting rights is regarded as a controlling interest, but a lower percentage might be held to be a controlling interest in
some circumstances depending upon factors such as:

| |  | the
      acquiring partys intentions; and                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | the
      acquiring partys ability to elect directors, andfinancial
      reliance by us on the acquiring party.

French exchange control regulations currently do not limit the amount of payments that we may remit to nonresidents of France. Laws and regulations
concerning foreign exchange controls do require, however, that all payments or transfers of funds made by a French resident to a nonresident be handled by an accredited intermediary. In France, all registered banks and most credit establishments are
accredited intermediaries.

TAXATION

On August 31, 1994, the United States and France signed a tax treaty (theTreaty). The following is a general summary of the material tax effects that may apply to you as a holder of our shares or ADSs for purposes of U.S. federal income tax and French tax, if all of the following apply to you:

| |  | you
      own, directly or indirectly, less than 5% of our share capital;                                          
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | you
      are:                                                                                                     
| |   |                                                                                                                   
| |   |                                                                                                                   
| |   |                                                                                                                   
| |  | you
      are entitled to the benefits of the Treaty under theLimitations
      of Benefitsarticle of the Treaty;
| |  | you
      hold your shares or ADSs of our company as capital assets; and                                           
| |  | your
      functional currency is the U.S. dollar.                                                                 

You are strongly urged to consult your own tax advisor regarding the consequences to you of acquiring, owning or disposing of our shares or ADSs,
rather than relying on this summary. The summary may not apply to you or may not completely or accurately describe tax consequences to you. For example, special rules may
apply to U.S. expatriates, insurance companies, tax-exempt organizations,financial institutions, persons
subject to the alternative minimum tax, securities broker-dealers, traders in securities that elect to mark-to-market and persons holding their shares or ADSs as parties to a conversion transaction, among others. Those special rules are not
discussed in this document. The summary is based on the laws, conventions and treaties in force as of the date of this document, all of which are subject to changes, possibly with retroactive effect. Also, this summary does not discuss any tax rules
other than U.S. federal income tax and French tax rules. Further, the U.S. and French tax authorities and courts are not bound by this summary and may disagree with its conclusions.

98

---

Beneficial
owners of ADSs will be treated as owners of the underlying shares for U.S. federal income tax purposes. Deposits and withdrawals of shares in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax
purposes.

Taxation
  of DividendsWithholding
  Tax and Avoir Fiscal
       We
  will withhold tax from your dividend at the reduced rate of 15%, provided that
  you have complied with the following procedures:

| |  | You
      must complete French Treasury Form RF1 A EU-No. 5052,Application for Refund,and
      deliver it to the French tax authorities before the date of payment of the
      dividend. If you are not an individual, you must also provide the French
      tax authorities an affidavit attesting that you are
      the beneficial
      owner of all the rights attached to the full ownership of the shares, including,
      among other things, the dividend rights.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | If
      you cannot complete Form RF1 A EU-No. 5052 before the date of payment of
      the dividend, and if you are entitled to a payment in respect of the Frenchavoir
      fiscalpursuant
      to the Treaty (see below), you may complete a simplified
      certificate and send it to the French
      tax authorities. This certificate must state that:                                                                                                               
| |  | you
      are a resident of the United States for purposes of the Treaty;                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | your
      ownership of our shares or ADSs is not effectively connected with a permanent
      establishment or afixed
      base in France;                                                                                                                                                                                                                                                                                                                                    
| |  | you
      own all the rights attached to the full ownership of the shares or ADSs,
      including, among other things, the dividend rights; and                                                                                                                                                                                                                                                                                                                                
| |  | you
      meet all the requirements of the Treaty for the reduced rate of withholding
      tax and the transfer of the Frenchavoir fiscal.                                                                                                                                                                                                                                                                                                                                     

If you have not completed Form RF1 A EU-No. 5052 or the simplified certificate before the dividend payment date, we will
deduct French withholding tax at the rate of 25%. In that case, you may claim a refund of the excess withholding tax by completing and providing the French tax authorities with Form RF1 A EU-No. 5052 by December 31 of the second calendar year
following the year during which the withholding tax is paid.

The
  Application for Refund and the simplified certificate,
  together with instructions, can be obtained from the U.S. Internal Revenue Service
  or from theCentre
  des Impôts des Non Résidents, 9 rue dUzès,
  75094 Paris Cedex 02, France, upon request.

Under
  the Treaty, you may be entitled, in certain circumstances, to a French tax credit
  called theavoir fiscal.
  Theavoir
  fiscalis
  generally equal to 50% of the dividend paid for individuals, or 15% of the dividend
  paid for shareholders other than individuals (increased in this latter case
  by an additional amount equal to 70% of the equalization tax known as theprécompteactually
  paid in cash by the distributing company in respect of the dividend distribution,
  see belowThe
  Précompte).
  You may be entitled to a payment equal to theavoir
  fiscal,
  less a 15% withholding tax, if any one of the following applies to you:

| |  | you
      are an individual or other non-corporate holder that is a resident of the
      United States for purposes of the Treaty;                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | you
      are a U.S. corporation, other than a regulated investment company;                                                                                                                                                                                                                                                                                                  
| |  | you
      are a U.S. corporation that is a regulated investment company, provided
      that less than 20% of your shares are beneficially
      owned by persons who are neither citizens nor residents of the United States;
      or                                                                                                                                       
| |  | you
      are a partnership or trust that is a resident of the United States for purposes
      of the Treaty, but only to the extent that your partners, beneficiaries
      or grantors would qualify as eligible under thefirst
      or second points on this list and are subject to U.S. income tax with respect
      to such dividends and payment of theavoir fiscal.

99

---

Another condition to be entitled to a payment in respect of theavoir
fiscalis that you (or your partners, beneficiaries or grantors, as applicable, if you are a partnership or a trust) be subject to U.S. federal income taxes on the payment of theavoir fiscaland the related dividend.

If you are eligible, you may claim theavoir fiscalby complying with the samefiling requirements as
those conditioning the application of the reduced 15% withholding tax. As noted below, you will not receive this payment until after January 15 of the calendar year following the year in which the dividend was paid.

Specific
  rules apply to the following:

| |  | tax-exempt
      U.S. pension funds, which include the exempt pension funds established and
      managed in order to pay retirement benefits
      subject to the provisions of Section 401(a) of the Internal Revenue Code
      (qualified
      retirement plans), Section 403(b) of the Internal Revenue Code (tax deferred
      annuity contracts) or Section 457 of the Internal Revenue Code (deferred
      compensation plans); and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | various
      other tax-exempt entities, including certain state-owned institutions, not-for-profit
      organizations and individuals (with respect to dividends they beneficially own and that
      are derived from an individual retirement account).                                                                                                                                                                                   

Entities in these two categories are eligible for a reduced withholding tax rate of 15% on dividends, subject to the same withholding taxfiling requirements as eligible U.S. holders, except that they may have to supply additional documentation evidencing
their entitlement to these benefits. Subject to the samefiling requirements, these entities are also entitled to a partialavoir
fiscalequal to 30/85 of the grossavoir fiscalgenerally payable to corporations, subject to deduction of a 15% withholding tax.

Theavoir fiscalor partialavoir fiscaland any French withholding tax refund will not be
paid before January 15 following the end of the calendar year in which the dividend is paid.

For U.S. federal income tax purposes, the gross amount of a dividend and anyavoir fiscal, including any amounts withheld due to French withholding tax, will be included in your gross income as dividend income when payment is
received by you, to the extent they are paid or declared paid out of our current or accumulated earnings and profits as calculated for U.S. federal income tax purposes. Dividends paid by our company will not give rise to any U.S. dividends received deduction. They will generally constitute foreign sourcepassiveincome for foreign tax credit purposes.

Also for U.S. federal income tax purposes, the amount of any dividend paid in euro, including any French withholding taxes, will be equal to the U.S.
dollar value of the euro on the date the dividend is included in income, regardless of whether the payment is in fact converted into U.S. dollars. If the payment is not converted into U.S. dollars on the date of receipt, you will generally be
required to recognize U.S. source ordinary income or loss when you sell or dispose of euro. You may also be required to recognize foreign currency gain or loss if you receive a refund under the Treaty of tax withheld in excess of the treaty rate.
This foreign currency gain or loss will generally be U.S. source ordinary income or loss.

To the extent that any dividends paid exceed our current and accumulated earnings and profits as calculated for U.S. federal income tax purposes, the distribution will be treated as follows:

| |  | first,
      as a tax-free return of capital, which will cause a reduction in the adjusted
      basis of your shares in our company. This adjustment will increase the amount
      of gain, or decrease the amount of loss, that you will recognize if you
      later dispose of those shares; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | second,
      the balance of the dividend in excess of the adjusted basis will be taxed
      as capital gain recognized on a sale or exchange.                                                                                                                                                      

French withholding tax imposed on the dividends you receive and on anyavoir fiscalat 15% under the Treaty is treated as payment of a foreign income tax. You may take this amount as a credit against your U.S. federal income
tax liability, subject to specific conditions and limitations.

100

---

The
  Précompte 
       A
  French company must pay an equalization tax known as theprécompteto
  the French tax authorities if it distributes dividends out of:

| |  | profits
      that have not been taxed at the ordinary corporate income tax rate, or            
| | - | ------------------------------------------------------------------------------------------------
| |  | profits
      that have been earned and taxed more thanfive
      years before the distribution.

The
  amount of theprécompteis 50% of the net dividends before withholding tax.

If
  you are not entitled to the fullavoir
  fiscal(as described above), you may
  generally obtain a refund from the French tax authorities in respect of anyprécomptepaid
  by us with respect to dividends distributed to you. Under the Treaty, the amount
  of theprécompterefunded
  to U.S. residents is reduced by the 15% withholding tax applied to dividends
  and by the partialavoir
  fiscal,
  if any. You are entitled to a refund of anyprécomptethat
  we actually pay in cash, but not to anyprécomptethat
  we pay by offsetting French and/or foreign tax credits. To apply for a refund
  of theprécompte,
  you shouldfile
  French Treasury Form RF1 B EU-No. 5053 before the end of the year following
  the year in which the dividend was paid. The form and its instructions are available
  from the Internal Revenue Service in the United States or from theCentre
  des Impôts des Non Résidents.

For
  U.S. federal income tax purposes, the gross amount of theprécompte,
  including any amounts withheld due to French withholding tax, will be included
  in your gross income as dividend income when you receive theprécompte.
  It will generally constitute foreign source income for foreign tax credit purposes.
  The amount of anyprécomptepaid
  in euro, including any French withholding taxes, will be equal to the U.S. dollar
  value of the euro on the date theprécompteis included in income, regardless of whether the payment is
  in fact converted into U.S. dollars. If theprécompteis not converted into U.S.
  dollars on the date of receipt, you will generally be required to recognize
  a U.S. source ordinary income or loss when you sell or dispose of the euro.

Taxation
  of Capital Gains 
       If
  you are a resident of the United States for purposes of the Treaty, you will
  not be subject to French tax on any capital gain if you sell or exchange your
  shares, unless you have a permanent establishment orfixed
  base in France and the shares you sold or exchanged were part of the business
  property of that permanent establishment orfixed
  base. Special rules apply to individuals who are residents of more than one
  country.

In general, for U.S. federal income tax purposes, you will recognize capital gain or loss if you sell or exchange your shares in the same manner as you
would if you were to sell or exchange any other shares held as capital assets. Any gain or loss will generally be U.S. source gain or loss. If you are an individual, any capital gain will generally be subject to U.S. federal income tax at
preferential rates if you meet the specified minimum holding periods.

French Estate
  and Gift Taxes 
       UnderThe Convention Between the United States of America and the
  French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal
  Evasion with Respect to Taxes on Estates, Inheritance and Gifts of November
  24, 1978,if you
  transfer your shares or ADSs by gift or if they are transferred by reason of
  your death, that transfer will be subject to French gift or inheritance tax
  only if one of the following applies:

| |  | you
      are domiciled in France at the time of making the gift or at the time of
      your death; or                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | you
      used the shares or ADSs in conducting a business through a permanent establishment
      orfixed
      base in France, or you held the shares or ADSs for that use.

French Wealth
  Tax 
       The
  French wealth tax does not generally apply to shares or ADSs if the holder is
  a resident of the United States for purposes of the Treaty.

101

---

French Transfer
  Taxes 
       Transfers
  of shares or ADSs of listed common stock are not subject to French registration
  or transfer taxes, unless the transfer is effected by means of a written agreement
  executed in France (in which case a 1% registration duty, subject to a maximum
  of€3,049 per transfer, applies).

United States
  Information Reporting and Backup Withholding 
       Dividend
  payments on the shares and proceeds from the sale, exchange or other disposition
  of the shares may be subject to information reporting to the Internal Revenue
  Service and possible U.S. backup withholding. U.S. federal backup withholding
  generally is a withholding tax imposed at the rate of 31% on specified payments to persons
  that fail to furnish required information. Backup withholding will not apply
  to a holder who furnishes a correct taxpayer identification
  number or certificate of foreign status and
  makes any other required certification, or who is otherwise exempt from backup withholding.
  Any U.S. persons required to establish their exempt status generally mustfile Internal Revenue Service
  Form W-9, entitled Request for Taxpayer Identification Number and Certification.
  Finalized Treasury regulations have generally expanded the circumstances under
  which information reporting and backup withholding may apply.

Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability. You may obtain a refund of any excess amounts
withheld under the backup withholding rules byfiling the appropriate claim for refund with the Internal
Revenue Service and furnishing any required information.

DOCUMENTS ON DISPLAY

Certain
  documents referred to in this document can be inspected at our offices
  at 36-38, avenue Kléber, 75116 Paris, France.

We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required tofile reports and other information with the SEC. Specifically, we are required tofile annually a Form 20-F no later than six months after the close of eachfiscal year.
Copies of reports and other information, when sofiled, may be inspected without charge and may be obtained
at prescribed rates at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information regarding the SECs Public Reference Rooms by calling the SEC at 1-800-SEC-0330. As a foreign private issuer, we are exempt from the rules under the Exchange Act
prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors
and principal shareholders are exempt from the reporting and short-swing profit recovery provisions in
Section 16 of the Exchange Act.

ENFORCEABILITY
  OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS

Our company is a corporation organized under the laws of France. The majority of our directors are citizens and residents of countries other than the
United States, and the majority of our assets are located outside of the United States. Accordingly, it may be difficult for investors:

| |  | to
      obtain jurisdiction over our company or our directors in courts in the United
      States in actions predicated on the civil liability provisions of the U.S.
      federal securities laws;  
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to
      enforce judgments obtained in such actions against us or our directors;                                                                                                                        
| |  | to
      obtain judgments against us or our directors in original actions in non-U.S.
      courts predicated solely upon the U.S. federal securities laws; or                                          
| |  | to
      enforce against us or our directors in non-U.S. courts judgments of courts
      in the United States predicated upon the civil liability provisions of the
      U.S. federal securities laws.

Actions brought in France for enforcement of judgments of U.S. courts rendered against French persons, including some directors of our company, would
require those persons to waive their right to be sued in France under Article15 of the French Civil Code. In addition, actions in the United States under the U.S. federal securities laws could be affected under certain circumstances by the French
law of July16, 1980, which may preclude or restrict the obtaining of evidence in France or from French persons in connection with those actions. Each of the foregoing statements applies to our auditors as well.

102

---

ITEM
  11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
       As
  a result of our global operating andfinancing activities, we are
  subject to various market risks relating primarily tofluctuations in interest rates,
  foreign currency exchange rates and equity market risk due to investment securities.
  We apply a centrally managed risk management policy. As part of this policy,
  derivativefinancial
  instruments are used to manage interest rate risk, primarily related to long
  term debt, and foreign currency risk associated with foreign denominated assets.
  We do not generally use derivative or otherfinancial instruments for trading purposes. Our accounting policy
  for hedging instruments is described in Note 2 to ourfinancial statements.

Exposure
  to interest rate risk 
       As
  a result of our outgoingfinancing activities, our operating results are exposed tofluctuations
  in interest rates. We have short-term and long-termfinancings
  with bothfixed
  and variable interest rates. Short-term debt is primarily comprised of euro-denominated
  secured and unsecured notes and commercial paper payable to investors and bank
  lines of credit used tofinance
  working capital requirements. Short-termfinancial
  assets are primarily comprised of cash and marketable securities. Long-term
  debt represents bonds and notes payable to banks used tofinance
  long-term investments.

At
  December 31, 2001, our short-term debt amounted to€4.9 billion and our long-term debt amounted to €13.1
  billion. Approximately 62% of our total debt outstanding at December 31, 2001
  was denominated in euro, 25% in U.S. dollars and 6% in British pounds. At December
  31, 2001, approximately 55% of our euro-denominated debt, 80% of our U.S. dollar-denominated
  debt and 20% of our British pound-denominated debt bore interest atfloating
  rates, in each case after giving effect to ourfinancial
  hedging instruments. As a result, approximately 40% of our total gross debt
  bore interest atfixed
  rates, while 60% was subject tofloating interest rates. During 2001, the average cost of
  our net debt was 4.85%, compared to 5.1% during 2000.

Interest rate risk management instruments used to manage our exposure to interest rate variations include pay-variable and pay-fixed interest rate swaps and interest rate caps and collars. Pay-variable swaps effectively convertfixed rate debt into variable rate debt and are consideredfinancial hedges against changes in the fair value offixed rate debt. Pay-fixed swaps and interest rate caps
and collars convert variable rate debt intofixed rate debt and are consideredfinancial hedges against changes in future cashflows required for interest payments on variable rate debt.

Based upon the above information, a hypothetical increase in average market rates of 0.1% over 2002 would result in a decrease (before taxes) in our annual
net income of approximately€10 million assuming a constantfinancing structure.

Exposure
  to foreign currency risk 
       We
  have worldwide operations that include significant operations in countries
  outside of the euro zone, mainly the United States and the United Kingdom. Because
  product and operating costs are based largely on the currency in which related
  revenues are generated, we face limited related foreign exchange exposure linked
  to commercial transactions. We are exposed to foreign currency exchange risk
  to the extent of planned disposals of assets denominated in currencies other
  than the euro as well as known non-euro cash needs. We enter into currency forward
  contracts to hedge specificfirm
  commitments and anticipated foreign currency denominated transactions.

We
  manage all significant
  hedging operations in a centralized manner.

We have significant investments denominated in foreign currencies, principally U.S. dollars and British pounds. Our policy is to hedge our exposure to currencyfluctuations by incurring debt denominated in the corresponding currency based on future cashflow projections.

103

---

Exposure
  to equity risk 
       Our
  exposure to equity risk relates primarily to our investments in the securities
  of unconsolidated entities. As of December 31, 2001 we held equity securities
  as follows (in millions of euro):

|Company                   | Fair
        Value | 
|------------------------- | ------------------ | 
|                          |                    | 
|Vivendi Environment(1)(2) | 133                | 
|Vivendi Universal(2)      | 19                 | 
|Vinci                     | 102                | 

---

|(1) | Excluding
shares held for stock option purposes.                                                                                                                                                                                                                                           
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Under
French GAAP, these securities are recorded at cost and classified asother
marketable securities.Under U.S. GAAP, our shares
are recorded as treasury shares at cost and the Vivendi Universal shares are consideredavailable
for sale securitiesand adjusted to market value.

A hypothetical decrease of 10% in overall portfolio share prices in 2002 would result in a decrease in our equity portfolio of€25 million.

Exposure
  to other market risks Our
  exposure to other market risks, including changes in commodity prices, are not
  considered material.

Ethics, vigilance
  and risk management 
       Ethics
  and vigilance 
       In
  accordance with the commitments we made in our 2000 Annual Report, we developed
  in 2001 a vigilance program for our company with each of our four operating
  divisions and our corporate departments. We expect this process to result in
  a general agreement from all of our employees in 2002 to reaffirm their commitment to our
  strong corporate values, including a strict observance of applicable laws under
  all circumstances, loyalty towards our clients and consumers, and a sense of
  solidarity, meaning tolerance, respect of others, social dialogue and a commitment
  to help the most disfavored.

We have established mechanisms to monitor the application of our norms and procedures throughout our company through regular reports to designated persons
within each operating division that are responsible for the application of these norms and procedures in each division. This process, which is a part of the vigilance program established by Vivendi Universal, anticipates the implementation of the
new French economic regulations published on May 15, 2001.

Coordination
  committee for the evaluation and prevention of risks 
       We
  created a coordination committee for the evaluation and prevention of risks
  (CEPR) in 2001, under the general corporate secretariat, to provide
  support and aid to our operating divisions. The CEPR is composed of the general
  manager of each of our operating divisions and the head of each of our corporate
  departments. The CEPR met for thefirst
  time in December 2001. The CEPR is responsible for identifying and prioritizing
  our principal risks and for the development of model protection and prevention
  mechanisms that are to be gradually generalized and implemented throughout our
  company. The CEPR has established specialized working committees dedicated to
  the legal risks, industrial risks, environmental and sanitary risks andfinancial
  risks.

Management
  of legal risks 
       In
  the context of the development of our business in France and internationally,
  we consider that the management of our legal risks is a key issue. Our priorities
  include the respect of legal and regulatory provisions and the adoption of ethical
  rules within our company and with respect to our partners. In addition, the
  specificity
  of our activities (outsourcing of local public services with operations in over
  100 countries and relationships with a variety of representatives and counterparties)
  has led us to adopt legal vigilance rules to guide our employees in their activities
  and in the preparation of legal documents.

In particular, our rules cover civil liability and insurance policies, criminal responsibility, intellectual and industrial property, ethics, standard
contractual clauses, sponsorship and patronage, confidentiality and compliance

104

---

with labor laws and security norms. In addition to the formalization of a number of these rules in internal memos, the Legal Departments of our company and each of its operating
divisions ensure, on a daily basis, an adequate management of our legal risks in tight coordination with our operating teams in thefield.

We also ensure that our rules are coherent with Vivendi Universals vigilance program through the wide dissemination throughout all of our operating divisions of this program and our participation in a joint working group with Vivendi Universal that holds
periodic working sessions.

Management
  of industrial, environmental and sanitary risks 
       Sanitary
  risks are subject to particular consideration, including the risks relating
  to the operation of our facilities and the risks relating to certain types of
  pollution that cannot be treated through traditional methods (for example, the
  presence of nitrates or bacteria (légionnelles) in our water and
  the emission of dioxides from our waste incineration activities).

We believe that mere compliance with regulatory norms does not suffice to ensure a perfect control of sanitary risks, and we have voluntarily taken a number of steps to establish strict vigilance and prevention procedures in the context of a global sanitary
policy, particularly with respect to our multi-service offerings (for example, sanitary diagnosis and checkpoint controls and inspections).

Management
  of financial risks 
       We
  have centralized the management within our company of our exposure to risks
  resulting fromfluctuations
  in currency exchange rates to ensure an effective control of our coverage mechanisms.
  Our exposure to the effect offluctuations
  in currency exchange rates on our transactions is limited due to the nature
  of our services. We limit our exposure to the impact offluctuations
  of currency exchange rates on our assets and liabilities relating to our international
  investments byfinancing
  our local operations and acquisitions, to the extent possible, in local currency.
  Our company carries out all interest rate and currency exchange rate coverage
  operations and any material transactions with derivative products relating to
  our business.

Our subsidiariesliquidity and capital resources is also managed by our company. Each of our operating divisions centralizes the treasury activities of its operating subsidiaries, while our company centralizes the treasury activities of each of
our operating divisions to ensure afluid allocation of funds between our different subsidiaries. In
addition to our ability to directly access the capital markets for sources of funding due to the size and credit standing of our company, we have confirmed, unused credit lines extended by a number of largefinancial institutions.

Our company also controls our subsidiariescommitments tofinancial institutions through different
internal reporting mechanisms, including a computer database onfinancial commitments and regular meetings
with the managers of the treasury departments of our operating divisions. We also make customary verifications during the preparation of ourfinancial statements. Our banking relationships
are centralized and our company monitors regularly the status of its consolidated commitments to its principal banks. Our management board has the power, upon authorization of our supervisory board, to issue guarantees subject to an aggregate
maximum amount and a maximum amount for each transaction. The commitment committee of our supervisory board is regularly informed of the use of these authorizations.

We also assume the centralized management of interest rate risks, except for certain projectfinancing transactions effected by our subsidiaries that require specific coverage. Management decisions are proposed to our senior management in the context of monthly meetings during which our companys interest rate position is analyzed. Although we use a wide range of derivative instruments to cover these risks, our primary coverage mechanisms rely
on swaps and caps.

We created several working groups in 2001, which include representatives of each of our operating divisions, to extend and improve the centralization of
our treasury, to normalize and develop our cashflow expectations and to evaluate our exposure to hedging
and derivative instruments in light of U.S. accounting principles.

ITEM
  12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not
  Applicable.

105

---

PART
  II

ITEM
  13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None.

ITEM
  14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS None.

ITEM
  15. [RESERVED] 
  ITEM 16. [RESERVED]

PART
  III

ITEM
  17: FINANCIAL STATEMENTSNot
  Applicable.

ITEM
  18: FINANCIAL STATEMENTS

VIVENDI
  ENVIRONNEMENT INDEX
  TO THE CONSOLIDATED FINANCIAL STATEMENTS





|                                                                                                                                 | Page |    
|-------------------------------------------------------------------------------------------------------------------------------- | ---- | ---
|Report
      of Independent Public Accountants                                                                                   |      | F-1
|Consolidated
      Balance Sheets as of December 31, 2001, 2000 and 1999                                                         | F-2  |    
|Consolidated
      Statements of Income for the Years Ended December 31, 2001, 2000 and 1999                                     | F-4  |    
|Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and
      1999                           | F-5  |    
|Consolidated
      Statements of Changes in Shareholders Equity for the Years Ended December
      31,2001,
      2000 and 1999 | F-7  |    
|Notes
      to the Consolidated Financial Statements                                                                             |      | F-8

106

---

REPORT
  OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Vivendi Environnement:

We have audited
  the accompanying consolidated balance sheet of Vivendi Environnement and subsidiaries
  (together theCompany), as of December 31, 2001 and 2000 and the related consolidated
  statements of income, change in shareholdersequity and cashflows
  for each of the years then ended, expressed in Euros. We have audited the accompanying
  consolidated balance sheet of the Companys
  predecessor (statement prepared in accordance with the principles described
  in Note 2) for the year ended December 31, 1999 and the related statements of
  income, change in shareholdersequity
  and cashflows for the yearthenended, expressed in Euros. We have also audited the information
  presented in Note 26, which includes the approximate effect of the differences
  between accounting principles generally accepted in France and the United States
  of America on the consolidated net income and shareholdersequity
  of Vivendi Environnement and subsidiaries as of December 31, 2001, 2000 and
  1999 and for the years then ended. Thesefinancial statements are the responsibility of the Companys
  management. Our responsibility is to express an opinion on thesefinancial
  statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in France and the United States of America. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial
statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overallfinancial statements presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, thefinancial statements
referred to above present fairly, in all material respects, (a) thefinancial position of Vivendi
Environnement and subsidiaries as of December 31, 2001, 2000 and 1999 and the results of their operations and their cashflows for the years then ended in conformity with accounting principles generally accepted in France and (b) the information with respect to accounting principles generally accepted in the United States of America as of and for the
years ended December 31, 2001, 2000 and 1999 set forth in Note 26.

The accompanying
  financial statements as of and for the year ended December 31, 2001 include
  changes in accounting principles related to presentation of the statements of
  income and cash flows and changes in the definition of exceptional income. The
  Company also changed its accounting policy relating to goodwill whereby it forgoes
  the imputation of a part of goodwill on shareholders equity as of January
  1, 2001. These changes are described in Note 2.

The accounting
  practices of the Company used in preparing the accompanying financial statements
  vary in certain respects from accounting principles generally accepted in the
  United States of America. A description of the significant
  differences between the Companys accounting practices and accounting principles
  generally accepted in the United States of America and the approximate effect
  of those differences on consolidated net income and shareholders equity
  for the years ended December 31, 2001, 2000 and 1999 is set forth in Note 26
  to the consolidated financial statements.

|/s/ Barbier
      Frinault & Cie Andersen
      Barbier Frinault & Cie
      Andersen | /s/
        RSM Salustro Reydel
        RSM Salustro Reydel
|------------------------------------------------------------------------------------- | -----------------------------------------------------------



Paris France

April
  10, 2002 (Except with
  respect to the matters discussed in Note 26 as to which the date is May 23,
  2002)

F-1

---

VIVENDI
  ENVIRONNEMENT CONSOLIDATED
  BALANCE SHEETSASSETS

|                                                  | At
December 31,  |  
|------------------------------------------------- | ---------------- | -
|                                                  |                  |  
|                                                  | 2001($
millions) |  
|                                                  |                  |  
|Goodwill,
net                                     | 5,983.8          |  
|Other
intangible assets, net                      | 3,942.1          |  
|Property plant
and equipment                      | 14,830.8         |  
|Publicly-owned
utility networks                   | 5,421.1          |  
|Accumulated
depreciation                          | (7,756.3         | )
|Property,
plant and equipment, net                | 12,495.6         |  
|Investments
accounted for using the equity method | 544.2            |  
|Investments
accounted for using the cost method   | 216.4            |  
|Portfolio
investments held asfinancial
assets     | 944.6            |  
|Financial
assets                                  | 1,705.2          |  
|Total
long-term assets                            | 24,126.7         |  
|Inventories
and work-in-progress                  | 1,359.2          |  
|Accounts receivable                               | 10,624.3         |  
|Short-term
loans                                  | 867.7            |  
|Cash and cash
equivalents                         | 1,839.7          |  
|Other marketable
securities                       | 285.4            |  
|Total
current assets                              | 14,976.3         |  
|                                                  |                  |  
|TOTAL
ASSETS                                      | 39,103.0         |  
|                                                  |                  |  

The
  accompanying notes are an integral part of these consolidatedfinancial statements.

For the convenience of the reader, thefinancial statements as of and for the year ended December 31, 2001 have been translated into U.S. Dollars at the rate of U.S. $ 1 =€1.1357.

