SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULES 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
April 28, 2003
VIVENDI ENVIRONNEMENT
(Exact name of registrant as specified in its charter)
36-38, avenue Kleber
75116 Paris, France
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will
file annual reports under cover Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
-- --
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1):____
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):____
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
Yes No X
--- ---
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_______________.
[Viviendi Environnement logo]
2002 REFERENCE DOCUMENT SUMMARY
----------
This Reference Document Summary includes substantially all of the information
set forth in the French-language Document de reference registered by Vivendi
Environnement (the "Company") with the French Commission des Operations de
Bourse on April 22, 2003 under number R. 03-064. The Company's Annual Report on
Form 20-F, when filed, will contain substantially all of the information set
forth in this Reference Document Summary and certain additional information not
included herein. The Company is required to file the Annual Report on Form 20-F
with the U.S. Securities and Exchange Commission by no later than June 30, 2003.
FORWARD-LOOKING STATEMENTS
We make some forward-looking statements in this document. When we use
the words "aim(s)," "expect(s)," "feel(s)," "will," "may," "believe(s),"
"anticipate(s)" and similar expressions in this document, we are intending to
identify those statements as forward-looking. Forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected. You should not place undue reliance on these
forward-looking statements, which speak only as of the date of this document. In
particular, from time to time in this document we state our expectations in
terms of revenue to be generated under new contracts recently won or awarded or
from new investments made and new assets or operations acquired, though we may
have not yet commenced operations under these new contracts nor operating these
new assets and operations at the time we make these statements. These revenue
estimates are based on our management's current assumptions regarding future
sales volumes and prices, which are subject to a number of risks and
uncertainties that may cause actual sales volumes and prices to differ
materially from those projected. As a result, actual revenue recorded under
these new contracts or from these new investments, assets and operations may
differ materially from those set forth in this document. Other than in
connection with applicable securities laws, we undertake no obligation to
publish revised forward-looking statements to reflect events or circumstances
after the date of this document or to reflect the occurrence of unanticipated
events. We urge you to review and consider the various disclosures we make
concerning the factors that may affect our business carefully, including the
disclosures made in "Item 3. Key Information -- Risk Factors," "Item 5.
Operating and Financial Review and Prospects," and "Item 11. Quantitative and
Qualitative Disclosures About Market Risk."
Unless otherwise indicated, information and statistics presented herein
regarding market trends and our market share relative to our competitors are
based on our own research and various publicly available sources.
EXPLANATORY NOTE
Approximately 20.4% of our shares are currently owned by Vivendi
Universal, a corporation (societe anonyme) incorporated under the laws of
France. See "Item 7. Major Shareholders and Related Party Transactions -- Major
Shareholders." From 1998 until December 2001, Vivendi Universal was known as
"Vivendi"; before 1998 it was known as "Compagnie Generale des Eaux." In this
document, we generally refer to Vivendi Universal as "Vivendi Universal" (rather
than as "Vivendi" or "Compagnie Generale des Eaux") even when discussing events
that took place when that company was operating under a different name. In
addition, except as otherwise indicated or as the context otherwise requires, we
use the term "Vivendi Universal" to refer to our shareholder exclusive of its
subsidiaries.
TABLE OF CONTENTS
Page
Key Information 3
Information on the Company 9
Operating and Financial Review and Prospects 57
Directors, Senior Management and Employees 76
Major Shareholders and Related Party Transactions 97
Financial Information 106
The Offer and Listing 112
Additional Information 115
Quantitative and Qualitative Disclosures About Market Risk 128
Principal Accountants Fees and Services 135
Index to Financial Statements 135
Financial Statements F-1
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
DIVIDENDS
Under French law and our articles of association (statuts), our
statutory net income in each fiscal year, as increased or reduced, as the case
may be, by any profits or losses carried forward from prior years, less any
contributions to legal reserves, is available for distribution to our
shareholders as dividends, subject to other applicable requirements of French
law and our statuts.
On May 6, 2002, we paid a dividend of (euro)0.55 per share in respect
of the 2001 fiscal year to persons who held our shares on January 1, 2002. On
May 10, 2001, we paid a dividend of (euro)0.55 per share in respect of the 2000
fiscal year to persons who held our shares on April 27, 2001. We did not pay
dividends as a stand-alone company in respect of fiscal years before 2000.
We have requested our shareholders to approve a dividend payment of
(euro)0.55 per share in respect of our 2002 fiscal year to persons who held our
shares on January 1, 2003 at our general shareholders' meeting to be held on
April 30, 2003. Dividends paid to holders of ADSs will generally be subject to
French withholding tax at a rate of 25%, which, subject to certain procedures
and exceptions, may be reduced to 15% for holders who are residents of the
United States. Subject to possible changes in French law that have recently been
announced, certain holders of ADSs who are residents of the United States may be
entitled to receive a subsequent payment representing the French avoir fiscal,
or tax credit, in an amount generally equal to 10% or 50% depending on the
beneficiary of any dividends paid by us, less applicable French withholding tax.
See "Item 10. Additional Information-Taxation" for a summary of the material
U.S. federal and French tax consequences to holders of ADSs. Holders of ADSs
should consult their own tax advisors with respect to the tax consequences of an
investment in the ADSs. Dividends paid to holders of ADSs will be subject to a
charge by the depositary for any expenses incurred by the depositary of the ADSs
in the conversion of euro to dollars.
EXCHANGE RATE INFORMATION
Under the provisions of the Treaty on European Union negotiated at
Maastricht in 1991 and signed by the then 11 member states of the European Union
in early 1992, a European Monetary Union, known as EMU, was implemented on
January 1, 1999 and a single European currency, known as the euro, was
introduced. As of December 31, 2001, the following 12 member states had adopted
the euro as their national currency: Austria, Belgium, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain. The
legal rate of conversion between the French franc and the euro was fixed on
December 31, 1998 at (euro)1.00 = FF 6.55957 and we have translated French
francs into euro at that rate.
Share capital in our company is represented by ordinary shares with a
nominal value of (euro)13.50 per share (generally referred to as "our shares").
Our shares are denominated in euro. Because we intend to pay cash dividends
denominated in euro, exchange rate fluctuations will affect the U.S. dollar
amounts that shareholders will receive on conversion of dividends from euro to
dollars.
The following table shows the French franc/U.S. dollar exchange rate
for 1998 based on the noon buying rate expressed in French francs per $1.00, and
the euro/U.S. dollar exchange rate for 1999 through March 2003 based on the noon
buying rate expressed in U.S. dollars per euro. The information concerning the
U.S. dollar exchange rate is based on the noon buying rate in New York City for
cable transfers in foreign currencies as certified for customs purposes by the
Federal Reserve Bank of New York (the "Noon Buying Rate"). We provide the
exchange rates below solely for your convenience. We do not represent that
French francs or euro were, could have been, or could be, converted into U.S.
dollars at these rates or at any other rate. The Federal Reserve Bank of New
York has ceased publishing the Noon Buying Rates for French francs and other
constituent currencies of the euro. For information regarding the effect of
currency fluctuations on our results of operations, see "Item 5. Operating and
Financial Review and Prospects."
Period Average
Year End rate* High Low
-------- -------- -------- --------
U.S. dollar/Euro
March 2003 .92 .93 .95 .92
February 2003 .93 .93 .93 .92
January 2003 .93 .94 .96 .92
2002 .95 1.05 1.16 .92
December 2002 .95 .98 1.01 .95
November 2002 1.01 1.00 1.01 .97
2001 .89 .89 .95 .84
2000 0.93 0.92 1.04 0.83
1999 1.00 1.06 1.18 1.00
U.S. dollar/French franc
1998 5.62 5.90 6.17 5.41
-------------------------------
* For yearly figures, the average of the noon buying rates for French francs or
euro, as the case may be, on the last business day of each month during the
relevant period.
Solely for the convenience of the reader, this annual report contains
translations of certain euro amounts into U.S. dollars. These translations
should not be construed as representations that the converted amounts actually
represent such U.S. dollar amounts or could have been or will be converted into
U.S. dollars at the rate indicated or at all. The translations from euros to
U.S. dollars in this annual report are based on US $0.9536 per euro, the Noon
Buying Rate in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York on
December 31, 2002. On April 15, 2003, the Noon Buying Rate was U.S.$0.9258 per
euro.
RISK FACTORS
You should carefully consider the risk factors described below in
addition to the other information presented in this document.
Risks Relating to Our Operations
We may suffer reduced profits or losses as a result of intense
competition
Our business is highly competitive and requires substantial human and
capital resources. Large international competitors and local niche companies
serve each of the markets in which we compete. From time to time, our
competitors may reduce their prices in an effort to expand market share or win a
competitively bid contract. Competitors may also introduce new technology or
services or improve the quality of their service. We may lose business if we are
unable to match the prices, technologies or service quality offered by our
competitors.
We perform a substantial portion of our business under contracts with
governmental authorities and industrial and commercial clients. These contracts
are often awarded and renewed through periodic competitive bidding. We may not
be the successful bidder in the competition to obtain or renew these contracts.
Our inability to replace a significant number of contracts lost through the
competitive bidding process with comparable contracts or other revenue sources
within a reasonable time could be harmful to our business and financial
performance. Furthermore, we must commit substantial resources before we are
assured of winning or renewing a contract. We may not be successful in winning
or renewing a contract despite incurring substantial expenses.
Our business operations in some countries may be subject to additional
risks
While our operations are concentrated mainly in Europe, we conduct
business in markets around the world. Sales generated in countries outside of
Europe and North America represented approximately 8% of our total revenue in
2002. The risks associated with conducting business in some countries outside of
western Europe, the United States and Canada can include slower payment of
invoices, nationalization, social, political and economic instability, increased
currency exchange risk and currency repatriation restrictions, among other
risks. We may not be able to insure or hedge against these risks. Furthermore,
we may not be able to obtain sufficient financing for our operations in these
countries. Finally, unfavorable events and circumstances in these countries may
affect the value of our assets and investments in those countries. These events
and circumstances, which may include material adverse changes in the general
economic environment, may lead us to reassess our assumptions and objectives in
respect of our operations in these countries and to reexamine the actual value
of our assets and investments in these countries. As a result, we may record
exceptional provision or depreciation charges in connection with our operations
in these countries, which could have a material adverse effect on our results.
Changes in energy prices and taxes may reduce our profits
Fuel is a significant operating expense for our transportation and
waste management businesses. Fuel prices are subject to sudden increases as a
result of variations in supply and demand. Although most of our contracts
contain tariff escalation provisions that are intended to compensate us for
increased costs incurred as a result of increased fuel prices, there may be
developments, including delays between fuel price increases and the time we are
allowed to raise our prices to cover the additional costs, that prevent us from
obtaining full compensation. A sustained increase in energy prices could hurt
our business to the extent we are not able to increase our prices sufficiently
to cover the additional costs. Furthermore, governmental authorities may
increase fuel taxes. Increases in fuel prices or taxes could raise our costs and
reduce our profitability.
Governmental authorities could terminate or modify some of our
contracts
Contracts with governmental authorities make up a significant
percentage of our revenue. We are subject to various laws that apply to
companies contracting with governmental authorities that differ from laws
governing private contracts. In civil law countries such as France, for
instance, government contracts often allow the governmental entity to modify or
terminate a contract unilaterally in certain circumstances. Although we are
generally entitled to full indemnification in the event of a unilateral
modification or termination of a contract by a governmental authority, such
modifications or terminations could reduce our revenue and profits if full
indemnification is not available.
Our compliance with environmental, health and safety laws and
regulations is costly and may become more so in the future, and we may incur
liability these laws and regulations
We have made and will continue to make the necessary capital and other
expenditures to comply with applicable environmental, health and safety laws and
regulations. We are continuously required to incur expenditures to ensure that
the installations that we operate comply with all applicable legal, regulatory
and administrative requirements, including general precautionary obligations.
These expenditures mainly relate to air pollution (including, for example, the
control of emissions from our transportation vehicles, our heat generation
plants and our waste incineration facilities), the quality of our potable water,
the disposal of wastewater and other effluents and the protection of land and
biodiversity (including through restrictions on waste disposal and the use of
landfills). Each of our operations, moreover, may become subject to stricter
laws and regulations, and correspondingly greater compliance expenditures, in
the future. If we are unable to recover these expenditures through higher
prices, this could adversely affect our operations and profitability.
The scope of application of environmental, health, safety and other
laws and regulations is also becoming increasingly broader. These laws and
regulations govern, among other things, any discharges in a natural environment,
the collection, treatment and discharge of all types of waste, and the
rehabilitation of old sites. These increasingly broader laws and regulations
expose us to the risk of liabilities, including in connection with assets that
we no longer own and activities that have been discontinued. In some
circumstances, we could be required to pay fines or damages under these laws and
regulations or undertake remedial action even if we exercise due care in
conducting our operations and we comply with all applicable laws and
regulations.
In addition, courts or regulatory authorities may require us to conduct
investigations and undertake remedial activities, curtail operations or close
facilities temporarily or permanently in connection with applicable laws and
regulations, including to prevent imminent risks or in light of expected changes
in those laws and regulations. In the event of an accident or other incident, we
could also become subject to claims for personal injury, property damage or
damage to natural resources. Being required to take those actions or to pay
these damages could hurt our business or significantly affect our capabilities.
We may not be able to retain or obtain required licenses, permits and
approvals
We need to maintain, renew or obtain a variety of permits and approvals
from regulatory authorities to conduct each of our businesses. The process for
renewing or obtaining these permits and approvals is often lengthy, complex and
unpredictable. We may invest substantial resources in a project only to have a
regulatory authority deny us a permit or approval necessary to complete or
operate it. Moreover, a regulatory authority may grant a necessary permit or
approval only after substantial delays and/or additional expenditures. The
occurrence of any of these events could increase our costs of operations and, in
certain cases, require us to withdraw from a project or contract, which could
hurt our business and adversely affect our operations and profitability.
We may be required to sell our interest in FCC in the event of a
hostile takeover or to finance an acquisition of the remaining shares of FCC and
its holding company.
We have an indirect 25.7% stake in Fomento de Construcciones y
Contratas (FCC), a leading provider of environmental management and other
services in Spain and Latin America. FCC is listed on the Madrid Stock Exchange.
Our interest consists of a 49% stake in a holding company that owns 52.48% of
FCC's outstanding shares. Ms. Esther Koplowitz, who is a member of our
supervisory board, owns the remaining 51% of FCC's holding company. We have also
created a number of joint ventures with FCC that operate a significant part of
our environmental management business in Spain and Latin America. See "Item 4.
Information on the Company--Business Overview--Our Services" and "Item 5.
Operating and Finance Review and Prospects."
Pursuant to the agreements governing our participation in FCC, Ms.
Koplowitz has the right to buy our interest in FCC's holding company in the
event that our company is subject to a "hostile takeover." This agreement
defines a "hostile takeover" as any direct or indirect acquisition of 25% or
more of our shares that either does not have the approval of our supervisory
board or management board or is effected by a direct competitor of FCC in Spain.
The purchase price would be equal to the average of the price we paid for the
acquisition of our participation in FCC ((euro)691 million) and the market value
of our interest in FCC's holding company, which is determined by reference to
the average trading price of FCC's shares during the three-month period
preceding the hostile takeover. If this option is exercised at a time when the
market price of FCC's shares is low, we would be required to sell our interest
in FCC upon disadvantageous terms. In addition, a sale of our interest in FCC
could impede our efforts to expand our activities in Spain.
Pursuant to these agreements, Ms. Koplowitz also has the option,
exercisable at any time through October 6, 2008, to require us to purchase the
remaining interest in B1998SL, FCC's holding company, at a price determined at
the time of exercise based on the average market price of FCC's common stock
over the prior three months, subject to a cap equal to the lower of seven times
FCC's EBITDA and 29.5 times FCC's earnings per share in the prior fiscal year.
If this option is exercised, we would ultimately own 100% of B1998SL. Under
these circumstances, Spanish law may require us to launch a public tender offer
for all of the shares of FCC not owned by B1998SL, which represent approximately
47.5% of FCC outstanding shares, at a price per share to be approved by the
Spanish stock exchange authorities. Based on the price of FCC's common stock on
March 3, 2003, the price for the remaining 47.5% of FCC would be approximately
(euro)1.3 billion, subject to adjustment by the Spanish stock exchange
authorities. The cost of purchasing the remaining interest in FCC and of
consummating the tender offer for the remaining public interest in FCC may be
substantial. We will explore the alternative financing options available to us
to cover these costs at the appropriate time, if any, and may decide to finance
these costs by incurring additional debt, issuing additional common stock or
selling assets, which could adversely affect our net income and the market price
of our shares.
See "Item 7. Major Shareholders and Related Party Transactions--Related
Party Transactions--Other Agreements--FCC Agreements" for a description of the
agreements governing our participation in FCC.
Currency exchange and interest rate fluctuations may negatively affect
our financial results and the price of our shares
We hold assets, incur liabilities, earn income and pay expenses of our
subsidiaries in a variety of currencies. Our financial statements are presented
in euro. Therefore, when we prepare our financial statements, we must translate
our assets, liabilities, income and expenses in other currencies into euro at
then-applicable exchange rates. Consequently, increases and decreases in the
value of the euro in respect of these other currencies will affect the value of
these items in our financial statements, even if their value has not changed in
their original currency. For example, an increase in the value of the euro may
result in a decline in the reported value, in euro, of our interests held in
foreign currencies, particularly in the United States, where we have recently
made a number of significant acquisitions of companies and assets that are
valued in U.S. dollars. Although we seek to limit the impact of these
fluctuations in currency exchange rates by financing our local operations and
acquisitions, to the extent possible, in local currency, we may not be able to
fully offset the effects of these fluctuations on our financial statements. To
the extent these fluctuations have a negative effect on our financial condition
as presented in our financial statements, the price of our shares could decline.
In addition, because we have a significant amount of debt outstanding,
our results of operation and financial condition may be affected by changes in
prevailing market rates of interest. We manage this exposure to interest rate
risk by setting a target fixed rate for a significant part of our debt, which we
achieve either through fixed rate debt or interest rate hedging activities. At
December 31, 2002 our outstanding total long-term debt amounted to (euro)12.9
billion, of which 49% was subject to fixed interest rates (including debt
covered by our hedging activities). Fluctuations in interest rates may also
affect our future growth strategy. A rise in interest rates may force us to
finance acquisitions or operations or refinance existing debt at a higher cost
in the future, which may lead us to decide to curtail or delay our then current
expansion plans.
Risks Relating to Our Shares and ADSs
The substantial number of shares that will be eligible for sale in
the near future may cause the market price of our shares or ADSs to decline.
In connection with the sale of a part of its interest in our company in
June 2002, Vivendi Universal entered into a lock-up agreement in respect of its
remaining 40.8% interest in our company that generally prevented it from
offering or selling, directly or indirectly, these shares for a period of 545
days. This period expires on December 23, 2003. On December 24, 2002, Vivendi
Universal sold half of its remaining interest in our company (i.e., 20.4%) to a
designated group of institutional investors, which agreed to assume Vivendi
Universal's obligations under the lock-up agreement for the remainder of the
lock-up period. In addition, Vivendi Universal granted this designated group of
investors options to acquire its remaining 20.4% interest in our company at a
fixed price at any time before December 24, 2004. See "Item 7. Majority
Shareholders and Related Party Transactions--Majority Shareholders" for a
description of these transactions. Following the expiration of this lock-up
agreement, a substantial number of shares will be eligible for sale in the
public market. If several of these investors or, if a significant portion of the
options are not exercised, Vivendi Universal commence selling shares of our
company on the market, these sale activities could adversely affect prevailing
market prices of our shares and ADSs.
Because preemptive rights may not be available for U.S. persons, the
ownership percentages of our U.S. shareholders may be diluted in the event of a
capital increase of our company.
Under French law, shareholders have preemptive rights (droits
preferentiels de souscription) to subscribe for cash issuances of new shares or
other securities giving rights to acquire additional shares on a pro rata basis.
U.S. holders of our shares may not be able to exercise preemptive rights for our
shares unless a registration statement under the U.S. Securities Act of 1933, as
amended, is effective with respect to those rights or an exemption from the
registration requirements imposed by the Securities Act is available. We are not
required to file registration statements or otherwise ensure that an exemption
under the Securities Act is available in connection with issues of new shares or
other securities giving rights to acquire shares to our shareholders. As a
result, we may from time to time issue new shares or other securities giving
rights to acquire additional shares at a time when no registration statement is
in effect and no Securities Act exemption is available. For example, in July
2002 we effected a capital increase through the issuance of rights to acquire
new shares to all of our shareholders, but those rights were only exercisable by
persons located outside the United States or by "qualified institutional buyers"
in the United States. Holders of our ADSs were not permitted to exercise the
rights corresponding to the shares underlying the ADSs and received the net
proceeds of the sale of these rights in the French market by the ADS depositary.
We are permitted to file less information with the SEC than a company
incorporated in the United States
As a "foreign private issuer," we are exempt from rules under the U.S.
Securities Exchange Act of 1934 that impose some disclosure and procedural
requirements for proxy solicitations under Section 14 of the Exchange Act.
Additionally, our officers, directors and principal shareholders are exempt from
the reporting and "short-swing" profit recovery provisions of Section 16 of the
Exchange Act and related rules with respect to their purchases and sales of our
shares. Moreover, we are not required to file periodic reports and financial
statements with the U.S. Securities and Exchange Commission as frequently or as
promptly as U.S. companies with securities registered under the Exchange Act.
Accordingly, there may be less information concerning our company publicly
available from time to time than there is for U.S. companies at those times.
The ability of holders of our ADSs to influence the governance of our
company may be limited
Holders of our ADSs may not have the same ability to influence
corporate governance with respect to our company as would shareholders in some
U.S. companies. For example, the depositary may not receive voting materials in
time to ensure that holders of our ADSs can instruct the depositary to vote
their shares. In addition, the depositary's liability to holders of our ADSs for
failing to carry out voting instructions or for the manner of carrying out
voting instructions is limited by the deposit agreement. Finally, except under
limited circumstances, our shareholders do not have the power to call
shareholder meetings.
\
ITEM 4: INFORMATION ON THE COMPANY
History and Development of the Company
The legal and commercial name of our company is "Vivendi
Environnement." Our company is a societe anonyme a directoire et conseil de
surveillance, a form of stock corporation, incorporated in 1995 pursuant to the
French commercial code for a term of 99 years.
Our registered office is located at 36-38 avenue Kleber, 75116 Paris,
France, and the phone number of that office is 33 1 71 75 0000. Our agent in the
United States is Stephen P. Stanczak. He can be reached at United States Filter
Corporation, 40-004 Cook Street, Palm Desert, CA 92211.
Historical Background
On December 14, 1853, Compagnie Generale des Eaux was formed by
Imperial decree and won its first public service concession for the distribution
of water in the city of Lyon, France. Compagnie Generale des Eaux continued to
develop its activities in France by obtaining concessions in Nantes (1854), Nice
(1864), Paris (1860) and its suburbs (1869).
In 1880, Compagnie Generale des Eaux experienced its first commercial
success abroad when it was awarded a contract to produce and distribute water in
Venice. This was followed by contracts in Constantinople in 1882 and Porto in
1883. In addition to potable water, Compagnie Generale des Eaux expanded its
business into the water treatment industry in 1884.
In 1980, Compagnie Generale des Eaux regrouped all of its operating
subsidiaries specializing in the design, engineering and execution of potable
water and wastewater treatment facilities in a single company under the name
"OTV." In addition, Compagnie Generale des Eaux acquired Compagnie Generale
d'Entreprises Automobiles ("CGEA"), which would later become CGEA Connex and
Onyx, and Compagnie Generale de Chauffe, which was later renamed Dalkia. During
the same period in the 1980's, Compagnie Generale des Eaux accelerated its
international expansion, particularly in the United States.
In 1998, Compagnie Generale des Eaux changed its name to "Vivendi" and
renamed its water subsidiary "Compagnie Generale des Eaux" to distinguish the
separate existence of its two main operating segments: communications and
environmental management services.
In October 1998, to further extend its geographic reach, Vivendi
purchased a 49% interest in the holding company that controls FCC, a Spanish
public company that is the leading provider of urban waste management and the
second largest provider of water and wastewater services in Spain.
In April 1999, Vivendi acquired United States Filter Corporation (also
known as USFilter), which was created in 1990 and is the leading water treatment
services and equipment company in the United States.
In 1999, Vivendi created Vivendi Environnement, to which it contributed
or sold all of its environmental management activities and which conducted these
activities under the names "Vivendi Water" (water), "CGEA Onyx" (waste
management), "Dalkia" (energy services) and "CGEA Connex" (transportation).
On July 20, 2000, our shares were listed on the Premier Marche of
Euronext Paris in connection with an initial public offering of our shares in
France and in an international private placement, with Vivendi Universal (the
new name of Vivendi) retaining over 72.3% of our share capital.
In December 2000, Dalkia entered into an agreement with Electricite de
France (EDF), the French state-owned electricity utility, pursuant to which
Dalkia's energy services operations were consolidated with those of EDF.
In August 2001, our shares were included in the CAC 40, the main equity
index published by Euronext Paris. In October 2001, we listed our shares, in the
form of American Depositary Shares, for trading on The New York Stock Exchange.
In December 2001, our main shareholder, Vivendi Universal, sold a block
of our shares representing 9.3% of our total share capital, reducing its equity
participation in our company from 72.3% to 63.05% of our total share capital. We
also distributed in December 2001 free warrants to all of our shareholders,
which are exercisable until March 2006. See "Item 7. Major Shareholders and
Related Party Transactions -- Major Shareholders."
During 2002, we became independent from Vivendi Universal, which, as of
December 31, 2002, held only 20.4% of our share capital. See "Item 7. Major
Shareholders and Related Party Transactions--Major Shareholders."
Upon approval our shareholders at the general shareholders' meeting to
be held on April 30, 2003 , we will change our name from "Vivendi Environnement"
to "Veolia Environnement."
Our principal capital expenditures and divestitures since we began
operations in 1999 are described under "Item 5. Operating and Financial Review
and Prospects." Material capital expenditures currently in progress include
those associated with the continued expansion of our existing businesses and
replacement and maintenance spending related to our existing operations. These
expenditures are being financed with cash flow from operating activities.
Material divestitures currently in progress include the transfer of part of our
interest in Dalkia's parent company as part of the strategic transaction with
EDF described above and the disposal of non-core businesses described in "Item
5. Operating and Financial Review and Prospects."
Major Developments in 2002
We were awarded a significant number of long-term contracts in 2002
that are expected to generate in aggregate (euro)30 billion in total revenue
over the life of these contracts. We describe below the main developments in our
business during 2002.
The discussion below includes the revenue amounts that we expect to
earn from our contracts. These amounts take into account updates to our volume
and price assumptions since the date these contracts were publicly announced. As
a result, announced revenue amounts may differ from the amounts of expected
revenue included in this report. In the case of combined contracts to build and
operate facilities, expected revenue amounts reflect total revenue expected to
be generated from both services. In addition, we issue guarantees, post
performance bonds and assume other contingent financial obligations from time to
time in the ordinary course in connection with our contracts. We do not believe
that any of these guarantees and obligations are material to our business as a
whole, except for those described in "Item 5. Operating and Financial Review and
Prospects."
Water
In France, we won a contract to modernize the Archeres wastewater
treatment plant in the Yvelines region, which treats a large portion of the
wastewater from the Paris area, with estimated total revenue of (euro)390
million. We also won a 15-year contract with Arcelor Packing, which manufactures
steel for packaging and finished sheet metal for household electrical
appliances, to treat effluents at its Florange site in the Moselle region, with
estimated total revenue of (euro)27 million. In addition, we won a 12-year
contract with Smurfit Cellulose du Pin to manage industrial effluents at its
Facture/Bigonas paper factory in the Gironde region, with estimated total
revenue of (euro)11 million.
In the Netherlands, we were declared the winning bidder of a 30-year
contract to design, construct and operate wastewater treatment plants in the
city and region of The Hague (estimated total revenue of (euro)1.5 billion).
This contract and related agreements are expected to be finalized over the
course of 2003.
In the Czech Republic, we extended a contract awarded in 2001 from 13
to 28 years under which we manage water services in Prague and its surrounding
area with 1.2 million residents.
In the United States, we were awarded the largest-ever contract for
outsourced management of municipal water in Indianapolis. USFilter, our
subsidiary, will operate and maintain potable water services, rehabilitate
infrastructure and provide client services for a 20-year period in this city
serving 1.1 million residents (estimated total revenue of US $1.5 billion). We
also won a 20-year contract with Alon to provide water and wastewater management
services to its refinery in Big Spring, Texas, with estimated total revenue of
approximately US $66 million.
In Morocco, we won a 26-year contract for the outsourced management of
water, purification and electricity services for the region of Rabat-Sale (2
million residents), with estimated total revenue of (euro)4.6 billion.
In China, we won an international public bid for the management of
water services in Pudong, a Shanghai business area with 1.9 million residents,
for 50 years with estimated total revenue of (euro)10 billion (of which (euro)5
billion is attributable to us based on our interest in the operator). We also
won two outsourcing contracts with the Chinese cities of Baoji (500,000
residents) and Zhuhai (1.2 million residents).
In Malaysia, we won an outsourcing contract with Petronas, an oil
company, to provide water treatment and distribution services to its
petrochemical complex in Kertith for a 20-year period (estimated total revenue
of (euro)200 million).
Waste Management
In the United Kingdom, Onyx renewed a contract for 7 years to collect
residential and commercial waste and provide urban cleaning services in the
London areas of Westminster (with 200,000 residents and 1 million visitors per
day and representing estimated total revenue of (euro)350 million) and Camden
(estimated total revenue of approximately (euro)190 million). On the southern
coast, Onyx won a contract to collect and recycle residential and commercial
waste in the city of Portsmouth (190,000 residents) for a 7-year period
(estimated total revenue of approximately (euro)38 million), which will be
signed in 2003.
In Asia, Onyx expanded its 2001 contract to collect waste in Singapore
to include urban cleaning in the city center for 5 years with estimated total
revenue of (euro)45 million. In China, Onyx won a contract for 8 years for the
design and operation of a residential waste storage center in Guangzhou (Canton
at the Xingfent site), with 20 million cubic meters of capacity and capable of
treating 5,000 tons of waste per day by 2003 (estimated total revenue of
(euro)37 million). This site, which will satisfy the most stringent
international regulatory standards, will enable us to increase our exposure in
Asia.
In Egypt, we commenced operations under our waste management contract
in the city of Alexandria (3.5 million inhabitants), which we won in 2001. Under
this contract, we are collecting and treating approximately 2,500 tons of
household waste per day, taking measures to secure old landfills, developing an
existing waste storage center, building a waste transfer station and providing
urban cleaning services.
In Morocco, we commenced providing urban cleaning services in the city
of Rabat-Hassan under a contract awarded in 2001. Under this 6-year contract, we
are collecting household and organic waste, cleaning roadways and beaches and
eliminating unmanaged landfills, with particular attention to historical and
governmental sites (estimated annual revenue of (euro)2.6 million). We are also
providing training to a significant number of local personnel.
In Australia, Onyx won a contract for the global management of the
industrial waste at 670 sites throughout Australia of BTP Boral Limited, a
business materials production and trading group (estimated total revenue of
(euro)10 million). Onyx is the only operator to propose waste management
solutions in the six Australian states.
In the United States, Onyx won a 6-year outsourcing contract to operate
a waste-to-energy facility in Savannah, Georgia, and a 7-year outsourcing
contract to operate another waste-to-energy facility in Charleston, South
Carolina. We also won a contract to recycle municipal waste at Highland Park
(estimated annual revenue of US $2.6 million) and Saint Charles (estimated
annual revenue of US $1.4 million), in Illinois.
In Chile, Proactiva, our joint venture with FCC, commenced operating
the Maipu landfill serving the Santiago de Chile, which was designed to receive
700,000 tons of waste per year and is an example of our technological
capabilities.
Energy Services
In France, Dalkia renewed for 25 years a contract to outsource the
public services concession of the urban area in Mons-en-Baroeul (North), with
the installation of co-generation plant capable of producing 7MW of power
(estimated annual revenue of (euro)5.1 million). Dalkia also partially renewed
for 5 years a contract to provide thermal management services in Paris, which
includes measures to prevent the risk of legionella bacteria (estimated annual
revenue of (euro)2.9 million). In addition, Dalkia won a 3-year facilities
management contract for 220 agencies of Credit Mutuel du Nord's Northern Europe
network, with estimated annual revenue of (euro)4.3 million.
In Belgium, Dalkia was awarded a 5-year multi-technical contract in
respect of the entire real estate holdings of the European Commission, which
include 68 buildings with 1.5 million cubic meters of space and will require the
deployment of 200 employees (estimated annual revenue of (euro)11.5 million).
In the Netherlands, Dalkia acquired DBU, a Dutch company specializing
in the provision of technical services and the supply of mechanical and
electro-technical industrial installations (estimated annual revenue of (euro)50
million).
In the United Kingdom, Dalkia was selected to participate in the first
public bid by the British government to award permits for greenhouse gas
emissions. To motivate the bidders, the British government offered payment of
(euro)350 million over 5 years. Among the 34 companies selected, Dalkia was the
only company in the energy services sector and has committed to reduce carbon
dioxide emissions in the United Kingdom by 100,000 tons by 2006, representing a
37% reduction in respect of the reference target. To attain these objectives,
Dalkia will collaborate with 4 hospitals and 134 commercial buildings for which
it operates energy installations and with whom it will share the fees paid for
each ton of carbon dioxide saved.
In Sweden, Dalkia acquired 5 companies in the Maintech group, a
subsidiary of PEAB, a Swedish public works company that specializes in
industrial maintenance services, for approximately (euro)4.9 million (after
price adjustments), which we estimate will generate annual revenue of (euro)40
million.
In the Czech Republic, Dalkia was hired by the city of Ostrava to take
over the municipal heating distribution company, ZTO, for approximately
(euro)19.1 million. ZTO recorded (euro)43 million in revenue in 2001 and
currently has 315 steam boilers, 160 kilometers of network and 233 sub-stations
that service 84,000 residences and 900,000 square meters of commercial
buildings.
In Italy, Dalkia signed a 10-year contract to supply electricity,
heating and cooling to Manulifilm, one of the main European manufacturers of
films used in packaging, plasticizing, adhesive tapes and tobacco products, with
estimated total revenue of (euro)7 million.
In Malaysia, Citelum, a Dalkia subsidiary specialized in street and
building lighting, won a contract to light the twin towers of Petronas, the
highest inhabited towers in the world at 452 meters, with estimated total
revenue of (euro)117,000.
Transportation
In France in January 2002, Connex acquired Transports Verney for
approximately (euro)47.1 million. Transports Verney is present in more than 30
departments in France, particularly in the Great West and Rhone-Alpes regions,
and focuses essentially on operating urban and inter-city networks. Transports
Verney recorded more than (euro)150 million in revenue in 2001.
In Ireland, Connex won a 5-year contract to operate the new "Luas"
light metro network in Dublin, with 40 trains used on 2 lines serving 36 stops
and estimated total revenue of (euro)55 million.
In Great Britain, Connex renegotiated its compensation for 2003 and the
duration of a contract to operate the rail network in southeast London. Connex's
compensation increased by (euro)90 million for 2003 and is currently being
negotiated for the 2004-2006 period. This contract will now expire in 2006
instead of 2011.
In Germany, Connex inaugurated in December 2002 the Lausitzbahn rail
network in the Gorlitz region (estimated annual revenue of (euro)4 million) and
commenced operating two long distance inter-regional lines that link the
southern part of Eastern Germany, Berlin and the Baltic Sea region (estimated
total revenue of (euro)13 million).
In Sweden, Connex won two public tenders for the operation of passenger
rail networks in Norrland and Goteborg and a public tender for the operation of
the urban and inter-urban network of Ekilstuna. Connex also obtained a 5-year
extension of its contract to operate the metro system and three tramway lines in
Stockholm. These new contracts and the extension of the Stockholm contract
represent an estimated increase of more than (euro)1 billion in estimated total
revenue in this country.
In Slovenia, acquired from another private operator the operation of
the Certus urban and inter-urban transportation network in Maribor for a 10-year
period (estimated total revenue of (euro)180 million).
Business Overview
Our Market
Traditionally, environmental management services, which include water
treatment and distribution services, waste treatment and management services,
energy services (excluding the production, trading and sale of electricity) and
transportation services, have been provided in an uncoordinated manner, each by
a different entity. A provider of energy services, for example, would not also
offer water treatment or waste disposal services, nor would it integrate its
services with those of a customer's other environmental service providers.
Public authorities and industrial and commercial companies, moreover, have
typically met many of their own environmental needs without looking to private
firms that specialize in these areas. This situation has changed fundamentally
in recent years, however, as industrial and commercial companies have continued
to expand on a global scale and increasingly require environmental management
services providers with a global reach that matches the international scope of
their customers' operations.
We are leading a trend toward the creation of comprehensive packages of
large-scale, customized, integrated environmental management services to
governmental and private clients around the world. We believe that we possess
the core competencies necessary to provide our environmental management services
in an integrated, global manner, including:
o long-term contract management-the ability to win and successfully
manage long-term contracts (up to 50 years) with public
authorities and industrial and commercial companies;
o operating within highly regulated or contractually restricted
conditions-the ability to conduct operations while satisfying
complex legal requirements and to adapt quickly to evolutions in
those requirements;
o workforce management-the ability to successfully convert
government employees or non-core environmental services employees
of an industrial or commercial company through training and
management into a competitive, technically expert, core
environmental services workforce;
o financial strength and the ability to finance large-scale
environmental infrastructure projects to meet a wide range of
customer needs;
o technical expertise-the ability to conceive and manage complex,
technologically advanced environmental operations at multiple
sites creatively and efficiently and to coordinate those
operations so as to provide a seamless package of integrated
services of consistently high quality; and
o global scale-the ability to bring all the foregoing skills to
bear in key markets around the world.
We believe that demand for integrated, customized packages of
environmental management services is likely to grow around the world for the
following reasons:
o In a world that combines accelerated urbanization with
demographic growth, major investments in environmental projects
and services are needed to meet increasingly stringent
environmental standards, provide growing urban populations with
adequate environmental services and replace existing
environmental infrastructure. In addition, there is also an
increase in public demand for high-quality and extremely reliable
environmental products and services.
o Governments throughout the world face budgetary constraints and
often lack the technical and operational skills of private sector
firms to address environmental issues efficiently. As a result,
public authorities are increasingly turning to the private sector
to address their environmental needs.
o Industrial and commercial companies are increasingly delegating
tasks outside their core areas of expertise to third parties in
order to reduce costs and comply with increasingly stringent
environmental standards. Few industrial or commercial companies
have core competencies in environmental services; consequently,
the market for outsourced environmental services is expanding.
o Public and private entities are increasingly attempting to
simplify the administration of their complex operations by
outsourcing a wide variety of responsibilities to a single
partner, creating an opportunity for companies capable of
offering a broad range of environmental management services in an
integrated fashion.
o Large private firms and public authorities increasingly recognize
that a "one size fits all" approach will not meet their unique
and changing needs. As a result, demand for customized
environmental management services has grown.
o The increasingly multinational profile of many large industrial
and commercial firms encourages them to outsource non-core
activities to companies with similar geographic reach to simplify
administration and ensure they receive consistent service at each
of their facilities.
We think that each of these trends, taken individually, has created
significant opportunities for companies with our expertise, and, taken as a
whole, they allow us in particular to provide innovative, integrated
environmental management services in markets around the world on a one-stop
shopping basis. We have created specialized teams led by our Industrial Markets
Department to guarantee continuity in the solutions we offer. In addition, the
employee training programs developed by our Institut de l'Environnement Urbain
(or Urban Environment Institute) allow us to integrate within our own personnel
several designated employees of our customers.
Our Clients
We are the leading provider of environmental management services in the
world and we increasingly provide our services in innovative, integrated and
customized packages. We provide environmental management services to a wide
range of public authorities, industrial and commercial customers and individuals
around the world.
Our revenue from services to public authorities represented
approximately 65% of our total revenue in 2002, while our industrial and
commercial customers represented approximately 35% of total revenue in 2002.
The demand from public authorities has been particularly influenced and
strengthened by recent trends relating to privatization, intercommunal
conglomerations (which involves the grouping of several French municipalities
into communal areas or conglomerations) and a heightened sensitivity to
environmental issues, including the management of water resources, air
pollution, mass transportation policies and energy consumption.
At the same time, the development of our industrial customer base has
become a major growth factor in our business. Our expertise in multi-service
solutions, our capacity to limit the environmental impact of industrial
activities and our ability to deliver customized solutions on each of the five
continents allow us to respond to the demands of our large industrial customers.
In addition, during 2002 we significantly increased our presence in a variety of
commercial and other professional fields, including through the provision of
services to hospitals, airports, hotels and transportation-related companies.
While we provide services around the world, our largest market is
Europe and, to a lesser extent, the United States. In 2002, we generated 45.3%
of our revenue in France, 34.9% in the rest of Europe, 12% in North America,
3.8% in the Asia-Pacific region and 4% in the rest of the world. We are not
materially dependent upon any particular customer, and no one contract
represented more than approximately 1.6% of our revenue in 2002.
Our Strategy
Our overall strategy is to use our broad range of services and
extensive experience to capitalize on increased demand for reliable, integrated
and global environmental management services. The major elements of this
strategy are to:
o Leverage our expertise and our leading market position in
environmental management services to deliver strong internal
growth
Providing environmental management services has been the core
business of our company and its predecessor for nearly 150 years.
We have demonstrated technological, financial and management
expertise and routinely enjoy success in bidding for contracts
offered through public tenders by public authorities and
industrial or commercial companies. We have vast experience in
the management of long-term relationships with public
authorities. We also have a track record of using our
technological and management expertise to deliver the highest
quality of service at the most competitive cost. We intend to use
our broad range of expertise and experience to take advantage of
increasing demand for privatized and outsourced environmental
management services. Our core businesses generated internal
growth of 5% in 2002.
o Develop partnerships through unique, integrated, multi-service
offerings or by taking advantage of synergies
We are integrating our environmental operations to meet
increasing demand for comprehensive environmental management
services. We also sometimes pursue this approach with other
companies in order to harness their capabilities. This
integration allows our clients to benefit from technical
synergies and better control economic performance and
environmental risk, and is the key element of our service
offerings, particularly to commercial clients. For example, such
technical synergies are possible in the "waste to energy" field
with the treatment of industrial effluents and related sludge and
the supply of de-mineralized water-based industrial heating.
The integration of our capabilities may take the form of an
integrated service contract. In 2002, for example, we won a
number of integrated multi-service contracts with industrial
customers, including British Petroleum (BP), Arcelor, Accor and
Pharmacia. We also offer integrated services to public
authorities, such as our integrated contract to provide a variety
of environmental management services in the city of Bromley,
United Kingdom. The integration of capabilities may also result
from the synergies that arise from the award of separate
contracts to several of our divisions by a single customer (or by
different customers that have relationships among themselves),
such as, for example, our contracts in Shanghai.
In order to fully benefit from the advantages of the integration
of our services and the synergies between our divisions, we
regrouped our company's senior management and the senior
management of each of our divisions at our corporate headquarters
in Paris in the second quarter of 2002.
o Achieve and maintain "best-in-class" performance in each of our
business segments by investing in technology and personnel
The projects we undertake require extensive technical know-how
and excellent management capabilities. We make significant
investments in both technology and personnel training to ensure
that we deliver the highest quality environmental services
possible. Our goal is to achieve and maintain best-in-class
service across our business segments, permitting us to realize
important productivity gains and to anticipate, at low cost,
changes in regulations. 600 of our researchers are dedicated to
consider technological issues specific to our industrial clients.
We have also established key measures to assure our industrial
and commercial clients that we respect the highest standards of
hygiene, safety and environmental protection in the areas
surrounding their sites.
o Seize opportunities arising from our worldwide reach
Because our operations span the globe, we can offer multinational
industrial companies a uniform quality of service, on the one
hand, and centralized environmental services management, on the
other. We are one of the only environmental services companies
with the ability to offer services on a worldwide basis. Based on
this capability, in 2002 we renewed our 5-year contract with
Renault to provide global waste management services at 15 of its
factories and expanded the services we provide under the
contract, which will require support from our other divisions and
the performance of services at new factories abroad.
Our worldwide presence also allows us to quickly seize
opportunities to enter markets that experience sustained growth
of environmental management services, particularly in Europe, the
United States and Asia, particularly China. The extensive
experience we have acquired in dealing with a wide variety of
legal and political environments facilitates our entry into these
markets.
o Focus on high value-added environmental services
We intend to focus on providing high value-added environmental
services and to limit our exposure to low-margin commodity supply
businesses. This focus will also enable us better to take
advantage of our core strength: our ability to provide creative,
customized, integrated environmental services to clients with
large, geographically diverse and complex operations. In line
with our strategy to focus on our environmental services
business, we launched in 2001 a divestiture program for
non-strategic assets pursuant to which we generated proceeds of
(euro)1.7 billion in 2002. As part of this program in 2002, our
subsidiary USFilter sold all of its US distribution and points of
sale activities, through which it supplied materials relating to
gates, pipes and meters.
o Pursue a selective policy of acquisitions to expand our service
offerings and geographic reach
We intend to acquire environmental services-related companies
when the opportunity to do so on favorable terms arises. The
purpose of these acquisitions will be to expand the portfolio of
services we can offer clients and to extend our geographic reach.
In France, for example, Connex acquired Transports Verney in
2002, which operates in more than 30 departments throughout the
country. If we decide to pursue acquisition opportunities that
arise, we may decide to sell other activities in order to
re-balance our asset portfolio.
Our Services
We are a world leader in services related to the environment. We have
operations in over 100 countries on each of the five continents providing water
to over 110 million people, treating 47 million tons of waste and satisfying the
energy requirements of hundreds of thousands of buildings for our industrial,
municipal and individual customers.
We believe that we offer a more comprehensive array of environmental
services than any other company in the world. We have the expertise, for
example, to supply water to and recycle wastewater in a customer's facility,
collect, treat and recover waste generated in the facility, supply heating and
cooling services and optimize industrial processes used in the facility, all in
an integrated service package designed to address the customer's unique
circumstances.
Our operations are conducted primarily through four subsidiaries, each
of which specializes in a single business segment: Vivendi Water (for water),
Dalkia (for energy services), Onyx (for waste management) and Connex (for
transportation). We also have a 49% interest in, and shared control over, the
holding company that controls FCC, a Spanish group that operates in the
construction industry and provides a range of environmental-related services.
Although our divisions operate independently from one another, they are
capable of proposing an integrated service offering. For example, in 2002 BP
renewed its trust in our company by awarding us a contract (in partnership with
Air Liquide) for the complete management of its thermoelectric heating facility
at its Lavera factory, where Connex has provided a complete package of
logistical services since 1987 and Vivendi Water operates the facility's water
treatment units. We also won a significant number of outsourcing contracts with
Arcelor in 2002 that require services from each of our four divisions in France,
including a 7-year contract to provide energy production, water treatment and
waste management services at its Montataire site and a 15 year outsourcing
contract for water services and steam production at its Florange site. In
addition, we entered into a worldwide partnership with the Accor group, which
allows us to secure our position as the favored supplier of an extensive range
of services to the Accor hotels, including heating, air conditioning, selective
waste collection and removal, water systems management and maintenance and
transportation of guests and personnel. We study experimental applications to
better preserve the environment at new sites, including, for example, the
desalination of sea water and the use of renewable energy or clean fuels.
Finally, our water and waste management divisions cooperate closely in
connection with our large industrial clients in the United States in the context
of "Operation Synergy." As a result of the close collaboration between our
company and one of the leading pharmaceuticals companies in the world, Onyx won
a contract in 2002 to provide waste management services at a majority of this
company's industrial sites.
The following table shows the contribution of selected geographic
markets to our revenue by division and to our consolidated revenue for 2002,
after elimination of all inter-company transactions:
Energy
((euro)billions) Water Waste Services Transport FCC(1) Total %
------ -------- ------ -------- ------ -------- ------
Europe 8.5 4.0 4.5 3.2 2.5 22.7 75%
of which France 6.2 2.5 3.0 1.3 -- 13.0 43%
Americas 3.7 1.6 n.m 0.1 0.2 5.6 19%
Rest of the World 1.1 0.5 0.1 0.1 -- 1.8 6%
of which:
Africa-Middle East
0.5 0.1 n.m n.m. -- 0.6 2%
Asia-Pacific 0.6 0.4 n.m 0.1 -- 1.1 4%
--------- --------- --------- --------- --------- --------- -------
Total 13.3 6.1 4.6 3.4 2.7 30.1 100%
========= ========= ========= ========= ========= ========= =======
in % 44% 20% 15% 12% 9% 100%
----------------------------------
n.m. = Not Material.
(1) Figures reflect a 49% share of FCC's revenue. Under French GAAP, we
proportionally consolidate FCC based on our 49% interest in the holding company
that controls it. Under U.S. GAAP, FCC would be accounted for using the equity
method. See Note 27A to our consolidated financial statements.
Water
Vivendi Water, our main water services subsidiary, is the world's
leading provider of water services and one of the leading designers and
manufacturers of water treatment facilities, systems and standard equipment for
industrial, commercial and municipal customers in the world. With its 77,600
employees around the world (including 100% of the employees of companies that
are proportionally consolidated by our company and 50% of the employees in
Proactiva's water activities), Vivendi Water is present in approximately 100
countries and serves over 110 million people throughout the world under more
than 7,000 operating contracts. Vivendi Water's three principal subsidiaries are
Compagnie Generale des Eaux, which is the leading European water and wastewater
services company and has operations worldwide, United States Filter Corporation,
which is one of North America's leading water services and equipment company,
and Vivendi Water Systems, a designer and provider of water treatment systems
and standard equipment.
The following table shows the consolidated revenue and EBIT of our
water operations in each of the last three fiscal years, after elimination of
all inter-company transactions:
((euro)millions)(1) 2002 2001 2000(2)
-------- -------- --------
Revenue(3) 13,294 13,641 12,768
EBIT(4) 1,024 1,090 n.a.
------------------------
(1) Includes 100% of the results of the water activities of
Proactiva, our joint venture with FCC. Excluding the results of
Proactiva, revenue from our core water business would have been
(euro)11,143 million in 2002, (euro)10,770 million in 2001 and
(euro)12,541 million in 2000.
(2) Restated to reflect the changes in our accounting methods and
presentation of accounts in 2001. See "Item 5. Operating and
Financial Review and Prospects-- Overview-- Presentation of
Information in this Section-- Changes In Accounting Methods and
Presentation of Accounts."
(3) Excluding revenue from our non-core water businesses, revenue
from our core water businesses amounted to (euro)11,027 million
in 2001 and (euro)11,288 million in 2002. Revenue from our
non-core water businesses amounted to (euro)2,614 million in 2001
and (euro)2,006 million in 2002. See "Item 5. Operating and
Financial Review and Prospects -- Overview -- Presentation of
Information in this Section -- Historical and Comparable
Information" for a discussion of the scope of our core and
non-core businesses. (4) EBIT from our core water businesses
amounted to (euro)875 million in 2001 and (euro)900 million in
2002. See "Item 5. Operating and Financial Review and Prospects
-- Overview -- Presentation of Information in this Section --
Historical and Comparable Information" for a discussion of the
scope of our core and non-core businesses.
Vivendi Water manages a large number of municipal water and wastewater
services around the world, including, in France, Paris (right bank) and its
suburbs, Lyon and Marseilles, and in the rest of the world, Berlin (Germany),
London's north suburbs (U.K.), Budapest (Hungary), Prague (Czech Republic),
Bucharest (Romania), Adelaide (Australia), Indianapolis (U.S.), Pudong (a
district of Shanghai) and Tianjin (China) and Libreville (Gabon). Vivendi Water
also has a number of important industrial clients, including General Motors,
Conoco, Hyundai, Danone, British Petroleum (BP), Renault and Arcelor. About
two-thirds of Vivendi Water's individual customers are in North America, with
the remainder located mainly in Europe.
Strategy
Our water division's strategy for its outsourced management activities
is to promote selective growth by leveraging our current position and obtaining
new key contracts. In the medium-term, Vivendi Water expects to refocus on
developed countries with well-controlled risk exposures. Despite increasing
competition in France, Vivendi Water intends to rely on the experience and
commercial dynamism of our teams to continue providing high level services with
the goal both to renew contracts nearing expiration and win new contracts for
public water and wastewater treatment services, as well as develop further the
services it offers to industrial and municipal customers. In continental Europe,
Vivendi Water seeks to consolidate its leadership by capitalizing on key
contracts won in the past three years, particularly in Berlin, Bucharest,
Budapest and Prague and by focusing on both municipal clients and industrial and
commercial companies. In the United States, after the implementation of the plan
to shift its strategic focus after the acquisition of USFilter, Vivendi Water
offers water services to industrial and public entities, targeting unregulated
activities where it is the uncontested leader with operations that are four
times larger than that of its nearest competitor. In Asia, Vivendi Water expects
to target opportunities in countries with strong growth potential, such as
China, South Korea and Japan, which it considers as crucial to the development
of its activities in the region.
In designing and building water treatment equipment and systems,
Vivendi Water seeks opportunities in newly opened markets as well as in the
operation of water services. Vivendi Water's strategy is to research and develop
synergies between equipment services and sales and design, construction and
outsourcing services. In the United States, where the current economic climate
is difficult, USFilter's Equipment & Systems division capitalizes on its
commercial resourcefulness and the performance of its technologies to maintain
its leading market positions. Our main water systems subsidiary, Vivendi Water
Systems, is close to completing the integration and restructuring of USFilter
International's subsidiaries and is pursuing a plan of selectivity to increase
its profitability. Vivendi Water Systems is positioning itself to offer design
and construction services and create both standardized and customized package
systems that meet the specific needs of certain industrial sectors or allows it
to offer municipal and industrial clients temporary or more long-term solutions
to their water quality problems.
Vivendi Water also provides services to individuals through Proxiserve
(a joint venture with Dalkia), Culligan and, more recently, Generale des Eaux
Services, a subsidiary of Compagnie Generale des Eaux, which offers services and
products in France that are not tied to public water services, such as
assistance and repair services and solutions for individual environments.
Vivendi Water also continues to develop a complete range of high value-added
services to individuals and commercial enterprises.
Description of Activities
Municipal and Industrial Outsourcing
The main focus of our water business is on water and wastewater
management services for public authorities and industrial and commercial
customers. Vivendi Water provides integrated services that cover the entire
water cycle, from collection from natural sources and treatment to storage and
distribution to collection and treatment of waste water. Vivendi Water's
activities include the design, construction, management and operation of
large-scale, customized potable water plants, wastewater treatment and recycling
plants, potable water distribution networks and wastewater collection networks.
It also provides water treatment services to end users.
Municipal Outsourcing
Vivendi Water and its subsidiaries have provided outsourced water
services to public authorities in France and in the rest of the world for 150
years under long-term contracts adapted to local environments. Vivendi Water
uses its experience, technology and know-how to capitalize on the worldwide
trend towards privatization of municipal water and wastewater services.
In France, Vivendi Water operates in over 8,000 municipalities in
France under the trade name "Generale des Eaux," where it distributes water to
approximately 26 million people and treats wastewater generated by approximately
17 million people. The market has become increasingly competitive as a growing
number of contracts are expiring, as new local and international competitors
enter the market and as certain municipalities decide to manage water services
internally. In 2002, Compagnie Generale des Eaux proved its competitive edge by
winning 43 new contracts, two thirds of which are for water treatment services.
Of its 256 contracts nearing expiration, Vivendi Water successfully renewed 217
of the 236 contracts that were re-offered through public tenders. The 39
contracts that were not renewed represented only 0.25% of revenue from our water
activities in France, which increased by 3% in 2002. The performance of our
water division also benefited from a notable increase in the public services
provided by Compagnie Generale des Eaux, including the maintenance of water
treatment networks, technical network assistance and research on leakages.
In Europe, Vivendi Water, already present in Great Britain, Germany and
Eastern Europe for a number of years, reinforced its leading market position in
providing services to municipalities by winning a number of significant
contracts. In the Netherlands, Vivendi Water was declared the winning bidder for
a contract in September 2002 to design, construct and operate wastewater
treatment plants in the city and region of The Hague for a 30-year period
(estimated total revenue of (euro)1.5 billion). This contract and related
agreements are expected to be finalized over the course of 2003. In October
2002, it extended from 13 to 28 years a contract won in 2001 for the city of
Prague (1.2 million inhabitants) to treat and distribute potable water and
collect and treat wastewater. Vivendi Water also increased its stake in PVK
(Compagnie des Eaux de Prague) from 66% to 100%.
In Asia, which we consider a focus of strategic expansion, Vivendi
Water has operations in Malaysia, South Korea, Thailand and, in particular,
China. In May 2002, Vivendi Water won an international public bid to manage
water services in Pudong, the business district of Shanghai, for a period of 50
years (estimated total revenue of (euro)10 billion, of which (euro)5 billion is
attributable to Vivendi Water based on its interest in the operator). Pudong is
one of the main commercial and financial centers in Asia and currently has
nearly 1.9 million inhabitants. In November and December 2002, Vivendi Water won
two outsourcing contracts for water management in the cities of Baoji and Zhuhai
in China. The 23-year Baoji contract involves the rehabilitation, extension and
operation of two potable water treatment facilities that serve 500,000
inhabitants (estimated total revenue of (euro)300 million). Under the Zhuhai
contract (1,2 million inhabitants), our first water treatment contract in China,
Vivendi Water will operate for 30 years two wastewater treatment facilities, one
of which already exists and one which must be built (estimated total revenue of
(euro)400 million).
In the United States, where USFilter sold various non-core businesses
to refocus on providing water services and reinforce its leadership in the water
equipment and systems market, Vivendi Water is continuing to develop its
activities in the unregulated municipal market by winning several significant
contracts. In March 2002, USFilter won a 20-year contract to manage the
municipal water services of the city of Indianapolis, which is the largest-ever
outsourcing contract for municipal water services in the United States, with
estimated total revenue of US $1.5 billion. Under this contract, USFilter will
operate and maintain the city's potable water services, which serve 1.1 million
residents, and will rehabilitate related infrastructure and provide
client-relations services. In August 2002, USFilter signed a long-term contract
with the city of Atlanta to upgrade and manage a program to treat sludge issued
by the city's wastewater facilities (estimated total revenue of US $200
million). In May 2002, USFilter won a 20-year contract to treat wastewater in
Richmond, California (estimated total revenue of US $60 million) and in November
2002, USFilter renewed its wastewater management contract with Oklahoma City for
five years (estimated total revenue of US $36 million).
In North Africa, in October 2002 Vivendi Water took over an outsourcing
contract to provide water, wastewater treatment and electricity services for 26
years in the Rabat-Sale region of Morocco (2 million inhabitants), with
estimated total revenue of (euro)4.6 billion.
Industrial Outsourcing
Vivendi Water's outsourcing contracts with industrial and commercial
customers generally last three to ten years, but some last as long as 20 years.
Vivendi Water's industrial outsourcing activities grew in 2002.
In France, Vivendi Water won several important contracts. In the paper
sector, Smurfit Cellulose du Pin chose Vivendi Water in January 2002 to treat
industrial effluents for 12 years at its kraft paper factory in Facture/Biganos,
the Gironde region, which is one of the largest paper factories in Europe, and
to construct a new biological treatment station (estimated total revenue of
(euro)11 million). In the chemicals sector, Vivendi Water signed an agreement
with Rhodia in July 2002 to manage and improve a wastewater treatment plant at
its Saint-Fons site near Lyon for a 5-year period. This plant also treats
wastewater from CIBA's site and another Rhodia site located in Belle Etoile
(with estimated total revenue of (euro)6 million). In the steel manufacturing
sector, Vivendi Water signed a 15-year contract in March 2002 with Arcelor
Packaging to treat effluents at its Florange site in Moselle (estimated total
revenue of (euro)27 million). In the food processing sector, Vivendi Water
signed a number of contracts with, among others, LU, LDC, Laurent Perrier,
Stalaven and Saupiquet.
In Europe, in December 2002 Vivendi Water expanded the scope of its
relationship with Cutisin, one of the most important companies in the Czech
Republic, to provide complete water services to its subsidiary in Jilemnica for
10 years, with estimated total revenue of (euro)5 million.
In Malaysia, Vivendi Water signed in August 2002 an important
outsourcing contract with the Petronas oil group to provide water treatment and
distribution services at the Kerith petrochemical complex for a 20-year period
(estimated total revenue of (euro)200 million).
In the United States, USFilter signed a 20-year contract with Alon in
April 2002 to outsource its water and wastewater treatment services at its Big
Spring refinery in Texas (estimated total revenue of almost US $66 million).
Water Treatment Design, Construction, Equipment and Systems
Through United States Filter Corporation and Vivendi Water Systems,
Vivendi Water is one of the world's leading designers and manufacturers of water
and wastewater treatment equipment and systems for public authorities and
private companies. Vivendi Water treats ground water, surface water and
wastewater using a wide range of separation processes and technologies and it
engineers customized systems to reduce or eliminate water impurities. Vivendi
Water's recycle/re-use systems provide customers with the ability to circulate
treated water back into plant processes, thereby reducing water usage, operating
costs and environmental damage.
Vivendi Water also designs, engineers, manufactures, installs, operates
and manages standardized and semi-standardized water equipment and systems
designed to treat water for particular public service and commercial and
industrial uses. Vivendi Water builds and operates a large number of
installations, which gives it a competitive advantage in terms of cost,
performance and reliability, especially for services to commercial and
industrial firms. For example, many manufacturing processes-particularly those
used in the food and beverage, pharmaceutical, microelectronics, paper, chemical
processing and oil/petrochemical industries-require treated water to improve
product quality and reduce equipment degradation. Vivendi Water uses a broad
range of physical, biological and chemical treatment technologies that can be
combined and configured to treat water to a customer's individual
specifications.
Through SADE, Vivendi Water also designs, builds, renovates and
rehabilitates urban and industrial potable water and wastewater treatment
networks and conducts related work in France and around the world. SADE
intervenes at each stage of the water cycle, from its collection to its release,
and its public and industrial customers benefit from SADE's expertise in this
domain.
Revenue from Vivendi Water's systems and equipment business declined in
2002 as a result of the global economic environment, an increasingly selective
policy on investments and the divestment of non-core businesses, despite the
fact that it won several important contracts during this period.
Municipalities
In France, Vivendi Water Systems signed a major contract in October
2002 to modernize the wastewater treatment plant in Acheres Seine Aval in the
Yvelines region, which treats a large portion of the wastewater in the Paris
area (estimated total revenue of (euro)390 million).
Outside France, Vivendi Water Systems will design and build the
installations related to the outsourcing contracts won in The Hague
(Netherlands), Baoji and Zhuhai (China) and Ashkelon (Israel). In Ashkelon, in
particular, the initial capacity of the factory already under construction will
be doubled. In addition, Vivendi Water Systems won a number of other important
contracts in 2002, including, for example, a contract to construct a water
station in Machala, Ecuador, with estimated total revenue of (euro)16.2 million.
Despite a challenging economic environment in the United States,
USFilter was awarded a significant number of equipment contracts by
municipalities, including, for example, a contract with Orange County,
California, to install the largest micro filtration station in the world, which
will treat the county's wastewater for purposes of re-injecting it into the
aquifer and prevent the infiltration of seawater (estimated revenue of US $25
million).
SADE also won a significant number of contracts to construct and
renovate water networks for municipalities in France and elsewhere.
Industrial and Commercial Customers
In France, Vivendi Water Systems will design and construct
installations under several industrial outsourcing contracts won by Vivendi
Water, including the agreement with Smurfit and LDC to build biological
treatment stations. SADE also signed several contracts to reinforce water
treatment networks and protect industrial sites from fire.
In addition, Vivendi Water Systems won a number of contracts with
industrial and commercial companies around the world. Among the most significant
agreements, Celluloso Aranco y Constitucion SA selected Aquaflow-Vivendi Water
Systems to design and implement solutions to manage the water cycle at the
future factory in the Cruse Rivers Valley, Chile (estimated revenue of (euro)4
million), and TyskieE, an important Polish brewery that belongs to the South
African Breweries group, chose Vivendi Water Systems to construct its treatment
station (estimated revenue of (euro)5.8 million).
Despite difficult economic conditions in North America, USFilter won a
number of treatment equipment and systems contracts, including a contract to
build and install a demineralization system at the Genespee Power Station in
Canada and, in May 2002, a contract to build and install a salt crystallization
system for Saltville Gas Storage Co. in Virginia.
Services to Individuals
Through USFilter, Vivendi Water supplies bottled drinking water to
North American and European consumers under the "Culligan" brand, as well as a
variety of water treatment products, including, for example, water softeners and
filtration systems. Vivendi Water's distribution network for Culligan products
and services consists of more than 1,200 suppliers, of which 75% are located in
North America and the rest principally in Europe. Vivendi Water also markets
water filtration systems under the brand name "Everpure" through 50,000
suppliers throughout the world, which are used by 1.5 million food service
companies and restaurateurs. Culligan constantly develops new channels to market
its products through department and retail stores and its bottled drinking water
through supermarkets. In 2002, revenue from these products recorded strong
growth due to an increase in sales of bottled drinking water in North America
and elsewhere.
In France, Vivendi Water offers a complete array of services to
individuals through Proxiservice, a joint venture between Vivendi Water and
Dalkia, which offers household technical services (including the distribution of
utilities, maintenance of plumbing and heating and air conditioning systems and
other maintenance services) and through Generale des Eaux Services, which
provides services and products that are not related to municipal water services
to individuals and commercial enterprises (including assistance and repair
services and solutions for individual environments).
Acquisitions and Divestitures in 2002
In 2002, Vivendi Water continued to implement the policy adopted in
2000 to refocus its operations on its core water businesses. Vivendi Water's
divestments worldwide represented (euro)1.5 billion in 2002.
In the United States, Vivendi Water sold the rest of USFilter's
Filtration & Separation business (which specializes in filtration and separation
technologies with non-water-based industrial applications), all of USFilter's
distribution and points of sale activities (supplying gates, pipes and meters)
in the United States and a peripheral subsidiary of Culligan, Plymouth Products.
Vivendi Water also sold its 17% interest in Philadelphia Suburban Corporation, a
company that operates in the regulated water sector.
In Europe, Vivendi Water sold its minority stakes in two British water
distribution companies (a 24.1% interest in Bristol Water Holding and a 31.7%
interest in South Staffordshire) and in SVZ, a peripheral incineration
subsidiary of BWB, the water services operator in Berlin, for an aggregate
amount of (euro)168 million. In France, Vivendi Water sold a significant part of
its interest in Bonna Sabla, a cement products manufacturer that operates
primarily in the public works sector, for (euro)87 million. Vivendi Water still
holds a 19.85% interest in Bonna Sabla.
Waste Management
Onyx, our main waste management subsidiary, is the second largest waste
management company in the world and one of the global leaders in hazardous
industrial waste management. With its 73,300 employees around the world
(including 100% of the employees of companies that are proportionally
consolidated by our company and 50% of the employees in Proactiva's waste
management activities), Onyx operates in all segments of the solid, liquid and
hazardous waste management business, serving municipalities and industrial
clients on each continent. Providing services along the entire waste management
chain, Onyx collects, transfers and treats waste in centers devoted to sorting,
composting, energy production or storing, before recovering the waste by
producing recycled materials, energy, heat and compost.
Present in 49 countries in all continents, Onyx has expanded the range
of its services in the past several years, adapting its offerings to the
specific needs of the market and focusing in particular on the outsourcing of
environmental management services. Onyx is very active in "traditional" waste
management activities (collection, treatment and recovery) as well as in
"related" services such as urban, commercial and industrial cleaning and
recovery and treatment of land in abandoned industrial sites.
The following table shows the consolidated revenue and EBIT of our
waste management operations in each of the last three fiscal years, after
elimination of all inter-company transactions:
((euro)millions)(1) 2002 2001 2000(2)
-------- -------- --------
Revenue 6,139 5,914 5,260
EBIT 385 391 n.a.
-----------------------
(1) Includes 100% of the results of the waste management
activities of Proactiva, our joint venture with FCC.
Excluding the results of Proactiva, our revenue would have
been (euro)5,966 million in 2002, (euro)5,686 million in
2001 and (euro)5,047 million in 2000.
(2) Restated to reflect the changes in our accounting methods
and presentation of accounts in 2001. See "Item 5. Operating
and Financial Review and Prospects-- Overview-- Presentation
of Information in this Section-- Changes In Accounting
Methods and Presentation of Accounts."
Onyx provides waste management services to 272,000 industrial and
commercial clients and, through its municipal contracts, serves almost 76
million people.
Onyx's specialization in waste management allows it to apply its
outstanding technological capability to the outsourced management of public
services for local communities and to offer customized solutions to large and
small and mid-sized industrial and commercial clients' environmental challenges.
Onyx offers a comprehensive range of services to its industrial customers, which
can outsource all of their waste management needs to a single provider and
concentrate on their core businesses and realize economies of scale. Onyx also
customizes its service offerings to industrial and commercial customers
according to their sectors of activities, including chemicals, food processing,
automobile, electronic, pharmaceutical, metallurgical, paper, oil, health,
distribution and retail sectors.
Because it has operations around the world and offers services that are
adapted to local conditions and regulations, Onyx has become a major global
player in the treatment of hazardous waste. In addition, Onyx offers a number of
recycling services, including cardboard and glass, and is developing all of the
other main recycling services, including textiles, scrap iron, metals, plastics,
electric and electronics equipment, recoverable wood and construction site
waste, oil waste products, cinders, tires and solvents.
The duration of Onyx's waste management contracts usually depends upon
the nature of the services provided, applicable local regulations and the level
of capital expenditure required under the contract. Collection contracts usually
last from three to five years. The length of treatment contracts ranges from one
year for operations in landfills that Onyx owns to up to 30 years for contracts
involving the construction, financing and operation of new waste treatment
facilities. Collection contracts with industrial and commercial customers
typically last one to three years, while treatment contracts with these
customers last an average of five years.
Strategy
Onyx's main goals are to:
o develop its waste treatment capabilities,
o strengthen its offering to industrial clients by
capitalizing on its expertise throughout the complete waste
management chain and its ability to generate synergies with
our other operating divisions,
o consolidate its international network,
o increase the profitability of its activities by integrating
the evolution of the cost structure of its activities, and
o widen its technological lead in waste treatment and
recovery.
Description of Activities
Our core waste management activities are the collection, treatment and
recovery of household, commercial and industrial waste. We divide these
activities into two main categories: waste collection and related services and
waste treatment and recovery.
Waste Collection and Related Services
Collection and Transfer
Onyx collected approximately 35 million tons of waste from individuals,
municipalities and industrial and commercial sites in 2002, compared to 31.5
million tons in 2001. Onyx provided waste collection services to more than 63
million people around the world in 2002.
Onyx also collects hazardous waste for its industrial and commercial
customers. Onyx collected approximately 1.7 million tons of hazardous waste in
2002. Onyx also offers its industrial and commercial clients a range of services
related to the collection of hazardous waste, such as preliminary studies of
future waste collection needs and waste tracking after collection.
