As filed with the Securities and Exchange Commission on May 30, 2003

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SECURITIES
  AND EXCHANGE COMMISSION Washington,
  D.C. 20549

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FORM
  20-F




| |  | REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE
      ACT OF 1934                                       
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | OR                                                                                                                                                 
| |  | ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 
      for the fiscal year ended December 31, 2002
| |  | 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 Number: 001-15248

VEOLIA
  ENVIRONNEMENT(formerly
  known as Vivendi Environnement)(Exact name of Registrant as specified in its charter)

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

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  | The New
      York Stock Exchange              
|American
      Depositary Shares                                      |                                                
|(as evidenced
      by American Depositary Receipts),                 |                                                
|each American
      Depositary Share representing one ordinary share* |                                                

Securities
  registered or to be registered pursuant to Section 12(g) of the Act:None

Securities
  for which there is a reporting obligation pursuant to Section 15(d) of the Act:None

Indicate
  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:

405,070,459
  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:

YesNo

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.





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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 a

nd 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 carefully review and consider the various disclosures we make concerning the factors that may affect our business, including the disclosures made in Item 3. Key Information  Risk Factors, Item 5. Operating and Financial Review and Pro

spects, 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 20.4% of our shares are currently owned by Vivendi Universal, a corporation (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 Vivendi Universal 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 other

wise requires, we use the term Vivendi Universal to refer to our shareholder exclusive of its subsidiaries.



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|TABLE
      OF CONTENTS                                                  
|-------------------------------------------------------------------------
|                                                                         
|Item
      1. Identity of Directors, Senior Management and Advisers      
|Item
      2. Offer Statistics and Expected Timetable                    
|Item
      3. Key Information                                            
|Item
      4. Information on the Company                                 
|Item
      5. Operating and Financial Review and Prospects               
|Item
      6. Directors, Senior Management and Employees                 
|Item
      7. Major Shareholders and Related Party Transactions          
|Item
      8. Financial Information                                      
|Item
      9. The Offer and Listing                                      
|Item
      10. Additional Information                                    
|Item
      11. Quantitative and Qualitative Disclosures About Market Risk
|Item
      12. Description of Securities Other Than Equity Securities    
|Item
      13. Defaults, Dividend Arrearages and Delinquencies           
|Item
      14. Material Modifications to the Rights of Security Holders  
|Item
      15. Controls and Procedures                                   
|Item
      16A. Audit Committee Financial Expert                         
|Item
      16B. Code of Ethics                                           
|Item
      16C. Principal Accountant Fees and Services                   
|Item
      17. Financial Statements                                      
|Item
      18. Financial Statements                                      
|Item
      19. Exhibits                                                  



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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 selected financial data together with Item 5. Operating and Financial Review and Prospects and our consolidated financial statements. Our consolidated financial statements have been prepared in accordance with French GAAP, which differs in certain significant respects from U.S. GAAP. Note 27 to our consolidated financial 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, 2002 rate of $1.00 = €0.9536. This does not mean that we actually converted such amounts into U.S. dollars. For periods presented prior to January 1, 1999, the selected financial data presented below have been prepared in French Francs and translated into euro using the official fixed exchange rate of €1 = FF 6.55957, applicable since January 1, 1999 (see Note 2 to our consolidated financial statements).

We
  changed the presentation of our financial statements 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 Accounting Methods and Presentation of Accounts
  for a description of the principal changes in the presentation of our consolidated
  financial statements. Because 2001 was a year of transition to our new accounting
  presentation, we restated in 2001 our financial statements for 2000 and 1999
  to reflect the new presentation method. However, we have not restated our financial
  statements for periods ending on or prior to December 31, 1998. As a result,
  the following tables present our selected financial data based on the new accounting
  presentation for the periods ended December 31, 1999, 2000, 2001 and 2002, and
  our selected financial data based on the old accounting presentation for the
  periods ended December 31, 1998, 1999 and 2000.



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|Selected
      Financial Data  New Accounting Presentation     |                                             |   |             |   |               |   |             |   |            
|--------------------------------------------------------------- | ------------------------------------------- | - | ----------- | - | ------------- | - | ----------- | - | -----------
|                                                                | At
      and for the year ended December 31 |  
|                                                                | (in
      US$)                              |   |             |   | (in
      € ) |   |             |   |            
|                                                                |                                             |   |             |   |               |   |             |   |            
|(millions,
      except per share amounts)                      | 2002                                        |   | 2002        |   | 2001          |   | 2000        |   | 1999       
|                                                                |                                             |   |             |   |               |   |             |   |            
|INCOME
      STATEMENT DATA:                                    |                                             |   |             |   |               |   |             |   |            
|Amounts
      in accordance with French GAAP                    |                                             |   |             |   |               |   |             |   |            
|Revenue                                                         | 31,542.3                                    |   | 30,078.7    |   | 29,126.7      |   | 26,262.5    |   | 20,930.0   
|Revenue
      outside France                                    | 17,914.1                                    |   | 17,082.9    |   | 16,754.6      |   | 15,413.9    |   | 11,026.9   
|EBIT(1)                                                         | 2,067.2                                     |   | 1,971.3     |   | 2,013.1       |   | 1,650.0     |   | 1,375.9    
|Goodwill
      amortization                                     | (343.1                                      | ) | (327.2      | ) | (2,910.1      | ) | (306.3      | ) | (366.8     
|Restructuring
      costs                                       | (59.4                                       | ) | (56.6       | ) | (49.4         | ) | (54.4       | ) | (47.2      
|Operating
      income (loss) (new definition)                  | 1,664.7                                     |   | 1,587.5     |   | (946.4        | ) | 1,289.3     |   | 961.9      
|Minority
      interest                                         | (149.1                                      | ) | (142.2      | ) | (131.2        | ) | (161.4      | ) | (93.4      
|Net
      income (loss)                                         | 355.7                                       |   | 339.2       |   | (2,251.2      | ) | 614.8       |   | (42.3      
|Basic
      earnings per share                                  | 0.98                                        |   | 0.93        |   | (6.55         | ) | 2.24        |   | (0.19      
|Diluted
      earnings per share                                | 0.98                                        |   | 0.93        |   | (6.55         | ) | 2.23        |   | (0.19      
|Dividends
      per share                                       | 0.58                                        |   | 0.55        |   | 0.55          |   | 0.55        |   |           
|Number
      of shares (adjusted to reflect changes in capital) | 405,070,459                                 |   | 405,070,459 |   | 346,175,772   |   | 346,174,955 |   | 218,228,507
|                                                                |                                             |   |             |   |               |   |             |   |            
|Amounts
      in accordance with U.S. GAAP                      |                                             |   |             |   |               |   |             |   |            
|Revenue                                                         | 25,103.3                                    |   | 23,938.5    |   | 23,440.8      |   | 22,461.4    |   | 17,880.1   
|Operating
      income (loss)                                   | 1,325.2                                     |   | 1,263.7     |   | 1,033.2       |   | 903.3       |   | 558.0      
|Net
      income (loss)                                         | (2,085.6                                    | ) | (1,988.8    | ) | 180.3         |   | 433.4       |   | (348.3     
|Basic
      earnings per share                                  | (5.72                                       | ) | (5.45       | ) | 0.52          |   | 1.58        |   | (1.60      
|Diluted
      earnings per share                                | (5.72                                       | ) | (5.45       | ) | 0.52          |   | 1.57        |   | (1.60      
|                                                                |                                             |   |             |   |               |   |             |   |            
|BALANCE
      SHEET DATA (AT PERIOD END):                       |                                             |   |             |   |               |   |             |   |            
|Amounts
      in accordance with French GAAP                    |                                             |   |             |   |               |   |             |   |            
|Total
      shareholders equity                                | 6,637.6                                     |   | 6,329.6     |   | 5,740.0       |   | 6,208.3     |   | 678.1      
|Minority
      interest                                         | 2,711.0                                     |   | 2,585.2     |   | 2,531.1       |   | 2,031.1     |   | 1,438.1    
|Total
      assets                                              | 44,062.9                                    |   | 42,018.4    |   | 44,409.3      |   | 39,823.0    |   | 41,407.7   
|Total
      long term assets                                    | 27,860.7                                    |   | 26,568.0    |   | 27,400.7      |   | 25,362.2    |   | 22,703.3   
|Net
      financial debt(2)                                     | (13,702.2                                   | ) | (13,066.4   | ) | (14,283.0     | ) | (13,183.3   | ) | (17,408.3  
|                                                                |                                             |   |             |   |               |   |             |   |            
|Amounts
      in accordance with U.S. GAAP                      |                                             |   |             |   |               |   |             |   |            
|Shareholders
      equity                                      | 5,162.8                                     |   | 4,923.2     |   | 6,780.7       |   | 6,569.2     |   | 1,767.5    
|                                                                |                                             |   |             |   |               |   |             |   |            
|CASH
      FLOW DATA:                                           |                                             |   |             |   |               |   |             |   |            
|Net
      cash provided by operating activities                 | 2,429.4                                     |   | 2,316.7     |   | 2,892.0       |   | 1,638.0     |   | 1,580.8    
|Net
      cash used in investing activities                     | (2,211.2                                    | ) | (2,108.6    | ) | (3,392.4      | ) | (1,536.7    | ) | (14,831.7  
|Net
      cash provided by (used in) financing activities       | (597.4                                      | ) | (569.7      | ) | 1,238.5       |   | 71.6        |   | 14,003.8   
|Capital
      expenditures                                      | (2,730.1                                    | ) | (2,603.4    | ) | (2,878.5      | ) | (2,586.2    | ) | (1,902.6   

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | EBIT
        is defined as operating income (loss) (new definition) before amortization
        of goodwill and restructuring charges. EBIT is calculated in accordance
        with accounting principles generally accepted in France, and is not a
        measurement of operating performance calculated in accordance with accounting
        principles generally accepted in the United States. EBIT 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 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. See Note 7 to our consolidated financial statements.
      Long-term loans (before valuation allowances) amounted to €521.2 million
      in 2002, €349.5 million in 2001, €284.6 million in 2000 and €261.2
      million in 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|Selected
      Financial Data  Prior Accounting Presentation      |                                                           |   |             |   |             |  
|------------------------------------------------------------------ | --------------------------------------------------------- | - | ----------- | - | ----------- | -
|                                                                   | At
      and for the year ended December 31,
      (in €) |  
|                                                                   |                                                           |  
|(millions,
      except per share amounts)                         | 2000                                                      |   | 1999        |   | 1998        |  
|                                                                   |                                                           |   |             |   |             |  
|INCOME
      STATEMENT DATA:                                       |                                                           |   |             |   |             |  
|Amounts
      in accordance with French GAAP                       |                                                           |   |             |   |             |  
|Revenue                                                            | 26,393.7                                                  |   | 21,039.2    |   | 15,283.7    |  
|Revenue
      outside France                                       | 15,351.9                                                  |   | 11,012.5    |   | 5,963.8     |  
|Operating
      income (old definition)                            | 1,909.6                                                   |   | 1,476.1     |   | 917.2       |  
|Exceptional
      items, net(1)                                    | 455.0                                                     |   | (180.8      | ) | (155.0      | )
|Goodwill
      amortization                                        | (306.3                                                    | ) | (366.8      | ) | (137.0      | )
|Minority
      interest                                            | (161.4                                                    | ) | (93.4       | ) | (25.6       | )
|Net
      income                                                   | 614.8                                                     |   | (42.3       | ) | 162.0       |  
|Basic
      earnings per share                                     | 2.24                                                      |   | (0.19       | ) | 0.74        |  
|Diluted
      earnings per share                                   | 2.23                                                      |   | (0.19       | ) |            |  
|Dividends
      per share                                          | 0.55                                                      |   |            |   |            |  
|Number
      of shares (adjusted to reflect changes in capital)(2) | 346,174,955                                               |   | 218,228,507 |   | 218,228,507 |  
|                                                                   |                                                           |   |             |   |             |  
|Amounts
      in accordance with U.S. GAAP                         |                                                           |   |             |   |             |  
|Revenue                                                            | 22,461.4                                                  |   | 17,880.1    |   |            |  
|Operating
      Income                                             | 903.3                                                     |   | 558.0       |   |            |  
|Net
      income                                                   | 433.4                                                     |   | (348.3      | ) |            |  
|Basic
      earnings per share                                     | 1.58                                                      |   | (1.60       | ) |            |  
|Diluted
      earnings per share                                   | 1.57                                                      |   | (1.60       | ) |            |  
|                                                                   |                                                           |   |             |   |             |  
|BALANCE
      SHEET DATA (AT PERIOD END):                          |                                                           |   |             |   |             |  
|                                                                   |                                                           |   |             |   |             |  
|Amounts
      in accordance with French GAAP                       |                                                           |   |             |   |             |  
|Total
      shareholders equity                                   | 6,208.3                                                   |   | 678.1       |   | 3,345.6     |  
|Minority
      interest                                            | 2,031.1                                                   |   | 1,438.1     |   | 617.3       |  
|Total
      assets                                                 | 39,823.0                                                  |   | 41,407.7    |   | 20,483.4    |  
|Total
      long term assets                                       | 25,362.2                                                  |   | 22,703.3    |   | 11,490.9    |  
|Net
      financial debt(3)                                        | (13,183.3                                                 | ) | (17,408.3   | ) | (4,404.9    | )
|                                                                   |                                                           |   |             |   |             |  
|Amounts
      in accordance with U.S. GAAP                         |                                                           |   |             |   |             |  
|Shareholders
      equity                                         | 6,569.2                                                   |   | 1,767.5     |   |            |  
|                                                                   |                                                           |   |             |   |             |  
|CASH
      FLOW DATA:                                              |                                                           |   |             |   |             |  
|Net
      cash provided by operating activities                    | 1,638.0                                                   |   | 1,580.8     |   | 1,389.9     |  
|Net
      cash used in investing activities                        | (1,536.7                                                  | ) | (14,831.7   | ) | (763.2      | )
|Net
      cash provided by (used in) financing activities          | 71.6                                                      |   | 14,003.8    |   | (499.7      | )
|Capital
      expenditure                                          | (2,586.2                                                  | ) | (1,902.6    | ) | (1,547.3    | )

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | The
      term exceptional items is defined differently under French GAAP
      and U.S. GAAP. 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) | The number
      of shares outstanding at the end of 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) | 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 (net of valuation
      allowances) amounted to €279.5 million in 2000, €258.3 million
      in 1999 and €131.9 million in 1998.                                                                                                                                                                                          



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Dividends

Under French law and our articles of association (statuts), our statutory net income in each fiscal 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 30, 2003 our shareholders approved a dividend payment of €0.55 per share in respect of our 2002 fiscal year to persons who held our shares on January 1, 2003, which was paid on May 7, 2003. On May 6, 2002, we paid a dividend of €0.55 per share in respect of the 2001 fiscal year to persons who held our shares on January 1, 2002. On May 10, 2001, we paid a dividend of €0.55 per share in respect of the 2000 fiscal year to persons who held our shares on April 27, 2001. We did not pay dividends as a stand-alone company in respect of any fiscal 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. Subject to possible changes in French law that have recently been announced, 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 10% 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 AD

Ss 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 was fixed 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 rate fluctuations will affect the U.S. dollar amounts that shareholders will receive on conversion of dividends from euro to dollars.

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The
  following table shows the French franc/U.S. dollar exchange rate for 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 April 2003 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 currency fluctuations on
  our results of operations, see Item 5. Operating and Financial Review
  and Prospects.

|MonthU.S.
      Dollar/Euro    |  | PeriodEnd |  | Averagerate* |  | High |  | Low  | 
|------------------------------ |  | --------- |  | ------------ |  | ---- |  | ---- | 
|                               |  |           |  |              |  |      |  |      | 
|April 2003                     |  | 1.12      |  | 1.09         |  | 1.12 |  | 1.06 | 
|March 2003                     |  | 1.09      |  | 1.08         |  | 1.10 |  | 1.05 | 
|February
      2003            |  | 1.08      |  | 1.08         |  | 1.09 |  | 1.07 | 
|January
      2003             |  | 1.07      |  | 1.06         |  | 1.09 |  | 1.04 | 
|December
      2002            |  | 1.05      |  | 1.02         |  | 1.05 |  | 0.99 | 
|November
      2002            |  | 0.99      |  | 1.00         |  | 1.01 |  | 0.99 | 
|                               |  |           |  |              |  |      |  |      | 
|Year                           |  |           |  |              |  |      |  |      | 
|U.S.
      dollar/Euro         |  |           |  |              |  |      |  |      | 
|2002                           |  | 1.05      |  | 0.95         |  | 1.05 |  | 0.86 | 
|2001                           |  | 0.89      |  | 0.89         |  | 0.95 |  | 0.84 | 
|2000                           |  | 0.94      |  | 0.92         |  | 1.03 |  | 0.83 | 
|1999                           |  | 1.01      |  | 1.06         |  | 1.18 |  | 1.00 | 
|U.S.
      dollar/French franc |  |           |  |              |  |      |  |      | 
|1998                           |  | 5.62      |  | 5.90         |  | 6.17 |  | 5.41 | 

|  |                                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|* | For annual
      figures, the average of the noon buying rates for French francs or euro,
      as the case may be, on the last business day of each month during the relevant
      period.

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 US $0.9536 per euro, 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, 2002. On May 15, 2003, the Noon Buying Rate was U.S.$1.1457 per euro.

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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 and financial performance. Furthermore, we must commit substantial resources before we are assured of winning or renewing a contract. We may not be successful in winning or renewing 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 8% of our total revenue in 2002. 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 be able to insure or
  hedge against these risks. Furthermore, we may not be able to obtain sufficient
  financing for our operations in these countries. Finally, unfavorable events
  and circumstances in these countries may affect the value of our assets and
  investments in those countries. These events and circumstances, which may include
  material adverse changes in the general economic environment, may lead us to
  reassess our assumptions and objectives in respect of our operations in these
  countries and to reexamine the actual value of our assets and investments in
  these countries. As a result, we may record exceptional provisions or depreciation
  charges in connection with our operations in these countries, which could have
  a material adverse effect on our results.

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 us from obtaining 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 may increase 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.

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Our
  compliance with environmental, health and safety laws and regulations is costly
  and may become more so in the future, and we may incur liability under these
  laws and regulations.

We
  have made and will continue to make the necessary capital and other expenditures
  to comply with applicable environmental, health and safety laws and regulations.
  We are continuously required to incurexpenditures to ensure that the installations
  that we operate comply with all applicable legal, regulatory and administrative
  requirements, including general precautionary obligations. These expenditures
  mainly relate to air pollution (including, for example, the control of emissions
  from our transportation vehicles, our heat generation plants and our waste incineration
  facilities), the quality of our potable water, the disposal of wastewater and
  other effluents and the protection of land and biodiversity (including through
  restrictions on waste disposal and the use of landfills). Each of our operations,
  moreover, may become subject to stricter laws and regulations, 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.

The scope of application of environmental, health, safety and other laws and regulations is also becoming increasingly broader.  These laws and regulations govern, among other things, any discharges in a natural environment, the collection, treatment and discharge of all types of waste, and the rehabilitation of old sites. These increasingly broader laws and regulations expose us to the risk of liabilities, including in connection with assets that we no longer own and activities that have been discontinued. In some circumstances, we could be required to pay fines or damages under these laws and regulations or undertake remedial action even if we exercise due care in conducting our operations and we comply with all applicable laws and regulations.

In addition, courts or regulatory authorities may require us to conduct investigations and undertake remedial activities, curtail operations or close facilities temporarily or permanently in connection with applicable laws and regulations, including to prevent imminent risks or in light of expected changes in those laws and regulations. In the event of an accident or other incident, we could also become subject to claims for personal injury, property damage or damage to natural resources. Being required to take those actions or to pay these damages could hurt our business or significantly affect our capabilities.

We may not be able to retain or obtain required 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 or additional expenditures. The occurrence of any of these events could increase our costs of operations and, in certain cases, require us to withdraw from a project or contract, which could hurt our business and adversely affect our operations and profitability.

We may be required to sell our interest in FCC in the event of a hostile takeover or to finance an acquisition of the remaining shares of FCC and its holding company.

We have an indirect 25.7% stake in Fomento de Construcciones y Contratas (FCC), a leading provider of environmental management and other services in Spain and Latin America. FCC is listed on the Madrid Stock Exchange. Our interest consists of a 49% stake in a holding company that owns 52.48% of FCCs outstanding shares. Ms. Esther Koplowitz owns the remaining 51% of FCCs holding company.  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. See Item 4. Information on the CompanyBusiness OverviewOur Services and Item 5. Operating and Finance Review and Prospects.

Pursuant
  to the agreements governing our participation in FCC, Ms. Koplowitz has the
  right to buy our interest in FCCs holding company in the event that our
  company is subject to a hostile takeover. This agreement defines
  a hostile takeover as any direct or indirect acquisition of 25%
  or more of our shares that is effected by a direct competitor of FCC in Spain
  without the approval of our board of directors (formerly of our supervisory
  board and our management board). The purchase price would be equal to the average
  of the price we paid for the acquisition of our participation in FCC (€691
  million) and the market value of our interest in FCCs holding company,
  which is determined by reference to the average trading price of FCCs
  shares during the 3-month period preceding the hostile takeover. If this option
  is exercised at a time when the market price of FCCs 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 and, to a lesser extent, in Latin America.



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Pursuant
  to these agreements, Ms. Koplowitz also has the option, exercisable at any time
  through October 16, 2008, to require us to purchase the remaining interest in
  FCCs holding company at a price determined at the time of exercise based
  on the average market price of FCCs common stock over the prior 3 months,
  subject to a cap equal to the higher of 7 times FCCs EBITDA and 29.5 times
  FCCs earnings per share in the prior fiscal year. If this option is exercised,
  we would ultimately own 100% of the holding company that controls FCC. Under
  these circumstances, Spanish law may require us to launch a public tender offer
  for all of the shares of FCC not owned by FCCs holding company, which
  represent approximately 47.52% of FCC outstanding shares, at a price per share
  to be approved by the Spanish stock exchange authorities. Based on the price
  of FCCs common stock on March 3, 2003, the price for the remaining 47.52%
  of FCC would be approximately €1.4 billion, subject to adjustment by the
  Spanish stock exchange authorities. The cost of purchasing the remaining interest
  in FCC and of consummating the tender offer for the remaining public interest
  in FCC may be substantial. We will explore the alternative financing options
  available to us to cover these costs, if any, at the appropriate time and may
  decide to finance these costs by incurring additional debt, issuing additional
  common stock, selling assets or a combination of any of these financing alternatives,
  which could adversely affect our net income or the market price of our shares.

See Item 7. Major Shareholders and Related Party TransactionsRelated Party TransactionsOther AgreementsFCC Agreements for a description of the agreements governing our participation in FCC.

Currency exchange and interest rate fluctuations may negatively affect our financial results and the price of our shares.

We hold assets, incur liabilities, earn income and pay expenses of our subsidiaries in a variety of currencies. Our financial statements are presented in euro. Therefore, when we prepare our financial 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 our financial 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 interests held in foreign currencies, particularly in the United States, where we have significant operations carried out in U.S. dollars.

In addition, because we have a significant amount of debt outstanding, our results of operations and financial condition may be affected by changes in prevailing market rates of interest. We manage this exposure to interest rate risk by setting a target fixed rate for a significant part of our debt, which we achieve either through fixed rate debt or interest rate hedging activities. At December 31, 2002 our outstanding total long-term debt amounted to €12.9 billion, of which 49% was subject to fixed interest rates (including debt covered by our hedging activities). Fluctuations in interest rates may also affect our future growth strategy. A rise in interest rates may force us to finance 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 Shares and ADSs

The substantial number of shares that will be eligible for sale in the near future may cause the market price of our shares or ADSs to decline.

In connection with the sale of a part of its interest in our company in June 2002, Vivendi Universal entered into a lock-up agreement in respect of its remaining 40.8% interest in our company that generally prevented it from offering or selling, directly or indirectly, these shares for a period of 545 days. This period expires on December 23, 2003.  On December 24, 2002, Vivendi Universal sold half of its remaining 40.8% interest in our company to a designated group of institutional investors, which agreed to assume Vivendi Universals obligations under the lock-up agreement for the remainder of the lock-up period.  In addition, Vivendi Universal granted this designated group of investors options to acquire its remaining 20.4% interest in our company at a fixed price at any time before December 24, 2004. These options and the underlying shares are subject to the same lock-up agreement. See Item 7. Majority

Shareholders and Related Party TransactionsMajority Shareholders for a description of these transactions.  Following the expiration of this lock-up agreement, a substantial number of shares will be eligible for sale in the public market.  If several of these investors or, if a significant portion of the options are not exercised, Vivendi Universal commence selling shares of our company on the market, these sale activities could adversely affect prevailing market prices of our shares and ADSs.

Because preemptive rights may not be available for U.S. persons, the ownership percentages of our U.S. shareholders may be diluted in the event of a capital increase of our company.

Under
  French law, shareholders have preemptive rights (droits
  préférentiels de souscription)
  to subscribe, on a pro rata basis, or cash issuances of new shares or other
  securities giving rights to acquire additional shares. U.S. holders of our shares
  may not be able to exercise preemptive rights for our shares unless a registration
  statement under the U.S. Securities Act of 1933, as amended, is effective with
  respect to those rights or an exemption from the registration requirements imposed
  by the Securities Act is available. We are not required to file registration
  statements in connection with issues of new shares or other securities giving
  rights to acquire shares to our shareholders. As a result, we may from time
  to time issue new shares or other sec urities giving rights to acquire additional
  shares at a time when no registration statement is in effect. For example, in
  July 2002 we effected a capital increase through the issuance of rights to acquire
  new shares to all of our shareholders, but those rights were generally exercisable
  only by persons located outside the United States. Holders of our ADSs were
  not permitted to exercise the rights corresponding to the shares underlying
  the ADSs and received the net proceeds of the sale of these rights in the French
  market by the ADS depositary.

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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 to file periodic reports and financial 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 from time to time than there is for U.S. companies at those times.

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's meetings.

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ITEM 4: INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

We are the leading global provider of environmental management services, which are defined as water and wastewater services, waste management services, energy services (excluding the production, trading and sale of electricity) and transportation services. Our clients include a wide range of public authorities, industrial and commercial customers and individuals around the world.

The legal and commercial name of our company is Veolia Environnement. Our company is asociété anonyme, 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 USFilter, 40-004 Cook Street, Palm Desert, CA 92211.

Historical
  Background

Our company traces its roots back to the creation of Compagnie Générale des Eaux by Imperial decree on December 14, 1853.  During the same year, Compagnie Générale des Eaux won its first public service concession for the distribution of water in the city of Lyon, France.  Early on, it commenced developing its municipal water distribution activities in France by obtaining concessions in Nantes (1854), Nice (1864), Paris (1860) and its suburbs (1869), and launched its international expansion by obtaining concessions in Venice (1880), Constantinople (1882) and Porto (1883). In addition to water distribution, Compagnie Générale des Eaux has also provided water treatment services since 1884.

After more than a hundred years of providing water and wastewater services around the world, Compagnie Générale des Eaux expanded its business during the 1980s with the acquisition of Compagnie Générale dEntreprises Automobiles, a waste management and transportation services provider, and Compagnie Générale de Chauffe, an energy services provider. At the same time, Compagnie Générale des Eaux reorganized its water activities by regrouping all of its design, engineering and execution activities relating to potable water and wastewater treatment facilities under its subsidiary OTV.

Following the acquisition of several communications and media activities in the late 1990s, Compagnie Générale des Eaux changed its name to Vivendi in 1998 and renamed its main water subsidiary Compagnie Générale des Eaux to distinguish the separate existence of its two main businesses.  During the same year, Vivendi continued to extend the geographic reach of its environmental management services activities through the purchase of a 49% interest in the holding company that controls Fomentos de Construcciones y Contratas (FCC), a Spanish public company that is the leading provider of waste management services and the second largest provider of water and wastewater services in Spain. In addition, in April 1999 Vivendi acquired United States Filter Corporation, or USFilter, which is the leading water and wastewater treatment services and equipment company in the

United States.

In 1999, Vivendi created our company under the name Vivendi Environnement to conduct all of its environmental management activities, which were conducted through four main companies: Vivendi Water (water), of which Compagnie Générale des Eaux is a subsidiary, CGEA Onyx (waste management), Dalkia (energy services) and CGEA Connex (transportation). At the time of our formation, Vivendi contributed or sold substantially all of these environmental management activities to our company.

On July 20, 2000, our shares were listed on the Premier Marché of Euronext Paris in connection with an initial public offering of our shares in France and in an international private placement. Vivendi, which was renamed Vivendi Universal in 2000, continued to hold over 72.3% of our share capital after our initial public offering. In addition, 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.

During 2001, our shares were included in the CAC 40, the main equity index published by Euronext Paris, and we listed our shares, in the form of American Depositary Shares, for trading on The New York Stock Exchange. In addition, in December 2001 our main shareholder, Vivendi Universal, 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%. 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.



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During
  2002, Vivendi Universals stake in our company decreased from 63.1% to
  20.4% as a result of several sales of our shares by it and our €1.5 billion
  capital increase, to which Vivendi Universal did not subscribe. As of December
  31, 2002, Vivendi Universal continued to hold only 20.4% of our shares, all
  of which are subject to call options granted by Vivendi Universal to
  a group of institutional investors. See Item 7. Major Shareholders and
  Related Party TransactionsMajor Shareholders. On April 30, 2003
  we changed our name to Veolia Environnement.

Our principal capital expenditures and divestitures since we began operations in 1999 are described under Item 5. Operating and Financial Review and Prospects.  Material capital expenditures currently in progress include those associated with the continued expansion of our existing businesses and replacement and maintenance spending related to our existing operations. 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 the disposal of non-core businesses described in Item 5.  Operating and Financial Review and Prospects.

Major
  Developments in 2002

We were awarded a significant number of long-term contracts in 2002 that are expected to generate in aggregate €30 billion in total revenue over the life of these contracts. We describe below the main developments in our business during 2002.

The discussion below includes the revenue amounts that we expect to earn from our contracts. These amounts 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 included 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.

Water

In France, we won a contract to modernize the Archères wastewater treatment plant in the Yvelines region, which treats a large portion of the wastewater from the Paris area, with estimated total revenue of €390 million.  We also won a 15-year contract with Arcelor Packing, which manufactures steel for packaging and finished sheet metal for household electrical appliances, to treat effluents at its Florange site in the Moselle region, with estimated total revenue of €27 million.  In addition, we won a 12-year contract with Smurfit Cellulose du Pin to manage industrial effluents at its Facture/Biganos paper factory in the Gironde region, with estimated total revenue of €11 million.

In the Netherlands, we were declared the winning bidder of a 30-year contract to design, construct and operate wastewater treatment plants in the city and region of The Hague (estimated total revenue of €1.5 billion). This contract and related agreements are expected to be finalized over the course of 2003. In the Czech Republic, we extended a contract awarded in 2001 from 13 to 28 years under which we manage water services in Prague and its surrounding area (1.2 million residents).

In the United States, we were awarded the largest-ever contract for outsourced management of municipal water in Indianapolis.  USFilter, our subsidiary, will operate and maintain potable water services, rehabilitate infrastructure and provide client services for a 20-year period in this city serving 1.1 million residents (estimated total revenue of US $1.5 billion). We also won a 20-year contract with Alon to provide water and wastewater management services to its refinery in Big Spring, Texas, with estimated total revenue of approximately US$66 million.

In Morocco, we won a 26-year contract for the outsourced management of water, wastewater and electricity services for the region of Rabat-Salé (2 million residents), with estimated total revenue of €4.6 billion.

In China, we won an international public bid for the management of water services in Pudong, a Shanghai business area with 1.9 million residents, for 50 years with estimated total revenue of €10 billion (of which €5 billion is attributable to us based on our interest in the operating company).  We also won two outsourcing contracts with the Chinese cities of Baoji (500,000 residents) and Zhuhai (1.2 million residents). In Malaysia, we won an outsourcing contract with Petronas, an oil company, to provide water treatment and distribution services to its petrochemical complex in Kertith for a 20-year period (estimated total revenue of €200 million).

Waste Management

In the United Kingdom, we obtained a 7-year renewal of a contract to collect residential and commercial waste and provide urban cleansing services in the London areas of Westminster (with 200,000 residents and 1 million visitors per day and representing estimated total revenue of €350 million) and Camden (estimated total revenue of approximately €190 million). On the southern coast, we won a bid to collect and recycle residential and commercial waste in the city of Portsmouth (190,000 residents) for a 7-year period (estimated total revenue of approximately €38 million), which will be signed in 2003.

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In Asia, we expanded our 2001 contract to collect waste in Singapore to include urban cleansing in the city center for 5 years with estimated total revenue of €45 million. In China, we won an 8-year contract for the design and operation of a landfill for household waste in Guangzhou (at the Xingfeng site), with 20 million cubic meters of capacity and capable of treating 5,000 tons of waste per day by 2003 (estimated total revenue of €37 million).  This site, which will satisfy the most stringent international regulatory standards, will enable us to expose our know-how in Asia.

In Egypt, we commenced operations under our waste management contract in the city of Alexandria (3.5 million inhabitants), which we won in 2001. Under this contract, we are collecting and treating approximately 2,500 tons of household waste per day, taking measures to secure old fly tipping, developing a new sanitary landfill, building a waste transfer station and providing urban cleansing services.

In Morocco, we commenced providing urban cleansing services in the city of Rabat-Hassan under a contract awarded in 2001. Under this 6-year contract, we are collecting household and organic waste, cleaning roadways and beaches and eliminating old fly tipping, with particular attention to historical and governmental sites (estimated annual revenue of €2.6 million). We are also providing training to a significant number of local personnel.

In Australia, we won a contract for the management of industrial waste at 670 sites throughout Australia of BTP Boral Limited, a business materials production and trading group (estimated total revenue of €10 million). We are the only operator to propose waste management solutions in the six Australian states.

In the United States, we won a 6-year outsourcing contract to operate a waste-to-energy facility in Savannah, Georgia, and a 7-year outsourcing contract to operate another waste-to-energy facility in Charleston, South Carolina. We also won a contract to recycle municipal waste at Highland Park (estimated annual revenue of US $2.6 million) and Saint Charles (estimated annual revenue of US $1.4 million), both in Illinois. In Chile, Proactiva, our joint venture with FCC, commenced operating the Maipu landfill serving Santiago de Chile, which is designed to receive 700,000 tons of waste per year.

Energy Services

In France, we renewed for 25 years a public services outsourcing contract in the urban area of Mons-en-Baroeul (North), with the installation of a co-generation plant capable of producing 7MW of power (estimated annual revenue of €5.1 million). We also partially renewed for 5 years a contract to provide thermal management services in Paris, which includes measures to prevent the risk of legionella bacteria (estimated annual revenue of €2.9 million). In addition, we won a 3-year facilities management contract for 220 agencies of Crédit Mutuel du Nords Northern Europe network, with estimated annual revenue of €4.3 million.

In Belgium, we were awarded a 5-year multi-technical contract in respect of the entire real estate holdings of the European Commission, which include 68 buildings with 1.5 million cubic meters of space and will require the deployment of 200 employees (estimated annual revenue of €11.5 million).

In the Netherlands, we acquired DBU, a Dutch company specializing in the provision of technical services and the supply of mechanical and electro-technical industrial installations. In the United Kingdom, we were selected to participate in the first public bid by the British government to award permits for greenhouse gas emissions.  To motivate the bidders, the British government offered payment of €350 million over 5 years. Among the 34 companies selected, we are the only energy services provider and have committed to reduce carbon dioxide emissions in the United Kingdom by 100,000 tons by 2006, representing a 37% reduction in respect of the reference target.  To attain these objectives, we will collaborate with 4 hospitals and 134 commercial buildings where we operate energy installations and with which we will share the fees paid for each ton of carbon dioxide saved.

In Sweden, we acquired 5 companies in the Maintech group, a subsidiary of PEAB, a Swedish public works company that specializes in industrial maintenance services, for approximately €4.9 million (after price adjustments), which we estimate will generate annual revenue of €40 million.

In the Czech Republic, we were hired by the city of Ostrava to take over the municipal heating distribution company, ZTO, for approximately €19.1 million. ZTO recorded €43 million in revenue in 2001 and currently has 315 steam boilers, 160 kilometers of network and 233 sub-stations that service 84,000 residences and 900,000 square meters of commercial buildings.

In Italy, we signed a 10-year contract to supply electricity, heating and cooling to Manulifilm, one of the main European manufacturers of films used in packaging, plasticizing, adhesive tapes and tobacco products, with estimated total revenue of €7 million.

In
  Malaysia, our subsidiary Citélum, which specializes in street and building
  lighting, won a contract to light the twin towers of Petronas, the highest inhabited
  towers in the world at 452 meters, with estimated total revenue of €117,000.

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Transportation

In France, we acquired Transports Verney for approximately €47.1 million in January 2002. Transports Verney is present in more than 30 departments in France, particularly in the Great West and Rhône-Alpes regions, and focuses essentially on operating urban and inter-city networks. Transports Verney recorded more than €150 million in revenue in 2001.

In Ireland, we won a 5-year contract to operate the new Luas light metro network in Dublin, with 40 trains used on 2 lines serving 36 stops and estimated total revenue of €55 million.

In Great Britain, we renegotiated the compensation for 2003 and the duration of a contract to operate the rail network in southeast London. Our compensation increased by €90 million for 2003 and is currently being negotiated for the 2004-2006 period. This contract will now expire in 2006 instead of 2011.

In Germany, in December 2002 we inaugurated the Lausitzbahn rail network in the Görlitz region (estimated annual revenue of €4 million) and commenced operating two long distance inter-regional lines that link the southern part of Eastern Germany, Berlin and the Baltic Sea region (estimated total revenue of €13 million).

In Sweden, we won two public tenders for the operation of passenger rail networks in Norrland and Göteborg and a public tender for the operation of the urban and inter-urban network of Ekilstuna.  We also obtained a 5-year extension of a contract to operate the metro system and three tramway lines in Stockholm, which results in estimated total revenue of more than €1 billion after taking into account the extension.

In Slovenia, we acquired the right to operate the Certus urban and inter-urban transportation network in Maribor for a 10-year period from another private operator (estimated total revenue of €180 million).

BUSINESS OVERVIEW

Our
  Market

Traditionally, environmental management services, which include water treatment and distribution, wastewater treatment and collection, waste treatment and management, energy services (excluding the production, trading and sale of electricity) and transportation, have been provided in an uncoordinated manner, each by a different entity. A provider of energy services, for example, would not also offer water or wastewater 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 private firms 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 requi

re 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:

| | • | long-term
      contract managementthe ability to win and successfully manage long-term
      contracts (up to 50 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 - the ability to organize the financing of large-scale environmental
      infrastructure projects to meet a wide range of customer needs;                                                                                                                                     

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| | • | technical
      expertisethe ability to conceive and 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 above 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 for the following reasons:

| | • | In a world
      that combines accelerated urbanization with demographic growth, major investments
      in environmental projects and services are needed to meetincreasingly
      stringent environmental standards,
      provide growing urban populations with adequate environmental services and
      replace existing environmental infrastructure. In addition, there is also
      an increase in 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 sector firms to address environmental
      issues efficiently. As a result,public
      authoritiesare
      increasingly turning to the private sector to address their environmental
      needs.                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | • | Industrial
      and commercial companiesare
      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 and, as a result, 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
      toa
      single partner,
      creating an opportunity for companies capable of offering a broad range
      of environmental management services in an integrated fashion.                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | • | Large private
      firms and public authorities increasingly recognize that a one size
      fits all approach will not meet their unique and changing needs. As
      a result, demand forcustomized
      environmental management serviceshas
      grown.                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | • | The increasingly
      multinational profile of many large industrial and commercial firms encourages
      them to outsource non-core activities to companies with similargeographic
      reachto
      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 in particular to provide innovative, integrated environmental management services in markets around the world on a one-stop shopping basis. 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(or Urban Environment Institute) allow us to integrate within our own personnel several designated employees of our customers.

Our Clients

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 approximately 65% of our total revenue in 2002, while our industrial and commercial customers represented approximately 35% of total revenue in 2002.

The demand from public authorities has been particularly influenced and strengthened by recent trends relating to privatization, intercommunal conglomerations (which involves the grouping of several French municipalities into communal areas or conglomerations) and a heightened sensitivity to environmental issues, including the management of water resources, air pollution, mass transportation policies and energy consumption.

At
  the same time, the development of our industrial customer base has become a
  major growth factor in our business. Our expertise in multi-service solutions,
  our capacity to limit the environmental impact of industrial activities and
  our ability to deliver customized solutions on all of the continents allow us
  to respond to the demands of our large industrial customers. In addition, during
  2002 we significantly increased our presence in a variety of commercial and
  other professional fields, including through the provision of services to hospitals,
  airports, hotels and transportation-related companies.

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While we provide services around the world, our largest market is Europe and, to a lesser extent, the United States. In 2002, we generated 45.3% of our revenue in France, 34.9% in the rest of Europe, 12% in North America, 3.8% in the Asia-Pacific region and 4% in the rest of the world. We are not materially dependent upon any particular customer, and no one contract represented more than approximately 1.6% of our revenue in 2002.

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 and our leading market position in environmental management
      services to deliver strong internal growth                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   | Providing
      environmental management 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
      or commercial 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.  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | • | Develop
      partnerships through unique, integrated, multi-service offerings or by taking
      advantage of synergies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   | We are integrating
      our environmental operations to meet increasing demand for comprehensive
      environmental management services. We also sometimes pursue this approach
      with other companies in order to harness their capabilities. This integration
      allows our clients to benefit from technical synergies and better control
      economic performance and environmental risk, and is the key element of our
      service offerings, particularly to commercial clients. For example, such
      technical synergies are possible in the waste-to-energy field
      with the treatment of industrial effluents and related sludge and the supply
      of de-mineralized water-based industrial heating.                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   | The integration
      of our capabilities may take the form of an integrated service contract.
      In 2002, for example, we won a number of integrated multi-service contracts
      with industrial customers, including Arcelor, Accor and Pharmacia. We also
      offer integrated services to public authorities, such as our integrated
      contract to provide a variety of environmental management services in the
      city of Bromley, United Kingdom. The integration of capabilities may also
      result from the synergies that arise from the award of separate contracts
      to several of our divisions by a single customer (or by different customers
      that have relationships among themselves), such as, for example, our contracts
      in Shanghai and our contracts with British Petroleum (BP).          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   | In order
      to fully benefit from the advantages of the integration of our services
      and the synergies between our divisions, we regrouped our companys
      senior management and the senior management of each of our divisions at
      our corporate headquarters in Paris in the second quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | • | Achieve
      and maintain best-in-class performance in each of our business
      segments by investing in technology and personnel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   | The 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, permitting us to realize important productivity gains
      and to anticipate, at low cost, changes in regulations. Six hundred of our
      researchers are dedicated to considering technological issues specific to
      our industrial clients. We have also established key measures to assure
      our industrial and commercial clients that we respect the highest standards
      of hygiene, safety and environmental protection in their sites.

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| | • | Seize
      opportunities arising from our worldwide reach                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   | Because
      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.
      Based on this capability, in 2002 we renewed our 5-year contract with Renault
      to provide global waste management services at 15 of its factories and expanded
      the services we provide under the contract, which will require support from
      our other divisions and the performance of services at new factories abroad.                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   | Our
      worldwide presence also allows us to quickly seize opportunities to enter
      markets that experience sustained growth of environmental management services,
      particularly in Europe, the United States and Asia, particularly China.
      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 services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   | We
      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
      in 2001 a divestiture program for non-strategic assets pursuant to which
      we generated proceeds of more than €1.7 billion in 2002. As part of
      this program in 2002, our subsidiary USFilter sold its entire US waterworks
      distribution business, through which it supplied valves, pipes, meters and
      other waterwork materials, as well as its filtration and separation materials
      business.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | • | Pursue
      a selective policy of acquisitions to expand our service offerings and geographic
      reach                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   | We
      intend to acquire environmental services-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. In France, for example, Connex acquired Transports
      Verney in 2002, which operates in more than 30 departments throughout the
      country. If we decide to pursue acquisition opportunities that arise, we
      may decide to sell other activities in order to re-balance our asset portfolio.                                                                                                                                                                                                                                                                                                                                             

Our Services

We are a world leader in services related to the environment.  We have operations in almost 100 countries on all of the 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 treated water and recycle wastewater in a customers facility, to collect, treat and recover waste generated in the facility, and to 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: Veolia Water(water), Onyx (waste management), Dalkia (energy services) and Connex (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.

Although our divisions operate independently from one another, they are capable of proposing an integrated service offering. For example, in 2002 BP renewed its trust in our company by awarding us a contract (in partnership with Air Liquide) for the complete management of its thermoelectric heating facility at its Lavéra factory, where Connex has provided a complete package of logistical services since 1987 and Veolia Water operates the facilitys water treatment units. We also won a significant number of outsourcing contracts with Arcelor in 2002 that require services from each of our four divisions in France, including a 7-year contract to

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provide
  energy production, water treatment and waste management services at its Montataire
  site and a 15-year outsourcing contract for water services and steam production
  at its Florange site. In addition, we entered into a worldwide partnership with
  the Accor group, which could allow us to secure our position as the favored
  supplier of an extensive range of services to the Accor hotels, including heating,
  air conditioning, selective waste collection and removal, water systems management
  and maintenance, and transportation of guests and personnel. We study experimental
  applications to better preserve the environment at new sites, including, for
  example, the desalination of sea water and the use of renewable energy or clean
  fuels. Finally, our water and waste management divisions cooperate closely in
  connection with our large industrial clients in the United States in the context
  of Operation Synergy. As a result of the close collaboration between
  our company and one of the leading pharmaceuticals companies in the world, Onyx
  won a contract in 2002 to provide waste management services at a majority of
  this companys industrial sites.

The following table shows the contribution of selected geographic markets to our revenue by division and to our consolidated revenue for 2002, after elimination of all inter-company transactions:


|                         |       |       |          |           | Energy |       |      |   |     |   |      |   |     |  
|------------------------ | ----- | ----- | -------- | --------- | ------ | ----- | ---- | - | --- | - | ---- | - | --- | -
|(in
      billions of €) | Water | Waste | Services | Transport | FCC(1) | Total | %   
|                         |       |       |          |           |        |       |     
|Europe                   | 8.5   |       | 4.0      |           | 4.5    |       | 3.2  |   | 2.5 |   | 22.7 |   | 75  | %
|of
      which France    | 6.2   |       | 2.5      |           | 3.0    |       | 1.3  |   |    |   | 13.0 |   | 43  | %
|Americas                 | 3.7   |       | 1.6      |           | n.m    |       | 0.1  |   | 0.2 |   | 5.6  |   | 19  | %
|Rest
      of the World  | 1.1   |       | 0.5      |           | 0.1    |       | 0.1  |   |    |   | 1.8  |   | 6   | %
|of
      which:          |       |       |          |           |        |       |      |   |     |   |      |   |     |  
|Africa-Middle            |       |       |          |           |        |       |      |   |     |   |      |   |     |  
|East                     | 0.5   |       | 0.1      |           | n.m    |       | n.m. |   |    |   | 0.6  |   | 2   | %
|Asia-Pacific             | 0.6   |       | 0.4      |           | n.m    |       | 0.1  |   |    |   | 1.1  |   | 4   | %
|                         |       |       |          |           |        |       |      |   |     |   |      |   |     |  
|Total                    | 13.3  |       | 6.1      |           | 4.6    |       | 3.4  |   | 2.7 |   | 30.1 |   | 100 | %
|                         |       |       |          |           |        |       |      |   |     |   |      |   |     |  
|in
      %               | 44    | %     | 20       | %         | 15     | %     | 12   | % | 9   | % | 100  | % |     |  

---

|n.m.
      = Not Material.
|--------------------------
|(1)                       

Water

Veolia Water,
    our main water services subsidiary, is the worlds leading provider of
    water and wastewater services and one of the leading designers and manufacturers
    of water and wastewater treatment facilities, systems and standard equipment
    for industrial, commercial and municipal customers in the world. With its
    77,600 employees around the world (including 100% of the employees of companies
    that are proportionally consolidated by our company and 50% of the employees
    in Proactivas water activities), Veolia Water is present in almost 100
    countries and serves approximately 110 million people throughout the world
    under more than 7,000 operating contracts. Veolia Waters three principal
    subsidiaries are Compagnie Générale des Eaux, which is the leading
    European water and wastewater services company and has operations worldwide,
    USFilter, which is North Americas leading water and wastewater services
    and equipment company, and Veolia Water Systems, a designer and provider of
    water treatment systems and standard equipment.


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The following table shows the consolidated revenue and EBIT of our water operations in each of the last three fiscal years, after elimination of all inter-company transactions:


| |            |        | (in
        millions of €)(1) |       
| | ---------- | ------ | ----------------------------- | ------
| |            |        | 2002                          |       
| |            |        |                               |       
| | Revenue(3) | 13,294 |                               | 13,641
| | EBIT(4)    | 1,024  |                               | 1,090 

| |    
| | ---
| | (1)
| | (2)
| | (3)
| | (4)

Veolia Water manages a large number of municipal water and/or wastewater services around the world, including, in France, Paris (right bank) and its suburbs, Lyon and Marseilles, and in the rest of the world, Berlin (Germany), Londons north suburbs (U.K.), Budapest (Hungary), Prague (Czech Republic), Bucharest (Romania), Adelaide (Australia), Indianapolis (U.S.), Pudong (a district of Shanghai) and Tianjin (China) and Libreville (Gabon). Veolia Water also has a number of important industrial clients, including General Motors, Conoco, Hyundai, Danone, British Petroleum (BP), Renault and Arcelor.  About two-thirds of consumers of Veolia Waters services and products for individuals are located in North America, with the remainder located mainly in Europe. Strategy Our water divisions strategy for its outsourced management activities is to promote selective growth by leveraging our current position and obtaining new key contracts. In the medium-term, Veolia Water expects to refocus on developed countries with well-controlled risk exposures. Despite increasing competition in France, Veolia Water intends to rely on the experience and commercial dynamism of its teams to continue providing high level services with the goal both to renew contracts nearing expiration and to win new contracts for public water and wastewater treatment services, as well as develop further the services it offers to industrial and municipal customers.  In continental Europe, Veolia Water seeks to consolidate its leadership by capitalizing on key contracts won in the past three years, particularly in Berlin, Bucharest, Budapest and Prague, and by focusing on both municipal clients and industrial and commercial companies. In the Un

ited States, Veolia Water offers water services to industrial and public entities, targeting unregulated activities where it is the market leader with operations that are 4 times larger than that of its nearest competitor. In Asia, Veolia Water expects to target opportunities in countries with strong growth potential, such as China, South Korea and Japan, which it considers as crucial to the development of its activities in the region. In designing and building water treatment equipment and systems, Veolia Water seeks opportunities in newly opened markets as well as in the operation of water services. Veolia Waters strategy is to seek and develop synergies between equipment services and sales, and design, construction and operating services. Our main water systems subsidiary, Veolia Water Systems, is close to completing the integration and restructuring of USFilter Internationals subsidiaries and is pursuing a plan of selectivity to increase its profitability.  Veolia Water Systems is positioning itself to offer design and construction services and create both standardized and customized package systems that meet the specific needs of certain industrial sectors or allow it to offer municipal and industrial clients temporary or more long-term solutions to their water quality problems. Veolia Water also provides services to individuals through Proxiserve (a joint venture with Dalkia), Culligan and, more recently, Générale des Eaux Services, a subsidiary of Compagnie Générale des Eaux, which offers services and products in France that are not tied to public water services, such as assistance and repair services and solutions for individual environments. Veolia Water also continues to develop a complete range of high value-added services to individuals and commercial enterprises.


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Description of Activities Municipal and Industrial Outsourcing The main focus of our water business is on water and wastewater management services for public authorities and industrial and commercial customers. Veolia Water provides integrated services that cover the entire water cycle, from collection from natural sources, treatment, storage and distribution to collection and treatment of wastewater. Veolia Waters 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. It also provides water treatment services to end users. Municipal Outsourcing Veolia Water and its subsidiaries have provided outsourced water services to public authorities in France and in the rest of the world for 150 years under long-term contracts adapted to local environments. Veolia Water uses its experience, technology and know-how to capitalize on the worldwide trend towards privatization of municipal water and wastewater services. In France, Veolia Water operates in over 8,000 municipalities 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.  The market has become increasingly competitive as a growing number of contracts are reaching the end of their terms, as new local and international competitors enter the market and as certain municipalities decide to manage water services internally.  In 2002, Compagnie Générale des Eaux proved its competitive edge by winning 43 new contracts, two thirds of which are for water treatment services. Of its 256 contracts ending in 2002, Veolia Water successfully renewed 217 of the 236 contracts that were reoffered through public tenders. The 39 contracts that were not renewed represented only 0.25% of revenue from our water activities in France, which at the same time increased by 3%

 in 2002. The performance of our water division also benefited from a notable increase in the public services provided by Compagnie Générale des Eaux, including the maintenance of water treatment networks, technical network assistance and research on leakages. In Europe, Veolia Water, already present in the United Kingdom, Germany and Eastern Europe for a number of years, reinforced its leading market position in providing services to municipalities by winning a number of significant contracts. In the Netherlands, Veolia Water was declared the winning bidder for a contract in September 2002 to design, construct and operate wastewater treatment plants in the city and region of The Hague for a 30-year period (estimated total revenue of €1.5 billion). This contract and related agreements are expected to be finalized over the course of 2003. In October 2002, it extended from 13 to 28 years a contract won in 2001 for the city of Prague (1.2 million inhabitants) to treat and distribute potable water and collect and treat wastewater. Veolia Water also increased its stake in PVK (Prague Water Company) from 66% to 100%. In Asia, which we consider a focus of strategic expansion, Veolia Water has operations in Malaysia, South Korea, Thailand and China. In May 2002, Veolia Water won an international public bid to manage water services in Pudong, the business district of Shanghai, for a period of 50 years (estimated total revenue of €10 billion, of which €5 billion is attributable to Veolia Water based on its interest in the operator). Pudong is one of the main commercial and financial centers in Asia and currently has nearly 1.9 million inhabitants. In November and December 2002, Veolia Water won two outsourcing contracts for water management in the cities of Baoji and Zhuhai in China.  The 23-year Baoji contract involves the rehabilitation, extension and operation of two potable water treatment facilities that serve 500,000 inhabitants (estimated total revenue of €300 million). In Zhuhai (1.2 million inhabitants), where we won our first water trea
tment contract in China, Veolia Water will operate for 30 years two wastewater treatment facilities, one of which already exists and one which must be built (estimated total revenue of €400 million). In the United States, where USFilter sold various non-core businesses to refocus on providing water services and to reinforce its leadership in the water equipment and systems market, Veolia Water is continuing to develop its activities in the unregulated municipal market by winning several significant contracts. In March 2002, USFilter won a 20-year contract to manage the municipal water services of the City of Indianapolis, which is the largest-ever outsourcing contract for municipal water services in the United States, with estimated total revenue of US$1.5 billion.  Under this contract, USFilter will operate and maintain the citys potable water services, which serve 1.1 million residents, and will rehabilitate related infrastructure and provide client-relations and billing services. In August 2002, USFilter signed a long-term contract with the City of Atlanta to upgrade and manage a program to treat biosolids generated by the Citys

 wastewater facilities (estimated total revenue of US$200 million). In May 2002, USFilter won a 20-year contract to treat wastewater in Richmond, California (estimated total revenue of US$60 million) and in November 2002, USFilter renewed its wastewater management contract with Oklahoma City for 5 years (estimated total revenue of US$36 million).


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In North Africa, in October 2002, Veolia Water took over an outsourcing contract to provide water, wastewater treatment and electricity services for 26 years in the Rabat-Salé region of Morocco (2 million inhabitants), with estimated total revenue of €4.6 billion. Industrial Outsourcing Veolia Waters outsourcing contracts with industrial and commercial customers generally last 3 to 10 years, but some last as long as 20 years. Veolia Waters industrial outsourcing activities grew in 2002. In France, Veolia Water won several important contracts. In the paper sector, Smurfit Cellulose du Pin chose Veolia Water in January 2002 to treat industrial effluents for 12 years at its kraft paper factory in Facture/Biganos, which is one of the largest paper factories in Europe, and to construct a new biological treatment station (estimated total revenue of €11 million).  In the chemicals sector, Veolia Water signed an agreement with Rhodia in July 2002 to manage and improve a wastewater treatment plant at its Saint-Fons site near Lyon for a 5-year period.  This plant also treats wastewater from CIBAs site and another Rhodia site located in Belle Etoile (with estimated total revenue of €6 million). In the steel manufacturing sector, Veolia Water signed a 15-year contract in March 2002 with Arcelor Packaging to treat effluents at its Florange site in Moselle (estimated total revenue of €27 million). In the food processing
 sector, Veolia Water signed a number of contracts with, among others, LU, LDC, Laurent Perrier, Stalaven and Saupiquet. In Europe, in December 2002, Veolia Water expanded the scope of its relationship with Cutisin, one of the most important companies in the Czech Republic, to provide complete water services to its subsidiary in Jilemnica for 10 years, with estimated total revenue of €5 million. In Malaysia, Veolia Water signed in August 2002 an important outsourcing contract with the Petronas oil group to provide water treatment and distribution services at the Kertith petrochemical complex for a 20-year period (estimated total revenue of €200 million). In the United States, USFilter signed a 20-year contract with Alon in April 2002 to outsource its water and wastewater treatment services at its Big Spring refinery in Texas (estimated total revenue of approximately US$66 million). Water Treatment Design, Construction, Equipment and Systems Through USFilter and Veolia Water Systems, Veolia Water is one of the worlds leading designers and manufacturers of water and wastewater treatment equipment and systems for public authorities and private companies.  Veolia Water treats groundwater, surface water and wastewater using a wide range of separation processes and technologies and it engineers customized systems to reduce or eliminate water impurities. Veolia 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. Veolia Water
    also designs, engineers, manufactures, installs, operates and manages standardized
    and semi-standardized water and wastewater equipment and systems designed
    to treat water and wastewater for particular public service and commercial
    and industrial uses. Veolia Water builds and operates a large number of installations,
    which gives it a competitive advantage in terms of cost, performance and reliability,
    especially for services to commercial and industrial firms. 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. Veolia Water uses a broad range of physical, biological
    and chemical treatment technologies that can be combined and configured to
    treat water and wastewater to a customers individual specifications. Through SADE, Veolia Water also designs, builds, renovates and recovers urban and industrial potable water and wastewater treatment networks and conducts related work in France and around the world. SADEs services cover each stage of the water cycle, from its collection to its release, and its public and industrial customers benefit from SADEs expertise in this domain. Municipalities In France, Veolia Water Systems signed a major contract in October 2002 to modernize the wastewater treatment plant in Achères Seine Aval in the Yvelines region, which treats a large portion of the wastewater in the Paris area (estimated revenue of €390 million). Outside France, Veolia Water Systems will design and build the installations related to the outsourcing contracts won in The Hague (Netherlands), Baoji and Zhuhai (China) and Ashkelon (Israel). In Ashkelon, in particular, the initial capacity of the unit already under construction will be doubled. In addition, Veolia Water Systems won a number of other important contracts in 2002, including, for example, a contract to construct a


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water station in Machala, Ecuador, with estimated total revenue of €16.2 million. In the United States, USFilter was awarded a significant number of equipment contracts by municipalities, including, for example, a contract with Orange County, California, to install the largest microfiltration system in the world, which will treat the countys wastewater before re-injecting it into the aquifer to prevent the infiltration of seawater (estimated revenue of US$25 million). SADE also won a significant number of contracts to construct and renovate water networks for municipalities in France and elsewhere.

Industrial and Commercial Customers In France, Veolia Water Systems will design and construct installations under several industrial outsourcing contracts won by Veolia Water, including the agreement with Smurfit and LDC to build biological treatment stations.  SADE also signed several contracts to reinforce water treatment networks and protect industrial sites from fire. In addition, Veolia Water Systems won a number of contracts with industrial and commercial companies around the world.  Among the most significant agreements, Celluloso Aranco y Constitucion SA selected Aquaflow-Veolia Water Systems to design and implement solutions to manage the water cycle at the future factory in the Cruse Rivers Valley, Chile (estimated revenue of €4 million), and TyskieE, an important Polish brewery that belongs to the South African Breweries group, chose Veolia Water Systems to construct its treatment system (estimated revenue of €5.8 million). Despite a challenging economic environment in the United States, USFilter won a number of treatment equipment and systems contracts, including a contract to build and install a demineralization system at the Genesee Power Station in Canada and, in May 2002, a contract to build and install a salt crystallization system for Saltville Gas Storage Co. in Virginia. Services to Individuals Through USFilter, Veolia Water supplies bottled drinking water to North and South American and European consumers under the Culligan brand, as well as a variety of point-of-use and point-of-entry water treatment products, including, for example, water softeners and drinking water systems. Veolia Water distributes Culligan products and provides related services primarily through a distribution network consisting of more than 1,000 company-owned dealers and independent dealers and licensees, of which approximately 70% are located in North America and the rest principally in Europe. Veolia Water also markets water filtration systems under the brand name Everpure through master distributors and dealers throughout the world, which are used by approximately 1.5 million food service companies and restaurants. In 2002, revenue from bottled water sales recorded strong growth in Europe and North America and elsewhere. In France, Veolia Water offers a complete array of services to individuals through Proxiservice, a joint venture between Veolia Water and Dalkia, which offers household technical services (including the distribution of utilities, maintenance of plumbing and heating and air conditioning systems and other maintenance services) and through Générale des Eaux Services, which provides services and products that are not related to municipal water services to individuals and commercial enterprises (including assistance and repair services and solutions for individual environments). Acquisitions and Divestitures in 2002 In 2002, Veolia Water continued to implement the policy adopted in 2000 to refocus its operations on its core water businesses. Veolia Waters divestments worldwide generated proceeds of €1.5 billion in 2002. In the United States, Veolia Water sold USFilters Filtration & Separation business (which specialized in filtration and separation technologies for non-water-based industrial applications), all of USFilters waterworks distribution business (supplying pipes, valves, fittings and meters) in the United States, and Plymouth Products, which manufactured drinking water filtration products.  Veolia Water also sold its 17% interest in Philadelphia Suburban Corporation, a company that operates in the regulated water sector. In Europe, Veolia Water sold its minority stakes in two British water distribution companies (a 24.1% interest in Bristol Water Holding and a 31.7% interest in South Staffordshire Water Company) and in SVZ, a peripheral incineration subsidiary of BWB, the water services operator in Berlin, for an aggregate amount of €168 million. In France, Veolia Water sold a significant part of its interest in Bonna Sabla, a cement products manufacturer that operates primarily in the public works sector, for €87 million.  Veolia Water still holds a 19.85% interest in Bonna Sabla.


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Waste
  Management

Onyx, our main waste management subsidiary, is the second largest waste management company in the world and one of the global leaders in hazardous industrial waste management.  With its 73,300 employees around the world (including 100% of the employees of companies that are proportionally consolidated by our company and 50% of the employees in Proactivas waste management activities), Onyx operates in all segments of the solid, liquid and hazardous waste management business, serving local authorities and industrial clients on each continent.  Onyx provides services along the entire waste management chain, including collecting, transfering and treating waste in sorting centers, composting units, waste-to-energy facilities or landfills and recovering waste by producing recycled materials, energy (electricity and heat) and compost.

Present in 49 countries in all continents, Onyx has expanded the range of its services in the past several years, adapting its offerings to the specific needs of the market and focusing in particular on the outsourcing of environmental management services.  Onyx is very active in traditional waste management activities (collection, treatment and recovery) as well as in related services such as urban and sewage system cleansing, commercial and industrial cleaning and treatment of contaminated soil.

The following table shows the consolidated revenue and EBIT of our waste management operations in each of the last three fiscal years, after elimination of all inter-company transactions:

|(€
      millions)(1) | 2002  |  | 2001  |  | 2000(2) | 
|--------------------- | ----- |  | ----- |  | ------- | 
|                      |       |  |       |  |         | 
|Revenue               | 6,139 |  | 5,914 |  | 5,260   | 
|EBIT                  | 385   |  | 391   |  | n.a.    | 

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

Onyx provides waste management services to 272,000 industrial and commercial clients and, through its municipal contracts, serves almost 76 million people.

Onyxs specialization in waste management allows it to apply its outstanding technological capability to the outsourced management of public services for local communities and to offer customized solutions to its large and small and mid-sized industrial and commercial clients environmental challenges.  Onyx offers a comprehensive range of services to its industrial customers, which can outsource all of their waste management needs to a single provider and concentrate on their core businesses and realize economies of scale. Onyx also customizes its service offerings to small and mid-sized industrial and commercial customers according to their sectors of activities, including chemicals, food processing, automobile, electronic, pharmaceutical, metallurgical, paper, oil, health, distribution and retail sectors.

Because it has operations around the world and offers services that are adapted to local conditions and regulations, Onyx has become a major global player in the treatment of hazardous waste.  In addition, Onyx offers a number of recycling services, including cardboard and glass, and is developing all of the other main recycling services, including textiles, scrap iron, metals, plastics, waste from electric and electronics equipment (WEEE), recoverable wood and construction site waste, oil waste products, cinders, tires and solvents. While its service offerings in several areas, such as paper-cardboard and glass, are highly structured, Onyx's services in other areas, such as textiles and WEEE, are in the process of being structured.

The duration of Onyxs waste management contracts usually depends upon the nature of the services provided, applicable local regulations and the level of capital expenditure required under the contract. Collection contracts usually last from three to five years.  The length of treatment contracts ranges from one year for operations in landfills that Onyx owns 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 of five years.

Strategy

Onyxs
  main goals are to:

| |  | • | develop
      its waste treatment capabilities,
| |  | - | -----------------------------------------------
| |  |   |                                                



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| |  | • | strengthen
      its offering to industrial clients by capitalizing on its expertise throughout
      the complete waste management chain and its ability to generate synergies
      with our other operating divisions,
| |  | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |   |                                                                                                                                                                                                                          
| |  | • | consolidate
      its international network,                                                                                                                                                                             
| |  |   |                                                                                                                                                                                                                          
| |  | • | increase
      the profitability of its activities by integrating the evolution of the
      cost structure of its activities, and                                                                                       
| |  |   |                                                                                                                                                                                                                          
| |  | • | widen its
      technological lead in waste treatment and recovery.                                                                                                                                                      

Description
  of Activities

Our core waste management activities are the collection, treatment and recovery of household, commercial and industrial waste.  We divide these activities into two main categories: waste collection and related services and waste treatment and recovery.

Waste
  Collection and Related Services

Collection
  and Transfer

Onyx collected approximately 35 million tons of waste from individuals, municipalities and industrial and commercial sites in 2002, compared to 31.5 million tons in 2001. Onyx provided waste collection services to more than 63 million people around the world in 2002.

Onyx also collects hazardous waste for its industrial and commercial customers.  Onyx collected approximately 1.7 million tons of hazardous waste in 2002.  Onyx also offers its industrial and commercial clients a range of services related to the collection of hazardous waste, such as preliminary studies of future waste collection needs and waste tracking after collection.