F-2

---

VIVENDI
  ENVIRONNEMENT CONSOLIDATED
  BALANCE SHEETSLIABILITIES AND SHAREHOLDERSEQUITY

|                                                           | At
December 31,  |  
|---------------------------------------------------------- | ---------------- | -
|                                                           |                  |  
|                                                           | 2001($
millions) |  
|                                                           |                  |  
|Share capital                                              | 4,115.0          |  
|Additional
paid-in capital                                 | 1,998.4          |  
|Retained earnings                                          | 923.0            |  
|Net Income                                                 | (1,982.2         | )
|                                                           |                  |  
|Total
shareholdersequity                                  | 5,054.2          |  
|Minority
Interests                                         | 2,228.7          |  
|Deferred
income                                            | 1,305.9          |  
|Reserves
and allowances                                    | 2,813.9          |  
|Bonds                                                      | 4,573.0          |  
|Other financial
long-term debt                             | 6,991.6          |  
|                                                           |                  |  
|Long-term
debt                                             | 11,564.6         |  
|Other long-term
liabilities                                | 437.2            |  
|                                                           |                  |  
|Total
      long-term liabilities and shareholdersequity. | 23,404.5         |  
|Accounts payable                                           | 11,393.2         |  
|Bank overdrafts
and other short-term borrowings            | 4,305.3          |  
|Total
current liabilities                                  | 15,698.5         |  
|                                                           |                  |  
|TOTAL
LIABILITIES AND SHAREHOLDERS                        |                  |  
|EQUITY                                                     | 39,103.0         |  
|                                                           |                  |  

The
  accompanying notes are an integral part of these consolidatedfinancial statements.

For the convenience of the reader, thefinancial statements as of and for the year ended December 31, 2001 have been translated into U.S. Dollars at the rate of U.S. $ 1 =€1.1357.

On January 1, 2001 Vivendi Environnement has forgone the imputation of the goodwill of US Filter recorded as a reduction of shareholdersequity, which represents an increase in additional paid-in capital of€2,037 million.

F-3

---

VIVENDI
  ENVIRONNEMENT CONSOLIDATED
  STATEMENTS OF INCOME

|                                                                       | At
      December 31, |     
|---------------------------------------------------------------------- | --------------------- | ----
|                                                                       |                      
|2001($
        millions)                                               |                       | 2001
|                                                                       |                       |     
|Revenue                                                                | 25,646.5              |     
|Cost
      of sales                                                    | (20,736.9             | )   
|Selling,
      general and administrative costs                        | (3,131.7              | )   
|Other
      operating income (expense)                                 | (5.3                  | )   
|                                                                       |                       |     
|                                                                       |                       |     
|EBIT                                                                   | 1,772.6               |     
|Goodwill
      amortization(1)                                         | (2,562.4              | )   
|Restructuring
      costs                                              | (43.5                 | )   
|                                                                       |                       |     
|                                                                       |                       |     
|Operating
      income (loss)                                          | (833.3                | )   
|Financial
      income (expenses)                                      | (702.7                | )   
|Other
      income (expenses)                                          | 34.3                  |     
|                                                                       |                       |     
|                                                                       |                       |     
|Net
      income (loss) before taxes, minority and equity interests    | (1,501.7              | )   
|Income
      taxes                                                     | (407.1                | )   
|                                                                       |                       |     
|                                                                       |                       |     
|Net
      income (loss) before minority and equity
          interests | (1,908.8              | )   
|Equity
      in net income of affiliates                               | 42.1                  |     
|Minority
      interest                                                | (115.5                | )   
|                                                                       |                       |     
|                                                                       |                       |     
|Net
      income (loss)                                                | (1,982.2              | )   
|                                                                       |                       |     
|                                                                       |                       |     
|Basic
      earnings per share                                         | (5.8                  | )   
|Diluted
      earnings per share                                       | (5.8                  | )   
|                                                                       |                       |     

The
  accompanying notes are an integral part of these consolidatedfinancial statements.



|   
|---
|(1)



For the convenience of the reader, thefinancial statements as of and for the year ended December 31, 2001 have been translated into U.S. Dollars at the rate of U.S.$1 =€1.1357.

F-4

---

VIVENDI
  ENVIRONNEMENT CONSOLIDATED
  STATEMENTS OF CASH FLOWS (Prepared
  in accordance with International Accounting Standard No. 7)

|                                                                                                | At
      December 31, |     
|----------------------------------------------------------------------------------------------- | --------------------- | ----
|                                                                                                |                      
|2001($
      millions)                                                                          |                       | 2001
|                                                                                                |                       |     
|Cashflow
      from operating activities:                                                       |                       |     
|Net income
      (loss)                                                                         | (1,982.2              | )   
|Adjustment
      to reconcile net income to net cash
          provided by operating activities |                       |     
|Depreciation
      and amortization                                                             | 4,124.3               |     
|Financial
      provisions                                                                      | 47.3                  |     
|Gains
      on sale on property and equipment and financial
          assets, net               | (127.6                | )   
|Undistributed
      earnings of affiliates, net                                                 | (13.1                 | )   
|Deferred
      taxes                                                                            | 79.4                  |     
|Minority
      interests                                                                        | 115.5                 |     
|Net changes
      in current assets and liabilities:                                            |                       |     
|Prepaid,
      deferrals and accruals                                                           | (81.8                 | )   
|Increase
      (decrease) in working capital                                                    | 384.6                 |     
|Net
      cash provided by operating activities                                                 | 2,546.4               |     
|                                                                                                |                       |     
|                                                                                                |                       |     
|Cashflow
      from investing activities:                                                       |                       |     
|Purchase
      of property, plant and equipment                                                 | (2,534.6              | )   
|Proceeds
      from sale of property, plant and equipment                                       | 181.2                 |     
|Purchase
      of investments                                                                   | (1,029.1              | )   
|Proceeds
      from sale of investments                                                         | 307.9                 |     
|Purchase
      of portfolio investments held asfinancial
          assets                       | (129.1                | )   
|Proceeds
      from sale of portfolio investments held as
          financial assets            | 37.2                  |     
|Disbursement
      on notes receivables                                                         | (86.9                 | )   
|Principal
      payment on notes receivables                                                    | 16.5                  |     
|Net (increase)
      decrease in short-term loans                                               | 140.6                 |     
|Sales
      and purchases of marketable securities                                              | 109.2                 |     
|Net
      cash used in investing activities                                                     | (2,987.1              | )   
|                                                                                                |                       |     

The
  accompanying notes are an integral part of these consolidatedfinancial statements.

For the convenience of the reader, thefinancial statements as of and for the year ended December 31, 2001 have been translated into U.S. Dollars at the rate of U.S.$1 =€1.1357.

F-5

---

VIVENDI
  ENVIRONNEMENT

CONSOLIDATED
  STATEMENTS OF CASH FLOWS(Continued)
  (Prepared in accordance with International Accounting Standard No. 7)

|                                                       |                  | At
  December 31, |     
|------------------------------------------------------ | ---------------- | ----------------- | ----
|                                                       |                  |                  
|                                                       | 2001($
millions) |                   | 2001
|                                                       |                  |                   |     
|Cashflow
from financing activities:                    |                  |                   |     
|Net
increase (decrease) in short-term borrowings       |                  | (3.3              | )   
|Proceeds
from issuance of bonds and other long-        |                  |                   |     
|term
debt                                              |                  | 4,054.2           |     
|Principal
payment on bonds and other long-term         |                  |                   |     
|debt                                                   |                  | (2,937.3          | )   
|Net
proceeds from issuance of common stock             |                  | 362.1             |     
|Purchase
of treasury stock                             |                  | (121.9            | )   
|Cash
dividends paid                                    |                  | (263.3            | )   
|Net
cash provided byfinancing
activities               |                  | 1,090.5           |     
|                                                       |                  |                   |     
|Effect of
foreign currency exchange rate changes on    |                  |                   |     
|cash
and cash equivalents                              |                  | (155.6            | )   
|Change
in cash and cash equivalents                    |                  | 494.2             |     
|Cash
and cash equivalents:                             |                  |                   |     
|Beginning                                              |                  | 1,345.5           |     
|Ending                                                 |                  | 1,839.7           |     
|Supplemental
disclosures of cashflow
information:      |                  |                   |     
|Cash
payments for:                                     |                  |                   |     
|Interest                                               |                  | 680.5             |     
|Income
Taxes                                           |                  | 338.8             |     
|Supplemental
disclosures for non-cash investing and    |                  |                   |     
|financial
activities:                                  |                  |                   |     
|Acquisition:                                           |                  |                   |     
|Issuance
of common stock in settlement of note payable |                  |                  |     
|Issuance
of common stock of subsidiaries               |                  | 155.9             |     

The
  accompanying notes are an integral part of these consolidatedfinancial statements.

For the convenience of the reader, thefinancial statements as of and for the year ended December 31, 2001 have been translated into U.S. Dollars at the rate of U.S.$1 =€1.1357.

F-6

---

VIVENDI
  ENVIRONNEMENT

CONSOLIDATED
  STATEMENTS OF CHANGES IN SHAREHOLDERSEQUITY

|(€millions
      except for share information)               |  | Numberof
      Shares |  | Sharecapital |  | Additionalpaid-incapital |   | Retainedearnings |   | Net
      income |   | Shareholdersequity |  
|------------------------------------------------------------ |  | --------------------- |  | ------------ |  | ------------------------ | - | ---------------- | - | ---------------- | - | ------------------- | -
|                                                             |  |                       |  |              |  |                          |   |                  |   |                  |   |                     |  
|Balance
      at December 31, 1998                           |  |                      |  | 2,946.1      |  | 243.6                    |   | (6.1             | ) | 162.0            |   | 3,345.6             |  
|                                                             |  |                       |  |              |  |                          |   |                  |   |                  |   |                     |  
|Net
      income (loss) for the year 1999                    |  |                       |  |              |  |                          |   |                  |   | (42.3            | ) | (42.3               | )
|Foreign
      currency translation adjustment                |  |                       |  |              |  |                          |   | 315.3            |   |                  |   | 315.3               |  
|Dividends
      paid and net income
           appropriation |  |                       |  |              |  |                          |   | (2.5             | ) | (162.0           | ) | (164.5              | )
|Goodwill                                                     |  |                       |  |              |  | (2,776.0                 | ) |                  |   |                  |   | (2,776.0            | )
|                                                             |  |                       |  |              |  |                          |   |                  |   |                  |   |                     |  
|Balance
      at December 31, 1999 (a)                       |  | 218,228,507           |  | 2,946.1      |  | (2,532.4                 | ) | 306.7            |   | (42.3            | ) | 678.1               |  
|                                                             |  |                       |  |              |  |                          |   |                  |   |                  |   |                     |  
|Net
      income (loss) for the year 2000                    |  |                       |  |              |  |                          |   |                  |   | 614.8            |   | 614.8               |  
|Foreign
      currency translation adjustment                |  |                       |  |              |  |                          |   | 413.3            |   |                  |   | 413.3               |  
|Dividends
      paid and net income
           appropriation |  |                       |  |              |  |                          |   | (42.3            | ) | 42.3             |   |                    |  
|Goodwill                                                     |  |                       |  |              |  | 687.0                    |   | 9.8              |   |                  |   | 696.8               |  
|Capital
      increase                                       |  | 127,946,448           |  | 1,727.3      |  | 2,078.0                  |   |                  |   |                  |   | 3,805.3             |  
|                                                             |  |                       |  |              |  |                          |   |                  |   |                  |   |                     |  
|Balance
      at December 31, 2000                           |  | 346,174,955           |  | 4,673.4      |  | 232.6                    |   | 687.5            |   | 614.8            |   | 6,208.3             |  
|                                                             |  |                       |  |              |  |                          |   |                  |   |                  |   |                     |  
|Net
      income (loss) for the year 2001                    |  |                       |  |              |  |                          |   |                  |   | (2,251.2         | ) | (2,251.2            | )
|Foreign
      currency translation adjustment                |  |                       |  |              |  |                          |   | (30.5            | ) |                  |   | (30.5               | )
|Dividends
      paid and net income
           appropriation |  |                       |  |              |  |                          |   | 392.2            |   | (614.8           | ) | (222.6              | )
|Goodwill                                                     |  |                       |  |              |  | 2,037.0                  |   | (1.0             | ) |                  |   | 2,036.0             |  
|Conversion
      of warrants                                 |  | 817                   |  | 0.0          |  |                          |   |                  |   |                  |   | 0.0                 |  
|                                                             |  |                       |  |              |  |                          |   |                  |   |                  |   |                     |  
|Balance
      at December 31, 2001                           |  | 346,175,772           |  | 4,673.4      |  | 2,269.6                  |   | 1,048.2          |   | (2,251.2         | ) | 5,740.0             |  
|                                                             |  |                       |  |              |  |                          |   |                  |   |                  |   |                     |  
|Balance
      at December 31, 2001
           ($ millions)   |  |                       |  | 4,115.0      |  | 1,998.4                  |   | 923.0            |   | (1,982.2         | ) | 5,054.2             |  
|                                                             |  |                       |  |              |  |                          |   |                  |   |                  |   |                     |  

---

The
  accompanying notes are an integral part of these consolidatedfinancial statements.

For
  periods presented prior to January 1, 1999, the consolidatedfinancial statements have
  been prepared in French Francs and translated into euros using the officialfixed
  exchange rate€1
  = FF6.55957, applicable since January 1, 1999 (see Note 2 to the consolidatedfinancial
  statements).

For
  the convenience of the reader, thefinancial statements as of and
  for the year ended December 31, 2001 have been translated into U.S. Dollars
  at the rate of U.S.$1 =€1.1357.

F-7

---

VIVENDI
  ENVIRONNEMENT

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.   DESCRIPTION
  OF BUSINESS FORMATION OF
  VIVENDI ENVIRONNEMENT 
       Vivendi
  Environnement (or the Group) was formed at the end of 1999 and is a world-wide
  group providing environmental services. It includes the water, waste management,
  energy services and transportation activities formerly held by Vivendi Universal,
  as well as Vivendi Universals former interest in the Spanish company Fomento de Construcciones
  y Contratas Group (FCC).
  Vivendi Environnement has been listed on the Paris Stock Exchange since July
  20, 2000 and on the New-York Stock Exchange since October 5, 2001. As of December
  31, 2001, Vivendi Universal had a 63% controlling interest in the Group.

SEGMENT DESCRIPTION
  
       Vivendi
  Environnement supplies a wide array of environmental management services to
  a range of public authorities and industrial, commercial and residential customers.
  The Group offers a variety of integrated services, including water treatment
  and system operation, waste management, energy services, and transportation
  services. Through FCC, a publicly listed Spanish company, the Group also provides
  environmental and construction services.

Following
  is a brief description of each of the Groups business segments:

| |  | Waterthe
      Group manages and operates water and waste water treatment and distribution
      systems for public authorities and private companies. The Group is also
      a designer and manufacturer of water and waste water treatment equipment
      and water systems. In addition, the Group provides consumers with bottled
      water.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Waste
      managementthe Group collects hazardous and non-hazardous waste and offers
      related services, including disposal, treatment and recycling.                                                                                                                                                                                          
| |  | Energy
      servicesthe Group provides energy management services and offers a
      wide range of industrial utilities and facilities management services.                                                                                                                                                                                        
| |  | Transportationthe Group provides integrated transportation solutions involving
      bus, trains, maritime, tram and other networks.                                                                                                                                                                                                                
| |  | FCCFCC
      operates in a number of different environmental and construction related
      industries.                                                                                                                                                                                                                                             

2.   SUMMARY
  OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation
  
       The
  consolidatedfinancial statements of the Group have been prepared in accordance
  with accounting principles generally accepted in France (French GAAP).
  The Comitéde
  la Réglementation Comptable (CRC)
  issued new rules in April 1999 regarding methods of consolidation. These new
  rules came into effect forfinancial
  years beginning after January 1, 2000. The adoption of these new rules by the
  Group has lead to the following changes:

| |  | adoption
      of average exchange rates for the translation of income statements of foreign
      companies; and                
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | adjustments
      to year-end exchange rate of balances denominated in foreign currency are
      recognized in income statement.

The
  Group has retroactively adopted these new rules for all periods presented. The
  effect of the retroactive adoption is not significant.

Vivendi
  Environnement applies since January 1, 2001 the regulation CRC-2000-06 relative
  to reserves.

Thefinancial
  statements for 1999 include the operating results of the Group while it was
  part of Vivendi Universal. Financial statements prior to 2000 are not necessarily
  indicative of what thefinancial
  position, results of

F-8

---

operations, or cashflows would have been
had the Group been a stand-alone company during such periods. Financial data included in the accompanying consolidatedfinancial statements have been prepared on a basis that reflects the historical assets,
liabilities, and operations of the business contributed to the Group by Vivendi Universal.

Thefinancial
  statements of foreign subsidiaries have, when necessary, been adjusted to comply
  with French GAAP. French GAAP differs in certain respects from accounting principles
  generally accepted in the United States. A description of these differences
  and their approximate effects on net income and shareholdersequity
  is set forth in Note 26. Thefinancial
  statements have been formatted in the original French GAAPfinancial
  statements presentation and where necessary have been modified
  to include certain additional disclosures in order to conform more closely with
  the content offinancial
  statements required by the generally accepted accounting principles in the United
  States (U.S.
  GAAP).

Change of
  presentation and accounting principles 
     In
  2001 Vivendi Environnement has modified the presentation of its
  consolidated statement of income. It is now a statement of income by function.
  This presentation is in line with the French and international practices. This
  new presentation mainly consists of the reclassification
  of exceptional income. In order to allow a consistent comparison the restated
  historical years are also disclosed.

Until
  the end of 1999, and in accordance with French GAAP, for acquisitions which
  were completed through the issuance of capital, the portion of goodwill attributable
  to such proceeds could be charged to shareholdersequity,
  up to the amount of the related share premium.

Vivendi Environnement has been listed on the New-York Stock Exchange since October 5, 2001. Vivendi Environnementfiles with the SEC an annual report on Form 20-F which includes a reconciliation with U.S. GAAP of equity and net income as
reported in the French accounts. One of the adjustments is the reclassification of the goodwill recorded
under French GAAP as a reduction of shareholdersequity to the assets under U.S. GAAP.

According to the French Code of Commerce, the listing on the New-York Stock Exchange is considered as an event for which a better convergence between
French GAAP and U.S. GAAP would improve the quality offinancial information. Consequently, from 2001,
Vivendi Environnement will no longer record goodwill as a reduction of shareholdersequity.

Convenience
  Translations 
       The
  consolidated balance sheet and consolidated statements of income and cashflows
  include amounts as of and for the year ended December 31, 2001 denominated in
  millions of U.S. dollars. These amounts are presented as permitted convenience
  translations under Rule 3-20 of Regulation S-X of the U.S. Securities Exchange
  Commission and have been prepared usingan
  exchange rate of U.S.$1 to€1.1357,
  which was the exchange rate as of December 29, 2001. Convenience translations
  are presented solely for the convenience of the reader of thesefinancial statements and should
  not be construed as representations that the local currency has been, could
  have been, or could in the future be converted into U.S. dollars at this or
  any other rate of exchange.

Principles
  of Consolidation 
       All
  companies over which the Group has legal or effective control are consolidated.

The Group uses the equity method of accounting for its investments in certain affiliates in which it owns less than 20% of the voting shares. In these situations, the Group exercises significant influence
over the operating andfinancial decisions of the affiliate either (a) through the disproportionate representation on the affiliates board of directors,e.g., the percentage of directors appointed to the board by the Group is greater than the percentage of its
shareholding interest and those directors allow the Group to exercise significant influence, and (b) because there is no shareholder with a majority voting ownership in the affiliate, which is a consideration under French accounting principles in determining whether significant influence exists, or (c) because the Group exercises substantive participating rights through shareholder agreements that allow the Group to veto or block decisions taken by the board of the
affiliate in question. Significant investments in which the Group has 20% to 50% ownership or otherwise exercises significant influence
are accounted for under the equity method.

F-9

---

The proportionate method of consolidation is used for investments in jointly controlled companies, where the Group and other shareholders have agreed to
exercise joint control over significantfinancial and operations policies. For such entities, the Group records its proportionate interest in the balance sheet and income statement accounts.

All other investments in affiliates that
are not consolidated are accounted for at cost.

Subsidiaries acquired are included in the consolidatedfinancial statements as of the acquisition date. All material intercompany transactions have been eliminated. In the case of proportionally consolidated companies, intercompany transactions are
eliminated on the basis of the Groups interest in the company involved.

Use of Estimates
  
       The
  preparation offinancial statements requires management to make estimates and
  assumptions that affect the reported amounts of assets, liabilities, revenues
  and expenses, and the disclosures of contingent assets and liabilities. Actual
  results could differ significantly
  from these estimates. Significant
  estimates made by management in the preparation of thesefinancial statements include
  amounts for pension liabilities, deferred taxes, valuation estimates for long-lived
  assets, as well as recorded and disclosed amounts for certainfinancial
  instruments.

Introduction
  of the Euro 
       Since
  the introduction of the euro on January 1, 1999, the functional and reporting
  currency of the Group has been the euro. Prior to this date, the functional
  and reporting currency of the Group was the French franc. Consequently, prior
  periods have been restated from French francs into euros using the officialfixed
  exchange rate€1=FF
  6.55957. These restatedfinancial
  statements depict the same trends as thefinancial statements previously
  prepared using the French franc. Further, the restatedfinancial statements will not
  be comparable tofinancial
  statements of other companies that report in euros that have restated prior
  periods from currencies different from the French franc.

Translation
  of Foreign SubsidiariesFinancial Statements 
       Balance
  sheets, statements of income and cashflows of subsidiaries whose functional
  currency is different from that of the Group are translated into the reporting
  currency at the applicable exchange rate (i.e., the closing year-end rate for
  balance sheets, or the average annual rate for income and cashflow
  statements). Translation gains and losses are recorded in retained earnings.
  The exchange rates of the significant
  currencies of non-euro countries used in the preparation of the consolidatedfinancial
  statements were as follows:

|Year-End
      Closing Exchange Rates | 2001   |  | 2000   |  | 1999   | 
|------------------------------------- | ------ |  | ------ |  | ------ | 
|                                      |        |  |        |  |        | 
|U.S. dollar                           | 1.1357 |  | 1.0747 |  | 0.9954 | 
|Pound
      sterling                  | 1.6030 |  | 1.6023 |  | 1.6085 | 
|                                      |        |  |        |  |        | 
|Average
      Annual Exchange Rates   | 2001   |  | 2000   |  | 1999   | 
|                                      |        |  |        |  |        | 
|U.S. dollar                           | 1.1148 |  | 1.0827 |  | 0.9382 | 
|Pound
      sterling                  | 1.6058 |  | 1.6407 |  | 1.5180 | 

The balance sheets, income and cashflow statements of subsidiaries operating in highly inflationary economies are re-measured (according to the historical method) in functional currency. Functional currency is defined as the currency used in the dominant country of the economic area to which the subsidiaries belong. Related translation effects are included in net income. Thesefinancial statements are then translated from the functional currency into the reporting currency on the basis of the year-end
exchange rate and the translation adjustments are recorded in retained earnings.

Subsequent to the introduction of the euro on January 1, 1999, the balance sheets, income and cashflow statements of subsidiaries located in countries that have adopted the euro as their official currency are translated from their former national currencies to the euro at the officialfixed
exchange rates that were established as of January 1, 1999, and are no longer subject tofluctuation.

F-10

---

Revenue Recognition
  
       Revenues
  are recorded when title passes to the customer or when services are rendered
  in accordance with contracts; title is considered to have passed to the customer
  when goods are shipped.

Revenue resulting from government subsidies associated with long-term operating agreements is recorded ratably over the year.

Revenue
  relating to specific
  activities are discussed in applicable sections of these footnotes.

Other income
  and expenses 
       This
  item includes income or expenses resulting from exceptional operations or events
  that are not part of the ordinary operations of Vivendi Environnement. They
  primarily include capital gains and losses on sales of subsidiaries and affiliates.

Goodwill
  and Business Combinations 
       All
  business combinations are accounted for as purchases. Under the purchase accounting
  method, assets acquired and liabilities assumed are recorded at their fair value.
  The excess of the purchase price over the fair value of net assets acquired,
  if any, is capitalized as goodwill and amortized over the estimated period of
  benefit
  on a straight-line basis. Amortization periods for goodwill range from 20 to
  40 years.

Other Intangible
  Assets 
       Start-up
  costs relating to the implementation of new activities, including pre-operating
  costs, are amortized over their estimated useful life.

Other intangible assets include costs incurred to obtain contracts, such as fees paid to local authorities for public services contracts. Fees paid to
local authorities are amortized over the duration of the contract, which can be up to 30 years.

Market
  share and trademarks are not amortized.

Business assets acquired, such as customers lists and operating rights, are amortized over their estimated useful life.

Property,
  Plant and Equipment 
       Property,
  plant and equipment is carried at cost less accumulated depreciation. Depreciation
  is computed using the straight-line method over the following useful life:

|                                    | Estimateduseful livesin
      years
|----------------------------------- | -----------------------------------
|                                    |                                    
|Buildings                           | 20
      to 50                     
|Technical
      systems             | 7
      to 12                      
|Transport
      equipment           | 3
      to 25                      
|Other
      equipment and machinery | 3
      to 12                      

Assetsfinanced by leasing contracts that include a purchase option (known in France ascrédit-bail) are capitalized and amortized over the shorter of the lease term or the estimated useful lives of the assets. Amortization expense on assets
acquired under such leases is included with depreciation and amortization expense. Interest expense incurred as a result of expenditures for afixed asset during the period necessary for its intended use is capitalized as part of the historical cost offixed assets.

F-11

---

Valuation
  of Long-lived Assets
     Long-lived
  assets, including goodwill and the other intangible assets, are regularly re-evaluated
  according to circumstances, either internal or external, which could lead to
  depreciation. If this is the case, an exceptional amortization or valuation
  allowance is recorded on the basis of the assets fair value.

Financial
  Assets 
       Investments
  Accounted for Using the Cost Method 
       Investments
  in unconsolidated affiliates are carried at cost. Any negative difference between
  carrying value and fair value that is determined to be other than temporary
  is reserved.

Portfolio
  Investments Held as Financial Assets 
       Portfolio
  and other investments include unlisted and listed equity securities of unconsolidated
  subsidiaries and long-term loans that are recorded at cost. When fair value
  is less than cost and is determined to be other than temporary, a valuation
  allowance is provided. Estimated fair value is determined on the basis of the
  Groups
  share of the equity of the companies concerned adjusted to market value in case
  of listed securities or pursuant to other applicable procedures.

Bonds
  and Debentures 
       Issue costs,
  as well as discounts and premiums on convertible debt are amortized over the
  life of the debt.

Inventories
  and Work-in-progress 
       Group
  companies value inventories according to the provisions of the French Commercial
  Code, either on afirst-in-first-out or a weighted average cost basis. Inventories are stated
  at the lower of cost or net realizable value.

Deferred
  Taxes 
       Deferred
  tax assets are recognized for deductible temporary differences, net tax operating
  loss carryforwards and tax credit carryforwards. Deferred tax liabilities, including
  those relating to tax loss carry-forwards, are recognized for taxable temporary
  differences. Deferred tax assets are recorded at their estimated net realizable
  value. Deferred tax assets and liabilities are adjusted for the effects of changes
  in tax laws and rates on the enactment date.

Cash, Cash
  Equivalents and Marketable Securities 
       Cash
  and cash equivalents include all cash balances and short-term highly liquid
  investments with original maturities of three months or less at the time of
  purchase and are stated at cost which approximates their fair value.

Marketable securities including treasury shares and other highly liquid investments. Treasury shares are classified as marketable securities when they are acquired to stabilize the market price of the Groups shares or in connection with stock options granted to directors and employees. Treasury shares held for other reasons
are recorded as an offset to shareholdersequity. Marketable securities are carried at cost, and a
valuation allowance is provided if the fair value is less than the carrying value.

Pension Plans
  
       The
  Group has several pension plans that cover substantially all employees. Pension
  obligations are calculated using the projected unit credit method. This method
  considers the probability of personnel remaining with companies in the Group
  until retirement, the foreseeable changes in future compensation, and the appropriate
  discount rate for each country in which the Group maintains a pension plan.
  This results in the recognition of pension-related assets or liabilities, and
  the recognition of the related net expenses over the estimated term of service
  of the employees.

Employees in France and most other European countries are eligible, for severance pay pursuant to applicable law immediately upon termination. The Group
provides reserves for such employee termination liabilities using the projected unit credit method.

F-12

---

Stock Based
  Compensation 
       The
  Group has adopted stock option incentive plans that grant options on its common
  shares to certain directors and officers.
  The purpose of these stock option plans is to align the interest of management
  with the interest of shareholders by providing certain officers
  and other key employees with additional incentives to increase the Groups
  performance on a long-term basis. Shareholdersequity
  is credited for the cumulative strike price to reflect the issuance of shares
  upon the exercise of options.

Treasury shares held to cover commitments relating to stock purchase options are shown under marketable securities at the lower of cost and fair market
value. The Group accounts for any capital gains in the year in which shares are sold under the plan.

Derivative
  Financial Instruments 
       The
  Group manages certain of itsfinancial risks by using derivativefinancial
  instruments that qualify as hedges.

The Group primarily uses interest rate swaps and caps to manage interest rate risks relating to its funding costs. The goal of these swaps is, depending on
the circumstances involved, to modify fromfixed tofloating rates and fromfloating tofixed as well as to modify the underlying index onfloating rate debt. The goal of the interest caps is to limit the upside risk relating tofloating rate debt. Interest rate swaps that modify borrowings or designated assets are accounted for on an accrual basis.
Premiums paid for interest rate caps are expensed as incurred.

The Group uses currency swaps and forward exchange contracts to manage its foreign currency risk. Forward exchange contracts are used to hedgefirm and anticipated transactions relating to assets denominated in foreign currencies. Currency rate swaps are used to
modify the interest rate and currency of foreign denominated debt. Gains and losses arising from the change in the fair value of currency instruments that qualify for hedge accounting treatment are deferred until related gains or losses on hedged
items are realized.