Onyx transports collected waste to transfer and sorting stations, where
it is separated by type and then sorted before being sent to an adapted
treatment center. Hazardous waste is usually transported to specialized
physico-chemical treatment centers, recycling units, special industrial waste
incineration units or storage centers designed to receive hazardous waste.
Urban Cleaning and Maintenance of Public Spaces
Onyx provides urban cleaning services in a large number of cities
throughout the world, including London (U.K.), Paris (France), Alexandria
(Egypt), Rabat (Morocco), Singapore and Chennai (China). Onyx's services include
mechanized street cleaning, treatment of building facades to eliminate graffiti
and other markings and treatment and deep-cleaning of surfaces to remove paint,
solvents, oil, chewing gum and other items. Onyx has developed a range of
sophisticated mechanized cleaning equipment to ensure the quality and efficiency
of our services.
Liquid Waste Management and Draining and Maintenance of Potable Water
Networks
Through its subsidiary SARP, Onyx provides liquid waste management
services that consist primarily of pumping and transporting liquids related to
sewer networks and oil residues to treatment centers. Onyx also provides pumping
and transportation services to industrial and commercial companies on short
notice following accidents and other incidents involving liquid waste. Onyx has
developed liquid waste management procedures that emphasize environmental
protection, such as the on-site collection, recycling and reuse of water during
the provision of its liquid waste management services. SARP also collects
untreated oil residues, which present a hazard to the environment if released
into water systems, and delivers them to SARP Industries, an Onyx subsidiary
that specializes in hazardous waste management, for treatment and recovery,
which evidences the complementarity of Onyx's different activities.
Commercial and Industrial Cleaning
Onyx provides cleaning services to its industrial and commercial
clients' installations, including cleaning of offices and sites and maintenance
of production lines. In the commercial sector, we provide these services mainly
in train stations, subway networks, airports, museums and commercial centers,
where cleanliness is associated with quality and security. In the industrial
sector, we provide these services principally in food processing plants and
heavy and high-tech industrial sites, where we offer specialized high or
extremely high pressure cleaning services, cryogenics and reservoir cleaning in
refineries and other petrochemical sites. We have recently received an ISO 9001
certification in recognition of the quality of our cleaning services at
food-processing plants, which operate under strict hygiene regulatory
requirements. Onyx has developed advanced technological cleaning systems,
including specialized robots, that enhance the quality of the cleaning services
offered, reduce the time required to complete cleaning operations and increase
the safety of employees. Onyx offers its commercial and industrial cleaning
services in most industrialized countries, including Germany, Australia, Canada,
the United States, France and Scandinavia. We have also developed emergency
services to treat the potential contamination of a site due to incidents or
accidents that occur at the facilities of our industrial customers.
Waste Treatment and Recovery
In 2002, Onyx treated 54 million tons of waste, compared with 47
million metric tons in 2001, at its sorting centers, composting units, hazardous
waste treatment units, incineration units and storage centers.
Sorting and Recycling
Our recycling activities generally involve the selective or separate
collection of paper, cardboard, glass, plastic, wood and metal that customers
either separate into different containers or mingle with other recyclable
materials. Our customers are increasingly separating different types of
recyclable waste into separate containers, which requires selective collection
services. Onyx received approximately 7 million tons of solid waste at its 220
sorting, recycling and transfer units in 2002 (compared to 184 units in 2001),
of which 4.6 million tons were recycled, including 2 million tons of paper. Onyx
also provides disassembly and recycling services for complex waste products at
specialized treatment centers, such as electric and electronic products and
fluorescent lamps. Onyx works in partnership with upstream industrial customers
and with its CREED research center in order to develop new recycling activities.
We sell recycled material to intermediaries or directly to industrial
and commercial clients. Onyx is one of the European leaders in recycling waste
paper and cardboard and has substantial waste paper recycling operations in the
United States. Sorting and recycling are also becoming larger components of the
environmental management services we provide to industrial and commercial
companies. We design and develop recycling systems that enable our industrial
and commercial customers to optimize their production chains by reusing certain
waste by-products generated in the manufacturing process, such as our glass
recycling system that enables electronic consumer products companies to reuse
glass waste in their tube production cycles after treatment at one of Onyx's
recycling centers.
Composting
Onyx and Vivendi Water work together to recover sludge from wastewater
treatment plants, which shows the synergies within our group. The quality of the
sludge product depends on the quality of the wastewater treatment procedure,
which conditions the composting process used. In 2002, Onyx recovered almost 2
million tons of urban and food processing sub-products and sludge produced by
Vivendi Water's wastewater treatment plants at its 99 composting units, compared
to 80 composting units in 2001. Somergie, a subsidiary jointly owned by Onyx and
the city of Metz, was awarded the European Ecolabel for its urban compost in
2002. In addition, Onyx launched in 2002 the "Biodiv" service for industrial
companies that generate vegetable waste, which includes specialized container
storage, frequent collection and on-site composting services, as well as the
tracking of waste throughout the cycle from collection to recovery. We offer
these services mainly to manufacturers, food processing companies and national
interest and distribution markets (including fruits, vegetables, flowers and
bread ).
Treatment and Recovery of Hazardous Waste
Through its specialized subsidiary SARP Industries, Onyx is one of the
world leaders in treating, recycling and recovering hazardous waste, with a
particularly strong presence in France, Hungary, Israel, Portugal, South America
and, through Onyx Environment Service, in the United States. Onyx provides
advisory services (engineering and customized solutions) and treatment and
recovery services adapted to each industrial sector and type of waste, such as
solvent and resin regeneration, hydrocarbon waste recovery, recycling of
batteries, fluorescent tubes and soiled packaging, and retrieval and recycling
of precious or rare metals.
With 53 units in 18 countries, Onyx treated 3.2 million tons of
hazardous waste in 2002, of which 975,000 tons were incinerated at its 21
special industrial waste incineration unites, 1.06 million tons were stored at
its 7 Class 1 storage centers, 1 million tons were treated in 36 units by
physico-chemical and stabilization processes and the remaining 160,000 tons were
recovered at its 32 specialized treatment centers. The principal methods used
for treating industrial hazardous waste are incineration (for organic liquid
waste, solvents, salt-water and sludge), solvent recycling, waste stabilization
followed by treatment in specially-designed landfills, and physico-chemical
treatment of inorganic liquid waste.
Waste-to-Energy and Incineration
Onyx treats approximately 8.4 million tons of non-hazardous solid waste
(consisting mainly of urban waste) per year at its 70 waste-to-energy recovery
and incineration plants. Energy is generated from the heat created by
incinerating waste at these plants. Onyx uses this energy to supply district
thermal networks or for sale to electricity providers. Waste-to-energy recovery
and incineration is often the recommended waste treatment solution in densely
populated areas where landfill space is scarce. Onyx continuously develops
innovative waste-to-energy procedures and techniques to broaden the range of
waste that may be converted into energy, optimize the production of energy and
operate in strict compliance with environmental regulations, including
restrictions on smoke and ash treatment processes.
Waste Storage and Waste-to-Energy Recovery of Biogas Emissions
Onyx treated approximately 33 million tons of non-hazardous solid waste
in 139 storage centers in 2002. Onyx has developed the expertise to treat waste
through methods that reduce emissions of liquid and gas pollutants and that
permit it to use its storage sites in compliance with the most stringent
environmental regulations. Onyx currently has 111 storage centers equipped to
retrieve and treat biogas emissions from the anaerobic fermentation of waste, of
which 29 centers have recovery systems to transform biogas emissions into
alternative energies.
Recovery of Polluted Sites and Land
Onyx has recently commenced leveraging its expertise in waste
management to provide treatment and related services for the recovery of land in
abandoned industrial sites where unmanaged waste treatment or industrial
accidents have resulted in high levels of contamination. Onyx's engineers
design, develop and implement treatment and recovery strategies on a
case-by-case basis for each industrial site.
Main Developments in 2002
As in 2001, Onyx focused in 2002 on consolidating its business in
France, Europe, the United States and Asia, while at the same time winning
several major contracts in these regions. Through Onyx, we won new contracts
with local municipalities that will generate significant revenue and reinforced
our industrial client base (272,000 industrial clients) despite difficult
economic conditions, particularly in Europe and the United States. Onyx
continued to grow in 2002, although at a slower pace than in 2001.
In France, our activities grew at a satisfying rate despite a
restrictive legislative environment that led to costly reorganizations as we
implemented the reduced 35-hour work week. One of our priorities in 2003 will be
to improve the profitability of Onyx's operations in France. Regarding services
to industrial customers, Onyx was selected by Sanofi Synthelabo to provide
global waste management services for 3 years at two research and development
sites in Toulouse and Labege (estimated total revenue of (euro)245,000) and
renewed its partnership with Renault for the cleaning and treatment of waste at
15 of Renault's industrial sites for 4 years (estimated total revenue of
approximately (euro)88 million). Onyx also signed a contract with Societe
Generale to provide cleaning services for 230,000 square meters of office space
at 18 sites in the Paris region and in Nantes (estimated total revenue of
(euro)1.8 million). In the retail distribution sector, Onyx renewed its main
contracts and increased its client portfolio by (euro)12 million in 2002 with
chains such as Auchan, Casino, Monoprix and Conforama. Onyx also obtained
several contracts with Exxon Mobil for waste collection and cleaning services.
In the chemical sector, Onyx won a contract to provide comprehensive waste
management services at Solvay's site in Dombasle (estimated total revenue of
(euro)1 million). Onyx also renewed a 3-year industrial cleaning and maintenance
contract with Sollac at its Fos-sur-Mer site (estimated annual revenue of
(euro)5 million). Through VALTECH, a subsidiary of Onyx that specializes in site
recovery, we were awarded the disassembly of the Renault site at Boulogne
Billancourt, where we treated 40,000 tons of land and 10,000 tons of concrete.
Regarding public authorities, Onyx won a 3-year contract to clean
tourist locations in Paris, including the Champs-Elysees, the Beaubourg
Esplanade and the area around Notre Dame cathedral. Onyx also obtained the
renewal of a 3-year contract to collect, transport and treat waste from 41
facilities of the Paris Hospitals in the Ile-de-France region (estimated annual
revenue of (euro)3.8 million), which may be extended for an additional 2 years,
and of a global waste management contract with the Marne Department to establish
a network of 5 transfer stations and a waste-to-energy platform for household
waste that will include a composting unit and a waste-to-energy unit outside of
Chalons-en-Champagne (estimated total revenue of approximately (euro)250
million). Onyx was chosen by Lens-Lievin and Henin-Carvin communal groups to
crush, transport by river and compost 40,000 tons of recyclable waste produced
each year by these municipal conglomerations and opened two new waste-to-energy
units to treat biogas emissions at the Boves site in Picardie and at the
Puy-Long site in Auverge. Onyx renewed contracts to operate the incineration
unit at Rungis for 16 years (estimated total revenue of (euro)50 million) and to
operate the Montchanin storage center in the Saone-et-Loire region. Onyx
commenced operating the waste-to-energy unit at Halluin in Picardie and won a
contract to collect waste and provide urban cleaning services in the downtown
area of Nimes (approximately 100,000 residents). Onyx also obtained the renewal
of contracts to operate the sorting and transfer center at Romainville, to
collect household and urban waste in several districts of Paris (estimated
annual revenue of approximately (euro)20 million) and to collect household waste
in Rennes and Nanterre and provide urban cleaning services in Nantes (270,000
residents). Finally, Onyx also obtained the extension of its contract to operate
the sorting center of Grenoble.
Through Renosol, Onyx also provides transportation cleaning services
and won 4 new contracts with air and rail transportation operators, including
the cleaning of 110 trains on the TGV Atlantic for 6 years (estimated total
revenue of (euro)45 million), the Rennes train station and the new Rennes subway
for 6 years (estimated total revenue of approximately (euro)3 million) and Air
France's airplanes at the Orly (Paris) airport for 3 years (estimated total
revenue of (euro)12 million). Onyx also won a contract to clean the Nice airport
facilities for 3 years and renewed for 6 years its contract to clean the TGV
Nord, the Thalys and the Eurostar high-speed trains (estimated total revenue of
(euro)54 million).
In Europe, we made major advances in the United Kingdom where Onyx's
subsidiary won a number of large contracts. Onyx considerably reinforced its
partnerships with the public sector and demonstrated its expertise in
establishing and developing integrated solutions by winning several majors
contracts. In October 2002, Onyx won a 7-year contract (to be signed in 2003) to
collect and recycle household and commercial waste for the city of Portsmouth
(estimated total revenue of approximately (euro)38 million), the 7-year renewal
of a contract to collect household and commercial waste and provide urban
cleaning services in the Westminster area of London (with 200,000 inhabitants
and 1 million visitors per day) (estimated total revenue of (euro)350 million)
and a 7-year contract beginning in April 2003 to collect household and
commercial waste and provide urban cleaning services in the central London area
of Camden (estimated total revenue of approximately (euro)190 million). In
November 2002, Onyx extended its contract with the County of Hampshire for a
5-year period, including the construction of three additional recycling centers
for household waste. Onyx won a 5-year contract with Royal Mint in the south of
Wales (one of production sites for euro coins) to treat liquid waste, install
containers, collect dry waste and remove hazardous waste and a contract to
collect solid waste for Chubb, an insurance company, in Birmingham for 12 years.
In Italy, Onyx won the most important European contract to decontaminate soil at
the site of the former Agip refinery in Rho near Milan, where we will treat more
than 240,000 tons of soil contaminated by hydrocarbons through heat desorption,
and commenced operations at its new Technoborgo waste-to-energy unit in
Piacenza, south of Milan, with an estimated annual treatment volume of 105,000
tons. In Poland, Onyx renewed for 3 years its contract to provide snow removal
services in the city of Kielce.
In the Middle East, Onyx provides comprehensive waste management
services in Alexandria, Egypt (3.5 million residents), since October 2001,
including the collection and treatment of 2,500 tons of household waste each
day. In addition, Onyx will secure old landfills, develop an existing waste
storage center, build a waste transfer station and provide urban cleaning
services. This contract also provides for training of local personnel and a
campaign to heighten public awareness of urban hygiene issues.
In Asia, we met our expectations for development in these new markets,
where we are present in 11 countries. In Singapore, a city with some of the most
stringent environmental standards in the world, Onyx expanded its 2001 waste
management collection contract with the community of Tanglin Bukit-Merah to
provide urban cleaning services in the city center, including mechanized
sweeping of streets and sidewalks, cleaning of commercial zones, purification
networks and beaches as well as waste removal from public trash cans, for a
period of 5 years (estimated total revenue of (euro)45 million). In China, Onyx
won an 8-year contract to design and operate the household waste storage center
in Canton (Guangzhou), which will have a total capacity of 20 million cubic
meters by the end of 2003 (estimated total revenue of (euro)37 million). This
contract is the first of its kind won by a foreign company in China, and this
new site will not only meet the most stringent international regulatory
standards, but will also illustrate Onyx's know-how in Asia. As a result of the
experience acquired over the past few years in China through the development of
storage centers, biogas waste-to-energy services and industrial hazardous waste
treatment, Onyx has established the strategic platform necessary to continue to
grow in Asia. In particular, Onyx has reinforced its position during the past
two years by winning new contracts in Hong Kong, mainland China, Taiwan and
India.
In North America, which is the most important market in the world and
where Onyx generates nearly a quarter of its revenue, Onyx continues to expand
its operations progressively by winning a number of important global waste
management contracts, particularly in the automobile industry, where Ford Motors
awarded Onyx several important global waste management contracts for its sites
in Atlanta, Memphis, Dearborn and Livonia for a 3-year period. In addition, Onyx
won a national 5-year contract with Chevron Phillips Chemical to provide
industrial cleaning services and contracts to collect and recycle municipal
waste in Highland Park (estimated annual revenue of US $2.6 million) and Saint
Charles (estimated annual revenue of US $1.4 million), in Illinois. Onyx also
won an outsourcing contract to operate a waste-to-energy unit in Savannah,
Georgia, for 6 years (estimated total revenue of approximately (euro)42 million)
and another waste-to-energy unit in Charleston, South Carolina, for 7 years.
Finally, Onyx won contracts to restore the wastewater treatment networks of
Toronto, Ottawa and Saint-Thomas (Ontario) in Canada.
In the rest of the world, Onyx won or commenced operations under a
number of contracts in 2002. For example, Onyx provided urban cleaning services
for the first full year under its contract with the city of Rabat-Hassan in
Morocco for a period of 6 years (estimated annual revenue of (euro)2.6 million).
Onyx also won a 7-year waste management contract with the city of Oujda,
Morocco, which has 410,000 residents and generates 110,000 tons of waste per
year (estimated annual revenue of (euro)2.7 million). In South Africa, a
consortium formed by Onyx, Anglo Platinum and Zimelec took over the operation of
a waste storage center for the platinum factory in Rustenburg, which is located
to the northwest of Johannesburg. In Australia, Onyx signed a 3-year contract
with Boral Limited to treat industrial waste at 670 sites around the country
(estimated total revenue of (euro)10 million) and acquired Vactech. In New
Zealand, Onyx won a contract to manage the municipal waste storage center Poirua
for a 5-year period (estimated annual revenue of (euro)400,000), a 3-year
contract to provide urban cleaning services in the city of Waitakere, in the
Auckland region (estimated annual revenue of (euro)500,000) and a contract with
ABI Group to provide the cleaning services of the city of Auckland (estimated
annual revenue of (euro)450,000).
Acquisitions and Divestitures in 2002
In France, Onyx focused on the reorganization of its activities by
region and the rationalization of its operations in 2002. Outside France, Onyx
implemented a similar reorganization by geographic zones. Despite these
reorganizations, there were no major overall changes in Onyx's scope of
consolidation between 2001 and 2002.
In 2002, Onyx integrated 52 companies into its group, of which 15
companies were located in France, 8 companies in Norway, 9 companies in North
America, 8 companies in the rest of Europe (Poland, Spain, Portugal Italy,
Hungary, Germany, United Kingdom and Czech Republic), 2 companies in South
America, 8 companies in Australia and 2 companies in Asia. At the same time,
Onyx ceased consolidating 39 companies of its group in 2002, of which 23
companies were merged and the remaining 16 were sold, dissolved or liquidated.
In total, Onyx's group included 602 companies in 2002 (compared to 566 companies
in 2001), of which 524 companies were fully consolidated, 31 companies were
proportionally consolidated and 47 companies were accounted for by the equity
method.
Energy Services
Dalkia, our main energy services subsidiary, is the leading European
provider of "services associated with energy" to companies and municipalities,
according to a study by Credit Suisse First Boston. Dalkia provides energy and
environmental optimization solutions, including services relating to heating and
cooling networks, thermal and multi-technical systems, industrial utilities,
installation and maintenance of production equipment and integrated facilities
management. The broad range of services offered by Dalkia allows its clients to
optimize the energy chain from production to systems operation or equipment
maintenance. Dalkia also offers public electricity services through its
subsidiary Citelum and services to individuals through Proxiserve, a subsidiary
jointly owned by Dalkia and Vivendi Water. Present in 32 countries, Dalkia
offers a very extensive geographical coverage in Europe and the strength of its
international network allows it to accompany its customers around the world and
offer them services of the same quality through local teams. Dalkia has almost
40,100 employees around the world (including 100% of the employees of companies
that are proportionally consolidated by our company).
Dalkia is partly owned by EDF, which holds 34% of its share capital and
with whom Dalkia is developing joint international offerings for international
customers and eligible clients in France (i.e., those consuming more than 7
gigawatts of electricity per year). Under an agreement entered into in December
2000, we have agreed that EDF's stake in Dalkia will eventually rise to 50% at a
price based on Dalkia's market value as the market deregulation process
continues and the current limitations on EDF's ability to provide energy
services are further removed. Dalkia's French operations are conducted through
Dalkia France, a wholly-owned subsidiary of Dalkia. Outside France, Dalkia
conducts its activities through Dalkia International, for which it holds a 76%
interest and EDF holds the remaining 24%.
The following table shows the consolidated revenue and EBIT of our
energy services operations in each of the last three fiscal years, after
elimination of all inter-company transactions:
((euro)millions) 2002 2001 2000(1)
-------- -------- --------
Revenue 4,571 4,017 2,988
EBIT 244 221 n.a.
--------------------
(1) Restated to reflect the changes in our accounting methods
and presentation of accounts in 2001. See "Item 5. Operating
and Financial Review and Prospects-- Overview-- Presentation
of Information in this Section-- Changes In Accounting
Methods and Presentation of Accounts."
Dalkia provides energy management services to public and private
clients with whom it has formed long-term partnerships. Its core activity
focuses on optimal energy management. To respond to clients' needs for
increasingly complete and integrated services, Dalkia has progressively
established a range of activities linked to energy management, including heating
and cooling systems, thermal and multi-technical services, industrial utilities,
installation and maintenance of production equipment, integrated facilities
management and electrical services on public streets and roads.
Dalkia's contracts to operate urban heating systems are typically
long-term, lasting up to 25 or 30 years, while its contracts to operate thermal
and multi-technical installations for public or private clients may last up to
16 years. Contracts to provide industrial utilities services generally have
shorter terms, while contracts in the facilities management sector generally
last 3 to 5 years.
Dalkia offers innovative multi-energy and management solutions to
ensure cost effectiveness, reliability and environmental protection. When
practicable, Dalkia uses renewable energy and alternative energy sources such as
geothermal energy, biomass (organic material), heat recovered from household
waste incineration, "process" heat (heat produced by industrial processes) and
thermal energy produced by co-generation projects.
Dalkia is one of the French leaders in co-generation and on-site energy
generation. Co-generation involves the simultaneous production of heat and
electricity, which optimizes the efficiency and profitability of Dalkia's
customers' installations. French law requires the operators of the electricity
distribution network to purchase at specified rates energy produced by
co-generation installations with a capacity not exceeding 12 MW of electricity.
Dalkia's total electric power production capacity (including co-generation
facilities, peaking plants and stand-by generating units) is 3,900 MW in Europe.
Strategy
Dalkia's strategic priorities are to:
o adapt its service offerings in light of the deregulation of
European energy markets by developing integrated services in the
areas of gas and electricity consumption,
o develop its heating systems management activities, particularly
in Central and Eastern Europe, without excluding possible
opportunities in Asia, particularly in China, Japan and South
Korea,
o develop its service offerings to industrial clients, including
utilities management and process maintenance, in coordination
with our company's other divisions in respect of all of its
customers and with EDF in respect of eligible customers in France
and elsewhere, and
o develop and broaden its facilities management service offerings
to industrial and commercial customers.
Description of Activities
In 2002, we began work under several contracts concluded in 2001,
particularly those won in the Baltic states, and signed a number of new
contracts.
In the European market, Dalkia's activities benefit from three strong
trends: the increase in environmental concerns, the opening of energy markets as
Dalkia's clients consider possible opportunities in the field, and a growing
willingness by industrial clients to outsource activities unrelated to their
business.
Heating and Cooling Networks
Dalkia is one of Europe's leading operators of large "district" heating
and cooling networks. Dalkia currently manages 300 district heating networks in
the world, particularly in France, the United Kingdom, Italy, Germany, Eastern
and Central Europe and the Baltic states. In district systems, thermal energy is
generally distributed through pipes to users in dispersed locations. Dalkia does
not ordinarily own the networks it operates. Rather, in most cases, public
authorities own the networks and delegate to Dalkia the responsibility of
building, managing, maintaining and repairing them. The networks operated by
Dalkia provide heating and cooling to a wide variety of public and private
facilities, including schools, hospitals, office buildings and residences.
In France in 2002, Dalkia renewed its concession contract to operate
the heating system for the ZUP in Mons-en-Barouel (North) for 25 years
(estimated annual revenue of (euro)5.1 million), where it will install a
co-generation unit with a generation capacity of 7 thermal MW related to this
network. Dalkia also signed a 20-year contract with the city of Falaise in the
Calvados region to create and operate a wood-based heating system with a
generation capacity of 5MW (estimated annual revenue of (euro)411,000).
In Europe in 2002, Dalkia won a contract with Ostrava in the Czech
Republic to take over ZTO, the city's heat distribution company with revenue of
(euro)43 million in 2001, for approximately (euro)19.1 million. With 315 steam
boilers, 160 kilometers of network and 233 substations, ZTO distributes heat to
84,000 residences and 900,000 cubic meters of commercial buildings. Following
the acquisition of two co-generation centers in Usti Nad Labem in October 2001,
Dalkia is the largest independent producer of heat and the second largest
independent producer of electricity in the Czech Republic, according to Bohemia
Invicta, a Czech industry association. In addition, following the award to
Dalkia of a contract to operate starting in April 2002 the heating system in
Vilnius, Lithuania, Dalkia is one of the largest private operators of district
heating networks in Central and Eastern Europe and the Baltic states. In Poland,
Dalkia acquired 61% of PEC Poznan, the operator of the district heating system
of the city of Poznan, which makes it one of the leaders in the Polish market.
Energy Management
Energy management consists of operating heating, sanitary hot water and
air conditioning systems to provide comfortable living and working environments,
as well as the improvement of the operation of existing systems to optimize
their efficiency. Dalkia provides integrated energy services, which generally
include system construction and improvement, energy supply, system management
and maintenance, to public and industrial and commercial customers. Through this
activity, which represents Dalkia's core business, Dalkia provides customers a
large range of technical services and manages 70,000 systems generating 75,000
MW of thermal heat throughout the world.
In France in 2002, Dalkia renewed its contract with the Paris building
and construction authority (OPAC) to provide energy management services in its
buildings for five years, which now also includes prevention measures relating
to the risk of development of the legionella bacteria (estimated annual revenue
of (euro)2.9 million). In addition, the Centre Hospitalier Caborit in Poitier
selected Dalkia to manage its energy systems for 8 years (estimated annual
revenue of (euro)355,000), and Dalkia inaugurated in September 2002 the new
boiler room at the Villiers Saint Denis Hospital in Aisne, which is Dalkia's
oldest client and which awarded Dalkia its first energy management contract in
1937.
In Europe, Dalkia won a 10-year contract to provide energy management
services to public buildings in Csenger in northeast Hungary and to take control
over 30 dependent sites in the Vas Meyge department of Hungary, including the
department hospital (estimated annual revenue of (euro)2 million). In Italy,
Dalkia won contracts to provide energy management services to the hospitals of
Parma, Naples, Friuli, Garda, Triestina, Navora, Vercelli and Genoa.
In Asia, Dalkia won a 3-year contract to provide energy management
services to the city of Seoul, South Korea.
Industrial Utilities
Dalkia has become a leading provider of industrial utilities services
in France and the United Kingdom, and has developed expertise in the analysis of
industrial processes, productivity enhancement and the operation, maintenance
and servicing of equipment. Industrial utilities services generated 29% of
Dalkia's revenue in 2002.
In France in 2002, Dalkia won a 7-year contract to produce steam for
the Vico factory situated in Vicq-sur-Aisne, representing estimated annual
revenue of (euro)2.5 million. The Papeterie Lucart in la Riviere de Corps (Aube)
awarded Dalkia a 5-year multi-services management contract for a new paper
factory, representing estimated annual revenue of (euro)1 million. In 2002,
Dalkia also won a contract to manage industrial utilities as an extension of a
contract to manage the co-generation of BP in Lavera for 12 years (estimated
annual revenue of (euro)4.4 million) and a multi-services maintenance contract
with Naphtachimie, a subsidiary owned jointly by BP and Atofina, for 3 years
(estimated annual revenue of (euro)2.2 million). Finally, Dalkia won two 7-year
industrial contracts in Bousbecque (North), the first with the paper-maker
Ahlstrom and the second with Dalle Hygiene Production, a subsidiary of the
Italian group Kartogroup. For these two contracts, Dalkia has agreed to provide
270,000 tons of steam each year through the creation of two boiler rooms.
In Europe, Dalkia was chosen in March 2002 to operate the energy
installations of Tonak, the leading global hat manufacturer, in Novy Jicin
(Czech Republic) for 27 years (estimated annual revenue of (euro)1.5 million).
Dalkia signed a 15-year contract with the food processor Setuza in Olomouc
(Czech Republic) to take over the management of the site's energy requirements
(estimated total revenue of (euro)26.5 million). In Italy, Dalkia won a contract
with Manulifilm, one of the main European producers of film products used in
packaging, plasticizing, rubber band manufacturing and the tobacco industry, to
supply electricity, heating and cooling services for 10 years (estimated annual
revenue of (euro)7 million).
Facilities Management
In order to meet growing demand for outsourced services, Dalkia has
recently added general services management and technical services, or facilities
management, to its portfolio of services. Facilities management contracts
integrate a range of support services, from electrical and mechanical equipment
maintenance to logistics, into one global service. As a result, the client can
meet its need for different services through one company. Dalkia provides
facilities management services for its customers at industrial, commercial,
corporate office or health establishment sites in Europe, Latin America and
Asia.
In France in 2002, Dalkia renewed its contract with the Hotel du
Departement du Nord for 5 years (estimated annual revenue of (euro)1.1 million)
and won contracts to provide facilities management services to the Bordeaux
Polyclinique for 3 years (estimated annual revenue of (euro)0.8 million) and to
the 220 agencies of Credit Mutuel du Nord's Northern European network (including
electricity management) for 3 years (estimated annual revenue of (euro)4.3
million).
In Europe, Dalkia won a 5-year contract in Great Britain through its
subsidiary Pakersell to provide lighting services at 183 train stations covered
by the Connex South Eastern license, representing estimated annual revenue of
(euro)7 million. In Belgium, Dalkia won a contract to provide services for 5
years to all of the European Commission's buildings, which represents 68
buildings totaling 1.5 million cubic meters and will require the deployment of
200 employees (estimated annual revenue of (euro)11.5 million). In the Middle
East, the joint venture created in 2002 with the group Majid Al Futtaim in the
United Arab Emirates won a 10-year facilities management contract for three
commercial centers (estimated annual revenue of (euro)4 million). In Norway,
Dalkia and a Norwegian real estate company created a joint venture called Opak
(in which Dalkia holds 60%) to develop facilities management services to
corporate offices and hospitals in the Oslo region.
Street Lighting Services
In France, Citelum won contracts to manage street lighting in several
cities, including Limours, Marignane, Willems, Brebieres and Varas-Plage.
Citelum entered into an engineering contract with the community of Reims to
provide street lighting diagnostic services and to renovate the city's street
lighting network and information systems management, and was selected to provide
lighting services to prestigious French buildings around the country, such as
the Saint Sernin Basilica in Toulouse and the main facade of the Notre Dame
cathedral in Paris.
Outside France, Citelum won a 5-year street lighting management
contract for the city of Fortaleza, Brazil, which includes the operation and
maintenance of the network and the renovation, extension and modernization of
the network (estimated total revenue of (euro)35 million). In Southeast Asia,
Citelum won prestigious lighting contracts, including an agreement to provide
light for the twin towers of Petronas in Kuala Lumpur, the highest inhabited
towers in the world at 452 meters (estimated total revenue of (euro)117,000).
Services to Individuals
Dalkia also provides residential services to individuals through
Proxiserve, a joint subsidiary of Dalkia and Vivendi Water, including
maintenance of heating, air conditioning and plumbing systems.
Other Significant Developments in 2002
Dalkia was also selected to participate in the first auction by the
British government of permits for greenhouse gas emissions. In order to motivate
companies, the government offered a budget of (euro)350 million over 5 years.
Dalkia was the only energy services company among the 34 participants selected
and committed to reduce carbon dioxide emissions in the United Kingdom by a
total of 100,000 tons by 2006, which represents a 37% reduction compared to the
reference level. To reach its goal, Dalkia will work together with 4 hospitals
and 134 commercial buildings for which it operates energy installations and with
which it will share the fees awarded for each ton of carbon dioxide saved.
Acquisitions and Divestitures in 2002
Pursuant to the requirements imposed by the French Ministry of Economy
and Finance in connection with our agreement with EDF described above, Dalkia
Investment sold its 50% interests in Perigord-Energie and Cogevitry, each of
which specialize in high-power co-generation operations, in October 2002.
Dalkia France acquired the remaining 50% that it did not own of
Somussy. Dalkia acquired DBU, a Dutch company that provides technical services
and mechanical and electro-technical installations to industrial clients, which
ranks Dalkia among the leading technical services and industrial services
management companies in the Dutch market with 600 employees (estimated annual
revenue of (euro)50 million). In Sweden, Dalkia acquired 5 companies specialized
in industrial maintenance services from Maintech, a subsidiary of PEAB, the
Swedish public works group, for approximately (euro)4.9 million (estimated
aggregate annual revenue of (euro)40 million).
In October 2002, the merger of Dalkia and SIRAM into SIRAM Groupe
Dalkia was completed, ending the consolidation process between Dalkia and SIRAM.
SIRAM is the second largest heating systems management company in Italy, and
possesses unrivaled expertise in managing complex contracts for government and
commercial clients, particularly in the health-related fields. During its first
year in operation, the newly created company had 2,300 employees and represented
8% of Dalkia's international activities.
Transportation
Connex, our main transportation subsidiary, is the leading European
private operator of ground passenger transportation services in terms of
revenue. Connex operates road and rail passenger transportation networks under
contract with national, regional and local transit authorities. Connex has been
managing and operating all forms of urban, regional and national road and rail
networks for more than a century, having won its first tramway concessions at
the end of the 19th century.
In 2002, Connex operated 236 rail and road networks and 21,000 vehicles
for road or rail travel with 55,200 employees around the world (including 100%
of the employees of companies that are proportionally consolidated by our
company). Present in 22 countries, Connex estimates that it provided
transportation to more than 1.5 billion travelers in 2002.
The following table shows the consolidated revenue and EBIT of our
transportation operations in each of the last three fiscal years, after
elimination of all inter-company transactions:
((euro)millions) 2002 2001 2000(1)
-------- -------- --------
Revenue 3,422 3,099 3,131
EBIT 116 112 n.a.
--------------------
(1) Restated to reflect the changes in our accounting methods and
presentation of accounts in 2001. See "Item 5. Operating and
Financial Review and Prospects-- Overview-- Presentation of
Information in this Section-- Changes In Accounting Methods and
Presentation of Accounts."
Connex primarily operates road and rail passenger transportation
networks under contracts won through auction with various public authorities.
The public authority with which Connex contracts generally owns the
infrastructure Connex uses and typically establishes schedules, routes and fare
structures for the networks that Connex operates and manages. Connex conducts
its business through outsourced management under conditions and structures that
differ from one country to another due to varying legal and regulatory
requirements. The contract between the public authority and Connex outlines the
relations between the two parties, including the risks to be borne by each, and
typically lasts for a set period. Because the fares Connex charges passengers on
its transportation networks are usually insufficient to cover its costs, the
public authority typically provides Connex a guaranteed minimum revenue payment
or pays Connex a subsidy. Rail management contracts generally last for 15 years
while road management contracts last for 12 years, a difference primarily
explained by the need for more significant investment in the rail sector. Connex
has contracts with more than 4,000 public authorities.
In addition to its primary management activities, Connex also seeks to
promote public transportation through several means. First, Connex strives to
improve customer services by welcoming clients, enhancing vehicle comfort,
establishing call centers that provide extensive itinerary information, managing
passenger transfers within networks and establishing new information systems and
integrated fare structures. For 5 years Connex has also been developing new
local products and services, such as customized transportation and the use of
electric vehicles to serve small areas. These new services seek to offer
travelers a complete range of transportation-related services and to transform
Connex into a company that facilitates travel and mobility.
In 2002, Connex strengthened its position in France following the
acquisition of Transports Verney and continued to develop internationally,
particularly in Germany, Dublin and Jerusalem.
Strategy
Connex's strategy primarily focuses on internal growth. Connex
considers acquisitions in markets open to competition as a means to improve bids
at public auctions or in geographic regions where Connex sees synergies with its
other activities.
In the medium-term, Connex's strategy is to consolidate its presence in
Western Europe, benefiting from the opening of markets to regulated competition
within the European Union. Connex intends, for example, to present bids in new
public auctions in England and participate in developments in the German and
Scandinavian rail networks. In Central and Eastern Europe, where several
countries are outsourcing the management of their passenger transportation
networks without waiting for entry into the European Union, Connex - already
well established - hopes to pursue targeted growth in certain countries in both
the rail and urban and regional road transportation sectors.
In North America, where a similar trend relating to the opening of
transportation markets to competition seems likely to continue, Connex expects
to pursue its development strategy that is already well advanced in bus
transportation. This strategy is strengthened by a key contract to manage the
rail network in the Boston suburbs, which Connex signed in February 2003 and
where it expects to begin operations in July 2003.
In addition, Connex expects to target a number of countries in Latin
America as well as in the Asia-Pacific region, where Connex seeks to leverage
its solid presence in Australia to pursue growth opportunities.
Description of Activity in 2002
Urban and Intercity Transportation
Connex operates a number of "right-of-way" transit systems and bus
networks and provides both integrated and customized services. Connex is
responsible for driving, inspecting, cleaning and providing security on
vehicles, marketing, providing customer service, and maintaining, cleaning and
providing security in the stations on its networks.
Right-of-way system and bus network operation
In France, Connex operates several tram and light rail lines in Rouen,
Saint-Etienne and Nancy, and began operating a right-of-way system using third
generation buses serving the east-west axis in Rouen in April 2002. In July
2002, Connex inaugurated an express bus line between Cergy-Pontoise and the
Charles de Gaulle-Roissy airport.
Connex is also the exclusive operator of the bus networks in Nice,
Bordeaux, Nancy and Toulon as well as in 40 other French cities. In April 2002,
Connex won a contract to manage the urban network of Saint-Chamond consisting of
15 buses serving 7 lines until June 2004 (revenue of (euro)1.2 million in 2002,
or (euro)1.7 million if adjusted to reflect a full year of operations). In July
2002, Connex also won a contract with the Indre-et-Loire department to operate
its intercity and international bus station in Tours for three years. In
February 2002, Connex renewed its contract to operate the urban network in Nancy
for 7 years. Connex also strengthened its presence in France through its
acquisition in January 2002 of Transports Verney, which operates in more than 30
French departments mainly in the Great West and Rhone-Alpes region. Transport
Verney's activities, which relate mainly to the management of suburban and
intercity networks, recorded revenue of more than (euro)150 million in 2001.
In Europe, Connex operates tram and light metro lines in Gorlitz,
Berlin (Germany) and Stockholm (Sweden). In conjunction with FCC, Connex will
also operate the new metro system in Barcelona (Spain) once it begins service.
The contract to operate the greater urban area network of Stockholm, which was
due to expire in 2004, was renewed in November 2002 for 5 years (through July
2009), increasing the total revenue generated under the contract by more than
(euro)1 billion. Connex also acquired the remaining 40% of Connex Tunnelbanan
from the Stockholm transportation authority, raising its interest in the company
to 100%. In Ireland, Connex signed a contract in March 2002 to operate the new
light rail "Luas" network in Dublin for 5 years, which will commence operating
at the end of 2003. Luas will operate 40 vehicles divided among 2 lines and
serve 36 stops (estimated total revenue of (euro)55 million).
Connex also manages the bus lines in major European cities such as
London, Stockholm, Frankfurt, Warsaw and Maastricht. In November 2002, Connex
won a public bid to operate the bus network in Jersey for 7 years; since 2002,
78 employees have operated approximately 40 buses serving the principal areas on
the island and near the airport. In Sweden, Connex won a 6-year contract in
January 2002 to operate the Eskilstuna urban and intercity network, comprising
59 vehicles and 38 urban buses (estimated total revenue of (euro)56 million) and
a 4-year contract in December 2002 to operate the Scanie regional network
(estimated total revenue of 93 million Swedish krona). In total, 650 new
employees will operate more than 300 additional vehicles on these urban and
intercity networks in Sweden. In the Netherlands, Connex took over service
provided by 18 buses, 6 bus lines and more than 40 employees in South Limbourg
from the Dutch subsidiary of Arriva, the former network operator. In July 2002,
Connex also won a contract to operate the intercity bus network between Utrecht,
Woerden and south-east Amsterdam for 4 years with the option to add another 2
years, representing total revenue of approximately (euro)40 million over the
first 4 years.
In Poland, Connex won a public bid in October 2002 to privatize PKS
Kedzierzyn-Kozle, which is situated in southwest Poland and operates nearly all
of the intercity lines. Following this contract, Connex Polska currently
generates more than (euro)16 million in annual revenue with 350 vehicles and has
more than 1,000 employees. In Slovenia, Connex took over the operation of the
Certus network of urban and intercity transportation in Maribor from a private
operator and will manage 201 intercity vehicles that serve the entire northeast
region of Slovenia with 53 urban buses. We expect this 10-year contract to
generate approximately (euro)180 million in total revenue.
In North America, Connex provides transportation services in
Washington, D.C., the second largest American city in terms of traffic, through
Yellow Transportation, a company based in Baltimore, Maryland. In July 2002,
Connex won a contract to operate the intercity network of Prince George County
in Maryland for 5 years (estimated total revenue of approximately (euro)55
million) and signed a contract to operate 111 buses in Los Angeles' north
suburbs for 5 years (estimated total revenue of (euro)49 million).
In the rest of the world, Connex operates in partnership a
high-frequency right-of-way bus system in Bogota, Colombia, which currently
serves more than 800,000 passengers per day. Connex also has a presence in
Sydney, Australia. In Israel, the consortium formed by, among others, Connex
with a 5% interest and Alstom with a 20% interest, won a public bid to
construct, finance, operate and maintain the first light rail line in Jerusalem.
The contract under concession was signed in November 2002 for 30 years, with
Connex holding an 80% interest in the operating company.
Integrated Services
Connex provides interconnected bus, tramway, metro and train
transportation services through a coordinated ticketing system in many urban
conglomerations. Connex also offers special integrated transportation services
within networks managed by several different operators in an urban area,
including the Paris suburbs, Rouen and Saint-Etienne in France, and London,
Stockholm (where it also operates the metro and other public transportation
systems), Sydney, Gorlitz and Dusseldorf.
Services on Demand
Connex offers innovating and original transportation services in
certain cities that supplement the classic transportation networks. For example,
in France Connex offers Creabus, an on-demand minibus service that is tracked by
a Global Positioning System, or GPS, which operates in Dieppe, Montlucon and Ile
de France, and Iciela, an electrical car system to serve urban areas that are
restricted to other vehicles, which operates in Amiens.
Services to Industrial Clients
In France, Connex was chosen to provide maintenance services to Usinor
Packaging's trains and rail line at its industrial site in Basse-Indre, in the
Loire Atlantique department.
Regional Transportation
Connex provides regional transportation services through the operation
of road and rail networks. As with urban transportation services, Connex is
responsible for designing, planning, operating, maintaining and providing
security on the vehicles and stations it uses in its regional networks, as well
as for ticket sales and customer service.
In France, Connex operates a number of regional rail networks, covering
approximately 850 kilometers, through contracts with regional public authorities
and the Societe Nationale des Chemins de Fer (SNCF), the French national
railroad company, particularly in the regions of Brittany, Provence, the Alps
and the Cotes d'Azur.
In Europe, Connex has a strong presence in the United Kingdom, Germany,
Norway, Sweden, Finland, Belgium, Spain and the Czech Republic.
In the United Kingdom, where it recorded total revenue of (euro)661
million in 2002, Connex operates regional rail networks serving southern England
through a contract expiring in 2006. This contract, initially expiring in 2011,
was renegotiated in 2002, resulting in a (euro)90 million increase in Connex's
revenue for 2003. Based on its technical performance and high-quality service in
the United Kingdom, Connex renewed its important contract in 2002 for the South
Eastern rail lines serving southern London and southeast England. According to
Strategic Rail Authority, Connex is among the leaders in providing on-time train
service in the southern region of London.
In Germany, Connex employs more than 3,000 people at 30 rail and road
transportation sites. Connex operates six regional rail networks, representing
over 1,000 kilometers of rail lines, benefiting from the regional nature of
German rail transportation. In July 2002, Connex won a public bid to operate two
regional rail passenger lines in the Gorlitz region (estimated annual revenue of
(euro)13 million). In February 2002, Connex Regiobahn positioned itself to
compete on interregional connections not yet served by the Deutsche Bahn on long
distance routes in Germany. On March 1, 2002, Connex inaugurated its first
North-South connection. The InterConnex train will provide daily service
connecting Gera, in Thuringen (former East Germany) and Rostock via Berlin (a
distance of 475 kilometers). Finally, in October 2002, the NOB regional rail
network (Connex's German subsidiary), won the 2002-2003 economic communications
prize for its marketing campaigns.
In the Netherlands, Connex operates the BBA transportation network in
the region of Brabant, transporting more than 50 million passengers each year on
153 bus lines and 450 coaches. Connex also won a bid to operate a ferry service
to transport passengers and cyclists between Vlissingen and Breskens for a
6-year period, generating approximately (euro)21 million in total revenue.
Connex expect that these activities will generate, in total, estimated annual
revenue of (euro)176 million.
In Spain, Connex and FCC created a joint venture, FCC Connex
Corporacion. In Sweden, Connex won the "Norrland Trafiken" bid in September 2002
to operate two long distance passenger rail lines for 5 years, with an option
for an additional 3 years (estimated total revenue of (euro)190 million over the
first 5 years). Beginning in mid-2003, 180 employees will join Connex. Connex
also won the "Kinnekulletaget" bid in February 2002 to operate a regional
passenger rail line in the west of Sweden (northeast of Goteborg) for 4 years
beginning in June 2003 (estimated annual revenue of (euro)2.5 million). In
Finland, Connex won a contract in June 2002 to manage approximately 50 buses in
Jalasjarvi, which will provide urban, rural and school bus transportation
services in the region.
Connex operates more than 600 vehicles in Denmark and possesses a
network of regional coaches in Israel, Poland (through the privatization of the
Pekaes interurban networks in Sanok and Lancut), Estonia (with the acquisition
of AS Liikor, a bus operator based in Tartu) and the Czech Republic.
Through Yellow Transportation, Connex also offers regional road
transportation services in Washington, D.C., Maryland, Virginia and Connecticut.
Connex also operates the bus network in Columbia, South Carolina (44 buses) and
manages and operates the bus network in Fairfax County, Virginia (85 buses).
In Australia, Connex secured its franchise to provide rail services in
the suburbs of Melbourne through the signing of an amendment with the State of
Victoria, which consolidates Connex's position and places it in a competitive
position to grow its business in Australia and the entire Asia-Pacific region.
Freight
Connex provides rail freight services primarily through the regional
networks, management of private junctions and multi-modal transportation
services.
Regional Freight Networks
Connex operates a number of regional freight trains in France,
including for the SNCF, and in Germany in cooperation with DB Cargo.
Management of Private Junctions
Connex manages junctions for customers in the automobile, petrochemical
and refining industries that have facilities that are linked to a national rail
network. Facilities served include the Eisenach Opel plant in Thuringia,
Germany, the Bitterfeld chemical complex in Saxony-Anhalt, Germany, the Claas
agricultural machinery plant in Gutersloh, Germany and approximately 30
industrial and commercial sites in France.
Multi-modal transportation
Connex began providing multi-modal shipping services (or shipment of
freight in containers that can be carried by either trains or trucks) in 2000.
In Germany, Connex operates several freight and multi-modal long distance
transport networks.
In addition, Connex provides its industrial and commercial customers
with passenger transportation services for their employees from and to its
customers' sites.
Complementary Services
Growth in our transportation business depends on increased use of
public transportation networks, which in turn is closely related to the quality
of service provided by these networks. To increase passenger frequentation on
its networks, Connex's efforts focus on adequately matching service offerings
with demand for these services, improving the reception of passengers and the
user-friendliness of stations, making available more comfortable vehicles and
the development of local information services relating to transportation systems
for travelers.
Connex has developed "Optio," a complete information system for
passengers (through a central telephone operator, internet site, wireless text
messages, such as SMS, and wireless internet access, such as WAP) on available
public transportation in a region, regardless of the operator. The Optio service
is currently offered in the Oise region in France and in the cities of Bordeaux
(France), London (U.K.) and Melbourne (Australia). In addition, Connex has
developed "Connector Plus," a real-time information system for Australian
subscribers that enables it to notify users of service interruptions or delays
through wireless text message systems, such as SMS.
Connex has also recently launched several Internet sites that allow
users to find their itineraries on local transportation systems in France, the
United Kingdom and Australia. Connex has also begun providing real-time
information on available transportation systems to its subscribers through
internet-enabled mobile phones or WAP mobile phones in the United Kingdom.
Finally, in Saint-Etienne, France, Connex has established a service
center, known as "Escale" on a tramway line to provide passengers with services
that facilitate the life of city dwellers. Services include a parking lot,
carwash services, vending machines, umbrella loan services, stamp and telephone
card sales, a photo and copy center, and on-site customer service
representatives. Through a partnership with the city's retailers, passengers may
also have their purchases delivered directly to the Escale stop.
Acquisitions and Divestitures in 2002
Connex acquired Transports Verney in France for approximately
(euro)47.1 million, Eurolines Netherlands, a European road transportation
operator, for approximately (euro)2.3 million, Hautamaki, a Finnish provider of
urban, intercity, school and long distance transportation services, for
approximately (euro)2.4 million, the Certus urban and intercity transportation
network in Maribor, Slovenia, and several small companies in France.
Fomento de Construcciones y Contratas (FCC)
FCC, a public company listed on the Madrid Stock Exchange since 1900,
is one of Spain's largest companies with over 55,800 employees (including 100%
of the employees of companies that are proportionally consolidated by FCC and
50% of Proactiva's employees) and a market capitalization of (euro)2.8 billion
as of December 31, 2002. FCC operates in a number of different environmental and
construction-related industries. FCC's principal markets are located in Spain
(where it is the leading waste management operator) and Latin America, though it
also has significant operations in the rest of Western Europe and the United
States.
In October 1998, to exploit the growing demand for integrated
environmental management services, Vivendi Universal acquired a 49% interest in
the holding company that owns 52.48% of FCC from the controlling shareholder of
the holding company. In December 1999, Vivendi Universal transferred its
interest to us. Our partner in FCC owns the remaining 51% of the holding
company.
Our interest in the holding company that controls FCC is subject to a
shareholders' agreement pursuant to which we share equally with our partner the
holding company's right to be represented in the main executive bodies of FCC,
i.e., the board of directors and executive committees of FCC and its
subsidiaries. The holding company's articles of association also provide that
certain important decisions, such as increases or decreases of share capital,
amendments to the articles of association, mergers, spin-offs or dissolutions,
require supermajority shareholder approval. None of these decisions, therefore,
could be taken without the consent of both major shareholders. See "Item 7.
Major Shareholders and Related Party Transactions -- Related Party
Transactions."
The following table shows our consolidated revenue and EBIT from FCC's
activities in each of the last three fiscal years, after elimination of all
inter-company transactions:
((euro)millions) 2002 2001 2000(2)
-------- -------- --------
Revenue(1) 2,653 2,455 2,115
EBIT(1) 250 230 n.a.
---------------------
(1) Figures reflect a 49% share of the total revenue and EBIT of
FCC and its subsidiaries, except for the results of Proactiva,
which are included in our water and waste management segments.
Under French GAAP, we proportionally consolidate FCC based on our
49% interest in the holding company that controls it. Under U.S.
GAAP, FCC would be accounted for using the equity method.
(2) Restated to reflect the changes in our accounting methods and
presentation of accounts in 2001. See "Item 5. Operating and
Financial Review and Prospects-- Overview-- Presentation of
Information in this Section-- Changes In Accounting Methods and
Presentation of Accounts."
FCC's strategic objectives are:
o public services, (33% of FCC's consolidated revenue in 2002),
which include, in particular, the collection and recycling of
household and industrial waste, street cleaning, treatment and
distribution of potable water, treatment of wastewater, passenger
transportation, publicity and advertising through urban fixtures
and passenger and freight airport services;
o construction activities (48% of FCC's consolidated revenue in
2002);
o cement production (15% of FCC's consolidated revenue in 2002);
and
o miscellaneous activities (4% of FCC's consolidated revenue in
2002), which FCC does not consider to be strategic and may be
sold if and when divestment opportunities arise.
We have also created a number of joint ventures with FCC to operate or
participate in different segments of our business. Our main joint venture with
FCC is Proactiva Medio Ambiente S.A., or Proactiva, which was created in July
2000 to consolidate and organize the joint development of our and FCC's water
and waste management services activities in Latin America and the Caribbean.
Each of we and FCC contributed all of our water and waste management operations
and contracts in these regions to Proactiva and hold 50% of Proactiva's capital
stock. We have not entered into any shareholders' or other agreement with FCC or
Proactiva relating to Proactiva's governance or management. However, Proactiva's
bylaws grants a right of first refusal to each of Proactiva's shareholders in
the context of a proposed sale of shares of Proactiva.
In addition, in 2002 Connex and CGT, FCC's transportation subsidiary,
created FCC-Connex Corporacion S.L. to consolidate and organize FCC's and
Connex's transportation activities in Spain and the Americas, excluding Canada
and the United States. Each of Connex and CGT holds 50% of FCC-Connex
Corporacion's capital stock and have entered into a shareholders' agreement
dated December 13, 2001 governing the management of this joint venture,
including dispute resolution mechanisms in the event of a deadlock and forced
sale provisions in the event of unresolved deadlocks, breach of contract or loss
of control by our company or FCC of their respective transportation
subsidiaries. FCC-Connex Corporacion's wholly-owned subsidiaries include
Corporacion Espanola de Transporte S.A. (CTSA) and Detren Compania General de
Servicios Ferroviarios S.L.
Description of Activities
Public Services.
FCC is the leading waste management company and the second largest
water and wastewater treatment company in Spain, where it conducts the bulk of
its operations. FCC collects, processes and disposes of household waste and
provides a full range of waste management services, including urban and
commercial cleaning services, to Spanish public authorities. FCC provides waste
management services to a number of main urban centers in Spain such as Madrid,
Barcelona, Valencia, Bilbao, Malaga, Saint-Sebastian and Zaragoza. FCC benefits
from nearly 100 years of experience and has a growing international presence
through its current contracts serving more than 1,500 municipalities and
offering services to 43 million residents.
During 2002, FCC signed new contracts for an estimated total of
(euro)1.9 billion, including the renewal of a contract for 10 years for waste
collection and treatment in the Madrid suburbs, representing estimated total
revenue of (euro)700 million. FCC has provided these services in the Spanish
capital and its suburbs since 1944. Internationally, FCC won a 15-year contract
to collect, treat and dispose of waste in East Cairo (Egypt), with more than 2
million residents.
The FCC group has the most complete commercial network in Spain for
treating industrial waste, a field with significant growth potential. In 2002,
FCC treated 550,000 tons of hazardous and non-hazardous industrial waste, a 47%
increase over the amount treated in 2001. FCC also decontaminated more than
250,000 cubic meters of land at more than 150 sites in 2002.
FCC's water and wastewater treatment activities cover the full water
cycle, including treatment, distribution and recycling. FCC provides water
services to approximately 700 municipalities with a total population of 7.2
million residents. FCC also treats wastewater of 9 million people. In 2002, FCC
was awarded 67 new contracts, representing estimated total revenue of (euro)635
million, or (euro)4.7 billion including revenue from all contracts in 2002.
Regarding publicity and advertising through urban fixtures, FCC
continued its international expansion by competing against the best
international companies in the sector and winning a public bid in Brasilia,
Brazil for a contract to install, maintain and provide advertising on urban
fixtures in Brasilia for 20 years (estimated total revenue of (euro)200
million). FCC currently manages a park with 100,000 elements of urban fixtures
and advertising support in 110 cities of 9 countries, including Barcelona,
Bilbao, Madrid and Seville (Spain), Genoa and Parma (Italy), Brasilia and Rio de
Janeiro (Brazil) and Lisbon (Portugal).
FCC provides passenger transportation services through FCC-Connex
Corporacion S.L., which conducts two types of activities:
o road transportation, where it operated more than 300 coaches that
traveled a total of 23 million kilometers transporting 45 million
passengers during 2002, and
o rail transportation, where it will be the principal operator of
two tram lines that are under construction in Barcelona.
FCC provides airport services through its subsidiary, Flightcare S.L.,
which provides services in airports in Barcelona, Bilbao, Fuerteventura,
Lanzarote, Las Palmas, Malaga, Santiago de Compostela, Seville and Valencia.
Since October 2002, FCC has supplied services to the Brussels airport following
the acquisition of Sabena airline's freight handling and passenger services
activities. On an annual basis, FCC serves 160,000 flights, representing 36
million passengers and 200,000 tons of freight.
Finally, FCC manages 100,000 parking places in 90 cities in Spain and
Morocco, ensures the technical inspection of 1.7 million vehicles at 50 stations
in Spain and Argentina, and provides computer services to important companies in
the automobile, data processing and mass marketing sectors.
Construction
FCC has expanded its construction activities due in part to the
2001-2007 Infrastructure Plan established by the Spanish government,
representing (euro)114 billion, and in part to the Hydrological Plan to manage
water resources.
FCC won a number of key contracts in 2002, including contracts to:
o construct and operate the Pamplona-Logrono stretch of highway
extending 62.4 kilometers;
o construct and manage the irrigation network for the
Segarra-Garrigues canal, which irrigates 70,150 hectares in the
Lleida provinces;
o set up 16.3 kilometers of railway for high-speed trains on the
lines serving Madrid-Northwest, Madrid-Barcelona and
Cordoba-Malaga;
o construct the Castrovido dam in Salas de los Infantes (Burgos),
which will require 635,000 cubic meters of concrete; and
o construct 4,700 apartments throughout Spain, which will increase
the number of lodgings under construction to 16,500.
In 2002, FCC completed work on the floating dike for the port of
Monaco, the largest of its kind ever constructed in the world. This dike,
measuring 352 meters in length, was built in Algeciras in southern Spain and was
transported by sea to Monaco. It includes a parking area to accommodate 400 cars
and retail stores. FCC's work on the new Madrid-Barajas airport also advanced in
2002; the airport will eventually have a surface area of more than 500,000
square meters and will greet 35 million passengers each year.
Cement Production.
FCC owns 58.8% of Cementos Portland following the merger into FCC of
Portland Valderrivas in 2002. Prior to the merger, FCC held 48.2% of Portland
Valderrivas, which in turn held 58.8% of Cementos Portland. The merger was
consummated through a capital increase of FCC, which delivered newly-issued
shares of FCC to Portland Valderrivas' other shareholders. As a result of the
merger, FCC's holding company's interest in FCC was diluted from 57% to 52.5%.
Cementos Portland operates 6 cement factories in Spain, 3 factories in the
United States and other installations to prepare concrete and extract
aggregates. It currently has a production capacity of 10 million tons of
concrete per year, which should increase in the future as contemplated
investments to enhance factory productivity and improve environmental conditions
are made.
In 2002, FCC produced and sold 7.6 million tons of cement and clinker
in Spain and 2 million in the United States. FCC also manufactured and sold 4.8
million m3 of concrete in 2002.
Competition
Most markets for environmental services are very competitive and are
characterized by increasing technological challenges arising from regulatory
changes, as well as the presence of experienced competitors. Competition in each
of the markets we serve is primarily on the basis of the quality of the products
and services provided, reliability, customer service, financial strength,
technology, price, reputation and experience in providing services, adapting to
changing legal and regulatory environments, and managing employees accustomed to
working for governmental authorities or non-outsourced divisions of commercial
enterprises. In each of the markets in which we operate, our competitive
strengths are our high level of technological and technical expertise, our
financial position, our geographical reach and our experience in providing
environmental management services, managing privatized and outsourced employees
and meeting regulatory requirements.
With regard to integrated, large-scale environmental management
services in particular, our main competitors are Suez and RWE. Our primary
competitive strength is our demonstrated ability to provide innovative,
integrated environmental services that are tailored specifically to the needs of
individual clients and offered on a global basis. We anticipate that other
enterprises that compete with us in individual sectors will, in the coming
years, seek to expand their activities to become integrated environmental
management services providers.
Water
Vivendi Water is the world's leading private provider of water services
to municipalities and industrial and commercial firms. Its principal competitors
are Suez (through its subsidiary Ondeo) and RWE (through its U.K. subsidiary
Thames Water). In addition, General Electric has recently entered the market for
services to industrial companies as it consolidates into a single business unit
all of its acquisitions in the water services sector.
In France, Vivendi Water faces competition from Ondeo and Saur, as well
as from a number of local competitors, particularly in the building and public
works sectors. Vivendi Water also faces competition from public establishments,
municipal or departmental governments and local public-private companies.
Finally, while more than half of the contracts not renewed in 2002 were taken
over by public authorities, non-renewed contracts represented only 0.25% of our
annual water revenue in France.
In the United States, USFilter faces competition from a large number of
small competitors that specialize in specific technologies relating to water
equipments and systems, as well as from a number of operators in the unregulated
water market, such as OMI and Earth Tech).
Waste Management
In Europe, where we conduct over half of our waste management
activities, Onyx is one of the market leaders in the collection and treatment of
household, commercial, industrial and hazardous waste. Onyx's main pan-European
competitor is Suez (through its subsidiary SITA). In the United Kingdom, Onyx is
the fourth leading provider of household, commercial and industrial waste
management services behind Suez, Biffa and Cleanaway. Onyx also has a prominent
market position in France, Norway, Switzerland, Israel, Ireland, Denmark,
Portugal, the Czech Republic and Slovakia. In Germany, where Onyx focuses on
services to industrial and commercial customers, its biggest competitors are RWE
Umwelt, Rethmann and SITA-Deutschland.
Onyx has taken significant steps toward consolidating its market
position in North America, where it provides household, industrial and
commercial solid and hazardous waste collection, recovery, treatment and
waste-to-energy services.
In Latin America, Onyx's operations are concentrated in Brazil,
Venezuela, Mexico, Columbia, Argentina and Chile, where it primarily competes
with Suez and a variety of local companies. Onyx operates its activities in
South America through Proactiva.
Onyx is one of the leading waste management service providers in the
Asia/Pacific region, where its main competitors are Cleanaway and Suez (through
SITA). Onyx is one of the largest operators in the treatment of waste in Asia
(China, Hong Kong, India, Japan, Macao, Malaysia, Philippines, Singapore, South
Korea, Taiwan and Thailand), and one of the market leaders in terms of waste
recovery. In Australia, Onyx is also one of the market leaders.
Energy Services
The energy services market has many actors and Dalkia faces very
dispersed competition. Based on a study by Credit Suisse First Boston, Dalkia
believes that the only three companies with a strong international presence and
a diversified and complete range of services in this market similar to its own
presence and services are Suez, RWE and Cofactech.
Transportation
Connex's major competitors are private operators, primarily French or
British, and public monopolies that conduct their activities in open markets.
Connex's major competitors are Keolis, a subsidiary of SNCF, Transdev, a
subsidiary of the Caisse des Depots et Consignations (which recently concluded
an alliance with the French metro operator, RATP), the Deutsche Bahn (the
national rail operator in Germany) and the British groups Arriva, First Group,
National Express, Go Ahead and Stagecoach.
In the long term, we anticipate that groups in China and Singapore may
become new competitors in an increasingly dynamic market.
FCC
FCC is the leading private provider of waste management services in
Spain. FCC's primary competitor in this market is Cespa. In the water services
market, FCC is the second leading private operator in the water and wastewater
treatment market in Spain after Aguas de Barcelona.
The cement production sector in Spain is relatively concentrated.
Through Cementos Portland, FCC is the second largest Spanish cement producer,
with approximately 16% of the Spanish market, according to OFICEMEN (the
national cement labor union). Its main competitors are Spanish branches of
multinational cement manufacturers such as Cemex, Holderbank and Lafarge.
The construction market in Spain is undergoing a process of
consolidation among the major market players.
Contracts
We provide environmental management services to public authorities or
private companies under contracts with substantially similar terms. These
agreements take the form of service contracts through which we perform services
using installations and equipment that governmental authorities or industrial or
commercial clients place at our disposal. At times, we may be commissioned to
design and build the infrastructure necessary to perform the services. Such
investments are typically financed by the client or investors who then allow us
to use the infrastructure. We also occasionally finance such investments
ourselves.
Service contracts define the scope of the services or the specific
function or service to be performed. They typically state the objectives and
performance to be attained under the contract but let the operator choose, and
be responsible for, the methods used to fulfill the objectives. The operator
maintains and repairs the assets and installations, but the client is
responsible for ensuring that they conform to new requirements or regulations.
Like many of our clients, we seek to enter into real partnership and
progress contracts that outline procedures both to improve quality and
productivity as well as to make necessary adjustments in light of changing
demands. We enter into such contracts within certain limits, however, and we
carefully consider the coverage of initial expenses, and particularly
investments made in the interest of our clients. In this type of contract, the
operator generally makes a firm commitment regarding its performance,
responsibility and risks, but the contract always limits the operator's
financial responsibility in line with the size of the contract and remuneration
to be paid. Some contracts provide that particular risks, such as traffic risks
on transportation networks, will be shared by both parties. Other agreements
provide for renegotiation of terms in the event of a material change in
circumstances. These partnership contracts must have a term that is long enough
to permit the operator to create a performing organization and make the
contemplated improvements, as well as to receive an adequate return on its
tangible and intangible investments. The tendency to develop partnership
contracts is not the norm, however, and we continue to provide services under
more traditional procurement contracts that define the tasks to be accomplished
for a fee that is not based on improvements made. Nonetheless, partnership
contracts remain appropriate for certain services or clients.
We enter into both partnership and procurement contracts to provide
environmental services to industrial or commercial companies and to
municipalities or other public authorities responsible for providing a public
service (service d'interet general). Because the requirements and concerns
differ in each case, the contracts we enter into reflect these differing needs.
Industrial or Commercial Companies
Many companies have begun to outsource environmental services to
specialized companies in an effort to refocus on their primary business
activity. Such outsourcing may require a contract that is specific to a certain
function, or it may require an integrated multi-services contract, which we are
well positioned to provide. Under a multi-services contract, we manage a number
of services such as water and wastewater treatment services, collection,
treatment and recycling of hazardous and non-hazardous waste, energy services
relating to steam production and heating and cooling networks, and
transportation logistics. Outsourcing contracts, and particularly multi-service
contracts, increasingly take the form of partnership contracts. The service
provider must be able to understand the unpredictability of clients' situations
and adapt its services to the extent possible to accommodate changes in clients'
activities. These contracts are thus relatively long term (between five to seven
years without investments) and are generally subject to adjustments through
specific procedures that allow the client to compare different proposals. In
some instances, a client may test our services on one or two pilot sites while a
competitor performs services on other sites; the client then awards a contract
for all the sites to the service provider who best responded to the client's
expectations. We primarily offer services but may also agree to make investments
specific to the activity that is entrusted to us on the client's site. In such
cases, we analyze carefully the interest each party holds in the resulting
assets and demand significant guarantees regarding the durability of the
contractual relationship, the expected products and the future of the assets.
Municipalities or Public Authorities
Municipalities or other competent public authorities may wish to
provide a public service or a service of general economic interest (service
d'interet economique general), such as potable water distribution, waste removal
and treatment, passenger transportation or urban heating. In such cases, they
often require that we maintain and manage works or technically complex
installations in return for a fee that may or may not include incentives linked
to improved performance. In most countries, this type of public service contract
is granted through a public bidding process. This is particularly the case in
Europe pursuant to directives regarding public procurement contracts (marches
publics) and throughout the world for transactions benefiting from multilateral
aid or financing.
In some cases, public authorities may wish to completely delegate the
provision of a service. In such cases, the operator substitutes the public
authority in its relations with the public, while the public authority retains
control over the service's organization, contents, rates, quality and other
essential characteristics. This association between the public authority, which
does not relinquish its prerogatives as guarantor of the public interest, and
the private operator, which contributes its technical skills and management, was
first developed in France in the form of qualified concession contracts, or
"affermage" Affermage differs from a concession contract in that the private
operator does not bear the cost of the initial investments. Both types of
agreements are now called "delegated public service management" contracts. These
contracts traditionally differ from public procurement contracts in that the
operator's compensation is drawn substantially from the results of operations,
which leads to the users of the service to pay, at least in part, the operator's
compensation.
As a general matter, contracts with public authorities are
characterized primarily, on the one hand, by the comprehensive and complex
nature of the service to be provided and, on the other, by the risks assumed by
the operator. These types of contractual relationships are currently being
developed around the world through Public-Private Partnership (PPP) contracts
that may or may not require investment financing, including
build-operate-transfer (BOT) contracts or design-build-finance-operate-transfer
(DBFOT) contracts. Under these contracts, we provide general economic interest
services or public services and may also perform particular competing functions
that public authorities wish to outsource (e.g., a hospital's non-medical
functions). These expansive contracts reflect the multiple possible
contributions that private companies can make to public authorities, and in this
sense the French delegated public service management contract is a form of PPP.
French authorities are also considering other ways to permit the development of
PPP contracts in France.
These contracts are often awarded through a competitive bidding
process, even where it is not required. The bidding process is open and
candidates are invited to develop solutions that are subsequently adjusted in
free negotiations. In France, a special consultation procedure is required for
delegated public service management contracts, even though European Community
rules only require that participants respect general competition principles for
concession contracts and other forms of PPP.
In France, we have entered into numerous delegated public service
management contracts with public authorities that are subject to special legal
requirements because the contracts involve public services for which the public
authority remains responsible and because the service must be adapted to respond
to changing needs and to ensure its continuity. In such cases, the public
authority may modify or terminate the contract unilaterally if the public
interest so requires. If the contract is modified or terminated, the
governmental authority must fully compensate the private operator, including
compensation for lost profits. In practice, governmental authorities rarely
terminate a contract unilaterally because it would generally have to pay a
substantial indemnity and find alternative solutions to ensure continuity of the
public service. Moreover, specific contractual terms usually limit these
prerogatives to preserve a balanced contractual arrangement for both parties.
Outside France, other countries with civil law systems, such as Spain
and Italy, delegate their general economic interest services to private
operators under contracts similar to the French delegated public service
management contract. In common law countries such as the United Kingdom and the
United States, the law does not restrict contracts with public authorities as
much as in civil law countries, and PPP contracts, with or without investments,
may be freely entered into.
There is a growing trend in both developed and developing countries to
adopt systems similar to the delegated public service management system used in
France. We believe that our experience with the French system gives us a
competitive advantage.
Finally, although we also act as a contractor to perform works or
supply specific equipment for our service activities through several of our
subsidiaries, we treat this activity as an accessory to our main business.
Environmental Regulation, Policies and Compliance
Environmental Regulation
Our businesses are subject to extensive, evolving and increasingly
stringent environmental regulations in developing countries as well as in the
European Union and North America.
Water
The water and wastewater services activities are highly sensitive to
governmental regulation. In Europe and the United States, governments have
enacted significant environmental laws at the national and local level in
response to public concern over the environment. The quality of drinking water
and the treatment of waste water are increasingly subject to regulation in
developing countries as well, both in urban and rural areas.
The quality of potable water is strictly regulated at the European
Union level by the Directive on Drinking Water, which was transposed into French
law on December 20, 2001. The collection, treatment and discharge of urban,
industrial and commercial waste water is governed by the Directive on Urban
Waste Water. Public authorities also impose strict regulations upon industrial
and commercial waste water that enters collection systems and the waste water
and sludge from urban waste water treatment plants.
France has numerous laws and regulations concerning water pollution, as
well as numerous administrative agencies involved in the enforcement of those
laws and regulations. Certain discharges, disposals, and other actions with a
potentially negative impact on the quality of surface or underground water
sources require authorization or notification. For instance, public authorities
must be notified of any facility that pumps underground water in amounts that
exceed specified volumes and French law prohibits or restricts release of
certain substances in water. Individuals and companies are subject to civil and
criminal penalties under these laws and regulations.