Onyx transports collected waste to transfer and sorting stations, where it is separated by type and then sorted before being sent to an adapted treatment center. Hazardous waste is usually transported to specialized physico-chemical treatment centers, recycling units, special industrial waste incineration units or landfills designed to receive inert hazardous waste.

Urban
  Cleansing and Maintenance of Public Spaces

Onyx provides urban cleansing services in a large number of cities throughout the world, including London (U.K.), Paris (France), Alexandria (Egypt), Rabat (Morocco), Singapore and Chennai (China). 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.

Liquid
  Waste Management and Draining; Maintenance of Water Networks

Through its subsidiary SARP, Onyx provides liquid waste management services that consist primarily of pumping and transporting liquids related to sewer networks and oil residues to treatment centers.  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. SARP also collects untreated oil residues, which present a hazard to the environment if released into water systems, and delivers them to SARP Industries, an Onyx subsidiary that specializes in hazardous waste management, for treatment and recovery, which evidences the complementarity of Onyxs different activities.

Commercial
  and Industrial Cleaning

Onyx provides cleaning services to its industrial and commercial clients installations, including cleaning of offices and sites and maintenance of production lines. In the commercial sector, we provide these services mainly in train stations, subway networks, airports, museums and commercial centers, where cleanliness is associated with quality and security.  In the industrial sector, we provide these services principally in food processing plants and heavy and high-tech industrial sites, where we offer specialized high or extremely high pressure cleaning services, cryogenics and reservoir cleaning in refineries and other petrochemical sites.  We have recently received an ISO 9001 certification in recognition of the quality of our cleaning services at food-processing plants, which operate under strict hygiene regulatory requirements. Onyx has developed advanced

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technological cleaning systems, including specialized robots, that enhance the quality of the cleaning services offered, reduce the time required to complete cleaning operations and increase the safety of employees. Onyx offers its commercial and industrial cleaning services in most industrialized countries, including Germany, Australia, Canada, the United States, France and Scandinavia. We have also developed emergency services to treat the potential contamination of a site due to incidents or accidents that occur at the facilities of our industrial customers.

Waste
  Treatment and Recovery

In 2002, Onyx treated 54 million tons of waste, compared with 47 million tons in 2001, at its sorting centers, composting units, hazardous waste treatment units, incineration units and landfills.

Sorting
  and Recycling

Onyx's
  recycling activities generally involve the selective or separate collection
  of paper, cardboard, glass, plastic, wood and metal that customers either separate
  into different containers or mingle with other recyclable materials. Onyx's
  customers are increasingly separating different types of recyclable waste into
  separate containers, which requires selective collection services. Onyx received
  approximately 7 million tons of solid waste at its 220 sorting, recycling and
  transfer units in 2002 (compared to 184 units in 2001), of which 4.6 million
  tons were recycled, including 2 million tons of paper. Onyx also provides disassembly
  and recycling services for complex waste products at specialized treatment centers,
  such as electric and electronic products and fluorescent lamps. Onyx works in
  partnership with upstream industrial customers and with its CREED research center
  in order to develop new recycling activities.

Onyx sells recycled material to intermediaries or directly to industrial and commercial clients. Onyx is one of the European leaders in recycling waste paper and cardboard and has substantial waste paper recycling operations in the United States. Sorting and recycling are also becoming larger components of the environmental management services we provide to industrial and commercial companies. Onyx designs and develops recycling systems that enable its industrial and commercial 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.

Composting

Onyx and Veolia Water work together to recover sludge from wastewater treatment plants, an example of the synergies within our group. The quality of the sludge product depends on the quality of the wastewater treatment procedure and the conditions of the composting process used.  In 2002, Onyx recovered almost 2 million tons of urban and food processing sub-products and sludge produced by Veolia Waters wastewater treatment plants at its 99 composting units, compared to 80 composting units in 2001. Somergie, a subsidiary jointly owned by Onyx and the city of Metz, was awarded the European Ecolabel for its urban compost in 2002. In addition, Onyx launched in 2002 the Biodiv service for industrial companies that generate vegetable waste, which includes specialized container storage, frequent collection and on-site composting services, as well as the tracking of waste throughout the cycle from collection

 to recovery. Onyx targets organic waste produced mainly by manufacturers, food processing companies and national interest and distribution markets (including fruits, vegetables, flowers and bread) in order to produce high quality compost.

Treatment
  and Recovery of Hazardous Waste

Through its specialized subsidiary SARP Industries, which has a particularly strong presence in France, Hungary, Israel, Portugal, South America and, through Onyx Environmental Service, in the United States, Onyx is one of the world leaders in treating, recycling and recovering hazardous waste.  Onyx provides advisory services (engineering and customized solutions) and treatment and recovery services adapted to each industrial sector and type of waste, such as solvent and resin regeneration, hydrocarbon waste recovery, recycling of batteries, fluorescent tubes and soiled packaging, and retrieval and recycling of precious or rare metals.

With 53 units in 18 countries, Onyx treated 3.2 million tons of hazardous waste in 2002, of which 975,000 tons were incinerated at its 21 special industrial waste incineration units, 1.06 million tons were treated at its 7 specially designed landfills for hazardous waste, 1 million tons were treated in 36 units by physico-chemical and stabilization processes and the remaining 160,000 tons were recovered at its 32 specialized treatment centers.  The principal methods used for treating industrial hazardous waste are incineration (for organic liquid waste, salt-water and sludge), solvent recycling, waste stabilization followed by treatment in specially-designed landfills, and physico-chemical treatment of inorganic liquid waste.

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Waste-to-Energy
  and Incineration

Onyx treats approximately 8.4 million tons of non-hazardous solid waste (consisting mainly of urban waste) per year at its 70 waste-to-energy recovery and incineration plants. Energy is generated from the heat created by incinerating waste at these plants. Onyx uses this energy to supply district thermal networks or for sale to electricity providers.  Waste-to-energy recovery and incineration is often the recommended waste treatment solution in densely populated areas where landfill space is scarce.  Onyx continuously develops innovative waste-to-energy procedures and techniques to broaden the range of waste that may be converted into energy, optimize the production of energy and operate in strict compliance with environmental regulations, including restrictions on smoke and ash treatment processes.

Landfilling
  and Gas-to-Energy Recovery of Biogas Emissions

Onyx treated approximately 33 million tons of non-hazardous solid waste in 139 landfills in 2002. Onyx has developed the expertise to treat waste through methods that reduce emissions of liquid and gas pollutants and that permit it to use its landfills in compliance with the most stringent environmental regulations. Onyx currently has 111 sanitary ladnfills equipped to retrieve and treat biogas emissions from the anaerobic fermentation of waste, of which 29 landfills have recovery systems to transform biogas emissions into alternative energies.

Remediation
  of Polluted Sites and Soils

Onyx has recently commenced leveraging its expertise in waste management to provide treatment and related services for the remediation of polluted soils 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.

Main
  Developments in 2002

As in 2001, Onyx focused in 2002 on consolidating its business in France, Europe, the United States and Asia, while at the same time winning several major contracts in these regions.  Through Onyx, we won new contracts with local municipalities that will generate significant revenue and reinforced our industrial client base (272,000 industrial clients) despite difficult economic conditions, particularly in Europe and the United States. Onyx continued to grow in 2002, although at a slower pace than in 2001.

In France, our activities grew at a satisfying rate despite a restrictive legislative environment that led to costly reorganizations as we implemented the reduced 35-hour work week. One of our priorities in 2003 will be to improve the profitability of Onyxs operations in France. Regarding services to industrial customers, Onyx was selected by Sanofi Synthelabo to provide global waste management services for 3 years at two of its research and development sites in Toulouse and Labège (estimated total revenue of €245,000) and renewed its partnership with Renault for the cleaning of 15 of its industrial sites and treatment of waste for 4 years (estimated total revenue of approximately €88 million). Onyx also signed a contract with Société Générale to provide cleaning services for 230,000 square meters of office space at 18 sites in the Paris region and in Nantes (estima
ted total revenue of €1.8 million).  In the retail distribution sector, Onyx renewed its main contracts and increased its client portfolio by €12 million in 2002 with chains such as Auchan, Casino, Monoprix and Conforama. Onyx also obtained several contracts with Exxon Mobil for waste collection and cleaning services. In the chemical sector, Onyx won a contract to provide comprehensive waste management services at Solvays site in Dombasle (estimated total revenue of €1 million). Onyx also renewed a 3-year industrial cleaning and maintenance contract with Sollac at its Fos-sur-Mer site (estimated annual revenue of €5 million). Through VALTECH, a subsidiary of Onyx that specializes in site remediation, we were awarded the disassembly of the Renault site at Boulogne Billancourt, where we have treated 40,000 tons of land and 10,000 tons of concrete.

Regarding local authorities, Onyx won a 3-year contract to clean tourist locations in Paris, including the Champs-Elysées, the Beaubourg Esplanade and the area around Notre Dame cathedral. Onyx also obtained the renewal of a 3-year contract to collect, transport and treat waste from 41 facilities of the Paris Hospitals in the Ile-de-France region (estimated annual revenue of €3.8 million), which may be extended for an additional 2 years, and of a global waste management contract with the Marne Department to establish a network of 5 transfer stations and an integrated services platform for household waste that will include a composting unit and a waste-to-energy unit outside of Châlons-en-Champagne (estimated total revenue of approximately €250 million). Onyx was chosen by Lens-Liévin and Hénin-Carvin communal groups to crush, transport by river and compost 40,000 tons of recyclab
le waste produced each year by these municipal conglomerations and opened two new waste-to-energy units to treat biogas emissions at the Boves site in Picardie and at the Puy-Long site in Auverge. Onyx renewed contracts to operate the waste-to-energy unit at Rungis for 16 years (estimated total revenue of €50 million) and to operate the Montchanin landfill in the Saône-et-Loire region. Onyx commenced operating the waste-to-energy unit at Halluin in Picardie and won a contract to collect waste and provide urban cleansing

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services in the downtown area of Nîmes (approximately 100,000 residents). Onyx also obtained the renewal of contracts to operate the sorting and transfer center at Romainville, to collect household and urban waste in several districts of Paris (estimated annual revenue of approximately €20 million) and to collect household waste in Rennes and Nanterre and provide urban cleansing services in Nantes (270,000 residents). Finally, Onyx also obtained the extension of its contract to operate the sorting center of Grenoble.

Through Renosol, Onyx also provides transportation cleaning services and won 4 new contracts with air and rail transportation operators, including the cleaning of 110 trains on the TGV Atlantic for 6 years (estimated total revenue of €45 million), the Rennes train station and the new Rennes subway for 6 years (estimated total revenue of approximately €3 million) and Air Frances airplanes at the Orly (Paris) airport for 3 years (estimated total revenue of €12 million).  Onyx also won a contract to clean the Nice airport facilities for 3 years and renewed for 6 years its contract to clean the TGV Nord, the Thalys and the Eurostar high-speed trains (estimated total revenue of €54 million).

In Europe, we made major advances in the United Kingdom where Onyxs subsidiary won a number of large contracts.  Onyx considerably reinforced its partnerships with the public sector and demonstrated its expertise in establishing and developing integrated solutions by winning several majors contracts. In October 2002, Onyx won a 7-year contract (to be signed in 2003) to collect and recycle household and commercial waste for the city of Portsmouth (estimated total revenue of approximately €38 million), the 7-year renewal of a contract to collect household and commercial waste and provide urban cleansing services in the Westminster area of London (with 200,000 inhabitants and 1 million visitors per day) (estimated total revenue of €350 million) and a 7-year contract beginning in April 2003 to collect household and commercial waste and provide urban cleansing services in the central London area of Camden
 (estimated total revenue of approximately €190 million).  In November 2002, Onyx extended its contract with the County of Hampshire for a 5-year period, including the construction of three additional recycling centers for household waste. Onyx won a 5-year contract with Royal Mint in the south of Wales (one of production sites for euro coins) to treat liquid waste, install containers, collect dry waste and remove hazardous waste and a contract to collect solid waste for Chubb, an insurance company, in Birmingham for 12 years. In Italy, Onyx won the most important European contract to decontaminate soil at the site of the former Agip refinery in Rho near Milan, where it treats more than 240,000 tons of soil contaminated by hydrocarbons through heat desorption, and commenced operations at its new Technoborgo waste-to-energy unit in Piacenza, south of Milan, with an estimated annual treatment volume of 105,000 tons. In Poland, Onyx renewed for 3 years its contract to provide snow removal services in the
city of Kielce.

In the Middle East, Onyx provides comprehensive waste management services in Alexandria, Egypt (3.5 million residents), since October 2001, including the collection and treatment of 2,500 tons of household waste each day. In addition, Onyx will secure old fly tipping, develop a new sanitary landfill, build a waste transfer station and provide urban cleansing services. This contract also provides for training of local personnel and a campaign to heighten public awareness of urban hygiene issues.

In Asia, we met our expectations for development in these new markets, where we are present in 11 countries.  In Singapore, a city with some of the most stringent environmental standards in the world, Onyx expanded its 2001 waste management collection contract with the area of Tanglin Bukit-Merah to provide urban cleansing services in the city center, including mechanized sweeping of streets and sidewalks, cleaning of commercial zones, purification networks and beach cleaning services, as well as waste removal from public trash cans, for a period of 5 years (estimated total revenue of €45 million). In China, Onyx won an 8-year contract to design and operate the landfill for household waste in Guangzhou, which will have a total capacity of 20 million cubic meters by the end of 2003 (estimated total revenue of €37 million). This contract is the first of its kind won by an international company in China, and
this new site will not only meet the most stringent international regulatory standards, but will also illustrate Onyxs know-how in Asia. As a result of the experience acquired over the past few years in China through the development of landfills, biogas waste-to-energy services and industrial hazardous waste treatment, Onyx has established the strategic platform necessary to continue to grow in Asia. In particular, Onyx has reinforced its position during the past two years by winning new contracts in Hong Kong, mainland China, Taiwan and India.

In
  North America, which is the most important market in the world and where Onyx
  generates nearly a quarter of its revenue, Onyx continues to expand its operations
  progressively by winning a number of important global waste management contracts,
  particularly in the automobile industry, where Ford Motors awarded Onyx several
  important global waste management contracts for its sites in Atlanta, Memphis,
  Dearborn and Livonia for a 3-year period. In addition, Onyx won a national 5-year
  contract with Chevron Philips Chemical to provide industrial cleaning services
  and contracts to collect and recycle municipal waste in Highland Park (estimated
  annual revenue of US $2.6 million) and Saint Charles (estimated annual revenue
  of US $1.4 million), in Illinois. Onyx also won an outsourcing contract to operate
  a waste-to-energy unit in Savannah, Georgia, for 6 years (estimated total revenue
  of approximately €42 million) and another waste-to-energy unit in Charleston,
  South Carolina, for 7 years. Finally, Onyx won contracts to restore the wastewater
  treatment networks of Toronto, Ottawa and Saint-Thomas (Ontario) in Canada.

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In
  the rest of the world, Onyx won or commenced operations under a number of contracts
  in 2002. For example, Onyx provided urban cleansing services for the first full
  year under its contract with the city of Rabat-Hassan in Morocco for a period
  of 6 years (estimated annual revenue of €2.6 million). Onyx also won a
  7-year waste management contract with the city of Oujda, Morocco, which has
  410,000 residents and generates 110,000 tons of waste per year (estimated annual
  revenue of €2.7 million). In South Africa, a consortium formed by Onyx,
  Anglo Platinimum and Zimelec took over the operation of a landfill for the platinum
  factory in Rustenburg, which is located to the northwest of Johannesburg. In
  Australia, Onyx signed a 3-year contract with Boral Limited to treat industrial
  waste at 670 sites around the country (estimated total revenue of €10 million)
  and acquired Vactech. In New Zealand, Onyx won a contract to manage the municipal
  landfill Porirua for a 5-year period (estimated annual revenue of €400,000),
  a 3-year contract to provide urban cleansing services in the city of Waitakere,
  in the Auckland region (estimated annual revenue of €500,000) and a contract
  with ABI Group to provide the cleaning services of the city of Auckland (estimated
  annual revenue of €450,000).

Acquisitions
  and Divestitures in 2002

In France, Onyx focused on the reorganization of its activities by region and the rationalization of its operations in 2002. Outside France, Onyx implemented a similar reorganization by geographic zones. Despite these reorganizations, there were no major overall changes in Onyxs scope of consolidation between 2001 and 2002.

In 2002, Onyx integrated 52 companies into its group, of which 15 companies were located in France, 8 companies in Norway, 9 companies in North America, 8 companies in the rest of Europe (Poland, Spain, Portugal Italy, Hungary, Germany, United Kingdom and Czech Republic), 2 companies in South America, 8 companies in Australia and 2 companies in Asia. At the same time, Onyx ceased consolidating 39 companies of its group in 2002, of which 23 companies were merged and the remaining 16 were sold, dissolved or liquidated. In total, Onyxs group included 602 companies in 2002 (compared to 566 companies in 2001), of which 524 companies were fully consolidated, 31 companies were proportionally consolidated and 47 companies were accounted for by the equity method.

Energy Services

Dalkia, our main energy services subsidiary, is the leading European provider of services associated with energy to companies and municipalities, according to a study by Credit Suisse First Boston.  Dalkia provides energy and environmental optimization solutions, including services relating to heating and cooling networks, thermal and multi-technical systems, industrial utilities, installation and maintenance of production equipment and integrated facilities management. The broad range of services offered by Dalkia allows its clients to optimize the energy chain from production to systems operation or equipment maintenance. Dalkia also offers public electricity services through its subsidiary Citélum and services to individuals through Proxiserve, a subsidiary jointly owned by Dalkia and Veolia Water. Present in 32 countries, Dalkia offers a very extensive geographical coverage in Europe and the str

ength of its international network allows it to accompany its customers around the world and offer them services of the same quality through local teams. Dalkia has almost 40,100 employees around the world (including 100% of the employees of companies that are proportionally consolidated by our company).

Dalkia is partly owned by Electricité de France (EDF), which holds 34% of its share capital and with which Dalkia is developing joint international offerings for international customers and eligible clients in France (i.e., those consuming more than 7 gigawatts of electricity per year).  Under an agreement entered into in December 2000, we have agreed that EDFs stake in Dalkia will eventually rise to 50% (at a price based on Dalkias market value at the time) as the market deregulation process continues and the current limitations on EDFs ability to provide energy services are further removed. Dalkias French operations are conducted through Dalkia France, a wholly-owned subsidiary of Dalkia.  Outside France, Dalkia conducts its activities through Dalkia International, for which it holds a 76% interest and EDF holds the remaining 24%.

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The following table shows the consolidated revenue and EBIT of our energy services operations in each of the last three fiscal years, after elimination of all inter-company transactions:

| | (€
      millions) | 2002  |  | 2001  |  | 2000(1) |  | 
| | ------------------ | ----- |  | ----- |  | ------- |  | 
| |                    |       |  |       |  |         |  | 
| | Revenue            | 4,571 |  | 4,017 |  | 2,988   |  | 
| | EBIT               | 244   |  | 221   |  | n.a.    |  | 

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

Dalkia provides energy management services to public and private clients with whom it has formed long-term partnerships. Its core activity focuses on optimal energy management. To respond to clients needs for increasingly complete and integrated services, Dalkia has progressively established a range of activities linked to energy management, including heating and cooling systems, thermal and multi-technical services, industrial utilities, installation and maintenance of production equipment, integrated facilities management and electrical services on public streets and roads.

Dalkias contracts to operate urban heating systems are typically long-term, lasting up to 25 or 30 years, while its contracts to operate thermal and multi-technical installations for public or private clients may last up to 16 years. Contracts to provide industrial utilities services generally have shorter terms, while contracts in the facilities management sector generally last 3 to 5 years.

Dalkia offers innovative multi-energy and 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.

Dalkia
  is one of the French leaders in co-generation and on-site energy generation.
  Co-generation involves the simultaneous production of heat and electricity,
  which optimizes the efficiency and profitability of Dalkias customers
  installations. French law requires the operators of the electricity distribution
  network to purchase at specified rates energy produced by co-generation installations
  with a capacity not exceeding 12 MW of electricity. Dalkias total electric
  power production capacity (including co-generation facilities, peaking plants
  and stand-by generating units) is 3,900 MW in Europe.

| | Strategy                                   
| | -------------------------------------------
| |                                            
| | Dalkias
      strategic priorities are to:
| |                                            
| |                                           
| |                                            
| |                                           
| |                                            
| |                                           
| |                                            
| |                                           

Description
  of Activities

In 2002, we began work under several contracts concluded in 2001, particularly those won in the Baltic states, and signed a number of new contracts.

In the European market, Dalkias activities benefit from three strong trends: the increase in environmental concerns, the opening of energy markets as Dalkias clients consider possible opportunities in the field, and a growing willingness by industrial clients to outsource activities unrelated to their business.

Heating
  and Cooling Networks

Dalkia is one of Europes leading operators of large district heating and cooling networks. Dalkia currently manages 300 district heating networks in the world, particularly in France, the United Kingdom, Italy,

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Germany, Eastern and Central Europe and the Baltic states.  In district systems, thermal energy is generally distributed through pipes to users in dispersed locations. Dalkia does not ordinarily own the networks it operates. Rather, in most cases, public authorities own the networks and delegate to Dalkia the responsibility of building, managing, maintaining and repairing them. The networks operated by Dalkia provide heating and cooling to a wide variety of public and private facilities, including schools, hospitals, office buildings and residences.

In France in 2002, Dalkia renewed its concession contract to operate the heating system for the urban tax-exempt zone of Mons-en-Baroeul (North) for 25 years (estimated annual revenue of €5.1 million), where it will install a co-generation unit with a generation capacity of 7 thermal MW related to this network. Dalkia also signed a 20-year contract with the city of Falaise in the Calvados region to create and operate a wood-based heating system with a generation capacity of 5MW (estimated annual revenue of €411,000).

In Europe in 2002, Dalkia won a contract with Ostrava in the Czech Republic to take over ZTO, the citys heat distribution company with revenue of €43 million in 2001, for approximately €19.1 million. With 315 steam boilers, 160 kilometers of network and 233 substations, ZTO distributes heat to 84,000 residences and 900,000 cubic meters of commercial buildings. Following the acquisition of two co-generation centers in Usti Nad Labem in October 2001, Dalkia is the largest independent producer of heat and the second largest independent producer of electricity in the Czech Republic, according to Bohemia Invicta, a Czech industry association. In addition, following the award to Dalkia of a contract to operate starting in April 2002 the heating system in Vilnius, Lithuania, Dalkia is one of the largest private operators of district heating networks in Central and Eastern Europe and the Baltic states. In Pola

nd, Dalkia acquired 61% of PEC Poznan, the operator of the district heating system of the city of Poznan, which makes it one of the leaders in the Polish market.

Energy
  Management

Energy management consists of operating heating, sanitary hot water and air conditioning systems to provide comfortable living and working environments, as well as the improvement of the operation of existing systems to optimize their efficiency. Dalkia provides integrated energy services, which generally include system construction and improvement, energy supply, system management and maintenance, to public and industrial and commercial customers.  Through this activity, which represents Dalkias core business, Dalkia provides customers a large range of technical services and manages 70,000 systems generating 75,000 MW of thermal heat throughout the world.

In France in 2002, Dalkia renewed its contract with the Paris building and construction authority (OPAC) to provide energy management services in its buildings for five years, which now also includes prevention measures relating to the risk of development of the legionella bacteria (estimated annual revenue of €2.9 million).  In addition, the Centre Hospitalier Caborit in Poitiers selected Dalkia to manage its energy systems for 8 years (estimated annual revenue of €355,000), and Dalkia inaugurated in September 2002 the new boiler room at the Villiers-Saint-Denis Hospital in Aisne, which is Dalkias oldest client and which awarded Dalkia its first energy management contract in 1937.

In Europe, Dalkia won a 10-year contract to provide energy management services to public buildings in Csenger in northeast Hungary and to take control over 30 dependent sites in the Vas Meyge department of Hungary, including the department hospital (estimated annual revenue of €2 million).  In Italy, Dalkia won contracts to provide energy management services to the hospitals of Parma, Naples, Friuli, Garda, Triestina, Navora, Vercelli and Genoa.

In Asia, Dalkia won a 3-year contract to provide energy management services to the city of Seoul, South Korea.

Industrial
  Utilities

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. Industrial utilities services generated 29% of Dalkias revenue in 2002.

In
  France in 2002, Dalkia won a 7-year contract to produce steam for the Vico factory
  situated in Vicq-sur-Aisne, representing estimated annual revenue of €2.5
  million. The Papeterie Lucart in la Rivière de Corps (Aube) awarded Dalkia
  a 5-year multi-services management contract for a new paper factory, representing
  estimated annual revenue of €1 million. In 2002, Dalkia also won a contract
  to manage industrial utilities as an extension of a contract to manage the co-generation
  of BP in Lavéra for 12 years (estimated annual revenue of €4.4 million)
  and a multi-services maintenance contract with Naphtachimie, a subsidiary owned
  jointly by BP and Atofina, for 3 years (estimated annual revenue of €2.2
  million). Finally, Dalkia won two 7-year industrial contracts in Bousbecque
  (North), the first with the paper-maker Ahlstrom and the second with Dalle Hygiene
  Production, a subsidiary of the Italian group Kartogroup. For these two contracts,
  Dalkia has agreed to provide 270,000 tons of steam each year through the creation
  of two boiler rooms.

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In Europe, Dalkia was chosen in March 2002 to operate the energy installations of Tonak, the leading global hat manufacturer, in Novy Jicin (Czech Republic) for 27 years (estimated annual revenue of €1.5 million). Dalkia signed a 15-year contract with the food processor Setuza in Olomouc (Czech Republic) to take over the management of the sites energy requirements (estimated total revenue of €26.5 million). In Italy, Dalkia won a contract with Manulifilm, one of the main European producers of film products used in packaging, plasticizing, rubber band manufacturing and the tobacco industry, to supply electricity, heating and cooling services for 10 years (estimated annual revenue of €7 million).

Facilities
  Management

In order to meet growing demand for outsourced services, Dalkia has recently added general services management and technical services, or facilities management, to its portfolio of services. Facilities management contracts integrate a range of support services, from electrical and mechanical equipment maintenance to logistics, into one global service.  As a result, the client can meet its need for different services through one company. Dalkia provides facilities management services for its customers at industrial, commercial, corporate office or health establishment sites in Europe, Latin America and Asia.

In France in 2002, Dalkia renewed its contract with the Hôtel du Département du Nord for 5 years (estimated annual revenue of €1.1 million) and won contracts to provide facilities management services to the Bordeaux Polyclinique for 3 years (estimated annual revenue of €0.8 million) and to the 220 agencies of Crédit Mutuel du Nords Northern European network (including electricity management) for 3 years (estimated annual revenue of €4.3 million).

In Europe, Dalkia won a 5-year contract in Great Britain to provide lighting services at 183 train stations covered by the Connex South Eastern license, representing estimated annual revenue of €7 million. In Belgium, Dalkia won a contract to provide services for 5 years to all of the European Commissions buildings, which represents 68 buildings totaling 1.5 million cubic meters and will require the deployment of 200 employees (estimated annual revenue of €11.5 million). In the Middle East, the joint venture created in 2002 with the group Majid Al Futtaïm in the United Arab Emirates won a 10-year facilities management contract for three commercial centers (estimated annual revenue of €4 million). In Norway, Dalkia and Opak, a Norwegian real estate company, created a joint venture called Dalkia-Opak Facilities Management AS (in which Dalkia holds 60%) to develop facilities management services

to corporate offices and hospitals in the Oslo region.

Street
  Lighting Services

In France, Citélum won contracts to manage street lighting in several cities, including Limours, Marignane, Willems, Brebières and Varas-Plage.  Citélum entered into an engineering contract with the community of Reims to provide street lighting diagnostic services and to renovate the citys street lighting network and information systems management, and was selected to provide lighting services to prestigious French buildings around the country, such as the Saint-Sernin Basilica in Toulouse and the main façade of the Notre-Dame cathedral in Paris.

Outside France, Citélum won a 5-year street lighting management contract for the city of Fortaleza, Brazil, which includes the operation and maintenance of the network and the renovation, extension and modernization of the network (estimated total revenue of €35 million).  In Southeast Asia, Citélum won prestigious lighting contracts, including an agreement to provide light for the twin towers of Petronas in Kuala Lumpur, the highest inhabited towers in the world at 452 meters (estimated total revenue of €117,000).

Services
  to Individuals

Dalkia also provides residential services to individuals through Proxiserve, a joint subsidiary of Dalkia and Veolia Water, including maintenance of heating, air conditioning and plumbing systems.

Other
  Significant Developments in 2002

Dalkia was selected to participate in the first auction by the British government of permits for greenhouse gas emissions. In order to motivate companies, the government offered a budget of €350 million over 5 years. Dalkia was the only energy services company among the 34 participants selected and committed to reduce carbon dioxide emissions in the United Kingdom by a total of 100,000 tons by 2006, which represents a 37% reduction compared to the reference level. To reach its goal, Dalkia will work together with 4 hospitals and 134 commercial buildings for which it operates energy installations and with which it will share the fees awarded for each ton of carbon dioxide saved.

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Acquisitions
  and Divestitures in 2002

Pursuant to the requirements imposed by the French Ministry of Economy and Finance in connection with our agreement with EDF described above, Dalkia Investment sold its 50% interests in Périgord-Energie and Cogevitry, each of which specialize in high-power co-generation operations, in October 2002.

Dalkia France acquired the remaining 50% Somussy, its former joint venture with Elyo to install and operate energy facilities and produce and distribute energy to local authorities and commercial customers in France. Dalkia acquired DBU, a Dutch company that provides technical services and mechanical and electrotechnical installations to industrial clients, which ranks Dalkia among the leading technical services and industrial services management companies in the Dutch market with 600 employees. In Sweden, Dalkia acquired 5 companies specialized in industrial maintenance services from Maintech, a subsidiary of PEAB, the Swedish public works group, for approximately €4.9 million (estimated aggregate annual revenue of €40 million).

In October 2002, the merger of SIRAM into SIRAM Groupe Dalkia was completed, ending the consolidation process between Dalkia and SIRAM. SIRAM is the second largest heating systems management company in Italy, and possesses unrivaled expertise in managing complex contracts for government and commercial clients, particularly in the health-related fields. During its first year in operation, the newly created company had 2,300 employees and represented 8% of Dalkias international activities.

Transportation

Connex, our main transportation subsidiary, is the leading European private operator of ground passenger transportation services in terms of revenue. Connex operates road and rail passenger transportation networks under contract with national, regional and local transit authorities.  Connex has been managing and operating all forms of urban, regional and national road and rail networks for more than a century, having won its first tramway concessions at the end of the 19thcentury.

In 2002, Connex operated 236 rail and road networks and 24,200 road and rail vehicles with 55,200 employees around the world (including 100% of the employees of companies that are proportionally consolidated by our company).  Present in 22 countries, Connex estimates that it provided transportation to more than 1.5 billion travelers in 2002.

The following table shows the consolidated revenue and EBIT of our transportation operations in each of the last three fiscal years, after elimination of all inter-company transactions:

| | (€
      millions) | 2002  |  | 2001  |  | 2000(1) |  | 
| | ------------------ | ----- |  | ----- |  | ------- |  | 
| |                    |       |  |       |  |         |  | 
| | Revenue            | 3,422 |  | 3,099 |  | 3,131   |  | 
| | EBIT               | 116   |  | 112   |  | n.a.    |  | 

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

Connex
  primarily operates road and rail passenger transportation networks under contracts
  won through auction with various public 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. Connex conducts its business through outsourced management
  under conditions and structures that differ from one country to another due
  to varying legal and regulatory requirements. The contract between the public
  authority and Connex outlines the relations between the two parties, including
  the risks to be borne by each, and typically lasts for a set period. Because
  the fares Connex charges passengers on its transportation networks are usually
  insufficient to cover its costs, the public authority typically provides Connex
  a guaranteed minimum revenue payment or pays Connex a subsidy. Rail management
  contracts generally last for 15 years while road management contracts last for
  12 years, a difference primarily explained by the need for more significant
  investment in the rail sector. Connex has contracts with more than 4,000 public
  authorities.

In addition to its primary management activities, Connex also seeks to promote public transportation through several means.  First, Connex strives to improve customer services by welcoming clients, enhancing vehicle comfort, establishing call centers that provide extensive itinerary information, managing passenger transfers within networks and establishing new information systems and integrated fare structures. For 5 years Connex has also been developing new local products and services, such as customized transportation and the use of electric vehicles to serve small areas.  These new services seek to offer travelers a complete range of transportation-related services and to transform Connex into a company that facilitates travel and mobility.

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In 2002, Connex strengthened its position in France following the acquisition of Transports Verney and continued to develop internationally, particularly in Germany, Dublin and Jerusalem.

Strategy

Connexs strategy primarily focuses on internal growth. Connex considers acquisitions in markets open to competition as a means to improve bids at public auctions or in geographic regions where Connex sees synergies with its other activities.

In the medium-term, Connexs strategy is to consolidate its presence in Western Europe, benefiting from the opening of markets to regulated competition within the European Union. Connex intends, for example, to present bids in new public auctions in England and participate in developments in the German and Scandinavian rail networks. In Central and Eastern Europe, where several countries are outsourcing the management of their passenger transportation networks without waiting for entry into the European Union, Connex  already well established  hopes to pursue targeted growth in certain countries in both the rail and urban and regional road transportation sectors.

In North America, where a similar trend relating to the opening of transportation markets to competition seems likely to continue, Connex expects to pursue its development strategy that is already well advanced in bus transportation. This strategy is strengthened by a key contract to manage the rail network in the Boston suburbs, which Connex signed in February 2003 and where it expects to begin operations in July 2003.

In addition, Connex expects to target a number of countries in Latin America as well as in the Asia-Pacific region, where Connex seeks to leverage its solid presence in Australia to pursue growth opportunities.

Description of Activity in 2002

Urban and Intercity Transportation

Connex operates a number of right-of-way transit systems and bus networks and provides both integrated and customized services.  Connex is responsible for driving, inspecting, cleaning and providing security on vehicles, marketing, providing customer service, and maintaining, cleaning and providing security in the stations on its networks.

Right-of-way system and bus network operation

In France, Connex operates several tram and light rail lines in Rouen, Saint-Etienne and Nancy, and began operating a right-of-way system using third generation buses serving the east-west axis in Rouen in April 2002. In July 2002, Connex inaugurated an express bus line between Cergy-Pontoise and the Charles de Gaulle-Roissy airport.

Connex is also the exclusive operator of the bus networks in Nice, Bordeaux, Nancy and Toulon as well as in 40 other French cities.  In April 2002, Connex won a contract to manage the urban network of Saint-Chamond consisting of 15 buses serving 7 lines until June 2004 (revenue of €1.2 million in 2002, or €1.7 million if adjusted to reflect a full year of operations). In July 2002, Connex also won a contract with the Indre-et-Loire department to operate its intercity and international bus station in Tours for three years.  In February 2002, Connex renewed its contract to operate the urban network in Nancy for 7 years. Connex also strengthened its presence in France through its acquisition in January 2002 of Transports Verney, which operates in more than 30 French departments mainly in the Great West and Rhône-Alpes region. Transports Verneys activities, which relate mainly to the management of suburban and intercity networks, recorded revenue of more than €150 million in 2001.

In Europe, Connex operates tram and light metro lines in Görlitz, Berlin (Germany) and Stockholm (Sweden). In conjunction with FCC, Connex will also operate the new tramway system in Barcelona (Spain) once it begins service. The contract to operate the greater urban area network of Stockholm, which was due to expire in 2004, was renewed in November 2002 for 5 years (through July 2009), increasing the total revenue generated under the contract by more than €1 billion.  Connex also acquired the remaining 40% of Connex Tunnelbanan from the Stockholm transportation authority, raising its interest in the company to 100%.  In Ireland, Connex signed a contract in May 2002 to operate the new light rail Luas network in Dublin for 5 years, which will commence operating at the end of 2003. Luas will operate 40 vehicles divided among 2 lines and serve 36 stops (estimated total revenue of €55 million).

Connex
  also manages the bus lines in major European cities such as London, Stockholm,
  Frankfurt, Warsaw and Maastricht. In November 2002, Connex won a public bid
  to operate the bus network in Jersey for 7 years; since 2002, 78 employees have
  operated approximately 40 buses serving the principal areas on the island and
  near the airport. In Sweden, Connex won a 6-year contract in January 2002 to
  operate the Eskilstuna urban

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and intercity
  network, comprising 59 vehicles and 38 urban buses (estimated total revenue
  of €56 million) and a 4-year contract in December 2002 to operate the Scanie
  regional network (estimated total revenue of 93 million Swedish krona). In total,
  650 new employees will operate more than 300 additional vehicles on these urban
  and intercity networks in Sweden. In the Netherlands, Connex took over service
  provided by 18 buses, 6 bus lines and more than 40 employees in South Limbourg
  from the Dutch subsidiary of Arriva, the former network operator. In July 2002,
  Connex also won a contract to operate the intercity bus network between Utrecht,
  Woerden and south-east Amsterdam for 4 years with the option to add another
  2 years, representing total revenue of approximately €40 million over the
  first 4 years.

In
  Poland, Connex won a public bid in October 2002 to privatize PKS Kedzierzyn-Kozle,
  which is situated in southwest Poland and operates nearly all of the intercity
  lines. Following this contract, Connex Polska currently generates more than
  €16 million in annual revenue with 350 vehicles and has more than 1,000
  employees. In Slovenia, Connex took over the operation of the Certus network
  of urban and intercity transportation in Maribor from a private operator and
  will manage 201 intercity vehicles that serve the entire northeast region of
  Slovenia with 53 urban buses. We expect this 10-year contract to generate approximately
  €180 million in total revenue.

In
  North America, Connex provides transportation services in Washington, D.C.,
  through Yellow Transportation, a company based in Baltimore, Maryland. In July
  2002, Connex won a contract to operate the intercity network of Prince George
  County in Maryland for 5 years (estimated total revenue of approximately €55
  million) and signed a contract to operate 111 buses in Los Angeles north
  suburbs for 5 years (estimated total revenue of €49 million).

In
  the rest of the world, Connex operates in partnership a high-frequency right-of-way
  bus system in Bogota, Colombia, which currently serves more than 800,000 passengers
  per day. Connex also has a presence in Sydney, Australia. In Israel, the consortium
  formed by, among others, Connex with a 5% interest and Alstom with a 20% interest,
  won a public bid to construct, finance, operate and maintain the first light
  rail line in Jerusalem. The contract under concession was signed in November
  2002 for 30 years, with Connex holding an 80% interest in the operating company.

Integrated
  Services

Connex
  provides interconnected bus, tramway, metro and train transportation services
  through a coordinated ticketing system in many urban conglomerations. Connex
  also offers special integrated transportation services within networks managed
  by several different operators in an urban area, including the Paris suburbs,
  Rouen and Saint-Etienne in France, and London, Stockholm (where it also operates
  the metro and other public transportation systems), Sydney, Görlitz and
  Düsseldorf.

Services
  on Demand

Connex
  offers innovating and original transportation services in certain cities that
  supplement the classic transportation networks. For example, in France Connex
  offers Créabus, an on-demand minibus service that is tracked by a Global
  Positioning System, or GPS, which operates in Dieppe, Montluçon and Ile-de-France,
  and Iciéla, an electrical car system to serve urban areas that are restricted
  to other vehicles, which operates in Amiens. In the Netherlands and the United
  States, where these services are widely used, Connex has developed know-how
  in services on demand.

Services
  to Industrial Clients

In
  France, Connex was chosen to provide maintenance services to Usinor Packagings
  trains and rail line at its industrial site in Basse-Indre, in the Loire Atlantique
  department.

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.

In
  France, Connex operates a number of regional rail networks, covering approximately
  850 kilometers, through contracts with regional public authorities and the Société
  Nationale des Chemins de Fer (SNCF), the French national railroad company, particularly
  in the regions of Brittany, Provence, the Alps and the French Riviera.

In
  Europe, Connex has a strong presence in the United Kingdom, Germany, Norway,
  Sweden, Finland, Belgium, Spain and the Czech Republic.

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In
  the United Kingdom, where it recorded total revenue of €661 million in
  2002, Connex operates regional rail networks serving southern England through
  a contract expiring in 2006. This contract, initially expiring in 2011, was
  renegotiated in 2002, resulting in a €90 million increase in Connexs
  revenue for 2003. Based on its technical performance and high-quality service
  in the United Kingdom, Connex renewed its important contract in 2002 for the
  South Eastern rail lines serving southern London and southeast England. According
  to Strategic Rail Authority, Connex is among the leaders in providing on-time
  train service in the southern region of London.

In
  Germany, Connex employs more than 3,000 people at 30 rail and road transportation
  sites. Connex operates six regional rail networks, representing over 1,000 kilometers
  of rail lines, benefiting from the regional nature of German rail transportation.
  In July 2002, Connex won a public bid to operate two regional rail passenger
  lines in the Görlitz region (estimated annual revenue of €13 million).
  In February 2002, Connex Regiobahn positioned itself to compete on interregional
  connections not yet served by the Deutsche Bahn on long distance routes in Germany.
  On March 1, 2002, Connex inaugurated its first North-South connection. The InterConnex
  train will provide daily service connecting Gera, in Thuringen (former East
  Germany) and Rostock via Berlin (a distance of 475 kilometers). Finally, in
  October 2002, the NOB regional rail network (Connexs German subsidiary),
  won the 2002-2003 economic commun ications prize for its marketing campaigns.

In
  the Netherlands, Connex operates the BBA transportation network in the region
  of Brabant, transporting more than 50 million passengers each year on 153 bus
  lines and 450 coaches. Connex also won a bid to operate a ferry service to transport
  passengers and cyclists between Vlissingen and Breskens for a 6-year period,
  generating approximately €21 million in total revenue. Connex expect that
  these activities will generate, in total, estimated annual revenue of €176
  million.

In
  Spain, Connex and FCC created a joint venture, FCC Connex Corporación.
  In Sweden, Connex won the Norrland Trafiken bid in September 2002
  to operate two long distance passenger rail lines for 5 years, with an option
  for an additional 3 years (estimated total revenue of €190 million over
  the first 5 years). Beginning in mid-2003, 180 employees will join Connex. Connex
  also won the Kinnekulletaget bid in February 2002 to operate a regional
  passenger rail line in the west of Sweden (northeast of Göteborg) for 4
  years beginning in June 2003 (estimated annual revenue of €2.5 million).
  In Finland, Connex won a contract in June 2002 to manage approximately 50 buses
  in Jalasjärvi, which will provide urban, rural and school bus transportation
  services in the region.

Connex
  operates more than 600 vehicles in Denmark and possesses a network of regional
  coaches 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.

Through
  Yellow Transportation, Connex also offers regional road transportation services
  in Washington, D.C., Maryland, Virginia and Connecticut. Connex also operates
  the bus network in Columbia, South Carolina (44 buses) and manages and operates
  the bus network in Fairfax County, Virginia (85 buses).

In
  Australia, Connex secured its franchise to provide rail services in the suburbs
  of Melbourne through the signing of an amendment with the State of Victoria,
  which consolidates Connexs position and places it in a competitive position
  to grow its business in Australia and the entire Asia-Pacific region.

Freight

Connex
  provides rail freight services primarily through the regional networks, management
  of private junctions and multi-modal transportation services.

Regional
  Freight Networks

Connex
  operates a number of regional freight trains in France, including for the SNCF,
  and in Germany in cooperation with DB Cargo.

Management
  of Private Junctions

Connex
  manages junctions for customers in the automobile, petrochemical and refining
  industries that have facilities that are linked 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.

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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. In Germany, Connex
  operates several freight and multi-modal long distance transport networks.

In
  addition, Connex provides its industrial and commercial customers with passenger
  transportation services for their employees from and to its customers
  sites.

Complementary
  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 comfortable 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, 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 to find their
  itineraries on local transportation systems in France, the United Kingdom and
  Australia. Connex has also begun providing real-time information on available
  transportation systems to its subscribers through internet-enabled mobile phones
  or WAP mobile phones in the United Kingdom.

Finally,
  in Saint-Etienne, France, Connex has established a service center, known as
  Escale on a tramway line to provide passengers with services that
  facilitate the life of city dwellers. Services include a parking lot, carwash
  services, vending machines, umbrella loan services, stamp and telephone card
  sales, a photo and copy center, and on-site customer service representatives.
  Through a partnership with the citys retailers, passengers may also have
  their purchases delivered directly to the Escale stop.

Acquisitions
  and Divestitures in 2002

Connex
  acquired Transports Verney in France for approximately €47.1 million, Eurolines
  Netherlands, a European road transportation operator, for approximately €2.3
  million, Hautamäki, a Finnish provider of urban, intercity, school and
  long distance transportation services, for approximately €2.4 million,
  the Certus urban and intercity transportation network in Maribor, Slovenia,
  and several small companies in France.

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 55,800 employees (including 100% of the employees
  of companies that are proportionally consolidated by FCC and 50% of Proactivas
  employees) and a market capitalization of €2.8 billion as of December 31,
  2002. FCC operates in a number of different environmental and construction-related
  industries. FCCs principal markets are located in Spain (where it is the
  leading waste management operator) 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 52.48% 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, which are 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, can be taken without the consent
  of both major
  shareholders. See Item 7. Major Shareholders and Related Party Transactions
   Related Party Transactions.

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The
  following table shows our consolidated revenue and EBIT from FCCs activities
  in each of the last three fiscal years, after elimination of all inter-company
  transactions:

|(€
      millions) | 2002  |  | 2001  |  | 2000(2) | 
|------------------ | ----- |  | ----- |  | ------- | 
|                   |       |  |       |  |         | 
|Revenue(1)         | 2,653 |  | 2,455 |  | 2,115   | 
|EBIT(1)            | 250   |  | 230   |  | n.a.    | 

---

|(1) | Figures
      reflect a 49% share of the total revenue and EBIT of FCC and its subsidiaries,
      except for the results of Proactiva, which are included in our water and
      waste management segments. Under French GAAP, we proportionally consolidate
      FCC based on our 49% interest in the holding company that controls it. Under
      U.S. GAAP, FCC would be accounted for using the equity method. See Note
      27A to our consolidated financial statements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Restated
      to reflect the changes in our accounting methods and presentation of accounts
      in 2001. See Item5.Operating
      and Financial Review and Prospects  Overview  Presentation of
      Information in this Section  Changes In Accounting Methods and Presentation
      of Accounts.                                                                                                                                                                     



|FCCs
      strategic objectives are:
|-------------------------------------
|                                     
|•                                    
|                                     
|•                                    
|                                     
|•                                    
|                                     
|•                                    

We
  have also created a number of joint ventures with FCC to operate or participate
  in different segments of our business. Our main joint venture with FCC is Proactiva
  Medio Ambiente S.A., or Proactiva, which was created in July 2000 to consolidate
  and organize the joint development of our and FCCs water and waste management
  services activities in Latin America and the Caribbean. Each of we and FCC contributed
  all of our water and waste management operations and contracts in these regions
  to Proactiva and hold 50% of Proactivas capital stock. We have not entered
  into any shareholders or other agreement with FCC or Proactiva relating
  to Proactivas governance or management. However, Proactivas bylaws
  grants a right of first refusal to each of Proactivas shareholders in
  the context of a proposed sale of shares of Proactiva.

In
  addition, in 2002 Connex and CGT, FCCs transportation subsidiary, created
  FCC-Connex Corporación S.L. to consolidate and organize FCCs and
  Connexs transportation activities in Spain and the Americas, excluding
  Canada and the United States. Each of Connex and CGT holds 50% of FCCConnex
  Corporacións capital stock and have entered into a shareholders
  agreement dated December 13, 2001 governing the management of this joint venture,
  including dispute resolution mechanisms in the event of a deadlock and forced
  sale provisions in the event of unresolved deadlocks, breach of contract or
  loss of control by our company or FCC of their respective transportation subsidiaries.
  FCC-Connex Corporacións wholly-owned subsidiaries include Corporación
  Española de Transporte S.A. (CTSA) and Detren Compañia General
  de Servicios Ferroviarios S.L.

Description
  of Activities

Public
  Services.

FCC
  is the leading waste management company and the second largest water and wastewater
  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 a number
  of main urban centers in Spain such as Madrid, Barcelona, Valencia, Bilbao,
  Malaga, Saint-Sebastian and Zaragoza. FCC benefits from nearly 100 years of
  experience and has a growing international presence through its current contracts
  serving more than 1,500 municipalities and offering services to 43 million residents.

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During
  2002, FCC signed new contracts for an estimated total of €1.9 billion,
  including the renewal of a contract for 10 years for waste collection and treatment
  in the Madrid suburbs, representing estimated total revenue of €700 million.
  FCC has provided these services in the Spanish capital and its suburbs since
  1944. Internationally, FCC won a 15-year contract to collect, treat and dispose
  of waste in East Cairo (Egypt), with more than 2 million residents.

The
  FCC group has the most complete commercial network in Spain for treating industrial
  waste, a field with significant growth potential. In 2002, FCC treated 550,000
  tons of hazardous and non-hazardous industrial waste, a 47% increase over the
  amount treated in 2001. FCC also decontaminated more than 250,000 cubic meters
  of land at more than 150 sites in 2002.

FCCs
  water and wastewater treatment activities cover the full water cycle, including
  treatment, distribution and recycling. FCC provides water services to approximately
  700 municipalities with a total population of 7.2 million residents. FCC also
  treats wastewater of 9 million people. In 2002, FCC was awarded 67 new contracts,
  representing estimated total revenue of €635 million, or €4.7 billion
  including revenue from all contracts in 2002.

Regarding
  publicity and advertising through urban fixtures, FCC continued its international
  expansion by competing against the best international companies in the sector
  and winning a public bid in Brasilia, Brazil for a contract to install, maintain
  and provide advertising on urban fixtures in Brasilia for 20 years (estimated
  total revenue of €200 million). FCC currently manages a park with 100,000
  elements of urban fixtures and advertising support in 110 cities of 9 countries,
  including Barcelona, Bilbao, Madrid and Seville (Spain), Genoa and Parma (Italy),
  Brasilia and Rio de Janeiro (Brazil) and Lisbon (Portugal).

FCC
  provides passenger transportation services through FCC-Connex Corporación
  S.L., which conducts two types of activities:

| | • | road transportation,
      where it operated more than 300 coaches that traveled a total of 23 million
      kilometers transporting 45 million passengers during 2002, and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                            
| | • | rail transportation,
      where it will be the principal operator of two tram lines that are under
      construction in Barcelona.                                       
| |   |                                                                                                                                                                            

Finally,
  FCC manages 100,000 parking places in 90 cities in Spain and Morocco, ensures
  the technical inspection of 1.7 million vehicles at 50 stations in Spain and
  Argentina, and provides computer services to important companies in the automobile,
  data processing and mass marketing sectors.

Construction

FCC
  has expanded its construction activities due in part to the 2001-2007 Infrastructure
  Plan established by the Spanish government, representing €114 billion,
  and in part to the Hydrological Plan to manage water resources.

FCC
  won a number of key contracts in 2002, including contracts to:

| | • | construct
      and operate the Pamplona-Logroño stretch of highway extending 62.4
      kilometers;                                             
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                  
| | • | construct
      and manage the irrigation network for the Segarra-Garrigues canal, which
      irrigates 70,150 hectares in the Lleida provinces;
| |   |                                                                                                                                                  
| | • | set up 16.3
      kilometers of railway for high-speed trains on the lines serving Madrid-Northwest,
      Madrid-Barcelona and Cordoba-Malaga;  
| |   |                                                                                                                                                  
| | • | construct
      the Castrovido dam in Salas de los Infantes (Burgos), which will require
      635,000 cubic meters of concrete; and             
| |   |                                                                                                                                                  
| | • | construct
      4,700 apartments throughout Spain, which will increase the number of lodgings
      under construction to more than 16,500.      

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In
  2002, FCC completed work on the floating dike for the port of Monaco, the largest
  of its kind ever constructed in the world. This dike, measuring 352 meters in
  length, was built in Algeciras in southern Spain and was transported by sea
  to Monaco. It includes a parking area to accommodate 400 cars and retail stores.
  FCCs work on the new Madrid-Barajas airport also advanced in 2002; the
  airport will eventually have a surface area of more than 500,000 square meters
  and will greet 35 million passengers each year.

Cement
  Production.

FCC
  owns 58.8% of Cementos Portland following the merger into FCC of Portland Valderrivas
  in 2002. Prior to the merger, FCC held 48.2% of Portland Valderrivas, which
  in turn held 58.8% of Cementos Portland. The merger was consummated through
  a capital increase of FCC, which delivered newly-issued shares of FCC to Portland
  Valderrivas other shareholders. As a result of the merger, FCCs
  holding companys interest in FCC was diluted from 57% to 52.5%. Cementos
  Portland operates 6 cement factories in Spain, 3 factories in the United States
  and other installations to prepare concrete and extract aggregates. It currently
  has a production capacity of 10 million tons of concrete per year, which should
  increase in the future as contemplated investments to enhance factory productivity
  and improve environmental conditions are made.

In
  2002, FCC produced and sold 7.6 million tons of cement and clinker in Spain
  and 2 million in the United States. FCC also manufactured and sold 4.8 million
  cubic meters of concrete in 2002.

Competition

Most
  markets for environmental services are very competitive and are characterized
  by increasing technological challenges arising from regulatory changes, as well
  as the presence of 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, our financial position,
  our geographical reach and our experience in providing environmental management
  services, managing privatized and outsourced employees and me eting 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

Veolia
  Water is the worlds leading private provider of water and wastewater services
  to municipalities and industrial and commercial firms. Its principal competitors
  are Suez (through its subsidiary Ondeo) and RWE (through its U.K. subsidiary
  Thames Water). In addition, General Electric has recently entered the market
  for services to industrial companies as it consolidates all of its acquisitions
  in the water services sector into a single business unit.

In
  France, Veolia Water faces competition from Ondeo and Saur, as well as from
  a number of local competitors, particularly in the building and public works
  sectors. Veolia Water also faces competition from public establishments, municipal
  or departmental governments and local public-private companies. Finally, while
  more than half of the contracts not renewed in 2002 were taken over by public
  authorities, non-renewed contracts represented only 0.25% of our water revenue
  in France in 2002.

In
  the United States, USFilter faces competition from a large number of small competitors
  that specialize in specific technologies relating to water equipments and systems,
  as well as from a number of service providers in the unregulated water market,
  such as OMI, Earth Tech, United Water and American Water.

Waste
  Management

In
  Europe, where we conduct over half of our waste management activities, 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 (through its subsidiary SITA). In the United Kingdom, Onyx is the fourth
  leading provider of household, commercial and industrial waste management services
  behind Suez, Biffa and Cleanaway. Onyx also has a prominent market position
  in France, Norway, Switzerland, Israel, Ireland, Denmark, Portugal, the Czech
  Republic and Slovakia. In Germany, where Onyx focuses on services to industrial
  and commercial customers, its biggest competitors are RWE Umwelt, Rethmann and
  SITA-Deutschland.

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Onyx
  has taken significant steps toward consolidating its market position in North
  America, where it provides household, industrial and commercial solid and hazardous
  waste collection, treatment, recycling and waste-to-energy services.

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.

Onyx
  is one of the leading waste management service providers in the Asia/Pacific
  region, where its main competitors are Cleanaway and Suez (through SITA). Onyx
  is one of the largest operators in the treatment of waste in Asia (China, Hong
  Kong, India, Japan, Macao, Malaysia, Philippines, Singapore, South Korea, Taiwan
  and Thailand), and one of the market leaders in terms of waste recovery. In
  Australia, Onyx is also one of the market leaders.

Energy
  Services

The
  energy services market has many actors and Dalkia faces very dispersed competition.
  Based on a study by Credit Suisse First Boston, Dalkia believes that the only
  three companies with a strong international presence and a diversified and complete
  range of services in this market similar to its own presence and services are
  Suez, RWE and Cofactech.

Transportation

Connexs
  major competitors are private operators, primarily French or British, and public
  monopolies that conduct their activities in open markets. Connexs major
  competitors are Kéolis, a subsidiary of the SNCF, Transdev, a subsidiary
  of the Caisse des Dépôts et Consignations (which recently concluded
  an alliance with the French metro operator, RATP), the Deutsche Bahn (the national
  rail operator in Germany) and the British groups Arriva, First Group, National
  Express, Go Ahead and Stagecoach.

In
  the long term, we anticipate that groups in China and Singapore may become new
  competitors in an increasingly dynamic market.

FCC

FCC
  is the leading provider of waste management services in Spain. FCCs primary
  competitor in this market is Cespa. In the water services market, FCC is the
  second leading private operator in the water and wastewater treatment market
  in Spain after Aguas de Barcelona.

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 OFICEMEN (the national cement labor
  union). Its main competitors are Spanish branches of multinational cement manufacturers
  such as Cemex, Holderbank and Lafarge.

The
  construction market in Spain is undergoing a process of consolidation among
  the major market players.

Contracts

We
  provide environmental management services to public authorities or private companies
  under contracts with substantially similar terms. These agreements take the
  form of service contracts through which we perform services using installations
  and equipment that governmental authorities or industrial or commercial clients
  place at our disposal. At times, we may be commissioned to design and build
  the infrastructure necessary to perform the services. Such investments are typically
  financed by the client or investors who then allow us to use the infrastructure.
  We also occasionally finance such investments ourselves.

Service
  contracts define the scope of the services or the specific function or service
  to be performed. They typically state the objectives and performance to be attained
  under the contract but let the operator choose, and be responsible for, the
  methods used to fulfill the objectives. The operator maintains and repairs the
  assets and installations, but the client is generally responsible for ensuring
  that they conform to new requirements or regulations.

Like
  many of our clients, we seek to enter into real partnership and progress contracts
  that outline procedures both to improve quality and productivity as well as
  to make necessary adjustments in light of changing demands. We enter into such
  contracts within certain limits, however, and we carefully consider the coverage
  of initial expenses, and particularly investments made in the interest of our
  clients. In this type of contract, the operator generally makes a firm commitment
  regarding its performance, responsibility and risks, but

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the contract
  generally limits the operators financial responsibility in line with the
  size of the contract and remuneration to be paid. Some contracts provide that
  particular risks, such as traffic risks on transportation networks, will be
  shared by both parties. Other agreements provide for renegotiation of terms
  in the event of a material change in circumstances. These partnership contracts
  must have a term that is long enough to permit the operator to create a functioning
  organization and make the contemplated improvements, as well as to receive an
  adequate return on its tangible and intangible investments. The tendency to
  develop partnership contracts is not the norm, however, and we continue to provide
  services under more traditional procurement contracts that define the tasks
  to be accomplished for a fee that is not based on improvements made. Nonetheless,
  partnership contracts remain appropriate for certain services or clients.

We
  enter into both partnership and procurement contracts to provide environmental
  services to industrial or commercial companies and to municipalities or other
  public authorities responsible for providing a public service (service
  dintérêt général).
  Because the requirements and concerns differ in each case, the contracts we
  enter into reflect these differing needs.

Industrial
  or Commercial Companies

Many
  companies have begun to outsource environmental services to specialized companies
  in an effort to refocus on their primary business activity. Such outsourcing
  may require a contract that is specific to a certain function, or it may require
  an integrated multi-services contract, which we are well positioned to provide.
  Under a multi-services contract, we manage a number of services such as water
  and wastewater treatment services, collection, treatment and recycling of hazardous
  and non-hazardous waste, energy services relating to steam production and heating
  and cooling networks, and transportation logistics. Outsourcing contracts, and
  particularly multi-services contracts, increasingly take the form of partnership
  contracts. The service provider must be able to understand the unpredictability
  of clients situations and adapt its services to the extent possible to
  accommodate changes in clients activit ies. These contracts are thus relatively
  long term (a minimum of five to seven years where there is no investment) and
  are generally subject to adjustments through specific procedures that allow
  the client to compare different proposals. In some instances, a client may test
  our services on one or two pilot sites while a competitor performs services
  on other sites; the client then awards a contract for all the sites to the service
  provider who best satisfied the clients expectations. We primarily offer
  services but may also agree to make investments specific to the activity that
  is entrusted to us on the clients site. In such cases, we analyze carefully
  the interest each party holds in the resulting assets and require significant
  guarantees regarding the durability of the contractual relationship, the expected
  products and the future of the assets.

Municipalities
  or Public Authorities

Municipalities
  or other competent public authorities may wish for us to provide a public service
  or a service of general economic interest (service
  dintérêt économique général),
  such as potable water distribution, waste removal and treatment, passenger transportation
  or urban heating. In such cases, they often require that we maintain and manage
  works or technically complex installations in return for a fee that may or may
  not include incentives linked to improved performance. In most countries, this
  type of public service contract is granted through a public bidding process.
  This is particularly the case in Europe pursuant to directives regarding public
  procurement contracts (marchés publics)
  and throughout the world for transactions benefiting from multilateral aid or
  financing.

In
  some cases, public authorities may wish to completely delegate the provision
  of a service. In such cases, the operator takes over the role of the public
  authority in its relations with the public, while the public authority retains
  control over the services organization, contents, rates, quality and other
  essential characteristics. This association between the public authority, which
  does not relinquish its prerogatives as guarantor of the public interest, and
  the private operator, which contributes its technical skills and management,
  was first developed in France in the form of qualified concession contracts,
  or affermage.Affermagediffers from a concession contract in that
  the private operator does not bear the cost of the initial investments. Both
  types of agreements are now called delegated public service management
  contracts. These contracts traditionally differ from public procurement contracts
  in that the operators compensation is drawn substantially from the results
  of operations, which involves the users of the service paying, at least in part,
  the operators compensation.

As
  a general matter, contracts with public authorities are characterized primarily,
  on the one hand, by the comprehensive and complex nature of the service to be
  provided and, on the other, by the risks assumed by the operator. These types
  of contractual relationships are currently being developed around the world
  through public-private partnership (PPP) contracts that may or may not require
  investment financing, including build-operate-transfer (BOT) contracts or design-build-finance-operate-transfer
  (DBFOT) contracts. Under these contracts, we provide general economic interest
  services or public services and may also perform particular

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complementary
  functions that public authorities wish to outsource (e.g., a hospitals
  non-medical functions). These expansive contracts reflect the multiple possible
  contributions that private companies can make to public authorities, and in
  this sense the French delegated public service management contract is a form
  of PPP. French authorities are also considering other ways to permit the development
  of PPP contracts in France.

These
  contracts are often awarded through a competitive bidding process, even where
  it is not required. The bidding process is open and candidates are invited to
  develop solutions that are subsequently adjusted in free negotiations. In France,
  a special consultation procedure is required for delegated public service management
  contracts, even though European Community rules only require that participants
  respect general competition principles for concession contracts and other forms
  of PPP.

In
  France, we have entered into numerous delegated public service management contracts
  with public authorities that are subject to special legal requirements because
  the contracts involve public services for which the public authority remains
  responsible and because the service must be adapted to respond to changing needs
  and to ensure its continuity. In such cases, the public authority may modify
  or terminate the contract unilaterally if the public interest so requires. If
  the contract is modified or terminated, the governmental authority must fully
  compensate the private operator, including compensation for lost profits. In
  practice, governmental authorities rarely terminate a contract unilaterally
  because it would generally have to pay a substantial indemnity and find alternative
  solutions to ensure continuity of the public service. Moreover, specific contractual
  terms usually limit these prerogatives to preserve a balanced contractual arrangement
  for both parties.

Outside
  France, other countries with civil law systems, such as Spain and Italy, delegate
  their general economic interest services to private operators under contracts
  similar to the French delegated public service management contract. In common
  law countries such as the United Kingdom and the United States, the law does
  not restrict contracts with public authorities as much as in civil law countries,
  and PPP contracts, with or without investments, may be freely entered into.

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.

Finally,
  although we also act as a contractor to perform works or supply specific equipment
  for our service activities through several of our subsidiaries, we treat this
  activity as an accessory to our main business.

Environmental
  Regulation, Policies and Compliance

Environmental
  Regulation

Our
  businesses are subject to extensive, evolving and increasingly stringent environmental
  regulations in developing countries as well as in the European Union and North
  America.

Water

The
  water and wastewater services activities are highly sensitive to governmental
  regulation. In Europe and North America, 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 wastewater
  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 on December
  20, 2001. The collection, treatment and discharge of urban, industrial and commercial
  wastewater is governed by the Directive on Urban Wastewater. Public authorities
  also impose strict regulations upon industrial and commercial wastewater that
  enters collection systems and the wastewater and sludge from urban wastewater
  treatment plants.

France
  has numerous laws and regulations concerning water pollution, as well as numerous
  administrative 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 groundwater 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 wastewater 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.

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Waste
  Management

In
  numerous countries, waste treatment facilities are subject to laws and regulations
  that require us to obtain permits to operate most of our facilities from governmental
  authorities. The permitting process requires us to complete environment and
  health impact studies and risk assessments with respect to the relevant facility.
  Operators of landfills must provide specific financial 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. In addition, landfills
  must comply with a number of standards and incineration plants are usually subject
  to rules that limit the emission of pollutants. Waste may also be subject to
  various regulations depending upon the type of waste. For example, sludge produced
  at wastewater treatment stations that will be composted must comply with strict
  regulations relating to its content of organic materials and trace metals (heavy
  metals like cadmium, mercury or lead).

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. In addition, several European
  regulations effective as of July 1, 2002 that seek to end the dumping of non-ultimate
  household waste has provoked a dispute, and the application of these rules remains
  subject to diverse interpretations, including the difficult question of defining
  the notion of ultimate waste. The regulation is intended to promote
  recycling, composting and energy recovery of household waste, but the directive
  makes no reference to the methods of treatment or to ways to improve existing
  methods.

In
  France, pursuant to the provisions of the Environment Code relating to classified
  facilities for the protection of the environment, several decrees and ministerial
  and administrative orders establish rules applicable to landfills 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 process.
  Waste-to-energy centers are subject to numerous restrictions, including in particular
  limitations on the amount of pollutant emissions.

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.
  Finally, the European directive 1999/31/EC relating to landfill deposits of
  waste was incorporated into English law through the Landfill (England &
  Wales) Regulations of 2002.

In
  Norway, two laws provide the countrys legal foundation for regulating
  pollution: The Pollution Control Act of 1981, which prohibits pollution except
  as permitted by law or individual permits, and The Product Control Act of 1993,
  which prohibits the damage to health or the environment due either to chemicals
  found in certain products or processes established to manufacture these products.
  Norway continuously adapts its regulations to those of the European Union. In
  2002, Norwegian authorities used European Union directives as the basis for
  new regulations adopted for landfills and the treatment of unused vehicles.

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
  Asia, Chinese law includes the Environmental Protection Law of 1989, providing
  a complete set of regulations to protect the environment. China has passed another
  principal law relating to pollution, the Law on Prevention and Control of Pollution
  Caused by Solid Wastes of 1995, which defines permit requirements, environmental
  norms and means to apply the law. Local authorities are authorized to apply
  standards that are more strict than national norms. In Hong Kong, the Waste
  Disposal Ordinance, which outlines the waste treatment process, was adopted
  in 1980. Other regulations relating to specific kinds of wastes have been adopted,
  including the Waste Disposal (Chemical Waste) General Regulation in 1992, which
  controls the collection, transportation and treatment of chemical waste in specially
  designed landfills. The law defines the term chemical
  waste, lists entities who produce chemical waste and establishes procedures
  for obtaining permits to collect such waste.

