annual report 2005/06 - stockproinfostockproinfo.com/doc/2005/fr0010220475_20060628_us_1f.pdf ·...

Société anonyme with share capital of €1,934,390,8643, avenue André Malraux – 92300 Levallois-Perret

www.alstom.comRCS : 389 058 447 Nanterre ©

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ANNUAL REPORT 2005/06 FINANCIAL REPORT

This Financial report is an integral part of the Document de Référence 2005/06, which comprises the Activity report 2005/06 andthis Financial report 2005/06.

The original French version of this Document de Référence was filed with the Autorité des marchés financiers on 2 June 2006 inaccordance with Article 212-13 of its Règlement Général. It may be used in connection with an offering of securities if it issupplemented by a prospectus ("note d'opération") for which the Autorité des marchés financiers has issued a visa.


CONTENTS

1

2

3

4

5

MANAGEMENT DISCUSSION AND ANALYSIS 5

Overview 6

General comments on activity and results 13

Operating and financial review 31

Outlook 46

FINANCIAL INFORMATION 47

Consolidated financial statements 48

Statutory accounts 131

RISKS 151

Risk factors 152

Certain legal risks 155

Environmental, health and safety risks (EHS) 156

Insurance 157

CORPORATE GOVERNANCE 159

The Board of Directors and its Committees 161

The Executive Committee 169

The Disclosure Committee 169

Chairman’s report pursuant to article L. 225-37of the French Commercial Code 170

Independent Auditors’ report preparedin accordance with article L. 225-235of the French commercial Code 183

Compensation of executive and non-executive Directors and members of the Executive Committee 184

Interests of the officers and employees in the share capital 189

ADDITIONAL INFORMATION 193

Share capital 194

Information on the Company 200

Other information 207

Simplified organisation chart 209

Information on the Document de Référence 210

MANAGEMENT DISCUSSION AND ANALYSIS ON CONSOLIDATEDFINANCIAL STATEMENTSas at 31 March 2006Fiscal year 2005/06

1

You should read the following discussion together with the 31 March 2006 Consolidated Financial Statements. During the periods discussed in this section, we undertook several significant transactions that affected the comparability of our financial results between periods. In order to allow you to compare the relevant periods, we present certain information both as it appears in our financial statements, and adjusted for Business composition and exchange rate variations to improve comparability.We describe these adjustments under “Use and reconciliation of non-GAAP financial measures – Comparable basis”. In the following discussion,actual and comparative information presented is prepared on the basis of IFRS accounting policies.

OPERATING AND FINANCIAL REVIEW 31

Income Statement 31

Balance sheet 34

Liquidity and capital resources 36

Maturity and liquidity 38

Impact of exchange rate and interest rate fluctuations 39

Pension accounting 43

Off-balance sheet commitments and contractual obligations 45

OUTLOOK 46

OVERVIEW 6

Introduction 6

Status of our action plan and main events of fiscal year 2005/06 6

Recent developments 12

GENERAL COMMENTS ON ACTIVITY AND RESULTS 13

Consolidated Key Financial Figures 13

Change in Business composition and presentation of our accounts, non-GAAP measures 15

Sector review 21

5Financial Report 2005/06 - ALSTOM

6 Financial Report 2005/06 - ALSTOM

We serve the power generation market through our PowerTurbo-Systems / Power Environment Sector and our PowerService Sector, and the rail transport market through our TransportSector. We design, supply and service a complete range oftechnologically advanced products and systems for ourcustomers, and possess a unique expertise in systems integrationand through-life maintenance and service.

We believe the power and transport markets in which weoperate are sound, offering:• solid long-term growth prospects based on customers’ need

to expand essential infrastructure systems in developingeconomies and to replace or modernise them in thedeveloped world; and

• attractive opportunities in service and systems.

We believe we can capitalise on our long-standing expertisein these two markets to achieve competitive differentiation. We are strategically well positioned for the following reasons: • we are one of the top players in all major market segments; • we benefit from one of the largest installed bases of equipment

in power generation and rolling stock, which enable us todevelop our service Business;

• we are a recognised technology leader in most of our fieldsof activity, providing best-in-class technology; and

• we have global reach, with a presence in around 70 countriesworldwide.

On 12 March 2003, we presented our new strategy andaction plan to overcome an insufficient level of profitability andcash generation which comprised three elements: • disposing of some of our Businesses to focus our activities

on the Power and Transport markets; • improving operational performance and adapting our

industrial base to market conditions; and • strengthening our financial base.

In fiscal year 2005/06, we achieved very significant progressin these three directions. Our disposal programme is almostcompleted, the problems experienced with the GT24/GT26 arenow resolved, our restructuring programme is in its final stageof implementation and our new organisation has enabled us tobetter manage and control our projects.

The results of these actions are translated into our operationalperformance as we have achieved or exceeded all the targetswe had set for ourselves:• on a comparable basis our order intake at €15,290 million

has increased by 8%;• sales stand at €13,413 million or a 8% increase on a

comparable basis;• operating margin, which does not take into account Marine

as this activity is treated as a discontinued operation, standsat 5.6% versus 3.6% last year, above our objective of 5.0%in IFRS and significantly above our original target of 6% inFrench GAAP. If Marine had not been treated as adiscontinued operation, the operating margin would havestood at 5.3% versus 2.5% last year, still above our statedtarget; and

• free cash flow (as defined in p 16 below) has improved from €77 million to €525 million (€(136) millionand €410 million respectively if including the free cash flowof Marine).

OVERVIEW

INTRODUCTION

STATUS OF OUR ACTION PLAN AND MAIN EVENTS OF FISCAL YEAR 2005/06

Overview


Our financial situation has been strengthened further. Ourgearing has reduced from 104% as of 1 April 2005 to 68%as of 31 March 2006 and a new bonding programme hasbeen put in place to cover our needs until July 2008.

Disposal programme

> Fiscal year 2003/04

Disposal of our Industrial Turbines BusinessesOn 26 April 2003, we signed binding agreements to sell oursmall gas turbines Business and medium-sized gas turbines andindustrial steam turbines Businesses in two transactions toSiemens AG. In the fiscal year ended 31 March 2003, theIndustrial Turbines Businesses generated sales of approximately€1.25 billion and had an operating margin of approximately7%. At 31 March 2003, these Businesses employed around6,500 people.

Disposal of our Transmission & Distribution (T&D) activitiesOn 25 September 2003, we signed a binding agreement to sellour T&D activities (our T&D Sector excluding the Power ConversionBusiness) to Areva. This transaction closed on 9 January 2004,except for some minor Businesses located in jurisdictions wheretransfer procedures were mostly completed during fiscal year2004/05, and for a T&D publicly-listed company in India for which Areva had launched a public offer in April 2005, with ALSTOM’s agreement. This operation was closed in August 2005.


Disposal of our Transport activities in Valencia, SpainOn 29 November 2004, we signed a binding agreement to sell our Transport activities based in Valencia, Spain, toVossloh. It employs 420 people and specialises in themanufacturing of locomotives and bogies as well as non-modular trains for the regional market. This transaction wasclosed on 31 March 2005.

Disposal of various non-core activities in AustraliaWe sold our Information Technology and Industrial Productsactivities in Australia during fiscal year 2004/05 in a managementbuy-out. These non-core activities, reported under “Corporate andother” employed around 130 people and recorded €90 millionof sales in fiscal year 2003/04, a significant portion of whichderived from the distribution in Australia of IT servers and software.


Disposal of our FlowSystems Business On 24 May 2005, we signed an agreement to sell ourFlowSystems Business to LØGSTØR RØR. The sale took placeon 18 August 2005.

The FlowSystems Business is headquartered in Fredericia,Denmark, and operates in Northern and Central Europe. Itmanufactures and sells insulated pipe systems for district heating to approximately 40 countries and recorded sales of €150 million in 2004/05. It employs approximately 600 employees.

Disposal of our Transport activities in Australia and New Zealand We signed on 2 June 2005 an agreement for the sale ofALSTOM’s transport operations in Australia and New Zealandto United Group Ltd. The sale effectively took place on 16 September 2005.

This activity includes engineering and maintenance support, roadand rail infrastructure projects, and the provision of professionalservices and systems to the transport industry throughout Australiaand New Zealand, and recorded sales of €282 million in fiscal year 2004/05. This Business employs approximately 2,000 employees and operates in both countries.

Disposal of our Power Conversion BusinessOn 30 September 2005, we signed a binding agreement to sellour Power Conversion Business to Barclays Private Equity. The saleeffectively took place on 10 November 2005.

The Business sold to Barclays Private Equity provides the energyand control for industrial processes and marine applicationsworldwide. Power Conversion Business operates in five mainmarkets (offshore, marine, metal industries, oil and gas and power generation), plus numerous niche markets. This Businessrecorded sales of €506 million in fiscal year 2004/05 andemploys approximately 3,145 employees.

Disposal of our Industrial Boilers BusinessOn 24 October 2005, ALSTOM and Austrian Energy &Environment AG signed binding agreements for the sale of thebulk of our Industrial Boilers Business. The Business to be soldto Austrian Energy & Environment AG includes ALSTOM’sGerman, Czech and Australian industrial boiler activities inthose countries. These Businesses recorded aggregate salesof around €350 million in 2004/05 and employ approximately450 employees.

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Overview


Overview

The sale of our Australian activities took place on November2005. The closing of the disposal of the German and Czechactivities is subject to the clearance by the German antitrustAuthorities.

Disposal of Marine SectorOn 4 January 2006, we announced our plan to sell a 75%stake in our Marine Sector to Aker Yards.

At 31 March 2006, the effective disposal was still subject tosome conditions which are expected to be fulfilled within ashort period of time after that date. In the fiscal year ended31 March 2006, the Marine Sector generated sales of €439 million and had an operating margin of (3)%. At 31 March 2006, this Sector employs around 3,140 people.

Upon closing, we will receive proceeds of €50 million fromAker. A further amount of up to €125 million will be paid to usin March 2010, depending on the performance of thecombined shipbuilding activities.

The new company would be adequately funded to ensure theability to independently finance its future growth. An estimatedamount of €350 million would be injected by ALSTOM into thenewly formed company.

In addition, it should be noted that the transaction is structuredas an asset sale and that we will be retaining certain assets,liabilities and contracts, notably relating to ships delivered priorto the closing of the transaction and the LNG tankers currentlyunder construction.

In fiscal years 2004/05 and 2005/06, we have treated ourMarine Sector as a discontinued operation in our financialstatements and have accrued for the estimated loss resultingfrom the transaction.

Operational performance

> GT24/GT26 heavy-duty gas turbines

As a consequence of the technical improvements implementedon our GT24/GT26 gas turbines, we are now back in thelarge gas turbine market. The successful re-marketing of theGT26 machine was demonstrated by the securing of asignificant contract for three GT26 turbines in Spain for GasNatural in January 2004. This project was successfully executedand the three units went into commercial operation in January2006 ahead of the contractual schedule. A new order for fourGT26 units in Thailand was booked during fiscal year2004/05, and three more units were booked in fiscal year2005/06 (one in Spain and two in Italy). Furthermore, theGroup has recently been selected for a further five projects inEurope comprising of seven GT26 units. We believe that thesecontracts signal that both technology and performance arenow fully in line with customer expectations.

The commercial situation with respect to the 80 GT24/GT26gas turbines sold more than five years ago continues to improve:as of today, 76 units are in commercial operation and contractsrelated to four units have been cancelled. Today, we havereached commercial settlements for all of the 76 units sold.Under all agreements where ALSTOM had an obligation or the opportunity to improve the performance levels, such upgrades have been installed and satisfactory final settlement agreements with the clients have been reached and executed(as of 31 March 2005, nine units were pending). All of thecases of client litigation or arbitration are now resolved viasatisfactory commercial settlements.

The 79 machines today in service (76 as of 30 September 2005)have accumulated approximately 1,760,000 operating hoursat high-reliability levels.

Cash outflow related to the GT24/GT26 gas turbines overfiscal year 2005/06 at €115 million has decreased ascompared with €366 million in fiscal year 2004/05.

As of 31 March 2006, we retain €263 million of relatedprovisions and accrued contract costs compared with €379 millionas of 31 March 2005.


> Restructuring

Restructuring plans launched in fiscal year 2003/04 and2004/05 are progressing according to schedule and we arenow in a final stage of implementation, with more than 90% ofthe total planned headcount reduction of 11,500 achieved.

In addition, during fiscal year 2005/06, we launched newinitiatives in order to further improve our operational performanceand optimise our cost base. As a result, we have recorded€80 million of expenses for restructuring in fiscal year 2005/06in addition to the €350 million recorded in fiscal year2004/05.

In total, the cash outflow for restructuring for the fiscal year2005/06 was €239 million, compared to €281 million forfiscal year 2004/05.

> Project and risk management organisation

Due to the very nature of its Business, ALSTOM is exposed toa variety of risks (operational, legal and financial) as describedin the Risk Factors section of the financial report of the AnnualReport for fiscal year 2005/06. Risk management is thereforea key priority of ALSTOM in our actions to improve operationalperformance.

More specifically, strict controls throughout the life of projectshave been put in place and an organisation focused on projectmanagement has been set up. At the tender stage, strict reviewsand approval processes are in place within the Sectors. Forlarge projects and the ones which include specific characteristics(cash profile, technical commitments, specific terms andconditions…), the project is subject to corporate review andapproval. Strong focus is put on project executions, andspecifically on the selection of trained and competent projectmanagers and on the implementation of efficient processes.Project offices have been created in the different Sectors tomanage this population of key managers and to implementbest practices throughout the organisation. All projects arereviewed monthly or quarterly at Sector level. The Corporate RiskCommittee chaired by the Chief Executive Officer reviewsmonthly the evolution of the major ongoing projects portfolio.

Strengthening our financial base

In order to reduce our debt, increase our equity and secureour access to contract bonding to support our commercialactivity, we implemented during the summer of 2004 a financialpackage covering the following items:• a bonding programme aimed at covering our needs for 18

to 24 months; • a total capital increase of €1,748 million subscribed either

in cash or by set-off against certain of our outstanding debt.

As part of this financing package, we re-negotiated our financialcovenants as described in Note 22 B to our ConsolidatedFinancial Statements.

During the fiscal year 2005/06, we have continued tostrengthen our financial base in:• extending and smoothing our debt maturities through several

debt refinancing operations; • negotiating a new bonding programme to cover our needs

till July 2008.

> Share capital modification

Share capital increases in fiscal year 2004/05 We completed in fiscal year 2004/05 a global offering of newshares by way of transferable preferential subscription rightsallocated to holders of our existing shares. The 3,655,265,768new shares issued have been subscribed to as follows:• 3,192,826,907 shares subscribed in cash at €0.40

representing an amount of €1,277 million, including459,610,902 new shares subscribed by the French Staterepresenting an amount of €183.8 million; and

• 462,438,861 shares subscribed by set-off against debtfrom the French State and CFDI (Caisse Française deDéveloppement Industriel), an entity guaranteed by the FrenchState, at €0.50 per share representing a total amount of€231.2 million; €200 million subscribed by set-off againstthe TSDD subscribed by the French State as part of oursummer 2003 financing package; and €31.2 millionsubscribed by set-off against part of the CFDI’s holding inthe PSDD.

Overview

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Overview

We implemented a concurrent debt-for-equity exchange offeringto holders of certain of our outstanding debt instruments throughwhich we issued a further 480,000,000 new shares at the price of €0.50 per share representing an amount of €240 million subscribed by set-off against:• €212 million from the part of PSDD held by our banks;• €18 million from our multi-currency Revolving Credit Agreement

due 2006 of €722 million; and• €10 million from committed bilaterals.

Following the automatic reimbursement with 240,000,000 newshares of the €300 million TSDDRA on 7 July 2004 upon theEuropean Commission approval and its participation in the above-described capital increases, the French State’s participation reached21.4% of the outstanding share capital of ALSTOM.

The French State has committed to remaining a shareholder duringthe recovery of ALSTOM. It has committed to sell its shares at thelatest 12 months following ALSTOM obtaining an investmentgrade rating and, or in any event, prior to July 2008.

Finally, on 6 December 2004, we completed a share capitalincrease reserved for our employees consisting of 49,814,644new shares.

Share capital modification in fiscal year 2005/06On 3 August 2005, the ALSTOM consolidation of shares wascompleted through the exchange of 40 existing shares for onenew share. The number of ALSTOM shares was consequentlyreduced from 5,497,601,720 shares with a nominal value of€0.35 to 137,440,043 shares with a nominal value of €14.

> Debt refinancing

In fiscal year 2004/05In February 2005, we launched an exchange offer for €650 million of bonds due July 2006 and €250 million ofEuribor-indexed Auction Rate Notes (ARN) due September2006, to be exchanged for new 6.25% fixed-rate bonds dueMarch 2010.

A total of €668 million in principal amount of bonds weresubmitted in the exchange offer out of a total of €900 millionprincipal amount of eligible bonds (respectively €422 million

of the July 2006 bonds out of €650 million of existing bonds,and €245 million out of the €250 million of September 2006ARN) leading after application of the exchange ratio to €695 million in principal amount of new 2010 bonds. Inaddition, we issued €305 million additional bonds with thesame terms and conditions.

In total, the new 6.25% bonds due March 2010 are for anamount of €1,000 million.

In fiscal year 2005/06During the fiscal year 2005/06, we have continued the processof debt refinancing in order to extend our debt maturity profileand reduce our financial expenses.

In September 2005, we issued €600 million of floating ratenotes bearing a 2.20% above the 3-month Euribor couponand redeemable at par in March 2009.

In January 2006, we issued €400 million of floating rate notesbearing a 0.85% above the 3-month Euribor coupon andredeemable at par in July 2008.

In February 2006, we signed a 5-year Revolving Credit Facilitywith a syndicate of banks for an amount of €700 million. Theamount of €700 million was fully available for drawdown asat 31 March 2006.

During fiscal year 2005/06, we have reimbursed €1,062 millionand cancelled undrawn credit lines for €1,202 million ofsyndicated and bilateral loans.

> Bonding Programme

In fiscal year 2004/05We have put in place an up to €8 billion committed bondingguarantee facility programme, with an initial commitment ofour banks for €6.6 billion. This programme includes the bondsissued under the bonding line of €3.5 billion provided duringthe summer of 2003 and new bonds to be issued over a two-year period up to 27 July 2006.


Bonds under this bonding programme benefit from a €2 billionsecurity package consisting of:• a first-loss guarantee in the form of cash collateral provided

by ALSTOM for €700 million (out of the proceeds of thecapital increases described above); and

• a second-rank security for a total amount of €1,300 millioncovering second losses in excess of the cash collateral, in theform of guarantees, given on a pari passu basis by a FrenchState-guaranteed institution for an amount of €1,250 million,and by a group of banks for the remaining amount of €50 million.

This programme is revolving; any bond expiring releasescapacity to issue new bonds within the €8 billion limit and the two-year period.

The issuance of new bonds under the bonding programmementioned above is subject to the financial covenants disclosedin the Note 22 B to our Consolidated Financial Statements. Thecommitment of the banks in July 2004 was for an initial volumeof up to €6.6 billion and was later extended to €7.3 billion,thus covering our needs up to July 2006.

In fiscal year 2005/06During the first half of the fiscal year 2005/06, the Group initiatedthe renegotiation of its bonding programme for an extendedperiod of two years, up to July 2008. This extension was signedon 4 November 2005 and made effective on 15 November2005. To date, our banks have made available up to €9.4 billion. This amount together with bilateral agreementsalready obtained for €1.5 billion is expected to be sufficientto cover ALSTOM needs up to July 2008.

Under the extended programme, all bonds issued before July 2006, will continue to benefit from the initial €2 billionsecurity package which includes €700 million cash collateral,a €1,250 million French State Guarantee and €50 million ofguarantee granted by ALSTOM banks. All bonds issued beyondthe initial issuing period of July 2006 and up until July 2008 willbenefit from an additional security of €175 million cash collateral.This cash collateral may be increased in the event that operatingmargin and headroom levels through 31 March 2008 do notreach targeted levels.

It is expected that the initial €700 million cash collateral would bereleased before September 2008.

Approval by the European Commissionand commitments

The formal investigation launched by the European Commissionin September 2003 concluded on 7 July 2004 with the positiveapproval by the European Commission of our financingpackages.

As part of this approval, we committed that acquisitions in theTransport Sector within the European Economic Area over thenext four years should not exceed a certain level and that weplanned to dispose of Businesses representing approximately€1.5 billion in sales.

All the activities identified for disposal as part of the commitmentstowards the European Commission in connection with itsapproval of our 2004 financing package, representingapproximately €1.5 billion in sales, are now either sold or inthe closing phase of sale.

We also agreed to enter into a 50-50 joint venture in ourHydro Business which we intend to implement in the near future.

Finally, we committed to conclude industrial partnerships duringa period of four years concerning a significant part of ouractivities to ensure our future development. We have concludedpartnerships in the boiler activity with BHEL in India andEMAlliance in Russia. We have also agreed to develop withAnsaldo a new generation of single deck very high-speedtrains.

Overview

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Overview

On 26 April 2006, ALSTOM and Bouygues signed amemorandum of understanding for operational and commercialcooperation. Bouygues also agreed with the French State topurchase the 21.03% stake the French State owns in ALSTOM’sequity. The purchase of shares by Bouygues, which is subject tomerger control clearance by the European Commission and theclosing of the Marine Sector disposal, is expected to occur withina short period.

At a commercial level, the two companies are planning cooperationof their sales networks to maximise their strengths on the marketsand develop together integrated projects as opportunities arise.Bouygues and ALSTOM can provide a joint response to marketdemands by offering solutions that combine Bouygues’ civil

engineering with ALSTOM’s equipment. It has been agreed thatthe cooperation between Bouygues and ALSTOM would not beexclusive; in the interest of their customers, the two companieswill continue to work with the most suitable partners and suppliersfor each project.

Exchanges at the operational level would involve the improvementof project execution by sharing best practices in organisation andproject management, setting up joint training programmes forproject Directors and optimising costs on common projects.

Bouygues also intends to take a 50% equity share in ALSTOM’shydropower equipment Business; the corresponding terms areunder discussion.

RECENT DEVELOPMENTS


Transition to IFRS

The Consolidated Financial Statements for fiscal year 2005/06have been prepared in accordance with International FinancialReporting Standards (IFRS) as required by the European Unionregulations. Comparative figures for the fiscal year 2004/05have been restated on the same basis excluding application ofIAS 32-39 and IFRS 5 applied from 1 April 2005. Thedifferences in accounting treatment compared with FrenchGAAP are presented and explained in Notes 4 and 34 to theConsolidated Financial Statements. In the following discussion,actual and comparative information presented is prepared onthe basis of IFRS accounting policies.

General comments on activity

The power market for new equipment overall is increasing,with Asia as the dominant market and a contrasted situationelsewhere. Demand in Europe is up after the low level overthe previous years while activity remains slow in the USA. Themarket is picking up in Latin America and remains strong inthe Middle East. High oil and gas prices have favoured coal-based projects including clean combustion equipment andfurther strengthened the hydro market. Ambitious nuclearprogrammes have resumed in several countries. Pushed by theneed to comply with regulations, the demand for environmentalupgrades of existing power plants is growing sharply. Moregenerally, the power service market has been strong.

General comments on activity and results

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CONSOLIDATED KEY FINANCIAL FIGURES

Following the announcement of the sale agreement between ALSTOM and Aker Yards on 4 January 2006, (see page 8), our Marine Sector has been classified as a discontinued operation and is presented separately in the Consolidated FinancialStatements.

The following tables set out, on a consolidated basis, some of our key financial and operating figures:

Total Group actual figures% VariationMarch 05/

Year ended 31 March (in € million) 2006 2005 March 06

Order backlog 26,944 25,937 4%

Orders received 15,290 14,737 4%

Sales 13,413 12,920 4%

Income from operations 746 471 58%

Operating margin 5.6% 3.6%Discontinued operations (198) (32) n.a.

Net profit/(loss) Group share 178 (628) n.a.

Free cash flow 525 77 582%

Total Group comparable figures% VariationMarch 05/




Sales 13,413 12,429 8%


Operating margin 5.6% 3.5%

GENERAL COMMENTS ON ACTIVITY AND RESULTS



The Transport market was contrasted with opportunities inFrance, Italy, Spain and overall growth in Asia, while theGerman, UK and US markets were slower.

Orders received and backlog

Our order intake rebounded during fiscal year 2004/05,after the low level of fiscal year 2003/04. The order intakeduring fiscal year 2005/06 continued to increase up by4% on an actual basis and 8% on a comparable basis –adjusting notably for the disposal of our Power ConversionBusiness, our Transport activities in Australia and NewZealand, our FlowSystems Business, our Transport plant inValencia (Spain) and of miscellaneous activities in Australia.We booked €15,290 million of orders for fiscal year2005/06 compared with €14,114 million for fiscal year2004/05 on a comparable basis.

This growth is explained by the performance of our PowerSectors. Power Turbo-Systems / Power Environment ordersintake increased by 16% on a comparable basis andrepresented 40% of ALSTOM orders received for fiscal year2005/06 compared to 37% in fiscal year 2004/05. Themost significant orders booked for Power Turbo-Systems /Power Environment included two GT13 in Oman, three GT13in Australia, two GT26 in Italy, one GT26 in Spain, a hydrocontract in India, a contract for a 750MW supercritical boilerin the United States and another for a lignite fired power plantwith a net capacity of 2,100 MW in Germany. Power Serviceorders intake increased by 10% on a comparable basis, notablyas a result of a number of operation and maintenance contractsrelated to gas fired power plant orders.

Transport order intake decreased slightly by 2% on acomparable basis between fiscal year 2004/05 and fiscalyear 2005/06. In fiscal year 2005/06, Transport bookedorders for TGV Duplex in France, locomotive for freight inChina, variable gauge trains in Spain. Metro and tramwayorders in Europe and South America were also recorded.

At the end of March 2006, our total backlog was €26,944 million,representing approximately two years of sales.

Sales

Sales were €13,413 million for fiscal year 2005/06,compared to €12,920 million for fiscal year 2004/05, anincrease of 4% on an actual basis. On a comparable basis, theincrease amounted to 8%. On a comparable basis, the mainincrease was in Power Turbo-Systems / Power Environmentwhich improved its sales from €4,352 million for the last fiscalyear to €5,079 million as at 31 March 2006, a 17% increase,while Power Service and Transport also grew by 3% and 4%respectively.

Income from operations

On an actual basis, our income from operations for fiscal year2005/06 was €746 million or 5.6% of sales, as comparedwith income from operations of €471 million and operatingmargin of 3.6% for fiscal year 2004/05. On a comparablebasis, our income from operations for fiscal year 2004/05amounted to €430 million or 3.5% of sales. This strongimprovement of our operating margin is notably due to selectivityin our order intake, a more efficient cost base and better executionof our projects.

Net income

On an actual basis, net income improved from a loss of €628 million to a positive €178 million. This improvement stemsfrom an improvement of our income from operations coupledwith lower restructuring, financial and tax charges. Capital gainsand other non-operational expenses amounted to €122 millionwhile loss from discontinued activities amounted to €(198) millionfor fiscal year 2005/06.



CHANGE IN BUSINESS COMPOSITION AND PRESENTATION OF OUR ACCOUNTS, NON-GAAP MEASURES

Change in Business composition

Our income from operations for the two years ended 31 March 2005 and 2006 have been significantly impacted by the disposals describedbelow; we did not perform any significant acquisition during fiscal years 2004/05 and 2005/06.

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

Country/ % of shares Sales Number ofCompanies/Assets sold Sectors Region sold (in € million) employees

Fiscal year 2005/06Power Conversion - Worldwide Assets 506 3,145Industrial Boilers Power Turbo-Systems / Australia Assets 73 224

Power EnvironmentTransport Australia/ N. Z. Transport Oceania 100% 282 2,073FlowSystems Power Service Europe Assets 145 579Easton Power Service USA 100% 18 110Fiscal year 2004/05Valencia plant Transport Spain 100% 58 420Information Technology Corporate Australia Assets 90 130

See Disposal programme section on page 7 for further information.

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Free cash flow

Our free cash flow as defined in page 16 was positive at€525 million for fiscal year 2005/06 as compared to €77 million for fiscal year 2004/05. It resulted mainly from: • a strong increase in cash flow due to the improvement of

our profitability;• limited cash outflows on the GT24/GT26 gas turbines

representing €115 million in 2005/06, versus €366 millionthe previous year;

• restructuring cash outflow of €239 million, as compared to€281 million for fiscal year 2004/05;

• improvement of our working capital;• strong reduction in our cash outflow for financial and tax

expenses, down from €473 million for fiscal year 2004/05to €292 million for fiscal year 2005/06.

Net debt

Net debt, as defined in the Consolidated Financial Statements asat 31 March 2006, was €1,248 million at 31 March 2006,including €233 million of capital leases, compared with theamount of €1,651 million at 1 April 2005. This reduction ofdebt is mainly the consequence of the positive free cash flowand the proceeds from disposals received during the period.

As total equity increased from €1,583 million at 1 April 2005to €1,840 million at 31 March 2006, gearing improvedsignificantly, down from 104% to 68%.



Use and reconciliation of non-GAAPfinancial measures

In this section, we present figures, which are non-GAAP financialindicators. Under the rules of the Autorité des Marchés Financiers(“AMF”), a non-GAAP financial indicator is a numericalmeasurement of our historical or future financial performance,financial position or cash flow that excludes amounts, or issubject to adjustments that have the effect of excluding amounts,that are included in the most directly comparable measurementcalculated and presented in accordance with GAAP in ourconsolidated income statement, consolidated balance sheetor consolidated statement of cash flows ; or includes amounts,or is subject to adjustments that have the effect of includingamounts, that are excluded from the most directly comparablemeasurement so calculated and presented. In this regard,GAAP refers to International Financial Reporting Standards.

> Free cash flow

We define free cash flow to mean net cash provided by (usedin) operating activities less capital expenditure, net of proceedsfrom disposals of property, plant and equipment, and increase(decrease) in existing receivables considered as a source offunding of our activity. In particular, free cash flow does notinclude the proceeds from disposals of activity.

Free cash flow does not represent net cash provided by (usedin) operating activities, as calculated under IFRS. The mostdirectly comparable financial measure to free cash flowscalculated and presented in accordance with IFRS is net cashprovided by (used in) operating activities, and a reconciliationof free cash flows and net cash provided by (used in) operatingactivities is presented below.

We use the free cash flow measure both for internal analysispurposes as well as for external communications, as we believeit provides more accurate insight into the actual amount of cashgenerated or used by our operations.

> Capital employed

We define capital employed as the closing position of goodwill,intangible assets, net, property, plant and equipment, net, othernon-current assets (excluding pension assets) and current assets(excluding trading investments, available-for-sale investments, held-to-maturity investments and cash and cash equivalents)minus current and non-current provisions and current liabilities(excluding current financial debt).

Total Group actual figures

Year ended 31 March (in € million) 2006 2005

Net cash provided by (used in) operating activities 785 194Elimination of variation in sale of existing receivables (26) 87Capital expenditures (294) (255)Proceeds from disposals of property 60 51

Free cash flow 525 77


We use the capital employed measure both for internal analysispurposes as well as for external communications, as we believe theyprovide insight into the amount of financial resources employedby a Sector or the Group as a whole and the profitability of aSector or the Group as a whole in regard to the resources employed.

> Net debt

We define net debt as cash and cash equivalents and the sumof available-for-sale investments, held-to-maturity securities,

> Comparable basis

The figures presented in this section include performanceindicators presented on an actual basis and on a comparablebasis. Figures have been given on a comparable basis in orderto eliminate the impact of changes in Business compositionand changes resulting from the translation of our accounts intoEuro following the variation of foreign currencies against theEuro. We use figures prepared on a comparable basis both forour internal analysis and for our external communications, as webelieve they provide means by which to analyse and explainvariations from one period to another. However, these figuresprovided on a comparable basis are not measurements ofperformance under IFRS.

To prepare figures on a comparable basis, we have performedthe following adjustments to the corresponding figures presentedon an actual basis:• restatement of the actual figures for fiscal year 2004/05

using 31 March 2006 exchange rates for orders backlog,orders received, sales and income from operations; and

• adjustments due to changes in Business composition to thesame line items for fiscal year 2004/05. More particularlycontributions of material activities sold since 1 April 2004have been excluded from the comparable figures, in particular our Power Conversion Business, our Transportactivities in Australia and New Zealand and our FlowSystems Business.


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(in € million) 31 March 2006 1 April 2005 31 March 2005

Cash and cash equivalents 1,301 1,404 1,404Available-for-sale investments 16 13 -Held-to-maturity securities 6 13 -Short-term investments - - 15Current financial debt (360) (483) (486)Non-current financial debt (2,211) (2,598) (3,281)

Net debt/(cash) 1,248 1,651 2,348



Non-current assets (excl. Deferred tax) 7,230 8,399Current assets (excl. Cash & cash equ.) 7,484 8,071Financial current assets (22) (15)Pension assets (387) (374)Current liabilities (excl. Provisions & financial debt) (9,903) (10,510)Current and non-current provisions (2,120) (2,322)

Capital employed* 2,282 3,249

* The decrease in capital employed from 31 March 2005 to 31 March 2006 is partly explained by the reclassification of assets and liabilities attributable to leases oftrains for €637 million to assets and liabilities held for sale.

Capital employed by Sector and for the Group as a whole are also presented in Note 25 to our Consolidated Financial Statements.

trading investments (from 1 April 2005) and short-terminvestments (before 1 April 2005) included in other currentassets, net of financial debt. The difference between the netdebt at the beginning of the period ended 31 March 2006(€1,651 million) and the net debt at the end of the year ended31 March 2005 (€2,348 million) is due to the changes inaccounting policies at 1 April 2005 following the applicationof the IAS 32-39 and IFRS 5 standards.


A significant part of our sales and expenditures are realisedand incurred in currencies other than the Euro. The principalcurrencies to which we had significant exposures in the fiscalyear 2005/06 were the US Dollar, British Pound, Swiss Franc,Mexican Peso and Brazilian Real. Our orders received and

sales have been impacted by the translation of our accounts intoEuros resulting from changes in value of the Euro against othercurrencies in fiscal year 2005/06. The impact is an increasefor orders received and sales by 0.9% and 1.9% respectivelycompared with the fiscal year 2004/2005.

The following table sets out the estimated impact of changes in exchange rates and in Business composition (“Scope impact”) for allindicators disclosed in this document both on an actual basis and on a comparable basis for fiscal year 2004/05. No adjustmenthas been made on figures disclosed for fiscal year 2005/06.

March 2005 March 2006

% ComparableActual Exchange Scope Comp. Actual variations

Year ended 31 March (in € million) figures rate impact figures figures 2005/06

Power Turbo-Systems / Power Environment 7,139 191 (83) 7,247 8,447 17%Power Service 3,669 80 (57) 3,692 4,336 17%Transport 14,489 254 (907) 13,836 14,141 2%Power Conversion 529 - (529) - - n.a.Corporate & others 111 3 (106) 8 20 150%

Orders backlog 25,937 528 (1,682) 24,783 26,944 9%

Power Turbo-Systems / Power Environment 5,181 72 (12) 5,241 6,076 16%Power Service 3,228 30 (79) 3,179 3,491 10%Transport 5,490 28 (223) 5,295 5,184 (2%)Power Conversion 579 - (281) 298 398 34%Corporate & others 259 4 (162) 101 141 40%

Orders received 14,737 134 (757) 14,114 15,290 8%

Power Turbo-Systems / Power Environment 4,190 104 58 4,352 5,079 17%Power Service 2,832 72 (124) 2,780 2,853 3%Transport 5,100 70 (216) 4,954 5,128 4%Power Conversion 536 - (301) 235 261 11%Corporate & others 262 (4) (150) 108 92 (15%)

Sales 12,920 242 (733) 12,429 13,413 8%

Power Turbo-Systems / Power Environment (107) - 5 (102) 101 (199%)Power Service 412 3 (3) 412 442 7%Transport 218 - (22) 196 324 65%Power Conversion 30 - (18) 12 16 33%Corporate & others (82) - (6) (88) (137) 56%

Income from operations 471 3 (44) 430 746 73%

Power Turbo-Systems / Power Environment (2.6%) n.a. 8.6% (2.3%) 2.0%Power Service 14.5% 4.2% 2.4% 14.8% 15.5%Transport 4.3% n.a. 10.2% 4.0% 6.3%Power Conversion 5.6% n.a. 6.0% 5.1% 6.1%Corporate & others n.a. n.a. n.a. n.a. n.a.

Operating margin 3.6% 1.2% 6.0% 3.5% 5.6%

Sales 12,920 242 (733) 12,429 13,413 8%Cost of revenues (10,886) (219) 614 (10,491) (11,080) 6%R & D expenses (405) (1) 9 (397) (364) (8%)Selling expenses (535) (10) 37 (508) (569) 12%Administrative expenses (623) (9) 29 (603) (654) 8%

Income from operations 471 3 (44) 430 746 73%



> Geographical analysis of orders

The table below sets out, on actual and comparable basis, the geographic breakdown of orders received by region of destination.

Actual figures Comparable figures Actual figures

Year ended 31 March (in € million) 2006 % of contrib. 2005 % of contrib. 2005 % of contrib.

Europe 7,832 51% 6,090 43% 6,333 43%

North America 2,010 13% 2,191 15% 2,193 15%

South and Central America 1,039 7% 494 4% 471 3%

Asia/Pacific 2,810 18% 3,899 28% 4,270 29%

Middle East/Africa 1,599 11% 1,440 10% 1,470 10%

Orders received by destination 15,290 100% 14,114 100% 14,737 100%

Europe remained the largest market in terms of orders received,its share increased from 43% in fiscal year 2004/05 to 51%.This evolution was mainly due to the performance of our PowerTurbo-Systems / Power Environment Sector. Its orders intake inEurope increased from €958 million in fiscal year 2004/05to €2,485 million in fiscal year 2005/06 on a comparablebasis.

Order intake slightly decreased in North America due to adecline in orders for Power Turbo-Systems / Power EnvironmentSector.

Activity in South and Central America increased substantially asa result of Transport booking orders in Chile and in Venezuela

and Power Turbo-Systems / Power Environment booking alarge hydro project in Venezuela.

The decrease in the Asia/Pacific region, compared to fiscal year2004/05 was mainly due to the reduction of orders in Chinain our Transport Sector, after the record high level registeredin 2004/05, as well as in our Power Turbo-Systems / PowerEnvironment Sector which benefited in 2004/05 from a largenumber of Hydro projects.

The share of the Middle East/Africa region remained stable, asthe increase of Transport orders in the region was offset by thedecrease in orders received by Power Turbo-Systems / PowerEnvironment Sector.

Key geographical figures for fiscal year 2004/05 and fiscal year 2005/06

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> Geographical analysis of sales by region of origin

The table below sets out, on actual and comparable basis, the geographical breakdown of sales by region of origin.



Europe 9,057 68% 8,918 72% 9,244 71%

North America 2,152 16% 1,941 15% 1,890 15%

South and Central America 585 4% 454 4% 372 3%

Asia/Pacific 1,482 11% 994 8% 1,297 10%

Middle East/Africa 137 1% 122 1% 117 1%

Sales by origin 13,413 100% 12,429 100% 12,920 100%


While European sales slightly decreased in fiscal year2005/06 compared to fiscal year 2004/05 on a comparablebasis, all other geographical areas experienced growing sales

and in particular Asia/Pacific with strong outlets in China,India and a number of other countries in the area.

Europe’s share of total sales by origin decreased by 4% infiscal year 2005/06. North America increased slightly whileAsia/Pacific region increased its share by 3%, on a comparable

basis, representing 11% of our sales by region of origin, ahigher level supported by the strong development of the marketsin this area.

> Geographical analysis of sales by region of destination

The table below sets out, on actual and comparable basis, the geographic breakdown of sales by region of destination.



Europe 6,301 47% 6,563 53% 6,786 53%

North America 2,172 16% 1,993 16% 1,945 15%


Asia/Pacific 2,747 20% 2,117 17% 2,465 19%

Middle East/Africa 1,302 10% 1,144 9% 1,190 9%

Sales by destination 13,413 100% 12,429 100% 12,920 100%



> Orders received

After the US gas bubble in 2000/01 and the Chinese boomin 2003/04, the market for new equipment is expected to stand at around 100-120 GW/annum in the coming years.Pushed by the need to comply with regulations, the demand for environmental upgrade of existing power plants is increasing sharply.

Asia is the dominant market with more than half of the worlddemand for new equipment. Coal and hydro are and will remainthe leading energy sources in China and India, while gas prevailsin the rest of Asia and Australia. The recognition of environment asa key issue has led to a fast growing market in China forenvironmental control equipment. Both China and India have relaunched ambitious nuclear programmes.

In Europe, after a low point in 2004, the market for new equipmenthas rebounded during fiscal year 2005/06 due to the demandfor gas plants mainly in Southern Europe. New coal projects areemerging in Central Europe, requiring more efficient clean coalcombustion technologies. The environmental retrofit of existingcoal power plants in this area is also experiencing sharp growthdue to the need for operators to meet the 2008 deadline fixed bythe European Union.

In the USA, the demand for new equipment is re-starting essentiallywith new coal plants, mainly constituted by high efficiency coalprojects like the Comanche 750 MW supercritical boiler contractedby Power Turbo-Systems / Power Environment. The market forenvironmental retrofit of coal power plants was growing in 2005and is expected to grow further in the coming years.

SECTOR REVIEW

Power Turbo-Systems / Power Environment

The following table sets forth certain key financial data for the Power Turbo-Systems / Power Environment Sector:

Power Turbo-Systems / Power Environment actual figures% VariationMarch 05/




Sales 5,079 4,190 21%

Income from operations 101 (107) n.a.

Operating margin 2.0% (2.6%)EBIT 75 (331) n.a.

Capital employed (439) (439) 0%

Power Turbo-Systems / Power Environment comparable figures% VariationMarch 05/



Orders received 6,076 5,241 16 %

Sales 5,079 4,352 17%

Income from operations 101 (102) n.a.

Operating margin 2.0% (2.3%)

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After a low point in 2003/2004, the market for new equipmentin Latin America is taking off again pushed by hydro projects –Power Turbo-Systems / Power Environment contracted the LaVueltosa project in Venezuela – but also some gas projects inArgentina, Chile, Venezuela and Mexico.

In Middle East and Africa, the market is essentially a gas market,with some large oil projects in Saudi Arabia. In 2005, the demandfor gas power plants has remained high, pushed by the strongelectricity demand and desalination plants projects.

On an actual basis, orders received by the Sector for fiscal year2005/06 were 17% higher than in fiscal year 2004/05 (+16%on a comparable basis).

On a regional basis, in fiscal year 2005/06, Asia represented22% of the total order intake, North America 14% while Europeaccounted for 41% of the order intake. Compared to fiscal year2004/05, orders decreased during fiscal year 2005/06 by38% in Asia, and by 20% in North America. These decreaseswere mainly due to China in Asia where a number of Hydroprojects were booked in 2004/05 and to the USA in NorthAmerica. Conversely, in comparison to fiscal year 2004/05,orders sharply increased in South America and did represent 10%of total orders received compared to 4% in fiscal year 2004/05,

and Europe increased by 163% as a result of a number gas firedpower plant projects in Spain and Italy as well as coal firedpower plants in Germany.

> Sales

In fiscal year 2005/06, sales in Power Turbo-Systems / PowerEnvironment stood at €5,079 million, 17% higher than thefiscal year 2004/05 on a comparable basis, as aconsequence of the rebound of order intake during fiscal year2004/05.

All regions except Europe contributed to the increase in salescompared to fiscal year 2004/05. Sales in Europe havedecreased and thus represented 24% of total sales comparedto 35% for fiscal year 2004/05. The increase of sales in North America reflected the growth in the environmentalcontrol business, and represented 19% of the total sales. The South and Central America share increased sharply while Asia/Pacific increased its share from 22% to 30% on acomparable basis, reflecting progress in Japan and Australia.Finally, Middle East/Africa has stabilised its contribution at around 20%.

> Income from operations and operating margin

Power Turbo-Systems / Power Environment income fromoperations was €101 million for fiscal year 2005/06,compared with an income from operations of €(107) million

for fiscal year 2004/05 on an actual basis. The operatingmargin improved from (2.6%) to 2.0% on an actual basis. Thisstrong improvement results from the increased sales coupled with the impact of the restructuring programmeimplemented over the last two years and a better performancein project execution.

The following table sets out, on actual and comparable basis, the geographic breakdown of sales by destination:

Power Turbo-Systems / Power EnvironmentActual figures Comparable figures Actual figures


Europe 1,218 24% 1,559 36% 1,487 35%

North America 997 19% 739 17% 706 17%


Asia/Pacific 1,513 30% 974 22% 966 23%





> Orders received

The Power Service market remained robust in fiscal year2005/06. We have developed customer-focused strategies foreach of our main product ranges that are designed to increasemarket penetration. The changing market conditions causedby energy price increases and further liberalisation of marketshave led us to adopt different approaches to our customers,particularly with respect to upgrading existing equipment.

Growth in Europe is mainly due to ongoing power plantmodernisation needs generated by requests for efficiencyimprovements and environmental compliance requirements.

In North America, the power demand was stable but the agingpower plant installed base will lead to increased demand forservices. In a context of increased gas price, operators areoptimising their fleet utilisation, triggering increased demandfor boiler, steam turbine and generator services.

In Asia, demand is growing due to existing plants upgradeneeds, increasing installed capacities, ongoing market liberalisationand need for compliance with tougher environmental regulations.

Orders received were €3,491 million for fiscal year 2005/06,10% higher than in fiscal year 2004/05 on a comparablebasis. The order intake includes a number of long-term operationand maintenance contracts related to gas fired plant contracts.There is also strong activity in the small to medium size serviceprojects.

On a regional basis, in fiscal year 2005/06, Europe represented42% of the total order intake, North America 26%, Asia 16%while Africa and the Middle East accounted for 14% of the orderintake. Compared to fiscal year 2004/05, orders increasedduring fiscal year 2005/06 by 16% in Europe, by 14% in NorthAmerica and by 42% in Africa and the Middle East, as a result ofa number of O&M contracts booked in that region. Converselyorders received in Asia decreased by 20% as a result of largeO&M contracts booked during fiscal year 2004/05.

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Power Service

The following table sets forth some key financial data for the Power Service Sector:

Power Service actual figures% VariationMarch 05/




Sales 2,853 2,832 1%


Operating margin 15.5% 14.5%EBIT 407 365 12%

Capital employed 1,812 1,875 (3%)

Power Service comparable figures% VariationMarch 05/




Sales 2,853 2,780 3%




> Sales

Sales booked by Power Service in fiscal year 2005/06 stoodat €2,853 million, a 3% increase as compared with fiscalyear 2004/05 on a comparable basis (1% on an actualbasis). On a geographical basis, sales increased in Europeon a comparable basis and decreased in North America and


Power Service



Europe 1,167 41% 1,064 38% 1,149 40%

North America 785 27% 818 29% 784 28%


Asia/Pacific 522 18% 541 20% 555 20%



represent respectively 41% and 27% of total sales. The situationin the Americas was due to the reduced order intake last yearin the construction and erection market in the USA and to anincreased customer selectivity in Mexico. Sales slightly decreasedin Asia/Pacific and represents 18% of total sales as comparedwith 20% in fiscal year 2004/05.


Power Service’s income from operations was €442 million or 15.5% of sales in fiscal year 2005/06 compared with

€412 million or 14.8% of sales for fiscal year 2004/05 on a comparable basis. Operating margin increased dueto an improved mix of activities, the positive evolution of several operation and maintenance contracts, as well as cost reductions.



> Orders received

During fiscal year 2005/06, the global Transport marketcontinued to show modest growth at high level. In Europe, themarket remained contrasted with continuous sound demand inSouthern Europe, while Germany and the UK were slow. Themarket in Spain was buoyant as the country continued theexpansion of its high-speed network whilst supplementing itsregional and commuter train fleets. Equally, the Italian marketwas very active, both in respect of rolling stock and railwayinfrastructure. Strong demand was also recorded in France forVery High-Speed and regional train fleets, and a new demandfor locomotives has started to emerge as the market opens forprivate freight operators. Transport is well placed in thesecountries and has recorded several major contracts includingvariable gauge trains in Spain and Minuetto regional trains inItaly. Significant orders for very high-speed trains were placedduring the year in France.

The market in China continued its rapid development, both interms of main line and mass transit. The contract signed inOctober 2004 for freight locomotives came into force duringthe first half of fiscal year 2005/06.

The market in Latin America, although small in relation to theglobal market, showed significant growth and provided Transportwith a number of important contracts. In contrast, however, themarket in North America declined as the placement of severalcontracts was postponed.

Globally in the mass transit area, the tramway market remainedactive. ALSTOM was awarded contracts for tramways for thecities of Darmstadt, Braunschweig and Gera (Germany), Tunis(Tunisia), Dublin (Eire) and Florence (Italy). Meanwhile, in aglobally stable market, metro contracts for the cities of BuenosAires (Argentina), Santiago (Chile), Caracas (Venezuela), SaoPaulo (Brazil) and Milan (Italy) were awarded.

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Transport

The following table sets forth some key financial data for the Transport Sector:

Transport actual figures% VariationMarch 05/


Order backlog 14,141 14,489 (2%)

Orders received 5,184 5,490 (6%)

Sales 5,128 5,100 1%


Operating margin 6.3% 4.3%EBIT 256 145 77%

Capital employed* 125 932 (87%)

Transport comparable figures% VariationMarch 05/



Orders received 5,184 5,295 (2%)

Sales 5,128 4,954 4%



* The decrease in capital employed from 31 March 2005 to 31 March 2006 is partly explained by the reclassification of assets and liabilities attributable to leases of trains for €637 million to assets and liabilities held for sale.



The High-Speed and Very High-Speed markets continued tolive up to their growth potential. Orders of particular note,which were won by Transport, include double-deck TGVs forSNCF in France, Lanzaderas High Speed trains together withvariable gauge High-Speed trains for RENFE in Spain,electrification of High-Speed lines around Bologna (Italy) andsub-stations for part of the Madrid-Barcelona line in Spain.

In the area of Information Solutions, the most important orderscame from the expansion of ERTMS in Europe – both for on-board and wayside equipment. The emerging market forsignalling and control systems for low-density freight lines wasevidenced by an important contract from MRS in Brazil.

Orders received by Transport in fiscal year 2005/06 amountedto €5,184 million compared with €5,490 million for fiscalyear 2004/05, on an actual basis and to €5,295 millionon a comparable basis. The actual variation is mainly due tothe disposal of activities in Australia, in New Zealand and inValencia, Spain (€161 million in fiscal year 2005/06 prior totheir disposal versus €375 million in fiscal year 2004/05).

As a percentage of total orders received, Europe continued to represent the biggest share of Transport Sector’s order intake

Transport



Europe 3,756 73% 3,774 76% 3,789 74%

North America 358 7% 397 8% 377 7%

South and Central America 369 7% 242 5% 214 4 %

Asia/Pacific 590 12% 486 10% 638 13%

Middle East/Africa 55 1% 55 1 % 82 2%


with 71% of the total orders received while Asia/Pacific and the Americas represented 13% and 10%, compared with19% and 7% respectively last year. The decrease in Asia isdue to the exceptional level of orders in China recorded in2004/05.

> Sales

Sales in Transport increased by 1% in fiscal year 2005/06compared with fiscal year 2004/05 on an actual basis andby 4% on a comparable basis.

In fiscal year 2005/06, Europe continued to be the maincontributor to the sales of the Sector (including major contributionsfrom France, Italy and the United Kingdom) with a share of73%. Asia’s share slightly increased on a comparable basis.South and Central America have increased in volume by 52%on a comparable basis and increased their share from 5% to7% as a result of the Santiago metro contracts being deliveredand the Caracas metro.

The following table sets out, on actual and comparable basis,the geographic breakdown of sales by destination:


The income from operations of Transport for fiscal year 2005/06amounted to €324 million or 6.3% of sales significantly above the €218 million and 4.3% recorded last year on an actual basis.

This improvement came primarily from improved projectmanagement, as well as increased sales, better mix and further cost reduction.



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Marine

This Sector is in the process of being sold of to Aker Yards. In restated fiscal year 2004/05 and in 2005/06, Marine Sector is treated in the Consolidated Financial Statements as a discontinued operation. The following information highlights what would havebeen Marine’s contribution if the Sector was not treated as a discontinued operation (Please refer to page 8 Disposal programmefor further details).

Marine actual figures% VariationMarch 05/




Sales 439 607 (28%)

Income from operations (15) (104) n.a.

Operating margin (3.4%) (17.1%)EBIT (202) (15) n.a.

Capital employed n.a. (293) n.a.

Marine comparable figures% VariationMarch 05/




Sales 439 607 (28%)


Operating margin (3.4%) (17.1%)

> Orders received

In the cruise ship market where our Marine Sector was themost active, eleven new cruise ships were ordered in 2005, thesame number as in 2004. Three cruise vessels were orderedduring the first quarter of 2006.

The letter of intent for two 1,650 cabin cruise ships signedwith MSC in June 2005 was converted into an order inDecember 2005. A further contract was signed in March

2006 for one 1,275 cabin cruise ship, sistership to the MSCOpera. It will enter into force as soon as MSC has finalised itsfinancing.

At the end of March 2006, the Marine backlog included two1,275 cabin cruise ships and two 1,650 cabin cruise ships forMSC, two LNG tankers for Gaz de France, one LNG tanker forNYK, one yacht, one roll in roll out ferry and one small tankerfor Conseil général du Morbihan.




Marine



Europe 417 95% 583 96% 583 96%

North America - 0% 1 0% 1 0%


Asia/Pacific 5 1% 9 2% 9 2%

Middle East/Africa - 0% - 0% - 0%

Sales by destination 439 100% 607 100% 607 100%


As regards the three LNG tankers under construction, technicalsolutions for the problems encountered in 2005 were agreedupon by the stakeholders in July 2005. These technical solutionsare currently being implemented, although uncertainties remain,notably due to the concurrent ramp up of workload of the threeships which are scheduled for delivery in the course of thefiscal year 2006/07.

The operating loss was €(15) million in the fiscal year2005/06, compared with a loss of €(104) million in the fiscal year 2004/05. Last year result was impacted by a €50 million provision related to technical problems encounteredon the containment system on the GDF LNG tankers underconstruction.

> Sales

Sales amounted to €439 million in the fiscal year 2005/06compared to €607 million in the fiscal year 2004/05. This28% decrease is mainly linked to the low level of ordersobtained in the three previous years.

Marine delivered in April 2005 the front part of an assaultship built for the French Navy in association with DCN andan oceanographic ship in July 2005.



On a comparable basis, orders received for fiscal year2005/06 increased by 34% compared with fiscal year2004/05. This increase mainly came from Asia and Russia.On a comparable basis, sales in fiscal year 2005/06increased by 11% compared with fiscal year 2004/05 as aresult of the good performances in Germany.

The income from operations for fiscal year 2005/06 increasedfrom €12 million to €16 million on a comparable basis.

Power Conversion

This Business was sold to Barclays Private Equity in September 2005. Since 1 November 2005, this Business is deconsolidated. (Please refer to page 7 Disposal programme for further details). The following table sets out some key financial data for our Power Conversion Business:

Power Conversion actual figures% VariationMarch 05/


Order backlog - 529 n.a.

Orders received 398 579 n.a.

Sales 261 536 n.a.

Income from operations 16 30 n.a.

Operating margin 6.1% 5.6%EBIT 14 16 n.a.

Capital employed n.a. 42 n.a.

Power Conversion comparable figures% VariationMarch 05/


Order backlog - - n.a.

Orders received 398 298 34%

Sales 261 235 11%



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Corporate and other

“Corporate and other” comprises all units accounting for corporate costs, the International Network and the overseas entities inAustralia, New Zealand, and India which are not reported by Sectors.

The following table sets out some key financial data for our Corporate and other organisation:

Corporate and other actual figures% VariationMarch 05/

Year ended 31 March (in € millions) 2006 2005 March 06

Order backlog 20 111 n.a.


Sales 92 262 n.a.


EBIT (25) (246) n.a.

Capital employed 784 1,132 (31%)

Corporate and other comparable figures% VariationMarch 05/

Year ended 31 March (in € millions) 2006 2005 March 06

Order backlog 20 8 n.a.


Sales 92 108 n.a.


Income from operations was €(137) million for fiscal year2005/06, compared with €(82) million for fiscal year2004/05. The variation is mainly due to one off items such as

the cost of the free shares programme which has been fullyaccounted for and represented €40 million in fiscal year2005/06 and to additional efforts in the Group sales network.



> Sales

Sales were €13,413 million for fiscal year 2005/06,compared to €12,920 million for fiscal year 2004/05, an increase of 4% on an actual basis. On a comparable basis – adjusting notably for the disposal of our PowerConversion Business, our Transport activities in Australia, NewZealand, our FlowSystems Business, our Transport plant inValencia (Spain) and of miscellaneous activities in Australia –the increase amounted to 8%. On a comparable basis, themain increase in sales was in Power Turbo-Systems / PowerEnvironment which grew from €4,352 million in fiscal year2004/05 to €5,079 million in fiscal year 2005/06,

a 17% increase, while Power Service and Transport sales alsogrew by 3% and 4% respectively.

> Selling and administrative expenses

Selling and administrative expenses were €1,223 million in fiscal year 2005/06 compared to €1,158 million in fiscal year 2004/05. On a comparable basis, selling expensesincreased by 12% from fiscal year 2004/05 to fiscal year2005/06 as a result of intense tender activity and theimplementation of stronger commercial organisations in all Sectors. Administrative expenses increased by 8% on a comparablebasis between fiscal year 2004/05 and fiscal year 2005/06

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Operating and financial review

OPERATING AND FINANCIAL REVIEW

INCOME STATEMENT


Year ended 31 March (in € million) 2006) 2005 March 06

Sales 13,413 12,920 4%

Cost of sales (11,080) (10,886) 2 %

R&D expenses (364) (405) (10%)

Selling expenses (569) (535) 6 %

Administrative expenses (654) (623) 5%



Total Group comparable figures% VariationMarch 05/


Sales 13,413 12,429 8%

Cost of sales (11,080) (10,491) 6%

R&D expenses (364) (397) (8%)

Selling expenses (569) (508) 12%

Administrative expenses (654) (603) 8%




mainly due to development costs of specific projects aiming atimproving future performance such as the Sourcing andStandardisation programmes in Transport or the CustomerRelationship Management tool in Power Service. Administrativeexpenses remained stable as a percentage of sales.

> Research and Development expenses

Research and Development expenses were €364 million infiscal year 2005/06, as compared to €405 million in fiscalyear 2004/05. Before impact of capitalisation anddepreciation, the Research and Development expenses,increased from €333 million in fiscal year 2004/05 to €349 million in fiscal year 2005/06 on an actual basis. This 5 % growth is mainly due to an increase in Transportnotably related to the AGV and the ERTMS programme. Power




Restructuring costs (80) (350) (77%)

Pension costs (61) (47) 30%

Other non-operating income (expense) 122 (125) n.a.