Anyfinancial
instrument that does not qualify as a hedge forfinancial reporting purposes is recorded at the lower of
cost or fair value in other current assets or liabilities.

Foreign Currency
  Transactions 
       Foreign
  currency transactions are converted into euros at the exchange rate in effect
  on the transaction date. At year-end, receivables and payables denominated in
  foreign currencies are remeasured into euros at year-end exchange rates. The
  resulting exchange losses and gains are recorded in the current earnings period.

Exchange losses on borrowings denominated in foreign currencies that qualify as hedges of net investments in foreign subsidiaries are included as
translation adjustments in retained earnings.

Research
  and Development 
        The
  Groups
  research and development costs are expensed as incurred. Research and development
  costs were €101.6
  million,€79.4
  million and€53.0 million for 2001, 2000 and 1999 respectively.

Earnings
  Per Share 
       Earnings
  per share calculations are based on the Groups net income after taxes divided
  by the weighted average number of common shares outstanding, which includes
  treasury shares accounted for as marketable securities.

Accounting
  Policies Specific
  to the Environmental Services Activities 
        Public
  Services Contracts 
       The
  Group holds public service contracts relating to its operations in water distribution
  and treatment, district heating networks, urban transportation and waste collection
  and treatment. Under the French legal system, there are three primary types
  of public service contracts:affermage(or public
  service management) contracts, where the operator is granted the obligation
  to manage and maintain facilities owned andfinanced by local authorities,concession,facility
  management contracts which are similar toBOT(build-operate-transfer) agreements and contracts presenting
  mixed characteristics of affermage and concession contracts. Revenue is recognized
  on these

F-13

---

contracts when services are rendered in accordance with the terms of the contracts. On an exceptional basis, the Group may also operate management contracts in which it manages a public
service for afixed fee as well as an incentive which is calculated in relation to the performance of the
contract. For these contracts, the Group recognizes billing to customers as revenue and all related costs as operating expenses.

In France, the Groups public service
contracts are primarily affermage contracts.

Facilities
  
       Facilities
  operated by the Group are generallyfinanced by local authorities
  and remain theirs throughout the contract period. Individual facilitiesfinanced by the Group as a consequence
  of specific
  contractual terms are recorded asfixed
  assets and depreciated to their estimated residual value, if any, on the shorter
  of their economic useful lives or the contracts
  term. Wherever the contracts
  term is shorter than the economic useful life of the asset, such depreciation
  is classified
  as a liability as afinancial
  depreciation.

Fees
  Paid to Local Authorities 
       The
  Group does not have any obligation for compensation payments to local authorities
  during the contract period, except for fees that have been agreed upon by both
  parties and formally defined
  by the contract.

The Groups policy is to expense ratably fees that are paid to local authorities when these fees are paid annually and to amortize these costs on a straight-line basis over the life of the contract when the fees consist of payments at the
beginning of the contract.

Commitments
  to Maintain and Repair Assets 
       The
  Group generally assumes a contractual obligation to maintain and repair facilities
  managed through public service contracts. Corresponding repair and maintenance
  costs are expensed as incurred, except for some investments in joint ventures
  where costs are accrued in advance.

Planned
  Maintenance Projects 
       The
  Groups
  policy is to expense costs relating to planned maintenance projects as they
  are incurred.

Landfill Capitalization and Depletion 
       Landfill
  sites are carried at cost and amortized ratably using the units of production
  method over the estimated useful life of the site as the airspace of the landfill is consumed. Landfill
  costs include capitalized engineering and other professional fees paid to third
  parties incurred to obtain a disposal facility permit. When the Group determines
  that the facility cannot be developed or the likelihood of grant of the permit
  cannot be determined before itsfinal
  authorization, as it is the case in France and the United Kingdom, these costs
  are expensed as incurred.

Landfill Closure and Post-closure Costs 
       The
  Group hasfinancial obligations relating to closure and post-closure costs
  and the remediation of disposal facilities it operates or for which it is otherwise
  responsible.

Landfillfinal closure and post-closure accruals consider estimates for costs of thefinal cap and cover for the site, methane gas control, leachate management, groundwater monitoring, and other monitoring and
maintenance to be incurred after the site discontinues accepting waste. The cost estimates are prepared by engineers based on the applicable local, state and federal regulations and site specific permit requirements. These estimates do not take into account discounts for the present value of total estimated costs. The Group accrues a reserve for
these estimated future costs pro rata over the estimated useful life of the sites.

Accruals for environmental remediation obligations are recognized when such costs are probable and reasonably estimable.

These
  liabilities are classified
  as reserves and allowances.

F-14

---

Construction
  
       To
  calculate their margin, construction companies record revenue according to the
  percentage of completion method. This method is applied to contracts with a
  duration of six months or more; for contracts with a duration of less than six
  months, the completed contracts method is used.

Previous
  method of presentation of the historical accounts 
       The
  table below presents the consolidated statements of income as presented in the
  consolidatedfinancial
  statements for 2000.

|                                                                     | 2000      |   | 1999      |  
|-------------------------------------------------------------------- | --------- | - | --------- | -
|                                                                     |           |   |           |  
|Revenue                                                              | 26,393.7  |   | 21,039.2  |  
|                                                                     |           |   |           |  
|Miscellaneous
      operating income                                 | 311.6     |   | 602.8     |  
|Purchases
      and external costs                                   | (13,009.0 | ) | (10,249.3 | )
|Personnel
      costs                                                | (7,295.5  | ) | (5,909.2  | )
|Taxes
      other than income taxes                                  | (399.0    | ) | (312.4    | )
|Other
      operating expenses                                       | (2,691.0  | ) | (2,685.5  | )
|Depreciation
      and amorization                                   | (1,363.3  | ) | (976.2    | )
|Employee
      profit-sharing                                        | (37.9     | ) | (33.3     | )
|                                                                     |           |   |           |  
|Operating
      income                                               | 1,909.6   |   | 1,476.1   |  
|                                                                     |           |   |           |  
|Financial
      income                                               | 368.5     |   | 290.5     |  
|Financial
      expense                                              | (1,246.0  | ) | (865.6    | )
|Financial
      provisions                                           | (6.0      | ) | (48.3     | )
|                                                                     |           |   |           |  
|Netfinancial
      (expenses) income                                 | (883.5    | ) | (623.4    | )
|                                                                     |           |   |           |  
|Exceptional
      items                                              | 623.7     |   | (158.1    | )
|Depreciation,
      amortization and provisions on exceptional items | (168.7    | ) | (22.7     | )
|Income
      taxes and deferred tax                                  | (459.2    | ) | (298.5    | )
|Goodwill
      amortization                                          | (306.3    | ) | (366.8    | )
|Equity
      in net income of affiliates                             | 60.6      |   | 44.5      |  
|Minority
      interest                                              | (161.4    | ) | (93.4     | )
|                                                                     |           |   |           |  
|Net
      income (loss)                                              | 614.8     |   | (42.3     | )
|                                                                     |           |   |           |  
|Basic
      earnings per share                                       | 2.2       |   | (0.2      | )

Reconciliation of previous method of presentation of consolidated statement of income to current method of presentation

|Previous
      method of presentation      | 2000Published |   | Adjustments |   | 2000restated |   | Current
      method ofpresentation     
|------------------------------------------ | ------------- | - | ----------- | - | ------------ | - | ----------------------------------------
|                                           |               |   |             |   |              |   |                                         
|Revenue                                    | 26,393.7      |   | (131.2      | ) | 26,262.5     |   | Revenue                                 
|Operating
      income                     | 1,909.6       |   | (259.6      | ) | 1,650.0      |   | EBIT                                    
|                                           |               |   | (620.3      | ) | 1,289.3      |   | Operating
      income                  
|Financial
      income (expense)           | (883.5        | ) | (8.3        | ) | (891.8       | ) | Financial
      income (expenses)       
|Exceptional
      items, net               | 455.0         |   | 322.3       |   | 777.3        |   | Other
      income (expenses)           
|Income
      taxes and deferred tax        | (459.2        | ) |            |   | (459.2       | ) | Income
      taxes and deferred tax     
|Goodwill
      amortization                | (306.3        | ) | 306.3       |   |             |   |                                         
|Equity
      in net income of affiliates . | 60.6          |   |            |   | 60.6         |   | Equity
      in net income of affiliates
|Minority
      interest                    | (161.4        | ) |            |   | (161.4       | ) | Minority
      interest                 
|Net income
      (loss)                    | 614.8         |   |            |   | 614.8        |   | Net income
      (loss)                 

F-15

---

Reconciliation
  of previous method of presentation to current method of presentation of revenues

|                                                 | 2000     |   | 1999     |  
|------------------------------------------------ | -------- | - | -------- | -
|                                                 |          |   |          |  
|Revenue,
      as reported in 2000               | 26,393.7 |   | 21,039.2 |  
|Impact
      of the current period presentation* | (131.2   | ) | (109.2   | )
|                                                 |          |   |          |  
|Current
      method of presentation of revenues | 26,262.5 |   | 20,930.0 |  
|                                                 |          |   |          |  

---

Reconciliation of previous method of presentation of operating income to current method of presentation

|                                                                                            | 2000    |   | 1999    |  
|------------------------------------------------------------------------------------------- | ------- | - | ------- | -
|                                                                                            |         |   |         |  
|Operating
      income (previous method of presentation)                                    | 1,909.6 |   | 1,476.1 |  
|                                                                                            |         |   |         |  
|                                                                                            |         |   |         |  
|Exceptional
      items reclassified as a component of cost of sales                        | (328.1  | ) | (109.1  | )
|Exchange
      rate effect                                                                  |         |   | (19.0   | )
|sub-total                                                                                   | (328.1  | ) | (128.1  | )
|Financial
      items reclassified as component of operating income                         |         |   |         |  
|Sundry
      revenues                                                                       | 24.0    |   | 22.2    |  
|Financial
      depreciation related to facilities reclassified as a component of operating |         |   |         |  
|income                                                                                      | (15.0   | ) | (17.6   | )
|sub-total                                                                                   | 9.0     |   | 4.6     |  
|Items
      reclassified as a component offinancial
      income                            | (7.6    | ) |        |  
|Goodwill
      amortization                                                                 | (306.3  | ) | (366.8  | )
|Other
      reclassifications                                                               | 12.7    |   | (23.9   | )
|                                                                                            |         |   |         |  
|Operating
      income (current method)                                                     | 1,289.3 |   | 1,328.7 |  
|                                                                                            |         |   |         |  

For
  December 31, 2000 exceptional items reclassified to operating income are the following:

Losses,
  provisions, depreciation and amortization on exceptional items, of which€232
  million are related principally to the reorganization of the Groups
  activities in the UK, within the waste management and energy sectors (closure
  of non-profitable
  activities), the costs undertaken to integrate the international activities
  of US Filter and provisions for the establishment of the Groups
  headquarters. The losses mentioned above, include amortization expenses of€169
  million for 2000, of which€56
  million are from the waste-management sector in the UK, €17
  million from the energy sector in the UK, and€20
  million are from the activities of US Filter international. Other
  exceptional items are for small individual amounts.

In 2001, exceptional items would have amounted to€48 million.

Financial
  statements for 1999 
       Thefinancial
  statements for 2001 and 2000 are compared to 1999. Thefinancial
  statements for 1999 have been prepared giving effect to the transactions completed
  to form the Group as if such transaction had occurred on January 1, 1999.

Scope
  of Consolidation 
       With
  regard to Vivendi Universals water operations, the substantial
  majority of which were transferred in 1999 and 2000 to Vivendi Water, a wholly-owned
  subsidiary of the Group, the estimated balance sheet and income statements for
  1999 include results from contracts transferred as well as the income derived
  from rights to receivables from non-transferred contracts, as if those items
  had been transferred.

F-16

---



Goodwill
  GoodwillBusinesses Transferred by Contribution 
       When
  contributions of assets or operating entities from Vivendi Universal to the
  Group have been recorded at net book value, goodwill is recorded in the Groups
  consolidatedfinancial
  statements at historical value.

GoodwillBusinesses Transferred by Sale 
       In
  recent years, Vivendi Universal has sold assets or operating entities to certain
  of its subsidiaries as part of an internal restructuring operation. These transactions
  were at market value which, in certain cases, has resulted in the generation
  of additional goodwill. This goodwill is reflected in the Groups
  consolidatedfinancial
  statements. The most significant
  portion of the additional goodwill results from the creation of the Groups
  water segment under Vivendi Water, and the remaining stake of Dalkia sold to
  CGC Holding.

|3. | GOODWILL
      AND BUSINESS COMBINATIONSGoodwill
      by segment is detailed as follows:
|-- | -----------------------------------------------------------------------------------------

|                 | 2001     |  | 2000                    |   | 1999    | 
|---------------- | -------- |  | ----------------------- | - | ------- | 
|                 |          |  |                         |   |         | 
|(€
millions)     | Gross    |  | Accumulatedamortization |   | Net     | 
|                 |          |  |                         |   |         | 
|Water            | 7,242.0  |  | (3,472.7                | ) | 3,769.3 | 
|Waste Management | 1,756.8  |  | (311.2                  | ) | 1,445.6 | 
|Energy Services  | 841.6    |  | (138.9                  | ) | 702.7   | 
|Transportation   | 215.3    |  | (58.2                   | ) | 157.1   | 
|FCC              | 829.6    |  | (108.5                  | ) | 721.1   | 
|                 |          |  |                         |   |         | 
|Total            | 10,885.3 |  | (4,089.5                | ) | 6,795.8 | 
|                 |          |  |                         |   |         | 

Total
  goodwill amortization expense for the years ended December 31, 2001, 2000 and
  1999 was €2,910.1
  million,€306.3
  million and€366.8 million, respectively.

The following is a summary of the most significant acquisitions during the periods presented in the accompanyingfinancial statements.

FCC
  
       In
  October 1998, Vivendi Universal acquired for cash 49% and obtained joint control
  of a Spanish holding company whose only asset is a 57% ownership interest in
  FCC, a publicly listed company in Spain active in the environmental services
  sector. Vivendi Universal sold to the Group its interest in the holding company
  for €691
  million. The holding company, which fully consolidates FCC, is reflected
  in the Groupsfinancial
  statements on the proportionate consolidation method. The details of the Groups
  acquisition are as follows (in millions of euros):

| | Fair value
      of net tangible and intangible assets acquired                 | 212 | 
| | ------------------------------------------------------------------------------- | --- | 
| | Purchase
      price                                                            | 691 | 
| |                                                                                 |     | 
| | Goodwill                                                                        | 479 | 
| |                                                                                 |     | 
| | Goodwill
      net at December 31, 2001                                         | 431 | 
| |                                                                                 |     | 
| | Goodwill
      recorded from this transaction is being amortized over 20 years. |     | 

F-17

---

United
  States Filter Corporation 
       In
  April 1999, Vivendi Universal acquired for cash 100% of the outstanding shares
  of United States Filter Corporation, a U.S. based water treatment and equipment
  manufacturing company. The transaction was accounted for as a purchase. The
  details of the acquisition are as follows (in millions of euros):

| | Fair value
      of net tangible and intangible assets acquired | 459   | 
| | --------------------------------------------------------------- | ----- | 
| | Purchase
      price                                            | 5,801 | 
| |                                                                 |       | 
| | Goodwill                                                        | 5,342 | 
| |                                                                 |       | 
| | Goodwill
      net at December 31, 2001                         | 2,488 | 

Goodwill
  recorded from this transaction is being amortized over 40 years.

Superior
  Services
       In
  June 1999, Vivendi Environnement acquired for cash 100% of the outstanding shares
  of Superior Services, a U.S. based waste management company. The transaction
  was accounted for as a purchase. The details of the acquisition are as follows
  (in millions of euros):

| | Fair value
      of net tangible and intangible assets acquired | 168 | 
| | --------------------------------------------------------------- | --- | 
| | Purchase
      price                                            | 932 | 
| |                                                                 |     | 
| | Goodwill                                                        | 764 | 
| |                                                                 |     | 
| | Goodwill
      net at December 31, 2001                         | 773 | 

Goodwill
  recorded from this transaction is being amortized over 40 years.

Impairment
  of goodwill 
       Goodwill
  amortization in 2001 included a write-off of goodwill of€2,611
  million, related to activities of US Filter. The management determined that
  the goodwill was impaired, and goodwill was written down based upon an estimate
  of discounted future cashflow.
  The analysis was based on a projection over 10 years with a terminal value and
  with a discount rate of 7% for the goodwill. The management revised the estimated
  cashflows as a result of the evolution of the US economic situation.

Goodwill amortization in 2000 included a goodwill write-down of€58 million, primarily related to the impairment of goodwill associated with Onyxs U.K. operations. These operations consist of both dry and wet waste collection, landfill, and waste treatment facilities. The business is conducted with both industrial and municipal customers under short and long-term contracts. During 1999, operating results began to decline due to
industry overcapacity and strong competitive pricing pressure. U.K. management began to respond to this situation by reducing costs. At the end of 1999, profitability had declined significantly but the U.K. company
was still profitable at a level sufficient to recover the carrying value of its long-lived assets, including goodwill. However, operating results continued to decline during 2000 and it was
recognized that additional action was required. U.K. management performed an analysis of the business and overall industry conditions. As a result of this review, several additional actions were taken in 2000. These actions included the closure of
several treatment facilities, the termination of certain unprofitable long-term municipal contracts and
further cost reductions. The actions were taken because the management believed that the prevailing industry conditions would continue for the foreseeable future. The management also revised the operating forecast to reflect the estimated effect of its actions and its view of long-term industry conditions. Based upon the resulting forecast of
estimated undiscounted future cashflows, the management determined that the goodwill was impaired, and the
goodwill was written down based upon an estimate of discounted future cashflow. The analysis was performed
at the lowest level of identifiable assets. The analysis was based on the business plans over 20 years with
a discount rate of 7% for the goodwill and the current market value forfixed assets (landfills, treatment plants and properties). Onyxs U.K. operations mainly relate to contracts that are highly predictable on a long-term basis.

F-18

---

The majority of the Groups€202.1 million in goodwill write-offs in 1999
were related to Aqua Alliance. Until 1998, the Group owned 82.95% of Aqua alliance, a U.S. company listed on the American Stock Exchange. Most of the goodwill related to the interest in Aqua Alliance was impaired in 1997 because, despite
restructuring efforts and disposals of several business assets, the Group believed that the company would not generate sufficient cashflows to support its carrying value. As part of a reorganization plan for the
company, the Group decided to merge this company with some of its other U.S. subsidiaries. In order to do so, it was required to buy out the minority interest. Additional goodwill resulted from this transaction. Management assessed the future cashflow prospects of the company, now a wholly owned subsidiary, and it was determined that the additional
goodwill was impaired and should be reduced to a level that was supported by estimates of discounted future cashflows. The main assumptions used for the impairment analysis are (i) a discount rate of 10% and (ii) a cashflow analysis based onfive year projections with a terminal value.

4. OTHER
  INTANGIBLE ASSETSThe
  evolution of net intangible assets as follows:

|(€
      millions)                          | 1999    |  | 2000    |  | Additions |  | Utilization |   | Change
      in
        scope |  | Other
      movements |     | 2001    | 
|------------------------------------------- | ------- |  | ------- |  | --------- |  | ----------- | - | ----------------------------- |  | --------------------- | --- | ------- | 
|                                            |         |  |         |  |           |  |             |   |                               |  |                       |     |         | 
|Fees
      paid to local authorities        | 508.4   |  | 517.1   |  | 34.0      |  | (42.9       | ) | 30.0                          |  | 29.4                  |     | 567.6   | 
|Trademarks,
      market share and business |         |  |         |  |           |  |             |   |                               |  |                       |     |         | 
|assets
      acquired                       | 2,360.4 |  | 2,619.6 |  | 69.0      |  | (35.5       | ) | 38.1                          |  | 231.4                 | (1) | 2,922.6 | 
|Software                                    | 55.8    |  | 59.5    |  | 16.0      |  | (35.0       | ) | 3.6                           |  | 25.3                  |     | 69.4    | 
|Prepaid
      expenses                      | 595.1   |  | 423.8   |  | 92.9      |  | (38.0       | ) | 17.4                          |  | (26.2                 | )   | 469.9   | 
|Other
      intangible assets               | 357.6   |  | 603.4   |  | 93.6      |  | (27.9       | ) | 35.6                          |  | (257.2)               | (2) | 447.5   | 
|                                            |         |  |         |  |           |  |             |   |                               |  |                       |     |         | 
|Total                                       | 3,877.3 |  | 4,223.4 |  | 305.5     |  | (179.3      | ) | 124.7                         |  | 2.7                   |     | 4,477.0 | 
|                                            |         |  |         |  |           |  |             |   |                               |  |                       |     |         | 

|   
|---
|(1)
|(2)

Fees paid to local authorities relating to public service contracts, which are located primarily in France, amounted to€567.6 million in 2001, compared with€517.1 million in 2000. These are amortized over the term of the contracts to which they relate.

Trademarks,
  market share and business assets acquired amounted to€2,922.6 million in 2001, compared
  to €2,619.6
  million in 2000, and€2,360.4
  million in 1999. In particular, these assets include the allocation to the trademarks
  of part of the United States Filter Corporation purchase price of€2,469.3
  million, and valuation of waste management operating rights for Superior Services,
  in an amount of€92.7
  million. The carrying value of market share is reviewed for realization each
  year on the same basis of criteria used to assess its initial value, such as
  market position, net sales, and gross operating surplus or deficit. If the review indicates
  an other than temporary reduction in value, a valuation allowance is recorded.
  Trademarks and market shares are not amortized. Business assets acquired, such
  as customers lists and operating rights, are amortized over their estimated
  useful life.

Prepaid expenses include expenses of€469.9 million,€423.8 million and€595.1 million, as of December 31, 2001, 2000 and 1999, respectively, to be allocated over severalfinancial years, mainly relating to the difference between the contractual amounts of debt servicing payments to local
authorities and the expense charged to income over the contract period.

Certain subsidiaries of the Group may be obligated to assume responsibility for the repayment of the debt entered into by local authorities relating to the
utility network they manage. The annual payments generally decrease each year and extend over a period shorter than the contract period. This difference between the amounts paid to the local authorities and the expense charged to income is recorded
as a prepaid expense on the balance sheet.

Other intangible assets increased in 2000, particularly in the water segment (patents and licenses booked as assets by United States Filter
Corporation).

F-19

---

Total
  amortization expense for other intangible assets for the years ended December
  31, 2001, 2000 and 1999 was€184.2
  million,€182.5 million and€134.3
  million, respectively. Accumulated amortization amounted to €774.9
  million,€609.8
  million and€395.5 million, as of December 31, 2001, 2000 and 1999, respectively.

5.  INVESTMENTS
  ACCOUNTED FOR USING THE EQUITY METHOD

|                                       | At
      December 31, | 
|-------------------------------------- | --------------------- | 
|                                       |                       | 
|                                       | Interest              | 
|                                       |                       | 
|(€
      millions)                     | 2001                  | 
|                                       |                       | 
|Realia(1)                              | 24.10%                | 
|Philadelphia
      Suburban(2)(3)      | 16.88%                | 
|Domino                                 | 30.00%                | 
|South
      Staffordshire(3)           | 31.74%                | 
|Grubar
      Hoteles                   | 18.31%                | 
|Bristol
      Waterworks Co(3)         | 24.14%                | 
|Midkent                                |                      | 
|Intan
      Utilities Berhad           | 30.00%                | 
|Acque
      Potabili                   | 14.36%                | 
|Venditelecom(5)                        |                      | 
|Egyptian
      company for prestressed |                       | 
|concrete                               | 30.00%                | 
|Fovarosi
      Csatomazasi Muvek       |                       | 
|Resvonytarasag                         | 25.03%                | 
|Other(4)                               |                      | 
|                                       |                       | 
|Total                                  |                       | 
|                                       |                       | 

|   
|---
|(1)
|(2)
|(3)
|(4)
|(5)

F-20

---

The evolution in 2001 of equity investments is as follows:

|(€
millions)                                      | 2001Interest |   | 2000  |  | Change
  inscope |   | Net
income |   | Distributionof dividends |   | Foreignexchangetranslation |   | 2001  | 
|------------------------------------------------- | ------------ | - | ----- |  | ---------------- | - | ---------- | - | ------------------------ | - | -------------------------- | - | ----- | 
|                                                  |              |   |       |  |                  |   |            |   |                          |   |                            |   |       | 
|Realia                                            | 24.10        | % | 89.8  |  | (21.8            | ) | 18.2       |   | (11.8                    | ) |                           |   | 74.4  | 
|Philadelphia
Suburban                             | 16.88        | % | 73.1  |  | 22.0             |   | 11.6       |   | (6.5                     | ) | 3.8                        |   | 104.0 | 
|Domino                                            | 30.00        | % | 57.4  |  | 0.2              |   | 6.7        |   | (3.0                     | ) | (7.0                       | ) | 54.3  | 
|South Staffordshire
Water                         | 31.74        | % | 54.3  |  |                 |   | 9.9        |   | (4.6                     | ) |                           |   | 59.6  | 
|Grubar Hoteles                                    | 18.31        | % | 38.3  |  | 5.1              |   | (0.2       | ) |                         |   |                           |   | 43.2  | 
|Bristol Water                                     | 24.14        | % | 35.6  |  | 0.1              |   | 3.8        |   | (1.9                     | ) |                           |   | 37.6  | 
|Midkent                                           |              |   | 28.9  |  | (28.9            | ) |           |   |                         |   |                           |   |      | 
|Intan Utilities
Berhad                            | 30.00        | % | 11.0  |  | 12.6             |   | (10.7      | ) | (0.9                     | ) |                           |   | 12.0  | 
|Acque Potabili                                    | 14.36        | % | 9.6   |  | 4.1              |   |           |   | (0.1                     | ) |                           |   | 13.6  | 
|Venditelecom                                      |              |   | 7.6   |  | (7.6             | ) |           |   |                         |   |                           |   |      | 
|Egyptian company
for
     prestressed concrete    | 30.00        | % | 6.7   |  | 0.7              |   | 1.2        |   | (1.6                     | ) | (1.4                       | ) | 5.6   | 
|Fovarosi Csatomazasi
Muvek
      Reszvonytarsasag | 25.03        | % |      |  | 83.4             |   | 1.8        |   |                         |   | 4.6                        |   | 89.8  | 
|Other                                             |              |   | 111.1 |  | 8.6              |   | 5.5        |   | (2.5                     | ) | 1.2                        |   | 123.9 | 
|                                                  |              |   |       |  |                  |   |            |   |                          |   |                            |   |       | 
|Total                                             |              |   | 523.4 |  | 78.5             |   | 47.8       |   | (32.9                    | ) | 1.2                        |   | 618.0 | 
|                                                  |              |   |       |  |                  |   |            |   |                          |   |                            |   |       | 

Dividends
  received from equity affiliates
  amount to€32.9
  million in 2001,€30.1
  million in 2000, and € 19.9
  million in 1999.

Summarizedfinancial information for the
equity method investees is as follows:

|(€
millions)                               |  | At
  December 31, | 
|------------------------------------------ |  | ----------------- | 
|                                           |  |                   | 
|Balance
sheet data                         |  | 2001              | 
|                                           |  |                   | 
|Long term
assets                           |  | 2,470.6           | 
|Current assets                             |  | 474.8             | 
|                                           |  |                   | 
|Total assets                               |  | 2,945.4           | 
|Shareholders
equity                       |  | 1,033.4           | 
|Minority interests                         |  | 33.2              | 
|Financial
debt                             |  | 740.6             | 
|Other liabilities
and reserves             |  | 1,138.2           | 
|                                           |  |                   | 
|Total liabilities
and shareholders equity |  | 2,945.4           | 
|                                           |  |                   | 
|Income
statement data                      |  |                   | 
|Net revenue                                |  | 938.5             | 
|Operating
income                           |  | 291.9             | 
|Net income                                 |  | 138.7             | 

F-21

---

|                       | December
31, |  
|---------------------- | ------------ | -
|                       |              |  
|(€
millions)           | 1999         |  
|                       |              |  
|Property,
plant and    |              |  
|equipment              | 12,374.9     |  
|Publicly-owned
utility |              |  
|networks               | 3,960.6      |  
|                       |              |  
|Total                  | 16,335.5     |  
|                       |              |  
|Property,
plant and    |              |  
|equipment              | (4,944.8     | )
|Publicly-owned
utility |              |  
|networks               | (225.7       | )
|                       |              |  
|Depreciation           | (5,170.5     | )
|                       |              |  
|Total                  | 11,165.0     |  
|                       |              |  

Publicly-owned
  utility networks are assetsfinanced by the Group as part
  of their management of public service contracts, and will be returned to the
  local authority at the end of the contract.

The
  increase in total property, plant and equipment is due principally to changes
  in scope of the consolidation, notably the entry of Marius Pedersen for€91
  million, the service sector of EDF for€122.4
  million and BBA (Connex) for€73 million. Other movements
  include the effects of foreign currency translation adjustments for €155.5
  million, and the affectation of goodwill for€174.2
  million.

Property, plant and equipment by segment are detailed as follows:

|                 | At
December 31,             | 
|---------------- | --------------------------- | 
|                 |                             | 
|                 | 2001                        | 
|                 |                             | 
|(€
millions)     | Property,Plant andequipment | 
|                 |                             | 
|Water            | 5,860                       | 
|Waste Management | 5,820                       | 
|Energy Services  | 1,991                       | 
|Transportation   | 1,962                       | 
|FCC              | 1,210                       | 
|                 |                             | 
|Total            | 16,843                      | 
|                 |                             | 

F-22

---

The detail of net property, plant and equipment is as follows:

|                                | At
December 31, |  
|------------------------------- | --------------- | -
|                                |                 |  
|(€
millions)                    | 2001            |  
|                                |                 |  
|Land                            | 1,428           |  
|Buildings                       | 2,594           |  
|Technical
systems               | 8,937           |  
|Assets under
construction       | 571             |  
|Other                           | 3,313           |  
|                                |                 |  
|Property,
plant and equipment   | 16,843          |  
|                                |                 |  
|Publicly owned
utility networks | 6,157           |  
|                                |                 |  
|Depreciation                    | (8,809          | )
|                                |                 |  
|Total                           | 14,191          |  
|                                |                 |  

Tangible assetsfinanced under capital lease, amounts to€1,039.3 million,€784.0 million and€674.4 million at December 31, 2001, 2000 and 1999, respectively. Accumulated amortization related to these assetsfinanced under capital lease was€388.6 million,€342.7 million and€296.4 million at December 31, 2001, 2000 and 1999, respectively.