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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 sulfur dioxide, nitrogen oxides and dust and regulates the construction
  of combustion plants. Other existing directives require the implementation of
  national emission ceilings for certain atmospheric pollutants such as sulfur
  dioxide, nitrogen oxide and volatile organic compounds.

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 of five years after the facility begins operations.

In
  addition, Dalkia, in its capacity as an operator, must respect a number of environmental
  requirements at its sites of operation. In France, Dalkia must respect regulations
  based on a July 19, 1976 law and its implementing decrees relating to the environmental
  protection of designated installations by obtaining and renewing various permits
  and authorizations from regulatory authorities.

Transportation

Our
  transportation service activities are subject to a number of national and European
  regulations and particularly 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 particle filters
  and carbon catalysts.

Environmental
  Policies

We
  strive to contribute to the enhancement of quality of life where we operate.
  As the leading provider of environmental management services in the world, we
  face the global need for development and have placed the challenges of sustainable
  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 responsibilities, particularly at a
  local level where we are committed to stimulating progress. Our environmental
  policies are described in our 2002 Report for Sustainable development
  that our company has published.

Sustainable
  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 sustainable development into
  a common value for all of our 302,000 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 Sustainable 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. The Environmental
  Management System, created in 2001 to implement action plans adapted to specific
  designated challenges, was reinforced in 2002 on the environmental front through
  the publication of quantitative and qualitative targets and through an increase
  in the number of verified indica tors audited by an external body. On the social
  front, this system was reinforced through the publication of numerous indicators.
  All of our management systems are thus evolving worldwide towards the inclusion
  of all aspects of sustainable development.

Preserving
  ecological balances

Whether
  through the limitation of water evaporation, 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 our fleet of public or private transport vehicles, our company has
  risen 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.

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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 knowhow 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 launched a series of initiatives in partnership
  with local NGOs and under the supervisi on of the United Nations (Unitar) to
  promote education on public health and hygiene in order to ensure a better use
  of water.

For
  example, we 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
  Veolia Environnement Institute: a tool for sustainable 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, we created the Veolia Environnement Institute in
  2001 to encourage prospective reflection on a number of issues relating to sustainable
  development, as well as to 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 Veolia 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 by the Institute in 2003, which are
  guided and defined by the members of the Prospects Committee, will include sanitary
  norms, the combat against the greenhouse effect, urban development and major
  sociological developments. The work of the Institute should permit the creation
  of a platform for dialogue and exchan ges 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
  (India), economist, winner of the Nobel Prize for Economics in 1998, 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
  the Centre nationale de recherche scientifique (CNRS) and professor at the Collège
  de France; Pierre-Marc Johnson (Canada), attorney, ex-prime minister of Quebec,
  Canada, and expert on environmental matters, and Harvey Fineberg (USA), President
  of the Institute of Medicine of the United States.

Environmental
  Compliance

As
  a specialist in environmental management services, we are concerned about the
  environmental consequences of each of our activities, both in France and worldwide.
  In this respect, we consistently endeavor to comply with applicable regulations,
  to meet the needs and requests of our clients and to optimize the techniques
  we implement. To illustrate our commitment, we highlight below some of the more
  significant environmental actions that we have undertaken regardless of any
  regulatory or contractual obligation to do so. For
  a more detailed description of our environmental compliance and activities,
  we refer you to our 2002 Report for Sustainable development, which
  provides greater detail regarding our policy and actions in this respect.

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Use
  and Protection of Natural Resources

Water
  Resources

We
  preserve water resources by working to prevent wasteful usage in our own installations
  and in those of our clients. In this respect, the continued implementation of
  the Environmental Management System provides, in particular, for the monitoring
  of water consumption in all of our activities. Our current action plan reflects
  two primary concerns: leaks in cold water distribution networks (raw or treated)
  and leaks in domestic hot water production networks. Our industrial water consumption,
  excluding Dalkia, amounted to 259 million cubic meters in 2002.

We
  also use and promote techniques through which alternative resources are used,
  such as the production of drinking water by desalination of seawater and production
  of water for industry or farm irrigation by recycling wastewater.

We
  also take measures to avoid polluting water resources. For example, 79% of our
  landfills are equipped with treatment stations for water that percolates through
  stored waste. In addition, our wastewater treatment efficiency, measured at
  biological treatment stations with a capacity greater than 50,000 EH, reached
  86% in 2002.

Energy
   Energy efficiency and the use of renewable energies

We
  contribute to the reduction of energy consumption. Dalkia optimizes energy management
  for more than 60,000 sites in Europe, from municipal heating networks to public
  housing, commercial or industrial building boilers. Optimizing the energy efficiency
  of such thermal installations relies upon the quality of their operations and
  maintenance, as well as upon their modernization.

Dalkias
  strong growth emphasizes the use of heating networks that offer optimized energy
  performances by concentrating production on a single site and of co-generation.
  Efforts in this field include all of our activities. We are also developing
  the use of renewable energies, for example biomass, solar energy (Dalkia) and
  biogas from landfills (Onyx).

In
  addition, we provide environmental performance training to 90% of our public
  transport drivers during the first five years of their careers. This training
  effort enables us not only to enhance passengers comfort and limit polluting
  emissions, but also to achieve significant fuel economy. Our total energy consumption
  amounted to 77 million MWh in 2002.

Use
  of soils

Our
  activities contribute to the preservation of the quality and fertility of soils,
  largely through our composting of treatment sludge and organic waste from selective
  collection. Regarding sludge, we first seek to enhance the quality of sludge
  produced by implementing pollutant controls in our wastewater treatment networks
  (through our Actipol method). Veolia Water also prepares a reference and certification
  system for the production of quality sludge to be used as compost. As a second
  step, we promote agronomic recovery of sludge through composting and engage
  an independent certifying body to audit our composting and agronomic recovery
  networks. We produced 756,000 tons of compost in 2002, 31% of which was eligible
  to be used in agricultural activities.

We
  have initiated a quality enhancement program for organic matter produced from
  organic waste and a program to evaluate their agronomic impact in coordination
  with the INRA. We are also active in the recovery of polluted soils. Relying
  on several processes, including thermal desorption, we process almost all of
  the pollutants present in the soil at industrial sites.

Air
  Pollution

We
  control our direct and indirect emission of greenhouse gases and we are implementing
  an action plan to reduce our emissions. In addition to the implementation of
  the energy efficiency policy described above, this action plan provides, in
  particular, for our active participation in the flexibility mechanisms provided
  for by the Kyoto protocol and currently being prepared at the European and national
  level. Our direct emissions of greenhouse gases (excluding biogas from landfills)
  reached 19.6 million tons in 2002.

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There
  is no approved protocol for the assessment of methane (CH4) emissions, which
  is an important component of the biogas produced by landfills for household
  waste. We are working to develop reliable indicators in this field, and contribute
  to the reduction of CH4 emissions by setting-up biogas capture, burning and
  evaluation systems in specialized technical landfills. Currently, 125 of our
  landfills are equipped with biogas collection systems.

Installations
  that we operate mainly emit sulfur and nitrogen oxides (SOx and NOx), carbon
  monoxide (CO), volatile organic compounds and dust. Emissions of SOx from waste
  incineration units (hazardous and non-hazardous) amounted to 138 grams per ton
  of incinerated wastes in 2002. There is no reliable technique yet for measuring
  emissions of NOx. We are working towards the elaboration of such indicators.
  For example, Connex, in partnership with ADEME, initiated a study to identify
  and assess the market systems capable of reducing the NOx emissions of its buses
  and coaches.

| | In
      addition to complying with regulatory standards, we attempt to reduce our
      emissions by:
| | ------------------------------------------------------------------------------------------------------
| |                                                                                                       
| | •                                                                                                     
| |                                                                                                       
| | •                                                                                                     

We
  have developed a semi-continuous method to monitor emissions of dioxins during
  waste incineration, allowing for control of the aggregate flow of such pollutants
  emitted throughout the year. We offer this reliable and efficient measurement
  technique to all of our clients and 61% of waste incinerated in our units emit
  dioxins at levels lower than 0.1 mg/Nm3.

Noise
  and Odors

We
  have developed new treatment and storage techniques for odors, particularly
  in wastewater treatment plants and landfills for household waste. We also use
  new, more silent, technologies in some of our installations, including special
  wall coatings, sound traps and exhaust gas exit silencers for cogeneration installations
  or transport vehicles.

Waste

The
  permanent increase in waste quantities around the world presents major risks
  for the environment. We strive to develop every aspect of the waste management
  business that enable us to limit such risks, including the reduction of the
  sources of waste, waste collection and processing, selective sorting, waste
  recycling and waste-to-energy recovery. Our efforts also address the waste produced
  by our own activities, such as residues from combustion, residues from smoke
  purification, treated sludge and water that percolates through waste at landfills.

Preserving
  biological balance, natural environments and protected species

In
  addition to complying with regulatory standards and recommendations, we invest
  and take specific measures to protect the environment, in particular through
  our research and development activities conducted at Anjou Recherche, CREED
  and Eurolum, and our training efforts conducted through the IEU.

Evaluation
  or certification regarding the environment:

Our
  activities have been subject to environmental certification, both external (ISO)
  and internal, for a long time. The number of our ISO 14001 certified sites has
  increased continuously since 1999. In addition, we seek to achieve the targets
  set by our Environmental Management System for all of our installations, which
  lead, subject to the circumstances of each of the entities concerned, to the
  general application of the ISO 14001 certification standards. We currently have
  265 sites covered by an ISO 14001 certification.

Compliance
  with applicable legal and regulatory provisions:

Our
  Environmental Management System includes, among other things, an audit program
  that allows us to monitor our sites regulatory compliance. We have defined
  a general framework to ensure consistency of the audit systems developed by
  our divisions, and each of our divisions remains responsible for the definition
  and implementation of its own system. Our goal is to conduct audits for 80%
  of priority sites by 2005 and 100% by 2008. Priority sites are potable water
  production sites and urban treatment stations, waste treatment sites, Dalkias
  classified installations and several of Connexs transportation centers.

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Expenses
  incurred to preserve the environment

Our
  capital expenditures amounted to €2.6 billion in 2002, which includes expenses
  incurred for research and development, employee training, our certification
  program and the implementation of the Environmental Management System.

Prevention
  of environmental risks

In
  addition to the measures described above to reduce environmental risks, we have
  established corporate departments that specialize in environmental management.
  Our Sustainable Development Department, which reports to our senior management,
  is responsible for all aspects of sustainable development, which includes economic,
  environmental and social issues. This Department ensures that the objectives
  and actions of our other corporate departments are consistent, particularly
  in connection with the implementation of the Environmental Management System,
  and encourages information sharing and best practices. Our sustainable development
  committee, which includes representatives of all of our divisions and corporate
  departments (particularly our technical, legal and communication departments),
  has been operating for three years. In addition, one of the three specialized
  sub-committees of our coordination committee for the evaluation and prevention
  of risks (CEPR) is specifically in charge of industrial, environmental
  and health risks. See Item 11. Quantitative And Qualitative Disclosures
  About Market RiskEthics, vigilance and risk managementCoordination
  committee for the evaluation and prevention of risks for a description
  of the CEPR.

We
  have also established crisis management procedures that also cover environmental
  crisis management, including, in particular, on-call and alarm systems at national
  and international levels, that would allow any necessary measures to be taken
  as soon as possible.

Reserves
  and guarantees for environmental risks

As
  of December 31, 2002, our accrued reserves for site remediation amounted to
  €388.4 million.

Indemnities
  and damages paid in 2002 for environmental claims pursuant to court orders

As
  of December 31, 2002, our accrued reserves for litigation ended in 2002 (including
  all types of claims and disputes) amounted to €43.5 million.

International
  environmental targets

We
  apply our Environment Management System, as described above, to all our subsidiaries
  worldwide.

Intellectual
  Property

We
  currently own a significant number of patents and trademarks in France, the
  United States and other countries around the world that are of value to our
  business. However, we believe that the diversity of our patents and trademarks
  does not make any of our activities dependent on any one of these patents or
  trademarks individually.

Marketing

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 efforts by each of
  our business segments, see  Our Services.

Seasonality

Because
  of the diverse 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

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may vary substantially
  in the future. For example, the price of fuel has, in recent years, exhibited
  considerable volatility. Fuel prices have increased recently and, as of the
  date hereof, we cannot anticipate the evolution of these prices in the future.
  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

Background
  and Insurance Procurement Policy

Insurance
  renewals on or after January 1, 2002 were affected by the disruption in the
  insurance and reinsurance markets caused by the events of September 11, 2001
  in New York and September 21, 2001 in Toulouse, France. Because the terms of
  our insurance policies expired on or after January 1, 2002, we, as all other
  companies with policies with similar expirations, were affected by the combined
  effect of the decrease in the number of insurers willing to cover industrial
  risks, the available capacity reduction, the increase in the premiums required
  by insurers and the mandatory additional premium for terrorism coverage.

For
  all of our operating divisions, we:

| | • | maintain
      common insurance policies to establish a coherent risk transfer approach
      and maximize economies of scale, while taking into account the specificities
      of our businesses and legal or contractual constraints; and                                                                                                                             
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                          
| | • | optimize
      the thresholds and means to access the insurance or reinsurance markets
      through a consolidated reinsurance company with appropriate retention levels
      determined on the basis of the divisions knowledge of their risks
      and prior accident claim history, as well as an evaluation of the costs
      and coverage proposed by insurers.

The
  implementation of our insurance procurement policy also takes into account the
  extent and willingness of insurers to accept to insure our activities, the available
  capacity in the insurance and reinsurance markets, the premiums proposed in
  relation to the scope of the coverage offered, exclusions, limits and sub-limits
  and deductibles. We generally only purchase insurance policies from insurers
  and reinsurers who have at least an A credit rating.

Main
  Insurance Policies

Casualty

Until
  December 31, 2002, we were covered under Vivendi Universals excess general
  liability policy that provided all of our subsidiaries with coverage of up to
  US $400 million. As of January 1, 2003, we have entered into a separate and
  independent 18-month insurance policy that provides coverage for all of our
  subsidiaries of up to US $400 million per insurable event.

We
  also maintain specific insurance policies for our U.S. and Canadian subisdiaries,
  our rail transportation operations and our engineering activities. We have also
  entered into a primary contract to provide coverage for the rest of our activities.
  The general liability primary layer includes standard coverage available on
  the French market for an international group such as our company with insured
  limits of €30 million per claim with an annual aggregate of €60 million.
  In 2003, our subsidiaries outside the United States and Canada are insured above
  local policies for claims exceeding €1.5 million.

We
  also maintain various environmental damage liability insurance policies that
  provide coverage to our subsidiaries with annual limits ranging from US $5 million
  to US $50 million per claim. Our excess general liability policies described
  above also cover third party claims resulting from sudden and accidental events.

We
  were also insured under Vivendi Universals directors and officers (D&O)
  liability policy, which provided coverage of up to US $200 million. In July
  2002, we initiated the process of implementing a separate independent policy
  for D&O liability, which was completed in December 2002. For 2003, we have
  obtained a D&O liability insurance policy that provides coverage of up to
  US $200 million.

Property
  Damages and Business Interruption Policies

All
  of our divisions maintain property damage insurance policies to cover assets
  that we own as well as those for which we have contractual obligation to insure.
  Some policies provide either business interruption coverage or additional
  cost of working coverage depending on our subsidiaries exposure
  and their capacity to use internal or external solutions to ensure service continuity.
  These policies contain standard market terms. The level of premiums, deductibles
  and sub-limits for exceptional socio-political or natural events reflects the
  terms proposed, or sometimes imposed, by insurers in the markets in which the
  risk is underwritten. We have obtained an excess coverage policy to cover several
  identified locations whose exposure exceeds €100 million. During 2002,
  we did not present any claims in excess of €10 million.

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Other
  Insurance Policies

In light of the difficulties encountered in the insurance market in 2002, we cover motor liability risks relating to the vehicles used in our activities (such as passenger transportation or collection of hazardous and non-hazardous waste) through deductibles or reserves accrued per event from €150,000 to €1 million, and, depending on the country, collateral may be required such assureties or letters of credit.

Construction projects are usually insured through construction all-risk policies either by the main contractor or the operating company.  In addition, several investments abroad are covered by political risk policies with the Compagnie dAssurance Française pour le Commerce Exterieur (COFACE).

Self-Insurance
  and Deductibles

For any insured claim or loss, we remain liable for the deductible amount. Our deductibles for large risks range from €100,000 to €1 million, while the main deductible under our general liability policy (outside the United States and Canada) is €30,000.  Our rail liability coverage in the United Kingdom has a self-insured deductible of 5 million pounds sterling. In addition, our reinsurance subsidiary has underwritten a portion of our property damage and general liability policies with French insurers.

We have also obtained excess loss coverage to protect our reinsurance subsidiary for property damage reinsurance deductibles of €3 million per insurable event, which is protected by a stop loss coverage of €9 million in excess of €10 million per claim. We have entered into a similar coverage arrangement for our general liability reinsurance (€5 million in excess of €11.5 million). We had not filed any claims under our reinsurance arrangements as of December 31, 2002.

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. 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 for a description of the history of the creation of our organizational structure.

PROPERTY, PLANTS AND EQUIPMENT

We rent a 15,000 square meter building located at 36/38 avenue Kléber, 75116, Paris, France that we use as our corporate headquarters. Our and our divisions senior management have maintained their offices in this building since May 2002.

We do not own any material real properties.  We generally conduct our water, waste management, energy services and transportation operations at premises owned by our customers, and we do not own any important physical properties in connection with those operations.

RESEARCH AND DEVELOPMENT

Because environmental and health problems have become a major global concern, our ability to innovate in these areas thorough our research and development is one of our priorities. Through our Research Department, we coordinate the research and development efforts of our 600 researchers throughout our divisions 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,
      or CREED, which focuses on waste and energy services related research, and
| |   |                                                                                                                                                           
| | • | Eurolum,
      which focuses on transportation related research.                                                                                          



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Our researchers seek to anticipate future needs and develop effective solutions to address those needs. Through their work, we maintain our technological edge and adapt our segments (Water, Energy Services, Waste Management and Transportation) to the realities of an ever-changing world.

We believe that our commitment to technological advancement requires innovation and the development of new procedures or the adaptation of existing techniques to meet clients specific needs. For example, we have developed programs relating to an electro-deionization technique to supply ultra-pure water to pharmaceutical or electronics industries on an ongoing basis; a tram without catenary to permit its harmonious use in the architectural structures of urban centers; a combustible battery; and the methanization of waste. In addition, we have established a program to store energy and maximize energy efficiency by intermittently storing electricity or heat and completing the process through co-generation.

Our research and development efforts also seek to continually improve our operating performance by broadening the range of our service offerings while at the same time reducing the cost of our services. In the waste management sector, for example, we conduct research to at a number of specialized technical landfills, which we refer to as bioreactors, in Australia, France and the United States to optimize the decomposition of waste through the recirculation of liquid effluents that are produced as water filters through the waste in the landfill. This procedure will enable a controlled acceleration in biogas production, an increase in the generation of clean energy and a reduction in the length of the post-operating period of our landfills. In the transportation sector, we seek to optimize the use of our service vehicles, which has led, among other things, to the development of the mobile office

and the communicating vehicle.  We have also developed specialized equipment for our transportation, intervention and collection vehicles that use our New Information and Communication Techniques, or NICT, which enable vehicle operators to optimize itineraries and schedules, to improve the planning of vehicle usage, and to enhance the efficiency of emergency assistance and services to customers. In addition, our research and development efforts to improve our operating performance also include our work on systems to measure methane levels in our energy services division and on membranes and pre-treatment before filtration through membranes in our water segment, which will enable a broader use of water treatment technology.

Our Research and Development Department is consecrated to the protection of the environment and sanitary security. Through our research to reduce polluting emissions, limit greenhouse gas emissions, increase energy efficiency and use clean energies, we have improved air quality, battled climate change, and positioned ourselves as a well-known player in the market for emissions credits. In the areas of health and sanitary security, we provide solutions to address the new risks faced by our companies by developing tools and techniques to prevent, analyze, and provide curative treatment, where necessary. Our experts work on a number of risks once considered minor, including those related to the legionella bacteria, for which we have developed rapid-detection (using molecular biology) and deactivation methods, to endocrinal and cyanobacterial perturbations in water and to dioxin levels, which are able to control in the sm

oke produced by our incineration units.  We also seek to develop methods to improve water resource management. For example, we have launched a multi-year project to manage aquifer renewal with a team of 30 people from 5 universities in Berlin, and we conduct expertise missions on the development of seaweed in the Erdre river and have obtained European approval of our modeling center for hydraulics and biological treatment. Through these programs, we hope to elaborate preventive and curative solutions to stop seaweed proliferation and develop tools to assist the design and exploitation of works, networks and stations.

Through our research and development efforts relating to the environment, sanitary security and quality of life, we also seek to improve our employees working conditions and security.  One of our research and development programs, for example, focuses specifically on improving conditions and reinforcing security for our employees in our waste collection and sorting activities. We have also developed a new service for the safe collection of medical waste produced by healthcare professionals in suburban and rural locations, which supply the waste voluntarily, through MEDIBUS, a roaming vehicle specially designed for this purpose.

Our Research and Development Department benefits from the complementary nature of our divisions capabilities to develop complex integrated products and services, such as global management services to purify and treat hydro-carbonated waste and to treat effluents. In this context, for example, we continue to improve our composting technology and develop new treatment and recovery procedures relating to sludge, such as BIOTHELYS, which reduces the amount of sludge byproducts, SAPHYR, which sanitizes and reduces odors from sludge to improve its quality, and ATHOS, which treats sludge through humid oxidization.

We
  use the most sophisticated modeling and digital simulation tools in all of our
  research and development centers. This capability allow us to increase our expertise
  on procedures and to optimize our operational tools. Our modeling and simulation
  activities have allowed us, for example, to reduce corrosion, wall erosion and
  pollutant emission levels in our thermal treatment activities, and to optimize
  the integration of new equipment, including sludge injection equipment for our
  incinerator ovens (PIROMIX procedure) and a new system to reduce nitrate-oxygen
  (NOx). We also develop complex management tools to reduce water and energy consumption
  (PINCH procedure).

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Our research and development efforts are further enriched through multiple partnerships with industry, municipalities, governmental organizations and universities. In 2002, our research teams joined those of other institutions to create the Global Water Research Coalition, which seeks to promote synergies and collaborative studies. Through our network of laboratories, we participate in the work conducted by the Metropolis network, which is supported by the European Commission and seeks to identify, evaluate and promote techniques and methodologies related to health, safety and environmental protection. We also conduct research jointly with EDF on sludge treatment, biofilm and hydraulic models through our joint Research and Development Studies and Services program, which Dalkia finances through the CREED, and in accordance with a contract signed in July 2002.

Through our active participation in research and development programs on both a European level (PCRD-LIFE) and a French national level (PREDIT), our researchers play an active role in international research and have developed a strong network of relationships with a diverse group of industrial and university partners, which allow us to achieve operating developments that expand our service offerings and to anticipate required technical improvements.

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ITEM 5: 	OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. 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 experienced continuous growth over the period from 2000 to 2002, despite increasingly difficult conditions in each of our markets resulting from the global economic slowdown that began in the second half of 2000. Part of our growth has resulted from the combination of our energy service assets with those of EDF and our selective acquisitions of strategic mid-sized companies.  We have also generated significant organic growth since 2000 as a result of the large number of contracts won during the past three years, and we anticipate that our newest contracts should permit us to continue to grow our business in the next several years.

Major Developments in 2002

2002
  was an important year for our company. We continued to pursue our business strategy
  through new outsourcing contracts with municipal and industrial customers, restructured
  our shareholder base and reinforced our financial position through a €1.5
  billion capital increase, divestitures that generated proceeds in excess of
  the expected €1.1 billion to more than €1.7 billion of in 2002, and
  a reduction of our net financial debt from €14.3 billion to €13.1 billion.

Restructuring
  of Our Shareholder Base

Our main shareholder, Vivendi Universal, reduced its interest in our company from 63.1% to 20.4% in 2002 through block sales of our shares to institutional investors and our €1.5 billion capital increase (to which Vivendi Universal did not subscribe). In addition, a group of institutional investors that acquired shares of our company from Vivendi Universal hold options to acquire Vivendi Universals remaining 20.4% interest in our company at any time until December 2004. See Item 7. Major Shareholders and Related Party Transactions for a description of the agreements with and the consequences of our separation from Vivendi Universal.

Exchangeable
  Bonds (OCEANE)

In 1999, we issued 1.5% bonds exchangeable into shares of Vivendi Universal, which mature in 2005. These bonds were guaranteed by Vivendi Universal, and as a result provided bondholders with the right to accelerate the maturity of the bonds in the event of a default by Vivendi Universal under its other debt obligations. On August 20, 2002, we called a meeting of holders of our exchangeable bonds to irrevocably waive these provisions, which required the approval of a majority of these holders. By a majority vote of 64.8%, the holders of our exchangeable bonds agreed to irrevocably waive Vivendi Universals guarantee and the related cross-default clause effective September 1, 2002, in exchange for a 0.75% increase in the interest rate on the bonds from 1.5% to 2.25%.

Developments
  Relating to Our Business

In 2002, we continued to pursue our strategic focus on organic growth and selective acquisitions of mid-sized strategic businesses.  Our revenue increased by 3.3% in 2002 principally as a result of strong organic growth in each of our business divisions and FCC, which was partially offset by the negative effect on revenue of our sales of non strategic assets and fluctuations in currency exchange rates. Excluding the impact of our sales of assets, the increase in our revenue reflected organic growth of 5% in our core businesses, particularly due to strong organic growth of 7.5% outside France. In addition, we won a significant number of new outsourcing contracts in 2002 with public authorities and industrial customers, including several contracts that combine the services of our various operating divisions.

New
  Contracts with Public Authorities

We
  won a significant number of major contracts with public authorities to provide
  municipal public services, including, among others, contracts relating to:

| |  | the management
      of the complete potable water cycle in Pudong, the business district of
      Shanghai, China, for 50 years by a joint venture in which we hold a 50%
      interest, with estimated total revenue of €10 billion (of which €5
      billion is attributable to our company),
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | the outsourcing
      of water, wastewater treatment and electricity services in Rabat-Salé,
      Morocco, for 26 years, with estimated total revenue of €4.6 billion,                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                         
| |  | the construction
      and operation of wastewater treatment plants in The Hague, The Netherlands,
      for 30 years, with estimated total revenue of €1.5 billion, which is
      in course of finalization,                                                                          
| |   |                                                                                                                                                                                                                                                                                         
| |  | the treatment
      and distribution of potable water in Indianapolis, Indiana (U.S.), for 20
      years, with estimated total revenue of US $1.5 billion,                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                         
| |  | the management
      of the entire waste treatment network of the Marne department, France, for
      20 years upon construction of a waste treatment unit (expected to be completed
      in 2005), with estimated total revenue of €250 million,                                      
| |   |                                                                                                                                                                                                                                                                                         
| |  | the operation
      of the urban heating network of the city of Poznan, Poland, for 25 years,
      with estimated total revenue of €1.7 billion, and                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                         
| |  | the operation
      of the light metro network in Dublin, Ireland, for 5 years (with an option
      to extend the term for a further 5 years), which will commence operating
      in 2003 and with estimated total revenue of €55 million (over the first
      5 years of operation).

The
  revenue amounts that we expect to earn from our 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 included in this report. In the case of combined
  contracts to build and operate facilities, expected revenue amounts reflect
  total revenue expected to be generated from both services.

Growth
  in Outsourcing Services to Industrial Customers

We
  won a number of significant contracts to provide outsourcing and other services
  to industrial and commercial customers, including, among others, contracts relating
  to:

| |  | the outsourcing
      of water treatment and distribution services for Petronas in Malaysia for
      20 years, with estimated total revenue of €200 million,                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                            
| |  | the outsourcing
      of waste treatment and industrial cleaning services at 15 of Renaults
      industrial sites in France for 4 years, with estimated total revenue of
      approximately €88 million,
| |   |                                                                                                                                                                                                            
| |  | the outsourcing
      of water services at Alons refinery in Big Spring, Texas (U.S.), for
      20 years, with estimated total revenue of US$66 million,                                                 
| |   |                                                                                                                                                                                                            
| |  | the operation
      of the central thermoelectric unit of BPs refinery in Lavera, France,
      for 12 years, with estimated total revenue of €53 million, and                                            
| |   |                                                                                                                                                                                                            
| |  | the management
      of the thermal network of the hospital of Parma, Italy, for 9 years, with
      estimated total revenue of €35 million.                                                               

The
  revenue amounts that we expect to earn from our 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 included in this report. In the case of combined
  contracts to build and operate facilities, expected revenue amounts reflect
  total revenue expected to be generated from both services.

Other
  Developments

In 2002, we acquired Transports Verney, a French transportation group, which recorded revenue of €150 million in 2001, and the remaining minority interest (34%) in Compagnie des Eaux de Prague, our Czech water subsidiary, which obtained an extension of the term of our contract to provide water and wastewater services in Prague until 2028. We also obtained a 5-year extension of the term of our contract to operate the metro and tramway networks in Stockholm, Sweden, which was scheduled to expire in 2004. Finally, in the context of a public offer for tenders, we were not awarded the renewal of a contract to operate the water and wastewater services of the Commonwealth of Puerto Rico effective July 2002.

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Refocusing
  on our Core Businesses and Active Management of our Asset Portfolio

We
  continued to implement our divestiture program for non-strategic assets in 2002,
  including the sale of:

| |  | our 24.1%
      interest in Bristol Water Holding for approximately €37 million;                                                                                                      
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                       
| |  | USFilters
      Filtration & Separation division (€378 million), Plymouth Products
      division (€126 million) and Distribution division (€472 million);                           
| |   |                                                                                                                                                                                       
| |  | our 17%
      interest in Philadelphia Suburban Corporation, which generated gross proceeds
      of €207 million;                                                                    
| |   |                                                                                                                                                                                       
| |  | our 31.74%
      interest in South Staffordshire for €131 million;                                                                                                                    
| |   |                                                                                                                                                                                       
| |  | Bonna Sabla,
      a subsidiary of Veolia Water, for €98 million, followed by our repurchase
      of 19.85% of Bonna Sabla for €11 million; and                                      
| |   |                                                                                                                                                                                       
| |  | various
      fixed assets for an aggregate price of €198 million, which were sold
      in the ordinary course as a result of our systematic evaluation of our asset
      portfolio.

We disposed of over €1.7 billion in assets in 2002. The net proceeds from these sales were applied to reduce our outstanding indebtedness.

Presentation of Information in this Section

Historical
  and Comparable Financial Information

In order to provide a meaningful comparison of our operating performance in 2001 and 2002, we present our results on a comparable basis by excluding the impact of the implementation of our divestiture program in 2001 and 2002 and the fluctuation of currency exchange rates in 2002. As a result, our comparable results in 2001 and 2002 exclude the results of our non-core businesses, which are the activities or units that have been or are currently in the process of being divested.  These non-core businesses relate mainly to water-related activities and include USFilters Filtration & Separation, Surface Preparation, Plymouth Products and Distribution divisions and our Bonna Sabla subsidiary in France. As of December 31, 2002, all of our non-core businesses have been sold, except for USFilters Surface Preparation division.  In addition, our comparable results include our actual results in 2001,

while our results in 2002 have been adjusted to eliminate the effect of fluctuations in exchange rates.

The
  following table presents the main adjustments made to our historical revenue
  and EBIT in 2001 and 2002 to obtain comparable measures for these periods:

|                                           | Revenue                  |   | EBIT     |  
|------------------------------------------ | ------------------------ | - | -------- | -
|                                           |                          |   |          |  
|                                           | (in
      millions of €) |  
|                                           | 2002                     |   | 2001     |  
|                                           |                          |   |          |  
|Historical
      Information               | 30,078.7                 |   | 29,126.7 |  
|Impact
      of Exchange Rate Fluctuations | 350.0                    |   | –        |  
|Non-Core
      Businesses                  | (2,006.0                 | ) | (2,614.0 | )
|                                           |                          |   |          |  
|Comparable
      Information               | 28,422.7                 |   | 26,512.7 |  

We have not made any adjustments to our results of operations for fiscal year 2000 presented in this report. As a result, our historical 2000 results may not be directly comparable with our comparable 2001 and 2002 results. We do present, however, a comparison of the historical 2000 and 2001 results in this report.

The
  comparable financial information included in this report has not been audited
  and is not intended to be a substitute for, and should be read in conjunction
  with, our consolidated financial statements and related notes included elsewhere
  in this report.

Definition
  of organic and external growth

As
  used in this report, the term organic growth includes growth resulting
  from new contracts won and the expansion of existing contractual arrangements
  through increases in prices and/or volumes delivered. We also frequently offer,
  in the course of bidding on a contract, to acquire operating assets related
  to the performance

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of the contract.
  As a result, our organic growth also includes acquisitions of assets for dedicated
  use in a particular project or contract.

The term external growth relates to growth resulting from acquisitions (net of disposals) of entities that hold multiple contracts and assets used in one or more markets.

Changes
  in Accounting Methods and Presentation of Accounts

In
  2001, we made the following significant changes to our accounting methods and
  the presentation of our accounts under accounting principles generally accepted
  in France, or French GAAP:

| |  | We 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.
      As a result, our operating income now corresponds to our revenue, after
      cost of sales, selling, general and administrative expenses, other operating
      expenses, goodwill amortization and restructuring expenses. In addition,
      certain expenses that we previously classified as exceptional items are
      now classified as operating expenses. To permit a comparison of our results
      over the past three fiscal years, we have restated our financial statements
      for 2000 to reflect this new presentation.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | For purposes
      of our French accounts, we adopted a new measure of operating performance,
      which we refer to as EBIT. This new measure of performance is
      not used in our U.S. accounts. We define EBIT as operating income (loss)
      before amortization of goodwill and restructuring charges. 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.                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | We ceased
      recording the portion of goodwill attributable to acquisitions paid for
      with shares of our company as a charge to our shareholders equity
      as permitted under French GAAP. We now record goodwill as an asset on our
      balance sheet and periodically impair the value of this asset in accordance
      with French and U.S. GAAP.                                                                                                                                                                                                                                                                                                                                                             

We did not make any material changes to our accounting methods or the presentation of our accounts in 2002.

Critical
  Accounting Policies

We prepare our consolidated financial statements in conformity with French GAAP. Our consolidated financial statements are affected 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 the financial statements and the reported amounts of revenue and expenses during the periods presented.

The principal significant estimates and assumptions made by management during the preparation of our consolidated financial statements relate to the accounting policies used in connection with pension liabilities, deferred taxes, valuation of long-lived assets, and derivative financial instruments.

Valuation
  of Long-Lived Assets

We reassess periodically the value of our long-lived assets, including the goodwill associated with these assets, and, when events and circumstances, internal or external, indicate that a decrease in value may occur, we either record an exceptional amortization or allowance on the basis of the assets fair market value.

Pension
  Liabilities

We
  maintain several pension plans covering substantially all of our employees.
  We determine our obligations under these plans using a projected unit credit
  method, which requires us to estimate the probabilities that our employees will
  continue to work for our company until retirement, the foreseeable changes in
  the compensation of our employees and the present value of our potential liabilities
  on the basis of the appropriate discount rate for each country in which we maintain
  a pension plan. As a result, we record pension-related assets or liabilities
  in our accounts and record the related net expenses over the estimated term
  of service of our employees. In addition, employees in France and most other
  European countries are eligible for severancepayment
  under applicable law immediately upon termination of employment. We estimate
  and record provisions in respect of these employee termination liabilities using
  the projected unit credit method.

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Deferred
  Taxes

We
  recognize deferred tax assets for deductible temporary differences, net tax
  operating loss carry-forwards and tax credit carry-forwards. We record our deferred
  tax assets at their estimated net realizable value. We recognize deferred tax
  liabilities for taxable temporary differences. We adjust our deferred tax assets
  and liabilities for the effects of changes in tax laws and rates on the enactment
  date.

Derivative
  Financial Instruments

We manage a part of our financial risks through derivative financial instruments that qualify as hedges. We primarily use interest rate swaps and caps to manage interest rate risks relating to our borrowing requirements.  We use swaps to shift our debt from fixed to floating rates and from floating to fixed rates, depending on the circumstances, and to modify the underlying reference or index on floating rate debt. We use interest caps to limit the risk of increases in floating rates on our debt. We account for interest rate swaps that modify borrowings or designated assets on an accrual basis. Premiums paid for interest rate caps are expensed as incurred.

We also use currency swaps and forward exchange contracts to manage our foreign currency risk. We enter into forward exchange contracts to hedge existing and anticipated transactions relating to assets denominated in foreign currencies.  We use currency rate swaps 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 as hedges are deferred until related gains or losses on hedged items are realized.

We sometimes also use financial instruments that do not qualify as hedges for financial reporting purposes. We record these instruments as other current assets or liabilities at the lower of cost or fair value.

U.S.
  GAAP Reconciliation

Our consolidated financial statements have been prepared in accordance with French GAAP, which differs in certain respects from U.S. GAAP. Under U.S. GAAP, we recorded a net loss of €1,988.8 million for the year ended December 31, 2002 and 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, compared to net income of €339.2 million, a net loss of €2,251.2 million and net income of €614.8 million respectively under French GAAP.  Under U.S. GAAP, shareholders equity was €4,923.2 million at December 31, 2002, €6,780.7 million at December 31, 2001 and €6,569.2 million at December 31, 2000, compared to €6,329.6 million, €5,740.0 million and €6,208.3 million under French GAAP.

The most significant item in reconciling French GAAP and U.S. GAAP in 2002 and 2001, as applied to our company, relates to the impairment and amortization of goodwill and other intangible assets. See Note 27 of our consolidated financial statements.  In 2001, the method used to evaluate goodwill under U.S. GAAP, as defined by SFAS No. 121 (in effect 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 French GAAP write down in 2001 of €2.6 billion in goodwill recorded in connection with the acquisition of USFilter was adjusted under U.S. GAAP. In 2002, we evaluated goodwill and other intangible assets using SFAS No. 142 , Goodwill and Other Intangible Assets, under which goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed at least annually for impairment. Intangible asset

s with a definite life continue to be amortized over their useful lives.  The cumulative effect of the adoption of this standard has led us to record in 2002 a transitional impairment charge of €2,621 million, accounted for as a change in accounting principles. See Note 27B of our consolidated financial statements. We reassessed at the end of 2002 the evaluations made during the transition period, which has led us to record an impairment charge of €83 million.

Other significant reconciling items relate to the use of the proportionate consolidation method, financial instruments, public service contracts and stock based compensation. These items are further described in Note 27 to our consolidated financial statements.

Under U.S. GAAP we had operating income of €1,263.7 million for the year ended December 31, 2002, €1,033.2 million for the year ended December 31, 2001 and €903.3 million for the year ended December 31, 2000, compared to operating income of €1,587.5 million, an operating loss of €946.4 million and operating income of €1,289.3 million, respectively, under French GAAP.

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| | The
      most significant difference between our French GAAP operating income (loss)
      and our U.S. GAAP operating income are due to:
| | ------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                           
| | •                                                                                                                                         
| |                                                                                                                                           
| | •                                                                                                                                         
| |                                                                                                                                           
| | •                                                                                                                                         
| |                                                                                                                                           
| | •                                                                                                                                         

RESULTS OF OPERATIONS

Year ended December 31, 2002 compared to year ended December 31, 2001

Revenue

Overview

We
  generated revenue of €30.1 billion in 2002, an increase of 3.3% from revenue
  of €29.1 billion in 2001. Revenue from our core businesses grew by 5.9%
  from €26.5 billion in 2001 to €28.1 billion in 2002, and, at constant
  exchange rates, by 7.2% to €28.4 billion in 2002. The negative impact
  of exchange rate fluctuations, which amounted to €350 million in 2002,
  was mainly due to the depreciation of the dollar (which accounted for €224
  million) and, to a lesser extent, fluctuations in several Latin-American currencies.

The increase in revenue from our core businesses is principally attributable to organic growth (5.0%). Our external growth contributed €616 million of revenue resulting mainly from the full-year impact of the acquisitions of Marius Pedersens waste management activities in Denmark and SIRAM in Italy in 2001 and the integration of the Verney transportation group in 2002.

Our non-core businesses generated revenue of €2.0 billion in 2002, a decrease of 23.3% from revenue of €2.6 billion in 2001. The decline in revenue contributed by our non-core businesses is mainly attributable to the sale of most of these businesses over the course of 2002.

The
  following table shows a breakdown of our revenue by division in France and elsewhere:

|                         | France                                                                                                                                                                                                                                                                                                                    |  | Outside
      France |  | Total
|------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- |  | -----
|                         |                                                                                                                                                                                                                                                                                                                           |  |                      |  |      
|(in
      billions of €, |                                                                                                                                                                                                                                                                                                                           |  |                      |  |      
|except
      for %)      | 2002                                                                                                                                                                                                                                                                                                                      |  | 2001                 |  | %(2) 
|                         |                                                                                                                                                                                                                                                                                                                           |  |                      |  |      
|Water                    | 6.2                                                                                                                                                                                                                                                                                                                       |  | 6.2                  |  | 0.1  
|Waste
      Management   | 2.5                                                                                                                                                                                                                                                                                                                       |  | 2.4                  |  | 4.2  
|Energy
      Services    | 3.0                                                                                                                                                                                                                                                                                                                       |  | 2.7                  |  | 8.7  
|Transportation           | 1.3                                                                                                                                                                                                                                                                                                                       |  | 1.0                  |  | 27.7 
|FCC(1)                   |                                                                                                                                                                                                                                                                                                                          |  |                     |  | 0.7  
|                         |                                                                                                                                                                                                                                                                                                                           |  |                      |  |      
|Total                    | 13.0                                                                                                                                                                                                                                                                                                                      |  | 12.3                 |  | 5.0  
|                         |                                                                                                                                                                                                                                                                                                                           |  |                      |  |      
|                         |                                                                                                                                                                                                                                                                                                                           |  |                      |  |      
|(1)                      | Figures
      reflect a 49% share of FCCs revenue. Under French GAAP, we proportionally
      consolidate FCC based on our 49% interest in the holding company that controls
      it. Under U.S. GAAP, FCC would be accounted for using the equity method.
      See Note 27A to our consolidated financial statements.
|(2)                      | Percentages
      are based on total figures and may not exactly correspond to the figures
      above due to rounding.                                                                                                                                                                                                  

Revenue generated in France by our core businesses amounted to €12.7 billion in 2002, an increase of 5.2% compared to 2001. Revenue generated outside France by our core businesses totaled €15.4 billion in 2002, an increase of 6.4% compared to 2001.



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The following table shows a breakdown of our revenue by division and by geographical regions outside of France:

|                         | Euro
      zone                                                                                                                                                                                                                                                                                                           |  | Europe
      outside |  |          |  | Rest
      of |  |       | 
|------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- |  | -------- |  | ------------- |  | ----- | 
|(in
      billions of €) | outside
      France                                                                                                                                                                                                                                                                                                      |  | euro
      zone      |  | Americas |  | World         |  | Total | 
|                         |                                                                                                                                                                                                                                                                                                                           |  |                      |  |          |  |               |  |      
|                         | 2002                                                                                                                                                                                                                                                                                                                      |  | 2001                 |  | 2002     |  | 2001          |  | 2002  | 
|                         |                                                                                                                                                                                                                                                                                                                           |  |                      |  |          |  |               |  |       | 
|Water                    | 1.1                                                                                                                                                                                                                                                                                                                       |  | 1.2                  |  | 1.2      |  | 1.0           |  | 3.7   | 
|Waste
      Management   | 0.2                                                                                                                                                                                                                                                                                                                       |  | 0.2                  |  | 1.3      |  | 1.1           |  | 1.6   | 
|Energy
      Services    | 0.6                                                                                                                                                                                                                                                                                                                       |  | 0.5                  |  | 0.9      |  | 0.7           |  |      | 
|Transportation           | 0.5                                                                                                                                                                                                                                                                                                                       |  | 0.4                  |  | 1.4      |  | 1.5           |  | 0.1   | 
|FCC(1)                   | 2.5                                                                                                                                                                                                                                                                                                                       |  | 2.2                  |  | 0.1      |  | 0.1           |  | 0.1   | 
|                         |                                                                                                                                                                                                                                                                                                                           |  |                      |  |          |  |               |  |       | 
|Total                    | 4.9                                                                                                                                                                                                                                                                                                                       |  | 4.5                  |  | 4.9      |  | 4.4           |  | 5.5   | 
|                         |                                                                                                                                                                                                                                                                                                                           |  |                      |  |          |  |               |  |       | 
|                        
|                        
|(1)                      | Figures
      reflect a 49% share of FCCs revenue. Under French GAAP, we proportionally
      consolidate FCC based on our 49% interest in the holding company that controls
      it. Under U.S. GAAP, FCC would be accounted for using the equity method.
      See Note 27A to our consolidated financial statements.

Revenue from the euro zone outside France increased by 11.0% in 2002, principally due to strong growth in our transportation and energy services divisions and at FCC, which more than offset the decline in revenue from our water division in this region.  The substantial growth in revenue from our transportation division in this region was primarily due to the full-year impact of the acquisition of the BBA network in The Netherlands in 2001, as well as other contracts won in the Benelux region. Revenue from our energy services division in this region increased mainly as the result of the full-year impact of the acquisition of SIRAM in 2001. FCCs revenue increased in 2002 principally due to strong demand in the construction and cement markets in Spain.

The growth of 7.0% in revenue generated in Europe outside the euro zone countries was driven by our water, waste management and energy services divisions, which offset the 10.3% decline in our transportation business in this region in 2002. Revenue from our water division in this region grew by 13.0% due mainly to the full-year effect of the operations under contracts won in 2000 and 2001 in Central Europe, Prague and Bucharest. Revenue growth of 15.6% in our waste management division resulted primarily from the full-year impact of the acquisition of Marius Pedersens activities in Denmark and the commencement of operations of new contracts won in the United Kingdom in 2001. Our energy services division recorded revenue growth of 23.9% in this region in 2002 as a result of the commencement of operations under new contracts won in Eastern Europe. The decline in our transportation business in this region in 2002 re

sulted principally from the full-year impact of the transfer of our South Central contract in the United Kingdom during the second half of 2001.

In the Americas, our revenue declined by 11.0% in 2002. Our revenue in North America decreased by 9.0% primarily as the result of the impact of the sale of substantially all of non-core businesses formerly operated by USFilter and the decline in value of the U.S. dollar against the euro.  On a comparable basis, revenue generated in North America grew by 9.0% in 2002, which was more than offset by a decrease in revenue in Latin America resulting from the depreciation of several Latin American currencies and the non renewal of our water services contract in Puerto Rico.

We experienced growth of 10.9% in the Rest of the World region in 2002, reflecting primarily an 8.4% increase in revenue in the Asia-Pacific region due mainly to the commencement of operations of our potable water plant in Chengdu, China and the sustained level of activity in our waste management operations in Hong Kong, Singapore and Australia.

Water

Our water business generated revenue of €13.3 billion in 2002, a decrease of 2.5% compared with 2001, which is mainly attributable to the sale of non-core businesses formerly operated by USFilter. Revenue from our core water businesses grew by 2.4% to €11.3 billion in 2002, mainly due to organic growth of 4.0%, which more than offset a 1.4% decline in revenue due to the impact of fluctuations in currency exchange rates.

In France, our water distribution and engineering operations posted a 1.4% increase to €6.0 billion in 2002, compared to €5.9 billion in 2001. On a comparable basis, we experienced a 2.2% increase in revenue from our core water distribution and engineering operations to €5.6 billion in 2002. This increase mainly reflected growth in our core water distribution revenue of 3.0% as a result of price indexing mechanisms, a small increase in volumes and the development of new municipal and industrial treatment services, which was partially offset by a decline in revenue generated by our specialized engineering subsidiaries in 2002 as a result of the substantial cyclical demand experienced in 2001.



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Revenue recorded by Veolia Water Systems declined to €1.1 billion in 2002, compared to €1.3 billion in 2001. This decline resulted mainly from the implementation of our policy of increased selectivity in our projects and the seasonality of our desalinization activities in the Middle East and the Arabian Peninsula.

Outside France, water revenue amounted to €7.1 billion in 2002, a decrease of 4.8% over water revenue recorded outside France in 2001. This decrease resulted primarily from a significant decline in revenue in the Americas region and, to a lesser extent, the euro zone outside France. Excluding the United States, which was affected by the sale of our non-core businesses, our water revenue outside France grew by 15% in 2002 compared to 2001. Excluding Proactiva, which was affected by the one-time loss of its water services contract in Puerto Rico, water revenue outside France (excluding the United States) grew by 24% in 2002 compared to 2001 as a result mainly of the commencement of operations under new contracts won in 2001 and 2002.

The decline in our water revenue in North America was primarily due to the sale of substantially all of non-core businesses formerly operated by USFilter, our main water subsidiary in North America, and the decline in value of the U.S. dollar against the euro. On a comparable basis, our core water businesses in North America recorded a 7.8% increase in revenue in 2002, reflecting primarily a 12% increase in municipal and industrial outsourcing revenue in 2002 (particularly due to the award of the Indianapolis municipal outsourcing contract), which was partially offset by slower growth in revenue from sales of water equipment products due to the economic downturn in North America. The decline in water revenue in the rest of the Americas region resulted primarily from the depreciation of several Latin American currencies and the non-renewal of our water services contract in Puerto Rico.  The decline in our water revenue

 in the euro zone outside France is primarily attributable to the disposal of several of USFilter's subsidiaries with operations in this region and the decline in revenue from our activities in Berlin, Germany.

Waste
  Management

Our waste management segment recorded revenue of €6.1 billion in 2002, an increase of 3.8% compared with €5.9 billion in 2001, reflecting primarily organic growth of 5% and external growth of 1.9%, which was partially offset by a 3.1% decline in revenue due to the impact of fluctuations in currency exchange rates.

In France, our waste management revenue increased by 4.2%, reflecting primarily organic growth of 3.3%. Revenue generated outside France increased by 3.5% to €3.6 billion in 2002. Excluding Proactiva and changes in the scope of consolidation of our waste management subsidiaries, revenue generated outside France in 2002 grew by 5.3% at constant exchange rates. Growth in revenue outside France was concentrated mainly in Europe outside the euro zone, primarily due to the full-year impact of the acquisition of Marius Pedersens operations in Denmark and Central Europe in 2001 and the commencement of operations under new contracts won in the United Kingdom in 2001 and 2002 (including in Bromley, Sheffield and Hampshire), and in the Rest of the World, primarily due to the sustained level of activity in the Asia-Pacific region, and particularly Hong Kong, Singapore and Australia.

The increase in revenue in these regions was partially offset by the lack of revenue growth in the euro zone outside France, where revenue remained stable at €0.2 billion in 2002. The decline in the Americas region is mainly attributable to the 25% decrease in revenue from Proactivas waste management activities as a result of the depreciation of several Latin American currencies, particularly in Argentina and Brazil, which was only partially offset by revenue growth in the United States primarily attributable to a 2.6% increase in revenue from solid waste activities and a 3.0% increase in revenue from hazardous waste activities, despite the economic downturn in the United States that has led to a difficult climate for our industrial customers.

Energy
  Services

Our energy services generated revenue of €4.6 billion in 2002, an increase of 13.8% from revenue of €4.0 billion in 2001. Revenue growth resulted mainly from external growth of 7.3%, organic growth of 6.3%, and a 0.2% increase in revenue due to the impact of fluctuations in currency exchange rates, particularly the appreciation of the Czech crown.

In France, organic growth in our co-generation activities was partially offset by the negative impact of a decrease in natural gas prices.  Outside France, organic growth resulted mainly from the commencement of operations under new contracts won in Tallinn (Estonia) and Vilnius (Lithuania) in 2001 and in Poznan (Poland) in 2002.

External growth in 2002 resulted primarily from the full-year effect of the consolidation of SIRAM, which was consolidated for only 3 months in 2001 (contributing €43 million of revenue) compared to 12 months in 2002.



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Transportation

Revenue from our transportation business reached €3.4 billion in 2002, a 10.4% increase over revenue of €3.1 billion in 2001. This increase resulted primarily from organic growth of 4.5% and external growth of 5.9%, which more than offset the full-year effect of the loss of the South Central contract in the United Kingdom in 2001 (under which we recorded €292 million in revenue in 2001).

In France, the increase in revenue is primarily attributable to the acquisition of Transports Verney in January 2002, which reinforced our position in France, as well as several other less significant acquisitions. Transports Verney recorded €150 million in revenue in 2002.

Outside
  France, we recorded strong organic growth in Northern and Eastern Europe with
  the award of new contracts in Belgium, The Netherlands, Denmark, Finland, Poland
  and the Czech Republic and the renewal until 2009 of the contract to operate
  the Stockholm metro system. The development of our regional transportation activities
  in Germany, the award of new contracts in the United States (including in Fairfax
  and Los Angeles) and the development of our transportation activities in Spain
  also contributed to organic growth in our transportation revenue outside France.
  External growth outside France is primarily attributable to the full-year effect
  of strategic acquisitions of mid-sized companies in The Netherlands, Slovenia
  and Finland.

FCC

Excluding the results of Proactiva, which are included in the results of our water and waste management segments, our consolidated 49% share of FCCs total revenue grew by 8.1% from €2.5 billion in 2001 to €2.7 billion in 2002. Excluding changes in the scope of FCCs consolidation, FCCs revenue increased by 8.5% in 2002 at constant exchange rates. The increase in FCCs revenue is primarily attributable to internal growth in its public services activities, and particularly its waste management and construction activities, mainly as a result of large construction projects in Spain, where FCCs revenue grew by 9.8% in 2002.

***EBIT*********

EBIT reflects our operating income (loss) before goodwill amortization and restructuring costs. Our EBIT slightly decreased from €2,013.1 million in 2001 to €1,971.3 million in 2002, primarily as a result of the sale of non-core businesses and the negative impact of fluctuations in currency exchange rates in 2002.  Our EBIT from core businesses increased by 1.9% from €1,813.1 million in 2001 to €1,847.3 million in 2002, and at constant exchange rates by 3.2% to €1,871.0 million in 2002.

As a percentage of our revenue, EBIT slightly decreased from 6.9% in 2001 to 6.6% in 2002 due to the combined effect of revenue growth and decline in EBIT.



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The following table shows a breakdown of our EBIT by division: At
        December 31,(in
        millions of €)
    2002
    
    2001
    
    %
        ChangeWater
      1,024.3
      
      1,089.6
      
      (6.0
      )%Waste
      Management
    385.2
    
    390.7
    
    (1.4
    )%Energy
        Services
      244.0
      
      220.5
      
      10.7
      %Transportation
    115.6
    
    112.1
    
    3.1
    %FCC(1)
      250.3
      
      229.5
      
      9.1
      %Holding
      Company Costs
    (48.1
    )
    (29.3
    )Total
      1,971.3
      
      2,013.1
      
      (2.1
      )% (1)
      Figures
        reflect a 49% share of FCCs EBIT. Under French GAAP, we proportionally
        consolidate FCC based on our 49% interest in the holding company that
        controls it. Under U.S. GAAP, FCC would be accounted for using the equity
        method. See Note 27A to our consolidated financial statements. Water The decline in EBIT of our water division is primarily attributable to the impact of the sale of non-core businesses in 2002 and the depreciation of the U.S. dollar and several Latin-American currencies against the euro.  EBIT from our core water businesses increased by 2.9% to €900.3 million in 2002, and at constant exchange rates by 4.2%. On a comparable basis, our EBIT increased in all of our regions (except the United States) as a result of an improvement in the profitability of our core water businesses due to the implementation of productivity and cost-control measures to maintain our profit margins in France and the full-year impact of the implementation of the restructuring program started in 2001 at Veolia Water Systems and the commencement of operations under contracts won outside of France since 2000, particularly in Europe and Asia.  These factors more than offset the decline in EBIT from our core water businesses in the United St
ates, where our profitability has been affected by the impact of the economic downturn on the water equipment market and the full-year impact of the increase in our insurance premiums in 2001. We commenced implementing several restructuring programs in the United States in 2002 to adjust our industrial capacity to reflect the slowdown in the U.S. market, particularly in the water equipment market, and to reorganize our operations following the sale of our non-core businesses. However, these programs have not yet generated the expected results. As a result of the sharper decline in EBIT than in revenue, our water divisions EBIT / revenue ratio declined from 8.0% in 2001 to 7.7% in 2002. Waste Management The decline
    in EBIT of our waste management division resulted mainly from the economic
    downturn in Latin America and the depreciation of the U.S. dollar against
    the euro. Excluding Proactiva, which conducts our waste management operations
    in Latin America, EBIT of our waste management division increased by 2.5%
    from €379.4 million in 2001 to €389.0 million in 2002, and at constant
    exchange rates by 5% in 2002. This increase is primarily attributable to the
    sustained level of activity in the United States (particularly in solid and
    hazardous waste), the United Kingdom and Asia, which more than offset the
    difficulties experienced in the renegotiation of contracts in Norway and,
    to a lesser extent, France. As a result of the combined effect of revenue
    growth and the decline in EBIT, which was particularly pronounced in our Latin
    American operations, our waste management divisions EBIT / revenue ratio
    declined from 6.6% in 2001 to 6.3% in 2002. Energy Services The increase in EBIT of our energy services division is due mainly to the commencement of operations under new contracts and the full-year impact of acquisitions made in Central and Southern Europe in 2001, which more than offset the negative impact of fluctuations in exchange rates in 2002. At constant exchange rates, EBIT of our energy services division grew by 9.0%. Our energy services divisions EBIT / revenue ratio declined from 5.5% in 2001 to 5.3% in 2002 due to the shift in the relative weight of Dalkias different activities, particularly in France following the integration of EDFs services activities, and the costs incurred in connection with the commencement of operations under new contracts in Eastern Europe. Transportation The slight increase in EBIT of our transportation division is primarily attributable to the consolidation of the Verney Group acquired in January 2002 and the full-year impact of new contracts won in 2001, which more than offset the downturn in the UK market resulting from a decrease in passenger frequentation on our


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transportation networks. At constant exchange rates, EBIT grew by 2.9% to €115.3 million in 2002. In addition, our 2001 EBIT reflected the non-recurring indemnities we received in connection with the termination of our South Central contract in the United Kingdom, which are not included in our 2002 EBIT. Despite the increase in EBIT, our transportation divisions EBIT / revenue ratio declined from 3.6% in 2001 to 3.4% in 2002 due to the effects of the downturn in the UK market.

FCC Our share of EBIT generated by FCC amounted to €250.3 million in 2002, an increase of 9.1% over €229.5 million in 2001, reflecting primarily the increase in profitability of FCCs public services segment, which more than offset the negative impact of fluctuations in exchange rates. At constant exchange rates, our share of FCCs EBIT grew by 9.4% to €251.1 million in 2002. Our share of FCCs EBIT represented 9.4% of our share of FCCs revenue in 2002, compared to 9.3% in 2001. EBIT by Region The following table shows a breakdown of our EBIT by geographical region:


| |                              | At
        December 31, |  
| | ---------------------------- | ----------------------- | -
| | (as
      a % of EBIT)       | 2002                    |  
| |                              |                         |  
| | France                       | 30                      | %
| | Europe
      (except France) | 38                      | %
| | Americas                     | 25                      | %
| | Rest
      of World          | 7                       | %
| |                              |                         |  
| | Total                        | 100                     | %

The decrease in the proportional contribution to EBIT of our activities in the Americas and France is primarily attributable to the sale of non-core businesses (most of which were operated by USFilter), the downturn in the water equipment market in the United States and the commencement of operations under contracts won from 2000 through 2002 in Central Europe and Asia. Margins The following table shows a breakdown of our operating margins, which are defined as our EBIT / revenue ratio, by division:


| |                             | At
        December 31, |  
| | --------------------------- | ----------------------- | -
| |                             | 2002                    |  
| |                             |                         |  
| | Water                       | 7.7                     | %
| | Waste
      Management      | 6.3                     | %
| | Energy
      Services       | 5.3                     | %
| | Transportation              | 3.4                     | %
| | FCC(1)                      | 9.4                     | %
| |                             |                         |  
| | Total                       | 6.6                     | %
| | Total
      Core Businesses | 6.6                     | %

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

Operating Expenses The following table shows a breakdown of our operating expenses in 2001 and 2002:


| |                                            | At
        December 31, | 
| | ------------------------------------------ | ----------------------- | 
| | (in
      millions of €)                   | 2002                    | 
| |                                            |                         | 
| | Construction
      for Internal Use Assets | 1,743                   | 
| | Wages                                      | 8,693                   | 
| | Depreciation
      and Reserves            | 1,722                   | 
| | Other
      Expenses                       | 15,950                  | 
| |                                            |                         | 
| | Total                                      | 28,108                  | 

The increase
    in our operating expenses is primarily attributable to the increase in wages
    paid to our employees (mainly due to an increase in the number of our employees
    resulting from our recent acquisitions and the commencement of operations
    under new labor-intensive contracts) and in our depreciation expenses and
    reserves accrued (mainly due to the effect of the continued growth in our
    investments until 2001).


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Goodwill Amortization Our goodwill
    amortization decreased sharply from €2.9 billion in 2001 to €272.2
    million in 2002, principally due to:


| | • | a
      slight decrease in recurring goodwill amortization from €257.0 million
      in 2001 to €250.2 million in 2002; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | • | a
      sharp decrease in non-recurring goodwill amortization from €2.7 billion
      in 2001, which includes an exceptional goodwill write-off of €2.6
      billion relating to an impairment of the goodwill recorded in connection
      with the acquisition of USFilter, to €77.0 million in 2002, which
      includes an exceptional write-off of all of the goodwill associated with
      Proactivas Latin American subsidiaries in light of the general situation
      of our Latin American markets and the non-renewal of our water services
      contract in Puerto Rico as from July 2002, as well as an exceptional write-off
      of €20 million of goodwill associated with a German subsidiary of
      Veolia Water that does not conduct any water distribution activities.

Restructuring Costs Our restructuring
    costs increased from €49.4 million in 2001 to €56.6 million in
    2002. Restructuring expenses in 2002 related mainly to:


| | • | €24.9
        million accrued in connection with the restructuring of USFilters
        water activities in the United States, including a €14.6 million
        reserve accrued for costs resulting from the reduction of personnel (232
        employees) and the closure of several sites in USFilters water equipments
        and systems branch due to the slowdown in the industrial equipment market,
        and a €7.8 million reserve accrued for costs resulting from the
        restructuring of several distribution networks for USFilters Culligan
        bottled water products as a result of a decline in revenue from those
        networks;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | • | €11.5
        million in restructuring expenses paid in 2002 in our transportation activities,
        primarily in connection with programs to reduce personnel and increase
        productivity in the United Kingdom and Australia;                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | • | €8.7
        million in restructuring costs in our energy services activities associated
        with the integration of SIRAM and the personnel affected to our contracts
        in Tallinn, Estonia and Vilnius, Lithuania, which should result in the
        reduction of personnel by 596 employees; and                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | • | €5
        million in restructuring costs in our water equipment activities, which
        are operated by Veolia Water Systems, in connection with several plans
        implemented in Germany, Spain, Turkey and the United Kingdom.                                                                                                                                                                                                                                                                                                                                                                                                                                

Restructuring expenses in 2001 related mainly the restructuring of our water activities (€33.7 million), primarily in the United States, and our waste management activities (€12.3 million) in the context of the reorganization of Onyxs information technology services and the restructuring of Rimsa, a Mexican waste management operator acquired in 2001. Operating Income We recorded operating income of €1.6 billion in 2002, compared to an operating loss of €946.4 million in 2001. Our operating income, which is defined as our EBIT less goodwill amortization and restructuring costs, was significantly affected in 2001 by the non-recurring write-off of goodwill associated with the acquisition of USFilter, which was recorded in our water division. In 2002, our operating income slightly decreased in our energy services and transportation divisions mainly as a result of the impact of our restructuring initiatives described above, which was more than offset by the positive contribution to operating income by our water division, compared to an operating loss in 2001, and the increase in operating income contributed by our waste management division and FCC.


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The following table shows a breakdown of our operating income by division:


| |                           | At
        December 31, |  
| | ------------------------- | ----------------------- | -
| | (in
      millions of €)  | 2002                    |  
| |                           |                         |  
| | Water(1)                  | 870                     |  
| | Waste
      Management(1) | 325                     |  
| | Energy
      Services     | 200                     |  
| | Transportation            | 88                      |  
| | FCC(2)                    | 242                     |  
| | Others                    | (137                    | )
| |                           |                         |  
| | Total                     | 1,588                   |  

| |     |                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------
| |    
| | (1) | Excluding
      the results of Proactivas water and waste management activities, as
      applicable, which are recorded separately.
| | (2) | Figures
      reflect our consolidated 49% share of FCCs operating income.                                                          

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 €648.1 million in 2002, compared with net financial expense of €798 million in 2001. The decrease in net financial expense was principally due to a decline in our average financing costs from €764.2 million in 2001 to €680.9 million in 2002. The decrease in our financing costs is attributable to a reduction in our outstanding indebtedness as a result of our capital increase in 2002 and the implementation of our divestment program. Our financing costs were also affected by a decline in interest rates for euro- and dollar-denominated debt in 2002, which allowed us to refinance a part of our higher-cost debt through the issuance of €1 billion in bonds in 2002.  The average cost of our debt decreased from 4.85% in 2001 to 4.25% in 2002. Excluding the
    impact of our financing costs, we recorded net financial income of €32.8
    million in 2002, compared to net financial expense of €33.8 million
    in 2001. In 2002, we recorded financial income as a result of:


| | •                                                                             | a
      capital gain of €110.3 million from the sale of our participation
      in Philadelphia Suburban Corporation, which was recorded as financial income
      because we have been accounting for this participation as marketable securities
      as from January 1, 2002, when we ceased accounting for it under the equity
      method as a result of our decision to sell our entire stake in this company,                   
| | ----------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | •                                                                             | a
      net foreign exchange gain of €44.0 million, which arose mainly in
      connection with the sale of USFilters Distribution division, and                                                                                                                                                                                                                                                                                        
| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | •                                                                             | dividends
      from companies accounted for under the equity method amounting to €16.4
      million,                                                                                                                                                                                                                                                                                                                                   
| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | which
      was partially offset by financial expenses resulting mainly from:
| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | •                                                                             | a
      non-recurring €32.2 million reserve accrued in connection with shares
      of our company that we hold as treasury stock, which includes €23.8
      million in shares imputed to our shareholders equity at their value
      as of June 30, 2002, and €8.4 million in shares allocated to our employee
      share purchase program reserve calculated at an average price of €23.08
      per share as of December 31, 2002,
| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | •                                                                             | the
      amortization of €33.4 million in redemption premium, a substantial
      part of which corresponds to redemption premium on our convertible bonds
      (OCEANE),                                                                                                                                                                                                                                                              
| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | •                                                                             | a
      non-recurring €30.3 million reserve accrued in connection with several
      financial investments, including in Argentina (€5 million) and Slovakia
      (€6.5 million) and in connection with shares of Vivendi Universal
      that we hold (€8.7 million),                                                                                                                                                                  
| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | •                                                                             | commissions
      paid to financial institutions amounting to €28.5 million, and                                                                                                                                                                                                                                                                                                                                                         
| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | •                                                                             | the
      amortization of €13.5 million in borrowing costs.                                                                                                                                                                                                                                                                                                                                                                              

Other
  Income (Expense) We record non-recurring income and charges as other income (expense). We define non-recurring income and charges as those resulting from extraordinary events that are not likely to reoccur in the ordinary


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course of our
  operations, including capital gains and losses recorded in connection with the
  sale of our subsidiaries and assets. In determining whether income or an expense
  should be classified as non-recurring, we apply the restrictive definition of
  extraordinary event set forth in Rule 8 of the International Accounting Standards,
  or IAS. We posted net other expense of €59.7 million in 2002, compared
  with net other income of €38.9 million in 2001.