Earnings Before Interest and Tax 727 (51) n.a.

Financial income (expense) (222) (381) (42%)

Income tax charge (125) (163) (23%)

Discontinued operations (198) (32) n.a.

Minority interest and other (4) (1) n.a.

Net income 178 (628) n.a.

Turbo-Systems / Power Environment Research and Developmentexpense level remained stable, the reduction of expenses relatedto the GT24/GT26 gas turbines development programme – asthe technology has now been stabilised – being offset by newprogrammes in several key areas such as clean combustion.

> Income from operations

On an actual basis, our income from operations for fiscalyear 2005/06 was €746 million or 5.6% of sales, ascompared with income from operations of €471 million andoperating margin of 3.6% for fiscal year 2004/05. On a comparable basis, our income from operations amountedto €430 million or 3.5% of sales for fiscal year 2004/05.This strong improvement of our operating margin is notably dueto selectivity in our order intake, an improved cost base and better execution of our projects.



> Earnings Before Interest and Tax (EBIT)

EBIT was €727 million in fiscal year 2005/06, comparedwith €(51) million in fiscal year 2004/05.

The improvement in EBIT in fiscal year 2005/06 was mainlydue to:• the improvement of our income from operations;• the decrease of restructuring costs amounting to €(80) million

in fiscal year 2005/06, compared with €(350) million infiscal year 2004/05;

• the net capital gain on disposal of activities at €132 millionin fiscal year 2005/06, compared with a loss of €(42)million in fiscal year 2004/05;

• partly offset by the increase in pension costs at €(61) millionin fiscal year 2005/06, compared with €(47) million infiscal year 2004/05.

> Financial income (expenses) net

The reduction of our net financial expenses at €(222) million in fiscalyear 2005/06 compared with €(381) million in fiscal year2004/05 was due to the decrease in net interest expenses as a consequence of the reduction in our debt level and in ouraverage interest rate. The financial charges included fees paid for bonding and other financing facilities, which amountedto €(75) million in fiscal year 2005/06 compared with €(105) million in 2004/05.

> Income tax charge

The income tax charge for the fiscal year 2005/06 was €(125) million compared with €(163) million in fiscal year2004/05. The fiscal year 2005/06 income tax charge includeda current income tax charge of €(155) million and a deferredincome tax of €30 million.

> Discontinued operations

Discontinued operations include our Marine activities. At 31 March 2006, the discontinued operations contributionamounted to €(198) million including:• €(15) million of loss from operations;• €(87) million of impairment on assets;• €(96) million of losses related to the disposal of the activity.

As at 31 March 2005, the discontinued operations contributionincluded €(32) million of net losses including an operating lossof €(104) million.

> Net profit/(loss) Group share

As a result of improved EBIT, lower financial expenses andlower tax charges, net profit amounted to €178 million for the Group share compared with a net loss of €(628) millionfor fiscal year 2004/05.

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> Goodwill and intangible assets, net

Net Goodwill decreased to €3,323 million at 31 March 2006compared to €3,417 million at 31 March 2005 mainly due to the disposals of the period.

We requested an independent third party evaluation as part ofour annual impairment tests of goodwill. The valuation as at 31 March 2006 supported our opinion that our goodwill were notimpaired.

Net intangible assets decreased to €1,197 million at 31 March 2006compared to €1,222 million at 31 March 2005. They include

BALANCE SHEETTotal Group actual figures

VariationMarch 05/


Goodwill 3,323 3,417 (94)

Intangible assets, net 1,197 1,222 (25)

Tangible assets, net 1,361 1,707 (346)

Equity method investments and other investments, net 99 118 (19)

Other non-current assets, net 1,250 1,935 (685)

Deferred tax 1,249 1,207 42

Non-current assets 8,479 9,606 (1,127)

Working capital assets 7,484 8,071 (587)

Cash and cash equivalents 1,301 1,404 (103)

Current assets 8,785 9,475 (690)

Assets held for sale 1,144 - 1 144

Assets 18,408 19,081 (673)

Total Group actual figuresVariation

March 05/Year ended 31 March (in € million) 2006 2005 March 06

Equity 1,840 1,466 374

Bonds reimbursable with shares - 133 (133)

Non-current and current provisions 2,120 2,322 (202)

Accrued pension and retirement benefits 792 824 (32)

Financial debt current and non-current 2,571 3,767 (1,196)

Deferred tax 39 59 (20)

Other current liabilities 9,903 10,510 (607)

Liabilities directly associated with assets held for sale 1,143 - 1,143

Liabilities 18,408 19,081 (673)

acquired intangible assets and capitalised development costs.Acquired intangible assets mainly result from the allocation of thepurchase price following the acquisition of ABB’s 50% shareholdingin Power.

Development costs represent expenses fulfilling criteria defined byIAS 38, as described in our Consolidated Financial StatementsNote 12 B, and capitalised. These costs are amortised on astraight-line basis over the estimated useful life of the developmentasset. Transport and Power Turbo-Systems / Power Environmentare the main Sectors capitalising development expenses.



> Tangible assets, net

Net tangible assets decreased to €1,361 million at 31 March2006 compared to €1,707 million at 31 March 2005 mainlydue to the disposals of the period and to the fact that depreciation exceeded capital expenditures during fiscal year2005/06.

Capital expenditures increased to €294 million at 31 March 2006compared to €255 million at 31 March 2005. Capitalexpenditures excluding capitalised Research and Developmentexpenses also increased in fiscal year 2005/06 at €207 million compared to €185 million in fiscal year 2004/05.Power-Turbo Systems / Power Environment contributed to thisincrease with capital expenditures growing from €51 million in fiscalyear 2004/05 to €70 million in fiscal year 2005/06, mainlyin China and in India. Transport also increased its capitalexpenditures from €52 million in fiscal year 2004/05 to €71 million in fiscal year 2005/06.

> Other non-current assets, net

Other non-current assets net decreased to €1,250 million at 31 March 2006 compared to €1,935 million at 31 March 2005mainly due to the reclassification of the long-term rental related to leases of train to “assets held for sale”. At 31 March 2006,other non-current assets mainly include the €700 million depositsecuring the Bonding Guarantee Facility.

> Working capital

Working capital (defined as current assets excluding cash and cash equivalent less current liabilities excluding currentfinancial liabilities and including non-current provisions) at 31 March 2006 was €(4,539) million compared with€(4,761) million at 31 March 2005. This improvement reflectedthe results of stronger working capital management.

> Assets/liabilities held for sale

Non-current assets and disposal groups are classified as heldfor sale as their carrying amount will be recovered through a saletransaction rather than through continuing use. We regard thesale as highly probable and the asset (or disposal group) isavailable for immediate sale in its present condition.

Assets and liabilities classified as held for sale correspond to the Marine Sector and to assets and liabilities attributable toleases of trains.

> Net deferred tax assets

Net deferred tax assets amounted to €1,210 million at 31 March 2006 compared with €1,148 million at 31 March 2005.

At 31 March 2006, we reviewed by jurisdiction the recoverabilityof these deferred tax assets on the basis of our Business plan,extrapolated when needed. This review led to a cumulative valuation allowance on deferred tax assets of €919 million at 31 March 2006 compared with €920 million at 31 March 2005. At 31 March 2006, we are satisfied as to the recoverability of our net deferred tax assets.

> Current and non-current provisions

At 31 March 2006, the current and non-current provisions were €2,120 million compared with €2,322 million at 31 March 2005. This net decrease was accounted for mainlyby the following movements: • changes in the scope of our activities; • a decrease in provisions on contracts for €103 million,

mainly resulting from €116 million of application of theGT24/GT26 gas turbines provisions;

• a decrease in restructuring provisions of €178 million.

> Shareholders’ equity and minority interests

Total equity at 31 March 2006 was €1,840 million, includingminority interests, compared with €1,583 million at 1 April 2005.This variation is due to:• the net income of the period for €181 million;• a cumulative translation adjustment of €55 million;• and other effects for €21 million.

> Financial debt

Our gross financial debt was €2,571 million at 31 March 2006,compared with 3,081 million at 1 April 2005, pursuant to the firstapplication of IAS 32-39 and IFRS 5 standards.

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Borrowings decreased by €299 million, securitisation of futurereceivables by €49 million and, other facilities by €139 million.

At 31 March 2006, we were in compliance with our covenantsas follows:• ratio of EBITDA, as defined in the Consolidated Financial

Statement Note 22, to consolidated net financial expense(interest expense including securitisation expenses less interestincome but excluding interest related to obligation underfinance lease, pension interest cost and the consolidated netfinancial expense of special purpose entities which were notconsolidated subsidiaries as of 31 March 2004). The interestcover at 31 March 2006 amounts to 8.7 to compare witha covenant of 3.0;

LIQUIDITY AND CAPITAL RESOURCES

> Consolidated statement of cash flows

The following table sets out selected figures concerning our consolidated statement of cash flows:


Year ended 31 March (In € million) 2006 2005

Net income after elimination of non-cash items 627 5Changes in net working capital 158 189

Net cash provided by (used in) operating activities 785 194

Net cash provided by (used in) investing activities 32 363Net cash provided by (used in) financing activities (409) (353)Net cash provided by (used in) discontinued operations (215) (198)Transfer to assets and liabilities held for sale (317) -Net effect of exchange rate 24 15Other changes and reclassifications ( 3) 34

Increase (decrease) in cash and cash equivalents (103) 55

• sum of shareholders’ equity (excluding the cumulative impactof any deferred tax asset impairments arising after 31 March2004 and including Bonds Reimbursable with Shares “ORA”not yet reimbursed) and minority interests (this covenant willnot apply if and for so long as ALSTOM’s rating is InvestmentGrade). After excluding the impact of the impairment ofdeferred tax assets recorded since 31 March 2004 of€189 million, the consolidated net worth at 31 March 2006to compare with the covenant above is €2,029 million tocompare with a covenant of €1,360 million;

• ratio of total net debt (total financial debt less short-terminvestments or trading investments and cash and cashequivalents) to EBITDA. The net debt leverage as at 31 March 2006 is of 1.0 to compare with a covenant of 4.0.



Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities is defined asthe net income after elimination of non-cash items plus workingcapital movements. Net cash provided by operating activitieswas €785 million in fiscal year 2005/06 compared to€194 million in fiscal year 2004/05.

Net income after the elimination of non-cash items was €627 million in fiscal year 2005/06. This amount representedthe cash generated by net income before working capitalmovements. As provisions are included in the definition of ourworking capital, provisions are not part of the elimination of non-cash items.

Change in net working capital was €158 million. Working capitalwas improved by: • a decrease of €61 million in trade receivables and other

current assets; • a decrease of €70 million in contract-related provisions

mainly due to the application of GT24/GT26 provisions; • an increase of €439 million in contract construction following

a continuing rebound in orders received and the resultingincrease of our backlog;

• a decrease of €272 million in trade payables and otherpayables related.

The net cash provided by operating activities of €194 million infiscal year 2004/05 was mainly due to the favourable changein working capital.

Net cash provided by (used in) investing activitiesNet cash provided by investing activities was €32 million infiscal year 2005/06. This amount comprised of: • proceeds of €60 million from disposals of property, plant

and equipment; • capital expenditures for €294 million, including Research

and Development capitalisation of €87 million; • variation in other non-current assets of €22 million; and • cash proceeds from the sale of investments, net of net cash

sold, for €257 million.

Net cash provided by investing activities was €363 million infiscal year 2004/05. This positive variation of the net cash was mainly due to the cash proceeds from the sales of theT&D Sector (€207 million) and to the sale of a Special PurposeEntity in the Transport Sector and to the deconsolidation of two Special Purpose Entities in the Marine Sector for a totaleffect of €627 million. This increase in net cash was partiallyoffset by the variation in other fixed assets, which included the€700 million of cash collateral securing the Bonding programmeand the monetisation of other financial items.

Net cash provided by (used in) financing activitiesNet cash (used)/provided by financing activities in fiscal year2005/06 was €(409) million, compared to €(353) millionin fiscal year 2004/05. This amount included the fullreimbursement of the securitisation of future trade receivables for €(49) million, the repayments of borrowings for €(320) million and capital lease obligations for €(42) million.In fiscal year 2004/05, the net cash used by financingactivities included the capital increase detailed in page 9for €2,022 million and the reduction of borrowings for€(2,310) million.

Net cash provided by (used in) discontinued operationsNet cash used in discontinued operations in fiscal year2005/06 was €(215) million, compared to €(198) millionin fiscal year 2004/05. This amount included the Marine free cash flow of €(115) million in fiscal year 2005/06 and€(213) million in fiscal year 2004/05.

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We have a variety of sources of liquidity in order to finance ouroperations, including principally borrowings under revolvingcredit facilities, the issuance of commercial paper and assetdisposals. Additional sources include customer deposits and

advances and proceeds from the sale of trade receivables,including future trade receivables. In the past, we have alsoused the issuance of securities, including debt securities andpreferred shares, as a source of liquidity.

Decrease (increase) in net debtAs a result of the above, our cash and cash equivalent decreased by €103 million in fiscal year 2005/06 after anincrease of €55 million in fiscal year 2004/05. Our net debt

decreased by €403 million in fiscal year 2005/06 after a decrease of €2,370 million in fiscal year 2004/05 asdescribed below:


Year ended 31 March (In € million) 2006 2005

Net debt at the beginning of the period (1,651) (4,718)

Increase (decrease) in cash and cash equivalents (103) 55Increase (decrease) in short-term investments (2) (24)Issuance (payment) of short-term and long-term borrowings 369 2 310Issuance (payment) of obligation under finance lease 42 41Net cash used in financing activities – discontinued operations 103 (13)Effect of exchange rate (6) 1

Net debt at the end of the period (1,248) (2,348)

IFRS restatement as at 1 April 2005 n.a. 697

Net debt as at 1 April 2005 - (1,651)

MATURITY AND LIQUIDITY

The following table sets forth the list of our drawn and undrawn lines of credit and financial debt obligations (including futurereceivables securitised) and as part of these, the available lines of credit as of 31 March 2006:

Total Group nominal valuesWithin Over

Year ended 31 March (In € million) 2005 2006 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 year

Redeemable preference shares 205 - - - - - - -ORA - 5 - - 5 - - -Subordinated notes 5 5 5 - - - - -Bonds 1,202 2,224 224 - 1,000 1,000 - -Syndicated loans 1,039 - - - - - - -Bilateral loans 33 - - - - - - -Commercial paper 14 - - - - - - -Other facilities 252 106 55 12 3 3 21 12Borrowings under finance lease 918 233 40 22 20 18 17 116Accrued interest 50 33 33 - - - - -Future receivables securitised 49 - - - - - - -

Financial debt 3,767 2,606 357 34 1,028 1,021 38 128

Undrawn credit lines 1,202 700 - - - - 700 -

Total lines of credit 4,969 3,306 357 34 1,028 1,021 738 128



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These amounts consisted of: • available credit lines at Group level for €700 million compared

with €1,202 million at 31 March 2005;• cash available at parent company level of €950 million

at 31 March 2006, compared with €796 million at 31 March 2005.

ALSTOM, the Group parent company, can access some cashheld by wholly-owned subsidiaries through the payment of dividendsor pursuant to intercompany loan arrangements. Local constraintscan delay or restrict this access, however. Furthermore, while wehave the power to control decisions of subsidiaries of which we

are the majority owner, our subsidiaries are distinct legal entitiesand the payment of dividends and the granting of loans, advancesand other payments to us by them may be subject to legal orcontractual restrictions, be contingent upon their earnings or besubject to Business or other constraints. These limitations include localfinancial assistance rules, corporate benefit laws and other legalrestrictions. Our policy is to centralise liquidity of subsidiaries at theparent company level when possible, and to continue to progresstowards this goal. The cash and cash equivalents available atsubsidiary level were €608 million and €351 million respectivelyin March 2005 and 2006.

Instrument(in € million) Maturity Nominal amount Rate

Bonds July 2006 224 5,0%Bonds July 2008 400 Euribor 3M + 0.85%Bonds March 2009 600 Euribor 3M + 2.2%Bonds March 2010 1 000 6,25%Revolving credit facility July 2011 700 Undrawn

Total available unused credit lines together with cash and cash equivalent available at parent company amounted to €1,650 million at31 March 2006, compared to €1,998 million at 31 March 2005.

IMPACT OF EXCHANGE RATE AND INTEREST RATE FLUCTUATIONS

Our policy is to use derivatives, such as forward foreignexchange contracts, in order to hedge exchange rate fluctuationsand interest rate fluctuations. Our policy does not permit anyspeculative market position.

We have implemented a centralised treasury policy in order tobetter control the Company’s financial risks and to optimisecash management by pooling our available cash, therebyreducing the amount of external debt required and permittingus to obtain better terms under our various financingarrangements.

The Senior Vice President funding and treasury (who reportsto the Chief Financial Officer) has global responsibility forforeign exchange risk, interest rate management, and cashmanagement. He manages a team of more than 20 people

located in the Levallois Headquarters which forms the CorporateTreasury and is organised with a Front-Office, a Middle-Officeand a Back-Office to ensure segregation of duties. A networkof Country Treasurers supports Corporate Treasury in the countrieswhere we have a significant presence.

Corporate Treasury acts as an in-house bank for subsidiaries byproviding hedging and funding, maintaining internal currentaccounts and managing an intercompany payments nettingsystem. We have implemented cash pooling structures tocentralise cash on a daily basis in the countries where localregulations permit.

Corporate Treasury uses the Reuters Cash Flow KTP TreasuryManagement System for straight-through processing of treasurytransactions from dealing to settlement and management of in-


house banking activity. Our Treasury Management System isinterfaced with SAP for automatic generation of accountingentries. The Front Office is equipped with a Reuters InformationSystem for real-time market data and uses a professionaltelephone dealing system provided by Etrali to tape allexchanges with bank’s dealing rooms. A dedicated InformationTechnology team administers Treasury systems and guaranteesback-up and contingency plans.

The Middle Office monitors the Dealing Room activity,guarantees that no open positions are maintained, and producesregular risk reporting.

> Exchange rate risks

In the course of our operations, we are exposed to currency riskarising from tenders for contracts to be paid in foreign currency,and from awarded contracts or “firm commitments” under whichrevenues are denominated in foreign currency. The principalcurrencies to which we had significant exposure in fiscal year2005/06 were the US dollar, British pound and Swiss franc.We hedge risks related to firm commitments and tenders asfollows: • by using forward contracts for firm commitments; • by using foreign exchange derivative instruments for tenders,

usually pursuant to strategies involving combinations ofpurchased and written options; or

• by entering into specific insurance policies, such as withCoface in France or Hermes in Germany.

The purpose of these hedging activities is to protect us againstany adverse currency movements which may affect contractrevenues should the tender be successful, and to minimise thecost of having to unwind the strategy in the event of anunsuccessful tender. The decision whether to hedge tendervolumes is based on the probability of the transaction beingawarded to us, expected payment terms and our assessment ofmarket conditions. Under our policy, only senior managementmay make such decisions.

When a tender results in the award of a contract, we hedge theresulting net cash flows mainly in the forward markets or, insome exceptional cases, by means of insurance policies. Dueto the long-term nature of our business, the average duration ofthese forward contracts is approximately 12-14 months.

We do not hedge our net assets invested in foreign operations.We monitor our market positions closely and regularly analysemarket valuations. We also have in place counter-party riskmanagement guidelines. All derivative transactions, includingforward exchange contracts, are designed and executed by ourcentral corporate treasury department, except in some specificcountries where restrictive regulations prevent centralisedexecution.



> Interest rate risks

See Note 28 B to the Consolidated Financial Statements for discussion of our interest rate risks and of sensitivity to interest rate variation.

> Value of financial instruments

At 31 March 2006 and 31 March 2005, the nominal and fair value of foreign exchange instruments are detailed as follows:

Derivative instruments qualifying for hedge accounting(forward contracts and currency swaps)

Year ended 31 March 2006 Year ended 31 march 2005

Purchased Sold Purchased SoldFair Fair Fair Fair

(in € million) Nominal value Nominal value Nominal value Nominal value

British pound 2 - 375 1 77 - 307 (7)Brazilian real 33 (8) 29 1 - - 10 (1)Polish zloti 149 - 252 (2) 126 5 26 -Swedish kroner 227 (3) 279 2 285 (1) 87 -US dollar 713 (64) 2,462 104 557 (92) 1,995 130Australian dollar 163 (4) 150 3 108 - 60 (2)Singapore dollar 16 - 39 - 13 - 89 12Swiss franc 1,889 (21) 2,139 31 1,340 (5) 1,857 10Other 345 3 297 2 269 2 328 4

Total 3,537 (97) 6,022 142 2,775 (91) 4,759 146

Derivative instruments not qualifying for hedge accounting(forwards contracts, currency options contracts and insurance contracts)

Year ended 31 March 2006 Year ended 31 march 2005

Purchased Sold Purchased SoldFair Fair Fair Fair

(in € million) Nominal value Nominal value Nominal value Nominal value

Foreign exchange instrumentsCurrency option contracts - JPY - - - - 20 2 - -Currency option contracts - USD 1 - 34 - 110 17 75 (1)Currency option contracts - other currencies - - 19 - - - - -Forward contracts - USD 112 (1) 95 - - - - -Forward contract - CHF 95 2 9 - - - - -Forward contract - SEK 71 1 1 - - - - -Forward contract - Other currencies 56 (1) 41 - - - - -Insurance contracts 34 (2) 105 4 3 - 193 (2)

Total 369 (1) 304 4 133 19 268 (3)

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At 31 March 2006, the nominal value of derivative instruments by maturity is as follows:

Derivative instruments qualifying for hedge accounting(forward contracts and currency swaps)

(in € million) Total < 1 year 1 - 5 years > 5 yearsBritish pound 377 299 78 -Brazilian real 62 58 4 -Polish zloti 401 286 115 -Swedish kroner 506 365 136 5US dollar 3,175 2,021 1,153 1Australian dollar 313 170 143 -Singapore dollar 55 55 - -Swiss franc 4,028 3,745 283 -Other 642 561 81 -

Total 9,559 7,560 1,993 6

Derivative instruments not qualifying for hedge accounting(forwards contracts, currency options contracts and insurance contracts)

(in € million) Total < 1 year 1 - 5 years > 5 yearsForeign exchange instrumentsCurrency option contracts - USD 35 35 - -Currency option contracts - other currencies 19 19 - -Forward contracts - USD 207 104 103 -Forward contracts - CHF 104 60 44 -Forward contracts - SEK 72 20 52 -Forward contracts - other currencies 97 68 27 2Insurance contracts 139 47 92 -

Total 673 353 318 2



The Group provides various types of retirement, terminationand post-retirement benefits to our employees. The type ofbenefits offered to an individual employee is related to locallegal requirements as well as operating practices of the specificsubsidiaries and involves us in the operation of, or participationin, various retirement plans. These plans are either defined-contribution, defined-benefit or multi-employer plans.

> Defined contribution plans

For the defined-contribution plans, we pay contributions toindependently administered funds at a fixed percentage ofemployees’ pay. The pension costs in respect of defined-contribution plans are charged in the income statement asoperating expenses and represent the contributions paid bythe Company to these funds.

> Defined benefit plans

These plans mainly cover retirement and termination benefits andpost-retirement medical benefits.

For the defined benefit plans, which we operate, benefits arenormally based on an employee’s pensionable remuneration andlength of service. These plans are either funded throughindependently administered pension funds or unfunded. Pensionliabilities are assessed annually by external professionallyqualified actuaries. These actuarial assessments are carriedout for each plan using the Projected Unit Credit method withgenerally a measurement date of 31 March. The financial anddemographic assumptions used are determined at themeasurement date as being appropriate for the plan and thecountry in which it is situated.

The main assumptions made are listed below:• discount rate; • inflation rate; • rate of salary increases; • long-term rate of return on plan assets; • mortality rates; and • employees turnover rates.

Certain assumptions used are discussed in Note 21 to theConsolidated Financial Statements.

The assets of externally administrated defined-benefit plans areinvested mainly in equity and debt securities. The components ofthese assets are disclosed in Note 21 to the Consolidated FinancialStatements. The expected costs of providing retirement pensionsunder defined benefit plans, as well as the costs of other post-retirement benefit plans, are charged to the profit and loss accountover the periods benefiting from the employees’ services.

Valuation of the Defined Benefit ObligationThe actuarial value of the future obligations of the employerestimated with the Projected Unit Credit method (Defined BenefitObligation – “DBO”) fluctuates annually, depending upon thefollowing: • increases related to the acquisition by the employees of one

additional year of benefit rights (“service cost”); • increases in the present value of the DBO which arises

because the benefits are one year closer to their paymentdates (“interest cost”);

• decreases related to the benefits paid during the year; • actuarial gains and losses during the year as explained

below;• changes in obligations related to plan amendments; • changes due to curtailments or settlements applied on the

plans; and• changes in scope (“Business combinations/disposals”).

The change in the DBO is disclosed in Note 21 to theConsolidated Financial Statements.

Valuation of plan assetsThe fair value of the assets held by each plan is the amount thatthe plan could reasonably expect to receive in a current sale ofthe assets between a willing buyer and a willing seller. This iscompared with the DBO and the difference is referred to as the“funded status” of the plan.

The changes in the fair value of assets and the funded status aredisclosed in Note 21 to the Consolidated Financial Statements.

Actuarial gains and losses and past year service costs A number of factors can trigger actuarial gains and losses: • differences between the assumptions used and the actual

experience (for instance, an actual return on assets differingfrom the expected rate of return at the beginning of the year) and

• changes in the long-term actuarial assumptions (inflation rate,discount rate, rate of salary escalation, mortality table etc.).

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PENSION ACCOUNTING


The unrecognised actuarial gains/losses at the year-end iscompared on a plan-by-plan basis with the higher of the DBOand the fair value of the assets held. If the unrecognised actuarialgains/losses exceeds 10% of this amount, the excess above the10% level is amortise over the remaining working lives of theemployees of the respective plan.

As of 31 March 2006, the actuarial losses unrecognised in thebalance sheet were €1,050 million, an increase of €41 millionsince March 2005. The portion above a 10% corridor calculatedscheme by scheme is amortised over the average remainingworking lives of participants in these plans.

The introduction of a defined benefit plan or changes resultingfrom plan amendments may increase/decrease the obligations.

Such event triggers a “past service cost” which is recognisedimmediately in the case of vested benefits, or amortised on astraight-line basis over the average period until the benefits becomevested in case of non-vested benefits. The unrecognised pastservice costs amounted to €24 million at 31 March 2006.

In respect of “other long-term employee benefits” as defined underparagraph 126 of IAS 19, actuarial gains and losses and pastservice cost are recognised immediately and no corridor is applied.

> Pension cost

The following table shows the composition of the total benefitexpense for the fiscal year 2004/05 and 2005/06:

Total Group actual valuesVariation

March 05/Year ended 31 March (in € million) 2006 2005 March 06

Service Cost (85) (80) (5)

Multi-employer contributions and and defined contributions (90) (89) (1)

Income from operations (175) (169) (6)

Amortisation of actuarial net loss (gain) (68) (57) (11)

Amortisation of unrecognised past service cost 3 5 (2)

Other 4 4 -

Other income (expense) (61) (48) (13)

Interest cost (215) (217) 2

Expected return on plan assets 200 200 -

Financial income (expense) (15) (17) 2

Benefit expense (251) (234) (17)



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OFF-BALANCE SHEET COMMITMENTS AND CONTRACTUAL OBLIGATIONS

The following table sets forth our off-balance sheet commitments, which are discussed further at Note 26 to the ConsolidatedFinancial Statements:

Total Group actual values


Guarantees related to contracts 7,572 7,526Guarantees related to Vendor financing 432 429Discounted notes receivables - 5Commitments to purchase fixed assets 8 1Other guarantees 242 114

Off-balance sheet commitments 8,254 8,075

> Guarantees related to contracts

The overall amount given as guarantees on contracts decreased from €7,572 million in March 2006 to €7,526 million in March 2005,stable over the period due to the disposal of some activities and the orders intake increase.

> Vendor financing exposure

In some instances, we have in the past years provided financial support to institutions which finance some of our customers and also,in some cases, directly to our customers for their purchases of our products. We refer to this financial support as “Vendor financing”.We have not committed to provide any Vendor financing guarantees to our customers since fiscal year 1998/99.

The following table set forth our Vendor financing exposure, which are discussed further at Note 26 to the Consolidated FinancialStatements:

Total Group actual values


Marine 126 120Transport 306 309

Vendor financing exposure 432 429

OUTLOOK


We believe the power generation market will continue to growin the coming years, mainly pushed by the service market andthe demand for environmental upgrade of existing power plants.We expect the market for new equipments to stand around100-120 GW/annum in the coming years.

In the coming years, we foresee a growth in the overall marketfor rail transportation with a continuing strong market in Europeand opportunities in Asia and Latin America.

In this context, ALSTOM should continue to grow its sales andimprove its profitability both in the combined power Sectorsand in the Transport Sector.

For internal planning purposes, we have set a target for fiscalyear 2007/08, following our current accounting methods, ofa 7% operating margin for the Group, which assumes reachinga 8% operating margin for the combined Power Sectors and a7% operating margin for Transport.

These targets are based on a number of assumptions andactions, including the correct execution of the contracts in ourbacklog, the intake of profitable orders and the optimisation ofour cost base.

More particularly, for each of the Sectors, we took the followingassumptions:• Power Turbo-Systems / Power Environment: we aim to

increase the profitability of our order through selective biddingcombined with product cost reductions while we wouldcontinue to improve project execution. Our plan also includesseizing profit opportunities on certain targeted markets, suchas environmental-related projects. We plan to differentiateourselves through plant integration capabilities;

• Power Service: we aim to develop our services based onour field presence, manufacturing and technical capabilities.We intend to maintain our operating margins notably throughcost base improvement;

• Transport: our objective is to reach the targeted operatingmargin through growing sales, improvements in contractexecution and further cost reduction based uponstandardisation, sourcing and cost adjustments. We plan tokeep our technological edge thanks to new high-tech productsunder development.

The foregoing are “forward-looking statements,” and as a resultthey are subject to uncertainties. The success of our strategyand action plan, our sales, operating margin and financialposition could differ materially from the goals and targetsexpressed above if any of the risks we describe in the RiskFactors section of the financial report of the Annual Report forfiscal year 2005/06, or other unknown risks, materialise.

Outlook

FINANCIAL INFORMATION2


STATUTORY ACCOUNTS 131

Income statement 131

Balance sheet 132

Notes to the financial statements 134

Auditors’ report on statutory financial statements 146

Special report of the auditors on certain related party transactions 148

Five-year summary 149

Appropriation of the net incomeof fiscal year 2005/06 150

CONSOLIDATED FINANCIAL STATEMENTS 48

Consolidated income statements 48

Consolidated balance sheets 49

Consolidated statements of cash flows 50

Consolidated statement of changes in shareholders’equity and minority interests 52

Notes to the consolidated financial statements 54

Appendices to the French GAAP/ IFRS reconciliation 120

Auditors’ report on the consolidated financial statements 128

Report of the auditors on the profit forecasts 130


Consolidated financial statements

Consolidated income statements

Year ended 31 March (in € million) Note 2006 2005*

Sales (25) 13,413 12,920

Of which products 9,773 9,127Of which services 3,640 3,793

Cost of sales (11,080) (10,886)Selling expenses (569) (535)Research and development expenses (6) (364) (405)Administrative expenses (654) (623)

Income from operations (25) 746 471

Other income (7) 233 67Other expenses (7) (252) (589)

Earnings (loss) before interest and taxes (25) 727 (51)

Financial income (expenses), net (8) (222) (381)

Pre-tax income (loss) 505 (432)

Income tax charge (9) (125) (163)Share in net income (loss) of equity investments (1) -

Net profit (loss) from continuing operations 379 (595)

Net profit (loss) from discontinued operations (10) (198) (32)

Net profit (loss) 181 (627)

Attributable to:- Group share 178 (628)- Minority interests 3 1

Earnings per share in €- Basic (11) 1.27 (5.76)- Diluted (11) 1.26 (5.76)

Earnings per share in € - from continuing operations - Basic (11) 2.68 (5.47)- Diluted (11) 2.65 (5.47)

Earnings per share in € - from discontinued operations- Basic (11) (1.41) (0.29)- Diluted (11) (1.39) (0.29)

* Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005.

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED FINANCIAL STATEMENTS



Consolidated balance sheets

At 31 March At 1 April At 31 March(in € million ) Note 2006 2005** 2005*

AssetsGoodwill (12) 3,323 3,417 3,417Intangible assets, net (12) 1,197 1,222 1,222Property, plant and equipment, net (13) 1,361 1,707 1,707Equity method investmentsand other investments, net (14) 99 118 118Other non-current assets, net (15) 1,250 1,290 1,935Deferred taxes (9) 1,249 1,204 1,207

Total non-current assets 8,479 8,958 9,606

Inventories, net (16) 1,488 1,654 1,654Construction contracts in progress, assets (17) 2,229 2,601 2,601Trade receivables, net (18) 2,291 2,323 2,392Other current assets, net (19) 1,476 1,645 1,424Cash and cash equivalents 1,301 1,404 1,404

Total current assets 8,785 9,627 9,475

Assets held for sale (24) 1,144 637 -

Total assets 18,408 19,222 19,081

LiabilitiesShareholders’ equity 1,782 1,515 1,398Minority interests 58 68 68

Total equity 1,840 1,583 1,466

Bonds reimbursable with shares - - 133

Non-current provisions (20) 581 680 680Accrued pension and retirement benefits (21) 792 824 824Non-current financial debt (22) 2,211 2,598 3,281Deferred taxes (9) 39 59 59

Total non-current liabilities 3,623 4,161 4,844

Current provisions (20) 1,539 1,642 1,642Current financial debt (22) 360 483 486Construction contracts in progress, liabilities (17) 5,401 5,520 5,484Trade payables 2,872 3,316 3,437Other current liabilities (23) 1,630 1,880 1,589

Total current liabilities 11,802 12,841 12,638

Liabilities directly associated with assets held for sale (24) 1,143 637 -

Total liabilities 18,408 19,222 19,081


** Amended balance sheet at 1 April 2005 pursuant to the first time application of IAS 32-39 and IFRS 5 standards (see Note 4 B).

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Consolidated statements of cash flows

Year ended 31 March (in € million) 2006 2005*

Net profit (loss) from continuing operations 379 (595)Depreciation and amortisation 424 497Changes in pension assets and accrued pension and retirement benefits, net - 9Net (gain) loss on disposal of non-current assets and investments ❶ (147) (51)Share in net income (loss) of equity investees (net of dividends received) 1 - Changes in deferred tax (30) 145Net income after elimination of non-cash items 627 5Changes in net working capital ❷ 158 189

Net cash provided by operating activities - continuing operations 785 194

Proceeds from disposals of property, plant and equipment 60 51Capital expenditure (a) (294) (255)Decrease (increase) in other non-current assets ❸ 22 (361)Cash expenditure for acquisition of investments, net of net cash acquired (13) - Cash proceeds from sale of investments, net of net cash sold ❹ 257 928

Net cash provided by investing activities - continuing operations 32 363

Capital increase 6 2,022Issuance (conversion) of bonds reimbursable with shares - (19)Issuance (repayment) of short-term and long-term borrowings (b) ❹ (369) (2,310)Issuance (repayment) of obligation under finance lease (42) (41)Dividends paid including minorities (4) (5)

Net cash used in financing activities - continuing operations (409) (353)

Decrease in cash and cash equivalents - discontinued operations ➎ (215) (198)Transfer to assets held for sale ❻ (317) - Net effect of exchange rate 24 15Other changes (c) (3) 34

Increase (decrease) in cash and cash equivalents (103) 55

Cash and cash equivalents at the beginning of the period 1,404 1,349

Cash and cash equivalents at the end of the period 1,301 1,404

Cash paid for income taxes 85 92Cash paid for net interest (d) 171 204

Net debt variation analysis

Increase (decrease) in cash and cash equivalents (103) 55Increase (decrease) in short-term investments (c) (2) (24)(Issuance) repayment of short-term and long-term borrowings (b) 369 2,310(Issuance) repayment of obligation under finance lease 42 41Net cash used in financing activities - discontinued operations 103 (13)Effect of exchange rate (6) 1

Decrease (increase) in net debt 403 2,370

Net debt at the beginning of the period (e) (1,651) (4,718)

Net debt at the end of the period (e) (1,248) (2,348)




Cash flow movements for the year ended 31 March 2006

❶ Of which €132 million of capital gains and losses ondisposal of investments/activities and €12 million of capitalgain on disposal of fixed assets (see Note 7).

❷ For the year ended 31 March 2006, changes in net workingcapital consist of €439 million changes in constructioncontracts, net, €(70) million changes in provisions, €(2) million changes in inventories, €63 million changes intrade receivables and other current assets and €(272) millionchanges in trade payables and other current liabilities.

❹ The €257 million of proceeds (net of €66 million of netcash sold) mainly consist of €150 million proceeds (net of€32 million of net cash sold) related to the disposal ofTransport activities in Australia and New Zealand, €34 million of proceeds (net of €18 million of net cash sold)from the disposal of Power Conversion activities and €63 million of reimbursement of the escrow account relatedto the former Industrial Turbines Business retained at 31 March 2005.

➎ See Note 10.

❻ See Note 24.

Cash flow movements for the year ended 31 March 2005

❸ In the year ended 31 March 2005, the outflow relating toother non-current assets was mainly due to the €700 millioncash deposit made to secure the new Bonding GuaranteeFacility Programme (see Note 15) partially offset by therepayment of other long-term deposits.

❹ In the year ended 31 March 2005, the net proceeds of€928 million were made of:• proceeds of €207 million related to the completion of

the disposal of certain non-significant entities of the formerT&D Sector not yet sold at 31 March 2004 and partialreimbursement of the receivables retained at 31 March2004;

• proceeds of €59 million related to the completion of thedisposal of US entities of the former Industrial Turbines Businessand partial reimbursement of the escrow accounts retained at31 March 2004;

• other proceeds net of net cash sold of €35 million includingthe disposal of the freight locomotive Business in Spain;

• net debt of €627 million sold as part of the disposal of onespecial purpose entity in the Transport Sector and the de-consolidation of two special purpose entities in the MarineSector. This disposal has generated a €627 million decreasein short-term and long-term borrowings.

➎ See Note 10.


(a) Including capitalisation of development costs (see Note 6).

(b) Including issuance (repayment) of securitisation of future receivables.

(c) Include €2 million and €24 million of change in short-term investments as of 31 March 2006 and 31 March 2005, respectively. From 1 April 2005, short-term investmentscorrespond to available-for-sale investments, held-to-maturity securities and trading investments included in other current assets, net (see Note 19).

(d) Including cash paid related to interest on securitisation of future receivables.

(e) The net debt corresponds to cash and cash equivalents and the sum of available-for-sale investments, held-to-maturity securities, trading investments (from 1 April2005) and short-term investments (before 1 April 2005) included in other current assets (see Note 19), net of financial debt (see Note 22). The difference betweenthe net debt at the beginning of the year ended 31 March 2006 (€1,651 million) and the net debt at the end of the year ended 31 March 2005 (€ 2,348 million)is due to the first time application of IAS 32-39 and IFRS 5 standards at 1 April 2005.

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Shareholders’ equity movement between 1 April 2005and 31 March 2006

❶ During the year ended 31 March 2006, 23,573,581bonds reimbursable with shares “Obligation Remboursablesen Actions” were converted into shares, resulting in theissuance of 390,311 shares before the consolidation ofshares (see below) at a par value of €0.35 and 730,733shares after the consolidation of shares at a par value of€14. At 31 March 2006, 71,045,334 bonds reimbursablewith shares are outstanding for an amount of €99 million,representing 2,230,823 shares to be issued.

❷ On 3 August 2005, ALSTOM consolidation of shares wascompleted through the exchange of 40 existing shares for onenew share. The number of ALSTOM shares has consequentlybeen reduced from 5,497,601,720 shares with a nominalvalue of €0.35 to 137,440,043 shares with a nominalvalue of €14.

Consolidated statement of changes in shareholders’ equity and minority interests

Number of Additional Share- Cumulative Share-

(in € million) outstanding paid-in Retained based translation holders' Minority TotalExcept for number of shares shares Capital capital earnings payments adjustment equity interests equity

At 1 April 2004 1,056,657,572 1,321 64 (1,383) - - 2 66 68

Conversion of ORA ❹ 15,473,425 14 5 - - - 19 - 19

Conversion of TSDDRA ➎ 240,000,000 300 - - - - 300 - 300

Capital decrease ❻ - (1,175) (64) 1,239 - - - - -

Capital increase ❼ 4,185,080,412 1,464 261 - - - 1,725 - 1,725

Changes in cumulative translation adjustments - - - - - (20) (20) 1 (19)

Net profit (loss) - - - (628) - - (628) 1 (627)

At 31 March 2005 5,497,211,409 1,924 266 (772) - (20) 1,398 68 1,466

Impact application IAS 32/39 - 112 5 - - 117 - 117

At 1 April 2005 5,497,211,409 1,924 378 (767) - (20) 1,515 68 1,583

Conversion of ORA ❶ 1,121,044 10 (10) - - - - - -

Consolidation of shares ❷ (5,360,161,677) - - - - - - - -

Changes in cumulative translation adjustments - - - - - 52 52 3 55

Change in scope - - - - - - - (16) (16)

Share-based payments ❸ - - - - 40 (3) 37 - 37

Net profit - - - 178 - - 178 3 181

At 31 March 2006 138,170,776 1,934 368 (589) 40 29 1,782 58 1,840

❸ See Note 30 – Share-based payments.

At 31 March 2006, the share capital amounts to€1,934,390,864 consisting of 138,170,776 shares with anominal value of €14 per share. All shares are fully paid up.

Shareholders’ equity movement between 31 March 2005and 1 April 2005

See Note 4 B – First time application of IAS 32-39 and IFRS5 standards at 1 April 2005.


Net equity movement between 1 April 2004 and 31 March2005

❹ During the year ended 31 March 2005, 14,112,541bonds reimbursable into shares “Obligation Remboursablesen Actions” were converted into shares initially on the basisof one share for one bond and as from 16 August 2004following completion of the capital increase with preferentialsubscription rights, on the basis of the adjusted ratio of1.2559 share for one bond, resulting in the issue of15,473,425 new shares. At 31 March 2005,94,618,915 bonds reimbursable with shares wereoutstanding for an amount of €133 million.

➎ On 7 July 2004, following the European Commission’sapproval, the subordinated bonds reimbursable with shares“Titres Subordonnés à Durée Déterminée Remboursables enActions” held by the French Republic were repaid into240,000,000 new shares at a par value of €1.25.

❻ The ALSTOM shareholders’ equity at 31 March 2004constituted less than 50% of its share capital. Therefore, inaccordance with article L. 225-248 of the French Code decommerce, the shareholders were requested and agreed, atthe Extraordinary General Shareholders’ Meeting held on9 July 2004, not to liquidate the Company by anticipation.Further, it was decided to reduce ALSTOM’s share capital, due to losses, from €1,631,815,076.25 to€456,908,221.35. This reduction in the share capital wasimplemented through the reduction in the nominal value of oneALSTOM ordinary share from €1.25 per share to €0.35per share.

❼ On 12 and 13 August 2004, the Group completed twosimultaneous capital increases:• a capital increase with preferential subscription rights to be

subscribed either in cash or by set-off against certain of ouroutstanding debt was subscribed for a total gross amountof €1,508 million as follows:– €1,277 million gross amount consisting of 3,192,826,907

new shares issued at €0.40 having a par value of€0.35 subscribed in cash.

– €231 million gross amount consisting of 462,438,861new shares issued at €0.50 having a par value of€0.35, subscribed by set-off against debt;

• a second capital increase which was reserved for certainGroup’s creditors to be subscribed by set-off against certainof our outstanding debts was subscribed for a total grossamount of €240 million consisting of 480,000,000 newshares issued at €0.50 having a par value of €0.35.

On 6 December 2004, the Group completed a share capitalincrease reserved for its employees consisting of 49,814,644new shares issued at a par value of €0.35.

Related costs of €40 million (net of tax of €22 million) werecharged against additional paid in capital of €301 million.

At 31 March 2005, the share capital amounted to€1,924,023,993.15 consisting of 5,497,211,409 shareswith a nominal value of €0.35 per share. All shares were fullypaid up.


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ALSTOM (the Group) serves the power generation marketthrough its Power Turbo-Systems / Power Environment Sector andits Power Service Sector, and the rail transport market throughits Transport Sector. The Group designs, supplies, and servicesa complete range of technologically advanced products and

Notes to the consolidated financial statements

NOTE 1. DESCRIPTION OF BUSINESS

systems for its customers, and possesses a unique expertise insystems integration and through-life maintenance and service.

The principal activities of the Group are described in Note 25.

Following the coming into force of European Reporting Regulationn°1606/2002, companies listed in the European Union arerequired to adopt International Financial Reporting Standards(IFRS/IAS) as endorsed by the European Union in the preparationof their consolidated financial statements covering periodsbeginning on or after 1 January 2005.

Unlike the consolidated financial statements for the year ended31 March 2005 which were prepared on the basis of theaccounting principles generally accepted in France (“FrenchGAAP”), ALSTOM’s consolidated financial statements coveringperiods beginning 1 April 2005 are presented accordingto IFRS, together with comparative information related to theprevious period converted to the same standards.

In compliance with IFRS 1 on first-time adoption of IFRS, theopening balance sheet at 1 April 2004 and the consolidatedfinancial statements for the fiscal year ended 31 March 2005have been restated in accordance with IFRS standards endorsedby the European Union at the date of preparation of theconsolidated financial statements for the year ended 31 March2006, with the exception of IAS 32-39 and IFRS 5 standardsapplied from 1 April 2005. The effects of the transition to IFRS are described in Note 34.

NOTE 2. BASIS OF PREPARATION OF THE CONSOLIDATEDFINANCIAL STATEMENTS

The income statement and the cash flow statement for the yearended 31 March 2005 presented as comparative informationare different from the ones presented in Note 34 and in theinterim consolidated financial statements at 30 September2005 following the retrospective application of IFRS 5 standard(see Note 10).

ALSTOM consolidated financial statements for the year ended31 March 2006 have been prepared using:• the IAS/IFRS standards and interpretations applicable for

annual periods beginning on or prior to 1 April 2005;• the accounting policies and methods of computation as set

out in Note 3;• the historical cost convention, with the exception of certain

assets and liabilities in accordance with applicable IFRSstandards. Categories of assets and liabilities concernedare mentioned in Note 3.


A. Consolidation methodsSubsidiariesEntities, over which the Group exercises effective control, arefully consolidated. Control exists where the Group has thepower, directly or indirectly, to govern the financial and operatingpolicies of an enterprise so as to obtain benefits from its activities,whether it holds shares or not.

Intercompany balances and transactions are eliminated onconsolidation.

Results of operations of subsidiaries acquired or disposed ofduring the year are recognised in the consolidated incomestatements as from the date of acquisition or up to the date ofdisposal, respectively.

Minority interests in the net assets of consolidated subsidiariesare identified separately from the Group’s equity therein. Minorityinterests consist of the amount of those interests at the date of theoriginal business combination and the minority’s share ofchanges in equity since the date of the combination.

Losses applicable to the minority in excess of the minority’sinterest in the subsidiary’s equity are allocated against theinterests of the Group except to the extent that the minority hasa binding obligation and is able to make an additionalinvestment to cover the losses.

Interests in joint venturesJoint ventures are companies over which the Group has jointcontrol. They are consolidated by the proportionate methodwith the Group’s share of the joint ventures’ results, assets andliabilities recorded in the consolidated financial statements.

Investments in associatesEntities in which the Group exercises significant influence, butnot control, are accounted for under the equity method.

Under the equity method, investments in associates are carriedin the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of theassociate, less any impairment in the value of individualinvestments. Losses of an associate in excess of the Group’sinterest in that associate are not recognised, except if the Grouphas a legal or implicit obligation.

Any excess of the cost of acquisition over the Group’s shareof the net fair value of the identifiable assets, liabilities andcontingent liabilities of the associate recognised at the date ofacquisition is recognised as goodwill. The goodwill is includedwithin the carrying amount of the investment and is assessed forimpairment as part of the investment.

A list of the Group’s major consolidated subsidiaries, jointventures and associates and the applicable method ofconsolidation is provided in Note 33.

B. Use of estimatesThe preparation of the consolidated financial statements inconformity with IFRS requires management to make estimates andassumptions that affect the reported amounts of assets andliabilities, sales and expenses, and disclosure of contingentassets and liabilities at the date of the financial statements.Management reviews estimates on an ongoing basis usingcurrently available information. Total expected revenue andcosts on a contract reflect management’s current best estimateof the probable future benefits and obligations associated withthe contract. The assumptions to calculate present and futureobligations take into account current technology as well as thecommercial and contractual positions, assessed on a contract-by-contract basis. The introduction of technologically advancedproducts exposes the Group to risks of product failure significantlybeyond the terms of standard contractual warranties applyingto suppliers of equipment only.

Significant items subject to such estimates and assumptionsinclude revenue and margin recognition on long-term contracts,provisions related to warranties and litigations, pension assetsand liabilities, impairment of non-current assets and deferredtaxes.

Actual results may differ from those estimates, due to changesin facts and circumstances.


NOTE 3. SUMMARY OF ACCOUNTING POLICIES

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C. Sales and costs generated by operating activities

Measurement of sales and costsThe amount of revenue arising from a transaction is usuallydetermined by the contractual agreement with the customer.

In case of construction contracts, claims are considered in thedetermination of contract revenue when it is highly probable thatthe claim will result in additional revenue and the amount canbe reliably estimated.

Conversely, penalties are taken into account in reduction ofcontract revenue as soon as they are probable.

Production costs include direct (such as material and labour)and indirect costs, including warranty costs. Warranty costsare estimated on the basis of contractual agreement, availablestatistical data and weighting of all possible outcomes againsttheir associated probabilities. Warranty periods may extendup to five years.

Selling and administrative expenses are excluded fromproduction costs.

Recognition of sales and costs Whatever the type of contracts, sales are recognised onlywhen the outcome of the transaction can be assessed reliably.

Revenue on sale of manufactured products and service contractswhich are of less than one year duration is recognised when thesignificant risks and rewards of ownership are transferred tothe customer, which generally occurs on delivery andperformance of service activities. All production costs incurredor to be incurred in respect of the sale are charged to cost ofsales at the date of recognition of sales.

Revenue on construction contracts and long-term serviceagreements is recognised on the percentage of completionmethod: the stage of completion is assessed by milestoneswhich ascertain the completion of a physical proportion of thecontract work or the performance of services prescribed bythe agreement. The excess of revenue measured at percentageof completion over the revenue recognised in prior periods isthe revenue for the period.

Cost of sales on construction contracts and long-term serviceagreements is computed on the same basis. The excess of costto be recognised over the cost of sales recognised in priorperiods is the cost of sales for the period. As a consequence,

adjustments to contract estimates resulting from job conditionsand performance are recognised in cost of sales as soon as theyoccur, pro rata to the stage of completion.

Selling and administrative expenses are expensed as incurred. Research expenses are expensed as incurred. Developmentcosts are expensed as incurred unless the project they relateto meets the criteria for capitalisation (see Note 3 J).

When it is probable that contract costs at completion willexceed total contract revenue, the expected loss is recognisedas an expense immediately.

With respect to construction contracts and long-term serviceagreements, the aggregate amount of costs incurred to date plusrecognised margin less progress billings is determined on acontract-by-contract basis. If the amount is positive, it is includedas an asset designated as “Construction contracts in progress,assets”. If the amount is negative, it is included as a liabilitydesignated as “Construction contracts in progress, liabilities”.The caption “Construction contracts in progress, liabilities” alsoincludes advances received from customers.

D. Income (loss) from operationsIncome (loss) from operations includes gross margin,administrative and selling expenses and research anddevelopment expenses. It includes in particular the service costof pensions, cost of share-based payments, employee profit-sharing, foreign exchange gains or losses associated withoperating transactions, including hedge accounting impacts, andcapital gains (losses) on disposal of intangible and tangibleassets arising from ordinary activities.

E. Other income and other expensesOther income includes capital gains on disposal of investmentsor activities and capital gains on disposal of tangible assetsarising from activities disposed of or facing restructuring plansas well as any income associated to past disposals.

Other expenses include capital losses on disposal of investmentsor activities and capital losses on disposal of tangible assetsarising from activities disposed of or facing restructuring plansas well as any costs associated to past disposals, restructuringcosts, a portion of pension costs (amortisation of actuarial gainsand losses, unrecognised prior service cost and impacts ofcurtailments and settlements) and major impairments of assets.


F. Financial income and expensesFinancial income and expenses include:• interest charges and income relating to the net consolidated

debt which consists of bonds, the liability component ofcompound instruments, other borrowings including lease-financing liabilities and cash and cash equivalents;

• other expenses paid to financial institutions for financingoperations;

• interest charges and bank fees relating to securitisation ofreceivables;

• the financial component of the pension cost (interest costand expected return on assets);

• dividends received from non-consolidated investments;• foreign exchange gains and losses including hedge

accounting impacts associated to financing transactions.

G. Translation of financial statements denominated inforeign currencies

The individual financial statements of each Group’s foreignsubsidiaries, joint ventures and associates are presented in theprimary economic environment in which the entity operates.Therefore the functional currency of the Group’s foreignsubsidiaries is the applicable local currency.

For the purpose of the consolidated financial statements, theresults and financial position of each entity are expressed ineuro, which is the functional currency of the Group and thepresentation currency for the consolidated financial statements.Assets and liabilities of foreign subsidiaries located outside theeuro zone are translated into euros at the period end rate ofexchange, and their income statements and cash flow statementsare converted at the average rate of exchange for the period.The resulting translation adjustment is included as a componentof shareholders’ equity.

Goodwill and fair value adjustments arising on the acquisitionof a foreign operation are treated as assets and liabilities of theforeign operation and translated at the closing rate.

H. Foreign currency transactionsForeign currency transactions are initially recognised by applyingto the foreign currency amount the spot exchange rate between thefunctional currency of the reporting unit and the foreign currencyat the date of the transaction. Units of currency held and assets andliabilities to be received or paid resulting from those transactionsare remeasured at closing exchange rates at the end of eachreporting period. Realised exchange gains or losses at date ofpayment as well as unrealised gains or losses deriving fromremeasurement are recorded in the income statement, withinincome from operations when they relate to operating activitiesor within financial income or expense when they relate to financingactivities.

Since the Group is exposed to foreign currency volatility, it takessignificant levels of forward cover relating to this exposure.These derivatives are recognised on the balance sheet at fairvalue at the closing date.

Providing that the relationships between the foreign currencyexposure and the related derivatives are qualifying relationships,the Group uses the specific accounting treatments designatedas hedge accounting.

A relationship qualifies for hedge accounting if, at the inceptionof the hedge, it is formally designated and documented and ifit proves to be highly effective throughout the financial reportingperiods for which the hedge was initially designated.

Hedging relationships could be of three types:• cash flow hedges in case of hedge of the exposure to

variability of cash flows attributable to highly probable forecasttransactions;

• fair value hedge in case of hedge of the exposure attributableto recognised assets, liabilities or firm commitments;

• hedge of net investment in foreign subsidiaries.

Cash flow hedge Due to the strict criteria defined by the IFRS, cash flow hedgeis only adopted by the Group for a very limited number ofrelationships, which are expected to turn into firm orders in avery short-term period.


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When cash flow hedge accounting applies, the portion of thegain or loss on the hedging instrument that is determined tobe an effective hedge is recognised directly in equity. When theforecast transaction results in the recognition of a monetaryitem, the amounts previously recognised directly in equity arereclassified to the income statement.

Fair value hedgeThe Group applies fair value hedge accounting to all effectivehedge relationships where the exposure is attributable torecognised assets, liabilities or firm commitments.

When fair value hedge accounting applies, changes in thefair value of derivatives and changes in the fair value of hedgeditems are both recognised in the income statement and offseteach other, up to the effective portion of the gain or loss on thehedging instrument.

Hedge of net investment in foreign subsidiariesIn this situation, the portion of the gain or loss on the hedginginstrument that is determined to be an effective hedge isrecognised directly in equity as “foreign currency translationadjustment”. This amount is reclassified to the income statementon disposal of the investment.

Whatever the type of hedge, the ineffective portion of thehedging instrument is recognised in the income statement.

Realised and unrealised exchange gains and losses on hedgeditems and hedging instruments are recorded within incomefrom operations when they relate to operating activities orwithin financial income or expense when they relate to financingactivities.

Sales and costs resulting from commercial contracts arerecognised at spot rate at inception of hedge throughout the lifeof the related commercial contracts, provided that thecorrespondent hedging relationships keep on qualifying forhedge accounting.

The Group also uses export insurance contracts to hedge itscurrency exposure on certain long-term contracts during theopen bid as well as after the award of the contracts. During thebid period, such insurance contracts are not remeasured onthe balance sheet. If the commercial contract is awarded,insurance contracts are accounted for, using a similar treatmentas forward foreign currency exchange contracts.

I. GoodwillGoodwill represents the excess of the cost of acquisition overthe interest in the fair values of assets, liabilities and contingentliabilities acquired in a business combination. Initial estimatesof fair values are finalised within twelve months after the dateof acquisition and any adjustments in these fair values areaccounted for as retroactive adjustments to goodwill. Beyondthis twelve-month period, any adjustment is directly recognisedin the income statement.

Goodwill is not amortised but tested for impairment at leastannually during the second half of the year (see Note 3 L).

J. Intangible assetsIntangible assets include acquired intangible assets (such astechnology, licensing agreements) and internally generatedintangible assets (mainly development costs).

Acquired intangible assetsAcquired intangible assets are measured initially at cost and areamortised on a straight-line basis over their estimated usefullives. These acquired intangible assets are amortised on thestraight-line basis over a period of twenty years in all Sectors dueto the long-term nature of the contracts and activities involved.The amortisation charge is reported in research and developmentexpenses or cost of sales depending on the nature of the asset.

Internally generated intangible assetsResearch expenses are expensed as incurred. Developmentcosts are expensed as incurred unless the project they relate tomeets the following criteria for capitalisation:• the project is clearly defined and its related costs are

separately identified and reliably measured,• the technical feasibility of the project is demonstrated,• the intention exists to complete the project and to use or

sell it,• adequate financial resources are available to complete the

project,• it is probable that the future economic benefits attributable

to the project will flow to the Group.

Development costs capitalised are amortised on a straight-linebasis over the estimated useful life of the development asset. Theamortisation charge is reported in research and developmentexpenses.


K. Property, plant and equipmentProperty, plant and equipment are stated at cost lessaccumulated depreciation and any accumulated impairmentlosses.

The amount initially recognised in respect of an item of property,plant and equipment is allocated to its significant parts. Eachpart represents a component with a specific useful life.