As of December 31, 2001 and 2000, property, plant and equipment were pledged as collateral for borrowings from banks (see note 14).

Depreciation expense for the years ended December 31, 2001, 2000 and 1999 was€1,322.8 million,€1,151.2 million and€826.7 million, respectively.

F-23

---

7.  FINANCIAL
  ASSETS AND FINANCIAL PROVISIONS Investments
  accounted for using the cost method 
        Investments
  accounted for using the cost method are detailed as follows:

|                                             | At
      December 31, | 
|-------------------------------------------- | --------------------- | 
|                                             |                       | 
|                                             |                       | 
|                                             |                       | 
|(€
      millions)                           | Gross                 | 
|                                             |                       | 
|Domino                                       |                       | 
|Csatorna
      Uzemeltetesi Holding          |                       | 
|Reszvenyta                                   |                       | 
|Favarosi
      Csatomazasi Muvek             |                       | 
|Reszvenytarsasag(1)                          |                       | 
|Mittledeutsche
      Wasserversorgungsgeselt |                       | 
|Norsk
      Gjenvinning                      |                       | 
|Rhodia
      Eco Services(2)                 |                       | 
|CGEA Brasil                                  |                       | 
|Aguas
      de Argentina                     |                       | 
|Other(3)(4)                                  | 285.9                 | 
|                                             |                       | 
|Total                                        | 285.9                 | 
|                                             |                       | 

|   
|---
|(1)
|(2)
|(3)
|(4)

Other
  portfolio investments held asfinancial assets can be analyzed as follows:

|                         | At
      December 31, |  
|------------------------ | --------------------- | -
|                         |                       |  
|(€
      millions)       | 2001                  |  
|                         |                       |  
|Long-term
      loans(1) | 349.5                 |  
|Other(2)                 | 739.2                 |  
|Impairment(3)            | (15.9                 | )
|                         |                       |  
|Net
      value          | 1,072.8               |  
|                         |                       |  

|   
|---
|(1)
|(2)
|(3)

Thefinancial provisions primarily
  include the following items:

| | The
          additional amortization of facilities when the related operating contracts
          term is shorter than the economic useful life of the assets (refer to
          accounting principles described in Note 2 to the Consolidated Financial
          Statements) recorded such that the accounting value of the facility
          would be zero at the end of the contract. This item amounted to€15.4
          million in 2001,€17.8 million in 2000 and€8.8
          million 1999.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Amortization
          of the redemption premium of our convertible bonds (see Note 14(a)).                                                                                                                                                                                                                                                                                                                                                                                                             

F-24


---

|8. | INVENTORIES AND WORK IN PROGRESS, NETInventories and work in progress, net are
detailed as follows:
|-- | ---------------------------------------------------------------------------------------------------

|                                  | At
      December 31, |  
|--------------------------------- | --------------------- | -
|                                  |                       |  
|(€
      millions)                | 2001                  |  
|                                  |                       |  
|Water(1)                          | 1,088.4               |  
|Waste
      Management            | 112.2                 |  
|Energy
      Services             | 233.2                 |  
|Transportation                    | 31.2                  |  
|FCC(2)                            | 175.7                 |  
|                                  |                       |  
|Total                             | 1,640.7               |  
|Less valuation
      allowance(3) | (97.0                 | )
|                                  |                       |  
|Net
      value                   | 1,543.7               |  
|                                  |                       |  

|   
|---
|(1)
|(2)
|(3)

9.   ACCOUNTS
  RECEIVABLE, NETAccounts
  receivable, net are detailed as follows:

|                                      | At
      December 31, |  
|------------------------------------- | --------------------- | -
|                                      |                       |  
|(€
      millions)                    | 2001                  |  
|                                      |                       |  
|Trade
      accounts receivable       | 8,623.0               |  
|Valuation
      allowance             | (472.7                | )
|Total
      trade accounts receivable | 8,150.3               |  
|VAT and
      other taxes             | 2,904.7               |  
|Other
      including deferred tax    | 1,011.0               |  
|                                      |                       |  
|Total
      accounts receivable, net  | 12,066.0              |  
|                                      |                       |  

The
  majority of trade receivables are due in less than one year.

Securitization
  in France 
       According
  to the securitization agreement signed in December 2001 with a SPE (Special
  Purpose Entity), the Group securitized through its water segment accounts receivable
  for a total of€752
  million. The securitized receivables are the assets of the SPE. The SPE isfinanced
  by senior borrowings assumed by banks and by retained interests of€96
  million assumed by Vivendi Environnement. Reimbursements of the retained interests
  will occur only after complete reimbursement of the senior borrowings.

According
  to the securitization agreement, the subsidiaries are responsible for collecting
  the receivables. The Group provides guarantees on the performance of its subsidiaries
  in recovering these amounts.

F-25

---

Securitization
  in the USA 
        In
  December 2001, US Filter securitized receivables for a total of $155 million.

The
  securitization consisted of sales of receivables to a fully controlled unit,
  which then sold a portion of these receivables to a SPE. The SPE issued commercial
  papers bearing interest. According to the Agreement, US Filter is responsible
  for collecting the receivables. Vivendi Water has guaranteed the performance
  of US Filter in recovering amounts due.

For
  all securitizations realized in 2001, the discount on bad debts is included
  in operating income and the starting fees are included infinancial
  expenses.

Discounting
  of receivables 
        The
  Group has discounted€520
  million of receivables.

The
  allowances for doubtful accounts for the years ended December 31, 2001, 2000
  and 1999 are as follows:

|                                                                                                                                                | At
      December 31, |  
|----------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | -
|                                                                                                                                                |                       |  
|(€
      millions)                                                                                                                              | 2001                  |  
|                                                                                                                                                |                       |  
|Balance
      at beginning of period                                                                                                            | (435.8                | )
|Amounts
      charged to expense                                                                                                                | (141.4                | )
|Deductions
      of reserve                                                                                                                     | 117.8                 |  
|Other
      adjustments*                                                                                                                        | (13.3                 | )
|                                                                                                                                                |                       |  
|Balance
      at end of period                                                                                                                  | (472.7                | )
|                                                                                                                                                |                       |  
|                                                                                                                                               
|* Other
        adjustments reflect changes in the scope of consolidation, translation
        adjustments and reversals (€10
        million).

10. CASH,
  CASH EQUIVALENTS AND MARKETABLE SECURITIESMarketable
  Securities

|                            | At
      December 31, | 
|--------------------------- | --------------------- | 
|                            |                       | 
|                            | 2001                  | 
|                            |                       | 
|                            | Cost                  | 
|                            |                       | 
|(€
      millions)          |                       | 
|                            |                       | 
|Vinci                       | 37.9                  | 
|Vivendi
      Environnement | 159.2                 | 
|Others(a)                   | 119.1                 | 
|Vivendi
      Universal     | 7.9                   | 
|                            |                       | 
|Total                       | 324.1                 | 
|                            |                       | 

---

Vivendi
  Environnement shares have been acquired to cover stock options (770,000 shares)
  for a total of €26.5
  million. The exercise price of these options is€32.5,
  which represents a potential loss of€1.5 million as of December
  31, 2001, this loss has not been included in net income. The rest of the Groups share have been acquired
  to stabilize the market price (3,528,174 shares) for a total of€132.7 million, and conforms
  to the authorization given by the general assembly and are reported at their
  market value as of December 31, 2001.

Cash
  and cash equivalents amount to€2,089.3 million, consisting
  of cash for€1,401.8
  million and short term investments for€687.5
  million (maturity of less than three months).

F-26

---



11. SHAREHOLDERSEQUITY
         In
  2000, the Group issued 75,005,023 new shares for€2,408.7 million in a global
  offering and 52,941,425 new shares with a carrying value of€1,396.6 million on conversion
  of its convertible bonds, with a total value of €3,805.3
  million. Prior to the global offering the total number of shares outstanding
  was 218,228,507 ordinary shares with a nominal value of€13.50
  per share.

In
  December 2001, the Group issued a total of 346,174,955 warrants. These warrants
  give the holder the right to convert seven warrants into one common share at
  an exercise price of€55.0
  per share. In 2001, a total of 5,419 warrants were converted, resulting in the
  issuance of 817 new shares.

The
  Groups consolidated and unconsolidated subsidiaries have certain
  restrictions on the distribution of net equity. These restrictions mainly concern
  French companies where, pursuant to French law, they are legally required to
  reserve a minimum of 5% of its annual net income within the retained earnings
  account. This minimum contribution is not required once the reserve equals 10%
  of the aggregate nominal share capital. The legal reserve is distributable only
  upon liquidation.

The
  share capital of the Group consisted of 346,175,772 shares at December 31, 2001.
  All shares have one voting right and may be registered upon request by the owners.

12. MINORITY
  INTERESTS 
        Minority
  interests are detailed as follows (in millions of euros):

|                                                                         |         |  
|------------------------------------------------------------------------ | ------- | -
|                                                                         | 2001    |  
|                                                                         |         |  
|Minority
      interests at January 1,                                   | 2,031.1 |  
|Changes
      in consolidation                                           | 139.0   |  
|TSAR(1)                                                                  | 300.0   |  
|Minority
      interests in income of consolidated subsidiaries          | 131.2   |  
|Dividends
      paid by consolidated subsidiaries                        | (76.4   | )
|Impact
      of foreign currencyfluctuations
      in minority interests | 5.4     |  
|Other
      Changes                                                      | 0.8     |  
|                                                                         |         |  
|Minority
      interests at December 31,                                 | 2,531.1 |  
|                                                                         |         |  

|   
|---
|(1)

In
  2000, the year-end disposal of 26.67% of capital of CGC Holding to EDF led to
  an increase in minority interests of€435.1
  million.

Changes
  in the scope of consolidation for 1999 were attributable to the acquisition
  of Berliner Wasser Betriebe (for€545.8
  million) whose consolidatedfinancial statements reflect
  the minority interests.

13. DEFERRED
  INCOME 
        Deferred
  income includes€585.0 million in investment subsidies received in connection
  with the management of municipal outsourcing contracts and€859.3 million in payments in
  respect of income from the securitization of future receivables. Tofinance most of its cogeneration
  plants, Dalkia has sold in advance the proceeds from the sale of electricity
  that EDF has pledged to acquire under long-term contracts. Since January 1,
  1998, the proceeds have been amortized on an actuarial basis over the duration
  of these loans, which ranges between 5 and 12 years.

F-27

---

|                                             | At
      December 31, | 
|-------------------------------------------- | --------------------- | 
|                                             |                       | 
|                                             | 2001                  | 
|                                             |                       | 
|Vivendi
      Environnement 1.5% bonds(a)    | 1,535.6               | 
|HSBC-CCF
      bond(b)                       | 249.7                 | 
|EMTN(c)                                      | 2,806.7               | 
|Subordinated
      debt(d)                   | 108.7                 | 
|Vinci
      convertible bond(e)              | 120.0                 | 
|Deutsche
      Bank borrowing(f)             | 590.0                 | 
|Société
      Générale
      borrowing(g)    | 2,076.5               | 
|Berliner
      Wasser Betriebe(h)            | 1,987.8               | 
|Superior
      Services(i)                   | 416.4                 | 
|Montgomery(j)                                | 121.5                 | 
|Tyseley(k)                                   | 121.1                 | 
|Sarp(l)                                      | 82.2                  | 
|Capital
      leases(m)                      | 602.4                 | 
|Bonds,
      Bank Loans(n)                   | 2,315.4               | 
|Current
      account with Vivendi Universal |                      | 
|                                             |                       | 
|Total                                        | 13,134.0              | 
|                                             |                       | 

|(a) | In
      April 1999, Vivendi Environnement issued bonds that bear interest at 1.5%,
      which mature on January 1, 2005, and that were convertible, at the option
      of the bondholder, into Vivendi Universal shares at the conversion rate
      of 1 bond to 3.047 shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | These bonds
      could also be converted into shares of Vivendi Environnement at a predetermined
      conversion rate if there was an initial offering of Vivendi Environnement
      shares. In July 2000, as a consequence of the initial offering of Vivendi
      Environnements shares, certain bondholders chose to convert their bonds
      into shares of Vivendi Environnement. Out of a total of 10,516,606 bonds,
      5,183,704 bonds were converted for a total of 52,941,425 shares, representing
      a total of value of€1,396.6
      million (split between nominal value and additional paid-in capital). As
      of December 31, 2001 the number of bonds in circulation was 5,331,126, which
      are convertible into Vivendi Universal shares. The liability recorded for
      these bonds includes a premium of€91
      million, the counterpart is recorded against other long-term investments
      and is not amortized given the small probability of reimbursement of the
      bonds on December 31, 2001 (see Note 7 Financial assets and Financial provisions).
      Taking into account that, according to financial agreements with Vivendi
      Universal, that we may exercise our option to redeem the convertible bonds
      after January 1, 2002 only with Vivendi Universals
      consent, and that in some circumstances, Vivendi Universal could also require
      us to exercise our option to redeem the convertible bonds prior to maturity,
      Vivendi Environnement may amortize the premium from 2002.
|(b) | On
      December 15, 2000, Vivendi Environnement issued a€250 million bond for general
      financing purposes. This bond matures on December 15, 2002 and bears interest
      indexed on EONIA. Redemption will occur at maturity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(c) | EMTN
      mainly consists of:€2,000 million which matures on June 27, 2008 and bears
      interest indexed to EURIBOR 3 months;€500 million that matures in November 2005 and bears interest
      at 4.87% ; and€250
      million which matures in February 2003 and bear interest indexed to EURIBOR
      3 months. Redemption will occur at maturity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(d) | Subordinated
      debt consists primarily of a loan of€244 million to finance the
      wastewater treatment plant in Zaragoza, Spain, underwritten by OTV on December
      27, 1991 and repayable over 15 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(e) | Vivendi
      Environnement borrowed from Vivendi Universal€120 million, which matures
      on March 1, 2006, and bears interest of 1%. This debt, was not the subject
      of a premium.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | This
      debt relates to the 1,522,305 shares of Vinci held by the Group and has
      similar characteristics to those issued in the prospectus by Vivendi Universal
      for the Vinci bonds exchangeable for Vinci shares which was issued on February
      27, 2001:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-28

---

|    |                                                                                                                                                                                                                                                                                                                                                                             | It
      is the interest of the bondholder to convert when the market price of Vinci
      is above€88.81.
      The market price of Vinci was€65.85 as of December 31, 2001.                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                             | The
      average price of Vinci shares acquired by Vivendi Environnement is€24.4.                                                                                                                                             
|    | Redemption
      will occur at maturity unless converted.                                                                                                                                                                                                                                                                                                                   
|(f) | On
      March 13, 2001, Vivendi Environnement issued a€3,000 million syndicated loan.
      As of December 31, 2001 the amount that has been drawn on is composed of
      a long-term debt of€590
      million which matures on March 13, 2006 and which is indexed to LIBOR 6
      months and a short-term debt of€737.5
      million which matures on March 12, 2002.
|    | The
      debt contains an accelerated redemption clause in the case of breaking the
      following financial ratios, otherwise redemption will occur at maturity:                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                             | Interest
      cover ratio (EBITDA/net interest expense):                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                              | >4.00
      to 1 in 2001, 4.5 to 1 in 2002, and 5.00 to 1 from 2003 onwards.                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                             | Debt
      ratio (Net financial debt/EBITDA):<4.25 to 1 in 2001, 4.00 to
      1 in 2002, and 3.75 to 1 in 2003 and 3.50 to 1 from 2004 onwards.                                                                               
|(g) | Syndicated
      credit maturing on November 3, 2004. This credit bears interest based on
      a rate indexed to LIBOR USD 3 months.                                                                                                                                                                                                                                       
|    | The
      debt contains an accelerated redemption clause in the case of breaking the
      following financial ratios; otherwise redemption will occur at maturity.                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                             | Interest
      cover ratio (EBITDA/net interest expense):                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                              | >4.00
      to 1 in 2001, 4.5 to 1 in 2002, and 5.00 to 1 in 2003.                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                             | Debt
      ratio (Net financial debt/EBITDA):<4.25 to 1 in 2001, 4.00 to
      1 in 2002, and 3.75 to 1 in 2003.                                                                                                               
|(h) | Berliner
      Wasser Betriebe debt as of December 31, 2001 consists of two lines: the
      acquired debt of€800
      million which matures in 2004 and is indexed to EURIBOR 3 months, and additional
      debt of€1,187,8
      million which matures in 2007 and which pays a 5.29% fixed rate.                                                                       
|    | The€800 million debt is made up of two lines, a€600
      million syndicated debt and a€200
      million debt. These debts contain accelerated redemption clauses in the
      case of breaking the following financial ratios and trigger events.                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                             | Interest
      cover ratio (EBITDA/net interest expense):                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                              | > 4.00
      to 1 in 2001, 4.5 to 1 in 2002, and 5.00 to 1 in 2003.                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                             | Debt
      ratio (Net financial debt/EBITDA):< 4.25 to 1 in 2001, 4.00 to
      1 in 2002, and 3.75 to 1 in 2003.Repayment
      in the event that Vivendi Environnements
      credit rating falls below either BBB+ or Baa2.
|(i) | This
      credit facility of Superior Services allows borrowings, up to $650 million.
      Only€416.4
      million have been used as of December 31, 2001 maturing on August 18, 2005.
      The paid rate is indexed on LIBOR USD 3 months.                                                                                                                             
|    | The
      debt contains an accelerated redemption clause in the case of breaking the
      following financial ratios at the Superior Services level:                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                             | Leverage
      ratio: 3.00 to 1.0.                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                             | Interest
      cover ratio (EBITDA/total interest expense): > 3.00 to 1.                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                             | Debt
      to shareholdersequity ratio:<50
      %                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                             | Capital
      expenditure (capital expenditure/depreciation expense):<1.75.                                                                                                                                                    
|    | Redemption
      will occur at maturity.                                                                                                                                                                                                                                                                                                                                    
|(j) | This
      bond financed the Montgomery plant, bears interest at a 7.5% fixed rate
      and mature on January 1, 2012.                                                                                                                                                                                                                                                     
|(k) | This
      bond is financing the Tyseley project, bears interest at a 6.675% rate and
      matures on July 30, 2018. The principal is amortized over the entire life
      of the bond.                                                                                                                                                                                    
|(l) | This
      debt of Sarp is mainly composed of 4 lines with maturities between 2003
      and 2007, bears interest at rates indexed to EURIBOR. These lines are amortized
      over their entire lives.                                                                                                                                                                     
|(m) | As
      of December 31, 2001, capital leases mature between 2003 and 2021 and bear
      fixed interest rate between 5.12% and 14.5% and variable interest rate indexed
      mainly on EONIA, T4M and TAM.                                                                                                                                                                
|(n) | Other
      bonds and banks loans mature between 2003 and 2024 and are indexed on fixed-interest
      rates between 2.0% and 12.9% and on various variable-interest rates, mainly
      EURIBOR.                                                                                                                                                                           

F-29

---

Long-term debt listed according to the currency in which it is denominated is as follows (in million of euros):

|                        | At
      December 31, |     
|----------------------- | --------------------- | ----
|                        |                      
|2001                    |                       | 2000
|                        |                       |     
|Euros                   | 8,331.9               |     
|U.S. Dollar             | 3,618.5               |     
|Pound
      Sterling    | 281.0                 |     
|Australian
      Dollar | 138.0                 |     
|Korean
      Won        | 203.8                 |     
|Norwegian
      Crown   | 80.0                  |     
|Other                   | 480.8                 |     
|                        |                       |     
|Total                   | 13,134.0              |     
|                        |                       |     

The table below presents a summary of the repayment schedules of the long-term debt excluding subordinated securities (in million of euros):

|                                          | At
      December 31, |     
|----------------------------------------- | --------------------- | ----
|                                          |                      
|2001                                      |                       | 2000
|                                          |                       |     
|Due between
      one and two years       | 1,227.4               |     
|Due between
      two andfive
      years | 7,461.8               |     
|Due afterfive
      years                 | 4,444.8               |     
|                                          |                       |     
|Total                                     | 13,134.0              |     
|                                          |                       |     

At the end of 2001,€752.3 million in bank borrowings was supported by collateral guarantees. These guarantees are mainly related to the water segment (€214.3 million for General Utilities,€81.1
million for the water treatment plants of Wyuna Water in Australia,€70 million for Schwarzepumpe
and€127.3 million for Vivendi Water Industrial Development) and the waste management segment
(€231.4 million mainly for Norsk Gjenvinning in Scandinavia).

The main unused credit lines amounted to€2,889 million at December 31, 2001 of which€1,809 million are long-term credit lines maturing between 2004 and 2006.

The main unused credit line amounted as of December 31, 1999, to€150 million of long-term credit line and, as of December 31, 2000, to€1,479.7 million including a€1,200 million short-term unused credit facility backing the commercial paper issued between October 17, 2000 and December 15, 2000. This unused credit facility can be decomposed into 4 lines indexed
on EONIA and EURIBOR, with spread indexed on the credit rating of Vivendi Environnement (given by Standard & Poors or Moodys) or the use ratio.

The table below summarizes Vivendi Environnements short-term borrowings (all amounts are in millions of euros):

|                                                      | At
      December 31, |     
|----------------------------------------------------- | --------------------- | ----
|                                                      |                      
|2001                                                  |                       | 2000
|                                                      |                       |     
|Bank overdrafts
      and other short-term borrowings | 4,889.5               |     
|Average
      rate                                    | 3.10                  | %   

The
  Groups
  main short term borrowings as of December 31, 2001 are detailed below:

| | Syndicated
      Credit facility amounting to $650 million, with an interest rate of LIBOR
      USD 3 months, maturing on March 12, 2002.
|- | ------------------------------------------------------------------------------------------------------------------------------------------

F-30

---

| | Commercial
      paper program amounting to€2,005 million, interest rates are based on EONIA orfixed
      rates, with maturities between 30 to 180 days.                                                                                                           
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | The
      Groups main short term borrowings
      as of December 31, 2000 are detailed below:                                                                                                                                                                      
| | Syndicated
      credit facility amounting to€600 million, with an interest
      rate of EURIBOR 4 months rate, with a maturity on March 19, 2001.                                                                                                                 
| | Current
      account with Vivendi Universal amounting to a net value of€1,175 million. Vivendi Environnement
      pays 5.70%fixed-rate to Vivendi Universal.                                                                                                      
| | Commercial
      paper program amounting to€686.2 million, bearing interests at EONIA plus a spread,
      with a maturity between 30 and 180 days.                                                                                                                 
|  | The
      Groups main short term borrowings
      as of December 31, 1999 are detailed below:                                                                                                                                                                      
| | Short
      term current account between Vivendi (now Vivendi Universal) and Vivendi
      Environnement, amounting to€649
      million, paying a T4M rate (mobile average rate computed monthly on the
      EONIA basis).                                        
| | Short
      term current accounts between CGEAa Vivendi Environnement subsidiaryand
      Vivendi (now Vivendi Universal), amounting to€1,693
      million on both USD and EUR currencies, paying rates indexed on LIBOR USD
      6 months and T4M respectively.

15. RESERVES
  AND ALLOWANCES Reserves
  and allowances are detailed as follows (in millions of euros):

|                                                       | At
      December 31, |     
|------------------------------------------------------ | --------------------- | ----
|                                                       |                      
|2001                                                   |                       | 2000
|                                                       |                       |     
|Litigation
      including social and tax              | 246.0                 |     
|Financial
      depreciation*                          | 627.8                 |     
|Maintenance
      and repair costs accrued in advance  | 322.6                 |     
|Reserves
      related tofixed
      assets            | 128.7                 |     
|Valuation
      allowance on work in progress          | 370.3                 |     
|Closure
      and post closure costs**                 | 362.0                 |     
|Pensions                                               | 215.0                 |     
|Restructuring
      costs                              | 172.9                 |     
|Losses
      on investment in unconsolidated companies | 221.8                 |     
|Warranties
      and customer care                     | 235.3                 |     
|Others***                                              | 293.3                 |     
|                                                       |                       |     
|Total
      reserves and allowances                    | 3,195.7               |     
|                                                       |                       |     

---

|*   | Financial
      depreciation of fixed assets relating to public-service contracts.                                                                                                                                                                                                                                                                              
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**  | Reserves
      for closure and post-closure costs include:                                                                                                                                                                                                                                                                                                      
|    | (a)                                                                                                                                                                                                                                                                                                                                                             
|    | (b)                                                                                                                                                                                                                                                                                                                                                             
|    | The
      increase of€108.1 million in closure and post-closure reserves in 2000
      includes principally landfill closure and post-closure liabilities assumed
      for newly acquired disposal sites, landfill accruals due to the use of the
      existing facilities during the year and identified remediation obligations
      of the water business.
|*** | Other
      reserves and allowances include those associated with a wide range of components
      recorded at subsidiary level. Their increase between 1999 and 2000 is mainly
      due to increases in various contingencies recognized in connection with
      purchase business combinations of€150 million.                                              

F-31

---

The developments in the reserve for restructuring costs for the years ended December 31, 2001, 2000 and 1999 are as follows (in millions of euros):

|                                     | At
      December 31, |  
|------------------------------------ | --------------------- | -
|                                     |                       |  
|                                     | 2001                  |  
|                                     |                       |  
|Balance
      at beginning of period | 183.0                 |  
|Amount
      charged to expenses     | 83.1                  |  
|Utilization
      (cash)             | (128.6                | )
|Other
      adjustments*             | 35.4                  |  
|                                     |                       |  
|Balance
      at the end of period   | 172.9                 |  
|                                     |                       |  

---

|* | Reflects primarily changes in the scope of consolidation.
|- | ---------------------------------------------------------

16. ACCOUNTS
  PAYABLE Accounts
  payable are detailed as follows (in millions of euros):

|                             | At
      December 31, |     
|---------------------------- | --------------------- | ----
|                             |                      
|2001                         |                       | 2000
|                             |                       |     
|Trade
      accounts payable | 6,438.7               |     
|Social
      costs payable   | 5,716.7               |     
|Other                        | 783.9                 |     
|                             |                       |     
|Total
      accounts payable | 12,939.3              |     
|                             |                       |     

17. INCOME
  TAXES Analysis of
  Income Tax ExpenseComponents
  of the income tax provision are as follows (in millions of euros):

|                                    | At
      December 31, |  
|----------------------------------- | --------------------- | -
|                                    |                       |  
|                                    | 2001                  |  
|                                    |                       |  
|France                              | (128.5                | )
|Other
      countries               | (256.3                | )
|Current
      income tax expense    | (384.8                | )
|France                              | 9.6                   |  
|Other
      countries               | (87.1                 | )
|Deferred
      income tax (benefit) | (77.5                 | )
|                                    |                       |  
|Total
      income tax expense      | (462.3                | )
|                                    |                       |  

In 2001, a French Tax Group was created. Vivendi Environnement SA paid the Group tax to the French tax authority. The tax saving is recorded at the Vivendi
Environnement SA level.

F-32

---

Deferred
  Tax Assets and Liabilities 
       The
  timing differences which give rise to significant deferred tax assets and
  liabilities are as follows (in millions of euros):

|                                          | At
December 31, |  
|----------------------------------------- | --------------- | -
|                                          |                 |  
|                                          | 2001            |  
|                                          |                 |  
|Deferred
tax assets:                      |                 |  
|Employee
benefits                        | 53.2            |  
|Provisions
for risks and liabilities     | 19.9            |  
|Tax
loss                                 | 593.9           |  
|Other timing
differences                  | 451.0           |  
|                                          |                 |  
|Gross deferred
tax assets                 | 1,118.0         |  
|                                          |                 |  
|Unrecorded
deferred tax assets(1)         | (107.0          | )
|                                          |                 |  
|Deferred tax
assets recorded in the books | 1,011.0         |  
|                                          |                 |  
|                                          |                 |  
|Deferred
tax liabilities:                 |                 |  
|Depreciation                             | 207.6           |  
|Reevaluation
of assets                   | 151.2           |  
|Other
taxable timing differences         | 403.7           |  
|                                          |                 |  
|Gross deferred
tax liabilities            | 762.5           |  
|                                          |                 |  

|                                                                                                                                                                                   
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)      Represents
      tax savings from operating losses or other non-activated tax savings. They
      have not been recorded as assets because their recovery is not probable.

Deferred tax assets and liabilities have not been discounted: the effects of which were considered non-significant.

A goodwill item recorded as an asset in 1999 and 2000 for a total of€122 million was reclassified in 2001 as a deferred tax asset. This goodwill item related to Aqua Alliance is justified by operating loss carry forwards, which could be used with the acquisition of US Filter. The reorganisation of Vivendi Water in the US, and the review of their assets lead to the reclassification of this goodwill.

Tax Rate
  Reconciliation 
      A
  reconciliation of the French statutory tax rate to the Groups effective tax rate is as
  follows:

|                                                      | At
December 31, |   
|----------------------------------------------------- | --------------- | --
|                                                      |                 |   
|                                                      | 2001            |   
|                                                      |                 |   
|Statutory
tax rate                                    | 36.43           | % 
|Goodwill amortization
not deductible for tax purposes | (61.30          | )%
|Permanent
differences                                 | (2.07           | )%
|Lower tax
rate on long-term capital gains and losses  | 1.76            | % 
|Tax losses                                            | (4.42           | )%
|Other, net                                            | 1.71            | % 
|                                                      |                 |   
|Effective
tax rate(a)                                 | (27.89          | )%
|                                                      |                 |   

---

F-33

---

Net Operating
  Tax Loss 
       At
  December 31, 2001, the Group had tax losses which represent a potential tax
  saving of€593.9
  million (based on the effective tax rate).