Our net other expense in 2002 resulted from the capital losses recorded in connection with the sale of USFilters Distribution division (€59 million), Bonna Sabla (€44 million) and Schwarze Pumpe (€24 million), a subsidiary of our Berlin water company, and a provision recorded for a German subsidiary of Veolia Water that does not conduct any water distribution activities in light of this subsidiarys anticipated results (€10 million). These capital losses were only partially offset from capital gains of €73 million recorded in connection with the sale of our minority interest in two UK water distribution companies, Bristol Water Holding and South Staffordshire, and a dilution gain of €10.7 million that arose from the merger of FCC with Portland Valderrivas, which controlled Cementos Portland, FCCs main cement subsidiary.

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 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 assets of Berliner Wasser Betriebe that are not related
  to our water business.

Tax
  Expense

Our tax expense in 2002 was €437.3 million, compared with tax expense of €462.3 million in 2001. Our effective corporate income tax rate in 2002 was 36.2%, compared to 38.4% in 2001. The decline in our effective corporate income tax rate is primarily attributable to the positive effects of the French tax group status obtained by our company in 2001.

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 €39.0 million in 2002, compared to €47.8 million in 2001. The largest contributions were made by companies accounted for by FCC using the equity method (€19.5 million) and Proactiva (€3.5 million) and our minority participations in U.K. water distribution companies that we sold in 2002 (€9.2 million). The decrease in our share of net earnings of equity investees in 2002 is primarily attributable to the sale of our participations in Philadelphia Suburban Corporation (which contributed €11.9 million in 2001) and Bristol Water Holding and South Staffordshire (which together contributed €13.7 million in 2001).

Minority
  Interest

Our minority interest expense totaled €142.2 million in 2002, compared to €131.2 million in 2001. The principal minority interests are related to FCC (€108.7 million), Proactiva (€(30.8) million), our energy services subsidiaries (€24.8 million), our waste management subsidiaries (€16.5 million), our water subsidiaries (€7.0 million), our transportation subsidiaries (€1.8 million) and holding companies (€14.2 million, which reflects mainly interest paid to the holders of our subordinated convertible bonds).

Consolidated
  Net Income

We recorded consolidated net income of €339.2 million in 2002, compared to a consolidated net loss of €2,251.2 million in 2001. Our recurring consolidated net income, which excludes exceptional items and non-recurring charges, amounted to €428.5 million in 2002, compared to recurring consolidated net income of €420 million in 2001. Our recurring consolidated net income reflects our EBIT after adding or deducting, as the case may be, the recurring portion of goodwill amortization, financial income (expense), our share in net earnings of companies accounted for by the equity method, minority interests and ordinary tax expenses.

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The following table shows a breakdown of the main recurring and non-recurring elements in our consolidated net income in 2002:

| | (in
      millions of €)                 | Recurring |   | Non-Recurring |   | Total   |  
| | ---------------------------------------- | --------- | - | ------------- | - | ------- | -
| |                                          |           |   |               |   |         |  
| | EBIT                                     | 1,971.3   |   |              |   | 1,971.3 |  
| | Restructuring
      Expenses             |          |   | (56.6         | ) | (56.6   | )
| | Goodwill
      Amortization              | (250.2    | ) | (77.0         | ) | (327.2  | )
| | Financial
      Income (Expense)         | (706.0    | ) | 57.9          |   | (648.1  | )
| | Other
      Income (Expense)             |          |   | (59.7         | ) | (59.7   | )
| | Equity
      in Net Income of Affiliates | 39.0      |   |              |   | 39.0    |  
| | Minority
      Interests(1)              | (177.3    | ) | 35.1          |   | (142.2  | )
| | Tax
      Income (Expense)               | (448.3    | ) | 11.0          |   | (437.3  | )
| |                                          |           |   |               |   |         |  
| | Total
      (2)                          | 428.5     |   | (89.3         | ) | 339.2   |  
| |                                          |           |   |               |   |         |  
| |                                          |           |   |               |   |        

|(1) | The
      non-recurring portion of our minority interests in 2002 includes €21
      million related to Proactiva and €13.8 million related to several
      German water subsidiaries of Eaux de Berlin, a subsidiary of Veolia Water.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | In
      2001, we recorded €2,671 million in non-recurring charges, of which
      €2,611 million was attributable to the impairment of goodwill associated
      with USFilter.                                                       

Based on our average number of shares outstanding during the year (370.2 million), our net earnings per share amounted to €0.93 in 2002, compared to a net loss per share of €6.55 in 2001 (based on 346.2 million shares outstanding on average over 2001).  Our recurring net earnings per share amounted to €1.16 in 2002, compared to recurring net earnings per share of €1.21 in 2001.

Year ended December 31, 2001 compared to year ended December 31, 2000

Unless otherwise noted in the discussion below, our results of operations for fiscal year 2000 have been restated to take into account the new accounting presentation that we adopted in 2001.

Revenue

Overview

We generated revenue of €29.1 billion in 2001, an increase of 10.9% from revenue of €26.3 billion in 2000. 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 rate fluctuations (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                                                                                    

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| | • | 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.                        
| |   |                                                                                                                                                               
| |   |                                                                                                                                                               



|                         | France |  | Outside
      France |  | Total |  
|------------------------ | ------ |  | -------------------- |  | ----- | -
|                         |        |  |                      |  |       |  
|(in
      billions of €, |        |  |                      |  |       |  
|except
      for %)      | 2001   |  | 2000                 |  | %(2)  |  
|                         |        |  |                      |  |       |  
|Water                    | 6.2    |  | 5.8                  |  | 7.7   | %
|Waste
      Management   | 2.4    |  | 2.4                  |  | 3.7   | %
|Energy
      Services    | 2.7    |  | 1.8                  |  | 52.2  | %
|Transportation           | 1.0    |  | 0.9                  |  | 5.5   | %
|FCC(1)                   |       |  |                     |  |      |  
|                         |        |  |                      |  |       |  
|Total                    | 12.3   |  | 10.9                 |  | 14.0  | %
|                         |        |  |                      |  |       |  

|(1) | Figures
      reflect a 49% share of FCCs revenue. Under French GAAP, we proportionally
      consolidate FCC based on our 49% interest in the holding company that controls
      it. Under U.S. GAAP, FCC would be accounted for using the equity method.
      See Note 27A to our consolidated financial statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Percentages
      are based on total figures and may not exactly correspond to the figures
      above due to rounding.                                                                                                                                                                                                  

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 division and by geographical region outside of France:

|                         | Euro
      zone      |  | Europe
      outside |  |          |  |       |  | Rest
      of |  |      |  |      | 
|------------------------ | -------------------- |  | -------------------- |  | -------- |  | ----- |  | ------------- |  | ---- |  | ---- | 
|(in
      billions of €) | outside
      France |  | euro
      zone      |  | Americas |  | World |  | Total         | 
|                         |                      |  |                      |  |          |  |       |  |               | 
|                         | 2001                 |  | 2000                 |  | 2001     |  | 2000  |  | 2001          |  | 2000 |  | 2001 | 
|                         |                      |  |                      |  |          |  |       |  |               |  |      |  |      | 
|Water                    | 1.2                  |  | 1.3                  |  | 1.0      |  | 0.8   |  | 4.2           |  | 4.2  |  | 1.0  | 
|Waste
      Management   | 0.3                  |  | 0.3                  |  | 1.1      |  | 0.8   |  | 1.8           |  | 1.5  |  | 0.3  | 
|Energy
      Services    | 0.5                  |  | 0.5                  |  | 0.7      |  | 0.7   |  | 0.0           |  | -    |  | 0.1  | 
|Transportation           | 0.4                  |  | 0.3                  |  | 1.5      |  | 1.7   |  | 0.0           |  | -    |  | 0.2  | 
|FCC(1)                   | 2.2                  |  | 1.8                  |  | 0.1      |  | -     |  | 0.2           |  | 0.3  |  | 0.0  | 
|                         |                      |  |                      |  |          |  |       |  |               |  |      |  |      | 
|Total                    | 4.6                  |  | 4.2                  |  | 4.4      |  | 4.0   |  | 6.2           |  | 6.0  |  | 1.6  | 
|                         |                      |  |                      |  |          |  |       |  |               |  |      |  |      | 

|(1) | Figures
      reflect a 49% share of FCCs revenue. Under French GAAP, we proportionally
      consolidate FCC based on our 49% interest in the holding company that controls
      it. Under U.S. GAAP, FCC would be accounted for using the equity method.
      See Note 27A to our consolidated financial statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                          

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.

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.

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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
  of fluctuations 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 Veolia 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 of fluctuations 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 Société des Eaux de Guadeloupe in 2001 represents the remaining 0.4% of the increase in our water revenue.

Revenue recorded by Veolia 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, while fluctuations in currency exchange rates had a positive impact of €134 million that resulted in an increase of 1.8% in revenue in euro. Within Veolia 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 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.

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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.

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.

EBIT

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.

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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.

Restructuring Costs

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 Veolia Waters activities in the United States (€33.7 million), which are conducted through USFilter, 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.

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 USFilter. Our management
      has reviewed the estimated cash flows as a result of the evolution of the
      U.S. economy. This analysis was based on a 10-year projection at a discount
      rate of 7% and a terminal value. 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 cash flows.
      See Overview — Presentation of Information in this Section —
      Changes in Accounting Methods and Presentation of Accounts.

Operating Income

We recorded an operating loss of €946.4 million in 2001, compared to operating income of €1,289.3 million in 2000. The difference was due primarily to the write-down of goodwill related to USFilter, as described above. Our water business posted an operating loss of €1.7 billion and Proactiva recorded an operating loss of €4 million in 2001, while costs incurred by our holding companies and not reimbursed by our operating subsidiaries contributed an operating loss of €77 million. These losses were partially offset by operating income 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.

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.

Excluding financing costs, our net financial expense amounted to €34 million in 2001, compared to net financial expense of €17 million in 2000. This increase is due to an increase in our financial 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).



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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 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).

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Net
  cash flow from operating activities includes funds generated from operations
  and changes in operating assets and liabilities. Net cash flow from operating
  activities decreased by €575 million from €2.9 billion in 2001 to
  €2.3 billion in 2002, mainly as a result of the impact of the reduction
  of our securitization and receivable sales program on net changes in our working
  capital. Our securitization and receivable sales program had a positive impact
  on our net cash flow from operating activities of €815 million in 2001,
  compared to a negative impact of €223 million in 2002. Excluding the impact
  of our securitization and receivable sales program, net cash flow from operating
  activities rose by 22% from €2.1 billion in 2001 to €2.5 billion in
  2002. This increase of €463 million was primarily due to a decrease in
  interest expenses of €83 million and an increase in profitability in each
  of our divisions in 2002. Excluding net changes in working capital, net cash
  flow from operating activities grew from €2.5 billion in 2001 to €2.8
  billion in 2002.

Net cash flow from investing activities includes cash flows resulting from acquisitions and divestitures of tangible and financial assets, acquisitions and disposals of businesses, equity-method investments and net changes in long-term and short-term loans made by our company in connection with its activities. Cash outflows from investing activities were €2.1 billion in 2001, compared to an outflow of €3.4 billion in 2000. The decline in



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cash used in investing activities is primarily attributable to an increased selectivity in our investments and the implementation of a larger divestment program in 2002. Cash outflow in 2002 resulted from €2.6 billion in cash used in industrial investments (compared to €2.9 billion in 2001) and €1.1 billion in financial investments (compared to €1.3 billion in 2001), net of more than €1.7 billion in cash generated by asset disposals (compared to €598 million in 2001).

Net
  cash outflow from financing activities was €570 million in 2002, compared
  to net cash inflow of €1.2 billion in 2001. Net cash outflow from financing
  activities in 2002 is primarily attributable to a reduction in our short-term
  debt following our €1.5 billion capital increase in August 2002. Net cash
  inflow from financing activities in 2001 is mainly due to an increase in our
  long-term debt to improve the average maturity of our indebtedness and to cash
  inflows of €411 million related to increases in Dalkias capital due
  to the implementation of our strategic partnership agreement with EDF (€177
  million) and other financing activities described under — Sources
  of Funds below.

Sources of Funds

We actively managed our financing policy in 2002, despite difficult market conditions.  Our main programs and actions in 2002 included:

| | • | The reinforcement
      of our financial autonomy, primarily as a result of the amendment of the
      terms of our convertible bonds (OCEANE)
      to eliminate a cross-default clause linked to Vivendi Universal;                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                               
| | • | The continued
      implementation of our policy to have all of our principal financings at
      the level of our company, which as of December 31, 2002 was the obligor
      on two thirds of our outstanding consolidated debt;                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                               
| | • | The continued
      implementation of our policy to extend the average maturity of our indebtedness,
      which increased from 3.5 years in 2001 to 4.0 years in 2002; and                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                               
| | • | The rationalization
      of our covenant obligations through the elimination of our credit rating
      triggers and a renegotiation of our other financial covenants to increase
      our financial flexibility, obtain a homogenous set of covenants for all
      of our financial debt and to satisfy requests made by our credit rating
      agencies.

Our main financing activities in 2002 included:

| | • | The strengthening
      of our financial structure through a €1.5 billion capital increase
      in August 2002;                                          
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                           
| | • | The issuance
      of €1 billion in bonds due February 2012 that bear interest at a fixed
      rate of 5.88%; and                                        
| |   |                                                                                                                                                           
| | • | The renewal
      for 5 years of the securitization program adopted by Veolia Water in 2001,
      which as of December 31, 2002 amounted to €416 million.
| |   |                                                                                                                                                           

To optimize the management of our working capital, in 2002 we renewed our €1 billion securitization and receivables sales program that was adopted at the end of 2001. In connection with securitization transactions under this program, we typically retain a subordinated interest in the receivables transferred to the securitization fund, which entitles us to receive collections on the sold receivables after all amounts due to the fund have been fully paid, and we agree to provide ordinary course billing and collection services in respect of the transferred receivables.  We do not assume any obligation to guarantee or otherwise provide funds to cover shortfalls in collections in respect of sold receivables.



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The following table shows our total outstanding financial debt, net of cash and other financial assets, at December 31, 2002 and 2001.

| |                                   | At
      December 31,    |  |         
| | --------------------------------- | ------------------------ |  | --------
| |                                   | 2002                     |  | 2001    
| |                                   | (in
      millions of €) |  |         
| |                                   |                          |  |         
| | Long-Term
      Financial Debt    | 12,913.0                 |  | 13,134.0
| | Short-Term
      Financial Debt   | 3,795.9                  |  | 4,889.5 
| |                                   |                          |  |         
| | Total
      Financial Debt        | 16,708.9                 |  | 18,023.5
| |                                   |                          |  |         
| | Short-Term
      Loans            | 487.6                    |  | 985.5   
| | Long-Term
      Loans             | 512.4                    |  | 341.8   
| | Cash
      and Cash Equivalents   | 2,381.9                  |  | 2,089.3 
| | Other
      Marketable Securities | 260.6                    |  | 324.1   
| |                                   |                          |  |         
| | Total
      Financial Assets      | 3,642.5                  |  | 3,740.7 
| |                                   |                          |  |         
| | Total
      Net Debt              | 13,066.4                 |  | 14,282.8

Because our total net financing costs includes all of our financial income, net of charges, our net debt takes into account all financial assets that generate financial income, including our short-term and long-term loans and our marketable securities.

We monitor the liquidity of our group in coordination with designated managers at the operating level. The incurrence and management of new material financings are centralized in order to steer our present and future liquidity to optimum levels. We satisfy our financing needs through bank loans, commercial paper and debt issues on the international capital markets and the international private placement markets.

At December 31, 2002, we had the following sources of funds available:

| |                                                              | millions
      of € |  | 
| | ------------------------------------------------------------ | ------------------- |  | 
| |                                                              |                     |  | 
| | Our
      Company                                            |                     |  | 
| | Undrawn
      Short-Term Credit Lines                        | 1,150.0             |  | 
| | Undrawn
      Medium-Term Credit Lines                       | 150.0               |  | 
| | Undrawn
      Portion of Medium Term Syndicated Loans        | 2,149.0             |  | 
| | Cash,
      Cash Equivalents and Other Marketable Securities | 827.7               |  | 
| |                                                              |                     |  | 
| | Our
      Subsidiaries                                       |                     |  | 
| | Undrawn
      Medium-Term Credit Lines                       | 423.1               |  | 
| | Cash,
      Cash Equivalents and Other Marketable Securities | 1,814.8             |  | 
| |                                                              |                     |  | 
| | Total                                                        | 6,514.6             |  | 

The
  following table lists the aggregate maturities of our long-term debt at December
  31, 2002:

|                                       |          |  | Payments
      Due by Period | 
|-------------------------------------- | -------- |  | ---------------------------- | 
|                                       |          |  |                              | 
|                                       |          |  |                              | 
|                                       | Total    |  | 2003                         | 
|                                       |          |  |                              | 
|Syndicated
      and Bilateral Credits | 3,137.6  |  |                             | 
|Long-Term                              |          |  |                              | 
|Loans                                  | 4,338.1  |  |                             | 
|Bonds                                  | 5,437.3  |  |                             | 
|                                       |          |  |                              | 
|Total                                  | 12,913.0 |  |                             | 
|                                       |          |  |                              | 

In
  addition, we recently reinforced our liquidity through a private placement in
  the United States of US $404 million in notes on Janaury 31, 2003, with maturities
  ranging from 10 to 15 years, and the issuance of €1 billion in 10-year
  bonds and €750 million in 15-year bonds as part of our refinancing policy.
  We also continueto pursue our negotiations to further extend the maturity of our existing short-term
  credit lines and to obtain new medium-term credit lines.



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Most of our debt instruments and loan agreements contain covenants that require us to maintain certain minimum financial ratios, including interest coverage and debt payout ratios, 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. These covenants are described in Note 15 to our consolidated financial statements.  We are currently in compliance with all of the financial covenants set forth in our debt instruments and agreements.

We are exposed 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.  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 our financial condition and our ability to incur additional debt to finance our operations or refinance maturing debt in the future. We are currently not subject to any material credit rating downgrade covenants. Our credit ratings are currently BBB+ with a positive outlook (Standard & Poors) and Baa1 with a stable outlook (Moodys).

We believe that our future capital requirements, including those for organic growth and certain acquisitions, can be met from operating cash flow and disposals of assets.

Use of Funds

Capital Expenditures

Capital expenditures totaled €2.6 billion in 2002, a 10% decrease compared to €2.9 billion in 2001 that resulted primarily from increased selectivity in our investments.  Our capital expenditures were made in our different divisions in the following manner:

| | • | Capital
      expenditures in our water business amounted to €1.1 billion in 2002
      (a decrease of 9% over capital expenditures of €1.2 billion in 2001),
      of which €503 million were for growth-related spending (compared to
      €655 million in 2001) and €584 million were for replacement
      and maintenance spending (compared to €533 million in 2001);                                        
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | • | Capital
      expenditures in our waste management business amounted to €739 million
      in 2002 (a decrease of 7% over capital expenditures of €794 million
      in 2001), of which €356 million were for growth-related spending (compared
      to €343 million in 2001) and €383 million were for replacement
      and maintenance spending (compared to €451 million in 2001);                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | • | Capital
      expenditures in our energy services business amounted to €342 million
      in 2002 (a decrease of 15% over capital expenditures of €402 million
      in 2001), of which €246 million were for growth-related spending (compared
      to €276 million in 2001) and €96 million were for replacement
      and maintenance spending (compared to €126 million in 2001);                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | • | Capital
      expenditures in our transportation business amounted to €155 million
      in 2002 (a decrease of 46% over capital expenditures of €288 million
      in 2001), of which €47 million were for growth-related spending (compared
      to €114 million in 2001) and €108 million were for replacement
      and maintenance spending (compared to €174 million in 2001); and                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | • | Capital
      expenditures in Proactiva and our share (49%) of FCCs capital expenditures
      amounted to €279 million (an increase of 35% over capital expenditures
      of €207 million in 2001), of which €127 million were for growth-related
      spending (compared to €109 million in 2001) and €152 million
      were for replacement and maintenance spending (compared to €98 million
      in 2001).

Financial Investments

Our financial investments, which consist of equity-method investments and other equity participations, totaled €1.1 billion in 2002, a decrease of 3.2% over financial investments of €1.2 billion in 2001. Many of our financial investments consist of acquisitions of local entities or interests in local entities in connection with new contracts won outside France. The decline in 2002 is primarily attributable to increased selectivity in our investments. Our financial investments were made in our different divisions in the following manner:

| | • | Financial
      investments in our water business amounted to €740 million in 2002
      (an increase of 46% compared with 2001), primarily relating to our contracts
      in Pudong, China (€265 million), in Tangiers-Tetouan-Rabat, Morocco
      (€133 million), and several less significant acquisitions in the United
      States relating to water treatment assets (€110 million);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | • | Financial
      investments in our waste management business amounted to €104 million
      in 2002 (a decrease of 16% compared with 2001), including €29 million
      in Norway and €24 million paid as a purchase price adjustment in connection
      with the acquisition of a French company;                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                
| | • | Financial
      investments in our energy services business amounted to €94 million
      in 2002 (compared to €303 million in 2001, which included the transfer
      of EDFs energy services operations and our acquisition of SIRAM),
      including €35.3 million in Tallinn, Estonia, and €36.5 million
      in Poland;
| |   |                                                                                                                                                                                                                                                                                                                                
| | • | Financial
      investments in our transportation business amounted to €112 million
      in 2002 (a decrease of 22.2% compared with 2001), including our acquisition
      of Verney Group (€47.2 million) and our acquisition of an additional
      stake in the Stockholm metro operator (€26.1 million).                  

The
  remaining €85 million in financial investments relate to investments made
  by FCC, Proactiva and our company.

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 for a description of our investments in these areas.

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 this Item 5. Operating and Financial Review and Prospects as well as in the notes to our consolidated financial statements.

The following table lists the aggregate maturities of our long-term debt and operating leases at December 31, 2002 (in millions of euro):

|                              |          |  | Payments
      Due by Period | 
|----------------------------- | -------- |  | ---------------------------- | 
|                              |          |  |                              | 
|Contractual
      Obligations | Total    |  | Less
      than              | 
|                              |          |  | 1
      year                 | 
|                              |          |  |                              | 
|Long-Term
      Debt(1)       | 12,913.0 |  | –                            | 
|Operating
      Leases        | 2,438.9  |  | 419.1                        | 
|                              |          |  |                              | 
|Total                         | 15,351.9 |  | 419.1                        | 
|                              |          |  |                              | 

|   
|---
|(1)



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The following table lists the aggregate expiration amounts of various classes of commitments related to our operations at December 31, 2002 (in millions of euro):

|Other
      Commercial Commitments         | Total
      Amounts
|------------------------------------------ | -------------------
|                                           | Committed          
|                                           |                    
|Lines
      of Credit                      |                   
|Performance
      Bonds and Guarantees(1)  | 5,132              
|Undertakings
      for Fixed Assets(2)     | 2,451              
|Fees
      Payable to Local Authorities(3) | 219                
|Puts(4)                                    | 1,326              
|Other
      Commercial Commitments(5)      | 610                

|   
|---
|   
|(1)
|(2)
|(3)
|(4)
|(5)

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.

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ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

Until April 30, 2003, our company was asociété anonyme à directoire et conseil de surveillance,a form of stock corporation with a two-tier management structure pursuant to which a management board (directoire) managed our day-to-day affairs under the general supervision of a supervisory board (conseil de surveillance). The members of our supervisory board were elected by our shareholders, while the members of our management board were appointed by

our supervisory board.

On April 30, 2003, our shareholders approved the change of our corporate form to asociété anonyme, which is a French corporation with a single board of directors.  As a result, several of the members of our supervisory board became members of our board of directors, while the members of our management board continue to hold management positions with our company, but are not members of our board of directors, except for the former chairman of our management board, Mr. Henri Proglio.

Board of Directors

Under
  French law and our articles of association, our board of directors 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 our articles of association to our shareholders.
  Pursuant to our articles of association, as amended on April 30, 2003, our board
  of directors must have between 3 and 18 members. Our board of directors currently
  consists of 14 members, five of which are independent members. Our articles
  of association provide that each director is elected by the shareholders at
  an ordinary general meeting of the shareholders for a renewable six-year term.
  However, the terms of half of our directors (or, if we have an uneven number
  of directors, half plus one additional director) will be renewable for six years
  every three years. On April 30, 2003, our board of directors selected the initial
  7 directors that need to be reelected within three years. None of our directors
  were appointed or designated by our employees. Our directors can be removed
  from office by a majority shareholder vote at any time. The board of directors
  meets as often as the interests of our company require.

Under French law, the chairman of our board of directors represents the board of directors and organizes and supervises the work of the board. The chairman also has the responsibility of supervising our companys corporate organs and, in particular, that our directors are capable of fulfilling their duties.  Under the French commercial code, our directors 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. Our directors can also be held liable for unlawful actions of the company. Our articles of association provide that each member of our board of directors must own at least 750 of our shares.

Our
  board of directors has adopted a charter that provides, among other things,
  that each year before the publication of the annual report, the board of directors
  will evaluate the independence of each of its members on the basis of certain
  criteria enumerated in the charter, the particular circumstances and situation
  of the member, our company and our group as well as the opinion of our nominations
  and compensation committee. On the basis of this criteria, we currently have
  five independent directors on our board of directors. To qualify as independent
  under our charter, a director must not have any relations with our company,
  our subsidiaries or our management that could impair his or her objective judgment.
  In particular, an independent director must:

| | • | not be an
      employee of our company, a director or executive officer of our former parent
      company or any of its subsidiaries, or have been any of these during the
      past 3 years,                                                                                                                                               
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                
| | • | not be a
      director of a company in which our company is a director or in which a director
      (or a person that was a director within the preceding 3 years) or a designated
      employee of our company is a director,                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                
| | • | not be a
      client, supplier, investment banker or commercial banker (or any person
      related, directly or indirectly, to these persons) that has provided material
      financing to our company or its subsidiaries, or for which our company or
      its subsidiaries represents a material portion of their respective businesses,
| |   |                                                                                                                                                                                                                                                                                                                                                
| | • | not have
      close family ties with one of our directors or members of our senior management,                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                
| | • | not have
      been an auditor for our company during the past 5 years, and                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                
| | • | not have
      been a member of our supervisory board or, as from April 2003, our board
      of directors, for more than 12 years.                                                                                                                                                                                                            



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The
  definition of an independent director reflects the recommendations of the report
  on French corporate governance prepared by a blue ribbon panel led by Mr. Daniel
  Bouton in 2002, and is in many respects more restrictive than the independence
  criteria set forth in the rules recently adopted by the U.S. Securities and
  Exchange Commission under the Sarbanes-Oxley Act of 2002. In addition, under
  its charter, our board of directors may decide that one of its members should
  not be considered independent for any reason whatsoever, in light of specific
  facts and circumstances, even if that member meets the criteria described above.
  Also, if a director holds at least 10% of our shares, or represents a shareholder
  holding at least 10% of our shares, the board of directors will determine whether
  that member may be considered independent on the basis of a report prepared
  by the nominations and compensation committee, the structure of our shareholder
  base and the existence of potential conflicts of interest.

Our board of directors is required to evaluate its procedures, verify that important matters are adequately prepared and discussed within the board and measure the contribution to its work and the participation in its debates by each of its members. We will evaluate the performance of our board of directors every three years through a committee led by one of our independent directors, external consultants or any other means we believe are appropriate.  In addition, the nominations and compensation committee meets once a year to discuss the performance of our senior management, with the participation of any members of the board of directors that are not employees of our company or its subsidiaries.

The
  charter of our board of directors strengthens the right of each of our directors
  to receive information on our company and our business. In addition, the charter
  provides that each of our directors is bound by a number of duties and obligations,
  including:

| | • | an obligation
      to inform themselves of and comply with all applicable laws,                                                                                                                                                                               
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                
| | • | a duty to
      act in the corporate interest of our company,                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                
| | • | an obligation
      to inform the board of directors of any existing or potential conflict of
      interest and to inform the chairman of the board of any agreement entered
      into by our company in which he or she has any direct or indirect interest,
| |   |                                                                                                                                                                                                                                                                
| | • | a duty of
      loyalty,                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                
| | • | a duty of
      professional secrecy, and                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                
| | • | an obligation
      to comply with our companys insider trading policy.                                                                                                                                                                                       

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The
  following table sets forth the names and ages of the members of our board of
  directors, their current function in our company and their principal business
  activities outside of our company. Unless otherwise noted below, the terms of
  the members of our board of directors expire on the date of the general shareholders
  meeting called to approve our financial statements for fiscal year 2008, except
  for the terms of Messrs. Michel, Bouton, Espalioux, Espinasse, Girardot, Ralli
  and Stuart, which expire on the date of the general shareholders meeting
  called to approve our financial statements for fiscal year 2005.
Name
    
    Age
    
    Function
      in Veolia
    
    Principal
      Business
    
    Date
      InitiallyEnvironnement
    
    Activities
      Outside
    
    AppointedVeolia
      EnvironnementHenri Proglio
    
    53
    
    Chairman
      and Chief
    
    None
    
    April
      2003Executive
      OfficerJean Azema*
    
    49
    
    Director
    
    Chairman
      of the Management
    
    April
      2003Board
      of GroupamaDaniel Bouton
    
    52
    
    Director
    
    Chairman
      and CEO of Société
    
    April
      2003GénéraleJean-Marc
    
    50
    
    Director
    
    Chairman
      of the Management
    
    April
      2003Espalioux
    
    
    
    
    
    Board
      of AccorJacques
      Espinasse
    
    59
    
    Director
    
    Executive
      Vice President and
    
    April
      2003CFO
      of Vivendi UniversalPaul-Louis
      Girardot
    
    69
    
    Director
    
    
    
    April
      2003Philippe
      Kourilsky*
    
    61
    
    Director
    
    President
      of the Pasteur
    
    April
      2003InstituteArthur Laffer*
    
    62
    
    Director
    
    Chairman
      and Chief Executive
    
    April
      2003Officer
      of Laffer Associatesand
      Laffer InvestmentsFrancis
      Mayer
    
    52
    
    Director
    
    Chief
      Executive Officer of
    
    April
      2003Caisse
      des Dépôts etConsignations
      and Chairmanof
      the Supervisory Board ofCDC-IxisSerge Michel
    
    76
    
    Director
    
    Chairman
      of Soficot
    
    April
      2003Baudouin
      Prot
    
    51
    
    Director
    
    Director
      and Chief Executive
    
    April
      2003Officer
      of BNP ParibasGeorges
      Ralli
    
    55
    
    Director
    
    Executive
      Vice President of
    
    April
      2003Lazard
      Frères and LazardFrères
      Banque and DeputyChairman
      of Lazard LLCLouis Schweitzer*
    
    61
    
    Director
    
    Chairman
      and CEO of Renault
    
    April
      2003Murray Stuart*
    
    69
    
    Director
    
    
    
    April
      2003*
    Independent
      directors.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
  Chairman of our Management Board in 2000 and Chairman of our Board of Directors
  and Chief Executive Officer in April 2003. Mr. Proglio can be contacted at Veolia
  Environnement, 36/38 avenue Kléber, 75116 Paris. As of January 31, 2003,
  Mr. Proglio was also a director of Thalès, Vinci, FCC and EDF International
  and a member of the Supervisory Board of Elior.
Jean
  Azemaholds
  an engineering degree from the Ecole Supérieure dAgriculture de
  Purpan (ESAP) and is a graduate of the Centre National dEtudes Supérieures
  de Sécurité Sociale (CNESS). From 1987 to 1995, Mr. Azema served
  as Chief Financial Officer of Groupama Vie, and later as Director of Investments,
  Director of Consolidation and finally Insurance Director of Groupama. In 1996,
  he was appointed Chief Executive Officer of Groupama Southwest and, in 1998,
  of Groupama South. Since June 2000, Mr. Azema serves as Chief
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Executive Officer
  of Caisse Centrale Groupama. He is also the President of the French Federation
  of Mutual Insurance Companies (Fédération
  Française des Sociétés dAssurance Mutuelles)
  since December 2001. Mr. Azema can be contacted at Groupama, 8-10 rue dAstorg,
  75008 Paris, France.. As of January 31, 2003, Mr. Azema was also a director
  of ACMA and represented Groupama Assurances et Services on the board of directors
  of Bolloré Investissements.
Daniel
  Boutonholds
  a degree in political science and is a graduate of the Ecole Nationale d'Administration
  (ENA). As part of the French financial 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 Société Générale, serving as Managing
  Director from 1993 to 1997, and as President from 1997 to the present. Mr. Bouton
  can be contacted at Société Générale, Tour Société
  Générale, 17 cours Valmy 92972 Paris, La Defense Cedex. As of
  January 31, 2003, Mr. Bouton was also a director of Arcelor, Schneider Electric
  and Total.
Jean-Marc
  Espaliouxholds
  degrees in political science, law and economics, is an alumnus of the ENA and
  served in the French financial 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. As of January 31, 2003, Mr. Espalioux
  was also a director of Air France and Crédit Lyonnais.
Jacques
  Espinasseholds
  an MBA degree from the University of Michigan. Since 2002, Mr. Espinasse serves
  as Executive Vice President and Chief Financial Officer of Vivendi Universal.
  Prior to 2002, Mr. Espinasse was the Chief Executive Officer (from 1999) and
  a Director (from 2001) of TPS  Télévision Par Satellite.
  Before joining TPS, he held several senior positions within large French companies,
  including CEP Communication, Groupe Larousse Nathan, where he was appointed
  Executive Vice President in 1984, and Groupe Havas, where he was appointed Chief
  Financial Officer in 1985 and, at the time of the privatization of Havas, served
  as Executive Vice President from 1987 to 1994. Mr. Espinasse can be contacted
  at Vivendi Univers al, 42 avenue de Friedland, 75008 Paris, France. As of January
  31, 2003, Mr. Espinasse was also the President of Light France Acquisition (SAS),
  a member of the supervisory board of Group Canal + and a director of Cegetel
  Groupe and Vivendi Universal Publishing. He was also the Chairman and Chief
  Executive Officer of J.E.D and a Vice President of Vivendi Communications NA.
Paul-Louis
  Girardotwas
  a Director and the Chief Executive Officer of Vivendi Universal until 1998.
  He was a member of our Supervisory Board from October 2000 to April 2003, and
  currently serves as the Chairman of the Supervisory Board of Compagnie Générale
  des Eaux. Mr. Girardot is also a member of the Supervisory Boards of Dalkia
  and Compagnie Générale des Eaux et de lOzone, and a member
  of the Boards of Directors of Connex and Onyx.Mr.
  Girardot can be contacted at 7, rue de Tilsitt 75008 Paris.
Philippe
  Kourilskyis a graduate of the Ecole Polytechnique in France. He joined the Pasteur Institute
  in 1972, which he currently presides. Mr. Kourilsky can be contacted at the
  Institut Pasteur, 28 rue du Docteur Roux, 75015 Paris. Mr. Kourilsky is also
  a director of the Pasteur Institute of Lille, Aventis Pasteur, the French National
  Aids Research Agency (Agence
  Nationale de Recherches sur le Sidaor
  ANRS) and the For Science Foundation. He is also a professor at
  theCollège
  de France.
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 founding member of the Policy Consultative Committee of the U.S. Congress
  and, as of January 31, 2003, was a director of MasTec Inc., Oxigene Inc., Nicholas-Applegate
  Growth Equity Fund and Petco Animal Supplies.
Francis
  Mayeris
  a graduate of the Ecole Nationale dAdministration (ENA) and a tenured
  university professor. He joined the French Finance Ministry in 1986 where, after
  holding several positions, he became Deputy Director in 1994. In October 1997,
  Mr. Mayer was appointed President of the Paris Club, and in October 1999 Vice
  President of the European Investment Bank, where he had served as a member of
  its board of directors since 1994. Mr. Mayer is the Chief Executive Officer
  of the Caisse des Dépôts et Consignations (CDC) since October 2002.
  He can be contacted at Caisse des Dépôts et Consignations, 56 rue
  de Lille, 75007 Paris, France. Mr. Mayer is also the Chairman of the Supervisory
  Board of CDC Ixis and a director of CDC Ixis Private Equity, CDC Holding Finance
  and Eulia. He is also a member of the Supervisory Board of CNCE and a permanent
  representative of CDC on the Supervisory Board of CNPA and the Board of Directors
  of C3D, as well as a permanent representative of CDC-Ixis on the Supervisory
  Board of CDC Ixis Capital Markets.
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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 Carré des Champs Elysées.
  Mr. Michel can be contacted at Soficot, 103 boulevard Haussmann, 75008 Paris.
  Mr. Michel is also a director of Vinci, FCC Holding, FCC Construcción,
  Eiffage, Sedibex, G+H Montage and Cementos Portland.
Baudouin
  Protis
  a graduate of the of the HEC business school in Paris and the Ecole Nationale
  dAdministration (ENA). From 1974 to 1983, Mr. Prot was successively the
  Deputy Prefect of the Franche-Comté region of France, the French General
  Inspector of Finance, and the Deputy Director of Energy and Raw Materials of
  the Ministry of Industry. He joined Banque Nationale de Paris (BNP) in 1983,
  where he served in various positions before becoming Executive Vice-President
  in 1992 and Chief Executive Officer in 1996. He is also a director of BNP Paribas
  since March 2000. Mr. Prot can be contacted at BNP Paribas, 3 rue d'Antin, 75002
  Paris, France. In addition to several directorships within the BNP Paribas group,
  Mr. Prot is also a director of Pechiney and a member of the Supervisory Board
  of Pinault-Printemps-Redoute. He is also a permanent representative of BNP Paribas
  on the Board of Directors of Accor.
Georges
  Ralliholds
  degrees in finance, 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 of financial 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 Lazard Frères Banque, Fonds Partenaires Gestion, V.I.G.I., Chargeurs,
  Silic and Eurazeo.
Louis
  Schweitzerisa graduate
  of the Institut dEtudes Politiques de Paris and the Ecole Nationale dAdministration.
  He has served as Inspector of Finances and, from 1981 to 1986, as Chief of Staff
  of Mr. Laurent Fabius, who over the same period was Deputy Minister of Budget,
  Minister of Industry and Research and Prime Minister of France. In 1986, Mr.
  Schweitzer joined Renaults senior management as Director, and later served
  as Director of Planning and Management Control, Chief Financial Officer (in
  1989) and Executive Vice President. He became Chief Executive Officer of Renault
  in 1990 and Chairman and Chief Executive Officer in May 1992. Mr. Schweitzer
  can be contacted at Renault, 13 quai Alphonse Le Gallo, 92513 Boulogne-Billancourt,
  France.. Mr. Schweitzer is also a member of the Supervisory Board of Philips
  and a director of AB Volvo, EDF and BNP Paribas. He is also the Chairman of
  the Management Board of Renault-Nissan BV.
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 member of the European Consultative Committee of Crédit
  Lyonnais and a director of Old Mutual plc. As of January 31, 2003, Mr. Stuart
  was also a director of Royal Bank of Scotland Group plc until the end of 2002.
Management
Our
  board of directors directs the manner in which our company is managed in accordance
  with our articles of association. In particular, our board of directors appoints
  a chief executive officer to manage our business on a day-to-day basis. The
  chairman of our board of directors may serve, if appointed by the board of directors,
  as chief executive officer. On April 30, 2003, our board of directors appointed
  its chairman, Mr. Henri Proglio, to act as chairman and chief executive officer
  of our company. The chief executive officer has broad powers to act on behalf
  of our company, including the power to represent our company in dealings with
  third parties, within the limits of our corporate purpose and the powers granted
  by law to our shareholders and our board of directors.
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The
  following table sets forth the names and ages of the members of our senior management,
  their current function in our company and their principal business activities
  outside of our company.
Principal
      BusinessActivities
      OutsideVeoliaName
    
    Age
    
    Function
      in Veolia Environnement
    
    EnvironnementHenri Proglio
    
    53
    
    Chairman
      and Chief Executive Officer
    
    NoneJérôme
      Contamine
    
    45
    
    Executive
      Vice President
    
    NoneAntoine
      Frérot
    
    44
    
    Head
      of Water Division
    
    NoneDenis Gasquet
    
    49
    
    Head
      of Waste Management Division
    
    NoneOlivier
      Barbaroux
    
    47
    
    Head
      of Energy Services Division
    
    NoneStéphane
      Richard
    
    41
    
    Head
      of Transportation Division
    
    Chairman
      of theSupervisory
      Board ofNexityAndrew Seidel
    
    40
    
    Head
      of USFilter, North America
    
    NoneJérôme
  Contamineholds
  degrees from the Ecole Polytechnique, the Ecole Nationale de la Statistique
  et de lAdministration Economique and the Ecole Nationale dAdministration.
  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 Veolia Environnement, 36/38
  avenue Kléber, 75116 Paris. Mr. Contamine is also a director of FCC.
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 Veolia Environnement, 36/38 avenue Kléber, 75116
  Paris.
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 Veolia Environnement, 36/38 avenue Kléber, 75116 Paris.
Olivier
  Barbarouxis a graduate of the Ecole Polytechnique, where he obtained a civil engineering
  degree and a Masters of Science degree. He began his career in 1979 as a head
  of mission at the Ministry of Industry, before being named as Director of New
  Works in 1981 and then as director of installations at the autonomous port of
  Marseille in 1983. He subsequently became a member of the Executive Committee,
  in charge of energy, for Paribas Affaires Industrielles. In 1993, he was named
  chairman and chief executive officer of Coparex and then chief executive officer
  of the energy division at Paribas in 1998. He joined our company in 1999 as
  Chief Executive Officer of Compagnie Générale des Eaux. Mr. Barbaroux
  can be contacted at Veolia Environnement, 36/38 avenue Kléber, 75116
  Paris.
Stéphane
  Richardis a graduate of the HEC business school andInspecteur
  des Finances.
  He began his career in 1991 as a technical advisor at the Ministry of Industry
  and Exterior Commerce. He joined Compagnie Générale des Eaux in
  1992 as a head of mission. In 1994, he was named Director and Chief Executive
  Officer of Compagnie Immobilière Phénix, and then in 1995, he
  joined CGIS, which later became Nexity, where he became Chairman and Chief Executive
  Officer in 1997. Mr. Richard can be contacted at Veolia Environnement, 36/38
  avenue Kléber, 75116 Paris. As of January 31, 2003, Mr. Richard was also
  Chairman of the Supervisory Board of Nexity and was a director of Banque OBC,
  UGC and France Telecom.
Andrew
  Seidelholds a B.S. in chemical engineering from the University of Pennsylvania and
  an M.B.A. from the Wharton School. He helped found USFilter and served as President
  and Chief Operating Officer of its water and wastewater group when it was acquired
  by Vivendi Universal in 1999. Mr. Seidel can be contacted at USFilter, 40-004
  Cook Street, Palm Desert, CA 92211, U.S.A.
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COMPENSATION
The
  members of our former supervisory board received the following compensation
  during the 2002 fiscal 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 €)byOur
    
    Ourcompany
    
    subsidiariesJean-René
      Fourtou(1)
    6,250
    
    0Jean Azema(1)
    6,250
    
    0Daniel Bouton
    25,000
    
    0Jean-Marc
      Espalioux
    35,000
    
    0Jacques
      Espinasse(1)
    6,250
    
    0Paul-Louis
      Girardot
    25,000
    
    19,997Richard
      Heckmann(2)
    25,000
    
    1,660,672Arthur Laffer
    25,000
    
    0Jean-Marie
      Messier
    35,000
    
    17,785Serge Michel
    32,500
    
    7,655Georges
      Ralli
    32,500
    
    0Murray Stuart
    25,000
    
    0Antoine
      Zacharias
    25,000
    
    5,363Eric Licoys(3)
    18,750
    
    25,385Catherine
      Gros(4)
    18,750
    
    0Guillaume
      Hannezo(5)
    24,375
    
    17,785Esther Koplowitz(6)
    32,500
    
    0(1)
    From
      September 23, 2002.(2)
    During
      2002, Mr. Heckmann received €1,057,753 as base salary and €602,919
      as bonus. Pursuant to his 1999 employment agreement, as amended, Mr. Heckmann
      will have received a total of 750,723 shares of Vivendi Universal in April
      2003, including 158,570 shares in respect of fiscal year 2002, valued at
      €2,695,388, which does not include €152,950 in dividends paid
      by Vivendi Universal and to be delivered by USFilter to Mr. Heckmann. The
      value of these shares has not been included in the compensation amounts
      indicated above. In April 2003, USFilter delivered to Mr. Heckmann the remaining
      158,570 shares of Vivendi Universal. Mr. Heckmanns employment contract
      expired on April 22, 2003. However, Mr. Heckmann will continue to be bound
      by the non-competition and confidentiality provisions of the contract for
      two years following its expiration.(3)
    Resigned
      as a member of our supervisory board on September 5, 2002.(4)
    Resigned
      as a member of our supervisory board on September 19, 2002.(5)
    Resigned
      as a member of our supervisory board on September 20, 2002.(6)
    Resigned
      as a member of our supervisory board on December 16, 2002.86

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The
  members of our former management board received the following gross compensation
  (including compensation in kind) during the 2002 fiscal year for services to
  our company and its subsidiaries:
Compensation
      paid (in €)byOurOurcompanysubsidiariesHenri Proglio1,191,364
    132,982Jérôme
      Contamine623,803
    69,500Jean-Pierre
      Denis(1)0
    528,355Antoine
      Frérot0
    557,978Denis Gasquet0
    568,461Andrew Seidel(2)0
    855,430(1)As of February
      5, 2003, Jean-Pierre Denis ceased to be a member of our management board.(2)

    During 2002,
      Mr. Seidel received €528,876 as base salary and €326,554 as bonus
      and various other benefits. Pursuant to his 1999 employment agreement, as
      amended, Mr. Seidel has received a total of 139,410 shares of Vivendi Universal
      over the past three years, including 46,470 shares in respect of fiscal
      year 2002 valued at €1,547,314. Mr. Seidel has also received from USFilter
      the amount of all dividends paid on shares that had not been delivered to
      him. In 2002, however, he did not receive any payments in respect of dividends
      paid by Vivendi Universal. Mr. Seidels employment contract expired
      on April 22, 2002. However, Mr. Seidel will continue to be bound by the
      non-competition and confidentiality provisions of the contract for two years
      following its expiration.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.
In
  December 2000, our supervisory board created an audit and transactions committee
  and a directors and senior managers committee. In September 2001, our supervisory
  board also created a commitments committee. On March 3, 2003, our supervisory
  board replaced our three existing committees with two new committees: an accounts,
  audit and commitments committee and a nominations and compensation committee.
  On April 30, 2003, our new board of directors created an accounts, audit and
  commitments committee and a nominations and compensation committee with the
  same powers and duties as those created by our supervisory board on March 3,
  2003.
•Ouraccounts,
      audit and commitments committeeperforms the following functions:–
    Regarding
      accounting matters, the committee reviews with the auditors the appropriateness
      and permanence of the accounting methods adopted to prepare the financial
      statements and the adequate treatment of significant transactions, examines
      the method and rationale for consolidation of subsidiaries, provides an
      opinion on the draft financial statements prepared by management before
      they are presented to the board of directors, including on the off-balance
      sheet commitments, meets, if necessary, with the auditors and management
      to discuss, among others, amortization and depreciation, reserves, treatment
      of overvalued assets, off-balance sheet commitments and principles of consolidation.
      The review by the committee on the financial statements must be accompanied
      by a letter from the auditors highlighting the key figures and the selection
      of accounting options, as well as a letter from the chief financial officer
      describing significant off-balance sheet commitments. The committee is entitled
      to meet with the auditors outside the presence of our management.–
    Regarding
      internal controls and audit, the committee reviews a report from management
      on the procedures established to identify significant risks, which we defined
      as those involving more than €300 million or otherwise requiring the
      approval of the board of directors, as well as a periodic summary of the
      internal audit reports and upon request, the full internal audit reports.
      The committee also examines our internal audit plan once a year and meets
      as necessary with the internal audit director to discuss the organization
      of the internal audit department.–
    Regarding
      the supervision of our independent auditors, the committee examines once
      a year the auditors work plan and meets as necessary with the auditors
      and our management,87

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including
      our accounting and treasury officers. It is also entitled to meet with our
      auditors without the presence of management. The committee supervises the
      procedure to select our independent auditors and advises the board of directors
      on the selection of the auditors. Any permissible non-audit services to
      be performed by the auditors require the prior approval of the committee,
      which also reviews the fees paid by our company to the auditors for all
      of their services and assures that the portion of revenue of the audit firm
      and its network represented by such fees does not call into question the
      independence of the auditors.The
      committees charter, adopted by our board of directors on April 30,
      2003, provides that its principal contacts are our management, including
      our chief financial officer and our internal audit director, and our auditors.
      As part of its mission, the committee may meet with the statutory auditors
      and senior management responsible for preparing the statements. The committee
      may also meet with individuals and experts outside our company if necessary.Pursuant
      to the committees charter, the members must be selected on the basis
      of their financial or accounting competencies and if necessary must be provided
      with financial and accounting information about our company at the time
      of their appointment. The board of directors selects the committee chairman
      upon the recommendation of the nominations and compensation committee. The
      committee currently consists of three members, two of whom are independent:
      Messrs. Murray Stuart (chairman), Jean Azema and Jean-Marc Espalioux.The
      committee meets at least five times a year to examine the periodic and annual
      financial statements before their submission to the board of directors.
      A summary of each meeting is prepared and sent to the chairman of the board
      of directors.•
    Ournominations
      and compensation committeemakes
      recommendations on the compensation of our officers and directors, in particular
      with respect to variable compensation and stock options, proposes a total
      amount for thejetons
      de presencepaid
      to directors and voted on at the annual shareholders meeting, proposes rules
      for paying thejetons
      de presenceamong
      the directors in light of their diligence in serving on the board of directors
      and committees, advises on general stock option policy and specific stock
      option plans and provides a detailed opinion on the attribution of stock
      options, including a clear statement of its position and consequences. For
      2003, the committee has proposed that the variable portion of our senior
      managers compensation be determined using multiple criteria based
      on an improvement of our free cash flow, our return on capital employed
      and our net income. These criteria may evolve in function of our strategy
      and the economic environment.The
      committee is required to stay informed about the compensation of our officers
      as well as those of our subsidiaries and to prepare and select our directors
      and senior managers and arrange for their succession. The committee also
      examines any questions submitted by the chairman of our board of directors
      on these matters and reviews the terms of any share offerings reserved for
      our employees. The committee may engage the services of specialized consultants
      in connection with senior management compensation issues.The
      committees charter, adopted by our board of directors on April 30,
      2003, provides that the committee must be composed of between three and
      five members selected by the board of directors upon the recommendation
      of current members of the nominations and compensation committee. The committee
      currently consists of three members, one of whom is independent: Messrs.
      Serge Michel (chairman), Paul-Louis Girardot and Louis Schweitzer. The committee
      must meet at least two times each year. The committee also strives to achieve
      that independent directors represent at least half of the members of our
      board of directors, two-thirds of the members of the accounts, audit and
      commitments committee and half of the members of the nominations and compensation
      committee.In
  addition to these committees, our chief executive officer and our chief financial
  officer also created a disclosure committee, which was presented to our management
  board on December 11, 2002. Pursuant to its charter, the disclosure committee
  oversees the establishment of internal procedures to collect and control information
  about our company that will become public, appoints the individual(s) who prepare
  our reports and other communications, stays informed about each draft report
  or communication, examines its contents and determines the need to conduct diligence
  to verify the information, considers the need to submit the draft report or
  communication to the auditors and external advisors to verify the information
  in the report or communication, considers the need to obtain approval of the
  board of directors on the contents of the report or communication, approves
  the final version of each report or communication made public by our company,
  approves the
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procedures for
  publishing and distributing reports and communications that have been approved
  by the communications committee as well as the filing of such documents with
  stock market authorities; evaluates at least once a year the functioning of
  the communications committee and the procedures established by it and prepares
  an annual report to present its conclusions.
Our
  chief executive officer or, in his absence, our chief financial officer presides
  over meetings of the disclosure committee. In addition to our chief executive
  officer and our chief financial officer, the permanent members of the committee
  include the chief executive officers of Onyx, Compagnie Générale
  des Eaux, USFilter, Connex and Dalkia, our communications director, our financial
  communications director, our chief accounting officer, our internal audit director,
  our industrial markets director, our sustainable development director, our research
  and development director, our risk management director, our human resources
  directors and our general counsel. A coordination group composed of representatives
  of our companys divisions assists the disclosure committee by keeping
  it informed of developments, processing gathered information and editing draft
  reports. This coordination group reports to our chief executive officer.
The
  disclosure committee meets at least three times each year, including once before
  the end of each year to organize the drafting of our annual report, once in
  the 90 days prior to the filing of our annual report on Form 20-F with the U.S.
  Securities and Exchange Commission to evaluate and validate the report, and
  once prior to our half-year earnings announcement to evaluate and validate the
  strengths and weaknesses of our disclosure controls and procedures and to evaluate
  the implementation of the procedures used to prepare the annual report for the
  preceding year.
EMPLOYEES
Human
  Resources Policies
An
  active and ambitious human resources policy
Our
  human resources policy is part of our effort to achieve sustainable development
  by ensuring that we offer the best working conditions and professional development
  opportunities to our 302,000 employees (including 100% of employees of companies
  that we proportionally consolidate, including FCC). We also strive to promote
  knowledge management and training, anticipate demographic changes and their
  potential consequences on employment and qualifications and approach human resources
  with innovation to benefit our own employees as well as those of the companies
  with which we work.
We
  are a global business with two-thirds of our employees working outside of France,
  and we encourage the decentralized management of our human resources to permit
  local managers to assume more fully their professional responsibilities. Because
  of the recent reorganization of our activities, 2002 was a transitional year
  that allowed us to define and establish common tools and collaborative methods
  in each of our divisions.
Getting
  to know ourselves: deployment of the human resources reporting system
We
  have created a global employee database with information broken down by each
  company in our group and each country in which we operate. The information is
  updated on a yearly basis by each company. With this database, we monitor approximately
  one hundred indicators relating to workforce size, payroll, training, work hours,
  safety and employer/employee relations. The communication arising from this
  database allows all of our employees to better understand their role in our
  group. In addition, it allows us to better track company trends and constitutes
  a useful tool to help create targeted human resources policies. With over 200,000
  data points, this diverse and detailed pool of information is an important tool
  for human resources management and provides indispensable support in our efforts
  to respond to the ever-increasing demand, both internal and from the press,
  investors and labor regulatory agencies, for precise and detailed information
  about our company.
In
  addition, we recently completed our first-ever employee satisfaction survey.
  Polling expert CSA surveyed 1,000 managers in 8 countries about their views
  on the company and their professional lives. In an effort to ensure that this
  widespread view of the company and its divisions is in line with managements
  vision, we will regularly carry out a new survey.
Developing
  skills
We
  strive to offer our employees the possibility to pursue high-quality professional
  development to help them maintain their employability throughout their career.
  Thanks to this policy of training and skill development, we believe we have
  truly become a "social ladder."
TheInstitut
  de l'Environnement Urbain(IEU),
  a dedicated training center, offers 15 degree programs. In 2002, it hosted 6,378
  employees, with 382 in an apprenticeship capacity and 95% of interns (stagiaires)
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obtained their
  degree, it administered 313,000 hours of training, 60% of which was devoted
  to initial training and 40% to continuing education and offered 37 additional
  training sessions. Over half of our employees around the world (including two-thirds
  of our employees in France) participated in our training programs in 2002.
In
  addition, after having helped more than 1,000 employees obtain degrees through
  the validation of professional experience, we intend, through a
  new validation of acquired experience program, to allow a larger
  number of employees to obtain a degree recognizing their professional experience
  and to create a dynamic of skill development and social promotion.
Continuing
  education training programs, like the initial training offered at IEU, involve
  all of our business areas and increasingly integrate the concept of lateral
  relationships between divisions. For example, out of 12 degrees offered as part
  of our initial training, 4 have lateral relevance across divisions. In the same
  vein, the recent creation of the school of environmental services sales to industrial
  clients and the overhaul of the university degree in urban services management
  reflect this desire to reinforce a multi-disciplinary focus in our training.
  Our yearly global management seminar for new recruits brings together nearly
  700 employees each year from all divisions. It exposes new employees to a global
  vision of our group and their profession as well as to colleagues outside of
  their division.
The
  training we offer on an international level continues to expand. We have training
  centers operating in Europe (Germany, Spain, Italy, Czech Republic and the United
  Kingdom), Africa and the Middle East (Egypt, Gabon and Morocco), in the United
  States, in South America and in Asia (Hong Kong, Australia, China and Malaysia).
  In order to better address issues arising from our globalization and the rapidly
  evolving need for necessary skills and individualized training, IEU has committed
  itself to educational and technological innovation. Through new technologies
  such as the Internet and Intranet, it offers employees the possibility to pursue
  self-guided or computer-assisted training. Approximately 1,000 employees per
  year, for example, engage in correspondence training programs related to the
  operation of household waste incineration facilities. Further, each year several
  hundred employees in the transport division study train operation on a state
  of the art train-operation simulator.
The
  IEU also created a School Relations department at the end of 2001 to anticipate
  the future needs of our business in terms of recruiting over the following 5
  years. In this context, managers from each of our four divisions participate
  in a Campus Club that organizes forums at each of the main schools where we
  have already established contacts with over 1,800 students.
Organizing
  mobility
We
  organize and strongly encourage the professional mobility of our employees across
  subsidiaries, industries, job functions and locations as well as abroad. We
  have established a number of tools to facilitate such mobility.
To
  this end, we conduct yearly individual employee interviews, which we are in
  the process of establishing as a standard practice throughout our group, that
  allow us to identify the professional mobility goals of each employee. Similarly,
  we have established a standard system of classification for management positions
  designed to encourage and facilitate mobility for our 29,000 managers. In addition
  to our Internet recruitment site, which currently compiles our job listings
  in France and which will be deployed internationally in 2003, we will create
  an intranet site through which employees can view internal job postings. We
  expect this site to come on line in France in 2003.
We
  facilitate inter-department mobility through the creation of a continuing professional
  education program in 2002 that helps interested employees acquire the skills
  necessary for a new position in a different department. Further, we assist multi-occupation
  mobility through the development of lateral training programs that allow employees
  to acquire multi-disciplinary skills.
Our
  guidelines on international mobility are detailed in a Charte de Mobilité
  Internationale, (International Mobility Charter) created in 2002. The charter
  describes exchange programs and security guarantees for our 547 expatriates
  as well as outlines the existing practices in all of our subsidiaries located
  around the world. The charter also explains the systems of medical reimbursement,
  insurance and retirement for our expatriates. Short-term exchanges, in which
  teams work abroad from time to time, are increasingly encouraged. Finally, in
  the countries where we are located, we seek to provide the best protection for
  all of our employees in the form of insurance (health, disability, life) or
  retirement benefits.
Anticipating
  the evolution of skills
Skill
  management constitutes one of the principal aspects of our human resource policy,
  not only to ensure that employees work in the best conditions but also to anticipate
  developments in the skills required. As
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part of our
  skill management process, we consider two competing factors: the increase in
  the number and the demands of our clients and the decreasing number of workers
  available due to aging populations. In this context, employees must continuously
  be prepared to update their knowledge and develop and implement new skills.
  We value lifetime training and the IEUs initiatives, from initial and
  continuing training to the validation of previous experience, are innovative
  in this domain. We have initiated a collective review of the professional development,
  training and skill evolution of our employees as well as the organization of
  their work.
In
  looking toward the future, we created in 2001 the Social Observatory (Observatoire
  social),
  which advises us on corporate practices and has undertaken projects in the fields
  of temporary work programs and work experience equivalency.
Optimizing
  benefit plans for all employees
We
  seek to provide attractive and protective plans for our employees. To accomplish
  this objective, we have established collective health insurance and pension
  fund plans. In France, for example, all managerial staff are covered by a health
  insurance and pension system. For our employees all over the world, we guarantee
  to the extent possible health benefits that typically exceed requirements or
  conventional plans. We benefit from our size and our international presence
  in our ability to provide a greater level of heath insurance coverage, while
  at the same time controlling costs. Subsidiaries may also consolidate their
  plans to benefit from our economies of scale; at the end of November 2002, more
  than 130,000 employees benefited from pooled pension funds.
Preventing
  and reducing work related risks
We
  voluntarily employ innovative measures that seek to create a culture of prevention
  in order to achieve the highest level of safety, minimum risk and a healthy
  work environment. Many policies to reduce the frequency and severity of accidents
  have already been established within each division and will be supplemented
  in 2003. Connex, for example, offers a housing benefit to bus drivers that fall
  victim to violence on the roads in the Amiens region of France. This measure
  received an award by the European Agency for Safety and Health at Work in November
  2002. In addition, Onyx implemented a policy at SARP to prevent road risks for
  all drivers, seeking to reduce to zero the number of serious bodily accidents
  for employees and the public and to lower by 10% a year the frequency of accidents.
  Despite a 46% increase in our vehicle fleet in two years, the frequency of accidents
  has declined by 22% over this same period.
Encouraging
  employee shareholding
Pursuant
  to the approval granted by our shareholders at the annual meeting on April 25,
  2002, we established a company savings plan (Plan
  d'Epargne Groupe (PEG))in
  July 2002. By granting employees the opportunity to hold our shares, we intend
  to offer them the opportunity to be directly associated with our growth and
  to permit a large number of them have access to a savings plan under favorable
  terms and conditions. We intend to progressively expand the program internationally
  during the first half of 2003 in accordance with the applicable securities and
  tax regulations in the various countries concerned. Despite unfavorable stock
  market conditions in 2002, 33,000 employees in France subscribed to the plan,
  representing one out of every three employees. The plan offers employees the
  choice of four common investment funds, including a Sequoia Fund invested in
  our shares and a fund selected by a special union committee on employee savings.
In
  addition, the plan will be amended in early 2003 by an observation committee,
  which monitors the savings plan and includes representatives of employee shareholders,
  senior management and the union.
Encouraging
  employee innovation
To
  promote a spirit of employee innovation, the companies within our group are
  encouraged to take new corporate initiatives. In 2002, we compiled a report
  outlining more than 220 such initiatives. Its objective seeks to promote and
  communicate within our group the interesting initiatives that have been taken
  in the field. For example, the report, which will be published in early 2003,
  describes various recent initiatives, such as:
•
    the availability
      of a physical therapist, a massage room and a gym to learn good posture
      and prevent and sooth back pain for baggage handlers at Paris Charles-de-Gaulle
      airport, which received the 2002 award for corporate dynamism by the Paris
      Airports (Aéroports
      de Paris),•
    an employee
      resource center created in the United States to centralize employees
      questions about their professional situation,•
    bonuses
      offered to drivers in Sweden who reduce their diesel consumption, and91

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•
    our initiatives
      in the context of a joint venture in China that seek to improve management,
      the relevance of the work experience and employee benefits and skills at
      our wastewater treatment plant in Tianjin.Promoting
  dialogue with our trade unions
We
  have a decentralized system of internal communication, and there are 12,000
  delegates or employee representatives within our company. In France, the system
  is designed to address the most relevant issues at each level by establishing
  a dialogue in each division among national representatives at the division level
  and a local dialogue at the regional or operating company level. This approach,
  which reflects our desire to be pragmatic and to focus labor dialogue at the
  most appropriate level, seeks to attain a maximum level of effectiveness. It
  also guides the creation of corporaterelations
  within all of our companies throughout the world and allows us to integrate
  local and national specificities arising from the laws of each country. Through
  appropriate reporting, in ternal procedures ensure that information reaches
  the relevant entities at the national level regarding a single division and/or
  the entire group on subjects that might have a broader impact and could entail
  consequences that extend beyond the level on which the corporate dialogue is
  taking place. These procedures also allow us to steer the subject in the interests
  of our company. A new European group committee will be created in 2003.
Make
  positive contributions to the surrounding environment
The
  desire to make a positive contribution to our surrounding environment has led
  us to make a number of specific commitments to civil populations. Over the past
  several years, we have assumed our social responsibilities through our actions
  in favor of employment, our participation in education and training, our environmental
  and health education programs, our patronage and numerous sponsorships. In this
  respect, we have sponsored projects related to environmental protection (particularly
  related to water) and collaborate with universities and schools to encourage
  awareness of these issues in young people. For example, in 2002 we launched
  the Lets clean up Nature operation with IEU trainees. In addition,
  in Brazil, where Dalkia manages a large number of commercial centers, we have
  created a school for literacy and preparation for the Brazilian State exams,
  into which we have integrated Dalkias 140 employees (of which half are
  illiterate) at the Morumbi center in Sao Paulo.
We
  also participate, alone or in cooperation with non-governmental organizations
  (NGOs), in different humanitarian intervention projects relating to natural
  catastrophes or serious incidents around the world. For example, we have entered
  into a partnership with the French Red Cross to combine the necessary know-how
  that may be used to implement water and wastewater programs in all latitudes
  of the globe. Waterforce, our internal humanitarian organization, is able to
  deploy in emergencies to assist less-favored populations around the world. In
  2002, Waterforce provided assistance to afghan refugees in Pakistan and to local
  populations in the Democratic Republic of Congo after the volcanic eruption
  in Goma. Waterforce also provided technical assistance after the floods in Germany
  in August 2002, and implemented a program to rehabilitate the pumping stations
  and network of the city of Laç in Albania.
Employee
  Information
The
  information in this section has been derived from our international database
  created in 2001, which includes, for each of our subsidiaries and each country
  in which our employees are located, 100 social or labor indicators representing
  over 200,000 facts organized by company, country, geographic area and the entire
  world. We present below the principal indicators derived from our database.
  You should not place undue reliance on the information in this section, which
  has been derived from the exhaustive information in our worldwide database (particularly
  in the case of averages) and is not intended to present trends or other detailed
  information on any specific area or activity.
Total
  Number of Employees
As
  of December 31, 2002, we had 302,283 employees (including 100% of the employees
  of companies that are proportionally consolidated by our company, such as FCC),
  an increase of 2.4% (6,998 employees) over 295,285 employees as of December
  31, 2001.
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The
  following table shows the distribution of our employees by activity and geographic
  location as of December 31, 2002:
EnergyWater(1)
    