Depreciation is computed using the straight-line method over theestimated useful lives of each component. The useful lives mostcommonly used are the following:

Estimated useful life (in years)

Buildings 20-25Machinery and equipment 7-12Tools, furniture, fixtures and others 3-7

Useful lives are reviewed on a regular basis and changes inestimates, when relevant, are accounted for on a prospectivebasis.

The depreciation expense is recorded in cost of sales, sellingexpenses or administrative expenses, based on the functionof the underlying assets.

Property, plant and equipment acquired through finance leasearrangements or long-term rental arrangements that transfersubstantially all the risks and rewards incidental to ownershipare capitalised. They are recognised at their fair value at theinception of the lease, or, if lower, at the present value of theminimum lease payments. The corresponding liability to thelessor is included in the balance sheet as a financing obligation.Lease payments are apportioned between finance chargesand reduction in the lease obligation so as to achieve a constantrate of interest on the remaining balance of the liability.

Assets held under finance leases are depreciated over theirexpected useful lives on the same basis as owned assets or,where shorter, the term of the relevant lease.

Leases that do not transfer substantially all risks and rewardsincidental to ownership are classified as operating leases.Rentals payable are charged to profit or loss on a straight-linebasis over the term of the relevant lease. Benefits received andreceivable as an incentive to enter into an operating lease arealso spread on a straight-line basis over the lease term.

L. Impairment of goodwill, tangible and intangibleassets

Goodwill, intangible assets having an indefinite useful life andintangible assets not yet available for use are tested forimpairment annually or when there exist indications that theymay be impaired.

Tangible and intangible assets having a definite useful life aretested for impairment only if there exist indications of impairment.

The impairment test methodology is based on a comparisonbetween the recoverable value of each of the asset with itsnet carrying value. The recoverable amount is the higher offair value less costs to sell and value in use. The recoverablevalue of an asset is individually assessed unless the asset doesnot generate cash inflows independent of those from otherassets or groups of assets. These groups of assets are designatedas cash-generating units.

With respect to goodwill and internally generated or acquiredtechnology, the identified cash-generating units are the reportablesegments as detailed in Note 25.

The valuation performed is based upon the Group’s internalthree-year business plan prepared as part of its annual budgetexercise at Sector level. Cash flows beyond this period areestimated using a steady or declining growth rate for thesubsequent years. The recoverable amount is the sum of thediscounted cash flows and of the discounted terminal residualvalue. Discount rates are determined using the weighted averagecost of capital of each Sector.

Recoverable values are significantly impacted by estimates offuture prices of products and services, the evolution of costs,economic trends in the local and international sector, theexpectations on long-term development of emerging marketsand other factors. They also depend on the discount rates andperpetual growth rates used.


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If the recoverable amount of an asset is estimated to be less thanits carrying amount, the carrying amount is reduced to itsrecoverable amount and the impairment loss is recognisedimmediately in the income statement.

In case of impairment loss attributable to a cash-generatingunit, the impairment loss is allocated first to reduce the carryingamount of any goodwill allocated to the unit and then to theother non-current assets of the unit pro rata on the basis of thecarrying amount of each asset in the unit. The impairment lossis immediately recognised in the income statement.

An impairment loss recognised for goodwill is not reversedin a subsequent period.

When an impairment loss not allocated to goodwill subsequentlyreverses, the carrying amount of the asset (cash-generatingunit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does notexceed the carrying amount that would have been determined,had no impairment loss been recognised for the asset(cash-generating unit) in prior years. A reversal of an impairmentloss is recognised immediately in the income statement.

M. Financial assetsFinancial assets include loans and deposits, investments, debtsecurities, derivative financial instruments with a positive markedto market and receivables.

Loans and depositsLoans are initially measured at their fair value, plus directlyattributable transaction costs and are subsequently measuredat amortised cost using the effective interest rate method.

Deposits are reported as financial assets when their initialmaturity is more than three months and as cash and cashequivalents in case of demand deposits or when the initialmaturity is less than three months.

If there is any indication that those assets may be impaired,they are reviewed for impairment. Any difference between thecarrying value and the impaired value (net realisable value) isrecorded as a financial expense. The impairment loss can bereversed if the value is recovered in the future. In that case,the reversal of the impairment loss is reported as a financialincome.

Investments and debt securitiesInvestments in non-consolidated companies are designated asavailable-for-sale financial assets under IAS 39 classification.They are initially measured at their fair value, plus directlyattributable transaction costs and subsequently measured atfair value.

The fair value of listed securities corresponds to the marketvalue at the balance sheet date. A valuation model is used incase of unlisted securities. Changes in fair value are directlyrecognised in shareholders’ equity until the security is disposedof or is determined to be impaired. On disposal or in case ofsignificant or prolonged decline in the fair value, the cumulativegain or loss previously recognised in equity is included in theprofit or loss for the period. Impairment losses recognised inprofit and loss for an investment in an equity instrument are notreversed through profit and loss. Conversely, if, in a subsequentperiod, the fair value of an investment in a debt instrumentclassified as available-for-sale increases and the increase canbe objectively related to an event occurring after the impairmentloss is recognised in profit or loss, the impairment loss is reversedwith the amount of the reversal recognised in profit or loss.

Investments in non-consolidated companies, whose fair valuecannot be determined reliably, are measured at cost. Anyimpairment loss recognised for such investment is not reversedin a subsequent period, except when disposed of.

All debt securities that the Group has the expressed intention andability to hold to maturity are designated as held-to-maturityfinancial assets under IAS 39 classification. They are thereforemeasured at amortised cost using the effective interest ratemethod, less any impairment loss recognised to reflect amountsexpected not to be recoverable. An impairment loss isrecognised in profit or loss when there is objective evidence thatthe asset is impaired and is measured as the difference betweenthe investment’s carrying value and the present value of theestimated future cash flows discounted at the effective interestrate computed at initial recognition. Impairment losses arereversed through profit and loss in subsequent periods when anincrease in the investment’s recoverable amount can be relatedobjectively to an event occurring after the impairment wasrecognised.

Marketable securities are securities held for trading which cannotbe considered as cash and cash equivalents (see Note 3 O).


They are designated as financial asset at fair value throughprofit or loss under IAS 39 classification. Changes in fair valueare therefore reported as financial income or expense.

Derivative financial instrumentsDerivative financial instruments are recognised and remeasuredat fair value (see Note 3 H for foreign currency hedginginstruments and Note 3 S for interest rate hedging instruments).

ReceivablesReceivables are initially recognised at fair value, which in mostcases is represented by the nominal value. If there is anyindication that those assets may be impaired, they are reviewedfor impairment. Any difference between the carrying value andthe impaired value (net realisable value) is recorded withinincome from operations. The impairment loss can be reversedif the value is recovered in the future. In that case, the reversalof the impairment loss is reported within income from operations.

N. InventoriesRaw materials and supplies, work in progress and finishedproducts are stated at the lower of cost, using the weightedaverage cost method, or net realisable value. Net realisablevalue is the estimated selling price in the ordinary course ofbusiness, less the estimated costs of completion and sellingexpenses. Inventory cost comprises direct material and, whereapplicable, direct labour costs and those overheads that havebeen incurred in bringing the inventories to their existing locationand condition.

O. Cash and cash equivalentsCash and cash equivalents consist of cash and highly liquidinvestments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value.

Bank overdrafts, which are repayable on demand, form anintegral part of the cash management and are therefore includedas a component of cash and cash equivalents.

P. TaxationDeferred taxes are calculated for each taxable entity for temporarydifferences arising between the tax value and book value of assetsand liabilities and are accounted for using the balance sheet

method. Deferred tax liabilities are generally recognised for alltaxable temporary differences and deferred tax assets arerecognised to the extent that it is probable that taxable profits willbe available against which deductible temporary differences canbe utilised. The carrying amount of deferred tax assets is reviewedat each balance sheet date.

Deferred tax is calculated at the tax rates that are expectedto apply in the period when the liability is settled or the assetrealised.

Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current taxliabilities and when they relate to income taxes levied by the sametaxation authority and the Group intends to settle its current taxassets and liabilities on a net basis.

Deferred tax liabilities are recognised for taxable temporarydifferences arising on investments in subsidiaries and associates,and investments in joint ventures, except where the Group is ableto control the reversal of the temporary difference and it is probablethat the temporary difference will not reverse in the foreseeablefuture.

Deferred tax is charged or credited to profit or loss, except whenit relates to items charged or credited directly to equity, in whichcase the deferred tax is also dealt with in equity.

Q. ProvisionsAs long as a construction contract or a long-term service agreementis in progress, obligations attributable to such a contract are takeninto account in the assessment of the margin to be recognisedand are therefore reported within the accounts “Constructioncontracts in progress, assets” or “Construction contracts in progress,liabilities”.

At completion date, such obligations are recognised as distinctliabilities when they satisfy the following criteria:• the Group has a present legal or constructive obligation as

a result of a past event;• it is probable that an outflow of economic resources will be

required to settle the obligation; • and such outflow can be reliably estimated.

These liabilities are presented as provisions when they are ofuncertain timing or amount. When this uncertainty is dispelled,they are presented as trade payables or other current liabilities.


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Obligations resulting from transactions other than constructioncontracts and long-term service agreements are directlyrecognised as provisions as soon as the criteria above describedare met.

Where the effect of the time value of money is material,provisions are measured at their present value.

Restructuring costs are accrued when reduction or closure offacilities, or a programme to reduce the workforce is announcedand when management is committed with the concernedemployees and when related costs are determined. Such costsinclude employees’ severance and termination benefits, estimatedfacility closing costs and write-off of assets.

R. Financial liabilitiesFinancial liabilities include bonds and borrowings, derivativefinancial instruments with a negative marked to market andpayables.

Bonds and borrowings Bonds and interest-bearing bank loans are initially recognisedat fair value, less any transaction costs directly attributable to theissuance of the liability. Bond issuance costs and premiumsare not included in the initial cost, but are taken into account incalculating amortised cost under the effective interest ratemethod. These financial liabilities are subsequently measured atamortised cost, using the effective interest rate method.

Renegotiations of the terms of borrowings and similar operationsare recorded as an extinction of the former liability withrecognition of a new liability only if there are substantialdifferences between the old and new terms. When this is thecase, the costs borne for renegotiation are included in thefinancial expenses for the period when the negotiation tookplace, as a component of the gain or loss on extinction of theformer liability.

Certain financial instruments (such as bonds reimbursable withshares) include both a financial debt component and ashareholders’ equity component. Those components are classifiedseparately as financial debt and equity instruments.

The measurement of the debt component at date of issuance isrepresented by the present value of future cash flows for asimilar instrument with the same conditions (maturity, cash flows),but without an option or an obligation for conversion orredemption in shares. This liability is subsequently remeasuredat amortised cost, using the effective interest rate.

The equity component is the residual amount after deducting fromthe fair value of the instrument as a whole the amount separatelydetermined for the liability component.

Derivative financial instruments Derivative financial instruments are recognised and remeasured atfair value (see Note 3 H for foreign currency hedging instrumentsand Note 3 S for interest rate hedging instruments).

PayablesPayables are initially recognised at fair value, which in mostcases is represented by the nominal value.

S. Interest rate derivativesThe Group may enter into hedges for the purposes of managingits exposure to movements in interest rates. Derivatives arerecognised on the balance sheet at fair value at the closing date.

Providing that the relationships between the interest rate exposureand the related derivatives are qualifying relationships, thegroup uses the specific accounting treatments designated ashedge accounting.

Fair value or cash flow hedge accounting is applied to fixed andfloating rate borrowings respectively.

In the case of fair value hedge relationships, the remeasurementof the fixed rate borrowing is offset in the income statementby the movement in the fair value of the derivative.

In the case of cash flow hedge relationships, the change infair value of the derivative is recognised directly in equity.When the forecast transaction results in the recognition of amonetary item, the amounts previously recognised directly inequity are reclassified to the income statement.


T. Share-based paymentsThe Group issues equity-settled and cash-settled share-basedpayments to certain employees.

Equity-settled share-based paymentsEquity-settled share-based payments are measured at fair value(excluding the effect of non market-based conditions) at thedate of grant. The fair value determined at the grant date of theequity-settled share-based payments is based on Group’s estimateof the shares that will eventually vest and adjusted for the effectof non market-based vesting conditions. It is expensed in incomefrom operations with a counterpart in equity. Fair value ismeasured using the binomial pricing model.

In accordance with IFRS 2, only options granted after7 November 2002 and not fully vested at 1 January 2005are measured and accounted for as employee costs.

Cash-settled share-based paymentsFor cash-settled share-based payments, a liability equal to theportion of the goods or services received is recognised at thecurrent fair value determined at each balance sheet date.

The Group may also provide employees with the ability topurchase the Group’s ordinary shares at a discount to thecurrent market value. In that case, the Group records anexpense, based on its estimate of the discount related to sharesexpected to vest.

U. Employee benefitsThe Group provides various types of post-employment and otherlong-term benefits to its employees. The type of benefits offeredto an individual employee is related to local legal requirementsas well as operating practices of the specific subsidiaries.

Termination benefits are generally lump sum payments basedupon an individual’s years of credited service and annualisedsalary at retirement or termination of employment.

Defined benefit plansFor single employer defined benefit plans, the fair value ofplan assets is assessed annually. The Group uses the ProjectedUnit Credit Method to determine the present value of its definedbenefit obligations and the related current and past servicecosts. This method considers best estimate actuarial assumptionsincluding the probable future length of the employees’ service,the employees’ final pay, the expected average life span andprobable turnover of beneficiaries. Most defined benefit pension

liabilities are funded through separate pension funds. Pensionplan assets related to funded plans are invested mainly in equityand debt securities. Other supplemental defined benefit pensionplans sponsored by the Group for certain employees are fundedfrom the Group’s assets as they become due.

The Group also participates in multi-employer defined benefitplans, which are accounted for as defined contribution plans(see below), mainly in the United States and in Canada.

In addition, the Group provides post-retirement benefits (mainlypost-retirement medical benefits plans) to a number of retiredemployees in certain countries principally in the United Statesunder plans which are predominantly unfunded.

The Group reviews annually for each year-end plan assets andobligations. Differences between actual and expected returnson assets together with the effects of any change in actuarialassumptions are assessed. If this cumulative difference exceeds10% of the greater of the defined benefit obligations or themarket value of plan assets, the resulting unrecognisedgains/losses are amortised over the average remaining servicelife of active employees.

Defined contribution plansFor defined contribution plans, the Group pays contributionsto independently administered funds at a fixed percentageof employees’ pay. The related pension cost, recorded asincurred in the income from operations, represents thecontributions paid by the Group to these funds.

Other long-term benefitsThe Group also provides employee benefits that are consideredas other long-term employee benefits such as jubilee awards anddeferred compensation schemes. The accounting method issimilar to the method used for defined benefits, except thatprior service cost and actuarial gains/losses are recognisedimmediately and no corridor is applied.

The estimated cost of providing benefits to employees is accruedduring the years in which the employees render services. Inthe income statement, the service cost element of pensionbenefit costs is included in the income from operations. Theamortisation of actuarial net loss (gain) as well as unrecognisedprior service cost and the impacts of curtailments and settlementsare recognised in other expenses. Financial elements of thepension benefit cost such as interest cost and asset returns areincluded in financial income (expenses).


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V. Assets held for sale and discontinued operationsNon-current assets and disposal groups are classified as held forsale if their carrying amount will be recovered through a saletransaction rather than through continuing use. This condition isregarded as met only when the sale is highly probable and theasset (or disposal group) is available for immediate sale in itspresent condition. Management must be committed to the sale,which should be expected to qualify for recognition as a completedsale within one year from the date of classification.

Non-current assets (and disposal groups) classified as held forsale are measured at the lower of the assets’ previous carryingamount and fair value less costs to sell and are not amortisedor depreciated anymore.

A discontinued operation is a component of the Group that eitherhas been disposed of, or is classified as held for sale, and:• represents a separate major line of business or geographical

area of operations;• is part of a single co-ordinated plan to dispose of a separate

major line of business or geographical area of operations; or• is a subsidiary acquired exclusively with a view to resale.

Amounts included in the income statement and cash flowstatement related to these discontinued operations are presentedseparately for the current year and all prior years presented inthe financial statements if they are material.

W. Earnings per shareBasic earnings per share are computed by dividing the periodnet profit (loss) by the weighted average number of outstandingshares during the period.

Diluted earnings per share are computed by dividing the periodnet profit (loss), adjusted by the financial cost (net of tax) of dilutiveinstruments, by the weighted average number of shares outstandingplus the effect of any dilutive instruments.

X. Accounting standards, amendmentsand interpretations published but not yet comeinto force/endorsed by the European Union

The Group has not opted for an early application of thestandards and interpretations issued by the IASB, not yetoperative for the preparation of the financial statements for theyear ended 31 March 2006:

Standards and interpretation becoming effective for annualperiods beginning on or after 1 January 2006

• Amendment to IAS 19 – “Employee benefits: actuarial gains andlosses, group plans and disclosures”.The Group has not yet decided whether or not to use the optionproviding for the elimination of the corridor method and for therecognition of actuarial gains and losses directly in equity.Additional requirements regarding disclosures will be fulfilled.

• IAS 21 revised: “Effect of changes in foreign exchange rates”.This revision clarifies the requirements of IAS 21 regarding anentity’s investment in a foreign operation.An earlier application of this revision would have had nosignificant impact on the consolidated financial statements.

• Amendment to IAS 39 on fair value option.According to this amendment, in limited circumstances, anentity may designate a financial asset or liability as beingat fair value through the income statement on initialrecognition. The group does not expect any significant impactdue to the enforcement of this amendment.

• IFRIC 4 “Determining whether an arrangement contains alease”.IFRIC 4 gives guidance on determining whether arrangementsthat do not take the legal form of a lease should, nonetheless,be accounted for in accordance with IAS 17 “Leases”.To date, the Group has not assessed the possible impactsof this interpretation.


Interpretation becoming effective for annual periodsbeginning on or after 1 March 2006

• IFRIC 7 “Applying the restatement approach under IAS 29Financial Reporting in Hyperinflationary Economies”.The Group does not expect the implementation of thisinterpretation to have a material impact.

Interpretation becoming effective for annual periodsbeginning on or after 1 May 2006

• IFRIC 8 “Scope of IFRS 2 Share-based payments”.The Group does not anticipate any material impact fromclarifications made with respect to the scope of IFRS 2.

Standards becoming effective for annual periods beginningon or after 1 January 2007

• IFRS 7 “Financial instruments disclosures”.• Amendment to IAS 1 “Capital disclosures”.

The Group has not yet decided whether it will apply thesenew disclosure requirements in the financial statements for thefinancial year ended 31 March 2007 or in the financialstatements for the following financial year.

The following standards and interpretations effective for annualperiods beginning on or after 1 January 2006 are not applicableto the Group’s activities:• IFRS 4 revised “Insurance contracts”.• Amendment of IAS 39 related to financial guarantee contracts.• IFRS 6 “Exploration for and evaluation of mineral resources”.• IFRIC 5 “Rights to interests arising from decommissioning.

Restoration and environmental rehabilitation funds”.• IFRIC 6 “Liabilities arising from participating in a specific

market – Waste electrical and electronic equipment”.


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Y. Exchange rates used for the translation of main currencies

At 31 March 2006 At 31 March 2005(€ for 1 monetary unit) Average Closing Average Closing

British pound 1.465784 1.435956 1.463325 1.452433Swiss franc 0.643819 0.632871 0.650036 0.645745US dollar 0.825792 0.826173 0.791901 0.771367Brazilian real 0.360145 0.377223 0.278889 0.287584Canadian dollar 0.694713 0.710026 0.621966 0.635445Australian dollar 0.618726 0.588339 0.585581 0.596552

NOTE 4. IMPACTS OF FIRST-TIME ADOPTION OF IFRS


A. Options taken at first-time adoptionof IFRS at 1 April 2004 (transition date)

The 2004/05 consolidated financial statements have beenrestated in accordance with IFRS 1 – First-time Adoption ofInternational Financial Reporting Standards, based on theIAS/IFRS applicable for annual periods beginning on or priorto 1 April 2005.

To prepare the opening IFRS balance sheet at 1 April 2004and the 2004/05 restated closing balance sheet andincome statement, the Group has applied the followingoptions/exemptions as authorised by IFRS 1:

Employee benefitsThe Group has elected to adopt the complete retrospectiveapplication of IAS 19.

Business combinationsThe Group has elected not to apply IFRS 3 retrospectively to pastbusiness combinations.

Financial instrumentsThe Group has elected not to restate comparative information forIAS 32-39 standards. Comparative information does not complywith these standards in the first year of transition 2004/05.

Fair value or revaluation at deemed cost of property, plantand equipment net and other intangible assets net The Group has decided not to apply the exemption providedfor in IFRS 1, allowing fair value of property, plant andequipment and intangible assets to be used as their deemed costin the IFRS opening balance sheet at 1 April 2004. Therefore,the option chosen by the Group has no impact on equityin the IFRS opening balance sheet at 1 April 2004.

Cumulative translation differencesThe cumulative translation difference at 1 April 2004 has beenset to zero through the consolidated reserves, leaving theshareholder’s equity unchanged. The gain or loss on asubsequent disposal of any foreign operation will thereforeexclude translation differences that arose before 1 April 2004and include later translation differences.

Share-based paymentsThe Group has elected to apply IFRS 2 standard from 1 April2004 for all plans granted after 7 November 2002 and notfully vested at 1 January 2005.

The effects of the transition to IFRS are described in Note 34.

B. First-time application of IAS 32-39 and IFRS 5standards at 1 April 2005

As permitted by IFRS 1, the comparative information relatedto the year ended 31 March 2005 have been preparedin accordance with all IFRS standards and interpretations effectiveand endorsed by the European Union for annual periods beginningon or prior to 1 April 2005, with the exception of:• IFRS 5 “ Non current assets held for sale and discontinued

operations”.• IAS 32 “Financial instruments: disclosure and presentation”.• IAS 39 “Financial instruments: recognition and measurement”.




These three standards have been adopted from 1 April 2005 and their impact on the balance sheet is presented below:

At 31 March At 1 April(in € million) 2005 IAS 32/39 IFRS 5 2005

AssetsTotal non-current assets 9,606 2 (650) 8,958Out of which- Other non-current assets, net 1,935 5 (650) 1,290- Deferred taxes 1,207 (3) - 1,204

Total current assets 9,475 139 13 9,627Out of which- Trade receivables, net 2,392 (69) - 2,323- Other current assets, net 1,424 208 13 1,645

Assets held for sale - - 637 637

Total assets 19,081 141 - 19,222

LiabilitiesShareholders’ equity and minority interests 1,466 117 - 1,583

Bonds reimbursable with shares 133 (133) - -

Total non-current liabilities 4,844 (46) (637) 4,161Out of which- Non-current financial debt 3,281 (46) (637) 2,598

Total current liabilities 12,638 203 - 12,841Out of which- Current financial debt 486 (3) - 483- Construction contracts in progress, liabilities 5,484 36 - 5,520- Trade payables 3,437 (121) - 3,316- Other current liabilities 1,589 291 - 1,880

Liabilities directly associated with assets held for sale - - 637 637

Total liabilities 19,081 141 - 19,222

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Recognition of equity and debt components of bondsreimbursable with shares “ORA”Bonds reimbursable with shares issued by the Group duringthe year ended 31 March 2004 constitute a compoundfinancial instrument, which, in accordance with IAS 32 mustbe broken down between its equity component and its debtcomponent.

Remeasurement of financial debt using effective interest rateUnder French GAAP, bank fees related to debt issues werebooked as an asset in the balance sheet and amortised on astraight-line basis through financial result over the life of thedebt instrument. Under IFRS, such fees are booked as a reductionof financial debt and amortised over the life of the debtinstrument by the effective interest method.


Impact of application of IAS 32-39

The impact of the application of the IAS 32-39 standards is detailed as follows:

Immediate Recognition Remeasurement recognition

of equity of financial in equity and debt debt using of transaction Adoption Reclassi-

components effective costs on equity of hedge fication of(in € million) of ORA interest rate instruments accounting investments IAS 32/39

AssetsTotal non-current assets (1) - 3 (5) 5 2Out of which- Other non-current assets, net - - - - 5 5- Deferred taxes (1) - 3 (5) - (3)

Total current assets (3) (60) (8) 215 (5) 139Out of which- Trade receivables, net - - - (69) - (69)- Other current assets, net (3) (60) (8) 284 (5) 208

Total assets (4) (60) (5) 210 - 141

LiabilitiesCapitalPaid-in capital 117 - (5) - - 112Retained earnings 4 (1) - 2 - 5

Shareholders’ equity and minority interests 121 (1) (5) 2 - 117

Bonds reimbursable with shares (133) - - - - (133)

Total non-current liabilities 10 (56) - - - (46)Out of which- Non-current financial debt 10 (56) - - - (46)

Total current liabilities (2) (3) - 208 - 203Out of which- Current financial debt (2) (1) - - - (3)- Construction contracts in progress, liabilities - - - 36 - 36- Trade payables - - - (121) - (121)- Other current liabilities - (2) - 293 - 291

Total liabilities (4) (60) (5) 210 - 141


Immediate recognition in equity of transaction costs on equityinstrumentsUnder French GAAP, transaction costs related to equityinstruments were booked as an asset in the balance sheet andamortised on a straight-line basis over five years.

Under IFRS, such costs are debited directly to equity.

The negative impact on equity represents the portion of costs notyet amortised under French GAAP at 31 March 2005.

Adoption of hedge accountingHedge accounting rules elected by the Group are described inNote 3 H of the present notes.

Following the adoption of fair value hedge accounting forforeign currency hedging relationships, current assets andliabilities existing under French GAAP have been remeasuredin accordance with the new rules and the following new itemshave been recognised:• derivative instruments: additional other current assets and liabilities

amounting to €264 million and €192 million respectively;• changes in the fair value of unrecognised firm commitments:

additional other current assets and liabilities amounting to€40 million and €148 million respectively.

Reclassification of investmentsA portion of securities previously classified as short-terminvestments under French GAAP has been reclassified tonon-current assets.

Impact of application of IFRS 5At 1 April 2005, assets and liabilities attributable to leases oftrains and associated equipment of the Transport Sector havebeen classified as group of assets held for sale and werepresented separately in the balance sheet as they were expectedto be sold within twelve months. These leases relate to a 1995agreement with a major European metro operator followingwhich the Group leases trains and associated equipment for aperiod of 30 years starting 1997 and makes them availableto this operator.

The proceeds of disposal are expected to exceed the netcarrying amount of the relevant assets and liabilities and,accordingly, no impairment loss has been recognised on theclassification of these operations as held for sale.

The main changes in the scope of consolidated companies forthe years ended 31 March 2005 and 31 March 2006 are thefollowing:• During the year ended 31 March 2005, following the

obtaining of local regulatory approvals, an agreement forthe disposal of certain non-significant entities of the former T&DSector (disposed of during the year ended 31 March 2004)was signed. On 8 August 2005, the sale of the former T&DIndian units was completed after the signature of a sharepurchase agreement, which occurred in April 2005. Theseunits have been deconsolidated from 1 August 2005.

• On 24 May 2005, a sale agreement related to the Flow-Systems Business was signed. On 18 August 2005, theGroup completed the sale and the Business has beendeconsolidated from that date.

• On 2 June 2005, the Group signed a binding agreement forthe sale of its transport operations in Australia and New Zealand.On 16 September 2005, the sale was completed and thisBusiness has been deconsolidated from 1 September 2005.

• On 30 September 2005, the Group signed a bindingagreement to sell its Power Conversion activities to BarclaysPrivate Equity. On 10 November 2005, the Group completedthe sale and these activities have been deconsolidated from1 November 2005.

• On 24 October 2005, ALSTOM and Austrian Energy andEnvironment AG have signed binding agreements for the saleof the Industrial Boilers Business, part of the Power Turbo-Systems / Power Environment Sector. On 30 November2005, the sale of this Business in Australia and Thailandwas completed and these activities have been deconsolidatedfrom that date.


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NOTE 5. CHANGES IN CONSOLIDATED COMPANIES

NOTE 6. RESEARCH AND DEVELOPMENT EXPENSES


Research and development expenses (364) (405)Of which- Capitalisation of developments costs (see Note 12) 87 70- Amortisation of development costs (see Note 12) (43) (83)- Amortisation of acquired technology (59) (59)

Research and development expenses before capitalisation and amortisation (349) (333)


NOTE 7. OTHER INCOME AND OTHER EXPENSES


Capital gain on disposal of investments/activities (1) 221 59Capital gain on disposal of fixed assets 12 8

Other income 233 67

Capital loss on disposal of investments/activities (1) (89) (101)Restructuring costs (2) (80) (350)Pension costs (3) (61) (47)

Other (4) (22) (91)

Other expenses (252) (589)


(1) In the year ended 31 March 2006, the capital gain mainly relates to the disposal of Transport activities in Australia and New Zealand, the sale of the PowerConversion activities and the sale of the Industrial Boilers Business in Australia.The capital loss relates to the disposal of former T&D Indian units and the FlowSystems Business. It also includes costs incurred or accruals and claim adjustments onpast disposals.In the year ended 31 March 2005, capital gains include the gain on disposal of activities including the freight locomotive Business in Spain. Losses on disposal includecosts and provisions on guarantees, claims and price adjustments on past disposals.

(2) In the year ended 31 March 2006, restructuring costs relate to minor plans and include €7 million of write-off of assets. In the year ended 31 March 2005, it corresponds to additional plans accrued for a net amount of €335 million relating to the downsizing of activities including closureof plants or activities and reduction in employees mainly in the Power Turbo-Systems / Power Environment and Transport Sectors, and to €15 million of write-off of assets.

(3) Amortisation of actuarial gains and losses and unrecognised prior service cost, plus curtailments and settlements – see Note 21 “Retirement, termination and post-retirementbenefits”.

(4) In the year ended 31 March 2005, the other expenses include costs incurred on Marine vendor financing which were covered by a release of provision in the MarineSector, treated as discontinued operations retrospectively at 31 March 2005 (see Note 10).





NOTE 8. FINANCIAL INCOME (EXPENSES)


Net interest expenses (1) (122) (198)Securitisation expenses (7) (19)Foreign currency gain (loss) 30 (23)Pension costs (see Note 21) (15) (16)Other financial income (expenses) (2) (108) (125)

Financial income (expenses) (222) (381)


(1) Of which interests related to obligation under finance lease of €14 million and €13 million for the years ended 31 March 2006 and 31 March 2005, respectively.

(2) Other financial income (expenses), net included fees and commitment fees paid on guarantees, syndicated loans and other financing facilities of €75 million and €105 millionfor the years ended 31 March 2006 and 31 March 2005, respectively.

NOTE 9. TAXATION

A. Analysis by nature


Current income tax charge (155) (18)Deferred income tax (charge) credit 30 (145)

Income tax charge (125) (163)

Effective tax rate 40.7% -


B. Effective income tax rateThe effective income tax rate can be analysed as follows:

Year ended 31 March (in € million) 2006 % 2005* %

Pre-tax income (loss) from continuing operations 505 (432)Pre-tax loss from discontinued operations (198) (32)Statutory income tax rate of the parent company 34.43% 34.93%

Expected tax (charge) credit (106) 162

Impact of:- difference in rate of taxation 45 (14.7) 13 2.8- reduce taxation of capital gain (non-recognised losses on disposals) - - (23) (5.0)

- non-recognition of deferred tax assets and change in estimate of tax assets and liabilities (18) 5.9 (228) (49.1)

- tax rate change impact on deferred tax balance (14) 4.6 - -- other permanent differences (32) 10.4 (87) (18.8)

Income tax charge (125) (163)

Effective tax rate 40.7% -


The Group consolidates most of its country operations for tax purposes, including France, the United Kingdom, the United Statesand Germany.

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The Group is satisfied as to the recoverability of the deferred taxassets, net at 31 March 2006 of €1,210 million, on the basis ofan extrapolation of the three-year business plan, approved by theBoard of Directors, which shows a capacity to generate a sufficient

C. Deferred taxationThe deferred tax assets and liabilities are made up as follows:

Deferred Changes Translationincome tax in scope adjustments

At 31 March At 1 April (charge) of and other At 31 March(in € million) 2005* 2005** credit consolidation changes 2006

Accelerated depreciation 78 78 4 (2) 2 82Intangible assets 343 343 (20) - (9) 314Profit-sharing, annual leave and pension accrualnot yet deductible 109 109 (6) (5) 4 102Provisions and other expenses not currently deductible 482 482 95 (6) (5) 566Contract provisions taxed in advance 55 55 (8) - 3 50Tax loss carry forwards 1,504 1,504 70 (38) (61) 1,475Other 112 121 61 (1) 26 207

Total gross deferred tax assets 2,683 2,692 196 (52) (40) 2,796

Unrecognised deferred tax assets (920) (920) (117) 39 79 (919)

Netting by tax grouping or by legal entity (556) (568) (60) - - (628)

Deferred tax assets 1,207 1,204 19 (13) 39 1,249

Gross deferred tax liabilities (615) (627) (49) 4 5 (667)

Netting by tax grouping or by legal entity 556 568 60 - - 628

Deferred tax liabilities (59) (59) 11 4 5 (39)

Net deferred assets 1,148 1,145 30 (9) 44 1,210


** Amended balance sheet at 1 April 2005 pursuant to the first-time application of IAS 32-39 and IFRS 5 standards (see Note 4 B).

level of taxable profits to recover its net tax loss carry forwardand other net timing differences over a period of four to twelveyears, this reflecting the long-term nature of the Group’s operations.

The basis of tax losses carry forward after valuation allowanceamounts to €1,720 million; of this amount, €783 million expirewithin 15 years and €937 million are not subject to expiry.The aggregate losses incurred over the last four years have ledto a detailed review by jurisdiction of the deferred tax assets.This review took into account current and past performance, length

of carry back, carry forward and expiry periods, existing contractsin the order book, budget and three-year plan. This review led to a valuation allowance on deferred tax assets of €919 millionat 31 March 2006 (€920 million at 31 March 2005). Most ofthe deferred tax assets currently subject to valuation allowanceremain available to be utilised in the future.

The basis of tax loss carry forward by maturity is as follows:

At 31 March (in € million) 2006 2005

Expiring within 1 year 24 362 years 33 263 years 184 344 years 218 1825 years and more 1,080 1,532Not subject to expiry 2,730 2,679

Total 4,269 4,489



NOTE 10. DISCONTINUED OPERATIONS

The operations of the Marine Sector have been classified as discontinued operations in the year ended 31 March 2006 andretrospectively in the year ended 31 March 2005. They are analysed as follows:


Sales 439 607Cost of sales (434) (680)Selling expenses (10) (13)Research and development expenses (3) (3)Administrative expenses (7) (15)Loss from operations (15) (104)Other income (expenses) (187) 89Loss before interest and taxes (202) (15)Financial income (expenses), net 4 (17)

Pre-tax loss (198) (32)

Income tax charge (1) - -

Net loss (198) (32)


(1) Related income tax effects have not been presented as discontinued operations since companies included in the Marine Sector are part of the French tax grouping.

The cash flow statement of the discontinued operations is detailed as follows:


Net cash used in operating activities (199) (204)Net cash provided by (used in) investing activities 84 (10)Net cash provided by (used in) financing activities (103) 13Net effect of exchange rate (2) 3Other changes 5 -

Decrease in cash and cash equivalents (215) (198)


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C. Earnings per share from discontinued operationsFor the year ended 31 March 2006, basic earnings per share forthe discontinued operations is €(1,41) per share (€(0,29)per share for the year ended 31 March 2005) and dilutedearnings per share for the discontinued operations is €(1,39) per

share (€(0,29) per share for the year ended 31 March 2005),based on the loss from discontinued operations of €198 million(€32 million for the year ended 31 March 2005) and thedenominators detailed above for the basic and diluted earningsper share.


NOTE 11. EARNINGS PER SHARE

A. Earnings per share from continuing and discontinued operationsThe calculation of the basic and diluted earnings per share attributable to Group share is based on the following data:

EarningsYear ended 31 March (in € million) 2006 2005*

Earnings for the purposes of basic earnings per share 178 (628)Effect of dilutive potential ordinary shares:- Financial interests related to bonds reimbursable with shares, net of tax 1 -

Earnings for the purposes of diluted earnings per share 179 (628)

Number of shares

Weighted average number of ordinary shares for the purposes of basicearnings per share 140,401,599 108,978,200Effect of dilutive potential ordinary shares:- Stock options (1) 1,434,534 -- Free shares 225,000 -

Weighted average number of ordinary shares for the purposes of diluted earnings per share 142,061,133 108,978,200


(1) Stock options taken into account for the calculation of the dilutive earnings per share only relate to plan 7 (see Note 30), the other plans being out of the money.

B. Earnings per share from continuing operations


Earnings for the purposes of basic earnings per share 178 (628)Less: loss for the year from discontinued operations 198 32

Earnings for the purposes of basic earnings per share from continuing operations 376 (596)

Effect of dilutive potential ordinary shares:- Financial interests related to bonds reimbursable with shares, net of tax 1 -

Earnings for the purposes of diluted earnings per share from continuing operations 377 (596)


The denominators used are the same as those detailed above for both basic and diluted earnings per share.


The valuation supports the Group’s opinion that goodwill is notimpaired.

Had the assessment of the fair value been made with the samegrowth rates and discount rates as at 31 March 2005, noimpairment loss would have had to be recognised.

At 30 September 2005, an assessment of the value of theMarine Sector under the prevailing market conditions has beenperformed, incorporating more conservative assumptions onterms and conditions of future contracts. This assessment ledto an impairment of goodwill for an amount of €2 million andthe residual fixed assets for an amount of €85 million.

At 31 March 2006, all assets of the Marine Sector have beenclassified as assets held for sale (see Note 24).


NOTE 12. GOODWILL AND INTANGIBLE ASSETS, NET

A. Goodwill

Translation Net value adjustments Transfer to Net value

at 31 March Acquisitions/ and other assets held at 31 March (in € million) 2005* Disposals Impairment changes for sale 2006

Power Turbo-Systems / Power Environment 818 (14) - - - 804Power Service 1,991 1 - - - 1,992Transport 526 (3) - 4 - 527Marine 2 - (2) - - -Power Conversion 80 (80) - - - -

Goodwill 3,417 (96) (2) 4 - 3,323

Of whichGross value 3,417 (96) - 4 (2) 3,323

Impairment - - (2) - 2 -


At 31 March 2006, the Group requested a third party expert to provide an independent report as part of its annual impairmenttest for goodwill.

This test compares the fair value of each Sector to its carrying amount.

The main assumptions used to assess the recoverable amounts of goodwill are as follows:

Power Turbo-Systems / Power Environment Power Service Transport

Net carrying amount of goodwill at 31 March 2006 (in € million) 804 1,992 527Value elected as representative of the recoverable value of the CGU fair value fair value fair valueNumber of years over which cash flow estimates are used 3 years 3 years 3 yearsExtrapolation period of cash flow estimates 7 years 7 years 7 yearsLong-term growth rate at 31 March 2006 2.00% 2.00% 2.00%Long-term growth rate at 31 March 2005 1.50% 1.50% 1.50%After-tax discount rate at 31 March 2006 (1) 8.50% 8.50% 8.50%After-tax discount rate at 31 March 2005 (1) 9.50% 9.50% 9.50%

(1) The application of pre-tax discount rates to pre-tax cash flows leads to the same valuation of cash-generating units.

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B. Intangible assets, netCapitalised Acquired

development intangible(in € million) costs assets Total

CostAt 31 March 2005* 436 1,219 1,655Additions/Disposals 87 6 93Translation adjustments and other changes (13) 2 (11)Transfer to assets held for sale - (6) (6)At 31 March 2006 510 1,221 1,731

AmortisationAt 31 March 2005* (135) (298) (433)Additions/Reductions (43) (66) (109)Translation adjustments and other changes 3 - 3Transfer to assets held for sale - 5 5At 31 March 2006 (175) (359) (534)

Carrying amountAt 31 March 2005* 301 921 1,222

At 31 March 2006 335 862 1,197


Acquired intangible assets mainly result from the allocation of the purchase price following the acquisition of ABB’s 50% shareholdingin Power. They are representative of technology and licensing agreements.

NOTE 13. PROPERTY, PLANT AND EQUIPMENT, NET

Translation TransferAt 31 Acquisitions/ Changes in adjustments to assets At 31

March Depreciation/ scope of and other held for March(in € million) 2005* Impairments Disposals consolidation changes sale (2) 2006

Land 146 - (20) (7) - (6) 113Buildings 1,390 23 (53) (47) 8 (148) 1,173Machinery and equipment 2,248 99 (237) (89) (22) (101) 1,898Tools, furniture, fixtures and other 695 90 (177) (47) 13 (23) 551

Gross value 4,479 212 (487) (190) (1) (278) 3,735

Land (9) (10) 1 - 7 6 (5)Buildings (599) (119) 37 18 (7) 143 (527)Machinery and equipment (1,718) (170) 228 72 31 97 (1,460)Tools, furniture, fixtures and other (446) (58) 82 36 (17) 21 (382)

Accumulated depreciation and impairment (1) (2,772) (357) 348 126 14 267 (2,374)

Land 137 (10) (19) (7) 7 - 108Buildings 791 (96) (16) (29) 1 (5) 646Machinery and equipment 530 (71) (9) (17) 9 (4) 438Tools, furniture, fixtures and other 249 32 (95) (11) (4) (2) 169

Net value 1,707 (145) (139) (64) 13 (11) 1,361


(1) The €357 million depreciation includes €85 million impairment of fixed assets attributable to the Marine Sector which have then been transferred to assets held forsale (see Note 12 A).

(2) See Note 24.



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At 31 March 2006 and 31 March 2005, finance leases by nature are as follows:

At 31 March (in € million) 2006 2005*

Land - 2Buildings 169 199Machinery and equipment 22 36Tools, furniture, fixtures and other 18 24

Net value of finance leases 209 261


NOTE 14. EQUITY METHOD INVESTMENTS AND OTHERINVESTMENTS, NET

A. Equity method investmentsSharein net

At 31 March (in € million) 2006 2005 % interest income

Termoeléctrica del Golfo and Termoeléctrica Peñoles 66 66 49.5 -Other 4 4 - (1)

Total 70 70 - (1)

B. Other investments, net2006 2005 2006

At 31 March (in € million) Gross Impairment Net Net % interest

Ballard Power Systems Inc (1) - - - 7 -Birecik Baraj ve Hidroelektrik Santrali Tesis ve Isletme AS (2) - - - 15 -Tramvia Metropolita SA (3) 8 - 8 8 25.35%Tramvia Metropolita del Besos (3) 8 - 8 8 25.35%Other (4) 24 (11) 13 10 -

Total 40 (11) 29 48 -

(1) During the fiscal year ended 31 March 2006, the Group disposed of its 1.8% shareholding in Ballard. At 31 March 2005, the interests in Ballard Power Systems Incwere depreciated to align with the stock price at 31 March 2005 on the Toronto Stock Exchange.

(2) During the fiscal year ended 31 March 2005, the Group signed a sale agreement for its 13.6% shareholding in Birecik Baraj ve Hidroelektrik Santrali Tesis ve Isletme ASfor a consideration close to the net book value but subject to the obtaining of approvals from external parties. These approvals have been obtained subsequent to 31 March 2005.

(3) The remaining 74.65% of interest in these two entities are held by a pool of construction companies having direct control over the companies.

(4) No other investments’ net value exceeds €5 million.

Information on the main other investments at 31 March 2006 is based on the most recent financial statements available and isthe following:

Share in (in € million) Net income net EquityTramvia Metropolita SA 4 9Tramvia Metropolita del Besos 1 8

NOTE 15. OTHER NON-CURRENT ASSETS, NET

At 31 March At 1 April At 31 March(in € million) 2006 2005** 2005*

Deposits securing the Bonding Guarantee Facility (1) 700 700 700Other long-term loans and deposits 91 129 129Long-term rental (2) - - 650Pension assets (see Note 21) 387 374 374Held-to-maturity securities - 5 -Other 72 82 82

Other non-current assets, net 1,250 1,290 1,935



(1) It corresponds to a cash deposit made by the Group with a third party Trustee to secure in the form of remunerated collateral the new Bonding Guarantee Facility Programmeof up to €8 billion implemented during the year ended 31 March 2005 (see Note 26 A (1)) and invested by the Trustee into euro government bonds and/or centralbank securities with a residual maturity of less than 12 months. The release of this collateral will depend on the release of the bonds and guarantees issued under theprogramme.

(2) At 31 March 2005, this non-current asset related to leases of trains and associated equipment to a European metro operator. From 1 April 2005, it is considered asa group of assets held for sale and is therefore reclassified in non-current assets held for sale (see Notes 4 B and 24).

NOTE 16. INVENTORIES, NET


Raw materials and supplies 582 629Work in progress 1,134 1,154Finished products 47 69

Inventories, gross 1,763 1,852

Valuation allowance (275) (198)

Inventories, net 1,488 1,654






NOTE 17. CONSTRUCTION CONTRACTS IN PROGRESS, NET


Construction contracts in progress, assets 2,229 2,601 2,601Construction contracts in progress, liabilities (5,401) (5,520) (5,484)

Construction contracts in progress, net (3,172) (2,919) (2,883)

Contract costs incurred plus recognised profits less recognised losses to date 32,593 33,968 33,968Less progress billings (33,640) (34,994) (34,953)

Construction contracts in progress before advances received from customers (1,047) (1,026) (985)

Advances received from customers (2,125) (1,893) (1,898)

Construction contracts in progress, net (3,172) (2,919) (2,883)



NOTE 18. TRADE RECEIVABLES, NET


Trade receivables, gross 2,369 2,463 2,532Valuation allowance (78) (140) (140)

Trade receivables, net 2,291 2,323 2,392



Included in trade receivables are retentions for an amount of €163 million as at 31 March 2006.

NOTE 19. OTHER CURRENT ASSETS, NET


Advances paid to suppliers 360 339 345Corporate income tax 122 108 108Other tax 335 298 298Prepaid expenses 127 171 193Other receivables 312 399 465Derivatives 135 264 -Remeasurement of off-balance sheet commitments 63 40 -Available-for-sale investments 16 13 -Held-to-maturity securities 6 13 -Short-term investments - - 15

Other current assets, net 1,476 1,645 1,424



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NOTE 20. PROVISIONS

At Translation At31 March adjustments 31 March

(in € million) 2005* Addition Releases Applied and other Transfer(1) 2006

Warranties 602 293 (126) (184) (43) (4) 538Litigation and claims 633 157 (95) (112) (70) (12) 501Other risks on contracts 407 403 (201) (100) (8) (1) 500Current provisions 1,642 853 (422) (396) (121) (17) 1,539Tax risks and litigation 28 14 (5) (1) 7 (2) 41Restructuring 440 91 (52) (198) (19) 0 262Other provisions non-current 212 150 (54) (27) 14 (17) 278Non-current provisions 680 255 (111) (226) 2 (19) 581

Total provisions 2,322 1,108 (533) (622) (119) (36) 2,120


(1) Transfer to liabilities directly associated with assets held for sale.

Financial Report 2005/06 - ALSTOM


Current provisions – Provisions on contracts

GT24/GT26 heavy-duty gas turbines During the year ended 31 March 2006, the Group utilised€115 million provisions and retained €263 million provisions inrespect of these turbines at 31 March 2006.

During the year ended 31 March 2005, the Group utilised€359 million of provisions and retained at 31 March 2005,after exchange rate effects, €379 million provisions in respect ofthese turbines. The mitigation plan related to formerly identifiedpotential risks which were not covered by provisions has beencompleted during the fiscal year ended 31 March 2005..

Non-current provisions

RestructuringAt 31 March 2006, restructuring provisions amount to€262 million after a net addition of €39 million and anutilisation of €198 million during the year.

During the year ended 31 March 2005, restructuring planswere adopted for an amount of €363 million mainly in PowerTurbo-Systems / Power Environment and Transport Sectors. At31 March 2005, provisions of €440 million were retainedafter an utilisation in the year of €289 million.

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NOTE 21. RETIREMENT, TERMINATION AND POST-RETIREMENT BENEFITS

Change in benefit obligations


Benefit obligations at beginning of year (4,256) (4,137)

Service cost (85) (80)Plan participant contributions (27) (29)Interest cost (215) (217)Plan amendments - (5)Business combinations/disposals (3) (17)Curtailment 27 17Settlements 30 102Actuarial loss (294) (274)Benefits paid 225 283Foreign currency translation (3) 101

Benefit obligations at end of year (4,601) (4,256)

Of which:Funded schemes (3,702) (3,362)Unfunded schemes (899) (894)


Change in plan assets


Fair value of plan assets at beginning of year 2,827 2,800

Expected return on assets 200 200Actuarial gain 193 86Company contributions 112 99Plan participant contributions 26 28Business combinations/disposals 7 19Settlements (27) (115)Benefits paid from plan assets (166) (210)Foreign currency translation (4) (80)

Fair value of plan assets at end of year 3,168 2,827

Funded status of the plan (1,433) (1,429)

Unrecognised actuarial loss (gain) 1,050 1,009Unrecognised past service cost (24) (30)Impact of asset ceiling (2) -Transfer to liabilities associated with assets held for sale 4 -

(Accrued) prepaid benefit cost after asset ceiling (405) (450)

Of which:Accrued pension and retirement benefits (792) (824)Pension assets (see Note 15) 387 374


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Regarding the Expected return of plan assets, the same basishas been applied in all countries where the Group has assetscovering its pension liabilities. The Expected return on planassets is based on long-term market expectations taking intoaccount the asset allocation of each fund.

The Group’s health care plans are generally contributory withparticipants’ contributions adjusted annually. The healthcare trendrate is assumed to be 9% in the year ended 31 March 2006 and

reducing thereafter to an ultimate rate of 5.5% from 2010onwards.

A 100 basis point increase in assumed healthcare cost trendrates would lead to a 6% increase of the service cost and a4.6% increase of the benefit obligation for post-employmentmedical schemes. On the contrary, a 100 basis point decreasewould lead to a 5% decrease of the service cost and a 4.6%decrease of the benefit obligation for such schemes.

Components of plan assets

2006 2005*At 31 March (in € million) (%) (in € million) (%)

Equities 1,597 50.4 1,430 50.6Bonds 1,175 37.1 1,032 36.5Properties 257 8.1 246 8.7Other 139 4.4 119 4.2

Total 3,168 100 2,827 100


Assumptions (weighted average rates)

The actuarial assumptions used vary by business unit and country, based upon local considerations.

At 31 March (%) 2006 2005

Discount rate 4.72 5.09Rate of compensation increase 2.68 2.97Expected return on plan assets 6.46 7.07



The following table shows the amounts of total benefit expense for each of the two years ended 31 March 2005 and 2006.


Service cost (85) (80)Interest cost (215) (217)Expected return on plan assets 200 200Amortisation of actuarial net loss (68) (57)Amortisation of unrecognised past service cost 3 5Impact of asset ceiling (2) -Curtailments/Settlements (1) 6 4

Net benefit expense (161) (145)

Multi-employer contributions and defined contributions (2) (90) (89)

Total benefit expense (251) (234)


(1) Exclude €19 million of curtailment relating to the disposal of Power Conversion activities, classified in capital gain on disposal of investments/activities (see Note 7).

(2) At 31 March 2005, the defined contribution expense of €68 million was not disclosed in the French GAAP/IFRS reconciliation.

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The total cash spent in the year ended 31 March 2006 fordefined benefits and defined contributions plans was €261 million.

The Company’s best estimate of defined benefits and definedcontributions expected to be paid in the year ended 31 March2007 is approximately €258 million, of which €112 millionof employer contributions with respect to defined benefits plans.

The breakdown of the benefit expense in the consolidated income statement is as follows:


Service cost (85) (80)Multi-employer contributions and defined contributions (90) (89)

Income from operations (175) (169)

Amortisation of actuarial net loss (68) (57)Amortisation of unrecognised past service cost 3 5Impact of asset ceiling (2) -Curtailments/Settlements 6 4

Other income (expenses) (1) (61) (48)

Interest cost (215) (217)Expected return on plan assets 200 200

Financial income (expenses) (1) (15) (17)

Total benefit expense (251) (234)


(1) Differences with pension costs included in other expenses (see Note 7) and pension costs included in financial expenses (see Note 8) relate to Marine activities, classifiedin discontinued operations.

NOTE 22. FINANCIAL DEBT

A. Analysis by natureAt 31 March At 1 April At 31 March

(in € million) 2006 2005** 2005*

Redeemable preference shares ❶ - 205 205ORA (debt component) ❷ 5 10 -Subordinated notes ❸ 5 5 5Bonds ❸ 2,189 1,194 1,228Bonds exchange premium ❸ - - (26)Syndicated loans ❹ - 998 1,039Bilateral loans - 33 33Commercial paper ➎ - 14 14Future receivables securitised, net - 49 49Other borrowings facilities ❻ 106 245 252Obligations under finance leases 217 268 268Obligations under long-term rental ❼ 16 13 650Accrued interests 33 47 50

Financial debt 2,571 3,081 3,767

Non-current 2,211 2,598 3,281Current 360 483 486



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❶ On 30 March 2001, a wholly-owned subsidiary of ALSTOMHoldings issued perpetual, cumulative, non-voting, preferenceshares for a total amount of €205 million.

❸ The preference shares had no voting rights. They were notredeemable, except at the exclusive option of the issuer, inwhole but not in part, on or after the 5th anniversary of theissue date or on the 5th anniversary in case of certain limitedspecific pre-identified events. Included in these specifiedevents are changes in tax laws and the issuance of newshare capital.

❸ In July 2002, a new share capital was issued triggering thecontractual redemption of the preferred shares at 31 March2006 at a price equal to their par value together withdividends accrued, but not yet paid.

❸ At 31 March 2006, the €205 million of preferred shares areredeemed.

❷ Following the application of the IAS 32 and 39 standards from1 April 2005, the debt component of the bonds reimbursablewith shares “ORA” amounts to €5 million and €10 million at31 March 2006 and 1 April 2005 respectively (See Note 4 B).

❸ At 31 March 2005, the Group had:• €5 million of Auction Rate Notes redeemable in September

2006,• €228 million of bonds bearing a 5% coupon and

redeemable at par on 26 July 2006,• €1,000 million of bonds bearing a 6.25 % coupon

redeemable at par on 3 March 2010,• €(26) million of bonds exchange premium.

❸ At 1 April 2005, the application of IAS 32-39 standards hasresulted in a remeasurement of these bonds using the effectiveinterest rate (see Note 4 B). After remeasurement, the amountsare as follows:• €5 million of Auction Rate Notes redeemable in September

2006,• €231 million of bonds redeemable on 26 July 2006,• €963 million of bonds redeemable on 3 March 2010,

including the bonds exchange premium.

❸ During the year ended 31 March 2006, the Group issued: • €600 million of floating rate notes bearing a 2.20% above

the 3-month Euribor coupon and redeemable at par inMarch 2009;

• €400 million of floating rates notes bearing 0.85% abovethe 3-month Euribor coupon redeemable at par in July2008.

❸ At 31 March 2006, the Group has:• €5 million of Auction Rate Notes redeemable in September

2006,• €226 million of bonds redeemable on 26 July 2006,• €969 million of bonds redeemable on 3 March 2010,

including the bonds exchange premium,• €595 million of bonds redeemable on 13 March 2009,• €399 million of bonds redeemable on 28 July 2008.

❹ In March 2006, two swaps of €100 million each thatexchange fixed rate to floating rate have been undertakenby the Group (see Note 28 B).

❹ At 31 March 2005, the syndicated loans included:• A 2008 Subordinated Debt Facility signed on 30 September

2003 with a syndicate of banks and financial institutions foran initial amount up to €1,563 million (the “PSDD”), andcomprising a Term Loan Tranche A for €1,200 million (fullydrawn until maturity or redemption), and a Revolving FacilityTranche B for €363 million.

• A 2006 Multicurrency Revolving Credit Agreement initially signed for an amount up to €1,110 million which was available for drawdown up to € 704 million.

At 31 March 2006, the subordinated debt facility and themulticurrency revolving facility are fully repaid and cancelled.

On 28 February 2006, a 2010 Revolving Credit Facility hasbeen signed. The full amount of €700 million is available fordrawdown as at 31 March 2006.

This revolving credit facility is subject to financial covenantsdescribed in Note 22 B.

➎ The total authorised commercial paper programme was€2,500 million, availability being subject to market conditions.

❹ At 31 March 2005, €14 million of commercial paper wasoutstanding from this programme. At 31 March 2006, thereis no outstanding amount from this programme.

❻ Other borrowings facilities included €94 million of borrowingsborne by one special purpose entity at 31 March 2005, whichhas been reimbursed in March 2006.



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❼ At 31 March 2005, the financial debt included the obligationunder long-term rental relating to leases of trains andassociated equipment. At 1 April 2005, following theapplication of IFRS 5 standard, the non-current portion ofthis financial obligation of €637 million (€630 million asat 31 March 2006) is considered as a liability directly

associated to a non-current asset held for sale, presentedseparately in the balance sheet and therefore excluded fromthe financial debt (see Note 4 B). The current portion of thisobligation remains included in the financial debt for anamount of €16 million at 31 March 2006 and €13 millionat 1 April 2005.

(a) Ratio of EBITDA (see (d) below) to consolidated net financialexpense (interest expenses including securitisation expensesless interest income but excluding interest related to obligationsunder finance lease, pension interest cost and the consolidatednet financial expense of special purpose entities which werenot consolidated subsidiaries as of 31 March 2004). Theinterest cover at 31 March 2006 amounts to 8.7.

(b) Sum of shareholders’ equity (excluding the cumulative impact ofany deferred tax asset impairments arising after 31 March2004 and including Bonds Reimbursable with Shares “ORA” notyet reimbursed) and minority interests (this covenant will notapply if and for so long as ALSTOM’s rating is InvestmentGrade). After excluding the impact of the impairment of deferred

tax assets recorded since 31 March 2004 of €189 million, theconsolidated net worth at 31 March 2006 to compare with thecovenant above is €2,029 million.

(c) Ratio of total net debt (total financial debt excluding the financelease obligations less short-term investments or trading investmentsand cash and cash equivalents) to EBITDA (see (d) below). Thenet debt leverage as at 31 March 2006 is 1.0.

(d) Earnings Before Interest and Tax plus Depreciation andAmortisation, less capital gains and losses on disposal ofinvestments, as set out in Consolidated Statements of CashFlows.

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Analysis of the fair value by natureThe fair value of the financial debt is estimated based on either quoted market prices for traded instruments or current rates offeredto the Group for debt of the same maturity.


Redeemable preference shares - 210ORA (debt component) 5 10Subordinated notes 5 5Bonds 2,299 1,244Syndicated loans - 1,044Bilateral loans - 33Commercial paper - 14Future receivables securitised, net - 49Other borrowings facilities 106 245Accrued interests 33 47

Fair value of financial debt, excluding fair value of finance leases* 2,448 2,901

* No fair value calculated given the number of different leases.