In the United States, the primary federal laws affecting the provision
of water and waste water treatment services are the Water Pollution Control Act
of 1972, the Safe Drinking Water Act of 1974 and related regulations promulgated
by the Environmental Protection Agency (EPA). These laws and regulations
establish standards for drinking water and liquid discharges. Each U.S. state
has the right to establish criteria and standards stricter than those
established by the EPA and a number of states have done so.
Waste Management
In numerous countries, waste treatment facilities are subject to laws
and regulations that require us to obtain permits to operate most of our
facilities from governmental authorities. The permitting process requires us to
complete environment and health impact studies and risk assessments with respect
to the relevant facility. Operators of waste storage centers must provide
specific financial guarantees (which typically take the form of bank guarantees)
that cover the monitoring and recovery of the site during, and up to 30 years
after, its operation. In addition, waste storage centers must comply with a
number of standards and incineration plants are usually subject to rules that
limit the emission of pollutants. Waste may also be subject to various
regulations depending upon the type of waste. For example, sludge produced at
wastewater treatment stations that will be composted must comply with strict
regulations relating to its content of organic materials and trace metals (heavy
metals like cadmium, mercury or led).
At the European Union level, the framework for waste management
regulation is provided by directives that set overall regulatory goals of waste
prevention, collection, recycling and reuse. European Union member states must
prohibit the uncontrolled discarding, discharge and treatment of waste. In
addition, several European regulations effective as of July 1, 2002 that seek to
end the dumping of non-ultimate household waste has provoked a dispute, and the
application of these rules remains subject to diverse interpretations, including
the difficult question of defining the notion of "ultimate waste". The
regulation is intended to promote recycling, composting and energy recovery of
household waste, but the directive makes no reference to the methods of
treatment or to ways to improve existing methods.
In France, pursuant to the provisions of the Environment Code relating
to classified facilities for the protection of the environment, several decrees
and ministerial and administrative orders establish rules applicable to waste
storage sites for household, industrial, commercial and hazardous waste. These
orders govern, among other things, the design and the construction of waste
treatment centers. Hazardous waste is subject to strict monitoring at all stages
of the treatment process. Waste-to-energy centers are subject to numerous
restrictions, including in particular limitations on the amount of pollutant
emissions.
Our U.K. waste management operations and facilities are subject to the
Environmental Protection Act of 1990, which requires local authorities to
transfer their waste treatment operations either to a specialized waste
treatment entity owned by the local authority or to a private contractor, and
the Environment Act of 1995, which addresses pollution control, land waste and
nuisances. We are also subject to the Pollution Prevention Control Act of 1999,
which implements the requirements of European directive 96/61/EC relating to
integrated pollution prevention control. Finally, the European directive
1999/31/EC relating to landfill deposits of waste was incorporated into English
law through the Landfill (England & Wales) Regulations of 2002.
In Norway, two laws provide the country's legal foundation for
regulating pollution: The Pollution Control Act of 1981, which prohibits
pollution except as permitted by law or individual permits, and The Product
Control Act of 1993, which prohibits the damage to health or the environment due
either to chemicals found in certain products or processes established to
manufacture these products. Norway continuously adapts its regulations to those
of the European Union. In 2002, Norwegian authorities used European Union
directives as the basis for new regulations adopted for waste storage centers
and the treatment of unused vehicles.
The major statutes governing our waste management activities in the
United States include the Resource Conservation and Recovery Act of 1976, the
Clean Water Act, the Toxic Substances Control Act, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (also
known as "CERCLA" or "Superfund"), and the Clean Air Act, all of which are
administered either by the EPA or state agencies to which the EPA delegates
enforcement powers. Each state in which we operate also has its own laws and
regulations governing the generation, collection and treatment of waste,
including, in most cases, the design, operation, maintenance, closure and
post-closure maintenance of landfills and other solid and hazardous waste
management facilities.
In Asia, Chinese law includes the Environmental Protection Law of 1989,
providing a complete set of regulations to protect the environment. China has
passed another principal law relating to pollution, the Law on Prevention and
Control of Pollution Caused by Solid Wastes of 1995, which defines permit
requirements, environmental norms and means to apply the law. Local authorities
are authorized to apply standards that are more strict than national norms. In
Hong Kong, the Waste Disposal Ordinance, which outlines the waste treatment
process, was adopted in 1980. Other regulations relating to specific kinds of
wastes have been adopted, including the Waste Disposal (Chemical Waste) General
Regulation in 1992, which controls the collection, transportation and storage of
chemical wastes. The law defines the term "chemical waste", lists entities who
produce chemical waste and establishes procedures for obtaining permits to
collect such waste.
Energy Services
Our energy-related activities in Europe (primarily the supply of
thermal and independent energy) are subject to a European directive that
establishes emission limits for sulfur dioxide, nitrogen oxides and dust and
regulates the construction of combustion plants. Other existing directives
require the implementation of national emission ceilings for certain atmospheric
pollutants such as sulfur dioxide, nitrogen oxide and volatile organic
compounds.
The use of gas and other combustible material in France is subject in
some instances to a domestic natural gas tax. Energy produced by a co-generation
facility is exempt from this tax for a period of five years after the facility
begins operations.
In addition, Dalkia, in its capacity as an operator, must respect a
number of environmental requirements at its sites of operation. In France,
Dalkia must respect regulations based on a July 19, 1976 law and its applicable
rules relating to the environmental protection of designated installations by
obtaining and renewing various permits and authorizations from regulatory
authorities.
Transportation
Our transportation service activities are subject to a number of
national and European regulations and particularly European Union directives
that limit emissions from petrol and diesel engines and require us to obtain
certain permits. One directive sets forth guidelines for the laws of the member
states with respect to the emissions of gas pollutants from diesel engines used
in vehicles. Another directive sets forth guidelines for the laws of the member
states with respect to emissions of gas and particulate pollutants from internal
combustion engines installed in mobile equipment other than road vehicles.
Stricter limitations on emissions of pollutants were adopted by the European
Commission in October 2001, with further limitations expected to be adopted in
2005 which will require the installation of sophisticated fuel injection systems
with particle filters and carbon catalysts.
Environmental Policies
We strive to contribute to the enhancement of quality of life where we
operate. As the leading provider of environmental management services in the
world, we face the global need for development and have placed the challenges of
durable development at the heart of our strategy. To this end, we do not focus
only on the preservation of the environment and the protection of natural
resources, but also assume our economic and social responsibilities,
particularly at a local level where we are committed to stimulating progress.
Our environmental policies are described in our "2002 Report for Durable
Development" that our company has published.
Durable development as a corporate value
We believe that development will not be durable if it conflicts with
economic growth and quality of life. We have raised the notion of durable
development into a common value for all of our 302,000 employees. Although the
nature of our activities is oriented to the protection of the environment, we
attempt to go beyond our professional expertise and are committed to development
for the good of future generations. We have adopted a "Charter for Durable
Development" setting forth our ten main commitments in this area, as well as
practical methods of implementation of these commitments in our day-to-day
operations. The Environmental Management System, created in 2001 to implement
action plans adapted to specific designated challenges, was reinforced in 2002,
on the environmental front, through the publication of quantitative and
qualitative targets and through an increase in the number of verified indicators
audited by an external body. On the social front, our system was strengthened
through the publication of numerous indicators in this field. All of our
management systems are thus evolving worldwide towards the inclusion of all
aspects of durable development.
Preserving ecological balances
Whether through the limitation of water dissipation, the enhancement of
the quality of our waste, the use of alternative energies in our heating
operations, the recovery and treatment of biogas emissions at our landfills or
the use of low-emission fuels in our fleet of public or private transport
vehicles, our company has raised to the challenge of the main environmental
problems currently affecting our planet by applying our excellent know-how,
technological capabilities and research potential to these problems. We
contribute to the enhancement of quality of life and sanitary conditions of
local populations in our day-to-day operations. For example, by supplying
potable water to impoverished areas we help to reduce infant mortality, as more
than 2.5 million children die each year due to lack of access to potable water.
Improvements in waste management also have a positive impact on quality of life
and on human health. As a result, environmental management services can be an
important factor of accelerating a sociological revolution.
Preserving economic and social balances
We also consider the economic and social factors that underlie the
course of development in the countries in which we operate, and we work to
develop solutions that are adapted to local constraints and know-how transfers.
For example, we have developed integration strategies in Tianjin, China, that
have allowed our local employees to better understand the challenges in the
provision of water services. We give preference to a partnership approach with
non-governmental organizations (NGOs), local authorities and associations in the
implementation of action plans for the population of emerging countries, which
permits the development of model plans that can be reproduced. In each of our
projects, we seek to create a beneficial and educational dimension for the
improvement of public health. For example, in Durban, South Africa, we have a
launched a series of initiatives in partnership local NGOs and under the
supervision of the United Nations (Unitar) to promote education on public health
and hygiene in order to ensure a better use of water.
For example, we launched the Aquadev world network in 2001. The goal of
this network is to allow interested parties to exchange information and
experiences on water problems in impoverished areas of the planet and to propose
answers to questions relating to environmental matters, including how to supply
water to populations respecting the different economic constraints and using
local associations, and the nature of the role of NGOs in the development of
these services.
In addition, we entered into an alliance with the Australian Antarctic
Division (AAD) in 2001, which manages the activities of the Australian
government in the Australian zone of Antarctica, to participate in the
preservation of Antarctica. Pursuant to this alliance, we have agreed to provide
the AAD with our know-how and 240 special containers at no cost to enable the
collection of approximately 300,000 tons of waste. We expect that this
partnership will last for at least 10 years and that it will be extended to
other zones of the Antarctic region.
The Vivendi Environnement Institute: a tool for durable development
Human management of the environment represents a major challenge that
requires the mobilization of a large number of resources, the support of the
public at large and close cooperation among international, national and local
participants. To address this challenge, Vivendi Environnement created the
Vivendi Environnement Institute in 2001 to encourage prospective reflection on a
number of issues relating to durable development, as well as to progressively
shed light on the principal trends that will influence the provision of
environmental management services over the next decade.
Through its Prospects Committee, which is exclusively composed of
individuals of international reputation and standing, the Vivendi Environnement
Institute benefits from the contribution of leading external expertise on
different key subjects (including public health, economy and human sciences)
while maintaining a presence in the daily realities through our company's
different activities. This dual capability represents both the originality and
the strength of the Institute, which intends to be at the heart of the main
environmental debates and issues of the 21st century. The main themes to be
considered by the Institute in 2003, which are guided and defined by the members
of the Prospects Committee, will include sanitary norms, the combat against the
greenhouse effect, urban development and major sociological developments. The
work of the Institute should permit the creation of a platform for dialogue and
exchanges on the main environmental, social and economic issues in the near
future to respond to the expectations of the public.
As of the date hereof, the members of the Prospects Committee are:
Amartya Sen (India), economist, winner of the Nobel Prize for Economics in 1998,
professor of economics at Trinity College, Cambridge, and of philosophy at
Harvard University; Helene Ahrweiler, historian, president of the University of
Europe and an expert for UNESCO on human and social sciences; Philippe
Kourilsky, biologist, President of the Pasteur Institute in Paris, France,
Director of Research at the Centre nationale de recherche scientifique (CNRS)
and professor at the College de France; Pierre-Marc Johnson (Canada), attorney,
ex-prime minister of Quebec, Canada, and expert on environmental matters, and
Harvey Fineberg (USA), President of the Institute of Medicine of the United
States.
Environmental Compliance
As a specialist in environmental management services, we are concerned
about the environmental consequences of each of our activities, both in France
and worldwide. In this respect, we consistently endeavor to comply with
applicable regulations, to meet the needs and requests of our clients and to
optimize the techniques we implement. To illustrate our commitment, we highlight
below some of our significant environmental actions that are we undertaken
regardless of any regulatory or contractual obligation to do so. For a more
detailed description of our environmental compliance and activities, we refer
you to our "2002 Report for Durable Development," which provides greater detail
regarding our policy and actions in this respect.
Use and Protection of Natural Resources
Water Resources
We preserve water resources by working to prevent wasteful usage in our
own installations and in those of our clients. In this respect, the continued
implementation of the Environmental Management System provides, in particular,
for the monitoring of water consumption in all of our activities. Our current
action plan reflects two primary concerns: leaks in cold water distribution
networks (raw or treated) and leaks in domestic hot water production networks.
Our industrial water consumption, excluding Dalkia, amounted to 259 million
cubic meters in 2002.
We also use and promote techniques through which alternative resources
are used, such as the production of drinking water by desalination of seawater
and production of water for industry or farm irrigation by recycling wastewater.
We also take measures to avoid polluting water resources. For example,
79% of our waste storage centers are equipped with treatment stations for water
that percolates through stored waste. In addition, our wastewater treatment
efficiency, measured at biological treatment stations with a capacity greater
than 50,000 EH, reached 86% in 2002.
Energy - Energy efficiency and the use of renewable energies
We contribute to the reduction of energy consumption. Dalkia optimizes
energy management for more than 60,000 sites in Europe, from municipal heating
networks to public housing, commercial or industrial building boilers.
Optimizing the energy efficiency of such thermal installations relies upon the
quality of their operations and maintenance, as well as upon their
modernization.
Dalkia's strong growth emphasizes the use of heating networks that
offer optimized energy performances by concentrating production on a single site
and of cogeneration. Efforts in this field include all of our activities. We are
also developing the use of renewable energies, for example biomass, solar energy
(Dalkia) and biogas from waste storage centers (Onyx).
In addition, we provide environmental performance training to 90% of
our public transport drivers during the first five years of their careers. This
training effort enables us not only to enhance passengers' comfort and limit
polluting emissions, but also to achieve significant fuel economy. Our total
energy consumption amounted to 77 million MWh in 2002.
Use of soils
Our activities contribute to the preservation of the quality and
fertility of soils, largely through our composting of treatment sludge and
organic waste from selective collection. Regarding sludge, we first seek to
enhance the quality of sludge produced by implementing pollutant controls in our
wastewater treatment networks (through our Actipol method). Vivendi Water also
prepares a reference and certification system for the production of quality
sludge to be used as compost. As a second step, we promote agronomic recovery of
sludge through composting and engage an independent certifying body to audit our
composting and agronomic recovery networks. We produced 756,000 tons of compost
in 2002, 31% of which was eligible to be used in agricultural activities.
We have initiated a quality enhancement program for organic matter
produced from organic waste and a program to evaluate their agronomic impact in
coordination with the INRA. We are also active in the recovery of polluted
soils. Relying on several processes, including thermal desorption, we process
almost all of the pollutants present in the soil at industrial sites.
Air Pollution
We control our direct and indirect emission of greenhouse gases and we
are implementing an action plan to reduce our emissions. In addition to the
implementation of the energy efficiency policy described above, this action plan
provides, in particular, for our active participation in the flexibility
mechanisms provided for by the Kyoto protocol and currently being prepared at
the European and national level. Our direct emissions of greenhouse gases
(excluding biogas from landfills) reached 19.6 million tons in 2002.
There is no approved protocol for the assessment of methane (CH4)
emissions, which is an important component of the biogas produced by waste
storage centers. We are working to develop reliable indicators in this field,
and contribute to the reduction of CH4 emissions by setting-up biogas capture,
burning and evaluation systems in specialized technical landfills. Currently,
125 of our waste storage centers are equipped with biogas collection systems.
Installations that we operate mainly emit sulfur and nitrogen oxides
(SOx and NOx), carbon monoxide (CO), volatile organic compounds and dust.
Emissions of SOx from waste incineration units (hazardous and non-hazardous)
amounted to 138 grams per ton of incinerated wastes in 2002. There is no
reliable technique yet for measuring emissions of NOx. We are working towards
the elaboration of such indicators. For example, Connex, in partnership with
ADEME, initiated a study to identify and assess the market systems capable of
reducing the NOx emissions of its buses and coaches.
In addition to complying with regulatory standards, we attempt to
reduce our emissions by:
o enhancing air pollution treatment and developing more effective
treatment technologies, including to treat smoke from our waste
incineration units and enhance the quality of emissions of our
transport vehicles, and
o reducing consumption and favoring the use of clean fuels, such as
fuel oil or low sulfur coal, natural gas, natural gas for
combustion installations or vehicles, and electric or dual-mode
vehicles.
We have developed a semi-continuous method to monitor emissions of
dioxins during waste incineration, allowing for control of the aggregate flow of
such pollutants emitted throughout the year. We offer this reliable and
efficient measurement technique to all of our clients and 61% of waste
incinerated in our units emit dioxins at levels lower than 0.1 mg/Nm3.
Noise and Odors
We have developed new treatment and storage techniques for odors,
particularly in wastewater treatment plants and waste storage centers. We also
use new, more silent, technologies in some of our installations, including
special wall coatings, sound traps and exhaust gas exit silencers for
cogeneration installations or transport vehicles).
Waste
The permanent increase in waste quantities around the world presents
major risks for the environment. We strive to develop every aspect of the waste
management business that enable us to limit such risks, including the reduction
of the sources of waste, waste collection and processing, selective sorting,
waste recycling and waste-to-energy recovery. Our efforts also address the waste
produced by our own activities, such as residues from combustion, residues from
smoke purification, treated sludge and water that percolates through waste at
storage centers.
Preserving biological balance, natural environments and protected
species
In addition to complying with regulatory standards and recommendations,
we invest and take specific measures to protect the environment, in particular
through our research and development activities conducted at Anjou Recherche,
CREED and Eurolum, and our training efforts conducted through the IEU.
Evaluation or certification regarding the environment:
Our activities have been subject to environmental certification, both
external (ISO) and internal, for a long time. The number of our ISO 14001
certified sites has increased continuously since 1999. In addition, we seek to
achieve the targets set by our Environmental Management System for all of our
installations, which lead, subject to the circumstances of each of the entities
concerned, to the general application of the ISO 14001 certification standards.
We currently have 265 sites covered by an ISO 14001 certification.
Compliance with applicable legal and regulatory provisions:
Our Environmental Management System includes, among other things, an
audit program that allows us to monitor our sites' regulatory compliance. We
have defined a general framework to ensure consistency of the audit systems
developed by our divisions, and each of our divisions remains responsible for
the definition and implementation of its own system. Our goal is to conduct
audits for 80% of priority sites by 2005 and 100% by 2008. Priority sites are
potable water production sites and urban treatment stations, waste treatment
sites, Dalkia's classified installations and several of Connex's transportation
centers.
Expenses incurred to preserve the environment
Our capital expenditures amounted to (euro)2.6 billion in 2002, which
includes expenses incurred for research and development, employee training, our
certification program and the implementation of the Environmental Management
System.
Prevention of environmental risks
In addition to the measures described above to reduce environmental
risks, we have established corporate departments that specialize in
environmental management. Our Durable Development Department, which reports to
our senior management, is responsible for all aspects of durable development,
which includes economic, environmental and social issues. This Department
ensures that the objectives and actions of our other corporate departments are
consistent, particularly in connection with the implementation of the
Environmental Management System, and encourages information sharing and best
practices. Our Durable Development Committee, which includes representatives of
all of our divisions and corporate departments (particularly our technical,
legal and communication departments), has been operating for three years. In
addition, one of the three specialized sub-committees of our coordination
committee for the evaluation and prevention of risks ("CEPR") is specifically in
charge of industrial, environmental and health risks. See "Item 11. Quantitative
And Qualitative Disclosures About Market Risk--Ethics, vigilance and risk
management--Coordination committee for the evaluation and prevention of risks"
for a description of the CEPR.
We have also established crisis management procedures that also cover
environmental crisis management, including, in particular, on-call and alarm
systems at national and international levels, that would allow any necessary
measures to be taken as soon as possible.
Reserves and guarantees for environmental risks
As of December 31, 2002, our accrued reserves for site reconstitution
amounted to (euro)388.4 million.
Indemnities and damages
As of December 31, 2002, our accrued reserves for litigation (including
all types of claims and disputes) amounted to (euro)43.5 million.
International environmental targets
We apply our Environment Management System, as described above, to all
our subsidiaries worldwide.
Intellectual Property
We currently own a significant number of patents and trademarks in
France, the United States and other countries around the world that are of value
to our business. However, we believe that the diversity of our patents and
trademarks does not make any of our activities dependent on any one of these
patents or trademarks individually.
Vivendi Universal has authorized us to use the "Vivendi" and "Vivendi
Water" trademarks. See "Item 7. Major Shareholders and Related Party
Transactions-Related Party Transactions."
Marketing
We market our products and services primarily by taking advantage of
our reputation and by continuously offering to provide a more comprehensive
range of environmental services to existing clients. We analyze the
environmental service needs of prospective and existing industrial and
commercial customers and demonstrate to them how our services could improve the
efficiency of their operations. The marketing efforts we direct toward public
authorities comes primarily in the form of bids we submit for contracts to
provide public services. See"-- Contracts." For more information regarding
marketing efforts by each of our business segments, see"-- Our Services."
Seasonality
Because of the diverse nature of our operations and our worldwide
presence, our business is typically not subject to material seasonal variations.
Raw Materials
We purchase raw materials on a worldwide basis from numerous suppliers.
We seek to accumulate and maintain a reserve inventory of raw materials and
supplies, qualify new suppliers, and develop production processes in our own
facilities. We undertake to secure strategic materials through medium-term and
long-term contracts. We have not experienced difficulties in obtaining
sufficient amounts of raw materials and supplies in recent years and we
anticipate that we will be able to do so in the future. The price of raw
materials and supplies may vary substantially in the future. For example, the
price of fuel has, in recent years, exhibited considerable volatility. Fuel
prices have increased recently and, as of the date hereof, we cannot anticipate
the evolution of these prices in the future. Our operations historically have
not been, and are not expected to be in the future, materially affected by
changes in the price or availability of fuel or other raw materials, as our
contracts typically contain provisions designed to compensate us for increases
in the cost of providing our services.
Insurance
Overview and Insurance Procurement Policy
Insurance policy renewals after January 1, 2002 were affected by the
confusion created in the insurance and reinsurance markets by the events of
September 11, 2001 in New York and September 21, 2001 in Toulouse, France.
Because the terms of our insurance policies expired on or after January 1, 2002,
we, as all other companies with insurance policies with similar terms, were
affected by the combined effect of the decrease in the number of insurers
willing to cover "industrial" risks, the decrease in the coverage available from
insurers that were willing to cover these risks, the increase in the premiums
required by these insurers and the charging of additional premium amounts to
cover terrorism risks.
For all of our operating divisions, we:
o maintain common insurance policies to establish a coherent risk
transfer policy and maximize economies of scale, while taking
into account the specificities of our businesses and legal or
contractual constraints; and
o maximize the levels and means to access the insurance or
reinsurance markets through both a consolidated reinsurance
company, as well as the implementation of a reserve accrual
policy. Reserves are determined on the basis of the divisions'
knowledge of their risks and prior accident claim history as well
as an evaluation of the costs and coverage proposed by insurers.
The implementation of our insurance procurement policy also takes into
account the extent and willingness of insurers to support the risks arising from
our activities, the capacity available in the insurance and reinsurance markets,
the premiums proposed in relation to the nature of the coverage offered,
exclusions, limits and sub-limits and deductibles. We generally only purchase
insurance policies from insurers and reinsurers who have at least an "A" rating.
Principal Insurance Policies
Civil Liability
Until December 31, 2002, we were covered under Vivendi Universal's
civil liability excess policy that provided all of our subsidiaries with
coverage of up to US $400 million. As of January 1, 2003, we have entered into a
separate and independent 18-month insurance policy that provides coverage for
all of our subsidiaries of up to US $400 million per insurable event.
We also maintain specific insurance policies for our U.S. activities,
our rail transportation operations and our research centers. We have also
entered into a mono-line contract to provide coverage for the rest of our
activities. The mono-line civil liability contract includes the standard
coverage obtainable on the French market for an international group such as our
company. The coverage amounts to (euro)30 million per insurable event with an
annual cap of (euro)60 million. For foreign subsidiaries outside the United
States and Canada, the coverage threshold amounts to (euro)1.5 million.
We also maintain several environmental civil liability insurance
policies that provide coverage to all of our subsidiaries of up to US $5 million
to US $50 million per insurable event per year, depending on the policy. Our
excess civil liability policies described above also cover damages suffered by
third parties resulting from sudden and accidental events.
We were also covered under Vivendi Universal's management liability
policy, which provided coverage of up to US $200 million. In July 2002, we
commenced the process of implementing a separate independent policy for
management liability, which was completed in December 2002. For 2003, we have
obtained a management liability insurance policy that provides coverage of up to
US $200 million.
Damage to Property and Business Interruption Policies
All of our divisions maintain damage insurance policies that cover the
assets and facilities that we own as well as those for which we have contractual
responsibility. These policies provide coverage for "business loss" or
"additional business expenses", depending on the capacity of the companies in
our group to use internal or external solutions to ensure uninterrupted service.
The policies contain standard terms. The level of premiums, deductibles and
sub-limits for exceptional socio-political or natural events reflects the terms
proposed, or sometimes imposed, by insurers on the markets on which the
contracts are purchased. We have entered into an excess coverage policy to cover
damages exceeding (euro)100 million. During 2002, we did not present any claims
in excess of (euro)10 million.
Other Contracts
In light of the difficulties encountered in the insurance market in
2002, we cover civil liability risks relating to the vehicles used in our
activities (such as passenger transportation or collection of hazardous and
non-hazardous waste) through reserves accrued per event from (euro)150,000 to
(euro)1 million, depending on the country, and financial guarantees in the form
of sureties or letters of credit.
Construction projects are systematically guaranteed by a comprehensive
all-risks insurance policy obtained by the owner, the contractor or the
operating company. In addition, several investments abroad are covered by
political risk policies with the Compagnie d'Assurance Francaise pour le
Commerce Exterieur (COFACE).
Self-Insurance and Reserves
We remain liable for any amount of damages caused by insurable events
not exceeding the deductible amount under the relevant insurance policy. Our
deductibles for serious risks range from (euro)100,000 to (euro)1 million, while
deductibles under our civil liability policies outside the United States and
Canada reach (euro)30,000. Our rail operations in the United Kingdom are insured
under policies that include deductibles of 2.5 million pounds sterling. In
addition, our reinsurance subsidiary has underwritten a part of our property
damage and civil liability policies issued by French insurers.
We also obtain excess insurance to cover any damages or losses caused
by an insurable event that exceed the coverage limits or sub-limits under the
relevant insurance policy. Our deductibles under reinsurance policies for
property damage, which amount to (euro)3 million per insurable event, are
protected by a "stop loss" reinsurance policy that covers (euro)9 million in
damages exceeding an annual deductible of (euro)10 million. We have entered into
a similar reinsurance arrangement for our civil liability policies, with (euro)5
million of coverage for claims exceeding (euro)11.5 million. We had not filed
any claims under our reinsurance arrangements as of December 31, 2002.
Organizational Structure
Our company is divided into four operating divisions corresponding to
each of our four business segments and a number of centralized corporate
departments that lead and coordinate the actions of teams present in each of the
four operating divisions. Each of our operating divisions has one representative
on our management board. We believe that this organizational structure
encourages the coherent development of our group by reinforcing its identity,
maintaining solidarity and cohesion, favoring economies of scale and encouraging
professionalism through the sharing of best practices.
See "-- History and Development of the Company" and "Item 7. Major
Shareholders and Related Party Transactions -- Major Shareholders" for a
description of the history of the creation of our organizational structure.
Property, Plants and Equipment
We rent a 15,000 square meter building located at 36-38 avenue Kleber,
75116, Paris, France that we use as our corporate headquarters. Our and our
divisions' senior management have their offices in this building since May 2002.
We do not own any material real properties. We generally conduct our
water treatment, waste management, energy services and transportation operations
at premises owned by our customers, because we do not own any important physical
properties in connection with those operations.
Research and Development
Because environmental and health problems have become a major global
concern, our ability to innovate in these areas through our research and
development is one of our priorities. Through our Research Department, we
coordinate the research and development efforts of our 600 researchers
throughout our divisions in several research centers around the world,
particularly:
o Anjou Recherche and its affiliated centers in Germany, Australia
and the United States, which specialize in water related
research,
o Centre de Recherche pour l'Environnement, l'Energie et les
Dechets, or CREED, which focuses on waste and energy services
related research, and
o Eurolum, which focuses on transportation related research.
Our researchers seek to anticipate future needs and develop effective
solutions to address those needs. Through their work, we maintain our
technological edge and adapt our segments (Water, Energy Services, Waste
Management and Transportation) to the realities of an ever-changing world.
We believe that our commitment to technological advancement requires
innovation and the development of new procedures or the adaptation of existing
techniques to meet clients' specific needs. For example, we have developed
programs relating to an electro-deionization technique to supply ultra-pure
water to pharmaceutical or electronics industries on an ongoing basis; a tram
without catenary to permit its harmonious use in the architectural structures of
urban centers; a combustible battery; and the methanization of waste. In
addition, we have established a program to store energy and maximize energy
efficiency by intermittently storing electricity or heat and completing the
process through co-generation.
Our research and development efforts also seek to continually improve
our operating performance by broadening the range of our service offerings while
at the same time reducing the cost of our services. In the waste management
sector, for example, we conduct research to at a number of specialized technical
landfills, which we refer to as "bioreactors," in Australia, France and the
United States to optimize the decomposition of waste through the recirculation
of liquid effluents that are produced as water filters through the waste in the
landfill. This procedure will enable a controlled acceleration in biogas
production, an increase in the generation of clean energy and a reduction in the
length of the post-operating period of our landfills. In the transportation
sector, we seek to optimize the use of our service vehicles, which has led,
among other things, to the development of the "mobile office" and the
"communicating vehicle." We have also developed specialized equipment for our
transportation, intervention and collection vehicles that use our New
Information and Communication Techniques, or NICT, which enable vehicle
operators to optimize itineraries and schedules, to improve the planning of
vehicle usage, and to enhance the efficiency of emergency assistance and
services to customers. In addition, our research and development efforts to
improve our operating performance also include our work on systems to measure
methane levels in our energy services division and on membranes and
pre-treatment before filtration through membranes in our water segment, which
will enable a broader use of water treatment technology.
Our Research and Development Department is consecrated to the
protection of the environment and sanitary security. Through our research to
reduce polluting emissions, limit greenhouse gas emissions, increase energy
efficiency and use clean energies, we have improved air quality, battled climate
change, and positioned ourselves as a well-known player in the market for
emissions credits. In the areas of health and sanitary security, we provide
solutions to address the new risks faced by our companies by developing tools
and techniques to prevent, analyze, and provide curative treatment, where
necessary. Our experts work on a number of risks once considered minor,
including those related to the legionella bacteria, for which we have developed
rapid-detection (using molecular biology) and deactivation methods, to
endocrinal and cyanobacterial perturbations in water and to dioxin levels, which
are able to control in the smoke produced by our incineration units. We also
seek to develop methods to improve water resource management. For example, we
have launched a multi-year project to manage aquifer renewal with a team of 30
people from 5 universities in Berlin, and we conduct expertise missions on the
development of seaweed in the Erdre river and have obtained European approval of
our modeling center for hydraulics and biological treatment. Through these
programs, we hope to elaborate preventive and curative solutions to stop seaweed
proliferation and develop tools to assist the design and exploitation of works,
networks and stations.
Through our research and development efforts relating to the
environment, sanitary security and quality of life, we also seek to improve our
employees' working conditions and security. One of our research and development
programs, for example, focuses specifically on improving conditions and
reinforcing security for our employees in our waste collection and sorting
activities. We have also developed a new service for the safe collection of
medical waste produced by healthcare professionals in suburban and rural
locations, which supply the waste voluntarily, through "MEDIBUS," a roaming
vehicle specially designed for this purpose.
Our Research and Development Department benefits from the complementary
nature of our divisions' capabilities to develop complex integrated products and
services, such as global management services to purify and treat
hydro-carbonated waste and to treat effluents. In this context, for example, we
continue to improve our composting technology and develop new treatment and
recovery procedures relating to sludge, such as BIOTHELYS, which reduces the
amount of sludge byproducts, SAPHYR, which sanitizes and reduces odors from
sludge to improve its quality, and ATHOS, which treats sludge through humid
oxidation.
We use the most sophisticated modeling and digital simulation tools in
all of our research and development centers. This capability allow us to
increase our expertise on procedures and to optimize our operational tools. Our
modeling and simulation activities have allowed us, for example, to reduce
corrosion, wall erosion and pollutant emission levels in our thermal treatment
activities, and to optimize the integration of new equipment, including sludge
injection equipment for our incinerator ovens (PIROMIX procedure) and a new
system to reduce nitrate-oxygen (NOx). We also develop complex management tools
to reduce water and energy consumption (PINCH procedure).
Our research and development efforts are further enriched through
multiple partnerships with industry, municipalities, governmental organizations
and universities. In 2002, our research teams joined those of other institutions
to create the Global Water Research Coalition, which seeks to promote synergies
and collaborative studies. Through our network of laboratories, we participate
in the work conducted by the Metropolis network, which is supported by the
European Commission and seeks to identify, evaluate and promote techniques and
methodologies related to health, safety and environmental protection. We also
conduct research jointly with EDF on sludge treatment, biofilm and hydraulic
models through our joint "Research and Development Studies and Services"
program, which Dalkia finances through the CREED, and in accordance with a
contract signed in July 2002.
Through our active participation in research and development programs
on both a European level (PCRD-LIFE) and a French national level (PREDIT), our
researchers play an active role in international research and have developed a
strong network of relationships with a diverse group of industrial and
university partners, which allow us to achieve operating developments that
expand our service offerings and to anticipate required technical improvements.
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our operations should be read in
conjunction with our consolidated financial statements and related notes
included elsewhere in this report. The following discussion contains
forward-looking statements that involve risks and uncertainties, including, but
not limited to, those described under "Item 3. Key Information-Risk Factors."
Our results may differ materially from those anticipated in the forward-looking
statements.
Overview
Our company has experienced continuous growth over the period from 2000
to 2002, despite increasingly difficult conditions in each of our markets
resulting from the global economic slowdown that began in the second half of
2000. Part of our growth has resulted from the combination of our energy service
assets with those of EDF and our selective acquisitions of strategic mid-sized
companies. We have also generated significant organic growth since 2000 as a
result of the large number of contracts won during the past three years, and we
anticipate that our newest contracts should permit us to continue to grow our
business in the next several years.
Major Developments in 2002
2002 was a decisive year for our company. We continued to pursue our
business strategy through new outsourcing contracts with municipal and
industrial customers, restructured our shareholder base and reinforced our
financial position through a (euro)1.5 billion capital increase, the
implementation of our divestiture program, which exceeded the expected amount of
(euro)1.1 billion to more than (euro)1.7 billion in 2002, and reduced our net
financial debt from (euro)14.3 billion to (euro)13.1 billion.
In addition, we completed our corporate reorganization by regrouping
all of our corporate departments and the senior management of each of our
divisions at our company's new corporate headquarters in Paris, France.
Restructuring of Our Shareholder Base
Our main shareholder, Vivendi Universal, reduced its interest in our
company from 63.1% to 20.4% of our share capital in 2002 through block sales of
our shares to institutional investors and our (euro)1.5 billion capital
increase. In addition, Vivendi Universal issued options to acquire Vivendi
Universal's remaining 20.4% interest in our company at any time until December
2004 to a group of institutional investors that acquired shares of our company
from Vivendi Universal. See "Item 7. Major Shareholders and Related Party
Transactions" for a description of our agreements with Vivendi Universal and the
consequences of our separation from Vivendi Universal.
Exchangeable Bonds (OCEANE)
In 1999, we issued 1.5% bonds exchangeable into shares of Vivendi
Universal, which mature in 2005. These bonds were guaranteed by Vivendi
Universal, and as a result provided bondholders with the right to accelerate the
maturity of the bonds in the event of a default by Vivendi Universal under its
other debt obligations. On August 20, 2002, we called a meeting of holders of
our exchangeable bonds to irrevocably waive these provisions, which required the
approval of a majority of these holders. By a majority vote of 64.8%, the
holders of our exchangeable bonds agreed to irrevocably waive Vivendi
Universal's guarantee and the related cross-default clause effective September
1, 2002, in exchange for a 0.75% increase in the interest rate on the bonds from
1.5% to 2.25%.
Developments Relating to Our Business
In 2002, we continued to pursue our strategic focus on organic growth
and selective acquisitions of mid-sized strategic businesses. Our revenue
increased by 3.3% in 2002 principally as a result of strong organic growth in
each of our business divisions and FCC, which was partially offset by the
negative effect on revenue of our sales of non strategic assets and fluctuations
in currency exchange rates. Excluding the impact of our sales of assets, the
increase in our revenue reflected organic growth of 5% in our core businesses,
particularly due to strong organic growth of 7.5% outside France. In addition,
we won a significant number of new outsourcing contracts in 2002 with public
authorities and industrial customers, including several contracts that combine
the services of our various operating divisions.
New Contracts with Public Authorities
We won a significant number of major contracts with public authorities
to provide municipal public services, including, among others, contracts
relating to:
o the management of the complete potable water cycle in Pudong, the
business district of Shanghai, China, for 50 years by a joint
venture in which we hold a 50% interest, with estimated total
revenue of (euro)10 billion (of which (euro)5 billion is
attributable to our company),
o the outsourcing of water, wastewater treatment and electricity
services in Rabat-Sale, Morocco, for 26 years, with estimated
total revenue of(euro)4.6 billion,
o the construction and operation of wastewater treatment plants in
The Hague, The Netherlands, for 30 years, with estimated total
revenue of(euro)1.5 billion, which is in course of finalization,
o the production and distribution of potable water in Indianapolis,
United States, for 20 years, with estimated total revenue of US
$1.5 billion,
o the management of the entire waste treatment network of the Marne
department, France, for 20 years upon construction of a waste
treatment unit (expected to be completed in 2005), with estimated
total revenue of (euro)250 million,
o the operation of the urban heating network of the city of Poznan,
Poland, for 25 years, with estimated total revenue of (euro)1.7
billion, and
o the operation of the light metro network in Dublin, Ireland, for
5 years (with an option to extend the term for a further 5
years), which will commence operating in 2003 and with estimated
total revenue of (euro)55 million (over the first 5 years of
operation).
The revenue amounts that we expect to earn from our contracts take into
account updates to our volume and price assumptions since the date these
contracts were publicly announced. As a result, announced revenue amounts may
differ from the amounts of expected revenue included in this report. In the case
of combined contracts to build and operate facilities, expected revenue amounts
reflect total revenue expected to be generated from both services.
Growth in Outsourcing Services to Industrial Customers
We won a number of significant contracts to provide outsourcing and
other services to industrial and commercial customers, including, among others,
contracts relating to:
o the outsourcing of water treatment and distribution services for
Petronas in Malaysia for 20 years, with estimated total revenue
of(euro)200 million,
o the outsourcing of waste treatment and industrial cleaning
services at 15 of Renault's industrial sites in France for 4
years, with estimated total revenue of approximately(euro)88
million,
o the outsourcing of water services at Alon's refinery in Big
Spring, Texas (U.S.), for 20 years, with estimated total revenue
of US $66 million,
o the operation of the central thermoelectric unit of BP's refinery
in Lavera, France, for 12 years, with estimated total revenue
of(euro)53 million, and
o the management of the thermal network of the hospital of Parma,
Italy, for 9 years, with estimated total revenue of(euro)35
million.
The revenue amounts that we expect to earn from our contracts take into
account updates to our volume and price assumptions since the date these
contracts were publicly announced. As a result, announced revenue amounts may
differ from the amounts of expected revenue included in this report. In the case
of combined contracts to build and operate facilities, expected revenue amounts
reflect total revenue expected to be generated from both services.
Other Developments
In 2002, we acquired Transports Verney, a French transportation group,
which recorded revenue of (euro)150 million in 2001, and the remaining minority
interest (34%) in Compagnie des Eaux de Prague, our Czech water subsidiary,
which obtained an extension of the term of our contract to provide water and
wastewater services in Prague until 2028. We also obtained a 5-year extension of
the term of our contract to operate the metro and tramway networks in Stockholm,
Sweden, which was scheduled to expire in 2004. Finally, in the context of a
public offer for tenders, we were not awarded the renewal of a contract to
operate the water and wastewater services of the Commonwealth of Puerto Rico
effective July 2002.
Refocusing on our Core Businesses and Active Management of our Asset
Portfolio
We continued to implement our divestiture program for non-strategic
assets in 2002, including the sale of:
o our 24.1% interest in Bristol Water Holding for
approximately(euro)37 million;
o USFilter's Filtration & Separation division ((euro)378 million),
Plymouth Products division ((euro)126 million) and Distribution
division ((euro)472 million);
o our 17% interest in Philadelphia Suburban Corporation, which
generated gross proceeds of(euro)207 million;
o our 31.74% interest in South Staffordshire for(euro)131 million;
o Bonna Sabla, a subsidiary of Vivendi Water, for(euro)98 million,
followed by our repurchase of 19.85% of Bonna Sabla for(euro)11
million; and
o various fixed assets for an aggregate price of(euro)198 million,
which were sold in the ordinary course as a result of our
systematic evaluation of our asset portfolio.
We disposed of over (euro)1.7 billion in assets in 2002. The net
proceeds from these sales were applied to reduce our outstanding indebtedness.
Presentation of Information in this Section
Historical and Comparable Financial Information
In order to provide a meaningful comparison of our operating
performance in 2001 and 2002, we present our results on a comparable basis by
excluding the impact of the implementation of our divestiture program in 2001
and 2002 and the fluctuation of currency exchange rates in 2002. As a result,
our comparable results in 2001 and 2002 exclude the results of our "non-core
businesses," which are the activities or units that have been or are currently
in the process of being divested. These non-core businesses relate mainly to
water-related activities and include USFilter's Filtration & Separation, Surface
Preparation, Plymouth Products and Distribution divisions and our Bonna Sabla
subsidiary in France. As of December 31, 2002, all of our non-core businesses
have been sold, except for USFilter's Surface Preparation division. In addition,
our comparable results include our actual results in 2001, while our results in
2002 have been adjusted to eliminate the effect of fluctuations in exchange
rates.
The following table presents the main adjustments made to our
historical revenue and EBIT in 2001 and 2002 to obtain comparable measures for
these periods:
Revenue EBIT
----------------------- --------------------
(in millions of(euro))
2002 2001 2002 2001
------ ------ ------ ------
Historical Information 30,078.7 29,126.7 1,971.3 2,013.1
Impact of Exchange Rate Fluctuations 350.0 -- 23.7 --
Non-Core Businesses (2,006.0) (2,614.0) (124.0) (200.0)
------ ------- ------ ------
Comparable Information 28,422.7 26,512.7 1,871.0 1,813.1
We have not made any adjustments to our results of operations for
fiscal year 2000 presented in this report. As a result, our historical 2000
results may not be directly comparable with our comparable 2001 and 2002
results. We do present, however, a comparison of the historical 2000 and 2001
results in this report.
The comparable financial information included in this report has not
been audited and is not intended to be a substitute for, and should be read in
conjunction with, our consolidated financial statements and related notes
included elsewhere in this report.
Definition of "organic" and "external" growth
As used in this report, the term "organic growth" includes growth
resulting from new contracts won and the expansion of existing contractual
arrangements through increases in prices and/or volumes delivered. We also
frequently offer, in the course of bidding on a contract, to acquire operating
assets related to the performance of the contract. As a result, our organic
growth also includes acquisitions of assets for dedicated use in a particular
project or contract.
The term "external growth" relates to growth resulting from
acquisitions (net of disposals) of entities that hold multiple contracts and
assets used in one or more markets.
Changes in Accounting Methods and Presentation of Accounts
In 2001, we made the following significant changes to our accounting
methods and the presentation of our accounts under accounting principles
generally accepted in France, or French GAAP:
o We changed our accounts to present our income statement by
function, as opposed to our previous method of presenting our
income statement by category of expense. As a result, our
operating income now corresponds to our revenue, after cost of
sales, selling, general and administrative expenses, other
operating expenses, goodwill amortization and restructuring
expenses. In addition, certain expenses that we previously
classified as exceptional items are now classified as operating
expenses. To permit a comparison of our results over the past
three fiscal years, we have restated our financial statements for
2000 to reflect this new presentation.
o For purposes of our French accounts, we adopted a new measure of
operating performance, which we refer to as "EBIT." This new
measure of performance is not used in our U.S. accounts. We
define EBIT as operating income (loss) before amortization of
goodwill and restructuring charges. Because all companies do not
calculate EBIT identically, the presentation of EBIT contained in
this document may not be comparable to similarly named measures
of other companies.
o We ceased recording the portion of goodwill attributable to
acquisitions paid for with shares of our company as a charge to
our shareholders' equity as permitted under French GAAP. We now
record goodwill as an asset on our balance sheet and periodically
impair the value of this asset in accordance with French and U.S.
GAAP.
We did not make any material changes to our accounting methods or the
presentation of our accounts in 2002.
Results of Operations
Year ended December 31, 2002 compared to year ended December 31, 2001
Revenue
Overview
We generated revenue of (euro)30.1 billion in 2002, an increase of 3.3%
from revenue of (euro)29.1 billion in 2001. Revenue from our core businesses
grew by 5.9% from (euro)26.5 billion in 2001 to (euro)28.1 billion in 2002, and,
at constant exchange rates, by 7.2% to (euro)28.4 billion in 2002. The negative
impact of exchange rate fluctuations, which amounted to (euro)350 million in
2002, was mainly due to the depreciation of the dollar (which accounted for
(euro)224 million) and, to a lesser extent, fluctuations in several
Latin-American currencies.
The following table shows a breakdown of our total revenue by division:
The increase in revenue from our core businesses is principally
attributable to organic growth (5.0%). Our external growth contributed (euro)616
million of revenue resulting mainly from the full-year impact of the
acquisitions of Marius Pedersen's waste management activities in Denmark and
SIRAM in Italy in 2001 and the integration of the Verney transportation group in
2002.
Our non-core businesses generated revenue of (euro)2.0 billion in 2002,
a decrease of 23.3% from revenue of (euro)2.6 billion in 2001. The decline in
revenue contributed by our non-core businesses is mainly attributable to the
sale of most of these businesses over the course of 2002.
The following table shows a breakdown of our revenue by division in
France and elsewhere:
France Outside France Total
----------------------- ----------------------- ------------------------
(in billions of(euro),
except for %) 2002 2001 %(2) 2002 2001 %(2) 2002 2001 %(2)
----- ------ ------ ------ ------ ------ ------ ------ ------
Water 6.2 6.2 0.1% 7.1 7.4 (4.8%) 13.3 13.6 (2.3%)
Waste Management 2.5 2.4 4.2% 3.6 3.5 3.5% 6.1 5.9 3.8%
Energy Services 3.0 2.7 8.7% 1.6 1.3 24.5% 4.6 4.0 13.8%
Transportation 1.3 1.0 27.7% 2.1 2.1 2.3% 3.4 3.1 10.4%
FCC(1) - - 0.7% 2.7 2.5 8.1% 2.7 2.5 8.1%
----- ------ ------ ------ ------ ------ ------
Total 13.0 12.3 5.0% 17.1 16.8 2.0% 30.1 29.1 3.3%
===== ====== ====== ====== ====== ======
-------------------------------------------
(1) Figures reflect a 49% share of FCC's revenue. Under French GAAP, we
proportionally consolidate FCC based on our 49% interest in the holding company
that controls it. Under U.S. GAAP, FCC would be accounted for using the equity
method. See Note 27A to our consolidated financial statements.
(2) Percentages are based on total figures and may not exactly correspond to the
figures above due to rounding.
Revenue generated in France by our core businesses amounted to
(euro)12.7 billion in 2002, an increase of 5.2% compared to 2001. Revenue
generated outside France by our core businesses totaled (euro)15.4 billion in
2002, an increase of 6.4% compared to 2001.
The following table shows a breakdown of our revenue by division and by
geographical regions outside of France:
---------------------------------------------------------------------------------
Euro zone Europe outside
(in billions of(euro)) outside France euro zone Americas Rest of World Total
----------------- ------------- ------------ ------------- -------------
2002 2001 2002 2001 2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Water 1.1 1.2 1.2 1.0 3.7 4.2 1.1 1.0 7.1 7.4
Waste Management 0.2 0.2 1.3 1.1 1.6 1.8 0.5 0.4 3.6 3.5
Energy Services 0.6 0.5 0.9 0.7 - - 0.1 0.1 1.6 1.3
Transportation 0.5 0.4 1.4 1.5 0.1 - 0.1 0.2 2.1 2.1
FCC(1) 2.5 2.2 0.1 0.1 0.1 0.2 - - 2.7 2.5
---------------------------------------------------------------------------------
Total 4.9 4.5 4.9 4.4 5.5 6.2 1.8 1.6 17.1 16.8
---------------------------------------------------------------------------------
-------------------------------------------
(1) Figures reflect a 49% share of FCC's revenue. Under French GAAP, we
proportionally consolidate FCC based on our 49% interest in the holding company
that controls it. Under U.S. GAAP, FCC would be accounted for using the equity
method. See Note 27A to our consolidated financial statements.
Revenue from the euro zone outside France increased by 11.0% in 2002,
principally due to strong growth in our transportation and energy services
divisions and at FCC, which more than offset the decline in revenue from our
water division in this region. The substantial growth in revenue from our
transportation division in this region was primarily due to the full-year impact
of the acquisition of the BBA network in The Netherlands in 2001, as well as
other contracts won in the Benelux region. Revenue from our energy services
division in this region increased mainly as the result of the full-year impact
of the acquisition of SIRAM in 2001. FCC's revenue increased by 11.6% in 2002
principally due to strong demand in the construction and cement markets in
Spain.
The growth of 7.0% in revenue generated in Europe outside the euro zone
countries was driven by our water, waste management and energy services
divisions, which offset the 10.3% decline in our transportation business in this
region in 2002. Revenue from our water division in this region grew by 13.0% due
mainly to the full-year effect of the operations under contracts won in 2000 and
2001 in Central Europe, Prague and Bucharest. Revenue growth of 15.6% in our
waste management division resulted primarily from the full-year impact of the
acquisition of Marius Pendersen's activities in Denmark and the commencement of
operations of new contracts won in the United Kingdom. Our energy services
division recorded revenue growth of 23.9% in this region in 2002 as a result of
the commencement of operations under new contracts won in Eastern Europe. The
decline in our transportation business in this region in 2002 resulted
principally from the full-year impact of the transfer of our South Central
contract in the United Kingdom during the second half of 2001.
In the Americas, our revenue declined by 11.0% in 2002. Our revenue in
North America decreased by 9.0% primarily as the result of the impact of the
sale of substantially all of non-core businesses formerly operated by USFilter
and the decline in value of the U.S. dollar against the euro. On a comparable
basis, revenue generated in North America grew by 9.0% in 2002, which was more
than offset by a decrease in revenue in Latin America resulting from the
depreciation of several Latin American currencies and the non renewal of our
water services contract in Puerto Rico.
Revenue growth in the Rest of the World region in 2002 reflected
primarily an 8.4% increase in revenue in the Asia-Pacific region, which was due
mainly to the commencement of operations of our potable water plant in Chengdu,
China and the sustained level of activity in our waste management operations in
Hong Kong, Singapour and Australia.
Water
Our water business generated revenue of (euro)13.3 billion in 2002, a
decrease of 2.5% compared with 2001, which is mainly attributable to the sale of
non-core businesses formerly operated by USFilter. Revenue from our core water
businesses grew by 2.4% to (euro)11.3 billion in 2002, mainly due to organic
growth of 4.0%, which more than offset a 1.4% decline in revenue due to the
impact of fluctuations in currency exchange rates.
In France, on a comparable basis, our water distribution and
engineering operations posted a 2.2% increase in revenue to (euro)5.6 billion in
2002. On a comparable basis, water distribution revenue grew by 3.0% as a result
of price indexing mechanisms, a small increase in volumes and the development of
new municipal and industrial treatment services. Revenue generated by our
specialized engineering subsidiaries declined in 2002, mainly as a result of the
substantial cyclical demand experienced in 2001.
Revenue recorded by Vivendi Water Systems declined to (euro)1.1 billion
in 2002, compared to (euro)1.3 billion in 2001. This decline resulted mainly
from the implementation of our policy of increased selectivity in our projects
and the seasonality of our desalinization activities in the Middle East and the
Arabian Peninsula.
Outside France, water revenue amounted to (euro)7.1 billion in 2002, a
decrease of 4.8% over water revenue recorded outside France in 2001. This
decrease resulted primarily from a significant decline in revenue in the
Americas region and, to a lesser extent, the euro zone outside France. Excluding
the United States, which was affected by the sale of our non-core businesses,
our water revenue outside France grew by 15% in 2002 compared to 2001. Excluding
Proactiva, which was affected by the one-time loss of its water services
contract in Puerto Rico, water revenue outside France (excluding the United
States) grew by 24% in 2002 compared to 2001 as a result mainly of the
commencement of operations under new contracts won in 2001 and 2002.
The decline in our water revenue in North America was primarily due to
the sale of substantially all of non-core businesses formerly operated by
USFilter, our main water subsidiary in North America, and the decline in value
of the U.S. dollar against the euro. On a comparable basis, our core water
businesses in North America recorded a 7.8% increase in revenue in 2002,
reflecting primarily a 12% increase in municipal and industrial outsourcing
revenue in 2002 (particularly due to the award of the Indianapolis municipal
outsourcing contract), which was partially offset by slower growth in revenue
from sales of water equipment products due to the economic downturn in North
America. The decline in water revenue in the rest of the Americas region
resulted primarily from the depreciation of several Latin American currencies
and the non-renewal of our water services contract in Puerto Rico.
Waste Management
Our waste management segment recorded revenue of (euro)6.1 billion in
2002, an increase of 3.8% compared with (euro)5.9 billion in 2001, reflecting
primarily organic growth of 5% and external growth of 1.9%, which was partially
offset by a 3.1% decline in revenue due to the impact of fluctuations in
currency exchange rates.
In France, our waste management revenue increased by 4.2%, reflecting
primarily organic growth of 3.3%. Revenue generated outside France increased by
3.5% to (euro)3.6 billion in 2002. Excluding Proactiva and changes in the scope
of consolidation of our waste management subsidiaries, revenue generated outside
France in 2002 grew by 5.3% at constant exchange rates. Growth in revenue
outside France was concentrated mainly in Europe outside the euro zone,
primarily due to the full-year impact of the acquisition of Marius Pedersen's
operations in Denmark and Central Europe in 2001 and the commencement of
operations under new contracts won in the United Kingdom in 2001 and 2002
(including in Bromley, Sheffield and Hampshire), and in the Rest of the World,
primarily due to the sustained level of activity in the Asia-Pacific region, and
particularly Hong Kong, Singapour and Australia.
The increase in revenue in these regions was partially offset by the
lack of revenue growth in the euro zone outside France, where revenue remained
stable at (euro)0.2 billion in 2002. This decline is mainly attributable to the
25% decrease in revenue from Proactiva's waste management activities as a result
of the depreciation of several Latin American currencies, particularly in
Argentina and Brazil, which was only partially offset by revenue growth in the
United States primarily attributable to a 2.6% increase in revenue from solid
waste activities and a 3.0% increase in revenue from hazardous waste activities,
despite the economic downturn in the United States that has led to a difficult
climate for our industrial customers.
Energy Services
Our energy services generated revenue of (euro)4.6 billion in 2002, an
increase of 13.8% from revenue of (euro)4.0 billion in 2001. Revenue growth
resulted mainly from external growth of 7.3%, organic growth of 6.3%, and a 0.2%
increase in revenue due to the impact of fluctuations in currency exchange
rates, particularly the appreciation of the Czech crown.
In France, organic growth in our co-generation activities was partially
offset by the negative impact of a decrease in natural gas prices. Outside
France, organic growth resulted mainly from the commencement of operations under
new contracts won in Tallinn (Estonia) and Vilnius (Lithuania) in 2001 and in
Poznan (Poland) in 2002.
External growth in 2002 resulted primarily from the full-year effect of
the consolidation of SIRAM, which was consolidated for only 3 months in 2001
(contributing (euro)43 million of revenue) compared to 12 months in 2002.
Transportation
Revenue from our transportation business reached (euro)3.4 billion in
2002, a 10.4% increase over revenue of (euro)3.1 billion in 2001. This increase
resulted primarily from organic growth of 4.5% and external growth of 5.9%,
which more than offset the full-year effect of the loss of the South Central
contract in the United Kingdom in 2001 (under which we recorded (euro)292
million in revenue in 2001).
In France, the increase in revenue is primarily attributable to the
acquisition of Transports Verney in January 2002, which reinforced our position
in France, as well as several other less significant acquisitions. Transports
Verney recorded (euro)150 million in revenue in 2002.
Outside France, we recorded strong organic growth in Northern and
Eastern Europe with the award of new contracts in Belgium, The Netherlands,
Denmark, Finland, Poland and the Czech Republic and the renewal until 2009 of
the contract to operate the Stockholm metro system. The development of our
regional transportation activities in Germany, the award of new contracts in the
United States (including in Fairfax and Los Angeles) and the development of our
transportation activities in Spain also contributed to organic growth in our
transportation revenue outside France. External growth outside France is
primarily attributable to the full-year effect of strategic acquisitions of
mid-sized companies in The Netherlands, Slovenia and Finland.
FCC
Excluding the results of Proactiva, which are included in the results
of our water and waste management segments, our consolidated 49% share of FCC's
total revenue grew by 8.1% from (euro)2.5 billion in 2001 to (euro)2.7 billion
in 2002. Excluding changes in the scope of FCC's consolidation, FCC's revenue
increased by 8.5% in 2002 at constant exchange rates. The increase in FCC's
revenue is primarily attributable to internal growth in its public services
activities, and particularly its waste management and construction activities,
mainly as a result of large construction projects in Spain, where FCC's revenue
grew by 9.8% in 2002.
EBIT
EBIT reflects our operating income (loss) before goodwill amortization
and restructuring costs. Our EBIT slightly decreased from (euro)2,013.1 million
in 2001 to (euro)1,971.3 million in 2002, primarily as a result of the sale of
non-core businesses and the negative impact of fluctuations in currency exchange
rates in 2002. Our EBIT from core businesses increased by 1.9% from
(euro)1,813.1 million in 2001 to (euro)1,847.3 million in 2002, and at constant
exchange rates by 3.2% to (euro)1,871.0 million in 2002.
As a percentage of our revenue, EBIT slightly decreased from 6.9% in
2001 to 6.6% in 2002 due to the combined effect of revenue growth and decline in
EBIT.
The following table shows a breakdown of our EBIT by division:
At December 31,
(in millions of(euro)) 2002 2001 % Change
-------- ----------
Water 1,024.3 1,089.6 (6.0)%
Waste Management 385.2 390.7 (1.4)%
Energy Services 244.0 220.5 10.7%
Transportation 115.6 112.1 3.1%
FCC(1) 250.3 229.5 9.1%
Holding Company Costs (48.1) (29.3)
-------- ----------
Total 1,971.3 2,013.1 (2.1)%
--------------------------------------
(1) Figures reflect a 49% share of FCC's EBIT. Under French GAAP, we
proportionally consolidate FCC based on our 49% interest in the holding
company that controls it. Under U.S. GAAP, FCC would be accounted for
using the equity method. See Note 27A to our consolidated financial
statements.
Water
The decline in EBIT of our water division is primarily attributable to
the impact of the sale of non-core businesses in 2002 and the depreciation of
the U.S. dollar and several Latin-American currencies against the euro. On a
comparable basis, EBIT from our core water businesses increased by 2.9% to
(euro)900.3 million in 2002, and at constant exchange rates by 4.2%. On a
comparable basis, our EBIT increased in all of our regions (except the United
States) as a result of an improvement in the profitability of our core water
businesses due to the implementation of productivity and cost-control measures
to maintain our profit margins in France and the full-year impact of the
implementation of the restructuring program started in 2001 at Vivendi Water
Systems and the commencement of operations under contracts won outside of France
since 2000, particularly in Europe and Asia. These factors more than offset the
decline in EBIT from our core water businesses in the United States, where our
profitability has been affected by the impact of the economic downturn on the
water equipment market and the full-year impact of the increase in our insurance
premiums in 2001. We commenced implementing several restructuring programs in
the United States in 2002 to adjust our industrial capacity to reflect the
slowdown in the U.S. market, particularly in the water equipment market, and to
reorganize our operations following the sale of our non-core businesses.
However, these programs have not yet generated the expected results. Our water
division's EBIT / revenue ratio declined from 8.0% in 2001 to 7.7% in 2002.
Waste Management
The decline in EBIT of our waste management division resulted mainly
from the economic downturn in Latin America and the depreciation of the U.S.
dollar against the euro. Excluding Proactiva, which conducts our waste
management operations in Latin America, EBIT of our waste management division
increased by 2.5% from (euro)379.4 million in 2001 to (euro)389.0 million in
2002, and at constant exchange rates by 5%. This increase is primarily
attributable to the sustained level of activity in the United States
(particularly in solid and hazardous waste), the United Kingdom and Asia, which
more than offset the difficulties experienced in the renegotiation of contracts
in Norway and, to a lesser extent, France. As a result of the combined effect of
revenue growth and the decline in EBIT, which was particularly pronounced in our
Latin American operations, our waste management division's EBIT / revenue ratio
declined from 6.6% in 2001 to 6.3% in 2002.
Energy Services
The increase in EBIT of our energy services division is due mainly to
the commencement of operations under new contracts and the full-year impact of
acquisitions made in Central and Southern Europe in 2001, which more than offset
the negative impact of fluctuations in exchange rates in 2002. At constant
exchange rates, EBIT of our energy services division grew by 9.0%. Our energy
services division's EBIT / revenue ratio declined from 5.5% in 2001 to 5.3% in
2002 due to the shift in the relative weight of Dalkia's different activities,
particularly in France following the integration of EDF's services activities,
and the costs incurred in connection with the commencement of operations under
new contracts in Eastern Europe.
Transportation
The slight increase in EBIT of our transportation division is primarily
attributable to the consolidation of the Verney Group acquired in January 2002
and the full-year impact of new contracts won in 2001, which more than offset
the downturn in the UK market resulting from a decrease in passenger
frequentation on our transportation networks. At constant exchange rates, EBIT
grew by 2.9% to (euro)115.3 million in 2002. In addition, our 2001 EBIT
reflected the non-recurring indemnities we received in connection with the
termination of our South Central contract in the United Kingdom, which are not
included in our 2002 EBIT. Despite the increase in EBIT, our transportation
division's EBIT / revenue ratio declined from 3.6% in 2001 to 3.4% in 2002 due
to the effects of the downturn in the UK market.
FCC
Our share of EBIT generated by FCC amounted to (euro)250.3 million in
2002, an increase of 9.1% over (euro)229.5 million in 2001, reflecting primarily
the increase in profitability of FCC's public services segment, which more than
offset the negative impact of fluctuations in exchange rates. At constant
exchange rates, our share of FCC's EBIT grew by 9.4% to (euro)251.1 million in
2002. Our share of FCC's EBIT represented 9.4% of our share of FCC's revenue in
2002, compared to 9.3% in 2001.
EBIT By Region
The following table shows a breakdown of our EBIT by geographical
region:
At December 31,
(as a % of EBIT) 2002 2001
-------- --------
France 30% 32%
Europe (except France) 38% 33%
Americas 25% 30%
Rest of World 7% 5%
-------- ---------
Total 100% 100%
The decrease in the proportional contribution to EBIT of our activities
in the Americas and France is primarily attributable to the sale of non-core
businesses (most of which were operated by USFilter), the downturn in the water
equipment market in the United States and the commencement of operations under
contracts won from 2000 through 2002 in Central Europe and Asia.
Margins
The following table shows a breakdown of our operating margins, which
are defined as our EBIT / revenue ratio, by division:
At December 31,
2002 2001
-------- --------
Water 7.7% 8.0%
Waste Management 6.3% 6.6%
Energy Services 5.3% 5.5%
Transportation 3.4% 3.6%
FCC(1) 9.4% 9.3%
-------- --------
Total 6.6% 6.9%
Total Core Businesses 6.6% 6.8%
-------------------------------
(1) Figures reflect our consolidated 49% share of FCC's revenue
and EBIT.
Operating Expenses
The following table shows a breakdown of our operating expenses in 2001
and 2002:
At December 31,
(in millions of(euro)) 2002 2001
-------- --------
Construction for Internal Use Assets 1,743 1,745
Wages 8,693 8,034
Depreciation and Reserves 1,722 1,423
Other Expenses 15,950 15,911
-------- --------
Total 28,108 27,113
The increase in our operating expenses is primarily attributable to the
increase in wages paid to our employees (mainly due to an increase in the number
of our employees resulting from our recent acquisitions and the commencement of
operations under new labor-intensive contracts) and in our depreciation expenses
and reserves accrued (mainly due to the effect of the continued growth in our
investments until 2001).
Goodwill Amortization
Our goodwill amortization decreased sharply from (euro)2.9 billion in
2001 to (euro)272.2 million in 2002, principally due to:
o a slight decrease in recurring goodwill amortization
from(euro)257.0 million in 2001 to(euro)250.2 million in 2002;
and
o a sharp decrease in non-recurring goodwill amortization
from(euro)2.7 billion in 2001, which includes an exceptional
goodwill write-off of(euro)2.6 billion relating to an impairment
of the goodwill recorded in connection with the acquisition of
United States Filter Corporation, to(euro)77.0 million in 2002,
which includes an exceptional write-off of all of the goodwill
associated with Proactiva's Latin American subsidiaries in light
of the general situation of our Latin American markets and the
non-renewal of our water services contract in Puerto Rico as from
July 2002, as well as an exception write-off of(euro)20 million
of goodwill associated with a German subsidiary of Vivendi Water
that does not conduct any water distribution activities.
Restructuring Costs
Our restructuring costs increased from (euro)49.4 million in 2001 to
(euro)56.6 million in 2002. Restructuring expenses in 2002 related mainly to:
o (euro)24.9 million accrued in connection with the restructuring
of USFilter's water activities in the United States, including a
(euro)14.6 million reserve accrued for costs resulting from the
reduction of personnel (232 employees) and the closure of several
sites in USFilter's water equipments and systems branch due to
the slowdown in the industrial equipment market, and a (euro)7.8
reserve accrued for costs resulting from the restructuring of
several distribution networks for USFilter's Culligan bottled
water products as a result of a decline in revenue from those
networks;
o (euro)11.5 million in restructuring expenses paid in 2002 in our
transportation activities, primarily in connection with programs
to reduce personnel and increase productivity in the United
Kingdom and Australia;
o (euro)8.7 million in restructuring costs in our energy services
activities associated with the integration of SIRAM and the
personnel affected to our contracts in Tallinn, Estonia and
Vilnius, Lithuania, which should result in the reduction of
personnel by 596 employees; and
o (euro)5 million in restructuring costs in our water equipment
activities, which are operated by Vivendi Water Systems, in
connection with several plans implemented in Germany, Spain,
Turkey and the United Kingdom.
Restructuring expenses in 2001 related mainly the restructuring of our
water activities ((euro)33.7 million), primarily in the United States, and our
waste management activities ((euro)12.3 million) in the context of the
reorganization of Onyx's information technology services and the restructuring
of Rimsa, a Mexican waste management operator acquired in 2001.
Operating Income
We recorded operating income of (euro)1.6 billion in 2002, compared to
an operating loss of (euro)946.4 million in 2001. Our operating income, which is
defined as our EBIT less goodwill amortization and restructuring costs, was
significantly affected in 2001 by the non-recurring write-off of goodwill
associated with the acquisition of USFilter, which was recorded in our water
division. In 2002, our operating income slightly decreased in our energy
services and transportation divisions mainly as a result of the impact of our
restructuring initiatives described above, which was more than offset by the
positive contribution to operating income by our water division, compared to an
operating loss in 2001, and the increase in operating income contributed by our
waste management division and FCC.
The following table shows a breakdown of our operating income by
division:
At December 31,
(in millions of(euro)) 2002 2001 % Change
--------- ---------
Water(1) 870 (1,694) n.a.
Waste Management(1) 325 294 10.5%
Energy Services 200 207 (3.4%)
Transportation 88 98 (10.2%)
FCC(2) 242 230 5.2%
Others (137) (81) n.a.
Total 1,588 (946) n.a.
----------------------------------
(1) Excluding the results of Proactiva's water and waste management
activities, as applicable, which are recorded separately.
(2) Figures reflect our consolidated 49% share of FCC's operating income.
Financial Income (Expense)
We incurred net financial expense (which includes dividends received,
profit or loss on sales of marketable securities, foreign exchange profit or
loss and financing costs) of (euro)648.1 million in 2002, compared with net
financial expense of (euro)798 million in 2001. The decrease in net financial
expense was principally due to a decline in our average financing costs from
(euro)764.2 million in 2001 to (euro)680.9 million in 2002. The decrease in our
financing costs is attributable to a reduction in our outstanding indebtedness
as a result of our capital increase in 2002 and the implementation of our
divestment program. Our financing costs were also affected by a decline in
interest rates for euro- and dollar-denominated debt in 2002, which allowed us
to refinance a part of our higher-cost debt through the issuance of (euro)1
billion in bonds in 2002. The average cost of our debt decreased from 4.85% in
2001 to 4.25% in 2002.
Excluding the impact of our financing costs, we recorded net financial
income of (euro)32.8 million in 2002, compared to net financial expense of
(euro)33.8 million in 2001. In 2002, we recorded financial income as a result
of:
o a capital gain of (euro)110.3 million from the sale of our
participation in Philadelphia Suburban Corporation, which was
recorded as financial income because we have been accounting for
this participation as marketable securities as from January 1,
2002, when we ceased accounting for it under the equity method as
a result of our decision to sell our entire stake in this
company,
o a net foreign exchange gain of(euro)44.0 million, which arose
mainly in connection with the sale of USFilter's Distribution
division, and
o dividends from companies accounted for under the equity method
amounting to(euro)16.4 million,
which was partially offset by financial expenses resulting mainly
from:
o a non-recurring (euro)32.2 million reserve accrued in connection
with shares of our company that we hold as treasury stock, which
includes (euro)23.8 million in shares imputed to our
shareholders' equity at their value as of June 30, 2002, and
(euro)8.4 million in shares allocated to our employee share
purchase program reserve calculated at an average price of
(euro)23.08 per share as of December 31, 2002,
o the amortization of(euro)33.4 million in redemption premium, a
substantial part of which corresponds to redemption premium on
our convertible bonds (OCEANE),
o a non-recurring (euro)30.3 million reserve accrued in connection
with several financial investments, including in Argentina
((euro)5 million) and Slovakia ((euro)6.5 million) and in
connection with shares of Vivendi Universal that we hold
((euro)8.7 million),
o commissions paid to financial institutions amounting to(euro)28.5
million, and
o the amortization of(euro)13.5 million in borrowing costs.
Other Income (Expense)
We record non-recurring income and charges as "other income (expense)."
We define non-recurring income and charges as those resulting from extraordinary
events that are not likely to reoccur in the ordinary course of our operations,
including capital gains and losses recorded in connection with the sale of our
subsidiaries and assets. In determining whether income or an expense should be
classified as non-recurring, we apply the restrictive definition of
extraordinary event set forth in Rule 8 of the International Accounting
Standards, or IAS. We posted net other expense of (euro)59.7 million in 2002,
compared with net other income of (euro)38.9 million in 2001.