    Waste(2)
    
    Services
    
    Transport
    
    FCC(3)
    
    Total(4)
    
    %Europe
    52,566
    
    46,810
    
    36,521
    
    51,831
    
    48,700
    
    236,646
    
    78.28
    %of
      which France
    27,041
    
    30,889
    
    18,920
    
    23,908
    
    137
    
    101,113
    
    33.45
    %North
      America
    14,301
    
    8,768
    
    –
    
    1,674
    
    992
    
    25,735
    
    8.51
    %South
      America
    2,240
    
    4,826
    
    3,082
    
    322
    
    6,095
    
    16,565
    
    5.48
    %Africa/Middle
      East
    4,783
    
    5,613
    
    50
    
    210
    
    7
    
    10,663
    
    3.53
    %Asia/Pacific
    3,738
    
    7,309
    
    422
    
    1,205
    
    –
    
    12,674
    
    4.19
    %Total
    77,628
    
    73,326
    
    40,075
    
    55,242
    
    55,794
    
    302,283
    
    100
    %%
    25.68
    %
    24.26
    %
    13.26
    %
    18.27
    %
    18.46
    %
    100
    %(1)
    Includes
      50% of the employees in Proactivas water activities (926 employees).(2)
    Includes
      50% of the employees in Proactivas waste management activities (4,331
      employees).(3)
    Figures
      reflect 100% of FCCs employees, including 50% of Proactivas
      employees (5,367 employees).(4)
    Includes
      100% of the employees of Proactiva (10,624 employees) and of companies that
      are proportionally consolidated by our company, including FCC. The total
      number for Europe (and France) includes 218 employees who work directly
      for our company (excluding its subsidiaries) in France.As
  of December 31, 2002, we employed 258,731 persons (representing 85% of our total
  employees) under indefinite term employment agreements and 43,552 persons under
  fixed-term employment agreements. As of December 31, 2002, 28,835 of our employees
  are managers (representing 9.5% of our total employees) and 58,388 were women
  (representing 19% of our total employees).
Weighted
  Average Annual Number of Employees
Our
  weighted average annual number of employees corresponds to the equivalent number
  of employees that have worked full time for us over the entire year. This indicator
  is calculated by weighing the total number of employees against our employment
  rate and the amount of time worked by each employee. Our weighted average annual
  number of employees in 2002 was 282,271, of which 253,197 employees (or 89.7%)
  were employed under indefinite term contracts.
Consolidated
  Weighted Average Annual Number of Employees
We
  calculate this indicator by weighing the weighted average annual number of employees
  against the level of consolidation of each of the companies through which we
  operate. Our consolidated weighted average annual number of employees in 2002
  was 257,177.
Hiring
During
  2002, we hired 84,790 employees (including 100% of those hired by companies
  that are proportionally consolidated by our company), of which 3,987 are managers.
  Half of these new hires are employed under fixed-term contracts, of which approximately
  two-thirds were hired in FCCs construction activities, in our waste management
  activities or to replace other personnel. The average term of all of our fixed-term
  employment contracts is close to 8 months, and only 10.3% of our weighted average
  annual number of employees were employed under these contracts in 2002.
Departures
During
  2002, 82,420 persons ceased to be employees of our company (including 100% of
  those that left companies that are proportionally consolidated by our company),
  of which 10,716 employees were individually dismissed and 1,511 were laid-off
  as part of redundancy programs.
Extra
  Hours
Our
  employees worked 16,494,824 extra hours in total in 2002, which represents,
  on average, 54.7 extra hours per employee. The concept of extra hours varies
  from country to country, which makes it difficult to assess the meaning of this
  indicator in certain cases. For example, this indicator would mean that each
  of our French employees worked an average of 31 extra hours. In addition, in
  a services business like ours, a large number of extra hours are due to emergency
  interventions by our on-call personnel.
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     Temporary
Employees
We
  employed 11,515 persons in a temporary capacity during 2002 (representing 4.1%
  of our total employees).
Information
  relating to Redundancy and Reorganization Plans, Employee Reclassification and
  Rehiring and Other Related Measures
Our
  acquisitions and divestitures result in the transfer of employees without the
  termination of the corresponding employment contracts. The few restructuring
  efforts undertaken in 2002 result from new service contracts that included an
  employee redundancy component within the public tender materials. When these
  measures are necessary, we implement these redundancy plans in compliance with
  applicable law and in consultation with our labor partners, and we favor, to
  the extent possible, internal reclassifications of employees within our company.
Organization
  and Duration of Work
The
  organization of our working schedules varies depending on the nature of the
  activity and the location of each particular company. Each of our subsidiaries
  organizes its work schedules to meet the needs of its business and the expectations
  of its employees. Although work schedules across our business are substantially
  based on equivalent daily working hour requirements, the details of the implementation
  vary significantly from country to country. For example, depending on the country,
  the workweek may be equal to 4, 5 or 6 days and mandatory arrival and departure
  times, daily schedules, rules relating to alternate short and long workweeks
  and annualized limits on working hours may vary.
The
  average workweek in our business is 38.5 hours. Our part-time employees totaled
  15,322 in 2002, representing 5.5% of our total employees. The total number of
  days on which our employees took leaves of absence was 3,974,418 during 2002,
  of which 2,746,558 days (or 69.1%) were taken for sickness, 397,421 days (or
  9.9%) were for workplace accidents and the balance for extraordinary family
  (primarily weddings and maternity leaves) and union other organized labor-related
  events.
Compensation,
  Labor Contributions and Equality
The
  average annual gross compensation of our employees around the world amounted
  to €23,927 in 2002, compared to €24,002 in 2001. The slight decrease
  in this figure is primarily attributable to our acquisition and divestiture
  activities in 2002, which resulted in the addition of 6,040 persons to our workforce
  in Africa and the Asia-Pacific region, where salaries tend to be lower than
  average, and the departure of 3,017 employees in North America, where salaries
  tend to be higher than average. You should not place undue reliance on the average
  annual gross compensation figures, which are given for indicative purposes only.
  Compensation paid to our employees varies greatly as a result of the diverse
  nature of our activities and the work performed by our employees, as well as
  the geographical location of our activities and employees.
Our
  labor contributions represented 27.65% of our total employment costs in 2002.
  The average gross compensation paid to our male employees was €24,572 in
  2002, compared to €20,949 paid to our female employees (representing a
  difference of €3,623, or 14.7%). The difference in compensation is primarily
  attributable to the nature of and limitation in the work performed and to differences
  in age, seniority and training often found between both groups of employees.
  Our policy is to promote equality in the workplace between men and women that
  possess similar capabilities and qualifications.
Ratio
  of Average Compensation to Average Minimum Wages
We
  adopted this indicator in 2002 to improve our evaluation of our compensation
  levels compared to the minimum wages guaranteed or implemented in each country
  in which we operate, as well as to assess the minimum level of resources of
  our employees in each of these countries. In countries that have mandatory minimum
  wages set by law (in which over two-thirds of our employees are located), our
  employees weighted average compensation was €26,835 in 2002, compared
  to average minimum wages of €11,541, which results in a ratio of 2.3. Including
  all other countries, where minimum wages are set through collective bargaining
  agreements or market practice and are more difficult to determine, our average
  compensation to average minimum wages ratio in 2002 was equal to 2.4.
Profit-Sharing,
  Participation and Shareholding
In
  2002, we paid our employees in France €36,240,537 under profit-sharing
  arrangements and €38,620,242 under participation arrangements. In addition,
  30,000 of our employees have elected to participate in our Sequoia Group Savings
  Plan created in France in July 2002, with a total number of subscriptions in
  this plan of €31,353,687.
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     Relations
with Professional Employees and Unions
In
  2002, we entered into 1,512 collective bargaining agreements, including 930
  agreements relating to compensation, 171 agreements relating to health, security
  or other labor conditions, 96 agreements relating to employee dialogue and 315
  agreements relating to other matters. Our employees have 11,982 representatives
  within our company.
Sanitary
  and Security Conditions
In
  2002, the number of workplace accidents with leave for at least one workday
  was 18,521, and the number of days not worked due to workplace accidents was
  397,421. The rate of frequency of workplace accidents, which is calculated as
  the total number of accidents over one million workable hours, was 38.6. The
  rate of severity of workplace accidents, which is calculated as the number of
  days not worked due to accidents over one thousand workable hours, was 0.83.
We
  provided security training to 81,247 employees during 2002, and have 7,301 corporate
  bodies to handle work-related sanitary and security problems within our company.
Training
Our
  training expenses represented 2% of our total labor costs in 2002. In France,
  our training expenses represented 2.5% of our total labor costs in 2002. In
  2002, we provided training to 169,734 employees, representing 56% of our total
  employees. Our training programs were attended by 22,691 managers and 147,043
  non-managerial employees (representing 86.6% of the total), and 139,280 male
  employees and 30,454 female employees (representing 17.9% of the total). In
  aggregate, we provided 3,397,455 hours of training in 2002, and each program
  lasted on average approximately 20 hours.
Employees
  with Disabilities
We
  employed approximately 3,960 disabled persons as of December 31, 2002. This
  figure, however, does not include our activities in certain jurisdictions that
  do not have a precise definition of a disabled person.
Social
  Work
We
  provided €74.3 million in subsidies related to social work in 2002. This
  figure, however, does not cover all of our activities in this domain, and does
  not include our subsidies in a number of countries that do not record this amount
  separately from other labor-related charges.
Outsourcing
  and Procurement
Because
  our core business is to respond to the outsourcing needs of our clients for
  environmental services, we do not, as a general matter, outsource our activities,
  except for a limited number of activities relating to analysis and testing,
  construction and specific technical missions.
We
  adopted a procurement charter in 2002 covering all participants in our procurement
  network around the world. This charter sets forth the principles and rules governing
  our procurement activities, including ethical principles and the rules adopted
  by the International Labor Organization relating to forced labor, child labor,
  equality of opportunity and freedom of association. We require all of our suppliers
  to commit to us to respect these rules and principles through specific contractual
  clauses in our supply arrangements with them.
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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, 2002, our directors and senior managers hold options to subscribe
  to shares of our company as follows:
2001
      Plan
    Number
      of
    
    Exercise
    
    Expiration
      DateShares
    
    PriceHenri
      Proglio
    208,000
    
    €42
    
    February
      8, 2009Jerôme
      Contamine
    41,600
    
    €42
    
    February
      8, 2009Jean-Pierre
      Denis
    41,600
    
    €42
    
    February
      8, 2009Antoine
      Frérot
    41,600
    
    €42
    
    February
      8, 2009Denis Gasquet
    41,600
    
    €42
    
    February
      8, 2009Andrew Seidel
    41,600
    
    €42
    
    February
      8, 20092002
      PlanHenri Proglio
    220,000
    
    €37.53
    
    January
      29, 2010Jerôme
      Contamine
    65,000
    
    €37.53
    
    January
      29, 2010Jean-Pierre
      Denis
    45,000
    
    €37.53
    
    January
      29, 2010Antoine
      Frérot
    45,000
    
    €37.53
    
    January
      29, 2010Denis Gasquet
    45,000
    
    €37.53
    
    January
      29, 2010Andrew Seidel
    45,000
    
    €37.53
    
    January
      29, 2010As
  of December 31, 2002, 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. 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 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. Except for early exercises allowed under limited circumstances,
  options granted pursuant to this plan become exercisable in February 2004 and
  expire in February 2009. As of December 31, 2002, none of these options had
  been exercised.
On
  January 28, 2002, our management board decided to implement a stock option plan
  pursuant to which approximately 1,400 of our employees will be entitled to receive
  options to subscribe to a total of 4,413,000 newly-issued shares of our company
  at €37.53 per share, which was the average market price over the 20 stock
  exchange days immediately preceding the date of the meeting of our management
  board. During 2002, we granted options to acquire 4,413,000 newly-issued shares
  pursuant to this plan, 10.5% of which were granted to the members of our management
  board. Except for early exercises allowed under limited circumstances, options
  granted pursuant to this plan become exercisable in January 2006 and expire
  in January 2010. As of December 31, 2002, none of these options had been exercised.
On
  March 24, 2003, our management board approved a 2003 stock option plan that
  provides for the issuance of options to acquire approximately 1.5% of our capital
  stock on the date of approval, which represents slightly less than one-half
  of the total amount authorized by our general shareholders meeting on
  April 25, 2002. The allocation of the options will generally follow the allocation
  used in the 2002 stock option plan, which allocated 12% of the options to the
  members of our management board and the rest to approximately 1,400 of our employees.
  The exercise price of these options will be €22.50 per share, which reflects
  the price per share paid by the group of new investors in December 2002.
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ITEM
  7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR
  SHAREHOLDERS
The
  table below shows the ownership of our shares and voting rights at December
  31, 2002:
Shareholder
    Number
      ofshares
    
    Percentage
      ofshare
      capital
    
    Number
      ofvoting
      rights
    
    Percentage
      ofvoting
      rightsVivendi
      Universal(1)
    82,486,072
    
    20.36
    %
    82,486,072
    
    20.83
    %Our
      Company(2)
    9.142.362
    
    2.26
    %
    n.a.
    
    n.a.Group
      of New Investors(3)
    78,861,228
    
    19.47
    %
    78,861,228
    
    19.92
    %of
      which:Caisse
      des Dépôts et Consignations(4)
    28,062,880
    
    6.93
    %
    28,062,880
    
    7.09
    %Groupama(5)
    22,514,891
    
    5.56
    %
    22,514,891
    
    5.69
    %EDF(6)
    16,155,492
    
    3.99
    %
    16,155,492
    
    4.08
    %Putnam(7)
    20,430,385
    
    5.04
    %
    20,430,385
    
    5.16
    %Public
    147,136,860
    
    36.32
    %
    147,136,860
    
    37.16
    %Other
      Investors
    67,013,552
    
    16.54
    %
    67,013,552
    
    16.93
    %Total(8)
    405,070,459
    
    100
    %
    395,928,097
    
    100
    %(1)
    According
      to Vivendi Universals filings with Euronext Paris.(2)
    Including
      3,624,844 shares repurchased from Vivendi Universal pursuant to an agreement
      dated November 24, 2002, which is described below. On December 11, 2002,
      our former management board decided that these shares will be used in offerings
      to our employees, including through our employee share purchase plans and
      our employee stock option plans.(3)
    Represents
      the shares purchased from Vivendi Universal by the members of the group
      of new investors (excluding our company) pursuant to an agreement dated
      November 24, 2002, which is described below. Including the shares repurchased
      by our company from Vivendi Universal under this agreement, these investors
      held in aggregate 82,486,072 shares, representing 20.36% of our share capital,
      as of December 31, 2002. These investors have agreed not to sell or transfer
      the shares repurchased from Vivendi Universal until December 2003, as described
      below.(4)
    According
      to CDCs filings with Euronext Paris. The share figures include the
      shares purchased from Vivendi Universal pursuant to the November 24, 2002
      agreement, as well as shares purchased by CDC in other transactions. According
      to CDCs most recent filing with Euronext Paris, as of April 30, 2003
      CDC held 28,759,948 shares representing approximately 7.10% of our share
      capital and 7.26% of our voting rights. CDC has declared in its filings
      with Euronext Paris that it is acting as a financial investor and, although
      it may decide to purchase additional shares of our company depending on
      market conditions, it does not intend to assume control of our company.(5)
    According
      to Groupamas filings with Euronext Paris. The share figures include
      the shares purchased from Vivendi Universal pursuant to the November 24,
      2002 agreement, as well as shares purchased by Groupama in other transactions.(6)
    According
      to EDFs filings with Euronext Paris. EDF has declared in the November
      24, 2002 agreement that it will hold the shares as a financial investment,
      that it does not seek to influence our management and that it would exercise
      its voting rights with the sole aim of enhancing the value of its investment.(7)
    Shares held
      under management by Putman Investment Management LLC and The Putnam Advisory
      Company LLC on behalf of its clients, according to filings made by Putnam
      Investment Management LLC and The Putnam Advisory Company LLC with Euronext
      Paris.(8)
    Includes
      shares held by members of the Société Générale
      group. According to Société Générales
      most recent filing with Euronext Paris, as of April 30, 2003 members of
      the Société Générale group held in aggregate
      17,338,168 shares representing approximately 4.28% of our share capital
      and 4.38% of our voting rights, which includes the shares purchased by Aurelec
      from Vivendi universal pursuant to the November 24, 2002 agreement, as well
      as shares purchased by members of the Société Générale
      group in other transactions.To
  the best of our knowledge, no person other than those listed above holds 5%
  or more of our shares. Vivendi Universal does not have different voting rights
  than our other shareholders except by virtue of the large number of shares it
  holds. We believe that we had approximately 302,390 shareholders as of January
  15, 2003, of whom 27.5% were foreign investors, 72.5% French investors (including
  5.6% French individual shareholders).
We
  estimate that, as of December 31, 2003, approximately 32 million of our shares
  (representing less than 8% of our share capital) were held by over 2,000
  holders in the United States. As of March 26, 2003, 803,383 of our shares were
  held in the form of ADRs by 12 registered ADR holders (including The Depository
  Trust Company).
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The
  following table shows the evolution of the ownership of our shares over the
  past three years:
As
      of December 31,Shareholders
    As
      of September 29, 2000(1)
    
    2001(2)
    
    2002Number
      of
      Shares
    
    %
      of
      capital
    
    %
      of
      voting
      rights
    
    Number
      of
      Shares
    
    %
      of
      capital
    
    %
      of
      voting
      rights
    
    Number
      of
      Shares
    
    %
      of
      capital
    
    %
      of
      voting
      rightsVivendiUniversal
    
    250,653,168
    
    72.4
    %
    72.7
    %
    218,278,926
    
    63.05
    %
    63.85
    %
    82,486,072
    
    20.36
    %
    20.83
    %Our Company
    
    1,388,463
    
    0.4
    %
    –
    
    4,298,174
    
    1.24
    %
    –
    
    9,142,362
    
    2.26
    %
    –Public andOther Investors
    
    94,133,324
    
    27.2
    %
    27.3
    %
    123,598,672
    
    35.7
    %
    36.15
    %
    313,442,025
    
    77.38
    %
    79.17
    %Total
    
    346,174,955
    
    100
    %
    100
    %
    346,175,772
    
    100
    %
    100
    %
    405,070,459
    
    100
    %
    100
    %(1)
    As
      of September 29, 2000, French investors held approximately 84% of our shares
      (and foreign investors the remaining 16%), our directors and senior managers
      did not hold a material percentage of our shares and no shareholder other
      than Vivendi Universal held more than 5% of our share capital.(2)
    As
      of December 31, 2001, French investors held approximately 88% of our shares
      (and foreign investors the remaining 12%), our directors and senior managers
      did not hold a material percentage of our shares and no shareholder other
      than Vivendi Universal held more than 5% of our share capital.Relationship
  with Vivendi Universal as Principal Shareholder
During
  the course of 2002, Vivendi Universal's interest in our company decreased from
  approximately 63% to approximately 20% in a series of transactions described
  below. 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 was 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
  existing 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, including those resulting from our
  capital increase through a rights offering conducted in July 2002, each 7 warrants
  will entitle the holder to subscribe 1,009 shares 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. 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. As of December 31, 2002,
  99,134 warrants had been exercised, which resulted in the issuance of 14,162
  new shares and an increase in share capital of €191,187, including 91 warrants
  exercised in 2002 that resulted in the issuance of 13 new shares which were
  acknowledged and recorded by our management board on March 24, 2003.
On
  June 12, 2002, Vivendi Universal and Deutsche Bank AG, acting through its London
  branch, signed a financing agreement in the form of a French repurchase arrangement
  (pension
  livrée),
  maturing on December 27, 2002, with respect to 43.5 million of our shares. Following
  this transaction, Deutsche Bank held 43,990,083 of our shares, representing
  12.70% of our capital and 12.90% of the voting rights. On June 24, 2002, Deutsche
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Bank sold 53,787,250
  of our shares on the open market. This sale was conducted through an accelerated
  book-building of institutional investors and was managed by BNP Paribas, Deutsche
  Bank and Société Générale. In connection with this
  transaction, Deutsche Bank sold the shares it held pursuant to the June 12,
  2002 financing agreement with Vivendi Universal, which was increased as part
  of the offering. The amount of the financing, which matured on December 2002,
  was repaid by means of a forward contract between Vivendi Universal and Deutsche
  Bank for the same number of shares at the offering price. This transaction did
  not have an impact on the market for our shares.
Relationship
  with the Group of Declared Investors and the New Investors
In
  July 2002, we conducted a capital increase through the issuance of preferential
  subscription rights to our shareholders. Pursuant to the terms of an agreement
  dated June 24, 2002, several financial investors, whom we refer to as the Group
  of Declared Investors (GID) acquired and exercised the preferential subscription
  rights granted to Vivendi Universal and subscribed for the remainder of our
  shares not subscribed by the public. The GID consisted of the Caisses des Dépôts
  et Consignations, Groupama, BNP Paribas, AGF, Société Générale,
  Dexia, Caisses dEpargne, Crédit Lyonnais and Natexis Banques Populaires.
  Following the transaction, the GID held 9.4% of our share capital, which was
  subject to a lock-up that has since expired.
Vivendi
  Universal continued to hold shares representing 40.8% of our capital and, in
  the context of our capital increase, agreed that, until December 23, 2003, it
  would not take any of the following actions without the prior written consent
  of the banks that managed the capital increase:
(i)
    offer, sell,
      pledge or otherwise transfer, directly or indirectly, any of our shares,(ii)
    issue, grant,
      offer or sell, directly or indirectly, any securities convertible into or
      exchangeable for our shares, or(iii)
    enter into
      any derivative transaction in respect of our shares,These
      limitations, however, would not apply in the case of:(i)
    a tender
      of our shares in connection with a public tender or exchange offer for our
      shares, a merger with or partial asset contribution to our company or any
      other restructuring transaction in respect of our company, to the extent
      that the final holder of 10% or more of our shares agrees to become subject
      to the same lock-up obligations for the remainder of the lock-up period,(ii)
    a sale by
      Vivendi Universal in the event that Vivendi Universal is subject to a public
      tender offer or exchange offer that is not approved by the Board of Directors
      of Vivendi Universal,(iii)
    the delivery
      of shares pursuant to the exercise of Vivendi Universals outstanding
      exchangeable bonds issued in February 2001,(iv)
    sales to
      third parties in private transactions, so long as the transferee agrees
      to become subject to the same lock-up obligations for the remainder of the
      lock-up period, or(v)
    a pledge
      of shares, so long as the pledgee agrees to become subject to the same lock-up
      obligations for the remainder of the lock-up period.On
  November 24, 2002, Vivendi Universal, our company, the GID and a group of new
  investors, whom we refer to as the New Investors, signed an addendum to the
  original GID agreement to allow Vivendi Universal to sell on December 24, 2002
  to the New Investors and to our company a total of 82,486,072 of our shares
  and to grant, for each share acquired, a call option that is exercisable at
  any time between December 24, 2002 and December 23, 2004. Each call option grants
  the right to purchase one of our shares at a price of26.50 per
  share, subject to normal adjustments in the case of transactions affecting our
  share capital. The sale of 82,486,072 of our shares closed on December 24, 2002.
  In the event that all of the call options are exercised, Vivendi Universal will
  no longer hold any of our shares.
Pursuant
  to the addendum, we repurchased 3,624,844 of our own shares, representing approximately
  0.9% of our capital, and hold a call option to purchase the an equal number
  of our shares from Vivendi Universal. The New Investors consist of EDF, Caisse
  des Dépôts et Consignations, Groupama SA, AXA, Compagnie dInvestissement
  de Paris SAS, Eurazeo, Aurélec, Dexia Crédit Local, Caisse Nationale
  des Caisses dEpargne, Assurances Générales de France Holding,
  CNP-Assurances, Crédit Agricole Indosuez (Suisse) SA (for its own account
  and the account of a client), CIC, Generali, Crédit Lyonnais Médéric
  Prévoyance and Wasserstein Family Trust LLC. Each of the New Investors
  has agreed to be bound by the terms of Vivendi Universals lockup described
  above, except that the lock-up restrictions will not apply in the case of:
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(i)
    a tender
      or sale of our shares in the context of a public tender offer initiated
      for our company,(ii)
    sales to
      third parties in private transactions, so long as the transferee agrees
      to become subject to the same lock-up obligations for the remainder of the
      lock-up period,(iii)
    a transfer
      by a New Investor to any company controlled by it, controlling it, or under
      the common control with it, so long as the transferee agrees to become subject
      to the same lock-up obligations for the remainder of the lock-up period;(iv)
    a pledge
      of shares, so long as the pledgee agrees to become subject to the same lock-up
      obligations for the remainder of the lock-up period;(v)
    a loan or
      sale of shares in the connection with the implementation of employee shareholding
      programs; and(vi)
    a transfer
      to any third party pursuant to a final judicial decision that is not subject
      to appeal or that is immediately enforceable which requires the transfer
      to be consummated before December 21, 2003, or, upon the occurrence of certain
      acceleration events, for purposes of enforcing the pledges granted by Vivendi
      Universal to its lenders and the New Investors.The
  following table shows the shareholders and the number of shares that are bound
  by the lock-up agreement described above and the number of additional shares
  that may be purchased by these shareholders pursuant to the addendum dated November
  24, 2002. Other than the Caisse des Dépôts et Consignations, EDF
  and Groupama, none of the shareholders below would hold 5% or more of our share
  capital if they exercised all of their call options under the November 24, 2002
  addendum.
Shareholders
    Number
      of Shares
      Subject to the
      Lock-up
    
    Number
      of Shares
      Underlying Call
      Options issued by
      Vivendi Universal(1)EDF
    16,155,492
    
    16,155,492Caisse des
      Dépôts et Consignations
    12,278,000
    
    12,278,000Groupama
      SA
    12,116,619
    
    12,116,619AXA
    5,333,334
    
    5,333,334Compagnie
      d'Investissements de Paris SAS(2)
    4,444,445
    
    4,444,445Eurazeo
    4,444,445
    
    4,444,445Our Company
    3,624,844
    
    3,624,844Aurelec(3)
    3,333,334
    
    3,333,334Dexia
    2,666,667
    
    2,666,667Caisse Nationale
      des Caisses d'Epargne
    2,444,445
    
    2,444,445Assurances
      Générales de France Holding
    2,222,223
    
    2,222,223CNP
    2,222,223
    
    2,222,223Crédit
      Agricole Indosuez (Suisse) for the account of a client
    2,222,223
    
    2,222,223Crédit
      Industriel et Commercial SA
    2,222,223
    
    2,222,223Generali
    2,222,223
    
    2,222,223Crédit
      Agricole Indosuez (Suisse) SA
    1,199,999
    
    1,199,999Crédit
      Lyonnais
    1,111,111
    
    1,111,111Médéric
      Prévoyance
    1,111,111
    
    1,111,111Wasserstein
      Family Trust LLC
    1,111,111
    
    1,111,111Total
    82,486,072
    
    82,486,072(1)
    The
      additional shares purchased from Vivendi Universal upon exercise of the
      call options will remain subject to the lockup agreement described above.(2)
    Member
      of the BNP Paribas group.(3)
    Member
      of the Société Générale group.To
  our knowledge, there are no shareholders or other agreements relating
  to our shares other than the lock-up agreement described above.
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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 owned 56.53% of FCC, at market value (€691 million);contributing
      to us its 100% interest in Compagnie Générale d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 Veolia Water at book value in exchange for shares of Veolia Water stock;
      andtransferring
      securities representing its interest in USFilter to Veolia 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 Securities and Interests
In
  order to complete the separation of Vivendi Universal and our company, we entered
  into a Master Agreement with Vivendi Universal dated December 20, 2002, as well
  as an ancillary Cooperation Agreement.
Pursuant
  to the terms of the Master Agreement, our company and Vivendi Universal have
  agreed that:
Vivendi
      Universal will sell its 83.7% interest in Apa Nova Bucaresti, a Romanian
      company, to Compagnie Générale des Eaux for €35,009,309,subject
      to a number of conditions, Vivendi Universal will sell its 20.09% interest
      in Genova Acque, an Italian company, to Compagnie Générale
      des Eaux for €25 million;subject
      to certain conditions, Vivendi Universal will sell its 26% interest in the
      Société des Eaux et de lElectricité du Nord (Tanger-Tetouan)
      to Compagnie Générale des Eaux for €6,548,852, which
      has been settled by setting-off an equal amount owed by Vivendi Universal
      to our company as a result of the payment of the original purchase of this
      company made by us on behalf of Vivendi Universal,Vivendi
      Universal will sell preferred shares of VNAC to VNAO for US $10,176,750;Vivendi
      Universal or certain of its subsidiaries will sell to our company and/or
      certain of our subsidiaries various securities and interests with an insignificant
      value; andwe,
      or our subsidiaries, will sell to Vivendi Universal various securities and
      interests that we have historically held in companies unrelated to our environmental
      management services business.The
  Master Agreement provides that the sale of these securities and interests must
  be finalized by no later than December 31, 2004.
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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 under a special tax exemption regime.
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. During 2002, Vivendi Universal transferred to us almost all of the remaining contracts (with a book value of €25.4 million) as it received the required consents from the other parties to these contracts.
As of December 31, 2002, six contracts had not yet been transferred for various reasons, representing revenue of approximately €10 million. Pursuant to the terms of the Cooperation Protocol dated December 20, 2002, Vivendi Universal has agreed to continue operating these contracts with the financial support of Compagnie Générale des Eaux, which will receive the economic benefits and assume the risks under the contracts.
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 the financial relationship
  between Vivendi Universal and our company, include:
an intercompany
      short-term loan agreement signed in June 2000;an infrastructure
      renewal and maintenance guarantee agreement relating to our water and heat
      distribution activities; anda counter-guarantee
      agreement related to guarantees granted by Vivendi Universal on or prior
      to June 20, 2000 in favor of our subsidiaries.These
  contracts which were approved by our supervisory board on June 19, 2000, were
  modified during 2002.
We have also entered into a number of indebtedness and other financial transactions with Vivendi Universal that are not related to our formation, including an agreement relating to Aguas Argentinas, 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 of June 19, 2000
On
  June 19, 2000, the existing shareholders current account was consolidated
  under a credit line extended to us by Vivendi Universal for a maximum amount
  of8.12
  billion repayable at maturity on December 31, 2004. This credit line agreement
  was accompanied by an interest rate swap agreement on September 15, 2000. 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. During
  the second half of 2001 and the first half of 2002, we and Vivendi Universal
  agreed to undo the swap arrangements pursuant to agreements dated March 4, 2002
  and January 13, 2003. The latter agreement terminated the June 19, 2000 loan
  agreement except for provisions relating to the shareholders account,
  which may be temporarily and automatically reactivated at any 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.
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.
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 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 €15.2 million (in June
  2000 euros) 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.
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Pursuant to the terms of the Master Agreement dated December 20, 2002, the €15.2 million annual cap was increased beginning in fiscal year 2002 by an additional €15.2 million, raising the annual cap to €30.5 million (in June 2002 euros), or €32.38 million after indexing.  Although due from fiscal year 2002, the additional €15.2 million tranche will only be payable beginning in January 2005 and will bear interest at the legal interest rate.  The Master Agreement also provides that if the cumulative amount of our renewal expenses exceeds €228.7 million, Vivendi Universal will cover the excess amount up to a maximum and definitive amount of €76.2 million.  Finally, we agreed to terminate the guarantee relating to exceptional expenses, which were initially guaranteed up to a maximum total amount of €381.1 million less any sums already paid to us under the guarantee.
Counter-Guarantee
  Agreement
Prior to our formation and the initial public offering of our shares, Vivendi Universal granted a variety of guarantees (for an initial amount of €6 billion) to third parties on behalf of our subsidiaries, generally in connection with those subsidiaries bids for public auctions, receipt of funds from bank financing and sales of assets (the subsidiary guarantees).
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. In the absence of a transfer or prior to a transfer taking place, Vivendi Universals commitments are counter-guaranteed by our company.
Pursuant to the Master Agreement dated December 20, 2002, and in light of the transfer or expiration of certain of the guarantees covered by the June 20, 2000 protocol, we and Vivendi Universal have redefined both the list of subsidiary guarantees that will be transferred to, or otherwise counter-guaranteed by, our company as well as the conditions and means by which Vivendi Universal may obtain a counter-guarantee from us.
As of December 31, 2002, the total amount potentially due under the subsidiary guarantees was approximately €247 million. Of this amount, we have already obtained consents from subsidiaries to transfer guarantees from Vivendi Universal to us representing an amount due of approximately €50 million.
Aguas Argentinas
Pursuant to the December 20, 2002 Master Agreement, we and Vivendi Universal have agreed that Vivendi Universal will definitively remain the owner of shares of Aguas Argentinas, an Argentinean company, which were listed among the interests that we were supposed to acquire pursuant to an annex to the June 20, 2000 counter-guarantee agreement.  As a result, Vivendi Universal has definitively cancelled the counter-guarantee relating to these shares given to us pursuant to the June 20, 2000 agreement. In exchange, we have agreed to pay, subject to a cap of US $5 million, the first sums due under Vivendi Universals guarantees in respect of Aguas Argentinas financial commitments.
Vinci
  Exchangeable Bond
We also participated indirectly in the issuance by Vivendi Universal on March 1, 2001 of bonds that are to be repaid either in existing shares of Vinci or cash. 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
  Agreements
FCC
  Agreement
In
  connection with the formation of our company, Vivendi Universal transferred
  to us its 49% interest in a holding company that owns 52.48% of the shares of
  Fomento de Construcciones y Contratas (FCC), a leading provider
  of environmental management and other services in Spain and Latin America. Ms.
  Esther Koplowitz owns the remaining 51% of FCCs holding company. As a
  result, we have an indirect 25.7% stake in FCC, which is listed on the Madrid
  Stock Exchange. 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.
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The
  relationship between the shareholders of FCCs holding company is governed
  by the following agreements:
•
    a shareholders
      agreement, which establishes the principles for shared control of FCCs
      holding company and its subsidiaries, including equal representation in
      the main executive bodies of FCC and its subsidiaries group, such as the
      boards of directors and executive committees of these companies;•
    an option
      agreement, pursuant to which Ms. Koplowitz has the option, exercisable at
      any time through October 16, 2008, to require us to purchase the remaining
      51% interest in FCCs holding company at a price determined at the
      time of exercise based on the average market price of FCCs common
      stock over the prior three months, subject to a cap equal to the higher
      of seven times FCCs EBITDA and 29.5 times FCCs earnings per
      share in the prior fiscal year; and•
    the articles
      of association of FCCs holding company, which 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 dissolution, require supermajority shareholder approval, and establishes
      a reciprocal right of first refusal in the event of a sale of shares of
      the holding company to a third party.If
  Ms. Koplowitz exercises the put option against us, we would ultimately own 100%
  of the holding company that controls FCC. Under these circumstances, Spanish
  law may require us to launch a public tender offer for all of the shares of
  FCC not owned by FCCs holding company, which represent approximately 47.52%
  of FCC outstanding shares, at a price per share to be approved by the Spanish
  stock exchange authorities. Based on the price of FCCs common stock on
  March 3, 2003, the price for the remaining 47.52% of FCC would be approximately
  €1.4 billion, subject to adjustment by the Spanish stock exchange authorities.
Under
  the agreements, Ms. Koplowitz also had the right to buy Vivendi Universals
  interest in FCCs holding company in the event that Vivendi Universal ceased
  to hold a majority interest in our company. However, on June 17, 2002, we entered
  into an agreement with Ms. Koplowitz pursuant to which we formally replaced
  Vivendi Universal as the contractual party to these agreements and were recognized
  as a definitive authorized shareholder of FCCs holding company. As a result,
  Ms. Koplowitz also agreed to not exercise the right to buy our interest in FCCs
  holding company in the event that Vivendi Universal ceased to hold a majority
  of our shares. In exchange, we granted Ms. Koplowitz the right to buy our interest
  in FCCs holding company in the event that our company is subject to a
  hostile takeover. This agreement defines a hostile takeover as any
  direct or indirect acquisition of 25% or more of our shares that does not have
  the approval of our board of directors (formerly of our supervisory board and
  our management board) that is effected by a direct competitor of FCC in Spain.
  The purchase price would be equal to the average of the price we paid for the
  acquisition of our participation in FCCs holding company (€691 million)
  and the market value of this participation, which is determined by reference
  to the average trading price of FCCs shares during the three-month period
  preceding the hostile takeover. The bylaws of FCCs holding company also
  grant each shareholder a right of first refusal in the event the other shareholder
  wishes to sell all or a portion of its shares.
In addition, we have confirmed our commitment to support the growth of revenue from FCCs activities, other than FCCs real estate activities in Spain (conducted through its 50% interest in Realia) and its other services activities (including industrial logistics, air conditioning, vehicle imports and security) conducted through its majority interest in Gruycsa. As a result, we have agreed that, until December 31, 2004, the Chairman of the Board of Directors of FCC would have a casting vote in the event of any deadlocks between the members of the Executive Committee of FCC on decisions relating to projects for the realization of this objective. This temporary casting vote may become a permanent right of the Chairman of the Board of Directors of FCC after December 31, 2004 in the event that FCCs revenue does not meet certain growth targets.
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. Under the terms of the agreement, we may
  not grant a sub-license to any of our subsidiaries. The license has a term of
  five years, and is renewable automatically for sucessive 5-year periods, unless
  terminated by either party with six months prior notice. The agreement
  may be terminated by Vivendi Universal if Vivendi Universal ceases to hold,
  directly or indirectly, shares carrying a majority of our voting power.
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Upon approval of our shareholders at the general meeting held on April 30, 2003, we have ceased using the term Vivendi in our name or as our trademark. As a result, the license agreement will cease to have a valid purpose and will be terminated within a reasonable period of time to allow for the completion of the formalities related to our name change, as well as our logistical and technical requirements, such as, in particular, the rerouting of our Internet websites.
Sale
  of Plane to Richard Heckmann
In May 2001, USFilter sold a used Canadair Challenger aircraft to Richard Heckmann, former Chairman of USFilter and a member of our supervisory board until April 2003, for US $8,000,000. The sale was made pursuant to an agreement entered into at the time of the acquisition of USFilter by Vivendi Universal.
Transfer of Certain Work Contracts
Prior to our formation, four members of our former management board (Messrs. Proglio, Contamine, Frérot and Gasquet) had employment contracts with Vivendi Universal, which, after our formation, billed us in full for compensation paid under these contracts. Effective February 1, 2003, these employment contracts have been transferred to our company pursuant to French labor law with terms and conditions that are essentially identical to those contained in the contracts signed with Vivendi Universal.
Agreements
  with Groups of Investors
See Item 7. Major Shareholders and Related Party TransactionsMajor ShareholdersRelationship with the Group of Declared Investors and the New Investors for a description of our agreements with several investors that hold our shares.
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ITEM 8: FINANCIAL INFORMATION
CONSOLIDATED
  STATEMENTS AND OTHER FINANCIAL INFORMATION
Please refer to the consolidated financial statements and the notes thereto in Item 18.
Litigation
We are involved from time to time in various legal proceedings in the ordinary course of our business. Other than as described below, we do not believe that any of the legal proceedings in which we are currently involved in the ordinary course of our business will have a material adverse effect on our results of operations, liquidity or financial condition.
Compagnie Générale des Eaux
On
  February 27, 2001, the French Competition Council (Conseil
  de la concurrence)notified
  Compagnie Générale des Eaux of a complaint alleging that several
  joint ventures that it had formed with other water services companies affected
  the level of competition in this market. On July 11, 2002, the Council rejected
  the allegations of illicit cooperation among the water services companies in
  question and refused to impose monetary sanctions or issue an injunction against
  these companies. However, the Council considered that the existence of these
  joint ventures may constitute a collective dominant position in
  this market and requested the French Ministry of Economy and Finance to take
  all necessary measures to modify, complete or terminate the pooling of means
  arrangement of these companies through their joint ventures. On February 18,
  2003, the Court of Appeals of Paris (Cour
  dappel de Paris)
  confirmed the Councils decision, indicating that the French Ministry of
  Economy and Finance would decide, in its sole discretion, on the scope and terms
  of the measures to be taken in application of the Councils decision. The
  decision of the Court of Appeals was appealed before the French Supreme Court
  (Cour
  de cassation).
  In light of the nature of the litigation, we have not accrued a reserve for
  the potential outcome of this litigation.
SADE
In April, 2000, SADE, a subsidiary of Veolia Water, and 40 other companies received notice from the French Competition Council of a complaint alleging anticompetitive agreements among these companies in respect of public bids for 44 public sector construction contracts in the Ile-de-France department, which includes Paris and its suburbs. These companies, including SADE, filed answers to the complaint in September 2000. The Council filed 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. The companies filed an answer to the new complaint in January 2002. In particular, SADE contests the Councils complaint on the merits and on the basis of irregularities in the complaint procedure that have affected its right of defense. At this stage of the procedure, we cannot

evaluate the financial risk associated with this procedure and, accordingly, have not accrued a reserve for the potential outcome of this litigation.
OTV
At
  the end of 1993, NOSS, a consortium led by Northwest Water International Limited
  in which Veolia Water participates through its subsidiary Omnium de Traitement
  et Valorisation, or OTV, won a contract to build a water treatment facility
  and a wastewater collection network in the city of Bangkok pursuant to an offer
  made in a public tender held in 1992. The value of the contract at the time
  was 150 million pounds sterling and required 38 months of public works. Because
  of numerous difficulties encountered with Bangkok municipal authorities (including,
  for example, restrictions on access to key sites and modifications of project
  specifications) and the failure to agree on compensation during the ensuing
  discussions, NOSS terminated the contract on March 6, 1998 and commenced an
  arbitration proceeding for damages. The Bangkok municipal authorities rescinded
  the contract in June 1999 and drew on the project guarantees, which were partially
  paid by the issuer banks. In addition, all related outsourcing contracts were
  terminated by mutual consent, except for a contract with Euro Iseki Limited,
  or EIOL, which commenced its own arbitration proceeding against NOSS for payment
  of 12 million pounds sterling. Regarding the claim against the municipality
  of Bangkok, the arbitrators are still in the process of being appointed. Regarding
  EIOLs claim, the arbitral court rejected EIOLs request for an accelerated
  payment procedure and held that EIOL bears the burden of proving its alleged
  claim. In addition, EIOLs allegations that NOSS acted in bad faith were
  also rejected. As a result, we do not expect that a final award will be rendered
  in either of these proceedings for several years. Although it is jointly and
  severally liable with the other members of the NOSS consortium in respect of
  any monetary damages that may be awarded to the other parties in these proceedings,
  we do not believe that this litigation will have a material adverse effect on
  our company and have accrued a reserve for its potential outcome.
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USFilter
Several subsidiaries of USFilter are defendants in lawsuits in the United States in which the plaintiffs seek to recover for personal injury and other damages for alleged exposure to asbestos, silica and other potentially harmful substances. These lawsuits typically allege that the plaintiffs injuries resulted from the use of products manufactured or sold by USFilters subsidiaries or their predecessors. There are generally numerous other defendants, in addition to USFilters subsidiaries, which allegedly contributed to the claimed injuries. We accrue a reserve for USFilters subsidiaries estimated liability in these cases based on, among other things, the nexus between the claimed injuries and the products manufactured or sold by USFilters subsidiaries or their predecessors, the extent of the injuries allegedly sustained by the plaintiffs, the involvement of other defendants, and the

availability of insurance coverage. These reserves are accrued at the time such liabilities are probable and reasonably estimable. A number of such claims have been resolved to date either through settlement or dismissal. To date, none of these claims has been tried to a verdict. We do not expect these claims to have a material adverse effect on our business, financial condition or results of operation. It is not possible, however, to predict the extent to which additional claims of this type may be filed in the future against USFilters subsidiaries or the amounts for which USFilters subsidiaries ultimately may be liable as a result of such claims.
Connex
On November 27, 1998, the French General Direction for Consumers, Competition and the Prevention of Fraud, or 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. The appeals filed by Connex in respect of these decisions were rejected, and on February 11, 2003 Connex was notified that the Ministry of Economy and Finance had requested the French Competition Council to render a decision in this matter on the merits. We have not accrued any reserves for this claim.
Onyx
In
  April 1998, Onyx and JANCOM International Development Projects, or 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 had been 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 has filed a counterclaim against JANCOM for damages amounting to US$1 million,
  which was increased to US$3 million. On June 24, 2002, the arbitral court rendered
  an interim decision confirming that the exclusivity clause did not become effective.
  At this stage of the proceedings, JANCOM still has an opportunity to present
  evidence of the alleged destructive nature of the project. However,
  on December 19, 2002, the arbitral court ordered JANCOM to post a US $585,000
  surety bond as security for payment of procedural costs and expenses. JANCOM
  has not posted the required guarantee. We have not established any reserves
  in our accounts in respect of this claim.
On
  July 27, 1997, a fire that started in a landfill operated by Onyx Méditerranée,
  a subsidiary of Onyx, in Septèmes-les-Vallons, in the south of France,
  destroyed 3,500 hectares of scrubland. As a result of damages inflicted to certain
  assets located in the surrounding area and, to a lesser extent, several minor
  injuries suffered by several persons, the criminal court (tribunal
  correctionnel)of
  Aix-en-Provence commenced proceedings against Onyx Méditerranée
  in February 2003, in the context of which civil parties are requesting damages
  in a maximum amount of €6 million. On May 6, 2003, the criminal court rendered
  a verdict requiring Onyx Méditerrannée to pay a €100,000
  fine and placing this company under the supervision of a court-appointed supervisor
  for a 3-year period. The court also appointed an expert to determine the amount
  of damages owed to civil parties and has ordered Onyx Méditerrannée
  to make advance payments in limited amounts to several of these civil parties
  pending the final outcome of the expertise. Onyx Méditerrannée
  has appealed the portion of the verdict that requires it to remain under this
  3-year supervision. We do not expect this litigation to have a material adverse
  effect on our financial condition and have not accrued any reserves in our accounts
  in respect of this claim.

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Dalkia
In
  August 1995, Finenergia, an Italian subsidiary of Dalkia, entered into a heads
  of agreement with members of the Jacorossi family to acquire the Fintermica
  group. The acquisition was subject to satisfactory accounting
  due diligence in respect of all of the companies in the Fintermica group. Because
  this condition was not satisfied, Finenergia terminated the negotiations relating
  to this acquisition. The Jacorossi family commenced arbitration proceedings
  against Finenergia alleging that, pursuant to the heads of agreement, any dispute
  relating to the purchase price should have been resolved through a technical
  arbitration that would have rendered a decision on the purchase price that would
  have been binding on the parties. The arbitral tribunal held that Finenergia
  had terminated the heads of agreement in bad faith and ordered KPMG to determine
  the amount of damages suffered by the Jacorossi family as a result of this termination.
  On February 20, 2003, KPMG issued a preliminary report finding that the Jacorossi
  family members suffered a direct financial harm of between €19 million
  and €26 million. Finenergia has filed several appeals at different stages
  of these proceedings and has contested KPMGs preliminary report on grounds
  relating to form and on the merits. We have accrued a reserve in our accounts
  in respect of this claim.
Proactiva
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 operated a wastewater treatment facility in
  Barceloneta, Puerto Rico, that emitted offensive odors and hazardous substances
  into the environment, which damaged the health of the plaintiffs, a group of
  local residents. The lawsuits were consolidated into a single suit and transferred
  to the Commonwealth Court in San Juan, Puerto Rico, at the order of the Supreme
  Court of Puerto Rico. The consolidated suit is currently in the discovery stage.
  We do not believe that the suits will have a material adverse effect on our
  business and intend to defend them vigorously. In light of Proactivas
  extensive insurance coverage, we have not accrued any reserves in our accounts
  in respect of this lawsuit.
See Note 14 to our consolidated financial statements for the aggregate amount of reserves accrued by our company in respect of all litigation, including tax claims, in which we or our subsidiaries are involved. These reserves cover the losses that we believe are probable as a result of all types of litigation in which we are involved in the course of our business, including a large number of claims and proceedings that, individually, are not material to our business.  The largest individual reserve accrued in our financial statements relating to litigation amounts to approximately €20 million.
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 board
  of directors and approved by our shareholders. The payment and amount of any
  future dividends will depend on a number of factors, including our financial
  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, our financial condition, our results of operations and a comparison of our operating results and financial 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
Since the date of our consolidated financial 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 developments in our businesses since December 31, 2002.
Water
In February 2003, we entered into an agreement with a group of institutional investors led by The Royal Bank of Scotland to acquire an indirect minority interest in Southern Water, a U.K. water and wastewater operator. This agreement represents the final step in our acquisition of an interest in Southern Water. In March 2002, First Aqua Holdings Limited (FAH) agreed to acquire Southern Water from Scottish Power at an enterprise value of £2 billion. The purchase agreement was executed in April 2002.

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In May 2002, Vivendi Water U.K., a subsidiary of Vivendi Water, agreed to acquire First Aqua (JVCo) Ltd., Southern Waters holding company, from FAH on terms equivalent to the initial purchase by First Aqua (JVCo) Ltd. of Southern Water. Through this acquisition, we sought to control a recognized major operator in the U.K. water market, in a dynamic geographic area, and particularly to gain access to the U.K. treatment market in order to generate synergies with our other U.K. activities. In the context of this transaction, we also granted a put option to a group of financial investors that had acquired £374 million of First Aqua (JVCo) Ltd.s preferred shares, which could be exercised on the third anniversary of Southern Waters purchase agreement (April 2005). We also had a call option to acquire these preferred shares, which could be exercised at any time between the first and fifth anniversa

ries of Southern Waters acquisition agreement (from April 2003 through April 2007) or the date of the purchase agreement between Vivendi Water U.K. and FAH, if signed prior to April 2003. The acquisition of First Aqua (JVCo) Ltd. was approved by the European Commission on August 23, 2002, but remained subject to the approval of U.K. antitrust authorities and the arrangement of long-term non-recourse financing to refinance the existing debt of First Aqua (JVCo) Ltd. and Southern Water.
Having concluded that the closing conditions set forth in the May 2002 agreement had not been satisfied, we renounced seeking to acquire a controlling interest in Southern Water and at the end of 2002 commenced negotiations with Royal Bank Investments Limited, a subsidiary of The Royal Bank of Scotland, to sell our interest in Southern Water to it immediately upon acquiring Southern Water.
In February 2003, we entered into an agreement with Southern Water Capital relating to the acquisition of Southern Water. Pursuant to this agreement, Southern Water Investments Ltd, a newly created company, will acquire First Aqua (JVCo) Ltd. in accordance with the terms of the May 2002 agreement with First Aqua Holdings Ltd. Southern Water Capital, held by the Royal Bank of Scotland (49%) and other investors (51%), will hold 80.1% of Southern Water Investments and our company will hold 19.9%.  Southern Water Capital, which will control Southern Water through Southern Water Investments, has also granted us an option to acquire an additional 5.1% stake in Southern Water Investments. In addition, First Aqua (JVCo) Ltd. will redeem the £374 million preferred shares issued to financial investors in March 2002.
The
  February 2003 agreement is subject to, among other things, U.K. regulatory approvals
  and various procedural conditions. On April 28, 2003, the UK Competition Commission
  approved the transaction on the condition that we agree to not hold more than
  25% of the Southern Water Investments and to refrain from appointing more than
  two members of Southern Water Investments board of directors and more
  than 3 members of Southern Waters board of directors.
We will invest £160 million (€243 million) in Southern Water Investments through various loans and capital contributions. Southern Water Capital will make a similar investment of £273 million (€415 million). In addition, in connection with Southern Water Investments issuance of preferred shares to several investors for £110 million (€167 million), we have agreed to grant these investors options to require us to purchase the preferred shares at par value after five years. As a result, our investment in Southern Water will be significantly lower than our previous commitment to invest £374 million (€568 million).
We expect that Southern Water will seek to refinance its regulated activities through the issuance of debt instruments using a ring-fencing technique commonly used in financings in the water sector.
Waste
  Management
In 2003, Onyx won a 25-year contract to collect, treat and recycle all of the household waste of the city of Brighton and Hove and of East Sussex County on the southern coast of the United Kingdom.
Onyx also entered into a joint-venture with the Shanghai Zhenhuan Industrial Corporation, which is owned by the State of Shanghai. This joint venture, which is first of its kind in the environmental services sector between an international waste treatment company and the State of Shanghai, represents a historical agreement in China and will allow Onyx to strengthen its position for future waste collection and treatment activities in Shanghai.
Onyx also entered into assistance and cooperation agreements with the city of Shanghai in connection with one of Chinas most important waste-to-energy units.  The Puxi unit, which is located in downtown Shanghai, will treat and recover 1,500 tons of waste per day until 2004 (estimated total revenue of €121.3 million).
Transportation
In
  the United States, Connex won a 5-year contract in February 2003 to manage the
  rail network of the Boston suburbs, in the United States, in association with
  Bombardier, a world specialist in the construction and maintenance of train
  equipment (estimated total revenue of €1 billion). This rail network, which
  is the first suburban
  network to be managed by Connex in the United States, is the fifth largest in
  the United States (according to the APTA) with 1,042 kilometers of tracks, 13
  lines, 130 stations and 89 trains offering 462 daily departures to 146,000 passengers
  per day. Connex will employ 1,600 persons under this contract.

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In Germany, NordwestBahn, a company jointly owned by Connex Germany (65%) and the municipalities of Osnabrück and Oldenburg, and Teutoburger Wald-Eisenbahn, a subsidiary of Connex, won the public tender for the operation of 4 regional passenger transportation lines in the east of Westphalia (North Rhineland) representing 240 kilometers of rail tracks.  The contract is expected to generate estimated total revenue of €180 million over 10 years. Operations will commence in December 2003 with an expected annual mileage of 2.7 million train-kilometers. This contract reinforces Connexs position as one of the leading private providers of public transportation services for passengers in Germany (according to VDV).
In Colombia, Connex won in February 2003 a 15-year concession for the operation of Phase II of the Transmilenio in Bogotá, Colombia, which consists of approximately 100 buses.
Outlook
Markets
We wish to continue to develop our business and strengthen our position mainly in Europe, North America and several designated countries in Asia. Despite the difficult economic environment, our commercial achievements over the past two years in the municipal and industrial markets confirm the growth potential of our environmental management services activities in these geographic regions.
Guidance
In 2003, we intend to continue to pursue our strategy in accordance with the priorities that we have defined over the past years. We intend to focus on our 4 coherent segments (water, waste management, energy services and transportation), expand geographically in a selective manner and continue to secure growth through our contracts with our municipal, industrial and commercial customers.
Recent
  developments allow us to anticipate average revenue growth in our core business
  between 4% and 8% per year from 2002 to 2005. We also believe that the profitability
  of our investments should improve as the significant contracts won over the
  past few years enter into a mature phase of operations and through the continuous
  broadening of our service offerings. In addition, we will seek to strengthen
  our financial condition through the progressive growth in cash flow from operations,
  on the one hand, and the rigorous selectivity applied to our investment choices
  and the dynamic management of our asset portfolio, on the other. A variety of
  factors, however, including those described under "Item 3. 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.

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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 Marché
General
On September 22, 2000, theSociété des Bourses Françaises S.A.(known as the ParisBourseSBF S.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 the first pan-European stock exchange. Subsequently, ParisBourseSBF S.A. changed its name to Euronext Paris. Securities quoted on any of the stock exchanges participating in Euronext are 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 authorized financial 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 of five 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 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 the fifth 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.

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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 Veolia Environnement in its SharesUnder
  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
  HistoryThe
  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
    
    TradingVolume2003April
    19.74
    
    14.58
    
    43,651,197First Quarter
    24.93
    
    14.40
    
    93,519,693March
    18.45
    
    14.40
    
    29,561,330February
    23.50
    
    15.02
    
    28,692,679January
    24.93
    
    21.30
    
    35,265,6842002Fourth Quarter
    25.99
    
    20.09
    
    63,023,202December
    25.48
    
    21.11
    
    16,051,182November
    25.99
    
    21.80
    
    23,271,567Third Quarter
    31.25
    
    17.18
    
    111,250,501Second Quarter
    39.10
    
    27.00
    
    136,136,840First Quarter
    39.20
    
    33.55
    
    57,297,1562001Fourth Quarter
    44.50
    
    36.10
    
    120,996,762Third Quarter
    51.25
    
    40.00
    
    40,825,017Second Quarter
    51.40
    
    46.91
    
    25,040,547First Quarter
    50.25
    
    38.50
    
    55,241,5832000Fourth Quarter
    49.00
    
    39.50
    
    26,287,055Third Quarter
      (from July 20)
    46.00
    
    32.50
    
    119,020,919Source:
      Euronext ParisOur 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.

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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
    
    TradingVolume2003April
    21.30
    
    16.48
    
    110,480First Quarter
    26.08
    
    16.04
    
    660,990March
    19.16
    
    16.64
    
    234,200February
    24.75
    
    17.01
    
    219,200January
    26.08
    
    23.61
    
    207,5902002Fourth Quarter
    25.48
    
    20.90
    
    615,272December
    24.80
    
    22.57
    
    286,290November
    25.48
    
    22.86
    
    151,291Third Quarter
    30.60
    
    18.10
    
    420,278Second Quarter
    34.20
    
    28.11
    
    243,778First Quarter
    34.20
    
    29.53
    
    128,7852001Fourth Quarter
      (from October 5)
    39.45
    
    32.40
    
    294,495Source:
      NYSE (volumes) and Bloomberg and Van der Moolen (prices).We urge you to
  obtain current market quotations.
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ITEM 10: ADDITIONAL INFORMATION
MEMORANDUM AND ARTICLES OF ASSOCIATION
On April 30, 2003, our shareholders approved several significant changes to our articles of association (statuts), including the change of our corporate name to Veolia Environnement and of our corporate governance structure from a dual-board structure to a single board of directors. The discussion below is based on our articles of association as amended and restated pursuant to the shareholder resolutions adopted on April 30, 2003.
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
      of all service activities related to the environment for private, professional
      or public customers, particularly services related to water, wastewater
      treatment, energy, transportation and waste management;•
    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 of our directors must own at least 750 of our shares.  The French commercial code provides that each director is eligible for reappointment upon the expiration of his or her term of office.
  Under the
    French commercial code, any transaction directly or indirectly between a company
    and a member of its board of directors that cannot be reasonably considered
    to be in the ordinary course of business of the company is subject to the
    board of directors prior consent. Any such transaction concluded without
    the prior consent of the board of directors 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 board
    of directors, 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 board of directors, who must inform the members
    of the 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. Fees and other compensation paid to our directors are determined by
    the general shareholders meetings. The board of directors may allocate
    the total sum authorized by the general shareholders meeting among its
    members at its discretion. French law prohibits 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.
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Rights,
  Preferences and Restrictions Applicable to Our Ordinary Shares
Dividends
Dividends on our shares are distributed to shareholderspro rata. The dividend payment date is decided by the shareholders at an ordinary general meeting. Under the French commercial code, we must pay any dividends within nine months of the end of our fiscal year unless otherwise authorized by court order. Subject to certain conditions, our board of directors can determine the distribution of interim dividends during the course of the fiscal 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 within five 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 distributed first 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.
Limitation on Exercise of Rights
Ourstatutsprovide that any time it is necessary to own several shares in order to exercise a specific right or to meet the requirements of a transaction affecting our share capital or equity, a shareholder that holds a number of our shares that is lower than the required number may only exercise this right or participate in this transaction if it obtains the required number of shares.
  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:

•
    approval
      of our companys consolidated and unconsolidated annual financial statements;•
    electing,
      replacing and removing members of the board of directors;•
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      independent auditors;115

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•
    declaring
      dividends or authorizing dividends to be paid in shares; and•
    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 companyConvening
    Shareholders Meetings
  The French commercial
    code requires our board of directors 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 each fiscal year. This period may
    be extended by an order of the President of the French commercial court (Tribunal
    de Commerce).
    The board of directors may also convene an ordinary or extraordinary meeting
    of shareholders upon proper notice at any time during the year. If the board
    of directors fails 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 must first be sent to theCommission 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 board of directors within ten days of the publication of the notice.
We must send a final 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. The final 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. The final notice must also be published in BALO and in a newspaper authorized 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 board of directors
    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 board of directors (within ten days of the publication of the preliminary
    notice in the BALO) by:
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•
    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 board of
  directors 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 board of directors relating to the agenda for the meeting. The board of directors 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 or the name of an intermediary in a shareholder
    account maintained by us or on our behalf by an agent appointed by us no later
    than 3:00 p.m. (Paris time) on the day prior to the date set for the meeting.
    A holder of bearer shares must obtain an account certificate from the accredited
    intermediary with whom the holder has deposited his or her shares indicating
    that the bearer shares the holder owns will be unavailable until the date
    of the meeting. The holder must deposit this certificate at the place specified
    in the notice of the meeting no later than 3:00 p.m. (Paris time) on the day
    prior to the date set for the meeting.
  Proxies
    and Votes by Mail
In general, all shareholders who have properly registered their shares or duly presented a certificate from their accredited financial 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 board of directors 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.
  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.
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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
Ourstatutsdo not contain any 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 a financial intermediary acting on our behalf, purchase shares representing up to 10% of our share capital. To acquire our own shares, we first must file an information memorandum (note dinformation) that has received the approval (visa) of the COB and obtain the approval of our shareholders at an ordinary general meeting.
At
  the general shareholders meeting held on April 30, 2003, our shareholders
  approved a share repurchase program that authorizes us to purchase and sell
  our shares at any time (including during public tender offers) and by any means,
  including block trades and combinations of financial derivative instruments,
  subject to market regulations and the 10% limit provided by law (which, as of
  December 31, 2002, represented 40,507,045 of our shares). This program allows
  us to repurchase shares for the purpose of:
•
    regulating
      market prices through systematic interventions,•
    providing
      shares to our employees and officers under a profit-sharing or stock option
      plan,•
    financing
      external growth through exchange offers, share-based acquisitions or otherwise,•
    delivering
      shares to third parties upon exercise of options, warrants, exchangeable
      bonds or other instruments granting rights to our shares, or•
    optimizing
      our companys asset and financial management, by which we may keep,
      sell, generally transfer or cancel in whole or in part our repurchased shares.The
  maximum repurchase price under the program is €32.50 (or the corresponding
  amount in any other currency) and the minimum sale price is €17.00 (or
  the corresponding amount in any other currency). The maximum purchase price
  applies only to share repurchases conducted pursuant to the authorization of
  the annual general shareholders meeting held on April 30, 2003, as well
  as to any repurchases authorized pursuant to a resolution passed at a previous
  shareholders meeting, but conducted after April 30, 2003. The minimum
  purchase price applies to all repurchases conducted after April 30, 2003, even
  if such repurchases are conducted pursuant to a previous resolution. In addition,
  we can only make payments for share repurchases up to an aggregate amount of
  €1 billion under the program. Our board of directors has broad powers to
  implement the program and set, if necessary, the terms and conditions of any
  share repurchases, including the power to delegate
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any of its powers. On April 9, 2003, the COB approved anote dinformationrelating to this share repurchase program. The shareholders authorization for this program expires at the latest on October 30, 2004, which is 18 months after the date of the shareholders meeting that approved the program.
The
  share repurchase program approved on April 30, 2003 supersedes and replaces
  our previous share repurchase program that was approved at our general shareholders
  meeting held on April 25, 2002. Pursuant to this share repurchase program, as
  of March 1, 2003 we had acquired 3,897,846 shares (representing 0.96% of our
  share capital as of December 31, 2002), including a block of 3,624,844 shares
  acquired on December 24, 2002 from Vivendi Universal at a price per share of
  €22.50. We also received one call option for each share repurchased from
  Vivendi Universal that gives us the right to repurchase an additional 3,624,844
  shares from Vivendi Universal at any time from December 24, 2002 through December
  23, 2004 at a price of €26.50 per share (subject to standard adjustments
  in the case of transactions in respect of our capital stock). See Item
  7. Major Shareholders and Related Party Transactions — Major Shareholders
  for a discussion of this transaction. Excluding the repurchase of Vivendi Universals
  block in December 2002, from October 2001 through March 2003 we repurchased
  2,681,561 shares at an average price of €37.89 per share.
As of March 1, 2003, we held 9,146,912 shares, representing 2.26% of our share capital. None of our subsidiaries held any of our shares as of March 1, 2003. We have not cancelled any of our shares over the past 24 months.
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 Marchés Financiers(CMF) within five trading days of the date it crosses these thresholds.  In the event the individual or entity is

 not domiciled in France, the financial intermediary that holds the shares on its behalf will be required to deliver these notices.
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 must file a report with the company, the COB and the CMF within fifteen 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 a financial 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 must file 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 that exceed 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 to five years by the Commercial Court at the request of the chairman, any shareholder or the COB, and may be subject to a fine.
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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•
    limitations
      on the voting power of shareholders.MATERIAL
  CONTRACTS
In
  view of the size and scope of our operations, we have not entered into any contracts
  in the last two fiscal years that could be considered material to our company.
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 must file 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, and financial 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
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
      an individual resident of the United States, a U.S. corporation, or a partnership,
      estate or trust to the extent its income is subject to taxation in the United
      States in its hands or in the hands of its partners or beneficiaries;•
    you are
      not a resident of France for French tax purposes; and•
    you are
      entitled to the benefits of the Treaty under the Limitations of Benefits
      article of the tax treaty in effect between the United States and France
      (the Treaty);•
    you are
      the beneficial owner of the shares or ADSs (and the dividends paid with
      respect thereto) and 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.
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     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 Dividends
Withholding
  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 a fixed 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
      fiscaland
      claim such benefits.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 at the latest by December 31 of the second calendar year following the
  year in 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.
The Treaty also provides for a refund by the French Treasury of whole or part of a French tax credit calledavoir fiscal(less the applicable withholding tax) to certain eligible U.S. holders of our shares or ADSs, under the conditions set forth below. However, in September 2002, the French government announced a proposed reform of the French tax treatment of distributions, which is to be included in the draft Finance Law for 2004 that will be submitted to the French Parliament in September 2003. The proposed reform contemplates the implementation of a new mechanism to avoid double taxation of dividends and the elimination of theavoir fiscalandprécomptemechanisms. This proposed reform, if adopted, may affect the right of U.S. holders to obtain a tax credit payment from the French Treasury with respect to dividend distributions decided in year 2003. In addition, if the reform is adopted, U.S. holders would no longer be entitled to tax credit payments from the French Treasury in respect of dividends paid in 2004 and after.
Under
  the current legislation, theavoir
  fiscalis generally equal to 50% of the dividend paid for individuals or 10% of the
  dividend paid for shareholders other than individuals (increased in this latter
  case by an additional amount equal to 80% 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;121