Tax
  losses expire as follows (in millions of euros):

|Years               |  | Amount | 
|------------------- |  | ------ | 
|                    |  |        | 
|2002                |  | 22.5   | 
|2003                |  | 15.6   | 
|2004                |  | 12.3   | 
|2005                |  | 132.4  | 
|2006                |  | 9.2    | 
|2007 and thereafter |  | 401.9  | 
|                    |  |        | 
|Total               |  | 593.9  | 
|                    |  |        | 

18. FINANCIAL
  INSTRUMENTS AND COUNTERPARTY RISKS 
       The
  Group uses variousfinancial derivative instruments to manage its exposure tofluctuations
  in interest rates and foreign currency rates.

The Group does not anticipate any third-party defaults, which could have a significant impact on itsfinancial position and the results of its transactions.

Interest
  rate and foreign currency agreements 
       The
  contractual amounts stated below are outstanding as of December 31, 2001, 2000
  and 1999. These amounts represent the levels of involvement by the Group and
  are not indicative of gains or losses. The amounts are in million of euros.

|                                         | As
of December 31, 2001 |  
|---------------------------------------- | ----------------------- | -
|                                         |                         |  
|                                         | Total                   |  
|                                         |                         |  
|Interest
rate hedging activity           |                         |  
|Interest Rate
Swapspay atfixed
rate     |                         |  
|Notional amount                          | 4,721.2                 |  
|Average received
rate                    | 3.17                    | %
|Average paid
rate                        | 4.94                    | %
|Interest Rate
Swapspay at variable rate |                         |  
|Notional amount                          | 2,449.1                 |  
|Average received
rate                    | 5.67                    | %
|Average paid
rate                        | 3.31                    | %
|Swapcross
currency                      |                         |  
|Notional amount                          | 262.7                   |  
|Average received
rate                    | 4.07                    | %
|Average paid
rate                        | 3.42                    | %
|Interest Cap,floors
and collars          |                         |  
|Notional amount                          | 174.8                   |  
|Guarantee
rate                           | 4.69                    | %
|Foreign
currency hedging activity        |                         |  
|Forward exchange
contract                |                         |  
|Notional amount                          | 186.8                   |  

F-34

---

|                                         | As
of December 31, 2000 |  
|---------------------------------------- | ----------------------- | -
|                                         |                         |  
|                                         | Total                   |  
|                                         |                         |  
|Interest
rate hedging activity           |                         |  
|Interest Rate
Swapspay atfixed
rate     |                         |  
|Notional amount                          | 2,793.5                 |  
|Average received
rate                    | 5.16                    | %
|Average paid
rate                        | 5.22                    | %
|Interest Rate
Swapspay at variable rate |                         |  
|Notional amount                          | 289.1                   |  
|Average received
rate                    | 5.86                    | %
|Average paid
rate                        | 4.76                    | %
|Swapcross
currency                      |                         |  
|Notional amount                          | 256.5                   |  
|Average received
rate                    | 4.04                    | %
|Average paid
rate                        | 4.90                    | %
|Interest Cap,floors
and collars          |                         |  
|Notional amount                          | 188.1                   |  
|Guarantee
rate                           | 4.68                    | %
|Foreign
currency hedging activity        |                         |  
|Forward exchange
contract                |                         |  
|Notional amount                          | 22.9                    |  

|                                         | As
of December 31, 1999 |  
|---------------------------------------- | ----------------------- | -
|                                         |                         |  
|                                         | Total                   |  
|                                         |                         |  
|Interest
rate hedging activity           |                         |  
|Interest rate
swapspay atfixed
rate     |                         |  
|Notional amount                          | 57.6                    |  
|Average received
rate                    | 5.41                    | %
|Average paid
rate                        | 7.95                    | %
|Interest rate
swapspay at variable rate |                         |  
|Notional amount                          | 192.6                   |  
|Average received
rate                    | 4.46                    | %
|Average paid
rate                        | 3.27                    | %
|Swapcross
currency                      |                         |  
|Notional amount                          | 172.6                   |  
|Average received
rate                    | 3.34                    | %
|Average paid
rate                        | 2.29                    | %
|Interest Cap,floors
and collars          |                         |  
|Notional amount                          | 188.1                   |  
|Guarantee
rate                           | 4.63                    | %

19. FAIR
  VALUE OF FINANCIAL INSTRUMENTS 
       At
  December 31, 2001 and 2000 Vivendi Environnement used forfinancing purposes cash, cash
  equivalents, notes receivables, loans and advances, bonds and bank overdrafts,
  as well as derivativefinancial
  instruments used to manage interest rate risk, foreign currency risk and equity
  risk.

The carrying value of cash equivalents ; short-term receivables, short-term borrowings and the short-term part of long -term debt was approximately equal
to the fair value due to their short maturities. The fair value offinancial instruments detailed as
follows, is generally determined using quoted prices. When no quoted prices are available, fair value is based on estimates using discounted future cashflows or other estimates.

F-35

---

|                                             | At
      December 31, | 
|-------------------------------------------- | --------------------- | 
|                                             |                       | 
|                                             | 2001                  | 
|                                             |                       | 
|(€
      million)                            | Carryingamount        | 
|                                             |                       | 
|Investments*                                 | 1,598.6               | 
|Long-term
      debt                         | 13,134.0              | 
|                                             |                      
|Treasury
      management                    |                       | 
|Interest
      rate swaps                    |                      | 
|Cross
      Currency interest rate swaps     |                      | 
|Forward
      exchange contracts             |                      | 
|Interest
      caps,floors
      and collars |                      | 

---

Financial instruments including cash and cash equivalents, accounts receivables, short term loans, accounts payable and bank overdrafts and short term
borrowings are excluded from the above table. For these instruments, fair value was estimated to be the carrying amount due to the short maturity.

20. COMMITMENTS
  AND CONTINGENCIESCommitments
  and Contingent Liabilities

The Groups contingent liabilities relating to certain performance guarantees by segments are as follows (in millions of euros):

|                       | At
      December 31, | 
|---------------------- | --------------------- | 
|                       |                       | 
|                       | 2001                  | 
|                       |                       | 
|Water                  | 1,005.0               | 
|Waste
      Management | 302.8                 | 
|Energy
      Services  | 242.0                 | 
|Transportation         | 229.5                 | 
|FCC/Proactiva          | 687.5                 | 
|Holding                | 641.0                 | 
|Others                 | 8.2                   | 
|                       |                       | 
|Total                  | 3,116.0               | 
|                       |                       | 

The contingent liabilities of the water segment consist of€810 million of performance guarantees given by subsidiaries as part of these normal activities. In addition, US Filter Corporation has givenfinancial guarantees for projects undertaken with its industrial customers (€195 million). These two elements make-up the majority of the increase in guarantees given in 2001.

The contingent liabilities of FCC and Proactiva consist primarily of guarantees to local authorities for construction and environmental services.

The contingent liabilities of Vivendi Environnement consist primarily of€404 million of performance guarantees on behalf of its subsidiaries as part of their normal activities, either directly to clients, or tofinancial institutions as counter guaranties.

F-36

---

Specific Commitments

     As described in note 2, under certain public service contracts, the Group has assumed fees obligations with local authorities. At December 31, 2001, the
minimum future payments of these commitments is€222.9 million and are summarized as follows:

|(€
      million)                   | Public
      Service
      Contracts | 
|----------------------------------- | ------------------------------------ | 
|                                    |                                      | 
|2002                                | 37.0                                 | 
|2003                                | 32.8                                 | 
|2004                                | 29.9                                 | 
|2005                                | 26.8                                 | 
|2006                                | 23.0                                 | 
|2007 and
      thereafter           | 73.4                                 | 
|                                    |                                      | 
|Total
      minimum future payments | 222.9                                | 
|                                    |                                      | 

Specific Contractual
Engagements

The Group and its water distribution and energy services subsidiaries, as part of their contractual obligations as concessionaires and in return for the
revenue it receives, assumes responsibility for the replacement offixed assets in the publicly owned
utility networks they manage. The Group forecasts the expenditures required in this regard over the remaining duration of the relevant contracts. The accumulated expenditure forecast is estimated at€2.4 billion (€1.9 billion for water and€0.5 billion for energy). These expenditures will
either be expensed or amortized over the shorter of the estimated useful lives of the assets or the contract period, according to the contract terms.

Insurance companies have issued performance guarantees in connection with the activities of the Groups US subsidiaries (operational guarantees, guarantees of site restoration), which have been underwritten by Vivendi Environnement SA up to a maximum
amount of $0.8 billion. This is essentially an upper limit, the majority of which are not used at the moment.

Under the Berlin water contract, the Group may be obligated to pay approximately€613 million to previous land owners, not indemnified by the Berlin government, who present claims for payments.

Vivendi Universal has agreed to sell to the Group, and the Group has agreed to buy the 51% interest in B1998 SL if the partner exercises the option
agreement, which remains valid, until October 6, 2008 at a price based on the average of the market value of FCCs shares during the three months preceding the exercise of the option (up to seven times FCCs EBITDA or 29.5 time FCCs earnings per share for the previous year, whichever is
lower). B1998 SL is a holding company which owns 57% of FCC. If based on the price of FCCs common
stock on December 31, 2001, the price would be approximately€812 million.

Capital Leases and Other Long Term Leases

     The Group uses capital leases with a purchase option in order tofinance certain operating assets and investment properties. As stated in Note 2 to the consolidatedfinancial statements, the Group has been capitalizing these assets and recording the principal portion of the related capital leases as long-term debt. Minimum future payments under these capital
lease obligations at December 31, 2001, 2000 and 1999 represent €0.8 billion,€0.6 billion and €1.2 billion, respectively.

F-37

---

Vivendi Environnement has concluded capital and operating leases. As of December 31, 2001, minimum future payments for these contracts amount to:

|                                                         | Operatingleases |  | Capitalleases | 
|-------------------------------------------------------- | --------------- |  | ------------- | 
|                                                         |                 |  |               | 
|2002                                                     | 349.7           |  | 119.5         | 
|2003                                                     | 328.0           |  | 92.2          | 
|2004                                                     | 288.3           |  | 78.8          | 
|2005                                                     | 273.9           |  | 65.8          | 
|2006                                                     | 263.6           |  | 57.9          | 
|2007 and
      thereafter                                | 1,190.2         |  | 406.3         | 
|                                                         |                 |  |               | 
|Total
      minimum future lease payments                | 2,693.7         |  | 820.5         | 
|Less amounts
      representing interest                 |                |  | 299.6         | 
|                                                         |                 |  |               | 
|Present
      value of net minimum future lease payments |                |  | 520.9         | 
|                                                         |                 |  |               | 

Litigation

     The Group is subject to various litigation in the normal course of business. Although it is not possible to predict the outcome of such litigation with
certainty, based on the facts known to the Group and after consultation with counsel, management believes that such litigation will not have a material adverse effect on the Groupsfinancial
position or results of operations.

Environmental Matters

     The Groups operations are subject to evolving and increasingly stringent environmental regulations in a number of jurisdictions. The Groups operations are covered by insurance policies. At December 31, 2001, there are no significant environmental losses.

Commitments
  received

|                                       | At
      December 31, |  
|-------------------------------------- | --------------------- | -
|                                       |                       |  
|(€
      millions)                     | 2001                  |  
|                                       |                       |  
|Guarantees
      and cautions received | 180.8                 |  
|Other
      engagements received       | 1,204.7               | *
|                                       |                       |  
|Total                                  | 1,385.5               |  
|                                       |                       |  

---

* Includes€1,155 million of engagements from related parties.

F-38

---

21.
  INVESTMENTS
  ACCOUNTED FOR USING THE PROPORTIONATE CONSOLIDATION METHOD 
         Investments
  accounted for using the proportionate consolidation method represent companies
  in which the Group and other shareholders have agreed to exercise joint control
  over significantfinancial
  and operating policies.

Summarizedfinancial information for major subsidiaries consolidated under
  the proportionate consolidation method is as follows (in millions of euros):

|                                           | At
December 31, | 
|------------------------------------------ | --------------- | 
|                                           |                 | 
|Balance
sheet data                         | 2001            | 
|                                           |                 | 
|Non-current
assets                         | 8,081.6         | 
|Current assets                             | 4,693.9         | 
|                                           |                 | 
|Total
assets                               | 12,775.5        | 
|                                           |                 | 
|Shareholders
equity                       | 5,145.4         | 
|Minority interests                         | 163.3           | 
|Financial
debt                             | 2,851.9         | 
|Reserves and
other liabilities             | 4,614.9         | 
|                                           |                 | 
|Total
liabilities and shareholders equity | 12,775.5        | 
|                                           |                 | 

|                      | 2001    |   | 2000    |   | 1999    |  
|--------------------- | ------- | - | ------- | - | ------- | -
|                      |         |   |         |   |         |  
|Income statement data |         |   |         |   |         |  
|Net sales             | 4,923.3 |   | 3,050.8 |   | 2,312.6 |  
|Operating income      | 426.3   |   | 345.5   |   | 235.0   |  
|Net income            | 128.3   |   | 184.3   |   | 88.6    |  
|                      |         |   |         |   |         |  
|Cashflow data         |         |   |         |   |         |  
|Operating cashflow    | 449.2   |   | 274.9   |   | 261.9   |  
|Investing cashflow    | (677.9  | ) | (309.4  | ) | (452.0  | )
|Financing cashflow    | 311.2   |   | 201.8   |   | 131.7   |  

22.  SEGMENT
  INFORMATION 
         In
  accordance with the provision of FAS 131, the Group has identified 5 reportable segments
  which include: Water, Waste Management, Energy Services, Transportation, and
  FCC. These segments are consistent with the basis on which management evaluates
  investments and results.

The
  Water segment integrates water and wastewater activities such as water distribution,
  water and wastewater treatment, industrial process water, manufacturing of water
  treatment equipment and systems.

The
  Waste Management segment collects, processes and disposes of household and trade
  and industrial waste.

The
  Energy Services segment includes energy optimization and related services.

The Transportation segment focuses on the operation of passenger transportation services, both road and rail networks.

FCC is a separate segment that operates in construction, urban sanitation and water services, cement production and urban related activities mostly in
Spain.

F-39

---

Revenue From External Customers

|                       | For
      the year endedat
      December 31, | 
|---------------------- | --------------------------------------------- | 
|                       |                                               | 
|(€
      millions)     | 2001                                          | 
|                       |                                               | 
|Water                  | 13,641.2                                      | 
|Waste
      management | 5,914.4                                       | 
|Energy                 | 4,017.4                                       | 
|Transportation         | 3,098.9                                       | 
|FCC                    | 2,454.8                                       | 
|                       |                                               | 
|Total                  | 29,126.7                                      | 
|                       |                                               | 

Revenue Between Segments

|                       | For
      the year endedat December 31, | 
|---------------------- | --------------------------------------- | 
|                       |                                         | 
|(€
      millions)     | 2001                                    | 
|                       |                                         | 
|Water                  | 10.3                                    | 
|Waste
      management | 32.3                                    | 
|Energy                 | 5.9                                     | 
|Transportation         | 4.1                                     | 
|FCC                    | 1.8                                     | 
|Other                  | 4.9                                     | 
|                       |                                         | 
|Total                  | 59.3                                    | 
|                       |                                         | 

Amortization Expense

|                       | For
      the year endedat
      December 31, | 
|---------------------- | --------------------------------------------- | 
|                       |                                               | 
|(€
      millions)     | 2001                                          | 
|                       |                                               | 
|Water                  | 527.6                                         | 
|Waste
      management | 505.2                                         | 
|Energy                 | 160.2                                         | 
|Transportation         | 149.8                                         | 
|FCC/Proactiva          | 129.9                                         | 
|Other                  | 11.9                                          | 
|                       |                                               | 
|Total                  | 1,484.6                                       | 
|                       |                                               | 

F-40

---

Operating Income (Previous method of presentation) and EBIT:

|                       | For
      the year endedat
      December 31, |  
|---------------------- | --------------------------------------------- | -
|                       |                                               |  
|                       | EBIT                                          |  
|                       |                                               |  
|(€
      millions)     | 2001                                          |  
|                       |                                               |  
|Water                  | 1,089.6                                       |  
|Waste
      management | 390.7                                         |  
|Energy                 | 220.5                                         |  
|Transportation         | 112.1                                         |  
|FCC                    | 229.5                                         |  
|Other                  | (29.3                                         | )
|                       |                                               |  
|Total                  | 2,013.1                                       |  
|                       |                                               |  

NB : The ventilation of operating income for 2000 has been modified to take into account reinvoicing between segments of Vivendi Environnement.

Total Assets

|                       | At
      December 31, | 
|---------------------- | --------------------- | 
|                       |                       | 
|(€
      millions)     | 2001                  | 
|                       |                       | 
|Water                  | 19,095.8              | 
|Waste
      management | 5,474.9               | 
|Energy                 | 4,471.0               | 
|Transportation         | 2,576.0               | 
|FCC/Proactiva          | 3,749.5               | 
|Other                  | 9,042.1               | 
|                       |                       | 
|Total                  | 44,409.3              | 
|                       |                       | 

Expenditures for Long Lived Assets

|                       | For
      the year endedat December 31, | 
|---------------------- | --------------------------------------- | 
|                       |                                         | 
|(€
      millions)     | 2001                                    | 
|                       |                                         | 
|Water                  | 1,188.3                                 | 
|Waste
      management | 794.2                                   | 
|Energy                 | 401.5                                   | 
|Transportation         | 287.8                                   | 
|FCC/Proactiva          | 206.7                                   | 
|Other                  | 0.0                                     | 
|                       |                                         | 
|Total                  | 2,878.5                                 | 
|                       |                                         | 

F-41

---

Long-term Assets

|                       | At
      December 31, | 
|---------------------- | --------------------- | 
|                       |                      
|(€
      millions)     | 2001                  | 
|                       |                       | 
|Water                  | 15,441.0              | 
|Waste
      management | 5,504.2               | 
|Energy                 | 2,565.1               | 
|Transportation         | 1,762.6               | 
|FCC/Proactiva          | 1,883.9               | 
|Other                  | 243.9                 | 
|                       |                       | 
|Total                  | 27,400.7              | 
|                       |                       | 

Equity Method Investments

|                       | At
      December 31, |     
|---------------------- | --------------------- | ----
|                       |                      
|2001                   |                       | 2000
|                       |                       |     
|(€
      millions)     | Investment            |     
|                       |                       |     
|Water                  | 397.3                 |     
|Waste
      management | 26.1                  |     
|Energy                 | 9.0                   |     
|Transportation         | 10.7                  |     
|FCC/Proactiva          | 174.9                 |     
|Other                  | 0.0                   |     
|                       |                       |     
|Total                  | 618.0                 |     
|                       |                       |     

F-42

---

Geographical Breakdown of Net Sales

|                       | For
      the year ended at December 31, 2001 | 
|---------------------- | --------------------------------------------- | 
|                       |                                               | 
|(€
      millions)     | France                                        | 
|                       |                                               | 
|Water                  | 6,193.7                                       | 
|Waste
      management | 2,440.8                                       | 
|Energy                 | 2,733.8                                       | 
|Transportation         | 993.3                                         | 
|FCC                    | 10.5                                          | 
|                       |                                               | 
|Total                  | 12,372.1                                      | 
|                       |                                               | 

|                       |                                                         |  |               |  |                     |  |                              |  |                        | 
|---------------------- | ------------------------------------------------------- |  | ------------- |  | ------------------- |  | ---------------------------- |  | ---------------------- | 
|                       | For
      the year ended atDecember 31, 2000 (restated) | 
|                       |                                                         | 
|(€
      millions)     | France                                                  |  | UnitedKingdom |  | Rest
      ofEurope |  | UnitedStates
      ofAmerica |  | Rest
      of theworld | 
|                       |                                                         |  |               |  |                     |  |                              |  |                        | 
|Water                  | 5,748.6                                                 |  | 648.5         |  | 1,434.7             |  | 3,678.2                      |  | 1,258.2                | 
|Waste
      management | 2,353.1                                                 |  | 573.0         |  | 485.8               |  | 1,192.8                      |  | 655.3                  | 
|Energy                 | 1,795.7                                                 |  | 379.7         |  | 781.7               |  | 0.0                          |  | 31.4                   | 
|Transportation         | 941.2                                                   |  | 1,135.3       |  | 913.0               |  | 0.0                          |  | 141.6                  | 
|FCC                    | 10.0                                                    |  | 25.4          |  | 1,913.2             |  | 95.1                         |  | 71.0                   | 
|                       |                                                         |  |               |  |                     |  |                              |  |                        | 
|Total                  | 10,848.6                                                |  | 2,761.9       |  | 5,528.5             |  | 4,966.1                      |  | 2,157.5                | 
|                       |                                                         |  |               |  |                     |  |                              |  |                        | 

|                       |                                                          |  |               |  |                     | 
|---------------------- | -------------------------------------------------------- |  | ------------- |  | ------------------- | 
|                       | For
      the year ended at December 31, 1999 (restated) | 
|                       |                                                          | 
|(€
      millions)     | France                                                   |  | UnitedKingdom |  | Rest
      ofEurope | 
|                       |                                                          |  |               |  |                     | 
|Water                  | 5,550.4                                                  |  | 525.0         |  | 920.5               | 
|Waste
      management | 1,977.0                                                  |  | 509.6         |  | 192.7               | 
|Energy                 | 1,717.8                                                  |  | 310.4         |  | 617.9               | 
|Transportation         | 649.5                                                    |  | 1,043.5       |  | 661.1               | 
|FCC                    | 8.4                                                      |  | 23.5          |  | 1,804.8             | 
|                       |                                                          |  |               |  |                     | 
|Total                  | 9,903.1                                                  |  | 2,412.0       |  | 4,197.0             | 
|                       |                                                          |  |               |  |                     | 

Geographical Breakdown of Long Lived Assets

|(€
      millions)       | France  |  | UnitedKingdom |  | Rest
      ofEurope |  | UnitedStates ofAmerica |  | Rest
      of theworld |  | Total    | 
|------------------------ | ------- |  | ------------- |  | ------------------- |  | ---------------------- |  | ---------------------- |  | -------- | 
|                         |         |  |               |  |                     |  |                        |  |                        |  |          | 
|As of
      December 31, |         |  |               |  |                     |  |                        |  |                        |  |          | 
|2001                     | 6,897.5 |  | 2,199.5       |  | 7,986.2             |  | 8,685.6                |  | 1,631.9                |  | 27,400.7 | 
|2000                     | 7,964.1 |  | 1,881.0       |  | 6,242.3             |  | 8,347.7                |  | 927.1                  |  | 25,362.2 | 
|1999                     | 7,026.4 |  | 2,041.2       |  | 6,181.2             |  | 7,058.4                |  | 396.1                  |  | 22,703.3 | 

F-43

---

23.  RELATED PARTY TRANSACTIONS

The
  main transactions with related parties (principally Vivendi Universal, its subsidiaries
  and some minority stockholders in Vivendi Environnement subsidiaries) and amounts
  receivable from and payable to them were as follows (in millions of euros):

|                     | At
      December 31, |     
|-------------------- | --------------------- | ----
|                     |                      
|2001                 |                       | 2000
|                     |                       |     
|Receivables          |                       |     
|Trade
      accounts | 40.2                  |     
|Loans                | 352.0                 |     
|                     |                       |     
|Payables             |                       |     
|Trade
      accounts | 105.9                 |     
|Loans                | 121.0                 |     

|                       |                       |      |        |     
|---------------------- | --------------------- | ---- | ------ | ----
|                       | At
      December 31, |     
|                       |                      
|2001                   |                       | 2000 |        | 1999
|                       |                       |      |        |     
|Sales                  | 13.9                  |      | 336.4  |     
|Purchases              | (16.2                 | )    | (176.0 | )   
|Interest
      expense | (91.2                 | )    | (584.5 | )   
|Interest
      income  | 100.3                 |      | 113.9  |     

Related party transactions include transactions with Vivendi Universal (described below) those related to facility management services provided to Vivendi
Universal by subsidiaries of the Group (waste collection in particular) and transactions with the local transit authority responsible for the Stockholm metro, which is a minority stockholder in one of the Groups subsidiaries.

Financial
  Agreements 
        In
  2000:

| |  | At
      the time of the IPO, the Group was fullyfinanced by Vivendi Universal as a result of afinancial
      agreement signed on June 20, 2000. The current account with Vivendi Universal
      bore interest at 5.7%, which corresponded to the market rate of 5.2% plus
      a margin of 0.5%. An annual payment of€41.2
      million was paid by Vivendi Universal to the Group.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In
      September 2000, the Group entered into an interest rate swap with Vivendi
      Universal (Vivendi Environnement pays 5.2%fixed
      and receives EURIBOR 3 months variable). The maximum notional amount of
      this swap is€5
      billion, and this swap expires in 2004.                                                                                               

In
  2001:

| |  | The
      current account with Vivendi Universal was fully reimbursed in May 2001.                                                                                                                                                                                                                                                                                                                                                           
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Further
      to different refinancing operations, the maximum notional amount has been reduced
      to€3.266
      billion. This decrease of€1.734
      billion led to payment by the Group of€58
      million to Vivendi Universal. Its relates to the fair value of the portion
      of the swap that has been canceled. The payment is expensed over the life
      of the swap.                                                     
| |  | In
      connection with the above paragraph, the Group and Vivendi Universal have
      changed some of the terms of thefinancial
      agreement. The quarterly amount of€10.3 million paid by Vivendi
      Universal to the Group is reduced to€5.15 million from January 1, 2002. Vivendi Universal paid to
      Vivendi Environnement€58 million, a compensation equal to the present value of the
      reduction in future payments.

F-44

---

Service
  agreements 
       Under
  the terms of a contract for assistance and services, effective on January 1,
  2000 and which expired on December 31, 2000, the Group benefited
  following its initial public offering from a number of services provided by
  Vivendi Universal, includingfinancial
  and legal assistance, personnel and the use of computer equipment, etc. Pursuit
  to this agreement, the amount paid by the Group to Vivendi Universal during
  2000 was€40.4
  million.

Subsequent to December 31, 2000, the Group did not enter into any service agreements with Vivendi Universal in 2001.

Vivendi
  trademark agreement 
       Under
  a trademark license agreement, the Group has the right to use theVivenditrademark. This license has a term offive
  years and carries an annual license fee of€30,500
  before tax.

VINCI
  bonds 
       The
  Group indirectly took part in the issuance of the Vivendi Universal bonds convertible
  into Vinci shares. Vivendi Universal lent to the Group€120
  million against 1,552,305 shares of Vinci held by the Group through Dalkia France.
  The terms of the loan are similar to those of the bond issued by Vivendi Universal:
  afixed
  rate of 1% per annum and maturing on March 1, 2006.

EDF
  relations 
       Agreements
  with EDF were realized through stages in 2000 and during the first six months
  of 2001.

| |  | December
      2000, Vivendi Environnement sold to EDF 27% of Dalkia for a total of€757
      million.                                                                                                      
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | January
      8, 2001, Vivendi Environnement sold a further 3.24% of Dalkia for€92 million.                                                                                                                 
| |  | During
      the second quarter of 2001, Dalkia acquired from EDF the service sector
      of EDF for€282
      million via a capital increase of€177 million and a cash payment
      of€105
      million.

As a result of these agreements, EDF holds 34% of Dalkia. The capital gain and dilution profit before taxes realized in 2001 is€121 million (€107 million after taxes).

Guarantees
  
       In
  connection with the formation of the Group and Vivendi Universals
  contribution or sale to the Group of its interests in its water and energy services
  operations, the Group has replaced Vivendi Universal as managing partner (associécommandité)
  of substantially all Vivendi Universals historical water and energy
  services subsidiaries. As managing partner of these subsidiaries, the Group
  has agreed, or will agree, to reimburse those subsidiaries for expenses related
  to the maintenance and replacement of equipment.

As
  managing partner of the subsidiaries, the Group has the power to appoint managers
  (gérants)
  and to control the business of the subsidiaries. The Group is also jointly liable
  for those subsidiariesobligations.
  Under a guarantee agreement dated June 20, 2000, Vivendi Universal will pay
  the Group up to€381
  million for any loss that it suffers over a period of 12 years as a result of
  its undertaking to reimburse the subsidiaries for expenses associated with the
  maintenance or replacement of equipment. This guarantee covers both recurring
  expenses (those incurred in accordance with budgeted amounts and charges recorded
  in previous years) and exceptional expenses. Recurring expenses are guaranteed
  up to an initial limit of€15.2
  million a year (subject to adjustment), a limit that is indexed to the cost
  of equipment maintenance and repair. The maximum total amount the Group can
  recover for recurring expenses is€228.7
  million. Exceptional expenses are guaranteed up to a maximum total amount of€381.1
  million less any sums already paid to the Group under the guarantee. If the
  amount the Group claims under this provision is over€228.7
  million, it will repay the excess to Vivendi Universal over a period offive
  years. Operating expenses include an income of€15.9
  million in connection with the payment by Vivendi Universal of the expenses
  associated with the maintenance or replacement of equipment.

F-45

---

In the event of a successful bid for the Group that is not approved by its management board, Vivendi Universals obligations under the guarantee agreement will automatically terminate. However, the Groups obligation to repay Vivendi Universal any amount due in excess of€229 million will be unaffected by such an event.

FCC Agreement
  
       Vivendi
  Universal transferred to the Group its 49% interest in B 1998 SL, a holding
  company that owns 57% of FCC, a Spanish company listed on the Madrid stock exchange,
  for€691
  million. Consequently, the Group indirectly owns 27.9% of FCC. Ms. Esther Koplowitz,
  a member of the Groups
  supervisory board and a member of Vivendi Universals
  board of directors, holds the remaining 51% of B 1998 SL.

Under the terms of an option agreement dated October 6, 1998, Ms. Koplowitz has an option to sell to Vivendi Universal, at any time between April 18, 2000
and October 6, 2008, Ms. Koplowitzs 51% interest in B 1998 SL at a price based on the average market
value of FCCs shares during the three months preceding the exercise of the option (up to seven times
FCCs EBITDA or 29.5 times FCCs earnings per share for the previous year, whichever is lower).