Our net other expense in 2002 resulted from the capital losses recorded
in connection with the sale of USFilter's Distribution division ((euro)59
million), Bonna Sabla ((euro)44 million) and Schwarze Pumpe ((euro)24 million),
a subsidiary of our Berlin water company, and a provision recorded for a German
subsidiary of Vivendi Water that does not conduct any water distribution
activities in light of this subsidiary's anticipated results ((euro)10 million).
These capital losses were only partially offset from capital gains of (euro)73
million recorded in connection with the sale of our minority interest in two UK
water distribution companies, Bristol Water Holding and South Staffordshire, and
a dilution gain of (euro)10.7 million that arose from the merger of FCC with
Portland Valderrivas, which controlled Cementos Portland, FCC's main cement
subsidiary.
The amount for 2001 included a total capital gain and dilution gain of
(euro)121 million recorded in connection with the implementation of our
strategic partnership agreement with EDF, a capital gain of (euro)23 million
recorded by FCC in connection with the disposal of its interest in Safei and a
capital gain of (euro)11 million in connection with the disposal of our interest
in Midkent. These gains more than offset (euro)100 million in other expense
incurred in connection with the impairment of certain assets of Berliner Wasser
Betriebe that are not related to our water business.
Tax Expense
Our tax expense in 2002 was (euro)437.3 million, compared with tax
expense of (euro)462.3 million in 2001. Our effective corporate income tax rate
in 2002 was 36.2%, compared to 38.4% in 2001. The decline in our effective
corporate income tax rate is primarily attributable to the positive effects of
the French tax group status obtained by our company in 2001.
Our Share in Net Earnings of Companies Accounted for by the Equity
Method
Our share in net earnings of companies accounted for by the equity
method reached (euro)39.0 million in 2002, compared to (euro)47.8 million in
2001. The largest contributions were made by companies accounted for by FCC
using the equity method ((euro)19.5 million) and Proactiva ((euro)3.5 million)
and our minority participations in U.K. water distribution companies that we
sold in 2002 ((euro)9.2 million). The decrease in our share of net earnings of
equity investees in 2002 is primarily attributable to the sale of our
participations in Philadelphia Suburban Corporation (which contributed
(euro)11.9 million in 2001) and Bristol Water Holding and South Staffordshire
(which together contributed (euro)13.7 million in 2001).
Minority Interest
Our minority interest expense totaled (euro)142.2 million in 2002,
compared to (euro)131.2 million in 2001. The principal minority interests are
related to FCC ((euro)108.7 million), Proactiva ((euro) (30.8) million), our
energy services subsidiaries ((euro)24.8 million), our waste management
subsidiaries ((euro)16.5 million), our water subsidiaries ((euro)7.0 million),
our transportation subsidiaries ((euro)1.8 million) and holding companies
((euro)14.2 million, which reflects mainly interest paid to the holders of our
subordinated convertible bonds).
Consolidated Net Income
We recorded consolidated net income of (euro)339.2 million in 2002,
compared to a consolidated net loss of (euro)2,251.2 million in 2001. Our
recurring consolidated net income, which excludes exceptional items and
non-recurring charges, amounted to (euro)428.5 million in 2002, compared to
recurring consolidated net income of (euro)420 million in 2001. Our recurring
consolidated net income reflects our EBIT after adding or deducting, as the case
may be, the recurring portion of goodwill amortization, financial income
(expense), our share in net earnings of companies accounted for by the equity
method, minority interests and ordinary tax expenses.
The following table shows a breakdown of the main recurring and
non-recurring elements in our consolidated net income for 2002:
(in millions of(euro)) Recurring Non-Recurring Total
-------- --------------- --------
EBIT 1,971.3 - 1,971.3
Restructuring Expenses - (56.6) (56.6)
Goodwill Amortization (250.2) (77.0) (327.2)
Financial Income (Expense) (706.0) 57.9 (648.1)
Other Income (Expense) - (59.7) (59.7)
Equity in Net Income of Affiliates 39.0 - 39.0
Minority Interests(1) (177.3) 35.1 (142.2)
Tax Income (Expense) (448.3) 11.0 (437.3)
------ ------ ------
Total 428.5 (89.3) 339.2
-----------------------------------
(1)The non-recurring portion of our minority interests in 2002 includes
(euro)21 million related to Proactiva and (euro)13.8 million related to
several German water subsidiaries of Eaux de Berlin, a subsidiary of
Vivendi Water.
Based on our average number of shares outstanding during the year
(370.2 million), our net earnings per share amounted to (euro)0.93 in 2002,
compared to a net loss per share of (euro)6.55 in 2001 (based on 346.2 million
shares outstanding on average over 2001). Our recurring net earnings per share
amounted to (euro)1.16 in 2002, compared to recurring net earnings per share of
(euro)1.21 in 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash flow from operating activities includes funds generated from
operations and changes in operating assets and liabilities. Net cash flow from
operating activities decreased by (euro)575 million from (euro)2.9 billion in
2001 to (euro)2.3 billion in 2002, mainly as a result of the impact of the
reduction of our securitization and receivable sales program on net changes in
our working capital. Our securitization and receivable sales program had a
positive impact on our net cash flow from operating activities of (euro)815
million in 2001, compared to a negative impact of (euro)223 million in 2002.
Excluding the impact of our securitization and receivable sales program, net
cash flow from operating activities rose by 22% from (euro)2.1 billion in 2001
to (euro)2.5 billion in 2002. This increase of (euro)463 million was primarily
due to a decrease in interest expenses of (euro)83 million and an increase in
profitability in each of our divisions in 2002. Excluding net changes in working
capital, net cash flow from operating activities grew from (euro)2.5 billion in
2001 to (euro)2.8 billion in 2002.
Net cash flow from investing activities includes cash flows resulting
from acquisitions and divestitures of tangible and financial assets,
acquisitions and disposals of businesses, equity-method investments and net
changes in long-term and short-term loans made by our company in connection with
its activities. Cash outflows from investing activities were (euro)2.1 billion
in 2001, compared to an outflow of (euro)3.4 billion in 2000. The decline in
cash used in investing activities is primarily attributable to an increased
selectivity in our investments and the implementation of a larger divestment
program in 2002. Cash outflow in 2002 resulted from (euro)2.6 billion in cash
used in industrial investments (compared to (euro)2.9 billion in 2001) and
(euro)1.1 billion in financial investments (compared to (euro)1.3 billion in
2001), net of more than (euro)1.7 billion in cash generated by asset disposals
(compared to (euro)598 million in 2001).
Net cash outflow from financing activities was (euro)570 million in
2002, compared to net cash inflow of (euro)1.2 billion in 2001. Net cash outflow
from financing activities in 2002 is primarily attributable to a reduction in
our short-term debt following our (euro)1.5 billion capital increase in August
2002. Net cash inflow from financing activities in 2001 is mainly due to an
increase in our long-term debt to improve the average maturity of our
indebtedness and to cash inflows of (euro)411 million related to increases in
Dalkia's capital due to the implementation of our strategic partnership
agreement with EDF ((euro)177 million) and other financing activities described
under "-- Sources of Funds" below.
Sources of Funds
We actively managed our financing policy in 2002, despite difficult
market conditions. Our main programs and actions in 2002 included:
o The reinforcement of our financial autonomy, primarily as a
result of the amendment of the terms of our convertible bonds
(OCEANE) to eliminate a cross-default clause linked to Vivendi
Universal;
o The continued implementation of our policy to have all of our
principal financings at the level of our company, which as of
December 31, 2002 held two thirds of our outstanding consolidated
debt;
o The continued implementation of our policy to extend the average
maturity of our indebtedness, which increased from 3.5 years in
2001 to 4.0 years in 2002; and
o The rationalization of our covenant obligations through the
elimination of our credit rating triggers and a renegotiation of
our other financial covenants to increase our financial
flexibility, obtain a homogenous set of covenants for all of our
financial debt and to satisfy requests made by our credit rating
agencies.
Our main financing activities in 2002 included:
o The strengthening of our financial structure through a(euro)1.5
billion capital increase in August 2002;
o The issuance of(euro)1 billion in bonds due February 2012 that
bear interest at a fixed rate of 5.88%; and
o The renewal for 5 years of the securitization program adopted by
Vivendi Water in 2001, which as of December 31, 2002 amounted
to(euro)416 million.
To optimize the management of our working capital, in 2002 we renewed
our (euro)1 billion securitization and receivables sales program that was
adopted at the end of 2001. In connection with securitization transactions under
this program, we typically retain a subordinated interest in the receivables
transferred to the securitization fund, which entitles us to receive collections
on the sold receivables after all amounts due to the fund have been fully paid,
and we agree to provide ordinary course billing and collection services in
respect of the transferred receivables. We do not assume any obligation to
guarantee or otherwise provide funds to cover shortfalls in collections in
respect of sold receivables.
The following table shows our total outstanding financial debt, net of
cash and other financial assets, at December 31, 2002 and 2001.
At December 31,
2002 2001
(in millions of (euro))
Long-Term Financial Debt 12,913.0 13,134.0
Short-Term Financial Debt 3,795.9 4,889.5
------------ ------------
Total Financial Debt 16,708.9 18,023.5
------------ ------------
Short-Term Loans 487.6 985.5
Long-Term Loans 512.4 341.8
Cash and Cash Equivalents 2,381.9 2,089.3
Other Marketable Securities 260.6 324.1
------------ ------------
Total Financial Assets 3,642.5 3,740.7
============= =============
Total Net Debt 13,066.4 14,282.8
Because our total net financing costs includes all of our financial
income, net of charges, our net debt takes into account all financial assets
that generate financial income, including our short-term and long-term loans and
our marketable securities.
We monitor the liquidity of our group in coordination with designated
managers at the operating level. The incurrence and management of new material
financings are centralized in order to steer our present and future liquidity to
optimum levels. We satisfy our financing needs through bank loans, commercial
paper and debt issues on the international capital markets and the international
private placement markets.
At December 31, 2002, we had the following sources of funds available:
millions of(euro)
--------------------
Our Company
Undrawn Short-Term Credit Lines 1,150.0
Undrawn Medium-Term Credit Lines 150.0
Undrawn Portion of Medium Term Syndicated Loans 2,149.0
Cash, Cash Equivalents and Other Marketable Securities 827.7
------------
Our Subsidiaries
Undrawn Medium-Term Credit Lines 423.1
Cash, Cash Equivalents and Other Marketable Securities 1,814.8
=============
Total 6,514.6
The following table lists the aggregate maturities of our long-term debt at
December 31, 2002:
Payments Due by Period
---------------------------------------------------------------------------------
2009 and
Total 2003 2004 2005 2006 2007 2008 thereafter
-------- -------- -------- --------- -------- --------- --------- --------
Syndicated and
Bilateral Credits 3,137.6 - 2,164.9 226.9 745.8 - - -
Long-Term Loans
4,338.1 - 127.9 570.0 394.1 548.8 297.9 2,399.4
Bonds 5,437.3 - 18.7 2,035.3 140.0 - 2,000.0 1,243.3
-------- -------- -------- --------- -------- --------- --------- --------
Total 12,913.0 - 2,311.5 2,832.2 1,279.9 548.8 2,297.9 3,642.7
========= ========= ========= ========= ========= ========= ========= =========
In addition, we recently reinforced our liquidity through a private
placement in the United States of US $404 million in notes with maturities
ranging from 10 to 15 years. The notes were issued on January 31, 2003 and is
part of our refinancing policy. We also continue to pursue our negotiations to
further extend the maturity of our existing short-term credit lines and to
obtain new medium-term credit lines.
Most of our debt instruments and loan agreements contain covenants that
require us to maintain certain minimum financial ratios, including interest
coverage and debt payout ratios as defined in the relevant agreements. Each
agreement contains different ratios and coverage amounts and would allow our
creditors to require us to repay all outstanding amounts in the event we cease
to comply with one or more of these covenants. These covenants are described in
Note 15 to our consolidated financial statements. We are currently in compliance
with all of the financial covenants set forth in our debt instruments and
agreements.
We are exposed to certain risks relating to the availability or use of
our sources of funds, particularly the risk of a downgrade in our credit
ratings. The main credit rating agencies, Moody's and Standard & Poor's, have
assigned investment-grade credit ratings to our company. However, on May 3,
2002, Moody's placed our credit rating on watch with negative implications,
while on May 7, 2002, Standard & Poor's revised its outlook on our company from
stable to negative. A downgrade in our credit ratings could lead to a
significant increase in the cost of our outstanding debt and our future
borrowing costs, which in turn could negatively affect our financial condition
and our ability to incur additional debt to finance our operations or refinance
maturing debt in the future. We are currently not subject to any material credit
rating downgrade covenants. Our credit ratings are currently BBB+ with a stable
outlook (Standard & Poor's) and Baa1 with a negative outlook (Moody's).
We believe that our future capital requirements, including those for
organic growth and certain acquisitions, can be met from operating cash flow and
disposals of assets.
Use of Funds
Capital Expenditures
Capital expenditures totaled (euro)2.6 billion in 2002, a 10% decrease
compared to (euro)2.9 billion in 2001 that resulted primarily from increased
selectivity in our investments. Our capital expenditures were made in our
different divisions in the following manner:
o Capital expenditures in our water business amounted to (euro)1.1
billion in 2002 (a decrease of 9% over capital expenditures of
(euro)1.2 billion in 2001), of which (euro)503 million were for
growth-related spending (compared to (euro)655 million in 2001)
and (euro)584 million were for replacement and maintenance
spending (compared to (euro)533 million in 2001);
o Capital expenditures in our waste management business amounted to
(euro)739 million in 2002 (a decrease of 7% over capital
expenditures of (euro)794 million in 2001), of which (euro)356
million were for growth-related spending (compared to (euro)343
million in 2001) and (euro)383 million were for replacement and
maintenance spending (compared to (euro)451 million in 2001);
o Capital expenditures in our energy services business amounted to
(euro)342 million in 2002 (a decrease of 15% over capital
expenditures of (euro)402 million in 2001), of which (euro)246
million were for growth-related spending (compared to (euro)276
million in 2001) and (euro)96 million were for replacement and
maintenance spending (compared to (euro)126 million in 2001);
o Capital expenditures in our transportation business amounted to
(euro)155 million in 2002 (a decrease of 46% over capital
expenditures of (euro)288 million in 2001), of which (euro)47
million were for growth-related spending (compared to (euro)114
million in 2001) and (euro)108 million were for replacement and
maintenance spending (compared to (euro)174 million in 2001); and
o Capital expenditures in Proactiva and our share (49%) of FCC's
capital expenditures amounted to (euro)279 million (an increase
of 35% over capital expenditures of (euro)207 million in 2001),
of which (euro)127 million were for growth-related spending
(compared to (euro)109 million in 2001) and (euro)152 million
were for replacement and maintenance spending (compared to
(euro)98 million in 2001).
Financial Investments
Our financial investments, which consist of equity-method investments
and other equity participations, totaled (euro)1.1 billion in 2002, a decrease
of 3.2% over financial investments of (euro)1.2 billion in 2001. Many of our
financial investments consist of acquisitions of local entities or interests in
local entities in connection with new contracts won outside France. The decline
in 2002 is primarily attributable to increased selectivity in our investments.
Our financial investments were made in our different divisions in the following
manner:
o Financial investments in our water business amounted to (euro)740
million in 2002 (an increase of 46% compared with 2001),
primarily relating to our contracts in Pudong, China ((euro)265
million), in Tangiers-Tetouan-Rabat, Morocco ((euro)133 million),
and several less significant acquisitions in the United States
relating to water treatment assets ((euro)110 million);
o Financial investments in our waste management business amounted
to (euro)104 million in 2002 (a decrease of 16% compared with
2001), including (euro)29 million in Norway and (euro)24 million
paid as a purchase price adjustment in connection with the
acquisition of a French company;
o Financial investments in our energy services business amounted to
(euro)94 million in 2002 (compared to (euro)303 million in 2001,
which included the transfer of EDF's energy services operations
and our acquisition of SIRAM), including (euro)35.3 million in
Tallinn, Estonia, and (euro)36.5 million in Poland;
o Financial investments in our transportation business amounted to
(euro)112 million in 2002 (a decrease of 22.2% compared with
2001), including our acquisition of Verney Group ((euro)47.2
million) and our acquisition of an additional stake in the
Stockholm metro operator ((euro)26.1 million).
The remaining (euro)85 million in financial investments relate to
investments made by FCC, Proactiva and our company.
Research and Development; Patents and Licenses
See "Information on the Company -- Business Overview -- Research and
Development" and "Information on the Company -- Business Overview --
Intellectual Property" for a description of our investments in these areas.
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and Senior Management
In accordance with French law applicable to a societe anonyme a
directoire et conseil de surveillance, a form of stock corporation, we have a
two-tier management structure pursuant to which a management board (directoire)
manages our day-to-day affairs under the general supervision of a supervisory
board (conseil de surveillance), the members of which are elected by
shareholders. We refer to the members of our management board and the members of
our supervisory board collectively as "directors."
We have proposed to our shareholders to change the corporate form of
our company to a societe anonyme, which is a French corporation with a single
board of directors. If our shareholders approve this change at the general
shareholders' meeting to be held on April 30, 2003, the current chairman of our
management board, Mr. Henri Proglio, would become the chairman of our board of
directors, and several of the members of our supervisory board would become
members of our board of directors. The current members of our management board
would continue to hold management positions with our company, but would not
become members of our board of directors.
Supervisory Board
The supervisory board has the responsibility of supervising the
management of our company. Throughout the year it carries out such inspections
as it considers appropriate and is given access to any documents it considers
necessary. Our supervisory board also reviews the annual report and accounts
prepared by management board and presents its review of the report and accounts
to the shareholders at the annual shareholders meeting. It authorizes the
management board to take certain actions related to strategic decisions,
including consummating transactions that could substantially affect the scope of
our activities and executing significant agreements. In addition, under French
law, the supervisory board holds certain specific powers, including the power to
appoint the members of the management board.
Pursuant to our statuts, which were adopted at a shareholders' meeting
held on April 21, 2000, the supervisory board must have between three and 24
members. Our supervisory board currently consists of 14 members, four of which
are independent members. Our statuts provide that each member is elected by the
shareholders at an ordinary general meeting of the shareholders for a renewable
four year term. However, 3 of the current members of our supervisory board
(Messrs. Fourtou, Azema and Espinasse) were co-opted on September 23, 2002
following the resignation of Messrs. Eric Licoys and Guillaume Hannezo and Mrs.
Catherine Gros, and another member (Mr. Schweitzer) was co-opted on February 5,
2003 following the resignation in December 2002 of Mrs. Esther Koplowitz. None
of the members of our supervisory board were appointed or designated by our
employees. Members of the supervisory board can be removed from office by a
majority shareholder vote at any time. They meet as often as the interests of
our company require.
Our supervisory board is required to meet at least 4 times a year to
review the quarterly reports prepared by the management board and at least once
each year to review our annual accounts and supporting documents prepared by the
management board. During 2002, our supervisory board met five times. The average
rate of attendance to meetings of the supervisory board by its members in 2002
was approximately 70.2%. Under the French commercial code, members of our
supervisory board can be held civilly liable for unlawful actions and omissions
taken in connection with their duties as directors, in particular, for failing
to supervise adequately the management of our company. Unlike members of a
management board, however, supervisory board members cannot be held liable for
unlawful actions of the company. Also unlike members of the management board,
supervisory board members are not subject to joint and several liability. Our
statuts provide that each member of our supervisory board must own at least 750
of our shares.
In March 2003, the supervisory board adopted a charter that provides,
among other things, that each year before the publication of the annual report,
the supervisory board will evaluate the independence of each of its members on
the basis of certain criteria enumerated in the charter, the particular
circumstances and situation of the member, our company and our group as well as
the opinion of our nominations and compensation committee. On the basis of this
criteria, we currently have four independent directors on our supervisory board.
To qualify as "independent" under our charter, a director must not have any
relations with our company, our subsidiaries or our management that could impair
his or her objective judgment. In particular, an independent director must:
o not be an employee of our company, a member of our management
board, a director or executive officer of our previous parent
company or any of its subsidiaries, or have been any of these
during the past 3 years,
o not be a director of a company in which our company is a director
or in which a director (or a person that was a director within
the preceding 3 years) or a designated employee of our company is
a director,
o not be a client, supplier, investment banker or commercial banker
(or any person related, directly or indirectly, to these persons)
that has provided material financing to our company or its
subsidiaries, or for which our company or its subsidiaries
represents a material portion of their respective businesses,
o not have close family ties with one of our directors or members
of our management board,
o not have been an auditor for our company during the past 5 years,
and
o not have been a member of our supervisory board for more than 12
years.
The definition of an independent director reflects the recommendations
of the report on French corporate governance prepared by a blue ribbon panel led
by Mr. Daniel Bouton in 2002, and is more restrictive than the independence
criteria set forth in the rules recently adopted by the U.S. Securities and
Exchange Commission under the Sarbanes-Oxley Act of 2002. In addition, under its
charter, our supervisory board may decide that one of its members should not be
considered independent for any reason whatsoever, in light of specific facts and
circumstances, even if that member meets the criteria described above. Also, if
a member of our supervisory board holds at least 10% of our shares, or
represents a shareholder holding at least 10% of our shares, the supervisory
board will determine whether that member may be considered independent on the
basis of a report prepared by the nominations and compensation committee, the
structure of our shareholder base and the existence of potential conflicts of
interest.
Our supervisory board is required to evaluate its procedures, verify
that important matters are adequately prepared and discussed within the board
and measure the contribution to its work and the participation in its debates by
each of its members. We evaluate the performance of our supervisory board every
three years through a committee led by one of our independent directors,
external consultants or any other means we believe are appropriate. In addition,
the nominations and compensation committee meets once a year to discuss the
performance of our senior management, with the participation of any members of
the supervisory board that are not employees of our company or its subsidiaries.
The charter of our supervisory board strengthens the right of each
member of our supervisory board to receive information on our company and our
business. In addition, the charter provides that each member of our supervisory
board is bound by a number of duties and obligations, including:
o an obligation to inform themselves of and comply with all
applicable laws,
o a duty to act in the corporate interest of our company,
o an obligation to inform the supervisory board of any existing or
potential conflict of interest and to inform the chairman of our
supervisory board of any agreement entered into by our company in
which he or she has any direct or indirect interest,
o a duty of loyalty,
o a duty of professional secrecy, and
o an obligation to comply with our company's insider trading
policy.
The following table sets forth the names and the ages of the members of
the supervisory board, their current function in our company and their principal
business activities outside of our company. Unless otherwise noted below, the
terms of the members of our supervisory board expire on the date of the general
shareholders' meeting called to approve our financial statements for fiscal year
2003, which is expected to be held in April 2004.
Name Age Function in Vivendi Principal Business Date Initially
Environnement Activities Outside Appointed
Vivendi Environnement
-------- ------------------ ---------------------------- ---------------
Jean-Rene Fourtou(1) 63 Chairman of the Chairman and CEO of Vivendi September 2002
supervisory board Universal
Jean Azema(1)(3) 49 Director Chairman of the management September 2002
board of Groupama
Daniel Bouton 52 Director Chairman and CEO of Societe October 2000
Generale
Jean-Marc Espalioux 50 Director Chairman of the management September 2000
board of Accor
Jacques Espinasse(1) 59 Director Executive Vice President and September 2002
CFO of Vivendi Universal
Paul-Louis Girardot 69 Director October 2000
Richard Heckmann 59 Director Chairman and Chief Executive October 2000
Officer of K-2 Inc.
Arthur Laffer(3) 62 Director Chairman and Chief Executive September 2000
Officer of Laffer Associates
and Laffer Investments
Jean-Marie Messier 46 Director April 2000
Serge Michel 76 Director Chairman of Soficot October 2000
Georges Ralli 55 Director Executive Vice President of October 2000
Lazard Freres and Lazard
Freres Banque and Deputy
Chairman of Lazard LLC
Louis Schweizer(2)(3) 61 Director Chairman and CEO of Renault February 2003
Murray Stuart(3) 69 Director October 2000
Antoine Zacharias 63 Director Chairman and CEO of Vinci September 2000
----------------
(1) Co-opted by the supervisory board on September 23, 2002 following the
resignations of Messrs. Eric Licoys and Guillaume Hannezo and Mrs.
Catherine Gros in September 2002.
(2) Co-opted by the supervisory board on February 5, 2003 following the
resignation of Ms. Esther Koplowitz in December 2002.
(3) Independent members of the supervisory board.
The following information regarding the members of our supervisory
board is as of January 31, 2003:
Jean-Rene Fourtou is also a member of the supervisory boards of Groupe
Canal +, Axa and Aventis, and a director of Cap Gemini and USA Interactive.
Jean Azema is also a director of ACMA and represents Groupama
Assurances et Services on the board of directors of Bollore Investissements.
Daniel Bouton holds a degree in political science and is an alumnus of
the ENA. As part of the French financial controllers' civil service corps, he
occupied a number of different positions in the French Finance Ministry,
including that of Budget Director, between 1988 and 1991. Since 1991 he has
worked at Societe Generale, serving as Managing Director from 1993 to 1997, and
as President from 1997 to the present. Mr. Bouton may be contacted at Societe
Generale, Tour Societe Generale, 17 cours Valmy 92972 Paris, La Defense Cedex.
Mr. Bouton is also a director of Arcelor, Schneider Electric and TotalFinaElf.
Jean Marc Espalioux holds degrees in political science, law and
economics, is an alumnus of the ENA and served in the French financial
controllers' civil service corps from 1978 to 1983. In 1984 he joined Vivendi
Universal, where he served as Chief Financial Officer from 1987 to 1996 and as
Deputy Managing Director from 1996 to 1997. In 1997 he was appointed to his
current position as President of the Management Board of Accor. Mr. Espalioux
can be contacted at Accor, Tour Maine Montparnasse 33, avenue du Maine 75755
Paris Cedex 15. Mr. Espalioux is also a director of Air France and Credit
Lyonnais.
Jacques Espinasse is also the President of Light France Acquisition
(SAS), a member of the supervisory board of Group Canal + and a director of
Cegetel Groupe and Vivendi Universal Publishing. He is also the Chairman and
Chief Executive Officer of J.E.D and a Vice President of Vivendi Communications
NA.
Paul Louis Girardot was a Managing Director of Vivendi Universal until
1998. A specialist in the development of public service outsourcing activities,
he has been very involved in the development not only of our water services, but
also in telecommunications (particularly radio-telephony) and energy services
(particularly co-generation). Mr. Girardot can be contacted at 7, rue de Tilsitt
75008 Paris.
Richard Heckmann, a Harvard Business School graduate, is the founder of
United States Filter Corporation and its President since 1990. Prior to founding
USFilter Corporation, Mr. Heckmann was Vice President of Prudential Bache
Securities. He has also served as Assistant Director for Finance and Investment
at the Small Business Administration in Washington D.C. Mr. Heckmann can be
contacted at United States Filter Corporation, 40-004 Cook Street, Palm Desert,
CA 92211, U.S.A. Mr. Heckmann is also the President of the Listed Company
Advisory Committee of the New York Stock Exchange.
Arthur Laffer, Ph.D holds degrees in economics from Yale and Stanford
Universities. He has a long and distinguished career in academia as well as in
public service. He has held professorships at the Universities of Chicago,
Southern California and Pepperdine. He has been Economic Director of the Federal
Office of Management and Budget (1970), special advisor to the Secretary of the
Treasury and to the Secretary of Defense (1972-1977) and a member of the
Presidential Council of Economic Advisors (1981 to 1989). Professor Laffer can
be contacted at Laffer Investments, Institutional Asset Managers, 5405 Morehouse
Drive, Suite 340, San Diego, CA 92121, U.S.A. Mr. Laffer is also a founding
member of the Policy Consultative Committee of the U.S. Congress and a director
of MasTec Inc., Oxigene Inc., Nicholas-Applegate Growth Equity Fund and Petco
Animal Supplies.
Jean-Marie Messier holds degrees from the Ecole Polytechnique and the
Ecole Nationale d'Administration (the "ENA"). After holding several positions in
the French Finance Ministry from 1982 to 1988, he became a partner at Lazard
Freres & Cie. In 1994, he was appointed President and Chief Executive Officer of
Vivendi Universal and served in that capacity until 2002. Mr. Messier is also a
director of Alcatel, BNP Paribas and LVMH.
Serge Michel has spent his entire career in the construction and public
works business, having served as Deputy Managing Director and President of
SOGEA, President of Vinci, President of CISE and, until 1992, Deputy Managing
Director of Vivendi Universal. He is currently President of Soficot, CIAM and
Carre des Champs Elysees. Mr. Michel can be contacted at Soficot, 103 boulevard
Haussmann, 75008 Paris. Mr. Michel is also a director of Vinci, FCC Holding, FCC
Construccion, Eiffage, Sedibex, G+H Montage and Cementos Portland.
Georges Ralli holds degrees in finance, political science (from the
Paris Institute of Political Science (IEP)) and business. He has been a partner
of Lazard Freres since 1993, having joined the bank in 1986. He began his
banking career at Credit Lyonnais (1970-1981) and later headed the department of
financial negotiations at Credit du Nord. In 1982 he served as Secretary of the
Commission for the Development and Protection of Savings. Mr. Ralli can be
contacted at Lazard Freres, 121, boulevard Haussmann, 75008 Paris. Mr. Ralli is
also a director of Lazard Freres Banque, Fonds Partenaires Gestion, V.I.G.I.,
Chargeurs, Silic and Eurazeo.
Louis Schweitzer is also a member of the supervisory board of Philips
and a director of AB Volvo, EDF and BNP Paribas. He is also the President of
Renault-Nissan BV.
Murray Stuart holds degrees in literature and law from the University
of Glasgow, and is also trained as an accountant. Mr. Stuart has worked for
International Computers plc. (as Chief Financial Officer and Deputy Director),
Carnaud Metalbox (as Managing Director and President) and Scottish Power plc.
(as President from 1992 to 2000). He has also served as President of Trust
Hammersmith Hospitals NHS, an important public health education and research
center in London. Mr. Stuart can be contacted at Longacre, Guildford Road,
Chobham, Woking, Surrey, GU24 8EA, United Kingdom. Mr. Stuart is also a member
of the European Consultative Committee of Credit Lyonnais and a director of Old
Mutual plc. Mr. Stuart was also a director of Royal Bank of Scotland Group plc
until the end of 2002.
Antoine Zacharias has been with Vivendi Universal since 1971. In 1991
he was appointed Managing Director of Vinci, where he has served as Chairman of
the Board of Directors of Vinci and of Vinci Deutschland since 1997. Mr.
Zacharias can be contacted at Vinci, 1, cours Ferdinand de Lesseps 92851, Reuil
Malmaison, France. Mr. Zacharias is also a member of the supervisory board of
Nexity.
Management Board
Under French law and our statuts, the management board has broad powers
to act on behalf of our company to further our corporate purposes and to define
and implement our company's policies, subject to those powers expressly granted
by law or our statuts to the supervisory board or our shareholders. Pursuant to
our statuts, the management board must obtain the authorization of the
supervisory board to enter into a number of material transactions and to take
certain significant actions. However, these restrictions cannot be enforced
against third parties who have entered into such a transaction in good faith.
Whenever a transaction requires the authorization of the supervisory board and
such authorization is refused, the management board may refer the matter to a
general meeting of shareholders, at which the shareholders may override the
supervisory board and grant the authorization.
Pursuant to our statuts, the management board must have at least two
but no more than seven members, each of whom shall be appointed for a renewable
four year term by a majority of the supervisory board. The chairman of our
management board has the power to represent our company before third parties.
Our management board currently consists of 7 members, of whom 5 were appointed
in 2000 and 2 were appointed on February 5, 2003. Management board members serve
until the expiration of their respective terms, or until their resignation,
death, passing of the legal age limit, appointment as a member of the
supervisory board, or removal by the shareholders. Our supervisory board may
fill any vacancies on the management board due to resignation or death within
two months. The supervisory board also appoints one of the members of the
management board as chairman of the management board. Under French law and our
statuts, the chairman of the management board may be removed as chairman (but
not as a member of the management board) at any time by the supervisory board
with or without cause. A member of the management board may be removed by our
shareholders or our supervisory board. A member of the management board cannot
be a member of the supervisory board as well.
The management board meets as often as the interests of our company
requires. During 2002, our management board met twelve times. The average rate
of attendance to meetings of the management board by its members in 2002 was
approximately 83.3%. Under French law, a member of the management board must be
an individual, but need not be a shareholder of our company. There is no
limitation, other than applicable age limits, on the number of terms that a
member of the management board may serve. Pursuant to our statuts, the age limit
applicable to each member of the management board is 65 but the supervisory
board has the power to extend this age limit to 67. The French commercial code
requires the management board to manage our company properly and to avoid
actions contrary to our interests. Members of the management board are subject
to liability if these requirements are not satisfied. In addition, in some
circumstances, management board members can be held jointly and severally liable
for damages incurred by third parties as a result of our company's violation of
applicable law or our statuts. Management board members can be held criminally
liable for some serious violations of applicable law by our company.
The following table sets forth the names and the ages of the members of
the management board, their current function in our company, their principal
business activities outside of our company, the date their term is scheduled to
expire and the date they were initially appointed. The members of our management
board are also our senior managers.
Name Age Function in Vivendi Principal Business Expiration Date Initially
Environnement Activities Outside Date of Appointed
Vivendi Environnement Current Term
-------- ----------------- ---------------------- ------------- --------------
Henri Proglio 53 Chairman of the None April 2004 April 2000
Management Board and
Chief Executive Officer
Jerome Contamine 45 Executive Vice None April 2004 September 2000
President, Finance
Antoine Frerot 44 Head of Water Division None April 2004 April 2000
Denis Gasquet 49 Chief Executive Officer None April 2004 April 2000
of Onyx
Olivier Barbaroux 47 Head of Energy Services None February 2007 February 2003
Division
Stephane Richard 41 Head of Transportation Chairman of the February 2007 February 2003
Division Supervisory Board of
Nexity
Andy Seidel 40 Chief Executive Officer None April 2004 April 2000
of USFilter
The following information regarding the members of our supervisory
board is as of January 31, 2003:
Henri Proglio is a graduate of the HEC business school in Paris. He
joined Compagnie Generale des Eaux in 1972 and was appointed President and Chief
Executive Officer of CGEA in 1990. He was appointed Executive Vice President of
Vivendi Universal and President and Chief Executive Officer of Vivendi Water in
1999. He became chairman of our management board in 2000. Mr. Proglio can be
contacted at Vivendi Environnement, 36-38 avenue Kleber, 75116 Paris. Mr.
Proglio is also a director of Thales, Vinci, Elior, FCC and EDF International.
Jerome Contamine holds degrees from the Ecole Polytechnique, the Ecole
Nationale de la Statistique et de l'Administration Economique and the ENA. He
served as auditor for the Cour des Comptes from 1984 to 1988 and held a variety
of senior positions with Elf (and later TotalFinaElf) between 1988 and 2000. He
became Chief Financial Officer and Deputy Managing Director of our company in
June, 2000. Mr. Contamine can be contacted at Vivendi Environnement, 36-38
avenue Kleber, 75116 Paris. Mr. Contamine is also a director of FCC.
Antoine Frerot is a graduate of the Ecole Polytechnique and holds a
doctorate from the Ecole Nationale des Ponts et Chaussees. He began his career
as an engineer and joined Cergrene, a research center, in 1983, becoming a
director in 1984. He joined Compagnie Generale des Eaux in 1990, and was
appointed Managing Director in charge of public transport of Connex in 1995. Mr.
Frerot can be contacted at Vivendi Environnement, 36-38 avenue Kleber, 75116
Paris.
Denis Gasquet is a graduate of the Ecole Polytechnique and the Centre
de Perfectionnement aux Affaires. From 1979 to 1989, he served in a variety of
positions in the Office National des Forets. He joined Compagnie Generale des
Eaux in 1989, becoming Chief Executive Officer of Onyx in 1996. Mr. Gasquet can
be contacted at Vivendi Environnement, 36-38 avenue Kleber, 75116 Paris.
Olivier Barbaroux is a graduate of the Ecole Polytechnique, where he
obtained a civil engineering degree and a Masters of Science degree. He began
his career in 1979 as a head of mission at the Ministry of Industry, before
being named as director of new works in 1981 and then as director of
installations at the autonomous port of Marseille in 1983. He subsequently
became a member of the executive committee, in charge of energy, for Paribas
Affaires Industrielles. In 1993, he was named chairman and chief executive
officer of Coparex and then chief executive officer of the energy division at
Paribas in 1998. He joined our company as chief executive officer of Compagnie
Generale des Eaux. Mr. Barbaroux can be contacted at Vivendi Environnement,
36-38 avenue Kleber, 75116 Paris.
Stephane Richard is a graduate of the Ecole des Hautes Etudes
Commerciales et Inspecteur des Finances. He began his career in 1991 as a
technical advisor at the Ministry of Industry and Exterior Commerce. He joined
Compagnie Generale des Eaux in 1992 as a head of mission. In 1994, he was named
director and chief executive officer of Compagnie Immobiliere Phenix, and then
in 1995, he joined CGIS, which later became Nexity, where he became chairman and
chief executive officer in 1997. Mr. Richard can be contacted at Vivendi
Environnement, 36-38 avenue Kleber, 75116 Paris. Mr. Richard is also chairman of
the supervisory board of Nexity and is a director of Banque OBC, UGC and France
Telecom.
Andy Seidel holds a B.S. in chemical engineering from the University of
Pennsylvania and an M.B.A. from the Wharton School. He helped found USFilter
Corporation and served as President and Chief Operating Officer of its water and
waste water group when it was acquired by Vivendi Universal in 1999. Mr. Seidel
can be contacted at USFilter Corporation, 40-004 Cook Street, Palm Desert, CA
92211, U.S.A.
New Corporate Governance Structure
If our shareholders approve the change in corporate form of our company
to a societe anonyme at our general shareholders meeting to be held on April 30,
2003, our supervisory board and management board will cease to exist, and our
company will be managed by a board of directors.
Board of Directors
Our board of directors would consist of between 3 and 18 members. Each
director would be required to own at least 750 of our shares. Our directors will
be elected by our shareholders at an ordinary general shareholders' meeting for
a six-year term. The terms of half of our directors (or, if we have an uneven
number of directors, half plus one additional director) will be renewable for
six years every three years. The first half of our directors that need to be
reelected three years after the initial appointment of our directors will be
decided by our board of directors at its first meeting by unanimous vote, or, in
the event of deadlock, by lottery. After the first reelection, every three years
the directors that have fully served six-year terms will be required to be
reelected.
Our board of directors will be required to adopt a charter and a code
of conduct for the members of the board at its first meeting. We expect these
documents to be substantially similar to the existing charter and code of
conduct adopted by our supervisory board. We also expect that our board of
directors will be required to meet at least 4 times from April through December
2003.
Under French law, the chairman of our board of directors represents the
board of directors and organizes and supervises the work of the board. The
chairman also has the responsibility of supervising our company's corporate
organs and, in particular, that our directors are capable of fulfilling their
duties.
We will propose to our shareholders that our initial board of directors
consist of Messrs. Jean Azema, Daniel Bouton, Jean-Marc Espalioux, Jacques
Espinasse, Paul-Louis Girardot, Philippe Kourilsky, Arthur Laffer, Francis
Mayer, Serge Michel, Henri Proglio, Baudoin Prot, Georges Ralli, Louis
Schweitzer and Murray Stuart. If approved, the terms of these directors will
expire on the date of the general shareholders' meeting called to approve the
financial statements for fiscal year 2009, subject to the three-year term
renewal rules described above.
Management
Our board of directors will elect the manner in which our company will
be managed in accordance with our bylaws. In particular, our board of directors
will need to appoint a chief executive officer to manage our business on a
day-to-day basis. The chairman of our board of directors may serve, if appointed
by the board of directors, as chief executive officer. The chief executive
officer has broad powers to act on behalf of our company, including the power to
represent our company in dealings with third parties, within the limits of our
corporate purpose and the powers granted by law to our shareholders and our
board of directors.
Compensation
The current and former members of our supervisory board received the
following compensation during the 2002 fiscal year for services to our company
and its subsidiaries, including compensation in kind and compensation paid for
attending meetings of our supervisory board (jetons de presence):
Current Members Compensation paid (in (euro)) by
---------------------------------
Our Our
company subsidiaries
-------- ------------
Jean-Rene Fourtou(1) 6,250 0
Jean Azema(1) 6,250 0
Daniel Bouton 25,000 0
Jean-Marc Espalioux 35,000 0
Jacques Espinasse(1) 6,250 0
Paul-Louis Girardot 25,000 19,997
Richard Heckmann(2) 25,000 1,660,672
Arthur Laffer 25,000 0
Jean-Marie Messier 35,000 17,785
Serge Michel 32,500 7,655
Georges Ralli 32,500 0
Murray Stuart 25,000 0
Antoine Zacharias 25,000 5,363
----------------
(1) Director since September 23, 2002.
(2) During 2002, Mr. Heckmann received(euro)1,057,753 as base salary
and(euro)602,919 as bonus. Pursuant to his 1999 employment agreement, as
amended, Mr. Heckmann will have received a total of 750,723 shares of
Vivendi Universal in April 2003, including 158,570 shares in respect of
fiscal year 2002. valued at(euro)2,695,388, which does not
include(euro)152,950 in dividends paid by Vivendi Universal and to be
delivered by USFilter to Mr. Heckmann. The value of these shares has not
been included in the compensation amounts indicated above. In April 2003,
USFilter delivered to Mr. Heckmann the remaining 158,570 shares of Vivendi
Universal. Mr. Heckmann's employment contract expired on April 22, 2003.
However, Mr. Heckmann will continue to be bound by the non-competition and
confidentiality provisions of the contract for two years following its
expiration.
Former Members Compensation paid (in (euro)) by
---------------------------------
Our Our
company subsidiaries
-------- ------------
Eric Licoys(1) 18,750 25,385
Catherine Gros(2) 18,750 0
Guillaume Hannezo(3) 24,375 17,785
Esther Koplowitz(4) 32,500 0
----------------
(1) Resigned as a director on September 5, 2002.
(2) Resigned as a director on September 19, 2002.
(3) Resigned as a director on September 20, 2002.
(4) Resigned as a director on December 16, 2002.
Excluding Messrs. Olivier Barbaroux and Stephane Richard, which were
appointed to our management board in February 2003, the members of our
management board received the following gross compensation (including
compensation in kind) during the 2002 fiscal year for services to our company
and its subsidiaries:
Compensation paid (in (euro)) by
---------------------------------
Our Our
company subsidiaries
-------- ------------
Henri Proglio 1,191,364 132,982
Jerome Contamine 623,803 69,500
Jean-Pierre Denis(1) 0 528,355
Antoine Frerot 0 557,978
Denis Gasquet 0 568,461
Andrew Seidel(2) 0 855,430
-----------------
(1) As of February 5, 2003, Jean-Pierre Denis no longer serves on our
management board.
(2) During 2002, Mr. Seidel received (euro)528,876 as base salary and
(euro)326,554 as bonus and various other benefits. Pursuant to his 1999
employment agreement, as amended, Mr. Seidel has received a total of
139,410 shares of Vivendi Universal over the past three years, including
46,470 shares in respect of fiscal year 2002 valued at (euro)1,547,314. Mr.
Seidel has also received from USFilter the amount of all dividends paid on
shares that had not been delivered to him. In 2002, however, he did not
receive any payments in respect of dividends paid by Vivendi Universal. Mr.
Seidel's employment contract expired on April 22, 2003. However, Mr. Seidel
will continue to be bound by the non-competition and confidentiality
provisions of the contract for two years following its expiration.
Board Practices
None of our directors and senior managers are parties to contracts with
our company or its subsidiaries that provide for the grant of benefits upon the
termination of their employment.
In December 2000, our supervisory board created an audit and
transactions committee and a directors and senior managers committee. In
September 2001, our supervisory board also created a commitments committee. On
March 3, 2003, our supervisory board replaced our three existing committees with
two new committees: an accounts, audit and commitments committee and a
nominations and compensation committee.
Previous committees
The committees created by our supervisory board in 2000 and 2001
carried out the following functions during 2002:
o Our audit and transactions committee reviewed all accounting or
financial matters before these matters were presented to our
supervisory board, including our financial statements and issues
relating to our accounting policies and methods. This committee
also reviewed all related party transactions, and particularly
those between us and Vivendi Universal at the time Vivendi
Universal was our main shareholder. The audit and transactions
committee consisted of Messrs. Jean-Marc Espalioux (chairman),
Georges Ralli and Guillaume Hannezo, who resigned in September
2002. The audit and transactions committee held 3 meetings during
2002. The average rate of attendance to the meetings of the
committee was approximately 83.3% in 2002. During 2002, the audit
and transactions committee considered a number of important
financial issues for our company, including the regular
monitoring of our liquidity, our large acquisitions (particularly
Southern Water) and our budget and plan and their consequences on
our financing structure. Our statutory auditors and our director
of internal audit participated in the meetings of the audit and
transactions committee.
o Our directors and senior managers committee made recommendations
to our supervisory board regarding the compensation of our
directors and senior managers, including, in particular, the
variable portion of this compensation. This committee also
reviewed our policies relating to the granting of options and
subscription rights on our shares to the members of our
management board. It also selected and proposed new members for
our supervisory board following the resignation of several of the
members of the supervisory board in 2002. This committee
consisted of Messrs. Jean-Marie Messier and Serge Michel and Mrs.
Esther Koplowitz, who resigned in November 2002. The directors
and senior managers committee held 1 meeting during 2002 with 2
of its members in attendance. During 2002, the directors and
senior managers committee considered a number of important issues
for our company, including the variable portion of the
compensation of the members of the management board in 2001 and
the fixed and variable portion of their compensation in 2002. The
variable portion represents between 40% and 50% of total
compensation. This committee fixed compensation amounts based on
the compensation practices of companies of a size comparable to
our company.
o Our commitments committee advised the supervisory board on
requests made by the management board for the approval of
guarantees, commitments and other liabilities for third-party
obligations to be issued or assumed by our company. The
commitments committee also received periodic reports on the
implementation of these guarantees and commitments for
third-party obligations. The commitments committee consisted of
Messrs. Jean-Marc Espalioux, Georges Ralli and Guillaume Hannezo,
who resigned in September 2002. The commitments committee, which
started functioning in 2002, held 4 meetings during 2002. The
average rate of attendance to the meetings of the committee was
approximately 75% in 2002. During 2002, the commitments committee
considered a number of important issues for our company,
including material off-balance sheet commitments and risks, such
as commitments under our municipal water services contract in
Indiannapolis, commitments related to our acquisition of Southern
Water, risks related to our activities in Latin America and the
assumption by our company of guarantees granted by Vivendi
Universal for obligations of our subsidiaries.
Current committees
The committees created by our supervisory board in 2003 to replace our
previous committees carry out the following functions:
o Our accounts, audit and commitments committee performs the
following functions:
- Regarding accounting matters, the committee reviews with the
auditors the appropriateness and permanence of the
accounting methods adopted to prepare the financial
statements and the adequate treatment of significant
transactions, examines the method and rationale for
consolidation of subsidiaries, provides an opinion on the
draft financial statements prepared by the management board
before they are presented to the supervisory board,
including on the off-balance sheet commitments, meets, if
necessary, with the auditors, the management board and
management to discuss, among others, amortization and
depreciation, reserves, treatment of overvalued assets,
off-balance sheet commitments and principles of
consolidation. The review by the committee on the financial
statements must be accompanied by a letter from the auditors
highlighting the key figures and the selection of accounting
options, as well as a letter from the chief financial
officer describing significant off-balance sheet
commitments. The committee is entitled to meet with the
auditors outside the presence of our management.
- Regarding internal controls and audit, the committee reviews
a report from management on the procedures established to
identify significant risks, which we defined as those
involving more than (euro)300 million or otherwise requiring
the review of the supervisory board, as well as a periodic
summary of the internal audit reports and upon request, the
full internal audit reports. The committee also examines our
internal audit plan once a year and meets as necessary with
the internal audit director to discuss the organization of
the internal audit department.
- Regarding the supervision of our independent auditors, the
committee examines once a year the auditor's work plan and
meets as necessary with the auditors and our management,
including our accounting and treasury officers. It is also
entitled to meet with our auditors without the presence of
management. The committee supervises the procedure to select
our independent auditors and advises the supervisory on the
selection and the fees to be paid to the auditors. Any
permissible non-audit services to be performed by the
auditors require the prior approval of the committee, which
also reviews the fees paid by our company to the auditors
for all of their services and assures that the portion of
revenue of the audit firm and its network represented by
such fees does not call into question the independence of
the auditors.
The committee's charter, adopted by our supervisory board on
March 3 2003, provides that its principal contacts are our
management, including our chief financial officer and our
internal audit director, and our auditors. As part of its
mission, the committee may meet with the statutory auditors and
senior management responsible for preparing the statements
without the presence of the members of the management board. The
committee may also meet with individuals and experts outside our
company if helpful to its work.
Pursuant to the committee's charter, the members must be selected
on the basis of their financial or accounting competencies and if
necessary must be provided with financial and accounting
information about our company at the time of their appointment.
The supervisory board selects the committee chairman upon the
recommendation of the nominations and compensation committee. The
committee currently consists of three members, one of whom is
independent. Messrs. Jean-Marc Espalioux (chairman), Georges
Ralli and Murray Stuart.
The committee meets at least five times a year to examine the
periodic and annual financial statements before their submission
to the supervisory board. A summary of each meeting is prepared
and sent to the chairman of the supervisory board.
o Our nominations and compensation committee makes recommendations
on the compensation of our officers and directors, in particular
with respect to variable compensation and stock options, proposes
a total amount for the jetons de presence paid to directors and
voted on at the annual shareholders meeting, proposes rules for
paying the jetons de presence among the directors in light of
their diligence in serving on the board of directors and
committees, advises on general stock option policy and specific
stock option plans and provides a detailed opinion on the
attribution of stock options, including a clear statement of its
position and consequences. For 2003, the committee has proposed
that the variable portion of our senior managers' compensation be
determined on multiple criteria based on an improvement of our
free cash flow, our return on capital employed and our net
income. These criteria may evolve in function of our strategy and
the economic environment. The committee must also render an
opinion of the performance of the members of our management board
to our supervisory board.
The committee is required to stay informed about the compensation
of our officers as well as those of our subsidiaries and to
prepare and select our directors and senior managers and arrange
for their succession. The committee also examines any questions
submitted by the chairman of our supervisory board on these
matters and reviews the terms of any share offerings reserved for
our employees. The committee may engage the services of
specialized consultants in connection with senior management
compensation issues.
The committee's charter, adopted by our supervisory board on
March 3, 2003, provides that the committee must be composed of
between three and five members selected by the supervisory board
upon the recommendation of the nominations and compensation
committee. The committee currently consists of three members, one
of whom is independent: Messrs. Serge Michel (chairman),
Paul-Louis Girardot and Louis Schweitzer. The committee must meet
at least two times each year. The committee also strives to
ensure that independent directors represent at least half of the
members of our supervisory board, two-thirds of the members of
the accounts, audit and commitments committee and half of the
members of the nominations and compensation committee.
In addition to these committees, the chairman of our management board
and our chief financial officer also created a disclosure committee, which was
approved by our management board on December 11, 2002. Our disclosure committee
held its first meeting December 18, 2002. Pursuant to its charter, the
disclosure committee oversees the establishment of internal procedures to
collect and control information about our company that will become public,
appoints the individual(s) who prepare our reports and other communications,
stays informed about each draft report or communication, examines its contents
and determining the need to conduct diligence to verify the information,
considers the need to submit the draft report or communication to the auditors
and external advisors to verify the information in the report or communication,
considers the need to obtain approval of the management or supervisory committee
on the contents of the report or communication, approves the final version of
each report or communication made public by our company, approves the procedures
for publishing and distributing reports and communications that have been
approved by the communications committee as well as the filing of such documents
with stock market authorities; evaluates at least once a year the functioning of
the communications committee and the procedures established by it and prepares
an annual report to present its conclusions.
The chairman of our management board or, in his absence, the chief
financial officer presides over meetings of the disclosure committee. In
addition to our chief executive officer and our chief financial officer, the
permanent members of the committee include the chief executive officers of Onyx,
Compagnie Generale des Eaux, USFilter, Connex and Dalkia, our communications
director, our financial communications director, our chief accounting officer,
our internal audit director, our industrial markets director, our durable
development director, our research and development director, our risk management
director, our human resources directors and our general counsel. A coordination
group composed of representatives of our company's divisions assists the
disclosure committee by keeping it informed of developments, processing gathered
information and editing draft reports. This coordination group reports to the
chairman of the management board.
The disclosure committee meets at least three times each year,
including once before the end of each year to organize the drafting of our
annual report, once in the 90 days prior to the filing of our annual report on
Form 20-F with the U.S. Securities and Exchange Commission to evaluate and
validate the report, and once prior to our half-year earnings announcement to
evaluate and validate the strengths and weaknesses of our disclosure controls
and procedures and to evaluate the implementation of the procedures used to
prepare the annual report for the preceding year.
Employees
Human Resources Policies
An active and ambitious human resources policy
Our human resources policy is part of our effort to achieve sustainable
development by ensuring that we offer the best working conditions and
professional development opportunities to our 302,000 employees (including 100%
of employees of companies that we proportionally consolidate, including FCC). We
also strive to promote knowledge management and training, anticipate demographic
changes and their potential consequences on employment and qualifications and
approach human resources with innovation to benefit our own employees as well as
those of the companies with which we work.
Because of the recent reorganization of our activities, 2002 was a
transitional year that allowed us to define and establish common tools and
collaborative methods in each of our divisions. We are a global business with
two-thirds of our employees working outside of France, and we encourage the
decentralized management of our human resources to permit local managers to
assume more fully their professional responsibilities.
Getting to know ourselves: deployment of the human resources reporting
system
We have created a global employee database with information broken down
by each company in our group and each country in which we operate. The
information is updated on a yearly basis by each company. With this database, we
monitor approximately one hundred indicators relating to workforce size,
payroll, training, work hours, safety and employer/employee relations. The
communication arising from this database allows all of our employees to better
understand their role in our group. In addition, it allows us to better track
company trends and constitutes a useful tool to help create targeted human
resources policies. With over 200,000 data points, this diverse and detailed
pool of information is an important tool for human resources management and
provides indispensable support in our efforts to respond to the ever-increasing
demand, both internal and from the press, investors and social regulatory
agencies, for precise and detailed information about our company.
In addition, we recently completed our first-ever employee satisfaction
survey. Polling expert CSA surveyed 1,000 managers in 8 countries about their
views on the company and their professional lives. In an effort to ensure that
this widespread view of the company and its divisions is in line with
management's vision, we will carry out a new survey every year.
Developing skills
We strive to offer our employees the possibility to pursue high-quality
professional development to help them maintain their employability throughout
their career. Thanks to this policy of training and skill development, we have
truly become a "social ladder."
The Institut de l'Environnement Urbain (IEU), a dedicated training
center, offers 15 degree programs. In 2002, it hosted 6,378 employees, with 382
in an apprenticeship capacity and 95% of interns (stagiaires) obtained their
degree, it administered 313,000 hours of training, 60% of which was devoted to
initial training and 40% to continuing education and offered 37 additional
training sessions. Over half of our employees around the world (including
two-thirds of our employees in France) participated in our training programs in
2002.
In addition, after having helped more than 1,000 employees obtain
degrees through the "validation of professional experience," we intend, through
a new "validation of acquired experience" program, to allow a larger number of
employees to obtain a degree recognizing their professional experience and to
create a dynamic of skill development and social promotion.
Continuing education training programs, like the initial training
offered at IEU, involve all of our business areas and increasingly integrate the
concept of lateral relationships between divisions. For example, out of 12
degrees offered as part of our initial training, 4 have lateral relevance across
divisions. In the same vein, the recent creation of the school of environmental
services sales to industrial clients and the overhaul of the university degree
in urban services management reflect this desire to reinforce a
multi-disciplinary focus in our training. Our yearly global management seminar
for new recruits brings together nearly 700 employees each year from all
divisions. It exposes new employees to a global vision of our group and their
profession as well as to colleagues outside of their division.
The training we offer on an international level continues to expand. We
have training centers operating in Europe (Germany, Spain, Italy, Czech Republic
and Great Britain), Africa and the Middle East (Egypte, Gabon and Morocco), in
the United States, in South America and in Asia (Hong Kong, Australia, China and
Malaysia). In order to better address issues arising from our globalization and
the rapidly evolving need for necessary skills and individualized training, IEU
has committed itself to educational and technological innovation. Through new
technologies such as the Internet and intranets, it offers employees the
possibility to pursue self-guided or computer-assisted training. Approximately
1,000 employees per year, for example, engage in correspondence training
programs related to the operation of household waste incineration facilities.
Further, each year several hundred employees in the transport division study
train operation on a state of the art train-operation simulator.
The IEU also created a School Relations department at the end of 2001
to anticipate the future needs of our business in terms of recruiting over the
following 5 years. In this context, managers from each of our four divisions
participate in a Campus Club that organizes forums at each of the main schools
where we have already established contacts with over 1,800 students.
Organizing mobility
We organize and strongly encourage the professional mobility of our
employees across subsidiaries, industries, job functions and locations as well
as abroad. We have established a number of tools to facilitate such mobility.
To this end, a yearly individual employee interview, which we are far
along in the process of establishing as standard practice throughout our group,
allows us to identify the professional mobility goals of each employee.
Similarly, we have established a standard system of classification for
management positions, designed to encourage and facilitate mobility for our
29,000 managers. In addition to our Internet recruitment site, which currently
compiles our job listings in France and which will be deployed internationally
in 2003, we will create an intranet site through which employees can view
internal job postings and we expect this site to debut in France at in early
2003.
We facilitate inter-department mobility through the creation of a
continuing professional education program in 2002 that helps interested
employees acquire the skills necessary for a new position in a different
department. Further, we assist multi-occupation mobility through the development
of lateral training programs that allow employees to acquire multi-disciplinary
skills.
Our guidelines on international mobility are detailed in a Charte de
Mobilite Internationale, (International Mobility Charter) created in 2002. The
charter describes exchange programs and security guarantees for our 547
employees working abroad as well as outlines the existing practices in all of
our subsidiaries located around the world. The charter also explains the systems
of medical reimbursement, insurance and retirement for all overseas employees.
Short-term exchanges, in which teams work abroad from time to time, are
increasingly encouraged. Finally, in the countries where we are located, we seek
to provide the best protection for all of our employees in the form of insurance
(health, disability, life) or retirement benefits.
Anticipating the evolution of skills
Skill management constitutes one of the principal aspects of our human
resource policy, not only to ensure that employees work in the best conditions
but also to anticipate developments in the skills required. As part of our skill
management process, we consider two competing factors: the increase in the
number and the demands of our clients and the decreasing number of workers
available due to aging populations. In this context, employees must continuously
be prepared to update their knowledge and develop and implement new skills. We
value lifetime training and the IEU's initiatives, from initial and continuing
training to the validation of previous experience, are precursive in nature. As
a result, we have initiated a collective review of the professional development,
training and skill evolution of our employees as well as the organization of
their work.
In looking toward the future, we created in 2001 the Observatoire
social, a body that advises us on corporate practices and has undertaken
projects in the fields of temporary work programs and work experience
equivalency.
Optimizing benefit plans for all employees
We seek to provide attractive and protective plans for our employees.
To accomplish this objective, we have established collective health insurance
and pension fund plans. In France, for example, all managerial staff are covered
by a health insurance and pension system. For our employees all over the world,
we guarantee to the extent possible health benefits that typically exceed
requirements or conventional plans. We benefit from our size and our
international presence in our ability to provide a greater level of heath
insurance coverage, while at the same time controlling costs. Subsidiaries may
also consolidate their plans to benefit from our economies of scale; at the end
of November 2002, more than 130,000 employees benefited from pooled pension
funds.
Preventing and reducing work related risks
We voluntarily employ innovative measures that seek to create a culture
of prevention in order to achieve the highest level of safety, minimum risk and
a healthy work environment. Many policies to reduce the frequency and severity
of accidents have already been established within each division and will be
supplemented in 2003. Connex, for example, offers a housing benefit to bus
drivers that fall victim to violence on the roads in the Amiens region of
France. This measure received an award by the European Agency for Safety and
Health at Work in November 2002. In addition, Onyx implemented a policy at SARP
to prevent road risks for all drivers, seeking to reduce to zero the number of
serious bodily accidents for employees and the public and to lower by 10% a year
the frequency of accidents. Despite a 46% increase in our vehicle fleet in two
years, the frequency of accidents has declined by 22% over this same period.
Encouraging employee shareholding
Pursuant to the approval granted by our shareholders at the annual
meeting on April 25, 2002, we established a company savings plan (Plan d'Epargne
Groupe (PEG)) in July 2002. By granting employees the opportunity to hold our
shares, we intend to offer them the opportunity to be directly associated with
our growth and to permit a large number of them have access to a savings plan
under favorable terms and conditions. We intend to progressively expand the
program internationally during the first half of 2003 in accordance with the
applicable securities and tax regulations in the various countries concerned.
Despite unfavorable stock market conditions in 2002, 33,000 employees in France
subscribed to the plan, representing one out of every three employees. The plan
offers employees the choice of four common investment funds, including a Sequoia
Fund invested in our shares and a fund selected by a special union committee on
employee savings.
In addition, the plan will be amended in early 2003 by an observation
committee, which monitors the savings plan and includes representatives of
employee shareholders, senior management and the union.
Encouraging employee innovation
To promote a spirit of employee innovation, the companies within our
group are encouraged to take new corporate initiatives. In 2002, we compiled a
report outlining more than 220 such initiatives. Its objective seeks to promote
and communicate within our group the interesting initiatives that have been
taken in the field. For example, the report, which will be published in early
2003, describes various recent initiatives, such as:
o the availability of a physical therapist, a massage room and a
gym to learn good posture and prevent and sooth back pain for
baggage handlers at Paris Charles-de-Gaulle airport, which
received the 2002 award for corporate dynamism by the Paris
Airports (Aeroports de Paris),
o an employee resource center created in the United States to
centralize employees' questions about their professional
situation,
o bonuses offered to drivers in Sweden who reduce their diesel
consumption, and
o our initiatives in the context of a joint venture in China that
seek to improve management, the relevance of the work experience
and employee benefits and skills at our wastewater treatment
plant in Tianjin.
Promoting corporate communication
We have a decentralized system of internal communication, and there are
12,000 delegates or employee representatives within our company. In France, the
system is designed to elicit the address the most relevant issues at each level
by establishing in each division a dialogue among national representatives at
the division level and a local dialogue at the regional or company level. This
desire to be pragmatic and to focus corporate dialogue at the most appropriate
level seeks to attain a maximum level of effectiveness. It also guides the
creation of corporate relations within all of our companies throughout the world
and allows us to integrate local and national specificities arising from the
laws of each country. Through appropriate reporting, internal procedures ensure
that information reaches the relevant entities at the national level regarding a
single division and/or the entire group on subjects that might have a broader
impact and could entail consequences that extend beyond the level on which the
corporate dialogue is taking place. These procedures also allow us to steer the
subject in the interests of our company. A new European group committee will be
created in 2003.
Make positive contributions to the surrounding environment
The desire to make a positive contribution to our surrounding
environment has led us to make a number of specific commitments to civil
populations. Over the past several years, we have manifested our nationality by
our actions in favor of employment, our participation in education and training,
our environmental and health education programs, our patronage and numerous
sponsorships. In this respect, we have sponsored projects related to
environmental protection (particularly related to water) and collaborate with
universities and schools to encourage awareness of these issues in young people.
For example, in 2002 we launched the "Let's clean up Nature" operation with IEU
trainees. In addition, in Brazil, where Dalkia manages a large number of
commercial centers, we have created a school for literacy and preparation for
the Brazilian State exams, into which we have integrated Dalkia's 140 employees
(of which half are illiterate) at the Morumbi center in Sao Paulo.
We also participate, alone or in cooperation with non-governmental
organizations, in different humanitarian intervention projects relating to
natural catastrophes or serious incidents around the world. For example, we have
entered into a partnership called "Waterforce" with the French Red Cross to
combine the necessary know-how that may be used to implement water and
wastewater programs in all latitudes of the globe. Waterforce is able to deploy
in emergencies to assist disfavored populations around the world. In 2002,
Waterforce provided assistance to afghan refugees in Pakistan and to local
populations in the Democratic Republic of Congo after the volcanic eruption in
Goma. Waterforce also provided technical assistance after the floods in Germany
in August 2002, and implemented a program to rehabilitate the pumping stations
and network of the city of Lac in Albania.
Employee Information
The information in this section has been derived from our international
database created in 2001, which includes, for each of our subsidiaries and each
country in which our employees are located, 100 social or labor indicators
representing over 200,000 facts organized by company, country, geographic area
and the entire world. We present below the principal indicators derived from our
database. You should not place undue reliance on the information in this
section, which has been derived from the exhaustive information in our worldwide
database (particularly in the case of averages) and is not intended to present
trends or other detailed information on any specific area or activity.
Total Number of Employees
As of December 31, 2002, we had 302,283 employees (including 100% of
the employees of companies that are proportionally consolidated by our company,
such as FCC), an increase of 2.4% (6,998 employees) over 295,285 employees as of
December 31, 2001.
The following table shows the distribution of our employees by activity
and geographic location as of December 31, 2002:
Energy
Water(1) Waste(2) Services Transport FCC(3) Total(4) %
-------- -------- -------- -------- -------- -------- --------
Europe 52,566 46,810 36,521 51,831 48,700 236,646 78.28%
of which France 27,041 30,889 18,920 23,908 137 101,113 33.45%
North America 14,301 8,768 - 1,674 992 25,735 8.51%
South America 2,240 4,826 3,082 322 6,095 16,565 5.48%
Africa/Middle East 4,783 5,613 50 210 7 10,663 3.53%
Asia/Pacific 3,738 7,309 422 1,205 - 12,674 4.19%
-------- -------- -------- -------- -------- -------- --------
Total 77,628 73,326 40,075 55,242 55,794 302,283 100%
% 25.68% 24.26% 13.26% 18.27% 18.46% 100%
----------------------------------
(1) Includes 50% of the employees in Proactiva's water activities (926
employees).
(2) Includes 50% of the employees in Proactiva's waste management activities
(4,331 employees).
(3) Figures reflect 100% of FCC's employees, including 50% of Proactiva's
employees (5,367 employees).
(4) Includes 100% of the employees of Proactiva (10,624 employees) and of
companies that are proportionally consolidated by our company, including
FCC. The total number for Europe (and France) includes 218 employees who
work directly for our company (holding) in France.
As of December 31, 2002, we employed 258,731 persons (representing 85%
of our total employees) under indefinite term employment agreements and 43,552
persons under fixed-term employment agreements. As of December 31, 2002, 28,835
of our employees are managers (representing 9.5% of our total employees) and
58,388 were women (representing 19% of our total employees).
Weighted Average Annual Number of Employees
Our weighted average annual number of employees corresponds to the
equivalent number of employees that have worked full time for us over the entire
year. This indicator is calculated by weighing the total number of employees
against our employment rate and the amount of time worked by each employee. Our
weighted average annual number of employees in 2002 was 282,271, of which
253,197 employees (or 89.7%) were employed under indefinite term contracts.
Consolidated Weighted Average Annual Number of Employees
We calculate this indicator by weighing the weighted average annual
number of employees against the level of consolidation of each of the companies
through which we operate. Our consolidated weighted average annual number of
employees in 2002 was 257,177.
Hiring
During 2002, we hired 84,790 employees (including 100% of those hired
by companies that are proportionally consolidated by our company), of which
3,987 are managers. Half of these new hires are employed under fixed-term
contracts, of which approximately two-thirds were hired in FCC's construction
activities, in our waste management activities or to replace other personnel.
The average term of all of our fixed-term employment contracts is close to 8
months, and only 10.3% of our weighted average annual number of employees were
employed under these contracts in 2002.
Departures
During 2002, 82,420 persons ceased to be employees of our company
(including 100% of those that left companies that are proportionally
consolidated by our company), of which 10,716 employees were individually
dismissed and 1,511 were laid-off as part of redundancy programs.
Extra Hours
Our employees worked 16,494,824 extra hours in total in 2002, which
represents, on average, 54.7 extra hours per employee. The concept of extra
hours varies from country to country, which makes it difficult to assess the
meaning of this indicator in certain cases. For example, this indicator would
mean that each of our French employees worked an average of 31 extra hours. In
addition, in a services business like ours, a large number of extra hours are
due to emergency interventions by our on-call personnel.
Temporary Employees
We employed 11,515 persons in a temporary capacity during 2002
(representing 4.1% of our total employees).
Information relating to Redundancy and Reorganization Plans, Employee
Reclassification and Rehiring and Other Related Measures
Our acquisitions and divestitures result in the transfer of employees
without the termination of the corresponding employment contracts. The few
restructuring efforts undertaken in 2002 result from new service contracts that
included an employee redundancy component within the public tender materials.
When these measures are necessary, we implement these redundancy plans in
compliance with applicable law and in consultation with our labor partners, and
we favor, to the extent possible, internal reclassifications of employees within
our company.
Organization and Duration of Work
The organization of our working schedules varies depending on the
nature of the activity and the location of each particular company. Each of our
subsidiaries organizes its work schedules to meet the needs of its business and
the expectations of its employees. Although work schedules across our business
are substantially based on equivalent daily working hour requirements, the
details of the implementation vary significantly from country to country. For
example, depending on the country, the workweek may be equal to 4, 5 or 6 days
and mandatory arrival and departure times, daily schedules, rules relating to
alternate short and long workweeks and annualized limits on working hours may
vary.
The average workweek in our business is 38.5 hours. Our part-time
employees totaled 15,322 in 2002, representing 5.5% of our total employees. The
total number of days on which our employees took leaves of absence was 3,974,418
during 2002, of which 2,746,558 days (or 69.1%) were taken for sickness, 397,421
days (or 9.9%) were for workplace accidents and the balance for extraordinary
family (primarily weddings and maternity leaves) and union other organized
labor-related events.
Compensation, Labor Contributions and Equality
The average annual gross compensation of our employees around the world
amounted to (euro)23,927 in 2002, compared to (euro)24,002 in 2001. The slight
decrease in this figure is primarily attributable to our acquisition and
divestiture activities in 2002, which resulted in the addition of 6,040 persons
to our workforce in Africa and the Asia-Pacific region, where salaries tend to
be lower than average, and the departure of 3,017 employees in North America,
where salaries tend to be higher than average. You should not place undue
reliance on the average annual gross compensation figures, which are given for
indicative purposes only. Compensation paid to our employees varies greatly as a
result of the diverse nature of our activities and the work performed by our
employees, as well as the geographical location of our activities and employees.
Our labor contributions represented 27.65% of our total employment
costs in 2002. The average gross compensation paid to our male employees was
(euro)24,572 in 2002, compared to (euro)20,949 paid to our female employees
(representing a difference of (euro)3,623, or 14.7%). The difference in
compensation is primarily attributable to the nature of and limitation in the
work performed and to differences in age, seniority and training often found
between both groups of employees. Our policy is to promote equality in the
workplace between men and women that possess similar capabilities and
qualifications.