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•
    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 the first or second points on
      this list and are subject to U.S. income tax with respect to such dividends
      and payment of theavoir
      fiscal.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 same filing 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 tax filing requirements as eligible
  U.S. holders, except that they may have to supply additional documentation evidencing
  their entitlement to these benefits. Subject to the same filing 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. Subject to certain exceptions
  for short-term and hedged positions, the U.S. dollar amount of dividends received
  by an individual in respect of our shares of ADSs after December 31, 2002 and
  before January 1, 2009 is subject to taxation at a maximum rate of 15%. You
  should consult your own tax advisor regarding the availability of the reduced
  dividend tax rate in the light of your own particular circumstances.
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
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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.
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 than five years before the distribution.The amount of
  theprécompteis generally 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 partial (30/85)avoir
  fiscalrefund,
  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 should file 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 or fixed base in France and the shares you sold or exchanged were part of the business property of that permanent establishment or fixed base. Special rules apply to individuals who are residents of more than one country.
In
  general, for U.S. federal income tax purposes, gain or loss you realize on the
  sale or other disposition of shares or ADSs will be capital gain or loss, and
  will be long-term capital gain or loss if the shares or ADSs were held for more
  than one year. The net amount of long-term capital gain recognized by an individual
  holder on or before May 5, 2003 generally is subject to taxation at a maximum
  rate of 20%; net long-term capital gain realized by an individual after May
  5, 2003 and before January 1, 2009 generally is subject to taxation at a maximum
  rate of 15%.
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
      or fixed 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.
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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 tax is imposed 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 must file Internal Revenue Service Form W-9, entitled Request for Taxpayer Identification Number and Certification.
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 by filing 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 to file reports and
  other information with the SEC. Specifically, we are required to file annually
  a Form 20-F no later than six months after the close of each fiscal year. Copies
  of reports and other information, when so filed, 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 July 16, 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.
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As
  a result of our global operating and financing activities, we are subject to
  various market risks relating primarily to fluctuations 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,
  derivative financial 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 other financial instruments
  for trading purposes. Our accounting policy for hedging instruments is described
  in Note 2 to our financial statements.
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Exposure
  to interest rate risk
As a result of our financing activities, our operating results are exposed to fluctuations in interest rates. We have short-term and long-term financings with both fixed 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 to finance working capital requirements. Long-term debt represents bonds and notes payable to banks, as well as long-term bank loans and syndicated credit agreements. Our short-term debt accrues interest at rates that are set on the basis of the main market indexes or rates, such as EONIA for our commercial paper and EURIBOR and LIBOR for our short-term credit lines.
At December 31, 2002, our short-term debt amounted to €3.8 billion and our long-term debt amounted to €12.9 billion. Approximately 69% of our total debt outstanding at December 31, 2002 was denominated in euro, 21% in US dollars, 3% in British pounds and 2% in Australian dollars. At December 31, 2002, approximately 54% of our euro-denominated debt, 41% of our US dollar-denominated debt, 50% of our British pound-denominated debt and 64% of our Australian dollar-denominated debt bore interest at floating rates, in each case after giving effect to our financial hedging instruments. As a result, approximately 49% of our total gross debt bore interest at fixed rates, while 51% was subject to floating interest rates.
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 convert fixed rate debt into variable rate debt and are considered financial hedges against changes in the fair value of fixed rate debt. Pay-fixed swaps and interest rate caps and collars convert variable rate debt into fixed rate debt and are considered financial hedges against changes in future cash flows required for interest payments on variable rate debt.
Based upon the above information, a hypothetical increase in average market rates of 0.1% over 2003 would result in a increase our financial expenses of approximately €8 million at a constant financing 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 revenue are generated, we face limited related foreign exchange exposure linked to commercial transactions.  We enter into currency option contracts to hedge specific firm commitments and anticipated foreign currency denominated transactions, particularly at the time we make bids for new contracts. However, at December 31, 2002, we were not a party to any currency option contracts.
We have significant investments denominated in foreign currencies, principally U.S. dollars and British pounds. Our policy is to hedge our exposure to currency fluctuations by incurring debt denominated in the corresponding currency based on future cash flow projections.
The following table shows, as of December 31, 2002, our outstanding foreign currency positions that mature in less than one year:
(millions
      of € equivalent)
    Currency
      SwapsForward
      Purchases
    
    Forward
      Sales
    
    ForwardPurchases
    
    Forward
      SalesU.S.
      Dollar
    34.7
    
    478.9
    
    1.6
    
    –British
      Pound
    76.6
    
    203.3
    
    –
    
    93.2Australian
      Dollar
    149.0
    
    2.5
    
    –
    
    –Others
    8.0
    
    176.1
    
    –
    
    –125

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The following table shows, as of December 31, 2002, our outstanding foreign currency positions that mature after at least one year:
Cross
      Currency Swaps
    millions
      of €
    
    Maturity
    
    Market
      Value(1)Euro
      / U.S. Dollar
    500
    
    February
      1, 2012
    
    122.8Yen / Euro
    18.4
    
    September
      16, 2003
    
    (2.4
    )Yen
      / Euro
    18.3
    
    October
      4, 2004
    
    (2.4
    )Czech Crown
      / Euro
    13.2
    
    April
      29, 2009
    
    (0.7
    )Total
    
    
    
    
    117.3(1)
    In millions
      of euros as of December 31, 2002.Exposure
  to equity risk
We manage our exposure to the impact of fluctuations in the price of our shares through sporadic trades in our shares on the market for purposes of stabilizing trading and limiting volatility in our share price. These activities are centralized by our company and are included in regular reports (after each trade and on a monthly basis) to our senior management. At December 31, 2002, we held 9,142,362 of our shares as treasury stock with a market value of €201.3 million. We have imputed 4,747,518 of these shares, with a value of €109.6 million, to our shareholders equity.
As of December 31, 2002 we also held equity securities in the following companies:
Number
      of Shares
    
    Market
      ValueVivendi
      Universal
    309,365
    
    €4.7
        millionVinci
    1,551,294
    
    €83.4
        millionExposure
  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. The implementation of this program resulted in the adoption of a charter on Ethics, Conviction and Responsibility on February 5, 2003, which will govern the daily behavior of our 302,000 employees. The charter reaffirms the fundamental values shared by all of our employees, including, for example, a strict observance of the laws in effect in the different countries where we operate, loyalty towards our clients and towards consumers and a sense of solidarity (tolerance, respect of others and social dialogue).
In connection with the adoption of this charter, we will create an Ethics Committee to hear, coordinate and settle any questions relating to the respect of these fundamental values, any difficulties encountered in their application and any desirable improvements to them. In addition, we have established mechanisms to monitor the application of our norms and procedures within our group through regular reports to designated persons within each division.
Coordination
  committee for the evaluation and prevention of risks
Our coordination committee for the evaluation and prevention of risks (CEPR), which was created in 2001 to provide support to our divisions, continued to pursue its action plan during 2002. The CEPR is composed of the general manager of each of our divisions and the head of each of our corporate departments. 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 legal risks, industrial risks, environmental and sanitary risks and financial risks.
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Management
  of legal risks
In the context of the development of our business in France and elsewhere, 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.
We have also adopted a Code of Conduct governing trading in our shares and in the shares of our subsidiaries that are listed on a stock exchange. Pursuant to this Code, our senior managers are deemed to be permanent insiders and trading by any of them in our shares is prohibited at all times, except during two 30-day periods following the publication of our annual and half-year results each year.
In addition, the specificity of our activities (outsourcing of local public services with operations in almost 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, these rules cover civil liability and insurance policies, criminal responsibility, intellectual and industrial property, ethics, standard contractual clauses, sponsorship and patronage, confidentiality and compliance with labor laws and security norms. In addition to the formalization of a number of these rules in internal memoranda, the Legal Departments of our company and each of our divisions ensures, on a daily basis, an adequate management of our legal risks in tight coordination with our operating teams in the field.
Finally, regarding sponsorship and patronage, each case is reviewed by a committee, which issues an independent opinion on each case. We have also created a disclosure committee to supervise and control the collection, dissemination and public disclosure (including filing with market authorities) of information relating to our company and our business.
Management
  of industrial, environmental and sanitary risks
We pay particular attention to sanitary risks, 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).
More generally, we are actively committed to sustainable development and, to this effect, have adopted a charter that sets our goals in terms of, among other things, the preservation of natural environments, the improvement of the health of populations and the offering of services to the most disfavored.
Management
  of financial risks
In
  the context of our operating and financial activities, we are exposed to liquidity
  risks and risks relating to fluctuations in interest rates, exchange rates and
  the value of our shares. We have centralized the management within our group
  of our exposure to these risks. Our Treasury and Financing Department is responsible
  for the adoption and implementation of coverage mechanisms for our company and
  our divisions, including by assisting our divisions in identifying their respective
  exposures and implementing coverage mechanisms in each country where they operate.
  We have established a treasury management system that allows us to continuously
  follow the main indicators relating to liquidity and the financial instruments
  used by our company to manage our interest rate and exchange rate exposure.
  We also have implemented a transaction control structure through our middle
  and back offices that allows us to follow the limitations and security of our
  transactions in this context. In addition, these financial risk management teams
  submit daily, weekly and monthly reports to our senior management on the evolution
  of the relevant markets and its actual and potential consequences on our liquidity
  and the value of our portfolio of derivative instruments, as well as on the
  coverage transactions effected and their consequences on the relative amounts
  of our fixed-rate and floating-rate debt.
We monitor the liquidity of our group in coordination with designated managers at the operating level. The incurrence and management of new material financings are centralized in order to steer our present and future liquidity to optimum levels. We satisfy our financing needs through bank loans, commercial paper and debt issues on the international capital markets and the international private placement markets. In addition, we continue to pursue negotiations to extend the maturity of our existing short term lines of credit and to obtain new mid-term lines of credit.
We also centralize the management of interest rate risks. We use substantially all of the interest rate management tools proposed by the markets, including, in particular, interest rate swaps and options.
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We are also exposed to the risk of fluctuations in currency exchange rates as a result of the international nature of our activities, which are conducted in almost 100 countries and require our management of cash flows in many currencies. Because our expenses and revenues are primarily in the local currency of the country in which we operate, the effect of exchange rate fluctuations on our services business is limited. As a result, we implement coverage mechanisms in respect of these risks (in particular through currency options) on a case-by-case basis primarily at the time we submit bids for contracts. In addition, to limit our exposure to the impact of fluctuations of exchange rates on the assets and liabilities recorded on our balance sheet, we have adopted a policy to allocate financing in different currencies by type of assets and liabilities with the objective of financing our local operations in local curre
ncy.
We also manage our exposure to the impact of fluctuations in the price of our shares through sporadic trades in our shares on the market for purposes of stabilizing trading and limiting volatility in our share price. These activities are centralized by our company and are included in regular reports (after each trade and on a monthly basis) to our senior management.
Finally, we created an Internal Audit Department in 2002 that reports directly to our Chief Executive Officer. The head of internal audit participates in meetings of our accounts, audit and commitments committee, to which he presents a summary of accomplished tasks and periodically submits a status report and an audit plan. Pursuant to this committees charter, which was adopted by our supervisory board on March 3, 2003, the head of internal audit will also be required to contribute to a presentation of the measures taken to identify the material risks to which our company is exposed. Our board of directors adopted an internal charter in September 2002 that sets forth the organization and functions of the internal audit department, which will be required to act in accordance with a plan developed following a risk analysis of our business and perform post-acquisition audits, internal control audits on selected ent

ities and process analysis across several departments involving more than one of our divisions.
Management
  of Investments
Our investment policy requires us to analyze different criteria in making investment decisions, including decisions relating to capital expenditures, financial investments and research and development expenses.  In particular, we compare the internal rate of return (or IRR) with the cost of capital of each investment or research project, in each case adjusted to the specific risk profile of the project.  As a general rule, we only approve investment projects that generate a minimum return of 2% over the weighted average cost of capital (or WACC) of the project. However, we are sometimes required to commence operations under long-term contracts at levels of return that are lower than our minimum return levels, including contracts that require us to make significant productivity and capacity investments. As a result, we record lower return at the beginning of operations under our contracts than the level of return recor

ded over the life of these contracts.
In order to manage the profitability of our contracts globally, we have adopted a new measure of performance, which we refer to as return on capital employed or ROCE and that measures our ability to provide a return on the capital invested in our business by our shareholders and lenders. We define ROCE as the relation between our results of operations, net of tax, and the average amount of capital invested in our business over the same period.
For purposes of calculating ROCE, we define results of operations, net, as EBIT plus equity in net income of affiliates (before amortization of goodwill associated with equity investments in affiliates), less income taxes. The following table shows the calculation of our results of operations, net of tax, in 2002:
At
      December 31, 2002(in
      millions of €)EBIT
    1,971.3EBIT
      of Core Businesses
    1,847.3Income
      Taxes
    (437.3
    )Equity
      in Income of Affiliates(1)
    40.4Results
      of Operations, Net
    1,574.4Results
      of Operations, Net, of Core Businesses
    1,450.4(1)
    Before
      amortization of goodwill recorded in connection with these investments.
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We determine the average amount of capital invested in our business as the average of our invested capital at each of the beginning and the end of the relevant period. The following table shows the calculation of the average amount of our capital invested in 2002:
At
      December 31,2002
    
    2001(in
      millions of €)Property,
      Plant and Equipment, Net
    14,540.8
    
    14,191.3Goodwill(1)
    7,531.9
    
    8,035.8Other
      Intangible Assets, Net
    3,904.9
    
    4,477.0Investments
      accounted for using the Equity Method(2)
    453.6
    
    528.9Working
      Capital(3)
    712.6
    
    670.4Reserves
      and Allowances
    (2,946.1
    )
    (3,195.7
    )Deferred
      Income(4)
    (674.4
    )
    (623.8
    )Other
      Long Term Debt
    (427.5
    )
    (496.6
    )Total
      Capital Invested
    23,095.8
    
    23,587.3Capital
      Invested in Non Core Businesses
    (1,219.0
    )Average
      Total Capital Invested in 2002
    23,341.6Average
      Total Capital Invested in Core Businesses in 2002
    22,732.1(1)
    Before
      extraordinary amortization of goodwill, which related mainly to USFilter
      and Proactiva.(2)
    Net
      of extraordinary depreciation and excluding amortization of goodwill recorded
      in connection with these investments (which amounted €5.6 million in
      2002 and €4.9 million in 2001) and our equity interest in Philadelphia
      Suburban Corp., which was accounted for as an equity method investment in
      2001 at a value of €104 million.(3)
    We
      define working capital as inventories and work in progress and accounts
      receivable, less accounts payable.(4)
    Excluding
      financing of co-generation facilities in our energy services division, which
      amounted to €739.0 million in 2002 and €859.3 million in 2001.
      The proceeds of the securitizations were used to finance the acquisition
      of these facilities. See Note 13 to our consolidated financial statements.The ROCE in our business in 2002 was 6.7% and the ROCE in our core businesses in 2002 was 6.4% We compare our ROCE to our WACC, which is calculated as the weighted average of our after-tax cost of equity and our after-tax cost of financing. We aim to improve our ROCE in order to increase our profits, while continuing to develop our business by obtaining new contracts.
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable.

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PART
  II
ITEM
  13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM
  14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
None.
ITEM
  15. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this document, our company carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our companys disclosure controls and procedures.  There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.  Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. Based upon and as of the date of our companys evaluation, our chief executive officer and our chief financial officer concluded that our companys disclosure controls and procedures are effective in all material respects to ensur

e that information required to be disclosed in the reports that we file and submit under the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, is recorded, processed, summarized and reported as and when required.
There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date our company completed the evaluation of our disclosure controls and procedures, nor were there any significant deficiencies or material weaknesses in our internal controls requiring corrective actions.
ITEM
  16A. AUDIT COMMITTEE FINANCIAL EXPERT
Not Applicable.
ITEM
  16B. CODE OF ETHICS
Not Applicable.
ITEM
  16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Pursuant to French law, our company has engaged two independent accounting firms to audit its accounts and provide related services permissible under applicable French and U.S. laws and regulations.  In respect of fiscal year 2002, our independent auditors are Barbier Frinault et Compagnie, a member of the Ernst & Young group since September 2002, and RSM Salustro Reydel. In accordance with French law, we consider each of these auditing firms as our principal accountants. During 2002, we paid total fees of €13.6 million to RSM Salustro Reydel and €10.9 million to Ernst & Young (including the fees paid to Barbier Frinault et Compagnie during the first nine months of 2002) for the services described below.
Audit
  Fees
During 2002, we paid €11.1 million in fees to RSM Salustro Reydel and €7.4 million to Ernst & Young (including the fees paid to Barbier Frinault et Compagnie during the first nine months of 2002) for professional audit services.
Audit-Related
  Fees
During 2002, we paid €2.5 million in fees to RSM Salustro Reydel and €1.7 million to Ernst & Young (including the fees paid to Barbier Frinault et Compagnie during the first nine months of 2002) for audit-related services, including for comfort letters issued by our auditors in connection with our offerings of securities, certifications to third parties and acquisition-related audits.
Other
  Fees
During 2002, we paid €1.8 million in other fees to Ernst & Young (including the fees paid to Barbier Frinault et Compagnie during the first nine months of 2002) for other professional services, including legal and information technology services. We did not pay any other fees to RSM Salustro Reydel in 2002.

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PART
      IIIITEM
      17: FINANCIAL STATEMENTSNot
      Applicable.ITEM
      18: FINANCIAL STATEMENTSINDEX
      TO THE CONSOLIDATED FINANCIAL STATEMENTSPageReport
      of Independent Public Accountants
    F-1Consolidated
      Balance Sheets as of December 31, 2002, 2001 and 2000
    F-2Consolidated
      Statements of Income for the Years Ended December 31, 2002, 2001 and 2000
    F-4Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and
      2000
    F-5Consolidated
      Statements of Changes in Shareholders Equity for the Years Ended December
      31, 2002, 2001 and 2000
    F-7Notes
      to the Consolidated Financial Statements
    F-8ITEM
      19: EXHIBITSThe
      following exhibits are included herein:ExhibitNumber
    Description1
    
    Articles
      of Association (statuts)
      of Veolia Environnement (unofficial English translation).8
    
    List of
      Subsidiaries. Included herein in Note 26 to our consolidated financial statements.99.1
    
    Certifications
      by Henri Proglio, Chairman and Chief Executive Officer, and Jérôme
      Contamine, Chief Financial Officer, required by Section 906 of the Sarbanes-Oxley
      Act of 2002.99.2
    
    Certifications
      by Henri Proglio, Chairman and Chief Executive Officer, and Jérôme
      Contamine, Chief Financial Officer, required by Section 302 of the Sarbanes-Oxley
      Act of 2002
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REPORT OF INDEPENDENT AUDITORS
To the Shareholders of Veolia Environnement (formerly named Vivendi Environnement):
We have audited the accompanying consolidated
  balance sheets of Vivendi Environnement and subsidiaries (together the “Company”),
  as of December 31, 2002, 2001 and 2000 and the related consolidated statements
  of income, changes in shareholders’ equity and cash flows for the years
  then ended, expressed in Euros. These consolidated financial statements are
  the responsibility of the Company’s management. Our responsibility is
  to express an opinion on these consolidated financial statements based on our
  audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the financial position of the Company as of December 31, 2002, 2001 and 2000 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in France.
The accounting policies of the Company used in preparing the accompanying consolidated 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 policies and accounting principles generally accepted in the United States of America and the effect of those differences on consolidated net income (loss) for each of the three years in the period ended December 31, 2002 and shareholders’ equity as of December 31, 2002, 2001 and 2000 is set forth in Note 27 to the consolidated financial statements.
RSM Salustro Reydel
    Barbier Frinault & CieErnst & Young/s/RSM Salustro Reydel
    /s/ Alain Grosmann          Jean
      BouquotParis, FranceApril 15, 2003(Except with respect
      to the matters discussed in Note 27 as to which the date is May 30, 2003)F-1


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VIVENDI
  ENVIRONNEMENT
CONSOLIDATED
  BALANCE SHEETS - ASSETS
Notes
    
    At
      December 31,2002
    
    2002
    
    2001
    
    2000($
      millions
    )
    
    
    (€
      millions
    )Goodwill,
      net
    3
    
    6,452.2
    
    6,152.8
    
    6,795.8
    
    7,056.5Other
      intangible assets, net
    4
    
    4,094.9
    
    3,904.9
    
    4,477.0
    
    4,223.4Property
      plant and equipment
    
    
    18,539.4
    
    17,679.2
    
    16,843.4
    
    14,275.7Publicly-owned
      utility networks
    
    
    6,778.1
    
    6,463.6
    
    6,156.7
    
    5,619.2Accumulated
      depreciation
    
    
    (10,069.2
    )
    (9,602.0
    )
    (8,808.8
    )
    (7,512.1
    )Property,
      plant and equipment, net
    5
    
    15,248.3
    
    14,540.8
    
    14,191.3
    
    12,382.8Investments
      accounted for using the equity method
    6
    
    469.8
    
    448.0
    
    618.0
    
    523.4Investments
      accounted for using the cost method
    7
    
    291.5
    
    278.0
    
    245.8
    
    244.1Portfolio
      investments held as financial assets
    7
    
    1,304.0
    
    1,243.5
    
    1,072.8
    
    932.0Financial
      assets
    
    
    2,065.3
    
    1,969.5
    
    1,936.6
    
    1,699.5Total
      long-term assets
    
    
    27,860.7
    
    26,568.0
    
    27,400.7
    
    25,362.2Inventories
      and work-in-progress
    8
    
    1,231.6
    
    1,174.5
    
    1,543.7
    
    1,483.4Accounts
      receivable
    8
    
    11,688.2
    
    11,145.8
    
    12,066.0
    
    10,727.9Short-term
      loans
    9
    
    511.3
    
    487.6
    
    985.5
    
    224.8Cash and
      cash equivalents
    10
    
    2,497.8
    
    2,381.9
    
    2,089.3
    
    1,528.1Other marketable
      securities
    10
    
    273.3
    
    260.6
    
    324.1
    
    496.6Total
      current assets
    
    
    16,202.2
    
    15,450.4
    
    17,008.6
    
    14,460.8TOTAL
      ASSETS
    
    
    44,062.9
    
    42,018.4
    
    44,409.3
    
    39,823.0The
      accompanying notes are an integral part of these consolidated financial
      statements.For
      the convenience of the reader, the financial statements as of and for the
      year ended December 31, 2002 have been translated into U.S. Dollars at the
      rate of U.S. $ 1 = €0.9536.

F-2

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VIVENDI
  ENVIRONNEMENT
CONSOLIDATED
  BALANCE SHEETS - LIABILITIES ANDSHAREHOLDERS'
  EQUITY
At
      December 31,2002
    
    2002
    
    2001
    
    2000($
      millions
    )
    
    
    (€
      millions
    )Share capital
    
    
    5,667.4
    
    5,404.4
    
    4,673.4
    
    4,673.4Additional
      paid-in capital
    
    
    3,061.1
    
    2,919.1
    
    2,269.6
    
    232.6Retained
      earnings
    
    
    (2,446.6
    )
    (2,333.1
    )
    1,048.2
    
    687.5Net Income
    
    
    355.7
    
    339.2
    
    (2,251.2
    )
    614.8Total
      shareholders' equity
    11
    
    6,637.6
    
    6,329.6
    
    5,740.0
    
    6,208.3Minority
      Interests
    12
    
    2,711.0
    
    2,585.2
    
    2,531.1
    
    2,031.1Deferred
      income
    13
    
    1,482.2
    
    1,413.4
    
    1,483.1
    
    1,270.6Reserves
      and allowances
    14
    
    3,089.5
    
    2,946.1
    
    3,195.7
    
    3,085.4Bonds
    
    
    5,907.9
    
    5,633.8
    
    5,193.6
    
    2,444.1Other financial
      long-term debt
    
    
    7,633.3
    
    7,279.2
    
    7,940.4
    
    9,024.6Long-term
      debt
    15
    
    13,541.2
    
    12,913.0
    
    13,134.0
    
    11,468.7Other long-term
      liabilities
    
    
    448.3
    
    427.5
    
    496.6
    
    660.9Total
      long-term liabilities and shareholder'sequity
    
    
    27,909.8
    
    26,614.8
    
    26,580.5
    
    24,725.0Accounts
      payable
    8
    
    12,172.5
    
    11,607.7
    
    12,939.3
    
    10,854.4Bank overdrafts
      and other short-term borrowings
    
    
    3,980.6
    
    3,795.9
    
    4,889.5
    
    4,243.6Total
      current liabilities
    15
    
    16,153.1
    
    15,403.6
    
    17,828.8
    
    15,098.0TOTAL
      LIABILITIES ANDSHAREHOLDERS' EQUITY
    
    
    44,062.9
    
    42,018.4
    
    44,409.3
    
    39,823.0The
    accompanying notes are an integral part of these consolidated financial statements.
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.For the
      convenience of the reader, the financial statements as of and for the year
      ended December 31, 2002 have been translated into U.S. Dollars at the rate
      of U.S. $ 1 = €0.9536.
F-3
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VIVENDI
  ENVIRONNEMENT
CONSOLIDATED
  STATEMENTS OF INCOME
Notes
    
    At
      December 31,2002
    
    2002
    
    2001
    
    2000restated($
      millions
    )
    
    
    (€
      millions
    )Revenues
    21
    
    31,542.3
    
    30,078.7
    
    29,126.7
    
    26,262.5Costs of
      sales
    
    
    (25,837.0
    )
    (24,638.1
    )
    (23,550.9
    )
    (21,107.0
    )Selling,
      general and administrative costs
    
    
    (3,679.5
    )
    (3,508.8
    )
    (3,556.7
    )
    (3,254.5
    )Other operating
      income (expense)
    
    
    41.4
    
    39.5
    
    (6.0
    )
    (251.0
    )EBIT
    21
    
    2,067.2
    
    1,971.3
    
    2,013.1
    
    1,650.0Goodwill
      amortization (1)
    23
    
    (343.1
    )
    (327.2
    )
    (2,910.1
    )
    (306.3
    )Restructuring
      costs
    
    
    (59.4
    )
    (56.6
    )
    (49.4
    )
    (54.4
    )Operating
      income (loss)
    
    
    1,664.7
    
    1,587.5
    
    (946.4
    )
    1,289.3Financial
      income (expenses)
    23
    
    (679.6
    )
    (648.1
    )
    (798.0
    )
    (891.8
    )Other income
      (expenses)
    23
    
    (62.6
    )
    (59.7
    )
    38.9
    
    777.3Net
      income (loss) before taxes, minority and equity interests
    
    
    922.5
    
    879.7
    
    (1,705.5
    )
    1,174.8Income taxes
    16
    
    (458.6
    )
    (437.3
    )
    (462.3
    )
    (459.2
    )Net
      income (loss) before minority and equity interests
    
    
    463.9
    
    442.4
    
    (2,167.8
    )
    715.6Equity in
      net income of affiliates
    6
    
    40.9
    
    39.0
    
    47.8
    
    60.6Minority
      interest
    12
    
    (149.1
    )
    (142.2
    )
    (131.2
    )
    (161.4
    )Net
      income (loss)
    
    
    355.7
    
    339.2
    
    (2,251.2
    )
    614.8Basic earnings
      per share
    
    
    0.98
    
    0.93
    
    (6.55
    )
    2.24Diluted
      earnings per share
    
    
    0.98
    
    0.93
    
    (6.55
    )
    2.23The
      accompanying notes are an integral part of these consolidated financial
      statements.(1)
    Goodwill
      amortization includes goodwill write-downs of €77.0 million in 2002,
      €2,652.2 million in 2001 and €74.2 million in 2000.For
      the convenience of the reader, the financial statements as of and for the
      year ended December 31, 2002 have been translated into U.S. Dollars at the
      rate of U.S. $ 1 = €0.9536.
F-4
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VIVENDI
  ENVIRONNEMENT
CONSOLIDATED
  STATEMENTS OF CASH FLOWS(Prepared
  in accordance with International Accounting Standard No. 7)
Notes
    
    At
      December 31,2002
    
    2002
    
    2001
    
    2000restated($
      millions
    )
    
    
    (€
      millions
    )Cash
      flow from operating activities:Net
      income (loss)
    
    
    355.7
    
    339.2
    
    (2,251.2
    )
    614.8Adjustment
      to reconcile net income to net cash provided byoperating
      activitiesDepreciation
      and amortization
    23
    
    2,513.3
    
    2,396.7
    
    4,684.0
    
    2,070.4Financial
      provisions
    23
    
    117.8
    
    112.3
    
    53.7
    
    6.0Gains on
      sale on property and equipment and financial assets, net
    
    
    (110.7
    )
    (105.6
    )
    (144.9
    )
    (799.0
    )Undistributed
      earnings of affiliates, net
    6
    
    (15.9
    )
    (15.2
    )
    (14.9
    )
    (30.6
    )Deferred
      taxes
    
    
    (20.2
    )
    (19.3
    )
    90.2
    
    (6.9
    )Minority
      interests
    12
    
    149.1
    
    142.2
    
    131.2
    
    161.4Net changes
      in current assets and liabilities:Prepaid,
      deferrals and accruals
    4
    
    (73.9
    )
    (70.5
    )
    (92.9
    )
    (63.4
    )Increase
      (decrease) in working capital(1)
    8
    
    (485.6
    )
    (463.1
    )
    436.8
    
    (314.7
    )Net
      cash provided by operating activities
    
    
    2,429.4
    
    2,316.7
    
    2,892.0
    
    1,638.0Cash
      flow from investing activities:Purchase
      of property, plant and equipment
    21
    
    (2,730.1
    )
    (2,603.4
    )
    (2,878.5
    )
    (2,586.2
    )Proceeds
      from sale of property, plant and equipment
    
    
    207.7
    
    198.1
    
    205.8
    
    230.7Purchase
      of investments
    
    
    (1,054.8
    )
    (1,005.9
    )
    (1,168.8
    )
    (659.3
    )Proceeds
      from sales of investments
    
    
    1,321.2
    
    1,259.9
    
    349.7
    
    1,248.7Purchase
      of portfolio investments held as financial assets
    
    
    (130.9
    )
    (124.8
    )
    (146.6
    )
    (37.2
    )Proceeds
      from sales of portfolio investments held as financial
    
    
    328.8
    
    313.5
    
    42.2
    
    17.1assetsNotes
      receivables redeemed
    
    
    (441.4
    )
    (420.9
    )
    (98.7
    )
    (75.0
    )Notes receivables
      issued
    
    
    166.2
    
    158.5
    
    18.7
    
    111.1Net
      (increase) decrease in short-term loans
    
    
    115.6
    
    110.2
    
    159.7
    
    256.7Sales and
      purchases of marketable securities
    
    
    6.5
    
    6.2
    
    124.1
    
    (43.3
    )Net
      cash used in investing activities
    
    
    (2,211.2
    )
    (2,108.6
    )
    (3,392.4
    )
    (1,536.7
    )The
      accompanying notes are an integral part of these consolidated financial
      statements.(1)
    The decrease
      in working capital excludes the deferred taxes of the period.For the
      convenience of the reader, the financial statements as of and for the year
      ended December 31, 2002 have been translated into U.S. Dollars at the rate
      of U.S. $ 1 = €0.9536.
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VIVENDI
  ENVIRONNEMENT
CONSOLIDATED
  STATEMENTS OF CASH FLOWS  (Continued)
  (Prepared in accordance with International Accounting Standard No. 7)
Notes
    At
        December 31,2002
    
    2002
    
    2001
    
    2000restated($
        millions)
    
    
    
    (€
        millions)Cash
      flow from financing activities:Net
      increase (decrease) in short-term borrowings
    
    (2,130.6
    )
    (2,031.7
    )
    (3.8
    )
    3,293.4Proceeds
      from issuance of bonds and other long-term debt
    
    4,398.2
    
    4,194.1
    
    4,604.4
    
    7,517.2Principal
      payment on bonds and other long-term debt
    
    (4,058.7
    )
    (3,870.4
    )
    (3,335.9
    )
    (13,376.1
    )Net
      proceeds from issuance of common stock
    
    1,629.7
    
    1,554.1
    
    411.2
    
    2,727.9Purchase
      of treasury stock
    
    (121.4
    )
    (115.8
    )
    (138.4
    )
    (44.3
    )Cash
      dividends paid
    
    (314.6
    )
    (300.0
    )
    (299.0
    )
    (46.5
    )Net
      cash provided by financing activities
    
    (597.4
    )
    (569.7
    )
    1,238.5
    
    71.6Effect of
      foreign currency exchange rate changes on cash and cash equivalents
    
    (96.6
    )
    (92.1
    )
    (176.9
    )
    (34.3
    )Change
      in cash and cash equivalents
    
    (475.8
    )
    (453.7
    )
    561.2
    
    138.6Cash
      and cash equivalents:Beginning
    
    2,191.0
    
    2,089.3
    
    1,528.1
    
    1,389.5Ending
    
    1,715.2
    
    1,635.6
    
    2,089.3
    
    1,528.1Cash and
      cash equivalents
    10
    2,497.8
    
    2,381.9–
      Cash liabilities
    15
    (782.6
    )
    (746.3
    )Cash
      and cash equivalents
    
    1,715.2
    
    1,635.6Supplemental
      disclosures of cash flow information:Cash
      payments for:Interest
    
    716.0
    
    682.8
    
    772.8
    
    878.6Income
      Taxes
    
    359.4
    
    342.7
    
    384.8
    
    273.9Supplemental
      disclosures for non-cash investing and financial activities:Acquisition:Issuance
      of common stock in settlement of note payable
    
    –
    
    –
    
    –
    
    1,396.6Issuance
      of common stock of subsidiaries
    
    –
    
    –
    
    177.0
    
    –The
      accompanying notes are an integral part of these consolidated financial
      statements.For the
      convenience of the reader, the financial statements as of and for the year
      ended December 31, 2002 have been translated into U.S. Dollars at the rate
      of U.S. $ 1 = €0.9536.F-6

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VIVENDI ENVIRONNEMENT
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(€
        millions except for share information)
    Number
      of
        Shares
    
    Share
      capital
    
    Additional
      paid-
        in
      capital
    
    Retained
      earnings
    
    Net
        income
    
    Shareholders'
      equityBalance
      at December 31, 1999 (a)
    218,228,507
    
    2,946.1
    
    (2,532.4
    )
    306.7
    
    (42.3
    )
    678.1Net income
      for the year 2000
    
    
    
    
    
    
    
    
    614.8
    
    614.8Foreign
      currency translation adjustment
    
    
    
    
    
    
    413.3
    
    
    
    413.3Dividends
      paid and net income appropriation
    
    
    
    
    
    
    (42.3
    )
    42.3
    
    –Goodwill
    
    
    
    
    687.0
    
    9.8
    
    
    
    696.8Conversion
      of warrants - Capital increase
    127,946,448
    
    1,727.3
    
    2,078.0
    
    
    
    
    
    3,805.3Balance
      at December 31, 2000
    346,174,955
    
    4,673.4
    
    232.6
    
    687.5
    
    614.8
    
    6,208.3Net 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
    )
    
    
    2,036.0Conversion
      of warrants  Capital increase
    817
    
    –
    
    
    
    –
    
    
    
    –Balance
      at December 31, 2001
    346,175,772
    
    4,673.4
    
    2,269.6
    
    1,048.2
    
    (2,251.2
    )
    5,740.0Net income
      for the year 2002
    
    
    
    
    
    
    
    
    339.2
    
    339.2Foreign
      currency translation adjustment
    
    
    
    
    
    
    (957.2
    )
    
    
    (957.2
    )Dividends
      paid and net income appropriation
    
    
    
    
    
    
    (2,438.7
    )
    2,251.2
    
    (187.5
    )Treasury
      shares
    
    
    (64.1
    )
    (86.9
    )
    
    
    
    
    (151.0
    )Conversion
      of warrants - Capital increase
    58,894,687
    
    795.1
    
    736.4
    
    
    
    
    
    1,531.5Other
    
    
    
    
    
    
    14.6
    
    
    
    14.6Balance
      at December 31, 2002
    405,070,459
    
    5,404.4
    
    2,919.1
    
    (2,333.1
    )
    339.2
    
    6,329.6Balance
      at December 31, 2002 ($ millions)
    
    
    5,667.4
    
    3,061.1
    
    (2,446.6
    )
    355.7
    
    6,637.6The
      accompanying notes are an integral part of these consolidated financial
      statements.(a)
    Following
      a 3 for 1 stock split at the beginning of the year 2000. Before the split,
      the number of shares was 654,685,522.For
      the convenience of the reader, the financial statements as of and for the
      year ended December 31, 2002 have been translated into U.S. Dollars at the
      rate of U.S. $ 1 = €0.9536.F-7

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VIVENDI ENVIRONNEMENT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
1.1. Presentation of the Group
Vivendi Environnement ("VE" or the "Group") is a "société anonyme" according to French law, a form of stock corporation, listed on both the Paris and New York stock exchanges.
Vivendi Environnement is an independent Group formed at the end of 1999 and is a world-wide Group providing environmental services organized into four divisions : water, waste management, energy services and transportation as well as an interest in the Spanish company Fomento de Construcciones y Contratas (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.
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 wastewater treatment and distribution
      systems for public authorities and private companies. The Group is also
      a designer and manufacturer of water and wastewater 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, train, maritime, tram and other networks.•
    FCC 
      FCC operates in a number of different environmental and construction related
      industries.1.2.
  Significant Events
1.2.1. Recomposition of the capital of Vivendi Environnement
2002 was marked by the placement by Vivendi Universal of nearly 43 % of the capital of Vivendi Environnement with a group of investors. This placement was effected by two operations: in June and in December 2002.
In June 2002, Vivendi Universal sold 53.8 million shares of Vivendi Environnement through a global placement underwritten by various banks. This sale took place at the same time as a capital increase of Vivendi Environnement subscribed by a group of declared investors for €1.5 billion, with the issue of 57.7 million new shares at a price of €26.5 per share. This capital increase was finalized in August 2002. At the end of these operations, Vivendi Universal held 40.8% of Vivendi Environnement's capital. The group of declared investors held 9.4% of Vivendi Environnements capital and were committed to holding on to the shares they acquired in the capital increase for a period of 6 months, ending in January 2003.
During December
  2002, Vivendi Universal sold 82.5 million shares of Vivendi Environnement (representing
  20.4% of VE's capital) to a second group of institutional investors. At the
  same time, Vivendi Environnement purchased 3,624,844 of its own shares (representing
  0.9% of its capital). Attached to each of these shares purchased (including
  those shares purchased by Vivendi Environnement) is a call option issued by
  Vivendi Universal
  to purchase 82.5 million supplementary shares of Vivendi Environnement, with
  an exercise price of €26.5 per share, these call options expire on December
  23, 2004.
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After this operation, and taking into consideration the 3,624,844 shares purchased by Vivendi Environnement from Vivendi Universal, the participation of Vivendi Universal has been reduced to 20.4% as of December 31, 2002, this participation is allocated to the call options described above. This second group of investors is committed to holding on to those shares for a period of one year ending in December 2003.
Consequences of the capital restructuring on the relationship between Vivendi Environnement and Vivendi Universal
Considering the evolution of the participation of Vivendi Universal in the capital of Vivendi Environnement as of December 31, 2002, the separation of the two groups was finalized at the end of 2002 by the signature of a protocol, the principal terms of which are disclosed in note 22 (related party transactions).
Consequences of the capital restructuring on the relationship between Vivendi Environnement and FCC
Prior to the restructuring of Vivendi Environnements capital, which reduced Vivendi Universals participation in the capital of Vivendi Environnement and its voting rights below 50%, Ms Esther Koplowitz accepted by an agreement signed on June 17, 2002, not to exercise her call option on the Groups interest in B1998 SL. These agreements are described in note 22 (related party transactions).
1.2.2. Vivendi Environnement 1.5% bonds
On August 20, 2002, Vivendi Environnement convened a general meeting of its Vivendi Environnement 1.5% bondholders. By a majority of 64.8% of the votes cast, the bondholders agreed to forgo from September 1, 2002, the guarantees given by Vivendi Universal on these bonds and the possibility of early redemption in the event of the default of Vivendi Universal. In return, the nominal interest rate was increased by 0.75% from 1.5% to 2.25%.
1.2.3. Southern Water
See note 25
1.2.4. Reclassification of treasury shares
After the meeting of the management board on December 11, 2002, and in accordance with the notice from the Comité dUrgence du Conseil National de la Comptabilité, 4.7 million of treasury shares have been reclassified in the statutory accounts of Vivendi Environnement S.A. from marketable securities to other portfolio investments and imputed as a reduction of the consolidated shareholders equity for an amount of €151 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in France (French GAAP) and are in accordance with the provisions of the January 3, 1985 law and its implementation rule as of February 17, 1986 and the new rules approved by the Comité de la Réglementation Comptable in April 1999.
The Group applies the recommendation of the Conseil National de la Comptabilité and accounts for in its consolidated financial statements, assets financed by capital leases (known in France as crédit-bail), pensions obligations and other retirement costs. Vivendi Environnement uses the preference method for the treatment of capital leases.
Vivendi Environnement applies the regulation CRC 00-06 relating to reserves since January 1, 2001.
The financial statements of foreign subsidiaries have been adjusted to comply with French GAAP when necessary. French GAAP differs in certain respects from accounting principles generally accepted in the United States. A description of these differences and their effects on net income and shareholders equity is set forth in Note 27. The financial statements have been formatted in the original French GAAP financial statements presentation and where necessary have been modified to include certain additional disclosures in order to conform with the content of financial statements required by the generally accepted accounting principles in the United States (U.S. GAAP).
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Change of presentation and accounting principles
In 2002, the Group did not change presentation or its 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 Environnement files 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.
Consequently, Vivendi Environnement has not recorded goodwill as a reduction of shareholders equity since 2001.
Convenience Translations
The consolidated balance sheet and consolidated statements of income and cash flows include amounts as of and for the year ended December 31, 2002 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 using an exchange rate of U.S.$1 to €0.9536, which was the exchange rate as of December 31, 2002. Convenience translations are presented solely for the convenience of the reader of these financial 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 and financial 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 questi

on. Significant investments in which the Group has 20% to 50% ownership or otherwise exercises significant influence are accounted for under the equity method.
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 significant financial 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 consolidated financial 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
  of financial 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 these financial statements include amounts for pension
  liabilities, deferred taxes,
  valuation estimates for long-lived assets, reserves as well as recorded and
  disclosed amounts for certain financial instruments.
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Translation of Foreign Subsidiaries Financial Statements
Balance sheets, statements of income and cash flows 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 cash flow 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 consolidated financial statements were as follows :
Year-End
      Closing Exchange Rates
    
    2002
    
    2001
    
    2000(one
      currency = xx€)U.S. dollar
    
    0.9536
    
    1.1357
    
    1.0747Pound sterling
    
    1.5373
    
    1.6030
    
    1.6023Average
      Annual Exchange Rates
    
    2002
    
    2001
    
    2000(one
      currency = xx€)U.S.
      dollar
    
    1.0545
    
    1.1148
    
    1.0827Pound
      sterling
    
    1.5889
    
    1.6058
    
    1.6407The balance sheets,
  income and cash flow statements of subsidiaries operating in highly inflationary
  economies are re-measured (according to the historical method) into a functional
  currency. The 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. These financial statements are then translated
  from the functional currency into the reporting currency on the basis of the
  year-end or average annual exchange rate and the translation adjustments are
  recorded in retained earnings.
Revenue Recognition
Revenues are recorded when title passes to the customer or when services are rendered and measured 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 using the purchase accounting method. 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.
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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:Estimated
      useful livesin
      yearsBuildings
    20
      to 50Technical
      systems
    7
      to 12Transport
      equipment
    3
      to 25Other
      equipment and machinery
    3
      to 12Assets financed 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 a fixed asset during the period necessary for its intended use is capitalized as part of the historical cost of fixed assets.
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 MethodInvestments
      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 AssetsPortfolio
      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 DebenturesIssue 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 a first-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 carry forwards and tax credit carry forwards. 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.
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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.
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 or losses in the year in which shares are sold under the plan.
Derivative Financial Instruments
The Group manages certain of its financial risks by using derivative financial instruments that qualify as hedges.
The Group primarily uses interest rate swaps and caps to manage interest rate risks relating to its borrowing requirements. The goal of these swaps is, depending on the circumstances involved, to modify from fixed to floating rates and from floating to fixed as well as to modify the underlying index on floating rate debt. The goal of the interest caps is to limit the upside risk relating to floating 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 hedge firm 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.
Any financial instrument that does not qualify as a hedge for financial 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.
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Research and Development
The Groups research and development costs are expensed as incurred.
Earnings Per Share
Basic earnings per share calculations are based, according to "Avis n° 27 de l'Ordre des Experts Comptables", on the Groups net income after taxes divided by the weighted average number of common shares outstanding.
Dilutive earnings per share reflect the potential dilution that would occur if all securities and other contracts to issue ordinary shares were exercise or converted. For its calculation weighted average number of common shares outstanding includes shares issuable on exercise of dilutive options.
At December 31, 2002, potential dilutive securities or other contracts to issue ordinary shares are warrants issued in December 2001 and stock-options.
Accounting Policies Specific to the Environmental Services Activities
Public
      Service ContractsThe 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 and financed 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 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
      a fixed 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.FacilitiesFacilities
      operated by the Group are generally financed by local authorities and remain
      theirs throughout the contract period. Individual facilities financed by
      the Group as a consequence of specific contractual terms are recorded as
      fixed 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 a financial
      depreciation.Fees
      Paid to Local AuthoritiesThe 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 AssetsThe 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 ProjectsThe Groups
      policy is to expense costs relating to planned maintenance projects as they
      are incurred.F-14

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Landfill
      Capitalization and DepletionLandfill
      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 its
      final authorization, as it is the case in France and the United Kingdom,
      these costs are expensed as incurred.Landfill
      Closure and Post-closure CostsThe Group
      has financial obligations relating to closure and post-closure costs and
      the remediation of disposal facilities it operates or for which it is otherwise
      responsible.Landfill
      final closure and post-closure accruals consider estimates for costs of
      the final 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.ConstructionTo 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.
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3.
      GOODWILL AND BUSINESS COMBINATIONSGoodwill
      by segment is detailed as follows:At
      December
      31,
        2000
    
    At
      December
      31,
        2001
    
    
    
    At
        December 31, 2002(€
        millions)
    Net
    
    Net
    
    Change
      in
        scope
      (1)
    
    Foreign
      exchange
      translation
      (2)
    
    Amoztization
      (3)
    
    Other
      movements
    
    NetsWater
    4,505.4
    
    3,769.3
    
    (14.7
    )
    (351.9
    )
    (133.9
    )
    22.3
    
    3,291.1Waste Management
    1,387.7
    
    1,445.6
    
    40.9
    
    (140.2
    )
    (62.2
    )
    1.6
    
    1,285.7Energy Services
    483.0
    
    702.7
    
    31.6
    
    (0.9
    )
    (35.0
    )
    5.7
    
    704.1Transportation
    66.6
    
    157.1
    
    54.5
    
    1.8
    
    (15.8
    )
    11.5
    
    209.1FCC
    613.8
    
    721.1
    
    22.2
    
    
    
    (80.3
    )
    (0.2
    )
    662.8Total
    7,056.5
    
    6,795.8
    
    134.5
    
    (491.2
    )
    (327.2
    )
    40.9
    
    6,152.8(1)
    The
      changes in scope are mainly related to acquisitions of the companies holding
      the Pudong contract for €182 million and the Rabat contract in Morocco
      for €110 million and the sale of certain non-strategic activities
      of USFilter for €(465) million. Other acquisitions have small individual
      amounts of less than €30 million.(2)
    Foreign
      exchange translation adjustment are mainly the result of the depreciation
      of the US dollar against the euro.(3)
    Total
      goodwill amortization expense for the years ended December 31, 2002, 2001
      and 2000 were €(327.2) million, €(2,910.1) million and €(306.3)
      million respectively.The following is a summary of the most significant acquisitions during the periods presented in the accompanying financial 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's financial statements using 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
    212Purchase
      price
    691Goodwill
      recorded on acquisition
    479Goodwill
      net at December 31, 2002
    417Goodwill
      recorded from this transaction is being amortized over 20 years.USFilter
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
    459Purchase
      price
    5,801Goodwill
      recorded on acquisition
    5,342Goodwill
      net at December 31, 2002
    1,711Goodwill
      recorded from this transaction is being amortized over 40 years.On January 1, 2001 Vivendi Environnement renounced the imputation of a part of the initial goodwill of USFilter recorded as a reduction of shareholders' equity. As a result the net goodwill was increased by €2,037 million on


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December 31, 2001. The goodwill recorded on acquisition was €5,342 million of which €3,253 million was initially recorded as an asset, and €2,089 million as a reduction of shareholders' equity on the acquisition of USFilter by Vivendi Environnement from Vivendi Universal on December 23, 1999 which the Group has now renounced. The amortization of the goodwill initially recorded as an asset as of December 31, 2001 was €216 million.
Taking into account the theoretical amortization of the goodwill recorded as a reduction of shareholders' equity of €52 million (calculated as if the goodwill had been recorded as an asset), the net goodwill reintegrated as an asset amounts to €2,037 million.
Goodwill amortization in 2001 included a write-off of goodwill of €2,611 million, related to activities of USFilter. The management determined that the goodwill was impaired, and goodwill was written down based upon an estimate of discounted future cash flow. The analysis was based on a projection over 10 years with terminal value and with a discount rate of 7% for the goodwill. The management revised the estimated cash flows as a result of the evolution of the US economic situation.
In 2002, the Group actualized the projection of USFilter over 10 years, with a terminal value and utilized discount rate of 6% which takes into account the reduction in the US risk-free rate. As a result of commercial gains and business development in 2002, and its perspectives for 2003 and despite the US economic situation 2002, the valuation has not put into question the long term growth prospects of USFilter. The carrying value of the goodwill of USFilter has been justified as of December 31, 2002.
Onyx Waste Services (previously 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
    168Purchase
      price
    932Goodwill
      recorded on acquisition
    764Goodwill
      net at December 31, 2002
    632Goodwill
      recorded from this transaction is being amortized over 40 years.Impairment of goodwill
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 cash flows, the management determined that the
  goodwill was impaired, and the goodwill was written down based upon an estimate
  of discounted future cash flow. 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
  for fixed assets (landfills, treatment plants and properties). Onyxs U.K.
  operations mainly relate to contracts that are highly predictable on a long-term
  basis.

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4.
      OTHER INTANGIBLE ASSETSThe
      evolution of net intangible assets as follows:(€
      millions)
    2000
    
    2001
    
    Additions
    
    Utilization
    
    Change
      in
    
    Foreign
    
    Other
    
    2002scope
    
    exchange
    
    movementstranslationFees paid
      to local authorities(1)
    517.1
    
    567.6
    
    43.9
    
    (41.7
    )
    3.0
    
    (14.8
    )
    10.5
    
    568.5Trademarks,
      marketshare and business assets acquired(2)
    2,619.6
    
    2,922.6
    
    28.3
    
    (29.1
    )
    (183.1
    )
    (439.3
    )
    (15.9
    )
    2,283.5Software
    59.5
    
    69.4
    
    38.0
    
    (42.4
    )
    4.7
    
    (0.5
    )
    21.7
    
    90.9Prepaid
      expenses(3)
    423.8
    
    469.9
    
    70.5
    
    (54.7
    )
    6.6
    
    (7.3
    )
    (44.2
    )
    440.8Other intangible
      assets
    603.4
    
    447.5
    
    150.1
    
    (46.3
    )
    (0.5
    )
    (27.2
    )
    (2.4
    )
    521.2Total
    4,223.4
    
    4,477.0
    
    330.8
    
    (214.2
    )
    (169.3
    )
    (489.1
    )
    (30.3
    )
    3,904.9(1)
    Fees
      paid to local authorities relating to public service contracts, which are
      primarily located in France, amounted to €568,5 million in 2002, compared
      with €567.6 million in 2001 and €517.1 million in 2000. These
      are amortized over the term of the contracts to which they relate.(2)
    Trademarks,
      market share and business assets amounted to €2,283.5 million in 2002,
      compared to €2,922.6 million in 2001, and €2,619.6 million in
      2000. These assets include the allocation to trademarks of part of the purchase
      price of USFilter for €1,919 million (these assets have been the object
      of a review by an independent expert who has confirmed their value), and
      the waste treatment operating rights of Onyx Waste Services for €77.8
      million. The carrying value of trademarks, market share and business assets
      are reviewed every year on the same basis of criteria used to assess their
      initial value, such as the position of the market, 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. Acquired business assets, such as customer lists and
      operating rights, are amortized over their estimated useful lives.The changes in scope of consolidation are principally due to US Filter trademarks
      for €(185.6) million as a result of the sale of Filtration and Separation.(3)
    Prepaid
      expenses include expenses of €440.8 million, €469.9 million and
      €423.8 million, as of December 31, 2002, 2001 and 2000, respectively,
      to be allocated over several financial years, mainly relating to the difference
      between the contractual amounts of debt servicing payments made to local
      authorities and the expense charged to income over the contract period.Certain subsidiaries of the Group may repay the debt entered into by local
      authorities relating to the utility network they manage. These obligations
      are part of the contracts between Vivendi Environnement and the local authorities,
      there are no guarantees given to the lenders. 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.Total
      amortization expense for other intangible assets for the years ended December
      31, 2002, 2001 and 2000 was €214.2 million, €184.2 million and
      €182.5 million, respectively. Accumulated amortization amounted to
      €874.5 million, €774.9 million and €609.8 million, as
      of December 31, 2002, 2001 and 2000, respectively.
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5.
      PROPERTY, PLANT AND EQUIPMENTEvolution
      of property, plant and equipment :December
      31,Additionsandamortizationscharged
      to2000
    
    2001
    
    Change
    
    operating
    
    Utilizations
    
    Other
    
    2002in
      scope
    
    income
    
    
    
    movements(€
      millions)Property,
      plant and equipment
    14,275.8
    
    16,843.4
    
    282.0
    
    1,738.8
    
    (677.5
    )
    (507.5
    )
    17,679.2Publicly-owned
      utility networks
    5,619.2
    
    6,156.7
    
    73.7
    
    382.8
    
    (103.9
    )
    (45.7
    )
    6,463.6Total
      gross book value
    19,895.0
    
    23,000.1
    
    355.7
    
    2,121.6
    
    (781.4
    )
    (553.2
    )
    24,142.8Property,
      plant and equipment
    (5,756.4
    )
    (6,898.0
    )
    66.2
    
    (1,342.2
    )
    521.0
    
    51.5
    
    (7,601.5
    )Publicly-owned
      utility networks
    (1,755.8
    )
    (1,910.8
    )
    (0.3
    )
    (152.7
    )
    36.1
    
    27.2
    
    (2,000.5
    )Depreciation
    (7,512.2
    )
    (8,808.8
    )
    65.9
    
    (1,494.9
    )
    557.1
    
    78.7
    
    (9,602.0
    )Total
      net book value
    12,382.8
    
    14,191.3
    
    421.6
    
    626.7
    
    (224.3
    )
    (474.5
    )
    14,540.8Publicly-owned utility networks are assets financed 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.
Changes in scope are mainly related to, in the water segment, the entry of Pudong for €123.2 million and Redal for €82.2 million and to the sale of Schwarzepumpe for €(84) million, in the energy services segment, the entry of Vilnius for €65.5 million and Poznan for €48.7 million and in the transportation segment the entry of the Verney Group for €32.7 million.
Additions and amortizations charged to operating income mainly come from Water €(310.8) million, Waste Management €(202.2) million and FCC €(129.7) million.
Utilizations come from water segment for €(47.9) million, Waste Management for €(39.9) million, Energy Services for €(77.9) million and transportation for €(53.2) million.
Other movements include the effects of foreign currency translation adjustments and final allocations.
Property, plant and equipment by segment are detailed as follows:
At
      December 31,(€
      millions)
    2002
    
    2001
    
    2000Property,
    
    Publicly-
    
    Accumulated
    
    Net
      tangible
    
    Net
      tangible
    
    Net
      tangiblePlant
      and
    
    owned
      utility
    
    depreciation/
    
    assets
    
    assets
    
    assetsequipment
    
    networks
    
    amortizationWater
    5,455.8
    
    5,272.2
    
    (3,738.6
    )
    6,989.4
    
    7,130.2
    
    6,457.8Waste Management
    5,987.9
    
    40.0
    
    (2,769.0
    )
    3,258.9
    
    3,304.1
    
    2,734.6Energy Services
    2,502.7
    
    737.2
    
    (1,237.0
    )
    2,002.9
    
    1,724.5
    
    1,503.1Transportation
    2,347.2
    
    264.3
    
    (1,167.8
    )
    1,443.7
    
    1,321.9
    
    1,092.7FCC
    1,385.6
    
    149.9
    
    (689.6
    )
    845.9
    
    710.6
    
    594.6Total
    17,679.2
    
    6,463.6
    
    (9,602.0
    )
    14,540.8
    
    14,191.3
    
    12,382.8
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The detail of
  net property, plant and equipment is as follows:
At
      December 31,(€
      millions)
    2002
    
    2001
    
    2000Land
    1,416.7
    
    1,210.8
    
    1,061.5Buildings
    1,663.3
    
    1,686.2
    
    1,333.4Technical
      systems
    5,040.7
    
    5,052.1
    
    3,770.0Assets under
      construction
    647.3
    
    562.0
    
    471.2Other
    1,579.7
    
    1,434.0
    
    1,883.2Property,
      plant and equipment
    10,077.7
    
    9,945.1
    
    8,519.3Publicly
      owned utility networks
    4,463.1
    
    4,246.2
    
    3,863.5Total
    14,540.8
    
    14,191.3
    
    12,382.8Depreciation
      expense for the years ended December 31, 2002, 2001 and 2000 was €1,485.1
      million, €1,322.8million and €1,186.4 million, respectively.Total
      depreciationfortheyearsendedDecember
      31,2002,2001
      and 2000was€9,602.0
      million,€8,808.8
      million and €7,512.2 million, respectively.Tangible
      assets financed under capital lease are detailed as follows:(€
      millions)
    Gross
      value
    
    Accumulated
    
    Net
      valueamortizationLand
    22.8
    
    (1.5
    )
    21.3Buildings
    302.9
    
    (129.1
    )
    173.8Technical
      systems
    701.1
    
    (287.1
    )
    414.0Other
    348.8
    
    (146.5
    )
    202.3Property,
      plant and equipment
    1,375.6
    
    (564.2
    )
    811.4Publicly
      owned utility networks
    268.0
    
    (77.1
    )
    190.9Total
      2002
    1,643.6
    
    (641.3
    )
    1,002.3Total
      2001
    1,039.3
    
    (388.6
    )
    650.7Total
      2000
    784.0
    
    (342.7
    )
    441.3
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6. INVESTMENTS
  ACCOUNTED FOR USING THE EQUITY METHOD
At
      December 31,***Interest***
    
    
    
    
    
    Proportionate
      share of equity
    
    Proportionate
      share of net income(€
      millions)
    2002
    
    2001
    
    2000
    
    2002
    
    2001
    
    2000
    
    2002
    
    2001
    
    2000Realia
      (1)
    24.10
    %
    24.10
    %
    23.31
    %
    75.6
    
    74.4
    
    89.8
    
    13.3
    
    18.2
    
    15.0Philadelphia
      Suburban (2)
    –
    
    16.88
    %
    17.02
    %
    –
    
    104.0
    
    73.1
    
    –
    
    11.6
    
    10.5Domino
    30.00
    %
    30.00
    %
    30.00
    %
    28.2
    
    54.3
    
    57.4
    
    (0.5
    )
    6.7
    
    8.4South Staffordshire
      (2)
    –
    
    31.74
    %
    31.74
    %
    –
    
    59.6
    
    54.3
    
    9.2
    
    9.9
    
    10.6Grubar
      Hoteles
    19.70
    %
    18.31
    %
    18.31
    %
    46.0
    
    43.2
    
    38.3
    
    (2.1
    )
    (0.2
    )
    0.7Bristol
      Water (2)
    –
    
    24.14
    %
    24.14
    %
    –
    
    37.6
    
    35.6
    
    –
    
    3.8
    
    1.3Midkent
    –
    
    –
    
    23.75
    %
    –
    
    –
    
    28.9
    
    –
    
    –
    
    4.3Intan Utilities
      Berhad
    30.00
    %
    30.00
    %
    30.00
    %
    10.7
    
    12.0
    
    11.0
    
    0.8
    
    (10.7
    )
    1.4Acque
      Potabili
    14.36
    %
    14.36
    %
    20.52
    %
    13.4
    
    13.6
    
    9.6
    
    (0.1
    )
    –
    
    –Venditelecom
    –
    
    17.23
    %
    12.23
    %
    –
    
    –
    
    7.6
    
    –
    
    –
    
    –Egyptian
      company for prestressed concrete
    –
    
    30.00
    %
    30.00
    %
    –
    
    5.6
    
    6.7
    
    –
    
    1.2
    
    2.2Fovarosi
      Csatomazasi Muvek Resvenytarasag
    25.00
    %
    25.03
    %
    –
    
    95.4
    
    89.8
    
    –
    
    0.5
    
    1.8
    
    –Eaux
      du Centre et du Rhône
    34.97
    %
    34.97
    %
    34.97
    %
    5.6
    
    5.3
    
    5.8
    
    0.2
    
    –
    
    0.4Tiru
    24.00
    %
    24.00
    %
    24.00
    %
    6.4
    
    4.6
    
    2.9
    
    2.7
    
    2.2
    
    0.8Technoborgo
    49.00
    %
    –
    
    –
    
    6.6
    
    –
    
    –
    
    (0,1
    )
    –
    
    –Other (per
      unit < €5 million)
    –
    
    –
    
    –
    
    160.1
    
    114.0
    
    102.4
    
    15.1
    
    3.3
    
    5.0Total
    
    
    
    
    
    
    448.0
    
    618.0
    
    523.4
    
    39.0
    
    47.8
    
    60.6(1)
    Realia (a
      subsidiary of FCC and Caja Madrid) has purchased the real estate assets
      of FCC Immobilaria SA in 2000.(2)
    Shares sold
      in 2002.The December
  31, 2002 quoted market price for these investments is as follows : Acque Potabili
  : €22.2 million.
F-21

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The evolution in 2002 of equity investments is as follows :
**(€
      millions)**
    **2002****Interest**
    
    **2001**
    
    **Change****in****scope**
    
    **Net****income**
    
    **Distribution****of****dividends**
    
    **Foreign****exchange****translation**
    
    **2002**Realia
    24.10
    %
    74,4
    
    (3.3
    )
    13.3
    
    (8.8
    )
    –
    
    75.6Philadelphia
    –
    
    
    
    (104.0
    )
    –
    
    –
    
    –
    
    –Suburban
    
    
    104,0Domino
    30.00
    %
    54,3
    
    (2.7
    )
    (0.5
    )
    –
    
    (22.9
    )
    28.2South
    –
    
    
    
    (61.2
    )
    9.2
    
    (5.0
    )
    (2.6
    )
    –StaffordshireWater
    
    
    59,6Grubar Hoteles
    19.70
    %
    43,2
    
    4.9
    
    (2.1
    )
    –
    
    –
    
    46.0Bristol
      Water
    –
    
    37,6
    
    (36.1
    )
    –
    
    –
    
    (1.5
    )
    –Intan Utilities
    30.00
    %
    
    
    (0.1
    )
    0.8
    
    (0.5
    )
    (1.5
    )
    10.7Berhad
    
    
    12,0Acque Potabili
    14.36
    %
    13,6
    
    –
    
    (0.1
    )
    (0.1
    )
    –
    
    13.4Egyptiancompany
      for
    –
    
    
    
    (5.6
    )
    –
    
    –
    
    –
    
    –prestressedconcrete
    
    
    5,6FovarosiCsatomazasiMuvekReszvenytarsasag
    25.00
    %
    89,8
    
    (0.7
    )
    0.5
    
    –
    
    5.8
    
    95.4Eaux du
      Centre
    34.97
    %
    
    
    0.1
    
    0.2
    
    –
    
    –et
      du Rhône
    
    
    5.3
    
    
    
    
    
    
    
    
    
    5.6Tiru
    24.00
    %
    4.6
    
    (0.9
    )
    2.7
    
    –
    
    –
    
    6.4Technoborgo
    49.00
    %
    –
    
    6.7
    
    (0,1
    )
    –
    
    –
    
    6.6Other
    
    
    114.0
    
    48.6
    
    15.1
    
    (9.4
    )
    (8.2
    )
    160.1Total
    
    
    618.0
    
    (154.3
    )
    39.0
    
    (23.8
    )
    (30.9
    )
    448.0Dividends received from equity affiliates amount to €23.8
  million in 2002, €32.9 million in 2001 and €30.1 million in 2000.