B. Financial covenantsAt 31 March 2006, the €700 million revolving credit facility is subject to the following financial covenants:

Minimum Minimum consolidated Maximum net interest cover net worth debt leverage

(a) (b) (c)Covenants (in € million)

March 2006 3 1,360 4.0September 2006 3 1,360 3.6March 2007 3 1,360 3.6September 2007 3 1,360 3.6March 2008 3 1,360 3.6September 2008 3 1,360 3.6March 2009 3 1,360 3.6September 2009 3 1,360 3.6March 2010 3 1,360 3.6September 2010 3 1,360 3.6

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C. Analysis by maturity and interest rateAmounts presented below are based on the nominal values.

Short term Long term within 1 Over

At 31 March 2006 (in € million) Total year 1-2 years 2-3 years 3-4 years 4-5 years 5 years

ORA (debt component) 5 - - 5 - - -Subordinated notes 5 5 - - - - -Bonds 2,224 224 - 1,000 1,000 - -Other facilities 106 55 12 3 3 21 12Borrowings under finance leases 233 40 22 20 18 17 116Accrued interests 33 33 - - - - -

Financial debt 2,606 357 34 1,028 1,021 38 128

The nominal and effective rates of interest are as follows:

At 31 March 2006 Nominal interest rate Effective interest rate

Subordinated notes Euribor 3M + 4.9% *Bonds

July 2006 5.0% 3.9%July 2008 Euribor 3M + 0.9% 4.5%March 2009 Euribor 3M + 2.2% 5.9%March 2010 6.3% 7.2%

* No effective rate of interest is calculated for floating rate notes.

The financial debt before swaps is broken down between fixed rate and floating rate as follows:


Financial debt at fixed rate 1,565 1,656 2,293Financial debt at floating rate 1,041 1,474 1,474




D. Analysis by currencyAmounts presented below are based on the nominal values.


Euro 2,415 2,820 2,820US dollar 31 132 132British pound 43 47 684Other currencies 117 131 131






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At 1 April 2005, assets and liabilities attributable to leases oftrains and associated equipment have been classified as assetsheld for sale and liabilities directly associated and are presentedseparately in the balance sheet as they were expected to be soldwithin twelve months. Assets held for sale and liabilities directlyassociated amount to €613 million at 31 March 2006 and€637 million at 1 April 2005. The whole amount represents anon-current asset attributable to a long-term rental on the asset sideof the balance sheet and a financial obligation on the liabilitiesside, respectively. At 31 March 2006, these assets remainclassified as assets held for sale: although some circumstancesbeyond the Group’s control have generated an extension of theperiod to complete the sale, the Group remains fully committedto sell the asset.

The proceeds of disposal are still expected to exceed the netcarrying amount of the relevant assets and liabilities and,accordingly, no impairment loss has been recognised.

Other groups of assets held for sale as of 31 March 2006consist of the Marine Sector following the commitment of theCompany to sell to Aker Yards 75% stake in the Marine Sector.

The sale goes through the creation of a new company consistingof the shipyards in Saint-Nazaire and Lorient to be 75% ownedby Aker Yards and 25% by ALSTOM. Aker Yards will pay €50million for the 75% stake in the new company. The remainingstake will be sold to Aker Yards by 2010 for up to €125 milliondepending on the financial performance. At 31 March 2006,the effective disposal was still subject to conditions expectedto be fulfilled within a short period of time after this date.

Assets and liabilities attributable to these activities have beenclassified as a disposal group held for sale and are presentedseparately in the balance sheet.

The proceeds of disposal of all ALSTOM’s interests in the disposalgroup are expected to be lower than the net carrying amount ofthe relevant assets and liabilities and, accordingly, a loss of€96 million has been recorded, of which a €12 millionimpairment on the classification of these operations as held forsale and €84 million of additional provisions. The valuation ofthe proceeds from the disposal is based on ALSTOM bestestimate of the value of the earn-out included in the agreement.

NOTE 24. ASSETS HELD FOR SALE AND LIABILITIES DIRECTLY ASSOCIATED

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NOTE 23. OTHER CURRENT LIABILITIES


Staff and associated costs 602 663 663Corporate income tax 146 107 107Other taxes 169 213 213Derivatives 87 192 -Remeasurement of off-balance sheet commitments 159 148 -Other 467 557 606

Other current liabilities 1,630 1,880 1,589



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The operations of the Marine Sector have been classified asdiscontinued operations for the year ended 31 March 2006and retrospectively for the year ended 31 March 2005 (seeNote 10).

Since the transaction is structured as an asset sale, theprogressive extinction of remaining assets and liabilities retainedby the Group will be shown as assets held for sale anddiscontinued operations during the next financial year.

A. Sector dataThe Group is managed through Sectors of activity and hasdetermined its reportable segments accordingly.

At 31 March 2006, the Group is organised in four Sectors,following the sale of the Power Conversion Business duringthe year.

• Power Turbo-Systems / Power Environment SectorPower Turbo-Systems / Power Environment provides steam turbines,gas turbines, generators and power plant engineering, includinghydro. It also focuses on boilers and emissions control equipmentin the power generation, petrochemical and industrial markets.Finally, it serves demand for upgrades and modernisation ofexisting power plants.

• Power Service SectorPower Service promotes the service activities relating to the PowerTurbo Systems / Environment Sector and services to customersin all geographic markets.

• Transport SectorTransport provides equipment, systems, and customer support forrail transportation including passenger trains, locomotives, signallingequipment, rail components and service.

• Marine SectorMarine designs and manufactures cruise and other specialityships.

At 31 March 2006, the Marine Sector is excluded from the Sectorand geographic information following the classification of itsoperations as discontinued operations and the classification ofits assets and liabilities as disposal group held for sale.

At 31 March 2006, the major classes of assets and liabilities comprising the disposal group classified as held for sale are as follows:

Leases of trains Marine(in € million) and equipment activities Total

Property, plant and equipment, net - 11 11Non-current assets, net 613 5 618Construction contracts in progress, assets - 172 172Inventories, trade receivables and other current assets, net - 38 38

Cash and cash equivalents - 317 317

Assets classified as held for sale 613 543 1,156

Assets held for sale, impairment - (12) (12)

Assets classified as held for sale, net 613 531 1,144

Provisions - 124 124Financial debt 613 2 615Construction contracts in progress, liabilities - 154 154

Trade payables and other current liabilities - 250 250

Liabilities associated with assets classified as held for sale 613 530 1,143

NOTE 25. SECTOR AND GEOGRAPHIC DATA



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• Power Conversion BusinessPower Conversion provides solutions for manufacturing processesand supplies high-performance products including motors,generators, propulsion systems for marine applications and drivesfor a variety of industrial applications. This Business has beensold during the year.

Some units, not material to the Sector presentation, have beentransferred between Sectors. The revised Sector composition hasnot been reflected on a retroactive basis.

At 31 March 2006Power Turbo-Systems / Power Power Corporate

(in € million) Power Environment Service Transport Conversion & other(1) Elimination Total

Sales 5,396 3,062 5,129 276 100 (550) 13,413Inter-sector elimination (317) (209) (1) (15) (8) 550 -

Total sales 5,079 2,853 5,128 261 92 - 13,413

Income from operations 101 442 324 16 (137) - 746

Earnings before interest and taxes 75 407 256 14 (25) - 727

Financial income (expenses), net (222)Income tax (125)Share in net loss of equity investments (1)Net profit from continuing operations 379Net loss from discontinued operations (198)

Net profit 181

Segmental assets (2) 4,633 3,890 4,224 - 1,558 - 14,305Deferred taxes (assets) 1,249Pension assets 387Current financial assets, net 1,323Assets held for sale, net 1,144

Total assets 18,408

Segmental liabilities (3) 5,072 2,078 4,099 - 774 - 12,023Deferred taxes (liabilities) 39Accrued pension and retirement benefits 792Financial debt 2,571Total equity 1,840Liabilities associated with assets held for sale 1,143

Total liabilities 18,408

Capital employed (4) (439) 1,812 125 - 784 - 2,282Capital expenditure 103 35 125 3 28 - 294Depreciation and amortisation in EBIT 125 61 116 5 106 - 413

(1) Corporate & other includes all units accounting for Corporate costs, the International Network and the overseas entities in Australia, New Zealand and India that are notallocated to Sectors.

(2) Segmental assets are defined as the closing position of goodwill, intangible assets, net, property, plant and equipment, net, other non-current assets, net (excluding pension assets)and current assets, net (excluding trading investments, available-for-sale investments, held-to-maturity investments and cash and cash equivalents).

(3) Segmental liabilities are defined as the closing position of current and non-current provisions and current liabilities (excluding current financial debt).

(4) Capital employed corresponds to segmental assets minus segmental liabilities. The decrease in the capital employed from 31 March 2005 to 31 March 2006 is partlyexplained by the reclassification in the Transport Sector of assets and liabilities attributable to leases of trains and associated equipment from other non-current assets at 31 March2005 (included in the definition of capital employed) to assets held for sale and liabilities associated at 31 March 2006 (excluded from the definition of capital employed).

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At 31 March 2005Power Turbo-Systems / Power Power Corporate

(in € million) Power Environment Service Transport Conversion Marine (4) & other (1) Elimination Total

Sales 4,777 3,116 5,124 555 - 273 (925) 12,920

Inter-sector elimination (587) (284) (24) (19) - (11) 925 -

Total sales 4,190 2,832 5,100 536 - 262 - 12,920

Income from operations (107) 412 218 30 - (82) - 471

Loss before interest and taxes (331) 365 145 16 - (246) - (51)

Financial income (expenses), net (381)Income tax (163)Share in net income of equity investments - Net loss from continuing operations (595)Net loss from discontinued operations (32)

Net loss (627)

Segmental assets (2) 4,727 4,028 4,900 410 209 1,807 - 16,081Deferred taxes (assets) 1,207Pension assets 374Current financial assets, net 1,419

Total assets 19,081

Segmental liabilities (3) 5,166 2,153 3,968 368 502 675 - 12,832Deferred taxes (liabilities) 59Accrued pension and retirement benefits 824Financial debt 3,767Total equity 1,466Bonds reimbursable with shares 133

Total liabilities 19,081

Capital employed (439) 1,875 932 42 (293) 1,132 - 3,249Capital expenditure 88 24 85 5 - 53 - 255Depreciation and amortisation in EBIT 135 69 172 12 - 64 - 452

(1) Corporate & other includes all units accounting for Corporate costs, the International Network and the overseas entities in Australia, New Zealand and India that arenot allocated to Sectors.

(2) Segmental assets are defined as the closing position of goodwill, intangible assets, net, property, plant and equipment, net, other non-current assets, net (excludingpension assets) and current assets, net (excluding trading investments, available-for-sale investments, held-to-maturity investments and cash and cash equivalents).

(3) Segmental liabilities are defined as the closing position of current and non-current provisions and current liabilities (excluding current financial debt).

(4) In accordance with IFRS 5, Marine operations have been retrospectively classified as discontinued operations in the income statement for the year ended 31 March2005, whereas the presentation of the associated assets and liabilities in the balance sheet at 31 March 2005 remains unchanged.



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B. Geographic dataSales and capital expenditure by country of destination:

At 31 March 2006Sales by country Capital

(in € million) of destination Expenditure

Euro zone (1) 4,221 123Rest of Europe 2,080 71North America 2,172 22South & Central America 891 6Asia & Pacific 2,747 69Middle East & Africa 1,302 3

Total Group 13,413 294

At 31 March 2005Sales by country Capital

(in € million) of destination Expenditure

Euro zone (1) 4,559 117Rest of Europe 2,227 99North America 1,945 14South & Central America 534 3Asia & Pacific 2,465 19Middle East & Africa 1,190 3

Total Group 12,920 255

(1) Euro zone includes Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Spain and Portugal.

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❶ Guarantees related to contracts

In accordance with industry practice, the above instrumentscan, in the normal course, extend from the tender period untilthe final acceptance by the customer, up to the end of thewarranty period and may include guarantees on projectcompletion, contract-specific defined performance criteria oravailability.

The guarantees are provided by banks or surety companiesby way of bank guarantees, surety bonds and stand by lettersof credit and are normally for defined amounts and periodsand are issued in favour of the customer with whom thecommercial contracts have been signed. The Group providesa counter-indemnity to the bank or surety company which issuesthe said instrument.

The projects for which the guarantees are given are regularlyreviewed by management and should payments becomeprobable pursuant to guarantees, the necessary accruals will bemade and recorded in the Consolidated Financial Statementsat that time.

In the context of the Share Purchase and Settlement Agreementsigned with ABB Ltd in March 2000, pursuant to which theGroup purchased ABB's 50% share of the joint venture ABBALSTOM POWER, the Group has agreed to indemnify ABBwith respect to parent company guarantees that it had previouslyissued with respect to certain power contracts, the totaloutstanding amount of such ABB guarantees being €2.7 billionat 31 March 2006 (€2.7 billion at 31 March 2005). Theseparent company guarantees are included in the above figuresbut are relating to liabilities already included in the consolidatedaccounts.

The above figures exclude:• €4.3 billion at 31 March 2006 (€3.8 billion at 31 March

2005) of advance and progress payment related guaranteeswhich payments have been included over time in the balancesheet in the line “Construction contracts in progress, assets orliabilities”.

• €2.3 billion at 31 March 2006 (€2.1 billion at 31 March2005) of surety and conditional bonds where the likelihoodof the commitments becoming obligations is considered to beremote.

• Guarantees given by parent or group companies relating toliabilities included in the consolidated accounts.

The bonding guarantees relating to contracts, issued by banksor surety companies, amount to €11.4 billion at 31 March2006 (€10.7 billion at 31 March 2005).

The Group put in place in August 2004 an up to €8 billioncommitted bonding guarantee facility programme, with aninitial commitment of its banks for €6.6 billion increasedto €7.4 billion since by enlarging the programme from 7 to17 Banks and thus covering Group’s needs until July 2006.This programme includes the bonds issued under the bondingline of €3.5 billion provided during the summer 2003 and newbonds to be issued over a two-year period up to 27 July 2006.

NOTE 26. OFF-BALANCE SHEET COMMITMENTSAND OTHER OBLIGATIONS

A. Off-balance sheet commitments


Guarantees related to contracts ❶ 7,572 7,526Guarantees related to vendor financing ❷ 432 429Discounted notes receivable - 5Commitments to purchase fixed assets 8 1Other guarantees* 242 114

Total 8,254 8,075

* Other guarantees include off-balance sheet commitments relating to financial obligations such as VAT payments, rentals, customs, and insurance deductibles. These arematerialised by independent undertakings but support mainly existing liabilities included in the consolidated accounts.



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The bonds issued under this programme until 27 July 2006benefit from a €2 billion security package consisting of:• a first-loss guarantee in the form of cash collateral provided by the

Group for €700 million (see Note 15); and• a second-rank security for a total amount of €1,300 million

covering second losses in excess of the cash collateral, in the formof guarantees, given on a pari passu basis by a French Stateguaranteed institution (Caisse Française de DéveloppementIndustriel - CFDI) for an amount of €1,250 million, and theremainder (€50 million) by a group of banks consisting of the initialbanks of the programme.

This programme is revolving: any bond expiring releasescapacity to issue new bonds within the €8 billion limit and thetwo-year period.

The bonds and guarantees issued in the syndicated facilityunder that programme are covered by counter-indemnities fromALSTOM Holdings and from the Group subsidiaries performingthe contractual obligations pertaining to the guarantee.

The banks can make a claim under the security package if,and only if, a bond issued under the programme has beencalled by a customer, paid by the bank to the beneficiary andneither the Group subsidiaries nor ALSTOM Holdings havebeen in a position to indemnify the banks.

On 15 November 2005, the Group amended its bondingprogramme for a further 2 years for an enlarged amount of up to€10.5 billion of which €9.4 billion are available to date. Allbonds issued beyond the initial issuing period ending in July 2006and up and until July 2008 will benefit from a reduced securitypackage consisting of €175 million worth of collateral.

This additional collateral may be increased in the event thatoperating margin and headroom levels through 31 March 2008do not reach targeted levels according to the following rules:• the cash collateral will be increased if necessary to equal

at any time at least 5% of the total outstanding amount ofbonds issued after July 2006 if ALSTOM’s operating marginfailed to reach – on a 12-month rolling basis:• 4.75% at 31 March 2006, • 5.125% at 30 September 2006,• 5.5% at 31 March 2007,• 5.875% at 30 September 2007,• and 6.25% at 31 March 2008;

• the cash collateral will be increased if necessary to equalat any time at least 10% of the total outstanding amount ofbonds issued after July 2006 if

• (i) ALSTOM’s operating margin failed to reach – on a 12-monthrolling basis:• 3.75% at 31 March 2006,• 4.125% at 30 September 2006,• 4.5% at 31 March 2007,• 4.875% at 30 September 2007,• and 5.25% at 31 March 2008;

• or (ii) if on any such testing date or as at the date falling sixmonths after such testing date, ALSTOM’s consolidated cashheadroom is not at least €800 million.

The two collaterals will merge whenever the guarantee of theFrench State and of ALSTOM’s principal banks expires, whichis expected to happen between June and September 2008, andin any case at 30 June 2009 at the latest. At that time, theglobal amount of cash collateral will be adjusted to:• €175 million if ALSTOM’s operating margin at 31 March

2008 is above 6.25%; • 5% of the global amount outstanding if this margin is

comprised between 5.25% and 6.25%; and• 10% of the global amount of outstanding bonds if this margin

is below 5.25%.

The issuance of new bonds under the bonding programmementioned above is also subject to the financial covenantsdisclosed in the Note 22 B.

At 31 March 2006, €88 million of bonds and guaranteesrelating to units sold as part of disposals were still held bythe Group.

❷ Vendor financing

The Group has provided financial support, referred to as vendorfinancing, to financial institutions and granted financing tocertain purchasers of its cruise-ships for ship-building contractssigned up to fiscal year 1999 and other equipment. The off-balance sheet “vendor financing” is €432 million at 31 March2006.

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MarineRenaissance/FestivalAt 31 March 2006, it corresponds to the undrawn guaranteesof the financing of one subsidiary of Cruiseinvest LLC forUSD13 million (€11 million) and to the undrawn portions of thecredit lines formerly granted for the repossession and maintenancecosts of the former Renaissance and Festival ships for €30 million.

OtherAt 31 March 2006, it mainly corresponds to the guaranteesprovided by the Group on the financing arrangements of onecruise-ship and two high-speed ferries delivered to two customersfor a total amount of €85 million.

Based on known facts and on assumptions as to leases renewaland ship sales for the former Renaissance and other cruise-ships, the Group considers that the provision in respect ofMarine vendor financing of €12 million at 31 March 2006remains adequate to cover the probable risk.

TransportAt 31 March 2006, guarantees given as part of vendor financingarrangements in Transport Sector amount to €306 million.

Included in this amount are guarantees totalling USD63 million(€52 million and €49 million at 31 March 2006 and 31 March2005 respectively) given with respect to equipment sold to Amtrak,and also guarantees given as part of a leasing scheme involvinga major European metro operator. Were the metro operator todecide in 2017 not to extend the initial period, the Group hasguaranteed to the lessors that the value of the trains and associatedequipment at the option date should not be less than GBP177million (€254 million and €257 million at 31 March 2006 and31 March 2005, respectively).

The table below sets forth the breakdown of the outstanding off-balance sheet vendor financing by sector at 31 March 2006 and31 March 2005:


Marine 126 120Renaissance/Festival 41 38Other 85 82Transport 306 309European metro operator (2) 254 257Other 52 52

Total vendor financing commitments (1) 432 429

(1) Off-balance sheet figures correspond to the total guarantees and commitments, net of related cash deposits, which are shown as balance sheet item.

(2) Guarantees given include the requirement to deposit funds in escrow in the event of non-respect of certain covenants.



B. Lease obligations Within 1 to Over

(in € million) Total 1 year 5 years 5 years

Long-term rental (1) 650 13 86 551Capital leases 335 46 118 171Operating leases 403 57 183 163

Total at 31 March 2005 1,388 116 387 885

Long-term rental (1) 629 16 100 513Capital leases 291 36 112 143Operating leases 300 44 134 122

Total at 31 March 2006 1,220 96 346 778

(1) Asset related to leases of trains and associated equipment to a European metro operator (see Notes 15 and 24).

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Litigation The Group is engaged in several legal proceedings, mostlycontract related disputes that have arisen in the ordinary course ofbusiness. Contract related disputes, often involving claims forcontract delays or additional work, are common in the areas inwhich the Group operates, particularly for large, long-term projects.In some cases, the amounts claimed against the Group, sometimesjointly with its consortium partners, in these proceedings anddisputes are significant, ranging up to around €390 million inone particular dispute.

Some proceedings against the Group are without a specifiedamount. Amounts retained in respect of litigation, considered asreliable estimates of probable liabilities are included in provisionsand other current liabilities. Actual costs incurred may exceed theamount of provisions for litigation because of a number of factorsincluding the inherent uncertainties of the outcome of litigation.

AsbestosThe Group is subject to regulations in many countries in whichit operates, regarding the control and removal of asbestos-containing material and identification of potential exposure ofemployees to asbestos. It has been the Group’s policy for manyyears to abandon definitively the use of products containingasbestos by all of its operating units worldwide and to promotethe application of this principle to all of its suppliers, includingin those countries where the use of asbestos is permitted. Inthe past, however, the Group has used and sold some productscontaining asbestos, particularly in France in its Marine Sectorand to a lesser extent in its other Sectors. The Group is subjectto asbestos-related legal proceedings or claims including inFrance, the United States and the United Kingdom.

Some of the Group’s subsidiaries are the subject in France ofjudicial proceedings instituted by certain employees or formeremployees with the aim of obtaining a court decision holdingthese subsidiaries liable for an inexcusable fault (fauteinexcusable) which would allow them to obtain a supplementarycompensation above the payments made by the French SocialSecurity funds of related medical costs. Although the courts ofcompetent jurisdiction have made findings of inexcusable fault,the damages in most of these proceedings have been borne todate by the general French Social Security (medical) funds.One of the Group’s subsidiaries is also the subject of a criminalaction for violation of the legislation for the protection of workersagainst asbestos dust. Although no assurance can be given, theGroup believes that those cases where it may be required to

bear certain financial consequences do not represent a materialexposure and therefore, no provisions have been recorded.

In addition to the foregoing, in the United States, the Group issubject to asbestos-related personal injury lawsuits which havetheir origin solely in the Company’s purchase of certain formerPower Generation Businesses of ABB Ltd (“ABB”) and itssubsidiaries, for which the Group is indemnified by ABB.ALSTOM believes that, as of 31 March 2006, all but two ofthese cases involved Combustion Engineering, Inc. (“CE”) (aUnited States ABB subsidiary) or CE’s former subsidiaries. TheGroup is also subject in the United States to two putative classaction lawsuits asserting fraudulent conveyance claims againstvarious ALSTOM and ABB entities in relation to CE, for whichit has asserted indemnification against ABB.

CE filed a “pre-packaged” plan of reorganisation in UnitedStates Bankruptcy Court in January 2003 and a modified planof reorganisation in June 2005. The modified plan wasconfirmed by the Bankruptcy Court on 19 December 2005and by the United States Federal District Court on 28 February2006, and became effective on 21 April 2006. ALSTOMbelieves that under the terms of the CE plan of reorganisation,it is protected against pending and future personal injuryasbestos claims, or fraudulent conveyance claims, arising outof the past operations of CE.

As of 31 March 2006, the Group is subject to approximately22 other asbestos-related personal injury lawsuits in the UnitedStates involving approximately 477 claimants that, in wholeor in part, assert claims against ALSTOM which are not relatedto the Power Generation Business purchased from ABB or as towhich the complaint does not provide details sufficient to permitto determine whether the ABB indemnity applies. Most of theselawsuits are in the preliminary stages of the litigation process andthey each involve multiple defendants. The allegations in theselawsuits are often very general and difficult to evaluate atpreliminary stages in the litigation process. In those cases whereALSTOM’s defence has not been assumed by a third partyand meaningful evaluation is practicable, the Group believesthat it has valid defences and, with respect to a number oflawsuits, the Group is asserting rights to indemnification againsta third party. For purposes of the foregoing discussion, theGroup considers a claim to no longer be pending against it ifthe plaintiff’s attorneys have executed a notice or stipulationof dismissal or non-suit, or other similar document.

NOTE 27. CONTINGENCIES

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While the outcome of the existing asbestos-related casesdescribed above is not predictable, the Group believes thatthose cases will not have a material adverse effect on itsfinancial condition. It can give no assurances, however, thatasbestos-related cases against it will not grow in number orthat those it has at present, or may face in the future, may nothave a material adverse impact on its financial condition.

Product liability The Group designs, manufactures, and sells several products oflarge individual value that are used in major infrastructureprojects. In this environment, product-related defects have thepotential to create liabilities that could be material. If potentialproduct defects become known, a technical assessment occurswhereby products of the affected type are quantified andstudied. If the results of the study indicate that a product liabilityexists, provisions are recorded. The Group believes that it hasmade adequate provisions to cover currently known product-related liabilities, and regularly revises its estimates usingcurrently available information. Neither the Group nor any ofits Businesses are aware of product-related liabilities which areexpected to exceed the amounts already recognised andbelieves it has provided sufficient amounts to satisfy its litigation,environmental and product liability obligations to the extentthey can be estimated.

SEC investigation The Group, certain of its subsidiaries and certain current andformer officers, employees and members of its Board of Directorshave been involved in US regulatory investigations regardingpotential securities law violations, and have been named asdefendants in a putative class action lawsuit in the United Statesthat alleges violations of the US federal securities laws.

On 30 June 2003, the Group announced that it was conductingan internal review, assisted by external lawyers and accountants,following receipt of anonymous letters alleging accountingimproprieties on a railcar contract being executed at theNew York facility of ALSTOM Transportation Inc. (“ATI”), one ofits US subsidiaries. Following receipt of these letters, the UnitedStates Securities and Exchange Commission (“SEC”) and theUnited States Federal Bureau of Investigation (“FBI”) beganinformal inquiries.

The Group also announced that its internal review had identifiedthat losses had been significantly understated in the ATI accounts,in substantial part due to accounting improprieties. As a result,an additional charge of €73 million was recorded in ATI’s accountsfor the year ended 31 March 2003 and was recorded in the

Group’s Consolidated Financial Statements approved by theGeneral Meeting of Shareholders on 2 July 2003.

On 11 August 2003, the Group announced that it had beenadvised that the SEC had issued a formal order of investigationin connection with its earlier review.

United States putative class action lawsuitThe Group, certain of its subsidiaries and certain of its current andformer Officers and Directors have been named as defendantsin a number of putative shareholder class action lawsuits filedon behalf of various alleged purchasers of American DepositaryReceipts and other ALSTOM securities between 3 August 1999and 6 August 2003. These lawsuits which have beenconsolidated in one complaint filed on 18 June 2004, allegedviolations of United States federal securities laws arising fromalleged untrue statements of material facts, and/or omissions tostate material facts necessary to make the statements made notmisleading in various ALSTOM public communications regardingits Business, operations and prospects (in the areas of theperformance of its GT24/GT26 turbines, certain vendor financingarrangements for cruise-ship customers, and its US TransportBusiness, including but not limited to the matter described above),causing the allegedly affected shareholders to purchase ALSTOMsecurities at artificially inflated prices.

On 22 December 2005, the United States Federal DistrictCourt dismissed large portions of the consolidated complaint,including all claims relating to its GT24/GT26 turbines, allclaims against the Group’s current Officers and Directors, allclaims against ALSTOM (but not ATI) relating to its US TransportBusiness, and all claims brought by non US investors whopurchased ALSTOM securities on non-US stock exchangesexcept for those relating to its US Transport Business. On14 March 2006, the plaintiffs filed a second amendedconsolidated complaint which re-asserts, among other things,claims against ALSTOM relating to its US Transport Business.

The Group’s Management has spent and may in the future berequired to spend considerable time and effort dealing withthese matters. While the Group has cooperated and intend tocontinue to cooperate with the governmental authorities inconnection with the ATI matter and to vigorously defend theputative class action lawsuit, the Group cannot ensure thatthere will be no adverse outcome which could have a materialadverse effect on its Business, results of operations and financialcondition.



Claims relating to disposals From time to time, the Group disposes of certain Businesses orBusiness segments. As it is usual, certain acquirers make claimsagainst the Group as a result of price adjustment mechanismsand warranties generally foreseen in the sale agreements.

At 31 March 2006, the Group has outstanding warranties andhas received claims in connection with the disposals of certainof its activities including its former T&D Sector (excluding PowerConversion), the Small and Medium Industrial Turbines and IndustrialSteam Turbine Businesses, the former Contracting Sector and partof the former Industrial Sector.

The Group has received a number of demands from the acquirerfollowing the disposal of the T&D Sector, including with respectto investigation by a number of national authorities and theEuropean Commission of alleged anti-competitive arrangementsamong suppliers in certain T&D activities and an administrativeprocedure in Mexico concerning the alleged payments by anagent that could result in an entity sold as part of the T&DSector being prevented from bidding for government contractsfor a two-year period.

Alleged violation of laws Many of the Group’s Businesses operate in sectors where arelatively small number of participants can materially affect themarket dynamics. Although these markets are frequently fiercelycompetitive, there are at times allegations of anti-competitiveactivity. For example, the Group has been informed ofinvestigations by various governmental authorities, includingthe European Commission, relating to alleged anti-competitivearrangements among suppliers of certain products of the T&DBusiness sold to Areva on 9 January 2004. In April 2006,the European Commission commenced proceedings againstALSTOM, along with a number of other companies, based onallegations of anti-competitive practices in the sale of gas-insulated switchgears, a product of its former T&D Business,following investigations that began in 2004. The competitionauthorities in Hungary have ordered fines against both theALSTOM and the Areva groups with respect to alleged anti-competitive practices in the gas-insulated business in that country.

The Group conducts a significant proportion of its businesswith governmental agencies and public-sector entities, includingthose in countries known to experience corruption, which createsthe risk of prohibited payments by its employees and agents. TheGroup actively strives to ensure compliance with the laws andregulations relating to illegal or other prohibited payments and

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Environmental, health and safety The Group is subject to a broad range of environmental lawsand regulations in each of the jurisdictions in which it operates.These laws and regulations impose increasingly stringentenvironmental protection standards on the Group regarding,among other things, air emissions, wastewater discharges, theuse and handling of hazardous waste or materials, wastedisposal practices and the remediation of environmentalcontamination. These standards expose the Group to the risk ofsubstantial environmental costs and liabilities, including liabilitiesassociated with divested assets and past activities. In most ofthe jurisdictions in which the Group operates, its industrialactivities are subject to obtaining permits, licences and/orauthorisations, or to prior notification. Most of its facilities mustcomply with these permits, licences or authorisations and aresubject to regular administrative inspections.

The Group invests significant amounts to ensure that it conductsits activities in order to reduce the risks of impacting theenvironment and regularly incurs capital expenditure inconnection with environmental compliance requirements.Although the Group is involved in the remediation ofcontamination of certain properties and other sites, it believesthat its facilities are in compliance with their operating permitsand that its operations are generally in compliance withenvironmental laws and regulations.

The Group has put in place a global policy covering themanagement of environmental, health and safety risks.

The procedures for ensuring compliance with environmental,health and safety regulations are decentralised and monitoredat each plant. The costs linked to environmental health andsafety issues are budgeted at plant or unit level and includedin the profit and loss account of the local subsidiaries of theGroup.

The outcome of environmental, health and safety matters cannotbe predicted with certainty and there can be no assurancethat the Group will not incur any environmental, health andsafety liabilities in the future and the Group cannot guaranteethat the amount that it has budgeted or provided for remediationand capital expenditure for environmental or health and safetyrelated projects will be sufficient to cover the intended loss orexpenditure. In addition, the discovery of new facts or conditionsor future changes in environmental laws, regulations or case lawmay result in increased liabilities that could have a materialeffect on its financial condition or results of operations.

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has established internal compliance programmes to control therisk of such illegal activities and appropriately address anyproblems that may arise. However, a limited number of currentand former employees and agents of the Group have beenor are currently being investigated with respect to allegedillegal payments in various countries. Certain of theseprocedures, including pending procedures in Mexico and Italy,

NOTE 28. MARKET RELATED EXPOSURES

may result in fines and the exclusion of its subsidiaries frompublic tenders in the relevant country for a defined period.

The Group considers that there are no matters outstanding andunprovided that are capable of estimation that are likely tohave a material adverse impact on the consolidated financialstatements.



A. Currency riskIn the course of its operations, the Group is exposed to currencyrisk arising from tenders for business remitted in foreign currency,and from awarded contracts or “firm commitments” under whichrevenues are denominated in foreign currency. The principalcurrencies to which the Group had significant exposure in fiscalyear ended 31 March 2006 were the US dollar and Swissfranc.

Due to these exposures, numerous cash flows of the Groupare denominated in foreign currencies. The Group acquiresfinancial instruments with off-balance sheet risk solely to hedgesuch exposure on anticipated transactions and notably firmcommitments. The instruments used are exchange rate guaranteesobtained through export insurance companies, forwardexchange contracts and options.

As an exception to the policy described above and subjectto management approval, it may be decided in specificcircumstances not to fully hedge identified exposures.

With respect to anticipated transactions:• During the tender period, depending on the probability of

obtaining the project and market conditions, the Groupgenerally hedges a portion of its tenders using options orexport insurance contracts when possible. The guaranteesgranted by these contracts become firm if and when theunderlying tender is accepted.

• Once the contract is signed, forward exchange contracts orcurrency swaps are used to adjust the hedging position to theactual exposure during the life of the contract (either as the onlyhedging instruments or as a complement to existing exportinsurance contracts).

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At 31 March 2006 and 31 March 2005, the nominal and fair value of foreign exchange instruments are detailed as follows:

Derivative instruments qualifying for hedge accounting (forward contracts and currency swaps)

At 31 March 2006 At 31 March 2005

Purchased Sold Purchased Sold(in € million) Nominal Fair value Nominal Fair value Nominal Fair value Nominal Fair value

British pound 2 - 375 1 77 - 307 (7)Brazilian real 33 (8) 29 1 - - 10 (1)Polish zloti 149 - 252 (2) 126 5 26 -Swedish kroner 227 (3) 279 2 285 (1) 87 -US dollar 713 (64) 2,462 104 557 (92) 1,995 130Australian dollar 163 (4) 150 3 108 - 60 (2)Singapore dollar 16 - 39 - 13 - 89 12Swiss franc 1,889 (21) 2,139 31 1,340 (5) 1,857 10Other 345 3 297 2 269 2 328 4

Total 3,537 (97) 6,022 142 2,775 (91) 4,759 146

Derivative instruments not qualifying for hedge accounting (forwards contracts, currency options contracts and insurance contracts)

At 31 March 2006 At 31 March 2005

Purchased Sold Purchased Sold(in € million) Nominal Fair value Nominal Fair value Nominal Fair value Nominal Fair value

Currency option contracts - Yen - - - - 20 2 - -Currency option contracts - US dollar 1 - 34 - 110 17 75 (1)Currency option contracts - other currencies - - 19 - - - - -Forward contracts - US dollar 112 (1) 95 - - - - -Forward contracts - Swiss franc 95 2 9 - - - - -Forward contracts - Swedish kroner 71 1 1 - - - - -Forward contracts - Other currencies 56 (1) 41 - - - - -Insurance contracts 34 (2) 105 4 3 - 193 (2)

Total 369 (1) 304 4 133 19 268 (3)

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The fair value of these instruments is the estimated amount thatthe Group would receive or pay to settle the related agreements,valued upon relevant yield curves and foreign exchange rates asat 31 March 2006 and 31 March 2005.

The fair value of forward exchange contracts was computed byapplying the difference between the contract rate and the marketforward rate at closing date to the nominal amount.

Export insurance contracts related to tenders are insurance contractsthat are not marked to market. Export insurance contracts thathedge firm commitments are considered as acting as derivativesand were marked to market for the purpose of the disclosure.

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At 31 March 2006, the nominal value of derivative instruments by maturity is as follows:

Derivative instruments qualifying for hedge accounting (forward contracts and currency swaps)

(in € million) Total < 1 year 1-5 years > 5 years

British pound 377 299 78 -Brazilian real 62 58 4 -Polish zloti 401 286 115 -Swedish kroner 506 365 136 5US dollar 3,175 2,021 1,153 1Australian dollar 313 170 143 -Singapore dollar 55 55 - -Swiss franc 4,028 3,745 283 -Other 642 561 81 -

Total 9,559 7,560 1,993 6

Derivative instruments not qualifying for hedge accounting (forwards contracts, currency options contracts and insurance contracts)

(in € million) Total < 1 year 1-5 years > 5 years

Currency option contracts - US dollar 35 35 - -Currency option contracts - other currencies 19 19 - -Forward contracts - US dollar 207 104 103 -Forward contracts - Swiss franc 104 60 44 -Forward contracts - Swedish kroner 72 20 52 -Forward contracts - Other currencies 97 68 27 2Insurance contracts 139 47 92 -

Total 673 353 318 2



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The net short-term loan position at floating rate after swapsamounts to €1,306 million.

A 1% increase in market rates would have decreased the netinterest expense by €10 million, representing 8.2% of the netinterest expense for the year ended 31 March 2006.

A 1% increase in market rates would have decreased the netinterest expense after swaps by €8 million, representing 6.6%of the net interest expense for the year ended 31 March 2006.

C. Credit risk

Risk related to customersThe Group hedges up to 90% of the credit risk on certaincontracts using export credit insurance contracts. The Groupbelieves the risk of counterparty failure to perform as contracted,which could have a significant impact on the Group’s financialstatements or results of operations, is limited due to the Groupseeking to ensure that customers generally have strong creditprofiles or adequate financing to meet their project obligations.

Risk related to cash and cash equivalentsAs part of the central treasury management, 71% of cash andcash equivalents at 31 March 2006 is invested with a bankcounterpart of first rank noted “Investment Grade”.

B. Interest rate riskThe Group does not have a dynamic interest rate risk management policy. However, it may enter into transactions in order to hedgeits interest rate risk on a case-by-case basis according to market opportunities, under the supervision of the Executive Committee.

Sensitivity to interest rates

At 31 March (in € million) 2006 < 1 year 1-5 years > 5 years

Financial assets at floating rate 2,082 1,328 700 54Financial assets at fixed rate 68 40 28 -Financial assets not bearing interests 36 21 8 7

Financial assets 2,186 1,389 736 61

Financial debt at floating rate (1,034) (22) (1,012) -Financial debt at fixed rate (1,537) (338) (1,071) (128)

Financial debt (2,571) (360) (2,083) (128)

Net position at floating rate before swaps* 1,048 1,306 (312) 54Net position at fixed rate before swaps* (1,469) (298) (1,043) (128)Net position not bearing interests 36 21 8 7

Net position before hedging (385) 1,029 (1,347) (67)

Net position at floating rate after swaps* 848 1,306 (512) 54Net position at fixed rate after swaps* (1,269) (298) (843) (128)Net position not bearing interests 36 21 8 7

Net position after hedging (385) 1,029 (1,347) (67)

* At 31 March 2006, the Group holds swaps from fixed rate to floating rate with a nominal value of €200 million and a fair value of €(1) million. At 31 March 2005, the Groupheld a swap from fixed rate to floating rate with a nominal value of €94 million and a fair value of €3 million.

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D. Liquidity riskThe analysis by maturity and interest rate of the Group’s debt is set out in Note 22 C. Details of short-term liquidity are set outbelow.

The Group available liquidity within one year at 31 March 2006 and 31 March 2005 is as follows:


Available credit line 700 1,202Cash available at parent company 950 796Cash equivalents at subsidiary level (1) 351 608

Available liquidity 2,001 2,606

Financial debt to be reimbursed within one year (2) (360) (444)Available credit line to be reimbursed within one year - (27)

Available liquidity for the coming year 1,641 2,135


(1) At 31 March 2006, this amount includes €229 million of cash and cash equivalents held in countries subject to legal or statutory restrictions. Such restrictions can limitthe use of such cash and cash equivalents by the parent company and the other Group’s subsidiaries.

(2) See Note 22 A.

NOTE 29. EMPLOYEE BENEFIT EXPENSE AND NUMBER OF EMPLOYEES

Year ended 31 March (in € million except number of employees) 2006 2005

Total wages and salaries 2,668 2,723Of which Executive Officers 8 6

Social charges 642 744Pension benefit expense (see Note 21) 251 234Share-based payments expense (see Note 30) 54 3

Total employee benefit expense 3,615 3,704

Staff of consolidated companies Managers, Engineers and professionals 22,548 23,691Other employees 42,690 45,903

Approximate number of employees 65,238 69,594

The information above includes the Marine Sector.



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Stock option plans 3 to 6, granted between 2001 and 2003,gradually vest by one-third a year during the first three yearsfollowing the grant.

Stock option plans 7 and 8, granted between 2004 and 2005,become vested after a period of three years.

The exercise period then covers seven years for each plan.

Plan 7 is also subject to the following conditions of exercise:50% of options granted to each beneficiary are subject to

exercise conditions relating to the Group’s free cash flow andoperating margin for fiscal year 2006. The conditional optionsare exercised entirely only if, at the closing of fiscal year ended31 March 2006, the Group’s free cash flow is positive and theGroup’s operating margin is superior or equal to 5% (percentageapplicable to free cash flow and operating margin under IFRSstandards). Below these thresholds the options would be partiallyexercisable. They would be forfeited if the free cash flow isnegative at more than €500 million or if the operating marginis below 5%. At 31 March 2006, these exercise conditionshave been fulfilled.

NOTE 30. SHARE-BASED PAYMENTS

A. Detail of stock option plans

Plan n°3 Plan n°5 Plan n°6 Plan n°7 Plan n°8

Date of shareholders meeting 24 July 2001 24 July 2001 24 July 2001 9 July 2004 9 July 2004

Grant date 24 July 2001 8 January 2002 7 January 2003 17 September 2004 27 September 2005

Exercise price (1) €1,320 €523.60 €240 €17.20 €35.75

Adjusted exercice price (2) €819.20 €325.20 €154.40 - -

Beginning of exercise period 24 July 2002 8 January 2003 7 January 2004 17 September 2007 27 September 2008

Expiration date 23 July 2009 7 January 2010 6 January 2011 16 September 2014 26 September 2015

Number of beneficiaries 1,703 1,653 5 1,007 1,030

Number of options initially granted 105,000 105,000 30,500 2,783,000 1,401,500

Number of options exercised since the origin - - - - -

Number of options cancelled 45,394 42,955 - 68,000 38,000

Adjusted number of remaining options at 31 March 2006 (2) 119,400 124,554 47,489 2,715,000 1,363,500Number of shares that may be subscribed by the actual members of the Executive Committee 3,105 4,229 46,709 610,000 312,500

(1) Subscription price, restated following the consolidation of shares, corresponding to the average opening price of the shares during the twenty trading days precedingthe day on which the options were granted by the Board (no discount or surcharge) or the nominal value of the share when the average share price is lower.

(2) Plans n°3, 5 and 6 have been adjusted in compliance with French law as a result of the completion of the operations which impacted the share capital in 2002, 2003and August 2004.

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SARs plan 7 will be settled partially or fully to the extent vested asselected by the beneficiary on any of the following exercise dates:1 April 2008, 1 April 2009 and 1 April 2010. In the absenceof an effective election, on each of the exercise date, one third,one half and all of the outstanding beneficiary’s vested SARs willbe settled on each date respectively.

One third of the participant’s vested Notional SARs plan will be automatically settled on 1 April 2009, 1 April 2010 and1 April 2011.

B. Detail of stock appreciation rights (“SARs”) plans

SARs n°7 SARs n°8 Notional SARs

Grant date 1 December 2004 18 November 2005 16 December 2005

Exercise price (1) €17.20 €44.90 €35.75

Vesting date 17 September 2007 27 September 2008 27 September 2008

Expiration date 1 April 2010 18 November 2015 1 April 2011

Number of beneficiaries 114 120 120

Number of SARs initially granted 233,000 116,000 116,000

Additional grants 6,000 - -

Number of SARs exercised since the origin 2,000 - -

Number of SARs cancelled 28,000 2,500 2,500

Number of remaining SARs at 31 March 2006 209,000 113,500 113,500

Terms and conditions of exercise Exercise period: SARs exercisable • 1/3 of SARs settled • 1 April 2008 as from • automatically as from • 1 April 2009 27 September 2008 • 1 April 2009• 1 April 2010 • 1/3 of SARs settled

• automatically as from • 1 April 2010• 1/3 of SARs settled • automatically as from • 1 April 2011




C. Movements in stock option plans and stock appreciation rights plans

Stock option plans Weighted

Number of average exercise options price per share

Outstanding at 1 April 2004 321,389 506.00

Granted 2,783,000 17.20Exercised - -Cancelled (59,040) 286.80

Outstanding at 31 March 2005 3,045,349 63.60



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SARs plans Weighted

Number average exercise of SARs price per share

Outstanding at 1 April 2004 - -

Granted 239,000 17.20Exercised - -Cancelled (5,000) 17.20

Outstanding at 31 March 2005 234,000 17.20

Granted 232,000 35.75Exercised (2,000) 17.20Cancelled (28,000) 21.15

Outstanding at 31 March 2006 436,000 29.24

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D. Valuation of stock option plansIn compliance with the transitional measures of IFRS 2 standard,only stock option plans granted after 7 November 2002 andnot fully vested at 1 January 2005 are subject to a valuation,i.e. plans 6, 7 and 8 only.

Employees’ expenses recorded in that respect amount to€10 million for the year ended 31 March 2006 (€3 million forthe year ended 31 March 2005).

The option valuation method follows a binomial mathematicalmodel, with exercise of the options anticipated and spreadover the exercise period on a straight-line basis. The volatilityfactor applied is an average of CAC 40 comparablecompanies’ volatility at the grant date, which represents avalue consistent with market practices and is considered morerelevant given the significant volatility of the Group’s shareprice over the last few years.

Plan n°6 Plan n°7 Plan n°8

Grant date 7 January 2003 17 September 2004 27 September 2005End of vesting period 7 January 2006 17 September 2007 27 September 2008Expected life of options 4 years 4 years 4 yearsExercise price (€) 154.40 17.20 35.75Share price at grant date (€) 150.97 17.60 36.80Volatility 51% 51% 34%Risk-free interest rate 3.2% 3.0% 2.5%Average dividend yield (%) 0% 0.67% 1.33%Weighted average fair value (€) 63.76 7.32 10.33Expense for the year ended 31 March 2006 (in € million) 1 7 2

F. Free shares

On 17 November 2005, the Group announced the attributionof twelve free shares to all employees, or the equivalent incash (SARs) depending on the conditions in each country. This

attribution was subject to two conditions: a Group’s operatingmargin of at least 5% and a positive free cash flow. Theseconditions have been fulfilled at 31 March 2006 and thisattribution confirmed by the Board of Directors.

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E. Valuation of stock appreciation rights (SARs) plans

The value of SARs plans is measured at the grant date using abinomial model taking into account the terms and conditionsupon which the instruments were granted. The liability isrecognised over the expected vesting period. Until the liabilityis settled, it is measured at each reporting date with changesin fair value recognised in profit and loss.

SARs n°7 SARs n°8 Notional SARs(1)

Grant date 1 December 2004 18 November 2005 16 December 2005End of vesting period 17 September 2007 27 September 2008 27 September 2008Exercise price (€) 17.20 44.90 35.75Share price at 31 March 2006 (€) 69.20 69.20 69.20Volatility 34% 34% 34%Risk-free interest rate 3.4% 3.4% 3.4%Average dividend yield (%) 1.50% 1.33% 1.50%Weighted average fair value (€) 50.67 30.22 5.74Expense for the year ended 31 March 2006 (in € million) 5 - -

(1) SARs of the Notional plan have been granted at an exercise price of €35.75 and are capped to €44.90.

Employees’ expenses recorded in that respect amount to €5 million for the year ended 31 March 2006 (€0.3 millionfor the year ended 31 March 2005). At 31 March 2006,liabilities related to these three SARs plans are recorded in thebalance sheet for an amount of €5 million.



For the year ended 31 March 2006, an expense of €40 million has therefore been recorded on the following basis:

Grant date 17 November 2005Share price at grant date (€) 44.92Share price at 31 March 2006 (€) 69.20Number of free shares to be granted 600,000Number of free SARs to be granted 120,000Expense for the year ended 31 March 2006 (in € million): 40Of which: Free shares 27

Free SARs 8Social charges on free shares 4Social charges on free SARs 1

At 31 March 2006, the portion to be settled in shares of €27 million has been recorded through equity. The remaining portion tobe settled in cash and the social charges for the whole attribution of €13 million have been recorded in liabilities in the balance sheet.

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The consideration and related benefits of the CEO and Chairmanof the Board of Directors amounts to €2.2 million for the yearended 31 March 2006 (€1.6 million for the year ended31 March 2005). The consideration and related benefits comprisea fixed and a variable portion, employer social security leviesand charges related to retirement compensation and thecomplementary pension scheme.

Directors’ fees amount to €342,500 for the year ended 31 March2006 (€326,250 for the year ended 31 March 2005) of which€0 for the CEO and Chairman of the Board of Directors forthe year ended 31 March 2006 (€52,500 for the year ended31 March 2005).

NOTE 31. RELATED PARTIES

On 26 April 2006, ALSTOM and Bouygues signed amemorandum of understanding for operational and commercialcooperation, which is to accompany the purchase by Bouyguesof the 21.03% stake of the French State in ALSTOM. Thepurchase of shares by Bouygues, which is subject to mergercontrol clearance by the European Commission and the closingof the ALSTOM Marine disposal, is expected to occur within ashort period.

Bouygues also intends to take a 50% equity share in ALSTOM'sHydro Power Equipment Business; the corresponding terms areunder discussion. This operation would allow ALSTOM to fulfilthe commitment made to the European Commission to set up ajoint venture in this sector.

NOTE 32. SUBSEQUENT EVENTS

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NOTE 33. MAJOR COMPANIES INCLUDED IN THE SCOPEOF CONSOLIDATION

The major companies of the Group are listed below and selected according to one of the following criteria: • holding companies, • sales above €50 million at 31 March 2006.

ConsolidationCompanies Country Ownership % Method

ALSTOM SA France – Parent companyALSTOM (Switzerland) Ltd Switzerland 100.0 Full consolidationALSTOM Espana IB SL (holding) Spain 100.0 Full consolidationALSTOM Gmbh (holding) Germany 100.0 Full consolidationALSTOM Hydro Holding (1) France 100.0 Full consolidationALSTOM Holdings France 100.0 Full consolidationALSTOM Inc (holding) United States 100.0 Full consolidationALSTOM Mexico SA de CV (holding) Mexico 100.0 Full consolidationALSTOM NV (holding) Netherlands 100.0 Full consolidationALSTOM Power Holdings SA France 100.0 Full consolidationALSTOM Transport Holding (1) France 100.0 Full consolidationALSTOM UK Holding Ltd United Kingdom 100.0 Full consolidationALSTOM Australia Ltd Australia 100.0 Full consolidationALSTOM Belgium SA Belgium 100.0 Full consolidationALSTOM Brasil Ltda Brazil 100.0 Full consolidationALSTOM Canada Inc Canada 100.0 Full consolidationALSTOM Controls Ltd United Kingdom 100.0 Full consolidationALSTOM Ferroviaria Spa (2) Italy 100.0 Full consolidationALSTOM K.K. Japan 100.0 Full consolidationALSTOM LHB GmbH Germany 100.0 Full consolidationALSTOM Ltd (3) India 100.0 Full consolidationALSTOM Ltd United Kingdom 100.0 Full consolidationALSTOM NL Service Provision Ltd United Kingdom 100.0 Full consolidationALSTOM Power Asia Pacific Sdn Bhd Malaysia 100.0 Full consolidationALSTOM Power Boiler GmbH Germany 100.0 Full consolidationALSTOM Power Centrales France 100.0 Full consolidationALSTOM Power Conversion GmbH Germany 100.0 Full consolidationALSTOM Power Energy Recovery GmbH Germany 100.0 Full consolidationALSTOM Power Environment France 100.0 Full consolidationALSTOM Power Generation AG Germany 100.0 Full consolidationALSTOM Power Hydraulique France 100.0 Full consolidationALSTOM Power Hydro France 100.0 Full consolidationALSTOM Power Inc United States 100.0 Full consolidationALSTOM Power Italia Spa Italy 100.0 Full consolidationALSTOM Power Ltd Australia 100.0 Full consolidationALSTOM Power Norway AS Norway 100.0 Full consolidationALSTOM Power O&M AG Switzerland 100.0 Full consolidationALSTOM Power SA Spain 100.0 Full consolidationALSTOM Power Service GmbH Germany 100.0 Full consolidationALSTOM Power Service Ltd United Arab Emirates 100.0 Full consolidation



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ConsolidationCompanies Country Ownership % Method

ALSTOM Power Service France 100.0 Full consolidationALSTOM Power Sp Zoo Poland 100.0 Full consolidationALSTOM Power Sweden AB Sweden 100.0 Full consolidationALSTOM Power (Thailand) Ltd Thailand 100.0 Full consolidationALSTOM Power Turbomachines France 100.0 Full consolidationALSTOM Projects India Ltd India 68.5 Full consolidationALSTOM Signalling Inc. United States 100.0 Full consolidationALSTOM Transport BV Netherlands 100.0 Full consolidationALSTOM Transport SA France 100.0 Full consolidationALSTOM Transport Systems SpA (2) Italy 100.0 Full consolidationALSTOM Transportation Inc United States 100.0 Full consolidationALSTOM Transporte Spain 100.0 Full consolidationAPC Power Conversion GmbH (4) Germany 100.0 Full consolidationAPC Power Conversion SAS (4) France 100.0 Full consolidationChantiers de l’Atlantique France 100.0 Full consolidationEukorail South Korea 100.0 Full consolidationPT ALSTOM Power Energy Systems Indonesia 87.0 Full consolidationTianjin ALSTOM Hydro Co Ltd China 99.0 Full consolidationWest Coast Traincare United Kingdom 100.0 Full consolidation

(1) Created during the year.

(2) ALSTOM Transport Systems SpA merged into ALSTOM Ferrovaria SpA at 31 March 2006.

(3) Sold during the year. .

(4) Created and sold during the year.

Companies included in the list of major companies at 31 March 2005 for which sales are below €50 million at 31 March 2006:

ALSTOM Leroux Naval France 100.0 Full consolidationALSTOM Power Boilers France 100.0 Full consolidationALSTOM Power FlowSystems A/S Denmark 100.0 Full consolidationALSTOM Power Conversion SA France 100.0 Full consolidationALSTOM Power Conversion Inc United States 100.0 Full consolidation

Companies included in the list of major companies at 31 March 2006 for which sales were below €50 million at 31 March 2005:

ALSTOM Signalling Inc. United States 100.0 Full consolidationALSTOM Power (Thailand) Ltd Thailand 100.0 Full consolidationALSTOM Power Environment France 100.0 Full consolidationALSTOM Transport Systems SpA Italy 100.0 Full consolidationEukorail South Korea 100.0 Full consolidationPT ALSTOM Power Energy Systems Indonesia 87.0 Full consolidationTianjin ALSTOM Hydro Co Ltd China 99.0 Full consolidationALSTOM Power Turbomachines France 100.0 Full consolidation

A list of all consolidated companies is available upon request at the head office of the Group.

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NOTE 34. FRENCH GAAP/IFRS RECONCILIATION

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This note describes the principles applied to prepare the IFRSopening balance sheet as at 1 April 2004, the transition date,as well as the differences compared with French generallyaccepted principles (“French GAAP”) applied in prior yearsand their impact on the 2004/05 opening and closing balancesheets and income statement.

A. BackgroundFollowing the coming into force of European ReportingRegulation n°1606/2002 as of 19 July 2002, consolidatedfinancial statements of the Group for the year ended 31 March2006 are prepared in accordance with International FinancialReporting Standards (IAS/IFRS) as approved by the EuropeanUnion. These first published financial statements under IAS/IFRSstandards are presented with comparative information relatedto the previous period converted to the same standards, exceptthe IAS 32, IAS 39 and IFRS 5 standards which are appliedfrom 1 April 2005.

Therefore, the preparation of the 2005/06 IFRS consolidatedfinancial statements includes the restatement from French GAAPto IFRS of:• the balance sheet at the transition date (1 April 2004);• the balance sheet as at 31 March 2005, the income

statement, the cash flow statement and the changes in equityfor the year ended 31 March 2005.

The 2004/05 financial information on the financial impactof the transition to IFRS has been prepared by applying to2004/05 French GAAP financial data the IAS/IFRS standardsand interpretations applicable for the preparation of itscomparative consolidated financial statements as at 31 March2006. The basis of this preparation results from:• IAS/IFRS standards and interpretations applicable for annual

periods beginning on or prior to 1 April 2005;• the options and exemptions that the Group has applied for

the preparation of the 2005/06 consolidated financialstatements.

This information has been reviewed by the Board of Directorsand the Audit Committee.

B. Options taken at first-time adoption of IFRS at 1 April 2004 (transition date)

The 2004/05 consolidated financial statements have beenrestated in accordance with IFRS 1 – First-time Adoption ofInternational Financial Reporting Standards, based on theIAS/IFRS applicable for annual periods beginning on or priorto 1 April 2005.

To prepare the opening IFRS balance sheet at 1 April 2004 andthe restated consolidated financial statements for the year ended31 March 2005, the Group has applied the followingoptions/exemptions as authorised by IFRS 1:

Employee benefitsThe Group has elected to adopt the complete retrospectiveapplication of IAS 19.

The complete retrospective application has been made possible,due to the short existence of certain present pension plans:• plans recently carved out from multi-employer schemes (mainly

in the United Kingdom),• plans included in recent business combinations (mainly

acquisition of ABB ALSTOM POWER in 1999 and 2000).

With the support of its actuaries, the Group has restated toIFRS the obligations and the related assets of all significantplans and split the cumulative actuarial gains and losses fromthe inception of the plans until 1 April 2004 into a recognisedportion and an unrecognised portion.

The Group has elected to maintain the “corridor” methodalready adopted under French GAAP which leaves a portionof actuarial gains or losses unrecognised: the “corridor” methodis therefore used for the restatement of pension assets andaccrued pension liabilities at the date of transition to IFRS (1 April2004), as well as for their subsequent remeasurements at 31 March 2005.

Business combinationsThe Group has elected not to apply IFRS 3 retrospectively to pastbusiness combinations prior to 1 April 2004.



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Financial instrumentsThe Group has elected not to restate comparative informationfor IAS 32-39 standards. Comparative information does notcomply with these standards in the first year of transition 2004-2005.

Fair value or revaluation at deemed cost of property, plant and equipment net and other intangible assets netThe Group has decided not to apply the exemption providedfor in IFRS 1, allowing fair value of property, plant and equipmentand other intangible assets to be used as their deemed cost in theIFRS opening balance sheet at 1 April 2004. Therefore, theoption chosen by the Group has no impact on equity in the IFRSopening balance sheet at 1 April 2004.