Ratio of Average Compensation to Average Minimum Wages
We adopted this indicator in 2002 to improve our evaluation of our
compensation levels compared to the minimum wages guaranteed or implemented in
each country in which we operate, as well as to assess the minimum level of
resources of our employees in each of these countries. In countries that have
mandatory minimum wages set by law (in which over two-thirds of our employees
are located), our employees' weighted average compensation was (euro)26,835 in
2002, compared to average minimum wages of (euro)11,541, which results in a
ratio of 2.3. Including all other countries, where minimum wages are set through
collective bargaining agreements or market practice and are more difficult to
determine, our average compensation to average minimum wages ratio in 2002 was
equal to 2.4.
Profit-Sharing, Participation and Shareholding
In 2002, we paid our employees in France (euro)36,240,537 under
profit-sharing arrangements and (euro)38,620,242 under participation
arrangements. In addition, 30,000 of our employees have elected to participate
in our Sequoia Group Savings Plan created in France in July 2002, with a total
number of subscriptions in this plan of (euro)31,353,687.
Relations with Professional Employees and Unions
In 2002, we entered into 1,512 collective bargaining agreements,
including 930 agreements relating to compensation, 171 agreements relating to
health, security or other labor conditions, 96 agreements relating to employee
dialogue and 315 agreements relating to other matters. Our employees have 11,982
representatives within our company.
Sanitary and Security Conditions
In 2002, the number of workplace accidents with leave for at least one
workday was 18,521, and the number of days not worked due to workplace accidents
was 397,421. The rate of frequency of workplace accidents, which is calculated
as the total number of accidents over one million workable hours, was 38.6. The
rate of severity of workplace accidents, which is calculated as the number of
days not worked due to accidents over one thousand workable hours, was 0.83.
We provided security training to 81,247 employees during 2002, and have
7,301 bodies to handle work-related sanitary and security problems within our
company.
Training
Our training expenses represented 2% of our total labor costs in 2002.
In France, our training expenses represented 2.5% of our total labor costs in
2002. In 2002, we provided training to 169,734 employees, representing 56% of
our total employees. Our training programs were attended by 22,691 managers and
147,043 non-managerial employees (representing 86.6% of the total), and 139,280
male employees and 30,454 female employees (representing 17.9% of the total). In
aggregate, we provided 3,397,455 hours of training in 2002, and each program
lasted on average approximately 20 hours.
Employees with Disabilities
We employed approximately 3,960 disabled persons as of December 31,
2002. This figure, however, does not include our activities in certain
jurisdictions that do not have a precise definition of a "disabled person."
Social Work
We provided (euro)74.3 million in subsidies related to social work in
2002. This figure, however, does not cover all of our activities in this domain,
and does not include our subsidies in a number of countries that do not record
this amount separately from other labor-related charges.
Outsourcing and Procurement
Because our core business is to respond to the outsourcing needs of our
clients for environmental services, we do not, as a general matter, outsource
our activities, except for a limited number of activities relating to analysis
and testing, construction and specific technical missions.
We adopted a procurement charter in 2002 covering all participants in
our procurement network around the world. This charter sets forth the principles
and rules governing our procurement activities, including ethical principles and
the rules adopted by the International Labor Organization relating to forced
labor, child labor, equality of opportunity and freedom of association. We
require all of our suppliers to commit to us to respect these rules and
principles through specific contractual clauses in our supply arrangements with
them.
Share Ownership
None of our directors and senior managers owns 1% or more of our
shares. Our directors and senior managers as a group own less than one percent
of our shares. As of December 31, 2002, our directors and senior managers hold
options to subscribe to shares of our company as follows:
2001 Plan Number of Shares Exercise Price Expiration Date
------------------ --------------- --------------------
Henri Proglio............. 208,000 (euro)42 February 8, 2009
Jerome Contamine.......... 41,600 (euro)42 February 8, 2009
Jean-Pierre Denis......... 41,600 (euro)42 February 8, 2009
Antoine Frerot............ 41,600 (euro)42 February 8, 2009
Denis Gasquet............. 41,600 (euro)42 February 8, 2009
Andrew Seidel............. 41,600 (euro)42 February 8, 2009
2002 Plan
------------------ --------------- --------------------
Henri Proglio............. 220,000 (euro)37.53 January 29, 2010
Jerome Contamine.......... 65,000 (euro)37.53 January 29, 2010
Jean-Pierre Denis......... 45,000 (euro)37.53 January 29, 2010
Antoine Frerot............ 45,000 (euro)37.53 January 29, 2010
Denis Gasquet............. 45,000 (euro)37.53 January 29, 2010
Andrew Seidel............. 45,000 (euro)37.53 January 29, 2010
As of December 31, 2002, none of the options granted to our directors
and senior managers had been exercised.
On June 21, 2000, our shareholders gave our management board a
three-year authorization to grant options to purchase or to subscribe to shares
of our company to members of our management and other employees. The shares
purchasable upon exercise of the options must be either newly issued or held as
treasury shares following the implementation of a share repurchase program. The
purchasable shares may not represent, in the aggregate, more than 2.5% of our
total capital. Pursuant to this authority, on June 23, 2000 our management board
decided to implement an "outperformance" stock option program. Under the
program, we granted 30 of our principal managers options to purchase 780,000
treasury shares at (euro)32.50 per share. Options granted pursuant to this plan
will expire in June 2008. As of December 31, 2001, 10,000 options had been
exercised.
On February 8, 2001, our management board decided to implement a stock
option plan pursuant to which 1,500 of our employees will be entitled to receive
options to subscribe to a total of 3,462,000 newly-issued shares of our company
at (euro)42 per share, which was the fair market value of our shares at the time
the options were granted. Options granted pursuant to this plan become
exercisable in February 2004 and expire in February 2009. As of December 31,
2002, none of these options had been exercised.
On January 28, 2002, our management board decided to implement a stock
option plan pursuant to which approximately 1,400 of our employees will be
entitled to receive options to subscribe to a total of 4,413,000 newly-issued
shares of our company at (euro)37.53 per share, which was the average market
price over the 20 stock exchange days immediately preceding the date of the
meeting of our management board. During 2002, we granted options to acquire
4,413,000 newly-issued shares pursuant to this plan, 10.5% of which were granted
to the members of our management board. Options granted pursuant to this plan
become exercisable in January 2006 and expire in January 2010.
On March 24, 2003, our management board approved a 2003 stock option
plan proposal that provides for the issuance of options to acquire approximately
2% of our capital stock on the date of approval, which represents slightly less
than two thirds of the total amount authorized by our general shareholders'
meeting on April 25, 2002. The allocation of the options will follow the
allocation used in the 2002 stock option plan, which allocated 10.5% of the
options to the members of our management board and the rest to approximately
1,800 of our employees. The exercise price of these options will be (euro)22.50
per share, which reflects the price per share paid by the group of new investors
in December 2002. Our management board does not believe it is necessary to
request our shareholders to authorize a new issuance of stock options at the
general shareholders' meeting to be held on April 30, 2003.
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
The table below shows the ownership of our shares and voting rights at
December 31, 2002:
Shareholder Number of Percentage of Number of Percentage of
shares share capital voting rights voting rights
---------------------------------------------------------------------------------------------------------------------
Vivendi Universal(1) 82,486,072 20.36% 82,486,072 20.83%
Our Company(2) 9,142,362 2.26% n.a. n.a.
Group of New Investors (3) 78,861,228 19.47% 78,861,228 19.92%
of which:
Caisse des Depots et Consignations(4) 28,062,880 6.93% 28,062,880 7.09%
Groupama(5) 22,514,891 5.56% 22,514,891 5.69%
EDF(6) 16,155,492 3.99% 16,155,492 4.08%
Putnam(7) 20,430,385 5.04% 20,430,385 5.16%
Public 147,136,860 36.32% 147,136,860 37.16%
Other Investors 67,013,552 16.54% 67,013,552 16.93%
---------- ---------- ---------- ----------
Total 405,070,459 100% 395,928,097 100%
---------------------
(1) According to Vivendi Universal's filings with Euronext Paris.
(2) Including 3,624,844 shares repurchased from Vivendi Universal pursuant to an
agreement dated November 24, 2002, which is described below. On December 11,
2002, our management board decided that these shares will be used in
offerings to our employees, including through our employee share purchase
plans and our employee stock option plans.
(3) Represents the shares purchased from Vivendi Universal by the members of the
group of new investors (excluding our company) pursuant to an agreement
dated November 24, 2002, which is described below. Including the shares
repurchased by our company from Vivendi Universal under this agreement,
these investors held in aggregate 82,486,072 shares, representing 20.36% of
our share capital, as of December 31, 2002. These investors have agreed not
to sell or transfer the shares repurchased from Vivendi Universal until
December 2003, as described below.
(4) According to CDC's filings with Euronext Paris. The share figures include
the shares repurchased from Vivendi Universal pursuant to the November 24,
2002 agreement, as well as shares purchased by CDC in other transactions.
CDC has declared in its filings with Euronext Paris that it is acting as a
financial investor and, although it may decide to purchase additional shares
of our company depending on market conditions, it does not intend to assume
control of our company.
(5) According to Groupama's filings with Euronext Paris. The share figures
include the shares repurchased from Vivendi Universal pursuant to the
November 24, 2002 agreement, as well as shares purchased by Groupama in
other transactions.
(6) According to EDF's filings with Euronext Paris. EDF has declared in the
November 24, 2002 agreement that it will hold the shares as a financial
investment, that it does not seek to influence our management and that it
would exercise its voting rights with the sole aim of enhancing the value of
its investment.
(7) Shares held under management by Putman Investment Management LLC and The
Putnam Advisory Company LLC on behalf of its clients, according to filings
made by Putnam Investment Management LLC and The Putnam Advisory Company LLC
with Euronext Paris.
To the best of our knowledge, no person other than those listed above
holds 5% or more of our shares. Vivendi Universal does not have different voting
rights than our other shareholders except by virtue of the large number of
shares it holds. We believe that we had approximately 302,390 shareholders as of
January 15, 2003, of whom 27.5% were foreign investors, 72.5% French investors
(including 5.6% French individual shareholders).
The following table shows the evolution of the ownership of our shares
over the past three years:
As of December 31,
------------------------------- ---------------------------------------------------------------------
Shareholders As of September 29, 2000(1) 2001(2) 2002
------------------------------- ---------------------------------- ----------------------------------
% of % of % of
Number of % of voting Number of % of voting Number of % of voting
Shares capital rights Shares capital rights Shares capital rights
--------------------- -------------- ------- -------- -------------- -------- ---------- --------------- -------- ---------
Vivendi Universal 250,653,168 72.4% 72.7% 218,278,926 63.05% 63.85% 82,486,072 20.36% 20.83%
--------------------- -------------- ------- -------- -------------- -------- ---------- --------------- -------- ---------
Our Company 1,388,463 0.4% -- 4,298,174 1.24% -- 9,142,362 2.26% --
--------------------- -------------- ------- -------- -------------- -------- ---------- --------------- -------- ---------
Public and Other
Investors 94,133,324 27.2% 27.3% 123,598,672 35.7% 36.15% 313,442,025 77.38% 79.17%
--------------------- -------------- ------- -------- -------------- -------- ---------- --------------- -------- ---------
Total 346,174,955 100% 100% 346,175,772 100% 100% 405,070,459 100% 100%
--------------------- -------------- ------- -------- -------------- -------- ---------- --------------- -------- ---------
---------------------
(1) As of September 29, 2000, French investors held approximately 84% of our
shares (and foreign investors the remaining 16%), our directors and senior
managers did not hold a material percentage of our shares and no shareholder
other than Vivendi Universal held more than 5% of our share capital.
(2) As of December 31, 2001, French investors held approximately 88% of our
shares (and foreign investors the remaining 12%), our directors and senior
managers did not hold a material percentage of our shares and no shareholder
other than Vivendi Universal held more than 5% of our share capital.
Relationship with Vivendi Universal as Principal Shareholder
During the course of 2002, Vivendi Universal's interest in our company
decreased from approximately 63% to approximately 20% in a series of
transactions described below. SNEGE, a wholly owned subsidiary of Vivendi
Universal, held 99.99% of our shares from the time of our incorporation in 1995
until March 31, 1999, when Vivendi Universal acquired 100% of our shares for
their nominal value in a series of transactions that was completed on April 9,
1999. In July 2000, Vivendi Universal's interest in our company was reduced to
approximately 63% as a result of an initial public offering in France and an
international private placement of our shares and the conversion of our
convertible bonds into our shares. Following the public offering, private
placement and bond conversion, Vivendi Universal purchased an additional 9% of
our shares on the open market, increasing its interest in our company to
approximately 72%.
On February 8, 2001, Vivendi Universal issued (euro)1.809 billion
principal amount of bonds that are exchangeable for shares of our company held
by Vivendi Universal, representing 9.3% of our share capital. The 2% five-year
bonds were issued at a price of (euro)55.90, a 30% premium to the closing price
of our shares on Euronext Paris on February 7, 2001. Each bond is exchangeable
for one of our existing shares.
On December 4, 2001, Vivendi Universal sold 32.4 million of our shares,
representing 9.3% of our total share capital, on the open market at a price of
(euro)38 per share. On December 17, 2001, we distributed one free warrant for
each of our 346,174,955 shares to persons who held our shares on December 14,
2001. The warrants are listed on the Premier Marche of Euronext Paris. Subject
to adjustments, including those resulting from our capital increase through a
rights offering conducted in July 2002, each 7 warrants will entitle the holder
to subscribe 1,009 shares of our company at a subscription price of (euro)55 per
share. Altogether, the warrants may be exercised for up to 49,453,565 of our
shares, subject to anti-dilution adjustments. The warrants may be exercised at
any time from December 17, 2001 to and including March 8, 2006. Warrants
distributed in respect of shares held in the form of ADSs were sold on Euronext
Paris by The Bank of New York, acting as depositary for our ADSs, and the
proceeds were distributed to holders of ADSs. As a result of the issuance of our
warrants, Vivendi Universal may subscribe and purchase shares representing up to
9.3% of our total share capital. As of December 31, 2002, 99,134 warrants had
been exercised, which resulted in the issuance of 14,162 new shares and an
increase in share capital of (euro)191,187, including 91 warrants exercised in
2002 that resulted in the issuance of 13 new shares which were acknowledged and
recorded by our management board on March 24, 2003.
On June 12, 2002, Vivendi Universal and Deutsche Bank AG, acting
through its London branch, signed a financing agreement in the form of a French
repurchase arrangement (pension livree), maturing on December 27, 2002, with
respect to 43.5 million of our shares. Following this transaction, Deutsche Bank
held 43,990,083 of our shares, representing 12.70% of our capital and 12.90% of
the voting rights. On June 24, 2002, Deutsche Bank sold 53,787,250 of our shares
on the open market. This sale was conducted through an accelerated book-building
of institutional investors and was managed by BNP Paribas, Deutsche Bank and
Societe Generale. In connection with this transaction, Deutsche Bank sold the
shares it held pursuant to the June 12, 2002 financing agreement with Vivendi
Universal, which was increased as part of the offering. The amount of the
financing, which matured on December 2002, was repaid by means of a forward
contract between Vivendi Universal and Deutsche Bank for the same number of
shares at the offering price. This transaction did not have an impact on the
market for our shares.
Relationship with the Group of Declared Investors and the New Investors
In July 2002, we conducted a capital increase through the issuance of
preferential subscription rights to our shareholders. Pursuant to the terms of
an agreement dated June 24, 2002, several financial investors, whom we refer to
as the Group of Declared Investors (GID) acquired and exercised the preferential
subscription rights granted to Vivendi Universal and subscribed for the
remainder of our shares not subscribed by the public. The GID consisted of the
Caisses des Depots et Consignations, Groupama, BNP Paribas, AGF, Societe
Generale, Dexia, Caisses d'Epargne, Credit Lyonnais and Natexis Banques
Populaires. Following the transaction, the GID held 9.4% of our share capital,
which was subject to a lock-up that has since expired.
Vivendi Universal continued to hold shares representing 40.8% of our
capital and, in the context of our capital increase, agreed that, until December
23, 2003, it would not take any of the following actions without the prior
written consent of the banks that managed the capital increase:
(i) offer, sell, pledge or otherwise transfer, directly or indirectly,
any of our shares,
(ii) issue, grant, offer or sell, directly or indirectly, any
securities convertible into or exchangeable for our shares, or
(iii) enter into any derivative transaction in respect of our shares,
These limitations, however, would not apply in the case of:
(i) a tender of our shares in connection with a public tender or
exchange offer for our shares, a merger with or partial asset
contribution to our company or any other restructuring transaction in
respect of our company, to the extent that the final holder of 10% or
more of our shares agrees to become subject to the same lock-up
obligations for the remainder of the lock-up period,
(ii) a sale by Vivendi Universal in the event that Vivendi Universal
is subject to a public tender offer or exchange offer that is not
approved by the Board of Directors of Vivendi Universal,
(iii) the delivery of shares pursuant to the exercise of Vivendi
Universal's outstanding exchangeable bonds issued in February 2001,
(iv) sales to third parties in private transactions, so long as the
transferee agrees to become subject to the same lock-up obligations
for the remainder of the lock-up period, or
(v) a pledge of shares, so long as the pledgee agrees to become
subject to the same lock-up obligations for the remainder of the
lock-up period.
On November 24, 2002, Vivendi Universal, our company, the GID and a
group of new investors, whom we refer to as the New Investors signed an addendum
to the original GID agreement to allow Vivendi Universal to sell on December 24,
2002 to the New Investors and to our company a total of 82,486,072 of our shares
and to grant, for each share acquired, a call option that is exercisable at any
time between December 24, 2002 and December 23, 2004. Each call option grants
the right to purchase one of our shares at a price of (euro)26.50 per share,
subject to normal adjustments in the case of transactions affecting our share
capital. The sale of 82,486,072 of our shares closed on December 24, 2002. In
the event that all of the call options are exercised, Vivendi Universal will no
longer hold any of our shares.
Pursuant to the addendum, we repurchased 3,624,844 of our own shares,
representing approximately 0.9% of our capital, and hold a call option to
purchase the an equal number of our shares from Vivendi Universal. The New
Investors consist of EDF, Caisse des Depots et Consignations, Groupama SA, AXA,
Compagnie d'Investissement de Paris SAS, Eurazeo, Aurelec, Dexia Credit Local,
Caisse Nationale des Caisses d'Epargne, Assurances Generales de France Holding,
CNP-Assurances, Credit Agricole Indosuez (Suisse) SA (for its own account and
the account of a client), CIC, Generali, Credit Lyonnais Mederic Prevoyance and
Wasserstein Family Trust LLC. Each of the New Investors has agreed to be bound
by the terms of Vivendi Universal's lock-up described above, except that the
lock-up restrictions will not apply in the case of:
(i) a tender or sale of our shares in the context of a public tender
offer initiated for our company,
(ii) sales to third parties in private transactions, so long as the
transferee agrees to become subject to the same lock-up obligations
for the remainder of the lock-up period,
(iii) a transfer by a New Investor to any company controlled by it,
controlling it, or under the common control with it, so long as the
transferee agrees to become subject to the same lock-up obligations
for the remainder of the lock-up period;
(iv) a pledge of shares, so long as the pledgee agrees to become
subject to the same lock-up obligations for the remainder of the
lock-up period;
(v) a loan or sale of shares in the connection with the implementation
of employee shareholding programs; and
(vi) a transfer to any third party pursuant to a final judicial
decision that is not subject to appeal or that is immediately
enforceable which requires the transfer to be consummated before
December 21, 2003, or, upon the occurrence of certain acceleration
events, for purposes of enforcing the pledges granted by Vivendi
Universal to its lenders and the New Investors.
The following table shows the shareholders and the number of shares
that are bound by the lock-up agreement described above and the number of
additional shares that may be purchased by these shareholders pursuant to the
addendum dated November 24, 2002. Other than the Caisse des Depots et
Consignations, EDF and Groupama, none of the shareholders below would hold 5% or
more of our share capital if they exercised all of their call options under the
November 24, 2002 addendum.
Shareholders Number of Shares
Number of Shares Underlying Call Options
Subject to the issued by Vivendi
Lock-up Universal(1)
------------------------------------------------------------------------------------------------------------------
EDF 16,155,492 16,155,492
Caisse des Depots et Consignations 12,278,000 12,278,000
Groupama SA 12,116,619 12,116,619
AXA 5,333,334 5,333,334
Compagnie d'Investissements de Paris SAS(2) 4,444,445 4,444,445
Eurazeo 4,444,445 4,444,445
Our Company 3,624,844 3,624,844
Aurelec(3) 3,333,334 3,333,334
Dexia 2,666,667 2,666,667
Caisse Nationale des Caisses d'Epargne 2,444,445 2,444,445
Assurances Generales de France Holding 2,222,223 2,222,223
CNP 2,222,223 2,222,223
Credit Agricole Indosuez (Suisse) for the account of a
client 2,222,223 2,222,223
Credit Industriel et Commercial SA 2,222,223 2,222,223
Generali 2,222,223 2,222,223
Credit Agricole Indosuez (Suisse) SA 1,199,999 1,199,999
Credit Lyonnais 1,111,111 1,111,111
Mederic Prevoyance 1,111,111 1,111,111
Wasserstein Family Trust LLC 1,111,111 1,111,111
Total 82,486,072 82,486,072
------------------------------------------------------------------------------------------------------------------
---------------------
(1) The additional shares purchased from Vivendi Universal upon exercise of the
call options will remain subject to the lock-up agreement described above.
(2) Member of the BNP Paribas group.
(3) Member of the Societe Generale group.
To our knowledge, there are no shareholders' or other agreements
relating to our shares other than the lock-up agreement described above.
Related Party Transactions
Formation
Vivendi Universal created our company in 1999 by grouping together the
majority of its existing environment-related operations as follows:
o transferring to us its 49% interest in the Spanish company B 1998
SL, a holding company that owns 56.53% of FCC, at market value
((euro)691 million);
o contributing to us its 100% interest in Compagnie Generale
d'Entreprises Automobiles for (euro)633.9 million, its 100%
interest in Dalkia Holding for (euro)915.0 million, its 4.19%
interest in Dalkia for (euro)58.9 million, its 100% interest in
Compagnie Generale des Eaux for (euro)1,307.7 million and its
14.3% interest in Philadelphia Suburban Corporation for
(euro)51.9 million. Each contribution was made for the book value
of the interest contributed. On the same date, we transferred the
interests in Compagnie Generale des Eaux and Philadelphia
Suburban Corporation to Vivendi Water at book value in exchange
for shares of Vivendi Water stock; and
o transferring securities representing its interest in United
States Filter Corporation to Vivendi Water for (euro)2.7 billion.
As of December 31, 1999, at the closing of these transactions, Vivendi
Universal owned 100% of our capital and, after various debt transfers within the
environment sector, our company (exclusive of our subsidiaries) owed Vivendi
Universal (euro)8,122 million, net of loans owed by Vivendi Universal in
connection with the convertible bonds in an aggregate amount of (euro)2,807
million.
Vivendi Universal also transferred a number of intangible water assets,
including the brand "Compagnie Generale des Eaux," the related logo and various
related trademarks to Compagnie Generale des Eaux.
Transfer of securities and interests
In order to complete the separation of Vivendi Universal and our
company, we entered into a Master Agreement with Vivendi Universal dated
December 20, 2002, as well as several ancillary Cooperation Agreements.
Pursuant to the terms of the Master Agreement, our company and Vivendi
Universal have agreed that:
o Vivendi Universal will sell its 83.7% interest in Apa Nova
Bucaresti, a Romanian company, to Compagnie Generale des Eaux
for(euro)35,009,309,
o subject to a number of conditions, Vivendi Universal will sell
its 20.09% interest in Genova Acque, an Italian company, to
Compagnie Generale des Eaux for(euro)25 million;
o subject to certain conditions, Vivendi Universal will sell its
26% interest in the Societe des Eaux et de l'Electricite du Nord
(Tanger-Tetouan) to Compagnie Generale des Eaux for
(euro)6,548,852, which be settled by setting-off an equal amount
owed by Vivendi Universal to our company as a result of the
payment of the original purchase of this company made by us on
behalf of Vivendi Universal,
o Vivendi Universal will sell preferred shares of VNAC to VNAO for
US $10,176,750;
o Vivendi Universal or certain of its subsidiaries will sell to our
company and/or certain of our subsidiaries various securities and
interests with an insignificant value; and
o We, or our subsidiaries, will sell to Vivendi Universal various
securities and interests that we have historically held in
companies unrelated to our environmental management services
business.
The Master Agreement provides that the sale of these securities and
interests must be finalized by no later than December 31, 2004.
Transfer of Water Distribution and Treatment Operations to Compagnie Generale
des Eaux
Vivendi Universal sold its water-related operations in France (with the
exception of certain water-related contracts, as described below) to our
wholly-owned subsidiary Compagnie Generale des Eaux at book value in a
transaction that took effect on November 1, 1999 (the "water transfer"). For
accounting purposes, the water transfer was made effective as of January 1, 1999
under a special tax exemption regime.
Some of Vivendi Universal's contracts to provide water-related services
contain provisions that limit its ability to transfer those contracts without
the permission of the other parties. During 2002, Vivendi Universal transferred
to us almost all of the remaining contracts (with a book value of (euro)25.4
million) as it received the required consents from the other parties to these
contracts. As of December 31, 2002, six contracts had not yet been transferred
for various reasons, representing revenue of approximately (euro)10 million.
Pursuant to the terms of the Cooperation Protocol dated December 20, 2002,
Vivendi Universal has agreed to continue operating these contracts with the
financial support of Compagnie Generale des Eaux, which will receive the
economic benefits and assume the risks under the contracts.
Financial Agreements
We have entered into a number of agreements with Vivendi Universal and
some of its affiliates in connection with our formation and the initial public
offering of our shares. These agreements, which establish the financial
relationship between Vivendi Universal and our company, include:
o an intercompany short-term loan agreement signed in June 2000;
o an infrastructure renewal and maintenance guarantee agreement
relating to our water and heat distribution activities; and
o a counter-guarantee agreement related to guarantees granted by
Vivendi Universal in favor of our subsidiaries on or prior to
July 20, 2000.
These contracts which were approved by our supervisory board on June
19, 2000, were modified during 2002.
We have also entered into a number of indebtedness and other financial
transactions with Vivendi Universal that are not related to our formation,
including an agreement relating to Aguas Argentinas, and a loan relating to a
bond issued by Vivendi Universal that is exchangeable for shares of Vinci held
by one of our subsidiaries.
Loan Agreement of June 19, 2000
On June 19, 2000, the existing shareholder's current account was
consolidated under a credit line extended to us by Vivendi Universal for a
maximum amount of (a)8.12 billion repayable at maturity on December 31, 2004.
This credit line agreement was accompanied by an interest rate swap agreement on
September 15, 2000. On May 2, 2001, we reimbursed in full all outstanding
amounts due by our company to Vivendi Universal under this shareholder's account
credit line. During the second half of 2001 and the first half of 2002, we and
Vivendi Universal agreed to undo the swap arrangements pursuant to agreements
dated March 4, 2002 and January 13, 2003. The latter agreement terminated the
June 19, 2000 loan agreement except for provisions relating to the shareholder's
account, which may be temporarily and automatically reactivated at any time that
a holder of our exchangeable bonds exercises its right to exchange its bonds
into shares of Vivendi Universal on the basis of the principal amount due and
accrued interest on its bonds.
Guarantee Agreement
In connection with the formation of our company and Vivendi Universal's
contribution or sale to us of its interests in its water and energy services
operations, we have replaced Vivendi Universal as managing partner (associe
commandite) of substantially all Vivendi Universal's water and energy services
subsidiaries. As managing partner of these subsidiaries, we have assumed Vivendi
Universal's obligations to reimburse those subsidiaries for expenses related to
the maintenance and replacement of equipment, in exchange for annual indemnity
payments and statutory dividends from these subsidiaries.
As managing partner of the subsidiaries, we have the power to appoint
managers (gerants). We are also jointly liable for those subsidiaries'
obligations. Under a guarantee agreement dated June 20, 2000, Vivendi Universal
will pay us for any loss that we suffer over a period of 12 years as a result of
our undertaking to reimburse the subsidiaries for expenses associated with the
maintenance or replacement of equipment. This guarantee covers both recurring
expenses (those incurred in accordance with budgeted amounts and charges
recorded in previous years) and exceptional expenses. Recurring expenses are
guaranteed up to an initial limit of (euro)15.2 million (in June 2000 euros) a
year (subject to adjustment), a limit that is indexed to the cost of equipment
maintenance and repair. The maximum total amount we can recover for recurring
expenses is (euro)228.7 million.
Pursuant to the terms of the Master Agreement dated December 20, 2002,
the (euro)15.2 million annual cap was increased beginning in fiscal year 2002 by
an additional (euro)15.2 million, raising the annual cap to (euro)30.5 million
(in June 2002 euros), or (euro)32.38 million after indexing. Although due from
fiscal year 2002, the additional (euro)15.2 million tranche will only be payable
beginning in January 2005 and will bear interest at the legal interest rate. The
Master Agreement also provides that if the cumulative amount of our renewal
expenses exceeds (euro)228.7 million, Vivendi Universal will cover the excess
amount up to a maximum and definitive amount of (euro)76.2 million. Finally, we
agreed to terminate the guarantee relating to exceptional expenses, which were
initially guaranteed up to a maximum total amount of (euro)381.1 million less
any sums already paid to us under the guarantee.
Counter-Guarantee Agreement
Prior to our formation and the initial public offering of our shares,
Vivendi Universal granted a variety of guarantees (for an initial amount of
(euro)6 billion) to third parties on behalf of our subsidiaries, generally in
connection with those subsidiaries' bids for public auctions, receipt of funds
from bank financing and sales of assets (the "subsidiary guarantees").
We have entered into a counter-guarantee agreement dated June 20, 2000,
pursuant to which we will indemnify Vivendi Universal for any costs, losses or
expenses it incurs in connection with the subsidiary guarantees. Under the
counter-guarantee agreement, we are also required to use our best efforts to
obtain the consent of beneficiaries of the subsidiary guarantees to the transfer
of the subsidiary guarantees from Vivendi Universal to us. When such a transfer
occurs, we are released from our obligations under the counter-guarantee
agreement as they relate to the transferred guarantee. In the absence of a
transfer or prior to a transfer taking place, Vivendi Universal's commitments
are counter-guaranteed by our company.
Pursuant to the Master Agreement dated December 20, 2002, and in light
of the transfer or expiration of certain of the guarantees covered by the June
20, 2000 protocol, we and Vivendi Universal have redefined both the list of
subsidiary guarantees that will be transferred to, or otherwise
counter-guaranteed by, our company as well as the conditions and means by which
Vivendi Universal may obtain a counter-guarantee from us.
As of December 31, 2002, the total amount potentially due under the
subsidiary guarantees was approximately (euro)247 million. Of this amount, we
have already obtained consents from subsidiaries to transfer guarantees from
Vivendi Universal to us representing an amount due of approximately (euro)50
million.
Aguas Argentinas
Pursuant to the December 20, 2002 Master Agreement, we and Vivendi
Universal have agreed that Vivendi Universal will definitely remain the owner of
shares of Aguas Argentinas, an Argentinean company, which were listed among the
interests that we were supposed to acquire pursuant to an annex to the June 20,
2000 counter-guarantee agreement. As a result, Vivendi Universal has definitely
cancelled the counter-guarantee relating to these shares given to us pursuant to
the June 20, 2000 agreement. In exchange, we have agreed to pay, subject to a
cap of US $5 million, the first sums due under Vivendi Universal's guarantees in
respect of Aguas Argentinas' financial commitments.
Vinci Exchangeable Bond
We also participated indirectly in the issuance by Vivendi Universal on
March 1, 2001 of bonds that are to be repaid either in existing shares of Vinci
held by us and Vivendi Universal or cash. In connection with this transaction,
we received a loan from Vivendi Universal in a principal amount of (euro)120
million relating to 1,552,305 shares of Vinci held by our subsidiary Dalkia
France. The terms of the loan are identical to the terms of the exchangeable
bonds issued by Vivendi Universal, which bear interest at a rate of 1% per year
and mature in March 2006. We transferred the economic benefits of the loan to
Dalkia France.
Other Agreements
FCC Agreement
In connection with the formation of our company, Vivendi Universal
transferred to us its 49% interest in B1998 SL, a holding company that owns
52.48% of the shares of Fomento de Construcciones y Contratas (FCC), a leading
provider of environmental management and other services in Spain and Latin
America. Ms. Esther Koplowitz, who was a member of our supervisory board until
December 2002, owns the remaining 51% of FCC's holding company. As a result, we
have an indirect 25.7% stake in FCC, which is listed on the Madrid Stock
Exchange. We have also created a number of joint ventures with FCC that operate
a significant part of our environmental management business in Spain and Latin
America.
The relationship between the shareholders of FCC's holding company is
governed by the following agreements:
o a shareholders' agreement, which establishes the principles for
shared control of FCC's holding company and its subsidiaries,
including equal representation in the main executive bodies of
FCC and its subsidiaries group, such as the boards of directors
and executive committees of these companies;
o an option agreement, pursuant to which Ms. Koplowitz has the
option, exercisable at any time through October 6, 2008, to
require us to purchase the remaining interest in FCC's holding
company at a price determined at the time of exercise based on
the average market price of FCC's common stock over the prior
three months, subject to a cap equal to the lower of seven times
FCC's EBITDA and 29.5 times FCC's earnings per share in the prior
fiscal year; and
o the articles of association of FCC's holding company, which
provide that certain important decisions with respect to the FCC
group, such as increases or decreases of capital, amendments to
articles of association, mergers, spin-offs or dissolution,
require supermajority shareholder approval, and establishes a
reciprocal right of first refusal in the event of a sale of
shares of the holding company to a third party.
If Ms. Koplowitz exercises the put option against us, we would
ultimately own 100% of the holding company that controls FCC. Under these
circumstances, Spanish law may require us to launch a public tender offer for
all of the shares of FCC not owned by FCC's holding company, which represent
approximately 47.5% of FCC outstanding shares, at a price per share to be
approved by the Spanish stock exchange authorities. Based on the price of FCC's
common stock on March 3, 2003, the price for the remaining 47.5% of FCC would be
approximately (euro)1.4 billion, subject to adjustment by the Spanish stock
exchange authorities.
Under the agreements, Ms. Koplowitz also had the right to buy Vivendi
Universal's interest in FCC's holding company in the event that Vivendi
Universal ceased to hold a majority interest in our company. However, on June
17, 2002, we entered into an agreement with Ms. Koplowitz pursuant to which we
formally replaced Vivendi Universal as the contractual party to these agreements
and were recognized as a definitive authorized shareholder of FCC's holding
company. As a result, Ms. Koplowitz also agreed to not exercise the right to buy
our interest in FCC's holding company in the event that Vivendi Universal ceased
to hold a majority of our shares. In exchange, we granted Ms. Koplowitz the
right to buy our interest in FCC's holding company in the event that our company
is subject to a hostile takeover. This agreement defines a "hostile takeover" as
any direct or indirect acquisition of 25% or more of our shares that does not
have the approval of our supervisory board or management board that is effected
by a direct competitor of FCC in Spain. The purchase price would be equal to the
average of the price we paid for the acquisition of our participation in FCC's
holding company ((euro)691 million) and the market value of our participation,
which is determined by reference to the average trading price of FCC's shares
during the three-month period preceding the hostile takeover. The bylaws of
FCC's holding company also grant each shareholder a right of first refusal in
the event the other shareholder wishes to sell all or a portion of its shares.
In addition, we have confirmed our commitment to support the growth of
revenue from FCC's activities, other than FCC's real estate activities in Spain
(conducted through its 50% interest in Realia) and its other services activities
(including industrial logistics, air conditioning, vehicle imports and security)
conducted through its majority interest in Gruycsa. As a result, we have agreed
that, until December 31, 2004, the Chairman of the Board of Directors of FCC
would have a casting vote in the event of any deadlocks between the members of
the Executive Committee of FCC on decisions relating to projects for the
realization of this objective. This temporary casting vote may become a
permanent right of the Chairman of the Board of Directors of FCC after December
31, 2004 in the event that FCC's revenue does not meet certain growth targets.
Trademark License Agreement
We entered into a trademark license agreement with Vivendi Universal on
June 20, 2000 (with effect as of January 1, 2000) that grants us the right to
use the trademark "Vivendi Environnement" in France and in all other countries
in which the trademark is registered. Under the terms of the agreement, we may
not grant a sub-license to any of our subsidiaries. The license has a term of
five years, and is renewable automatically for sucessive 5-year periods, unless
terminated by either party with six months' prior notice. The agreement may be
terminated by Vivendi Universal if Vivendi Universal ceases to hold, directly or
indirectly, shares carrying a majority of our voting power. In such a case, we
will be required to change our corporate name, and to otherwise stop using the
trademark, within two years. As of the date of the filing of this annual report
on Form 20-F, Vivendi Universal had not yet exercised this option to terminate
the agreement, and the Cooperation Protocol of December 20, 2002 provides that
the trademark license agreement of June 20, 2000 remains in full force and
effect.
Upon approval of our shareholders at the general meeting to be held on
April 30, 2003, we will cease using the term "Vivendi" in our name or as our
trademark. As a result, the license agreement would cease to have a valid
purpose and will be terminated within a reasonable period of time to allow for
the completion of the formalities related to our name change, as well as our
logistical and technical requirements, such as, in particular, the re-routing of
our Internet websites.
Transfer of Certain Work Contracts
Prior to our formation, four members of our management board (Messrs.
Proglio, Contamine, Frerot and Gasquet) had employment contracts with Vivendi
Universal, which, after our formation, billed us in full for compensation paid
under these contracts. Effective February 1, 2003, these employment contracts
have been transferred to our company pursuant to French labor law with terms and
conditions that are essentially identical to those contained in the contracts
signed with Vivendi Universal.
ITEM 8: FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Please refer to the consolidated financial statements and the notes and
exhibits thereto in Item 18.
Litigation
We are involved from time to time in various legal proceedings in the
ordinary course of our business. We do not believe that any of the legal
proceedings in which we are currently involved in the ordinary course of our
business will have a material adverse effect on our results of operations,
liquidity or financial condition, except for the legal proceedings described
below.
Compagnie Generale des Eaux
On February 27, 2001, the French Competition Council (Conseil de la
concurrence) notified Compagnie Generale des Eaux of a complaint alleging that
several joint ventures that it had formed with other water services companies
affected the level of competition in this market. On July 11, 2002, the Council
rejected the allegations of illicit cooperation among the water services
companies in questions and refused to impose monetary sanctions or issue an
injunction against these companies. However, the Council considered that the
existence of these joint ventures may constitute a "collective dominant
position" in this market and requested the French Ministry of Economy and
Finance to take all necessary measures to modify, complete or terminate the
pooling of means of these companies through their joint ventures. On February
18, 2003, the Court of Appeals of Paris (Cour d'appel de Paris) confirmed the
Council's decision, indicating that the Minister of Economy and Finance would
decide, in its sole discretion, on the scope and terms of the measures to be
taken in application of the Council's decision. The decision of the Court of
Appeals was appealed before the French Supreme Court (Cour de cassation). In
light of the nature of the litigation, we have not accrued a reserve for the
potential outcome of this litigation.
SADE
On April 12, 2000, SADE, a subsidiary of Vivendi Water, and 40 other
companies received notice from the French Competition Council of a complaint
alleging "anticompetitive agreements" among these companies in respect of public
bids for 44 public sector construction contracts in the Ile-de-France
department, which includes Paris and its suburbs. These companies, including
SADE, filed answers to the complaint in September 2000. The Council filed a
supplemental complaint in November 2001, which replaces its original complaint
and reduces the number of construction contracts subject to scrutiny to 32
contracts, 4 of which involve SADE. The companies filed an answer to the new
complaint in January 2002. In particular, SADE contests the Council's complaint
on the merits and on the basis of irregularities in the complaint procedure that
have affected its right of defense. At this stage of the procedure, we cannot
evaluate the financial risk associated with this procedure and, accordingly,
have not accrued a reserve for the potential outcome of this litigation.
OTV
At the end of 1993, NOSS, a consortium led by Northwest Water
International Limited in which Vivendi Water participates through its subsidiary
Omnium de Traitement et Valorisation, or OTV, won a contract to build a water
treatment station and a wastewater network in the city of Bangkok pursuant to an
offer made in a public tender held in 1992. The value of the contract at the
time was 150 million pounds sterling and required 38 months of public works.
Because of numerous difficulties encountered with Bangkok municipal authorities
(including, for example, restrictions on access to key sites and modifications
of project specifications) and the failure to agree on compensation during the
ensuing discussions, NOSS terminated the contract on March 6, 1998 and commenced
an arbitration proceeding for damages. The Bangkok municipal authorities
rescinded the contract in June 1999 and drew on the project guarantees, which
were partially paid by the issuer banks. In addition, all related outsourcing
contracts were terminated by mutual consent, except for a contract with Euro
Iseki Limited, or EIOL, which commenced its own arbitration proceeding against
NOSS for payment of 12 million pounds sterling. Regarding the claim against the
municipality of Bangkok, the arbitrators are still in the process of being
appointed. Regarding EIOL's claim, the arbitral court rejected EIOL's request
for an accelerated payment procedure and held that EIOL bears the burden of
proving its alleged claim. In addition, EIOL's allegations that NOSS acted in
bad faith were also rejected. As a result, we do not expect that a final award
will be rendered in either of these proceedings for several years. Although it
is jointly and severally liable with the other members of the NOSS consortium in
respect of any monetary damages that may be awarded to the other parties in
these proceedings, we do not believe that this litigation will have a material
adverse effect on our company and have accrued a reserve for its potential
outcome.
USFilter
Several subsidiaries of USFilter are defendants in lawsuits in the
United States in which the plaintiffs seek to recover for personal injury and
other damages for alleged exposure to asbestos, silica and other potentially
harmful substances. These lawsuits typically allege that the plaintiffs'
injuries resulted from the use of products manufactured or sold by USFilter's
subsidiaries or their predecessors. There are generally numerous other
defendants, in addition to USFilter's subsidiaries, which allegedly contributed
to the claimed injuries. We accrue a reserve for USFilter's subsidiaries'
estimated liability in these cases based on, among other things, the nexus
between the claimed injuries and the products manufactured or sold by USFilter's
subsidiaries or their predecessors, the extent of the injuries allegedly
sustained by the plaintiffs, the involvement of other defendants, and the
availability of insurance coverage. These reserves are accrued at the time such
liabilities are probable and reasonably estimable. A number of such claims have
been resolved to date either through settlement or dismissal. To date, none of
these claims has been tried to a verdict. We do not expect these claims to have
a material adverse effect on our business, financial condition or results of
operation. It is not possible, however, to predict the extent to which
additional claims of this type may be filed in the future against USFilter's
subsidiaries or the amounts for which USFilter's subsidiaries ultimately may be
liable as a result of such claims.
Connex
On November 27, 1998, the French general direction for consumers,
competition and the prevention of fraud, or DGCCRF, obtained an order from a
French court authorizing it to perform an inspection on the premises of our
transportation subsidiaries CGEA Transport, Transdev, CGFTE and ViaGTI, with the
objective of obtaining elements of proof relating to possible anti-competitive
practices in the urban transportation market. The DGCCRF proceeded to perform
these inspections and seizures on December 17, 1998. The appeals filed by Connex
in respect of these decisions were rejected, and on February 11, 2003 Connex was
notified that the Minister of Economy and Finance had requested the French
Competition Council to render a decision in this matter on the merits. We have
not accrued any reserves for this claim.
Onyx
In April 1998, Onyx and JANCOM International Development Projects, or
JANCOM, a Philippine company, concluded an agreement with the government of the
Philippines to plan to participate jointly in a contract to construct and manage
a waste management center in the San Mateo area of Manila, The Philippines. This
agreement was subject to the condition that the contract with the Philippine
government become effective, which was in turn subject to a number of conditions
that were not fulfilled. On November 4, 1999, the Government of the Philippines
declared that the project had been abandoned. On May 4, 2001, Onyx received an
arbitration demand from the secretary of the International Chamber of Commerce
(ICC) in which JANCOM alleges that Onyx violated a contractual exclusivity
clause and requests the payment of damages amounting to US$100 million, without
specifying the basis for the amount of the damages claimed. Onyx rejected
JANCOM's claims on the grounds, among others, that neither the contract with the
Philippine government nor the agreement concluded with JANCOM became effective.
In addition, Onyx has filed a counterclaim against JANCOM for damages amounting
to US$1 million, which was increased to US$3 million. On June 24, 2002, the
arbitral court rendered and interim decision confirming that the exclusivity
clause did not become effective. At this stage of the proceedings, JANCOM still
has an opportunity to present evidence of the alleged "destructive" nature of
the project. However, on December 19, 2002, the arbitral court ordered JANCOM to
post a US $585,000 surety as security for payment of procedural costs and
expenses. JANCOM has not posted the required guarantee. We have not established
any reserves in our accounts in respect of this claim.
On July 27, 1997, a fire that started in a landfill operated by Onyx
Mediterranee, a subsidiary of Onyx, in Septemes-les-Vallons, in the south of
France, destroyed 3,500 hectares of scrubland. As a result of damages inflicted
to certain assets located in the surrounding area and, to a lesser extent,
several minor injuries suffered by several persons, the criminal court (tribunal
correctionnel) of Aix-en-Provence commenced proceedings against Onyx
Mediterranee and two of its employees in February 2003, in the context of which
civil parties are requesting damages in a maximum amount of (euro)6 million. The
amount of damages is subject to further expertise and the final verdict is
expected to be rendered on May 6, 2003. In light of the amount of damages
claimed, we do not expect this litigation to have a material adverse effect on
our financial condition and have not accrued any reserves in our accounts in
respect of this claim.
Dalkia
In August 1995, Finenergia, an Italian subsidiary of Dalkia, entered
into a heads of agreement with members of the Jacorossi family to acquire the
Fintermica group. The acquisition was subject to satisfactory accounting due
diligence in respect of all of the companies in the Fintermica group. Because
this condition was not satisfied, Finenergia terminated the negotiations
relating to this acquisition. The Jacorossi family commenced arbitration
proceedings against Finenergia alleging that, pursuant to the heads of
agreement, any dispute relating to the purchase price should have been resolved
through a technical arbitration that would have rendered a decision on the
purchase price that would have been binding on the parties. The arbitral
tribunal held that Finenergia had terminated the heads of agreement in bad faith
and ordered KPMG to determine the amount of damages suffered by the Jacorossi
family as a result of this termination. On February 20, 2003, KPMG issued a
preliminary report finding that the Jacorossi family members suffered a direct
financial harm of between (euro)19 million and (euro)26 million. Finenergia has
filed several appeals at different stages of these proceedings and has contested
KPMG's preliminary report on grounds relating to form and on the merits. We have
accrued a reserve in our accounts in respect of this claim.
Proactiva
On September 22, 1999 and February 10, 2000, several lawsuits were
filed in the Commonwealth Court in Arecibo, Puerto Rico against, among others,
Compania de Aguas de Puerto Rico ("CAPR"). CAPR was a subsidiary of Aqua
Alliance until 2000, when it was transferred to Proactiva, our joint venture
with FCC. The complaints allege that CAPR operated a wastewater treatment
facility in Barceloneta, Puerto Rico that emitted offensive odors and hazardous
substances into the environment, which damaged the health of the plaintiffs, a
group of local residents. The lawsuits were consolidated into a single suit and
transferred to the Commonwealth Court in San Juan, Puerto Rico, at the order of
the Supreme Court of Puerto Rico. The consolidated suit is currently in the
discovery stage. We do not believe that the suits will have a material adverse
effect on our business and intend to defend them vigorously. In light of
Proactiva's extensive insurance coverage, we have not accrued any reserves in
our accounts in respect of this lawsuit.
See Note 14 to our consolidated financial statements for the aggregate
amount of reserves accrued by our company in respect of all litigation,
including tax claims, in which we or our subsidiaries are involved. These
reserves cover the losses that we believe are probable as a result of all types
of litigation in which we are involved in the course of our business, including
a large number of claims and proceedings that, individually, are not material to
our business. The largest individual reserve accrued in our financial statements
relating to litigation amounts to approximately (euro)20 million.
Dividend Policy
Subject to the approval of our shareholders and applicable provisions
of the French commercial code and our statuts, we currently intend to pay
dividends in the future as determined by the management board and approved by
our shareholders. The payment and amount of any future dividends will depend on
a number of factors, including our financial performance and net income, general
business conditions and our business plans and investment policies. See "Item
10. Additional Information -- Memorandum and Articles of Association -- Rights,
Preferences and Restrictions Applicable to Our Ordinary Shares -- Dividends" and
"Item 3. Key Information -- Dividends."
SIGNIFICANT CHANGES
The following discussion should be read in conjunction with our
discussion of the evolution of our business, our financial condition, our
results of operations and a comparison of our operating results and financial
condition in preceding periods included in "Item 5. Operating and Financial
Review and Prospects."
The following discussion contains forward-looking statements that
involve risks and uncertainties, including, but not limited to, those described
under "Key Information -- Risk Factors." Our results may differ materially from
those anticipated in the forward-looking statements.
Recent Developments
Since the date of our consolidated financial statements, we have
pursued our strategic goals to increase organic growth, obtain new contracts,
enter into new partnerships and alliances and continue to divest non-strategic
assets. The following are the most significant developments in our businesses
since December 31, 2002.
Water
In February 2003, we entered into an agreement with a group of
institutional investors led by The Royal Bank of Scotland to acquire an indirect
minority interest in Southern Water, a U.K. water and wastewater operator. This
agreement represents the final step in our acquisition of an interest in
Southern Water. In March 2002, First Aqua Holdings Limited (FAH) agreed to
acquire Southern Water from Scottish Power at an enterprise value of (pound)2
billion. The purchase agreement was executed in April 2002.
In May 2002, Vivendi Water U.K., a subsidiary of Vivendi Water, agreed
to acquire First Aqua (JVCo) Ltd., Southern Water's holding company, from FAH on
terms equivalent to the initial purchase by First Aqua (JVCo) Ltd. of Southern
Water. Through this acquisition, we sought to control a recognized major
operator in the U.K. water market, in a dynamic geographic area, and
particularly to gain access to the U.K. treatment market in order to generate
synergies with our other U.K. activities. In the context of this transaction, we
also granted a put option to a group of financial investors that had acquired
(pound)374 million of First Aqua (JVCo) Ltd.'s preferred shares, which could be
exercised on the third anniversary of Southern Water's purchase agreement (April
2005). We also had a call option to acquire these preferred shares, which could
be exercised at any time between the first and fifth anniversaries of Southern
Water's acquisition agreement (from April 2003 through April 2007) or the date
of the purchase agreement between Vivendi Water U.K. and FAH, if signed prior to
April 2003. The acquisition of First Aqua (JVCo) Ltd. was approved by the
European Commission on August 23, 2002, but remained subject to the approval of
U.K. antitrust authorities and the arrangement of long-term non-recourse
financing to refinance the existing debt of First Aqua (JVCo) Ltd. and Southern
Water.
Having concluded that the closing conditions set forth in the May 2002
agreement had not been satisfied, we renounced seeking to acquire a controlling
interest in Southern Water and at the end of 2002 commenced negotiations with
Royal Bank Investments Limited, a subsidiary of The Royal Bank of Scotland, to
sell our interest in Southern Water to it immediately upon acquiring Southern
Water.
In February 2003, we entered into an agreement with Southern Water
Capital relating to the acquisition of Southern Water. Pursuant to this
agreement, Southern Water Investments Ltd, a newly created company, will acquire
First Aqua (JVCo) Ltd. in accordance with the terms of the May 2002 agreement
with First Aqua Holdings Ltd. Southern Water Capital, held by the Royal Bank of
Scotland (49%) and other investors (51%), will hold 80.1% of Southern Water
Investments and our company will hold 19.9%. Southern Water Capital, which will
control Southern Water through Southern Water Investments, has also granted us
an option to acquire an additional 5.1% stake in Southern Water Investments. In
addition, First Aqua (JVCo) Ltd. will redeem the (pound)374 million preferred
shares issued to financial investors in March 2002.
The February 2003 agreement is subject to, among other things, U.K.
regulatory approvals and various procedural conditions. The parties to the
agreement are in discussions with the UK Director General of Water Services and
the UK Director General of Office of Fair Trading regarding these transactions,
and particularly in respect of the possible concessions that may be required by
the Competition Commission. We believe that the regulatory authorizations will
be obtained.
We will invest (pound)160 million ((euro)243 million) in Southern Water
Investments through various loans and capital contributions. Southern Water
Capital will make a similar investment of (pound)273 million ((euro)415
million). In addition, in connection with Southern Water Investments' issuance
of preferred shares to several investors for (pound)110 million ((euro)167
million), we have agreed to grant these investors options to require us to
purchase the preferred shares at par value after five years. As a result, our
investment in Southern Water will be significantly lower than our previous
commitment to invest (pound)374 million ((euro)568 million).
We expect that Southern Water will seek to refinance its regulated
activities through the issuance of debt instruments using a "ring-fencing"
technique commonly used in financings in the water sector.
Waste Management
In 2003, Onyx won a 25-year contract to collect, recover and treat all
of the household waste of the city of Brighton and Hove and of East Sussex
County on the southern coast of the United Kingdom.
Onyx also entered into assistance and cooperation agreements with the
city of Shanghai in connection with one of China's most important incineration
and waste-to-energy units. The Puxi unit, which is located in downtown Shanghai,
will treat and recover 1,500 tons of waste per day until 2004 (estimated total
revenue of (euro)121.3 million).
Onyx also entered into a joint-venture with the Shanghai Zhenhuan
Industrial Corporation, which is owned by the State of Shanghai. This joint
venture, which is first of its kind in the environmental services sector between
an international waste treatment company and the State of Shanghai, represents a
historical agreement in China and will allow Onyx to strengthen its position for
future waste collection and treatment activities in Shanghai.
Transportation
In the United States, Connex won a 5-year contract in February 2003 to
manage the rail network of the Boston suburbs, in the United States, in
association with Bombardier, a world specialist in the construction and
maintenance of train equipment (estimated total revenue of (euro)1 billion).
This rail network, which is the first suburban network to be managed by Connex
in the United States, is the fifth largest in the United States (according to
the APTA) with 1,042 kilometers of tracks, 13 lines, 130 stations and 89 trains
offering 462 daily departures to 146,000 passengers per day. Connex will employ
1,600 persons under this contract.
In Germany, NordwestBahn, a company jointly owned by Connex Germany
(65%) and the municipalities of Osnabruck and Oldenburg, and Teutoburger
Wald-Eisenbahn, a subsidiary of Connex, won the public tender for the operation
of 4 regional passenger transportation lines in the east of Westphalia (North
Rhineland) representing 240 kilometers of rail tracks. The contract is expected
to generate estimated total revenue of (euro)180 million over 10 years.
Operations will commence in December 2003 with an expected annual mileage of 2.7
million train-kilometers. This contract reinforces Connex's position as one of
the leading private providers of public transportation services for passengers
in Germany (according to VDV).
In Colombia, Connex won in February 2003 a 15-year concession for the
operation of Phase II of the Transmilenio in Bogota, Colombia, which consists of
approximately 100 buses.
Outlook
Markets
We wish to continue to develop our business and strengthen our position
mainly in Europe, North America and several designated countries in Asia.
Despite the difficult economic environment, our commercial achievements over the
past two years in the municipal and industrial markets confirm the growth
potential of our environmental management services activities in these
geographic regions.
Guidance
In 2003, we intend to continue to pursue our strategy in accordance
with the priorities that we have defined over the past years. We intend to focus
on our 4 coherent segments (water, waste management, energy services and
transportation), expand geographically in a selective manner and continue to
secure growth through our contracts with our municipal, industrial and
commercial customers.
Recent developments allow us to anticipate average revenue growth in
our core business between 4% and 8% per year from 2002 to 2005. We also believe
that the profitability of our investments should improve as the significant
contracts won over the past few years enter into a mature phase of operations
and through the continuous broadening of our service offerings. In addition, we
will seek to strengthen our financial condition through the progressive growth
in cash flow from operations, on the one hand, and the rigorous selectivity
applied to our investment choices and the dynamic management of our asset
portfolio, on the other. A variety of factors, however, including those
described under "Item 3. Key Information-Risk Factors," could cause our
expectations not to be realized, affect our ability to generate revenue, cause
us to implement changes in our operations (and incur related costs) or have
other negative effects on our operating results.
ITEM 9: THE OFFER AND LISTING
TRADING MARKETS
Our ordinary shares are listed on the Premier Marche of Euronext Paris.
Since August 8, 2001, our shares have been included in the CAC 40, a widely
followed equity index of 40 major French stocks published by Euronext Paris. Our
shares have been listed on The New York Stock Exchange in the form of American
Depositary Shares ("ADSs") since October 5, 2001. Each ADS represents one
ordinary share.
Trading On The Premier Marche
General
On September 22, 2000, the Societe des Bourses Francaises S.A. (known
as the ParisBourseSBF S.A.), Amsterdam Exchange N.V. and the Societe de la
Bourse de Valeurs Mobilieres de Bruxelles S.A. merged to create Euronext N.V., a
Dutch holding company and the first pan-European stock exchange. Subsequently,
ParisBourseSBF S.A. changed its name to Euronext Paris. Securities quoted on any
of the stock exchanges participating in Euronext will be traded through a common
Euronext platform, with central clearinghouse, settlement and custody
structures. However, these securities will remain listed on their respective
local exchanges. Euronext Paris retains responsibility for the admission of
securities to its trading markets, as well as the regulation of these markets.
Securities approved for listing by Euronext Paris are traded in one of
two regulated markets, the Bourse de Paris, which in turn comprises the Premier
Marche and the Second Marche, and the Nouveau Marche. These markets are all
operated and managed by Euronext Paris, a market operator (entreprise de marche)
responsible for the admission of securities and the supervision of trading in
listed securities. Euronext Paris publishes a daily official price list that
includes price information on listed securities. The securities of most large
public companies are listed on the Premier Marche, with the Second Marche
available for small and medium-sized companies. Trading on the Nouveau Marche
was introduced in March 1996 to allow small capitalization and start-up
companies to access the stock market. In addition, the securities of certain
other companies are traded on a non-regulated, over-the-counter market, the
Marche Libre OTC.
Premier Marche
Securities listed on the Premier Marche of Euronext Paris are
officially traded through authorized financial institutions that are members of
Euronext Paris. Securities are traded continuously on each business day from
9:00 a.m. to 5:25 p.m. (Paris time), with a pre-opening session from 7:15 a.m.
to 9:00 a.m. and a post-closing session from 5:25 p.m. to 5:30 p.m. (during
which time trades are recorded but not executed), and an opening auction at 9:00
a.m. and a closing auction at 5:30 p.m. Any trade of a security that occurs
after a stock exchange session closes is recorded on the next business day at
the previous session's closing price for that security. Euronext Paris has
introduced continuous electronic trading during trading hours for most listed
securities.
Euronext Paris places securities listed on the Premier Marche in one of
two categories, depending on their trading volume. Our shares trade in the
category known as Continu, which includes the most actively traded securities.
Euronext Paris may restrict trading in a security listed on the Premier
Marche if the quoted price of the security increases or decreases beyond the
specific price limits defined by its regulations (reservation a la hausse ou a
la baisse). In particular, trading is automatically restricted in a security
whose quoted price varies by more than 10 % from the last price determined in an
auction or by more than 2% from the last traded price. If the order that has
caused the restriction is cancelled within the following minutes, the trading of
this security resumes. If the order is not cancelled, an auction is organized
after a call phase of five minutes, during which orders are entered in the
central order book but not executed. Euronext Paris may also suspend trading of
a security listed on the Premier Marche in other limited circumstances
(suspension de la cotation), in particular to prevent or halt disorderly market
conditions. In addition, in exceptional cases including, for example, in the
context of a takeover bid, the CMF may also suspend trading of the security
concerned.
Trades of securities listed on the Premier Marche are settled on a cash
basis on the third day following the trade. Market intermediaries are also
permitted to offer investors a deferred settlement service (service de reglement
differe) for a fee. The deferred settlement service is only available for trades
in securities that either (1) are a component of the SBF 120 Index or (2) have
both a total market capitalization of at least (euro)1 billion and a daily
average volume of trades of at least (euro)1 million. Investors can elect on the
determination date (date de liquidation), which is the fifth trading day before
the end of the month, either to settle by the last trading day of the month or
to pay an additional fee and postpone the settlement decision to the
determination date of the following month. Our shares are currently eligible for
the deferred settlement service.
Equity securities traded on a deferred settlement basis are considered
to have been transferred only after they have been registered in the purchaser's
account. Under French securities regulations, any sale of a security traded on a
deferred settlement basis during the month of a dividend payment is deemed to
occur after the dividend has been paid. If the sale takes place before, but
during the month of, a dividend payment date, the purchaser's account will be
credited with an amount equal to the dividend paid and the seller's account will
be debited by the same amount.
Trading by Vivendi Environnement in its Shares
Under French law, a company may not issue shares to itself, but it may
purchase its own shares in the limited cases described in Item 10 under
"Additional Information -- Memorandum and Articles of Association -- Trading in
Our Own Shares."
Trading History
The table below sets forth, for the periods indicated, the reported
high and low sales prices (in euro) and the trading volume (in shares) of our
shares on the Premier Marche of Euronext Paris.
High Low Trading Volume
---------- -------- -------------
2003
February 23.50 15.02 28,692,679
January 24.93 21.30 35,265,684
2002
December 25.48 21.11 16,051,182
November 25.99 21.80 23,271,567
October 25.50 20.09 24,800,913
September 25.40 17.18 22,692,335
August 26.40 18.45 43,605,838
July 31.25 20.30 44,952,328
June 34.28 27.00 89,222,322
May 38.00 33.93 24,758,464
April 39.10 34.66 22,156,054
First Quarter 39.20 33.55 57,297,156
2001
Fourth Quarter 44.50 36.10 120,996,762
Third Quarter 51.25 40.00 40,825,017
Second Quarter 51.40 46.91 25,040,547
First Quarter 50.25 38.50 55,241,583
2000
Fourth Quarter 49.00 39.50 26,287,055
Third Quarter (from July 20) 46.00 32.50 119,020,919
------------------------
Source: Euronext Paris
Our shares were offered at (euro)32.50 per share in our initial public
offering in France and at (euro)34 per share in our international private
placement.
Trading On The New York Stock Exchange
The table below sets forth, for the periods indicated, the reported
high and low sales prices (in U.S. dollars) and the trading volume (in ADSs) of
our ADSs on The New York Stock Exchange.
High Low Trading Volume
---------- -------- -------------
2003
February 24.75 17.01 219,200
January 26.08 23.61 207,590
2002
December 24.80 22.57 286,290
November 25.48 22.86 151,291
October 24.38 20.90 177,691
September 23.70 18.10 111,594
August 25.50 20.01 142,891
July 30.60 22.25 165,793
June 32.10 28.11 139,293
May 34.00 31.67 43,793
April 34.20 31.00 60,692
First Quarter 34.20 29.53 128,785
2001
Fourth Quarter (from October 5) 39.45 32.40 294,495
----------------------------
Source: NYSE (volumes) and Bloomberg and Van der Moolen (prices).
We urge you to obtain current market quotations.
ITEM 10: ADDITIONAL INFORMATION
Memorandum and Articles of Association
Objects and Purposes
Under Article three of our statuts, our corporate purpose is to engage,
directly or indirectly, in France and in all other countries, in:
o the management of all service activities related to the
environment for private, professional or public customers,
particularly services related to water, wastewater treatment,
energy, transportation and waste management;
o the acquisition, licensing and operation of all patents,
licenses, trademarks and models pertaining directly or indirectly
to our operations;
o the acquisition of all share interests, by way of subscription,
purchase, contribution, exchange or through any and all other
means, of bonds, shares and all other corporate securities,
whether existing or to be issued in the future, and the right to
dispose of the same; and
o all transactions, whether commercial, industrial, financial or
involving real or personal property and related directly or
indirectly to the purposes stated above.
Directors
Our statuts provide that each member of our supervisory board must own
at least 750 of our shares, but impose no share ownership requirements on
members of our management board.
The French commercial code provides that each director is eligible for
reappointment upon the expiration of his or her term of office. Our statuts fix
the term of reappointment at four years, provided that no member of the
management board may be older than 65.
Under the French commercial code, any transaction directly or
indirectly between a company and a member of its supervisory or management board
that cannot be reasonably considered to be in the ordinary course of business of
the company is subject to the supervisory board's prior consent. Any such
transaction concluded without the prior consent of the supervisory board can be
nullified if it causes prejudice to the company. The interested director can be
held liable on this basis. The statutory auditor must be informed of the
transaction within one month following its conclusion and must prepare a report
to be submitted to the shareholders for approval at their next meeting. At the
meeting, the interested director may not vote on the resolution approving the
transaction, nor may his or her shares be taken into account in determining the
outcome of the vote or whether a quorum is present. In the event the transaction
is not ratified by the shareholders at a shareholders' meeting, it will remain
enforceable by third parties against the company, but the company may in turn
hold the interested director and, in some circumstances, other members of the
management board, liable for any damages it may suffer as a result. In addition,
the transaction may be canceled if it is fraudulent. In the case of transactions
with directors that can be considered within the company's ordinary course of
business, the interested director must provide a copy of the governing agreement
to the chairman of the supervisory board, who must inform the members of the
supervisory board and the statutory auditor of the principal terms of each such
transaction. Moreover, certain transactions between a corporation and one of its
directors who is a natural person are prohibited under the French commercial
code. Our directors are not authorized, in the absence of an independent quorum,
to vote compensation to themselves or other directors. Our statuts contain no
provisions specifically concerning loans from our company to our directors.
Transactions with Major Shareholders
The limitations imposed by the French commercial code on transactions
between a company and interested directors, described in the preceding
paragraph, also apply to transactions between a company and a holder of shares
carrying 5% or more of its voting power (or, if such shareholder is a legal
entity, the entity's parent, if any) and to transactions between companies with
common directors or executive officers. Accordingly, transactions between our
company and Vivendi Universal are subject to those limitations.
Rights, Preferences and Restrictions Applicable to Our Ordinary Shares
Dividends
Dividends on our shares are distributed to shareholders pro rata. The
dividend payment date is decided by the shareholders at an ordinary general
meeting (or by the management board in the absence of such a decision by the
shareholders). Under the French commercial code, we must pay any dividends
within nine months of the end of our fiscal year unless otherwise authorized by
court order. Subject to certain conditions, our management board can determine
the distribution of interim dividends during the course of the fiscal year, but
in any case before the approval of the annual accounts by the annual ordinary
general meeting of shareholders. Dividends on shares that are not claimed within
five years of the date of declared payment revert to the French State.
Voting Rights
Each of our shares carries the right to cast one vote in shareholder
elections.
Liquidation Rights
If our company is liquidated, any assets remaining after payment of our
debts, liquidation expenses and all of our remaining obligations will be
distributed first to repay in full the nominal value of our shares. Any surplus
will be distributed pro rata among shareholders in proportion to the nominal
value of their shareholdings.
Preferential Subscription Rights
Under the French commercial code, if we issue additional shares, or any
equity securities or other specific kinds of additional securities carrying a
right, directly or indirectly, to purchase equity securities issued by our
company for cash, current shareholders will have preferential subscription
rights to these securities on a pro rata basis. These preferential rights will
require us to give priority treatment to those shareholders over other persons
wishing to subscribe for the securities. The rights entitle the individual or
entity that holds them to subscribe to an issue of any securities that may
increase our share capital by means of a cash payment or a set-off of cash
debts. Preferential subscription rights are transferable during the subscription
period relating to a particular offering. These rights may also be listed on the
Paris Bourse. A two-thirds majority of our shares entitled to vote at an
extraordinary general meeting may vote to waive preferential subscription rights
with respect to any particular offering. French law requires a company's
governing board and independent auditors to present reports that specifically
address any proposal to waive preferential subscription rights. In the event of
a waiver, the issue of securities must be completed within the period prescribed
by law. The shareholders may also decide at an extraordinary general meeting to
give the existing shareholders a non-transferable priority right to subscribe
for the new securities during a limited period of time. Shareholders may also
waive their own preferential subscription rights with respect to any particular
offering.
Limitation on Exercise of Rights
Our bylaws provide that any time it is necessary to own several shares
in order to exercise a right or to meet the requirements of transactions
affecting our share capital or shareholders' equity, a shareholder holding a
number of our shares that is lower than the required amount will have no rights
against our company and must, in such case, obtain the required number of
shares.
Amendments to Rights of Holders
Rights of a given class of shareholders can be amended only by action
of an extraordinary general meeting of the class of shareholders affected.
Two-thirds of the shares of the affected class voting either in person or by
mail or proxy must approve any proposal to amend shareholder rights. The quorum
requirements for a special meeting are 50% of the voting shares, or 25% upon
resumption of an adjourned meeting.
Ordinary and Extraordinary Meetings
In accordance with the French commercial code, there are two types of
general shareholders' meetings: ordinary and extraordinary.
Ordinary general meetings of shareholders are required for matters that
are not specifically reserved by law to extraordinary general meetings, such as:
o electing, replacing and removing members of the supervisory
board;
o appointing independent auditors;
o declaring dividends or authorizing dividends to be paid in
shares; and
o issuing debt securities.
Extraordinary general meetings of shareholders are required for
approval of matters such as amendments to our statuts, including any amendment
required in connection with extraordinary corporate actions. Extraordinary
corporate actions include:
o changing our company's name or corporate purpose;
o increasing or decreasing our share capital;
o creating a new class of equity securities;
o authorizing the issuance of investment certificates or
convertible or exchangeable securities;
o establishing any other rights to equity securities;
o selling or transferring substantially all of our assets; and
o the voluntary liquidation of our company.
Convening Shareholders' Meetings
The French commercial code requires our management board to convene an
annual ordinary general meeting of shareholders to approve our annual accounts.
This meeting must be held within six months of the end of each fiscal year. This
period may be extended by an order of the President of the Tribunal de Commerce.
The management board and the supervisory board may also convene an ordinary or
extraordinary meeting of shareholders upon proper notice at any time during the
year. If the management board and the supervisory board fail to convene a
shareholders' meeting, our independent auditors or a court-appointed agent may
call the meeting. Any of the following may request the court to appoint an
agent:
o one or several shareholders holding at least 5% of our share
capital;
o in cases of urgency, designated employee representatives or any
interested party;
o duly qualified associations of shareholders who have held their
shares in registered form for at least two years and who together
hold at least 1% of the voting rights of our company; or
o in a bankruptcy, our liquidator or court-appointed agent may also
call a shareholders' meeting in some instances.
Shareholders holding more than 50% of our share capital or voting
rights may also convene a shareholders' meeting after a public offer or a sale
of a controlling stake of our capital.
Notice of Shareholders' Meetings
We must announce general meetings at least 30 days in advance by means
of a preliminary notice published in the Bulletin des Annonces Legales
Obligatoires ("BALO"). The preliminary notice must first be sent to the
Commission des Operations de Bourse (the "COB"). The COB also recommends that
the preliminary notice be published in a newspaper of national circulation in
France. The preliminary notice must disclose, among other things, the time,
date, and place of the meeting, whether the meeting will be ordinary or
extraordinary, the agenda, a draft of the resolutions to be submitted to the
shareholders, a description of the procedures which holders of bearer shares
must follow to attend the meeting, the procedure for voting by mail, and a
statement informing the shareholders that they may propose additional
resolutions to the management board within ten days of the publication of the
notice.