   Summarized financial information for the major equity method investees is as follows:
   
   
   
   
   

(€
      millions)
    At
      December 31,Balance
      sheet data
    2002
    
    2001
    
    2000Long
      term assets
    1,865.6
    
    2,470.6
    
    2,553.2Current
      assets
    878.9
    
    474.8
    
    854.5Total
      assets
    2,744.5
    
    2,945.4
    
    3,407.7Shareholders'
      equity
    1,126.2
    
    1,033.4
    
    1,256.2Minority
      interests
    176.8
    
    33.2
    
    92.3Financial
      debt
    905.1
    
    740.6
    
    989.4Other
      liabilities and reserves
    536.4
    
    1,138.2
    
    1,069.8Total
      liabilities and shareholders' equity
    2,744.5
    
    2,945.4
    
    3,407.7Income
      statement dataNet
      revenue
    523.7
    
    938.5
    
    1,087.2Operating
      income
    104.4
    
    291.9
    
    213.3Net
      income (loss)
    65.7
    
    138.7
    
    158.5F-22

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7. FINANCIAL
  ASSETS
Investments
  accounted for using the cost method
   Investments accounted for using the cost method are detailed as follows :

At
      December 31,(€
      millions)
    2002
    
    2001
    
    2000Interest
    
    Gross
    
    Allowance(4)
    
    Net
    
    Net
    
    NetAlazor
      Inversiones SA
    15.75
    %
    10.9
    
    –
    
    10.9
    
    –
    
    –Stadtwerke
      Weis Wasser Gmbh(1)
    74.90
    %
    29.8
    
    –
    
    29.8
    
    –
    
    –Fovarosi
      Csatomazasi Muvek Resvenytarsasag(2)
    25,00
    %
    –
    
    –
    
    –
    
    –
    
    76.2Rhodia Eco
      Services(3)
    50,00
    %
    –
    
    –
    
    –
    
    –
    
    11.7Other
      (Per unit<€10
      million in 2002)
    
    
    285.4
    
    (48.1
    )
    237.3
    
    245.8
    
    156.2Total
    
    
    326.1
    
    (48.1
    )
    278.0
    
    245.8
    
    244.1(1)
    Acquired
      on December 30, 2002 and consolidated in 2003.(2)
    Accounted
      for under equity method since 2001.(3)
    This
      company, which is jointly owned by Rhodia, was set up towards the end of
      2000 and is consolidated under proportionate method since January 1, 2001.(4)
    Allowances
      expenses amount to €(8.4) million in 2002.Other portfolio investments held as financial assets can
      be analyzed as follows :**(€
      millions)**
    At
      December 31,2002
    
    2001
    
    2000Long-term
      loans (1)
    521.2
    
    349.5
    
    284.6Other (2)
    783.4
    
    739.2
    
    662.9Impairment
      (3)
    (61.1
    )
    (15.9
    )
    (15.5
    )Net
      value
    1,243.5
    
    1,072.8
    
    932.0(1)
    Of
      which mainly €110 million related to long-term loans pertaining to
      the participation of Vivendi Water in Berlin and €84 million related
      to the re-evaluation of long-term hedging instruments. Other loans are under
      €60 million. Net long term loans amounted to €512.4 million at
      December 31, 2002.(2)
    Of
      which €138.5 million in assets in connection with pension liabilities
      in the U.K, €60.4 million corresponding to the net amount of the redemption
      premium of our convertible bonds, €72.0 million corresponding to subordinated
      borrowings assumed by Vivendi Environnement as part its securitization of
      accounts receivable (see note 8), €94.7 million corresponding to the
      balancing cash adjustment of Vivendi Universal / Vivendi Environnement swap
      and €57.0 million in the U.S. activities related to consumer financing.
      Net other financial assets amounted to €731.1 million at December 31,
      2002.(3)
    Net
      depreciation expense amount to €(79.7) million in 2002.F-23

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8.
      WORKING CAPITALNet working
      capital is detailed as follows :(€
      millions)
    At
      December
      31,2001
    
    Variation
      of
      working capital
    
    Change
      in
      scope
    
    Foreign
      exchange
      translation
    
    Other
      movements
    
    At
      December
      31,2002Inventories
      and work in progress
    1,543.7
    
    (57.4
    )
    (191.2
    )
    (78.9
    )
    (41.7
    )
    1,174.5Accounts
      receivable
    12,066.0
    
    (539.1
    )
    83.7
    
    (397.6
    )
    (67.2
    )
    11,145.8Accounts
      payable
    12,939.3
    
    (1,173.8
    )
    181.4
    
    (259.1
    )
    (80.1
    )
    11,607.7Working
      capital net
    670.4
    
    577.3
    
    (288.9
    )
    (217.4
    )
    (28.8
    )
    712.6USF securitization
    
    
    (181.0
    )*Variation
      of deferred taxes
    
    
    66.8Working
      capital net
    
    
    463.1* This amount
  is reported in the consolidated statement of cash-flows as a reduction of the
  proceeds from sales of financial assets (USF Distribution Division).
Inventories
      and work in progressThe breakdown
      by segment is as follows :(€ millions)
    At
      December 31,2002
    
    2001
    
    2000Water
      (1)
    660.0
    
    1,088.4
    
    981.2Waste Management
    101.8
    
    112.2
    
    119.1Energy
      Services
    229.3
    
    233.2
    
    282.9Transportation
    44.2
    
    31.2
    
    27.5FCC
    209.0
    
    175.7
    
    167.3Total
    1,244.3
    
    1,640.7
    
    1,578.0Less valuation
      allowance (2)
    (69.8
    )
    (97.0
    )
    (94.6
    )Net
      value
    1,174.5
    
    1,543.7
    
    1,483.4(1)
    In 2002,
      the decrease in the water sector is related to sales (€(246) million
      of which €(150) million for USFilter and €(34) million for Bonna
      Sabla) and to the effects of foreign currency translation adjustments (€(79)
      million).(2)
    Allowance
      expenses for 2002 are €(8.5) million.Accounts
      receivableAccounts
      receivable are detailed as follows:(€
      millions)
    
    
    At
      December 31,2002
    
    2001
    
    2000Trade accounts
      receivable
    9,271.2
    
    8,623.0
    
    9,041.1Valuation
      allowance
    (484.6
    )
    (472.7
    )
    (435.8
    )Total
      trade accounts receivable
    8,786.6
    
    8,150.3
    
    8,605.3VAT and
      other accounts receivable
    1,347.4
    
    2,904.7
    
    1,257.3Other including
      deferred tax
    1,011.8
    
    1,011.0
    
    865.3Total
      accounts receivable, net
    11,145.8
    
    12,066.0
    
    10,727.9The
      majority of trade receivables are due in less than one year.Securitization
      in FranceIn the extension
  of the previous agreement, a new 5-year securitization agreement has been signed
  in June 2002 with a SPE (Special Purpose Entity), the Group securitized through
  its water segment accounts receivable for a total amount of €416 million
  net of discount (€752 million at December 31, 2001). The securitized receivables
F–24

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are the assets of the SPE. The SPE is financed by senior borrowings assumed by banks and by retained interests of €72 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.
The decrease
  of the French securitization program since December 31, 2001 (€(336) million)
  is reflected in the decrease in working capital in the consolidated statement
  of cash-flows.
Securitization in the USA
The securitization, initiated by US Filter in 2001 for $155 million, has been extinguished following the sale in 2002 of the Distribution activities.
The exit of the securitization program is reported as a reduction of the proceeds from sales of financial assets in the consolidated statement of cash flows for an amount of €181 million.
Discounting of receivables
The Group has discounted €624 million of receivables at December 31, 2002 (€520 million at December 31, 2001).
Allowances for doubtful accounts
The allowances for doubtful accounts for the years ended December 31, 2002, 2001 and 2000 are as follows:
(€
      millions)
    At
      December 31,2002
    
    2001
    
    2000Balance
      at beginning of period
    (472.7
    )
    (435.8
    )
    (431.3
    )Amounts
      charged to expense
    (165.7
    )
    (141.4
    )
    (83.6
    )Deductions
      of reserve
    100.3
    
    117.8
    
    51.0Other adjustments*
    53.5
    
    (13.3
    )
    28.1Balance
      at end of period
    (484.6
    )
    (472.7
    )
    (435.8
    )*
    Other adjustments
      mainly reflect translation adjustments (€28,2 million).Accounts
      payableAccounts
      payable are detailed as follows (in millions of euros):(€
      millions)
    
    
    At
      December 31,2002
    
    2001
    
    2000Trade accounts
      payable
    6,307.5
    
    6,438.7
    
    7,166.7Social costs
      payable
    4,359.5
    
    5,716.7
    
    2,990.4Other(1)
    940.7
    
    783.9
    
    697.3Total
      accounts payable
    11,607.7
    
    12,939.3
    
    10,854.4(1)
    Including
      deferred tax liabilities of €928.0 million at December 31, 2002.F–25

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9. SHORT TERM LOANS
At December 31, 2002, net short term loans amounted to €487.6 million. Except for the pre-financing of an investment of €155 million linked to an Australian contract, this heading is made up of per unit amounts smaller than €50 million.
Net valuation allowances amounted to €(136.9) million in 2002. According to the sale agreement of Schwarze Pumpe, Vivendi Environnement retains a loan which has been totally impaired at December 31, 2002 for an amount of €141.5 million.
10. 	CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
Marketable Securities
At
      December 31,(€
      millions)
    2002
    
    2001
    
    2000Gross
    
    
    
    Net
    
    Unrealized
    
    Estimated
    
    Net
    
    Estimated
    
    Net
    
    Estimatedvalue
    
    Depreciation
    
    value
    
    gains
    
    fair
      value
    
    value
    
    fair value
    
    value
    
    fair
      valueVinci
    37.9
    
    –
    
    37.9
    
    45.5
    
    83.4
    
    37.9
    
    102.3
    
    37.8
    
    101.7Vivendi
      Environnement
    100.1
    
    (8.4
    )
    91.7
    
    –
    
    91.7
    
    159.2
    
    159.2
    
    44.3
    
    44.3Vivendi
      Universal
    7.9
    
    (3.2
    )
    4.7
    
    –
    
    4.7
    
    7.9
    
    19.0
    
    9.1
    
    26.9Others(a)
    127.1
    
    (0.8
    )
    126.3
    
    –
    
    126.3
    
    119.1
    
    119.1
    
    405.4
    
    405.4Total
    273.0
    
    (12.4
    )
    260.6
    
    45.5
    
    306.1
    
    324.1
    
    399.6
    
    496.6
    
    578.3(a)
    This amount
      includes mainly short term highly liquid investments with fair value equal
      to cost value.Vivendi Environnement
  shares have been acquired to cover stock options (770,000 shares) for a total
  of €26.2 million and to cover Employee Stock Purchase Plans (3,624,844
  shares) for a total of €73.9 million. The exercise price of these options
  is €32.5.
In accordance with Board meeting of December 11, 2002, shares acquired to stabilize the market price (4,747,518 shares) for a total amount of €198.4 million have been reclassified in other portfolio investments in Vivendi Environnement's statutory accounts and have been accounted for as a reduction of the Group consolidated shareholders equity at June 30, 2002 net book value (€151 million).
Cash and cash equivalents amount to €2,381.9 million, consisting at December 31, 2002 of cash for €1,153.1 million, commercial papers for €566.3 million and short term investments for €662.5 million (maturity of less than three months).
Net valuation allowances amounted to €14.6 million in 2002.
11. SHAREHOLDERS EQUITY
In 1999, €2,776 million of the goodwill arising from the acquisition of USFilter was allocated, in anticipation, to the paid-in premium to be recorded on the public offering of Vivendi Environnement. In 2000, taking into account the results of the capital increase realized in July, €687 million of the goodwill initially recorded as a reduction of shareholders' equity was recorded as an asset.
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.
On December 31, 2000 the translation adjustments concerned principally the US dollar for €707 million and pound sterling for €(6) million. The accumulated foreign currency translation adjustments were €684.6 million as of December 31, 2000.
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 5,719 warrants were converted, resulting in the issuance of 817 new shares, over the course of 2002 a total of 93,415 warrants were converted, resulting in the issuance of 13,345 new shares.
In 2001, the translation adjustments concern principally the US dollar for €(24.5) million. This amount includes the appreciation of the US dollar against the euro for €294.5 million. In addition, the write-off of goodwill resulted in the reclassification to earnings of foreign currency translation adjustments for €319 million. Accumulated foreign currency adjustments were €654.1 million, as of December 31, 2001.
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On August 2, 2002 Vivendi Environnement completed its €1.5 billion capital increase, this capital increase, subscribed by a group of declared investors, was made by issuing 57.7 million new shares at a subscription price of €26.5 per share.
During December 2002, Vivendi Environnement issued 1.2 million new shares at a subscription price of €26.5 per share. The shares were subscribed to by the employee stock purchase plan "Sequoia".
In accordance with Board meeting of December 11, 2002, shares acquired to stabilize the market price (4,747,518 shares) have been reclassified in "other portfolio investments" in Vivendi Environnement statutory accounts and have been accounted for as a reduction of the Group shareholder's equity.
As of December 31, 2002 foreign currency transaction adjustment (€(957.2) million) is due for €(821) million to the depreciation of the dollar against the euro. As of December 31, 2002 the accumulated foreign currency adjustments were €(303.1) million.
At December 31, 2002, "other" include proceeds from transferred contracts by Vivendi Universal for an amount of €25.4 million and call options on shares of Vivendi Environnement agreed by Vivendi Universal for an amount of €(7.6) million.
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 405,070,459 shares at December 31, 2002. All shares have one voting right and may be registered upon request by the owners.
12.
      MINORITY INTERESTSMinority
      interests are detailed as follows (in millions of euros):2002
    
    2001
    
    2000Minority
      interests at January 1,
    2,531.1
    
    2,031.1
    
    1,330.4Changes
      in consolidation
    58.8
    
    139.0
    
    580.4TSAR(1)
    –
    
    300.0Minority
      interests in income of consolidated subsidiaries
    142.2
    
    131.2
    
    161.4Dividends
      paid by consolidated subsidiaries
    (112.9
    )
    (76.4
    )
    (46.5
    )Impact of
      foreign currency fluctuations in minority interests
    (33.9
    )
    5.4
    
    5.7Other Changes
    (0.1
    )
    0.8
    
    (0.3
    )Minority
      interests at December 31,
    2,585.2
    
    2,531.1
    
    2,031.1(1)
    TSAR -VEFO
      ((Vivendi Environnement Financière de lOuest), a company fully
      controlled by Vivendi Environnement SA) issued in December 2001, €300
      million of company obligated mandatorily redeemable securities maturing
      on December 28, 2006. As a result of their profile, these securities are
      accounted for as a minority interest. The remuneration of these securities
      is included in the minority interest table above. VEFO holds 8% of CGEA
      Onyxs capital.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.
13. DEFERRED INCOME
Deferred income
  includes mainly €634.6 million in investment subsidies received in connection
  with the management of municipal outsourcing contracts and €739.0 million
  in payments in respect of income from the securitization of future receivables.
  To finance 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.
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14. RESERVES
  AND ALLOWANCES
Reserves and
  allowances are detailed as follows (in millions of euros):
At
    
    At
    
    Charged
    
    
    
    
    
    
    
    
    
    
    
    AtDecember
      31,
    
    December
      31,
    
    to
    
    
    
    
    
    Changes
    
    Translation
    
    
    
    December
      31,2000
    
    2001
    
    expenses
    
    Utilization
    
    Reversal
    
    to
      scope
    
    adjustments
    
    Others
    
    2002Litigation
      including social and fiscal
    342.0
    
    246.0
    
    149.6
    
    (43.5
    )
    (16.3
    )
    24.4
    
    (7.2
    )
    13.7
    
    367.7Financial
      depreciation
    532.5
    
    627.8
    
    49.7
    
    (56.6
    )
    –
    
    (17.5
    )
    (0.1
    )
    (4.3
    )
    599.0Maintenance
      and repair costs accrued in advance
    361.5
    
    322.6
    
    59.9
    
    (68.8
    )
    (1.4
    )
    24.2
    
    (0.5
    )
    (11.1
    )
    324.9Valuation
      allowance on work in progress
    236.0
    
    370.3
    
    52.4
    
    (83.9
    )
    (0.3
    )
    (50.9
    )
    (25.0
    )
    (29.1
    )
    233.5Reserves
      related to fixed assets
    173.1
    
    128.7
    
    0.9
    
    (26.0
    )
    (0.5
    )
    (56.3
    )
    0.6
    
    0.5
    
    47.9Closure
      and post closure costs
    354.7
    
    362.0
    
    71.9
    
    (41.8
    )
    (0.7
    )
    15.6
    
    (23.8
    )
    5.2
    
    388.4Pensions
    167.7
    
    215.0
    
    37.3
    
    (44.6
    )
    (0.3
    )
    35.7
    
    (1.3
    )
    (7.8
    )
    234.0Restructuring
      costs
    183.0
    
    172.9
    
    40.5
    
    (141.5
    )
    (1.1
    )
    13.1
    
    (7.0
    )
    (7.4
    )
    69.5Losses on
      investment in unconsolidated companies
    122.0
    
    221.8
    
    40.9
    
    (132.7
    )
    –
    
    (43.5
    )
    (1.0
    )
    9.2
    
    94.7Warranties
      and customer come
    180.5
    
    235.3
    
    119.0
    
    (57.4
    )
    (1.1
    )
    (16.8
    )
    (11.7
    )
    41.7
    
    309.0Others
    432.4
    
    293.3
    
    134.5
    
    (145.8
    )
    –
    
    13.9
    
    (6.6
    )
    (10.8
    )
    278.5Total
      reserves and allowances
    3,085.4
    
    3,195.7
    
    756.6
    
    (842.6
    )
    (21.7
    )
    (58.1
    )
    (83.6
    )
    (0.2
    )
    2,946.1The principal reserves and allowances incite the following comments :
Reserves for litigation
Includes those losses that are considered probable that relate to the litigation that Vivendi Environnement experiences in conducting its normal business operations.
The water and energy businesses account for €179 million and €107 million respectively of the total reserves for litigation.
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Financial depreciation
Vivendi Environnement finances individual installations which, as a consequence of a specific contractual dispositions, are accounted for as tangible assets and amortized, up to their estimated residual value over the shorter of their useful lives and the period of the contract. When the contract period is shorter than the useful life of the asset, such depreciation is recorded as a liability as a financial depreciation. These reserves mainly relate to the Water business (€349.4 million) and Energy business (€200.1 million).
Maintenance and repair costs accrued in advance
The Group, as part of these contractual obligations through public services contracts, assume responsibility for the replacement of fixed assets in the publicly owned utility networks they manage. The group forecasts the expenditures required in this record over the remaining duration of the relevant contracts, 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 terms of the contract. These reserves concern the water business for €189.8 million and Energy business for €134.9 million.
Valuation allowance on work in progress
The principal reserves are for the energy business €32 million and the engineering activities of the water business for €130 million.
Closure and post-closure costs
The Group has financial obligations relating to closure and post-closure costs and the remediation of disposal facilities it operates or for which it is otherwise responsible.
Landfill final closure and post-closure accruals consider estimates for costs of the final 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.
Those reserves amounted to €322.2 million in 2002, compared to €321.1 million and €256.1 million in 2001 and 2000 respectively. As of December 31, 2002 the total anticipated costs, undiscounted, amounted to €500 million. Other reserves and accruals are related to the plant dismantling and site remediation in the Water and Waste business with an amount of €54.1 million, €40.9 million and €98.6 million for the years ended December 31, 2002, 2001 and 2000 respectively.
Pensions
The Group has
  accrued reserves of €124 million and €40 million to cover retirement
  obligations in France and Germany respectively, principally to cover the indemnities
  paid on retirement. Those defined pension schemes are essentially limited to
  the British subsidiaries of Vivendi Environnement. The €138 million of
  net assets invested in funds, are accounted for on the balance sheet as other
  financial assets (Note 7). The analysis of pension and other retirement benefits
  is undertaken in note 27H.
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Restructuring
  charges
Restructuring
  reserves are primarily in the water business, including reserves for restructuring
  of USFilter for €33.8 million and Vivendi Water Systems for €5.2 million.
The developments
  in the reserve for restructuring costs for the years ended December 31, 2002,
  2001 and 2000 are as follows (in million of euros):
At
      December 31,2002
    
    2001
    
    2000Balance
      at beginning of period
    172.9
    
    183.0
    
    193.2Amount charged
      to expenses
    40.5
    
    83.1
    
    49.5Utilization
      (cash)
    (141.5
    )
    (128.6
    )
    (60.1
    )Other adjustments*
    (2.4
    )
    35.4
    
    0.4Balance
      at the end of period
    69.5
    
    172.9
    
    183.0*Reflects
      primarily changes in the scope of consolidation.Losses on investments in unconsolidated companies
Within its normal activities, Vivendi Environnement is drawn to make allowances for certain affiliated companies. The decline by €127 million in 2002 is principally due to the disposal of Schwarze Pumpe (€94 million).
Warranties and customer care
These reserves are principally those obligations related to the construction activity of FCC and the engineering and equipment activities of the water business.
Other
Other reserves and allowances include those obligations recorded as part of the normal operating of the Groups subsidiaries.
15. DEBT
Long term financial debt
The table below presents an analysis of the consolidated long-term debt balance by type of debt instrument (in millions of euros):
At
      December 31,2002
    
    2001
    
    2000Société
      Générale borrowing(a)
    1,519.9
    
    2,076.5
    
    2,164.7Deutsche
      Bank borrowing(b)
    745.8
    
    590.0
    
    1,800.0Berliner
      Wasser Betriebe(c)
    1,977.6
    
    1,987.8
    
    1,822.0Onyx Waste
      Services(d)
    226.9
    
    416.4
    
    418.8Vivendi
      Environnement 1.5% bond(e)
    1,535.3
    
    1,535.6
    
    1,535.4EMTN(f)
    3,551.6
    
    2,806.7
    
    –Vinci convertible
      bond (g)
    120.0
    
    120.0
    
    –Montgomery(h)
    119.5
    
    121.5
    
    115.0Tyseley(i)
    110.5
    
    121.1
    
    131.7Capital
      Leases(j)
    812.3
    
    602.4
    
    476.4Bonds, Bank
      Loans(k)
    2,193.6
    
    2,756.0
    
    3,004.7Total
    12,913.0
    
    13,134.0
    
    11,468.7(a)
    This Syndicated
      credit (€2,164.7 million) maturing on November 3, 2004 is led by the
      Société Générale. At December 31, 2002 the outstanding
      credit reaches $1,593.9 million (€1,519.9 million) and bears interest
      based on a rate indexed on LIBOR USD.The debt
      contains two clauses :F-30

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
    The
      syndicated interest rate is linked to the debt coverage ratio.
    In
      the case of breaking the following financial ratios, the debt contains an
      accelerated redemption clause, otherwise redemption will occur at maturity.
    
    Interest
      cover ratio (EBITDA/net interest expense):>4.00
      to 1 in 2002 and 2003.
    
    Debt
      ratio (Net financial debt/EBITDA):<
      4.25 to 1 in 2002 and 2003.(b)
    On
      December 31, 2002 Vivendi Environnement issued a €3,000 million syndicated
      loan led by Deutsche Bank, that has been reduced on March 14, 2002 to €2,250
      million and which matures on March 13, 2006. As of December 31, 2002 the
      amount that has been drawn on is composed of $520 million and €250
      million, that is a total of €745.8 million respectively indexed on
      LIBOR USD and EURIBOR.The debt contains
      two clauses :
    The
      syndicated interest rate is linked to the debt coverage ratio.
    In
      the case of breaking the following financial ratios, the debt contains an
      accelerated redemption clause, otherwise redemption will occur at maturity.
    Interest
      cover ratio (EBITDA/net interest expense):>
      4.00 to 1 in 2002 and the following years.
    
    Debt
      ratio (Net financial debt/EBITDA):<
      4.25 to 1 in 2002 and 2003 and <4.00 to 1 for the following years.(c)
    Berliner
      Wasser Betriebe debt as of December 31, 2002 consists of two lines: the
      acquired debt of €645 million which matures in 2004, and debt of €1,332.6
      million.The
      acquired debt is guaranted by Vivendi Environnement and contains two clauses.
    The
      interest rate is linked to the debt coverage ratio.
    In
      the case of breaking the following financial ratios, the debt contains an
      accelerated redemption clause.
    
    Interest
      cover ratio (EBITDA/net interest expense):>
      4.00 to 1 in 2002 and 2003.
    
    Debt
      ratio (Net financial debt/EBITDA):<
      4.25 to 1 in 2002 and 2003.N.B. : "Rating triggers"
      have been cancelled during 2002.(d)
    This
        credit facility stand-alone of Onyx Waste Services (previously
        Superior Services) allows borrowings up to $650 million. Only $238 million
        (€226.9 million) have been used as of December 31, 2002 maturing
        on August 18, 2005.
        The debt contains two redemption clauses at the Onyx Waste Services level:
        
        The interest rate is linked to the cover debt ratio. The non respect of
        one of this four covenants might carry an accelerated redemption.
    Leverage
      ratio: < 3.00 to 1.
    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.(e)
    In
      April 1999, Vivendi Environnement issued a €2,850 million of 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.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. As a consequence of an initial offering conversion
        into Vivendi Environnement shares, the number of bonds in circulation
        was on December 31, 2002 of 5,331,058, which are only convertible into
        Vivendi Universal shares. The liability recorded for these bonds €1,535.3
        million, includes a premium of €91 million, the counterpart is recorded
        against other long-term investments (see Note 7 Financial assets and Financial
        provisions). Taking into account, the growing possibility of the non convertion
        of Vivendi Environnement's obligation into Vivendi Universal shares, the
        premium has been amortized since January 1, 2002. These bonds contained
        a reciprocal default agreement with Vivendi Universal as part of the guarantee
        given by Vivendi Universal to investors. On August 20, 2002, this guarantee
        was removed at the extraordinary general meeting of bondholders. The coupon
        was modified from 1.50% to 2.25% per year, starting from September 1,
        2002.(f)
    On
      December 31, 2002, EMTN consists of €3,820.1 million, from which a
      €3,551.6 million matures over one year, and is made as following :
    €500
      million bears interest of 4.75%, maturing on November 8, 2005,
    €2,000
      million bears interest of 5.875%, maturing on June 27, 2008,
    €1,000
      million bears interest of 5.875%, maturing on February 1, 2012.(g)
    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 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:
    Number
      of bonds issued by Vivendi Universal: 6,818,695.
    Face
      value of €88.81 per bond.
    Conditions
      for exchange: 1 Vinci share for 1 bond.
    Repayment:At
      the initiative of the issuer from March 1, 2003 under certain conditions.At
      the initiative of the bondholder from April 1, 2004.F-31

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
    ConversionAt
      the initiative of the bondholder, from April 1, 2001 until March 1, 2006.
    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 €53.70 as of December
      31, 2002.
    The
      average price of Vinci shares acquired by Vivendi Environnement is €24.4.(h)
    This
      bond financed the Montgomery plant, bears interest at a 4.5% fixed rate
      and matures on January 1, 2012.(i)
    This
      bond which outstanding is £71.59 million (€110.5 million) finances
      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.(j)
    As
        of December 31, 2002, capital leases mature between 2003 and 2021 and
        bear fixed interest rate between 3.40% and 12.09% and variable interest
        rate are mainly indexed on EONIA, T4M and TAM.(k)
    Other
      bonds and banks loans mature between 2003 and 2024 and are indexed on fixed-interest
      rates between 2.0% and 12.82% and on various variable-interest rates, mainly
      EURIBOR.Besides, this amount
      includes €91.1 million subordinated debt (TSDI) underwritten by OTV,
      to finance the Wastewater plant in Zaragoza, Spain, and which matures on
      December 20, 2006.Long-term financial debt listed according to the currency in which it is denominated is as follows (in millions of euros):
At
      December 31,2002
    
    2001
    
    2000Euro
    9,223.8
    
    8,331.9
    
    10,258.5U.S. Dollar
    2,564.5
    
    3,618.5
    
    685.8Pound Sterling
    286.2
    
    281.0
    
    180.0Australian
      Dollar
    198.2
    
    138.0
    
    83.1Korean Won
    171.6
    
    203.8
    
    86.9Norwegian
      Crown
    23.1
    
    80.0
    
    –Other
    445.6
    
    480.8
    
    174.4Total
    12,913.0
    
    13,134.0
    
    11,468.7The table below presents a summary of the repayment schedules of the long-term financial debt excluding subordinated securities (in millions of euros):
At
      December 31,2002
    
    2001
    
    2000Due between
      one and two years
    2,311.5
    
    1,227.4
    
    2,527.9Due between
      two and five years
    4,660.8
    
    7,461.8
    
    6,449.2Due after
      five years
    5,940.7
    
    4,444.8
    
    2,491.6Total
    12,913.0
    
    13,134.0
    
    11,468.7Unused credit lines
The main unused
  credit lines amounted as of December 31, 2002 to €3,872 million. It was
  composed as follows :
In
      Vivendi Environnement holding:
    €1,150
      million of short-term credit line.
    €150
      million of middle-term credit line.
    €2,149
      million of unused credit facility.In
      Vivendi Environnement's subsidiaries :
    €423
      million of middle-term credit line.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.
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The main unused credit line amounted 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.
Short term borrowings
The table below summarizes Vivendi Environnements short-term borrowings (all amounts are in millions of euros):
At
      December 31,2002
    
    2001
    
    2000Bank
      overdrafts and other short-term borrowings
    3,795.9
    
    4,889.5
    
    4,243.6Average
      rate
    3.10
    %
    3.10
    %
    5.46
    %The
      Groups main short term borrowings as of December 31, 2002 are detailed
      below:
    Cash liabilities
      : €746 million.
    €268
      million EMTN maturing in 2003.
    Commercial
      paper program amounting to €1,139 million issued by Vivendi Environnement
      holding with a maximum amount of €4 billion, interest rates are based
      on EONIA or fixed rates, with maturities between 30 to 180 days.
    €154
      million of accrued interest at Vivendi Environnement holding level.
    €214
      million of short-term borrowings in Berlin (Vivendi Water).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.
    Commercial
      paper program amounting to €2,005 million, interest rates are based
      on EONIA or fixed 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 indexed
      on EURIBOR 4 months, 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.Bank
  borrowings supported by collateral guarantees
At December
  31, 2002, €590 million in bank borrowings was supported by collateral
  guarantees. The breakdown by type of asset is as follows (in millions of euros)
  :
Amount
      pledged
    
    Total
      amount in
    
    %(a)
    
    the
      balance sheet
    
    (a)
      / (b)(b)On intangible
      assets
    4
    
    3
      905
    
    0.10
    %On tangible
      assets
    337
    
    14,541
    
    2.32
    %On financial
      assets(1)
    212
    
    –
    
    –Total
      long term assets
    553
    
    –
    
    –On current
      assets
    37
    
    15,450
    
    0.23
    %Total
      assets
    590
    
    –
    
    –(1)
    Financial
      assets pledged as collateral being essentially stocks of consolidated subsidiaries,
      the ratio is not meaningful.F-33
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The breakdown
  by maturity is as follows :
(€
      millions)
    
    
    MaturityAt
      December31,
    
    Less
      than 1
    
    1
      to 5 years
    
    More
      than 52002
    
    year
    
    
    
    yearsIntangible
      assets
    4
    
    3
    
    –
    
    1Tangible
      assets
    337
    
    23
    
    23
    
    291Land
    
    180
    
    21
    
    6
    
    153Other
      tangible assets
    157
    
    2
    
    17
    
    138Financial
      assets(1)
    212
    
    –
    
    56
    
    156Wyuna
      Water PTY stocks(2)
    74
    
    –
    
    –
    
    74Vivendi
      Water Korean Daesan stocks(2)
    56
    
    –
    
    56
    
    –Vivendi
      Water Industrial
    71
    
    –
    
    –
    
    71Development
      stocks(2)Technoborgo
      stocks(3)
    5
    
    –
    
    –
    
    5Connex
      Regiobahn stocks(2)
    6
    
    –
    
    –
    
    6Current
      assets
    37
    
    32
    
    –
    
    5Accounts
      receivable
    33
    
    30
    
    –
    
    3Inventories
    4
    
    2
    
    –
    
    2Total
    
    590
    
    58
    
    79
    
    453(1)
    100% of
      the capital.(2)
    Companies
      consolidated at December 31, 2002.(3)
    Companies
      accounted for under equity method at December 31, 2002.16. INCOME
  TAXES
Analysis of Income Tax Expense
Components of the income tax provision are as follows (in millions of euros):
At
      December 31,2002
    
    2001
    
    2000France
    (93.8
    )
    (128.5
    )
    (341.0
    )Other countries
    (248.9
    )
    (256.3
    )
    (125.1
    )Current
      income tax expense
    (342.7
    )
    (384.8
    )
    (466.1
    )France
    (11.9
    )
    9.6
    
    12.3Other countries
    (82.7
    )
    (87.1
    )
    (5.4
    )Deferred
      income tax (benefit)
    (94.6
    )
    (77.5
    )
    6.9Total
      income tax expense
    (437.3
    )
    (462.3
    )
    (459.2
    )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.
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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 31,2002
    
    2001
    
    2000Deferred
      tax assets:–   Employee
      benefits
    62.8
    
    53.2
    
    47.6–   Provisions
      for risks and liabilities
    30.9
    
    19.9
    
    6.7–   Tax
      loss
    442.6
    
    593.9
    
    679.4–   Other
      timing differences
    648.3
    
    451.0
    
    226.7Gross deferred
      tax assets
    1,184.6
    
    1,118.0
    
    960.4Unrecorded
      deferred tax assets(1)
    (172.8
    )
    (107.0
    )
    (95.9
    )Deferred
      tax assets recorded in the books
    1,011.8
    
    1,011.0
    
    864.5Deferred
      tax liabilities:–   Depreciation
    356.8
    
    207.6
    
    264.0–   Reevaluation
      of assets
    160.3
    
    151.2
    
    69.7–   Other
      taxable timing differences
    410.9
    
    403.7
    
    363.8Gross deferred
      tax liabilities
    928.0
    
    762.5
    
    697.5(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.
      Net valuation allowance amounted to €(86.1) million in 2002.In the consolidated
  balance sheets, deferred tax assets are classified in accounts receivable
  and deferred tax liabilities in accounts payable.
Tax Rate
  Reconciliation
At
      December 31,2002
    
    2001
    
    2000Statutory
      tax rate
    35.43
    %
    36.43
    %
    37.77
    %Goodwill
      amortization not deductible for tax purposes
    12.75
    %
    (61.30
    )%
    9.36
    %Permanent
      differences
    8.91
    %
    (2.07
    )%
    (8.73
    )%Lower tax
      rate on long-term capital gains and losses
    (5.89
    )%
    1.76
    %
    (4.78
    )%Tax losses
    5.13
    %
    (4.42
    )%
    11.19
    %Other, net
    (8.73
    )%
    1.71
    %
    (7.64
    )%Effective
      tax rate(a)
    47.60
    %
    (27.89
    )%
    37.17
    %(a)
    The effective
      tax rate is computed by dividing income taxes and deferred taxes
      by Income before minority interest, income taxes and deferred
      taxes.F-35
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Net Operating Tax Loss
At December 31, 2002, the Group had tax losses which represent a potential tax saving of €442.6 million (based on the effective tax rate).
Tax losses expire as follows (in millions of euros):
Years
    Amount2003
    50.02004
    85.42005
    6.82006
    5.82007
    62.62008 and
      thereafter
    159.4Unlimited
    72.6Total
    442.617. FINANCIAL INSTRUMENTS AND COUNTERPARTY RISKS
The Group uses
  various financial derivative instruments to manage its exposure to fluctuations
  in interest rates and foreign currency rates.The Group does not anticipate any third-party defaults, which could have a significant
  impact on its financial position and the results of its transactions.

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Interest
      rate and foreign currency agreementsThe contractual
      amounts stated below are outstanding as of December 31, 2002, 2001 and 2000.
      These amounts represent the levels of involvement by the Group and are not
      indicative of gains or losses. The amounts are in millions of euros.As
      of December 31, 2002Total
    
    Less
      than
    
    1
      to 5
    
    More
      than1
      year
    
    years
    
    5
      yearsInterest
      rate hedging activityInterest
      rate swaps-pay at fixed rate / receivable at variable rateNominal
      amount
    1,382.1
    
    255.6
    
    866.8
    
    259.7Weighted
      average received rate (evaluated on December, 31)
    2.29
    %Weighted
      average paid rate (evaluated on December, 31)
    5.50
    %Interest
      rate swaps-pay at variable rate / receivable at fixed rateNominal
      amount
    2,707.6
    
    
    
    507.6
    
    2,200.0Weighted
      average received rate (evaluated on December, 31)
    5.63
    %Weighted
      average paid rate (evaluated on December, 31)
    3.06
    %Interest
      rate swaps-pay at variable rate / receivable at variable rateNominal
      amount
    1,573.0
    
    238.4
    
    1,334.6
    
    Weighted
      average received rate (evaluated on December, 31)
    1.60
    %Weighted
      average paid rate (evaluated on December, 31)
    1.61
    %Swap-cross
      currencyNominal
      amount
    775,9
    
    78.9
    
    183.8
    
    513.2Weighted
      average received rate (evaluated on December, 31)
    2.23
    %Weighted
      average paid rate (evaluated on December, 31)
    4.74
    %Interest
      caps, floors and collars (a)Nominal
      amount
    2,052.7
    
    238.4
    
    1,791.9
    
    22.4Average
      guarantee rate
    4.11
    %Foreign
      currency hedging activityForward
      exchange contracts (b)Nominal
      amount
    1,242.6
    
    1,227.6
    
    15.0
    
    (a)
    Interest
      caps are used to protect the group from the interest fluctuation which should
      impact the variable debt, limiting the interest paid. On December 31, 2002,
      the cap portfolio is made of the following :•
    Covering
      exposure to Euribor 3 month, with a nominal of €622.4 million. The
      weighted average guarantee rate is 4.96%.•
    Covering
      exposure, to Libor USD 3, 6 and 12 month, with a nominal of $1,250 million
      (€1,192 million). The weighted average guarantee rate is 3.03%.(b)
    The
      use of forward exchange contracts is linked to foreign currency borrowing
      . Mainly short term contractsOn December 31, 2002, the exchange operation portfolio is as follows:
Currency
    Forward
      buy
    Forward
      saleAUD
    4.5
      M AUD
    273.7
      M AUDGBP
    49.1
      M GBP
    190.0
      M GBPNOK
    –
    645.0
      M NOKUSD
    37.4
      M USD
    493.7
      M USDOther currency
      (€ equivalent)
    8.0
      MEUR
    88.4
      MEUR
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As
      of December 31, 2001Total
    
    Less
      than
    
    1
      to 5
    
    More
      than1
      year
    
    years
    
    5
      yearsInterest
      rate hedging activityInterest
      rate swaps-pay at fixed rate / receivable at variable rateNominal
      amount
    4,721.2
    
    1,157.4
    
    3,557.3
    
    6.5Weighted
      average received rate (evaluated on December, 31)
    3.17
    %Weighted
      average paid rate (evaluated on December, 31)
    4.94
    %Interest
      rate swaps-pay at variable rate / receivable at fixed rateNominal
      amount
    2,449.1
    
    15.2
    
    426.3
    
    2,007.6Weighted
      average received rate (evaluated on December, 31)
    5.67
    %Weighted
      average paid rate (evaluated on December, 31)
    3.31
    %Swap-cross
      currencyNominal
      amount
    262.7
    
    –
    
    262.7
    
    –Weighted
      average received rate (evaluated on December, 31)
    4.07
    %Weighted
      average paid rate (evaluated on December, 31)
    3.42
    %Interest
      caps, floors and collarsNominal
      amount
    174.8
    
    –
    
    152.4
    
    22.4Average
      guarantee rate
    4.69
    %Foreign
      currency hedging activityForward
      exchange contractsNominal
      amount
    186.8
    
    186.8
    
    
    
    As
      of December 31, 2000 (restated)Total
    
    Less
      than
    
    1
      to 5
    
    More
      than1
      year
    
    years
    
    5
      yearsInterest
      rate hedging activityInterest
      rate swaps-pay at fixed rate / receivable at variable rateNominal
      amount
    2,793.5
    
    8.9
    
    2,778.1
    
    6.5Weighted
      average received rate (evaluated on December, 31)
    5.16
    %Weighted
      average paid rate (evaluated on December, 31)
    5.22
    %Interest
      rate swaps-pay at variable rate / receivable at fixed rateNominal
      amount
    289.1
    
    61.0
    
    217.7
    
    10.4Weighted
      average received rate (evaluated on December, 31)
    5.86
    %Weighted
      average paid rate (evaluated on December, 31)
    4.76
    %Swap-cross
      currencyNominal
      amount
    256.5
    
    –
    
    256.5
    
    –Weighted
      average received rate (evaluated on December, 31)
    4.04
    %Weighted
      average paid rate (evaluated on December, 31)
    4.90
    %Interest
      caps, floors and collarsNominal
      amount
    188.1
    
    10.4
    
    155.3
    
    22.4Average
      guarantee rate
    4.68
    %Foreign
      currency hedging activityForward
      exchange contractsNominal
      amount
    22.9
    
    –
    
    22.9
    
    –
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18. FAIR VALUE OF FINANCIAL INSTRUMENTS
On December
  31, 2002, 2001 and 2000 Vivendi Environnement used for financing, notes receivables,
  as well as derivative financial instruments used to manage interest rate risk,
  foreign currency risk and equity risk. They were characterized by investments,
  invoices, loans and advances, short and long-term borrowings.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 of financial 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 cash
  flows or other estimates.
At
      December 31,(€
      million)
    2002
    
    2001
    
    2000Assets
      (liabilities)
    Carrying
    
    Estimated
    
    Carrying
    
    Estimated
    
    Carrying
    
    Estimatedamount
    
    fair
      value
    
    amount
    
    fair
      value
    
    amount
    
    fair
      valueInvestments*
    1,600.8
    
    1,514.3
    
    1,598.6
    
    1,674.1
    
    1,646.2
    
    1,734.8Long-term
      debt
    (12,913.0
    )
    (13,125.0
    )
    (13,134.0
    )
    (13,265.0
    )
    (11,468.7
    )
    (11,680.0
    )Treasury
      managementInterest
      rate swaps
    
    
    139,5
    
    –
    
    (25.7
    )
    –
    
    (21.4
    )Cross
      Currency interest rate swaps
    
    
    117.2
    
    –
    
    (4.1
    )
    –
    
    2.2Forward
      exchange contracts
    
    
    16.5
    
    –
    
    3.6
    
    –
    
    0.8Interest
      caps, floors and collars
    
    
    (5.8
    )
    –
    
    0.4
    
    –
    
    4.0*
    Excluding
      treasury shares held for stock option purposes, Vivendi Environnement 1.5%
      bond premium redemption, balancing cash adjustment of Vivendi Universal
      / Vivendi Environnement swap.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 table above. For these instruments, fair value was estimated to be the carrying amount due to the short maturity.
19. COMMITMENTS AND CONTINGENCIES
Commitments related to cooperation agreement between Vivendi Universal and Vivendi Environnement are detailed in note 22.
Specific Commitments
Operation Southern Water: The transaction is detailed in note 25.
Put FCC
The Group has agreed to buy the 51% partner's interest in B1998 SL if the partner exercises the option agreement, which remains valid during 10 years, 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 times FCCs earnings per share for the previous year, whichever is lower). B1998 SL is a holding company which owns 52.5% of FCC. Based on the price of FCCs common stock on December 31, 2002, the price would be approximately €751.4 million.
If the partner exercises the option agreement, the Group would be the sole shareholder of B1998 SL. As a result of which, the Spanish law could require the Group to launch take over bid on the remaining shares of FCC (47.5%) not held by B1998 SL. The offering price would be determined by the Spanish market authority. According to the share price of FCC on 26thFebruary 2003, the acquisition price of the remaining 47.5% would be around €1,361 million, subject to adjustment by the Spanish authority.
EDF agreements
EDF entered into a call option with the Group on Dalkia shares in case of a take over bid on the Group by a competitor of EDF.

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Furthermore, the Group entered into a call option with EDF on its Dalkia shares in case of a change in EDF's status or a take over bid on EDF by a competitor of Vivendi Environnement. The share price would be determined by an independent expert if there is no agreement.
Replacement engagement
The Group and its water distribution and energy services subsidiaries, as part of their contractual obligations through public services contracts and in return for the revenue they receive, assume responsibility for the replacement of fixed 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.
Performance bonds issued for US subsidiaries
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 $0.9 billion (maximum amount used at December 31, 2002).
Specific Berlin contract engagement
Under the Berlin water contract, the Group may be obligated to pay approximately €610 million to previous land owners, not indemnified by the Berlin government, who present claims for payments.
Securitization
According to the securitizaton agreement, the subsidiaries are responsible for collecting the receivables. The Group provides guarantees on the performance of its subsidiaries in recovering these amounts.
Fees obligations with local authorities
As described in note 2, under certain public service contracts, the Group has assumed fees obligations with local authorities. At December 31, 2002, the minimum future payments of these commitments is €219.4 million.
The breakdown by maturity of specific commitments is as follows :

(in
      millions of euros)
    At
    
    MaturityDecember31,
    
    Less
      than 1
    
    1
      to 5
    
    More
      than 5year
    
    years
    
    years2002Put
      Southern Water
    575
    
    –
    
    575
    
    –Put
      FCC / B
    751
    
    –
    
    –
    
    751Water
      replacement engagement
    1,937
    
    299
    
    668
    
    970Energy
      Services replacement engagement
    514
    
    53
    
    262
    
    199Performances
      bonds VE issued for US subsidiaries*
    861
    
    –
    
    –
    
    861Specific
      Berlin contract engagement
    610
    
    –
    
    –
    
    610Fees
      obligations with local authorities
    219
    
    41
    
    115
    
    63Total
    5,467
    
    393
    
    1,620
    
    3,454*
    Indefinite
      maturity
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Other commitments and contingencies
Other commitments and contingencies do not include collateral given in guarantee of banking loans (see note 15) nor specifics commitments and contingencies described above.
Other commitments and contingencies are detailed as follows (in millions of euros)
At
      December
      31,
    
    Maturity2002
    
    Less
      than 1year
    
    1
      to 5 years
    
    More
      than 5yearsOperational
      guarantees
    2,974.9
    
    637.0
    
    631.8
    
    1,706.1Financial
      guarantessDebt
      guarantees
    185.1
    
    23.1
    
    29.5
    
    132.5Warranty
      obligation given
    338.6
    
    191.2
    
    67.6
    
    79.8Commitments
      givenObligation
      to buy
    55.7
    
    39.8
    
    15.9
    
    Obligation
      to sell
    27.0
    
    14.0
    
    13.0
    
    Other
      commitments givenLetters
      of credit
    290.8
    
    23.8
    
    
    
    267.0Other commitments
      given
    398.7
    
    77.4
    
    160.7
    
    160.6Total
    4,270.8
    
    1,006.3
    
    918.5
    
    2,346.0Operational guarantees(performance bonds) : the Group's subsidiaries in the course of their normal activities, give guarantees to their customers. If the company does not reach its specified targets, it may have to pay penalties.
This commitment is often guaranteed by an insurance company, a financial institution, or the parent company of the Group. These guarantees included in the contract are performance commitments. The insurance company or the financial institution often requires counter guarantees from the parent company. The commitment is the amount of the guarantee anticipated in the contract and given by the parent company to the customer or the counter guarantee given by the parent company to the insurance company or to the financial institution.
Debt guarantees: they relate to guarantees given to financial bodies in connection with financial debt of non consolidated companies, companies accounted for under the equity method, or companies consolidated through proportional consolidation.
Warranty obligations given: they include guarantees in connection to sale of Filtration and Separation, Distribution units for €191 million and €48 million and the sale of Bonna Sabla for €65 million.
Letter of credits: The amount of the credit line given by a bank or financial institution which has not been drawn against. In fact it is a commitment received.
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The Groups contingent liabilities relating to certain performance guarantees by segments are as follows (in millions of euros):
At
      December 31,2002
    
    2001
    
    2000Water
    1,783.0
    
    1,005.0
    
    571.7Waste Management
    347.2
    
    302.8
    
    617.3Energy Services
    466.2
    
    242.0
    
    101.8Transportation
    114.4
    
    229.5
    
    31.5FCC/Proactiva
    748.7
    
    687.5
    
    579.8Holding
    794.0
    *
    641.0
    
    95.4Others
    17.3
    
    8.2
    
    Total
    4,270.8
    
    3,116.0
    
    1,997.5*
      Including
        €611 million of operational guarantees on behalf of its Water business
        (€573 million) and Waste business (€ 38 million).Capital Leases and Operating Leases
The Group uses capital leases in order to finance certain operating assets and investment properties. As stated in Note 2 to the consolidated financial statements, the Group has capitalized these assets (see note 5) and recorded the principal portion of the related capital leases as long-term debt for its present value (€812.3 million) (see note 15-j). Payments under these capital lease obligations at December 31, 2002, 2001 and 2000 represent €1.2 billion, €0.8 billion and €0.6 billion, respectively. Furthermore, the Group uses operating leases (mainly transportation equipment and treatment plants).
Vivendi Environnement has concluded capital and operating leases. As of December 31, 2002, minimum future payments for these contracts amount to (in millions of euros) :
  Operating
        leases
      
      Capital
        leases(balance
        sheet)2003
      419.1
      
      171.62004
      405.3
      
      173.02005
      389.4
      
      136.92006
      377.9
      
      109.02007
      241.0
      
      96.72008 and
        thereafter
      606.2
      
      559.2Total
        minimum future capital lease payments
      2,438.9
      
      1,246.4Less amounts
        representing interest
      
      
      434.1Present
        value of net minimum future capital lease payments
      
      
      812.3Litigation
        (other than those accounted for)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s financial position or results of operations.
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Commitments received
  (€
        millions)
      2002Commitments
        received
      1,408.1Debt guarantees
      167.6Warranty
        obligations given
      20.4Other
        engagements received *
      1,220.1*
      Including
        €1,042 million behalf EDF's electric contracts commitments.Commitments
    received amount to €1,385.5 million as of December 31, 2001 and to €1,192
    million as of December 31, 2000.
  20. TAX AUDITS
As a part of their normal activities the Group's subsidiaries are subjected to regular tax audits.
Tax audits were carried out on the French subsidiaries of Vivendi Environnement's four business segments, and cover the period 1998 to 2001. Additional tax assessments were sent out at the end of 2002, the most important of which concern the taxation of financial operations. These additional tax assessments concern either timing differences or are for subjects for which the Group considers that its arguments will be favorably considered by the tax authorities.
Vivendi Environnement has made allowances for those risks it considers appropriate.
21. SEGMENT INFORMATION
In accordance with the provision of SFAS 131, the Group has identified five 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.
  Revenue
    From External Customers
  (€
        millions)
      For
        the year ended at December 31,2002
      
      2001
      
      2000restatedWater
      13,293.7
      
      13,641.2
      
      12,768.2Waste
        management
      6,138.8
      
      5,914.4
      
      5,260.0Energy
      4,570.9
      
      4,017.4
      
      2,988.5Transportation
      3,422.2
      
      3,098.9
      
      3,131.1FCC
      2,653.1
      
      2,454.8
      
      2,114.7Total
      30,078.7
      
      29,126.7
      
      26,262.5F-43

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Revenue Between Segments
  (€
        millions)
      For
        the year ended at December 31,2002
      
      2001
      
      2000
        restatedWater
      9.0
      
      10.3
      
      6.8Waste
        management
      42.1
      
      32.3
      
      44.2Energy
      13.5
      
      5.9
      
      12.1Transportation
      4.4
      
      4.1
      
      0.8FCC
      0.5
      
      1.8
      
      Other
      
      
      4.9
      
      28.8Total
      69.5
      
      59.3
      
      92.7Amortization
        Expense(€
        millions)
      For
        the year ended at December 31,2002
      
      2001
      
      2000restatedWater
      573.2
      
      527.6
      
      531.3Waste
        management
      564.3
      
      505.2
      
      462.6Energy
      230.7
      
      160.2
      
      129.0Transportation
      189.7
      
      149.8
      
      145.4FCC/Proactiva
      126.8
      
      129.9
      
      87.6Other
      14.6
      
      11.9
      
      7.4Total
      1,699.3
      
      1,484.6
      
      1,363.3EBIT
        and operating income (previous method):(€
        millions)
      For
        the year ended at December 31,2002
        EBIT
      
      2001
        EBIT
      
      2000
        Operating
        income
        (previous
        method)Water
      1,024.3
      
      1,089.6
      
      1,021.2Waste
        management
      385.2
      
      390.7
      
      393.9Energy
      244.0
      
      220.5
      
      191.3Transportation
      115.6
      
      112.1
      
      105.3FCC/Proactiva
      250.3
      
      229.5
      
      208.1Other
      (48.1
      )
      (29.3
      )
      (10.2
      )Total
      1,971.3
      
      2,013.1
      
      1,909.6F-44

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  Total
    Assets
  (€
        millions)
      At
        December 31,2002
      
      2001
      
      2000Water
      16,095.1
      
      19,095.8
      
      18,470.6Waste
        management
      5,280.0
      
      5,474.9
      
      6,483.8Energy
      4,950.7
      
      4,471.0
      
      3,515.3Transportation
      2,631.3
      
      2,576.0
      
      1,992.8FCC/Proactiva
      3,191.8
      
      3,749.5
      
      2,996.4Other
      9,869.5
      
      9,042.1
      
      6,364.1Total
      42,018.4
      
      44,409.3
      
      39,823.0Expenditures
        for Long Lived Assets(€
        millions)
      For
        the year ended at December 31,2002
      
      2001
      
      2000Water
      1,086.3
      
      1,188.3
      
      1,040.8Waste
        management
      739.5
      
      794.2
      
      869.9Energy
      342.2
      
      401.5
      
      361.8Transportation
      154.7
      
      287.8
      
      181.6FCC/Proactiva
      278.9
      
      206.7
      
      131.6Other
      1.8
      
      
      
      0.5Total
        expenditures
      2,603.4
      
      2,878.5
      
      2,586.2Long-term
        Assets(€
        millions)
      At
        December 31,2002
      
      2001
      
      2000Water
      13,945.4
      
      15,441.0
      
      14,800.7Waste
        management
      5,245.4
      
      5,504.2
      
      5,083.3Energy
      2,867.5
      
      2,565.1
      
      2,155.0Transportation
      1,967.5
      
      1,762.6
      
      1,374.2FCC/Proactiva
      2,130.4
      
      1,883.9
      
      1,889.0Other
      411.8
      
      243.9
      
      60.0Total
        long-term assets
      26,568.0
      
      27,400.7
      
      25,362.2F-45

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Equity
      Method InvestmentsAt
      December 31,(€
      millions)
    2002
    
    2001
    
    2000Investment
    
    Share
      in
    
    Investment
    
    Share
      in net
    
    Investment
    
    Share
      in netnet earnings
    
    
    
    earnings
    
    
    
    earningsWater
    140.9
    
    11.8
    
    397.3
    
    21.6
    
    275.7
    
    38.8Waste
      management
    57.1
    
    6.5
    
    26.1
    
    7.2
    
    20.8
    
    3.3Energy
    9.9
    
    (0.4
    )
    9.0
    
    1.0
    
    6.3
    
    1.1Transportation
    5.7
    
    (2.1
    )
    10.7
    
    0.4
    
    5.9
    
    0.5FCC/Proactiva
    205.2
    
    19.6
    
    174.9
    
    16.2
    
    208.6
    
    16.9Other
    29.2
    
    3.6
    
    –
    
    1.4
    
    6.1
    
    –Total
    448.0
    
    39.0
    
    618.0
    
    47.8
    
    523.4
    
    60.6
Geographical
      Breakdown of Net Sales(€
      millions)
    
    
    
    
    At
      December 31, 2002France
    
    United
    
    Rest
      of
    
    United
      States
    
    Rest
      of the
    
    TotalKingdom
    
    Europe
    
    of
      America
    
    worldWater
    6,201.2
    
    654.9
    
    1,669.6
    
    3,378.7
    
    1,389.3
    
    13,293.7Waste management
    2,543.4
    
    708.5
    
    794.5
    
    1,306.0
    
    786.4
    
    6,138.8Energy
    2,972.8
    
    302.4
    
    1,226.8
    
    0.4
    
    68.5
    
    4,570.9Transportation
    1,268.0
    
    661.1
    
    1,266.4
    
    83.5
    
    143.2
    
    3,422.2FCC
    10.4
    
    33.8
    
    2,487.9
    
    102.0
    
    19.0
    
    2,653.1Total
    12,995.8
    
    2,360.7
    
    7,445.2
    
    4,870.6
    
    2,406.4
    
    30,078.7(€
      millions)
    
    
    
    
    At
      December 31, 2001France
    
    United
    
    Rest
      of
    
    United
      States
    
    Rest
      of the
    
    TotalKingdom
    
    Europe
    
    of
      America
    
    worldWater
    6,193.7
    
    729.7
    
    1,517.2
    
    3,817.3
    
    1,383.3
    
    13,641.2Waste
      management
    2,440.8
    
    655.1
    
    668.6
    
    1,434.3
    
    715.6
    
    5,914.4Energy
    2,733.8
    
    313.5
    
    896.3
    
    0.2
    
    73.6
    
    4,017.4Transportation
    993.3
    
    906.9
    
    1,028.1
    
    35.2
    
    135.4
    
    3,098.9FCC
    10.5
    
    33.4
    
    2,228.1
    
    138.4
    
    44.4
    
    2,454.8Total
    12,372.1
    
    2,638.6
    
    6,338.3
    
    5,425.4
    
    2,352.3
    
    29,126.7(€
      millions)
    
    
    At
      December 31, 2000 (restated)France
    
    United
    
    Rest
      of
    
    United
      States
    
    Rest
      of the
    
    TotalKingdom
    
    Europe
    
    of
      America
    
    worldWater
    5,748.6
    
    648.5
    
    1,434.7
    
    3,678.2
    
    1,258.2
    
    12,768.2Waste
      management
    2,353.1
    
    573.0
    
    485.8
    
    1,192.8
    
    655.3
    
    5,260.0Energy
    1,795.7
    
    379.7
    
    781.7
    
    
    
    31.4
    
    2,988.5Transportation
    941.2
    
    1,135.3
    
    913.0
    
    
    
    141.6
    
    3,131.1FCC
    10.0
    
    25.4
    
    1,913.2
    
    95.1
    
    71.0
    
    2,114.7Total
    10,848.6
    
    2,761.9
    
    5,528.5
    
    4,966.1
    
    2,157.5
    
    26,262.5F-46

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  Geographical
      Breakdown of Long Lived Assets(€
      millions)France
    
    United
    
    Rest
      of
    
    United
      States
    
    Rest
      of the
    
    TotalAs
        of December 31,
    
    
    
    Kingdom
    
    Europe
    
    of
      America
    
    world2002
    
    7,304.6
    
    2,136.2
    
    8,452.3
    
    6,568.3
    
    2,106.6
    
    26,568.02001
    
    6,897.5
    
    2,199.5
    
    7,986.2
    
    8,685.6
    
    1,631.9
    
    27,400.72000
    
    7,964.1
    
    1,881.0
    
    6,242.3
    
    8,347.7
    
    927.1
    
    25,362.222. 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 31,2002
    
    
    2001
    
    2000Call
      option/shares of Vivendi Environnement
    7.6
    
    
    
    
    Treasury
      shares purchased from Vivendi Universal
    73.9
    
    
    
    
    Vivendi
      Universal / Vivendi Environnement swap cancelled
    75.8ReceivablesTrade
      accounts
    37.6
    
    
    40.2
    
    115.3Loans
    54.6
    
    (1)
    352.0
    
    74.7PayablesVinci
      convertible bonds
    120.0
    
    
    120.0Trade
      accounts
    19.6
    
    
    105.9
    
    22.6Loans
    1.3
    
    
    1.0
    
    1,245.7At
      December 31,2002
      
      
      2001
      
      2000Sales
    10.8
    
    
    13.9
    
    336.4Operating
      income (expense)
    17.0
    
    (2)
    (16.2
    )
    (176.0
    )Interest
      expense
    (58.8
    )
    
    (91.2
    )
    (584.5
    )Interest
      income
    58.5
    
    
    100.3
    
    113.9(1)
      include
        €35.7 million relating to receivables in connection with Water contracts
        transferred.(2)
      include
        €32.9 million of payments by Vivendi Universal associated with the
        maintenance or replacement of equipment.Financial Agreement
In 2000

•
    At the time
      of the IPO, the Group was fully financed by Vivendi Universal as a result
      of a financial 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. ItsF-47

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relates
      to the fair value of the portion of the swap that has been cancelled. 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 the financial 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.In 2002
In order to benefit from the low level of interest rates, the Group has cancelled the interest swap with Vivendi Universal. This cancellation led to a payment by the Group of €75.8 million in 2002. It relates to the fair value of the swap that has been cancelled. The payment is expensed over the life of the swap.
Vivendi Universal and Vivendi Environnement agreed that Vivendi Universal would not pay the quarterly amount. Vivendi Universal paid to Vivendi Environnement €52.6 million euros, a compensation equal to the present value of the reduction in future payments. This income was accounted for under the item financial income (expense) in 2002.
Cooperation agreement between Vivendi Universal and Vivendi Environnement
In order to finalize the separation of Vivendi Environnement from Vivendi Universal, Vivendi Environnement and Vivendi Universal reached an agreement, on December 20, 2002.
Transfer of interest
The most significant transfers represent the sale to Générale des Eaux of interests in foreign water companies such as the Rumanian company Apa Nova Bucaresti, the Italian company Genova Acque, the Moroccan company Société des Eaux et de lélectricité du Nord (Tanger-Tétouan).
Transfer of Water Distribution and Treatment Operations to Compagnie Générale des Eaux
Vivendi Universal has economically transferred to Générale des Eaux (wholly-owned subsididary of Vivendi Environnement, previously named Compagnie Générale des Eaux-Sahide) all its water-related operations in France and the right to the operating income including income relating to contracts not yet transferred.
The transfer of water distribution and treatment operations contracts owned by Vivendi Universal to Générale Des Eaux should be completed during the first quarter 2003. These contracts represent less than 0.5 % of the portfolio managed by Compagnie Générale Des Eaux.
Counter-Guarantee Agreement
Vivendi Universal and Vivendi Environnement agreed that Vivendi Universal would be replaced by Vivendi Environnement for some guarantees given to Vivendi Environnement by Vivendi Universal. These agreements have no effect on off balance sheet position.
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, the Group has replaced Vivendi Universal as managing partner (associé commandité) of substantially all Vivendi Universals historic 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.
The guarantee agreement dated June 20, 2000 in connection with the maintenance or replacement of equipments has been modified. The annual initial limit of €15.2 million is increased to €30.4 million. The initial maximum total amount of €228.7 million that the Group can recover for recurring expenses is increased by €76.2 million.
Vivendi Environnement received €16.2 million in 2002 and earned €16.2 million in deferred income in 2002 payable in 2005. These amounts are reductions from the operating expenses.
Trademark License agreement
Under a trademark license agreement the group has the right to use the Vivendi trademark. This license has a term of five years and carries an annual license fee of €30,500 before tax.
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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: a fixed rate of 1% per annum and maturing on March 1, 2006.
This loan was economically transferred to Dalkia France in 2001.
FCC agreement
Prior to the restructuring of Vivendi Environnements capital, on June 17, 2002, Vivendi Environnement and Ms. Esther Koplowitz signed an agreement making Vivendi Environnement the partner in all the contractual documents concerning B 1998 SL, in place of Vivendi Universal. Ms. Esther Koplowitz thereby accepted to not exercise her purchase right on her partners stake in B 1998 SL, should Vivendi Universals holding be reduced to less than 50% of Vivendi Environnements capital and voting rights.
In consideration for this, Vivendi Environnement awarded Madame Esther Koplowitz and her group of shareholders in B 1998 SL a preferential purchase right for the B 1998 SL shares held by Vivendi Environnement, should Vivendi Environnement be the target of a hostile takeover. A hostile takeover is defined as the direct or indirect acquisition of at least 25% of Vivendi Environnements capital, which has not been approved by Vivendi Environnements Supervisory and Management Board, by a direct competitor of FCC in Spain. The strike price of the preferential purchase right would be the average between the price paid by Vivendi Environnement for its stake, which is about €691 million, and the market value of that stake, calculated in a transparent manner on the basis of the average price of FCCs shares during the quarter preceding the hostile takeover.
In addition,
  Vivendi Environnement confirmed its intention to strengthen revenue growth in
  FCCs business activities other than Realia and Grucycsa. Vivendi Environnement
  thus awarded the Chairman of FCCs board of directors a casting vote, until
  December 31, 2004, to be used in the event of a deadlock on the decisions of
  FCCs executive committee on projects with this objective. The casting
  vote may become permanent after December 31, 2004, if FCCs revenue does
  not meet certain growth targets.
23. INCOME STATEMENT
Employees and personnel chargesPersonnel charges including profit sharing amount to €8.7 billion in 2002, compared to €8.0 billion in 2001 and €7.3 billion in 2000.(€
      millions)
    For
      the year ended at December 31,2002
    
    2001
    
    2000Personnel
      costs
    8,654
    
    7,992
    
    7,295Profit sharing
    39
    
    42
    
    388,693
    
    8,034
    
    7,333Weighted-average
      number of employeesBy
      category
    For
      the year ended at December 31,2002
    
    2001
    
    2000Executives
    34,393
    
    33,320
    
    25,062Employees
    222,784
    
    205,716
    
    190,314257,177
    
    239,036
    
    215,376F-49

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By
      segment
    For
      the year ended at December 31,2002
    
    2001
    
    2000Water
    74,223
    
    72,538
    
    69,103Waste
      management
    65,007
    
    60,710
    
    53,175Energy
    34,075
    
    30,691
    
    24,051Transportation
    48,389
    
    42,122
    
    37,348Proactiva
    9,876
    
    9,779
    
    9,618FCC
    25,408
    
    23,124
    
    22,075Other
    199
    
    72
    
    6257,177
    
    239,036
    
    215,376By
      method of consolidation
    For
      the year ended at December 31,2002
    
    2001
    
    2000Fully
      consolidation
    206,359
    
    191,466
    
    188,602Proportional
      consolidation
    50,818
    
    47,570
    
    26,774257,177
    
    239,036
    
    215,376Research and development costs were €92.5 million, €101.6 million and €79.4 million for 2002, 2001 and 2000 respectively.
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Depreciation
      and Amortization(€
        millions)
    
    
    At
        December 31, 2002Notes
    
    Additions
    
    Utilization/
    
    NetReversalIn
      the statement of cash-flowsAmortizationGoodwill
    3
    
    327.2
    
    –
    
    (327.2
    )Tangible
      assets
    5
    
    1,494.9
    
    9.8
    
    (1
      485.1)Intangible
      assets
    4
    
    215.6
    
    1.4
    
    (214.2
    )Depreciation
      of financial assetsInvestments
      accounted for using the cost method
    7
    
    23.2
    
    14.8
    
    (8.4
    )Other
      financial assets
    7
    
    134.0
    
    54.3
    
    (79.7
    )Short
      term loans
    9
    
    146.2
    
    9.3
    
    (136.9
    )Cash
      and cash equivalent and other marketable securities
    10
    
    12.9
    
    27.5
    
    14.6Reserves
      and allowances(1)
    14
    
    756.6
    
    864.3
    
    107.7Valuation
      allowances on deferred taxes
    16
    
    97.7
    
    11.6
    
    (86.1
    )(2,215.3
    )Renewal
      expenses(2)
    
    
    
    
    
    
    (293.7
    )(2,509.0
    )Valuation
      allowance on current assetsInventories
      and work in progress
    8
    
    26.7
    
    18.2
    
    (8.5
    )Trade accounts
      receivables
    8
    
    165.7
    
    100.3
    
    (65.4
    )Other accounts
      receivables
    
    
    9.0
    
    11.7
    
    2.7(71.2
    )(1)
    Operational,
      financial and others(2)
    All
      renewal costs for publicity-owned utility networks are considered in the
      cash flow statement, as investments, whether the utility network have been
      originally financed by the concessionary or not. In addition, in the passage
      from net income (loss) to net cash provided by operating activities, all
      renewal costs are eliminated under adjustments for depreciations and amortizations.Goodwill amortization
  is detailed as follows :
(€
      millions)
    For
      the year ended at December 31,2002
    
    2001
    
    2000restatedGoodwill
      amortization
    (250.2
    )
    (257.9
    )
    (232.1
    )Impairment
      of goodwill
    (77.0
    )**
    (2,652.2
    )*
    (74.2
    )Total
    (327.2
    )
    (2,910.1
    )
    (306.3
    )*
    Including
      €(2,611) million of US Filter Corporation goodwill impairment.**
    Including
      €(40.6) million of Latin America goodwill impairment.F-51

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Financial income and expenses
Net financial income for 2002, 2001 and 2000 amounts to a loss of €648,1 million, €798.0 million and €891.8 million, respectively.
It includes interest expenses, foreign exchange income and provisions.
(€
      millions)
    
    For
      the year ended at December 31,2002
    
    2001
    
    2000restatedInterest
      expense
    
    (680.9
    )
    (764.2
    )
    (875.3
    )Other
      financial income (expense)
    142.2
    