Cumulative translation differences The cumulative translation differences at 1 April 2004 havebeen set to zero through the consolidated reserves, leavingthe shareholders’ equity unchanged. The gain or loss on asubsequent disposal of any foreign operation will thereforeexclude translation differences that arose before 1 April 2004and include later translation differences.

Share-based paymentsThe Group has elected to apply IFRS 2 standard from 1 April2004 for all plans granted after 7 November 2002 and notfully vested at 1 January 2005.

The IAS 32 and IAS 39 standards relating to financialinstruments as well as the IFRS 5 standard relating to assetsheld for sale and discontinued operations have been appliedfrom 1 April 2005.

C. Description of the IFRS restatements and reclassifications

The reconciliation of movements in equity between French GAAP and IFRS for the year ended 31 March 2005 is as follows:

Conversion of Net profit ORA/TSDDRA

year ended increase/ Dividends Cumulative At 1 April 31 March decrease paid translation At 31 March

(in € million) 2004 2005 in capital & other adjustments 2005

Shareholders' equity 29 (865) 2,044 - (26) 1,182Minority interests 68 1 - 8 (3) 74

Equity French GAAP 97 (864) 2,044 8 (29) 1,256

Employee benefits 28 1 29Capitalisation of development costs 151 13 164Deferred tax liabilities on intangible assets (188) 12 (176)Amortisation of goodwill - 223 223Finance leases and other (20) (12) 2 (30)

Total IFRS restatements, net of tax effects (29) 237 - - 2 210

Equity IFRS 68 (627) 2,044 8 (27) 1,466

Shareholders' equity 2 (628) 2,044 4 (24) 1,398Minority interests 66 1 - 4 (3) 68

A reconciliation between French GAAP and IFRS is presented at the end of the document on the following statements:• balance sheets as at 1 April 2004 and 31 March 2005;• income statement for the year ended 31 March 2005;• cash flow statement for the year ended 31 March 2005.

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The financial component of rents related to finance leases,previously included in cost of sales (€6 million as at 31 March2005) and in administrative expenses (€6 million as at 31 March 2005) under French GAAP, has been transferredto financial expenses under IFRS.

The portion of rents remaining in cost of sales and administrativeexpenses under IFRS corresponds to the depreciation of theleased assets.

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1. IFRS restatements

Leases - IAS 17Under French GAAP, in accordance with an option given by theAccounting Principles and Règlement 99-02 of the Comité deRéglementation Comptable, the Group had elected not tocapitalise finance lease arrangements and a long-term rental.

Finance leases

The capitalisation of finance leases has the following effects on the consolidated balance sheets:

At 1 April At 31 March(in € million) 2004 2005

Land 2 2 Buildings 267 266 Machinery and equipment 85 72 Tools, furniture, fixtures and others 65 85

Gross value 419 425

LandBuildings (52) (67)Machinery and equipment (31) (36)Tools, furniture, fixtures and others (40) (61)

Accumulated depreciation (123) (164)

Land 2 2 Buildings 215 199 Machinery and equipment 54 36

Tools, furniture, fixtures and others 25 24

Net value 296 261

Non-current financial debt (257) (230)

Current financial debt (45) (38)

Obligation under finance leases (302) (268)

Net deferred tax 3 3

Impact on equity (3) (4)

Under IAS 17, finance leases, i.e. that transfer substantiallyall risks and rewards incidental to ownership of an asset, haveto be recognised as assets and liabilities in the balance sheet.

The finance leases of the Group have been capitalised in thebalance sheet as follows:• in property, plant and equipment, net for the finance leases,• in other non-current assets, net for the long-term rental.



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Long-term rental

Pursuant to a contract signed in 1995 with a major Europeanmetro operator, the Group has sold 103 trains and associatedequipment to two leasing entities. These entities have enteredinto an agreement by which the Group leases back the trains

and associated equipment from the lessors for a period of 30 years. The trains are made available for use by the metrooperator for an initial period of 20 years, extendable at theoption of the operator for a further ten-year period. The trainsare being maintained and serviced by the Group.

Development costs – IAS 38Under French GAAP, the Group had elected to expense researchand development costs as incurred.

Under IFRS, in accordance with IAS 38 standard, developmentcosts meeting the following criteria are capitalised:• the project is clearly defined and its related costs are

separately identified and reliably measured,• the technical feasibility of the project is demonstrated,• the intention exists to complete the project and to use or

sell it,• adequate financial resources are available to complete

the project,• it is probable that the future economic benefits attributable to

the project will flow to the Group.

Capitalised development costs are amortised on a straight-linebasis over the estimated useful life of the development asset.

In the IFRS opening balance sheet as at 1 April 2004,€315 million development costs net have been capitalised(€368 million of cumulated development costs less €53 millionof cumulative amortisation). As part of these costs (€108 million)were previously recorded in work in progress, the impact on theopening equity amounts to €151 million after a deferred taxeffect of €53 million attached to the capitalisation.

In the year ended 31 March 2005, the capitalisation ofdevelopment costs has a negative impact of €3 million on theincome from operations and a positive impact of €13 million

on the net income. The €16 million tax credit includes thereduction by €28 million of the deferred tax valuation allowancerecorded under French GAAP as a result of the recognition forthe same amount of a deferred tax liability on developmentcosts capitalised.

In the balance sheet as at 31 March 2005, €301 milliondevelopment costs net have been capitalised (€436 million ofcumulated development costs less €135 million of cumulativeamortisation and depreciation). As part of these costs(€97 million) were previously recorded in work in progress, theimpact on the equity as at 31 March 2005 amounts to€164 million after a deferred tax effect of €37 million attachedto the capitalisation.

Employee benefits – IAS 19According to IFRS 1, which governs the preparation of thebalance sheet at the transition date, two alternative treatmentsof unrecognised actuarial gains or losses could be considered:• immediate recognition in the balance sheet of all actuarial

gains or losses related to pension benefits existing at the date of transition, measured according to IAS 19(Employees benefits) or,

• complete retrospective application of IAS 19 since inceptionof all plans with cumulative amortisation of actuarial gains and losses, as if the standard had been applied in theprevious years.

The Group has elected to adopt the complete retrospectiveapplication of IAS 19.

The capitalisation of long-term rental has the following effects on the consolidated balance sheets:

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At 1 April At 31 March(in € million) 2004 2005

Other non-current assets 683 650

Non-current financial debt (672) (637)

Current financial debt (11) (13)

Obligation under finance leases (683) (650)

Impact on equity - -

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A limited number of discrepancies have been identified betweenIAS 19 and the valuation method used by the Group under FrenchGAAP and the impact of the restatement of pension assets andaccrued liabilities is marginal.The main differences relate to the following items:• Measurement date:

The measurement date for liabilities and dedicated planassets is required at year-end date by IAS 19 while it wasperformed three months before year-end date under FrenchGAAP.

The impact on the equity position is the following:

At 1 April 2004(in € million) French GAAP Restatement IFRS

Pension assets 357 32 389

Accrued pensions and retirement benefits (842) (2) (844)

Net pension liability (485) 30 (455)

Other payables (18) 9 (9)Net deferred tax (11)

Impact on equity 28

At 31 March 2005(in € million) French GAAP Restatement IFRS

Pension assets 353 21 374

Accrued pensions and retirement benefits (826) 2 (824)

Net pension liability (473) 23 (450)

Other payables (9) 9

Net deferred tax (3)

Impact on equity 29

• Asset ceiling:In case of overfunding, IAS 19 prescribes a limitation topension assets to be recognised. Such limitation did not existunder French GAAP.

• Plan amendments and curtailments due to restructuring events:The treatment of impacts (immediate recognition or deferral)differs between IAS 19 and French GAAP.



115

The net periodic cost under IFRS compared with the net periodic cost under French GAAP for the year ended 31 March 2005 isthe following:

(in € million) French GAAP Variation IFRS

Service cost (82) 2 (80)Interest cost (218) 1 (217)Expected return on plan assets 198 2 200Amortisation of unrecognised past service cost - 5 5Amortisation of actuarial net loss (gain) (55) (2) (57)Curtailments/Settlements 3 1 4

Net benefit expense (154) 9 (145)

Multi-employer contributions (21) - (21)

Total benefit expense (175) 9 (166)

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As a result, the total benefit expense under IFRS is broken downas follows in the consolidated income statement for the yearended 31 March 2005:

(in € million)

Service cost (80)Multi-employer contributions (21)

Income from operations (101)Amortisation of unrecognised past service cost 5Amortisation of actuarial net (loss) gain (57)Curtailments/Settlements 4

Other income (expense) (48)Interest cost (217)Expected return on plan assets 200

Financial income (expense) (17)

Total benefit expense (166)

The impact on the income statement for the year ended 31 March 2005 is composed of the following:• a remeasurement of the benefit expense according to the

IAS 19 standard resulting in a positive impact of €2 millionin the income from operations, a negative impact of €5 million on the pre-tax income;

• a reclassification of a portion of the benefit expense: underFrench GAAP, the total amount of the benefit expense wasclassified below operating income as other expense. UnderIFRS, the service cost is included in the income fromoperations. The amortisation of actuarial net loss (gain) as wellas unrecognised prior service cost and the impacts ofcurtailments and settlements remain recognised in otherincome (expenses). The financial elements of the benefitexpense such as interest cost and asset returns are includedin financial income (expenses).

At 31 March 2005, the full pension disclosure under IFRS is as follows:

Change in benefit obligations(in € million)

Benefit obligations at beginning of year (4,137)Service cost (80)Plan participants contributions (29)Interest cost (217)Plan amendments (5)Business combinations/disposals (17)Curtailments 17 Settlements 102 Actuarial loss (274)Benefits paid 283 Foreign currency translation 101

Benefit obligations at end of year (4,256)

Change in plan assets(in € million)

Fair value of plan assets at beginning of year 2,800 Actual return on plan assets 286 Company contributions 99 Plan participant contributions 28 Business combinations/disposals 19 Settlements (115)Benefits paid (210)Foreign currency translation (80)

Fair value of plan assets at end of year 2,827

Funded status of the plan (1,429)

Unrecognised actuarial loss (gain) 1,009 Unrecognised past service cost (30)

(Accrued) prepaid benefit cost (450)

Of which:Accrued pensions and retirement benefits (824)Pension assets 374

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Amortisation of goodwill – IFRS 3Under French GAAP, the Group amortised goodwill on thestraight-line basis over a period of twenty years in all Sectors.An impairment test is performed annually.

In accordance with IFRS 3 standard, goodwill is no longeramortised. Cash-generating units to which goodwill has beenallocated are tested for impairment annually or more frequentlywhen there is an indication that the unit may be impaired.

The impact of the cessation of the goodwill amortisation onthe 2004/05 income statement and on the equity as at 31 March 2005 is positive by €223 million.

Income taxes – IAS 12Changes in deferred taxes assets and liabilities result from bothIAS 12 implementation and tax effects triggered by other IFRSrestatements.(1) Under French GAAP, deferred tax liabilities were not raised on

intangible assets which were recognised when accounting fora business combination and which were not able to be soldseparately from the acquired entity. According to the IAS 12

standard, deferred tax liabilities are recognised on all intangibleassets acquired in business combination. Therefore, a deferredtax liability has been recognised on the other intangible assetsresulting from the allocation of the purchase price following theacquisition of ABB ALSTOM POWER, leading to an increasein the deferred tax liabilities of €176 million at 31 March 2005(€188 million at 1 April 2004).

(2) The other tax effects mainly result from the following IFRSrestatements:• in accordance with IAS 38 “Intangible assets”, capitalisation

of development costs led to the recognition of a net deferredtax liability of €37 million at 31 March 2005 (€53 millionat 1 April 2004). In the year ended 31 March 2005, thedeferred tax liability recognised on the capitaliseddevelopment costs in France (€28 million) triggered areduction of the same amount of the valuation allowancethat was recorded under French GAAP;

• in accordance with IAS 19 “Employee benefits”, therestatement of the pension schemes following theapplication of the retrospective method led to therecognition of a net deferred tax liability of €3 million at31 March 2005 (€11 million at 1 April 2004).

Under French GAAP, the Group was satisfied as to the recoverability of the deferred tax assets, net at 31 March 2005and 1 April 2004. Under IFRS, the assessment remains unchanged.

As under French GAAP, IAS 12 revised permits to offset deferredtax assets and liabilities if the entity has a legally enforceableright to set off current tax assets against current tax liabilities andthe deferred tax assets and deferred tax liabilities relate to incometaxes levied by the same taxation authority. Following the change

in gross deferred tax assets and deferred tax liabilities, the taxnetting was recalculated leading to the recognition ofan additional netting of €228 million at 31 March 2005(€232 million at 1 April 2004).

In accordance with IAS 1 ”Presentation of financial statements”, alldeferred tax assets and liabilities are reflected as non-current assetsand non-current liabilities in the consolidated financial statement andare presented separately on the face of the balance sheet.



At 1 April At 31 March(in € million) 2004 Variation 2005

Net deferred tax asset under French GAAP 1,531 (182) 1,349

Deferred tax on intangible assets (188) 12 (176)Capitalisation of development costs (53) 16 (37)Employee benefits (11) 8 (3)Other 10 5 15

Net deferred tax asset under IFRS 1,289 (141) 1,148

117

Other IFRS restatementsThe other restatements mainly relate to the following:• under French GAAP, start-up costs of certain activities and

costs related to bonding programmes were recognised infixed assets and deferred charges respectively, and amortised.Under IFRS, these costs are expensed as incurred, as they donot satisfy the definition and recognition criteria requestedto be maintained in assets. Consequently, €24 million costsless €7 million related deferred taxes have been written offagainst the opening equity at 1 April 2004. In the balancesheet as at 31 March 2005, €38 million costs less€12 million related net deferred taxes have been written offagainst equity. The impact on the 2004/05 income statementis a decrease of €10 million on the net income;

• under French GAAP, no charge is recorded with respect tostock options. In accordance with IFRS 2 standard, stockoption compensation should be accounted for. As the Grouphas elected not to adopt the full retrospective applicationoption, IFRS 2 is only applicable to stock option plans grantedafter 7 November 2002 and not fully vested at 1 January 2005,i.e. plan 6 and plan 7 as well as any future plans. Theimpact on the 2004/05 income statement is a charge of €2 million in the income from operations.

2. IFRS reclassifications

IAS 11 – Construction contracts/IAS 18 – RevenuerecognitionUnder IFRS, penalties are deducted from contract sales whereasthey were recorded in cost of sales under French GAAP. Thisdifference results in a €135 million reclassification in the incomestatement as at 31 March 2005 reducing sales and cost ofsales by the same amount with no effect on either the openingequity as at 1 April 2004 or the income from operations inthe year ended 31 March 2005.

In accordance with IAS 11, the aggregate amount of costsincurred to date plus recognised margin less progress billingsis determined on a contract-by-contract basis. If the amount ispositive, it is included as an asset under “Construction contractsin progress, assets”. If the amount is negative, it is includedas a liability under “Construction contracts in progress, liabilities”.Down payments received represent the amounts received from

customers before work starts. Any subsequent payment requestedfrom customers is recorded as progress billings. When a contractis completed, residual obligations are recorded in currentprovisions or in payables depending on the certainty of thetiming and the amount. The application of this standard resultsin several reclassifications within current assets and liabilities aswell as provisions with no impact on the net working capital.

Other reclassificationsThe other reclassifications on the face of the balance sheetmainly relate to the following:• in accordance with IAS 1 ”Presentation of financial

statements”, current and non-current assets and liabilities arepresented separately. The application of this standard hastherefore resulted in a breakdown of the provisions andfinancial debt between current and non-current. Provisionson contracts are considered as current whereas otherprovisions including restructuring provisions are considered asnon-current. Financial debt with a maturity of less than one yearis considered as current when the financial debt with maturityover one year is considered as non-current;

• in accordance with IAS 7 “Cash flow statements”, bankoverdrafts, which are repayable on demand, form an integralpart of the cash management and are therefore included asa component of cash and cash equivalent. Bank overdraftshave been reclassified from financial debt to cash and cashequivalents, resulting in a reduction of these two captions inthe balance sheet at 1 April 2004 and 31 March 2005by €78 million and €58 million, respectively. Thesereclassifications have no impact on the net financial debt.

The other reclassifications on the face of income statementmainly relate to the following:• in accordance with IAS 38 “Intangible assets”, the

amortisation expense of other intangible assets, which waspresented below operating income under French GAAP, hasbeen reclassified in the income from operations for an amountof €59 million for the year ended 31 March 2005;

• in addition, certain costs relating to exiting and reorganisingactivities (€23 million) as well as employee profit-sharing(€8 million), which were classified below income fromoperations under French GAAP, have been reclassified withincost of sales under IFRS.

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3. Changes in key indicators

Reconciliation Operating income/Income from operationsfor the year ended 31 March 2005Under French GAAP, operating income (loss) included grossmargin, administrative and selling expenses and research anddevelopment expenses. It was measured before restructuring costs,goodwill and amortisation of intangible assets, and other itemsincluding foreign exchange gains and losses, gains and losses onsale of assets, pension costs and employee profit-sharing andbefore taxes, interest income and expenses.

Under IFRS, income (loss) from operations includes gross margin,administrative and selling expenses and research and developmentexpenses. It includes, in particular, the service cost of pensions, costof share-based payments transactions, employee profit-sharing,fair value changes of derivative instruments associated withoperating transactions (from 1 April 2005) and capital gains(losses) on disposal of intangible and tangible assets arising fromordinary activities.

For the year ended 31 March 2005, the reconciliation of theoperating income under French GAAP with the income fromoperations under IFRS is as follows:

(in € million)

Operating income French GAAP 550

Pension service cost and multi-employer contributions (103)Amortisation of intangible assets (59)Employee profit-sharing (8)Other (23)

IFRS reclassifications (193)

Operating income after IFRS reclassifications 357

Pension costs 2Finance leases 12Capitalisation of development costs (3)Share-based payments and other (1)

IFRS restatements 10

Income from operations 367



119

Reconciliation sales and income from operations by Sector for the year ended 31 March 2005

Year endedPower Turbo-Systems / Power Power Corporate 31 March

(in € million) Power Environment Service Transport Marine Conversion & Other 2005

Sales French GAAP 4,256 2,844 5,134 630 539 259 13,662

Sales IFRS 4,190 2,832 5,100 607 536 262 13,527

Operating income (French GAAP) (35) 473 260 (103) 36 (81) 550

Employee benefits (32) (41) (20) (1) (5) (2) (101)Amortisation of intangible assets (35) (24) (59)Capitalisation of development costs 21 (24) (3)Finance leases 1 5 4 1 1 12Employee profit-sharing (5) (1) (2) (8)Other (22) 1 (2) (1) (24)

IFRS impacts (72) (61) (42) - (6) (2) (183)

Income from operations (IFRS) (107) 412 218 (103) 30 (83) 367

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Appendices to the French GAAP/IFRS reconciliation

CONSOLIDATED BALANCE SHEET AT 1 APRIL 2004

At 1 April Finance Development2004* leases costs

(in € million) French GAAP IAS 17 IAS 38

AssetsGoodwill 3,424Intangible assets, net 956 315Property, plant and equipment, net 2,262 296Investments in equity method investees and other investments, net 160Other non-current assets, net 1,102 683Deferred taxes 1,561 4

Total non-current assets 9,465 983 315

Inventories, net 2,997 (108)Construction contracts in progress, assets 0Trade receivables, net 3,462Other current assets, net 2,160Short-term investments 39Cash and cash equivalents 1,427

Total current assets 10,085 0 (108)

Total assets 19,550 983 207

LiabilitiesShareholders’ equity and minority interests 97 (3) 151

Bonds reimbursable with shares 152

Non-current provisions 3,484Accrued pension and retirement benefits 842Non-current financial debt 5,199 929

Deferred taxes 30 1 53

Total non-current liabilities 9,555 930 53

Current provisions 0Current financial debt 0 56Customers’ deposits and advances 2,714Construction contracts in progress, liabilities 0Trade payables 3,130

Other current liabilities 3,902 3

Total current liabilities 9,746 56 3

Total liabilities 19,550 983 207

* Amended opening balance sheet at 1 April 2004 pursuant to the first application of the Règlement CRC 2004-03.

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Employee Income Construction At 1 April benefits taxes Other IFRS contracts Other IFRS 2004IAS 19 IAS 12 restatements restatements IAS 11 reclassifications reclassifications IFRS

0 0 3,424315 13 13 1,284

(18) 278 (13) (13) 2,5270 0 160

32 715 0 1,81724 (232) 7 (197) 0 1 364

56 (232) (11) 1,111 0 0 0 10,576

(108) (1,153) (1,153) 1,7360 3,394 3,394 3,3940 (850) (850) 2,612

(6) (6) (222) 39 (183) 1,9710 (39) (39) 00 (78) (78) 1,349

0 0 (6) (114) 1,169 (78) 1,091 11,062

56 (232) (17) 997 1,169 (78) 1,091 21,638

28 (188) (17) (29) 0 68

0 0 152

0 (875) (1,821) (2,696) 7882 2 0 844

929 (543) (543) 5,585

35 (44) 45 0 75

37 (44) 0 976 (875) (2,364) (3,239) 7,292

0 1,821 1,821 1,82156 465 465 5210 (2,714) (2,714) 00 6,193 6,193 6,1930 686 686 3,816

(9) (6) (2,121) (2,121) 1,775

(9) 0 0 50 2,044 2,286 4,330 14,126

56 (232) (17) 997 1,169 (78) 1,091 21,638

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CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2005

Year ended Finance Development Employee31 March 2005 leases costs benefits

(in € million) French GAAP IAS 17 IAS 38 IAS 19

Sales 13,662

Cost of sales (11,601) 6 8 2Selling expenses (545)Research and development expenses (336) (11)Administrative expenses (630) 6

Income from operations 550 12 (3) 2

Other income (expense), net (583) (10)Other intangible assets amortisation (59)

Earnings (loss) before interest and taxes (92) 12 (3) (8)

Financial income (expense), net (346) (13) 3

Pre-tax income (loss) (438) (1) (3) (5)

Income tax (charge) credit (203) 16 6Goodwill amortisation (223)

Net profit (loss) (864) (1) 13 1

Attributable to:- Group share (865) (1) 13 1- Minority interests 1



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Year endedAmortisation Income Employee Construction 31 Marchof goodwill taxes Other IFRS benefits contracts Other IFRS 2005

IFRS 3 IAS 12 restatements restatements IAS 19 IAS 11 reclassifications reclassifications IFRS

0 (135) (135) 13,527

(2) 14 (87) 135 (27) 21 (11,566)0 (3) (3) (548)

(11) (61) (61) (408)6 (13) (1) (14) (638)

0 0 (2) 9 (103) 0 (89) (192) 367

7 (3) 123 30 153 (433)0 59 59 0

0 0 5 6 20 0 0 20 (66)

(22) (32) (20) (20) (398)

0 0 (17) (26) 0 0 0 0 (464)

12 6 40 0 (163)223 223 0 0

223 12 (11) 237 0 0 0 0 (627)

223 12 (11) 237 (628)1

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CONSOLIDATED BALANCE SHEET AT 31 MARCH 2005

At31 March Finance Development

2005 leases costs(in € million) French GAAP IAS 17 IAS 38

AssetsGoodwill 3,194Other intangible assets, net 909 301Property, plant and equipment, net 1,468 261Investments in equity method investees and other investments, net 118Other non-current assets, net 1,264 650Deferred taxes 1,370 4 28

Total non-current assets 8,323 915 329

Inventories, net 2,760 (97)Construction contracts in progress, assets 0Trade receivables, net 3,446Other current assets, net 1,661Short-term investments 15Cash and cash equivalents 1,462

Total current assets 9,344 0 (97)

Total assets 17,667 915 232

LiabilitiesShareholders’ equity and minority interests 1,256 (4) 164

Bonds reimbursable with shares 133

Non-current provisions 3,156Accrued pension and retirement benefits 826Non-current financial debt 2,907 867Deferred taxes 21 1 65

Total non-current liabilities 6,910 868 65

Current provisions 0Current financial debt 0 51Customers' deposits and advances 3,150Construction contracts in progress, liabilities 0Trade payables 2,992Other current liabilities 3,226 3

Total current liabilities 9,368 51 3

Total liabilities 17,667 915 232



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AtEmployee Amortisation of Income Construction 31 March

benefits goodwill taxes Other IFRS contracts Other IFRS 2005IAS 19 IFRS 3 IAS 12 restatements restatements IAS 11 reclassifications reclassifications IFRS

223 223 0 3,417301 12 12 1,222

(10) 251 (12) (12) 1,7070 0 118

21 671 0 1,93520 (228) 13 (163) 0 1,207

41 223 (228) 3 1,283 0 0 0 9,606

(97) (1,009) (1,009) 1,6540 2,601 2,601 2,6010 (1,054) (1,054) 2,392

(28) (28) (224) 15 (209) 1,4240 (15) (15) 00 (58) (58) 1,404

0 0 0 (28) (125) 314 (58) 256 9,475

41 223 (228) (25) 1,158 314 (58) 256 19,081

29 223 (176) (26) 210 0 1,466

0 0 133

0 (834) (1,642) (2,476) 680(2) (2) 0 824

867 (493) (493) 3,28123 (52) 1 38 0 59

21 0 (52) 1 903 (834) (2,135) (2,969) 4,844

0 1,642 1,642 1,64251 435 435 4860 (3,150) (3,150) 00 5,484 5,484 5,4840 445 445 3,437

(9) (6) (1,631) (1,631) 1,589

(9) 0 0 0 45 1,148 2,077 3,225 12,638

41 223 (228) (25) 1,158 314 (58) 256 19,081

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CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2005

Year ended31 March

2005 Impact(in € million) French GAAP opening*

Net profit (loss) - Group share (865)

Minority interests 1Depreciation and amortisation 639Changes in pension assets and accrued pension/retirement benefits and pension assets, net 0Net (gain) loss on disposal of fixed assets and investments (51)Share in net income (loss) of equity investees (net of dividends received) 0Changes in deferred tax 185Net income after elimination of non-cash items (91)Changes in net working capital (36)

Net cash provided by (used in) operating activities (127) 0

Proceeds from disposals of property, plant and equipment 52Capital expenditure (182)Decrease (increase) in other non-current assets (372)Cash expenditure for acquisition of investments, net of net cash acquired 0Cash proceeds from sale of investments, net of net cash sold 928

Net cash provided by (used in) investing activities 426 0

Capital increase 2,022Issuance (conversion) of bonds reimbursable with shares (19)Dividends paid including minorities (5)

Net cash provided by (used in) financing activities 1,998 0

Net effect of exchange rate 48Net effect of new accounting pronouncement (827) 827Other changes (42)

Decrease (increase) in net debt 1,476 827

Net debt at the beginning of the period (2,906) (1,812)

Net debt at the end of the period (1,430) (985)

Cash paid for income taxes 92Cash paid for net interest 204

* Impact at 1 April 2004 of the consolidation of SPEs under French GAAP (€827 million) and the obligations under finance leases (€985 million).

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Year endedFinance Development Employee Amortisation of Income 31 March

leases costs benefits goodwill taxes 2005IAS 17 IAS 38 IAS 19 IFRS 3 IAS 12 Other IFRS

(1) 13 1 223 12 (11) (628)

148 83 (223) 547

5 5(51)

0(16) (6) (12) (6) 145

47 80 0 0 0 (17) 19(10) 17 (29)

47 70 0 0 0 0 (10)

52(13) (70) (265)10 (362)

0928

(3) (70) 0 0 0 0 353

2,022(19)(5)

0 0 0 0 0 0 1,998

23 710

(42)

67 0 0 0 0 0 2,370

(4,718)

67 0 0 0 0 0 (2,348)

92204



To the Shareholders of ALSTOM,

In accordance with our appointment as auditors by your AnnualGeneral Meeting, we hereby report to you, for the year ended 31 March 2006 on the audit of the accompanyingconsolidated financial statements of ALSTOM.

The consolidated financial statements have been closed byyour Board of Directors. Our role is to express an opinion onthese financial statements based on our audit. These financialstatements have been prepared for the first time in accordancewith IFRSs as adopted by the European Union. They includecomparative information restated in accordance with the samestandards in respect of financial year 2004/2005, exceptfor standards IAS 32 and IAS 39 which, in conformity withthe option of IFRS 1, have been applied as from 1 April 2005.

> I. Opinion on the consolidated financial statements

We conducted our audit in accordance with professionalstandards applicable in France. Those standards require that weplan and perform our audit to obtain reasonable assuranceabout whether the consolidated financial statements are free ofmaterial misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing theaccounting principles used and significant estimates made bymanagement, as well as evaluating the overall financialstatement presentation. We believe that our audit provides areasonable basis for our opinion as expressed below.In our opinion, the consolidated financial statements give atrue and fair view of the financial position and the assets andliabilities of the Group as at 31 March 2006 and the results ofits operations for the year then ended in accordance with IFRSas adopted by the European Union.

Auditors’ report on the consolidated financial statementsYear ended 31 March 2006

This is a free translation into English of the auditors’ report signed and issued in the French language and is provided solely forthe convenience of English speaking readers. Accounting principles and auditing standards and their application in practice varyfrom one country to another. The accompanying consolidated financial statements are not intended to present the financialposition, results of operations and cash flows in accordance with accounting principles and practices generally accepted otherthan IFRS as endorsed by the European Union. In addition, the procedures and practices followed by the auditors in France withrespect to such consolidated financial statements included in a prospectus may differ from those generally accepted and appliedby auditors in other countries. Accordingly, the French consolidated financial statements and the auditor’s report, of which a translationis presented in this document for convenience only, are for use by those knowledgeable about IFRS accounting procedures, Frenchauditing standards and their application in practice.The auditors’ report includes for the information of the reader, as required under French law in any auditor’s report, whether qualifiedor not, an explanatory paragraph separate from and presented below the audit opinion discussing the auditors’ assessment ofcertain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an auditopinion on the consolidated financial statements taken as a whole and not to provide separate assurance on individual accountcaption or on information taken outside of the consolidated financial statements. Such report should be read in conjunction and construed in accordance with French law and French auditing professionalstandards.

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> II. Justification of our assessments

In accordance with the requirements of Article L. 823-9 of theFrench Commercial Code relating to the justification of ourassessments, we bring to your attention the following matters:

II.1. As indicated in Note 12 of the consolidated financialstatements, ALSTOM has requested a third party valuerto review the value of goodwill by using the discountedcash flows methodology, the cash flows being derivedfrom the strategic plans prepared by all Sectors andapproved by the management of the Group. We haveexamined the report prepared by the third party valuerwhich describes the assumptions made, the tests performedand the valuations which justify the fact that goodwill is notimpaired as at 31 March 2006. In addition, we havecompared the data used by the valuer with the forecastsprepared by ALSTOM.

II.2. As indicated in Note 9, ALSTOM recorded as at 31March 2006 net deferred tax assets of €1,210 millionresulting from tax losses carried forward and other timingdifferences and supported by the capacity of the Group togenerate sufficient taxable income. We have examinedthe assumptions used by ALSTOM, which support therecognition of deferred tax assets in the Group’sconsolidated balance sheet.

II.3. ALSTOM records provisions for retirement, termination andpost-retirement benefit obligations according to the principlesdescribed in Note 21 and in Note 34 B which lead to therecognition in the consolidated income statements of thecosts related to those obligations during the working life ofthe employees, in conformity with IAS 19 and itsretrospective application according to IFRS 1. As at 31 March 2006, the application of this method generatesa partial recognition of these total obligations due tounrecognised actuarial losses amounting to €1,050 million.Most of these obligations have been subject to externalactuarial valuations that we have examined.

II.4. As described in Notes 3 B, 3 C, 20, 26, and 27 of theconsolidated financial statements, ALSTOM makessignificant estimates, notably when determining the marginat completion on each contract, determined on the basisof the latest information available. Those estimates arereflected in the balance sheet under “Construction contractsin progress, assets”, “Construction contracts in progress,liabilities” and for contracts completed in “Currentprovisions”. We have examined the processes used byALSTOM in this respect and have considered the dataand assumptions on which these estimates are based.

All the points mentioned in the paragraphs above are based onforecasts which are, by nature, uncertain and that the final outcome can, as a consequence, materially differ fromthe initial forecasts.

The assessments were made in the context of our audit of theconsolidated financial statements as at 31 March 2006, takenas a whole, and therefore contributed to the formation of theopinion expressed in the first part of this report.

> III. Specific procedures

We have also performed procedures in accordance with theprofessional standards applicable in France on the informationgiven in the Group management report of the Board of Directors.We have no comment to make as to the fair presentation of thisinformation, nor its consistency with the consolidated financialstatements.

Neuilly-sur-Seine, 17 May 2006

The auditors

DELOITTE & ASSOCIES BARBIER FRINAULT & AUTRESERNST & YOUNG

Dominique Descours Gilles Puissochet

This is a free translation into English of the auditors’ reports signed and issued in the French language and is provided solely forthe convenience of English speaking readers. Such report should be read in conjunction and construed in accordance withFrench law and French auditing professional standards.

130

To the Chairman of the Board,

In our capacity as auditors of ALSTOM (“the Company”) andin accordance with EU Regulation N°809/2004, we herebyreport on the profit forecasts for the Company, which areincluded in Section 1 – Management discussion and analysison consolidated financial statements as at 31 March 2006of its "Document de Référence" dated 2 June 2006.

In accordance with the requirements of EU Regulation809/2004 and relevant CESR guidance, management isresponsible for the preparation of these forecasts together withthe material assumptions on which they are based.

It is our responsibility to provide an opinion on these forecasts,in terms defined by Appendix 1, Paragraph 13.3 of EURegulation N° 809/2004.

We conducted our work in accordance with French professionalstandards. This work consisted in assessing the proceduresimplemented by management for the preparation of the profitforecasts and performing such procedures as to enable us toassess whether the basis of accounting applied are consistentwith the accounting policies used for the preparation of theCompany’s consolidated financial statements. Our work alsoconsisted in collecting information and making the necessaryenquiries in order to obtain reasonable assurance that the profitforecasts have been properly prepared on the basis of theassumptions stated.

It should be noted that actual profits are likely to differ fromthe profit forecasts since anticipated events frequently do notoccur as expected and the variations could be material.Consequently, we do not express any opinion on the possibilitythat such events will occur.

In our opinion:• the profit forecasts have been properly prepared on the basis

stated;• the basis of accounting applied in the preparation of these

profit forecasts is consistent with the accounting policies usedby the Company for the preparation of the consolidatedfinancial statements as at 31 March 2006.

This report is intended for the sole purpose of the registration ofthe "Document de Référence" with the French Stock ExchangeRegulatory Body (AMF), and may not be used for any otherpurpose.

Neuilly-sur-Seine, 2 June 2006

The auditors

DELOITTE & ASSOCIÉS BARBIER FRINAULT & AUTRESERNST & YOUNG




Report of the auditors on the profit forecasts

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Statutory accounts

Income Statement

Year ended 31 March (in € million) Note 2006 2005 2004

Total sales - -

Reversal of provisions and valuation allowances 1.1 2.0 -Other operating income 63.0 59.7 68.5

Total operating income (I) 64.1 61.7 68.5

Other supplies purchased and external expenses 34.6 37.7 73.9Taxes and duties 0.4 2.7 0.4Addition in provisions and valuation allowances 2.5 2.0 2.6Other operating expenses 0.4 0.3 0.4

Total operating expenses (II) 37.9 42.7 77.3

Net operating income (loss) (I - II) 26.2 19.0 (8.8)

Dividends - - -Reversal of provisions and valuation allowances 6,198.0 2,420.2 -Interest income and related income 195.6 261.4 330.0Foreign exchange gains - - 0.1

Total financial income (III) 6,393.6 2,681.6 330.1

Addition in provisions and valuation allowances 45.6 2,270.8 1,445.3Interest expenses and related expenses 144.7 190.4 282.1Foreign exchange losses 0.1 - 0.1

Total financial expenses (IV) 190.4 2,461.2 1,727.5

Net financial income (loss) (III - IV) 6,203.2 220.4 (1,397.4)

Current income (loss) (I - II + III - IV) (1) 6,229.4 239.4 (1,406.2)

Net exceptional income (loss) (V) (2) 132.8 (145.9) 28.5

Income tax (VI) (3) 35.8 10.1 (36.6)

Total income (I + III + V) 6,590.5 2,597.4 427.1

Total expenses (II + IV + VI) 192.5 2,514.0 (1,768.2)

Net profit (loss) 6,398.0 83.4 (1,341.1)

STATUTORY ACCOUNTS


Statutory accounts

Balance Sheet

Net value at 31 March (in € million) Note 2006 2005 2004

AssetsFixed assets

Intangible fixed assets (1) 7.2 9.5 7.2

Financial assets (2)

Investments (net) 6,608.6 410.6 0.0Advances to subsidiary (net) 4,270.4 4,326.3 3,674.4

Total fixed assets (I) 10,886.2 4,746.4 3,681.6

Current assets

Other receivables (3) 31.6 5.2 50.2Cash - 8.1 -Deferred charges (4) 51.5 96.3 80.0

Total current assets (II) 83.1 109.6 130.2

Total assets (I + II) 10,969.3 4,856.0 3,811.8


Statutory accounts

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Net value at 31 March (in € million) Note 2006 2005 2004

Shareholders’ equity, provisions and liabilitiesShareholders’ equity

Share capital (5) 1,934.4 1,924.0 1,320.8Capital surplus 267.2 245.0 55.2Legal reserves - - -Retained earnings (31.8) (115.0) (4.0)Net profit (loss) 6,398.0 83.4 (1,341.1)

Net shareholders’ equity (I) 8,567.8 2,137.4 30.9

Other shareholders’ equity

Bonds reimbursable with shares (6) 100.0 135.9 153.2

Total other shareholders’ equity (II) 100.0 135.9 153.2

Provision for risks and charges

Provision for risks and charges (7) 35.4 167.8 1.9

Total provision (III) 35.4 167.8 1.9

Liabilities (8) (9)

Bonds issued 2,240.6 1,240.3 672.1Borrowings 5.3 1,122.1 2,920.6Trade payables 14.9 32.3 32.6Tax, social security debts 0.3 0.5 0.5Other payables and accrued expenses 5.0 19.7 -

Total liabilities (IV) 2,266.1 2,414.9 3,625.8

Total shareholders’ equity, provisions and liabilities (I + II + III + IV) 10,969.3 4,856.0 3,811.8


Statutory accounts

ALSTOM (the Company), the parent company of ALSTOMGroup, is a “société anonyme” organised under the laws ofFrance and prepares its financial statements using accountingprinciples generally accepted in France:

Notes to the financial statements

NOTE 1. BASIS OF PREPARATION

• going concern;• cut-off between accounting periods; and,• consistency of accounting methods.

A. Summary of accounting policiesThe accounts as of 31 March 2006 have been prepared inaccordance with the provisions of the following body of rulesapplicable in France:• the Parliament Act dated 30 April 1983 and its relating Decree

dated 29 November 1983;• the 1999 French Chart of Accounts as described by

the Regulation 1999-03 issued by the “Comité de laRéglementation Comptable” (CRC) and completed by othersubsequent regulations which amend the Chart of Accounts.

For the first time, accounts have been prepared using the belowFrench regulations applicable to annual periods beginning onor after 1 January 2005:• CRC n°2002-10 and 2003-07 related to depreciation and

impairment of assets; and• CRC n°2004-06 related to the definition, recognition and

measurement of assets.

The application of these new rules constitutes a change inaccounting principles, and has no impact on the 1 April 2005opening net equity.

The Company has also elected to recognise post-employmentbenefits according to the French “Conseil National de laComptabilité” (CNC) recommendation 2003-R-01. This changein accounting principles has a negative impact on the 1 April2005 opening net equity of €184,408.

NOTE 2. SUMMARY OF ACCOUNTING POLICIES

B. Investments and advancesInvestments are recorded at direct acquisition cost. Transactioncosts, if any, are recorded as expenses.

When the recoverable value of the investment is lower than thebook value, an allowance is made to cover the difference. Theyear-end valuation is made on the basis of current use valuedefined as the value of the investment to the Company employinga number of valuation methods, including return on assets, fairvalue and other methods, as appropriate.

C. Capital increaseShare capital is recorded at the nominal share price. If a differenceexists with the effective cash received, this difference is recordedin Capital surplus line (shares premium minus costs). In the absenceof share premium, costs are recorded as intangible fixed assetswhich are amortised over a period of five years.

D. ProvisionsProvisions are raised according to provisions of the CRC regulation2000-06 and include post-employment benefits.

E. BorrowingsBorrowings are recorded at the nominal value. Borrowings costsare recorded as expenses to be amortised over the duration ofthe borrowings (limited to five years maximum).

F. Exchange operationsThere were no specific foreign exchange operations during fiscalyear 2005-2006 other than in the ordinary course of business.


Statutory accounts

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G. Financial instrumentFinancial instruments (swaps) are used to cover interest rate riskson bonds.

H. Tax consolidationThe Company is the leader of a French tax group.

Each company calculates its income tax charge on the basis ofits own tax results for the year.

The recommendation n°2005-G dated 12 October 2005 ofthe French “Comité d’Urgence du Conseil National de laComptabilité”, which cancelled and replaced the recommendationn°2005-B dated 2 March 2005, is applied by the Company.

NOTE 3. MAIN EVENTS

A €6.2 billion reversal of an impairment loss recognised in previous financial years for ALSTOM Holdings, has been recorded.

NOTE 4. SUBSEQUENT EVENTS

On 26 April 2006, ALSTOM and Bouygues signed amemorandum of understanding for operational and commercialcooperation which is to accompany the purchase by Bouyguesof the 21.03% stake of the French State in ALSTOM. Thepurchase of shares by Bouygues, which is subject to mergercontrol clearance by the European Commission and the closingof the ALSTOM Marine disposal, is expected to occur within ashort period.

Bouygues also intends to take a 50% equity share in ALSTOM’sHydro Power Equipment Business; the corresponding terms areunder discussion. This operation would allow ALSTOM to fulfilthe commitment made to the European Commission to set up ajoint venture in this sector.


Statutory accounts

A. Net operating incomeOperating income is mainly represented by €62.6 millionmanagement fees invoiced to the companies of the ALSTOMGroup for the use of the ALSTOM name.

Operating expenses are made up with management feesinvoiced by ALSTOM Holdings and other current purchasesand expenses amounting to €36.4 million.

The gross remuneration of the Chairman and Chief ExecutiveOfficer (€1,251,324 for the financial year ended 31 March2006) and Directors fees (€342,500) are included in operatingexpenses.

Notes to the income statement

The net profit of the year ended 31 March 2006 amounted to €6,398.0 million.

NOTE 1. CURRENT INCOME

B. Net financial incomeThe net financial income amounts to €6,203.2 million andincludes:• €195.6 million interest income out of which €187.4 million

from ALSTOM Holdings; • €6,198.0 million reversal of valuation allowance on ALSTOM

Holdings investments;• €99.1 million interest expenses on bonds and borrowings;

and• €45.6 million on amortisation of premiums and transaction

costs related to bonds and borrowings.

ALSTOM is the leader of a French tax group.

The tax credit of €35.8 million is made up as follows:• €18.2 million profit from the current year tax grouping;• €1.9 million loss from withholding taxes; and• €19.5 million profit from prior-year tax credits.

In absence of tax grouping, ALSTOM would have paid anincome tax amounting to €10.8 million.

NOTE 2. EXCEPTIONAL INCOME

The €132.8 million exceptional income is the net effect of the €167.8 million reversal of the provision related to tax group savings (see Notesto the financial statements Note 2 H) and a €35.0 million addition in provisions for risks and charges.

NOTE 3. INCOME TAX


Statutory accounts

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At 31 March Acquisitions/ Valuation At 31 March(in € million) 2005 disposals allowance 2006

Trademark registration fees

Gross value 1.7 1.7Valuation allowance - -

Net value 1.7 1.7

Costs related to capital increase

Gross value 11.2 11.2Valuation allowance (3.4) (2.3) (5.7)

Net value 7.8 (2.3) 5.5

Total intangible fixed assets 9.5 (2.3) 7.2

Costs related to capital increases made at the nominal share price are amortised over a period of five years. Amortisation isrecorded within operating expenses.

ALSTOM Holdings is the only subsidiary of ALSTOM. It ownsall operating entities of the Group. Gross financial assets includethe shares of ALSTOM Holdings for €9,216.5 million andALSTOM Holdings’ advances for €4,270.4 million, including€17.1 million as accrued interests.

The cumulated allowance on investments recorded during theprevious years amounted to €8,805.9 million.

At 31 March 2006, the Group requested a third party valuerto provide an independent report as part of the valuation ofshares owned by ALSTOM.

Notes to the balance sheet

NOTE 1. INTANGIBLE FIXED ASSETS

NOTE 2. FINANCIAL ASSETS

The valuation was determined primarily by focusing on thediscounted cash flow methodology which captured the potentialof the asset base to generate future profits and cash flow andwas based on the following factors:• the Group’s internal three-year Business Plan prepared as

part of its annual budget exercise at Sector level and reviewedby external experts;

• extrapolation of the three-year Business Plan by up to10 years; and

• the Group’s Weighted Average Cost of Capital, post-tax,of 8.5% reflecting the different risks profiles of each Sector ofthe Group.

The valuation was also determined taking into account theconsolidated financial debt and other assets and liabilities whichwere not recognised through the above discounted cash flows.

The valuation supports ALSTOM’s opinion that the valuationallowance needs to be reduced by €6,198 million.


At 31 March Valuation Other At 31 March(in € million) 2005 allowance movements 2006

Investments

Gross value 9,216.5 9,216.5Valuation allowance (8,805.9) 6,198.0 (2,607.9)

Net value 410.6 6,198.0 6,608.6

Advances to ALSTOM Holdings

Gross value 4,326.3 (55.9) 4,270.4Valuation allowance - -

Net value 4,326.3 (55.9) 4,270.4

NOTE 3. OTHER RECEIVABLES

Statutory accounts

Other receivables are due within one year:

At 31 March Out of which(in € million) 2006 2006 affiliated corporations

Trade receivables - -Other receivables 31.6 6.8

Total 31.6 6.8

Significant amounts in Other receivables correspond to:• €22.9 million due from French State for “Research tax credit”; and• €5.3 million due by French entities members of the tax group.

NOTE 4. DEFERRED CHARGES

Amortisation Net value at(in € million) during the year 31 March 2006

Deferred charges to be amortised

Transaction costs and premiums related to:- Bonds and borrowings issued in prior periods 44.0 34.2- Bonds reimbursable with shares 0.6 1.9- Bonds issued during the current period 1.0 10.0

Prepaid expenses

Insurance 3.3Other 2.1

Total 51.5

€27.3 million have been written-off during the year following the anticipated reimbursement of syndicated loans.The amortisation charge for the year ended March 2007 is estimated to €12.4 million.


Statutory accounts

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Number Par value

Existing shares at beginning of year 5,497,211,409 €0.35Shares issued - Capital increase -- Reimbursement of bonds 390,311 €0.35Consolidation of the shares (1 new share for 40 old shares) (5,360,161,677)Existing shares after consolidation 137,440,043 €14.00

Shares issues- Capital increase -- Reimbursement of bonds 730,733 €14.00Existing shares at year-end 138,170,776 €14.00

Changes in shareholders’ equityShareholders

At 31 March meeting held Other At 31 March(in € million) 2005 12 July 2005 entries 2006

Capital 1,924.0 10.4 1,934.4Capital surplus 245.0 22.2 267.2Legal reserves - -Retained earnings (115.0) 83.4 (0.2) (31.8)Net profit 83.4 (83.4) 6,398.0 6,398.0

Net equity 2,137.4 - 6,430.4 8,567.8

Share Capital

As of 31 March 2005, ALSTOM’s share capital amounted to€1,924,023,993.15 consisting of 5,497,211,409 shares ofthe same class and fully paid, with a nominal value of €0.35per share.

As of 31 March 2006, ALSTOM’s share capital amounts to€1,934,390,864 consisting of 138,170,776 shares of thesame class and fully paid of €14 par value each, following theoperations described below:• the reimbursement in shares, before the consolidation of the

shares comprising the share capital described below, of

NOTE 5. SHAREHOLDERS’ EQUITY

310,780 subordinated bonds 2% December 2008redeemable in Company’s shares (“ORA”), which resultedin the issue of 390,311 shares of €0.35 par value each;

• the consolidation of the 5,497,601,720 shares of €0.35par value each comprising the share capital into137,440,043 shares of €14 per value each, by deliveringone new share of €14 par value each for each 40 shares of€0.35 par value each. The consolidation was implementedon 3 August 2005; and

• the reimbursement in shares of 23,262,801 ORA since theconsolidation, when 730,733 shares of €14 par value eachwere issued.

Other entries relate to:• the equity increase, net of transaction costs, resulting from

the conversion of bonds reimbursable with shares of€32.6 million;

• the net profit of the period of €6,398.0 million; and

• the €0.2 million negative impact due to the first applicationof the CNC recommendation related to post-employmentbenefits (see Note 2 A).

No dividend has been distributed for this fiscal year.


Statutory accounts

643,795,472 bonds reimbursable with shares were createdin December 2003 having a nominal value of €1.40. Interestrate is 2%.

As of 31 March 2006, 572,750,138 bonds were convertedinto 550,927,752 shares having a par value of €0.35 beforethe consolidation of shares and into 730,733 shares havinga par value of €14 after the consolidation of shares. Sharepremium minus costs are recorded as capital surplus.

NOTE 6. BONDS REIMBURSABLE WITH SHARES

Bonds reimbursable with shares amount to €100.0 million:• €99.4 million corresponding to 71,045,334 bonds having

a par value of €1.40; and• €0.6 million as accrued interests payable as of December 31,

2006.

NOTE 7. PROVISIONS FOR RISKS AND CHARGES

At 31 March At 31 March(in € million) 2005 Additions Reversal 2006

Group tax savings 167.8 167.8Other provisions 35.4 35.4

Total 167.8 35.4 167.8 35.4

The provision related to the Group tax savings has been reversedin application of the new recommendation 2005-G (see aboveGeneral policies).

Due to the decision to apply the recommendation of the CNCrelated to post-employment benefits, other provisions include, forthe first time, the Chairman and Chief Executive Officer benefitsfrom a complementary pension scheme based on the part of hissalary not taken into account through the legal pension schemes,which purpose is to give rights equivalent to approximately

1.2% of the fraction of salary in excess of €248.544. Thisscheme, within the framework of the French “Fillon” Law, iscomposed of a defined contribution plan and of a definedbenefits scheme. The sums paid in the framework of the definedcontribution plan for 2005 amount to €19,323, wholly financedby ALSTOM; the total obligation resulting from the definedbenefits scheme and the retirement indemnities amounts to€447,334, totally recognised as a provision, out of which€184,408 is recognised against retained earnings and€262,926 as operating expenses.


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NOTE 8. LIABILITIES

At 31 March Within One to More than(in € million) 2006 one year five years five years

Financial debtBonds issued 2,240.6 240.6 2,000.0 -Borrowings 5.3 5.3 - -

Trade creditors and related accounts 14.9 14.9 - -

Tax, social security debts 0.3 0.3 - -

Other liabilities 5.0 5.0 - -

Total 2,266.1 266.1 2,000.0 -

A. BondsOn 26 July 1999, the Company issued bonds for a principalamount of €650 million with a 7-year maturity, listed on theParis and Luxembourg Stock Exchange, bearing a 5% couponand to be redeemed at par on 26 July 2006.

On 3 March 2005, the Company issued bonds for a principalamount of €1,000 million, listed on the Paris and LuxembourgStock Exchange bearing a 6.25% coupon with a 5-yearmaturity, payable by cash or by exchange of the previous bondof €650 million or the €250 million subordinated loan.€422.4 million of the €650 million bond and €245.3 millionof the €250 million subordinated loan were tendered tothe offer, leading after application the exchange ratio to€695.3 million of new 2010 bonds. In addition to which,the Group issued €304.7 million of additional bonds withsame terms and conditions.

During the year ended 31 March 2006, the Company issued:• €600 million of floating rate notes bearing a 2.20% above

the 3-month Euribor coupon and redeemable at par in March2009, listed on Luxembourg Stock Exchange; and

• €400 million of floating rate notes bearing a 0.85% abovethe 3-month Euribor coupon and redeemable at par in July2008, listed on Luxembourg Stock Exchange.

As a result of the above, at 31 March 2006, the Company has:• €1,000 million of bonds bearing a 6.25% coupon

redeemable at par on 3 March 2010;• €600 million of bonds bearing a E3M + 2.20% coupon

redeemable at par on 16 March 2009;• €400 million of bonds bearing a E3M + 0.85% coupon

redeemable at par on 28 July 2008;• €224 million of bonds bearing a 5% coupon redeemable at

par on 26 July 2006; and• €16.6 million as accrued interests.

These bonds are partially hedged by €200 million swaps fromfixed rate (3.50%) to floating rate 3 months Euribor.


Statutory accounts

B. BorrowingsBorrowings of €5.3 million include:

At 31 March At 31 March Average(in € million) 2006 2005 interest rate

Syndicated loans - 1,038.7JP Morgan - 33.2Subordinated notes 4.7 4.7 E3M + 4.99%Commercial paper - 13.5Accrued interests 0.6 32.0

Total 5.3 1,122.1

A “2010 Revolving Credit Facility” has been signed on 28 February 2006 for an amount up to €700 million subject to the followingfinancial covenants:

Minimum Minimum Maximuminterest cover consolidated net worth net debt leverage

(a) (b) (c)Covenants (in € million)

March 2006 3 1,360 4.0September 2006 3 1,360 3.6March 2007 3 1,360 3.6September 2007 3 1,360 3.6March 2008 3 1,360 3.6September 2008 3 1,360 3.6March 2009 3 1,360 3.6September 2009 3 1,360 3.6March 2010 3 1,360 3.6September 2010 3 1,360 3.6

(a) Ratio of EBITDA (see (d) below) to consolidated net financial expense (interest expense including securitisation expenses less interest income but excluding interest relatedto obligations under finance lease, pension interest cost and the consolidation net financial expense of special purpose entities which were not consolidated subsidiariesas of 31 March 2004). The interest cover at 31 March 2006 amounts to 8.7.

(b) Sum of shareholders’ equity (excluding the cumulative impact of any deferred tax assets impairments arising after 31 March 2004 and including Bonds Reimbursablewith Shares “ORA” not yet reimbursed) and minority interests (this covenant will not apply if and for as long as ALSTOM’s rating is Investment Grade). After excludingthe impact of the impairment of deferred tax assets recorded since 31 March 2004 of €189 million, the consolidated net worth at 31 March 2006 to compare withthe covenant above is €2,029 million.

(c) Ratio of total net debt (total financial debt excluding the finance lease obligation less short-term investments or trading investments and cash and cash equivalents) toEBITDA (see (d) below). The net debt leverage as at 31 March 2006 is 1.0.

(d) Earnings Before Interest and Tax plus Depreciation and Amortisation as set out in Consolidated Statements of Cash Flows, less capital gains and losses on disposalof investments.

The full amount of €700 million is available for drawn down as at 31 March 2006.

C. Trade payable and related accountsTrade payable and related accounts amounted to €14.9 million including €5.4 million due to banks and €3.7 million due toALSTOM Holdings.


Statutory accounts

NOTE 9. ACCRUED EXPENSES

Accrued expenses are included in the following captions.Au At 31 March(in € million)2006 2006

Bonds reimbursable with shares (Note 6) 0.5Bonds issued (Note 8 A) 16.6Borrowings (Note 8 B) 0.6Trade payable and related accounts 8.5Other accruals 0.2

Total 26.4

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Other information


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A. CommitmentsALSTOM, as parent company, has issued €433.8 million ofguarantees made up of:• USD 30 million as guarantees of leases; and• €409 million on Transport contracts.

Total available credit line at 31 March 2006 amounts to€700 million and corresponds to the 2010 Revolving CreditFacility signed on 28 February 2006.

C. Stock options


Date of shareholders’ meeting 24 July 2001 24 July 2001 24 July 2001 9 July 2004 9 July 2004Grant date 24 July 2001 8 January 2002 7 January 2003 17 September 2004 27 September 2005Exercise price (1) €1,320 €523.60 €240 €17.20 €35.75Adjusted exercise price (2) €819.20 €325.20 €154.40 - -Beginning of exercise period 24 July 2002 8 January 2003 7 January 2004 17 September 2007 27 September 2008Expiration date 23 July 2009 7 January 2010 6 January 2011 16 September 2014 26 September 2015Number of beneficiaries 1,703 1,653 5 1,007 1,030Number of options initially granted 105,000 105,000 30,500 2,783,000 1,401,500Number of options exercised since the origin 0 0 0 0 0Number of options cancelled 45,394 42,955 0 68,000 38,000Adjusted number of remaining options at 31 March 2006 (2) 119,400 124,554 47,489 2,715,000 1,363,500Number of shares that may be subscribed by the members of the Executive Committee 3,105 4,229 46,709 610,000 312,500


(2) Plans n°3, 5 and 6 have been adjusted in compliance with French law as a result of the completion of the operations which impacted the share capital in 2002, 2003and August 2004.

B. Financial instrumentsTwo swaps of €100 million each that exchange fixed to floatingrate have been undertaken with banks. They were issued atthe end of March 2006. The fair values of these swaps arenegative by €1.3 million.

Simultaneously, two swaps of €100 million each that exchangefloating to fixed rate have been undertaken with ALSTOMHoldings. The fair values of these two swaps with ALSTOMHoldings are positive by €1.3 million.


Stock option plans 3 to 6, granted between 2001 and 2003,gradually vest by one-third a year during the first three yearsfollowing the grant.

Stock option plans 7 and 8, granted between 2004 and2005, become vested after a period of three years.

The exercise period then covers seven years for each plan.

Plan 7 is also subject to the following conditions of exercise:50% of options granted to each beneficiary are subject to

exercise conditions relating to the Group’s free cash flow andoperating margin for fiscal year 2006. The conditional optionsare exercised entirely only if, at the closing of fiscal year ended31 March 2006, the Group’s free cash flow is positive and theGroup’s operating margin is superior or equal to 5% (percentageapplicable to free cash flow and operating margin under IFRSstandards). Below these thresholds, the options shall be partiallyexercisable. They will be forfeited if the free cash flow isnegative at more than €500 million or if the operating marginis below 5%. At 31 March 2006, these exercise conditionshave been fulfilled.

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Number Weighted averageof options exercise price per share

Outstanding at 1 April 2004 321,389 506.00





D. Other informationThe Chairman and Chief Executive Officer, in the event oftermination of his mandate at the Board of Directors’ initiative,and unless in the event of grave misconduct, would benefitfrom an indemnity equal to twice his latest gross annual

remuneration, including the annual bonus and the loss of variousbenefits (complementary pension, company car, etc.) and keepall stock options granted. The same benefit would apply incase the Chairman and Chief Executive Officer decides toresign further to a takeover of ALSTOM.