We must send a final notice containing the agenda and other information
about the meeting at least 15 days prior to the meeting or at least six days
prior to the resumption of any meeting adjourned for lack of a quorum. The final
notice must be sent by mail to all registered shareholders who have held shares
for more than one month prior to the date of the preliminary notice. The final
notice must also be published in BALO and in a newspaper authorized to publish
legal announcements in the local administrative department in which our company
is registered, with prior notice having been given to the COB.
In general, shareholders can take action at shareholders' meetings only
on matters listed in the agenda for the meeting. One exception to this rule is
that shareholders may take action with respect to the dismissal of members of
the supervisory board regardless of whether these actions are on the agenda.
Additional resolutions to be submitted for approval by the shareholders at the
meeting may be proposed to the management board (within ten days of the
publication of the preliminary notice in the BALO) by:
o designated employee representatives;
o one or several shareholders holding a specified percentage of
shares; or
o a duly qualified association of shareholders who have held their
shares in registered form for at least two years and who together
hold at least 1% of our voting rights.
The management board must submit properly proposed resolutions to a
vote of the shareholders.
During the two weeks preceding a meeting of shareholders, any
shareholder may submit written questions to the management board relating to the
agenda for the meeting. The management board must respond to these questions
during the meeting.
Attendance and Voting at Shareholders' Meetings
Each share confers on the shareholder the right to cast one vote.
Shareholders may attend ordinary meetings and extraordinary meetings and
exercise their voting rights subject to the conditions specified in the French
commercial code and our statuts. In particular, a holder must have accurately
disclosed any substantial interest in our company (as described under "--
Anti-Takeover Provisions -- Disclosure of Substantial Stakeholdings" and "--
Anti-Takeover Effects of Applicable Law and Regulations") and the holder's
shares must be fully paid up. In addition, a shareholder is not permitted to
vote on specific resolutions that would confer a particular benefit on that
shareholder. There is no requirement that shareholders have a minimum number of
shares in order to attend or to be represented at an ordinary or extraordinary
general meeting.
To participate in any general meeting, a holder of shares held in
registered form must have shares registered in his or her name or the name of an
intermediary in a shareholder account maintained by us or on our behalf by an
agent appointed by us no later than 3:00 pm (Paris time) on the day prior to the
date set for the meeting. A holder of bearer shares must obtain an account
certificate from the accredited intermediary with whom the holder has deposited
his or her shares, no later than 3pm (Paris time) on the day prior to the date
set for the meeting, indicating that the bearer shares the holder owns will be
unavailable until the date of the meeting. The holder must deposit this
certificate at the place specified in the notice of the meeting at least two
days before the meeting. The board of directors may extend these deadlines for
the benefit of all shareholders.
Proxies and Votes by Mail
In general, all shareholders who have properly registered their shares
or duly presented a certificate from their accredited financial intermediary may
participate in general meetings. Shareholders may participate in general
meetings either in person or by proxy. Shareholders may vote in person, by proxy
or by mail.
Proxies will be sent to any shareholder on request. To be counted, such
proxies must be received at our registered office, or at any other address
indicated on the notice convening the meeting, prior to the date of the meeting.
A shareholder may grant proxies to his or her spouse or to another shareholder.
A shareholder that is a corporation may grant proxies to a legal representative.
Alternatively, the shareholder may send us a blank proxy without nominating any
representative. In this case, the chairman of the meeting will vote blank
proxies in favor of all resolutions proposed by the management board and against
all others.
With respect to votes by mail, we are required to send shareholders a
voting form. The completed form must be returned to us, in paper format or in
electronic form, at least three days prior to the date of the shareholders'
meeting.
Quorum
The French commercial code requires that shareholders having at least
25% of the shares entitled to voting rights must be present in person or be
voting by mail or by proxy to fulfill the quorum requirement for:
o an ordinary general meeting; or
o an extraordinary general meeting where an increase in our share
capital is proposed through incorporation of reserves, profits or
share premium.
The quorum requirement is one third of the shares entitled to voting
rights, on the same basis, for any other extraordinary general meeting.
If a quorum is not present at a meeting, the meeting is adjourned. When
an adjourned meeting is resumed, there is no quorum requirement for an ordinary
meeting or for an extraordinary general meeting where an increase in our share
capital is proposed through incorporation of reserves, profits or share premium.
However, only questions that were on the agenda of the adjourned meeting may be
discussed and voted upon. In the case of any other reconvened extraordinary
general meeting, shareholders having at least 25% of outstanding voting rights
must be present in person or be voting by mail or proxy for a quorum. If a
quorum is not present, the reconvened meeting may be adjourned for a maximum of
two months. Any deliberation by the shareholders taking place without a quorum
is void.
Majority
A simple majority of shareholders present or represented may pass any
resolution on matters required to be considered at an ordinary general meeting,
or concerning a capital increase by incorporation of reserves, profits or share
premium at an extraordinary general meeting. At any other extraordinary general
meeting, a two-thirds majority of the shareholder votes cast is required.
A unanimous shareholder vote is required to increase liabilities of
shareholders.
Abstention from voting by those present or those represented by proxy
or voting mail is counted as a vote against the resolution submitted to the
shareholder vote.
In general, a shareholder is entitled to one vote per share at any
general meeting. Under the French commercial code, shares of a company held by
entities controlled directly or indirectly by that company are not entitled to
voting rights and are not considered for quorum purposes.
Limitations on Right to Own Securities
Our statuts contain no provisions that limit the right of shareholders
to own our securities or hold or exercise voting rights associated with those
securities. See "-- Exchange Controls" for a description of certain requirements
imposed by the French commercial code.
Trading in Our Own Shares
Under French law, our company may not issue shares to itself. However,
we may, either directly or through a financial intermediary acting on our
behalf, purchase shares representing up to 10% of our share capital. To acquire
our own shares, we first must file an information memorandum (note
d'information) that has received the approval (visa) of the COB and obtain the
approval of our shareholders at an ordinary general meeting.
At the general shareholders' meeting held on April 25, 2002, our
shareholders approved a share repurchase program authorizing us to purchase and
sell our shares at any time (including during public tender offers) and by any
means, including block trades and combinations of financial derivative
instruments, subject to market regulations and the 10% limit provided by law.
Under the program, we may purchase shares for the purpose of:
o regulating market prices through systematic interventions,
o providing shares to our employees and officers under a
profit-sharing or stock option plan,
o financing external growth through exchange offers, share-based
acquisitions or otherwise,
o delivering shares to third parties upon exercise of options,
warrants, exchangeable bonds or other instruments granting rights
to our shares, or
o optimizing our company's asset and financial management, by which
we may keep, sell, generally transfer or cancel in whole or in
part our repurchased shares.
Our shareholders limited our ability to make payments up to an
aggregate amount of (euro)2.1 billion for our shares. In the context of this
program, our management board may issue trade orders, execute sale or transfer
documents, enter into agreements and options, and cancel shares and reduce our
share capital as appropriate and handle any related formalities. Our management
board may delegate any of these powers to its chairman. The COB approved an
information memorandum relating to this repurchase program on April 5, 2002.
Pursuant to this share repurchase program as of March 1, 2003, we had
acquired 3,897,846 shares (representing 0.96% of our share capital as of
December 31, 2002), including a block of 3,624,844 shares acquired on December
24, 2002 from Vivendi Universal at a price per share of (euro)22.50. We also
received one call option for each share repurchased from Vivendi Universal that
gives us the right to repurchase an additional 3,624,844 shares from Vivendi
Universal at any time from December 24, 2002 through December 23, 2003 at a
price of (euro)26.50 per share (subject to standard adjustments in the case of
transactions in respect of our capital stock). See "Item 7: Major Shareholders
and Related Party Transactions--Major Shareholders" for a discussion of this
transaction. Excluding the repurchase of Vivendi Universal's block in December
2002, from October 2001 through March 2003 we repurchased 2,681,561 shares at an
average price of (euro)37.89 per share. As of March 1, 2003, we held 9,146,912
shares, representing 2.26% of our share capital. None of our subsidiaries held
any of our shares as of March 1, 2003. We have not cancelled any of our shares
over the past 24 months. The share repurchase program authorized at the April
25, 2002 shareholders' meeting expires on the earlier of date of the
shareholders' meeting called to approve our financial statements for fiscal year
2002 and October 25, 2003.
We have proposed the approval of a new repurchase program at our
general shareholders' meeting to be held on April 30, 2003. If approved, we will
be authorized to purchase and sell our shares at any time (including during
public tender offers) and by any means, including block trades and combinations
of financial derivative instruments, subject to market regulations and the 10%
limit provided by law (which, as of December 31, 2002, represented 40,507,045 of
our shares). The new program would allow us to repurchase shares for the purpose
of:
o regulating market prices through systematic interventions,
o providing shares to our employees and officers under a
profit-sharing or stock option plan,
o financing external growth through exchange offers, share-based
acquisitions or otherwise,
o delivering shares to third parties upon exercise of options,
warrants, exchangeable bonds or other instruments granting rights
to our shares, or
o optimizing our company's asset and financial management, by which
we may keep, sell, generally transfer or cancel in whole or in
part our repurchased shares.
The maximum repurchase price under the new program would be set at
(euro)32.50 (or the corresponding amount in any other currency) and the minimum
sale price would be set at (euro)17.00 (or the corresponding amount in any other
currency). The maximum purchase price would apply only to share repurchases
conducted pursuant to the authorization of the annual general shareholders'
meeting to be held on April 30, 2003, and would not apply to repurchases
authorized pursuant to a resolution passed at a previous shareholders' meeting,
but conducted after April 30, 2003. The minimum purchase price would apply to
all repurchases conducted after April 30, 2003, even if such repurchases are
conducted pursuant to a previous resolution. In addition, we would only be
permitted to make payments up to an aggregate amount of (euro)1 billion for our
shares under the new program. The shareholders' authorization for the new
program would expire at the latest on October 30, 2004, which is 18 months after
the date of the shareholders' meeting that is called to approve this program.
Under this authorization, our management board would have broad powers to
implement the program and set, if necessary, the terms and conditions of any
repurchases under the program, including the power to delegate any of its
powers. On April 9, 2003, the COB approved a note d'information relating to this
share repurchase program.
Anti-Takeover Provisions -- Disclosure of Substantial Shareholdings
Our statuts provide that any person or group that fails to notify us
within 15 days of acquiring, directly or indirectly, or disposing of 0.5% or any
multiple of 0.5% of our shares will be deprived of voting rights for shares in
excess of the unreported fraction. In addition, accredited intermediaries that
hold shares on behalf of non-French resident shareholders are required to comply
with this notification obligation in respect of the total amount of shares held
on behalf of the non-French resident shareholders.
Anti-Takeover Effects of Applicable Law and Regulations
In addition, the French commercial code provides that any individual or
entity, acting alone or in concert with others, that becomes the owner, directly
or indirectly, of more than 5%, 10%, 20%, one-third, 50% or two-thirds of the
outstanding shares or voting rights of a listed company in France, such as our
company, or that increases or decreases its shareholding or voting rights above
or below any of those percentages, must notify the company within 15 calendar
days of the date it crosses such thresholds of the number of shares it holds and
their voting rights. The individual or entity must also notify the Conseil des
Marches Financiers ("CMF") within five trading days of the date it crosses these
thresholds. In the event the individual or entity is not domiciled in France,
the financial intermediary that holds the shares on its behalf will be required
to deliver these notices.
French law and COB regulations impose additional reporting requirements
on persons who acquire more than 10% or 20% of the outstanding shares or voting
rights of a listed company. These persons must file a report with the company,
the COB and the CMF within fifteen days of the date they cross the threshold. In
the report, the acquiror must specify its intentions for the following 12-month
period, including whether or not it intends to continue its purchases, to
acquire control of the company in question or to nominate candidates for the
board of directors. The CMF makes the notice public. The acquiror must also
publish a press release stating its intentions in a financial newspaper of
national circulation in France. The acquiror may amend its stated intentions,
provided that it does so on the basis of significant changes in its own
situation or that of its shareholders. Upon any change of intention, it must
file a new report.
To permit holders to give the required notice, we are required to
publish in the BALO no later than 15 calendar days after the annual ordinary
general meeting of shareholders information with respect to the total number of
voting rights outstanding as of the date of such meeting. In addition, if the
number of outstanding voting rights changes by 5% or more between two annual
ordinary general meetings, we are required to publish in the BALO, within 15
calendar days of such change, the number of voting rights outstanding and
provide the CMF with written notice of such information. The CMF publishes the
total number of voting rights so notified by all listed companies in a weekly
notice, noting the date each such number was last updated.
If any person fails to comply with the legal notification requirement,
the shares that exceed the relevant threshold will be deprived of voting rights
for all shareholders' meetings until the end of a two-year period following the
date on which their owner complies with the notification requirements. In
addition, any shareholder who fails to comply with these requirements may have
all or part of its voting rights suspended for up to five years by the
Commercial Court at the request of the chairman, any shareholder or the COB, and
may be subject to a fine.
Under CMF regulations, and subject to limited exemptions granted by the
CMF, any person or persons acting in concert that own in excess of one-third of
the share capital or voting rights of a French listed company must initiate a
public tender offer for the remaining outstanding share capital of such company.
In addition, a number of provisions of the French commercial code allow
corporations to adopt statuts that have anti-takeover effects, including
provisions that allow:
o shares with double voting rights;
o a company's board of directors to increase the company's share
capital during a tender offer; and
o limitations on the voting power of shareholders.
Exchange Controls
The French commercial code currently does not limit the right of
nonresidents of France or non-French persons to own and vote shares. However,
nonresidents of France must file an administrative notice with French
authorities in connection with the acquisition of a controlling interest in our
company. Under existing administrative rulings, ownership of 20% or more of our
share capital or voting rights is regarded as a controlling interest, but a
lower percentage might be held to be a controlling interest in some
circumstances depending upon factors such as:
o the acquiring party's intentions; and
o the acquiring party's ability to elect directors, and financial
reliance by us on the acquiring party.
French exchange control regulations currently do not limit the amount
of payments that we may remit to nonresidents of France. Laws and regulations
concerning foreign exchange controls do require, however, that all payments or
transfers of funds made by a French resident to a nonresident be handled by an
accredited intermediary. In France, all registered banks and most credit
establishments are accredited intermediaries.
Taxation
The following is a general summary of the material tax effects that may
apply to you as a holder of our shares or ADSs for purposes of U.S. federal
income tax and French tax, if all of the following apply to you:
o you own, directly or indirectly, less than 5% of our share
capital;
o you are an individual resident of the United States, a U.S.
corporation, or a partnership, estate or trust to the extent its
income is subject to taxation in the United States in its hands
or in the hands of its partners or beneficiaries;
o you are not a resident of France for French tax purposes; and
o you are entitled to the benefits of the Treaty under the
"Limitations of Benefits" article of the tax treaty in effect
between the United States and France (the "Treaty");
o you are the beneficial owner of the shares or ADSs (and the
dividends paid with respect thereto) and hold your shares or ADSs
of our company as capital assets; and
o your functional currency is the U.S. dollar.
You are strongly urged to consult your own tax advisor regarding the
consequences to you of acquiring, owning or disposing of our shares or ADSs,
rather than relying on this summary. The summary may not apply to you or may not
completely or accurately describe tax consequences to you. For example, special
rules may apply to U.S. expatriates, insurance companies, tax-exempt
organizations, financial institutions, persons subject to the alternative
minimum tax, securities broker-dealers, traders in securities that elect to
mark-to-market and persons holding their shares or ADSs as parties to a
conversion transaction, among others. Those special rules are not discussed in
this document. The summary is based on the laws, conventions and treaties in
force as of the date of this document, all of which are subject to changes,
possibly with retroactive effect. Also, this summary does not discuss any tax
rules other than U.S. federal income tax and French tax rules. Further, the U.S.
and French tax authorities and courts are not bound by this summary and may
disagree with its conclusions.
Beneficial owners of ADSs will be treated as owners of the underlying
shares for U.S. federal income tax purposes. Deposits and withdrawals of shares
in exchange for ADSs will not result in the realization of gain or loss for U.S.
federal income tax purposes.
Taxation of Dividends
Withholding Tax and Avoir Fiscal
We will withhold tax from your dividend at the reduced rate of 15%,
provided that you have complied with the following procedures:
o You must complete French Treasury Form RF1 A EU-No. 5052,
"Application for Refund," and deliver it to the French tax
authorities before the date of payment of the dividend. If you
are not an individual, you must also provide the French tax
authorities an affidavit attesting that you are the beneficial
owner of all the rights attached to the full ownership of the
shares, including, among other things, the dividend rights.
o If you cannot complete Form RF1 A EU-No. 5052 before the date of
payment of the dividend, and if you are entitled to a payment in
respect of the French avoir fiscal pursuant to the Treaty (see
below), you may complete a simplified certificate and send it to
the French tax authorities. This certificate must state that:
- you are a resident of the United States for purposes of the
Treaty;
- your ownership of our shares or ADSs is not effectively
connected with a permanent establishment or a fixed base in
France;
- you own all the rights attached to the full ownership of the
shares or ADSs, including, among other things, the dividend
rights; and
- you meet all the requirements of the Treaty for the reduced
rate of withholding tax and the transfer of the French avoir
fiscal and claim such benefits.
If you have not completed Form RF1 A EU-No. 5052 or the simplified
certificate before the dividend payment date, we will deduct French withholding
tax at the rate of 25%. In that case, you may claim a refund of the excess
withholding tax by completing and providing the French tax authorities with Form
RF1 A EU-No. 5052 at the latest by December 31 of the second calendar year
following the year in which the withholding tax is paid.
The Application for Refund and the simplified certificate, together
with instructions, can be obtained from the U.S. Internal Revenue Service or
from the Centre des Impots des Non Residents, 9 rue d'Uzes, 75094 Paris Cedex
02, France, upon request.
The Treaty also provides for a refund by the French Treasury of whole
or part of a French tax credit called avoir fiscal (less the applicable
withholding tax) to certain eligible U.S. holders of our shares or ADSs, under
the conditions set forth below. However, in September 2002, the French
government announced a proposed reform of the French tax treatment of
distributions, which is to be included in the draft Finance Law for 2004 that
will be submitted to the French Parliament in September 2003. The proposed
reform contemplates the implementation of a new mechanism to avoid double
taxation of dividends and the elimination of the avoir fiscal and precompte
mechanisms. This proposed reform, if adopted, may affect the right of U.S.
holders to obtain a tax credit payment from the French Treasury with respect to
dividend distributions decided in year 2003. In addition, if the reform is
adopted, U.S. holders would no longer be entitled to tax credit payments from
the French Treasury in respect of dividends paid in 2004 and after.
Under the current legislation, the avoir fiscal is generally equal to
50% of the dividend paid for individuals or 10% of the dividend paid for
shareholders other than individuals (increased in this latter case by an
additional amount equal to 80% of the equalization tax known as the precompte
actually paid in cash by the distributing company in respect of the dividend
distribution, see below "The Precompte"). You may be entitled to a payment equal
to the avoir fiscal, less a 15% withholding tax, if any one of the following
applies to you:
o you are an individual or other non-corporate holder that is a
resident of the United States for purposes of the Treaty;
o you are a U.S. corporation, other than a regulated investment
company;
o you are a U.S. corporation that is a regulated investment
company, provided that less than 20% of your shares are
beneficially owned by persons who are neither citizens nor
residents of the United States; or
o you are a partnership or trust that is a resident of the United
States for purposes of the Treaty, but only to the extent that
your partners, beneficiaries or grantors would qualify as
eligible under the first or second points on this list and are
subject to U.S. income tax with respect to such dividends and
payment of the avoir fiscal.
Another condition to be entitled to a payment in respect of the avoir
fiscal is that you (or your partners, beneficiaries or grantors, as applicable,
if you are a partnership or a trust) be subject to U.S. federal income taxes on
the payment of the avoir fiscal and the related dividend.
If you are eligible, you may claim the avoir fiscal by complying with
the same filing requirements as those conditioning the application of the
reduced 15% withholding tax. As noted below, you will not receive this payment
until after January 15 of the calendar year following the year in which the
dividend was paid.
Specific rules apply to the following:
o tax-exempt U.S. pension funds, which include the exempt
pension funds established and managed in order to pay
retirement benefits subject to the provisions of Section
401(a) of the Internal Revenue Code (qualified retirement
plans), Section 403(b) of the Internal Revenue Code (tax
deferred annuity contracts) or Section 457 of the Internal
Revenue Code (deferred compensation plans); and
o various other tax-exempt entities, including certain
state-owned institutions, not-for-profit organizations and
individuals (with respect to dividends they beneficially own
and that are derived from an individual retirement account).
Entities in these two categories are eligible for a reduced withholding
tax rate of 15% on dividends, subject to the same withholding tax filing
requirements as eligible U.S. holders, except that they may have to supply
additional documentation evidencing their entitlement to these benefits. Subject
to the same filing requirements, these entities are also entitled to a partial
avoir fiscal equal to 30/85 of the gross avoir fiscal generally payable to
corporations, subject to deduction of a 15% withholding tax.
The avoir fiscal or partial avoir fiscal and any French withholding tax
refund will not be paid before January 15 following the end of the calendar year
in which the dividend is paid.
For U.S. federal income tax purposes, the gross amount of a dividend
and any avoir fiscal, including any amounts withheld due to French withholding
tax, will be included in your gross income as dividend income when payment is
received by you, to the extent they are paid or declared paid out of our current
or accumulated earnings and profits as calculated for U.S. federal income tax
purposes. Dividends paid by our company will not give rise to any U.S. dividends
received deduction. They will generally constitute foreign source "passive"
income for foreign tax credit purposes.
Also for U.S. federal income tax purposes, the amount of any dividend
paid in euro, including any French withholding taxes, will be equal to the U.S.
dollar value of the euro on the date the dividend is included in income,
regardless of whether the payment is in fact converted into U.S. dollars. If the
payment is not converted into U.S. dollars on the date of receipt, you will
generally be required to recognize U.S. source ordinary income or loss when you
sell or dispose of euro. You may also be required to recognize foreign currency
gain or loss if you receive a refund under the Treaty of tax withheld in excess
of the treaty rate. This foreign currency gain or loss will generally be U.S.
source ordinary income or loss.
To the extent that any dividends paid exceed our current and
accumulated earnings and profits as calculated for U.S. federal income tax
purposes, the distribution will be treated as follows:
o first, as a tax-free return of capital, which will cause a
reduction in the adjusted basis of your shares in our company.
This adjustment will increase the amount of gain, or decrease the
amount of loss, that you will recognize if you later dispose of
those shares; and
o second, the balance of the dividend in excess of the adjusted
basis will be taxed as capital gain recognized on a sale or
exchange.
French withholding tax imposed on the dividends you receive and on any
avoir fiscal at 15% under the Treaty is treated as payment of a foreign income
tax. You may take this amount as a credit against your U.S. federal income tax
liability, subject to specific conditions and limitations.
The Precompte
A French company must pay an equalization tax known as the precompte to
the French tax authorities if it distributes dividends out of:
o profits that have not been taxed at the ordinary corporate income
tax rate, or
o profits that have been earned and taxed more than five years
before the distribution.
The amount of the precompte is generally 50% of the net dividends
before withholding tax.
If you are not entitled to the full avoir fiscal (as described above),
you may generally obtain a refund from the French tax authorities in respect of
any precompte paid by us with respect to dividends distributed to you. Under the
Treaty, the amount of the precompte refunded to U.S. residents is reduced by the
15% withholding tax applied to dividends and by the partial (30/85) avoir fiscal
refund, if any. You are entitled to a refund of any precompte that we actually
pay in cash, but not to any precompte that we pay by offsetting French and/or
foreign tax credits. To apply for a refund of the precompte, you should file
French Treasury Form RF1 B EU-No. 5053 before the end of the year following the
year in which the dividend was paid. The form and its instructions are available
from the Internal Revenue Service in the United States or from the Centre des
Impots des Non Residents.
For U.S. federal income tax purposes, the gross amount of the
precompte, including any amounts withheld due to French withholding tax, will be
included in your gross income as dividend income when you receive the precompte.
It will generally constitute foreign source income for foreign tax credit
purposes. The amount of any precompte paid in euro, including any French
withholding taxes, will be equal to the U.S. dollar value of the euro on the
date the precompte is included in income, regardless of whether the payment is
in fact converted into U.S. dollars. If the precompte is not converted into U.S.
dollars on the date of receipt, you will generally be required to recognize a
U.S. source ordinary income or loss when you sell or dispose of the euro.
Taxation of Capital Gains
If you are a resident of the United States for purposes of the Treaty,
you will not be subject to French tax on any capital gain if you sell or
exchange your shares, unless you have a permanent establishment or fixed base in
France and the shares you sold or exchanged were part of the business property
of that permanent establishment or fixed base. Special rules apply to
individuals who are residents of more than one country.
In general, for U.S. federal income tax purposes, you will recognize
capital gain or loss if you sell or exchange your shares in the same manner as
you would if you were to sell or exchange any other shares held as capital
assets. Any gain or loss will generally be U.S. source gain or loss. If you are
an individual, any capital gain will generally be subject to U.S. federal income
tax at preferential rates if you meet the specified minimum holding periods.
French Estate and Gift Taxes
Under "The Convention Between the United States of America and the
French Republic for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Estates, Inheritance and Gifts of
November 24, 1978," if you transfer your shares or ADSs by gift or if they are
transferred by reason of your death, that transfer will be subject to French
gift or inheritance tax only if one of the following applies:
o you are domiciled in France at the time of making the gift or at
the time of your death; or
o you used the shares or ADSs in conducting a business through a
permanent establishment or fixed base in France, or you held the
shares or ADSs for that use.
French Wealth Tax
The French wealth tax does not generally apply to shares or ADSs if the
holder is a resident of the United States for purposes of the Treaty.
French Transfer Taxes
Transfers of shares or ADSs of listed common stock are not subject to
French registration or transfer taxes, unless the transfer is effected by means
of a written agreement executed in France (in which case a 1% registration duty,
subject to a maximum of (euro)3,049 per transfer, applies).
United States Information Reporting and Backup Withholding
Dividend payments on the shares and proceeds from the sale, exchange or
other disposition of the shares may be subject to information reporting to the
Internal Revenue Service and possible U.S. backup withholding. U.S. federal
backup withholding tax is imposed on specified payments to persons that fail to
furnish required information. Backup withholding will not apply to a holder who
furnishes a correct taxpayer identification number or certificate of foreign
status and makes any other required certification, or who is otherwise exempt
from backup withholding. Any U.S. persons required to establish their exempt
status generally must file Internal Revenue Service Form W-9, entitled Request
for Taxpayer Identification Number and Certification.
Amounts withheld as backup withholding may be credited against your
U.S. federal income tax liability. You may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the Internal Revenue Service and furnishing any required
information.
Documents on Display
Certain documents referred to in this document can be inspected at our
offices at 36-38, avenue Kleber, 75116 Paris, France.
We are subject to the periodic reporting and other informational
requirements of the Exchange Act. Under the Exchange Act, we are required to
file reports and other information with the SEC. Specifically, we are required
to file annually a Form 20-F no later than six months after the close of each
fiscal year. Copies of reports and other information, when so filed, may be
inspected without charge and may be obtained at prescribed rates at the public
reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. The public may obtain information regarding the
SEC's Public Reference Rooms by calling the SEC at 1-800-SEC-0330. As a foreign
private issuer, we are exempt from the rules under the Exchange Act prescribing
the furnishing and content of quarterly reports and proxy statements, and
officers, directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions in Section 16 of the Exchange Act.
Enforceability of Civil Liabilities Against Foreign Persons
Our company is a corporation organized under the laws of France. The
majority of our directors are citizens and residents of countries other than the
United States, and the majority of our assets are located outside of the United
States. Accordingly, it may be difficult for investors:
o to obtain jurisdiction over our company or our directors in
courts in the United States in actions predicated on the civil
liability provisions of the U.S. federal securities laws;
o to enforce judgments obtained in such actions against us or our
directors;
o to obtain judgments against us or our directors in original
actions in non-U.S. courts predicated solely upon the U.S.
federal securities laws; or
o to enforce against us or our directors in non-U.S. courts
judgments of courts in the United States predicated upon the
civil liability provisions of the U.S. federal securities laws.
Actions brought in France for enforcement of judgments of U.S. courts
rendered against French persons, including some directors of our company, would
require those persons to waive their right to be sued in France under Article15
of the French Civil Code. In addition, actions in the United States under the
U.S. federal securities laws could be affected under certain circumstances by
the French law of July16, 1980, which may preclude or restrict the obtaining of
evidence in France or from French persons in connection with those actions. Each
of the foregoing statements applies to our auditors as well.
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of our global operating and financing activities, we are
subject to various market risks relating primarily to fluctuations in interest
rates, foreign currency exchange rates and equity market risk due to investment
securities. We apply a centrally managed risk management policy. As part of this
policy, derivative financial instruments are used to manage interest rate risk,
primarily related to long term debt, and foreign currency risk associated with
foreign denominated assets. We do not generally use derivative or other
financial instruments for trading purposes. Our accounting policy for hedging
instruments is described in Note 2 to our financial statements.
Exposure to interest rate risk
As a result of our financing activities, our operating results are
exposed to fluctuations in interest rates. We have short-term and long-term
financings with both fixed and variable interest rates. Short-term debt is
primarily comprised of euro-denominated secured and unsecured notes and
commercial paper payable to investors and bank lines of credit used to finance
working capital requirements. Long-term debt represents bonds and notes payable
to banks, as well as long-term bank loans and syndicated credit agreements. Our
short-term debt accrues interest at rates that are set on the basis of the main
market indexes or rates, such as EONIA for our commercial paper and EURIBOR and
LIBOR for our short-term credit lines.
At December 31, 2002, our short-term debt amounted to (euro)3.8 billion
and our long-term debt amounted to (euro)12.9 billion. Approximately 69% of our
total debt outstanding at December 31, 2002 was denominated in euro, 21% in US
dollars, 3% in British pounds and 2% in Australian dollars. At December 31,
2002, approximately 54% of our euro-denominated debt, 41% of our US
dollar-denominated debt, 50% of our British pound-denominated debt and 64% of
our Australian dollar-denominated debt bore interest at floating rates, in each
case after giving effect to our financial hedging instruments. As a result,
approximately 49% of our total gross debt bore interest at fixed rates, while
51% was subject to floating interest rates.
Interest rate risk management instruments used to manage our exposure
to interest rate variations include pay-variable and pay-fixed interest rate
swaps and interest rate caps and collars. Pay-variable swaps effectively convert
fixed rate debt into variable rate debt and are considered financial hedges
against changes in the fair value of fixed rate debt. Pay-fixed swaps and
interest rate caps and collars convert variable rate debt into fixed rate debt
and are considered financial hedges against changes in future cash flows
required for interest payments on variable rate debt.
Based upon the above information, a hypothetical increase in average
market rates of 0.1% over 2003 would result in a increase our financial expenses
of approximately (euro)8 million at a constant financing structure.
Exposure to foreign currency risk
We have worldwide operations that include significant operations in
countries outside of the euro zone, mainly the United States and the United
Kingdom. Because product and operating costs are based largely on the currency
in which related revenue are generated, we face limited related foreign exchange
exposure linked to commercial transactions. We enter into currency option
contracts to hedge specific firm commitments and anticipated foreign currency
denominated transactions, particularly at the time we make bids for new
contracts. However, at December 31, 2002, we were not a party to any currency
option contracts.
We have significant investments denominated in foreign currencies,
principally U.S. dollars and British pounds. Our policy is to hedge our exposure
to currency fluctuations by incurring debt denominated in the corresponding
currency based on future cash flow projections.
The following table shows, as of December 31, 2002, our outstanding
foreign currency positions that mature in less than one year:
(millions of (euro) equivalent) Currency Swaps
-----------------------------------
Forward Purchases Forward Sales Forward Purchases Forward Sales
----------------- -------------
U.S. Dollar 34.7 478.9 1.6 --
British Pound 76.6 203.3 -- 93.2
Australian Dollar 149.0 2.5 -- --
Others 8.0 176.1 -- --
The following table shows, as of December 31, 2002, our outstanding
foreign currency positions that mature after at least one year:
Cross Currency Swaps millions of(euro) Maturity Market Value(1)
Euro / U.S. Dollar 500 February 1, 2012 122.8
Yen / Euro 18.4 September 16, 2003 (2.4)
Yen / Euro 18.3 October 4, 2004 (2.4)
Czech Crown / Euro 13.2 April 29, 2009 (0.7)
------------
Total 117.3
--------------------------
(1) In millions of euros as of December 31, 2002.
Exposure to equity risk
We manage our exposure to the impact of fluctuations in the price of
our shares through sporadic trades in our shares on the market for purposes of
stabilizing trading and limiting volatility in our share price. These activities
are centralized by our company and are included in regular reports (after each
trade and on a monthly basis) to our senior management. At December 31, 2002, we
held 9,142,362 of our shares as treasury stock with a market value of
(euro)201.3 million. We have imputed 4,747,518 of these shares, with a value of
(euro)109.6 million, to our shareholders equity.
As of December 31, 2002 we also held equity securities in the following
companies:
Number of Shares Market Value
---------------- ------------
Vivendi Universal 309,365 (euro)4.7 million
Vinci 1,551,294 (euro)83.4 million
Exposure to other market risks
Our exposure to other market risks, including changes in commodity
prices, are not considered material.
Ethics, vigilance and risk management
Ethics and vigilance
In accordance with the commitments we made in our 2000 Annual Report,
we developed in 2001 a vigilance program for our company with each of our four
operating divisions and our corporate departments. The implementation of this
program resulted in the adoption of a charter on "Ethics, Conviction and
Responsibility" on February 5, 2003, which will govern the daily behavior of our
302,000 employees. The charter reaffirms the fundamental values shared by all of
our employees, including, for example, a strict observance of the laws in effect
in the different countries where we operate, loyalty towards our clients and
towards consumers and a sense of solidarity (tolerance, respect of others and
social dialogue).
In connection with the adoption of this charter, we will create an
Ethics Committee to hear, coordinate and settle any questions relating to the
respect of these fundamental values, any difficulties encountered in their
application and any desirable improvements to them. In addition, we have
established mechanisms to monitor the application of our norms and procedures
within our group through regular reports to designated persons within each
division.
Coordination committee for the evaluation and prevention of risks
Our coordination committee for the evaluation and prevention of risks
("CEPR"), which was created in 2001 to provide support to our divisions,
continued to pursue its action plan during 2002. The CEPR is composed of the
general manager of each of our divisions and the head of each of our corporate
departments. The CEPR is responsible for identifying and prioritizing our
principal risks and for the development of model protection and prevention
mechanisms that are to be gradually generalized and implemented throughout our
company. The CEPR has established specialized working committees dedicated to
legal risks, industrial risks, environmental and sanitary risks and financial
risks.
Management of legal risks
In the context of the development of our business in France and
elsewhere, we consider that the management of our legal risks is a key issue.
Our priorities include the respect of legal and regulatory provisions and the
adoption of ethical rules within our company and with respect to our partners.
We have also adopted a Code of Conduct governing trading in our shares
and in the shares of our subsidiaries that are listed on a stock exchange.
Pursuant to this Code, our senior managers are deemed to be "permanent insiders"
and trading by any of them in our shares is prohibited at all times, except
during two 30-day periods following the publication of our annual and half-year
results each year.
In addition, the specificity of our activities (outsourcing of local
public services with operations in 100 countries and relationships with a
variety of representatives and counterparties) has led us to adopt legal
vigilance rules to guide our employees in their activities and in the
preparation of legal documents. In particular, these rules cover civil liability
and insurance policies, criminal responsibility, intellectual and industrial
property, ethics, standard contractual clauses, sponsorship and patronage,
confidentiality and compliance with labor laws and security norms. In addition
to the formalization of a number of these rules in internal memoranda, the Legal
Departments of our company and each of our divisions ensures, on a daily basis,
an adequate management of our legal risks in tight coordination with our
operating teams in the field.
Finally, regarding sponsorship and patronage, each case is reviewed by
a committee, which issues an independent opinion on each case. We have also
created a disclosure committee to supervise and control the collection,
dissemination and public disclosure (including filing with market authorities)
of information relating to our company and our business.
Management of industrial, environmental and sanitary risks
We pay particular attention to sanitary risks, including the risks
relating to the operation of our facilities and the risks relating to certain
types of pollution that cannot be treated through traditional methods (for
example, the presence of nitrates or bacteria (legionnelles) in our water and
the emission of dioxides from our waste incineration activities). We believe
that mere compliance with regulatory norms does not suffice to ensure a perfect
control of sanitary risks, and we have voluntarily taken a number of steps to
establish strict vigilance and prevention procedures in the context of a global
sanitary policy, particularly with respect to our multi-service offerings (for
example, sanitary diagnosis and checkpoint controls and inspections).
More generally, we are actively committed to sustainable development
and, to this effect, have adopted a charter that sets our goals in terms of,
among other things, the preservation of natural environments, the improvement of
the health of populations and the offering of services to the most disfavored.
Management of financial risks
In the context of our operating and financial activities, we are
exposed to liquidity risks and risks relating to fluctuations in interest rates,
exchange rates and the value of our shares. We have centralized the management
within our group of our exposure to these risks. Our Treasury and Financing
Department is responsible for the adoption and implementation of coverage
mechanisms for our company and our divisions, including by assisting our
divisions in identifying their respective exposures and implementing coverage
mechanisms in each country where they operate. We have established a treasury
management system that allows us to continuously follow the main indicators
relating to liquidity and the financial instruments used by our company to
manage our interest rate and exchange rate exposure. We also have implemented a
transaction control structure through our middle and back offices that allows us
to follow the limitations and security of our transactions in this context. In
addition, these financial risk management teams submit daily, weekly and monthly
reports to our senior management on the evolution of the relevant markets and
its actual and potential consequences on our liquidity and the value of our
portfolio of derivative instruments, as well as on the coverage transactions
effected and their consequences on the relative amounts of our fixed-rate and
floating-rate debt.
We monitor the liquidity of our group in coordination with designated
managers at the operating level. The incurrence and management of new material
financings are centralized in order to steer our present and future liquidity to
optimum levels. We satisfy our financing needs through bank loans, commercial
paper and debt issues on the international capital markets and the international
private placement markets. In addition, we continue to pursue negotiations to
extend the maturity of our existing short term lines of credit and to obtain new
mid-term lines of credit.
We also centralize the management of interest rate risks. We use
substantially all of the interest rate management tools proposed by the markets,
including, in particular, interest rate swaps and options.
We are also exposed to the risk of fluctuations in currency exchange
rates as a result of the international nature of our activities, which are
conducted in 100 countries and require our management of cash flows in many
currencies. Because our expenses and revenues are primarily in the local
currency of the country in which we operate, the effect of exchange rate
fluctuations on our services business is limited. As a result, we implement
coverage mechanisms in respect of these risks (in particular through currency
options) on a case-by-case basis primarily at the time we submit bids for
contracts. In addition, to limit our exposure to the impact of fluctuations of
exchange rates on the assets and liabilities recorded on our balance sheet, we
have adopted a policy to allocate financing in different currencies by type of
assets and liabilities with the objective of financing our local operations in
local currency.
We also manage our exposure to the impact of fluctuations in the price
of our shares through sporadic trades in our shares on the market for purposes
of stabilizing trading and limiting volatility in our share price. These
activities are centralized by our company and are included in regular reports
(after each trade and on a monthly basis) to our senior management.
Finally, we created an Internal Audit Department in 2002 that reports
directly to our Chief Executive Officer. The head of internal audit participates
in meetings of our accounts, audit and commitments committee, to which he
presents a summary of accomplished tasks and periodically submits a status
report and an audit plan. Pursuant to this committee's charter, which was
adopted by our supervisory board on March 3, 2003, the head of internal audit
will also be required to contribute to a presentation of the measures taken to
identify the material risks to which our company is exposed. Our management
board adopted an internal charter in September 2002 that sets forth the
organization and functions of the internal audit department, which will be
required to act in accordance with a plan developed following a risk analysis of
our business and perform post-acquisition audits, internal control audits on
selected entities and process analysis across several departments involving more
than one of our divisions.
Return on Investments
Our investment policy requires us to analyze different criteria in
making investment decisions, including decisions relating to capital
expenditures, financial investments and research and development expenses. In
particular, we compare the internal rate of return (or IRR) with the cost of
capital of each investment or research project, in each case adjusted to the
specific risk profile of the project. As a general rule, we only approve
investment projects that generate a minimum return of 2% over the weighted
average cost of capital (or WACC) of the project. However, we are sometimes
required to commence operations under long-term contracts at levels of return
that are lower than our minimum return levels, including contracts that require
us to make significant productivity and capacity investments. As a result, we
record lower return at the beginning of operations under our contracts than the
level of return recorded over the life of these contracts.
In order to manage the profitability of our contracts globally, we have
adopted a new measure of performance, which we refer to as "Return On Capital
Employed" or "ROCE" and that measures our ability to provide a return on the
capital invested in our business by our shareholders and lenders. We define ROCE
as the relation between our results of operations, net of tax, and the average
amount of capital invested in our business over the same period.
For purposes of calculating ROCE, we define results of operations, net
of tax, as EBIT of core businesses plus equity in net income of affiliates
(before amortization of goodwill associated with equity investments in
affiliates), less income taxes. The following table shows the calculation of our
results of operations, net, in 2002:
At December 31, 2002
(in millions of(euro))
EBIT of Core Businesses 1,847.3
Income Taxes (437.3)
Equity in Income of Affiliates(1) 40.4
Results of Operations, Net, of Core Businesses 1,450.4
(1)Before amortization of goodwill recorded in connection with these
investments.
We determine the average amount of capital invested in our core
business as the average of our invested capital at each of the beginning and the
end of the relevant period. The following table shows the calculation of the
average amount of our capital invested in 2002:
At December 31,
2002 2001
(in millions of(euro))
Tangible and Intangible Assets, Net(1) 18,668.3 18,445.7
Goodwill(2) 7,531.9 8,035.8
Investments accounted for using the Equity Method(3) 453.6 528.9
Working Capital(4) 712.6 670.4
Reserves and Allowances (2,946.1) (3,195.7)
Deferred Income(5) (674.4) (623.8)
Other Long Term Debt (427.5) (496.6)
---------------- ----------------
Total Capital Invested 23,095.8 23,587.3
Capital Invested in Non Core Businesses (1,219.0)
----------------
---------------------------------------
Average Total Capital Invested in 2002 23,341.6
Average Total Capital Invested in Core Businesses in 2002 22,732.1
(1) We define tangible and intangible assets, net, as property, plants and
equipment, net, and other intangible assets, net.
(2) Before extraordinary amortization of goodwill, which related mainly to
USFilter and Proactiva.
(3) Net of extraordinary depreciation and excluding amortization of goodwill
recorded in connection with these investments (which amounted (euro)5.6 million
in 2002 and (euro)4.9 million in 2001) and our equity interest in Philadelphia
Suburban Corp., which was accounted for as an equity method investment in 2001
at a value of (euro)104 million.
(4) We define working capital as inventories and work in progress and accounts
receivable, less accounts payable.
(5) Excluding financing of co-generation facilities in our energy services
division, which amounted to (euro)739.0 million in 2002 and (euro)859.3 million
in 2001.
The ROCE in our core businesses in 2002 was 6.4%. We compare our ROCE
to our WACC, which is calculated as the weighted average of our cost of equity
and our after-tax cost of financing. We aim to improve our ROCE in order to
increase our profits, while continuing to develop our business by obtaining new
contracts.
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
None.
ITEM 15. CONTROLS AND PROCEDURES
None.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Not Applicable.
ITEM 16B. CODE OF ETHICS
Not Applicable.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Pursuant to French law, our company has engaged two independent
accounting firms to audit its accounts and provide related services permissible
under applicable French and U.S. laws and regulations. In respect of fiscal year
2002, our independent auditors are Barbier Frinault et Compagnie, a member of
the Ernst & Young group since September 2002, and RSM Salustro Reydel. In
accordance with French law, we consider each of these auditing firms as our
principal accountants. During 2002, we paid total fees of (euro)13.6 million to
RSM Salustro Reydel and (euro)10.9 million to Ernst & Young (including the fees
paid to Barbier Frinault et Compagnie during the first nine months of 2002) for
the services described below.
Audit Fees
During 2002, we paid (euro)11.1 million in fees to RSM Salustro Reydel
and (euro)7.4 million to Ernst & Young (including the fees paid to Barbier
Frinault et Compagnie during the first nine months of 2002) for professional
audit services.
Audit-Related Fees
During 2002, we paid (euro)2.5 million in fees to RSM Salustro Reydel
and (euro)1.7 million to Ernst & Young (including the fees paid to Barbier
Frinault et Compagnie during the first nine months of 2002) for audit-related
services, including for comfort letters issued by our auditors in connection
with our offerings of securities, certifications to third parties and
acquisition-related audits.
Other Fees
During 2002, we paid (euro)1.8 million in other fees to Ernst & Young
(including the fees paid to Barbier Frinault et Compagnie during the first nine
months of 2002) for other professional services, including legal and information
technology services. We did not pay any other fees to RSM Salustro Reydel in
2002.
PART III
ITEM 17: FINANCIAL STATEMENTS
Not Applicable.
ITEM 18: FINANCIAL STATEMENTS
VIVENDI ENVIRONNEMENT
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page
Translation of Staturory Auditor's Report on the Conlolidated Financial Statements F-1
Consolidated Balance Sheets as of December 31, 2002, 2001 and 2000 F-2
Consolidated Statements of Income for the Years Ended December 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 F-5
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2002, F-7
2001 and 2000
Notes to the Consolidated Financial Statements F-8
TRANSLATION OF THE STATUTORY AUDITORS' REPORT ON THE CONSOLIDATED
FINANCIAL STATEMENTS
To the Shareholders
of the Company Vivendi Environnement,
In compliance with the assignment entrusted to us by your shareholders' annual
general meetings, we hereby report to you, for the year ended December 31, 2002,
on the audit of the accompanying consolidated financial statements of the
company Vivendi Environnement.
The consolidated financial statements have been approved by the Executive Board.
Our role is to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with the professional standards applied in
France. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements give a true and fair view
of the group's financial position and of its assets and liabilities as of
December 31, 2002, and of the results of its operations for the year then ended
in accordance with accounting principles generally accepted in France.
We also performed the verification of the information given in the management
report of the Executive Board. We have no comment as to its fair presentation
and its conformity with the consolidated financial statements.
Paris-La Defense and Paris, April 15, 2003
The Statutory Auditors
-------------------------------- ------------------------------------------
BARBIER FRINAULT & CIE RSM SALUSTRO REYDEL
ERNST & YOUNG NETWORK Bernard Cattenoz Bertrand Vialatte
Alain Grosmann Jean Bouquot
The French version of the preceding text has been signed by Barbier Frinault &
Compagnie, a member firm of Ernst & Young, and by RSM Salustro Reydel, the
Statutory Auditors of Vivendi Environnement.
VIVENDI ENVIRONNEMENT
CONSOLIDATED BALANCE SHEETS - ASSETS
Notes At December 31,
----------------------------------------------------------------------
2002 2002 2001 2000
($ millions) ((euro)millions)
------------ --------------------------------------------------
Goodwill, net 3 6,452.2 6,152.8 6,795.8 7,056.5
Other intangible assets, net 4 4,094.9 3,904.9 4,477.0 4,223.4
Property plant and equipment 18,539.4 17,679.2 16,843.4 14,275.7
Publicly-owned utility networks 6,778.1 6,463.6 6,156.7 5,619.2
Accumulated depreciation (10,069.2) (9,602.0) (8,808.8) (7,512.1)
Property, plant and equipment, net 5 15,248.3 14,540.8 14,191.3 12,382.8
Investments accounted for using the equity method 6 469.8 448.0 618.0 523.4
Investments accounted for using the cost method 7 291.5 278.0 245.8 244.1
Portfolio investments held as financial assets 7 1,304.0 1,243.5 1,072.8 932.0
Financial assets 2,065.3 1,969.5 1,936.6 1,699.5
Total long-term assets 27,860.7 26,568.0 27,400.7 25,362.2
Inventories and work-in-progress 8 1,231.6 1,174.5 1,543.7 1,483.4
Accounts receivable 8 11,688.2 11,145.8 12,066.0 10,727.9
Short-term loans 9 511.3 487.6 985.5 224.8
Cash and cash equivalents 10 2,497.8 2,381.9 2,089.3 1,528.1
Other marketable securities 10 273.3 260.6 324.1 496.6
Total current assets 16,202.2 15,450.4 17,008.6 14,460.8
------------ ---------- ---------- ------------
TOTAL ASSETS 44,062.9 42,018.4 44,409.3 39,823.0
============ ========== =============================
The accompanying notes are an integral part of these consolidated financial
statements.
For the convenience of the reader, the financial statements as of and for the
year ended December 31, 2002 have been translated into U.S. Dollars at the rate
of U.S. $ 1 = (euro)0.9536.
VIVENDI ENVIRONNEMENT
CONSOLIDATED BALANCE SHEETS - LIABILITIES AND
SHAREHOLDERS' EQUITY
Notes
At December 31,
----------------------------------------------------------------------
2002 2002 2001 2000
($ millions) ((euro)millions)
---------------- ---------------------------------------------------
Share capital 5,667.4 5,404.4 4,673.4 4,673.4
Additional paid-in capital 3,061.1 2,919.1 2,269.6 232.6
Retained earnings (2,446.6) (2,333.1) 1,048.2 687.5
Net Income 355.7 339.2 (2,251.2) 614.8
---------------- ---------------- --------------------------------
Total shareholders' equity 11 6,637.6 6,329.6 5,740.0 6,208.3
Minority Interests 12 2,711.0 2,585.2 2,531.1 2,031.1
Deferred income 13 1,482.2 1,413.4 1,483.1 1,270.6
Reserves and allowances 14 3,089,5 2,946.1 3,195.7 3,085.4
Bonds 5,907.9 5,633.8 5,193.6 2,444.1
Other financial long-term debt 7,633.3 7,279.2 7,940.4 9,024.6
---------------- ---------------- --------------------------------
Long-term debt 15 13,541.2 12,913.0 13,134.0 11,468.7
Other long-term liabilities 448.3 427.5 496.6 660.9
---------------- ---------------- --------------------------------
Total long-term liabilities and shareholder's equity 27,909.8 26,614.8 26,580.5 24,725.0
Accounts payable 8 12,172.5 11,607.7 12,939.3 10,854.4
Bank overdrafts and other short-term borrowings 3,980.6 3,795.9 4,889.5 4,243.6
Total current liabilities 15 16,153.1 15,403.6 17,828.8 15,098.0
---------------- ---------------- --------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 44,062.9 42,018.4 44,409.3 39,823.0
================ ================ ================================
The accompanying notes are an integral part of these consolidated financial
statements.
On January 1, 2001 Vivendi Environnement has forgone the imputation of the
goodwill of US Filter recorded as a reduction of shareholders' equity, which
represents an increase in additional paid-in capital of (euro)2,037 million.
For the convenience of the reader, the financial statements as of and for the
year ended December 31, 2002 have been translated into U.S. Dollars at the rate
of U.S. $ 1 = (euro)0.9536.
VIVENDI ENVIRONNEMENT
CONSOLIDATED STATEMENTS OF INCOME
Notes At December 31,
------------------------------------------------------------
2002 2002 2001 2000
restated
($ millions) ((euro)millions)
--------------- ------------------------------------------
Revenues 21 31,542.3 30,078.7 29,126.7 26,262.5
Costs of sales (25,837.0) (24,638.1) (23,550.9) (21,107.0)
Selling, general and administrative costs (3,679.5) (3,508.8) (3,556.7) (3,254.5)
Other operating income (expense) 41.4 39.5 (6.0) (251.0)
--------------- ------------- ------------ -------------
EBIT 21 2,067.2 1,971.3 2,013.1 1,650.0
Goodwill amortization (1) 23 (343.1) (327.2) (2,910.1) (306.3)
Restructuring costs (59.4) (56.6) (49.4) (54.4)
--------------- ------------- ------------ -------------
Operating income (loss) 1,664.7 1,587.5 (946.4) 1,289.3
Financial income (expenses) 23 (679.6) (648.1) (798.0) (891.8)
Other income (expenses) 23 (62.6) (59.7) 38.9 777.3
--------------- ------------- ------------ -------------
Net income (loss) before taxes, minority and equity interests 922.5 879.7 (1,705.5) 1,174.8
Income taxes 16 (458.6) (437.3) (462.3) (459.2)
--------------- ------------- ------------ -------------
Net income (loss) before minority and equity interests 463.9 442.4 (2,167.8) 715.6
Equity in net income of affiliates 6 40.9 39.0 47.8 60.6
Minority interest 12 (149.1) (142.2) (131.2) (161.4)
--------------- ------------- ------------ -------------
Net income (loss) 355.7 339.2 (2,251.2) 614.8
=============== ============= ============ =============
Basic earnings per share 0.98 0.93 (6.55) 2.24
Diluted earnings per share 0.98 0.93 (6.55) 2.23
The accompanying notes are an integral part of these consolidated financial
statements.
(1) Goodwill amortization includes goodwill write-downs of(euro)77.0 million in
2002,(euro)2,652.2 million in 2001 and(euro)74.2 million in 2000.
For the convenience of the reader, the financial statements as of and for the
year ended December 31, 2002 have been translated into U.S. Dollars at the rate
of U.S. $ 1 = (euro)0.9536.
VIVENDI ENVIRONNEMENT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Prepared in accordance with International Accounting Standard No. 7)
Notes At December 31,
----------------------------------------------------------
2002 2002 2001 2000
restated
($ millions) ((euro)millions)
--------------- ----------------------------------------
Cash flow from operating activities:
Net income (loss) 355.7 339.2 (2,251.2) 614.8
Adjustment to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 23 2,513.3 2,396.7 4,684.0 2,070.4
Financial provisions 23 117.8 112.3 53.7 6.0
Gains on sale on property and equipment and financial assets, net (110.7) (105.6) (144.9) (799.0)
Undistributed earnings of affiliates, net 6 (15.9) (15.2) (14.9) (30.6)
Deferred taxes (20.2) (19.3) 90.2 (6.9)
Minority interests 12 149.1 142.2 131.2 161.4
Net changes in current assets and liabilities:
Prepaid, deferrals and accruals 4 (73.9) (70.5) (92.9) (63.4)
Increase (decrease) in working capital (1) 8 (485.6) (463.1) 436.8 (314.7)
Net cash provided by operating activities 2,429.4 2,316.7 2,892.0 1,638.0
------------ ---------- ------------------------------
Cash flow from investing activities:
Purchase of property, plant and equipment 21 (2,730.1) (2,603.4) (2,878.5) (2,586.2)
Proceeds from sale of property, plant and equipment 207.7 198.1 205.8 230.7
Purchase of investments (1.054.8) (1,005.9) (1,168.8) (659.3)
Proceeds from sales of investments 1,321.2 1,259.9 349.7 1,248.7
Purchase of portfolio investments held as financial assets (130.9) (124.8) (146.6) (37.2)
Proceeds from sales of portfolio investments held as financial 328.8 313.5 42.2 17.1
assets
Disbursement on notes receivables (441.4) (420.9) (98.7) (75.0)
Principal payment on notes receivables 166.2 158.5 18.7 111.1
Net (increase) decrease in short-term loans 115.6 110.2 159.7 256.7
Sales and purchases of marketable securities 6.5 6.2 124.1 (43.3)
Net cash used in investing activities (2.211.2) (2,108.6) (3,392.4) (1,536.7)
------------ ---------- ------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
(1) The decrease in working capital excludes the deferred taxes of the period.
For the convenience of the reader, the financial statements as of and for the
year ended December 31, 2002 have been translated into U.S. Dollars at the rate
of U.S. $ 1 = (euro)0.9536.
VIVENDI ENVIRONNEMENT
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Prepared in accordance with International Accounting Standard No. 7)
Notes At December 31,
--------------------------------------------------------------
2002 2002 2001 2000
restated
($ millions) ((euro)millions)
--------------- ----------------------------------------------
Cash flow from financing activities:
Net increase (decrease) in short-term borrowings (2,130.6) (2,031.7) (3.8) 3,293.4
Proceeds from issuance of bonds and other long-term debt 4,398.2 4,194.1 4,604.4 7,517.2
Principal payment on bonds and other long-term debt (4,058.7) (3,870.4) (3,335.9) (13,376.1)
Net proceeds from issuance of common stock 1,629.7 1,554.1 411.2 2,727.9
Purchase of treasury stock (121.4) (115.8) (138.4) (44.3)
Cash dividends paid (314.6) (300.0) (299.0) (46.5)
Net cash provided by financing activities (597.4) (569.7) 1,238.5 71.6
--------------- ----------------------------------------------
Effect of foreign currency exchange rate changes on cash and cash (96.6) (92.1) (176.9) (34.3)
equivalents
Change in cash and cash equivalents (475.8) (453.7) 561.2 138.6
Cash and cash equivalents:
Beginning 2,191.0 2,089.3 1,528.1 1,389.5
Ending 1,715.2 1,635.6 2,089.3 1,528.1
Cash and cash equivalents 10 2,497.8 2,381.9
- Cash liabilities 15 782.6 746.3
--------------- ----------------
Cash and cash equivalents 1,715.2 1,635.6
The accompanying notes are an integral part of these consolidated financial
statements.
For the convenience of the reader, the financial statements as of and for the
year ended December 31, 2002 have been translated into U.S. Dollars at the rate
of U.S. $ 1 = (euro)0.9536.
VIVENDI ENVIRONNEMENT
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
((euro)millions except for share information) Number Share Additional Retained Net income Shareholders'
of Shares capital paid- in earnings equity
capital
----------------- -------------- ------------ ------------ --------------------------
Balance at December 31, 1999 (a) 218,228,507 2,946.1 (2,532.4) 306.7 (42.3) 678.1
----------------- -------------- ------------ ------------ --------------------------
Net income for the year 2000 614.8 614.8
Foreign currency translation adjustment 413.3 413.3
Dividends paid and net income appropriation (42.3) 42.3 -
Goodwill 687.0 9.8 696.8
Conversion of warrants - Capital increase 127,946,448 1,727.3 2,078.0 3,805.3
----------------- -------------- ------------ ------------ --------------------------
Balance at December 31, 2000 346,174,955 4,673.4 232.6 687.5 614.8 6,208.3
----------------- -------------- ------------ ------------ --------------------------
Net loss for the year 2001 (2,251.2) (2,251.2)
Foreign currency translation adjustment (30.5) (30.5)
Dividends paid and net income appropriation 392.2 (614.8) (222.6)
Goodwill 2,037.0 (1.0) 2,036.0
Conversion of warrants - Capital increase 817 - - -
----------------- -------------- ------------ ------------ --------------------------
Balance at December 31, 2001 346,175,772 4,673.4 2,269.6 1,048.2 (2,251.2) 5,740.0
----------------- -------------- ------------ ------------ --------------------------
Net income for the year 2002 339.2 339.2
Foreign currency translation adjustment (957.2) (957.2)
Dividends paid and net income appropriation (2,438.7) 2,251.2 (187.5)
Treasury shares (64.1) (86.9) (151.0)
Convention of warrant - Capital increase 58,894,687 795.1 736.4 1,531.5
Other 14.6 14.6
----------------- -------------- ------------ ------------ --------------------------
Balance at December 31, 2002 405,070,459 5,404.4 2,919.1 (2,333.1) 339.2 6,329.6
----------------- -------------- ------------ ------------ --------------------------
Balance at December 31, 2002 ($ millions) 5,667.4 3,061.1 (2,446.6) 355.7 6,637.6
----------------- -------------- ------------ ------------ --------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
(a) Following a 3 for 1 stock split at the beginning of the year 2000. Before
the split, the number of shares was 654,685,522.
For the convenience of the reader, the financial statements as of and for the
year ended December 31, 2002 have been translated into U.S. Dollars at the rate
of U.S. $ 1 = (euro)0.9536.
VIVENDI ENVIRONNEMENT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
1.1. Presentation of the Group
Vivendi Environnement ("VE" or the "Group") is a "societe anonyme" according to
French law, a form of stock corporation, listed on both the Paris and New York
stock exchanges.
Vivendi Environnement is an independent Group formed at the end of 1999 and is a
world-wide Group providing environmental services organized into four divisions
: water, waste management, energy services and transportation as well as an
interest in the Spanish company Fomento de Construcciones y Contratas ("FCC").
Vivendi Environnement has been listed on the Paris stock exchange since July 20,
2000 and on the New York stock exchange since October 5, 2001.
1.2. Significant Events
1.2.1. Recomposition of the capital of Vivendi Environnement
2002 was marked by the placement by Vivendi Universal of nearly 43 % of the
capital of Vivendi Environnement with a group of investors. This placement was
effected by two operations: in June and in December 2002.
In June 2002, Vivendi Universal sold 53.8 million shares of Vivendi
Environnement through a global placement underwritten by various banks. This
sale took place at the same time as a capital increase of Vivendi Environnement
subscribed by a group of declared investors for (euro)1.5 billion, with the
issue of 57.7 million new shares at a price of (euro)26.5 per share. This
capital increase was finalized in August 2002. At the end of these operations,
Vivendi Universal held 40.8% of Vivendi Environnement's capital. The group of
declared investors held 9.4% of Vivendi Environnement's capital and were
committed to holding on to the shares they acquired in the capital increase for
a period of 6 months, ending in January 2003.
During December 2002, Vivendi Universal sold 82.5 million shares of Vivendi
Environnement (representing 20.4% of VE's capital) to a second group of
institutional investors. At the same time, Vivendi Environnement purchased
3,624,844 of its own shares (representing 0.9% of its capital). Attached to each
of these shares purchased (including those shares purchased by Vivendi
Environnement) is a call option issued by Vivendi Universal to purchase 82.5
million supplementary shares of Vivendi Environnement, with an exercise price of
(euro)26.5 per share, these call options expire on December 23, 2004.
After this operation, and taking into consideration the 3,624,844 shares
purchased by Vivendi Environnement from Vivendi Universal, the participation of
Vivendi Universal has been reduced to 20.4% as of December 31, 2002, this
participation is allocated to the call options described above. This second
group of investors is committed to holding on to those shares for a period of
one year ending in December 2003.
Consequences of the capital restructuring on the relationship between Vivendi
Environnement and Vivendi Universal
Considering the evolution of the participation of Vivendi Universal in the
capital of Vivendi Environnement as of December 31, 2002, the separation of the
two groups was finalized at the end of 2002 by the signature of a protocol, the
principal terms of which are disclosed in note 22 (related party transactions).
Consequences of the capital restructuring on the relationship between Vivendi
Environnement and FCC
Prior to the restructuring of Vivendi Environnement's capital, which reduced
Vivendi Universal's participation in the capital of Vivendi Environnement and
its voting rights below 50%, Ms Esther Koplowitz accepted by an agreement signed
on June 17, 2002, not to exercise her call option on the Group's interest in
B1998 SL. These agreements are described in note 22 (related party
transactions).
1.2.2. Vivendi Environnement 1.5% bonds
On August 20, 2002, Vivendi Environnement convened a general meeting of its
Vivendi Environnement 1.5% bondholders. By a majority of 64.8% of the votes
cast, the bondholders agreed to forgo from September 1, 2002, the guarantees
given by Vivendi Universal on these bonds and the possibility of early
redemption in the event of the default of Vivendi Universal. In return, the
nominal interest rate was increased by 0.75% from 1.5% to 2.25%.
1.2.3. Southern Water
See note 25
1.2.4. Reclassification of treasury shares
After the meeting of the management board on December 11, 2002, and in
accordance with the notice from the "Comite d'Urgence du Conseil National de la
Comptabilite", 4.7 million of treasury shares have been reclassified in the
statutory accounts of Vivendi Environnement S.A. from "marketable securities" to
"other portfolio investments" and imputed as a reduction of the consolidated
shareholders' equity for an amount of (euro)151 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The consolidated financial statements of the Group have been prepared in
accordance with accounting principles generally accepted in France ("French
GAAP") and are in accordance with the provisions of the January 3, 1985 law and
its implementation rule as of February 17, 1986 and the new rules approved by
the "Comite de la Reglementation Comptable" in April 1999.
The Group applies the recommendation of the "Conseil National de la
Comptabilite" and accounts for in its consolidated financial statements, assets
financed by capital leases (known in France as "credit-bail"), pensions
obligations and other retirement costs. Vivendi Environnement uses the
preference method for the treatment of capital leases.
Vivendi Environnement applies the regulation CRC 00-06 relative to reserves
since January 1, 2001.
The financial statements of foreign subsidiaries have, when necessary, been
adjusted to comply with French GAAP. French GAAP differs in certain respects
from accounting principles generally accepted in the United States. A
description of these differences and their approximate effects on net income and
shareholders' equity is set forth in Note 27. The financial statements have been
formatted in the original French GAAP financial statements presentation and
where necessary have been modified to include certain additional disclosures in
order to conform more closely with the content of financial statements required
by the generally accepted accounting principles in the United States ("U.S.
GAAP").
Change of presentation and accounting principles
In 2002, the Group did not change presentation or its accounting principles.
In 2001 Vivendi Environnement has modified the presentation of its consolidated
statement of income. It is now a statement of income by function. This
presentation is in line with the French and international practices. This new
presentation mainly consists of the reclassification of exceptional income. In
order to allow a consistent comparison the restated historical years are also
disclosed.
Until the end of 1999, and in accordance with French GAAP, for acquisitions
which were completed through the issuance of capital, the portion of goodwill
attributable to such proceeds could be charged to shareholders' equity, up to
the amount of the related share premium.
Vivendi Environnement has been listed on the New-York Stock Exchange since
October 5, 2001. Vivendi Environnement files with the SEC an annual report on
Form 20-F which includes a reconciliation with U.S. GAAP of equity and net
income as reported in the French accounts. One of the adjustments is the
reclassification of the goodwill recorded under French GAAP as a reduction of
shareholders' equity to the assets under U.S. GAAP.
Consequently, Vivendi Environnement has none longer recorded goodwill as a
reduction of shareholders' equity since 2001.
Convenience Translations
The consolidated balance sheet and consolidated statements of income and cash
flows include amounts as of and for the year ended December 31, 2002 denominated
in millions of U.S. dollars. These amounts are presented as permitted
convenience translations under Rule 3-20 of Regulation S-X of the U.S.
Securities Exchange Commission and have been prepared using an exchange rate of
U.S.$1 to (euro)0.9536, which was the exchange rate as of December 31, 2002.
Convenience translations are presented solely for the convenience of the reader
of these financial statements and should not be construed as representations
that the local currency has been, could have been, or could in the future be
converted into U.S. dollars at this or any other rate of exchange.
Principles of Consolidation
All companies over which the Group has legal or effective control are
consolidated.
The Group uses the equity method of accounting for its investments in certain
affiliates in which it owns less than 20% of the voting shares. In these
situations, the Group exercises significant influence over the operating and
financial decisions of the affiliate either (a) through the disproportionate
representation on the affiliate's board of directors, e.g., the percentage of
directors appointed to the board by the Group is greater than the percentage of
its shareholding interest and those directors allow the Group to exercise
significant influence, and (b) because there is no shareholder with a majority
voting ownership in the affiliate, which is a consideration under French
accounting principles in determining whether significant influence exists, or
(c) because the Group exercises substantive participating rights through
shareholder agreements that allow the Group to veto or block decisions taken by
the board of the affiliate in question. Significant investments in which the
Group has 20% to 50% ownership or otherwise exercises significant influence are
accounted for under the equity method.
The proportionate method of consolidation is used for investments in jointly
controlled companies, where the Group and other shareholders have agreed to
exercise joint control over significant financial and operations policies. For
such entities, the Group records its proportionate interest in the balance sheet
and income statement accounts.
All other investments in affiliates that are not consolidated are accounted for
at cost.
Subsidiaries acquired are included in the consolidated financial statements as
of the acquisition date. All material intercompany transactions have been
eliminated. In the case of proportionally consolidated companies, intercompany
transactions are eliminated on the basis of the Group's interest in the company
involved.
Use of Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and the disclosures of contingent assets and liabilities.
Actual results could differ significantly from these estimates. Significant
estimates made by management in the preparation of these financial statements
include amounts for pension liabilities, deferred taxes, valuation estimates for
long-lived assets, reserves as well as recorded and disclosed amounts for
certain financial instruments.
Translation of Foreign Subsidiaries' Financial Statements
Balance sheets, statements of income and cash flows of subsidiaries whose
functional currency is different from that of the Group are translated into the
reporting currency at the applicable exchange rate (i.e., the closing year-end
rate for balance sheets, or the average annual rate for income and cash flow
statements). Translation gains and losses are recorded in retained earnings.
The exchange rates of the significant currencies of non-euro countries used in
the preparation of the consolidated financial statements were as follows :
Year-End Closing Exchange Rates 2002 2001 2000
(one currency = xx(euro))
------------------------------------------------ ---------- ---------- -------------
U.S. dollar 0.9536 1.1357 1.0747
Pound sterling 1.5373 1.6030 1.6023
Average Annual Exchange Rates 2002 2001 2000
(one currency = xx(euro))
------------------------------------------------ ---------- ---------- -------------
U.S. dollar 1.0545 1.1148 1.0827
Pound sterling 1.5889 1.6058 1.6407
The balance sheets, income and cash flow statements of subsidiaries operating in
highly inflationary economies are re-measured (according to the historical
method) into a functional currency. The functional currency is defined as the
currency used in the dominant country of the economic area to which the
subsidiaries belong. Related translation effects are included in net income.
These financial statements are then translated from the functional currency into
the reporting currency on the basis of the year-end or average annual exchange
rate and the translation adjustments are recorded in retained earnings.
Revenue Recognition
Revenues are recorded when title passes to the customer or when services are
rendered and measured in accordance with contracts; title is considered to have
passed to the customer when goods are shipped.
Revenue resulting from government subsidies associated with long-term operating
agreements is recorded ratably over the year.
Revenue relating to specific activities are discussed in applicable sections of
these footnotes.
Other income and expenses
This item includes income or expenses resulting from exceptional operations or
events that are not part of the ordinary operations of Vivendi Environnement.
They primarily include capital gains and losses on sales of subsidiaries and
affiliates.
Goodwill and Business Combinations
All business combinations are accounted using the purchase accounting method.
Under the purchase accounting method, assets acquired and liabilities assumed
are recorded at their fair value. The excess of the purchase price over the fair
value of net assets acquired, if any, is capitalized as goodwill and amortized
over the estimated period of benefit on a straight-line basis. Amortization
periods for goodwill range from 20 to 40 years.
Other Intangible Assets
Start-up costs relating to the implementation of new activities, including
pre-operating costs, are amortized over their estimated useful life.
Other intangible assets include costs incurred to obtain contracts, such as fees
paid to local authorities for public services contracts. Fees paid to local
authorities are amortized over the duration of the contract, which can be up to
30 years.
Market share and trademarks are not amortized.