    19.7
    
    (36.8
    )Provisions
    
    (109.4
    )
    (53.5
    )
    20.3Financial
    income
    (648.1
    )
    (798.0
    )
    (891.8
    )(expense)Three reasons explain the reduction in interest expense : the capital increase in August 2002, significant proceeds from sales and decreases in interest rates for euros and dollars between 2001 and 2002 from which the Group has benefited.
The other components
  of the financial expense represent €32.8 million in 2002 and €(33.8)
  million in 2001. They include :
•
    A gain on
      the sale of Philadelphia Suburban shares for €110.3 million. This
      investment accounted for using the equity method until December 31, 2001
      was deconsolidated and reclassified in marketable securities on January
      1st, 2002 because of the planned sale. Consequently, the gain on sale is
      included in financial income.•
    A provision
      of €(32.2) million on Vivendi Environnement treasury stock made up
      of €(23.8) million for shares charged to equity at June 30th, 2002
      book value (average price of €31.8) and €(8.4) million to treasury
      shares affected to employee stock purchase plans (average price of €23.08
      as of December 31st, 2002).•
    A foreign
      exchange income of €44 million, mainly due to the effects of the sale
      of the Distribution Branch of USFilter.•
    Amortizations
      of the premium on bonds payable for €(33.4) million, mainly the premium
      on Vivendi Environnement 1.5% bond.•
    Amortizations
      of borrowing expenses for €(13.5) million.•
    Dividends
      received from non-consolidated affiliates for €16.4 million.•
    Valuation
      allowances (€(30.3) million) on financial assets including Argentina
      (€(5.0) million), non consolidated subsidiary in Slovaquia (€(6.5)
      million) and Vivendi Universal shares (€(8.7) million) and mainly
      bank commissions for the rest (€(28.5) million).Other
  income (expenses)
(€
      millions)
    For
      the year ended at December 31,2002
    
    2001
    
    2000restatedCapital
      gains and losses
    (31.4
    )
    (150.0
    )
    (729.0
    )Losses,
      reserves and impairment of assets
    (30.4
    )
    (117.0
    )
    –Other
    2.1
    
    5.9
    
    48.3(59.7
    )
    (38.9
    )
    (777.3
    )In 2002, capital
  gains and losses include the losses on sales of Bonna Sabla for €(44)
  million, of the Distribution Branch of USFilter for €(59) million and
  of Schwarze Pumpe (Eaux de Berlin subsidiary) for €(24) million.
  They also include the gains on sales of the minority participations in the subsidiaries
  of Bristol Water holding and South Staffordshire for €73 million and a
  capital gain on FCC/Portland merge for €10.7 million.
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Losses, reserves and impairment of assets include a reserve on a German subsidiary not linked to water distribution activity for €(10) million taking into account the expectations in terms of results.
In 2001, capital gains and losses are related to the sale of Dalkia to EDF for €121 million and the capital gain on the sale of SAFEI and Midkent for €34 million.
2002
      Bank ratio
    2002
    
    Reference“EBITDA”
        bank definitionEBIT
    1,971.3
    
    Income
        statement+
         Operational
      amortization
    1,699.3
    
    Note
        23 Depreciation and amortization+   
      Operational valuation allowance on long term assets
    –
    
    idem+   
      Profit sharing
    39.0
    
    Note
        23 Employees and personnel charges(a)
        “EBITDA” bank definition
    3,709.6“Net
        interest expenses” bank definitionInterest
      expenses
    680.9
    
    Note
        23 Financial income and expensesOther
      financial incomes (expenses)
    (142.2
    )
    idem(b)
      Net interest expenses bank definition
    538.7DebtFinancial
      long term debt
    12,913.0
    
    Balance
        sheetFinancial
      short term debt
    3,795.9
    
    Balance
        sheetTotal
      gross debt
    (16,708.9
    )Short
      term financial loans
    487.6
    
    Balance
        sheetLong
      term financial loans
    512.4
    
    Note
        7 : Other financial assetMarketable
      securities
    260.6
    
    Balance
        sheetCash
      and cash equivalent
    2,381.9
    
    Balance
        sheetTotal
      financial assets
    (3,642.5
    )(c)
      Total net financial debt
    13,066.4(d)
      Interest coverage ratio = (a) / (b)
    6.9
    
    4.78
        for 2001(e)
      Debt payout ratio = (c) / (a)
    3.5
    
    4.01
        for 2001The economic
    ratio “Interest coverage ratio”, excluding Philadelphia Suburban
    disposal, amounts to 5.7.
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24. INVESTMENTS
  ACCOUNTED FOR USING THE PROPORTIONATE CONSOLIDATION METHODInvestments accounted
  for using the proportionate consolidation method represent companies in which
  the Group and other shareholders have agreed to exercise joint control over
  significant financial and operating policies.
Summarized financial information for major subsidiaries consolidated under the proportionate consolidation method is as follows (in millions of euros):
At
        December 31,Balance
      sheet data
    2002
    
    2001
    
    2000Non-current
      assets
    9,185.5
    
    8,081.6
    
    5,224.5Current
      assets
    4,655.0
    
    4,693.9
    
    2,169.6Total
      assets
    13,840.5
    
    12,775.5
    
    7,394.1Shareholders
      equity
    5,435.4
    
    5,145.4
    
    2,098.3Minority
      interests
    5.0
    
    163.3
    
    278.5Financial
      debt
    3,093.2
    
    2,851.9
    
    1,776.2Reserves
      and other liabilities
    5,306.9
    
    4,614.9
    
    3,241.1Total
      liabilities and shareholders' equity
    13,840.5
    
    12,775.5
    
    7,394.12002
    
    2001
    
    2000Income
      statement dataNet sales
    5,569.8
    
    4,923.3
    
    3,050.8Operating
      income
    464.3
    
    426.3
    
    345.5Net income
    204.3
    
    128.3
    
    184.3Cash
      flow dataOperating
      cash flow
    590.9
    
    449.2
    
    274.9Investing
      cash flow
    (849.6
    )
    (677.9
    )
    (309.4
    )Financing
      cash flow
    145.0
    
    311.2
    
    201.825. RECENT
  DEVELOPMENTS
Southern Water
The operation involves both 2002 and 2003. As a result, the whole description is disclosed in this note.
On March 8, 2002, First Aqua Holdings Limited (FAH), a third party company to Vivendi Environnement, concluded an agreement to acquire the company Southern Water, from Scottish Power on the basis of an enterprise value of £2 billion, which corresponded to its estimated gross Regulatory Asset Value (RAV) in March 2002. Southern Water is one of the largest and best performing British water companies and provides water and wastewater treatment services in the South East of England. This agreement was finalized on April 23, 2002.
On May 7, 2002, Vivendi Water UK (VW UK), a 100% owned subsidiary of Vivendi Water, reached an agreement with FAH to acquire First Aqua (JV Co) Limited (FA (JVCo)), the parent company of Southern Water, on the same economic basis. By this acquisition, Vivendi Environnement looked to take control of a major well recognized operator in the UK water market, operating in a dynamic geographical region, with an access to the wastewater treatment market which will enable it to develop local synergies with other activities of the Group.
In parallel, Vivendi Environnement gave to the financial investors who subscribed to £374 million of preferred shares of FA (JVCo) a put option exercisable on the third anniversary of the conclusion of the acquisition agreement, that is April 23, 2005. Vivendi Environnement has a call option exercisable between the first and fifth anniversaries of the conclusion of the FA (JVCo) purchase agreement, that is between April 23, 2003 (or the date of the conclusion of the purchase agreement between VWUK and FAH, if this is prior to April 23, 2003) and
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April 22, 2007.
The acquisition of FA (JVCo) by VW UK was subject to approval by U.K. Competition Commission as well as the setting up of long-term non-recourse financing in order to refinance the existing debt of FA (JVCo) and Southern Water (the European Commission had already given its agreement to the transaction on August 23, 2002). These conditions should have been fulfilled before January 30, 2003.
  Vivendi Environnement
    concluded that both pending conditions requested by the agreement of May 7,
    2002 were not satisfied as at January 30, 2003 and decided not to take over
    Southern Water. Consequently, Vivendi Environnement opened negotiations with
    Royal Bank Investments Limited (“RBIL”), a subsidiary of Royal
    Bank of Scotland (“RBS”) in the late 2002, in order to transfer
    the control to RBIL immediately after the acquisition of Southern Water.
In February 2003, Southern Water Capital (SWC) and Vivendi Environnement announced the signature of an agreement by which Southern Water Investments Limited (SWI), a newly created company, will acquire FA (JVCo), Southern Waters shareholder. RBS will own 49% of SWC capital, with the remainder held by others investors. SWC will hold 80.1% of SWI, and Vivendi Environnement will hold 19.9%. SWC has granted Vivendi Environnement an option to purchase 5.1% of the common shares of SWI.
This acquisition
  will be implemented by the simultaneous completion of two agreements (together
  the Transaction):
1)
    Vivendi
      Water UKs acquisition of FA (JVCo), through SWI, pursuant to the agreement
      entered into on May 7, 2002; and2)
    SWCs
      acquisition of 80.1% of SWI, the holding company through which SWC will
      exercise control on Southern Water.As
  a result of these transactions, the £374 million (€568 million)
  of preference shares issued on March 7, 2002 will be redeemed by FA (JVCo).
The agreements are subject to regulatory clearances from the UK authorities and other procedural matters. Contacts are on going with the UK General manager of Water Services and the UK General manager of Office of Fair trading in connection with this transaction and some requirements from the UK Competition Commission. VE believes that regulatory clearance should be forth coming.
SWC and Vivendi Environnement will invest £273 million (€415 million) and £160 million (€243 million) respectively through a combination of equity and debt instruments. Vivendi Environnement also intends to underwrite the subscription by third party investors for a further £110 million (€167 million) of preferred shares with a put at par value onto Vivendi Environnement after 5 years, bringing its total investment in Southern Water lower than the previous commitment of £374 million (€568 million).
It is intended that Southern Water will undertake a refinancing of its regulated business through the capital markets by a ring-fencing whole business securitization with a structure consistent with those used successfully in the previous re-financings in this sector.
Commitments as of December 31, 2002
Further to the agreement of March 8, 2002, (relating to the acquisition of Southern Water), Vivendi Environnement entered into a put option agreement with a number of financial investors. The put option relates to 74,800 preference shares issued by FA (JVCO) for a total amount of £374 million (€568 million). At the end 2002, Vivendi Environnement does not hold any ordinary shares or debt instruments issued by FA (JVCo). The put option to be exercised by May 23 ,2005 is an off-balance sheet commitment.
The simplified
  balance sheet of FA (JVCo) is the following (in millions pounds of sterling)
  :
Financial
      assets
    1,941
    
    Equity
    -6Current
      assets
    86
    
    Preference
      shares
    370Debts
    1,656Other
      liabilities
    7Total
    2,027
    
    
    2,027NB : The preference shares are net of issuance costs.
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The 74,800 preference shares for an amount of £374 million (€568 million) are held by financial investors. The debts correspond to provisional financing assumed by a banking pool led by Royal Bank of Scotland for an amount of £1,656 million (€2,515 million). The other liabilities are an existing bond.
The preference shares on which Vivendi Environnement is committed bear interest at a fixed rate of 7% until 2005, and thereafter at a rate of 3% payable on their initial value indexed to the value of the company.
The other characteristics of the put option are the following. Each holder is able to exercise his put option on the all preferred shares held. The amount to be paid by Vivendi Environnement in case of exercise by one or several holders of the put option mainly results from :
(i)
    issuing
      price (premium reserve) of each preferred share(ii)
    accrued
      but not paid dividends(iii)
    annual
      compounded interest of 7% applied to accrued but not paid dividends.Each holder
  may address an exercise notification of its put option to Vivendi Environnement
  with copies sent to the auditors of FA (JVCo), who will compute, within two
  days after the reception of the notification, the amount to be paid by Vivendi
  Environnement.
Year 2003 situation
Vivendi Environnement should hold by the end of the first half year 2003 less than 20% of the capital of SWI, the controlling shareholder, controlled itself by RBS. SWC and Vivendi Environnement, with invest £273 million (€415 million) and £160 million (€243 million) respectively through a combination of equity and debt instruments. Vivendi Environnement intends to underwrite the subscription by third party investors for a further £110 million (€167 million) of preferred shares with a put at par value onto Vivendi Environnement after 5 years.
Following the completion of the agreements, the commitments of Vivendi Environnement, SWC and other third parties would be :
€
      millions
    
    VE
    
    SWC
    
    Third
    
    TotalpartiesEquity
      InstrumentsOrdinary
      shares
    
    15
    
    61
    
    
    
    76Debt
      InstrumentsPreference
      shares junior A
    
    228
    
    
    
    
    
    228
    (1)Preference
      shares junior A2
    
    Neg
    
    
    
    
    
    
    (2)Preference
      shares senior B 7%
    
    
    
    
    
    167
    
    167
    (3)Subordinated
      debt senior A 10%
    
    
    
    193
    
    
    
    193
    (4)Subordinated
      debt junior B 16%
    
    
    
    161
    
    
    
    161
    (5)Bonds
    
    
    
    
    
    2,916
    
    2,916Total
    
    243
    
    415
    
    3,083
    
    3,741(1)
    Non voting
      rights, junior, redeemable by 35 years(2)
    With additional
      remuneration(3)
    Non voting
      rights, senior, redeemable by 35 years, 7% interest, put on Vivendi Environnement
      after 5 years(4)
    Subordinated
      debt senior, 10%, redeemable by 35 years(5)
    Subordinated
      debt junior, 16%, redeemable by 35 yearsVivendi Environnement
  would exercise significant influence through its holding and through its representation
  on the board of directors of SWI (2 directors out of 7) and Southern Water board
  (3 directors out of 11). Vivendi Environnement will account for SWI under the
  equity method (19.95%) once the transaction is completed. Vivendi Environnement
  will account for the junior preference shares A as a portfolio investment.
The impact in 2003 of the completion of the Southern Water transaction on Vivendi Environnement's gross debt will be €243 million.
As a result
  of these transactions, the £374 million (€568 million) of preference
  shares issued on March 7, 2002 will be redeemed by FA (JVCo). Consequently,
  the end of the put option would not have any effect on 2003 net income. These
  preferred shares would be reimbursed at par value. Furthermore, the economic
  valuation of the preferred shares based on discounted expected cash flows over
  the life of the instruments leads to a present value higher than the book value.
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26.LISTING
  OF MAIN COMPANIES INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS IN 2002
In 2002, the
  Group consolidated or accounted for a total of slightly over 2,404 companies,
  of which the principal companies are:
Group
      and Address
    Consolidation
    %
      HoldingVivendi
      Environnement
    Full
    100.0036-38, avenue
      Kléber  75016 ParisWaterVivendi
      Water
    Full
    100.0052, rue
      dAnjou  75008 ParisGénérale
      des Eaux  Sahide and subsidiaries
    Full
    100.0052, rue
      dAnjou  75008 ParisOf
      which in France :Compagnie
      des Eaux et de lOzone
    Full
    100.0052, rue
      dAnjou  75008 ParisCompagnie
      des Eaux de Paris
    Full
    100.004, rue du
      Général Foy  75008 ParisSociété
      Française de Distribution dEau
    Full
    99.604, rue du
      Général Foy  75008 ParisCompagnie
      Fermière de Services Publics
    Full
    99.863, rue Marcel
      Sembat  Immeuble CAP 44  44100 NantesCompagnie
      Méditerranéenne dexploitation des Services dEau
    Full
    99.5212, boulevard
      René Cassin  06100 NiceSociété
      des Eaux de Melun
    Full
    99.22Zone Industrielle
       198/398, rue Foch  77000 Vaux Le PénilSociété
      des Eaux de Marseille et ses filiales
    Prop
    48.8225, rue
      Edouard Delanglade  BP 29  13254 MarseilleSociété
      des Eaux du Nord
    Prop
    49.54217, boulevard
      de la Liberté  59800 LilleSociété
      des Eaux de Versailles et de Saint-Cloud
    Prop
    50.00145, rue
      Yves le Coz  78000 VersaillesSade-Compagnie
      Générale de Travaux dHydraulique and subsidiaries
    Full
    98.5728, rue
      de la Baume  75008 ParisOmnium de
      Traitements et de Valorisation (OTV) and subsidiaries
    Full
    100.00lAquarène
       1, place Montgolfier  94417 St Maurice CedexSainte-Lizaigne
      SA
    Full
    99.45Tour Ariane
       5, place de la Pyramide  92800 Puteaux La DéfensePrague Water
      CGE AW
    Full
    99.7652, rue
      d'Anjou  75008 ParisF-57

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Group
      and Address
    Consolidation
    %
      HoldingOf
      which outside France :Vivendi
      Water UK Plc and subsidiaries
    Full
    100.0037-41 Old
      Queen Street, London SW1H 9JA (Great-Britain)US Filter
      Corporation and subsidiaries
    Full
    100.0040-004 Cook
      Street  92211 Palm Desert (USA)Berliner
      Wasser Betriebe
    Prop
    24.95Anstalt
      des Offentlichen Rechts  Hohenzollerndamn 45  10631 Berlin (Germany)Servitec
      KFT
    Full
    100.00Lovas UT
      131b  1012 Budapest (Hungary)Vivendi
      Water Ceska Republica
    Full
    99.76Sokolovska
      238  Prague 9 (Czech Republic)OEWA Wasser
      und Abwasser
    Full
    94.50Walter Köhn
      Strasse 1  04358 Leipzig (Germany)EnergyDalkia 
      Saint André
    Full
    66.0037, avenue
      du Mal de Lattre de Tassigny  59350 St André les LilleDalkia France
    Full
    65.9437, avenue
      du Mal de Lattre de Tassigny  50350 St André les LilleCogestar
       Saint André
    Full
    65.8637, avenue
      du Mal de Lattre de Tassigny  59350 St André les LilleCogestar
      2  Saint André
    Full
    65.8133 Place
      Ronde, Quartier Valmy  92800 PuteauxCrystal
      S.A.  Saint André
    Full
    65.9437, avenue
      du Mal de Lattre de Tassigny  59350 St André les LilleDalkia Morava
      AS
    Prop
    49.1828 Rijna
      152  70974 Ostrava (Czech Republic)Dalkia PLC
      and subsidiaries
    Full
    50.02Elizabeth
      House  56-60 London Road  Staines TW18 4BQ(Great-Britain)Clemessy
      and subsidiaries
    Full
    65.6318, rue
      de Thann  68200 MulhouseSiram, SPA
      and subsidiaries
    Prop
    50.02Via Sempone
      230- 20016 Pero  ItalyF-58

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Group
      and Address
    Consolidation
    %
      HoldingWaste
      ManagementCompagnie
        Générale d’Entreprises Automobiles and subsidiaries
        (Onyx)
    Full
    100.00Parc des
      Fontaines  163 / 169, avenue Georges Clémenceau  92000
      NanterreSociété
      dAssainissement Rationnel et de Pompage and subsidiaries (S.A.R.P.)
    Full
    99.51162/16 Energy
      Park IV  162/166, boulevard de Verdun  92413 Courbevoie CedexSARP 
      Industries and subsidiaries
    Full
    99.79427, route
      du Hazay  Zone Portuaire Limay-Porcheville-78520 LimayOnyx Environmental
      Group Plc
    Full
    100.00Onyx house
       401 Mile end Road  E34 PB  London (Great-Britian)Onyx North
      America Corp.
    Full
    100.003225 Aviation
      Avenue  4th Floor  33133 Miami (USA)Onyx Waste
      Services
    Full
    100.00One Honey
      Creed Corporate Center  125 South  84th Street  Suite
      200WI 53214
      Milwaukee (USA)Collex Waste
      Management Pty Ltd
    Full
    100.00280 Georges
      Street  Level 12  P.O. Box H126 Australia Square - NSW 1215
       Sydney(Australia)Onyx Umweltservice
      GmbH
    Full
    100.00Am Mühlengarten
      4  66292 Riegelsberg (Germany)Marius Pedersen
    Full
    65.00Obaekvej
      49  5863 Ferritslev (Denmark)TransportationCGEA Connex
      (Compagnie Générale d'Entreprises Automobiles)
    Full
    100.00Parc des
      Fontaines  163 / 169, avenue Georges Clémenceau  92000
      NanterreConnex Transport
      AB (formerly Aktiebolaget Linjebuss)
    Full
    100.00Englundavagen
      9  Box 1820  17124 Solna (Sweden)Connex Transport
      UK Ltd (formerly Connex Rail Ltd)
    Full
    100.0041/45 Blackfriars
      Road  SE1 8PG London (Great-Britain)CGTV (Compagnie
      Générale des Transports Verney)
    Full
    99.5820, avenue
      du Général Leclerc  72000 Le MansConnex Verkehr
      GMBH
    Full
    100.00Rödelheimer
      Bahnweg 31,60489 Francfort
      (Deutschland)Connex Group
      Australia PTY LTD
    Full
    100.00Level 3,
      Flinders St Station, 223 Flinders StMelbourne,
      Victoria 3000 (Australia)F.C.C.F.C.C. and
      subsidiaries (F.C.C.)
    Prop
    25.72Calle Balmes
      36  08007 Barcelona (Spain)Proactiva
    Full
    62.86216 Paso
      de la Castellana  28046 Madrid (Spain)Prop ProportionateF-59

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27. SUPPLEMENTAL DISCLOSURES
The following information has been prepared to present supplemental disclosures required under U.S. GAAP and SEC regulations applicable to the Group.
  27A.
    SUMMARY
    OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING POLICIES GENERALLY
    ACCEPTED IN THE UNITED STATES AND FRANCE
  The consolidated
  financial 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 significant financial 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 joint control or significant influence over the entity, the Group uses the equity method to account for its investment. Summarized financial information for those investments accounted for under the proportionate consolidation method are included in note 24.
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.
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Reduction of Shareholders equityUnder
    French GAAP, the Group recognizes goodwill as an asset and amortizes it over
    the estimated useful life. However until December 1999, if the acquisition
    was financed 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 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. This difference is related to the year 2000.
  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 See note 27B
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.
For 2001 and 2000 under USGAAP intangible assets acquired were amortized over their useful lives up to 40 years.
From January 1, 2002, those intangible assets with a finite useful life are amortized over their useful lives, those intangible assets with an indefinite useful life are not amortized and are subject to an annual impairment test, or more frequently if circumstances dictate. (Described in note 27B)
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.
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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 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, when it is probable that those costs will be incurred.
Under U.S. GAAP, contingent losses are accrued only if it is probable that a liability had been incurred at the date of the financial 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.
Since 2001, the Group applies the same criteria for recognition of restructuring reserves under French GAAP as those applicable under U.S. GAAP.
Reconciling adjustments were made to certain restructuring reserves because the probability criteria under SFAS 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 SFAS 5.
Under French GAAP, reserves related to fixed 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 8 and Note 13.
The securitization agreement signed in June 2002 with a SPE (Special Purpose Entity) described in Note 8 does not comply with all the requirements of SFAS 140 which notably states that the Originator and its affiliates cannot be entitled and obligated to repurchase or redeem the receivables, or have the ability to unilaterally cause the return of specific receivables, other than through exercise of a clean-up call.
The call option held by the Group allows the repurchase of the receivables irrespective of any default payments. Consequently, the securitization is restated under U.S. GAAP.
Under French GAAP, future receivables sale (see Note 13) are accounted as deferred income and the discounting of receivables are accounted for as a sale. Under U.S. GAAP, the deferred income is reclassified as long-term financial debt whereas the 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:
    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”.

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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 as financial 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 or Vivendi Universal'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 recorded financial interest expense in connection with the beneficial conversion feature. Under U.S. GAAP, a financial interest expense related to the feature computed upon the full amount of bonds eligible was 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 financial assets in statutory accounts and as a reduction of consolidated shareholder's equity, or as marketable securities in the consolidated financial 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, derivative financial instruments are not recorded to the consolidated balance sheet. The effects of financial instruments which qualify as hedging instruments are included in net income along with the corresponding hedged item for those financial 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, derivative financial instruments (including those embedded in other contracts and the FCC put) 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 in financial income (expenses). The effect on income is matched by the reevaluation of the hedged asset, debt or firm commitment which is also recorded in financial 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 the financial 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 to financial 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.
Due to its financial operations, Vivendi Environnement is exposed to market risks (essentially due to changes in interest rate or exchange rates). Management uses these financial instruments to limit these financial risks. Nevertheless, some of the financial 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 in financial 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.

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The amount of other comprehensive income that has been reclassified into earning during the year is €7.8 million, compared to €(10.3) million in 2001.
At December 31, 2002, the amount of accumulated other comprehensive income relating to Cash-Flow hedges amounts to €(111.3) million (net of tax) of which an amount of €(14.3) million (net of tax) will be reclassified into earnings during the next year. Cash-Flow hedges are used by the Group to hedge underlying on the 2003-2005 period.
The amount of the inefficiency is not significant as of December 31, 2002 both for fair value hedges and cash flow hedges. The Group did not have any amount excluded from the measure of effectiveness. No contracts that qualified as hedges were cancelled during 2002. There are no net investment hedges as of December 31, 2002.
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.
According to the agreement signed on December 20, 2002 between Vivendi Universal and Vivendi Environnement, Vivendi Universal assumes the responsibility for these plans until their maturity.
In addition, Vivendi Environnement has implemented a stock option plan attributed to a limited number of employees.
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 Environnement 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 sale of 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. For fixed 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 27G.
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.
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.

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Southern Water transaction
Under French GAAP, the put option related to preferred shares issued by FA (JVCo) is considered as an off-balance sheet commitment. Under US GAAP, FA (JVCo) is treated as a special purpose entity and is fully consolidated.
February 2003 agreements between Southern Water Capital and Vivendi Environnement are currently analyzed. The consolidation method of Southern Water Investments Limited is not yet determined.
27B. APPLICATION OF SFAS 141 BUSINESS COMBINATIONS AND SFAS 142 GOODWILL AND OTHER INTANGIBLE ASSETS.
Business combinations in 2002
SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for as purchases. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives acquired after June 30, 2001 should not be amortized. The Group has accounted for business combinations according to SFAS 141 and SFAS 142. During 2002, the Group has not undertaken any significant acquisitions.
Application of the new accounting pronouncements during the transition period
Review
  of existing intangible assets and goodwill with regard to the new criteria
  The review of
  intangible assets and goodwill existing on January 1, 2002 with regard to the
  changes in accounting method has driven the Group to reclass to goodwill net
  amount of €240 million from market share, which no longer fulfill the
  conditions to be accounted for as a separate intangible asset.
Review
  of the useful lives of intangible assets The review of
  the useful lives of intangible assets has lead the Group to reclassify under
  U.S. GAAP an amount of €1.6 billion as assets with an indefinite useful
  life. Those intangible
  assets are almost exclusively the trademarks of USFilter. As of December 31,
  2001 USFilter trademarks amounted to €2,350.1 million under U.S. GAAP.
  They were up until 31 December 2001 amortized over 40 years under U.S. GAAP,
  and were not amortized under French GAAP. The review by an independent expert
  lead to the classification of a part of these trademarks as intangible assets
  with an indefinite useful life. As of December 31, 2002 USFilter indefinite
  useful life trademarks amount to €1,611.4 million and finite useful life
  trademarks amount to €198.1 million. The impact of this reclassification
  on US GAAP net income in 2002 is €43 million. As of December
  31, 2002 intangible assets with an indefinite useful life in U.S. GAAP amount
  to €1.6 billion, intangible assets with a finite useful life amount to
  €1.8 billion.
Transitional
  impairment test on indefinite useful life intangible assets Those intangible
  assets with an indefinite useful life are almost exclusively the trademarks
  of US Filter (€1.6 billion). These trademarks have been reviewed by an
  independent expert who has confirmed their value. As of December 31, 2002 no
  impairment charge has been accounted for those intangible assets with an indefinite
  useful life.
Transitional
  impairment test on goodwill The application
  of the different criteria to determine the reporting units has lead the Group
  to define 6 reporting units: US Filter, Water rest of the world, Onyx, Dalkia,
  Connex and Latin America. As part of the first step of the impairment testing,
  these units were valued according to the discounted cash flow method. This has
  enabled the comparison of their estimated fair value to their carrying value.
  The fair values of US Filter and Latin America were inferior to their carrying
  values, and for these reporting units the Group has undertaken the second step
  of goodwill impairment testing. The evaluation of US Filter was undertaken using
  a projection over 10 years, a terminal value and a discount rate of 7%. The
  evaluation of Latin America was undertaken using cash flow projections for each
  country and using discount rates of between 10.9 and 17.9%. After completion
  of the second stage of the impairment tests, the Group was lead to recognize
  an impairment charge on January 2, 2002 of €2,587 million for US Filter
  and €34 million for Latin America.
Impairment testing during 2002 for intangible assets with an indefinite useful life and goodwill
The Group has actualized at the end of 2002 those evaluations undertaken during the transition period. For US Filter, the discount rate used was 6% which takes into account the fall in the risk free interest rate for the US. The impairment tests which were undertaken lead to an additional impairment charge of €83 million.

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27C. NEW ACCOUNTING STANDARDS IN THE UNITED STATES
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143 Accounting for Asset Retirement Obligations which becomes effective in January 2003. This statement addresses accounting and reporting for obligations and costs, which will occur when the 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 reasonably measured. The amortization of the capitalized costs and increase in the present value of the obligation which result from the passage of time, are charged to earnings. During 2002, the Group has carried out an inventory of all sites concerned but has not determined the financial impact on its 2003 consolidated financial statements.
In July 2002,
  the FASB issued Statement of Financial Accounting Standards No. 146, Accounting
  for Costs Associated with Exit or Disposal Activities (SFAS 146).
  SFAS 146 replaces EITF Issue No. 94-3, Liability Recognition for Certain Employee
  Termination Benefits and Other Costs to Exit an Activity (including Certain
  Costs Incurred in a Restructuring), and changes the timing of recognition for
  certain exit costs associated with restructuring activities. Under SFAS 146
  certain exit costs would be recognized over the period in which the restructuring
  activities occur. Currently, exit costs are recognized when the Company commits
  to a restructuring plan. SFAS 146 is to be applied prospectively to exit or
  disposal activities initiated after December 31, 2002, though early adoption
  is allowed. The Company will adopt SFAS 146 for exit or disposal activities
  that are initiated after January 1, 2003. The provisions of SFAS 146 could result
  in the Company recognizing the cost of future restructuring activities over
  a period of time as opposed to as a one-time expense.
In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. The disclosure provisions of FIN 45 are effective for financial statements of annual periods that end after December 15, 2002. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002. The Group is currently assessing the impacts of FIN 45 on its financial statements.
In December 2002, the Financial Accounting Standards Board issued FASB Statement No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure ("SFAS 148"). This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123), to provide alternative methods of transition to SFAS 123s fair value method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS 123 to require prominent disclosure in the summary of significant account policies of the effects of an entitys accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual financial statements. SFAS 148s amendment of the transition and annual disclosure requirements are effective for fiscal years ending after December 15, 2002. Refer to Note 27G for disclosures related to stock based compensation. The Company intend

s to continue to account for stock-based compensation based on the provisions of APB Opinion No. 25.
In January 2003,
  the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest
  Entities an interpretation of ARB No. 51("FIN
  46"). FIN 46 requires certain variable interest entities to be consolidated
  by the primary beneficiary of the entity if the equity investors in the entity
  do not have the characteristics of a controlling financial interest or do not
  have sufficient equity at risk for the entity to finance its activities without
  additional subordinated financial support from other parties. The disclosure
  provisions of FIN 46 are effective for financial statements initially issued
  after January 31, 2003. Public entities with a variable interest in a variable
  interest entity created before February 1, 2003 shall apply the consolidation
  requirements of FIN 46 to that entity no later than the beginning of the first
  annual reporting period beginning after June 15, 2003. FIN 46 is effective for
  all new variable interest entities created or acquired after January 31, 2003.
  The Group is currently assessing the impacts of FIN 46 on its financial statements.
In November 2002, the EITF reached a consensus on issue No. 00-21 Accounting for Revenue Arrangements with Multiple Deliverables ("EITF 00-21") on a model to be used to determine when a revenue arrangement involving the delivery or performance of multiple products, services and/or rights to use assets should be divided into separate units of accounting. Additionally, EITF 00-21 addresses if separation is appropriate, how the arrangement consideration should be allocated to the identified accounting units. EITF 00-21 will be applicable to agreements entered into in fiscal periods beginning after June 15, 2003, with early adoption permitted. In addition, companies are permitted to apply EITF 00-21 to all existing arrangements as the cumulative effect of a change in accounting principle in accordance with APB Opinion No. 20, Accounting Changes. The Group is currently assessing the impact on its financial statements.

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27D.
  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, 2002, 2001 and 2000, 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, 2002, 2001 and 2000 (in millions of euros).
At
      December 31,2002
    
    2001
    
    2000Shareholders’
        equity as reported in the consolidated balance sheets
    6,329.6
    
    5,740.0
    
    6,208.3Adjustments
      to conform to U.S. GAAP:Goodwill
      (Gross)
    (852.2
    )
    (1,213.4
    )
    687.4Goodwill
      accumulated amortization
    (61.5
    )
    2,518.1
    
    (134.4
    )Dilution
      profit or capital gain/loss
    39.1
    
    16.5
    
    17.0Intangible
      assets (Gross)
    (343.2
    )
    (103.0
    )
    (61.8
    )Intangible
      assets depreciation
    (119.8
    )
    (153.5
    )
    (97.1
    )Commitments
      to maintain and repair assets
    200.2
    
    189.1
    
    349.8Payments
      to local authorities
    (171.2
    )
    (166.1
    )
    (168.0
    )Reserves
      for restructuring liabilities
    –
    
    37.3
    
    49.1Other
      reserves
    44.4
    
    44.2
    
    15.7Treasury
      shares
    (92.1
    )
    (159.4
    )
    (44.3
    )Other
      financial instruments
    (243.9
    )
    79.7
    
    36.3Stock
      based compensation
    (14.9
    )
    (199.8
    )
    (188.0
    )Pension
      plans
    (9.9
    )
    (5.1
    )
    (12.9
    )Leases
      (property, plant & equipment)
    (3.0
    )
    0.4
    
    (6.9
    )Use
      of equity method
    –
    
    (38.5
    )
    (20.0
    )Others
    (25.4
    )
    16.4
    
    (1.6
    )Tax
      effect of above adjustments
    247.0
    
    177.8
    
    (59.4
    )U.S.
        GAAP Shareholders’ Equity
    4,923.2
    
    6,780.7
    
    6,569.2
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For
      the year ended at December 31,2002
    
    2001
    
    2000Net income
      as reported in the consolidated statements of income
    339.2
    
    (2,251.2
    )
    614.8Adjustments
      to conform to U.S. GAAP:Goodwill
      (Gross)
    67.7Goodwill
      amortization
    (2,415.2
    )
    2,481.3
    
    (37.7
    )Dilution
      profit or capital gain/loss
    33.4
    
    (15.6
    )
    (22.5
    )Intangible
      assets (Gross)
    (10.5
    )
    (9.7
    )
    (24.1
    )Intangible
      assets amortization
    (27.4
    )
    (47.9
    )
    (41.1
    )Commitments
      to maintain and repair assets
    (9.9
    )
    (43.8
    )
    25.7Payments
      to local authorities
    (1.6
    )
    2.0
    
    (0.7
    )Reserves
      for restructuring liabilities
    (53.4
    )
    (10.9
    )
    49.1Other
      reserves
    5.2
    
    (1.9
    )
    (5.9
    )Treasury
      shares
    33.6
    
    21.0
    
    (8.4
    )Other
      financial instruments
    (8.8
    )
    (84.5
    )
    (71.6
    )Stock
      based compensation
    3.6
    
    (19.3
    )
    (47.0
    )Pension
      plans
    2.1
    
    0.3
    
    (5.7
    )Leases
      (property, plant & equipment)
    (1.8
    )
    (1.1
    )
    (0.2
    )Use
      of equity method
    –
    
    (0.4
    )
    (5.0
    )Others
    (3.4
    )
    (6.2
    )
    (0.6
    )Tax
      effect of above adjustments
    58.4
    
    168.2
    
    14.3U.S. GAAP
      Net Income
    (1,988.8
    )
    180.3
    
    433.4Basic
  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 31,2002
    
    2001
    
    2000Net income
      (under U.S. GAAP)
    (1,988.8
    )
    180.3
    
    433.4Net income
      before cumulative effect of adoption of SFAS 133
    –
    
    174.3
    
    –Net income
      before cumulative effect of adoption of SFAS 142
    559.8
    
    –
    
    –Weighted
      average number of sharesOutstanding-basic
    364.7
    
    343.8
    
    275.1Dilutive
      effect of:Shares
      issuable on exercise of dilutive options
    –
    
    0.5
    
    0.2Weighted
      average number of sharesOutstanding-diluted
    364.7
    
    344.3
    
    275.3Earnings
        per share:Basic
    (5.45
    )
    0.52
    
    1.58Diluted
    (5.45
    )
    0.52
    
    1.57Earnings
      per share before cumulative effect of adoption of SFAS 133:Basic
    
    
    0.51
    
    –Diluted
    
    
    0.51
    
    –Earnings
      per share before cumulative effect of adoption of SFAS 142:Basic
    1.53
    
    –
    
    –Diluted
    1.53
    
    –
    
    –
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27E. PRESENTATION OF THE INCOME STATEMENT IN U.S. GAAP FORMAT
For purposes of presenting consolidated income statements in a format consistent with U.S. GAAP, the Group has reflected the financial statements impacts of the reconciling differences between French and U.S. GAAP presented in Note 27A. 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 income statement presented using U.S. GAAP.
Net sales
Management contracts
Under its management contracts, the Group manages a public service for a fixed 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 a fixed fee and incentive payments.
Under U.S. GAAP, only a fixed 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 €813 million for 2002, €784 million for 2001, and €753 million for 2000.
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.
Income Taxes
The difference in accounting policy between French GAAP and U.S. GAAP results in a presentation impact amounting to €172.8, €107.0, and €95.9 million in 2002, 2001 and 2000, respectively, on both gross deferred tax assets and the corresponding valuation allowance.

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Income
      Statement in U.S. GAAP FormatFor
      the year ended at December 31,2002
    
    2001
    
    2000(€
      millions)
    Adjusted
    
    US
      GAAP
    
    Adjusted
    
    US
      GAAP
    
    Adjusted
    
    US
      GAAPUS
      GAAP*
    
    
    
    US
      GAAP*
    
    
    
    US
      GAAP*Net
      Sales**
    29,258.8
    
    23,938.5
    
    28,343.1
    
    23,440.8
    
    25,480.1
    
    22,461.4Cost of
      sales
    (23,861.2
    )
    (19,534.1
    )
    (22,836.9
    )
    (18,887.2
    )
    (19,373.2
    )
    (16,929.1
    )Selling,
      general and administrative costs
    (3,513.3
    )
    (3,000.9
    )
    (3,588.4
    )
    (3,096.7
    )
    (4,248.4
    )
    (3,937.3
    )Goodwill
      amortization/impairment
    (83.3
    )
    (83.3
    )
    (426.8
    )
    (364.8
    )
    (344.0
    )
    (312.8
    )Other
      operating expense and revenue
    (86.9
    )
    (56.5
    )
    (56.4
    )
    (58.9
    )
    (296.7
    )
    (378.9
    )Operating
      income
    1,714.1
    
    1,263.7
    
    1,434.6
    
    1,033.2
    
    1,217.8
    
    903.3Financial
      income (expense)
    (656.1
    )
    (480.1
    )
    (901.7
    )
    (733.3
    )
    (1,010.6
    )
    (886.0
    )Other income
      (expense)
    (17.5
    )
    13.1
    
    2.2
    
    (5.4
    )
    770.6
    
    752.6Net
      income beforetaxes,minority interests and equity interest
    1,040.5
    
    796.7
    
    535.1
    
    294.5
    
    977.8
    
    769.9Taxes
    (366.3
    )
    (289.3
    )
    (286.6
    )
    (163.4
    )
    (437.9
    )
    (362.2
    )Net
      income beforeminorityinterests
      and equity interest
    674.2
    
    507.4
    
    254.5
    
    137.1
    
    539.9
    
    407.7Equity interest
    19.1
    
    93.9
    
    47.6
    
    69.2
    
    55.0
    
    83.5Minority
      interest
    (133.5
    )
    (32.2
    )
    (121.8
    )
    (26.0
    )
    (161.5
    )
    (57.8
    )Cumulative
      effectofchangein accounting principles
    (2,548.6
    )
    (2,557.9
    )
    6.0
    
    6.0
    
    –
    
    –Net
      income
    (1,988.8
    )
    (1,988.8
    )
    180.3
    
    180.3
    
    433.4
    
    433.4*
    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
      for an amount of €1,675 million in 2002, €1,770 million in 2001
      and €1,729 million in 2000.
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27F.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.Accumulatedunrealized
      gains(losses)
      on equity
    
    
    
    AccumulatedAccumulated
    
    securities
      and
    
    Minimum
    
    otherComprehensive
    
    foreign
    
    hedging
    
    liability
    
    comprehensiveIncome
    
    translation
    
    instruments
    
    adjustments
    
    incomeComprehensive
      income for the year ended December 31, 1999 (U.S. GAAP)
    (52.9
    )
    271.3
    
    23.2
    
    
    
    294.5Net
      income 2000 (U.S. GAAP)
    433.4Other
      comprehensive income 2000 net of tax (U.S. GAAP):
    446.6Including
      :foreign
        currency translation adjustments
    455.5
    
    455.5
    
    
    
    
    
    455.5holding
      losses arising during the period on equity securities
    (7.5
    )
    
    
    (7.5
    )
    
    
    (7.5
    )deferred
      income taxeson
      holding losses on equitysecurities
    1.8
    
    
    
    1.8
    
    
    
    1.8reclassification 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
    
    
    
    741.1Net
      income 2001 (U.S. GAAP)
    180.3Other
      comprehensive income 2001, net of tax (U.S. GAAP):
    291.4Including
      :foreign
      currency translation adjustments
    323.2
    
    323.2
    
    
    
    
    
    323.2holding
      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
    
    
    
    19.3MLA
    2.0
    
    
    
    
    
    2.0
    
    2.0Comprehensive
      income for the year ended December 31, 2001 (U.S. GAAP)
    471.7
    
    1,050.0
    
    (19.5
    )
    2.0
    
    1,032.5Net
      income 2002 (U.S. GAAP)
    (1,988.8
    )Other
      comprehensive income 2002, net of tax (U.S. GAAP):Including
      :foreign
      currency translation adjustments
    (1,219.7
    )
    (1,219.7
    )
    
    
    
    
    (1,219.7
    )holding
      losses arising during the period on equity securities
    (11.2
    )
    
    
    (11.2
    )
    
    
    (11.2
    )unrealized
      losses on hedging derivatives
    (124.0
    )
    
    
    (124.0
    )
    
    
    (124.0
    )deferred
      income taxes
    46.4
    
    
    
    46.4
    
    
    
    46.4MLA
    9.5
    
    
    
    
    
    9.5
    
    9.5Comprehensive
      income for the year ended December 31, 2002 (U.S. GAAP)
    (3,287.8
    )
    (169.7
    )
    (108.3
    )
    11.5
    
    (266.5
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27G.STOCK BASED COMPENSATION
Vivendi Environnement stock option plans
Vivendi Environnement has adopted a series of stock option plans pursuant to which options on its common shares are granted to certain directors and officers, including officers and directors of the Group.
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
  Environnement has operated certain “classic” fixed stock option
  plans and a senior management “variable” plan.
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.
In 2002, the
  Group granted 4,413,000 options on its common shares, including 336,300 options
  on its ADS’s, these options were granted to a range of employees. The
  exercise price and the maturity of these options are €37.53 and 8 years,
  and $33.26 and 8 years for options on ADS's. These options vest over a three
  year period.
Information relating to options to purchase the Groups shares granted during 2002, 2001 and 2000 is summarized as follows:
Weighted
      averageNumber
      of shares
    
    Number
      of shares
    
    Exercise
      priceOutstanding
    
    Exercisable
    
    (in
      euros)December
      31, 1999
    
    
    
    
    Granted
    780,000
    
    
    
    32.50Exercised
    
    
    
    
    Forfeited
    
    
    
    
    Expired
    
    
    
    
    December
      31, 2000
    780,000
    
    
    
    32.50Granted
    3,462,000
    
    
    
    42.00Exercised
    (10,000
    )
    
    
    32.50Forfeited
    
    
    
    
    Expired
    
    
    
    
    December
      31, 2001
    4,232,000
    
    
    
    40.27Granted
    4,076,700
    
    
    
    37.53Exercised
    
    
    
    
    Forfeited
    67,800
    
    
    
    37.53Expired
    
    
    
    
    December
      31, 2002
    8,240,900
    
    
    
    38.94Information relating
  to the stock options on ADS's is summarized as follows:
Number
      of shares
    
    Number
      of shares
    
    Weighted
      averageoutstanding
    
    exercisable
    
    exercise
      price(in
      dollars)December
      31, 2001
    
    
    
    
    Granted
    336,300
    
    
    
    33.26Exercised
    
    
    
    
    Forfeited
    
    
    
    
    Expired
    
    
    
    
    December
      31, 2002
    336,300
    
    
    
    33.26F-72
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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 €5.3 million and €0.9 million for the year ended December 31, 2002 and 2001 respectively .
Information about Vivendi Environnement stock options outstanding at December 31, 2002 is summarized as follows:
Exercise
      price
    Number
      outstanding
    
    Average
      
      exercise price
      (in euros)
    
    Average
      remaining life
      (in years)
    
    Number
      vested30-35
    770,000
    
    32.50
    
    5.48
    
    35-40
    4,008,900
    
    37.53
    
    7.08
    
    40-45
    3,462,000
    
    42.00
    
    6.12
    
    8,240,900
    
    38.94
    
    6.53
    
    Information about
  Vivendi Environnement's ADS stock options outstanding at December 31, 2002 is
  summarized as follows:

   Exercise
        price
      Number
        outstanding
      
      Average
        exercise
        price
        (in USD)
      
      Average
        remaining life
        (in years)
      
      Number
        vested33-34
      336,300
      
      33.26
      
      7.08
      
      336,300
      
      33.26
      
      7.08
      
      Employee Stock Purchase Plans
Vivendi Environnement maintains savings plans that allow substantially all full time employees of Vivendi Environnement and its subsidiaries to purchase shares of Vivendi Environnement. The shares are sold to employees at a discount of 20% from the average market price of Vivendi Environnement stock over the last 20 business days prior to the date of authorization by the management committee. The exercise price of the shares is defined as the maximum of the average market price of Vivendi Environnement 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.
Shares sold to employees of Vivendi Environnement were as follows:
  2002Number
        of shares
      1,183,158Proceeds
        on sales (in millions of euros)
      31.4Average
        cost of treasury sales (in euros)
      26.5Under 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, 2002 of €6.7 million.
F-73

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Vivendi Environnement 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):
  (€
        millions)
      At
        December 31,2002
      
      2001
      
      2000Net
        Income under US GAAP
      (1,988.8
      )
      180.3
      
      433.4As
        reportedInclude:
        Total stock based-employee compensation expense determined under APB25
        for all awards net of related tax effects
      (3.6
      )
      19.3
      
      47.0Deduct:
        Total stock-based employee compensation expense determined under fair
        value based method for all awards, net of related tax effects
      (48.8
      )
      (70.0
      )
      (60.9
      )Pro
        Forma
      (2,041.2
      )
      129.6
      
      419.5Net
        income basic earning per share
      (5.45
      )
      0.52
      
      1.58Net
        income diluted earning per share
      (5.45
      )
      0.52
      
      1.57Net
        income pro forma per share
      (5.60
      )
      0.38
      
      1.52Net
        income pro forma diluted per share
      (5.60
      )
      0.38
      
      1.51The fair value
    of Vivendi Environnement grant is estimated on the date of grant using the
    Binomial option pricing model with the following assumptions for the grants:
  Vivendi
    Environnement
  2002
      
      2001
      
      2000Expected
        life (in years)
      7.50
      
      7.80
      
      7.90Interest
        rate
      4.33
      %
      4.99
      %
      4.80
      %Volatility
      30.00
      %
      30.00
      %
      n/aDividend
        yield
      1.00
      %
      1.00
      %
      1.00
      %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 2002, 2001 and 2000 was €15.29, €16 and €6.67 respectively.
F-74

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27H. 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
        Benefits2002
      
      2001
      
      2000
      
      2002
      
      2001
      
      2000Change
        in benefit obligationBenefit
        obligation at beginning of year
      927.9
      
      1,085.0
      
      983.8
      
      
      
      8.3
      
      7.4Service
        cost
      42.2
      
      51.5
      
      46.8
      
      
      
      
      
      0.1Interest
        cost
      54.8
      
      48.7
      
      60.6
      
      
      
      
      
      0.4Plan participants
        contributions
      8.2
      
      6.6
      
      10.7
      
      
      
      
      
      Business
        combinations
      36.4
      
      5.1
      
      11.4
      
      
      
      
      
      Disposals
      (5.4
      )
      (239.5
      )
      (5.7
      )
      
      
      (1.6
      )
      Curtailments
      (16.9
      )
      (1.3
      )
      (2.2
      )
      
      
      (6.7
      )
      Actuarial
        loss (gain)
      (40.0
      )
      (16.7
      )
      22.1
      
      
      
      
      
      1.0Benefits
        paid
      (33.6
      )
      (28.2
      )
      (41.3
      )
      
      
      
      
      (0.7
      )Special
        termination benefits
      
      
      1.8
      
      
      
      
      
      
      
      Others
        (foreign currency translation)
      (0.5
      )
      15.0
      
      (1.2
      )
      
      
      
      
      0.1Benefit
        obligation at end of year
      973.1
      
      927.9
      
      1,085.0
      
      
      
      
      
      8.3Change
        in plan assetsFair
        value of plan assets at beginning of year
      902.7
      
      1,258.7
      
      1,278.4
      
      
      
      
      
      Actual
        return on plan assets
      (117.4
      )
      (57.2
      )
      (15.6
      )
      
      
      
      
      Group
        contributions
      16.1
      
      17.8
      
      23.4
      
      
      
      
      
      Plan participant
        contributions
      8.2
      
      6.6
      
      10.7
      
      
      
      
      
      Acquisitions
      0.3
      
      0.3
      
      1.3
      
      
      
      
      
      Disposals
      (3.8
      )
      (314.9
      )
      (0.1
      )
      
      
      
      
      Curtailments
      (7.5
      )
      
      
      (2.7
      )
      
      
      
      
      Benefits
        paid
      (29.0
      )
      (26.7
      )
      (32.4
      )
      
      
      
      
      Others
        (foreign currency translation)
      (3.6
      )
      18.2
      
      (4.3
      )
      
      
      
      
      Fair
        value of plan assets at end of year
      766.0
      
      902.7
      
      1,258.7
      
      
      
      
      
      F-75

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Funded
      status of plan
    (207.2
    )
    (25.2
    )
    173.7
    
    –
    
    –
    
    (8.3)Unrecognized
      actuarial loss
    264.3
    
    131.6
    
    (11.3
    )
    –
    
    –
    
    (0.6)Unrecognized
      actuarial prior service costs
    (71.2
    )
    (74.9
    )
    (141.1
    )
    –
    
    –
    
    –Unrecognized
      actuarial transition obligation
    (9.2
    )
    (16.1
    )
    (17.9
    )
    –
    
    –
    
    –Others
    (7.7
    )
    (38.0
    )
    (45.2
    )
    –
    
    –
    
    –Accrued
      benefit cost
    (31.0
    )
    (22.6
    )
    (41.8
    )
    –
    
    –
    
    (8.9)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 €201.0 million, €172.5 million and
      €28.0 million as of December 31, 2002, €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.Amounts recognized in the balance sheets consist of (in millions of euros):
Pension
      Benefits
    
    Other
      Benefits2002
    
    2001
    
    2000
    
    2002
    
    2001
    
    2000Accrued
      benefit liability (including MLA)
    (188.2
    )
    (157.2
    )
    (157.8
    )
    –
    
    –
    
    (8.8
    )Prepaid
      benefit cost
    138.5
    
    132.6
    
    115.4
    
    –
    
    –
    
    –Net
      amount accrued for under U.S. GAAP
    (49.7
    )
    (24.6
    )
    (42.4
    )
    –
    
    –
    
    (8.8
    )Intangible
      assets (MLA)(a)
    18.7
    
    2.0
    
    0.6
    
    –
    
    –
    
    –Net
      amount recognized under U.S. GAAP
    (31.0
    )
    (22.6
    )
    (41.8
    )
    –
    
    –
    
    (8.8
    )(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
      Benefits2002
    
    2001
    
    2000
    
    2002
    
    2001
    
    2000Net
      amount accrued for under U.S. GAAP
    (49.7
    )
    (24.6
    )
    (42.4
    )
    –
    
    –
    
    (8.8
    )Excess
      funding of plans recognized in income onlywhen
      paid back to the Group
    
    
    –
    
    –
    
    –
    
    –
    
    –Changes
      in scope
    (64.5
    )
    –
    
    –
    
    –
    
    –
    
    –Impacts
      of transition obligation, of prior service costand
      of actuarial gains recognized with a different
    
    
    (73.0
    )
    (0.8
    )
    –
    
    (1.6
    )
    (0.6
    )timing
      under local regulationsMinimum
      liability adjustments (MLA)
    18.8
    
    2.0
    
    0.6
    
    –
    
    –
    
    –Net
      amount accrued for under French GAAP inthe
      accompanying consolidated balance sheet
    (95.4
    **)**
    (95.6
    )
    (42.7
    )
    –
    
    (1.6
    )
    (9.4
    )Accrued
    (233.7
    )
    (228.2
    )
    (158.1
    )
    –
    
    (1.6
    )
    (9.4
    )Prepaid
    81.9
    
    132.6
    
    115.4
    
    –
    
    –
    
    –
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Net
  periodic cost under U.S. GAAP was as follows (in millions of euros):
  Pension
        Benefits
      
      Other
        Benefits2002
      
      2001
      
      2000
      
      2002
      
      2001
      
      2000Service
        cost
      42.2
      
      51.5
      
      46.8
      
      –
      
      –
      
      0.1Expected
        interest cost
      54.8
      
      48.7
      
      60.6
      
      –
      
      –
      
      0.4Expected
        return on plan assets
      (69.7
      )
      (69.1
      )
      (88.7
      )
      –
      
      –
      
      –Amortization
        of unrecognized prior service cost
      (8.5
      )
      (8.5
      )
      (8.7
      )
      –
      
      –
      
      –Amortization
        of actuarial net loss (gain)
      22.2
      
      8.0
      
      (13.1
      )
      –
      
      –
      
      (0.1
      )Amortization
        of net transition obligation
      (3.1
      )
      (5.4
      )
      (2.4
      )
      –
      
      –
      
      –Curtailments/Settlements
      (11.5
      )
      (2.4
      )
      0.5
      
      –
      
      (6.7
      )
      –Others
      (10.0
      )
      7.1
      
      20.3
      
      –
      
      –
      
      –Net periodic
        benefit cost under U.S. GAAP
      16.4
      
      29.8
      
      15.3
      
      –
      
      (6.7
      )
      0.4The
        retained assumptions are as follows :Pension
        Benefits
      
      Other
        Benefits2002
      
      2001
      
      2000
      
      2002
      
      2001
      
      2000Discount
        rate
      5.9
      %
      5.6
      %
      5.8
      %
      –
      
      –
      
      5.4
      %Expected
        return on plan assets
      7.4
      %
      7.0
      %
      7.4
      %
      –
      
      –
      
      6.4
      %Expected
        residual active life (in years)
      13.3
      
      13.7
      
      13.4
      
      –
      
      –
      
      14.6As regards health insurance plans, an increase of
  one percent in health expenses would not have any significant impact.
F-77

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**27I. RESTRUCTURING
  COSTS**
Reserves for restructuring
  liabilities, according to US GAAP, by segment are detailed as follows (in millions
  of euros);
  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
    
    Change
        in
      scope
        of
      consolidation
    
    Additions
      charged
        to
      operating
      Income
    
    Utilization
    
    Reversal
    
    Dec.
        31,
      2002**Water**
    **116.4**
    
    **17.2**
    
    **–**
    
    **(52.0**
    **)**
      **–**
    
    **81.6**
    
    **20.8**
    
    **18.7**
    
    **(56.9**
    **)**
      **–**
    
    **64.2**
    
    **(16.7**
    **)**
    **32.0**
    
    **(32.7**
    **)**
      **–**
    
    **46.7**Other activities
    25.8
    
    –
    
    –
    
    (25.8
    )
      –
    
    –
    
    19.2
    
    –
    
    (12.3
    )
      –
    
    6.9
    
    0.2
    
    0.6
    
    –
    
      –
    
    7.7Employee termination costs
    –
    
    –
    
    –
    
    –
    
      –
    
    –
    
    19.2
    
    –
    
    (12.3
    )
      –
    
    6.9
    
    0.2
    
    0.6
    
    –
    
      –
    
    7.7Other restructuring costs
    25.8
    
    –
    
    –
    
    (25.8
    )
      –
    
    –
    
    –
    
    –
    
    –
    
      –
    
    –
    
    –
    
    –
    
    –
    
      –
    
    –United States Filter Corporation
    46.8
    
    10.8
    
    –
    
    (16.6
    )
      –
    
    41.0
    
    1.6
    
    18.7
    
    (27.8
    )
      –
    
    33.5
    
    (3.0
    )
    24.9
    
    (21.6
    )
      –
    
    33.8Employee termination costs
    7.4
    
    –
    
    –
    
    (6.1
    )
      –
    
    1.3
    
      –
    
    17.6
    
    (5.6
    )
      –
    
    13.3
    
    (2.1
    )
    15.3
    
    (13.4
    )
      –
    
    13.1Lease termination costs
    10.8
    
    3.6
    
      –
    
    (5.5
    )
      –
    
    8.9
    
      –
    
      –
    
    (6.6
    )
      –
    
    2.3
    
    (2.7
    )
    7.5
    
    (0.6
    )
      –
    
    6.5Other restructuring costs
    28.6
    
    7.2
    
      –
    
    (5.0
    )
      –
    
    30.8
    
    1.6
    
    1.1
    
    (15.6
    )
      –
    
    17.9
    
    1.8
    
    2.1
    
    (7.6
    )
      –
    
    14.2USFI–Benelux
    31.2
    
    6.4
    
      –
    
      –
    
      –
    
    37.6
    
      –
    
      –
    
    (13.8
    )
      –
    
    23.8
    
    (13.9
    )
      –
    
    (8.6
    )
      –
    
    1.3Employee termination costs
    29.0
    
      –
    
      –
    
      –
    
      –
    
    29.0
    
      –
    
      –
    
    (12.8
    )
      –
    
    16.2
    
    (8.9
    )
      –
    
    (7.3
    )
      –
    
      –Lease termination costs and
        other costs
    2.2
    
    6.4
    
    –
    
      –
    
      –
    
    8.6
    
      –
    
      –
    
    (1.0
    )
      –
    
    7.6
    
    (5.0
    )
      –
    
    (1.3
    )
      –
    
    1.3USFI–Other
      locations
    12.6
    
      –
    
      –
    
    (9.6
    )
      –
    
    3.0
    
      –
    
      –
    
    (3.0
    )
      –
    
      –
    
      –
    
    6.5
    
    (2.6
    )
      –
    
    3.9Employee termination costs
    6.5
    
      –
    
      –
    
    (3.5
    )
      –
    
    3.0
    
      –
    
      –
    
    (3.0
    )
      –
    
      –
    
      –
    
    6.5
    
    (2.6
    )
      –
    
    3.9Other restructuring costs
    6.1
    
      –
    
    –
    
    (6.1
    )
      –
    
    –
    
    –
    
    –
    
    –
    
      –
    
    –
    
    –
    
    –
    
    –
    
      –
    
    –Energy
    5.3
    
    –
    
    –
    
    (5.3
    )
      –
    
    –
    
    4.9
    
    –
    
    –
    
      –
    
    4.9
    
    2.8
    
    8.3
    
    (4.8
    )
      (0.3
    )
    10.9Employee termination costs
    5.3
    
    –
    
    –
    
    (5.3
    )
      –
    
    –
    
    4.9
    
    –
    
    –
    
      –
    
    4.9
    
    2.2
    
    5.2
    
    (4.7
    )
      (0.3
    )
    7.3Other restructuring costs
    –
    
    –
    
    –
    
    –
    
      –
    
    –
    
    –
    
    –
    
    –
    
      –
    
    –
    
    0.6
    
    3.1
    
    (0.1
    )
      –
    
    3.6Waste Management
    4.1
    
    –
    
    –
    
    (2.5
    )
      –
    
    1.6
    
    –
    
    7.3
    
    (1.1
    )
      –
    
    7.8
    
    (0.4
    )
    0.9
    
    (0.3
    )
      –
    
    8.0Employee termination costs
    4.1
    
    –
    
    –
    
    (2.5
    )
      –
    
    1.6
    
    –
    
    0.6
    
    (1.1
    )
      –
    
    1.1
    
    (0.4
    )
    0.1
    
    (0.3
    )
      –
    
    0.5Other restructuring costs
    –
    
    –
    
    –
    
    –
    
      –
    
    –
    
    –
    
    6.7
    
    –
    
      –
    
    6.7
    
    –
    
    0.8
    
    –
    
      –
    
    7.5Transportation
    0.9
    
    –
    
    0.4
    
    (0.3
    )
      –
    
    1.0
    
    –
    
    0.8
    
    (1.0
    )
      –
    
    0.8
    
    –
    
    0.2
    
    (0.8
    )
      –
    
    0.2Other restructuring costs
    0.9
    
    –
    
    0.4
    
    (0.3
    )
      –
    
    1.0
    
    –
    
    0.8
    
    (1.0
    )
      –
    
    0.8
    
    –
    
    0.2
    
    (0.8
    )
      –
    
    0.2Total
    126.7
    
    17.2
    
    0.4
    
    (60.1
    )
      –
    
    84.2
    
    25.7
    
    26.8
    
    (59.0
    )
      –
    
    77.7
    
    (14.3
    )
    41.4
    
    (38.7
    )
      (0.3
    )
    65.8
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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.
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. Over the course of 2002, employee termination costs of €0.3 million where utilized, other restructuring costs of €6.7 million are anticipated to be utilized over the course of 2003.
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 Générale 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 was the restructuring of USFI Benelux. The plan
  involved the closure or sale of three facilities and the significant down-sizing
  of a fourth, costs totaled €37.6 million, of which €29.0 million was
  for severance costs and other associated costs of €8.6 million, principally
  for lease terminations. This plan extended until the beginning of 2002 due to
  the significant legal constraints, which required long termination periods.
  No employee had been terminated as of December 31, 2000, in 2001, 17 employees
  were terminated including 8 executives for a total cost of €12.8 million.
  In 2002, the restructuring plan was completed with the exception of lease termination
  costs of €1.3 million, the plan was completed with the disposal of the
  Hubert subsidiary, and the termination of 40 employees for a total cost of €7.3
  million. Plans relating to 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 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 to the liabilities
  of USF International, and thus had no impact on the net income for the period.
  These amounts are reflected in purchase accounting adjustments.
In 2002, as part of its plan to focus on profitable activities, Vivendi Water Systems implemented restructuring plans in the UK, Germany, the Netherlands and Turkey. These plans call for the closure of two facilities and the significant down-sizing of four additional facilities, these restructuring plans will be completed in 2003. Total severance costs under the plan are €6.5 million, for the termination of a total of 146 employees of whom 46 are executives. Over the course of 2002, 78 employees were terminated of whom 31 were executives for a total of €2.6 million.
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
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  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.
    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, 2002, €12.2 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 the first 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 economic decline in North America during 2001, 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 were recorded. The plan identified 696 employees for termination, of which 264 are professionals. Significant actions under the plan included the combination of 5 surface preparation regional headquarters into 2 service centers, the closure of 5 manufactory facilities,the closure of certain regeneration plants and the exit from the copper etchant recovery business. As of December 31, 2002, €6.8 million has been accrued to complete this restructuring plan.
In 2002, in response to  the continued economic slowdown, United States Filter Corporation initiated restructuring activities primarily in its Consumer and Systems Groups as well as additions to its existing restructuring plans. The 2002 restructuring plans include the closure of 1 manufacturing facility, 4 distribution facilities as well as the combination of 3 sales facilities. Total severance costs of the plans are €15.3 million, covering the termination of 646 employees of whom 292 are professional. Other related costs total €9.6 million, including €7.5 million for lease termination costs. As of December 31, 2002, €14.8 million has been accrued to complete the 2002 restructuring plan.
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. In 2002, no additional employees where terminated although anticipated in the plan for the third quarter of 2002, the plans completion was delayed by several months but are anticipated to be completed in 2003.
Energy
In 2001, with the entry of the ex-services division of EDF, Dalkia implemented several restructuring plans to integrate these companies within its existing operations. Restructuring costs amounted to €4.9 million and where completed in 2002, and principally covered the termination of 80 employees of whom 42 were professional. Since these restructuring costs were recorded as a component of the purchase price they have no effect on the income statement.
In 2002, Dalkia
  implemented restructuring plans to integrate recent acquisitions including SIRAM
  in Italy and for contracts won in 2001 and 2002, particularly the contracts
  for the cities of Tallinn and Vilnius in Eastern Europe. These restructuring
  plans amount to a total of €7.3 million in termination costs for 596 employees
  of whom 6 are professional, other restructuring costs amount to €3.6 million.
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Reconciliation
  to French GAAP disclosure
As of December
  31, 2001 €57.9 million in accruals qualified 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 27D, for either in net income or in shareholders
  equity. By the end of 2002, this amount had been reduced to €3.7 million.
  As of December
    31, 2001 €37.3 million of expenses, did not comply with the provisions
    of EITF 94-3 or SFAS 5, this amount appears as reconciling items in Note 27D
    as “Reserves for restructuring liabilities” item in shareholders'
    equity reconciliation. As of December 31, 2002 there no longer any reserves
    for restructuring liabilities which do not comply with EITF 94-3 or SFAS 5.
27 J.
  OTHER FINANCIAL INSTRUMENTS
The significant
  components of the "other" financial instruments are as follows:
Net
      Income
    
    
    
    Shareholders'
      Equity2002
    
    2001
    
    2000
    
    2002
    
    2001
    
    2000Variation
      of the fair value of the FCC put*
    (3.1
    )
    12.8
    
    71.4
    
    (3.4
    )
    (0.3
    )
    (13.1
    )Marketable
      securities**
    (11.5
    )
    4.6
    
    29.6
    
    49.1
    
    72.5
    
    82.5Derivative
      instruments and hedges***
    (7.0
    )
    (87.1
    )
    –
    
    (261.8
    )
    (130.9
    )
    –Accrual
      of convertible bonds redemption premium
    15.1
    
    (15.1
    )
    (30.2
    )
    (30.2
    )
    (45.3
    )
    (30.2
    )Convertible
      bonds beneficial conversion feature
    –
    
    –
    
    (142.5
    )
    –
    
    –
    
    –Stock warrants
      issued
    –
    
    –
    
    –
    
    –
    
    180.0
    
    –Others
    (2.3
    )
    0.3
    
    0.1
    
    2.4
    
    3.6
    
    (2.9
    )Total
    (8.8
    )
    (84.5
    )
    (71.6
    )
    (243.9
    )
    79.7
    
    36.3*
    Described
      in note 19.**
    Vinci shares
      are trading securities.***
    Implementation
      of SFAS No.133 "Accounting of derivative instruments and hedging activities".These differences
  are described in note 27A.

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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
VEOLIA
      ENVIRONNEMENT S.A.By:
    /s/
      Jérôme ContamineName: Jérôme
      Contamine
      Title: Chief Financial OfficerDate: May 30, 2003