E. List of subsidiariesALSTOM Holdings is the only subsidiary of ALSTOM (100.00%).

• Investments (gross value) €9.2 billion• Investments (net value) €6.7 billion• Loans and advances (gross value) €4.3 billion• Loans and advances (net value) €4.3 billion

• Bonds and guarantees €0) million• Dividends paid €0) million• Net equity as of 31 March 2005 €(19) million• Net equity as of 31 March 2006 €1,566) million


Statutory accounts

Auditors’ report on statutory financial statements

Year ended 31 March 2006


In compliance with the assignment entrusted to us by yourAnnual General Meeting, we hereby report to you, for theyear ended 31 March 2006, on:• the audit of the accompanying annual financial statements of

ALSTOM,• the justification of our assessments,• the specific verifications and information required by law.

These annual financial statements have been closed by theBoard of Directors. Our role is to express an opinion on thesefinancial statements based on our audit.

> I. Opinion on the financial statements

We conducted our audit in accordance with the professionalstandards applicable in France; those standards require thatwe plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accountingprinciples used and significant estimates made by themanagement, as well as evaluating the overall financialstatements presentation. We believe that our audit provides areasonable basis for our opinion.

In our opinion, the financial statements present fairly, in allmaterial respects, the financial position of the Company at 31 March 2006 and the results of its operations for the yearthen ended, in accordance with the accounting rules andprinciples applicable in France.

This is a free translation into English of the auditors’ report on the statutory financial statements signed and issued in the Frenchlanguage and is provided solely for the convenience of English speaking readers. Accounting principles and auditing standardsand their application in practice vary from one country to another. The accompanying financial statements are not intended topresent the financial position, results of operations and cash flows in accordance with accounting principles and practicesgenerally accepted in countries other than France. In addition, the procedures and practices followed by the statutory auditorsin France with respect to such financial statements included in a prospectus may differ from those generally accepted andapplied by auditors in other countries. Accordingly, the French financial statements and the auditor’s report, of which a translationis presented in this document for convenience only, are for use by those knowledgeable about French accounting procedures,auditing standards and their application in practice.The auditors’ report includes for the information of the reader, as required under French law in any auditor’s report, whether qualifiedor not, an explanatory paragraph separate from and presented below the audit opinion discussing the auditors’ assessment ofcertain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an auditopinion on the statutory financial statements taken as a whole and not to provide separate assurance on individual account captionor on information taken outside of the statutory financial statements. Such report should be read in conjunction and construed in accordance with French law and French auditing professionalstandards.


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Without qualifying our opinion, we draw attention to the matterdiscussed in Note 2 A – “Summary of accounting policies” tothe financial statements relating to:

• the changes in accounting policies following the first adoption,on 1 April 2005, of regulation CRC n°2002-10 and 2003-07 related to depreciation and impairment of assets, andregulation CRC n°2004-06 related to the definition, recognitionand measurement of assets,

• the change in accounting policies following the first adoption,on 1 April 2005, of the French "Conseil National de laComptabilité" (CNC) recommendation 2003-R-01 relatedto post-employment benefits.

> II. Justification of assessments

In accordance with the requirements of Article L. 823-9 of theFrench Commercial Code relating to the justification of ourassessments, we bring to your attention the following matters:

As indicated in the notes to the financial statements, the valuationof investments and related advances can lead to the recognitionof a provision, when the value in use, determined through anumber of valuation methods, is lower than the book value,or as a result of an impairment test that may be necessaryunder certain circumstances (Note 2 B – Summary of accountingpolicies – “Investments and advances”).

We have examined the assumptions and the methodologyused to perform the impairment test as described in Note 2 –Balance sheet – "Financial assets" and the report prepared bya third party valuer and used by the Company to assess theenterprise value of the ALSTOM Group, as well as the value inuse of investments and related accounts held by ALSTOMHoldings, since ALSTOM Holdings holds directly or indirectlyall the subsidiaries within the Group. In addition, we havecompared the data used by the valuer with forecasts preparedby ALSTOM.

The assessments were thus made in the context of theperformance of our audit of the financial statements of ALSTOMas at 31 March 2006, taken as a whole and thereforecontributed to the formation of our audit opinion expressed inthe first part of this report.

> III. Specific verifications and information

We have also performed the specific verifications required bylaw in accordance with professional standards applicable inFrance.

We have no matters to report regarding the fair presentation andthe conformity with the financial statements of the informationgiven in management report of the Board of Directors and in thedocuments addressed to the shareholders with respect to thefinancial position and the financial statements.

In accordance with French law, we have ensured that therequired information concerning the names of the principalshareholders has been properly disclosed in the Directors’report.


The auditors




Statutory accounts

Special report of the auditors on certain related party transactionsYear ended 31 March 2006


In our capacity as auditors of your Company, we are required to report on certain contractual agreements with certain relatedparties of which we have been advised. We are not required to ascertain whether such agreements exist.

We hereby inform you that we have not been advised of any agreements covered by Article L. 225-38 of the French CommercialCode.


The auditors



This is a free translation into English of the special auditors’ reports signed and issued in the French language and is providedsolely for the convenience of English speaking readers. Accounting principles and auditing standards and their application inpractice vary from one country to another. The accompanying financial statements are not intended to present the financialposition, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countriesother than France. In addition, the procedures and practices followed by the auditors in France with respect to such financialstatements included in a prospectus may differ from those generally accepted and applied by auditors in other countries.Accordingly, the French financial statements and the auditor’s report, of which a translation is presented in this document forconvenience only, are for use by those knowledgeable about French accounting procedures, auditing standards and theirapplication in practice.Such report should be read in conjunction and construed in accordance with French law and French auditing professionalstandards.


Statutory accounts

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Five-year summary

Year ended 31 March 2002 2003 2004 2005 2006

1. Capital at year-end

a) Share capital (in € thousand) 1,292,325 1,689,963 1,320,822 1,924,024 1,934,391b) Number of outstanding issued shares 215,387,459 281,660,523 1,056,657,572 5,497,211,409 138,170,776

2. Operations and income for the year(in € million)

a) Dividend received 0.3 - - - -b) Income before tax, profit-sharing,

provisions and valuation allowances 59.4 79.1 70.3 90.0 78.4c) Income tax 36.9 26.8 36.6 (10.1) 35.8d) French legal profit-sharing - - - - -e) Net income after tax, profit-sharing,

provisions and valuation allowances 90.8 (7,474.1) (1,341.1) 83,4 6,398.0f) Dividends - - - - -

3. Earnings per share (in €)

a) Net earning after tax, profit-sharing, but before provisions and valuation allowances 0.45 0.38 0.10 0.02 0.82

b) Net earning after tax, profit-sharing, provisions and valuation allowances 0.42 (26.54) (1.27) 0.02 46.10

c) Net dividend per share - - - - -

4. Personnel

a) Number of personnel employed during the year - - - - -b) Amount of gross wages and salaries

for the year (in € thousand) - 155 661 1,143 1,251c) Amount of social charges for the year

(Social security and other welfare benefits) (in € thousand) - 52 198 421 357


Statutory accounts

Appropriation of the net income of fiscal year 2005/06

Taking into account the profit for the fiscal year ended 31 March 2006 which amounts to €6,397,943,319.34, the followingappropriation of net income will be proposed to the Ordinary General Meeting convened on 28 June 2006:

Profit of the period €6,397,943,319.34

Retained earnings* €(31,769,576.70)

Legal reserves €193,439,086.40

General reserves €5,500,000,000.00

Net retained earnings €672,734,656.24

* After a change in accounting principles directly booked in retained earnings of €(184,408).

Therefore, no dividend will be paid to the shareholders for the fiscal year ended on 31 March 2006.

During the three preceding fiscal years, no dividends were distributed.

RISKS3


RISK FACTORS 152

CERTAIN LEGAL RISKS 155

ENVIRONMENTAL, HEALTH AND SAFETY RISKS (EHS) 156

INSURANCE 157


Risk factors

If we do not achieve our forecast income or cash flow, we may be led to review the evaluation of certain assets andwe may have to take an impairment charge.

The value of goodwill and of other net intangible assets in our consolidated balance sheet as of 31 March 2006 and 31March 2005 are €4,520 million and €4,639 million,respectively. See Note 12 to the consolidated financial statementsfor the fiscal year ended 31 March 2006. If in the future ourown evaluations (or those which could be led by an independentexpert) conclude that the net book value of goodwill and otherintangible assets is greater than the estimated recoverable valueof these assets (this concept is presented in Note 3 I to the consolidated financial statements for the fiscal year ended31 March 2006), we would be obliged to impair these assets,which could have a material adverse effect on our balance sheetand on our results.

Our deferred tax assets net amounted to €1,210 million as of 31 March 2006 and to €1,148 million as of 31 March 2005.These evaluations have been established on the basis of ourBusiness Plan for each Country.

If our income per country were below our forecasts andconsequently we had to revise our forecasts and did not haveenough taxable income in certain countries to allow tax lossescarried forward to be used before expiry, we would be obligedto review the evaluation of these assets and, as appropriate, to depreciate them. Combined depreciation of these assets was €919 million as of 31 March 2006 and €920 million asof 31 March 2005. See Note 9 C to the consolidated financialstatements for the fiscal year ended 31 March 2006.

Our products often incorporate advanced and complextechnologies and sometimes require modifications after theyhave been delivered.

We design, manufacture and sell several products of largeindividual value that are used in major infrastructure projects. Weare sometimes required to introduce new, highly sophisticatedand technologically complex products on increasingly short

time scales. This necessarily limits the time available for testingand increases the risk of product defects and their financialconsequences. We occasionally discover the need to fine tuneor modify products after we begin manufacturing them or afterour customers begin operating them. Because we producesome of our products in series, we may need to make suchmodifications to a large number of products. At the same time,when we sell our products or enter into maintenance contracts,we are increasingly required to accept onerous contractualpenalties, in particular related to performance, availability anddelay in delivering our products, as well as after-sales warranties.Our contracts may also include clauses allowing the customerto terminate the contract or return the equipment if performancespecifications or delivery schedules are not met. As a result ofthese contractual provisions and the pressures of acceleratednew product development, design and manufacturing, problemsencountered with our products may result in material unanticipated expenditures, including without limitation additional costs related to securing replacement parts and rawmaterials, delays and cost overruns in manufacturing, deliveringand implementing modified products and the related negotiations or litigation with affected clients. For example, adiscussion of the GT24/GT26 gas turbine problems and theLiquid Natural Gas (LNG) tanker issues are provided in“Management discussion and analysis on consolidated financialstatements as at 31 March 2006 – Operational performance– GT24/GT26 heavy-duty gas turbines and – Sector Review– Marine” and also in Note 20 to the consolidated financialstatements as at 31 March 2006 for GT24/GT26 gas turbineissues.

In instances where such problems occur, we cannot ensure thatthe total costs that we ultimately incur will not exceed the amountthat we have provisioned. Further, given the technical sophisticationof many of our products, we can give no assurance that we willnot encounter new problems or delays in spite of the technicalvalidation processes implemented within the Group. Any suchproblems or delays could be affected by a number of factors,could be costly, could harm our Business reputation or affect our ability to sell other products and could have a materialadverse impact on our financial condition or results of operations

RISKS

RISK FACTORS


or cause our products to be less competitive than those of our competitors.

The development of our Businesses will require increasing ourbase of skilled and experienced managers and specialists,which may be difficult to achieve.

There is significant competition in the employment market with respect to the highly qualified managers and specialists,which are needed by our Businesses. The success of ourdevelopment plans will depend in part on our ability to retainour employee base and recruit and integrate additional engineersand other skilled employees. We can give no assurance thatwe will be successful in developing our employee base asneeded to accompany our Business development.

The European Commission’s approval of our financing plansimplemented in 2003 and 2004 is subject to conditions tobe fulfilled by the French State and the Company.

On 7 July 2004, the European Commission approved ourFinancial Plans for 2003 and 2004, subject to certaincommitments made by the French State on behalf of ALSTOM.(See “Management discussion and analysis on consolidatedfinancial statements as at 31 March 2006 – Approval by theEuropean Commission and commitments”). If we fail to fulfilthese conditions, the Commission may modify its decision andrequire the French State to recover all or part of the aid paid aspart of the financial plans.

The Company has already fulfilled a number of these conditionsand does not anticipate any failure to comply with the requirementsof the Commission, but it can give no assurances as to theirultimate fulfilment.

If we are unable to manage our working capital effectively, or if we apply existing provisions more quickly than expected,our cash flow may vary greatly.

The structure of our projects may result in payment of expensesbefore realisation of revenue. As a result, the structure of customerdeposits and advances is particularly important in our long-termproject activity, which represents approximately 50% of oursales. Taking customer advances serves in part to provide us withworking capital to finance the execution of our projects. Formore information regarding customer deposits and advances,(see Notes 17 and 18 to the consolidated financial statementsfor the fiscal year ended 31 March 2006). Our ability tonegotiate and collect customer advances is therefore animportant element of our strategy, as it provides us with cash flow

and allows us to manage our working capital. If we are notsuccessful, significantly increased cash flow variations mayrequire us to materially increase our debt.

The Business and asset disposals that we make are generallysubject to pricing adjustments, warranties and exclusions thatmay delay payments due to us, result in increased costs relatedto excluded liabilities, reduce the net proceeds that we receiveor require us to pay indemnities to the acquirer.

We have disposed of or are in a process of disposing of anumber of Businesses and assets, notably our T&D Sector,Marine Sector and our Industrial Turbines Businesses. As iscustomary, the terms of these disposals have provided for price adjustment mechanisms and we have made and willmake certain warranties regarding the Business or assets beingsold. In some cases we have retained certain contracts andliabilities. As a result, the net proceeds that we receive maybe delayed or subject to adjustments and we may be requiredto bear increased costs on retained liabilities or to payindemnities to the acquirer, which could have a material adverseeffect on our results and financial position.

With respect to the Marine Sector notably, we will retaincontracts related to three Liquid Natural Gas (LNG) tankers,which are not yet delivered, as well as contracts for ships that were delivered prior to the sale. These retained contractsmay result in costs in excess of the amounts provisionedfor completion and warranty services (See “Managementdiscussion and analysis on consolidated financial statementsfor the fiscal year ended 31 March 2006 – Sector review –Marine” with respect to issues that have arisen in connection withthe LNG tankers).

We have outstanding warranties and have received claims in connection with the disposals of certain of our activities including our former T&D Sector, the Small and Medium IndustrialTurbines and Industrial Steam Turbine Businesses, the formerContracting Sector and the Transport Business in Australia. Fora description of certain of our disposals, see “Managementdiscussion and analysis on consolidated financial statementsas at 31 March 2006 – Disposal programme”. In particular,we have received a number of demands from Areva, some ofwhich involve significant amounts, following its acquisition of theT&D Sector, including with respect to alleged anti-competitivearrangements among suppliers in certain T&D activities, andarbitration proceedings are in course with Cegelec in connectionwith the disposal of the Contracting Sector.

Risk factors

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We operate in competitive markets.

We face strong competition in our markets, both from largeinternational competitors and, in a number of markets, fromsmaller niche players. Industry consolidation is increasingglobally and the main players are adopting a strategy of globalexpansion. This competition has generally resulted in lowerselling prices and a deterioration of terms of payment in favourof our customers. In response, we have adopted several ongoingprogrammes to cut costs and improve efficiency.

Although we believe we compete effectively in most of ourmajor markets, there can be no assurance that we will be ableto continue to do so.

Our Businesses require a significant level of bonding capacitywhich may be difficult to sustain and our bonding facility,lines of credit and certain of our other financing agreementscontain covenants.

We have put into place a bonding programme to provide forthe issuance of bonds through 27 July 2008 (the “BondingFacility”) as well as additional bilateral agreements which weanticipate should be sufficient to cover our needs through thatdate. We can give no assurance, however, that we will beable to raise sufficient bonding capacity allowing us to coverour bonding needs adequately once the Bonding Facility isno longer available, or in the long term. Our inability to securenew sources of bonding could seriously jeopardize our abilityto win new contracts or sustain our commercial operations andcould have a material adverse impact on our results of operationsand financial condition.

Our line of bank credit, our Bonding Facility and some of ourother financing agreements contain covenants requiring us tomaintain compliance with pre-established financial ratios(“covenants”). (See Note 22 to the consolidated financialstatements as at 31 March 2006).

As of 31 March 2006, we were in compliance with ourcovenants in effect at the time and we expect to remain withinthese criteria at the end of the current financial year. (See“Management discussion and analysis on consolidated financialstatements as at 31 March 2006 – Operating and financialreview – Balance sheet – Financial debt”). However, our abilityto continue to meet our financial covenants depends on ourability to continue developing our level of sales and margins,manage our indebtedness and maintain sufficient net worth,each of which could be adversely affected by events beyond

our control. A failure to respect financial covenants may resultin our Bonding Facility being suspended and our credit linebecoming immediately repayable and no longer available fordrawings. A significant part of our other debt may also at suchpoint become immediately repayable as a result of their cross-default or cross-acceleration provisions, and we might not havethe funds required to immediately repay this debt nor have themeans to ensure bonding availability. Although we wouldattempt to negotiate with our financial partners to seek a waiverof such default or an amendment to the relevant agreement,such negotiations might not be successful.

Our financial performance could be adversely impacted by a limited number of contracts and various factors affecting contract execution, some of which are beyond our control.

Each year, approximately one-third of our Business is conductedunder a limited number of major long-term contracts. At 31 March 2006, our ten largest projects in terms of orderbacklog represented approximately 16.7% of our total orderbacklog and our ten largest customers accounted for 22% ofour sales. Generally, our revenue and cash flow from and profitability of a project may vary significantly in accordancewith the progress of that project and depending on a varietyof factors, some of which are beyond our control, such asunanticipated technical problems with equipment being supplied, postponement or delays in contract implementation,financial difficulties of customers, withholding of payment bycustomers, performance defaults by or financial difficulties ofsuppliers, subcontractors or consortium partners with whom weare jointly liable, and unanticipated costs due to projectmodifications. Profit margins realised on certain of our contractsmay vary from our original estimates as a result of changes incosts and productivity over their term. As a result of this variability,the profitability of certain of our contracts may significantlyimpact our income and cash flows in any given period. Whilewe have established risk control procedures for tenders andcontracts in progress, we can give no assurance that theseand other initiatives will be sufficient to avoid problems in thefuture, and certain of our projects may be subject to delays, costoverruns, or performance shortfalls which may lead to thepayment of penalties or damages. (See notably “Managementdiscussion and analysis on consolidated financial statementsas at 31 March 2006 – Sector Review – Marine” with respectto the technical issues that have arisen with respect to theMarine Sector’s Liquid Natural Gas (LNG) tanker contracts).There can be no assurance that we can profitably completeour fixed price contracts.

Risk factors


We are exposed to a variety of market risks, including currencyexchange risk, interest rate risk and credit risk, in the courseof our Business.

Detailed information regarding this exposure is provided in“Management discussion and analysis on consolidated financialstatements as at 31 March 2006 – Impact of exchange rateand interest rate fluctuations” and in Note 28 to the consolidatedfinancial statements for the fiscal year ended 31 March 2006.

Changes in the cost of and conditions of our access to rawmaterials can affect our operating margins.

In manufacturing products for our projects, we use raw materialsin amounts which vary according to the project and which mayrepresent up to 15% of the contract price. Given the significantincreases in overall prices of raw materials that have occurred inthe past, we cannot ensure that all these cost increases willnecessarily be passed on through an increase in contract pricesand that they will not adversely affect our competitiveness andprofitability for new contracts. In addition, any demand in excessof the amounts offered on raw materials markets may result inlate deliveries by our suppliers, which in turn may cause delaysin the execution of our contracts. These factors could create a negative pressure on margins and adversely affect our financial results.

We have unfunded liabilities with respect to our pension plansand other post-retirement benefits.

We have obligations to our employees and former employeesrelating to retirement and other post-retirement indemnities in

the majority of the countries where we operate. In France,retirement indemnities arise pursuant to labour agreements,specific conventions and applicable local legal requirements.Retirement indemnities in France are funded from current cashflows, and there is no legal requirement to maintain assets to fundthese liabilities.

In the United States, the United Kingdom and elsewhere,liabilities arise pursuant to labour agreements, pension schemesand plans and other employee benefit plans, some of which arerequired to maintain assets in off-balance sheet trusts to fund theirliabilities. The market value of assets held in these funds iscurrently significantly below the related projected benefitobligations in a number of cases.

Pursuant to certain of our defined benefit schemes, we arecommitted to providing cash to cover any differences betweenthe market value of the plan’s assets and required levels forsuch schemes over a defined period. Our projected benefitobligations are based on certain actuarial assumptions thatvary from country to country, including, in particular, discountrates, long-term rates of return on invested plan assets, ratesof increase in compensation levels and rates of mortality. Ifactual results were to differ from these assumptions our pension,retirement and other post-employment costs would be higheror lower. Our results and cash flows may, therefore, beunfavourably or favourably impacted by these obligations.

Further details on the methodology used to assess pensionassets and liabilities together with the annual pension costsare included in Note 21 to the consolidated financial statementsfor the fiscal year ended 31 March 2006.

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Certain legal risks

CERTAIN LEGAL RISKS

Many of our Businesses operate in Sectors where a relativelysmall number of participants can materially affect the marketdynamics. To date, we have not experienced a material adverseimpact on our reputation, operations, or financial condition orresults relating to competition and antitrust laws; however, therecan be no assurance that the application of such laws will notin the future have such a material adverse effect. Although weoperate in markets that are frequently fiercely competitive,there are at times allegations of anticompetitive activity. Forexample, we have been informed of investigations by various

governmental authorities, including the European Commission,relating to alleged anti-competitive arrangements amongsuppliers of certain products of the T&D Business we sold toAreva on 9 January 2004. In April 2006, the EuropeanCommission commenced proceedings against ALSTOM, alongwith a number of other companies, based on allegations ofanticompetitive practices in the sale of gas-insulated switchgears,a product of our former T&D Business, following investigationsthat began in 2004. The competition authorities in Hungaryhave ordered fines against both the ALSTOM and the Areva


reputation, operations, or financial condition or results. A limitednumber of current and former employees and agents of ourGroup have been or are currently being investigated withrespect to alleged illegal payments in various countries. Certainof these procedures, including pending procedures in Mexicoand Italy, may result in fines and the exclusion of our subsidiariesfrom public tenders in the relevant country for a defined period.We can give no assurance that these procedures will not havea material adverse commercial effect on the subsidiaries orthe Group as a whole or that they will not lead to other civil orcriminal proceedings.

With respect to other Legal Risks, see Note 27 to theconsolidated financial statements for the fiscal year ended 31 March 2006.

groups with respect to alleged anticompetitive practices in thisbusiness in that country.

Because of the products we sell, we conduct a significantproportion of our Business with governmental agencies andpublic-sector entities, including those in countries known toexperience corruption, which creates the risk of prohibitedpayments by our employees and agents. We actively strive toensure compliance with the laws and regulations relating toillegal or other prohibited payments and have establishedinternal compliance programmes to control the risk of suchillegal activities and appropriately address any problems thatmay arise. However, given the extent of our operationsworldwide, we cannot be assured that problems will not arisein the future or that such problems will not materially affect our

ENVIRONMENTAL, HEALTH AND SAFETY RISKS (EHS)

Environmental, health and safety risks (EHS)

We are subject to a broad range of environmental laws andregulations in each of the jurisdictions in which we operate.These laws and regulations impose increasingly stringentenvironmental protection standards on us regarding, amongother things, air emissions, wastewater discharges, the useand handling of hazardous waste or materials, waste disposalpractices and the remediation of environmental contamination.These standards expose us to the risk of substantial environmentalcosts and liabilities, including liabilities associated with divestedassets and past activities. In most of the jurisdictions in which weoperate, our industrial activities are subject to obtaining permits,licences and/or authorisations, or to prior notification. Mostof our facilities must comply with these permits, licences orauthorisations and are subject to regular administrativeinspections.

We invest significant amounts to ensure that we conduct ouractivities in order to reduce the risks of impacting the environmentand regularly incur capital expenditures in connection withenvironmental compliance requirements. Although we areinvolved in the remediation of contamination of certain propertiesand other sites, we believe that our facilities are in compliancewith their operating permits and that our operations are generallyin compliance with environmental laws and regulations.

We have put in place a global policy covering the managementof environmental, health and safety risks. Detailed informationregarding this policy is provided in “Environmental, Health andSafety management policy (EHS)” below.

The procedures ensuring compliance with environmental, healthand safety regulations are decentralised and monitored at eachplant. The costs linked to environmental health and safety issuesare budgeted at plant or unit level and included in the profit andloss accounts of our local subsidiaries.

The outcome of environmental, health and safety matters cannotbe predicted with certainty and there can be no assurance thatwe will not incur any environmental, health and safety liabilitiesin the future and we cannot guarantee that the amount that wehave budgeted or provided for remediation and capitalexpenditures for environmental or health and safety related projectswill be sufficient to cover the intended loss or expenditure. Inaddition, the discovery of new conditions or facts or futurechanges in environmental laws, regulations or case law mayresult in increased liabilities that could have a material effect onour financial condition or results of operations. We have bookedprovisions of €12 million to cover environmental risks.

Environmental, Health & Safety management policy (EHS).

We recognise our obligation to our stakeholders, employees,customers, suppliers and the communities at large in which weoperate, to provide a safe workplace and safe products, tominimise the impact of our operations on the environment and toprotect our industrial and commercial assets.

To this end, we have put in place a global policy covering theManagement of Environment, Health and Safety risks at an


individual operating unit level, to achieve a high level ofperformance including strict compliance of local norms andregulations. The global policy is designed and co-ordinated atcorporate level and is adapted and implemented locally. Werely on independent specialists on risk analysis, ALLIANZ andURS, to carry out the Corporate EHS annual audit programmeof our manufacturing sites around the world. In addition to this, andin order to spread our EHS risk control system, we have started aninternal auditors accreditation programme. Both internal andexternal auditors support the operating units in the creation ofspecific action and improvement plans. The completion of theaction plan is measured and followed up through a monthlycorporate reporting process. Through our environmentalmanagement programme, we seek primarily to:• develop products and services that have an acceptable

impact on the environment along the product life cycle frommanufacturing through product use and at the end of theiruseful lives;

• evaluate the environmental impact of new industrial processesprior to their implementation as well as the discontinuation ofexisting processes or the disposal of existing sites;

• improve technology in order to reduce the consumption ofenergy and natural resources and to minimise waste andpollution; and

• promote the application of our environmental managementprinciples to our sub-contractors and suppliers.

Additional Health and Safety Programmes are implemented ateach of our operating units. Such programmes typically coverhealth and safety issues, both at the design stage of theworkplace and product equipment through to theirimplementation and use, as well as Accident and OccupationalIllness Prevention Programmes.

Our Asset and Business Interruption Management Programmesare designed to minimise exposure to loss or damage to ourassets and to ensure Business continuity. This includes exposureto fire, breakdown and natural catastrophes as well as theftor deliberate damage.

The Environmental, Health and Safety coordination guaranteesthe consistency of the prevention programmes at a central level.The Environmental, Health and Safety performance indicatorsare gathered on a monthly basis by our reporting systemcovering all the Business and operational centres in view ofguiding the risk management approach.

During fiscal year 2005/06, 60 EHS audits were carried outby ALLIANZ and URS as well as by ALSTOM accredited internalauditors. They have been reviewed by the local ManagingDirectors in order to validate the suggested areas ofimprovement. The cost of these external audits amounted to€190,000 in fiscal year 2005/06.

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Insurance

INSURANCE

Our policy is to purchase insurance policies covering risks of acatastrophic nature from insurers presenting excellent solvencycriteria. The amount of insurance purchased varies accordingto our estimation of the maximum foreseeable loss, both forproperty damage and liability insurance. This estimate is madewithin the framework of Industrial Risk Management Audits thatwe conduct for property damage and depends on the evaluationof the maximum legal risk considering the various activities ofour Group for our civil liability. We have put in place a globalpolicy covering the Management of Environmental, Health andSafety risks described above, as well as internal controlprocedures for the review of tenders and contracts in progress.

The main risks covered by our main insurance policies are the following:• Property damage and Business interruption caused by fire,

explosion, natural events or other named perils as well asmachinery breakdown;

• Liability incurred because of damage caused to third partiesby our operations, products and services, with customaryexclusions and limits;

• Transit, covering transportation risks from start to discharge ofgoods at warehouse, construction site or final destination,with customary limits and exclusions; and

• Construction and Installation, covering risks during executionof contracts, subject to certain customary conditions anddeclarations.

In addition to Group policies, we purchase, in the variouscountries where we are present, policies of insurance of amandatory nature or designed to cover specific risks such asautomobile, worker’s compensation or employer’s liability.

Our main Group Insurance Policies, including limits on coverageand premiums, are described in greater detail below. Thispresentation is a summary of the policies in effect as of


March 31, 2006, and does not reflect all restrictions and limits applicable to our policies. The scope and terms of ourpolicies are determined on an annual basis. For reasons ofconfidentiality and protection of the interests of the Company, it is not possible to describe exhaustively all policies.

Property damage and Business interruption: The insurance programme covers accidental damage andconsequent Business interruption caused by fire, explosions,smoke, impact of vehicles and aircraft, storm, hail, snow, riot,civil commotion, water damage and natural events to industrial,commercial and administrative sites of the Group named inthe policies.• the programme has an overall limit of €410 million per

event; • sub-limits apply in particular for natural events (these

sub-limits vary according to the insured sites and the type ofevents) for machinery breakdown and accidental eventsother than those named in the policy;

• coverage is subject to usual limitations and exclusions, inparticular: war, civil war, terrorism, nuclear reaction, andcertain natural events normally insured in national pools.

Civil liability resulting from operations or products and services:• the Group Insurance Programme covers the financial

consequences of liability caused to third parties because ofour operations or products and services;

• the programme has 4 layers of insurance for an overall limitof €600 million per event and in annual aggregate. Sub-limits are applicable;

• the policy is subject to usual limitations and exclusions ofpolicies of this type, in particular, war, nuclear reactions,work accidents, Directors and Officers liability, automobileliability, consequences of contractual obligations more onerousthan trade practice, as well as damages caused by productssuch as asbestos, formaldehyde, lead, organic pollutants aswell as those caused by toxic mould, magnetic fields andelectronic viruses.

Transport insurance:• the policy covers damages to transported goods irrespective

of the mode of transportation: sea, land or air, anywhere inthe world; coverage is extended to war risks (however, someterritories are excluded);

• the policy limit is €70 million; sub-limits are applicable notablyduring storage at packers or sub-contractors;

• the policy is subject to limitations and exclusions generallyapplicable to policies of this type.

The total amount of premiums paid for calendar year 2006for the 3 types of insurance listed above was approximately €46 million.

Damage during installation and construction:• a Construction and Installation Policy covers damage to

equipment being installed by the Company for contractshaving values of less than €100 million; this policy appliesdifferently according to the Sectors of the Group andaccording to the countries involved;

• the insurance limit is €100 million; sub-limits apply; • the policy is subject to customary limitations and exclusions;

in particular it excludes war, radioactive contamination andterrorism (except France);

• the provisional premium for calendar year 2006 isapproximately €5 million; this premium will be adjustablein 2007 according to the actual level of activity 2006; and

• specific policies are put in place for contracts exceeding€100 million in value or to cover contracts not covered inthe above-described policy. This is the case for insurance ofvessels under construction at Chantiers de l’Atlantique.

We benefit from a re-insurance vehicle (through a captive cellof an insurance company) which we used in previous yearsto self-insure property damage and liability risks. This vehicle was not used since calendar year 2004. All risks previously self-insured through this captive cell have been transferred toinsurers or retained through deductibles.

Insurance

CORPORATE GOVERNANCE4


AUDITORS’ REPORT PREPAREDIN ACCORDANCE WITH ARTICLE L. 225-235OF THE FRENCH COMMERCIAL CODE 183

COMPENSATION OF EXECUTIVE AND NON-EXECUTIVE DIRECTORS AND MEMBERS OF THE EXECUTIVE COMMITTEE 184

Executive and non-executive Directors 184

Members of the Executive Committee 188

INTERESTS OF THE OFFICERS AND EMPLOYEES IN THE SHARE CAPITAL 189

Stock options plans 189

Main characteristics of ALSTOM stock options plans 190

Free allocation of shares 191

Employee profit-sharing 192

THE BOARD OF DIRECTORS AND ITS COMMITTEES 161

The Board of Directors 161

The Audit Committee 168

The Nominations and Remuneration Committee 168

THE EXECUTIVE COMMITTEE 169

THE DISCLOSURE COMMITTEE 169

CHAIRMAN’S REPORT PURSUANT TO ARTICLE L. 225-37OF THE FRENCH COMMERCIAL CODE 170

Conditions of preparation and organisationof the work of the Board of Directors 170

Limitations to the Chairman and Chief Executive Officer’s powers 176

Internal control procedures 177


Corporate governance

The Company is implementing the fundamentals of corporategovernance such as they result from the report published inOctober 2003 (the “AFEP/MEDEF Report”), consolidatingViénot reports (issued in 1995 and 1999) and the Boutonreport (issued in 2002). As the Company is no longer listed onthe New York Stock Exchange (“NYSE”) since August 2004, theUS corporate governance rules are no longer applicable toit. In addition, on 14 June 2005, the Company filed a Form F 15 with the United States Securities and Exchange Commission(“SEC”) thereby terminating its registration under the UnitedStates Exchange Act of 1934, effective 90 days thereafter.This process results in suspension of the Company’s obligationsto file periodic reports with the SEC (notably reports under form20-F or under form 6-K) and the corporate governancerequirements of the Sarbanes-Oxley Act.

The Board of Directors and the two Board Committees createdin 1998 (the Audit Committee and the Nominations andRemuneration Committee) work on Internal Rules and Regulationsincorporating most of the recommendations of the AFEP/MEDEFReport. Annexed to the Internal Rules and Regulations of theBoard is the Director’s Chart, defining the Director’s rights andobligations. These Internal Rules and Regulations are regularlyamended following the evaluations of the functioning of theBoard and the Board Committees, or any changes of theregulations.

The Company adopted, at the time of its flotation, an instructionrelative to insider information and to prevent insider tradingwhich defines the situations in which certain individuals mustrefrain from carrying out transactions involving the Company’sshares. This instruction applies to the Directors, officers andemployees of the Group and has been amended during thefiscal year.

For several years now, the Company adopted a Code ofEthics, which applies to every ALSTOM Director, officer andemployee worldwide. This Code, a summary of ALSTOM’smain rules of ethics, is designed to promote ethical conduct;every Director, officer and employee of the Company isexpected to know the Code of Ethics and comply with it.

In 2003, a “Disclosure Committee” (Comité de l’information)was created on the initiative of the Chairman and Chief ExecutiveOfficer and the Chief Financial Officer. The members of thisCommittee, which is not a Board Committee, consist of topCompany executives and a representative of each Group Sector.Its general role is to review the content of the Company’s financialinformation documents before they are disclosed to theshareholders and the markets, and to ensure that controls andother procedures are in place to allow financial information tobe recorded and reported on a timely basis and that adequateand appropriate information is collected and communicated tothe Chairman and Chief Executive Officer, the Chief FinancialOfficer and other Management members, to ensure on thereliability of the Group’s financial information. The Internal Rulesand Regulations of this Committee were ratified by the AuditCommittee and, pursuant to these Internal Rules and Regulations,similar Committees have been set up in each Group Sector.These rules are reviewed every fiscal year.

The Internal Rules and Regulations of the Board of Directorsand the Board’s Committees, the Directors’ Charter and theCode of Ethics are available on the ALSTOM Internet site.


The Board of Directors is composed of ten members, of whomthree are non-French nationals and six are independent. Since2002, the Directors are appointed for a four-year period,except for the Director representing the French State who isappointed for 3 years.

As of 16 May 2006, 3,502 shares were held by the Directorsaltogether.

Composition as of 31 May 2006

> Patrick KRONChairman & Chief Executive Officer Born on 26 September 1953 in Paris, France.Nationality: French.Professional address (1):ALSTOM - 3 avenue André Malraux - 92300 Levallois-Perret.

Appointed on 24 July 2001 as a Director.Directorship will expire at the end of the General Meeting to becalled in 2007 to consider the accounts for the fiscal year2006/07.

Number of ALSTOM shares held: 358.

Other current directorships and positions: In France:Member of the Supervisory Board of Vivendi Universal;Director of Imerys;Director of the choral Society “Les arts florissants”.

In foreign countries:Within the ALSTOM Group:Director of ALSTOM UK Holdings Ltd and of ALSTOM Ltd.

Past directorships (held during the past 5 years):Chief Executive Officer of Imerys;Member of the Supervisory Board of Imerys.

Biography:Mr Patrick Kron is a graduate from École Polytechnique and theParis École des Mines. He started his career in the French Ministry

of Industry from 1979 to 1984 before joining the PechineyGroup. From 1984 to 1988, Patrick Kron held operationalresponsibilities in one of the Group’s most important factories inGreece, becoming manager of this Greek subsidiary. From1988 to 1993, he occupied several senior operational andfinancial positions within Pechiney, first managing a group ofactivities in the processing of aluminium and eventually as Presidentof the Electrometallurgy Division. In 1993, he became a memberof the Executive Committee of the Pechiney Group and wasappointed Chairman of the Board of the Carbone LorraineCompany from 1993 to 1997. From 1995 to 1997, he ran theFood and Health Care Packaging Sector of Pechiney and heldthe position of Chief Operating Officer of the American NationalCan Company in Chicago (USA). From 1998 to 2002, PatrickKron was Chief Executive Officer of Imerys before joiningALSTOM. He has been Chief Executive Officer of ALSTOMsince 1 January 2003 and Chairman & Chief Executive Officersince 11 March 2003. Mr Patrick Kron was awarded the “Légiond’honneur” on 30 September 2004.

> Jean-Paul BÉCHAT*

Born on 2 September 1942 in Montlhéry, France.Nationality: French.Professional address:SAFRAN - 2 boulevard du Général Martial Valin - 75724 Paris Cedex 15.

Appointment as a Director renewed on 9 July 2004, and willexpire at the end of the General Meeting to be called in 2008to consider the accounts for the fiscal year 2007/08. First mandate: 14 May 2001 – 9 July 2004.

Number of ALSTOM shares held: 1,450.

Other current directorships and positions:In France:Chief Executive Officer of Safran;Director of Sogepa.

Mr Béchat has also been appointed by the French Governmentas a member of “the General Council for Armaments”. He is alsoa member of ASD and GIFAS Councils.

The Board of Directors and its Committees

THE BOARD OF DIRECTORS AND ITS COMMITTEES

THE BOARD OF DIRECTORS

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(1) The professional address is only mentioned for active Directors.

* Independent Director.



In foreign countries: –

Past directorships and positions (held during the past five years):In France:Chairman and Chief Executive Officer of Snecma (4 June 1996 – 11 May 2004);Chief Executive Officer of Sagem (18 March 2005 – 11 May 2005);Director of France Télécom (22 May 1998 – 25 February 2003);Director of Natexis Banques Populaires (18 November 1998 – 27 May 2004);Director of Aéroports de Paris (9 July 2004 – 26 June 2005);Director of CEA (3 March 2000 – 12 November 2001).


Biography: Mr Jean-Paul Béchat is a graduate from École Polytechniqueand has a Master degree in Science from Stanford University(USA). In 1965, Mr Béchat started his career at SNECMAand, from June 1996 till March 2005, he was Chairman andChief Executive Officer of the Group. Since May 2005, Mr Béchat is the honorary Chairman of and a member of theBoard of ASD; he is also member of the Advisory Board ofBanque de France, of the General Board of Weaponry, ofMEDEF Executive Committee and of the Boards of ALSTOMand SOGEPA. Mr Béchat is Honorary Fellow of the RoyalAeronautical Society, member of the Association Aéronautiqueet Astronautique de France (AAAF) and member of theInternational Academy of Astronautics (IAA). He is also officerof the “Légion d’honneur” and of the National Order of Merit.

> Candace BEINECKE Born on 26 November 1946 in the United States.Nationality: American.Professional address: Hughes Hubbard & Reed LLP – One Battery Park Plaza, New York, NY 10004-1482 USA.

Appointed on 24 July 2001 as a Director.Directorship will expire at the end of the General Meeting to becalled in 2007 to consider the accounts for the fiscal year2006/07.


Other current directorships and positions :In France:–

In foreign countries:Chair of Hughes Hubbard & Reed LLP, New York, USA since1999;Chairperson of the Board of Arnhold & S. Bleichroeder AdvisorsFirst Eagle Funds, Inc., a public mutual fund family;Member of the Board of Directors of Rockefeller FinancialServices, Inc. and Rockefeller & Co., Inc.;Director Vice-Chair and member of the Executive Committeeof the Partnership for New York City.

Past directorships and positions (held during the last five years):In France:–

In foreign countries:Director of First Eagle SoGen, Inc., USA;Director of First Eagle SoGen Variables Funds, Inc., USA;Trustee of First Eagle Funds, USA.

Biography: Candace K. Beinecke, Chair of Hughes & Reed LLP, wasnamed to her current position in 1999, the first woman to chaira major New York law firm. Ms Beinecke is also a practicingpartner in Hughes Hubbard’s Corporate Department. Ms Beinecke serves as Chairperson of Arnhold & S. BleichroederAdvisors LLC First Eagle Funds, Inc., ranked among the leadingUS public mutual fund families, and as a Board member ofALSTOM. Candace is a member of the Board of Directors ofRockefeller Financial Services, Inc. and Rockefeller & Co., Inc.She also serves as a Director, Vice-Chair and ExecutiveCommittee member of the Partnership for New York City, as amember of the Board of Advisors, Yale Law School Center forthe Study of Corporate Law, and as a Director of the MerceCunningham Dance Foundation and the Jacob’s Pillow DanceFestival (1989-2005). She has been included in the 2006edition of The best Lawyers in America, is a member of theWomen’s Forum and received a Women in Power and Influenceaward from NYC NOW in 2000.

> Georges CHODRON DE COURCEL Born on 20 May 1950 in Amiens, France.Nationality: French.Professional address:BNP Paribas - 3 rue d’Antin - 75002 Paris.


Appointed on 3 July 2002 as a Director.Directorship will expire at the end of the General Meeting to becalled in 2006 to consider the accounts for the fiscal year2005/06. Renewal of directorship for another 4-year periodhas been proposed to this General Meeting.


Other current directorships and positions:In France:Chief Operating Officer of BNP Paribas;Director of Bouygues;Director of Société Foncière, Financière et de Participations;Director of Nexans;Member of the Supervisory Board of Lagardère.

Non-voting Director of Safran, Scor and Scor Vie.

Within BNP Paribas group:Chairman of BNP Paribas Emergis SAS;Chairman of Compagnie d’Investissement de Paris SAS;Chairman of Financière BNP Paribas SAS;Director of Verner Investissements SAS;Non-voting Director of Exane (a subsidiary of Verner).

In foreign countries: Director of Erbé SA (Belgium).

Within BNP Paribas group:Chairman of BNP Paribas (Switzerland) SA;Chairman of BNP Paribas UK Holdings Ltd.

Past directorships and positions (held during the past five years):In France:Permanent representative of CIP at FFP (Société Foncière,Financière et de Participations) and Sommer SA.

Within BNP Paribas group:Director of Capstar Partner SAS.

In foreign countries:Within BNP Paribas group: Chairman of BNP Paribas Bank Polska;Chairman and Director of BNP US Funding;Director of BNP Paribas Canada;Director of BNP Paribas Peregrine Limited (Malaysia);Director of BNP Paribas Prime Peregrine Holdings Limited(Malaysia);Director of BNP Paribas Securities Corp (United States);Director of BNP Paribas UK Holdings Limited.

Biography: Mr Georges Chodron de Courcel graduated in 1971 fromÉcole Centrale de Paris and had a degree in Economics in1972. He began his career with Banque Nationale de Pariswhere he has had a succession of responsibilities. After havingspent 6 years in Corporate Banking, he was named Head ofEquity Research ant then Head of Asset Management. In 1989,he was appointed Director of Corporate Finance and ChiefExecutive Officer of Banexi. In January 1991, he became Headof Capital Markets and in September 1996, was appointedChief Executive International and Finance of BNP. After themerger with Paribas in 1999, he has been named Head ofCorporate and Investment Banking and was Member of theExecutive Committee.

> Pascal COLOMBANI *

Born on 14 October 1945 in Neuilly-sur-Seine, France. Nationality: French.Professional address:AT Kearney - 7 place d’Iéna - 75016 Paris.

Appointed as a Director on 9 July 2004. Directorship will expire at the end of the General Meeting to becalled in 2008 to consider the accounts for the fiscal year2007/08.


Other current directorships and positions:In France:Associate Director of A.T. Kearney;Non-executive Director of Rhodia;Non-executive Director of the French Institute of Petroleum (IFP).

Member of the French Academy of Technologies.

In foreign countries:Non-executive Director of British Energy Group plc.

Past directorships and positions (held during the past five years):In France:Chairman of the Supervisory Board of Areva (2001-2003);Director of EDF (2000-2003);Director of Cogema (2000-2003);Chairman and Chief Executive Officer of CEA (2000-2002)Director of Framatome (2000-2001);Chairman of the Board of École Normale Supérieure de Cachan(2001-2003);Chairman of the Board of the French Association for theAdvancement of Science (AFAS) (2003-2006);


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In foreign countries:–

Biography:Mr Pascal Colombani is a graduate of École NormaleSupérieure and holds a doctorate in Nuclear Physics. Hiscareer has been balanced between research and industry: hestarted as a research associate at the French Centre for NationalResearch (CNRS) before joining Schlumberger where he spentalmost twenty years in various management positions in Europe,the USA, and Japan. In this last position, while President ofSchlumberger KK in Tokyo, he also initiated the implantation ofan R&D centre in Beijing. Director of Technology at the FrenchMinistry of Research from 1997 to 1999, he became Chairmanand Chief Executive Officer of the French Atomic EnergyCommission (CEA) in 2000, where he initiated newprogrammes in nuclear, defence, and microelectronics and therestructuring of the CEA industrial holdings, resulting in thecreation of Areva, the nuclear engineering conglomerate. Hechaired the Board of Areva until 2003. Pascal Colombani isan Associate Director and Senior Advisor on Innovation, HighTechnology and Energy at ATKearney, the managementconsultancy. He is also member of the Boards of Rhodia, BritishEnergy Group plc, and of the French Institute of Petroleum. Heis a member of the French Academy of Technologies.

> James B. CRONIN*

Born on 14 October 1937 in Greenford, United Kingdom.Nationality: British.

Appointment as Director renewed on 3 July 2002.Directorship will expire at the end of the General Meeting to becalled in 2006 to consider the accounts for the fiscal year2005/06. Renewal of directorship for another 4-year periodhas been proposed to this General Meeting.First mandate: 14 May 2001 – 3 July 2002.


Other current directorships and positions:In France:–

In foreign countries: Director of ALSTOM SA (Proprietary) Limited.

Past directorships and positions (held during the past five years):In France:–

In foreign countries: Non-executive Director of AWG plc.

Biography: Mr James B. Cronin was appointed Managing Director andmember of the Board of GEC ALSTHOM N.V. in 1989 and hasbeen ALSTOM Deputy Chief Executive Officer until June 2000.

> Gérard HAUSER*

Born on 29 October 1941 in Paris, France.Nationality: French.Professional address: Nexans - 16 rue de Monceau - 75008 Paris.

Appointment as a Director renewed on 9 July 2004. Directorshipwill expire at the end of the General Meeting to be called in2008 to consider the accounts for the fiscal year 2007/08. First mandate: 11 March 2003 – 9 July 2004.


Other current directorships and positions: In France:Chairman and Chief Executive Officer of Nexans;Director of Aplix;Director of Ipsen;Director of Faurecia.


Past directorships and positions (held during the past five years):In France:Chairman and Chief Executive Officer of Alcatel Câble France;Chairman of Alcatel Cables & Components;Director of Saft;Director of Framatome;Director of Electro Banque.

In foreign countries: Director of Liban Cables;Member of the Supervisory Board of Alcatel Deutschland GmbH;Director of Alcatel Maroc.

Biography: From 1965 till 1975, Mr Hauser covered several high-dutypositions in the Philips Group. From 1975 till 1996, he workedfor the Pechiney Group, as Chairman and Chief Financial Officerof Pechiney World Trade first and of Pechiney Rhénalu later; he waslater appointed Senior Executive Vice President of American



National Can and member of the Group Executive Board. Mr Hauser joined Alcatel Câble France in 1996 and becamePresident of its Cable and Component Sector in 1997. In 2000,he was appointed Chairman and Chief Executive Officer ofNexans.

> James William LENG *

Born on 19 November 1945 in Sunderland, England Nationality: British.Professional address:Second Floor, 30 MillbankLondon SW1P 4WY England.

Appointed on 18 November 2003 as a Director.Directorship will expire at the end of the General Meeting calledin 2007 to consider the accounts for the fiscal year 2006/07.


Other current directorships and positions:In France:–

In foreign countries:Chairman of Corus Group plc;Chairman of Laporte Group Pension Trustees Ltd;Non-executive Director of Pilkington plc;Non-executive Director of Hanson plc;Member of the Supervisory Board of CFS Holdings B.V.;Director of Pregis Holding I Corporation;Director of Pregis Holding II Corporation.

Governor of the National Institute of Economic and SocialResearch.Fellow of the Institute of Marketing.

Past directorships and positions (held during the past five years):In France:–

In foreign countries:Director of JP Morgan Fleming Mid Cap Investment Trust plc(27-01-03/30-04-04);Non-executive Chairman of IMI plc (01-01-05/13-05-05);Vice President of Chemical Industries Association Limited (19-11-98/30-06-01);Chairman of Doncasters Group Limited (03-08-01/09-06-03);Chief Executive Officer of Laporte plc (01-10-95/30-06-01);Non-executive Director of Lennox Managements Limited (06-04-04/19-01-06).

Biography: Mr Jim Leng was appointed as a non-executive Director of theCompany in November 2003. He is also Chairman of CorusGroup plc, a non-executive Director of Pilkington plc andHanson plc where he is Senior Independent Director. He wasthe Chief Executive of Laporte plc from 1995 until June 2001.In May 2005, he retired as a Director and Chairman of IMI plc.

> Francis MER *

Born on 25 May 1939 in Pau, France.Nationality: French.

Appointed as a Director with effect on 1 April 2005.Directorship will expire at the end of the General Meeting to becalled in 2008 to consider the accounts for the fiscal year2007/08.


Other current directorships and positions:In France:Director of Rhodia.

In foreign countries: Director of Adecco (Zurich);Director of Inco (Canada).

Past directorships and positions (held during the past five years):In France:Co-Chairman of Arcelor (until April 2002);French Minister of the Economy, Finance and Industry (fromMay 2002 up to March 2004).


Biography: Mr Francis Mer is a graduate of the École Polytechnique andthe Paris École des Mines. He started his career in the Saint-Gobain Group in October 1970, he was Managing Directorof Saint-Gobain Industries from 1974 till 1978 and inSeptember 1978 he was appointed Deputy General Managerof Saint-Gobain Group, in charge of the Industrial Policy. InJuly 1982, Mr Mer became Chairman and Chief ExecutiveOfficer of Pont-à-Mousson SA and Manager of the Waterways& Mechanics business of Saint-Gobain Group. In September1986, the French State, shareholder of the Group, decidedto merge Usinor and Sacilor and appointed Mr Mer Chairmanof the new steel group. In July 1995, Usinor Sacilor wasprivatised and the Board of Directors appointed Mr Mer


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Chairman on 10 October 1995. He was Chairman of CockerillSambre from 1999 to 2002. From 1988 till 2002, Mr Merwas President of the French Steel Federation (FFA), he was alsoChairman of Eurofer (the European steel manufacturer association)from 1990 till 1997, of International Iron and Steel Institute (IISI)from October 1997 till October 1998, of the Technical ResearchNational Association (ANRT) from 1991 till 2002, of Enterprisefor the Environment (EPE) and the Industry Club. He was Co-Chairman of the Arcelor Group, which resulted from the mergerof Arbed, Aceralia and Usinor. Mr Mer was Minister of theEconomy, Finance and Industry from May 7, 2002 till 31 March 2004. He was also Chairman of the EvaluationCommittee of the Ministerial Reform Strategies, and Chairmanof the Foundation for political innovation until June 2005.

> Denis SAMUEL-LAJEUNESSEBorn on 14 March 1948 in Paris, France.Nationality: French.Professional address: Agence des participations de l’État139 rue de Bercy - 75572 Paris Cedex 12.

Appointed on 8 July 2004 for a three-year period as Directorrepresenting the French State.

Other current directorships and positions:In France:Director of Thalès;Director of France Télécom;Director of Gaz de France;Member of the Supervisory Board of Caisse Nationale dePrévoyance “CNP Assurances”;

Denis Samuel-Lajeunesse is also Managing Director of theFrench Government Shareholding Agency at the French Ministryof the Economy, Finance and Industry.


Past directorships and positions (held during the past five years):In France:Director of Air France.


Biography: Since 2003, Mr Denis Samuel-Lajeunesse is Managing Directorof the French Government Shareholding Agency at the FrenchMinistry of the Economy, Finance and Industry.

Mr Samuel-Lajeunesse is also Director of ALSTOM, Gaz deFrance and Thalès, and a member of the CNP SupervisoryBoard. From 1973 till 1983, Mr Samuel-Lajeunesse wasnotably in charge of supervision of the management of theState treasury, and financial and exchange markets at theTreasury Department and Alternate Executive Director for Franceat the International Monetary Fund in Washington (from 1977till 1979). Mr Samuel-Lajeunesse was Deputy-Assistant Secretaryof International Affairs at the Treasury Department from 1983till 1985, and Deputy-Assistant Secretary of the Financial Marketfrom 1985 till 1986. In 1986, Mr Samuel-Lajeunesse wasappointed Foreign Affairs Assistant Secretary at the TreasuryDepartment and was appointed member of the EEC MonetaryCommittee and co-President of the Club of Paris. In 1992, Mr Samuel-Lajeunesse was appointed Chairman and ChiefExecutive Officer of Lyonnaise de Banque, a commercial bankand subsidiary of CIC; at the same time, he was Chairmanand Chief Executive Officer of Banque de Vizille, a subsidiaryof Lyonnaise de Banque. In 2003, Mr Samuel-Lajeunesse wasappointed Managing Director of the French GovernmentShareholding Agency newly created at the Ministry of Economy,Finance and Industry. Mr Samuel-Lajeunesse is a graduate ofInstitut d’Études Politiques de Paris and he has a Master inEconomics at Université de Paris-Assas. He is also a formergraduate of the École Nationale d’Administration.

* * *

To the Company’s knowledge, no member of the Board ofDirectors: • has been involved in any conviction in relation to fraudulent

offences for the last five years and/or has been the subjectof any official public incrimination and/or sanctions bystatutory or regulatory authorities;

• has been associated in his/her capacity of manager in anybankruptcies, receiverships or liquidations for the past fiveyears;

• has been disqualified by a court from acting as a member ofan administrative, management or supervisory bodies of anissuer or from acting in the management or conduct of thebusiness of any issuer for the past five years.

To the Company’s knowledge, there is no family relationshipamong the members of the Company’s Board of Directors.

Furthermore, to the Company’s knowledge there is no conflictof interest between any duty of the members of the Board of Directors and their private interests and/or other duties. Mr Denis Samuel-Lajeunesse is General Manager of the Agencyof State Participations (APE) whose mission is to act as theState shareholder, protecting the State’s capital interests whenmanaging its financial interests. In this respect, APE manages


the participations in companies having commercial relationswith ALSTOM or having potentially competing businesses (EDF,GDF, Areva, SNCF, RATP). The representatives of the Stateshareholder to the corporate bodies of these companies see toperform their functions regardless of any other State participationselsewhere. Therefore, they do not allow themselves to participatein resolutions on any matter that may put them in a situationof conflict of interest.

In case of conflict of interests, according to the Director’s Chartannexed to the Board of Directors’ Internal Rules and Regulations,any Director must inform the Board as soon as he/she is awareof any conflict of interests – albeit potential – and he/she mustabstain from participating to discussions on the conflictingsubject matter and from voting the resolution thereby. In case ofpermanent conflict of interest, the Director must resign.

To the Company’s knowledge, no settlement or agreement hasbeen reached with shareholders, clients, suppliers or others toappoint a member of the Board of Directors. The Frenchgovernment has appointed Mr Denis Samuel-Lajeunesse,pursuant to the 30 October 1935 French law decree, regulatingthe French State representation in the Boards of Directors of thosecompanies where the French State holds at least 10% of capital.

To the Company’s knowledge, there is no service contractlinking any members of the Board of Directors to the Companyor to any of its subsidiaries and granting them any benefits.

Changes in the membership of the Boardof Directors during the fiscal year

Following Mr George Simpson’s decision to retire from theBoard at the end of the past fiscal year, the Board of Directorsco-opted Mr Francis Mer as a Director, effective as of 1 April2005, for the remaining term of the mandate of his predecessor.This nomination has been approved by the shareholders’ meetingof 12 July 2005.

As announced, the French State has agreed to sell its entirestake in the Company capital to Bouygues in the near future. AsBouygues will become the largest shareholder of the Company,it is appropriate that Bouygues be represented at the Board ofDirectors.

As of the date of the convening of the General Shareholders’Meeting, the date on which the French State will sell its stake toBouygues is not yet known, since the transaction is subject toconditions as described in Management discussion and analysison consolidated financial statements as at 31 March 2006 –Overview – Recent Developments.

For this reason, it is proposed to the Ordinary Shareholders’Meeting convened on 28 June 2006 to appoint Messrs OlivierBouygues and Olivier Poupart-Lafarge, of Bouygues, as Directorsof the Company, conditional upon the effective purchase byBouygues of the stake held by the French State.

Mr Denis Samuel-Lajeunesse has announced to the Company thathe will resign from the Board upon completion of the purchaseby Bouygues of the stake held by the French State.

Mr Francis Mer has also indicated to the Company that he willretire from the Board upon completion of such purchase.

Evaluation of the Directors’ independence

According to the AFEP/MEDEF report and as set forth in theBoard of Directors’ Internal Rules and Regulations, the Boardmeeting of 16 May 2006 re-examined the criteria for theDirectors’ independence approved last year and reviewed thesituation of each Director in the light of these criteria based onthose proposals made by the Nominations and RemunerationCommittee which the Board had accepted.

Like the year before, the Board considered that a Director isindependent when he or she has no relationship of any kind withthe Company or its Management, or with any of its consolidatedaffiliates, that could compromise the independence of his orher judgement; the Board restated the following criteria:• a Director is not an employee or a Corporate Officer

(“mandataire social”) of the Company or of one of itsconsolidated subsidiaries;

• a Director is not a Corporate Officer (“mandataire social”) ofa company in which the Company holds, either directly orindirectly, a directorship, or in which a directorship is held byan employee or a Corporate Officer (“mandataire social”) ofthe Company;

• a Director is none of the following (whether directly orindirectly): a customer, supplier, investment banker orcommercial banker – in each case, which is material for theCompany or its Group, or for which the Company or itsGroup represents a material proportion of the entity’s activity;

• a Director does not have any close family ties with aCorporate Officer (“mandataire social”) of the Company;

• a Director has not been an auditor of the Company for thepast five years;

• a Director has not been a Director of the Company for morethan twelve years;

• a Director does not hold, control, or represent a shareholderwho holds alone or in concert more than 10% of theCompany’s share capital or voting rights.