Business assets acquired, such as customers lists and operating rights, are
amortized over their estimated useful life.
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the following
useful life:
Estimated useful lives
in years
----------------------
Buildings....................................... 20 to 50
Technical systems............................... 7 to 12
Transport equipment............................. 3 to 25
Other equipment and machinery................... 3 to 12
Assets financed by leasing contracts that include a purchase option (known in
France as "credit-bail") are capitalized and amortized over the shorter of the
lease term or the estimated useful lives of the assets. Amortization expense on
assets acquired under such leases is included with depreciation and amortization
expense. Interest expense incurred as a result of expenditures for a fixed asset
during the period necessary for its intended use is capitalized as part of the
historical cost of fixed assets.
Valuation of Long-lived Assets
Long-lived assets, including goodwill and the other intangible assets, are
regularly re-evaluated according to circumstances, either internal or external,
which could lead to depreciation. If this is the case, an exceptional
amortization or valuation allowance is recorded on the basis of the asset's fair
value.
Financial Assets
Investments Accounted for Using the Cost Method
Investments in unconsolidated affiliates are carried at cost. Any negative
difference between carrying value and fair value that is determined to be
other than temporary is reserved.
Portfolio Investments Held as Financial Assets
Portfolio and other investments include unlisted and listed equity securities
of unconsolidated subsidiaries and long-term loans that are recorded at cost.
When fair value is less than cost and is determined to be other than
temporary, a valuation allowance is provided. Estimated fair value is
determined on the basis of the Group's share of the equity of the companies
concerned adjusted to market value in case of listed securities or pursuant
to other applicable procedures.
Bonds and Debentures
Issue costs, as well as discounts and premiums on convertible debt are
amortized over the life of the debt.
Inventories and Work-in-progress
Group companies value inventories according to the provisions of the French
Commercial Code, either on a first-in-first-out or a weighted average cost
basis. Inventories are stated at the lower of cost or net realizable value.
Deferred Taxes
Deferred tax assets are recognized for deductible temporary differences, net tax
operating loss carry forwards and tax credit carry forwards. Deferred tax
liabilities, including those relating to tax loss carry-forwards, are recognized
for taxable temporary differences. Deferred tax assets are recorded at their
estimated net realizable value. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the enactment date.
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalents include all cash balances and short-term highly liquid
investments with original maturities of three months or less at the time of
purchase and are stated at cost which approximates their fair value.
Marketable securities including treasury shares and other highly liquid
investments. Treasury shares are classified as marketable securities when they
are acquired to stabilize the market price of the Group's shares or in
connection with stock options granted to directors and employees. Treasury
shares held for other reasons are recorded as an offset to shareholders' equity.
Marketable securities are carried at cost, and a valuation allowance is provided
if the fair value is less than the carrying value.
Pension Plans
The Group has several pension plans that cover substantially all employees.
Pension obligations are calculated using the projected unit credit method. This
method considers the probability of personnel remaining with companies in the
Group until retirement, the foreseeable changes in future compensation, and the
appropriate discount rate for each country in which the Group maintains a
pension plan. This results in the recognition of pension-related assets or
liabilities, and the recognition of the related net expenses over the estimated
term of service of the employees.
Employees in France and most other European countries are eligible, for
severance pay pursuant to applicable law immediately upon termination. The Group
provides reserves for such employee termination liabilities using the projected
unit credit method.
Stock Based Compensation
The Group has adopted stock option incentive plans that grant options on its
common shares to certain directors and officers. The purpose of these stock
option plans is to align the interest of management with the interest of
shareholders by providing certain officers and other key employees with
additional incentives to increase the Group's performance on a long-term basis.
Shareholders' equity is credited for the cumulative strike price to reflect the
issuance of shares upon the exercise of options.
Treasury shares held to cover commitments relating to stock purchase options are
shown under marketable securities at the lower of cost and fair market value.
The Group accounts for any capital gains or losses in the year in which shares
are sold under the plan.
Derivative Financial Instruments
The Group manages certain of its financial risks by using derivative financial
instruments that qualify as hedges.
The Group primarily uses interest rate swaps and caps to manage interest rate
risks relating to its borrowing requirements. The goal of these swaps is,
depending on the circumstances involved, to modify from fixed to floating rates
and from floating to fixed as well as to modify the underlying index on floating
rate debt. The goal of the interest caps is to limit the upside risk relating to
floating rate debt. Interest rate swaps that modify borrowings or designated
assets are accounted for on an accrual basis. Premiums paid for interest rate
caps are expensed as incurred.
The Group uses currency swaps and forward exchange contracts to manage its
foreign currency risk. Forward exchange contracts are used to hedge firm and
anticipated transactions relating to assets denominated in foreign currencies.
Currency rate swaps are used to modify the interest rate and currency of foreign
denominated debt. Gains and losses arising from the change in the fair value of
currency instruments that qualify for hedge accounting treatment are deferred
until related gains or losses on hedged items are realized.
Any financial instrument that does not qualify as a hedge for financial
reporting purposes is recorded at the lower of cost or fair value in other
current assets or liabilities.
Foreign Currency Transactions
Foreign currency transactions are converted into euros at the exchange rate in
effect on the transaction date. At year-end, receivables and payables
denominated in foreign currencies are remeasured into euros at year-end exchange
rates. The resulting exchange losses and gains are recorded in the current
earnings period.
Exchange losses on borrowings denominated in foreign currencies that qualify as
hedges of net investments in foreign subsidiaries are included as translation
adjustments in retained earnings.
Research and Development
The Group's research and development costs are expensed as incurred.
Earnings Per Share
Basic earnings per share calculations are based, according to "Avis n(degree) 27
de l'Ordre des Experts Comptables", on the Group's net income after taxes
divided by the weighted average number of common shares outstanding.
Dilutive earnings per share reflect the potential dilution that would occur if
all securities and other contracts to issue ordinary shares were exercise or
converted. For its calculation weighted average number of common shares
outstanding includes shares issuable on exercise of dilutive options.
At December 31, 2002, potential dilutive securities or other contracts to issue
ordinary shares are warrants issued in December 2001 and stock-options.
Accounting Policies Specific to the Environmental Services Activities
Public Services Contracts
The Group holds public service contracts relating to its operations in water
distribution and treatment, district heating networks, urban transportation
and waste collection and treatment. Under the French legal system, there are
three primary types of public service contracts: "affermage" (or public
service management) contracts, where the operator is granted the obligation
to manage and maintain facilities owned and financed by local authorities,
"concession," facility management contracts which are similar to "BOT"
(build-operate-transfer) agreements and contracts presenting mixed
characteristics of affermage and concession contracts.
Revenue is recognized on these contracts when services are rendered in
accordance with the terms of the contracts. On an exceptional basis, the
Group may also operate management contracts in which it manages a public
service for a fixed fee as well as an incentive which is calculated in
relation to the performance of the contract. For these contracts, the Group
recognizes billing to customers as revenue and all related costs as operating
expenses.
In France, the Group's public service contracts are primarily affermage
contracts.
Facilities
Facilities operated by the Group are generally financed by local authorities
and remain theirs throughout the contract period. Individual facilities
financed by the Group as a consequence of specific contractual terms are
recorded as fixed assets and depreciated to their estimated residual value,
if any, on the shorter of their economic useful lives or the contract's term.
Wherever the contract's term is shorter than the economic useful life of the
asset, such depreciation is classified as a liability as a financial
depreciation.
Fees Paid to Local Authorities
The Group does not have any obligation for compensation payments to local
authorities during the contract period, except for fees that have been agreed
upon by both parties and formally defined by the contract.
The Group's policy is to expense ratably fees that are paid to local
authorities when these fees are paid annually and to amortize these costs on
a straight-line basis over the life of the contract when the fees consist of
payments at the beginning of the contract.
Commitments to Maintain and Repair Assets
The Group generally assumes a contractual obligation to maintain and repair
facilities managed through public service contracts. Corresponding repair and
maintenance costs are expensed as incurred, except for some investments in
joint ventures where costs are accrued in advance.
Planned Maintenance Projects
The Group's policy is to expense costs relating to planned maintenance
projects as they are incurred.
Landfill Capitalization and Depletion
Landfill sites are carried at cost and amortized ratably using the units of
production method over the estimated useful life of the site as the airspace
of the landfill is consumed. Landfill costs include capitalized engineering
and other professional fees paid to third parties incurred to obtain a
disposal facility permit. When the Group determines that the facility cannot
be developed or the likelihood of grant of the permit cannot be determined
before its final authorization, as it is the case in France and the United
Kingdom, these costs are expensed as incurred.
Landfill Closure and Post-closure Costs
The Group has financial obligations relating to closure and post-closure
costs and the remediation of disposal facilities it operates or for which it
is otherwise responsible.
The Group accrues a reserve for the estimated future costs pro rata over the
estimated useful life of the sites.
Construction
To calculate their margin, construction companies record revenue according to
the percentage of completion method. This method is applied to contracts with
a duration of six months or more; for contracts with a duration of less than
six months, the completed contracts method is used.
3. GOODWILL AND BUSINESS COMBINATIONS
Goodwill by segment is detailed as follows:
At At At December 31, 2002
December December
31, 2000 31, 2001
---------------------------------------------------------------------
((euro)millions) Net Net Change Foreign Amoztization Other Nets
in scope exchange (3) movements
(1) translation
(2)
------------------------------------------------------------------------------------------------------
Water 4,505.4 3,769.3 (14.7) (351.9) (133.9) 22.3 3,291.1
Waste Management 1,387.7 1,445.6 40.9 (140.2) (62.2) 1.6 1,285.7
Energy Services 483.0 702.7 31.6 (0.9) (35.0) 5.7 704.1
Transportation 66.6 157.1 54.5 1.8 (15.8) 11.5 209.1
FCC 613.8 721.1 22.2 - (80.3) (0.2) 662.8
------------------------------------------------------------------------------------------------------
Total 7,056.5 6,795.8 134.5 (491.2) (327.2) 40.9 6,152.8
======================================================================================================
(1) The changes in scope are mainly related to acquisitions of the companies
holding the Pudong contract for (euro)182 million and the Rabat contract in
Morocco for (euro)110 million and the sale of certain non-strategic
activities of USFilter for (euro)(465) million. Other acquisitions have
small individual amounts of less than (euro)30 million.
(2) Foreign exchange translation adjustment are mainly the result of the
depreciation of the US dollar against the euro.
(3) Total goodwill amortization expense for the years ended December 31, 2002,
2001 and 2000 were(euro)(327.2) million, (euro)(2,910.1) million
and(euro)(306.3) million respectively.
The following is a summary of the most significant acquisitions during the
periods presented in the accompanying financial statements.
FCC
In October 1998, Vivendi Universal acquired for cash 49% and obtained joint
control of a Spanish holding company whose only asset is a 57% ownership
interest in FCC, a publicly listed company in Spain active in the environmental
services sector. Vivendi Universal sold to the Group its interest in the holding
company for (euro)691 million. The holding company, which fully consolidates
FCC, is reflected in the Group's financial statements using the proportionate
consolidation method. The details of the Group's acquisition are as follows (in
millions of euros):
Fair value of net tangible and intangible assets acquired....... 212
Purchase price.................................................. 691
-------
Goodwill recorded on acquisition ............................... 479
-------
Goodwill net at December 31, 2002............................... 417
Goodwill recorded from this transaction is being amortized over 20
years.
USFilter Corporation
In April 1999, Vivendi Universal acquired for cash 100% of the outstanding
shares of United States Filter Corporation, a U.S. based water treatment and
equipment manufacturing company. The transaction was accounted for as a
purchase. The details of the acquisition are as follows (in millions of euros):
Fair value of net tangible and intangible assets acquired..... 459
Purchase price................................................ 5,801
----------
Goodwill recorded on acquisition.............................. 5,342
----------
Goodwill net at December 31, 2002............................. 1,711
Goodwill recorded from this transaction is being amortized over 40
years.
Goodwill amortization in 2001 included a write-off of goodwill of (euro)2,611
million, related to activities of US Filter. The management determined that the
goodwill was impaired, and goodwill was written down based upon an estimate of
discounted future cash flow. The analysis was based on a projection over 10
years with a terminal value and with a discount rate of 7% for the goodwill. The
management revised the estimated cash flows as a result of the evolution of the
US economic situation.
In 2002, the Group actualized the projection of US Filter over 10 years, with a
terminal value and utilized a discount rate of 6% which takes into account the
reduction in the US risk-free rate. As a result of commercial gains and business
development in 2002, and its perspectives for 2003 and despite the US economic
situation in 2002, the valuation has not put into question the long term growth
prospects of US Filter. The carrying value of the goodwill of US Filter has been
justified as of December 31, 2002.
Onyx Waste Services (previously Superior Services)
In June 1999, Vivendi Environnement acquired for cash 100% of the outstanding
shares of Superior Services, a U.S. based waste management company. The
transaction was accounted for as a purchase. The details of the acquisition are
as follows (in millions of euros):
Fair value of net tangible and intangible assets acquired....... 168
Purchase price.................................................. 932
-----
Goodwill recorded on acquisition................................ 764
-----
Goodwill net at December 31, 2002............................... 632
Goodwill recorded from this transaction is being amortized over 40
years.
4. OTHER INTANGIBLE ASSETS
The evolution of net intangible assets as follows:
((euro)millions) 2000 2001 Additions Utilization Change in Foreign Other 2002
scope exchange movements
translation
---------- -------- ------------- ------------- ----------- -------------- ------------ ---------
Fees paid to local 517.1 567.6 43.9 (41.7) 3.0 (14.8) 10.5 568.5
authorities (1)
Trademarks, market share 2,619.6 2,922.6 28.3 (29.1) (183.1) (439.3) (15.9) 2,283.5
and business assets
acquired(2)
Software 59.5 69.4 38.0 (42.4) 4.7 (0.5) 21.7 90.9
Prepaid expenses (3) 423.8 469.9 70.5 (54.7) 6.6 (7.3) (44.2) 440.8
Other intangible assets 603.4 447.5 150.1 (46.3) (0.5) (27.2) (2.4) 521.2
---------- -------- ------------- ------------- ----------- -------------- ------------ ---------
Total 4,223.4 4,477.0 330.8 (214.2) (169.3) (489.1) (30.3) 3,904.9
========== ======== ============= ============= =========== ============== ============ =========
(1) Fees paid to local authorities relating to public service contracts, which
are primarily located in France, amounted to (euro)568,5 million in 2002,
compared with (euro)567.6 million in 2001 and (euro)517.1 million in 2000.
These are amortized over the term of the contracts to which they relate.
(2) Trademarks, market share and business assets amounted to (euro)2,283.5
million in 2002, compared to (euro)2,922.6 million in 2001, and
(euro)2,619.6 million in 2000. These assets include the allocation to
trademarks of part of the purchase price of USFilter for (euro)1,919
million (these assets have been the object of a review by an independent
expert who has confirmed their value), and the waste treatment operating
rights of Onyx Waste Services for (euro)77.8 million. The carrying value
of trademarks, market share and business assets are reviewed every year on
the same basis of criteria used to assess their initial value, such as the
position of the market, net sales and gross operating surplus or deficit.
If the review indicates an other than temporary reduction in value, a
valuation allowance is recorded.
The changes in scope of consolidation are principally due to US Filter
trademarks for (euro)(185.6) million as a result of the sale of Filtration
and Separation.
(3) Prepaid expenses include expenses of (euro)440.8 million, (euro)469.9
million and (euro)423.8 million, as of December 31, 2002, 2001 and 2000,
respectively, to be allocated over several financial years, mainly
relating to the difference between the contractual amounts of debt
servicing payments made to local authorities and the expense charged to
income over the contract period. Certain subsidiaries of the Group may be
obligated to assume responsibility for the repayment of the debt entered
into by local authorities relating to the utility network they manage. The
annual payments generally decrease each year and extend over a period
shorter than the contract period. This difference between the amounts paid
to the local authorities and the expense charged to income is recorded as
a prepaid expense on the balance sheet.
Total amortization expense for other intangible assets for the years ended
December 31, 2002, 2001 and 2000 was (euro)214.2 million, (euro)184.2
million and (euro)182.5 million, respectively. Accumulated amortization
amounted to (euro)874.5 million, (euro)774.9 million and (euro)609.8
million, as of December 31, 2002, 2001 and 2000, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Evolution of property, plant and equipment :
December 31,
----------------------------------------------------------------------------------------------------
Additions and
amortizations
charged to
2000 2001 Change in operating Utilizations Other 2002
((euro)millions) scope income movements
------------- ------------- ----------- ---------------- -------------- -------------- -------------
Property, plant and equipment 14,275.8 16,843.4 282.0 1,738.8 (677.5) (507.5) 17,679.2
Publicly-owned utility 5,619.2 73.7 382.8 (103.9) (45.7) 6,463.6
networks 6,156.7
------------- ------------- ----------- ---------------- -------------- -------------- -------------
Total gross book value 19,895.0 23,000.1 355.7 2,121.6 (781.4) (553.2) 24,142.8
============= ============= =========== ================ ============== ============== =============
Property, plant and equipment (5,756.4) (6,898.0) 66.2 (1,342.2) 521.0 51.5 (7,601.5)
Publicly-owned utility (1,755.8) (0.3) (152.7) 36.1 27.2 (2,000.5)
networks (1,910.8)
------------- ------------- ----------- ---------------- -------------- -------------- -------------
Depreciation (7,512.2) (8,808.8) 65.9 (1,494.9) 557.1 78.7 (9,602.0)
------------- ------------- ----------- ---------------- -------------- -------------- -------------
Total net book value 12,382.8 14,191.3 421.6 626.7 (224.3) (474.5) 14,540.8
============= ============= =========== ================ ============== ============== =============
Publicly-owned utility networks are assets financed by the Group as part of
their management of public service contracts, and will be returned to the local
authority at the end of the contract.
Changes in scope are mainly related to, in the water segment, the entry of
Pudong for (euro)123.2 million and Redal for (euro)82.2 million and to the sale
of Schwarze Pumpe for (euro)(84) million, in the energy services segment, the
entry of Vilnius for (euro)65.5 million and Poznan for (euro)48.7 million and in
the transportation segment the entry of the Verney Group for (euro)32.7 million.
Additions and amortizations charged to operating income mainly come from Water
(euro)(310.8) million, Waste Management (euro)(202.2) million and FCC
(euro)(129.7) million.
Utilizations come from water segment for (euro)(47.9) million, Waste Management
for (euro)(39.9) million, Energy Services for (euro)(77.9) million and
transportation for (euro)(53.2) million.
Other movements include the effects of foreign currency translation adjustments
and final allocations.
Property, plant and equipment by segment are detailed as follows:
At December 31,
--------------------------------------------------------------------------------------------------------
((euro)millions) 2002 2001 2000
---------------------------------------------------------------------- --------------- -----------------
Property, Publicly-owned Accumulated Net tangible Net tangible Net tangible
Plant and utility depreciation/ assets assets assets
equipment networks amortization
--------------- ----------------- ---------------- -------------- --------------- -----------------
Water 5,455.8 5,272.2 (3,738.6) 6,989.4 7,130.2 6,457.8
Waste Management 5,987.9 40.0 (2,769.0) 3,258.9 3,304.1 2,734.6
Energy Services 2,502.7 737.2 (1,237.0) 2,002.9 1,724.5 1,503.1
Transportation 2,347.2 264.3 (1,167.8) 1,443.7 1,321.9 1,092.7
FCC 1,385.6 149.9 (689.6) 845.9 710.6 594.6
--------------- ----------------- ---------------- -------------- --------------- -----------------
Total 17,679.2 6,463.6 (9,602.0) 14,540.8 14,191.3 12,382.8
=============== ================= ================ ============== =============== =================
The detail of net property, plant and equipment is as follows :
At December 31,
---------------------------------------------
((euro)millions) 2002 2001 2000
-------------- ------------- -------------
Land 1,416.7 1,210.8 1,061.5
Buildings 1,663.3 1,686.2 1,333.4
Technical systems 5,040.7 5,052.1 3,770.0
Assets under construction 647.3 562.0 471.2
Other 1,579.7 1,434.0 1,883.2
-------------- ------------- -------------
Property, plant and equipment 10,077.7 9,945.1 8,519.3
-------------- ------------- -------------
Publicly owned utility networks 4,463.1 4,246.2 3,863.5
-------------- ------------- -------------
Total 14,540.8 14,191.3 12,382.8
============== ============= =============
Depreciation expense for the years ended December 31, 2002, 2001 and 2000
was(euro)1,485.1 million,(euro)1,322.8 million and (euro)1,186.4 million,
respectively.
Total depreciation for the years ended December 31, 2002, 2001 and 2000 was
(euro)9,602.0 million, (euro)8,808.8 million and (euro)7,512.2 million,
respectively.
Tangible assets financed under capital lease are detailed as follows :
((euro)millions) Gross value Accumulated Net value
amortization
--------------- ---------------- --------------
Land 22.8 (1.5) 21.3
Buildings 302.9 (129.1) 173.8
Technical systems 701.1 (287.1) 414.0
Other 348.8 (146.5) 202.3
--------------- --------------- --------------
Property, plant and equipment 1,375.6 (564.2) 811.4
--------------- --------------- --------------
Publicly owned utility networks 268.0 (77.1) 190.9
--------------- --------------- --------------
Total 2002 1,643.6 (641,3) 1,002.3
=============== =============== ==============
Total 2001 1,039.3 (388.6) 650.7
=============== =============== ==============
Total 2000 784.0 (342.7) 441.3
=============== =============== ==============
6. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
At December 31,
------------------------------------------------------------------------------------------
Interest Proportionate share of equity Proportionate share of net
income
----------------------------- ------------------------------ -----------------------------
((euro)millions) 2002 2001 2000 2002 2001 2000 2002 2001 2000
-------- ------ ------- ------ ------ ------ ------ ------ ------
Realia (1) 24.10% 24.10% 23.31% 75.6 74.4 89.8 13.3 18.2 15.0
Philadelphia Suburban (2) - 16.88% 17.02% - 104.0 73.1 - 11.6 10.5
Domino 30.00% 30.00% 30.00% 28.2 54.3 57.4 (0.5) 6.7 8.4
South Staffordshire (2) - 31.74% 31.74% - 59.6 54.3 9.2 9.9 10.6
Grubar Hoteles 19.70% 18.31% 18.31% 46.0 43.2 38.3 (2.1) (0.2) 0.7
Bristol Water (2) - 24.14% 24.14% - 37.6 35.6 - 3.8 1.3
Midkent - - 23.75% - - 28.9 - - 4.3
Intan Utilities Berhad 30.00% 30.00% 30.00% 10.7 12.0 11.0 0.8 (10.7) 1.4
Acque Potabili 14.36% 14.36% 20.52% 13.4 13.6 9.6 (0.1) - -
Venditelecom - 17.23% 12.23% - - 7.6 - - -
Egyptian company for prestressed - 30.00% 30.00% - 5.6 6.7 - 1.2 2.2
concrete
Fovarosi Csatomazasi Muvek 25.00% 25.03% - 95.4 89.8 - 0.5 1.8 -
Resvenytarasag
Eaux du Centre et du Rhone 34.97% 34.97% 34.97% 5.6 5.3 5.8 0.2 - 0.4
Tiru 24.00% 24.00% 24.00% 6.4 4.6 2.9 2.7 2.2 0.8
Technoborgo 49.00% - - 6.6 - - (0.1) - -
Other (per unit <(euro)5 million) - - - 160.1 114.0 102.4 15.1 3.3 5.0
------ ------ ------ ------ ------ ------
Total 448.0 618.0 523.4 39.0 47.8 60.6
====== ====== ====== ====== ====== ======
(1) Realia (a subsidiary of FCC and Caja Madrid) has purchased the real estate
assets of FCC Immobilaria SA in 2000.
(2) Shares sold in 2002.
The December 31, 2002 quoted market price for these investments is as follows :
Acque Potabili : (euro)22.2 million.
The evolution in 2002 of equity investments is as follows :
Change Distribution Foreign
2002 in Net of exchange
((euro)millions) Interest 2001 scope income dividends translation 2002
------------ ----------- ------------ ----------- --------------- ------------- -----------
Realia 24.10% 74,4 (3.3) 13.3 (8.8) - 75.6
Philadelphia Suburban - 104,0 (104.0) - - - -
Domino 30.00% 54,3 (2.7) (0.5) - (22.9) 28.2
South Staffordshire Water - 59,6 (61.2) 9.2 (5.0) (2.6) -
Grubar Hoteles 19.70% 43,2 4.9 (2.1) - - 46.0
Bristol Water - 37,6 (36.1) - - (1.5) -
Intan Utilities Berhad 30.00% 12,0 (0.1) 0.8 (0.5) (1.5) 10.7
Acque Potabili 14.36% 13,6 - (0.1) (0.1) - 13.4
Egyptian company for prestressed
concrete - 5,6 (5.6) - - - -
Fovarosi Csatomazasi Muvek
Reszvenytarsasag 25.00% 89,8 (0.7) 0.5 - 5.8 95.4
Eaux du Centre et du Rhone 34.97% 5.3 0.1 0.2 - - 5.6
Tiru 24.00% 4.6 (0.9) 2.7 - - 6.4
Technoborgo 49.00% - 6.7 (0.1) - - 6.6
Other 114.0 48.6 15.1 (9.4) (8.2) 160.1
----------- ------------ ----------- --------------- ------------- -----------
Total 618.0 (154.3) 39.0 (23.8) (30.9) 448.0
=========== ============ =========== =============== ============= ===========
Dividends received from equity affiliates amount to (euro)23.8 million in 2002,
(euro)32.9 million in 2001 and (euro)30.1 million in 2000.
Summarized financial information for the major equity method investees is as
follows:
((euro)millions) At December 31,
Balance sheet data 2002 2001 2000
------------------ ----------------- ------------------
Long term assets 1,865.6 2,470.6 2,553.2
Current assets 878.9 474.8 854.5
------------------ ----------------- ------------------
Total assets 2,744.5 2,945.4 3,407.7
Shareholders' equity 1,126.2 1,033.4 1,256.2
Minority interests 176.8 33.2 92.3
Financial debt 905.1 740.6 989.4
Other liabilities and reserves 536.4 1,138.2 1,069.8
------------------ ----------------- ------------------
Total liabilities and shareholders' equity 2,744.5 2,945.4 3,407.7
================== ================= ==================
Income statement data
Net revenue 523.7 938.5 1,087.2
Operating income 104.4 291.9 213.3
Net income (loss) 65.7 138.7 158.5
7. FINANCIAL ASSETS AND FINANCIAL PROVISIONS
Investments accounted for using the cost method
Investments accounted for using the cost method are detailed as follows :
At December 31,
------------------------------------------------------------------------------
((euro)millions) 2002 2001 2000
---------------- -------------
Interest Gross Allowance(4) Net Net Net
---------------------------------------------- ---------------- -------------
Alazor Inversiones SA 15.75% 10.9 - 10.9 - -
Stadtwerke Weis Wasser Gmbh (1) 74.90% 29.8 - 29.8 - -
Fovarosi Csatomazasi Muvek Resvenytarsasag(2) 25.00% - - - - 76.2
Rhodia Eco Services (3) 50.00% - - - - 11.7
Other (Per unit <(euro)10 million in 2002) 285.4 (48.1) 237.3 245.8 156.2
----------------------------------- ----------- --------------- --------------
Total 326.1 (48.1) 278.0 245.8 244.1
=================================== =========== =============== ==============
(1) Acquired on December 30, 2002 and consolidated in 2003.
(2) Accounted for under equity method since 2001.
(3) This company, which is jointly owned by Rhodia, was set up towards the end
of 2000 and is consolidated under proportionate method since January 1,
2001.
(4) Allowances expenses amount to(euro)(8.4) million in 2002.
Other portfolio investments held as financial assets can be analyzed as
follows :
((euro)millions) At December 31,
-----------------------------------------------------------
2002 2001 2000
------------------ ----------------- ------------------
Long-term loans (1) 521.2 349.5 284.6
Other (2) 783.4 739.2 662.9
Depreciation (3) (61.1) (15.9) (15.5)
------------------ ----------------- ------------------
Net value 1,243.5 1,072.8 932.0
================== ================= ==================
(1) Of which mainly (euro)110 million related to long-term loans pertaining to
the participation of Vivendi Water in Berlin and (euro)84 million related
to the re-evaluation of long-term hedging instruments. Other loans are
under (euro)60 million. Net long term loans amounted to (euro)512.4 million
at December 31, 2002.
(2) Of which (euro)138.5 million in assets in connection with pension
liabilities in the U.K, (euro)60.4 million corresponding to the net amount
of the redemption premium of our convertible bonds, (euro)72.0 million
corresponding to subordinated borrowings assumed by Vivendi Environnement
as part its securitization of accounts receivable (see note 8), (euro)94.7
million corresponding to the balancing cash adjustment of Vivendi Universal
/Vivendi Environnement swap and (euro)57.0 million in the U.S. activities
related to consumer financing. Net other financial assets amounted to
(euro)731.1 million at December 31, 2002.
(3) Net depreciation expense amount to(euro)(79.7) million in 2002.
8. WORKING CAPITAL
Net working capital is detailed as follows :
((euro)millions) At Variation of Foreign At
December working Change in exchange Other December
31, 2001 capital scope translation movements 31, 2002
-------------------------------------------------------------------------------------------------------------
Inventories and work in progress 1,543.7 (57.4) (191.2) (78.9) (41.7) 1,174.5
Accounts receivable 12,066.0 (539.1) 83.7 (397.6) (67.2) 11,145.8
Accounts payable 12,939.3 (1,173.8) 181.4 (259.1) (80.1) 11,607.7
-------------------------------------------------------------------------------------------------------------
Working capital net 670.4 577.3 (288.9) (217.4) (28.8) 712.6
-------------------------------------------------------------------------------------------------------------
USF securitization (181.0)*
Variation of differed taxes 66.8
-------------------------------------------------------------------------------------------------------------
Working capital net 463.1
-------------------------------------------------------------------------------------------------------------
* This amount is reported in the consolidated statement of cash-flows as a
reduction of the proceeds from sales of financial assets (USF Distribution
Division).
Inventories and work in progress
The breakdown by segment is as follows :
((euro)millions) At December 31,
-----------------------------------------------------------
2002 2001 2000
------------------ ----------------- ------------------
Water (1) 660.0 1,088.4 981.2
Waste Management 101.8 112.2 119.1
Energy Services 229.3 233.2 282.9
Transportation 44.2 31.2 27.5
FCC 209.0 175.7 167.3
------------------ ----------------- ------------------
Total 1,244.3 1,640.7 1,578.0
Less valuation allowance (2) (69.8) (97.0) (94.6)
------------------ ----------------- ------------------
Net value 1,174.5 1,543.7 1,483.4
================== ================= ==================
(1) In 2002, the decrease in the water sector is related to sales ((euro)(246)
million of which (euro)(150) million for USFilter and (euro)(34) million
for Bonna Sabla) and to the effects of foreign currency translation
adjustments ((euro)(79) million).
(2) Allowance expenses for 2002 are(euro)(8.5) million.
Accounts receivable
Accounts receivable are detailed as follows:
((euro)millions) At December 31,
-----------------------------------------------------------
2002 2001 2000
------------------ ----------------- ------------------
Trade accounts receivable 9,271.2 8,623.0 9,041.1
Valuation allowance (484.6) (472.7) (435.8)
Total trade accounts receivable 8,786.6 8,150.3 8,605.3
VAT and other accounts receivable 1,347.4 2,904.7 1,257.3
Other including deferred tax 1,011.8 1,011.0 865.3
------------------ ----------------- ------------------
Total accounts receivable, net 11,145.8 12,066.0 10,727.9
================== ================= ==================
The majority of trade receivables are due in less than one year.
Securitization in France
In the extension of the previous agreement, a new 5-year securitization
agreement has been signed in June 2002 with a SPE (Special Purpose Entity), the
Group securitized through its water segment accounts receivable for a total
amount of (euro)416 million net of discount ((euro)752 million at December 31,
2001). The securitized receivables are the assets of the SPE. The SPE is
financed by senior borrowings assumed by banks and by retained interests of
(euro)72 million assumed by Vivendi Environnement. Reimbursements of the
retained interests will occur only after complete reimbursement of the senior
borrowings.
According to the securitization agreement, the subsidiaries are responsible for
collecting the receivables. The Group provides guarantees on the performance of
its subsidiaries in recovering these amounts.
The decrease of the French securitization program since December 31, 2001
((euro)(336) million) is reflected in the decrease in working capital in the
consolidated statement of cash-flows.
Securitization in the USA
The securitization of US Filter, initiated in 2001 for $155 million, has been
extinguished following the sale in 2002 of the Distribution activities.
The exit of the securitization program is reported as a reduction of the
proceeds from sales of financial assets in the consolidated statement of cash
flows for an amount of (euro)181 million.
Discounting of receivables
The Group has discounted (euro)624 million of receivables at December 31, 2002
((euro)520 million at December 31, 2001).
Allowances for doubtful accounts
The allowances for doubtful accounts for the years ended December 31, 2002, 2001
and 2000 are as follows:
((euro)millions) At December 31,
2002 2001 2000
------------------ --------------------------------------
Balance at beginning of period (472.7) (435.8) (431.3)
Amounts charged to expense (165.7) (141.4) (83.6)
Deductions of reserve 100.3 117.8 51.0
Other adjustments* 53.5 (13.3) 28.1
------------------ ----------------- ------------------
Balance at end of period (484.6) (472.7) (435.8)
================== ================= ==================
* Other adjustments mainly reflect translation adjustments ((euro)28.2 million).
Accounts payable
Accounts payable are detailed as follows (in millions of euros):
At December 31,
---------------------------------------------------------
2002 2001 2000
----------------- ------------------ ------------------
Trade accounts payable 6,307.5 6,438.7 7,166.7
Social costs payable 4,359.5 5,716.7 2,990.4
Other (1) 940.7 783.9 697.3
----------------- ------------------ ------------------
Total accounts payable 11,607.7 12,939.3 10,854.4
================= ================== ==================
(1) Including deferred tax liabilities of(euro)928.0 million at December 31,
2002.
9. SHORT TERM LOANS
At December 31, 2002, net short term loans amounted to (euro)487.6 million.
Excepting for pre-financing of an investment of (euro)155 million linked to an
Australian contract, this heading is made of amount per unit smaller than
(euro)50 million.
Net valuation allowances amounted to (euro)(136.9) million in 2002. According to
the sale agreement of Schwarze Pumpe, Vivendi Environnement retains a loan which
has been totally impaired at December 31, 2002 for an amount of (euro)141.5
million.
10. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
Marketable Securities
----------------------------------------------------------------------------------------------
At December 31,
----------------------------------------------------------------------------------------------
((euro)millions) 2002 2001 2000
------------------------------------------------------ ---------------- -----------------------
Gross Net Unrealized Estimated Net Estimated Net Estimated
value Depreciation value gains fair value fair value value fair value
------------------------------------------------------ ---------------- -----------------------
Vinci 37.9 - 37.9 45.5 83.4 37.9 102.3 37.8 101.7
Vivendi 100.1 (8.4) 91.7 - 91.7 159.2 159.2 44.3 44.3
Environnement
Vivendi Universal 7.9 (3.2) 4.7 - 4.7 7.9 19.0 9.1 26.9
Others 127.1 (0.8) 126.3 - 126.3 119.1 119.1 405.4 405.4
-------------------------------------------------------------------------- ---------------- -----------------------
Total 273.0 (12.4) 260.6 45.5 306.1 324.1 399.6 496.6 578.3
-------------------------------------------------------------------------- ---------------- -----------------------
Vivendi Environnement shares have been acquired to cover stock options (770,000
shares) for a total of (euro)26.2 million and to cover Employee Stock Purchase
Plans (3,624,844 shares) for a total of (euro)73.9 million. The exercise price
of these options is (euro)32.5. In accordance with Board meeting of December 11,
2002, shares acquired to stabilize the market price (4,747,518 shares) for a
total amount of (euro)198.4 million have been reclassified in "other portfolio
investments" in Vivendi Environnement SA statutory accounts and have been
accounted for as a reduction of the Group consolidated shareholder's equity at
June 30, 2002 net book value ((euro)151 million). Cash and cash equivalents
amount to (euro)2,381.9 million, consisting at December 31, 2002 of cash for
(euro)1,153.1 million, commercial papers for (euro)566.3 million and short term
investments for (euro)662.5 million (maturity of less than three months). Net
valuation allowances amounted to (euro)14.6 million in 2002.
11. SHAREHOLDERS' EQUITY
In 2000, the Group issued 75,005,023 new shares for (euro)2,408.7 million in a
global offering and 52,941,425 new shares with a carrying value of (euro)1,396.6
million on conversion of its convertible bonds, with a total value of
(euro)3,805.3 million. Prior to the global offering the total number of shares
outstanding was 218,228,507 ordinary shares with a nominal value of (euro)13.50
per share.
In December 2001, the Group issued a total of 346,174,955 warrants. These
warrants give the holder the right to convert seven warrants into one common
share at an exercise price of (euro)55.0 per share. In 2001, a total of 5,719
warrants were converted, resulting in the issuance of 817 new shares, over the
course of 2002 a total of 93,415 warrants were converted, resulting in the
issuance of 13,345 new shares.
On August 2, 2002 Vivendi Environnement completed its (euro)1.5 billion capital
increase, this capital increase, subscribed by a group of declared investors,
was made by issuing 57.7 million new shares at a subscription price of
(euro)26.5 per share.
During December 2002, Vivendi Environnement issued 1.2 million new shares at a
subscription price of (euro)26.5 per share. The shares were subscribed to by the
employee stock purchase plan "Sequoia".
In accordance with Board meeting of December 11, 2002, shares acquired to
stabilize the market price (4,747,518 shares) have been reclassified in "other
portfolio investments" in Vivendi Environnement SA statutory accounts and have
been accounted for as a reduction of the Group shareholder's equity.
As of December 31, 2002 foreign currency transaction adjustment ((euro)(957.2)
million) is due for (euro)(821) million to the depreciation of the dollar
compared to the euro.
At December 31, 2002, "other" include proceeds from transferred contracts by
Vivendi Universal for an amount of (euro)25.4 million and call options on shares
of Vivendi Environnement agreed by Vivendi Universal for an amount of
(euro)(7.6) million.
The share capital of the Group consisted of 405,070,459 shares at December 31,
2002.
12. MINORITY INTERESTS
Minority interests are detailed as follows (in millions of euros):
2002 2001 2000
-------------- --------------- ---------------
Minority interests at January 1, 2,531.1 2,031.1 1,330.4
Changes in consolidation 58.8 139.0 580.4
TSAR (1) - 300.0
Minority interests in income of consolidated subsidiaries 142.2 131.2 161.4
Dividends paid by consolidated subsidiaries (112.9) (76.4) (46.5)
Impact of foreign currency fluctuations in minority (33.9) 5.4 5.7
interests
Other Changes (0.1) 0.8 (0.3)
-------------- --------------- ---------------
Minority interests at December 31, 2,585.2 2,531.1 2,031.1
============== =============== ===============
(1) TSAR -VEFO ((Vivendi Environnement Financiere de l'Ouest), a company fully
controlled by Vivendi Environnement SA) issued in December 2001, (euro)300
million of company obligated manditorily redeemable securities maturing on
December 28, 2006. As a result of their profile, these securities are
accounted for as a minority interest. The remuneration of these securities
is included in the minority interest table above. VEFO holds 8% of CGEA
Onyx's capital.
In 2000, the year-end disposal of 26.67% of capital of CGC Holding to EDF led to
an increase in minority interests of (euro)435.1 million.
13. DEFERRED INCOME
Deferred income includes mainly (euro)634.6 million in investment subsidies
received in connection with the management of municipal outsourcing contracts
and (euro)739.0 million in payments in respect of income from the securitization
of future receivables. To finance most of its cogeneration plants, Dalkia has
sold in advance the proceeds from the sale of electricity that EDF has pledged
to acquire under long-term contracts. Since January 1, 1998, the proceeds have
been amortized on an actuarial basis over the duration of these loans, which
ranges between 5 and 12 years.
14. RESERVES AND ALLOWANCES
Reserves and allowances are detailed as follows (in millions of euros):
At December 31, At December 31,
Charged to Utilization Reversal Changes Translation Others 2002
2000 2001 expenses to scope adjustments
Litigation
including social
and fiscal 342.0 246.0 149.6 (43.5) (16.3) 24.4 (7.2) 13.7 367
Financial
depreciation 532.5 627.8 49.7 (56.6) - (17.5) (0.1) (4.3) 599
Maintenance and
repair costs
accrued in
advance 361.5 322.6 59.9 (68.8) (1.4) 24.2 (0.5) (11.1) 325
Valuation
allowance on
work in progress 236.0 370.3 52.4 (83.9) (0.3) (50.9) (25.0) (29.1) 234
Reserves related
to fixed assets 173.1 128.7 0.9 (26.0) (0.5) (56.3) 0.6 0.5 48
Closure and post
closure costs 354.7 362.0 71.9 (41.8) (0.7) 15.6 (23.8) 5.2 388
Pensions 167.7 215.0 37.3 (44.6) (0.3) 35.7 (1.3) (7.8) 234
Restructuring
costs 183.0 172.9 40.5 (141.5) (1.1) 13.1 (7.0) (7.4) 70
Losses on
investment in
unconsolidated
companies 122.0 221.8 40.9 (132.7) - (43.5) (1.0) 9.2 95
Warranties and
customer come 180.5 235.3 119.0 (57.4) (1.1) (16.8) (11.7) 41.7 309
Others 432.4 293.3 134.5 (145.8) - 13.9 (6.6) (10.8) 279
Total reserves
and allowances 3,085.4 3,195.7 756.6 (842.6) (-22) (58.1) -84) 00) 2,946.1
The principal reserves and allowances, incite the following comments :
Reserves for litigation
Includes those losses that are considered probable that relate to the litigation
that Vivendi Environnement experiences in conducting its normal business
operations.
The water and energy businesses account for (euro)179 million and (euro)107
million respectively of the total reserves for litigation.
Financial depreciation
Vivendi Environnement finances individual installations which, as a
consequence of a specific contractual dispositions, are accounted for as
tangible assets and amortized, up to their estimated residual value over the
shorter of their useful lives and the period of the contract. When the contract
period is shorter than the useful life of the asset, such depreciation is
recorded as a liability as a financial depreciation. These reserves mainly
relate to the Water business ((euro)349.4 million) and Energy business
((euro)200.1 million).
Maintenance and repair costs accrued in advance
The Group, as part of these contractual obligations through public services
contracts, assume responsibility for the replacement of fixed assets in the
publicly owned utility networks they manage. The group forecasts the
expenditures required in this record over the remaining duration of the relevant
contracts, these expenditures will either be expensed or amortized over the
shorter of the estimated useful lives of the assets or the contract period,
according to the terms of the contract. These reserves concern the water
business for (euro)189.8 million and Energy business for (euro)134.9 million.
Valuation allowance on work in progress
The principal reserves are for the energy business (euro)32 million and the
engineering activities of the water business for (euro)130 million.
Closure and post-closure costs
The Group has financial obligations relating to closure and
post-closure costs and the remediation of disposal facilities it operates or for
which it is otherwise responsible.
Landfill final closure and post-closure accruals consider estimates for costs of
the final cap and cover for the site, methane gas control, leachate management,
groundwater monitoring, and other monitoring and maintenance to be incurred
after the site discontinues accepting waste. The cost estimates are prepared by
engineers based on the applicable local, state and federal regulations and site
specific permit requirements. These estimates do not take into account discounts
for the present value of total estimated costs. The Group accrues a reserve for
these estimated future costs pro rata over the estimated useful life of the
sites.
Those reserves amounted to (euro)322.2 million in 2002, compared to
(euro)321.1 million and (euro)256.1 million in 2001 and 2000 respectively. As of
December 31, 2002 the total anticipated costs, undiscounted, amounted to
(euro)500 million.
Other reserves and accruals are related to the plant dismantling and site
remediation in the Water and Waste business with an amount of (euro)54.1
million, (euro)40.9 million and (euro)98.6 million for the years ended December
31, 2002, 2001 and 2000 respectively.
Pensions
The Group has accrued reserves of (euro)124 million and (euro)40 million to
cover retirement obligations in France and Germany respectively, principally to
cover the indemnities paid on retirement. Those defined pension schemes are
essentially limited to the British subsidiaries of Vivendi Environnement. The
(euro)138 million of net assets invested in funds, are accounted for on the
balance sheet as other financial assets (note 7). The analysis of pension and
other retirement benefits is undertaken in note 27H.
Restructuring charges
Restructuring reserves are primarily in the water business, including reserves
for restructuring of USFilter for (euro)33.8 million and Vivendi Water Systems
for (euro)5.2 million.
Losses on investments in unconsolidated companies
Within its normal activities, Vivendi Environnement is drawn to make allowances
for certain affiliated companies. The decline by (euro)127 million in 2002 is
principally due to the cession of Schwarze Pumpe ((euro)94 million).
Warranties and customer care
These reserves are principally those obligations related to the construction
activity of FCC and the engineering and equipment activities of the water
business.
Other
Other reserves and allowances include those obligations recorded as part of the
normal operating of the Group's subsidiaries.
15. DEBT
Long term financial debt
The table below presents an analysis of the consolidated long-term debt balance
by type of debt instrument (in millions of euros):
At December 31,
---------------------------------------------
2002 2001 2000
------------ --------------- -------------
Societe Generale borrowing (a) 1,519.9 2,076.5 2,164.7
Deutsche Bank borrowing (b) 745.8 590.0 1,800.0
Berliner Wasser Betriebe (c) 1,977.6 1,987.8 1,822.0
Onyx Waste Services (d) 226.9 416.4 418.8
Vivendi Environnement 1.5% bond (e) 1,535.3 1,535.6 1,535.4
EMTN (f) 3,551.6 2,806.7 --
Vinci convertible bond (g) 120.0 120.0 --
Montgomery (h) 119.5 121.5 115.0
Tyseley (i) 110.5 121.1 131.7
Capital Leases (j) 812.3 602.4 476.4
Bonds, Bank Loans (k) 2,193.6 2,756.0 3,004.7
------------ --------------- -------------
Total 12,913.0 13,134.0 11,468.7
============ =============== =============
(a) This Syndicated credit ((euro)2,164.7 million) maturing on November 3,
2004 is led by the Societe Generale. At December 31, 2002 the outstanding
credit reaches $1,593.9, (euro)1,519.9 million and bears interest based on
a rate indexed to LIBOR USD.
The debt contains two clauses :
o The syndicated interest rate is linked to the debt coverage ratio.
o In the case of breaking the following financial ratios, the debt
contain accelerated redemption clause, otherwise redemption will occur
at maturity.
o Interest cover ratio (EBITDA/net interest expense): > 4.00 to 1 in
2002 and 2003.
o Debt ratio (Net financial debt/EBITDA): < 4.25 to 1 in 2002 and 2003.
(b) On December 31, 2002 Vivendi Environnement issued a (euro)3,000 million
syndicated loan led by Deutsche Bank, that has been reduced on March 14,
2002 to (euro)2,250 million and which matures on March 13, 2006. As of
December 31, 2002 the amount that has been drawn on is composed of $520
million and (euro)250 million, that is a total of (euro)745.8 million
respectively indexed on Libor USD and Euribor.
The debt contains two clauses :
o The syndicated interest rate is linked to the debt coverrage ratio.
o In the case of breaking the following financial ratios, the debt
contain accelerated redemption clause, otherwise redemption will occur
at maturity.
o Interest cover ratio (EBITDA/net interest expense): > 4.00 to 1 in
2002 and the following years.
o Debt ratio (Net financial debt/EBITDA):
< 4.25 to 1 in 2002 and 2003 and <4.00 to 1 for the following years.
(c) Berliner Wasser Betriebe debt as of December 31, 2002 consists of two
lines: the acquired debt of(euro)645 million which matures in 2004, and
debt of(euro)1,332.6 million.
The acquired debt is guaranted by Vivendi Environnement and contains two
clauses.
o The interest rate is linked to the debt coverage ratio.
o In the case of breaking the following financial ratios, the debt
contain accelerated redemption clause.
o Interest cover ratio (EBITDA/net interest expense): in 2002 and
2003.
o Debt ratio (Net financial debt/EBITDA):
< 4.25 to 1 in 2002 and 2003.
N.B. : Trigger events have been cancelled during the year.
(d) This credit facility "stand-alone" of Onyx Waste Services (previously
Superior Services) allows borrowings, up to $650 million. Only $238
million, (euro)226.9 million have been used as of December 31, 2002
maturing on August 18, 2005.
The debt contains two redemption clauses at the Onyx Waste Services level:
The interest rate is linked to the cover debt ratio. The non respect of one
of this four covenants might carry an accelerated redemption.
o Leverage ratio: < 3.00 to 1.
o Interest cover ratio (EBITDA/total interest expense): > 3.00 to 1.
o Debt to shareholders' equity ratio: < 50 %
o Capital expenditure (capital expenditure/depreciation expense): <
1.75.
(e) In April 1999, Vivendi Environnement issued a (euro)2,850 million of bonds
that bear interest at 1.5%, which mature on January 1, 2005, and that were
convertible, at the option of the bondholder, into Vivendi Universal
shares.
These bonds could also be converted into shares of Vivendi Environnement at a
predetermined conversion rate if there was an initial offering of Vivendi
Environnement shares. As a consequence of an initial offering conversion into
Vivendi Environnement shares, the number of bonds in circulation was in December
31, 2002 of 5,331,058, which are only convertible into Vivendi Universal shares.
The liability recorded for these bonds (euro)1,535.3 million, includes a premium
of (euro)91 million, the counterpart is recorded against other long-term
investments (see Note 7 Financial assets and Financial provisions). Taking into
account, the growing possibility of non converting Vivendi Environnement
obligation into Vivendi Universal shares, the premium has been amortized since
January 1, 2002. These bonds contained a reciprocal default agreement with
Vivendi Universal as part of the guarantee given by Vivendi Universal to
investors. On August 20, 2002, this guarantee was removed at the extraordinary
general meeting of bondholders. The Oceane's coupon was also modified from 1.50%
to 2.25% per year, with a starting effect at September 1, 2002.
(f) On December 31, 2002, EMTN consists of (euro)3,820.1 million, from which a
(euro)3,551.6 million matures over one year, and is made as following :
o (euro)500 million bears interest of 4.75%, maturing on November 8,
2005,
o (euro)2,000 million bears interest of 5.875%, maturing on June 27,
2008,
o (euro)1,000 million bears interest of 5.875%, maturing on February 1,
2012.
(g) Vivendi Environnement borrowed from Vivendi Universal (euro)120 million,
which matures on March 1, 2006, and bears interest of 1%. This debt, was
not the subject of a premium.
This debt has similar characteristics to those issued in the prospectus by
Vivendi Universal for the Vinci bonds exchangeable for Vinci shares which
was issued on February 27, 2001:
o Number of bonds issued by Vivendi Universal: 6,818,695.
o Face value of(euro)88.81 per bond.
o Conditions for exchange: 1 Vinci share for 1 bond. o Repayment:
At the initiative of the issuer from March 1, 2003 under certain
conditions. At the initiative of the bondholder from April 1, 2004.
o Conversion
At the initiative of the bondholder, from April 1, 2001 until March 1,
2006.
o It is the interest of the bondholder to convert when the market price
of Vinci is above (euro)88.81. The market price of Vinci was
(euro)53.70 as of December 31, 2002.
o The average price of Vinci shares acquired by Vivendi Environnement is
(euro)24.4.
(h) This bond financed the Montgomery plant, bears interest at a 4.5% fixed
rate and matures on January 1, 2012.
(i) This bond which outstanding is (pound)71.59 million, (euro)110.5 million,
finances the Tyseley project, bears interest at a 6.675% rate and matures
on July 30, 2018. The principal is amortized over the entire life of the
bond.
(j) As of December 31, 2002, capital leases mature between 2003 and 2021 and
bear fixed interest rate between 3.40% and 12.09% and variable interest
rate are mainly indexed on EONIA, T4M and TAM.
(k) Other bonds and banks loans mature between 2003 and 2024 and are indexed
on fixed-interest rates between 2.0% and 12.82% and on various
variable-interest rates, mainly EURIBOR. Besides, this amount includes
(euro)91.1 million subordinated debt (TSDI) underwritten by OTV, to
finance the Waste Water plant in Zaragoza, Spain, and which matures on
December 20, 2006.
Long-term financial debt listed according to the currency in which it is
denominated is as follows (in millions of euros):
At December 31,
----------------------------------------------
2002 2001 2000
------------ -------------- --------------
Euro 9,223.8 8,331.9 10,258.5
U.S. Dollar 2,564.5 3,618.5 685.8
Pound Sterling 286.2 281.0 180.0
Australian Dollar 198.2 138.0 83.1
Korean Won 171.6 203.8 86.9
Norwegian Crown 23.1 80.0 --
Other 445.6 480.8 174.4
------------ -------------- --------------
Total 12,913.0 13,134.0 11,468.7
============ ============== ==============
The table below presents a summary of the repayment schedules of the long-term
financial debt excluding subordinated securities (in millions of euros):
At December 31,
2002 2001 2000
-------------- --------------- --------------
Due between one and two years 2,311.5 1,227.4 2,527.9
Due between two and five years 4,660.8 7,461.8 6,449.2
Due after five years 5,940.7 4,444.8 2,491.6
-------------- --------------- --------------
Total 12,913.0 13,134.0 11,468.7
============== =============== ==============
Unused credit lines
The main unused credit lines amounted as of December 31, 2002(euro)3,872
million. It was composed as follows :
In Vivendi Environnement SA :
o (euro)1,150 million of short-term credit line.
o (euro)150 million of middle-term credit line.
o (euro)2,149 million of unused credit facility.
In Vivendi Environnement's subsidiaries :
o (euro)423 million of middle-term credit line.
Short term borrowings
Short term borrowings for the years ended 2002, 2001 and 2000 were
(euro)3,795.9, (euro)4,889.5 and (euro)4,243.6 respectively.
The Group's main short term borrowings as of December 31, 2002 are detailed
below:
o Cash liabilities :(euro)746 million.
o (euro)268 million EMTN maturing in 2003.
o Commercial paper program amounting to (euro)1,139 million issued by
Vivendi Environnement SA with a maximum amount of (euro)4 billion,
interest rates are based on EONIA or fixed rates, with maturities
between 30 to 180 days.
o (euro)154 million of accrued interest at Vivendi Environnement SA
level.
o (euro)214 million of short-term borrowings in Berlin (Vivendi Water).
Bank borrowings supported by collateral guarantees
At December 31, 2002, (euro)590 million in bank borrowings was supported by
collateral guarantees. The breakdown by type of asset is as follows (in millions
of euros) :
Amount pledged Total amount in %
(a) the balance sheet (a) / (b)
(b)
On intangible assets 4 3,905 0.10%
On tangible assets 337 14,541 2.32%
On financial assets (1) 212 - -
--------------------------------------------------------------------------------
Total long term assets 553 - -
--------------------------------------------------------------------------------
On current assets 37 15,450 0.23%
--------------------------------------------------------------------------------
Total assets 590 - -
--------------------------------------------------------------------------------
(1) Financial assets pledged as collateral being essentially stocks of
consolidated subsidiaries, the ratio is not meaning.
The breakdown by maturity is as follows :
------------------------------------------------------------------------------
((euro)millions) At December 31, Maturity
2002
------------------------------------------------------------
Less than 1 year 1 to 5 years More than 5 years
Intangible assets 4 3 - 1
Tangible assets 337 23 23 291
Land 180 21 6 153
Other tangible assets 157 2 17 138
Financial assets (1) 212 - 56 156
Wyuna Water PTY stocks (2) 74 - - 74
Vivendi Water Korean Daesan stocks (2) 56 - 56 -
Vivendi Water Industrial Development 71 - - 71
stocks (2)
Technoborgo stocks (3) 5 - - 5
Connex Regiobahn stocks (2) 6 - - 6
Current assets 37 32 - 5
Accounts receivable 33 30 - 3
Inventories 4 2 - 2
------------------------------------------------------------------------------------------------------------------------
Total 590 58 79 453
------------------------------------------------------------------------------------------------------------------------
(1) 100% of the capital.
(2) Companies consolidated at December 31, 2002.
(3) Companies accounted for under equity method at December 31, 2002.
16. INCOME TAXES
Analysis of Income Tax Expense
Components of the income tax provision are as follows (in millions of euros):
At December 31,
----------------------------------------
2002 2001 2000
---------- ----------- -----------
France (93.8) (128.5) (341.0)
Other countries (248.9) (256.3) (125.1)
Current income tax expense (342.7) (384.8) (466.1)
France (11.9) 9.6 12.3
Other countries (82.7) (87.1) (5.4)
Deferred income tax (benefit) (94.6) (77.5) 6.9
---------- ----------- -----------
Total income tax expense (437.3) (462.3) (459.2)
========== =========== ===========
In 2001, a French Tax Group was created. Vivendi Environnement SA paid the Group
tax to the French tax authority. The tax saving is recorded at the Vivendi
Environnement SA level.
Deferred Tax Assets and Liabilities
The timing differences which give rise to significant deferred tax assets and
liabilities are as follows (in millions of euros):
At December 31,
--------------------------------------
2002 2001 2000
----------- ----------- -----------
Deferred tax assets:
- Employee benefits 62.8 53.2 47.6
- Provisions for risks and liabilities 30.9 19.9 6.7
- Tax loss 442.6 593.9 679.4
- Other timing differences 648.3 451.0 226.7
----------- ----------- -----------
Gross deferred tax assets 1,184.6 1,118.0 960.4
----------- ----------- -----------
Unrecorded deferred tax assets (1) (172.8) (107.0) (95.9)
----------- ----------- -----------
Deferred tax assets recorded in the books 1,011.8 1,011.0 864.5
----------- ----------- -----------
Deferred tax liabilities:
- Depreciation 356.8 207.6 264.0
- Reevaluation of assets 160.3 151.2 69.7
- Other taxable timing differences 410.9 403.7 363.8
----------- ----------- -----------
Gross deferred tax liabilities 928.0 762.5 697.5
=========== =========== ===========
(1) Represents tax savings from operating losses or other non-activated tax
savings. They have not been recorded as assets because their recovery is
not probable. Net valuation allowance amounted to (euro)(86.1) million in
2002.
In the consolidated balance sheets, deferred tax assets are classified in
"accounts receivable" and deferred tax liabilities in "accounts payable".
Tax Rate Reconciliation
At December 31,
---------------------------------------------
2002 2001 2000
------------- ------------- -------------
Statutory tax rate 35.43% 36.43% 37.77%
Goodwill amortization not deductible for tax purposes 12.75% (61.30)% 9.36%
Permanent differences 8.91% (2.07)% (8.73)%
Lower tax rate on long-term capital gains and losses (5.89)% 1.76% (4.78)%
Tax losses 5.13% (4.42)% 11.19%
Other, net (8.73)% 1.71% (7.64)%
------------- ------------- -------------
Effective tax rate (a) 47.60% (27.89)% 37.17%
============= ============= =============
(a) The effective tax rate is computed by dividing "income taxes and deferred
taxes" by "Income before minority interest, income taxes and deferred taxes."
Net Operating Tax Loss
At December 31, 2002, the Group had tax losses which represent a potential tax
saving of (euro)442.6 million (based on the effective tax rate).
Tax losses expire as follows (in millions of euros):
Years Amount
---------------------
2003 50.0
2004 85.4
2005 6.8
2006 5.8
2007 62.6
2008 and thereafter 159.4
Unlimited 72.6
---------------------
Total 442.6
=====================
17. FINANCIAL INSTRUMENTS AND COUNTERPARTY RISKS
The Group uses various financial derivative instruments to manage its exposure
to fluctuations in interest rates and foreign currency rates. The Group does not
anticipate any third-party defaults, which could have a significant impact on
its financial position and the results of its transactions.
Interest rate and foreign currency agreements
The contractual amounts stated below are outstanding as of December 31, 2002,
2001 and 2000. These amounts represent the levels of involvement by the Group
and are not indicative of gains or losses. The amounts are in millions of euros.
As of December 31, 2002
---------------------------------------------------------------
Total Less than 1 to 5 More than
1 year years 5 years
--------------- -------------- ------------ --------------
Interest rate hedging activity
Interest Rate Swaps-pay at fixed rate / receivable at variable
rate
Nominal amount 1,382.1 255.6 866.8 259.7
Weighted average received rate (evaluated on December, 31) 2.29%
Weighted average paid rate (evaluated on December, 31) 5.50%
Interest Rate Swaps-pay at variable rate / receivable at fixed
rate
Nominal amount 2,707.6 0.0 507.6 2,200.0
Weighted average received rate (evaluated on December, 31) 5.63%
Weighted average paid rate (evaluated on December, 31) 3.06%
Interest rate swap-pay at variable rate / receivable at variable
rate
Nominal amount 1,573.0 238.4 1,334.6 0.0
Weighted average received rate (evaluated on December, 31) 1.60%
Weighted average paid rate (evaluated on December, 31) 1.61%
Swap-cross currency
Nominal amount 775,9 78.9 183.8 513.2
Weighted average received rate (evaluated on December, 31) 2.23%
Weighted average paid rate (evaluated on December, 31) 4.74%
Interest caps, floors and collars (a)
Nominal amount 2,052.7 238.4 1,791.9 22.4
Average guarantee rate 4.11%
Foreign currency hedging activity
Forward exchange contracts (b)
Nominal amount 1,242.6 1,227.6 15.0
(a) Interest cap are used to protect the group from the interest fluctuation
which should impact the variable debt, limiting the interest paid. On
December 31, 2002, the cap portfolio is made of the following :
o Covering exposure to Euribor 3 month, with a nominal of (euro)622.4
million. The weighted average guarantee rate is 4.96%.
o Covering exposure, to Libor USD 3, 6 and 12 month, with a nominal of
$1,250 million ((euro)1,192 million). The weighted average guarantee
rate is 3.03%.
(b) The use of forward exchange contracts is linked to foreign currency
borrowing . Mainly short term contracts. On December 31, 2002, the exchange
operation portfolio is as follows:
Currency Forward buy Forward sale
-------- ----------- ------------
AUD 4.5 M AUD 273.7 M AUD
GBP 49.1 M GBP 190.0 M GBP
NOK --- 645.0 M NOK
USD 37.4 M USD 493.7 M USD
Other currency
((euro)equivalent) 8.0 MEUR 88.4 MEUR
As of December 31, 2001
----------------------------------------------------------------
Total Less than 1 to 5 More than
1 year years 5 years
------------- --------------- ------------- --------------
Interest rate hedging activity
Interest Rate Swaps-pay at fixed rate / receivable at variable
rate
Nominal amount 4,721.2 1,157.4 3,557.3 6.5
Weighted average received rate (evaluated on December, 31) 3.17%
Weighted average paid rate (evaluated on December, 31) 4.94%
Interest Rate Swaps-pay at variable rate / receivable at fixed rate
Nominal amount 2,449.1 15.2 426.3 2,007.6
Weighted average received rate (evaluated on December, 31) 5.67%
Weighted average paid rate (evaluated on December, 31) 3.31%
Swap-cross currency
Nominal amount 262.7 - 262.7 -
Weighted average received rate (evaluated on December, 31) 4.07%
Weighted average paid rate (evaluated on December, 31) 3.42%
Interest caps, floors and collars
Nominal amount 174.8 - 152.4 22.4
Average guarantee rate 4.69%
Foreign currency hedging activity
Forward exchange contracts
Nominal amount 186.8 186.8 - -
As of December 31, 2000 (restated)
---------------------------------------------------------------
Total Less than 1 to 5 More than
1 year years 5 years
--------------- ------------- ------------ --------------
Interest rate hedging activity
Interest Rate Swaps-pay at fixed rate / receivable at variable rate
Nominal amount 2,793.5 8.9 2,778.1 6.5
Weighted average received rate (evaluated on December, 31) 5.16%
Weighted average paid rate (evaluated on December, 31) 5.22%
Interest Rate Swaps-pay at variable rate / receivable at fixed
rate
Nominal amount 289.1 61.0 217.7 10.4
Weighted average received rate (evaluated on December, 31) 5.86%
Weighted average paid rate (evaluated on December, 31) 4.76%
Swap-cross currency
Nominal amount 256.5 -- 256.5 --
Weighted average received rate (evaluated on December, 31) 4.04%
Weighted average paid rate (evaluated on December, 31) 4.90%
Interest caps, floors and collars
Nominal amount 188.1 10.4 155.3 22.4
Average guarantee rate 4.68%
Foreign currency hedging activity
Forward exchange contracts
Nominal amount 22.9 -- 22.9 --
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
On December 31, 2002, 2001 and 2000 Vivendi Environnement used for financing,
notes receivables, as well as derivative financial instruments used to manage
interest rate risk, foreign currency risk and equity risk. They were
characterized by investments, invoices, loans and advances, short and long-term
borrowings.
The carrying value of cash equivalents, short-term receivables, short-term
borrowings and the short-term part of long -term debt was approximately equal to
the fair value due to their short maturities. The fair value of financial
instruments detailed as follows, is generally determined using quoted prices.
When no quoted prices are available, fair value is based on estimates using
discounted future cash flows or other estimates.
At December 31,
-----------------------------------------------------------------------------------
((euro)million) 2002 2001 2000
---------------------------- --------------------------- --------------------------
Assets (liabilities) Carrying Estimated Carrying Estimated Carrying Estimated
amount fair value amount fair value amount fair value
---------------------------- ---------------------------- ----------- -------------
Investments* 1,600.8 1,514.3 1,598.6 1,674.1 1,646.2 1,734.8
Long-term debt (12,913.0) (13,125.0) (13,134.0) (13,265.0) (11,468.7) (11,680.0)
Treasury management
Interest rate swaps 139.5 - (25.7) - (21.4)
Cross Currency interest rate swaps 117.2 - (4.1) - 2.2
Forward exchange contracts 16.5 - 3.6 - 0.8
Interest caps, floors and collars (5.8) - 0.4 - 4.0
* Excluding treasury shares held for stock option purposes, Vivendi
Environnement 1.5% bond premium redemption, balancing cash adjustment of Vivendi
Universal / Vivendi Environnement swap.
19. COMMITMENTS AND CONTINGENCIES
Commitments related to cooperation agreement between Vivendi Universal and
Vivendi Environnement are detailed in note 22.
Specific Commitments
Operation Southern Water : The transaction is detailed in note 25.
Put FCC
The Group has agreed to buy the 51% partner's interest in B1998 SL if the
partner exercises the option agreement, which remains valid during 10 years,
until October 6, 2008 at a price based on the average of the market value of
FCC's shares during the three months preceding the exercise of the option (up to
seven times FCC's EBITDA or 29.5 times FCC's earnings per share for the previous
year, whichever is lower). B1998 SL is a holding company which owns 52.5% of
FCC. Based on the price of FCC's common stock on December 31, 2002, the price
would be approximately (euro)751.4 million.
If the partner exercises the option agreement, the Group would be the sole
shareholder of B1998 SL. As a result of which, the Spanish law could require the
Group to launch take over bid on the remaining shares of FCC (47.5%) not held by
B1998 SL. The offering price would be determined by the Spanish market
authority. According to the share price of FCC on 26th February 2003, the
acquisition price of the remaining 47.5% would be around (euro)1,361 million,
subject to adjustment by the Spanish authority.
EDF agreements
EDF entered into a call option with the Group on Dalkia shares in case of a take
over bid on the Group by a competitor of EDF.
Furthermore, the Group entered into a call option with EDF on its Dalkia shares
in case of a change in EDF's status or a take over bid on EDF by a competitor of
Vivendi Environnement. The share price would be determined by an independent
expert if there is no agreement.
Replacement engagement
The Group and its water distribution and energy services subsidiaries, as part
of their contractual obligations through public services contracts and in return
for the revenue they receive, assume responsibility for the replacement of fixed
assets in the publicly owned utility networks they manage. The Group forecasts
the expenditures required in this regard over the remaining duration of the
relevant contracts. The accumulated expenditure forecast is estimated at
(euro)2.4 billion ((euro)1.9 billion for water and (euro)0.5 billion for
energy). These expenditures will either be expensed or amortized over the
shorter of the estimated useful lives of the assets or the contract period,
according to the contract terms.
Performance bonds issued for US subsidiaries
Insurance companies have issued performance guarantees in connection with the
activities of the Group's US subsidiaries (operational guarantees, guarantees of
site restoration), which have been underwritten by Vivendi Environnement SA up
to a maximum amount of $0.9 billion (maximum amount used at December 31, 2002).
Specific Berlin contract engagement
Under the Berlin water contract, the Group may be obligated to pay approximately
(euro)610 million to previous land owners, not indemnified by the Berlin
government, who present claims for payments.
Securitization
According to the securitizaton agreement, the subsidiaries are responsible for
collecting the receivables. The Group provides guarantees on the performance of
its subsidiaries in recovering these amounts.
Fees obligations with local authorities
As described in note 2, under certain public service contracts, the Group has
assumed fees obligations with local authorities. At December 31, 2002, the
minimum future payments of these commitments is (euro)219.4 million.
The breakdown by maturity of specific commitments is as follows :
-------------------------------------------------------------
At December Maturity
31,
(in millions of euros) 2002
----------------------------------------------
Less than 1 1 to 5 years More than 5
year years
Put Southern Water 575 - 575 -
Put FCC / B 751 - - 751
Water replacement engagement 1,937 299 668 970
Energy Services replacement engagement 514 53 262 199
Performances bonds VE issued for US subsidiaries* 861 - - 861
Specific Berlin contract engagement 610 - - 610
Fees obligations with local authorities 219 41 115 63
-----------------------------------------------------------------------------------------------------------------------
Total 5,467 393 1,620 3,454
-----------------------------------------------------------------------------------------------------------------------
* Indefinite maturity
Other commitments and contingencies
Other commitments and contingencies do not include collateral given in guarantee
of banking loans (see note 15) nor specifics commitments and contingencies
described above.
Other commitments and contingencies are detailed as follows (in millions of euros)
---------------------------------------------------------------------------------
At December 31, Maturity
2002
-------------------------------------------------------------
Less than 1 year 1 to 5 years More than 5 years
Operational guarantees 2,974.9 637.0 631.8 1,706.1
Financial guarantess
Debt guarantees 185.1 23.1 29.5 132.5
Warranty obligation given 338.6 191.2 67.6 79.8
Commitments given
Obligation to buy 55.7 39.8 15.9 -
Obligation to sell 27.0 14.0 13.0 -
Other commitments given
Letters of credit 290.8 23.8 - 267.0
Other commitments given 398.7 77.4 160.7 160.6
---------------------------------------------------------------------------------------------------------------------------
Total 4,270.8 1,006.3 918.5 2,346.0
---------------------------------------------------------------------------------------------------------------------------
Operational guarantees (performance bonds) : the Group's subsidiaries in the
course of their normal activities, give guarantees to their customers. If the
company does not reach its specified targets, it may have to pay penalties.
This commitment is often guaranteed by an insurance company, a financial
institution, or the parent company of the Group. These guarantees included in
the contract are performance commitments. The insurance company or the financial
institution often requires counter guarantees from the parent company. The
commitment is the amount of the guarantee anticipated in the contract and given
by the parent company to the customer or the counter guarantee given by the
parent company to the insurance company or to the financial institution.