Vivendi Universal has agreed to sell to the Group, and the Group has agreed to buy, Ms. Koplowitzs 51% interest in B 1998 SL if Ms. Koplowitz exercises the option. If the Group purchases this interest, it will own 100% of B 1998 SL. Under these
circumstances, Spanish law would require it to launch a public tender offer for the 43.5% of FCC not owned by B 1998 SL. The price per share of the offer would be determined by the Spanish stock exchange authorities. If based on the price of
FCCs common stock on February 28, 2002, the price for the 43.5% interest would be approximately€1,290 million, subject to adjustment by the Spanish stock exchange authorities.

B 1998 SLsstatutsprovide for reciprocal rights offirst refusal in the event of the sale of the B 1998 SL shares to a third party. In the event Vivendi Universal ceases to own a
majority of the Groups capital, Ms. Koplowitz has the right to buy the Groups interest in B 1998 SL at a price equal to the lower of the purchase price the Group paid to Vivendi Universal and the
market value of the interest in B 1998 SL.

24.  INCOME
  STATEMENT Employees and
  personnel charges

Personnel charges including profit sharing amount to€8.0 billion in 2001, compared to€7.3 billion in 2000 and€5.9 billion in 1999.

|                      | For
      the year ended at December 31, | 
|--------------------- | ---------------------------------------- | 
|                      |                                          | 
|(€
      millions)    | 2001                                     | 
|                      |                                          | 
|Personnel
      costs | 7,992                                    | 
|Profit
      sharing  | 42                                       | 
|                      |                                          | 
|                      | 8,034                                    | 
|                      |                                          | 

F-46

---

Weighted-average number of employees:

|                  | For
      the year ended at December 31, | 
|----------------- | ---------------------------------------- | 
|                  |                                          | 
|By
      category | 2001                                     | 
|                  |                                          | 
|Executives        | 33,320                                   | 
|Employees         | 205,716                                  | 
|                  |                                          | 
|                  | 239,036                                  | 
|                  |                                          | 

|                 | For
the year ended atDecember 31, | 
|---------------- | --------------------------------- | 
|                 |                                   | 
|By
segment       | 2001                              | 
|                 |                                   | 
|Water            | 72,538                            | 
|Waste management | 60,710                            | 
|Energy           | 30,691                            | 
|Transportation   | 42,122                            | 
|Proactiva        | 9,779                             | 
|FCC              | 23,124                            | 
|Other            | 72                                | 
|                 |                                   | 
|                 | 239,036                           | 
|                 |                                   | 

|                                  |                                               | 
|--------------------------------- | --------------------------------------------- | 
|                                  | For
      the year ended atDecember
      31, | 
|                                  |                                              
|                                  |                                               | 
|By
      method of consolidation  | 2001                                          | 
|                                  |                                               | 
|Fully
      consolidation         | 191,466                                       | 
|Proportionate
      consolidation | 47,570                                        | 
|                                  |                                               | 
|                                  | 239,036                                       | 
|                                  |                                               | 

Reconciliation of EBIT to operating income (previous method) for 2001

|                                   |                                                                                            | (€
millions) |  
|---------------------------------- | ------------------------------------------------------------------------------------------ | ------------ | -
|                                   |                                                                                            |              |  
|EBIT                               | 2,013.1                                                                                    |             
|                                  | Receipts reclassified
asfinancial
income                                                   | (22.6        | )
|                                  | Financial
depreciation offixed
assets relating to public service contracts reclassified as |              |  
|                                   | financial
income                                                                           | 14.4         |  
|                                  | Write-off
of certain business assets                                                       | 9.5          |  
|                                  | Loss on sale
of assets                                                                     | 30.5         |  
|                                  | Other                                                                                      | 7.9          |  
|                                   |                                                                                            |              |  
|Operating
income (previous method) | 2,052.8                                                                                    |             
|                                   |                                                                                            |             

F-47

---

Amortization and valuation allowances

|                           | For
      the year ended at December 31, |  
|-------------------------- | ---------------------------------------- | -
|                           |                                          |  
|(€
      millions)         | 2001                                     |  
|                           |                                          |  
|Amortization               |                                          |  
|Operational                | (1,484.6                                 | )
|Financial                  |                                         |  
|Other                      |                                         |  
|                           |                                          |  
|Total                      | (1,484.6                                 | )
|Valuation
      allowances |                                          |  
|Operational                | 17.7                                     |  
|Financial                  | (53.5                                    | )
|Other                      | (102.6                                   | )
|                           |                                          |  
|Total                      | (138.4                                   | )
|                           |                                          |  
|Total                      | (1,623.0                                 | )
|                           |                                          |  

Goodwill
  amortization is made up of the following:

|                             | For
      the year ended at December 31, |   
|---------------------------- | ---------------------------------------- | --
|                             |                                          |   
|(€
      millions)           | 2001                                     |   
|                             |                                          |   
|Goodwill
      amortization  | (257.9                                   | ) 
|Impairment
      of goodwill | (2,652.2                                 | )*
|                             |                                          |   
|Total                        | (2,910.1                                 | ) 
|                             |                                          |   

---

Financial
  income and expensesNetfinancial
  income for 2001, 2000 and 1999 amounts to a loss of€798.0
  million,€891.8
  million and €600.4
  million, respectively.

It
  includes interest expenses, foreign exchange costs and provisions.

|                                      | For
      the year ended at December 31, |  
|------------------------------------- | ---------------------------------------- | -
|                                      |                                          |  
|(€
      millions)                    | 2001                                     |  
|                                      |                                          |  
|Interest
      expense                | (764.2                                   | )
|Otherfinancial
      income (expense) | 19.7                                     |  
|Provisions                            | (53.5                                    | )
|                                      |                                          |  
|Financial
      income (expense)      | (798.0                                   | )
|                                      |                                          |  

Capitalized interest expenses are not significant and amount to€0.2 million,€3.3 million and€1.5 million in 2001, 2000 and 1999 respectively.

F-48

---

Foreign exchange income, is included in otherfinancial income and expenses, and amounts to a€15.6 million gain, a€12.2 million loss and a€6.1 million gain for 2001, 2000 and 1999 respectively.

The reduction infinancing cost is due to the full-year effect of the capital increase in July 2000, and the reduction in interest rates between 2000 and 2001.

Financial provisions, include allowances on treasury stock of€23.5 million and the amortization of debt issuance costs€11.3 million.

Other income (expenses)

|                                                | For
      the year ended at December 31, |  
|----------------------------------------------- | ---------------------------------------- | -
|                                                |                                          |  
|(€
      millions)                              | 2001                                     |  
|                                                |                                          |  
|Capital
      gains and losses                  | 150.0                                    |  
|Losses,
      reserves and impairment of assets | (117.0                                   | )
|Other                                           | 5.9                                      |  
|                                                |                                          |  
|                                                | 38.9                                     |  
|                                                |                                          |  

Capital gains and losses are related to the sale in 2001 of Dalkia to EDF for€121 million and the capital gain on the sale of SAFEI and Midkent for€34 million.

Losses, reserves and impairment of assets are related primarily to a reserve on Schwarzepumpe (at 100%), for a loss of€100 million.

F-49

---

|25. | LISTING OF MAIN COMPANIES INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS IN 2001
|--- | -------------------------------------------------------------------------------

In
  2001, the Group consolidated or accounted for a total of slightly over 2,383
  companies, of which the principal companies are:

|Group
      and Address                                                  |  | Consolidation |  | %
        Holding | 
|------------------------------------------------------------------------ |  | ------------- |  | ----------------- | 
|                                                                         |  |               |  |                   | 
|Vivendi
      Environnement                                              |  |               |  |                   | 
|36-38,
      avenue Kléber75016
      Paris                             |  | Full          |  | 100.00            | 
|Water                                                                    |  |               |  |                   | 
|                                                                         |  |               |  |                   | 
|Vivendi
      Water                                                      |  |               |  |                   | 
|52, rue
      dAnjou75008
      Paris                                  |  | Full          |  | 100.00            | 
|                                                                         |  |               |  |                   | 
|Générale
      des Eaux
      Sahide and subsidiaries                   |  |               |  |                   | 
|52, rue
      dAnjou75008
      Paris                                  |  | Full          |  | 100.00            | 
|                                                                         |  |               |  |                   | 
|Of
      which in France:                                                |  |               |  |                   | 
|                                                                         |  |               |  |                   | 
|Compagnie
      des Eaux et de lOzone                                   |  |               |  |                   | 
|52, rue
      dAnjou75008
      Paris                                  |  | Full          |  | 100.00            | 
|                                                                         |  |               |  |                   | 
|Compagnie
      des Eaux de Paris                                        |  |               |  |                   | 
|4, rue
      du Général
      Foy75008
      Paris                      |  | Full          |  | 100.00            | 
|                                                                         |  |               |  |                   | 
|SociétéFrançaise de Distribution dEau                                   |  |               |  |                   | 
|4, rue
      du Général Foy75008
      Paris                            |  | Full          |  | 97.07             | 
|                                                                         |  |               |  |                   | 
|Compagnie
      Fermiére de Services Publics                             |  |               |  |                   | 
|3, rue
      Marcel Sembat
      Immeuble CAP 44  44100 Nantes         |  | Full          |  | 99.13             | 
|                                                                         |  |               |  |                   | 
|Compagnie
      Méditerranéenne dexploitation des Services d Eau       |  |               |  |                   | 
|12, boulevard
      René Cassin06100 Nice                               |  | Full          |  | 98.69             | 
|                                                                         |  |               |  |                   | 
|Société
      des Eaux de Melun                                          |  |               |  |                   | 
|Zone Industrielle198/398, rue Foch77000
      Vaux Le Pénil            |  | Full          |  | 98.68             | 
|                                                                         |  |               |  |                   | 
|Société
      des Eaux de Marseille et sesfiliales                       |  |               |  |                   | 
|25, rue
      Edouard DelangladeBP
      2913254 Marseille             |  | Prop          |  | 48.82             | 
|                                                                         |  |               |  |                   | 
|Sociétédes
      Eaux du Nord                                            |  |               |  |                   | 
|217, boulevard
      de la Liberté 59800
      Lille                    |  | Prop          |  | 49.54             | 
|                                                                         |  |               |  |                   | 
|Sociétédes Eaux de Versailles et de Saint-Cloud                          |  |               |  |                   | 
|145, rue
      Yves le Coz78000 Versailles                              |  | Prop          |  | 50.00             | 
|                                                                         |  |               |  |                   | 
|Sade-Compagnie
      Générale de Travaux dHydraulique and subsidiaries  |  |               |  |                   | 
|28, rue
      de la Baume75008
      Paris                              |  | Full          |  | 98.57             | 
|                                                                         |  |               |  |                   | 
|Omnium
      de Traitements et de Valorisation (OTV) and subsidiaries    |  |               |  |                   | 
|lAquarène1,
      place Montgolfier94417
      St Maurice Cedex       |  | Full          |  | 100.00            | 
|                                                                         |  |               |  |                   | 
|Bonna
      Sabla                                                        |  |               |  |                   | 
|Tour Ariane5,
      place de la Pyramide92800
      Puteaux La Défense |  | Full          |  | 99.63             | 
|                                                                         |  |               |  |                   | 
|Sainte-Lizaigne
      SA                                                 |  |               |  |                   | 
|Tour Ariane5,
      place de la Pyramide92800
      Puteaux La Défense |  | Full          |  | 99.45             | 
|                                                                         |  |               |  |                   | 
|Prague
      Water CGE AW                                                |  |               |  |                   | 
|52, rue
      dAnjou75008
      Paris                                  |  | Full          |  | 100.00            | 

F-50

---

|Group
      and Address                                                             |  | Consolidation |  | %
        Holding | 
|----------------------------------------------------------------------------------- |  | ------------- |  | ----------------- | 
|                                                                                    |  |               |  |                   | 
|Of
      which outside France:                                                      |  |               |  |                   | 
|                                                                                    |  |               |  |                   | 
|Vivendi
      Water UK Plc and subsidiaries                                         |  |               |  |                  
|37-41
      Old Queen Street, London SW1H 9JA (Great-Britain)                       |  | Full          |  | 100.00            | 
|                                                                                    |  |               |  |                   | 
|Philadelphia
      Suburban Corporation                                             |  |               |  |                   | 
|762 West
      Lancaster AvenueBryn MawrPennsylvania
      190103489
      (USA) |  | EM            |  | 16.88             | 
|                                                                                    |  |               |  |                   | 
|US Filter
      Corporation and subsidiaries                                        |  |               |  |                   | 
|40-004
      Cook Street92211
      Palm Desert (USA)                              |  | Full          |  | 100.00            | 
|                                                                                    |  |               |  |                   | 
|Berliner
      Wasser Betriebe                                                      |  |               |  |                   | 
|Anstalt
      des Offentlichen RechtsHohenzollerndamn
      4510631 Berlin        |  |               |  |                   | 
|(Germany)                                                                           |  | Prop          |  | 24.95             | 
|                                                                                    |  |               |  |                   | 
|Servitec
      KFT                                                                  |  |               |  |                   | 
|Lovas
      UT 131b1012
      Budapest (Hungary)                                   |  | Full          |  | 100.00            | 
|                                                                                    |  |               |  |                   | 
|Vivendi
      Water Ceska Republica                                                 |  |               |  |                   | 
|Sokolovska
      238Prague
      9 (Czech Republic)                                |  | Full          |  | 100.00            | 
|                                                                                    |  |               |  |                   | 
|OEWA Wasser
      und Abwasser                                                      |  |              
|Walter
      Köhn Strasse 104358 Leipzig (Germany)                                 |  | Full          |  | 94.00             | 
|                                                                                    |  |               |  |                   | 
|ENERGY                                                                              |  |               |  |                   | 
|                                                                                    |  |               |  |                   | 
|Dalkia
      and subsidiaries                                                       |  |              
|37, avenue
      du Mal de Lattre de Tassigny59350
      St Andréles
      Lille   |  | Full          |  | 66.00             | 
|                                                                                    |  |               |  |                   | 
|CogestarSaint
      André                                                          |  |               |  |                   | 
|37, avenue
      du Mal de Lattre de Tassigny59350 St Andréles
      Lille         |  | Full          |  | 65.65             | 
|                                                                                    |  |               |  |                   | 
|Cogestar
      2                                                                    |  |               |  |                   | 
|33 Place
      Ronde, Quartier Valmy92800
      Puteaux                            |  | Full          |  | 65.65             | 
|                                                                                    |  |               |  |                   | 
|Crystal
      S.A.Saint André                                                      |  |               |  |                   | 
|37, avenue
      du Mal de Lattre de Tassigny59350
      St André
      les Lille  |  | Full          |  | 65.65             | 
|                                                                                    |  |               |  |                   | 
|Moravskoslezke
      Teplarny AS                                                    |  |               |  |                   | 
|28 Rijna
      15270974
      Ostrava (Czech Republic)                             |  | Full          |  | 49.03             | 
|                                                                                    |  |               |  |                   | 
|Dalkia
      PLC and subsidiaries                                                   |  |               |  |                   | 
|Elizabeth
      House56-60
      London RoadStaines
      TW18 4BQ                |  |               |  |                   | 
|(Great-Britain)                                                                     |  | Full          |  | 49.87             | 
|                                                                                    |  |               |  |                   | 
|Dalkia
      and subsidiariesItaly                                                 |  |               |  |                   | 
|230 via
      Sempione 20 016 PERO                                                  |  | Full          |  | 49.87             | 
|                                                                                    |  |               |  |                   | 
|Clemessy                                                                            |  |               |  |                   | 
|18, rue
      de Thann68200 Mulhouse                                               |  | Full          |  | 65.62             | 
|                                                                                    |  |               |  |                   | 
|Siram                                                                               |  |               |  |                   | 
|Via Sempone
      230 - 20016 PeroItaly                                            |  | Full          |  | 49.87             | 

F-51

---

|Group
      and Address                                                                  |  | Consolidation |  | %
        Holding | 
|---------------------------------------------------------------------------------------- |  | ------------- |  | ----------------- | 
|                                                                                         |  |               |  |                   | 
|Waste
      Management                                                                   |  |               |  |                   | 
|                                                                                         |  |               |  |                   | 
|Compagnie
      Générale dEntreprises Automobiles and subsidiaries                      |  |               |  |                   | 
|Parc des
      Fontaines163 / 169, avenue Georges Clémenceau92000 Nanterre             |  | Full          |  | 100.00            | 
|                                                                                         |  |               |  |                   | 
|Société
      dAssainissement Rationnel et de Pompage and subsidiaries (S.A.R.P.)       |  |               |  |                   | 
|162/16
      Energy Park IV162/166,
      boulevard de Verdun92413 Courbevoie          |  |               |  |                   | 
|Cedex                                                                                    |  | Full          |  | 99.47             | 
|                                                                                         |  |               |  |                   | 
|SARPIndustries
      and subsidiaries                                                   |  |               |  |                   | 
|427, route
      du HazayZone Portuaire Limay-Porcheville-78520 Limay                   |  | Full          |  | 99.78             | 
|                                                                                         |  |               |  |                   | 
|Onyx Environmental
      Group Plc                                                       |  |               |  |                   | 
|Onyx house401
      Mile End RoadE34
      PBLondon
      (Great-Britain)             |  | Full          |  | 100.00            | 
|                                                                                         |  |               |  |                   | 
|Onyx North
      America Corp.                                                           |  |               |  |                   | 
|3225 Aviation
      Avenue4th Floor33133
      Miami (USA)                             |  | Full          |  | 100.00            | 
|                                                                                         |  |               |  |                   | 
|Superior
      Services                                                                  |  |               |  |                   | 
|One Honey
      Creed Corporate Center125
      South84th
      StreetSuite 200       |  |               |  |                   | 
|WI 53214
      Milwaukee (USA)                                                           |  | Full          |  | 100.00            | 
|                                                                                         |  |               |  |                   | 
|Collex
      Waste Management Pty Ltd                                                    |  |               |  |                  
|280 Georges
      StreetLevel
      12P.O.
      Box H126 Australia SquareNSW 1215    |  |               |  |                   | 
|Sydney
      (Australia)                                                                |  | Full          |  | 100.00            | 
|                                                                                         |  |               |  |                   | 
|Onyx Umweltservice
      GmbH                                                            |  |               |  |                   | 
|Am Mühlengarten
      466292
      Riegelsberg (Germany)                                |  | Full          |  | 100.00            | 
|                                                                                         |  |               |  |                   | 
|Marius
      Pedersen                                                                    |  |               |  |                   | 
|Obaekvej
      495863 Ferritslev (Denmark)                                              |  | Full          |  | 65.00             | 
|                                                                                         |  |               |  |                   | 
|Transportation                                                                           |  |               |  |                   | 
|                                                                                         |  |               |  |                   | 
|CGEA Connex
      (Compagnie Générale dEntreprises Automobiles) and
      subsidiaries  |  |               |  |                   | 
|Parc des
      Fontaines163
      / 169, avenue Georges Clémenceau92000
      Nanterre |  | Full          |  | 100.00            | 
|                                                                                         |  |               |  |                   | 
|Aktiebolaget
      Linjebuss                                                             |  |               |  |                   | 
|Englundavagen
      9Box
      182017124
      Solna (Sweden)                          |  | Full          |  | 100.00            | 
|                                                                                         |  |               |  |                   | 
|Connex
      Rail Ltd                                                                    |  |               |  |                   | 
|41/45
      Blackfriars RoadSE1
      8PG London (Great-Britain)                        |  | Full          |  | 100.00            | 
|                                                                                         |  |               |  |                   | 
|F.C.C.                                                                                   |  |               |  |                   | 
|                                                                                         |  |               |  |                   | 
|F.C.C.
      and subsidiaries (F.C.C.)                                                   |  |               |  |                   | 
|Calle
      Balmes 3608007 Barcelona (Spain)                                            |  | Prop          |  | 27.96             | 
|                                                                                         |  |               |  |                   | 
|Proactiva                                                                                |  |               |  |                   | 
|216 Paso
      de la Castellana28046
      Madrid (Spain)                               |  | Full          |  | 63.98             | 
|                                                                                         |  |               |  |                  
|EM Equity
      method Prop Proportionate                                                |  |               |  |                  

F-52

---

26. SUPPLEMENTAL
  DISCLOSURES 
       The
  following information has been prepared to present supplemental disclosures
  required under U.S. GAAP and SEC regulations applicable to the Group.

26A. SUMMARY
  OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING POLICIES
  GENERALLY ACCEPTED IN THE UNITED STATES AND FRANCE    The
  consolidatedfinancial statements of the Group have been prepared in accordance
  with accounting principles generally accepted in France (French GAAP)
  which differ in certain respects from accounting principles generally accepted
  in the United States (U.S.
  GAAP).
  The principal differences between French GAAP and U.S. GAAP as they relate to
  the Group are discussed in further detail below.

Use of the
  Proportionate Consolidation Method 
       Under
  French GAAP, it is appropriate to use the proportionate consolidation method
  for subsidiaries over which the Group and other shareholders have agreed to
  exercise joint control over significantfinancial
  and operating policies. Under the proportionate consolidation method, the Group
  recognizes the assets, liabilities, equity, revenues and expenses of subsidiaries
  to the extent of its interest in the Group ownership.

Under U.S. GAAP, when the Group controls a subsidiary based on majority ownership or voting or other rights, the subsidiary is fully consolidated. When the
Group does not exercise control over a subsidiary, but has significant influence over the entity, the Group uses the equity method to account for its investment.

This difference in accounting policy has no effect on either net income or shareholdersequity.

Use of the
  Equity Method 
       Under
  French GAAP there are several criteria to be met which result in the presumption
  that equity accounting should be used. For investments under 20%, equity accounting
  is followed if the investor is determined to have significant
  influence
  due to the relative level of ownership, board of directors representation, and
  other contractual relationships. Another consideration is the level of ownership
  by others in the investee. The Group applies the criteria described in Note
  2.

Under U.S. GAAP, equity accounting is generally required when an investors ownership interest is equal to or greater than 20% of the investees total voting securities. In unusual situations where the ownership interest is less than 20% equity accounting may be appropriate if significant influence exists as the result of other contractual relationships and board representation.

Income taxes
  
       Under
  French GAAP, the Group does not recognize deferred tax assets on net operating
  loss carryforwards or on temporary differences when the recovery of the related
  deferred tax asset is not probable.

Under U.S. GAAP, deferred tax assets are recognized for deductible temporary differences and net operating loss carryforwards and are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

This
  difference in accounting policy has no effect on either net income or shareholdersequity.

Goodwill
  
       Under
  both U.S. and French GAAP, goodwill arising from purchase business combinations
  is determined as the excess of the consideration paid by the acquirer over the
  fair value of the identifiable
  assets acquired and liabilities assumed as of the acquisition date.

Reduction
  of Shareholdersequity 
       Under
  French GAAP, the Group recognizes goodwill as an asset and amortizes it over
  the estimated useful life. However until December 1999, if the acquisition wasfinanced
  with equity securities of the Group, the resulting goodwill could be recorded
  as a reduction of shareholdersequity
  (this option was adopted in 1999 and 2000 for the

F-53

---

acquisition of United States Filter Corporation as described in Note 3. Under U.S. GAAP, this option is not available and goodwill is recorded as an asset and amortized over the
estimated useful life, not to exceed 40 years.

Under French GAAP on January 1, 2001, Vivendi Environnement has forgone the imputation of the goodwill of US Filter recorded as a reduction of
shareholders equity. As a consequence of which, there is no longer a difference between French GAAP
and U.S. GAAP.

Specific transactions: Businesses sold by Vivendi Universal
  
       Upon
  forming the Group, Vivendi Universal sold certain subsidiaries and affiliates
  to the Group. According to French GAAP, these transactions were at market value
  which, in certain cases, has resulted in the generation of additional goodwill.
  Under U.S. GAAP, transfers of assets among entities under common control, including
  transfers of operating subsidiaries, are recorded at the predecessors
  historical cost basis.

Impairment
  of goodwill 
       Under
  French GAAP, the Group has recorded an impairment of goodwill. The method used
  to determine such impairment is not compliant with the provisions of SFAS 121.
  Consequently, the impairment charge has been adjusted under U.S. GAAP.

Dilution
  profit
  or capital gain 
       There
  is a difference between French and U.S. GAAP regarding the amount of dilution
  profit
  or capital gain due to the impact of U.S. GAAP adjustments on the carrying value
  of sold entities. These U.S. GAAP adjustments are posted as goodwill and therefore
  have been reported on this line item.

Intangible
  Assets Start-up
  Costs 
       Under
  French GAAP, certain costs, such as start-up costs, are capitalized and amortized
  over their useful lives or the duration of the contract, if applicable.

Under
  U.S. GAAP, start-up costs are charged to expense in the period they are incurred.

Other
  Intangible Assets Acquired in Business Combinations 
       Under
  French GAAP, trademarks and market shares acquired in a business combination
  are not required to be amortized.

Under U.S. GAAP, market shares would not be considered as a separately identifiable intangible asset, but would be reclassified as a component of goodwill and would be recorded as an asset and amortized over the estimated useful life not to exceed 40 years. All other separately identifiable intangible assets acquired, such as trademarks, are recognized in the non-current assets section of the balance sheet
and are amortized over their useful lives not to exceed 40 years.

Public Service
  Contracts 
       Commitments
  to Maintain and Repair Assets 
       Under
  French GAAP, a few consolidated subsidiaries, being generally jointly controlled,
  apply the accrue in advance method to account for repair costs.

Under U.S. GAAP, the Group applies the expensed as incurred method for maintenance and repair expenditures.

Payments
  to Local Authorities 
       Under
  French GAAP, these obligations are not recorded as a liability on the balance
  sheet. The debt service payments are expensed in a manner that results in the
  straight line recognition of the total payments over the contract period. The
  payments made in early years of the contract period may exceed the straight
  line expense amount. This

F-54

---

difference is recorded as a prepaid expense and amortized to income over the remaining contract period so as to achieve the straight line expense amount throughout the contract
period.

Under US GAAP, the present value of the total obligation has been recorded as debt on the balance sheet. The interest element of the obligation is
amortized to income so as to achieve a constant rate of interest on the outstanding liability.

Reserves
  
       Under
  French GAAP, certain reserves and allowances may be provided, including reserves
  for repairs and replacement, and restructuring charges, when it is possible
  that those costs will be incurred or when management decisions are taken, but
  not yet documented.

Under U.S. GAAP, contingent losses are accrued only if it is probable that a liability had been incurred at the date of thefinancial statements and the amount of loss can be reasonably estimated. In addition, for certain reserves, such as
restructuring charges, additional criteria must be met. If these criteria are not met, the provision for these reserves and allowance may not be recognized.

Reconciling adjustments were made to certain restructuring reserves because the probability criteria under FAS 5 had not been met or the criteria for
severance ratification and employee identification under EITF 94-3 had not been completed at the time the reserves were established under French GAAP. Reconciling adjustments were also made to reverse
reserves recorded under French GAAP for estimates of future possible repair and maintenance costs. The conditions under which the reserves were recorded did not meet the liability criteria under FAS 5.

Under French GAAP, reserves related tofixed assets, inventories and investments in unconsolidated subsidiaries may be accounted as liabilities. Under U.S. GAAP, these reserves are recognized as a reduction of the carrying value of the
related assets.

Securitization
  and discounting of receivables 
       The
  Group has entered into various securitizations agreements, various discounting
  of receivables and sales of future receivables as described in Note 9 and Note
  13.

According
  to the securitization agreement signed in France (see Note 9) for a total amount
  of€752 million at the end
  of 2001, an amount of€322 million (which concerns excise taxes) is not compliant
  with the provisions of SFAS 140 and is therefore restated under U.S. GAAP.

Regarding
  to the securitization agreements which are compliant with the provisions of
  SFAS 140, the Group, irrevocably and without recall, except for clean-up call,
  has transferred its eligible accounts receivables to the special purpose entities.
  The Group acts as collection agent. The sales of receivables concerned amounts
  to €430
  million in France and $155 million in the USA.

The
  default reserve is calculated based on the analysis of historical loss trends
  and expected future loss. The securitization agreements were signed in December
  2001. As a consequence, the carrying value of retained interests is deemed to
  be their fair value.

Under
  French GAAP, future receivables sale (see Note 13) is accounted as deferred
  income and the discounting of receivables is accounted for as a sale. Under
  U.S. GAAP, the deferred income is reclassified
  as long-termfinancial
  debt whereas discounting of receivables does not qualify as a true sale in compliance
  with the provisions of SFAS 140.

Financial
  Instruments 
        Investment
  Securities 
       Under
  French GAAP, investments in debt and non-consolidated equity securities are
  recorded at acquisition cost and an allowance is provided if management deems
  that there has been an other-than-temporary decline in fair value. Unrealized
  gains and temporary unrealized losses are not recognized.

Under U.S. GAAP, investments in debt and equity securities are classified into three categories and accounted for as follows:

F-55

---

Debt securities that the Group has the intention and the ability to hold to maturity, are carried at cost and classified asheld-to-maturity.

Debt and equity securities that are acquired and held principally for the purpose of sale in the near term are classified astrading securitiesand are reported at fair
value, with unrealized gains and losses included in earnings. All other investment securities not otherwise classified as eitherheld-to-maturityortradingare classified asavailable-for-salesecurities and reported at fair value, with unrealized
gains and losses excluded from earnings and reported in shareholdersequity.

Under U.S. GAAP, Vivendi Universal shares owned by the Group are accounted for asavailable-for-sale securities.

Convertible
  bonds 
       Under
  French GAAP, the accrual of redemption premium is optional. Under U.S. GAAP,
  the redemption premium is accrued asfinancial
  interest expense. The Groups convertible bonds
  include a beneficial
  conversion feature associated with the contingent conversion of the bonds into
  the Groups
  shares. The conversion was contingent upon the Group effecting an initial public
  offering of its shares, which it did in July, 2000. In accordance with French
  GAAP, the Group has not recordedfinancial
  interest expense in connection with the beneficial conversion feature. Under
  U.S. GAAP, afinancial
  interest expense related to the feature computed upon the full amount of bonds
  eligible is recorded as of the date of the initial public offering.