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These criteria are largely inspired by the AFEP/MEDEF reportcriteria, but are not strictly identical.

Based on these criteria, the Board of Directors determined that six members should be considered as independent Directors(Mr Jean Paul Béchat, Mr Pascal Colombani, Mr James B. Cronin, Mr Gérard Hauser, Mr James William Leng andMr Francis Mer) out of the ten members of the Board of Directors.As was the case last year, the Board’s determination that JamesB. Cronin should be considered as independent took intoaccount the Board’s view that his directorship in a companyin which the Company holds only 5% of capital, had notcompromised, and were not likely to compromise, theindependence of his judgement in the exercise of thisdirectorship. The Board’s view that Mr Gérard Hauser shouldbe considered to be independent took into account thecommercial relationship between Nexans and ALSTOM Group,which in the Board’s view is not material, and that a Director ofthe Company is also Director of Nexans, as neither of these factswere likely to compromise the independence of his judgement.After having taken into account the commercial relationshipbetween the companies in which he holds a position and theGroup, which in the Board’s view is not material, the Board’sopinion is that Mr Pascal Colombani should be considered tobe independent. The Board also determined that Mr Francis Mershould be considered to be independent.

In addition to Mr Patrick Kron, Chairman & Chief ExecutiveOfficer of the Company, Ms Candace Beinecke who is Chairof Hughes Hubbard & Reed LLP, one of the Company’s principallegal advisors, Mr Denis Samuel-Lajeunesse, representative ofthe French State holding approximately 21% of the Company’sshare capital, and Mr Georges Chodron de Courcel who isDelegated Chief Executive Officer of BNP Paribas, one of thecore banks and financial advisors of the Company and partyto the refinancing packages signed in September 2003 andMay 2004 with various banks and the French State, are notindependent Directors. In the event that Messrs Olivier Bouyguesand Olivier Poupart-Lafarge become members of the Board,they will not be considered independent Directors.

Thereby, the Board of Directors qualified six members asindependent, which is proportionally more than half of theBoard members as recommended by the AFEP/MEDEF reportfor those companies with a widely spread share capital andwithout any controlling shareholders and which has beenapproved by the Board, as it is part of its Internal Rules. Tothe extent that Messrs Samuel-Lajeunesse and Mer are replacedby Messrs Olivier Bouygues and Olivier Poupart-Lafarge, fivemembers of the Board will be qualified as independent

THE AUDIT COMMITTEE

The Audit Committee was formed in 1998 and is currentlycomposed of Mr Jean-Paul Béchat, Chairman of the Committeesince 1 January 2004 and of Mr James B. Cronin, Mr DenisSamuel-Lajeunesse and Mr Francis Mer.

Three-quarters of the members of the Audit Committee areindependent, including the Chairman. This corresponds to aproportion that is higher than the two-thirds of Directorsrecommended by the AFEP/MEDEF report.

THE NOMINATIONS AND REMUNERATION COMMITTEE

The Nominations and Remuneration Committee was formedin 1998 and is currently composed of Mr James William Leng,Chairman of the Committee since 18 November 2003, Ms Candace Beinecke, Mr Georges Chodron de Courcel,Mr Pascal Colombani and Mr Gérard Hauser.

A majority of the members of the Committee are independent,including the Chairman of the Committee complying with the

AFEP/MEDEF report recommending that there be a majorityof independent members on Remuneration Committees.

For more information on the organisation, functioning andactivity of each Committee during the previous fiscal year,please see the enclosed Report of the Chairman of the Board of Directors as per Article L. 225-37 of the FrenchCommercial Code.


As of 16 May 2006, the Executive Committee is composed ofthe following persons:

> Patrick KRONChairman of the Board and Chief Executive Officer.

> Philippe JOUBERTExecutive Vice President; President, Power Turbo-Systems /Power Environment Sector (1).

> Philippe MELLIERExecutive Vice President; President, Transport Sector.

> Philippe JAFFRÉExecutive Vice President.

> Walter GRAENICHERPresident, Power Service Sector.

> Patrick DUBERTSenior Vice President, Human Resources.

> Henri POUPART-LAFARGEChief Financial Officer.

> Donna VITTERGeneral Counsel.

> Patrick BOISSIERPresident, Marine Sector.

The Executive Committee met 11 times during the fiscal year.

The Executive Committee

THE EXECUTIVE COMMITTEE

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(1) Philippe JOUBERT continues to ensure the coordination of the Power-related Sectors and the supervision of the International Network.

In 2003, the Chairman and Chief Executive Officer and theChief Financial Officer set up a Disclosure Committee, whichis not a Committee of the Board of Directors.

The members of the Corporate Disclosure Committee are: theChief Financial Officer, the General Counsel, the ChiefAccounting Officer, the Vice President of Management Control,the Vice President of Tenders & Projects Control, the VicePresident Internal Audit and a member of the SeniorManagement of each of the Sectors. The Corporate DisclosureCommittee meets at least twice a year.

The Disclosure Committee assists the Chairman and ChiefExecutive Officer and the Chief Financial Officer in complyingwith their obligations of prompt and correct disclosure of six-month and yearly financial information as well as in evaluatingthe effectiveness of ALSTOM’s Disclosure Controls andProcedures (as defined below).

To pursue its goal, the Committee has to:• make sure that the Group is provided with the controls and

procedures ensuring (i) that information required by ALSTOMto be disclosed to investors and the French Stock MarketAuthority (“AMF”), Euronext Paris and any other Stock Market

Authority as the case may be, is verified and reported on atimely basis, and (ii) that adequate and appropriateinformation is accumulated and communicated tomanagement, including the Chairman and Chief ExecutiveOfficer and Chief Financial Officer, to allow timely decisionsto be made regarding such disclosure (“Disclosure Controlsand Procedures”);

• at least twice a fiscal year, review the Disclosure Controlsand Procedures and recommend the Chairman and ChiefExecutive Officer and the Chief Financial Officer theamendments as it deems appropriate;

• review the content of ALSTOM’s “Document de référence”and of any other required document to be filed with the AMF(or with any other stock market authority) containing materialfinancial and other information as well as any otherinformation which could have an impact on ALSTOM’s shareprice (“ALSTOM Disclosures”);

• evaluate the effectiveness of ALSTOM’s Disclosure Controls andProcedures as of the last day of each fiscal year and report tothe Chairman and Chief Executive Officer and to the ChiefFinancial Officer, disclosing any material shortcomings thereto;

• report to the Chairman and Chief Executive Officer andChief Financial Officer any fraud, whether or not material, thatcomes to the attention of the Committee involving management

THE DISCLOSURE COMMITTEE


The Disclosure Committee

or other employees who have a significant role in ALSTOM’sinternal controls;

• review its charter annually and make such recommendationsto the Chairman and Chief Executive Officer and ChiefFinancial Officer regarding any changes as it deemsappropriate; and

• take charge of any other responsibilities as assigned by theChairman and Chief Executive Officer and Chief FinancialOfficer.

Each of ALSTOM’s Sectors has established a Sector DisclosureCommittee, which reviews drafts of all portions of ALSTOMDisclosures (as defined above) that relate to its Sector’s activitiesand operations (financial and otherwise), and evaluates theeffectiveness of the operation of the Disclosure Controls andProcedures within its Sector. Each Sector Disclosure Committeeshall report to the Disclosure Committee, either directly or throughits representative on the Disclosure Committee, as to the resultsof its review of ALSTOM Disclosures applicable to its Sector,and as to its evaluation of the effectiveness of the operation ofthe Disclosure Controls and Procedures within its Sector.

Pursuant to Article L. 225-37 of the French Commercial Code,the Chairman of the Board of Directors presents in this reportdrafted with respect to fiscal year ended on 31 March 2006,the conditions of preparation and organisation of the work ofthe Board of Directors, the limitations to the Chief ExecutiveOfficer’s powers and the internal control procedures implementedby the Company within the Group.

This report has been reviewed by the Board of Directors heldon 16 May 2006, after the Nominations and RemunerationCommittee had reviewed the section relating to the functioning

of the Board of Directors and its Committees, and after theAudit Committee had reviewed the section relating to the internalcontrol procedures.

In a report attached to their general report, the external Auditorswill present their observations on this report, limited to theinternal control procedures in respect with the preparation andthe processing of accounting and financial information.

CHAIRMAN’S REPORT PURSUANT TO ARTICLE L. 225-37 OF THE FRENCH COMMERCIAL CODE

Organisation and functioning of the Board of Directors

> Internal Rules and Regulations

The methods of organisation and functioning of the Board ofDirectors are defined by the Internal Rules and Regulations ofthe Board in addition to applicable laws and regulations.The rules are reviewed every year by the Board in order todecide whether its provisions need amending to better complyto the current rules or to improve the efficiency and theperformance of the Board and its Committees.

These rules notably state that the Board of Directors:• shall, to the extent practicable, be comprised of at least half

of independent members as determined and reviewedannually by the Board on the basis of a proposal to be madeby the Nominations and Remuneration Committee;

• shall define, upon the proposal of the Chief Executive Officer,the Group’s strategy, and shall regularly review the Group’sstrategic options as previously defined, supervise managementand verify the quality of information supplied to shareholdersand the financial markets;

• shall consider prior to implementation, any operation that isnot part of the Group’s announced strategy or that couldsignificantly affect or materially modify the financial structureor results of the Group;

CONDITIONS OF PREPARATION AND ORGANISATION OF THE WORK OF THE BOARD OF DIRECTORS


• shall examine and approve any plans for major acquisitionsor divestitures, the annual budget and the medium-term plan;

• shall be kept regularly informed of developments in theGroup’s Business activities and results, its financial position,indebtedness, cash position and, more generally, any Groupcommitments, and may request information about theforegoing at any time;

• shall create one or more specialised Committees and shalldefine their composition and responsibilities;

• shall approve the composition of the Group’s ExecutiveCommittee;

• shall set the remuneration of the Corporate Officers(“mandataires sociaux”).

The Board must examine its functioning at least once a year andimplement a formal assessment every three years. At least fourmeetings are scheduled each year.

Information to be supplied to the Board of Directors

Before each Board meeting, the Directors shall receive,sufficiently in advance and with proper notice, a file on thematters on the agenda requiring prior examination andconsideration.

In addition to Board meetings, the Chairman systematicallyinforms the Directors of any event or development that mayhave a material impact on operations or on any informationpreviously communicated to the Board or on any mattersdiscussed during the meetings; the Chairman also regularlyforwards to the Directors any material information regardingthe Company.

The Directors receive copies of any press releases issued by theCompany which have not been specifically approved by theBoard, as well as the main articles appearing in the press andreports by financial analysts.

At any time, the Directors may request further information fromthe Chairman of the Board, who shall assess whether thedocuments requested are pertinent.

Any Director is entitled to meet with the Group’s Senior Executiveseven without the Corporate Officers (“mandataires sociaux”)of the Company.

The Directors can also be asked to join workgroups organisedby the Company whose subject matters will then be presentedto the Board.

Board Committees

Since the Company’s listing in 1998, the Board of Directors hascreated two Committees, the Audit Committee and theNominations and Remuneration Committee, each with the roleof studying and preparing the Board’s main deliberations.

Each Board meeting is generally preceded by a meeting ofone or of the two Committees depending on the items on theBoard meeting agenda. The Committees report to the Board ontheir work and observations, and submit their opinions, proposalsor recommendations.

The composition, the powers and the procedures of eachCommittee are also defined by Internal Rules and Regulationsput forward by each Committee involved and approved bythe Board of Directors. Each Committee reviews every year itsInternal Rules and Regulations and can submit any modificationsthat it considers appropriate to the Board.

The participation of any Director to the Committees is decidedaccording to the Directors’ experience and skills.

According to the Audit Committee Internal Rules and Regulations,at least two-thirds of the Committee must be independentDirectors. As for the Nominations and Remuneration Committee,the Rules recommend that half of its members are independent.

In the context of its work, each Committee can meet any Groupexecutive it wishes, resort to the services of experts on its owninitiative and ask for any information useful for it to performeffectively.

Moreover, each member of a Committee may propose that ameeting be held if he or she considers this necessary in orderto discuss a particular issue.

Each Committee prepares a report presenting its work duringthe past fiscal year; this report is included in the Annual Report(see hereinafter).

Evaluation of the functioning of the Board and of the Committees

The Board carried out the first formal self-assessment of itsfunctioning in May 2004 pursuant to its rules and regulations.

This evaluation was based on a questionnaire prepared bythe Nominations and Remuneration Committee addressed toeach Director. The Board of Directors discussed a summary of

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Chairman’s report

the individual assessments collected by the Committee on ananonymous basis. A similar procedure was set in place toevaluate the workings of each Committee in May 2004.

The Board’s evaluation mainly covered the composition of theBoard, the frequency and length of the meetings, the issuesdiscussed, the information provided to the members and theinteraction with the Group’s executives.

Generally, the Directors had a positive opinion of the quality ofthe information made available to them, whose continuousimprovement they appreciated, and of the preparation of theBoard decisions.

To continue on the same line, the following principles wereagreed:• organisation of specific meetings focused on strategy, human

resources, risk management or any other subjects accordingto priorities and needs;

• increased participation to Board meetings by Groupexecutives, in particular by the Sectors’ Presidents;

• possibility for the non-executive Directors to meet without theexecutive Directors’ presence, like in the past fiscal year,when a full Board session was followed by a non-executivesession.

These principles were set up in September 2004 with a Boardmeeting dedicated to the human resources and social policy ofthe Group presented to the Board by the Senior Vice Presidentof human resources. These principles were also implemented inMarch 2005 (and then in March 2006), when the SectorPresidents attended the Board meeting discussing the budget forthe next fiscal year and the three-year plan, and when Directorsmet without the Chairman and Chief Executive Officer to discussthe evaluation of his performance.

The outcome of May 2004 assessments led the Board toamend some Internal Rules and Regulations as well as theDirector’s Chart (proportion of independent Directors in theBoard raised from one-third to half the members, reduction tothree of the minimum number of Committee members to allowgreater flexibility, holding of at least 1,000 shares per Director –since then reduced to 25 shares as a result of the consolidationof the shares comprising the share capital).

In May 2005 and then in May 2006, in compliance withtheir internal rules, the Board and each Committee reviewed theirperformance during the past fiscal year on the basis ofquestionnaires prepared by the Nominations and RemunerationCommittee, and reviewed their internal rules.

The reviews confirmed that the performance of the Board andits Committees was satisfactory and identified a few proposalsto further improve the Board’s performance and efficiency (see“Activity report of the Board for fiscal year 2005/06” below).

Activity report of the Board for fiscal year 2005/06

The Board of Directors met seven times during the fiscal year(eight times during the previous fiscal year) out of which two timeson exceptional convening. The average attendance was 88.3%(including telephone and videoconference participation) whereasit was 86.5% in 2004/05.

As recommended in the first formal evaluation of the Board’sperformance in May 2004, the participation of the topmanagers of the Group to the Board’s meetings has increased.

The Board discussed and passed its resolutions on all maintopics regarding the Group.

The Board reviewed and approved the Company and theconsolidated accounts and profit and loss statements for thefiscal year 2004/05 as well as the consolidated accounts forthe first half of the fiscal year 2005/06 and the managementreports. For the first time, the Board also reviewed the financialinformation on the transition to the IAS/IFRS rules.

The Board approved the terms of the transfer of the MarineSector for which it has debated on every material step and itregularly followed and discussed the development of the salefiles and any other actions relating to its obligations with theEuropean Commission.

The Board kept on reviewing the financial situation of theGroup, the evolution of the cash flow and of the debt situation.The Board discussed and approved the terms of the renewal ofthe bonding programme, it renewed the financial delegation ofpowers to the Chairman and Chief Executive Officer for theissue of bonds and it approved the debt-refinancing programmecarried out during the fiscal year.

According to the conclusions of the May 2005 performancereview, a Board meeting was held on one of the main industrialsites related to the Power Business, in order to arrange a visitof the site and a thorough presentation of the Business and ofthe strategic plan of Power Turbo-Systems / Power Environment,with the participation of the Sectors’ Presidents.


During the annual meeting attended by the Sector’s Presidents,the Board reviewed and approved the 2006/07 budget andthe three-year forecast; it also discussed the Group’s strategy inthe different lines of Business during its annual session attendedby each Sector’s President.

During the financial year, the Board of Directors also: • was kept regularly informed and discussed the main legal

proceedings and investigations involving the Group; • discussed and approved the description of the main risks

faced by the Group and included in the Company’s AnnualReport;

• adopted the resolutions and the documents required by lawconcerning the annual Shareholders’ General Meeting andproposed to consolidate the Company’s shares;

• discussed and approved the results of the annual performanceevaluation of the Board and its Committees as submitted bythe Nominations and Remuneration Committee, of theChairman’s report attached to the Management report, theupdate of the Internal Rules and Regulations of the Board, theDirectors’ independence and the new rules of abstentionand intervention on the Company’s shares;

• reviewed the Chairman and Chief Executive Officer’sperformance during its annual meeting without him attendingsuch meeting;

• upon the Nominations and Remuneration Committee’sproposal, the Board resolved on the terms of remuneration ofthe Company’s Corporate Officers (“mandataires sociaux”),a stock option plan and the principle of setting up a planof free distribution of shares to the Group’s employees uponcondition that the operational margin objectives and the freecash flow of the Group are met in fiscal year 2005/06;

• the Committees’ Chairmen have submitted their Committeework reports to the Board.

The external Auditors were invited to two of the Board meetings.

Audit Committee

The general purpose of the Committee is to assist the Boardof Directors with ensuring the following:(i) the completeness, quality, accuracy and truthfulness of the

financial statements of the Group and other related financialinformation or reports provided to the shareholders, the publicand Stock Exchanges Authorities;

(ii) the Company’s compliance with legal and regulatoryrequirements;

(iii) the performance of the Company’s internal audit function; (iv) a system of internal controls and accounting and financial

reporting processes in general.

In fulfilling its role, the Committee is in charge of:• reviewing the scope of consolidation and examine all draft

financial statements and related reports which will be submittedto the Board of Directors for approval and to discuss them withManagement and the external Auditors;

• reviewing with the Management and the external Auditors thegenerally accepted accounting principles and methods usedin the preparation of the accounts, as well as the alternativeapplications of accounting principles, their relevance, and alsoany change in accounting principles, methods or rules;

• reviewing the report on the critical accounting policies andother key issues and decisions related to financial statementsand related reports, and other material written communicationsbetween the external Auditors and Management;

• reviewing the report on the applied main financial principles,any other matter and material choice relating to the financialsand to the reports thereto, as well as reviewing all materialwritten communications between the external Auditors and theGeneral Management;

• reviewing the Management’s report on risks exposure(including litigation risks) and significant off-balance sheetcommitments;

• reviewing with the external Auditors the nature, scope andresults of their audit and work performed, any comments andsuggestions they may have relating notably to internal controls,accounting practices and the internal audit programme;

• reviewing and evaluating at least annually the internal controlprocedures including for financial reporting contributing tothe preparation of the accounts, including the system of riskassessment and risk management and the organisation andfunctioning of internal audit;

• reviewing and controlling the external Auditor selectionprocess and making recommendations to the Board ofDirectors on their appointment or renewal, to expressing anopinion on the amount of fees proposed to be paid to theexternal auditors by the Company, giving prior authorisationof any non-audit services directly complementary to the auditof the accounts as well as the related fees and ensuring theexternal Auditors’ independence.

The Committee may also perform any other activities as theCommittee or the Board of Directors deems necessary orappropriate.

The Committee is entitled to seek any external assistance itmay deem necessary.

Unless the Committee has resolved against it, the externalAuditors will assist to all its meetings.

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Chairman’s report

Activity report for fiscal year 2005/06

The Audit Committee met three times during fiscal year2005/06 (four times during fiscal year 2004/05). Theattendance level was 92% (79% for fiscal year 2004/05).

The Chief Financial Officer, the Head of Corporate Accountingand at least one representative of the two independent auditfirms were in attendance at all three meetings. The GeneralCounsel and the Vice President internal audit participated in allmeetings. Other Senior Management including the TransportPresident, the Senior Vice President internal control, the VicePresident of Tenders and Projects Control, and several ChiefFinancial Officers of Sectors attended as required by theCommittee.

The Committee reviewed the statutory and consolidated financialstatements and “Document de Référence” for the fiscal yearended 31 March 2005 prior to its filing with the French StockMarket Authority (“Autorité des marchés financiers”).

The IFRS consolidated interim financial statements as of 30 September 2005 were also reviewed. As part of thisanalysis, the Committee reviewed the restated consolidatedfinancial statements as of 31 March 2005 in accordance withIFRS with the accompanying notes reconciling the primaryaccounts set up in French Gaap with IFRS opening balancesheet and consolidated financial statements.

As part of its work, the Committee considered major riskcontracts and significant accounting policies. Business risksincluding contracts execution risks were reviewed, as were themain legal risks. The Committee also noted the work performedby the Disclosure Committee.

Work undertaken to improve internal control and risk control wasconsidered. It also reviewed the results of internal controlquestionnaires set up in 2005 with the aim of improving internalcontrols, eliminating weaknesses and ensuring compliance withapplicable regulations.

A new computer-based tool was acquired to ensure that progressis monitored at all levels on a regular basis. The methodologyused involved scoping the Group and understanding theimportance of each unit, to document and evaluate the controls,to identify weaknesses then to remediate, to test and solveissues and to report and provide evidence supportingconclusions reached.

During fiscal year 2005/06 specific operational matters werealso reviewed by the Audit Committee. The Head of Treasury

presented the ALSTOM foreign exchange policy and detailswere given on definition and principles for tenders and contractexecution.

The Head of Treasury also went through the presentation ofhis department and gave details on a new computer-basedtool implemented worldwide for foreign exchange management.The Chief Financial Officer made a specific presentation onpensions explaining assets and liabilities management as wellas benefit policy.

The Committee also evaluated its functioning and its internal rules,the Disclosure Committee Charter and Disclosure controls andprocedures determined by it, as well as the External Auditors Charter.

The Chief internal auditor presented the internal audit activityreport for 2005 and indicated that there is increasing attentionto internal control matters including at the Corporate RiskCommittee through the internal control self-assessmentquestionnaire. The proposed internal audit programme for eachof the next four years was tabled and approved.

The External Auditor Charter includes listing of pre-approvedservices that can be performed within defined limits by theExternal Auditors. The Committee, at all its meetings, approvedboth the work to be performed by the external Auditors withinits laid down guidelines and the fees involved. The ExternalAuditors Charter also includes restricted non-audit services,which are not to be performed by the independent Auditorsfor any company in ALSTOM.

The budgets for 2006/07 were received.

The Committee reported on its work, provided comments andgave proposals to the Board.

Nominations and RemunerationCommittee

The Committee reviews and makes proposals or gives its opinionto the Board of Directors on the following subjects:• the separation or combining of the functions of Chairman of

the Board and Chief Executive Officer of the Company; • the nomination (or revocation) of the Chairman of the Board

and of the Chief Executive Officer; • the nomination of new Directors including in case of

unforeseeable vacancy; in particular, the Committee organisesan appropriate procedure for selecting future independentDirectors and makes its own independent research on potentialcandidates prior to their being approached;


• the nomination (or revocation), upon proposal of the ChiefExecutive Officer, of any other Corporate Officers (“mandatairessociaux”) and members of the Executive Committee;

• the succession plans for the Company’s Corporate Officers; • the application by the Company of corporate governance

practices and the Board and Committees’ composition andfunctioning (including the Nominations and RemunerationCommittee);

• the Company’s definition of an independent Director andthe list of independent Directors to be inserted in theCompany’s Annual Report;

• the compensation (fixed and variable) to be paid to eachof the Corporate Officers, including compensation andbenefits of any kind (including pensions and terminationbenefits) also paid to them by the companies belonging to theGroup. The Committee notably reviews and defines the rulesfor determining the variable part of such compensation,ensures their coherence with the annual performanceevaluation and the strategy of the Company, and thereaftercontrols the implementation of these rules;

• the Company’s general policy relating to stock option plansincluding the granting, timing and frequency of allocations,and any proposed stock option plans including the proposedbeneficiaries;

• the Company’s general policy relating to employee sharepurchase schemes and any proposed schemes;

• the Directors’ fees and the conditions for their award.

The Committee decides whether it will define, upon proposalof the Chief Executive Officer, the compensation and benefitsof all or some of the members of the Executive Committee,including the principles and criteria used for their annualperformance evaluation, in particular those for determining thevariable part of their remuneration, or whether it will just beinformed of these.

The Committee also develops and recommends to the Board forits approval, a formal process for evaluating the functioning of theBoard and its Committees to be implemented at least every threeyears and, without the presence of the Directors concerned,prepares the annual performance evaluation of the Chairmanof the Board and of the Corporate Officers based on the principlesapplied to other Senior Corporate Executives.

The Committee performs any other related activities as theCommittee or the Board deems necessary or appropriate.

Activity report for the fiscal year2005/06

The Nominations and Remuneration Committee met three timesduring fiscal year 2005/06 (versus twice during fiscal year2004/05), each time with a 100% attendance rate.

The Nominations and Remuneration Committee discussed andproposed to the Board of Directors the terms and conditions toapply to the variable remuneration of the Chairman and ChiefExecutive Officer, including the pay-out for 2004/05, the detailedeconomic objectives for 2005/06 (operating margin, free cashflow, and gross margin in backlog – all three objectives measuredvia two indicators: half-year results at September 2005, and full-year results at March 2006), and the personal objectives.

Taking into consideration the results of the survey on the ChiefExecutive Officers compensation conducted by its external advisorand after taking into account the Chairman and Chief ExecutiveOfficer’s decision to waive any attendance allowance, theCommittee recommended to the Board for the fiscal year 2005/06:• to increase the Chief Executive Officer's base salary;• to define his variable remuneration with a target at 100%

(instead of 75%) and a maximum at 160% (instead of 120%).

The Nominations and Remuneration Committee decided tocarry out another comprehensive benchmark test of ChiefExecutive Officers remunerations at end 2005.

The Nominations and Remuneration Committee also decidedto carry out a benchmark test of Director fees, with the helpof an external advisor. Following this study, the Nominations andRemuneration Committee recommended to the Board anincrease of the Director fees, taking into consideration the factthat ALSTOM’s position was below average and that the feeshad not been increased for many years.

Concerning shares and stock options, the Nominations andRemuneration Committee discussed the possibility of granting freeshares to all employees, as a reward linked to the achievementof the two key economic indicators for 2005/06 (operatingmargin, free cash flow).

The Nominations and Remuneration Committee examined in detailthe characteristics of Stock Option Plan n°8 and of the StockAppreciation Rights (designed for US managers), for 2005.

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The Nominations and Remuneration Committee also discussedthe granting of stock options to the Chief Executive Officer,and decided to recommend it to the Board.

As far as the People Review is concerned, the Nominationsand Remuneration Committee was informed of the new PeopleReview process, which assesses internal resources and possiblepromotions, and which is now deployed throughout the Group.The Nominations and Remuneration Committee discussed thistopic with respect to the Executive Committee positions.

Finally, regarding the Board’s internal rules, the Nominations andRemuneration Committee reviewed an amendment and decidedto recommend it to the Board.

The Nominations and Remuneration Committee reported to theBoard on all these matters, works and recommendations.

Rules of conduct

> The Director’s Chart

Attached to the Board of Directors’ Internal Rules and Regulationsis the Director’s Chart, defining the Directors’ rights andobligations, according to the Bouton report’s recommendations.

Before accepting his/her appointment, all Directors shall takecognisance of the legal and regulatory texts relating to hisoffice, as well as of the Company by-laws, the internalprocedures for the Board of Directors and this Chart. AnyDirector can refer to the Secretary of the Board at any time,regarding the application of these rules and the rights andobligations of his role.

Any Director shall dedicate to his/her function all the requiredtime and attention and shall attend – unless truly prevented to doso – all meetings of the Board of Directors and of the Committeeswhich he is a member of, as well as all shareholders generalMeetings.

Pursuant to the Chart, each Director has a duty to inform theBoard as soon as he/she is aware of a conflict of interest,even a potential one, and to abstain from attending discussionsand from voting the resolution thereby. In case of permanentconflict of interest, the Director must resign.

The Director’s Chart reminds the Directors’ duty to comply withthe Group’s internal rules and, more generally, with theapplicable legal or regulatory provisions regarding the Directors’abstention from dealing on the Company’s shares.

Pursuant to the Group’s internal rules – as modified during thefiscal year with the Board’s approval – the purchase and saleof the Company’s shares are not allowed: • during the 30 calendar days before ALSTOM first six-month

and annual results are disclosed to the public and until thesecond business day included after the date when theinformation has been disclosed to the public;

• during the 15 calendar days before the public disclosure ofthe sales and orders for the first and third quarters of thefinancial year and until the second business day includedafter the date when the information has been disclosed to thepublic, and in any case;

• when inside information is held and until the second businessday included after the date when this information has beendisclosed to the public.

Pursuant to the Chart, each Director – except for the French Staterepresentative – shall hold the minimum number of shares set by theby-laws that is twenty-five shares since the Company’s shares wereconsolidated at the rate of one new share for 40 existing shares.

At the 11 March 2003 meeting, the Board of Directors votedfor combining the roles of Chairman and Chief Executive Officerwithout any further limitations of power other than those providedby the law or by the Internal Rules and Regulations.

The Internal Rules and Regulations of the Board indicate that theBoard of Directors’ prior approval is required for any operation:

• that is not part of the Group’s announced strategy or thatcould significantly affect it;

• that could materially modify the financial structure or results ofthe Group.

The Board of Directors also examines and approves any plansfor major acquisitions or divestitures. It examines and approvesthe annual budget and the medium-term plan.

LIMITATIONS TO THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S POWERS


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The internal control procedures put into place by the Companyat Group level are based on control guidelines prepared by arecognised body COSO (Committee of SponsoringOrganisations of the Treadway Commission). The systemprovides reasonable assurance that:• operations are completed in an optimal manner;• financial information and data are reliable;• applicable laws and regulations are complied with at all

times.

Objectives

The objectives of the internal control system are:• primarily to monitor that there exists no material items that

call into question the reliability of either the consolidatedfinancial statements or the statutory financial statements;

• to control the risks resulting from the operations as well as toprevent the risk of error or fraud particularly in the accountingand finance areas.

By essence, it cannot provide a guarantee that such risks havebeen totally eliminated. It must bring them down to anacceptable level.

Definition of internal control

Internal control consists of five inter-related components, whichare all being implemented within the Group:• control environment covering integrity, ethics, competencies,

authorities, responsibilities and staff developments;• risk assessment, i.e. the identification, analysis and minimising

of relevant risks;• control activities, namely policies and procedures that ensure

that Management’s instructions are applied;• information and reporting: relevant information must be

identified, captured and communicated in a format andtimeframe to enable the relevant persons to carry out theirresponsibilities; and

• monitoring including internal check and internal controlprocedures as well as internal audit: a process that assessesthe quality of the systems performance over time.

> 1. Organisation of internal control procedures

A. Key participants

• Senior ManagementThe Chairman and Chief Executive Officer is directly responsiblefor the internal control system and for ensuring that internal controlprocedures are designed and operated effectively within theGroup. Management at all levels is responsible for developing,operating and monitoring the systems of internal control and forproviding necessary assurance that it has done so.

• Audit CommitteeThe Audit Committee assists the Board of Directors in its oversightof:• the completeness, quality and accuracy of the financial

statements and related financial information;• the Group’s internal control procedures including in respect

of accounting and financial reporting processes generally; and• the performance of the audit function.

In fulfilling its role, the Audit Committee reviews and evaluatesat least once a year the internal control procedures includingthose relating to financial information, contributing to thepreparation of the accounts. This includes the review andevaluation of the system of risk assessment and risk management(including contract and legal risks) and the organisation andfunctioning of internal audit.

Within the Audit Committee, the scope of planned internalaudit activities is reviewed in advance and the internal auditDepartment develops an annual plan taking account of theperceived risk and determines the allocation of resources.

• Internal audit DepartmentThe Vice President internal audit, who is in charge of the 20-member internal audit Department reports to the Chairmanand Chief Executive Officer and works in close co-operation withthe Chief Financial Officer and the General Counsel.

The main role of the internal audit Department is to advise theChairman and Chief Executive Officer and the Audit Committeeon the adequacy and effectiveness of the systems of internalcontrol in all phases of the Group’s Business.

INTERNAL CONTROL PROCEDURES


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It operates in accordance with the internal audit Charterapproved by the Audit Committee and has the authority toexamine any and all aspects of operations.

In particular, the internal audit Department evaluates controls thatpromote:• compliance with applicable laws and with internal policies

and procedures; • physical safeguarding of tangible and intangible assets

including risk identification;• availability, reliability, integrity, confidentiality of information

and reporting; • efficiency of Business processes, functions, and activities,

assisted by risk assessment procedures.

An additional role is to recommend improvement in Group’sprocedures and whenever possible promote best practices.

The effectiveness and adequacy of internal controls andcompliance with accounting policies and procedures arereviewed regularly by the internal audit Department. After eachinternal audit a report is issued setting out the audit findingsand recommendations. Copies of the report are given to theManaging Director and the Finance Director of the auditedunits and to Senior Management and are summarised in anannual internal audit Report, which is presented to the AuditCommittee on the overall results of the internal audits conducted,as well as on any other matter, which affects internal control. Thisreport provides the basis for the Audit Committee to reviewthe effectiveness of the internal audit work including internalcontrols and risks assessment.

Management must take adequate actions within a reasonabletimeframe to correct deficiencies reported by the internal auditDepartment and to respond in a timely and appropriate mannerto findings and recommendations of both internal audit andof the independent auditors regarding internal control andpolicies and procedures of the Company.

An external review of internal audit has been performed in2005 to compare ALSTOM internal audit with best practicesand with the Institute internal auditors Standards.

• Finance DepartmentThe Finance Function controls Business, operations and projectsto optimise the Group’s profitability and cash generation whilstproviding internal and external stakeholders with reliableinformation.

In particular, the Finance Department defines the Group’sprinciples and financial policies in terms of tenders and projects

control, funding, treasury, internal control, accounting, tax andmanagement control, designs and leads key financial processes(three-year plan, budget, business reviews) as well as reportingtools to determine and appraise Sectors’ performance, andanalyses the Group’s performance and produces consolidatedfinancial statements.

More specifically:• the function of Management’s Control defines the formats,

indicators, processes and timing for three-year plans, budgetsand forecasts for the Group’s purposes, analyses the Group’sactual and forecasted performance and manages thecorporate budget;

• the Group Accounting Department is responsible for designingand issuing the relevant accounting procedures in the Group,ensuring that they are in compliance with accounting laws andstandards and producing consolidated and parent companyfinancial statements, as well as financial information forexternal stakeholders;In particular: – it defines the Group’s accounting procedures in compliance

with “IFRS”; – it provides Sectors with instructions on accounting principles; – it controls and investigates data consistency and compliance

with the Group’s accounting principles.• the Reporting Function makes information available to allow

Management to better control the Sectors/Businesses, totake relevant decisions on a continuous basis, and to allowthe Accounting Function to produce financial statements. The Reporting Function is responsible for managing thereporting structure, processes and tools to ensure that Sectorsare able to accurately analyse and report on theirperformance;

• the Treasury Function defines rules and procedures regardingcash management, currency risk hedging as well as bondsand guarantees. In addition, it manages the related risks(market, liquidity, foreign exchange and interest rate), therelationships with subsidiaries, the cash pooling structureand the netting process;

• the Tax Function defines the overall tax policy and planningfor the Group and ensures proper compliance with regard totax returns and payments.

• Disclosure CommitteeThe Chairman and Chief Executive Officer and the ChiefFinancial Officer have established Disclosure Committees atCorporate and Sector levels in order to assist them in evaluatingthe effectiveness of the Group’s disclosure controls andprocedures that are designed to ensure that the material financialand other information required to be disclosed is recorded,processed, summarised and reported on a timely basis and


that appropriate information is communicated to Managementincluding the Chairman and Chief Executive Officer and ChiefFinancial Officer to allow timely decisions regarding suchdisclosure.

The Corporate Disclosure Committee is composed of the ChiefFinancial Officer, the General Counsel, the Chief AccountingOfficer, the Vice President of Management Control, the VicePresident of Tenders & Projects Control, the Vice Presidentinternal audit and a member of the Senior Management ofeach of the Sectors.

A member of the Disclosure Committee reports at least once ayear to the Audit Committee on the preparation of the annualreport, any material weaknesses or any significant changes ininternal controls and any fraud that involves Management orother employees who have a significant role in the Group’sinternal controls.

Each Sector has established its own Disclosure Committee, whichshall report to the Group’s Disclosure Committee as to the resultsof its review of the Group’s disclosure controls and procedures andas to its evaluation of its effectiveness within its Sector.

The Corporate Disclosure Committee met two times during theyear ended 31 March 2006 under the Chairmanship of theChief Financial Officer. The consolidated financial statementson 31 March 2005 and Management discussion and analysiswere reviewed. The interim consolidated financial statements forthe 6 months period to 30 September 2005 were reviewed.Reports from the Sector Disclosure Committees were receivedat each meeting. In the reviews of the consolidated financialstatements the Committee considered the disclosures made todetermine any, confirm their relevance, accuracy, completenessand presentations.

• Corporate Risk CommitteeThe Risk Committee chaired by the Chairman and ChiefExecutive Officer reviews the risks taken in the tender of offersand the execution of contracts.

The Committee is composed of the Chairman and ChiefExecutive Officer, the Sectors’ Presidents, the Chief FinancialOfficer, the General Counsel, the Vice President Internal Audit,the Senior Vice President of International Network, the SeniorVice President of Project and Export Finance and the VicePresident of Tenders and Projects Control, and meets on amonthly basis in order to:• review risks from major tenders exceeding €50 million or

deviating from defined criteria. The tenders reviewed by theTenders and Projects Control Department are required to be

approved by either the Chairman and Chief Executive Officeror the Chief Financial Officer before the bid date;

• be briefed on the project reviews particularly those attendedby the Tenders and Projects Control Department during thepreceding month;

• review matters reported by internal audit and/or theInternational Network; and

• be briefed on specific concerns, which may arise from timeto time and have an impact on the Sectors.

Following the Committee’s meetings, minutes of meeting recordthe required actions decided on the session.

In a similar way, each Sector has established risk reviewprocedures, which are consistent with the Group’s principles. Inparticular, the relevant Sector’s Management must be advised:• of important changes in original tender assumptions and of

the related impact on the assessment of relevant risks; • of material changes within a contract which could impinge

significantly on its result.

Finally, the internal control Manual specifies that project reviews,which must be minuted, must be held every three months forcontracts, which could have a major effect on the relevant unit’sfinancial performance, or every six months in other circumstances.

B. Formal Procedures or GuidelinesThe Company has established a set of corporate instructions thatconstitute the body of internal rules (the “Corporate Instructions”)and are posted on the Company’s Intranet website.

The Corporate Instructions deal with issues of importancethroughout the Group and are mandatory for the whole of theGroup including Sectors, Businesses, units, countries andfunctions. Once a Corporate Instruction is issued, all units mustensure that any pre-existing procedures, policies, directives orother communications at any level is revised to comply withthe said Corporate Instruction.

Certain of the Corporate Instructions are recognised to form apart of, or be directly related in whole or part to, the Group’sdisclosure controls and procedures. These Corporate Instructionsinclude or require compliance with, notably, the Code of Ethics;the internal control Manual; ALSTOM Organisation – Delegationof Authority and Appointment of Directors; Finance Function;Corporate Treasury; Accounting Principles & Reporting; LegalFunction; Litigation and Settlements; Communications with theMedia; Press Releases and Crisis Management; Selection,Use of and Payments to Agents, Consultants and Representativesfor Business Transactions; and International Network.

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• Code of EthicsThe Company has a Code of Ethics, which applies to everyALSTOM Director, officer and employee wherever they work inthe Group.

This Code provides the fundamental values of the Company suchas transparency, integrity, loyalty and compliance with treaties,and laws and rules in force in the countries where the Companyoperates.

It provides an easy reference for proper conduct in our day-to-day Business and is designed to promote honest and ethicalconduct in Business conduct and with clients, suppliers,competitors, shareholders, employees, governments, regulatoryauthorities and the public. Every officer and employee of theCompany is accountable for complying with the Code of Ethics.

The Code covers and prescribes rules of conduct on varioustopics such as compliance with laws, protection of the Group’sassets, dissemination of information, confidentiality, humanresources, internal controls, conflicts of interest, insider trading,dealing with third parties, bribery and corruption, politics andcharities, protection of the environment and natural resources andcommunications.

The Code comprehensively includes the Group Instructionswhich treat in more detail the defined rules and proceduresput into place to ensure the compliance with these fundamentalprinciples and values.

For example, the development of projects in certain countriesrequires the support of an agent: a representative for a long-termrelationship with one or more Sectors of the Group, or aconsultant appointed for a specific project.

In addition to the Code of Ethics, a Group Instruction requires,in all cases, that this support is subject to a written contract inconformity with the rules of ethics and the Company’s corporategovernance. To such effect, in February 2001 the function“Representation and Compliance” (Ethics and Compliancesince January 2006) was instituted in order to examine all therelationships between the agents and ALSTOM, and to ensurethe strict compliance with the rules of ethics, instructions andprocedures put into place within the Group relative to thespecial care involved in the selection of Agents.

• Internal control ManualThe Internal control Manual defines the requirements, instructionsand best practices necessary to create and maintain a satisfactorycontrol environment, and covers internal controls over financialreporting. The internal control Manual summarises the elements

of internal control covering most of the Business processes inthe Group and is posted on ALSTOM’s Intranet site.

The Manual contains a number of principles that are to becomplied with at all times, including segregation of duties anddelegation of authorities, which are mandatory for all businessunits. The management of the respective entity, unit, Business,Sector, country or Corporate is responsible for developing,implementing, operating and monitoring systems of internalcontrol in compliance with the internal control Manual and forproviding assurance that it has done so.

During the course of the work undertaken over the last year theinternal control Manual has been redrafted and reissued in linewith a redesigned internal control questionnaire.

> 2. Internal control initiative

A. Objectives of the initiativeIn the early months of 2005, the Group launched an initiativeto create a continuous improvement environment to reinforceinternal control.

The project had a number of objectives.

• In the short term to:i) tackle immediately any weaknesses already identified, whether

through external or internal audit or through self-assessmentquestionnaires on internal control;

ii) provide improved assessments of internal control at 30 September 2005, and 31 March 2006 differentiatingthe requirements based on contribution to the Group financialstatements, including dealing with delegation of authorityand involving non-finance people.

The foundation of any system of internal control is to make surethat responsibilities and authorities are defined and understood.

Segregation of duties involving internal check is practiced at alltimes with one person required to check and approve the workof another.

Separate people are responsible for initiating, authorising,recording, processing and reporting transactions. Theseauthorisations should be within the relevant delegations ofauthority.

Recording is undertaken promptly and information is processedand reported in a timely manner.


Documentation exists and is retained to confirm that amounts arepromptly recorded at the correct amount in the appropriateaccounts and in the proper accounting period.

• In the medium term to:i) ensure continuing compliance with French legislation,ii) continue to tackle weaknesses identified; andiii) continuously reinforce the internal control culture, beyond

the Finance Community.

• In the longer term, the project is required to assist in thedevelopment of a continuous improvement environment whichwill reinforce internal controls and make such controls part ofthe day-to-day activities within the Group. In addition, theproject is focusing on ensuring links with other initiatives thatare being undertaken to:

i) ensure adequate systems of internal controls over financialreporting,

ii) assist in streamlining processes,iii) improve performance and effectiveness.

B. OrganisationFrom the launch of the project a Steering Committee chaired bythe Chief Financial Officer was set up with a core team involvingboth Corporate and Sectors. This team was given objectives to:• define the objectives and the approach at Group level,• prepare and support implementation of the initiative,• report to the Audit Committee.

The initiative within the Sectors is driven by the Sector Senior VicePresidents Finance whose teams are responsible for thecompletion of the self-assessment questionnaires, monitoring ofresults, identification of control deficiencies and the followingup of action plans as well as performing quality assurancereviews of process documentation and evidential files.

The core team is functionally managing information on theinternal control database to make sure the Group is progressing.They are responsible for updating the internal control Manual,are a focus in the sharing of best practice within the Groupand for liaison with Sectors and central functions includingTreasury, Tax and internal audit. They are working with theInformation Technology Centre to ensure optimum performance.They are also responsible for ensuring that the internal controlaspects of all group initiatives are progressed within thecontinuous improvement environment.

A strong involvement of Managing Directors, Finance Directors,the financial community and people outside the financialcommunity is required to ensure improvements in internal controlwithin the Group.

C. Main actions undertaken and progress madeOver the last 12 months a number of actions have beenundertaken to improve internal control:• a new assessment questionnaire and tracking tool has been

deployed;• extensive training and communication efforts have been

undertaken.

Deployment of a new assessment questionnaire and tracking toolThis redesigned questionnaire differentiates requirements tounits based on their contribution to the Group’s financialstatements and requires units with the most contribution toprovide more detailed information than those with lesscontribution and in particular to document their supportingevidence to confirm answers to questions in the Self-AssessmentQuestionnaire.

The questionnaire is based on 12 cycles, which include thegeneral control environment, and the various activitiesundertaken.

Extensive training and communication effortA detailed training programme involving both conventionaland web-based training has been undertaken with over 1,200 people trained and up to 2,500 people participatingto the self, assessment exercises.

As part of the training programme written guidance wasprovided by way of responses to Frequently Asked Questionson preparation of documentation and Evidential Files includinga Glossary of terms used. The training sessions were organisedto gather individuals from all Sectors thus allowing a sharing ofbest practices and detailed feedbacks.

> 3. Internal control over financial reporting

Internal control over financial reporting deals more specificallywith internal control procedures in respect of the preparation andthe processing of accounting and financial information.

The Group’s principle rules and procedures in relation to financialreporting and accounting are set out in the internal controlsManual and the Reporting and Accounting Manual.

Application and compliance with these principles, rules andprocedures are under the direct responsibility of each unitFinance Director. All Finance Directors report directly to thefinancial officers of the relevant Business and Sector andultimately to the Group Chief Financial Officer.

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Unit Finance Directors must ensure that information that isprovided via the Carat reporting packages fully reflects requireddisclosures, the results of the period in question and the financialposition at the end of the period in question and they mustsend a written confirmation thereof. More precisely, annualreturn is to be sent to the Corporate Accounting Departmentalong with checklist, which must be individually signed off bythe responsible Finance Director and Managing Director. Thischecklist covers in particular, but is not limited to, cash andbank reconciliations, project reviews, provision movements,inter-company balances, hedging instruments, bonds andguarantees and significant accounting estimates and entries. Inaddition, a similar checklist must also be signed off by eachSector Senior Vice President of Finance.

The Company is involved in long-term contracts, which requireManagement to make estimates, and assumptions that mayeffect the reported amounts of assets and liabilities at the dateof the financial statements and the reported amounts of revenueand expenses during the reporting period. Estimates arereviewed on a regular basis using currently available information.

Estimates of future costs reflect Management’s current bestestimate of the probable outflow of financial resources that willbe required to settle contractual obligations. The estimates aretherefore subject to change, due to changes in circumstancessurrounding the execution of contracts.

Management reviews the effectiveness of internal control overfinancial reporting regularly, in particular to ensure the timelinessand accuracy of accounting for transactions and assets. Inaddition, it verifies that transactions have been recordedconsistently in accordance with IFRS as applied by the Companyand as set out in the Reporting and Accounting Manual in whichthe Group’s accounting policies and procedures are defined.

Paris, 16 May 2006

The Chairman of the Board


In our capacity as auditors of ALSTOM Company, and inaccordance with Article L. 225 235 of the French CommercialCode, we report to you on the report prepared by the Presidentof the Board of Directors of your Company in accordance withArticle L. 225-37 of the French Commercial Code for the yearended 31 March 2006.

It is for the President of the Board of Directors to give an account,in his report, notably of the conditions in which the tasks ofthe Board of Directors are prepared and organised and theinternal control procedures in place within the Company.

It is our responsibility to report to you our observations on theinformation set out in the President’s report regarding the internalcontrol procedures relating to the preparation and processingof financial and accounting information.

We performed our procedures in accordance with professionalguidelines applicable in France. These require us to performprocedures to assess the fairness of the information set out in thePresident’s report on the internal control procedures relating tothe preparation and processing of financial and accountinginformation. These procedures notably consisted of:

• obtaining an understanding of the objectives and generalorganisation of internal control, as well as the internal controlprocedures relating to the preparation and processing offinancial and accounting information, as set out in thePresident’s report;

• obtaining an understanding of the work performed to supportthe information given in the report.

On the basis of these procedures, we have no matters to reportin connection with the information given on the internal controlprocedures relating to the preparation and processing offinancial and accounting information, contained in the Presidentof the Board of Director’s report, prepared in accordance withArticle L. 225-37 of the French Commercial Code.


The auditors



AUDITORS’ REPORT PREPARED IN ACCORDANCE WITH ARTICLE L. 225-235 OF THE FRENCH COMMERCIALCODE on the report prepared by the Chairman of the Board of ALSTOM Company, on the internal controlprocedures relating to the preparation and processing of financial and accounting information

Year ended 31 March 2006


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Free translation into English of a French language original report prepared for convenience purpose only. Accounting principlesand auditing standards and their application in practice vary from one country to another. The accompanying FinancialStatements are not intended to present the financial position, results of operations and cash flows in accordance with accountingprinciples and practices generally accepted in countries other than France. In addition, the procedures and practices followedby the independent auditors in France with respect to such Financial Statements included in a prospectus may differ from thosegenerally accepted and applied by auditors in other countries. Accordingly, the French Financial Statements and the auditors’report – of which a translation is presented in this document for convenience only – are for use by those knowledgeable aboutFrench accounting procedures, auditing standards and their application in practice.


Compensation of executive and non-executive Directors

ALSTOM’s executive and non-executive Directors are its tenmembers of the Board, including the Chairman and ChiefExecutive Officer, who is the only managing executive Directorof ALSTOM.

The remuneration of the Chairman and Chief Executive Officer

The remuneration of the Chairman and Chief Executive Officeris fixed by the Board of Directors upon the Nominations andRemuneration Committee’s proposal and comprised of a variableand a fix part.

The variable part of the remuneration varies along with reachingthe objectives for the fiscal year set forth by the Board ofDirectors upon proposal of the Nominations and RemunerationCommittee. For fiscal year 2005/06 the objectives are, on oneside, the Group’s financial objectives – free cash flow,operational margin, and level of margin in the backlog – andon the other hand, the specific objectives linked to the actionplan and to the fiscal year’s priorities.

In case the set objectives are met, the financial objectivesrepresent 60% while the specific objectives represent 40% ofthe annual base salary. The financial objectives can varybetween 0% and 120% and the specific objectives between 0%and 40%, depending on results. Hence, the variable salary’srange is between 0% and 160% of the base annual salary.

For fiscal year 2005/06, the fixed gross salary paid to theChairman and Chief Executive Officer amounted to €935,000(€880,000 the previous year). His variable gross salary was€1,300,000 (€750,000 the previous year), that is 139% ofhis fixed gross salary. He did not receive any Director’s fees inrespect of this fiscal year (€52,500 in respect of fiscal year2004/05).

The Chairman and Chief Executive Officer benefits from aCompany’s car representing a benefit in kind of €5,010.12 peryear.

He also benefits from a complementary pension scheme basedon the part of his salary not taken into account through thelegal pension schemes, which purpose is as for the otherindividuals with the same remuneration level, to give rightsequivalent to approximately 1.2% of the fraction of salary inexcess of €241,536 (for calendar year 2005) and €248,544(for calendar year 2006). This scheme, operating in theframework of the French “Fillon” Law, is composed of a definedcontribution plan and of a scheme with defined benefits. Thesums paid according to the contribution plan for 2005 amountto €19,322.88, wholly financed by ALSTOM; for the definedbenefits scheme on 31 March 2006, the undertakings financedby the Group as per the Chairman and Chief Executive Officer’spension plan commitments amount to €447,334, includingretirement indemnities obligation of €44,644.

The Chairman and Chief Executive Officer benefits from thegroup insurance policy covering the subscribers aged less than65 (60 for the disablement guarantee) in case of death ordisablement, upon a reference salary limited to 16 SocialSecurity annual caps (PASS) or €497,088 for 2006. Theinsurance is based on the annual reference salary and on thefamily situation. As an example, in case of natural death of aperson married with one child in his/her care, the capitalamount will be 375% of the annual reference salary; in caseof disablement of at least 2/3, the benefit is 85% of the annualreference salary. For 2006, the contribution for this policy are1.05% (fully covered by the Company) on Tranche A, 1.82%(half covered by the Company and half by the beneficiary) ontranches B and C and 4.5% of the annual reference salary(for the part between 8 and 16 PASS), half covered by theCompany half by the beneficiary.

COMPENSATION OF EXECUTIVE AND NON-EXECUTIVEDIRECTORS (“MANDATAIRES SOCIAUX”) AND MEMBERS OF THE EXECUTIVE COMMITTEE

EXECUTIVE AND NON-EXECUTIVE DIRECTORS (“MANDATAIRES SOCIAUX”)



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In the event of termination of his mandate at the Board ofDirectors' initiative, and unless in the event of grave misconduct,the Chairman and Chief Executive Officer would benefit froman indemnity equal to twice his latest gross annual globalremuneration, including the annual bonus and the loss of variousbenefits (complementary pension, company car, etc.) and keepall stock options granted to him. The same benefit would applyin case the Chairman and Chief Executive Officer decided toresign further to a takeover of ALSTOM.

Directors’ fees paid to the Directors

The Directors do not receive any compensation other than anattendance allowance (“Directors’ fees”). Since 1 April 2005,the Chairman of the Board of Directors waived his Directors’fees.

The Ordinary and Extraordinary General Meeting of 24 July2001 fixed at €400,000 the maximum annual amount ofDirectors’ fees, which can be distributed among the membersof the Board of Directors, until a different resolution is passed.

The Board of Directors sets the terms of granting the Directors’fees upon the Nominations and Remuneration Committee’sproposal.

According to the terms of granting applied for fiscal year2005/06, the Directors’ fees are made of a fixed part worth€15,000 paid to each Director. Each Chairman of the AuditCommittee and of the Nominations and RemunerationCommittee receive an additional amount of €7,500 per year.In addition, each Director is paid €2,500 for attending themeetings of the Board or of the Committees of which she or heis a member.

Based on these terms, the total Directors’ fees in respect offiscal year 2005/06 are €342,500, representing 85% ofthe maximum annual amount authorised. Half of the fixed andvariable parts were paid in fiscal year 2005/06, while thebalance was paid the following fiscal year.

Further to the market practice review performed by an externalspecialised consultancy firm, upon the Nominations andRemuneration Committee’s suggestion, at its 22 March 2006meeting, the Board of Directors resolved to increase theindividual fees which had remained unchanged since 1999 and to set forth the following terms of distribution applying fromfiscal year 2006/07: • the fixed part is raised to €17,500 for each Director; each

Committee Chairman is paid an additional €10,000;• the variable part will remain €2,500 for each attendance of

the Board and the Committee’s meetings.



Compensation and benefits paid to executive and non-executive Directors (“mandataires sociaux”)

The whole gross compensation and benefits of any kind paid (or due) for fiscal year 2005/06 and the two previous years by theCompany and the companies controlled by the Company to the Corporate Officers (“mandataires sociaux”) pursuant to Article L. 233-16of the French Commercial Code, are listed in the table below:

Paid in respect Paid in respect Paid in respectof fiscal year 2003/04 (1) of fiscal year 2004/05 (2) of fiscal year 2005/06 (3)

Gross Gross Gross compensation compensation compensation

and benefits Directors’ and benefits Directors’ and benefits Directors’(in €) or any kind fees or any kind fees or any kind fees

Patrick KronFixed part 880,000.00 880,000.00 935,000.00Variable part 660,000.00 750,000.00 1,300,000.00Benefits in kind 3,811.90 5,010.12 5,010.12Total 1,543,811.90 57,680.00 1,635,010.12 52,500.00 2,240,010.12 -

Jean-Paul Béchat - 44,415.00 - 42,500.00 - 42,500.00Candace Beinecke - 44,160.00 - 32,500.00 - 37,500.00Georges Chodron de Courcel - 40,920.00 - 35,000.00 - 37,500.00Pascal Colombani (4) - - - 26,250.00 - 37,500.00James B. Cronin - 44,160.00 - 42,500.00 - 37,500.00Gérard Hauser - 47,400.00 - 32,500.00 - 37,500.00James W. Leng (5) - 20,970.00 - 40,000.00 - 42,500.00Francis Mer (6) - - - - - 32,500.00Denis Samuel-Lajeunesse (7) - - - 22,500.00 - 37,500.00

(1) Includes 2003/04 variable salary and Director’s fees related to fiscal year 2003/04 paid in fiscal year 2004/05.

(2) Includes 2004/05 variable salary and Director’s fees related to fiscal year 2004/05 paid in fiscal year 2005/06.

(3) Includes 2005/06 variable salary and Director’s fees related to fiscal year 2005/06 paid (or to be paid) in fiscal year 2006/07.

(4) Director as of 9 July 2004.

(5) Director and Chair of Nominations and Remuneration Committee as of 18 November 2003.

(6) Director as of 1 April 2005.

(7) Amount paid to the French State’s general budget.



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Amount of compensations actually paid to executive and non-executive Directors in fiscal year 2005/06 (as per Article L. 225-102-1 of the French Commercial Code)

The following chart shows the gross amount actually paid to executive and non-executive Directors in fiscal year 2005/06, as perArticle L. 225-102-1 of the French Commercial Code.

For the Chairman and Chief Executive Officer, the variable salary in respect of fiscal year 2004/05 indicated, was paid thefollowing fiscal year, and the Director’s fees for the second half of 2004/05 paid during the following fiscal year.

Amounts paid during fiscal year 2005/06Directors’ fees Directors’ fees

Fixed Variable (2nd half of fiscal (1st half of fiscal (in €) gross salary gross salary Benefits in kind year 2004/05) year 2005/06)

Patrick Kron 935,000.00 750,000.00 5,010.12 25,000.00 - Jean-Paul Béchat - - - 21,250.00 18,750.00Candace Beinecke - - - 12,500.00 20,000.00Georges Chodron de Courcel - - - 15,000.00 20,000.00Pascal Colombani - - - 13,125.00 20,000.00James B. Cronin - - - 20,000.00 17,500.00Gérard Hauser - - - 15,000.00 20,000.00James W. Leng - - - 18,750.00 23,750.00Francis Mer - - - - 15,000.00Denis Samuel-Lajeunesse - - - 22,500.00 )(1) 17,500.00Past Director:Lord Simpson (2) - - - 15,000.00 -

(1) Means the whole Director’s fees for fiscal year 2004/05.