Debt guarantees : they relate to guarantees given to financial bodies in
connection with financial debt of non consolidated companies, companies
accounted for under the equity method, or companies consolidated through
proportional consolidation.
Warranty obligations given : they include guarantees in connection to sale of
Filtration and Separation, Distribution units for (euro)191 million and (euro)48
million and the sale of Bonna Sabla for (euro)65 million.
Letter of credits : The amount of the credit line given by a bank or financial
institution which has not been drawn against. In fact it is a commitment
received.
The Group's contingent liabilities relating to certain performance guarantees by
segments are as follows (in millions of euros):
At December 31,
---------------------------------------------
2002 2001 2000
------------- ------------- -------------
Water 1,783.0 1,005.0 571.7
Waste Management 347.2 302.8 617.3
Energy Services 466.2 242.0 101.8
Transportation 114.4 229.5 31.5
FCC/Proactiva 748.7 687.5 579.8
Holding 794.0* 641.0 95.4
Others 17.3 8.2 -
------------- ------------- -------------
Total 4,270.8 3,116.0 1,997.5
============= ============= =============
* Including (euro)611 million of operational guarantees on behalf of its Water
business ((euro)573 million) and Waste business ((euro)38 million).
Capital Leases and Operating Leases
The Group uses capital leases in order to finance certain operating assets and
investment properties. As stated in Note 2 to the consolidated financial
statements, the Group has capitalized these assets (see note 5) and recorded the
principal portion of the related capital leases as long-term debt for its
present value ((euro)812.3 million) (see note 15-j). Payments under these
capital lease obligations at December 31, 2002, 2001 and 2000 represent
(euro)1.2 billion, (euro)0.8 billion and (euro)0.6 billion, respectively.
Furthermore, the Group uses operating leases (mainly transportation equipment
and treatment plants).
Vivendi Environnement has concluded capital and operating leases. As of December
31, 2001, minimum future payments for these contracts amount to (in millions of
euros) :
Operating leases Capital leases
(balance sheet)
-------------------- ---------------------
2003 419.1 171.6
2004 405.3 173.0
2005 389.4 136.9
2006 377.9 109.0
2007 241.0 96.7
2008 and thereafter 606.2 559.2
-------------------- ---------------------
Total minimum future capital lease payments 2,438.9 1,246.4
Less amounts representing interest - 434.1
-------------------- ---------------------
Present value of net minimum future capital lease payments - 812.3
==================== =====================
Litigation (other than those accounted for)
The Group is subject to various litigation in the normal course of business.
Although it is not possible to predict the outcome of such litigation with
certainty, based on the facts known to the Group and after consultation with
counsel, management believes that such litigation will not have a material
adverse effect on the Group's financial position or results of operations.
Commitments received
((euro)millions) 2002
------------------
Commitments received 1,408.1
Debt guarantees 167.6
Warranty obligations given 20.4
Other engagements received * 1,220.1
* Including (euro)1,042 million behalf EDF's electric contracts commitments.
Commitments received amount to (euro)1,385.5 million as of December 31, 2001 and
to (euro)1,192 million as of December 31, 2000.
20. TAX AUDITS
As a part of their normal activities the Group's subsidiaries are subjected to
regular tax audits.
Tax audits were carried out on the French subsidiaries of Vivendi
Environnement's four business segments, and cover the period 1998 to 2001.
Additional tax assessments were sent out at the end of 2002, the most important
of which concern the taxation of financial operations. These additional tax
assessments concern either timing differences or are for subjects for which the
Group considers that its arguments will be favorably considered by the tax
authorities.
Vivendi Environnement has made allowances for those risks it considers
appropriate.
21. SEGMENT INFORMATION
The Group has identified five reportable segments which include: Water, Waste
Management, Energy Services, Transportation, and FCC. These segments are
consistent with the basis on which management evaluates investments and results.
The Water segment integrates water and wastewater activities such as water
distribution, water and wastewater treatment, industrial process water,
manufacturing of water treatment equipment and systems.
The Waste Management segment collects, processes and disposes of household and
trade and industrial waste.
The Energy Services segment includes energy optimization and related services.
The Transportation segment focuses on the operation of passenger transportation
services, both road and rail networks.
FCC is a separate segment that operates in construction, urban sanitation and
water services, cement production and urban related activities mostly in Spain.
Revenue From External Customers
((euro)millions) For the year ended at December 31,
-----------------------------------------------------------
2002 2001 2000
restated
------------------ ----------------- ------------------
Water 13,293.7 13,641.2 12,768.2
Waste management 6,138.8 5,914.4 5,260.0
Energy 4,570.9 4,017.4 2,988.5
Transportation 3,422.2 3,098.9 3,131.1
FCC 2,653.1 2,454.8 2,114.7
------------------ ----------------- ------------------
Total 30,078.7 29,126.7 26,262.5
================== ================= ==================
Revenue Between Segments
((euro)millions) For the year ended at December 31,
-----------------------------------------------------------
2002 2001 2000
restated
------------------ ----------------- ------------------
Water 9.0 10.3 6.8
Waste management 42.1 32.3 44.2
Energy 13.5 5.9 12.1
Transportation 4.4 4.1 0.8
FCC 0.5 1.8 -
Other - 4.9 28.8
------------------ ----------------- ------------------
Total 69.5 59.3 92.7
================== ================= ==================
Amortization Expense
((euro)millions) For the year ended at December 31,
-----------------------------------------------------------
2002 2001 2000
restated
------------------ ----------------- ------------------
Water 573.2 527.6 531.3
Waste management 564.3 505.2 462.6
Energy 230.7 160.2 129.0
Transportation 189.7 149.8 145.4
FCC/Proactiva 126.8 129.9 87.6
Other 14.6 11.9 7.4
------------------ ----------------- ------------------
Total 1,699.3 1,484.6 1,363.3
================== ================= ==================
EBIT and operating income (previous method):
((euro)millions) For the year ended at December 31,
-----------------------------------------------------------
2002 2001 2000
EBIT EBIT Operating
income
(previous
method)
------------------ ----------------- ------------------
Water 1,024.3 1,089.6 1,021.2
Waste management 385.2 390.7 393.9
Energy 244.0 220.5 191.3
Transportation 115.6 112.1 105.3
FCC/Proactiva 250.3 229.5 208.1
Other (48.1) (29.3) (10.2)
------------------ ----------------- ------------------
Total 1,971.3 2,013.1 1,909.6
================== ================= ==================
Total Assets
((euro)millions) At December 31,
-----------------------------------------------------------
2002 2001 2000
------------------ ----------------- ------------------
Water 16,095.1 19,095.8 18,470.6
Waste management 5,280.0 5,474.9 6,483.8
Energy 4,950.7 4,471.0 3,515.3
Transportation 2,631.3 2,576.0 1,992.8
FCC/Proactiva 3,191.8 3,749.5 2,996.4
Other 9,869.5 9,042.1 6,364.1
------------------ ----------------- ------------------
Total 42,018.4 44,409.3 39,823.0
================== ================= ==================
Expenditures for Long Lived Assets
((euro)millions) For the year ended at December 31,
------------------------------------------------------------
2002 2001 2000
------------------ ----------------- ------------------
Water 1,086.3 1,188.3 1,040.8
Waste management 739.5 794.2 869.9
Energy 342.2 401.5 361.8
Transportation 154.7 287.8 181.6
FCC/Proactiva 278.9 206.7 131.6
Other 1.8 0.0 0.5
------------------ ----------------- ------------------
Total expenditures 2,603.4 2,878.5 2,586.2
================== ================= ==================
Long-term Assets
((euro)millions) At December 31,
------------------------------------------------------------
2002 2001 2000
------------------ ----------------- ------------------
Water 13,945.4 15,441.0 14,800.7
Waste management 5,245.4 5,504.2 5,083.3
Energy 2,867.5 2,565.1 2,155.0
Transportation 1,967.5 1,762.6 1,374.2
FCC/Proactiva 2,130.4 1,883.9 1,889.0
Other 411.8 243.9 60.0
------------------ ----------------- ------------------
Total long-term assets 26,568.0 27,400.7 25,362.2
================== ================= ==================
Equity Method Investments
At December 31,
-------------------------------------------------------------------------------------------------------
((euro)millions) 2002 2001 2000
-------------------------------- -------------------------------- ---------------------------------
Investment Share in Investment Share in Investment Share in net
net earnings net earnings earnings
--------------- -------------- --------------- -------------- --------------- ---------------
Water 140.9 11.8 397.3 21.6 275.7 38.8
Waste management 57.1 6.5 26.1 7.2 20.8 3.3
Energy 9.9 (0.4) 9.0 1.0 6.3 1.1
Transportation 5.7 (2.1) 10.7 0.4 5.9 0.5
FCC/Proactiva 205.2 19.6 174.9 16.2 208.6 16.9
Other 29.2 3.6 0.0 1.4 6.1 0.0
--------------- -------------- --------------- -------------- --------------- ---------------
Total 448.0 39.0 618.0 47.8 523.4 60.6
=============== ============== =============== ============== =============== ===============
Geographical Breakdown of Net Sales
((euro)millions) At December 31, 2002
---------------------------------------------------------------------------------------------
France United Kingdom Rest of United States Rest of the Total
Europe of America world
------------- ---------------- --------------- --------------- -------------- ---------------
Water 6,201.2 654.9 1,669.6 3,378.5 1,389.3 13,293.7
Waste management 2,543.4 708.5 794.5 1,306.0 786.4 6,138.8
Energy 2,972.8 302.4 1,226.8 0.4 68.5 4,570.9
Transportation 1,268.0 661.1 1,266.4 83.5 143.2 3,422.2
FCC 10.4 33.8 2,487.9 102.0 19.0 2,653.1
------------- ---------------- --------------- --------------- -------------- ---------------
Total 12,995.8 2,360.7 7,445.2 4,870.6 2,406.4 30,078.7
============= ================ =============== =============== ============== ===============
((euro)millions) At December 31, 2001
---------------------------------------------------------------------------------------------
France United Kingdom Rest of United States Rest of the Total
Europe of America world
------------- ---------------- --------------- --------------- -------------- ---------------
Water 6,193.7 729.7 1,517.2 3,817.3 1,383.3 13,641.2
Waste management 2,440.8 655.1 668.6 1,434.3 715.6 5,914.4
Energy 2,733.8 313.5 896.3 0.2 73.6 4,017.4
Transportation 993.3 906.9 1,028.1 35.2 135.4 3,098.9
FCC 10.5 33.4 2,228.1 138.4 44.4 2,454.8
------------- ---------------- --------------- --------------- -------------- ---------------
Total 12,372.1 2,638.6 6,338.3 5,425.4 2,352.3 29,126.7
============= ================ =============== =============== ============== ===============
((euro)millions) At December 31, 2000 (restated)
---------------------------------------------------------------------------------------------
France United Kingdom Rest of United States Rest of the Total
Europe of America world
------------- ---------------- --------------- --------------- -------------- ---------------
Water 5,748.6 648.5 1,434.7 3,678.2 1,258.2 12,768.2
Waste management 2,353.1 573.0 485.8 1,192.8 655.3 5,260.0
Energy 1,795.7 379.7 781.7 0.0 31.4 2,988.5
Transportation 941.2 1,135.3 913.0 0.0 141.6 3,131.1
FCC 10.0 25.4 1,913.2 95.1 71.0 2,114.7
------------- ---------------- --------------- --------------- -------------- ---------------
Total 10,848.6 2,761.9 5,528.5 4,966.1 2,157.5 26,262.5
============================================== ============================== ===============
Geographical Breakdown of Long Lived Assets
((euro)millions)
--------------------------------------------------------------------------------------------
France United Kingdom Rest of United States Rest of the Total
As of December 31, Europe of America world
------------- ---------------- --------------- --------------- -------------- ---------------
2002 7,304.6 2,136.2 8,452.3 6,568.3 2,106.6 26,568.0
2001 6,897.5 2,199.5 7,986.2 8,685.6 1,631.9 27,400.7
2000 7,964.1 1,881.0 6,242.3 8,347.7 927.1 25,362.2
22. RELATED PARTY TRANSACTIONS
The main transactions with related parties (principally Vivendi Universal, its
subsidiaries and some minority stockholders in Vivendi Environnement
subsidiaries) and amounts receivable from and payable to them were as follows
(in millions of euros):
At December 31,
-------------------------------------------------------------
2002 2001 2000
------------------ ------------------ -----------------
Call option/shares of Vivendi Environnement 7.6 - -
Treasury shares purchased from Vivendi Universal 73.9 - -
Vivendi Universal / Vivendi Environnement swap cancelled 75.8
Receivables
Trade accounts 37.6 40.2 115.3
Loans 54.6 (1) 352.0 74.7
Payables
Vinci convertible bonds 120.0 120.0
Trade accounts 19.6 105.9 22.6
Loans 1.3 1.0 1,245.7
At December 31,
-------------------------------------------------------------
2002 2001 2000
------------------ ------------------ -----------------
Sales 10.8 13.9 336.4
Operating income (expense) 17.0 (2) (16.2) (176.0)
Interest expense (58.8) (91.2) (584.5)
Interest income 58.5 100.3 113.9
(1) include (euro)35.7 million relating to receivables in connection with
contracts transferred.
(2) include (euro)32.9 million of payments by Vivendi Universal associated with
the maintenance or replacement of equipment.
Financial Agreement
In 2000
o At the time of the IPO, the Group was fully financed by Vivendi
Universal as a result of a financial agreement signed on June 20, 2000. The
current account with Vivendi Universal bore interest at 5.7%, which
corresponded to the market rate of 5.2% plus a margin of 0.5 %. An annual
payment of (euro)41.2 million was paid by Vivendi Universal to the Group.
o In September 2000, the Group entered into an interest rate swap with
Vivendi Universal (Vivendi Environnement pays 5.2% fixed and receives
EURIBOR 3 months variable). The maximum notional amount of this swap is
(euro)5 billion, and this swap expires in 2004.
In 2001
o The current account with Vivendi Universal was fully reimbursed in May
2001.
o Further to different refinancing operations, the maximum notional
amount has been reduced to (euro)3.266 billion. This decrease of
(euro)1.734 billion led to payment by the Group of (euro)58 million to
Vivendi Universal. Its relates to the fair value of the portion of the swap
that has been cancelled. The payment is expensed over the life of the swap.
o In connection with the above paragraph, the Group and Vivendi
Universal have changed some of the terms of the financial agreement. The
quarterly amount of (euro)10.3 million paid by Vivendi Universal to the
Group is reduced to (euro)5.15 million from January 1, 2002. Vivendi
Universal paid to Vivendi Environnement (euro)58 million, a compensation
equal to the present value of the reduction in future payments.
In 2002
In order to benefit from the low level of interest rates, the Group has
cancelled the interest swap with Vivendi Universal. This cancellation led to a
payment by the Group of (euro)75.8 million in 2002. It relates to the fair value
of the swap that has been cancelled. The payment is expensed over the life of
the swap.
Vivendi Universal and Vivendi Environnement agreed that Vivendi Universal would
not pay the quarterly amount. Vivendi Universal paid to Vivendi Environnement
(euro)52.6 million euros, a compensation equal to the present value of the
reduction in future payments. This income was accounted for under item financial
income (expense) in 2002.
Cooperation agreement between Vivendi Universal and Vivendi Environnement
In order to finalize the separation of Vivendi Environnement from Vivendi
Universal, Vivendi Environnement and Vivendi Universal reached an agreement, on
20 December 2002.
Transfer of interest
The most significant transfers represent the sale to Compagnie Generale des Eaux
of interests in foreign water companies such as the Rumanian company Apa Nova
Bucaresti, the Italian company Genova Acque, the Moroccan company Societe des
Eaux et de l'electricite du Nord (Tanger-Tetouan).
Transfer of Water Distribution and Treatment Operations to Compagnie Generale
des Eaux
Vivendi Universal has economically transferred to Generale des Eaux
(wholly-owned subsididary of Vivendi environnement, previously named Compagnie
Generale des Eaux-Sahide) all its water-related operations in France and the
right to the operating income including income relating to contracts not yet
transferred.
The transfer of water distribution and treatment operations contracts owned by
Vivendi Universal to Compagnie Generale Des Eaux should be completed during the
first quarter 2003. These contracts represent less than 0.5 % of the portfolio
managed by Compagnie Generale Des Eaux.
Counter-Guarantee Agreement
Vivendi Universal and Vivendi Environnement agreed that Vivendi Universal would
be replaced by Vivendi Envionnement for some guarantees given to Vivendi
Environnement by Vivendi Universal. These agreements have no effect on off
balance sheet position.
Guarantees
In connection with the formation of the Group and Vivendi Universal's
contribution or sale to the Group of its interests in its water and energy
services, the Group has replaced Vivendi Universal as managing partner (associe
commandite) of substantially all Vivendi Universal's historic water and energy
services subsidiaries. As managing partner of these subsidiaries, the Group has
agreed, or will agree, to reimburse those subsidiaries for expenses related to
the maintenance and replacement of equipment.
The guarantee agreement dated June 20, 2000 in connection with the maintenance
or replacement of equipments has been modified. The annual initial limit of
(euro)15.2 million is increased to (euro)30.4 million. The initial maximum total
amount of (euro)228.7 million that the Group can recover for recurring expenses
is increased by (euro)76.2 million.
Vivendi Environnement received (euro)16.2 million in 2002 and earned (euro)16.2
million in deferred income in 2002 payable in 2005. These amounts are reductions
from the operating expenses.
Trademark License agreement
Under a trademark license agreement the group has the right to use the "Vivendi"
trademark. This license has a term of five years and carries an annual license
fee of (euro)30,500 before tax.
Vinci bonds
The Group indirectly took part in the issuance of the Vivendi Universal bonds
convertible into Vinci shares. Vivendi Universal lent to the Group (euro)120
million against 1,552,305 shares of Vinci held by the Group through Dalkia
France. The terms of the loan are similar to those of the bond issued by Vivendi
Universal: a fixed rate of 1% per annum and maturing on March 1, 2006. This loan
was economically transferred to Dalkia France in year 2001.
FCC agreement
Prior to the restructuring of Vivendi Environnement's capital, on June 17, 2002,
Vivendi Environnement and Ms. Esther Koplowitz signed an agreement making
Vivendi Environnement the partner in all the contractual documents concerning B
1998 SL, in place of Vivendi Universal. Ms. Esther Koplowitz thereby accepted to
not exercise her purchase right on her partner's stake in B 1998 SL, should
Vivendi Universal's holding be reduced to less than 50% of Vivendi
Environnement's capital and voting rights. In consideration for this, Vivendi
Environnement awarded Madame Esther Koplowitz and her group of shareholders in B
1998 SL a preferential purchase right for the B 1998 SL shares held by Vivendi
Environnement, should Vivendi Environnement be the target of a hostile takeover.
A hostile takeover is defined as the direct or indirect acquisition of at least
25% of Vivendi Environnement's capital, which has not been approved by Vivendi
Environnement's Supervisory and Management Board, by a direct competitor of FCC
in Spain. The striking price of the preferential purchase right would be the
average between the price paid by Vivendi Environnement for its stake, which is
about (euro)691 million, and the market value of that stake, calculated in a
transparent manner on the basis of the average price of FCC's shares during the
quarter preceding the hostile takeover.
In addition, Vivendi Environnement confirmed its intention to strengthen revenue
growth in FCC's business activities other than Realia and Grucycsa. Vivendi
Environnement thus awarded the Chairman of FCC's board of directors a casting
vote, until December 31, 2004, to be used in the event of a deadlock on the
decisions of FCC's executive committee on projects with this objective. The
casting vote may become permanent after December 31, 2004, if FCC's revenue does
not meet certain growth targets.
23. INCOME STATEMENT
Employees and personnel charges
Personnel charges including profit sharing amount to (euro)8.7 billion in 2002,
compared to (euro)8.0 billion in 2001 and (euro)7.3 billion in 2000.
((euro)millions) For the year ended at December 31,
----------------------------------------------------------
2002 2001 2000
----------------- ------------------ -----------------
Personnel costs 8,654 7,992 7,295
Profit sharing 39 42 38
----------------- ------------------ -----------------
8,693 8,034 7,333
================= ================== =================
Weighted-average number of employees
By category For the year ended at December 31,
----------------------------------------------------------
2002 2001 2000
----------------- ------------------ -----------------
Executives 34,393 33,320 25,062
Employees 222,784 205,716 190,314
----------------- ------------------ -----------------
257,177 239,036 215,376
================= ================== =================
By segment For the year ended at December 31,
------------------------------------------------------------
2002 2001 2000
------------------- ----------------- ------------------
Water 74,223 72,538 69,103
Waste management 65,007 60,710 53,175
Energy 34,075 30,691 24,051
Transportation 48,389 42,122 37,348
Proactiva 9,876 9,779 9,618
FCC 25,408 23,124 22,075
Other 199 72 6
------------------- ----------------- ------------------
257,177 239,036 215,376
=================== ================= ==================
By method of consolidation For the year ended at December 31,
------------------------------------------------------------
2002 2001 2000
------------------- ------------------ -----------------
Fully consolidation 206,359 191,466 188,602
Proportional consolidation 50,818 47,570 26,774
------------------- ------------------ -----------------
257,177 239,036 215,376
=================== ================== =================
Research and development costs were (euro)92.5 million, (euro)101.6 million and
(euro)79.4 million for 2002, 2001 and 2000 respectively.
Depreciation and Amortization
---------------------------------------------------------
((euro)millions) At December 31, 2002
---------------------------------------------------------
Notes Additions Utilization/ Net
Reversal
In the statement of cash-flows
Amortization
Goodwill 3 327.2 - (327.2)
Tangible assets 5 1,494.9 9.8 (1,485.1)
Intangible assets 4 215.6 1.4 (214.2)
Depreciation of financial assets
Investments accounted for using the cost method 7 23.2 14.8 (8.4)
Other financial assets 7 134.0 54.3 (79.7)
Short term loans 9 146.2 9.3 (136.9)
Cash and cash equivalent and other marketable securities 10 12.9 27.5 14.6
Reserves and allowances (1) 14 756.6 864.3 107.7
Valuation allowances on differed taxes 16 97.7 11.6 (86.1)
---------------------------------------------------------
(2,215.3)
--------------------
Renewal expenses (2) (293.7)
--------------------
(2,509.0)
--------------------
Valuation allowance on current assets
---------------------------------------------------------
Inventories and work in progress 8 26.7 18.2 (8.5)
---------------------------------------------------------
Trade accounts receivables 8 165.7 100.3 (65.4)
---------------------------------------------------------
Other accounts receivables 9.0 11.7 2.7
---------------------------------------------------------
(71.2)
--------------------
(1) Operational, financial and others
(2) All renewal costs for publicity-owned utility networks are considered in the
cash flow statement, as investments, whether the utility network have been
originally financed by the concessionary or not. In addition, in the passage
from net income (loss) to net cash provided by operating activities, all renewal
costs are eliminated under adjustments for depreciations and amortizations.
Goodwill amortization is made up of the following :
((euro)millions) For the year ended at December 31,
-------------------------------------------------------------
2002 2001 2000
restated
----------------- ------------------ ------------------
Goodwill amortization (250.2) (257.9) (232.1)
Impairment of goodwill (77.0) ** (2,652.2) * (74.2)
----------------- ------------------ ------------------
Total (327.2) (2,910.1) (306.3)
================= ================== ==================
* Including (euro)(2,611) million of US Filter Corporation goodwill impairment.
** Including (euro)(40.6) million of Latin America goodwill impairment.
Financial income and expenses
Net financial income for 2002, 2001 and 2000 amounts to a loss of (euro)648.1
million, (euro)798.0 million and (euro)891.8 million, respectively.
It includes interest expenses, foreign exchange income and provisions.
((euro)millions) For the year ended at December 31,
----------------------------------------------------------
2002 2001 2000
restated
----------------- ------------------ -----------------
Interest expense (680.9) (764.2) (875.3)
Other financial income (expense) 142.2 19.7 (36.8)
Provisions (109.4) (53.5) 20.3
----------------- ------------------ -----------------
Financial income (expense) (648.1) (798.0) (891.8)
================= ================== =================
Three reasons explain the reduction in interest expense : the capital increase
in August 2002, significant proceeds from sales and decreases in interest rates
for euros and dollars between 2001 and 2002 from which the Group has profited.
The other components of the financial expense represent (euro)32.8 million in
2002 and (euro)(33.8) million in 2001. They include:
o A gain on the sale of Philadelphia Suburban shares for (euro)110.3 million.
This investment accounted for using the equity method until December 31,
2001 was deconsolidated and reclassified in marketable securities on
January 1st, 2002 because of the planned sale. Consequently, the gain on
sale is included in financial income.
o A provision of (euro)(32.2) million on Vivendi Environnement treasury stock
made up of (euro)(23.8) million for shares charged to equity at June 30th,
2002 book value (average price of (euro)31.8) and (euro)(8.4) million to
treasury shares affected to employee stock purchase plans (average price of
(euro)23.08 as of December 31st, 2002).
o A foreign exchange income of (euro)44 million, mainly due to the effects of
the sale of the Distribution Branch of USFilter.
o Amortizations of the premium on bonds payable for (euro)(33.4) million,
mainly the premium on Vivendi Environnement 1.5% bond.
o Amortizations of borrowing expenses for (euro)(13.5) million.
o Dividends received from non-consolidated affiliates for (euro)16.4 million.
o Valuation allowances ((euro)(30.3) million) on financial assets including
Argentina ((euro)(5.0) million), non consolidated subsidiary in Slovakia
((euro)(6.5) million) and Vivendi Universal shares ((euro)(8.7) million)
and mainly bank commissions for the rest ((euro)(28.5) million).
Other income (expenses)
((euro)millions) For the year ended at December 31,
----------------------------------------------------------
2002 2001 2000
restated
----------------- ------------------ -----------------
Capital gains and losses (31.4) 150.0 729.0
Losses, reserves and impairment of
assets (30.4) (117.0) -
Other 2.1 5.9 48.3
----------------- ------------------ -----------------
(59.7) 38.9 777.3
================= ================== =================
In 2002, capital gains and losses include the losses on sales of Bonna Sabla for
(euro)(44) million, of the Distribution Branch of USFilter for (euro)(59)
million and of Schwarze Pumpe ("Eaux de Berlin" subsidiary) for (euro)(24)
million. They also include the gains on sales of the minority participations in
the subsidiaries of Bristol Water holding and South Staffordshire for (euro)73
million and a capital gain on FCC/Portland merge for (euro)10.7 million.
Losses, reserves and impairment of assets include a reserve on a German
subsidiary not linked to water distribution activity for (euro)(10) million
taking into account the expectations in terms of results.
In 2001, capital gains and losses are related to the sale of Dalkia to EDF for
(euro)121 million and the capital gain on the sale of SAFEI and Midkent for
(euro)34 million.
2002 Bank ratio 2002 Reference
"EBITDA" bank definition
EBIT 1,971.3 Income statement
+ Operational amortization 1,699.3 Note 23 Depreciation and amortization
+ Operational valuation allowance on long term assets - idem
+ Profit sharing 39.0 Note 23 Employees and personnel charges
----------------
(a) "EBITDA" bank definition 3,709.6
----------------
"Net interest expenses" bank definition
Interest expenses 680.9 Note 23 Financial income and expenses
Other financial incomes (expenses) (142.2) idem
----------------
(b) Net interest expenses bank definition 538.7
----------------
Debt
Financial long term debt 12,913.0 Balance sheet
Financial short term debt 3,795.9 Balance sheet
Total gross debt (16,708.9)
Short term financial loans 487.6 Balance sheet
Long term financial loans 512.4 Note 7 : Other financial asset
Marketable securities 260.6 Balance sheet
Cash and cash equivalent 2,381.9 Balance sheet
Total financial assets (3,642.5)
----------------
(c) Total net financial debt 13,066.4
----------------
(d) Interest coverage ratio = (a) / (b) 6.9 4.78 for 2001
(e) Debt payout ratio = (c) / (a) 3.5 4.01 for 2001
The economic ratio "Interest coverage ratio", excluding Philadelphia Suburban
disposal, amounts to 5.7.
24. INVESTMENTS ACCOUNTED FOR USING THE PROPORTIONATE CONSOLIDATION
METHOD
Investments accounted for using the proportionate consolidation method represent
companies in which the Group and other shareholders have agreed to exercise
joint control over significant financial and operating policies.
Summarized financial information for major subsidiaries consolidated under the
proportionate consolidation method is as follows (in millions of euros):
At December 31,
-----------------------------------------------------------
Balance sheet data 2002 2001 2000
------------------ ----------------- ------------------
Non-current assets 9,185.5 8,081.6 5,224.5
Current assets 4,655.0 4,693.9 2,169.6
------------------ ----------------- ------------------
Total assets 13,840.5 12,775.5 7,394.1
================== ================= ==================
Shareholders equity 5,435.4 5,145.4 2,098.3
Minority interests 5.0 163.3 278.5
Financial debt 3,093.2 2,851.9 1,776.2
Reserves and other liabilities 5,306.9 4,614.9 3,241.1
------------------ ----------------- ------------------
Total liabilities and shareholders' equity 13,840.5 12,775.5 7,394.1
================== ================= ==================
2002 2001 2000
------------------ ----------------- ------------------
Income statement data
Net sales 5,569.8 4,923.3 3,050.8
Operating income 464.3 426.3 345.5
Net income 204.3 128.3 184.3
Cash flow data
Operating cash flow 590.9 449.2 274.9
Investing cash flow (849.6) (677.9) (309.4)
Financing cash flow 145.0 311.2 201.8
25. Recent developments
Southern Water
The operation involves both 2002 and 2003. As a result, the whole description is
disclosed in this note.
On March 8, 2002, First Aqua Holdings Limited ("FAH") concluded an agreement to
acquire the company Southern Water, from Scottish Power on the basis of an
enterprise value of (pound)2 billion, which corresponded to its estimated gross
Regulatory Asset Value (RAV) in March 2002. Southern Water is one of the largest
and best performing British water companies and provides water and waste water
treatment services in the South East of England. This agreement was finalized on
April 23, 2002.
On May 7, 2002, Vivendi Water UK ("VW UK"), a 100% owned subsidiary of Vivendi
Water, reached an agreement with FAH to acquire First Aqua (JV Co) Limited ("FA
(JVCo)"), the parent company of Southern Water, on the same economic basis. By
this acquisition, Vivendi Environnement looked to take control of a major well
recognized operator in the UK water market, operating in a dynamic geographical
region, with an access to the wastewater treatment market which will enable to
develop local synergies with other activities of the Group.
In parallel, Vivendi Environnement gave to the financial investors who
subscribed to (pound)374 million of preferred shares of FA (JVCo) a put option
exercisable on the third anniversary of the conclusion of the acquisition
agreement, that is April 23, 2005. Vivendi Environnement has a call option
exercisable between the first and fifth anniversaries of the conclusion of the
FA (JVCo) purchase agreement, that is between April 23, 2003 (or the date of the
conclusion of the purchase agreement between VWUK and FAH, if this is prior to
April 23, 2003) and April 22, 2007.
The acquisition of FA (JVCo) Ltd by VW UK is subject to approval by U.K.
Competition Commission as well as the setting up of long-term non-recourse
financing in order to refinance the existing debt of FA (JVCo) and Southern
Water (the European Commission had already given its agreement to the
transaction on August 23, 2002.)
Vivendi Environnement concluded that both pending conditions requested by the
agreement of May 7, 2002 are not satisfied and decided not to take over Southern
Water. Consequently, Vivendi Environnement opened negotiations with Royal Bank
Investments Limited ("RBIL"), a subsidiary of Royal Bank of Scotland ("RBS") in
the late 2002, in order to transfer the control to RBIL immediately after the
acquisition of Southern Water.
In February 2003, Southern Water Capital ("SWC") and Vivendi Environnement
announced the signature of an agreement by which Southern Water Investments
Limited ("SWI"), a newly created company, will acquire FA (JVCo), Southern
Water's shareholder. RBS will owned 49% by SWC capital, with the remainder held
by others investors. SWC will hold 80.1% of SWI, and Vivendi Environnement will
hold 19.9%. SWC has granted Vivendi Environnement an option to purchase 5.1% of
the common shares of SWI.
This acquisition will be implemented by the simultaneous completion of two
agreements (together the "Transaction"):
1) Vivendi Water UK's acquisition of FA (JVCo), through SWI, pursuant to the
agreement entered into on May 7, 2002; and
2) SWC's acquisition of 80.1% of SWI, the holding company through which SWC
will exercise control on Southern Water.
As a result of these transactions, the (pound)374 million ((euro)568 million) of
preference shares issued on March 7, 2002 will be redeemed by FA (JVCo).
The agreements are subject to regulatory clearances from the UK authorities and
other procedural matters. Contacts are on going with the UK General manager of
Water Services and the UK General manager of Office of Fair trading in
connection with this transaction and some requirements from the UK Competition
Commission. VE believes that regulatory clearance should be forth coming.
SWC and Vivendi Environnement will invest (pound)273 million ((euro)415 million)
and (pound)160 million ((euro)243 million) respectively through a combination of
equity and debt instruments. Vivendi Environnement also intends to underwrite
the subscription by third party investors for a further (pound)110 million
((euro)167 million) of preferred shares with a put at par value onto Vivendi
Environnement after 5 years, bringing its total investment in Southern Water
lower than the previous commitment of (pound)374 million ((euro)568 million).
It is intended that Southern Water will undertake a refinancing of its regulated
business through the capital markets by a ring-fencing whole business
securitization with a structure consistent with those used successfully in the
previous re-financings in this sector.
Commitments as of December 31, 2002
Further to the agreement of March 8, 2002, (relating to the acquisition of
Southern Water), Vivendi Environnement entered into a put option agreement with
a number of financial investors. The put option relates to 74,800 preference
shares issued by FA (JVCO) for a total amount of (pound)374 million ((euro)568
million). At the end 2002, Vivendi Environnement does not hold any ordinary
shares or debt instruments issued by FA (JVCo). The put option to be exercised
by May 23, 2005 is an off balance sheet commitment.
The simplified balance sheet of FA (JVCo) is the following (in millions pounds
of sterling):
Financial assets 1,941 Equity -6
Current assets 86 Preference shares 370
Debts 1,656
Other liabilities 7
---------------------------------------------------------------------------
Total 2,027 2,027
---------------------------------------------------------------------------
NB : The preference shares are net of issuance costs.
The 74,800 preference shares for an amount of (pound)374 million ((euro)568
million) are held by financial investors. The debts correspond to provisional
financing assumed by a banking pool led by Royal Bank of Scotland for an amount
of (pound)1,656 million ((euro)2,515 million). The other liabilities are an
existing bond.
The preference shares on which Vivendi Environnement is committed, carry a fixed
rate of 7% until 2005, and are then remunerated at a rate of 3% payable on their
initial value indexed to the value of the company.
The other characteristics of the put option are the following. Each holder is
able to exercise his put option on the all preferred shares held. The amount to
be paid by Vivendi Environnement in case of exercise by one or several holders
of the put option mainly results from :
(i) issuing price (premium reserve) of each preferred share
(ii) accrued but not paid dividends
(iii) annual compounded interest of 7% applied to accrued but not paid
dividends. Each holder may address an exercise notification of its put option to
Vivendi Environnement with copies sent to the auditors of FA (JVCo) limited, who
will compute, within two days after the reception of the notification, the
amount to be paid by Vivendi Environnement.
Year 2003 situation
Vivendi Environnement should held by the end of the first half year 2003 less
than 20% of the capital of SWI, the controlling shareholder, controlled itself
by RBS. SWC and Vivendi Environnement, with invest (pound)273 million ((euro)415
million) and (pound)160 million ((euro)243 million) respectively through a
combination of equity and debt instruments. Vivendi Environnement intends to
underwrite the subscription by third party investors for a further (pound)110
million ((euro)167 million) of preferred shares with a put at par value onto
Vivendi Environnement after 5 years.
Following the completion of the agreements, the commitments of Vivendi
Environnement, SWC and other third parties would be :
(euro) millions VE SWC Third Total
parties
Equity Instruments
Ordinary shares 15 61 76
Debt Instruments
Preference shares junior A 228 228 (1)
Preference shares junior A2 Neg (2)
Preference shares senior B 7% 167 167 (3)
Subordinated debt senior A 10% 193 193 (4)
Subordinated debt junior B 16% 161 161 (5)
Bonds 2,916 2,916
-------------------------------------------------------------------------------------------------
Total 243 415 3,083 3,741
-------------------------------------------------------------------------------------------------
(1) Non voting rights, junior, redeemable by 35 years
(2) With additional remuneration
(3) Non voting rights, senior, redeemable by 35 years, 7% interest, put on
Vivendi Environnement after 5 years
(4) Subordinated debt senior, 10%, redeemable by 35 years
(5) Subordinated debt junior, 16%, redeemable by 35 years
Vivendi Environnement would exercise significant influence through its holding
and through its representation on the board of directors of SWI (2 directors out
of 7) and Southern Water board (3 directors out of 11). Vivendi Environnement
will account for SWI under the equity method (19.95%) once the transaction is
completed. Vivendi Environnement will account for the junior preference shares A
as a portfolio investment.
The impact in 2003 of the completion of the Southern Water transaction on
Vivendi Environnement's gross debt will be (euro)243 million.
As a result of these transactions, the (pound)374 million ((euro)568 million) of
preference shares issued on March 7, 2002 will be redeemed by FA (JVCo).
Consequently, the end of the put option would not have any effect on 2003 net
income. These preferred shares would be reimbursed at par value. Furthermore,
the economic valuation of the preferred shares based on discounted expected cash
flows over the life of the instruments leads to a present value higher than the
book value.
26. LISTING OF MAIN COMPANIES INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS IN
2002
In 2002, the Group consolidated or accounted for a total of slightly over 2,404
companies, of which the principal companies are:
Group and Address Consolidation % Holding
Vivendi Environnement Full 100.00
36-38, avenue Kleber - 75016 Paris
Water
Vivendi Water Full 100.00
52, rue d'Anjou - 75008 Paris
Generale des Eaux - Sahide and subsidiaries Full 100.00
52, rue d'Anjou - 75008 Paris
Of which in France :
Compagnie des Eaux et de l'Ozone Full 100.00
52, rue d'Anjou - 75008 Paris
Compagnie des Eaux de Paris Full 100.00
4, rue du General Foy - 75008 Paris
Societe Francaise de Distribution d'Eau Full 99.60
4, rue du General Foy - 75008 Paris
Compagnie Fermiere de Services Publics Full 99.86
3, rue Marcel Sembat - Immeuble CAP 44 - 44100 Nantes
Compagnie Mediterraneenne d'exploitation des Services d'Eau Full 99.52
12, boulevard Rene Cassin - 06100 Nice
Societe des Eaux de Melun Full 99.22
Zone Industrielle - 198/398, rue Foch - 77000 Vaux Le Penil
Societe des Eaux de Marseille et ses filiales Prop 48.82
25, rue Edouard Delanglade - BP 29 - 13254 Marseille
Societe des Eaux du Nord Prop 49.54
217, boulevard de la Liberte - 59800 Lille
Societe des Eaux de Versailles et de Saint-Cloud Prop 50.00
145, rue Yves le Coz - 78000 Versailles
Sade-Compagnie Generale de Travaux d'Hydraulique and subsidiaries Full 98.57
28, rue de la Baume - 75008 Paris
Omnium de Traitements et de Valorisation (OTV) and subsidiaries Full 100.00
l'Aquarene - 1, place Montgolfier - 94417 St Maurice Cedex
Sainte-Lizaigne SA Full 99.45
Tour Ariane - 5, place de la Pyramide - 92800 Puteaux La Defense
Prague Water CGE AW Full 99.76
52, rue d'Anjou - 75008 Paris
Group and Address Consolidation % Holding
Of which outside France :
Vivendi Water UK Plc and subsidiaries Full 100.00
37-41 Old Queen Street, London SW1H 9JA (Great-Britain)
US Filter Corporation and subsidiaries Full 100.00
40-004 Cook Street - 92211 Palm Desert (USA)
Berliner Wasser Betriebe Prop 24.95
Anstalt des Offentlichen Rechts - Hohenzollerndamn 45 - 10631 Berlin (Germany)
Servitec KFT Full 100.00
Lovas UT 131b - 1012 Budapest (Hungary)
Vivendi Water Ceska Republica Full 99.76
Sokolovska 238 - Prague 9 (Czech Republic)
OEWA Wasser und Abwasser Full 94.50
Walter Kohn Strasse 1 - 04358 Leipzig (Germany)
Energy
Dalkia - Saint Andre Full 66.00
37, avenue du Mal de Lattre de Tassigny - 59350 St Andre les Lille
Dalkia France Full 65.94
37, avenue du Mal de Lattre de Tassigny - 50350 St Andre les Lille
Cogestar - Saint Andre Full 65.86
37, avenue du Mal de Lattre de Tassigny - 59350 St Andre les Lille
Cogestar 2 - Saint Andre Full 65.81
33 Place Ronde, Quartier Valmy - 92800 Puteaux
Crystal S.A. - Saint Andre Full 65.94
37, avenue du Mal de Lattre de Tassigny - 59350 St Andre les Lille
Dalkia Morava AS Prop 49.18
28 Rijna 152 - 70974 Ostrava (Czech Republic)
Dalkia PLC and subsidiaries Full 50.02
Elizabeth House - 56-60 London Road - Staines TW18 4BQ
(Great-Britain)
Clemessy and subsidiaries Full 65.63
18, rue de Thann - 68200 Mulhouse
Siram, SPA and subsidiaries Prop 50.02
Via Sempone 230- 20016 Pero - Italy
Group and Address Consolidation % Holding
Waste Management
Compagnie Generale d'Entreprises Automobiles and subsidiaries (Onyx) Full 100.00
Parc des Fontaines - 163 / 169, avenue Georges Clemenceau - 92000 Nanterre
Societe d'Assainissement Rationnel et de Pompage and subsidiaries (S.A.R.P.) Full 99.51
162/16 Energy Park IV - 162/166, boulevard de Verdun - 92413 Courbevoie Cedex
SARP - Industries and subsidiaries Full 99.79
427, route du Hazay - Zone Portuaire Limay-Porcheville-78520 Limay
Onyx Environmental Group Plc Full 100.00
Onyx house - 401 Mile end Road - E34 PB - London (Great-Britian)
Onyx North America Corp. Full 100.00
3225 Aviation Avenue - 4th Floor - 33133 Miami (USA)
Onyx Waste Services Full 100.00
One Honey Creed Corporate Center - 125 South - 84th Street - Suite 200
WI 53214 Milwaukee (USA)
Collex Waste Management Pty Ltd Full 100.00
280 Georges Street - Level 12 - P.O. Box H126 Australia Square - NSW 1215 - Sydney
(Australia)
Onyx Umweltservice GmbH Full 100.00
Am Muhlengarten 4 - 66292 Riegelsberg (Germany)
Marius Pedersen Full 65.00
Obaekvej 49 - 5863 Ferritslev (Denmark)
Transportation
CGEA Connex (Compagnie Generale d'Entreprises Automobiles) Full 100.00
Parc des Fontaines - 163 / 169, avenue Georges Clemenceau - 92000 Nanterre
Connex Transport AB (formerly Aktiebolaget Linjebuss) Full 100.00
Englundavagen 9 - Box 1820 - 17124 Solna (Sweden)
Connex Transport UK Ltd (formerly Connex Rail Ltd) Full 100.00
41/45 Blackfriars Road - SE1 8PG London (Great-Britain)
CGTV (Compagnie Generale des Transports Verney) Full 99.58
20, avenue du General Leclerc - 72000 Le Mans
Connex Verkehr GMBH Full 100.00
Rodelheimer Bahnweg 31,
60489 Francfort (Deutschland)
Connex Group Australia PTY LTD Full 100.00
Level 3, Flinders St Station, 223 Flinders St
Melbourne, Victoria 3000 (Australia)
F.C.C.
F.C.C. and subsidiaries (F.C.C.) Prop 25.72
Calle Balmes 36 - 08007 Barcelona (Spain)
Proactiva Full 62.86
216 Paso de la Castellana - 28046 Madrid (Spain)
EM Equity method
Prop Proportionate
27. SUPPLEMENTAL DISCLOSURES
The following information has been prepared to present supplemental disclosures
required under U.S. GAAP and SEC regulations applicable to the Group.
27A. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING POLICIES GENERALLY
ACCEPTED IN THE UNITED STATES AND FRANCE
The consolidated financial statements of the Group have been prepared in
accordance with accounting principles generally accepted in France ("French
GAAP") which differ in certain respects from accounting principles generally
accepted in the United States ("U.S. GAAP"). The principal differences between
French GAAP and U.S. GAAP as they relate to the Group are discussed in further
detail below.
Use of the Proportionate Consolidation Method
Under French GAAP, it is appropriate to use the proportionate consolidation
method for subsidiaries over which the Group and other shareholders have agreed
to exercise joint control over significant financial and operating policies.
Under the proportionate consolidation method, the Group recognizes the assets,
liabilities, equity, revenues and expenses of subsidiaries to the extent of its
interest in the Group ownership.
Under U.S. GAAP, when the Group controls a subsidiary based on majority
ownership or voting or other rights, the subsidiary is fully consolidated. When
the Group does not exercise control over a subsidiary, but has significant
influence over the entity, the Group uses the equity method to account for its
investment. Summarized financial information for those investments accounted for
under the proportionate consolidation method are included in note 24.
This difference in accounting policy has no effect on either net income or
shareholders' equity.
Use of the Equity Method
Under French GAAP there are several criteria to be met which result in the
presumption that equity accounting should be used. For investments under 20%,
equity accounting is followed if the investor is determined to have significant
influence due to the relative level of ownership, board of directors
representation, and other contractual relationships. Another consideration is
the level of ownership by others in the investee. The Group applies the criteria
described in Note 2.
Under U.S. GAAP, equity accounting is generally required when an investor's
ownership interest is equal to or greater than 20% of the investee's total
voting securities. In unusual situations where the ownership interest is less
than 20% equity accounting may be appropriate if significant influence exists as
the result of other contractual relationships and board representation.
Income taxes
Under French GAAP, the Group does not recognize deferred tax assets on net
operating loss carryforwards or on temporary differences when the recovery of
the related deferred tax asset is not probable.
Under U.S. GAAP, deferred tax assets are recognized for deductible temporary
differences and net operating loss carryforwards and are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax asset will not be realized.
This difference in accounting policy has no effect on either net income or
shareholders' equity.
Goodwill
Under both U.S. and French GAAP, goodwill arising from purchase business
combinations is determined as the excess of the consideration paid by the
acquirer over the fair value of the identifiable assets acquired and liabilities
assumed as of the acquisition date.
Reduction of Shareholders' equity
Under French GAAP, the Group recognizes goodwill as an asset and amortizes it
over the estimated useful life. However until December 1999, if the
acquisition was financed with equity securities of the Group, the resulting
goodwill could be recorded as a reduction of shareholders' equity (this
option was adopted in 1999 and 2000 for the acquisition of United States
Filter Corporation as described in Note 3. Under U.S. GAAP, this option is
not available and goodwill is recorded as an asset and amortized over the
estimated useful life, not to exceed 40 years. This difference is related to
the year 2000.
Under French GAAP on January 1, 2001, Vivendi Environnement has forgone the
imputation of the goodwill of US Filter recorded as a reduction of
shareholder's equity. As a consequence of which, there is no longer a
difference between French GAAP and U.S. GAAP.
Specific transactions: Businesses sold by Vivendi Universal
Upon forming the Group, Vivendi Universal sold certain subsidiaries and
affiliates to the Group. According to French GAAP, these transactions were at
market value which, in certain cases, has resulted in the generation of
additional goodwill. Under U.S. GAAP, transfers of assets among entities
under common control, including transfers of operating subsidiaries, are
recorded at the predecessor's historical cost basis.
Impairment of goodwill
See note 27B
Dilution profit or capital gain
There is a difference between French and U.S. GAAP regarding the amount of
dilution profit or capital gain due to the impact of U.S. GAAP adjustments on
the carrying value of sold entities. These U.S. GAAP adjustments are posted as
goodwill and therefore have been reported on this line item.
Intangible Assets
Start-up Costs
Under French GAAP, certain costs, such as start-up costs, are capitalized and
amortized over their useful lives or the duration of the contract, if
applicable.
Under U.S. GAAP, start-up costs are charged to expense in the period they are
incurred.
Other Intangible Assets Acquired in Business Combinations
Under French GAAP, trademarks and market shares acquired in a business
combination are not required to be amortized.
For 2001 and 2000 under USGAAP intangible assets acquired were amortized over
their useful lives up to 40 years.
From January 1, 2002, those intangible assets with a finite useful life are
amortized over their useful lives, those intangible assets with an indefinite
useful life are not amortized and are subject to an annual impairment test,
or more frequently if circumstances dictate. (Described in note 27B)
Public Service Contracts
Commitments to Maintain and Repair Assets
Under French GAAP, a few consolidated subsidiaries, being generally jointly
controlled, apply the accrue in advance method to account for repair costs.
Under U.S. GAAP, the Group applies the expensed as incurred method for
maintenance and repair expenditures.
Payments to Local Authorities
Under French GAAP, these obligations are not recorded as a liability on the
balance sheet. The debt service payments are expensed in a manner that
results in the straight line recognition of the total payments over the
contract period. The payments made in early years of the contract period may
exceed the straight line expense amount. This difference is recorded as a
prepaid expense and amortized to income over the remaining contract period so
as to achieve the straight line expense amount throughout the contract
period.
Under US GAAP, the present value of the total obligation has been recorded as
debt on the balance sheet. The interest element of the obligation is
amortized to income so as to achieve a constant rate of interest on the
outstanding liability.
Reserves
Under French GAAP, certain reserves and allowances may be provided, including
reserves for repairs and replacement, and restructuring charges, when it is
possible that those costs will be incurred or when management decisions are
taken, but not yet documented.
Under U.S. GAAP, contingent losses are accrued only if it is probable that a
liability had been incurred at the date of the financial statements and the
amount of loss can be reasonably estimated. In addition, for certain reserves,
such as restructuring charges, additional criteria must be met. If these
criteria are not met, the provision for these reserves and allowance may not be
recognized.
Financial Instruments
Investment Securities
Under French GAAP, investments in debt and non-consolidated equity securities
are recorded at acquisition cost and an allowance is provided if management
deems that there has been an other-than-temporary decline in fair value.
Unrealized gains and temporary unrealized losses are not recognized.
Under U.S. GAAP, investments in debt and equity securities are classified
into three categories and accounted for as follows:
Debt securities that the Group has the intention and the ability to hold to
maturity, are carried at cost and classified as "held-to-maturity".
Debt and equity securities that are acquired and held principally for the
purpose of sale in the near term are classified as "trading securities" and
are reported at fair value, with unrealized gains and losses included in
earnings. All other investment securities not otherwise classified as either
"held-to-maturity" or "trading" are classified as "available-for-sale"
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in shareholders' equity.
Under U.S. GAAP, Vivendi Universal shares owned by the Group are accounted
for as "available-for-sale securities".
Convertible bonds
Under French GAAP, the accrual of redemption premium is optional. Under U.S.
GAAP, the redemption premium is accrued as financial interest expense. The
Group's convertible bonds include a beneficial conversion feature associated
with the contingent conversion of the bonds into the Group's shares or
Vivendi Universal's shares. The conversion was contingent upon the Group
effecting an initial public offering of its shares, which it did in July,
2000. In accordance with French GAAP, the Group has not recorded financial
interest expense in connection with the beneficial conversion feature. Under
U.S. GAAP, a financial interest expense related to the feature computed upon
the full amount of bonds eligible was recorded as of the date of the initial
public offering.
Treasury Shares
Under French GAAP, shares of the Group's own stock owned by the Group and its
subsidiaries are recorded as financial assets in statutory accounts and as a
reduction of consolidated shareholder's equity, or as marketable securities in
the consolidated financial statements if those shares are acquired to stabilize
the market price or in connection with stock options granted to directors and
employees.
Under U.S. GAAP, treasury shares are recorded as a reduction of shareholders'
equity. Profit and loss on the disposal of treasury shares is recognized as an
adjustment to shareholders' equity.
Derivative Financial Instruments
According to French GAAP, derivative financial instruments are not recorded to
the consolidated balance sheet. The effects of financial instruments which
qualify as hedging instruments are included in net income along with the
corresponding hedged item for those financial instruments which do not qualify
as hedging instruments, a provision is recorded when their market value is
negative.
On January 1, 2001, Vivendi Environnement adopted SFAS 133 "Accounting for
derivative instruments and hedging activities". According to SFAS 133,
derivative financial instruments (including those embedded in other contracts)
should be recorded on the balance sheet at their fair value. Changes to fair
value are recorded depending on whether the derivative instrument is classified
as a fair value hedge or a cash-flow hedge, or is regarded as not being a
hedging instrument under SFAS 133.
The variations of fair value hedges are recorded in financial income (expenses).
The effect on income is matched by the reevaluation of the hedged asset, debt or
firm commitment which is also recorded in financial income (expenses).
The variation of cash-flow hedges are recorded under other comprehensive income.
They are recorded in income depending on the realization of the underlying
cash-flow.
The qualification of the hedge, results from the initial intention of the
financial instrument as a means of hedging an asset, debt, firm commitment or
future cash-flow. The effectiveness of the hedging instrument should be
periodically tested to show the correlation between the changes in the hedging
instrument and the hedged item. The ineffective part of the hedging instrument
is systematically recorded to financial income (expenses).
The derivative instruments used by Vivendi Environnement as part of its risk
management, but which do not constitute hedging instruments under SFAS 133 are
recorded at their fair value, with changes to their value included in net income
of the exercise.
Due to its financial operations, Vivendi Environnement is exposed to market
risks (essentially due to changes in interest rate or exchange rates).
Management uses these financial instruments to limit these financial risks.
Nevertheless, some of the financial instruments used do not satisfy the criteria
defined by SFAS 133 to qualify as hedging instruments. Consequently, the
volatility of the market value of these derivative instruments is reflected in
financial income (expenses).
Stock Based Compensation
Vivendi Universal has adopted stock option incentive plans that grant options on
its common shares to certain directors and officers, including those of the
Group. Vivendi Universal also maintains employee stock purchase plans that allow
substantially all full-time employees of the Group and its subsidiaries to
purchase shares of Vivendi Universal.
According to the agreement signed on December 20, 2002 between Vivendi Universal
and Vivendi Environnement, Vivendi Universal assumes the responsibility for
these plans until their maturity.
In addition, Vivendi Environnement has implemented a stock option plan
attributed to a limited number of employees.
Under French GAAP, common shares issued upon the exercise of options granted to
employees and directors are recorded as an increase to share capital at the
cumulative exercise price. Vivendi Environnement shares sold to employees
through qualified employee stock purchase plans are reclassified from marketable
securities to share capital. The difference between the carrying value of the
treasury shares and the cumulative exercise price by the stock purchase plan is
recognized as a gain or loss in the period that the shares are sold. In
accordance with French GAAP, the Group has not recorded compensation expense on
stock-based plans with a discounted exercise price of up to 20% off the fair
value of the common shares at the date of grant.
Under U.S. GAAP, APB opinion No. 25 defines plans that grant or sale of common
shares to employees as compensatory if such plans are not open to substantially
all employees and do not require the employee to make a reasonable investment in
the shares, usually defined as no less than 85% of the market value at the grant
date. If a plan is deemed to be compensatory, APB Opinion No. 25 requires that
the compensation arising from such plans be measured based on the intrinsic
value of the shares granted or sold to employees. For fixed plans remuneration
is the difference between the exercise price of the stock option and the market
value of the corresponding shares. For compensatory stock option plans,
remuneration is recognized in the period for which the relative service is
performed.
Pension Plans
Since January 1997, the Group has adopted an accounting policy to record pension
obligations, covering all eligible employees, using the projected unit credit
method. The transition obligation as of the date of adoption is amortized over
the average residual life of the employees.
Under U.S. GAAP, the projected unit credit method is required to be applied as
of January 1, 1989. The transition obligation or fund excess determined as of
January 1, 1989 is amortized over the average residual active life of the
population that was covered under the plan at that date.
Under French GAAP, postretirement benefits other than pensions are recorded as
expense when amounts are paid.
Under U.S. GAAP, the Group must recognize an obligation for amounts to be paid
under postretirement plans, other than pensions. A postretirement transition
obligation may be determined as of January 1, 1995 and amortized over the
estimated average life of retirees covered by the plan. Current period charges
are based on estimated future payments to expected retirees.
Southern Water transaction
Under French GAAP, the put option related to preferred shares issued by FA
(JVCo) is considered as an off balance sheet commitment. Under US GAAP, FA
(JVCo) is treated as a special purpose entity and is fully consolidated.
February 2003 agreements between Southern Water Capital and Vivendi
Environnement are currently analyzed. The consolidation method of Southern Water
Investments Limited is not yet determined.
27B Application of SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and
Other Intangible Assets".
Business combinations in 2002
SFAS 141 requires that all business combinations initiated after June 30, 2001
be accounted for as purchases. SFAS 142 requires that goodwill and intangible
assets with indefinite useful lives acquired after June 30, 2001 should not be
amortized. The Group has accounted for business combinations according to SFAS
141 and SFAS 142. During 2002, the Group has not undertaken any significant
acquisitions.
Application of the new accounting pronouncements during the transition period
Review of existing intangible assets and goodwill with regard to the new
criteria
The review of intangible assets and goodwill existing on January 1, 2002 with
regard to the changes in accounting method has driven the Group to reclass to
goodwill an net amount of (euro)240 million from market share, which no longer
fulfill the conditions to be accounted for as a separate intangible asset.
Review of the useful lives of intangible assets
The review of the useful lives of intangible assets has lead the Group to
reclass under U.S. GAAP those assets with an indefinite useful such as
trademarks for a total of (euro)1.6 billion. These trademarks were up until 31
December 2001 amortized over 40 years under U.S. GAAP, and were not amortized
under French GAAP. The impact of this reclassification on net income in 2002
under U.S. GAAP is (euro)43 million. As of December 31, 2002 those intangible
assets with an indefinite useful life in U.S. GAAP amount to (euro)1.6 billion,
those intangible assets with a finite useful life amount to (euro)1.8 billion.
Transitional impairment test on indefinite useful life intangible assets
Those intangible assets with an indefinite useful life are almost exclusively
the trademarks of US Filter ((euro)1.6 billion). These trademarks have been
reviewed by an independent expert who has confirmed their value. As of December
31, 2002 no impairment charge has been accounted for those intangible assets
with an indefinite useful life.
Transitional impairment test on goodwill
The application of the different criteria to determine the reporting units has
lead the Group to define 6 reporting units: US Filter, Water rest of the world,
Onyx, Dalkia, Connex and Latin America. As part of the first step of the
impairment testing, these units were valued according to the discounted cash
method. This has enabled the comparison of their estimated fair value to their
carrying value. The fair values of US Filter and Latin America were inferior to
their carrying values, and for these reporting units the Group has undertaken
the second step of goodwill impairment testing. The evaluation of US Filter was
undertaken using a projection over 10 years, a terminal value and a discount
rate of 7%. The evaluation of Latin America was undertaken using cash flow
projections for each country and using discount rates of between 10.9 and 17.9%.
After completion of the second stage of the impairment tests, the Group was lead
to recognize an impairment charge on January 1, 2002 of (euro)2,587 million for
US Filter and (euro)34 million for Latin America.
Impairment testing during 2002 for intangible assets with an indefinite useful
life and goodwill
The Group has actualized at the end of 2002 those evaluations undertaken during
the transition period. For US Filter, the discount rate used was 6% which takes
into account the fall in the risk free interest rate for the US. The impairment
tests which were undertaken lead to an additional impairment charge of (euro)83
million.
27C NEW ACCOUNTING PROCEDURES IN THE UNITED STATES
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143 "Accounting for Asset Retirement Obligations" which becomes effective in
January 2003. This statement addresses accounting and reporting for obligations
and costs, which will occur when the long-term assets are retired. Among other
things, the statement requires that the present value of the liability
associated with future asset retirements be recorded on the balance sheet when
an obligation has been incurred and when it can be reasonably measured. The
amortization of the capitalized costs and increase in the present value of the
obligation which result from the passage of time, are charged to earnings.
During 2002, the Group has carried out an inventory of all sites concerned but
has not determined the financial impact on its 2003 consolidated financial
statements.
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS
146"). SFAS 146 replaces EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring), and changes the timing of
recognition for certain exit costs associated with restructuring activities.
Under SFAS 146 certain exit costs would be recognized over the period in which
the restructuring activities occur. Currently, exit costs are recognized when
the Company commits to a restructuring plan. SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002,
though early adoption is allowed. The Company will adopt SFAS 146 for exit or
disposal activities that are initiated after January 1, 2003. The provisions of
SFAS 146 could result in the Company recognizing the cost of future
restructuring activities over a period of time as opposed to as a one-time
expense.
In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires that upon
issuance of a guarantee, the guarantor must recognize a liability for the fair
value of the obligation it assumes under that guarantee. The disclosure
provisions of FIN 45 are effective for financial statements of annual periods
that end after December 15, 2002. The provisions for initial recognition and
measurement are effective on a prospective basis for guarantees that are issued
or modified after December 31, 2002. The Group is currently assessing the
impacts of FIN 46 on its 2003 financial statements.
In December 2002, the Financial Accounting Standards Board issued FASB Statement
No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure
("SFAS 148"). This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), to provide alternative methods of
transition to SFAS 123's fair value method of accounting for stock-based
employee compensation. It also amends the disclosure provisions of SFAS 123 to
require prominent disclosure in the summary of significant account policies of
the effects of an entity's accounting policy with respect to stock-based
employee compensation on reported net income and earnings per share in annual
financial statements. SFAS 148's amendment of the transition and annual
disclosure requirements are effective for fiscal years ending after December 15,
2002. Refer to Note 27G for disclosures related to stock based compensation. The
Company intends to continue to account for stock-based compensation based on the
provisions of APB Opinion No. 25.
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities an interpretation of ARB No. 51 ("FIN 46"). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The disclosure provisions of
FIN 46 are effective for financial statements initially issued after January 31,
2003. Public entities with a variable interest in a variable interest entity
created before February 1, 2003 shall apply the consolidation requirements of
FIN 46 to that entity no later than the beginning of the first annual reporting
period beginning after June 15, 2003. FIN 46 is effective for all new variable
interest entities created or acquired after January 31, 2003. The Group is
currently assessing the impacts of FIN 46 on its financial statements.
27D.RECONCILIATION OF SHAREHOLDERS' EQUITY AND NET INCOME TO U.S. GAAP
The following is a summary reconciliation of shareholders' equity as reported in
the consolidated balance sheet to shareholders' equity as adjusted for the
approximate effects of the application of U.S. GAAP for the period ended
December 31, 2002, 2001 and 2000, and net income as reported in the consolidated
statement of income to net income as adjusted for the approximate effects of the
application of U.S. GAAP for the period ended December 31, 2002, 2001 and 2000
(in millions of euros).
At December 31,
--------------------------------------------------
2002 2001 2000
-------------- --------------- ---------------
Shareholders' equity as reported in the
consolidated balance sheets 6,329.6 5,740.0 6,208.3
Adjustments to conform to U.S. GAAP:
Goodwill (Gross) (852.2) (1,213.4) 687.4
Goodwill accumulated amortization (61.5) 2,518.1 (134.4)
Dilution profit or capital gain/loss 39.1 16.5 17.0
Intangible assets (Gross) (343.2) (103.0) (61.8)
Intangible assets depreciation (119.8) (153.5) (97.1)
Commitments to maintain and repair assets 200.2 189.1 349.8
Payments to local authorities (171.2) (166.1) (168.0)
Reserves 44.4 81.5 64.8
Treasury shares (92.1) (159.4) (44.3)
Other financial instruments (243.9) 79.7 36.3
Stock based compensation (14.9) (199.8) (188.0)
Pension plans (9.9) (5.1) (12.9)
Leases (property, plant & equipment) (3.0) 0.4 (6.9)
Use of equity method - (38.5) (20.0)
Others (25.4) 16.4 (1.6)
Tax effect of above adjustments 247.0 177.8 (59.4)
-------------- --------------- ---------------
U.S. GAAP Shareholders' Equity 4,923.2 6,780.7 6,569.2
============== =============== ===============
For the year ended at December 31,
--------------------------------------------------
2002 2001 2000
-------------- --------------- ---------------
Net income as reported in the
consolidated statements of income 339.2 (2,251.2) 614.8
Adjustments to conform to U.S. GAAP:
Goodwill (Gross) 67.7
Goodwill amortization (2,415.2) 2,481.3 (37.7)
Dilution profit or capital gain/loss 33.4 (15.6) (22.5)
Intangible assets (Gross) (10.5) (9.7) (24.1)
Intangible assets amortization (27.4) (47.9) (41.1)
Commitments to maintain and repair assets (9.9) (43.8) 25.7
Payments to local authorities (1.6) 2.0 (0.7)
Reserves (48.2) (12.8) 43.2
Treasury shares 33.6 21.0 (8.4)
Other financial instruments (8.8) (84.5) (71.6)
Stock based compensation 3.6 (19.3) (47.0)
Pension plans 2.1 0.3 (5.7)
Leases (property, plant & equipment) (1.8) (1.1) (0.2)
Use of equity method - (0.4) (5.0)
Others (3.4) (6.2) (0.6)
Tax effect of above adjustments 58.4 168.2 14.3
-------------- --------------- ---------------
U.S. GAAP Net Income (1,988.8) 180.3 433.4
============== =============== ===============
27E. PENSION PLAN AND OTHER COST RETIREMENT BENEFITS OTHER THAN PENSION PLANS
Disclosures, presented in accordance with SFAS 132, are as follows (in millions
of euros):
Pension Benefits Other Benefits
-------------------------------------- ---------------------------------------
2002 2001 2000 2002 2001 2000
----------- ------------ ----------- ------------ ----------- ------------
Change in benefit obligation
Benefit obligation at beginning of year 927.9 1,085.0 983.8 - 8.3 7.4
Service cost 42.2 51.5 46.8 - - 0.1
Interest cost 54.8 48.7 60.6 - - 0.4
Plan participants contributions 8.2 6.6 10.7 - - -
Business combinations 36.4 5.1 11.4 - - -
Disposals (5.4) (239.5) (5.7) - (1.6) -
Curtailments (16.9) (1.3) (2.2) - (6.7) -
Actuarial loss (gain) (40.0) (16.7) 22.1 - - 1.0
Benefits paid (33.6) (28.2) (41.3) - - (0.7)
Special termination benefits - 1.8 -- - - -
Others (foreign currency translation) (0.5) 15.0 (1.2) - - 0.1
Benefit obligation at end of year 973.1 927.9 1,085.0 - - 8.3
Change in plan assets
Fair value of plan assets at beginning of year 902.7 1,258.7 1,278.4 - - -
Actual return on plan assets (117.4) (57.2) (15.6) - - -
Group contributions 16.1 17.8 23.4 - - -
Plan participant contributions 8.2 6.6 10.7 - - -
Acquisitions 0.3 0.3 1.3 - - -
Disposals (3.8) (314.9) (0.1) - - -
Curtailments (7.5) -- (2.7) - - -
Benefits paid (29.0) (26.7) (32.4) - - -
Others (foreign currency translation) (3.6) 18.2 (4.3) - - -
Fair value of plan assets at end of year 766.0 902.7 1,258.7 - - -
Funded status of plan (207.2) (25.2) 173.7 - - (8.3)
Unrecognized actuarial loss 264.3 131.6 (11.3) - - (0.6)
Unrecognized actuarial prior service costs (71.2) (74.9) (141.1) - - -
Unrecognized actuarial transition obligation (9.2) (16.1) (17.9) - - -
Others (7.7) (38.0) (45.2) - - -
Accrued benefit cost (31.0) (22.6) (41.8) - - (8.9)
Amounts recognized in the balance sheets consist of (in millions of euros):
Pension Benefits Other Benefits
--------------------------------------- ----------------------------------------
2002 2001 2000 2002 2001 2000
------------ ------------ ----------- ------------ ------------ -----------
Accrued benefit liability (including MLA) (188.2) (157.2) (157.8) - - (8.8)
Prepaid benefit cost 138.5 132.6 115.4 - - -
Net amount accrued for under U.S. GAAP (49.7) (24.6) (42.4) - - (8.8)
Intangible assets (MLA)(a) 18.7 2.0 0.6 - - -
Net amount recognized under U.S. GAAP (31.0) (22.6) (41.8) - - (8.8)
(a) Adjustment for U.S. GAAP purpose: the benefit liability accrued under U.S.
GAAP has to be the minimum between the accumulated benefit obligation net of
fair value of plan assets and the net amount recognized under U.S. GAAP.
Net accruals in the accompanying consolidated balance sheet can be compared with
balances determined under U.S. GAAP as follows (in millions of euros):
Pension Benefits Other Benefits
--------------------------------------- -------------------------------------
2002 2001 2000 2002 2001 2000
------------ ------------ ------------ ------------- ---------- ------------
Net amount accrued for under U.S. GAAP (49.7) (24.6) (42.4) - - (8.8)
Excess funding of plans recognized in income only
when paid back to the Group - - - - - -
Changes in scope (64.5) - - - - -
Impacts of transition obligation, of prior service
cost and of actuarial gains recognized with a - (73.0) (0.8) - (1.6) (0.6)
different timing under local regulations
Minimum liability adjustments (MLA) 18.8 2.0 0.6 - - -
Net amount accrued for under French GAAP in the
accompanying consolidated balance sheet (95.4) (95.6) (42.7) - (1.6) (9.4)
Accrued (233.7) (228.2) (158.1) - (1.6) (9.4)
Prepaid 81.9 132.6 115.4 - - -
Net periodic cost under U.S. GAAP was as follows (in millions of euros):
Pension Benefits Other Benefits
--------------------------------------- -------------------------------------
2002 2001 2000 2002 2001 2000
------------ ------------ ------------ ------------- ---------- ------------
Service cost 42.2 51.5 46.8 - - 0.1
Expected interest cost 54.8 48.7 60.6 - - 0.4
Expected return on plan assets (69.7) (69.1) (88.7) - - -
Amortization of unrecognized prior service cost (8.5) (8.5) (8.7) - - -
Amortization of actuarial net loss (gain) 22.2 8.0 (13.1) - - (0.1)
Amortization of net transition obligation (3.1) (5.4) (2.4) - - -
Curtailments/Settlements (11.5) (2.4) 0.5 - (6.7) -
Others (10.0) 7.1 20.3 - - -
Net periodic benefit cost under U.S. GAAP 16.4 29.8 15.3 - (6.7) 0.4
The retained assumptions are as follows :
Pension Benefits Other Benefits
--------------------------------------- -------------------------------------
2002 2001 2000 2002 2001 2000
------------ ------------ ------------ ------------- ---------- ------------
Discount rate 5.9% 5.6% 5.8% - - 5.4%
Expected return on plan assets 7.4% 7.0% 7.4% - - 6.4%
Expected residual active life (in years) 13.3 13.7 13.4 - - 14.6
As regards health insurance plans, an increase of one percent in health expenses
would not have any significant impact.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: April 28, 2003
VIVENDI ENVIRONNEMENT
By: /s/ Jerome Contamine
----------------------------------
Name: Jerome Contamine
Title: Chief Financial Officer