Treasury
  Shares 
       Under
  French GAAP, shares of the Groups own stock owned by the Group
  and its subsidiaries are recorded as marketable securities in the consolidatedfinancial statements if
  those shares are acquired to stabilize the market price or in connection with
  stock options granted to directors and employees.

Under U.S. GAAP, treasury shares are recorded as a reduction of shareholdersequity. Profit and loss on the
disposal of treasury shares is recognized as an adjustment to shareholdersequity.

Derivative
  Financial Instruments 
       According
  to French GAAP, derivativefinancial instruments are not
  recorded to the consolidated balance sheet. The effects offinancial instruments which qualify
  as hedging instruments are included in net income along with the corresponding
  hedged item for thosefinancial
  instruments which do not qualify as hedging instruments, a provision is recorded
  when their market value is negative.

On January 1, 2001, Vivendi Environnement adopted SFAS 133Accounting for derivative instruments and hedging activities. According to SFAS 133, derivativefinancial instruments (including those embedded
in other contracts) should be recorded on the balance sheet at their fair value. Changes to fair value are recorded depending on whether the derivative instrument is classified as a fair value hedge or a cash-flow hedge, or is regarded as not being a hedging instrument under SFAS 133.

The variations of fair value hedges are recorded infinancial income (expenses). The effect on income is matched by the reevaluation of the hedged asset, debt orfirm commitment which is also recorded infinancial
income (expenses).

The variation of cash-flow hedges are recorded under other comprehensive income. They are recorded in income depending on the realization of the underlying cash-flow.

The qualification of the hedge, results from the initial intention of thefinancial instrument as a
means of hedging an asset, debt,firm commitment or future cash-flow. The effectiveness of the hedging instrument should be periodically tested to show the correlation between the changes in
the hedging instrument and the hedged item. The ineffective part of the hedging instrument is systematically recorded tofinancial income (expenses).

The derivative instruments used by Vivendi Environnement as part of its risk management, but which do not constitute hedging instruments under SFAS 133 are
recorded at their fair value, with changes to their value included in net income of the exercise.

F-56

---

Due to itsfinancial operations, Vivendi Environnement is exposed to market risks (essentially due to changes in interest rate or exchange rates). Management uses thesefinancial instruments to limit thesefinancial risks. Nevertheless, some of thefinancial instruments used do not satisfy
the criteria defined by SFAS 133 to qualify as hedging instruments. Consequently, the volatility of the
market value of these derivative instruments is reflected infinancial income (expenses).

On
  January 1, 2001, the effect of the adoption of SFAS 133 on the consolidated
  accounts was an increase of €6
  million on net income and a reduction of€18
  million on other comprehensive income.

The
  amount of other comprehensive income that has been reclassified into earning during the year is €(10.3)
  million.

At December 31, 2001, the amount of accumulated other comprehensive income relating to Cash-Flow hedges amounts to€(29.5) million (net of tax) of which an amount of€(11.6) million (net of tax) will be reclassified into earnings during the next year. The Cash-Flow hedges are used by the Group to hedge underlying on the 2002-2004 period.

The amount of the inefficiency is not significant as of December 31, 2001 both for fair value hedges and cashflow hedges. The Group did not have any amount excluded from the measure of effectiveness. No contract that
qualifies as hedge was cancelled during year 2001. There are no net investment hedges as of December 31,
2001.

Stock Based
  Compensation 
       Vivendi
  Universal has adopted stock option incentive plans that grant options on its
  common shares to certain directors and officers,
  including those of the Group. Vivendi Universal also maintains employee stock
  purchase plans that allow substantially all full-time employees of the Group
  and its subsidiaries to purchase shares of Vivendi Universal.

Under French GAAP, common shares issued upon the exercise of options granted to employees and directors are recorded as an increase to share capital at the
cumulative exercise price. Vivendi Universal shares sold to employees through qualified employee stock
purchase plans are reclassified from marketable securities to share capital. The difference between the
carrying value of the treasury shares and the cumulative exercise price by the stock purchase plan is recognized as a gain or loss in the period that the shares are sold. In accordance with French GAAP, the Group has not recorded compensation
expense on stock-based plans with a discounted exercise price of up to 20% off the fair value of the common shares at the date of grant.

Under U.S. GAAP, APB opinion No. 25 defines plans that grant or sell common shares to employees as compensatory if such plans are not open to substantially all employees and do not require the employee to make a reasonable investment in
the shares, usually defined as no less than 85% of the market value at the grant date. If a plan is deemed
to be compensatory, APB Opinion No. 25 requires that the compensation arising from such plans be measured based on the intrinsic value of the shares granted or sold to employees. Forfixed plans remuneration is the difference between the exercise price of the stock option and the market value of the corresponding shares. For compensatory
stock option plans, remuneration is recognized in the period for which the relative service is performed.

These reconciling items are further described in Note 26F.

Pension Plans
  
       Since
  January 1997, the Group has adopted an accounting policy to record pension obligations,
  covering all eligible employees, using the projected unit credit method. The
  transition obligation as of the date of adoption is amortized over the average
  residual life of the employees.

Under U.S. GAAP, the projected unit credit method is required to be applied as of January 1, 1989. The transition obligation or fund excess determined as
of January 1, 1989 is amortized over the average residual active life of the population that was covered under the plan at that date.

Under French GAAP, postretirement benefits other than pensions are recorded as expense when amounts are paid.

F-57

---

Under U.S. GAAP, the Group must recognize an obligation for amounts to be paid under postretirement plans, other than pensions. A postretirement transition
obligation may be determined as of January 1, 1995 and amortized over the estimated average life of retirees covered by the plan. Current period charges are based on estimated future payments to expected retirees.

Lease contracts
  
       The
  Group recognizes assets and debts corresponding to certain types of lease contracts
  including a purchase option (known in France ascrédit-bail).
  Under French GAAP, lease payments corresponding to all other types of leases
  are expensed as incurred.

Under U.S. GAAP, leases are classified as capital or operating leases. Leases that meet the criteria of capital leases are recognized as assets with a corresponding amount presented as debt on the balance sheet. Recorded assets are depreciated over their
estimated useful lives.

26B. NEW
  ACCOUNTING PRONOUNCEMENTS IN THE UNITED STATES

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141,Business Combinations,and SFAS No. 142,Goodwill and Other
Intangible Assets.SFAS No. 142 is effective for the Group as of January 1, 2002. Under the new
rules, goodwill and indefinite lived intangible assets will no longer be amortized but will be reviewed at
least annually for impairment. Intangible assets that are not deemed to have an indefinite life will
continue to be amortized over their useful lives.

SFAS No. 141 requires that all business combinations be accounted for under the purchase method only. SFAS No. 141 is effective for all business
combinations subsequent to June 30, 2001. SFAS No. 142 also states that goodwill and intangible assets with indefinite lives acquired after June 30, 2001 should not be amortized. During 2001, the Group accounted for business combinations consummated subsequent to June 30, 2001 in accordance with SFAS No. 141 and SFAS No. 142.

Goodwill amortization
  expense for the years ended December 31, 2001 and 2000 was€365 millions and €313
  millions respectively.

The Group estimates the cumulative effect of adopting this standard will result in a non-cash charge in thefirst quarter of 2002 of an amount between€2.5 billion and€3 billion. This impairment
reflects the impact on the subsidiary US Filter of the evolution of the US economic situation. It will be
accounted for as a change in accounting principles.

SFAS No. 143Accounting for Asset Retirement Obligationswas issued in June 2001 and
becomes effective in January 2003. This statement addresses accounting and reporting for obligations and costs which will occur when long-term assets are retired. Among other things, the statement requires that the present value of the liability
associated with future asset retirements be recorded on the balance sheet when an obligation has been incurred and when it can be measured. The amortization of the capitalized cost and increases in the present value of the obligation which result
from the passage of time, are recorded as charges to earnings. The Group estimates that the adoption of the new standard should not have a material effect on the consolidatedfinancial statements.

SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assetswas issued in
August 2001 and becomes effective in January 2002. This statement replaces previous accounting standards related to long term asset impairments and provides guidance concerning the recognition and measurement of impairment losses for certain types
of long-term assets. The statement recommends the use of probability-weighted cashflow estimations,
precludes accruing future operating losses prior to asset disposal, expands the scope ofdiscontinued operationsto include a component of an entity, and eliminates
the current exemption to consolidation when control over a subsidiary is likely to be temporary. The Group intends to sell non core assets in 2002 and 2003. The possiblefinancial impact of this standard is not yet known.

F-58

---

26C. RECONCILIATION
  OF SHAREHOLDERSEQUITY AND NET INCOME TO U.S.GAAP
       The
  following is a summary reconciliation of shareholdersequity as reported in the consolidated
  balance sheet to shareholdersequity as adjusted for the approximate effects of the application
  of U.S. GAAP for the period ended December 31, 2001, 2000 and 1999, and net
  income as reported in the consolidated statement of income to net income as
  adjusted for the approximate effects of the application of U.S. GAAP for the
  period ended December 31, 2001, 2000 and 1999 (in millions of euros).

|                                                                          | At
      December 31, |  
|------------------------------------------------------------------------- | --------------------- | -
|                                                                          |                       |  
|                                                                          | 2001                  |  
|                                                                          |                       |  
|Shareholders
      equity as reported in the consolidated balance sheets | 5,740.0               |  
|Adjustments
      to conform to U.S. GAAP:                                |                       |  
|Goodwill
      (Gross)                                                    | (1,213.4              | )
|Goodwill
      accumulated amortization                                   | 2,518.1               |  
|Dilution
      profit or capital gain/loss                                | 16.5                  |  
|Intangible
      assets (Gross)                                           | (103.0                | )
|Intangible
      assets amortization                                      | (153.5                | )
|Commitments
      to maintain and repair assets                           | 189.1                 |  
|Payments
      to local authorities                                       | (166.1                | )
|Reserves
      for restructuring liabilities                              | 37.3                  |  
|Other
      reserves                                                      | 44.2                  |  
|Treasury
      shares                                                     | (159.4                | )
|Otherfinancial
      instruments                                          | 79.7                  |  
|Stock
      based compensation                                            | (199.8                | )
|Pension
      plans                                                       | (5.1                  | )
|Leases
      (property, plant & equipment)                                | 0.4                   |  
|Use
      of equity method                                                | (38.5                 | )
|Others                                                                    | 16.4                  |  
|Tax
      effect of above adjustments                                     | 177.8                 |  
|                                                                          |                       |  
|U.S. GAAP
      Shareholders Equity                                      | 6,780.7               |  
|                                                                          |                       |  

F-59

---

|                                                                      | For
      the yearended
      atDecember
      31, |  
|--------------------------------------------------------------------- | -------------------------------------------------- | -
|                                                                      |                                                    |  
|                                                                      | 2001                                               |  
|                                                                      |                                                    |  
|Net income
      as reported in the consolidated statements of income | (2,251.2                                           | )
|Adjustments
      to conform to U.S. GAAP:                            |                                                    |  
|Goodwill
      amortization                                           | 2,481.3                                            |  
|Dilution
      profit or capital gain/loss                            | (15.6                                              | )
|Intangible
      assets (Gross)                                       | (9.7                                               | )
|Intangible
      assets amortization                                  | (47.9                                              | )
|Commitments
      to maintain and repair assets                       | (43.8                                              | )
|Payments
      to local authorities                                   | 2.0                                                |  
|Reserves
      for restructuring liabilities                          | (10.9                                              | )
|Other
      reserves                                                  | (1.9                                               | )
|Treasury
      shares                                                 | 21.0                                               |  
|Otherfinancial
      instruments                                      | (84.5                                              | )
|Stock
      based compensation                                        | (19.3                                              | )
|Pension
      plans                                                   | 0.3                                                |  
|Leases
      (property, plant & equipment)                            | (1.1                                               | )
|Use
      of equity method                                            | (0.4                                               | )
|Others                                                                | (6.2                                               | )
|Tax
      effect of above adjustments                                 | 168.2                                              |  
|                                                                      |                                                    |  
|U.S. GAAP
      Net Income                                            | 180.3                                              |  
|                                                                      |                                                    |  

Basic and
  Diluted Earnings Per Share 
       For
  U.S. GAAP purposes, basic earnings per share are computed in the same manner
  as basic earnings per share under French GAAP,i.e.,
  by dividing net income by the weighted average number of shares outstanding.
  Diluted earnings per share reflect
  the potential dilution that would occur if all securities and other contracts
  to issue ordinary shares were exercised or converted. Net income represents
  the earnings of the Group after minority interests. The computation of diluted
  earnings per share is as follows (except earnings per share, in millions of
  euros or millions of shares):

|                                                                           | At
      December 31, | 
|-------------------------------------------------------------------------- | --------------------- | 
|                                                                           |                       | 
|                                                                           | 2001                  | 
|                                                                           |                       | 
|Net income
      (under U.S. GAAP)                                         | 180.3                 | 
|Net income
      before cumulative effect of adoption of SFAS 133          | 174.3                 | 
|Weighted
      average number of shares                                    |                       | 
|Outstandingbasic                                                          | 343.8                 | 
|Dilutive
      effect of:                                                  |                       | 
|Shares
      issuable on exercise of dilutive options                      | 0.5                   | 
|Weighted
      average number of shares                                    |                       | 
|Outstandingdiluted                                                        | 344.3                 | 
|Earnings
      per share:                                                  |                       | 
|Basic                                                                      | 0.52                  | 
|Diluted                                                                    | 0.52                  | 
|Earnings
      per share before cumulative effect of adoption of SFAS 133: |                       | 
|Basic                                                                      | 0.51                  | 
|Diluted                                                                    | 0.51                  | 

F-60

---

26D. PRESENTATION
  OF THE BALANCE SHEET AND INCOME STATEMENT IN U.S.
  GAAP FORMAT 
       For
  purposes of presenting consolidated condensed balance sheets and income statements
  in a format consistent with U.S. GAAP, the Group has reflected
  thefinancial statements impacts
  of the reconciling differences between French and U.S. GAAP presented in Note
  26A. In addition, the joint ventures consolidated using the proportionate method
  under French GAAP are accounted for using the equity method under U.S. GAAP
  and all material reclassifications
  are reflected
  in the summarized balance sheet and the income statement presented using U.S.
  GAAP.

Net sales
  Management
  contracts Under
  its management contracts, the Group manages a public service for afixed
  fee and an incentive calculated with reference to the performance of the contract.

Under French GAAP, billings to customers are recognized as revenue and the related costs are recognized as costs of sales. The difference between revenue
and related costs represents the remuneration of the operator which consists of afixed fee and incentive
payments.

Under U.S. GAAP, only afixed fee and
incentive are recognized as revenue when the service is rendered.

This difference in accounting policy has no effect on net income or shareholdersequity. The impact on presentation is€784 million for 2001,€753 million for 2000 and€730 million for 1999.

Other Income
  
       Until
  January 1, 2001, capital gains or losses on sales of consolidated entities or
  equity affiliates
  and related costs were considered for French GAAP purposes as exceptional income,
  and were classified
  for U.S. GAAP purposes as other income (loss). The Group recorded a gain in
  this category of€796.8
  million for 2000 and a loss of €52.7
  million in 1999.

Income Taxes
  
       The
  difference in accounting policy between French GAAP and U.S. GAAP results in
  a presentation impact amounting to€107.0,€95.9 and€118.6
  million in 2001, 2000 and 1999, respectively, on both gross deferred tax assets
  and the corresponding valuation allowance.

F-61

---

Income Statement in U.S. GAAP Format

|                                                                              | For
      the year ended at December 31, |     
|----------------------------------------------------------------------------- | ---------------------------------------- | ----
|                                                                              |                                         
|2001                                                                          |                                          | 2000
|                                                                              |                                          |     
|(€
      millions)                                                            | AdjustedUS GAAP*                         |     
|                                                                              |                                          |     
|Net
      Sales**                                                             | 28,343.1                                 |     
|Cost of
      sales                                                           | (22,836.9                                | )   
|Selling,
      general and administrative costs                               | (3,588.4                                 | )   
|Goodwill
      amortization                                                   | (426.8                                   | )   
|Other
      operating expense and revenue                                     | (56.4                                    | )   
|Operating
      income                                                        | 1,434.6                                  |     
|Financial
      income (expense)                                              | (901.7                                   | )   
|Other
      income (expense)                                                  | 2.2                                      |     
|Net
      income before taxes, minority   interests
      and equity interest | 535.1                                    |     
|Taxes                                                                         | (286.6                                   | )   
|Net
      income before minority interests   and
      equity interest        | 254.5                                    |     
|Equity
      interest                                                         | 47.6                                     |     
|Minority
      interest                                                       | (121.8                                   | )   
|Cumulative
      effect of adoption of   SFAS 133                             | 6.0                                      |     
|Net
      income/(loss)                                                       | 180.3                                    |     
|                                                                              |                                          |     

|*  | These
      figures represent U.S. GAAP format after reconciling adjustments and reclassifications
      exclusive of those adjustments and reclassifications related to proportionate
      consolidation.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Includes
      excise taxes and contributions collected on behalf of local authorities
      in an amount of€1,770
      million for 2001,€1,729 million in 2000 and€1,635
      million in 1999.          

Balance Sheet in U.S. GAAP Format

|                                                   | At
      December 31,  |         
|-------------------------------------------------- | ---------------------- | --------
|                                                   |                       
|2001                                               |                        | 2000    
|                                                   |                        |         
|(€
      millions)                                 | AdjustedUS
      GAAP* |         
|                                                   |                        |         
|Current
      assets                               | 18,361.9               |         
|Long-term
      assets                             | 28,614.5               |         
|                                                   |                        |         
|Total
      assets                                 |                        | 46,976.4
|                                                   |                        |         
|Current
      liabilities                          | 19,892.0               |         
|Long-term
      liabilities**                      | 17,620.1               |         
|Minority
      interests                           | 2,683.6                |         
|Shareholdersequity                                | 6,780.7                |         
|                                                   |                        |         
|Total
      liabilities and shareholders   equity | 46,976.4               |         
|                                                   |                        |         
|                                                  

|*  | These
      figures represent U.S. GAAP format after reconciling adjustments and reclassifications
      exclusive of those adjustments and reclassifications related to proportionate
      consolidation.                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Financial
      depreciation related to facilities (as described in accounting policies
      specific to environmental services activities) are accounted as liabilities
      under French GAAP and as a reduction of the carrying value of the related
      fixed assets under U.S. GAAP. This reclassification amounted to€632.4 million,€532.5
      million and€486.3
      million in 2001, 2000 and 1999, respectively.

F-62

---

26E.  COMPREHENSIVE
  INCOME The
  concept of comprehensive income does not exist under French GAAP. In U.S. GAAP,
  SFAS 130 Reporting
  comprehensive incomedefines comprehensive income to include, net of tax impact (in
  millions of euros):

| |  | minimum
      pension liability adjustments (MLA),                                                                                                            
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | unrealized
      gains and losses on investment securities classified asavailable
      for saleincluding
      Vivendi Universal shares owned by the Group,
| |  | foreign
      currency translation adjustments.                                                                                                               

|                                                                                       | Comprehensiveincome |   | Accumulatedforeigntranslation |  | Accumulatedunrealizedgains
      (losses)on equitysecurities
      andhedginginstruments |   | Minimumliabilityadjustments |  | Accumulated
      othercomprehensiveincome |  
|-------------------------------------------------------------------------------------- | ------------------- | - | ----------------------------- |  | ---------------------------------------------------------------------------------------- | - | --------------------------- |  | ------------------------------------------ | -
|                                                                                       |                     |   |                               |  |                                                                                          |   |                             |  |                                            |  
|Net
      income 1998 (French GAAP)                                                    | 162.0               |   |                               |  |                                                                                          |   |                             |  |                                            |  
|Foreign
      currency translation adjustments                                         |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|(French
      GAAP)                                                                    | (66.5               | ) |                               |  |                                                                                          |   |                             |  |                                           
|Total                                                                                  | 96.5                |   |                               |  |                                                                                          |   |                             |  |                                           
|                                                                                       |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|Net
      income 1999 (U.S. GAAP)                                                      | (348.3              | ) |                               |  |                                                                                          |   |                             |  |                                           
|Other
      comprehensive income, net of tax                                           |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|(U.S.
      GAAP):                                                                     |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|Foreign
      currency translation adjustments                                         | 315.3               |   |                               |  |                                                                                          |   |                             |  |                                           
|Holding
      gains arising during the period
               on equity securities      | 7.6                 |   |                               |  |                                                                                          |   |                             |  |                                           
|Deferred
      income taxes on holding gains          on
      equity securities       | (1.6                | ) |                               |  |                                                                                          |   |                             |  |                                            |  
|Reclassification
      adjustment (net of tax)                                         | (25.9               | ) |                               |  |                                                                                          |   |                             |  |                                           
|                                                                                       |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|Other
      comprehensive income                                                       | 295.4               |   |                               |  |                                                                                          |   |                             |  |                                           
|                                                                                       |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|Comprehensive
      income for the year ended                                          |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|December
      31, 1999 (U.S. GAAP)                                                    | (52.9               | ) | 271.3                         |  | 23.2                                                                                     |   |                             |  | 294.5                                      |  
|                                                                                       |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|Net
      income 2000 (U.S. GAAP)                                                      | 433.4               |   |                               |  |                                                                                          |   |                             |  |                                           
|Comprehensive
      income for the year ended                                          |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|December
      31, 1999 (U.S. GAAP)                                                    | (52.9               | ) | 271.3                         |  | 23.2                                                                                     |   | 0.0                         |  | 294.5                                     
|                                                                                       |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|Net
      income 2000 (U.S. GAAP)                                                      | 433.4               |   |                               |  |                                                                                          |   |                             |  |                                           
|Other
      comprehensive income 2000, net of tax                                      |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|(U.S.
      GAAP):                                                                     | 446.6               |   |                               |  |                                                                                          |   |                             |  |                                           
|Including
      :                                                                      |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|foreign
      currency translation adjustments                                         | 455.5               |   | 455.5                         |  |                                                                                          |   |                             |  | 455.5                                     
|holding
      losses arising during the period on
              equity securities      | (7.5                | ) |                               |  | (7.5                                                                                     | ) |                             |  | (7.5                                       | )
|deferred
      income taxes on holding losses on
              equity securities       | 1.8                 |   |                               |  | 1.8                                                                                      |   |                             |  | 1.8                                       
|reclassification
      adjustment (net of tax)                                         | (3.2                | ) |                               |  | (3.2                                                                                     | ) |                             |  | (3.2                                       | )
|                                                                                       |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|Comprehensive
      income for the year ended      December
      31, 2000 (U.S. GAAP) | 880.0               |   | 726.8                         |  | 14.3                                                                                     |   | 0.0                         |  | 741.1                                     
|                                                                                       |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|Net
      income 2001 (U.S. GAAP)                                                      | 180.3               |   |                               |  |                                                                                          |   |                             |  |                                           
|Other
      comprehensive income 2001, net of tax                                      |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|(U.S.
      GAAP):                                                                     | 291.4               |   |                               |  |                                                                                          |   |                             |  |                                           
|Including
      :                                                                      |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|foreign
      currency translation adjustments                                         | 323.2               |   | 323.2                         |  |                                                                                          |   |                             |  | 323.2                                     
|holding
      losses arising during the period on
               equity securities     | (6.7                | ) |                               |  | (6.7                                                                                     | ) |                             |  | (6.7                                       | )
|unrealized
      losses on hedging derivatives                                         | (46.4               | ) |                               |  | (46.4                                                                                    | ) |                             |  | (46.4                                      | )
|deferred
      income taxes                                                            | 19.3                |   |                               |  | 19.3                                                                                     |   |                             |  | 19.3                                      
|MLA                                                                                    | 2.0                 |   |                               |  |                                                                                          |   | 2.0                         |  | 2.0                                       
|                                                                                       |                     |   |                               |  |                                                                                          |   |                             |  |                                           
|Comprehensive
      income for the year ended      December
      31, 2001 (U.S. GAAP) | 471.7               |   | 1,050.0                       |  | (19.5                                                                                    | ) | 2.0                         |  | 1,032.5                                   
|                                                                                       |                     |   |                               |  |                                                                                          |   |                             |  |                                           

F-63

---

26F.  STOCK
  BASED COMPENSATION Vivendi Universal
  Stock Option Plans 
       Beginning
  in 1997, Vivendi Universal has adopted a series of stock option incentive plans
  pursuant to which options on its common shares are granted to certain directors
  and officers,
  including officers
  and directors of the Group. Vivendi Universal also maintains employee stock
  purchase plans that allow substantially all full-time employees of the Group
  and its subsidiaries to purchase shares of Vivendi Universal. The purpose of
  the stock option plans is to align the interest of management with the interest
  of shareholders by providing certain officers
  and other key employees with additional incentives to increase the companys
  performance on a long-term basis. Vivendi Universal has operated certain stock
  option plans including: theclassic
  fixed plan, the senior managementfixedplan
  and the senior managementvariableplan:

| |  | Under
      the classicfixed
      plan, Vivendi Universal grants options at a strike price discounted to 12.5%
      to 20% from the fair value of the stock on the date of grant. These options
      are granted with a contractual life of 8 to 10 years and vest over a 5 year
      period from the date of the grant. Options have been granted under the classic
      plan each year since its inception.                                                                                                                                                                                                                                                                                                      
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Under
      the senior managementfixed plan, Vivendi Universal grants options to a limited number
      of senior managers with a strike price at a premium to the fair market value
      of the stock on the date of grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | Under
      the senior management variable plan, Vivendi Universal grants options to
      a limited number of senior managers. The number of options granted under
      the plan is measured twice over a 5-year vesting period. Thefirst
      measurement is after three years, and the second is afterfive
      years. At each measurement date, the number of options to be granted is
      based on a formula that measures the performance of Vivendi Universal stock
      against the performance of a basket of peer companies. The options become
      immediately exercisable. If a participant leaves the company before either
      of the measurement dates, he forfeits eligibility for the awards.

In November 2000, Vivendi Universal granted ten stock options to each of its employees. The 2,203,140 options have been granted at an exercise price of€62.6, which represented a 20% discount from the market price of Vivendi Universal shares at the
grant date. The options vested immediately but are exercisable only after a period of three years. In certain countries, stock appreciation rights have been granted in place of stock options for regulatory reasons.

There is no income tax deduction associated with stock options under French law.

No compensation expense has been recorded in connection with stock options granted by Vivendi Universal under French GAAP. Under U.S. GAAP, the
compensation expense recorded by the company is€4.6 million,
€ 2.0 million and€35.7 million for years ended 31 December 2001, 2000 and 1999 respectively.

F-64

---

Information relating to Vivendi Universal stock options granted during 2001, 2000 and 1999 is summarized as follows:

|                      | Weighted |  |           |  
|--------------------- | -------- |  | --------- | -
|                      | average  |  | Total     |  
|                      |          |  |           |  
|December 31, 1998     | 33.1     |  | 3,494,357 |  
|Granted               | 69.5     |  | 4,301,277 |  
|Exercised             | 22.2     |  | (862,593  | )
|Forfeited             | 50.5     |  | (12,067   | )
|                      |          |  |           |  
|December 31, 1999     | 52.8     |  | 6,920,974 |  
|                      |          |  |           |  
|Granted               | 82.7     |  | 1,185,000 |  
|Exercised             | 21.7     |  | (365,270  | )
|Forfeited             | 57.5     |  | (32,971   | )
|                      |          |  |           |  
|December 31, 2000     | 60.7     |  | 7,707,733 |  
|                      |          |  |           |  
|Granted               | 48.2     |  | 175,000   |  
|Exercised             | 23.0     |  | (133,383  | )
|Forfeited             | 24.4     |  | (65,945   | )
|Transfer of personnel | 67.3     |  | 197,281   |  
|                      |          |  |           |  
|December 31, 2001     | 61.9     |  | 7,880,686 |  
|                      |          |  |           |  

At December 31, 2001, 2000 and 1999 456,423, 1,492,095, 1,418,502 the total number of options exercisable were with weighted average exercise prices of€31.3,€33.1 and€24.9 per share, respectively.
The options outstanding at December 31, 2001 expire in various years through 2009.

In 2000 and 2001, Vivendi Universal granted 25,000 options on its ADS to its American employees at a exercise price varying between USD 44 and USD 65. The
options vest by a third each year over a three-year period.

F-65

---

Vivendi Environnement
  stock option plans 
       The
  Group granted on June 23, 2000, 780,000 options on its common shares to certain
  directors and officers.
  Under this plan, the number of exercisable options is based on a formula that
  measures the performance of Vivendi Environnement stock against the performance
  of a basket of peer companies. The exercise price is€32.5
  and the maturity is 8 years.

In 2001, the Group granted 3,462,000 options on its common shares to a range of employees. The exercise price and the maturity are respectively€42 and 8 years. These options vest over a period of 3 years.

Information relating to options to purchase the Groups shares granted during 2001 and 2000 is summarized as follows:

|                        | Number
      ofsharesOutstanding |   | Number
      ofsharesExercisable |  | WeightedaverageExerciseprice(in
      euros) | 
|----------------------- | -------------------------------- | - | -------------------------------- |  | -------------------------------------------- | 
|                        |                                  |   |                                  |  |                                              | 
|December
      31, 1999 |                                 |   |                                 |  |                                             | 
|Granted                 | 780,000                          |   |                                 |  | 32.50                                        | 
|Exercised               |                                 |   |                                 |  |                                             | 
|Forfeited               |                                 |   |                                 |  |                                             | 
|Expired                 |                                 |   |                                 |  |                                             | 
|                        |                                  |   |                                  |  |                                              | 
|December
      31, 2000 | 780,000                          |   |                                 |  | 32.50                                        | 
|                        |                                  |   |                                  |  |                                              | 
|                        |                                  |   |                                  |  |                                              | 
|Granted                 | 3,462,000                        |   |                                 |  | 42.00                                        | 
|Exercised               | (10,000                          | ) |                                 |  | 32.50                                        | 
|Forfeited               |                                 |   |                                 |  |                                             | 
|Expired                 |                                 |   |                                 |  |                                             | 
|                        |                                  |   |                                  |  |                                              | 
|December
      31, 2001 | 4,232,000                        |   |                                 |  | 40.27                                        | 
|                        |                                  |   |                                  |  |                                              | 

No
  compensation expense has been recorded in connection with stock options granted
  by Vivendi Environnement under French GAAP. Under U.S. GAAP, the compensation
  expense recorded by the Group was€0.9
  million and€1.9
  million for the year ended December 31, 2001 and 2000 respectively.