(2) Directorship expired 31 March 2005.



The compensation of the Executive Committee members,excluding the Chairman and Chief Executive Officer, is decidedannually by the Chairman and Chief Executive Officer andreviewed by the Nominations and Remuneration Committee. Itconsists of a fixed component and a variable component tiedto the realisation of objectives determined at the beginning ofthe fiscal year.

For fiscal year 2005/06, the variable compensation is tiedon the one hand, to the realisation of Group objectives relatedto free cash flow, operational margin and the level of marginin the backlog and also to the same objectives related to theironly sector for Sectors’ Presidents, and on the other hand, to therealisation of specific objectives for each Sector or function.These specific objectives refer to the programmes of priorityactions included in the budgets and strategic plans, and areevaluated by the Nominations and Remuneration Committee.If the set objectives are met, the financial objectives represent30% and the specific objectives 20% of the annual base salary.The financial objectives can vary in a 0-60% range, and thespecific objectives can vary in a 0-20% range, depending onperformance. Therefore, the variable salary varies in a 0-80%range of the annual fixed salary.

Total compensation packages are tied to both the Company’sfinancial performance and individual and team contributions.They are based on best practices within the industry,compensation surveys and advice from specialised internationalcounsels.

The overall amount of the gross compensation due to themembers of the Executive Committee, excluding the Chairmanand Chief Executive Officer’s remuneration detailed on page 184,by the Company and the companies controlled by the Companywithin the meaning of Article L. 233-16 of the FrenchCommercial Code in respect of fiscal year 2005/06 amountedto €5,209,028. The fixed component represents €3,148,667(8 members of the Executive Committee concerned as of 31 March 2006, excluding the Chairman and Chief ExecutiveOfficer) and the variable component linked to the results offiscal year 2005/06 represents €2,060,361 (8 members ofthe Executive Committee concerned as of 31 March 2006,excluding the Chairman and Chief Executive Officer).

The total corresponding amount paid in respect of fiscal year2004/05 to the members of the Executive Committee (8 members of the Executive Committee concerned as of 31 March 2005, excluding the Chairman and Chief ExecutiveOfficer) was €4,448,922.

The members of the Executive Committee benefit from acomplementary pension scheme. The total amount of pensioncommitments funded in the budget as of 31 March 2006 forthe members of the Executive Committee’s benefit (except for theChairman and Chief Executive Officer) is €2,250,669 ofwhich €437,774 of retirement indemnities obligations.

MEMBERS OF THE EXECUTIVE COMMITTEE


Interests of the officers and employees in the share capital

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INTERESTS OF THE OFFICERS AND EMPLOYEES IN THE SHARE CAPITAL

STOCK OPTIONS PLANS

Granting policy

Generally every year the Company sets up a stock optionsplan within the framework of the authorisation granted by theGeneral Shareholders’ Meeting.

The Board of Directors grants stock options plans upon theproposal of the Nominations and Remuneration Committee,which reviews all terms of these plans, including the grantingcriteria.

Beneficiaries of stock options are generally selected amongthe executives of profit centres, functional executives, countrypresidents, managers of large projects and, more generally,holders of key salaried positions in the Company and itssubsidiaries, which have made a significant contribution to theCompany’s results.

The choice of beneficiaries and the number of options grantedare based on the position, job performance and the potentialof each person. For each plan, the options’ subscription pricecorresponds to the average price of the shares during thetwenty trading days preceding the day when the Board ofDirectors grants the options, though this subscription pricecannot be lower than the nominal value of the share. Theexercise of options is subject to the condition that the employmentcontract or the mandate of the beneficiary is still in force asof the date the options are exercised, with some exceptions.

Generally, the options cannot be exercised for three yearssince their grant date. However, plans set up since fiscal year2003/04 allow the exercise in certain circumstances amongwhich in case of a public offering to buy and/or exchangethe Company’s shares.

On September 27, 2005, the Board of Directors – upon theNominations and Remuneration Committee’s proposal – hasgranted Options plan n°8 upon the authorisation of the Ordinaryand Extraordinary General Meeting of 9 July 2004. The plangranted a total number of 1,401,500 options, representingaround 1% of capital as of the allocation day.

The main characteristics of all stocks option plans implementedby the Company and outstanding are summarised below. Noother company of the Group has implemented stocks optionplans giving right to the Company’s shares.

According to the plans above, a total of 4,361,442 optionscan be exercised, corresponding to 3.2% of the share capitalas of 31 March 2006.

Since the fiscal year 2004/05, managers in the USA do notreceive stock options; they get ”Stock Appreciation Rights”,instead, which are similar to stock options plans set upsimultaneously but granting the managers the right to be paid in cash the value of ALSTOM share at the time of theexercise.



MAIN CHARACTERISTICS OF ALSTOM STOCK OPTIONS PLANS


Date of Shareholders’ meeting 24 July 2001 24 July 2001 24 July 2001 9 July 2004 9 July 2004

Date of Board meeting 24 July 2001 8 January 2002 7 January 2003 17 Sept. 2004 27 Sept. 2005

Exercise price (1) €1,320 €523.60 €240 €17.20 €35.75

Adjusted price (2) (3) €819.20 €325.20 €154.40 €17.20 €35.75

Beginning of stock options exercise period 24 July 2002 8 January 2003 7 January 2004 17 Sept. 2007 27 Sept. 2008

Expiry date 23 July 2009 7 January 2010 6 January 2011 16 Sept. 2014 26 Sept. 2015

Number of beneficiaries 1,703 1,653 5 1,007 1,030

Total number of options adjusted (3) 105,000 105,000 30,500 2,783,000 1,401,500

Total number of exercised options 0 0 0 0 0

Total number of cancelled options (3) 45,394 42,955 0 68,000 38,000

Number of remaining options to be

exercised as of 31 March 2006 (2) (3) 119,400 124,554 47,489 2,715,000 1,363,500

Percentage of capital as of 31 March 2006 that may be created 0.086% 0.090% 0.034% 1.96% 0.99%

Number of shares that may be subscribed by the actual membersof the Executive Committee (2) (3) 3,105 4,229 46,709 610,000 312,500

Terms of exercise •1/3 of options •1/3 of options •1/3 of options • 100% of options • 100% of optionscan be exercised can be exercised can be exercised can be exercised can be exercisedfrom 24/07/02 from 08/01/03 from 07/01/04 from 17/09/07, from 27/09/08• 2/3 of options • 2/3 of options • 2/3 of options upon the followingcan be exercised can be exercised can be exercised conditions beingfrom 24/07/03 from 08/01/04 from 07/01/05 met: the exercise• all options can • all options can • all options can of 50% of optionsbe exercised be exercised be exercised granted beneficiary from 24/07/04 from 08/01/05 from 07/01/06 was conditional to

2 targets being metat the 2005/06 financial year closing;the targets havebeen met: a positivefree cash flow of theGroup and a Group operational marginabove or equal to5% as per IFRS rules.

(1) Subscription price corresponding to the average opening price of the shares during the 20 trading days preceding the day on which the options were granted by theBoard (no discount), or the par value of the shares when the average share price is lower. For plans n°3, 5 and 6, the original exercise prices have been multipliedby 40 to take account of the Company’s share consolidation of 3 August 2005.

(2) Option plans n°3, 5 and 6 have been adjusted in accordance with French law as a result of the consummation of transactions that had an impact on the sharecapital in 2002, 2003 and August 2004.

(3) Option plans n°3, 5, 6 and 7 have been adjusted to consider the Company’s share consolidation of 3 August 2005: a new share with a nominal value of €14 for 40 old shares with a nominal value of €0.35.



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FREE ALLOCATION OF SHARES

Stock options granted to the CorporateOfficers (“mandataires sociaux”)during fiscal year 2005/06

A total of 95,000 options was granted to Mr Patrick Kron,Chairman and Chief Executive Officer of the Company and the only managing executive (“mandataire social dirigeant”)of the Company, under stock options Plan n°8.

The Company has granted no options to any other Directorsduring fiscal year 2005/06 or under plans previouslyimplemented by the Company.

Stock options granted during fiscal year 2005/06 to the ten employees who are not Corporate Officers and whoreceived the largest number of options

A total of 225,500 options was granted to the ten employeeswho received the greatest numbers of options (other than“mandataires sociaux” ) under stock options Plan n°8.

Stock options exercised during fiscalyear 2005/06

The beneficiaries exercised no option during the past fiscal year orthe previous years.

With the authorisation from the shareholders’ general meetingof 12 July 2005 (12th resolution) and upon the Nominations andRemuneration Committee’s proposal, the Board of Directorsmeeting on 16 November 2005 approved in principle theimplementation of an egalitarian allocation of twelve sharesto each and every employee of the Group with at least 6 months seniority at the attribution date. Such allocation wasmeant to reward the collective efforts, which had broughtALSTOM back up and was subject to the condition that twomain targets were met by the end of the 2005/06 fiscal year:a 5% operational margin (as per IFRS rules) and a positive freecash flow.

In those countries where fiscal and/or legal grounds wouldmake the assignment of free shares hard or impossible, adecision was also made to pay the equivalent in cash of thesetwelve shares to the employees.

In its meeting of 16 May 2006, the Board of Directors notedthat this condition had been met and it therefore assigned thefree shares on this basis.

In accordance to the statutory legal provisions, the shares will be definitely created and allocated after 2 years, i.e. on 19 May 2008, after which they cannot be transferred for a 2-year period, expiring on 19 May 2010.

In total, 51,000 people of the Group in 20 countries areinvolved in this free distribution of a maximum of 612,000shares, representing around 0.5% of the share capital as of31 March 2006. These are new shares to be issued at themoment of their final allocation by deduction from the reserves.Around 12,000 people in 42 countries will receive the cashequivalent of the twelve shares evaluated and paid at the endof a 4 years period (representing as an example about €900 as of 5 May 2006).

The cost of this free allocation of shares has totally been providedfor in the accounts of fiscal year 2005/06.



EMPLOYEE PROFIT-SHARING

Since its initial public offering and first listing, the Companyimplemented three share capital increases reserved for theemployees participating in the Company’s savings plan. Forthe first one realised concurrently with the first listing in 1998, a total of 2,941,869 shares were issued at a price of FRF 167 per share (corresponding, after the share consolidationof 3 August 2005, to the equivalent of 73,546 new sharesissued at the price of €1,018.36 per share). In August 2000,a capital increase reserved for employees of the Company andits subsidiaries participating in the Company’s savings plan wasapproved for fiscal year 2000/01. As a result of this sharecapital increase, 1,689,056 new shares, with a nominal valueof €6 per share, were issued at €24 per share (i.e., afterconsolidation, 42,226 new shares at €960 per share). Thesetwo operations have been directly subscribed by the employees.

In November 2004, a new capital increase was offered tothe Company’s employees (as well as to its former employees)

according to the plan called “Two for One”, in eight countriesincluding France. Around 13,000 employees have subscribedthis capital increase through a mutual fund in France and directlyin the other countries. The capital increase brought in thesubscription of 49,814,644 shares at a nominal value of€0.35 each and issued at €0.35 per share (corresponding,after consolidation, to 1,245,366 new shares at €14 pershare); the shares were offered with a Company match (foremployees only) of €0.135 per old share with a maximumamount of €810 per subscriber.

During fiscal year 2005/06, no capital increase has beenproposed.

As of 31 March 2006, the Group’s employees and formeremployees, totalling approximately 42,100 persons, holdapproximately 0.89% of the Company’s share capital, eitherdirectly or through a fund (“FCPE”).

All the French subsidiaries of the Group to which the French law of 7 November 1990 applies have entered into employee profitsharing agreements. The amounts paid in respect of the French statutory employee profit sharing agreements over the last threeyears are as follows:

Fiscal year ended 31 March (in € million) 2004 2005 2006

Statutory employee profit sharing agreements 2 1 9.1

As of today, approximately ten French subsidiaries have entered into a specific profit sharing plan (“Accord d’intéressement”). Theamounts paid in respect of fiscal year 2005/06 are not yet known to date, because they depend on a series of criteria defined inprofit sharing plans applicable for each subsidiary, the final result of which are known within six months as from the end of fiscal year,i.e. 30 September of each year. The amounts paid in respect of profit sharing plans for the past three fiscal years are as follows:

Fiscal year ended 31 March (in € million) 2003 2004 2005

Specific employee profit sharing plans 15 9 9.5

ADDITIONAL INFORMATION 5


SIMPLIFIED ORGANISATION CHART AS OF 31 MARCH 2006 209

INFORMATION ON THE DOCUMENT DE RÉFÉRENCE 210

Statement by the person responsible for the Document de Référence 210

Table of reconciliation 211

SHARE CAPITAL 194

Consolidation of the shares 194

Authorisations to increase the share capital 194

Changes in share capital over the last three fiscal years 196

Ownership of ALSTOM shares over the last three fiscal years 197

INFORMATION ON THE COMPANY 200

Historical information 200

Identity of the Company 200

Summary of key provisions of the Articles of Association 201

Documents accessible to the public 203

Auditors 203

Activity of the holding Company 204

Environmental and social information 205

OTHER INFORMATION 207

Material contracts 207

Significant change in the financial or commercial condition 207

Intellectual property 207

Property 207

Information included by reference 208

CONSOLIDATION OF THE SHARES


Share capital

As of 31 March 2005, ALSTOM’s share capital amounted to€1,924,023,993.15 consisting of 5,497,211,409 shares ofthe same class and fully paid, with a nominal value of €0.35per share.

As of 31 March 2006, ALSTOM’s share capital amounts to€1,934,390,864 consisting of 138,170,776 shares of thesame class and fully paid of €14 par value each, following theoperations described below:• the reimbursement in shares, before the consolidation of the

shares comprising the share capital described below, of310,780 subordinated bonds 2% December 2008redeemable in Company’s shares (“ORA”), which resultedin the issue of 390,311 shares of €0.35 par value each;

SHARE CAPITAL

• the consolidation of the 5,497,601,720 shares of €0.35 parvalue each comprising the share capital into 137,440,043shares of €14 par value each, by delivering one new shareof €14 par value each for each 40 shares of €0.35 par valueeach. The consolidation was implemented on 3 August 2005;

• the reimbursement in shares of 23,262,801 ORA since theconsolidation, when 730,733 shares of €14 par valueeach were issued.

There are no double voting rights or voting rights restrictionsattached to the shares comprising the share capital.

To the knowledge of the Company, there is to date no pledgeon the shares of the Company or of its significant subsidiaries.

AUTHORISATIONS TO INCREASE THE SHARE CAPITAL

Since the consolidation completed on 3 August 2005,778,099 shares of €14 par value (consolidated shares) havenot been requested by shareholders, as of 5 May 2006. Theshareholders have two years after the start of consolidationoperations to claim the consolidated shares.

During this two-year period, in shareholders’ meetings, each non-consolidated share of €0.35 par value shall give right toone vote and each consolidated share of €14 par value to40 votes, so that the number of votes attached to the shares isproportionate to the fraction of the share capital they represent.

On expiry of this two-year period, i.e. on 4 August 2007, theconsolidated shares not claimed by their beneficiaries will besold on the stock exchange and the net proceeds of the sale willbe held at their disposal for a period of ten years on a blockedaccount opened with the financial institution appointed by theCompany to hold the Company’s share registry.

The table below sets forth the authorisations (i) to increase theshare capital and (ii) to grant stock options to subscribe or

purchase shares and (iii) to repurchase shares that are in forceas of 16 May 2006 and their use during the fiscal year:


Share capital

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Nature of the authorisationMaximum nominal amount authorised

Nominal amount used during

the fiscal year Available amountExpiry/

Duration

Delegation of competenceto issue shares or securitiesgiving access to the sharecapital with preferentialsubscription right and/or bycapitalisation of reserves(Ordinary and ExtraordinaryShareholders’ Meeting of 12 July 2005, Resolution n° 9)

€600 million(1) None Maximum nominalamount authorised

12 September 2007(26 months starting from 12 July 2005)

Delegation of competenceto issue shares or securitiesgiving access to the sharecapital with cancellation ofthe preferential subscriptionright (Ordinary and Extra-ordinary Shareholders’Meeting of 12 July 2005,Resolution n°10)

€600 million(1) None Maximum nominal amount authorised


Authorisation to increase theshare capital by up to 10%of the share capital toremunerate contributions in kind (Ordinary andExtraordinary Shareholders’Meeting of 12 July 2005,Resolution n°11)

10% of the share capital at the date of shareholders’meeting of 12 July 2005

None Maximum nominal amount authorised


Free allocation of existing ornew shares (Ordinary andExtraordinary Shareholders’Meeting of 12 July 2005,Resolution n°12)

2.5% of the share capitalat the date of

shareholders’ meetingof 12 July 2005

612,000 (2) 2,823,943 shares (3) 12 September 2008(38 months starting from 12 July 2005)

Issuance of shares or othersecurities granting rights tothe share capital reservedfor members of a Groupsavings plan (Ordinary andExtraordinary Shareholders’Meeting of 12 July 2005,Resolution n°13)

2.5% of the share capitalat the date of

shareholders’ meeting of 12 July 2005

None Maximum nominalamount authorised


Authorisation to grant stockoptions to subscribe orpurchase shares (Ordinaryand ExtraordinaryShareholders’ Meeting of 9 July 2004, Resolution n°18)

Increase in share capital: 5% of the share capital at

the date the options aregranted by the Board of

Directors

1,401,500 shares(corresponding

approximately to 1% of the share capital on

the day of grant)

2,830,038 shares (3) 9 September 2007(38 months starting from 9 July 2004)

Authorisation to repurchaseshares (Ordinary and Extra-ordinary Shareholders’Meeting of 12 July 2005,Resolution n°7)

13,743,028 shares of €14 nominal value

None 13,743,028 shareswith a €14

nominal value

Until the date of theShareholders’ Meeting

held to approve thefinancial statements for the

fiscal year 2005/06

(1) Global amount applicable to both delegations.(2) Authorisation used on 16 May 2006.(3) On the basis of the share capital as of 31 March 2006..

It will be proposed to the next Ordinary General Meeting scheduled on 28 June 2006 on first call to renew the authorisation to purchaseshares by a maximum of 10% of the share capital as of 31 March 2006.


Share capital

CHANGES IN SHARE CAPITAL OVER THE LAST THREE FISCAL YEARS

Nominal amountor share Paid-in Resulting Total amount

Number of shares capital reduction capital amount total number of share capital issued in € in € of shares in €

31 March 2003 281,660,523 1,689,963,138

Decrease in share capital realised by reduction of the nominal value of the shares from €6 to €1.25 (2 July 2003) (1) – 1,337,887,484.25 – 281,660,523 352,075,653.75Increase in share capital reservedto banks (20 November 2003) 239,933,033 299,916,291.25 – 521,593,556 651,991,945.00Increase in share capital resulting from the exercise of ORA(2) 535,064,016 668,830,020.00 80,259,602.40 1,056,657,572 1,320,821,965.00

31 March 2004 1,056,657,572 1,320,821,965.00

Increase in share capital resulting from the redemption of TSDDRA (7 July 2004) 240,000,000 300,000,000.00 – 1,296,657,572 1,620,821,965.00Increase in share capital resulting from the exercise of ORA (2) 8,794,489 10,993,111.25 1,319,173.35 1,305,452,061 1,631,815,076.25Reduction in share capital by way of reduction in the par value of the shares from €1.25 to €0.35(9 July 2004) (1) – 1,174,906,854.90 – 1,305,452,061 456,908,221.35Increase in share capital reserved for certain lenders(12 August 2004) 480,000,000 168,000,000.00 72,000,000.00 1,785,452,061 624,908,221.35Increase in share capital with preferential subscription rights (13 August 2004) 3,655,265,768 1,279,343,018.80 229,007,174.50 5,440,717,829 1,904,251,240.15Increase in share capital reserved for employees (20 December 2004) 49,814,644 17,435,125.40 – 5,490,532,473 1,921,686,365.55 Increase in share capital resulting from the exercise of ORA (2) 6,678,936 2,337,627.60 5,107,643.00 5,497,211,409 1,924,023,993.15

31 March 2005 5 497,211,409 1,924,023,993.15

Increase in share capital resulting from exercise of ORA before the consolidation of shares (2), 390,311 136,608.85 298,484.25 5,497,601,720 1,924,160,602.00Consolidation of the shares (3)

(3 August 2005) 137,440,043 – – 137,440,043 1,924,160,602.00Increase in share capital resulting from the exercise of ORA (2) 730,733 10,230,262.00 22,347,066.40 138,170,776 1,934,390,864.00

31 March 2006 138,170,776 1,934,390,864.00

(1) Number of shares unchanged.(2) Subordinated bonds reimbursable into shares issued with maintenance of the subscription rights on 23 December 2003, reimbursable into shares originally with one

bond giving right to one share of €14 par value, then since 16 August 2004, with one bond giving right to 1.2559 shares of €0.35 par value and since3 August 2005, with one bond giving right to 0.0314 share of €14 par value.

(3) Consolidation in the ratio of one new share of €14 par value for each 40 shares of €0.35 par value.


Share capital

OWNERSHIP OF ALSTOM SHARES OVER THE LAST THREE FISCAL YEARS

To the Company’s knowledge based on notifications received until 10 May 2006 included, the table below shows the voting rightsand the shares held by shareholders with more than 0.50% of our share capital as of 31 March 2006:

Share capital as of 31 March 2006 (1) Share capital as of 31 March 2005 Share capital as of 31 March 2004% of the % of the % of the

share capital share capital share capital and voting and voting and voting

Shares rights (2) Shares rights (2) Shares rights (2)

Public 100,218,025 72.53% 3,937,000,326 71.61% 967,649,243 91.56%French State 29,051,244 21.03% 1,162,049,763 21.14% - -Caisse des Dépôts et Consignations 3,325,658 2.41% 120,155,011 2.19% 15,516,886 1.46%BNP PAM Group 1,410,922 1.02% 35,835,366 0.65% - -Employee (3) 1,226,977 0.89% 54,626,768 0.99% 4,746,207 0.49%Morgan Stanley & Co international Ltd 774,572 0.56% 30,982,864 0.56% - -Crédit Agricole Asset Management 737,533 0.53% - - - -Crédit Agricole Group 717,711 0.52% 78,235,951 1.42% 10,358,905 0.98%Groupama Asset Management 708,134 0.51% 28,325,360 0.52% - -Société Générale Group (4) - - - - 11,640,278 1.10% Fradim Group (4) - - 50,000,000 0.92%Natexis Bleichroeder (4) - - - - 19,194,642 1.81%CIC Group (4) - - - - 13,916,815 1.31%Deutsche Bank Group (4) - - - - 13,634,596 1.29%

Total 138,170,776 100% 5,497,211,409 100% 1,056,657,572 100%

(1) On 3 August 2005, the 5,497,601,720 shares of €0.35 par value comprising the Company’s share capital have been consolidated into 137,440,043 sharesof €14 par value. The number of shares notified to the Company prior to the consolidation and not notified again since 3 August 2005, have been adjusted hereto take into account this consolidation. This table does not take into account the 778,099 consolidated shares, which have not been claimed by shareholders as of5 May 2006.

(2) % calculated based on the share capital as of 31 March 2006 and not based on the share capital on the date of the declaration.(3) Shares held by employees and former employees of the ALSTOM Group savings plan, which corresponds to approximately 0.55% held directly and approximately

0.34% held through FCPE.(4) Holds less than 0.50% of the share capital.

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Share capital

To the knowledge of ALSTOM, on the basis of declarations ofthreshold crossing received, excluding notifications receivedfrom registered brokers, no other shareholder holds, directlyor indirectly, more than 0.50% of the share capital or votingrights of the Company as of 31 March 2006.

The French State and Bouygues have signed an agreementfor the sale of the whole stake held by the French State toBouygues. This sale is subject to the approval of the EuropeanCommission antitrust authority and to the closing of the ALSTOMMarine disposal. As part of this agreement, Bouygues gavean undertaking to the French State to retain the shares for at least3 years.

To the knowledge of ALSTOM, no shareholders’ agreementconcerning its share capital is in place.

The Company has received no notification of any operationas per Art. L. 621-18-2 of the French Currency and FinancialCode.

As of 16 May 2006, 3,502 shares are held by the Directorsof the Company and 4,438 shares are held by the membersof the Executive Committee, representing in total approximately0,006% of ALSTOM’s share capital as of 31 March 2006.

ALSTOM does not hold, directly or indirectly through companiesit controls, any of its own shares and each Director holds at leastthe number of shares required by the by-laws.

According to April 2006 partial enquiry, the Group believes tohave 250,000 shareholders.

Securities or rights giving access to the share capital

Within the framework of the implementation of the financingagreement signed with the French State and the main banks ofthe Group in September 2003, the Chairman and ChiefExecutive Officer, using the powers delegated to him by theBoard of Directors, acting pursuant to the authorisation given bythe General Shareholders’ Meeting of 18 November 2003,proceeded in December 2003 with:

• the issue of subordinated bonds for a nominal amount of€300 million with a fixed duration and reimbursable intoshares of the Company (“TSDD RA”), whose subscriptionhas been reserved to the French State and which wereautomatically reimbursed into Company’s shares on 7 July2004 following the approval of this reimbursement by theEuropean Commission;

• the issue of subordinated 2% bonds due December 2008 for€901,313,660.80 and reimbursable in Company’s shares(“ORA”) with preferential subscription rights which may leadto the issue of a maximum of 643,795,472 new shares(before consolidation) with a ratio of one new share for onebond (before adjustments).

The redemption ratio of the ORA was changed in August 2004to take into account the share capital increase with preferentialsubscription rights of 13 August 2004, and then in August2005 following the consolidation of the shares comprising theshare capital. As a result, since 3 August 2005, each ORAentitles the holder to subscribe 0.0314 ALSTOM share of €14par value.

As of 31 March 2006, 572,750,138 ORA were reimbursedin shares totalling 89% of the issue, while 71,045,334 ORAwere outstanding.

In addition, based on the total number of outstanding stockoptions as of 31 March 2006 (being 4,369, 943 options), theincrease in share capital that could result from the exercise ofall of these options would amount to €61,179,202 (seeparagraph “Main characteristics of ALSTOM stock optionplans”).

The redemption of these outstanding ORA as of 31 March2006 and the exercise of these options could result in a dilutionof approximately 4.8% to the Company’s share capital as of 31 March 2006.

In addition, for any information regarding the free allocation ofshares decided by the Board of Directors held on 16 May2006, see the section Corporate Governance, page 191.

We do not have any other securities granting rights to the sharecapital.


Repurchase of shares

Acting pursuant to Article L. 225-209 of the French CommercialCode, the Ordinary and Extraordinary Shareholders’ Meetingheld on 12 July 2005 authorised the Board of Directors, for aone year period, to purchase on a stock exchange or otherwise,and by any means, ALSTOM’s shares within the limit of anumber of shares representing 10% of ALSTOM’s share capitalas of 31 March 2005, i.e. a theoretical number of13,743,028 shares (after consolidation).

This share purchase programme has not been used by ALSTOM.

It will be proposed to the shareholders at the next OrdinaryShareholders’ Meeting to be held on 28 June 2006 on firstcall, to grant the Board of Directors a new authorisation for aone-year period. The number of shares to be purchased underthis authorisation would not exceed 10% of the share capital asof 31 March 2006, i.e. theoretically maximum 13,817,077 shares.The maximum purchase price proposed is €90.

Issue of debt securities

On 30 May 2005, the Board of Directors gave full power tothe Chairman and Chief Executive Officer, for a one-yearperiod, to issue, in one or more times, bonds within a maximumnominal amount of €2.5 billion.

This authorisation has been used as follows during the pastfiscal year:• issue at par on 15 September 2005 of a €600 million

bonds variable rate Euribor three months plus 2.20%,redeemable at par on 13 March 2009; and

• issue at par, on 27 January 2006, of a €400 million bondsvariable rate Euribor three months plus 0.85%, redeemableat par on 28 July 2008.

These two bonds issues were listed on the Luxembourg StockExchange.

This delegation of authority from the Board, which was due toexpire on 30 May 2006, has been cancelled for its remainingunused portion and renewed by the Board held on 16 May2006 for a new one-year period and for a maximum nominalamount of €1.5 billion.

Furthermore, the delegations of competence to the Board ofDirectors approved by the Extraordinary General Meeting heldon 12 July 2005, authorise the Board of Directors to decideupon the issuance of securities giving access to securitiesrepresentatives of debt in accordance with the provisions ofArticle L. 228-92 of the French Commercial Code.

To date, this authorisation has not been used.

Dividends paid over the last three fiscalyears

No dividends were paid over the last three fiscal years.

It will not be proposed to the Ordinary Shareholders’ Meetingconvened on 28 June 2006 to pay a dividend in respect of thefiscal year ended on 31 March 2006.

Listing of the shares

The ALSTOM shares are listed on Eurolist of Euronext Paris(Euroclear France code 12019).

The ALSTOM shares are no longer listed on the New YorkStock Exchange since 10 August 2004 nor on the LondonStock Exchange since 17 November 2003.

Share capital

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Information on the Company

The Group was created in 1989, when the parent companyGEC ALSTHOM NV was a holding company incorporatedunder the laws of the Netherlands, by The General ElectricCompany plc (“GEC”) and Alcatel, its 50-50 shareholders,in order to consolidate in one single group the Businessessince then carried out by certain of their respectivesubsidiaries. This joint venture realised during a time ofconsolidation in the energy sector, aimed at benefiting fromcertain complementary products and markets of Alcatel andGEC respectively.

At the end of 1997, the two shareholders decided to listthe company on the Paris, New York and London StockExchanges and to put part of their shares on the market.They chose Paris as the main listing exchange and theydecided to transfer to a French public limited company(société anonyme), renamed ALSTOM (previously Jotelec), thewhole of the activities till then carried out by GEC ALSTHOMNV. Before the IPO and listing on the Stock Exchange,almost the whole of the assets directly or indirectly held byGEC ALSTHOM NV was transferred to a French subsidiaryof GEC ALSTHOM NV, ALSTOM France SA, 100% –ownedby ALSTOM. This company, since then renamed ALSTOMHoldings, is still the only interest held by ALSTOM, whichowns almost all assets of the Group (see below the “Simplifiedorganisation chart of the Group at 31 March 2006”).

Since its quotation in 1998, ALSTOM’s scope was deeplychanged a few times. The most significant operation was theacquisition of ABB power generation activities in two phases:first, in July 1999, a joint venture was set up and then in May2000, ALSTOM bought ABB share in the above-mentionedjoint venture. At the same time, ALSTOM tried to re-focus on itscore Business, notably by selling its Contracting Sector in July2001.

Facing a hard financial crisis in 2003, ALSTOM launched an action plan to solve the specific issues related mainly toGT24/GT26 gas turbines, to re-focus the Company (sale of theTransmission & Distribution Business in January 2004), to improveoperational performance and strengthen its financial structure.The objective of the plan was to achieve a 5% operatingmargin according to IFRS rules and a positive free cash flowduring fiscal year 2005/06. These targets have been exceededand new objectives of performance have been set for fiscalyear 2007/08. Today, ALSTOM is refocused on three Sectors:Power Turbo-Systems / Power Environment, Power Service andTransport, after the disposals of its Transmission & Distribution,Industrial Turbines and Power Conversion Businesses and theprocess of sale of its Marine Sector well engaged.

INFORMATION ON THE COMPANY

HISTORICAL INFORMATION

IDENTITY OF THE COMPANY

Company name and registered officeALSTOM3, avenue André Malraux - 92300 Levallois-PerretTel.: 01 41 49 20 00

Legal form, applicable legislation, andcompetent jurisdictionsLimited liability company (French “société anonyme à conseild’administration”) incorporated under the laws of France andregulated notably by the French Commercial Code.

DurationALSTOM was incorporated under the name “JOTELEC” on 17 November 1992 and its existence will expire on 17 November2091, unless it is earlier dissolved or its life is extended.

Registration number389 058 447 Nanterre

Code APE625 E


Purpose of the Company(Article 3 of the Articles of Association)

The purposes of ALSTOM are directly or indirectly:• the conduct of all industrial, commercial, shipping, financial,

real property and asset transactions in France and abroad,notably in the following fields: – energy; – transmission and distribution of energy; – transport; – industrial equipment; – naval construction and repair work; – engineering and consultancy, design and/or production

studies and general contracting associated with public orprivate works and construction; and

– more generally, activities related or incidental to the above;• participation, by every means, directly or indirectly, in any

operations which may be associated with its purpose, bythe creation of new companies, capital contributions,subscription or purchase of stocks or rights, merger with suchcompanies or otherwise; the creation, acquisition, lease ortake over of business goodwill or businesses; the adoption,acquisition, operation or sale of any processes and patentsrelating to such activities; and

• generally undertaking all industrial, commercial, financialand civil operations and real property and asset transactionsthat may be directly or indirectly associated with ALSTOMpurposes or with any similar or related.

Furthermore, ALSTOM may acquire an interest, of whateverform, in any French or foreign business or organisation.

Fiscal year(Article 18 of the Articles of Association)

From 1 April to 31 March.

Shareholders’ meetings(Article 15 of the Articles of Association)

> Convening and proceedings – Agenda

Ordinary and Extraordinary General Meetings, satisfying thelegal conditions for quorum and majority voting, exercise thepowers respectively attributed to them by the law. They are

convened in accordance with the rules and the terms laid downby law.

Meetings are held at the registered office of ALSTOM or atany other place determined by the Board, either within the“département” in which the registered office is located or inany other French territory.

The agenda of the meeting is drawn up by the Board ofDirectors if the Board has called the meeting and, if not, bythe person calling the meeting. However, one or moreshareholders satisfying the conditions laid down by law mayrequest the inclusion of draft resolutions on the agenda.Questions not appearing on the agenda may not be considered.

> Admission and representation

Ordinary and Extraordinary General Meetings are made up ofall shareholders without distinction between the class of shareswhich they hold.

In all shareholders’ meetings, holders of registered shares willnot be entitled to vote unless their shares are registered undertheir names at the latest two days before the meeting andremain so registered until the end of such meeting.

Holders of bearer shares must, two days at the latest before thedate of such meeting, provide evidence that they have depositedtheir securities under French legal conditions or produce one ofthe certificates described in Article 136 of the French decreeof 23 March 1967. These time periods may be changed bythe Board of Directors.

Any shareholder who has voted by correspondence ordesignated a proxy by presenting a certificate of immobilisationdelivered by the share depositary, may nevertheless sell all orpart of the shares by which he has cast his vote or hisdesignation, provided that he notifies the elements allowinghis vote or proxy to be cancelled or to modify the number ofshares and corresponding votes, no later than 3.00 pm onthe day prior to the meeting pursuant to Article 136 of theDecree of 23 March 1967.

A shareholder may arrange to be represented by anothershareholder or by his or her spouse.


SUMMARY OF KEY PROVISIONS OF THE ARTICLES OF ASSOCIATION

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However, holders of shares listed in the 3rd paragraph of ArticleL. 228-1 of the French Commercial Code can be represented bya registered intermediary at the conditions set down by law.

Shareholders may vote by proxy or by postal vote at GeneralMeetings under the conditions laid down by law.

The Board of Directors shall have the power to organise, withinthe limits of the law, the participation and voting of theshareholders by videoconference or any other telecommunicationmeans permitting the identification of such shareholders. Whererelevant, this decision of the Board shall be communicated inthe notice of the meeting and/or the invitation to attend. Theshareholders who participate by videoconference or by anyof such other telecommunication means shall be deemed presentfor purposes of the calculation of the quorum and majority.

> Voting rights

Each member of the meeting is entitled to one vote for eachshare held. At all Ordinary, Extraordinary or Special GeneralMeetings, the voting right on shares shall, in cases where suchshares are subject to usufruct (life interest), be exercisable by theusufructuary.

There are no double voting rights. For a period of two yearsstarting from the share consolidation voted by the Ordinaryand Extraordinary General Meeting of 12 July 2005, anyshare which is not consolidated will be entitled to one voteand any consolidated share to 40 votes, so that the number ofvotes attached to the shares is proportional to the percentageof share capital they represent.

Notification of holdings exceeding cer-tain percentages(Article 7 of the Articles of Association)

In addition to the legal obligation to notify ALSTOM of certainshareholding levels set forth in Articles L. 233-7 to L. 233-11 ofthe French Commercial Code, any individual or legal entityacquiring a number of ALSTOM shares giving a shareholding inexcess of 0.5% of the total number of shares issued must notifyALSTOM by letter, fax or telex of the total number of shares thathe possesses within five trading days of this threshold beingexceeded. Notification is to be repeated under the same conditionswhenever an additional 0.5% threshold is exceeded, up to andincluding a threshold of 50%. To determine these thresholds,both indirectly held shares and shares classified with shares

owned (as defined by the provisions of Articles L. 233-7 et seq. of the French Commercial Code) should also be takeninto account.

In each of the above-mentioned notifications, the declaringperson must certify that the notification includes all shares heldor owned in the sense of the preceding paragraph. Suchnotification must also indicate the acquisition date(s). In the eventof non-observance of the above provisions and in accordancewith the conditions and levels established by law, a shareholdershall lose the voting rights relating to the shares in excess of thethresholds which should have been notified, if one or moreshareholders holding at least 3% of the share capital so require(s).

Any shareholder whose shareholding falls below one of theabove-mentioned thresholds is also under an obligation to notifyALSTOM within the same length of time (i.e. five trading days)and by the same means.

Identification of holders of bearer shares(Article 7 of the Articles of Association)

ALSTOM may, under the conditions laid down by the legaland regulatory provisions in force, request any officiallyauthorised organisation or intermediary to pass on all informationconcerning its shareholders or holders of its stock conferringan immediate or subsequent right to vote, their identity and thenumber of shares that they hold.

Appropriation of income(Article 20 of this Articles of Association)

The profits for fiscal year consist of the revenues relating to thepreceding fiscal year, less overheads and other companyexpenditure including provisions and depreciation allowances.At least 5% is set aside from the profits less any previous lossesif appropriate to form the legal reserve fund. This provisionceases to be mandatory once the value of the fund reachesone-tenth of the share capital.

The Company’s legal documents required to be accessible bythe shareholders according to the applicable law are availablefor inspection at the Company’s registered office and some of them are available on the Company’s website(www.alstom.com).

ALSTOM annual reports for the last four fiscal years are alsoavailable on the Company’s website, section Investors/Annualreports.

Statutory Auditors

Barbier, Frinault & Autres, Ernst & Young represented by Mr Gilles Puissochet 41, rue Ybry92576 Neuilly-sur-Seine Cedex

Deloitte & Associés (previously Deloitte Touche Tohmatsu) represented by Mr Dominique Descours BP 136 185, avenue Charles-de-Gaulle 92203 Neuilly-sur-Seine Cedex

The Statutory Auditors were appointed by the Ordinary GeneralMeeting on 26 March 1998; their term of office has beenrenewed by the Ordinary General Meeting of 2 July 2003for six fiscal years and it will expire when the Ordinary GeneralMeeting will be called to review the accounts for fiscal year2008/09.

Deputy Auditors

Mr Pascal Macioce 41, rue Ybry 92576 Neuilly-sur-Seine

BEAS (SARL) 7-9, villa Houssay 92954 Neuilly-sur-Seine

The Deputy Auditors were appointed by the Ordinary GeneralMeeting of 2 July 2003 for six fiscal years expiring when theOrdinary General Meeting will be called to review the accountsfor fiscal year 2008/09.

AUDITORS


The remainder (less the above deductions) of the retainedearnings and withdrawals from the reserves which the GeneralMeeting has at its disposal shall, if the General Meeting sodesires, be distributed among the shares, once the sums carriedforward by the said Meeting or transferred by it to one or morereserve funds have been deducted.

After the General meeting has approved the accounts, anylosses are carried forward and imputed to the profits of futurefiscal years until they are discharged.

Each shareholder may be granted, at the General Meeting,for all or part of the dividend or interim dividend to bedistributed, an option to be paid the dividend or interimdividends in cash or in shares of ALSTOM, under the currentlegal and regulatory conditions.

Dividends not claimed at the expiration of a five-year period arepaid to the French Tax Entity “Trésor Public”.

The Articles of Association do not contain any provision, whichmay delay, postpone or prevent a change of control.


DOCUMENTS ACCESSIBLE TO THE PUBLIC

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ALSTOM is the holding Company of the ALSTOM Group.ALSTOM investments consist exclusively of the shares of ALSTOMHoldings. ALSTOM centralises a large part of the externalfinancing of the Group and directs the funds so obtained toits subsidiary ALSTOM Holdings through loans and current

account. Fees from its indirect subsidiaries for the use of theALSTOM name are ALSTOM’s main other source of revenue.

For more information, see “Statutory accounts”.


Audit charter

In June 2003, ALSTOM and its Audit Committee outlined andformalised with ALSTOM’s external Auditors an audit charterto be applied until 31 March 2009 when the current Auditors’engagement comes to an end.

This charter defines the Group’s external audit process under thevarious applicable laws and rules. By signing it, the partiesofficially commit themselves to respecting the said charter andto aiming for more transparency and efficiency.

ACTIVITY OF THE HOLDING COMPANY

The main rules defined apply to the following topics:• assignment split on par between both auditing firms;• fee split aiming for a par between both firms;• relationship and restitution between ALSTOM’s external

auditors and the Audit Committee;• relationship between the external and the Group’s internal

auditors;• defining the assignment process of other project to be

potentially handled by the auditors;• reminder of prohibited assignments.

This charter is regularly updated especially in case of changesof legal and regulatory provisions.

Statutory auditors fees

Fiscal year 2004/05 Fiscal year 2005/06

Barbier Frinault Deloitte Barbier Frinault Deloitte& Autres & Associés & Autres & Associés

Ernst & Young Ernst & Young(in € million) Amount % Amount % Amount % Amount %

AuditStatutory auditors diligence, certification,review of individual and consolidated accounts 7.0 52 7.0 61 8.4 68 7.6 86Performances directly related to the auditors’ assignments 5.7 43 3.5 31 3.4 28 0.6 7

Sub-total 12.7 95 10.5 92 11.8 96 8.3 93

Other services - - - - - - - -

Legal, tax, social * 0.7 5 0.9 8 0.5 4 0.6 7Information technology

Sub-total 0.7 5 0.9 8 0.5 4 0.6 7

TOTAL 13.4 100 11.4 100 12.3 100 8.9 100

* Principally outside France.


Information given pursuant to Article L. 225-102-1 of the FrenchCommercial Code:

ALSTOM, the parent company of the ALSTOM Group, has noemployees and no industrial or commercial activity.

Fundamental conventions of the international labour organisation

ALSTOM seeks to ensure compliance by its French and overseassubsidiaries of the fundamental conventions of the InternationalLabour Organisation (ILO), understood as:• equal opportunities and non-discrimination in the workplace

(conventions 110 and 111);• freedom of association – freedom to form unions or to adhere

to unions and freedom to bargain collectively with employers(conventions 97 and 98);

• child labour – ban on employment of children under 15 years of age and under 18 years of age for ’high risk’jobs (conventions 138 and 182);

• forced labour – ban on use of forced labour, slavery anduse of imprisoned workers (conventions 29 and 105).

Our “Code of Ethics” is incorporated in the collection of theGroup’s policies and instructions (known as the “e-Book”) which isavailable through the Group’s intranet to all employees worldwide. The “Code of Ethics” stipulates that all employees must complywith the laws, regulations and requirements relating to theirjob, location and environment and must avoid activities whichwould involve the Company in any unlawful practice.Compliance with the policies and instructions contained in thee-Book is obligatory. An internal audit team routinely checksour units throughout the world for compliance with the CorporateInstructions contained therein.

We believe that in almost all countries in which the Groupoperates, the countries’ labour law complies with fundamentalILO conventions, and that we respect these laws. In addition,the “e-Book” stipulates a policy of equal opportunity and non-discrimination in the workplace. For any of our operations, we do not employ child or forced labour of any kind. However,some of the Group’s operations may be run under jurisdictionswhich do not respect all ILO conventions, such as freedom ofassociation (conventions 97 and 98). So far, we have notintroduced measures to ensure systematic monitoring of oursuppliers’ compliance with the fundamental ILO conventionslisted above.

Impact of foreign subsidiaries operations on regional development and local populations

Our foreign subsidiaries take into account the impact of theiroperations on regional development and local populationsprincipally through observance of the Group’s environmentalhealth and safety policy, which is monitored on a site-by-sitebasis. Impact on regional development in terms of employmentis monitored and reported by our human resources network.

Foreign subsidiaries’ environmentalobjectives

With respect to environmental objectives assigned to our foreignsubsidiaries, all sites in principle monitor and measureperformance on a wide range of such issues. Our Environment,Health and Safety (EHS) function has elaborated a “road-map”methodology, which is used by internal and external assessorsto grade each site in terms of its performance. Our environmentalmanagement plan requires each site to measure its water andenergy consumption as well as its discharge and wasteproduction. A centralised environmental reporting system has beenimplemented in January 2006. We assign target improvementsin each of these areas as necessary.

We do not assign explicit objectives in respect of biologicalstability, natural environments or protected species of animalsand wildlife considering the diversity of situations in which weoperate, though some of our sites are involved in local initiativesto preserve local wildlife.Moreover, we do not assign objectives in respect ofenvironmental certification even though a great number of unitsare certified. On the other hand, we define the targets whichall our units have to meet with respect to the management levelsas set by the “road map”. Each site complying with ALSTOMcriteria can request and obtain external certification if it isnecessary for its activity.

This fiscal year we pursued our technical assessment of thehistoric and actual environmental impact of the Company’smain manufacturing sites (notably soil pollution) and thecorresponding action plans have been reviewed by eachSector to ensure follow-up on progress.


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ENVIRONMENTAL AND SOCIAL INFORMATION



In most jurisdictions in which we operate, our industrial activitiesare subject to operating permits, licenses or/and authorisations.Most facilities comply with these permits, licences orauthorisations and are subject to regular administrativeinspections. Through our internal methodology, which is externallyassessed, we control each site’s compliance with the localrequirements, including the operating units of our foreignsubsidiaries.

We do not currently consolidate our expenditure on environmentalimpact prevention, but we consider that all our sites haveadequate environmental management systems in place. Oneach site a Director is responsible for allocating resources tothe reduction of environmental risk. He is assisted by anenvironmental, health and safety manager in charge of reportingon and managing any environmental-damaging accidents asthe case may be. These Managers as well as the Group’s UnitManaging Directors are trained on a regular basis.


Other information

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OTHER INFORMATION

MATERIAL CONTRACTS

The Group owns or benefits from licenses for the use of severaltrade names, patents and other intellectual property rights. Allthese rights contribute to the good performance of the business,

but none of the licenses alone currently has a material relevancefor the activities of the Group.

To the Company’s knowledge, no significant change in thefinancial or commercial condition of the Group has occurredsince 16 May 2006, date of approval of the latest accountspublished.

In the past two years immediately before the issue of this reportALSTOM and/or companies of the Group have entered into thefollowing material agreements (other than the agreementsentered into during the ordinary course of business): • on 4 November 2005, ALSTOM Holdings signed the

extension of its bonding programme up to July 2008 and for an enlarged amount. (see Management discussionand analysis on consolidated financial statements as at 31 March 2006 – Bonding programme);

• on 8 April 2006, we signed an agreement to sell a 75%stake in our Marine Sector. (See Management Discussionand Analysis on Consolidated Financial Statements as at 31 March 2006 – Overview – Disposal programme). This transaction has been completed on 31 May 2006;

• on 26 April 2006, ALSTOM and Bouygues signed amemorandum of understanding for commercial and operationalcooperation (see Management discussion and analysis onconsolidated financial statements as at 31 March 2006 –Recent developments).

SIGNIFICANT CHANGE IN THE FINANCIAL OR COMMERCIAL CONDITION

INTELLECTUAL PROPERTY

The Group carries out its activities on some sites upon which ithas rights of different nature.

The Group has full ownership of most of its main industrial sites.

The Group set up a leasing strategy for its offices buildings,which applies notably to the Headquarters of the Group andof the Sectors.

The gross value of land and buildings fully owned and leased(financial leases) as of 31 March 2006 is €1,286 million.The depreciation booked for the above is € 532 million. Theseamounts do not include operating leases.

The Group’s tangible assets are subject to costs for generalmaintenance and repairs required for their good functioning, tomeet with legal and quality requirements, including environ-mental, health and safety matters.

PROPERTY


Other information

> Main industrial sites held in full property (non exhaustive list) :

“PT/PE“ = Power Turbo-Systems / Power Environment Main businesses

Belgium Marchienne au Pont Power ServiceCharleroi Transport

Brasil Cabo de Santo Agostinho PT/PELapa TransportTaubaté PT/PE

Czech Republic Brno - Olomoucka PT/PE & Power Service

France Aytré/La Rochelle TransportBelfort PT/PE & Power Service &TransportGrenoble PT/PELe Creusot TransportOrnans TransportReichshoffen TransportValenciennes Transport

Germany Berlin (Lessingstrasse) Power ServiceBexbach PT/PEKassel PT/PEMannheim PT/PE & Power ServiceSalzgitter Transport

India Durgapur PT/PEShahabad PT/PEVadodara PT/PE & Power Service

Italia Colleferro TransportSavigliano Transport

Switzerland Birr PT/PE & Power Service

USA Chattanooga (TN) PT/PEConcordia (KS) PT/PERichmond (Virginia) Power ServiceWellsville (NY) PT/PE

INFORMATION INCLUDED BY REFERENCE

Pursuant to article 28 of EC Regulation N°809-2004 of theCommission of 29 April 2004 regarding prospectuses, thefollowing information is included by reference in this Documentde Référence:• the consolidated and statutory financial statements for the

fiscal year ended 31 March 2005, the auditors’ reportsthereto and the Group’s management report, as shown atpages 76 to 123, 144 to 158, 74 to 75,142 to 143 and 29to 72 respectively, of the report n° D.05-0905 filed with theFrench Financial Markets Authority (Autorité des marchésfinanciers) on 17 June 2005;

• the consolidated and statutory financial statements for the fiscalyear ended 31 March 2004, the auditors’ reports theretoand the Group’s management, as shown at pages 85 to 133,155 to 167, 83 to 84, 152 to 153 and 28 to 81 respectively,of the report n° D.04-0947 filed with the Financial MarketsAuthority (Autorité des marchés financiers) on 17 June 2004.

The sections of these documents not included here are either notrelevant for the investor, or covered in another part of thisDocument de Référence.


Simplified organisation chart as of 31 March 2006

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ALSTOM PowerBoilers SA(France)

ALSTOM PowerHydro(France)

ALSTOM PowerService(France)

ALSTOM Power Turbomachines

ALSTOM Power Services GmbH

(Germany)

ALSTOM Power sro

(Czech Republic)

ALSTOM Power Inc.

(USA)

ALSTOM PowerUK Holdings Ltd

(UK)

ALSTOM Power Asia Pacific Sdn Bhd

(Malaysia)

ALSTOM K.K.(Japon)

ALSTOM Power Hydraulique

ALSTOM PowerGeneration AG

(Germany)

ALSTOM PowerBoiler GmbH(Germany)

ALSTOM PowerItalia SpA

(Italy)

ALSTOM PowerSp Zoo

(Poland)

ALSTOM PowerSweden AB(Sweden)

ALSTOMSwitzerland Ltd

(Switzerland)

ALSTOM O&M Ltd

(Switzerland)

ALSTOM Transport SA(France)

ALSTOM Transporte S.A.(Spain)

ALSTOM LHB GmbH(Germany)

ALSTOM Brasil Ltda(Brazil)

ALSTOM Transport(UK)

ALSTOM Signaling Inc.(USA)

ALSTOM Transportation Inc.(USA)

ALSTOM Ferroviaria SpA(Italy)

ALSTOM Belgium(Belgium)

ALSTOM GmbH(Holding - Germany)

ALSTOM UK Holdings Ltd(Holding - UK)

ALSTOM Espana IB(Holding - Spain)

ALSTOM NV(Holding - Netherlands)

ALSTOM Inc.(Holding - USA)

1

2

3

4

5

ALSTOM(France)

ALSTOM Holdings(France)

ALSTOM SpA(Holding - Italy)

ALSTOM (China) Investment Co. Ltd(Holding - China)

ALSTOM Transport Holding US(Holding - USA)

ALSTOM Sweden AB(Holding - Sweden)

ALSTOM Australia Holdings Ltd(Holding - Australia)

6

7

8

9

10

Chantiers de l’Atlantique(France)

ALSTOM Leroux Naval(France)

A. M. R.(France)

3

1

3

2

8

8

6

ALSTOM Power Centrales(France)

(France)

(France)

ALSTOM Canada Inc.(Canada)

ALSTOM Power Holdings(France)

4

4

5

2

4

4

4

ALSTOMTechnology Ltd

(Switzerland)

4

ALSTOM Power Ltd(Australia)

10

4

6

4

9

4

Power* Transport Marine

ALSTOM Transport (s) Pte Ltd(Singapore)

ALSTOM Transport AB(Sweden)

ALSTOM Transport BV(Netherlands)

ALSTOM Technical Services(Shanghai) Co Ltd

(China)

4

4

7

SIMPLIFIED ORGANISATION CHART AS OF 31 MARCH 2006

* Power Sectors are organised in two sectors: Power Turbo-Systems / Power Environment and Power Service.

Note : Companies are wholly-owned. Each number in a box indicates the ultimate holding company with the same number that holdsits shares.

After taking all reasonable measures, I state that, to my knowledge, the information contained in this Document de Référence isaccurate; it contains all information necessary to an investor to evaluate the assets, the activities, the financial situation, the results ofoperations and the prospects of ALSTOM. There is no other information the omission of which would alter the scope thereof.

I have obtained from the auditors, Deloitte & Associés and Barbier Frinault & Autres, Ernst & Young, a letter of completion of workin which they indicate that they have verified the information relating to the financial situation and financial statements given in thisDocument de Référence and have read the whole Document de Référence.

The historical financial information presented or included by reference in the Document de Référence has been the subject of reportsby the auditors included on pages 128 to 129 and 146 to 147 for the year ended 31 March 2006, and included by referencein this Document de Référence for the year ending 31 March 2004 and 31 March 2005. These reports have been issued withoutqualification and contain emphasis of matter paragraphs relating to the year ended 31 March 2004 and 31 March 2005.

Levallois-Perret, 2 June 2006

The Chairman and Chief Executive Officer

Patrick Kron


Information on the Document de Référence

INFORMATION ON THE DOCUMENT DE RÉFÉRENCE

STATEMENT BY THE PERSON RESPONSIBLEFOR THE DOCUMENT DE RÉFÉRENCE



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TABLE OF RECONCILIATION

The ALSTOM Document de Référence 2005/06 is comprisedof two parts: the Activity report 2005/06 and this document (the “Financial report 2005/06”).

The Document de Référence in French language was filed withthe French Autorité des marchés financiers (“AMF”) on 2 June 2006in accordance with article 212-13 of its Règlement général.

Section of Annexe 1 Pages of the Document de Référenceto European Regulation n°809/2004 Activity report Financial report

1. Persons responsible 210

2. Statutory Auditors 203

3. Selected financial information

3.1 Historical information 0 208

3.2 Interim information NA NA

4. Risk factors 39 to 42 , 95 to 98,98 to 102, 151 to 158

5. Information about the issuer

5.1 History and development of the issuer 6 to 8, 2005.2 Investments 35,37

6. Business overview

6.1 Principal activities 1, 10 to 11, 18 to 416.2 Principal markets 10 to 13, 22 to 25,

28 to 30, 32, 34 to 37 19,206.3 Exceptional events NA NA6.4 Potential dependence 154, 155, 2076.5 Basis of any statement made by the issuer

regarding its competitive position 1, 28 155

7. Organizational structure

7.1 Brief description 2097.2 List of significant subsidiaries 108, 109,137, 145

8. Property, plants and equipment

8.1 Existing or planned material tangible fixed assets 42, 43 211, 2128.2 Environmental issues that may affect the use

of tangible fixed assets NA NA

9. Operating and financial review

9.1 Financial condition 6 to 459.2 Operating results 6 to 45

It may be used in connection with an offering of securities if itis accompanied by a prospectus (“note d’opération”) for whichthe AMF has issued a visa.




10. Capital resources 10.1 Issuer’s capital resources 9 to 10, 52 to 53, 13910.2 Cash flows sources and amounts 36 to 37, 50 to 5110.3 Borrowing requirements and funding structure 83 to 86, 38 to 39,

141 to 14210.4 Information regarding any restrictions on the use

of capital resources that have materially affectedor could materially affect the issuer’s operations 85, 142

10.5 Anticipated sources of funds NA NA

11. Research and development, patents and licences 30 to 33, 36 to 41 32, 207

12. Trend information 24 to 26, 30 to 32 46

13. Profit forecasts or estimates 13 46, 130

14. Administrative, management and supervisory bodiesand senior management

14.1 Administrative and management bodies 5 161 to 16614.2 Administrative and management bodies conflicts of interest 166 to 167

15. Remuneration and benefits

15.1 Amount of the remuneration paid and benefits in kind 184 to 18815.2 Total amount set aside or accrued by the issuer or its subsidiaries

to provide pension, retirement or similar benefits 184, 188

16. Board practices

16.1 Date of expiration of current term of offices 161 to 16616.2 Service contracts of members of the Board 16716.3 Information about the Audit Committee

and the Remunerations Committee 168, 173 to 176, 17716.4 Corporate governance in force in the issuer’s country of origin 160, 167 to168

17. Employees

17.1 Number of employees 15 10217.2 Shareholdings and stock options 189 to 192, 103 to 10517.3 Description of any arrangements for involving the employees

in the issuer’s capital 15 191, 192

18. Major shareholders

18.1 Shareholders with more than 5% interest in the share capital or voting rights 197 to 198

18.2 Different voting rights 194 18.3 Control of the issuer NA NA18.4 Agreement known to the issuer, the operation of which may

at a subsequent date result in a change of control of the issuer NA NA



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19. Related party transactions 148

20. Financial information concerning the issuer’s assets and liabilities, financial position and profit and losses

20.1 Historical financial information 0 20820.2 Pro forma financial information NA NA20.3 Financial statements 48 to 127, 131 to 14520.4 Auditing of historical financial information 20820.5 Age of latest financial information 4820.6 Interim and other financial information NA NA20.7 Dividend policy 150, 19920.8 Legal and arbitration proceedings 95 to 98, 155 to 15620.9 Significant change in the issuer’s financial or commercial condition 207

21. Additional information

21.1 Share capital 139, 194 to 19921.2 Memorandum and Articles of Association 200 to 203

22. Material contracts 207

23. Third party information and statement by experts and declarations of interest 28

24. Documents on display 203

25. Information on holdings 108 to 109, 137, 145

Société anonyme with share capital of €1,934,390,8643, avenue André Malraux – 92300 Levallois-Perret

www.alstom.comRCS : 389 058 447 Nanterre ©

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