Information about Vivendi Universal stock options outstanding at December 31, 2001 is summarized as follows:

|Exercise
      price | Numberoutstanding |  | Averageexercise
      price(in euros) |  | Averageremaininglife(in years) |  | Numbervested | 
|-------------------- | ----------------- |  | ------------------------------------- |  | ------------------------------ |  | ------------ | 
|                     |                   |  |                                       |  |                                |  |              | 
|<20                  | 114,784           |  | 19.31                                 |  | 0.83                           |  | 114,784      | 
|20-40                | 751,665           |  | 27.84                                 |  | 3.22                           |  | 261,639      | 
|40-60                | 1,391,961         |  | 50.07                                 |  | 4.36                           |  |             | 
|60-70                | 2,908,265         |  | 63.54                                 |  | 5.69                           |  |             | 
|70-80                | 1,702,786         |  | 73.80                                 |  | 5.56                           |  | 80,000       | 
|>80                  | 1,011,225         |  | 83.74                                 |  | 6.33                           |  |             | 
|                     |                   |  |                                       |  |                                |  |              | 
|                     | 7,880,686         |  | 61.90                                 |  | 3.59                           |  | 456,423      | 
|                     |                   |  |                                       |  |                                |  |              | 

For the stock option plans adopted prior to January 1, 1998, Vivendi Universal intends to settle options through the issuance of new shares. For stock
options plans adopted in 1998 and later, Vivendi Universal intends to

F-66

---

settle options with treasury shares. As of December 31, 2000 and 1999, Vivendi Universal has designated approximately 5.5 million and 1.8 million treasury shares, respectively, to
settle its potential obligations under stock option plans.

Employee
  Stock Purchase Plans     Vivendi
  Universal maintains savings plans that allow substantially all full time employees
  of Vivendi Universal and its subsidiaries to purchase shares of Vivendi Universal.
  The shares are sold to employees at a discount of 20% from the average market
  price of Vivendi Universal stock over the last 20 business days prior to the
  date of authorization by the management committee. From January 1, 2001 the
  exercise price of the shares is defined
  as the maximum of the average market price of Vivendi Universal stock over the
  last 20 business days at a discount of 20% price and the price on the day of
  the board of Directors meeting discounted by 15%. Shares purchased by employees
  under these plans are subject to certain restrictions over the sale or transfer
  of the shares by employees.

Vivendi
  Universal shares sold to employees of Vivendi Environnement were as follows:

|                                          | 2001      |  | 2000      |  | 1999      | 
|----------------------------------------- | --------- |  | --------- |  | --------- | 
|                                          |           |  |           |  |           | 
|Number of shares                          | 1,682,690 |  | 1,509,622 |  | 3,782,701 | 
|Proceeds on sales (in millions of euros)  | 88.4      |  | 111.4     |  | 253.9     | 
|Average cost of treasury sales (in euros) | 52.5      |  | 75.8      |  | 67.1      | 

Under French GAAP, no compensation expense is recorded in connection with employee stock purchase plans.

Under U.S. GAAP, the compensation cost recorded by the Group for years ended December 31, 2001, 2000 and 1999 is respectively€13.8 million,€43.1 million and€78.2 million.

Vivendi
  Universal applies the intrinsic value method to account for compensation cost
  associated with options granted to employees. In accordance with French GAAP,
  the Group has not recorded compensation expense on options granted with a discounted
  strike price up to 20% from the fair value of shares at the date of grant. Had
  compensation cost for stock options awarded under these plans been determined
  based on the fair value at the dates of grant consistent with the methodology
  of SFAS 123, Vivendi Environnements net income and basic earnings per share would have reflected
  the following pro forma amounts (in millions of euros):

|                                         | At
      December 31, | 
|---------------------------------------- | --------------------- | 
|                                         |                       | 
|                                         | 2001                  | 
|                                         |                       | 
|Pro forma
      net income (loss)        | 129.6                 | 
|Pro forma
      basic earnings per share | 0.38                  | 

The fair value of Vivendi Universal grant is estimated on the date of grant using the Binomial option pricing model with the following assumptions for the
grants:

|Vivendi
      Universal        | 2001  |   | 2000  |   | 1999 |  
|------------------------------ | ----- | - | ----- | - | ---- | -
|                               |       |   |       |   |      |  
|Expected
      life (in years) | 7.80  |   | 7.90  |   | 6.53 |  
|Interest
      rate            | 4.99  | % | 4.80  | % | 4.56 | %
|Volatility                     | 40.00 | % | 35.00 | % | 6.51 | %
|Dividend
      yield           | 1.00  | % | 1.00  | % | 1.14 | %

The weighted average grant date fair value for Vivendi Universal options granted during 2001, 2000 and 1999 were€23.1,€26.1,€24.7 per share, respectively.

In
  2001, the Group assumed a volatility of 30%, an interest rate of 4.9%, a dividend
  yield of 1%. In 2000, the fair value of Vivendi Environnement options were estimated
  on the date of grant using the minimum value method, as no reliable data was
  available to estimate volatility, as Vivendi Environnement was listed only after
  July 20, 2000. The average fair value of Vivendi Environnement options granted
  in 2001 and 2000 was€16
  and€6.67
  respectively.

F-67

---

|26G. | PENSION PLAN AND OTHER COST RETIREMENT BENEFITS OTHER THAN PENSION PLANS
|---- | ------------------------------------------------------------------------

Disclosures,
  presented in accordance with SFAS 132, are as follows (in millions of euros):

|                                                     | Pension
      Benefits |   | Other
      Benefits |  
|---------------------------------------------------- | ---------------------- | - | -------------------- | -
|                                                     |                        |   |                      |  
|                                                     | 2001                   |   | 2000                 |  
|                                                     |                        |   |                      |  
|Change
      in benefit obligation                   |                        |   |                      |  
|Benefit
      obligation at beginning of year        | 1,085.0                |   | 983.8                |  
|Service
      cost                                   | 51.5                   |   | 46.8                 |  
|Interest
      cost                                  | 48.7                   |   | 60.6                 |  
|Plan participant
      contributions                 | 6.6                    |   | 10.7                 |  
|Business
      combinations                          | 5.1                    |   | 11.4                 |  
|Disposal                                             | (239.5                 | ) | (5.7                 | )
|Curtailments                                         | (1.3                   | ) | (2.2                 | )
|Actuarial
      loss (gain)                          | (16.7                  | ) | 22.1                 |  
|Benefits
      paid                                  | (28.2                  | ) | (41.3                | )
|Special
      termination benefits                   | 1.8                    |   |                     |  
|Others
      (foreign currency translation)          | 15.0                   |   | (1.2                 | )
|Benefit
      obligation at end of year              | 927.9                  |   | 1,085.0              |  
|                                                     |                        |   |                      |  
|Change
      in plan assets                          |                        |   |                      |  
|Fair
      value of plan assets at beginning of year | 1,258.7                |   | 1,278.4              |  
|Actual
      return on plan assets                   | (57.2                  | ) | (15.6                | )
|Group
      contributions                            | 17.8                   |   | 23.4                 |  
|Plan participant
      contributions                 | 6.6                    |   | 10.7                 |  
|Acquisitions                                         | 0.3                    |   | 1.3                  |  
|Disposal                                             | (314.9                 | ) | (0.1                 | )
|Curtailments                                         |                       |   | (2.7                 | )
|Benefits
      paid                                  | (26.7                  | ) | (32.4                | )
|Others
      (foreign currency translation)          | 18.2                   |   | (4.3                 | )
|Fair
      value of plan assets at end of year       | 902.7                  |   | 1,258.7              |  
|                                                     |                        |   |                      |  
|Funded
      status of plan                          | (25.2                  | ) | 173.7                |  
|Unrecognized
      actuarial loss                    | 131.6                  |   | (11.3                | )
|Unrecognized
      actuarial prior service costs     | (74.9                  | ) | (141.1               | )
|Unrecognized
      actuarial transition obligation   | (16.1                  | ) | (17.9                | )
|Others                                               | (38.0                  | ) | (45.2                | )
|Accrued
      benefit cost                           | (22.6                  | ) | (41.8                | )

Prepaid
  arising from multi-employer plans overtime (activities under lease contract)
  are written off since there are serious doubts that they could be recoverable
  through future contribution holidays.

The
  projected benefit obligation, accumulated benefit
  obligation and fair value of plan assets for the pension plans with accumulated
  benefit obligation in excess of plan assets were€226.1
  million,€47.2 million and€194.0
  million as of December 31, 2001,€138.5
  million,€97.7
  million and€37.4 million as of December 31, 2000 and€101.3
  million,€76.7
  million and€29.8 million as of December 31, 1999.

F-68

---

Amounts recognized in the balance sheets consist of (in millions of euros):

|                                          | Pension
Benefits |   | Other
Benefits |  
|----------------------------------------- | ---------------- | - | -------------- | -
|                                          | 2001             |   | 2000           |  
|                                          |                  |   |                |  
|Accrued benefit
liability (including MLA) | (157.2           | ) | (157.8         | )
|Prepaid benefit
cost                      | 132.6            |   | 115.4          |  
|                                          |                  |   |                |  
|Net
amount accrued for under U.S. GAAP    | (24.6            | ) | (42.4          | )
|                                          |                  |   |                |  
|Intangible
assets (MLA)(a)                | 2.0              |   | 0.6            |  
|                                          |                  |   |                |  
|Net amount
recognized under U.S. GAAP     | (22.6            | ) | (41.8          | )
|                                          |                  |   |                |  

---

|(a) | Adjustment for U.S. GAAP purpose: the benefit liability accrued under U.S. GAAP has to be the minimum between the accumulated benefit obligation net of fair value of
plan assets and the net amount recognized under U.S. GAAP.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net accruals in the accompanying consolidated balance sheet can be compared with balances determined under U.S. GAAP as follows (in millions of
euros):

|                                                                                                                                                   | Pension
Benefits |   | Other
Benefits |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | - | -------------- | -
|                                                                                                                                                   | 2001             |   | 2000           |  
|                                                                                                                                                   |                  |   |                |  
|Net
amount accrued for under U.S. GAAP                                                                                                             | (24.6            | ) | (42.4          | )
|Excess funding
of plans recognized in
   income only when
paid back to the
   Group                                                                |                 |   |               |  
|Impacts of
transition obligation, of
   prior service cost
and of actuarial
   gains recognized with a different
   timing under local regulations | (73.0            | ) | (0.8           | )
|Minimum liability
adjustments (MLA)                                                                                                                | 2.0              |   | 0.6            |  
|Net
amount accrued for under French
   GAAP in the
accompanying
   consolidated balance sheet                                                      | (95.6            | ) | (42.7          | )
|Accrued                                                                                                                                            | (228.2           | ) | (158.1         | )
|Prepaid                                                                                                                                            | 132.6            |   | 115.4          |  

Net
  periodic cost under U.S. GAAP was as follows (in millions of euros):

|                                                | Pension
Benefits |   | Other
Benefits |  
|----------------------------------------------- | ---------------- | - | -------------- | -
|                                                | 2001             |   | 2000           |  
|                                                |                  |   |                |  
|Service cost                                    | 51.5             |   | 46.8           |  
|Expected interest cost                          | 48.7             |   | 60.6           |  
|Expected return on plan assets                  | (69.1            | ) | (88.7          | )
|Amortization of unrecognized prior service cost | (8.5             | ) | (8.7           | )
|Amortization of actuarial net loss (gain)       | 8.0              |   | (13.1          | )
|Amortization of net transition obligation       | (5.4             | ) | (2.4           | )
|Curtailments/Settlements                        | (2.4             | ) | 0.5            |  
|Others                                          | 7.1              |   | 20.3           |  
|Net periodic benefit cost under U.S. GAAP       | 29.8             |   | 15.3           |  

F-69

---

Weighted-average
  assumptions as of December 31 are as follows (in millions of euros):

|                                         | Pension
Benefits |   | Other
Benefits |  
|---------------------------------------- | ---------------- | - | -------------- | -
|                                         | 2001             |   | 2000           |  
|                                         |                  |   |                |  
|                                         |                  |   |                |  
|Discount rate                            | 5.6              | % | 5.8            | %
|Expected return on plan assets           | 7.0              | % | 7.4            | %
|Expected residual active life (in years) | 13.7             |   | 13.4           |  

F-70

---

26H. RESTRUCTURING
  COSTS

Provisions for restructuring by segment details as follows (in millions of euros):

|                                       | Dec.31,
1998 |  | Change
in
scope of
consolidation |  | Additions
charged to operating Income |  | Utilization |   | Reversal |  | Dec.31,
1999 |  | Change
in
scope of
consolidation |  | Additions
charged to operating Income |  | Utilization |   | Reversal |  | Dec.31,
2000 |  | Change
in scope of consolidation |  | Additions
charged to operating Income |  | Utilization |   | Reversal |  | Dec.31,
2001 | 
|-------------------------------------- | ------------ |  | -------------------------------- |  | ------------------------------------- |  | ----------- | - | -------- |  | ------------ |  | -------------------------------- |  | ------------------------------------- |  | ----------- | - | -------- |  | ------------ |  | -------------------------------- |  | ------------------------------------- |  | ----------- | - | -------- |  | ------------ | 
|                                       |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              | 
|Water                                  |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              | 
|Other
activities                       | 24.2         |  |                                 |  | 15.9                                  |  | (14.3       | ) |         |  | 25.8         |  |                                 |  |                                      |  | (25.8       | ) |         |  |             |  | 19.2                             |  |                                      |  | (12.3       | ) |         |  | 6.9          | 
|Other
restructuring costs              | 24.2         |  |                                 |  | 15.9                                  |  | (14.3       | ) |          |  | 25.8         |  |                                  |  |                                       |  | (25.8       | ) |          |  |             |  |                                  |  |                                       |  |             |   |          |  |             | 
|Employee
termination costs             |             |  |                                  |  |                                       |  |             |   |          |  |             |  |                                  |  |                                       |  |             |   |          |  |             |  | 19.2                             |  |                                       |  | (12.3       | ) |          |  | 6.9          | 
|United
States Filter Corporation       |             |  | 46.0                             |  | 12.9                                  |  | (12.1       | ) |         |  | 46.8         |  | 10.8                             |  |                                      |  | (16.6       | ) |         |  | 41.0         |  | 1.6                              |  | 18.7                                  |  | (27.8       | ) |         |  | 33.5         | 
|Employee
termination costs             |              |  | 9.1                              |  | 0.5                                   |  | (2.2        | ) |          |  | 7.4          |  |                                  |  |                                       |  | (6.1        | ) |          |  | 1.3          |  |                                 |  | 17.6                                  |  | (5.6        | ) |         |  | 13.3         | 
|Lease
termination costs                |              |  | 19.9                             |  |                                       |  | (9.1        | ) |          |  | 10.8         |  | 3.6                              |  |                                       |  | (5.5        | ) |          |  | 8.9          |  |                                 |  |                                      |  | (6.6        | ) |         |  | 2.3          | 
|Other
restructuring costs              |              |  | 17.0                             |  | 12.4                                  |  | (0.8        | ) |          |  | 28.6         |  | 7.2                              |  |                                       |  | (5.0        | ) |          |  | 30.8         |  | 1.6                              |  | 1.1                                   |  | (15.6       | ) |         |  | 17.9         | 
|USFIBenelux                           |             |  | 31.2                             |  |                                      |  |            |   |         |  | 31.2         |  | 6.4                              |  |                                      |  |            |   |         |  | 37.6         |  |                                 |  |                                      |  | (13.8       | ) |         |  | 23.8         | 
|Employee
termination costs             |              |  | 29.0                             |  |                                       |  |             |   |          |  | 29.0         |  |                                  |  |                                       |  |             |   |          |  | 29.0         |  |                                  |  |                                       |  | (12.8       | ) |          |  | 16.2         | 
|Lease
termination costs andother costs |              |  | 2.2                              |  |                                       |  |             |   |          |  | 2.2          |  | 6.4                              |  |                                       |  |             |   |          |  | 8.6          |  |                                  |  |                                       |  | (1.0        | ) |          |  | 7.6          | 
|USFIOther
locations                   |             |  | 32.1                             |  |                                      |  | (19.5       | ) |         |  | 12.6         |  |                                 |  |                                      |  | (9.6        | ) |         |  | 3.0          |  |                                 |  |                                      |  | (3.0        | ) |         |  |             | 
|Employee
termination costs             |              |  | 16.1                             |  |                                       |  | (9.6        | ) |          |  | 6.5          |  |                                  |  |                                       |  | (3.5        | ) |          |  | 3.0          |  |                                  |  |                                       |  | (3.0        | ) |          |  |             | 
|Other
restructuring costs              |              |  | 16.0                             |  |                                       |  | (9.9        | ) |          |  | 6.1          |  |                                  |  |                                       |  | (6.1        | ) |          |  |             |  |                                  |  |                                       |  |             |   |          |  |             | 
|Energy                                 |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              | 
|Employee
termination costs             | 10.8         |  |                                  |  |                                       |  | (5.5        | ) |          |  | 5.3          |  |                                  |  |                                       |  | (5.3        | ) |          |  |             |  | 4.9                              |  |                                      |  |            |   |         |  | 4.9          | 
|Waste
Management                       | 2.1          |  |                                  |  |                                       |  |             |   |          |  | 4.1          |  |                                  |  |                                       |  | (2.5        | ) |          |  | 1.6          |  |                                 |  | 7.3                                   |  | (1.1        | ) |         |  | 7.8          | 
|Employee
termination costs             | 2.1          |  |                                  |  | 2.0                                   |  |             |   |          |  | 4.1          |  |                                  |  |                                       |  | (2.5        | ) |          |  | 1.6          |  |                                  |  | 0.6                                   |  | (1.1        | ) |          |  | 1.1          | 
|Other
restructuring costs              |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  | 6.7                                   |  |             |   |          |  | 6.7          | 
|Transportation                         |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              | 
|Other
restructuring costs              | 1.2          |  |                                  |  |                                       |  | (0.3        | ) |          |  | 0.9          |  |                                  |  | 0.4                                   |  | (0.3        | ) |          |  | 1.0          |  |                                 |  | 0.8                                   |  | (1.0        | ) |         |  | 0.8          | 
|                                       |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              | 
|Total                                  | 38.3         |  | 109.3                            |  | 30.8                                  |  | (51.7       | ) |         |  | 126.7        |  | 17.2                             |  | 0.4                                   |  | (60.1       | ) |         |  | 84.2         |  | 25.7                             |  | 26.8                                  |  | (59.0       | ) |         |  | 77.7         | 
|                                       |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |             
|                                       |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              |  |                                  |  |                                       |  |             |   |          |  |              | 

F-71

---

Over the past few years, the Group has engaged in several plans to restructure its activities, especially to rationalize its regional organization. In
1997, the Group implemented a three-year restructuring plan associated with its water businesses in France. This plan resulted in the closure of approximately 20 regional agencies and 200 local units and was completed in 2000.
The Group acquired United States Filter Corporation in April 1999 and performed several actions to merge it with its existing water operations, most of
which did not impact the income statement since they were recorded as a component of the purchase price of acquired companies.
In 2001, with the entry of the ex-services division of EDF, Dalkia implemented several restructuring plans to integrate these companies with its existing
operations, since they are recorded as a component of the purchase price they have no effect on the income statement. Total restructuring costs are€4.9 million, principally for the termination of a total of 80 employees of whom 42 are professional.
Onyx as part of a program to reduce its overhead costs has implemented a reorganization of its IT services, the total cost of which is€7.3 million, of which€0.6 million relates to severance costs and€6.7 to other restructuring costs.
Water
  
       Concurrently
  with the acquisition of United States Filter Corporation, the Group designed
  and implemented a restructuring plan to streamline its manufacturing and production
  base, redesign its distribution network, improve its efficiency
  and enhance its competitiveness. Immediately after the consummation of the transaction,
  the Group established an Integration Committee consisting of various representatives
  from Generale des Eaux and United States Filter Corporation. By the end of May
  1999, the working groups defined
  by the Integration Committee were formed and their objectives assigned. In mid-September
  1999, the plans and recommendations of the Integration Committee were presented
  to the Groups management for approval. On September 20, 1999, the new organization
  and integration plan was communicated to senior management of Vivendi Water
  at a meeting in Berlin, Germany. From September 1999 through March 2000 the
  termination and relocation arrangements were communicated to impacted employees
  of United States Filter Corporation.
The
  restructuring plan focused on two primary activities: (i) the combination of
  certain United States Filter Corporation operating groups outside the United
  States with OTV and (ii) the combination and restructuring of the remaining
  United States Filter Corporation entities (primarily in North America) with
  the operations of PSG, a subsidiary of Aqua Alliance. These restructuring plans
  identified
  certain manufacturing facilities, distribution sites, sales and administrative
  offices
  and related assets that became redundant or non-strategic upon consummation
  of the transaction. The costs associated with these plans totaled €109.3
  million, of which €63.3
  million related to the combination with OTV and €46.0
  million related to the North American combination. These costs are reflected
  in Purchase
  accounting adjustments and
  were included in the acquisition cost allocation for United States Filter Corporation
  (including USF International).
  United States Filter Corporation International was combined with OTV to create Vivendi Water Systems. This combination was achieved through several
restructuring plans, the most significant of which is in Benelux. This plan involves the closure or sale of
three facilities and the significant down-sizing of a fourth. It will result in the severance of 221
employees (including 23 executive employees) for a total amount of€29.0 million. Associated costs
amount to€7.6 million as of December 31, 2001, consisting of lease termination costs of€6.3 million and other related charges of€1.3 million.
This
  plan is expected to extend until the beginning of 2002 due to significant
  legal constraints requiring long termination periods. No employee had been terminated
  as of December 31, 2000, during 2001, 17 employees were terminated including
  8 executives for a total cost of€12.8
  million. Plans related to the other locations involved severance costs of€9.6
  million in 1999 in connection with the termination of 81 employees and€3.5
  million in 2000 in connection with the termination of 36 employees. The remaining
  reserve of€3.0
  million was utilized in 2001 with the termination of 5 senior executives included
  in a total of approximately 30 terminated employees. Other restructuring costs
  include lease termination costs, relocation costs and other costs to exit facilities.
  Additions in 2000 were recorded as adjustments of the cost of USF International
  and had thus no impact on the net income for the period. These amounts are reflected
  inPurchase
  accounting adjustments.
F-72

The
  North American restructuring plan had total costs of€46 million, originally consisting
  of€9.1
  million in severance and employee termination costs related to a reduction in
  the combined workforce of 443 employees (66 management employees, 111 administrative
  employees, 234 manufacturing employees and 32 sales employees). The restructuring
  plan also included€36.9
  million of facility exit costs, consisting of lease termination costs of
  €19.9
  million and other related charges of€17.0
  million (primarily pension termination accruals). The restructuring plan involved
  the closure of four manufacturing facilities in United States Filter Corporations
  water and wastewater group. Within United States Filter Corporations
  consumer group, the plan identified
  the closure of one manufacturing facility, one distribution facility and numerous
  company-owned dealerships. In addition, the plan identified
  two additional manufacturing sites and several distribution centers for the
  remaining United States Filter Corporation operating groups. During 1999, the
  Group incurred costs of€12.1
  million in connection with the plan, including€2.2
  million in severance payments in connection with the termination of approximately
  141 employees. As of December 31, 1999, a total accrual of€33.9
  million remained. In addition, PSG was combined with United States Filter Corporation
  on January 1, 2000, and, as a result,€12.9 million of preexisting PSG accruals were added to the
  North American restructuring plan. The€12.9 million addition was recorded by PSG in 1999, and was
  included in the accompanying statement of income for the year ended December
  31, 1999. This reserve is reflected
  in the addition for United States Filter Corporation in 1999.
During January 2000, additional accrued liabilities of€10.8 million were recorded to complete the North American restructuring plan, including€3.6 million of lease termination costs and€7.2
million of other related charges. During 2000, the Group incurred costs of€16.6 million in
connection with the plan, including€6.1 million in severance payments in connection with the
termination of approximately 250 employees. During 2001, the Group incurred costs of€23.5 million,
including€1.3 million in severance payments in connection with the termination of approximately 52
employees. As of December 31, 2001,€17.5 million remained, consisting primarily of lease
terminations with extended payment terms and pension termination benefits that will be paid to participants
upon settlement of the related plans. Additions throughpurchase accounting
adjustmentsin 2000 result from the revision of the calculation of liabilities recorded as of
December 31, 1999, which was performed in thefirst quarter of 2000. The Group did not identify new actions
to be taken that would result in additional liabilities.
In addition to these plans related to acquired companies, the Group implemented restructuring measures in its historical subsidiaries. The
Groups 1999 income statement includes a€11 million provision, consisting of€6 million in connection with the closing of Aqua Alliances headquarters and€5 million in connection with the consolidation of facilities
in subsidiaries of OTV. These costs, which were related to lease terminations and asset disposals, were incurred in 2000.
Due
  to the continued decline in North America, the United States Filter Corporation
  initiated a restructuring program to reduce headcount and consolidate its manufacturing
  capacity. Under this restructuring plan costs of €18.7
  million where recorded in 2001. As of 31 December 2001, the Group has accrued€14.4
  million under the restructuring plan. The plan calls for the termination of
  696 employees of whom 264 are professionals, in 2001, 142 employees were terminated
  under this plan. The Group has combined 5 surface preparation regional headquarters
  into 2 service centers and closed 5 manufactory facilities and an after-market
  facility. In response to the business conditions identified
  regeneration plants were identified
  for closure and the Group exited the copper etchant recovery business.
With the entry
  of Apa Nova Bucuresti, the Group initiated a restructuring plan, the restructuring
  costs totaled €19.2
  million, and are primarily for severance costs. This plans covers the termination
  of 1 700 employees of whom 85 are professionals, at the end of 2001, 1 200 employees
  had been terminated for a total cost of€12.3 million.
Reconciliation
  to French GAAP disclosure 
       The
  only reconciling item to the total balance at December 31, 2000 is€49.7
  million in accruals that qualify as restructuring costs under French GAAP but
  not under U.S. GAAP (although they are U.S. GAAP-compliant under SFAS 5 as probable
  and estimable liabilities and would be classified
  as reserves for contingent liabilities). Because this is only a reclassification,
  there is no corresponding entry in Note 26B, for either in net income or in
  shareholdersequity.
  By the end of 2001, this amount had increased to€57.9
  million.
The other reconciling item at December 31, 2000 amounts to€49.1 million, recorded as an expense in the 2000 income statement, which does not comply with the provisions of EITF 94-3 or SFAS 5. This amount appears in
F-73

Note 26B on
  theReserves
  for restructuring liabilitiesline
  of both equity and net income reconciliation. It includes €45
  million of reorganization costs related to our headquarters. This amount had
  been reduced to€37.3
  million by the end of 2001.
26I. OTHER
  FINANCIAL INSTRUMENTS The
  significant
  components of theother
  financial
  instruments are as follows:
Net
Income

ShareholdersEquity(€
millions)
2001

2000

1999

2001

2000

1999Variation
of the fair value of the FCCput*
12.8

71.4

(84.5
)
(0.3
)
(13.1
)
(84.5
)Marketable
securities**
4.6

29.6

34.3

72.5

82.5

63.9Derivative
instruments and   hedges***.
(87.1
)




(130.9
)


Accrual
      of convertible bonds
         redemption premium
(15.1
)
(30.2
)


(45.3
)
(30.2
)
Convertible
      bonds beneficial
         conversion feature


(142.5
)






stock warrantes
issued






180.0



Others
0.3

0.1

0.0

3.6

(2.9
)
(2.1
)Total
(84.5
)
(71.6
)
(50.2
)
79.7

36.3

(22.7
)*
    Described
      in note 23.**
    Vinci
      shares are trading securities.***
    Implementation
      of SFAS No.133Accounting of derivative instruments and hedging activities.These
  differences are described in note 26A.
F-74

ITEM 19: EXHIBITS
The following exhibits are included herein:
ExhibitNumber

Description1

Statuts(bylaws)
of Vivendi Environnement (unofficial English translation).2(b)

We agree to
furnish a copy of an English translation of the prospectus defining the terms
and conditions of our 1.5% convertible bonds due 2005 to the SEC upon its request.4(a)

Master Agreement,
dated December 4, 2000, between Vivendi Environnement and Electricite de France,
in the presence of Vivendi (theMaster
Agreement).*4(b)

Annex 2.04(a)
to the Master AgreementPartners Agreement between Vivendi Environnement
and Electricite de France.*4(c)

Annex 2.08
to the Master AgreementCall Option Agreement between Vivendi Environnement
and Electricite de France and Put Option Agreement between Vivendi Environnement
and Electricite de France.*8

List of Subsidiaries.
Included herein in Note 25 to ourfinancial
statements.10

Letter
from Vivendi Environnement to the SEC concerning representations provided by Barbier
Frinault & Cie. (a Member of Andersen Worldwide) to Vivendi Environnement
regarding its audit quality control system.* Previously filed
as exhibits to Registration Statement on Form 20-F filed with the U.S. Securities
and Exchange Commission on September 26, 2001.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements forfiling on Form 20-F and that it has duly
caused and authorized the undersigned to sign this annual report on its behalf.
Dated:
  May 24, 2002
VIVENDI
      ENVIRONNEMENTBy: /s/
      Jérôme
      ContamineName:
      Jérôme
      ContamineTitle:
      Executive Vice President, Finance