ANNUAL REPORT 2005/06 FINANCIAL REPORT

ANNUAL REPORT 2005/06 FINANCIAL REPORT

ANNUAL REPORT 2005/06 FINANCIAL REPORT This Financial report is an integral part of the Document de Référence 2005/06, which comprises the Activity report 2005/06 and this Financial report 2005/06. The original French version of this Document de Référence was filed with the Autorité des marchés financiers on 2 June 2006 in accordance with Article 212-13 of its Règlement Général. It may be used in connection with an offering of securities if it is supplemented by a prospectus ("note d'opération") for which the Autorité des marchés financiers has issued a visa.

CONTENTS 1 2 3 4 5 MANAGEMENT DISCUSSION AND ANALYSIS 5 Overview 6 General comments on activity and results 13 Operating and financial review 31 Outlook 46 FINANCIAL INFORMATION 47 Consolidated financial statements 48 Statutory accounts 131 RISKS 151 Risk factors 152 Certain legal risks 155 Environmental, health and safety risks (EHS) 156 Insurance 157 CORPORATE GOVERNANCE 159 The Board of Directors and its Committees 161 The Executive Committee 169 The Disclosure Committee 169 Chairman s report pursuant to article L. 225-37 of the French Commercial Code 170 Independent Auditors report prepared in accordance with article L. 225-235 of the French commercial Code 183 Compensation of executive and non-executive Directors and members of the Executive Committee 184 Interests of the officers and employees in the share capital 189 ADDITIONAL INFORMATION 193 Share capital 194 Information on the Company 200 Other information 207 Simplified organisation chart 209 Information on the Document de Référence 210

1 MANAGEMENT DISCUSSION AND ANALYSIS ON CONSOLIDATED FINANCIAL STATEMENTS as at 31 March 2006 Fiscal year 2005/06 You should read the following discussion together with the 31 March 2006 Consolidated Financial Statements. During the periods discussed in this section, we undertook several significant transactions that affected the comparability of our financial results between periods. In order to allow you to compare the relevant periods, we present certain information both as it appears in our financial statements, and adjusted for Business composition and exchange rate variations to improve comparability. We describe these adjustments under Use and reconciliation of non-gaap financial measures Comparable basis. In the following discussion, actual and comparative information presented is prepared on the basis of IFRS accounting policies. OVERVIEW 6 Introduction 6 Status of our action plan and main events of fiscal year 2005/06 6 Recent developments 12 GENERAL COMMENTS ON ACTIVITY AND RESULTS 13 Consolidated Key Financial Figures 13 Change in Business composition and presentation of our accounts, non-gaap measures 15 Sector review 21 OPERATING AND FINANCIAL REVIEW 31 Income Statement 31 Balance sheet 34 Liquidity and capital resources 36 Maturity and liquidity 38 Impact of exchange rate and interest rate fluctuations 39 Pension accounting 43 Off-balance sheet commitments and contractual obligations 45 OUTLOOK 46 5

Overview OVERVIEW INTRODUCTION We serve the power generation market through our Power Turbo-Systems / Power Environment Sector and our Power Service Sector, and the rail transport market through our Transport Sector. We design, supply and service a complete range of technologically advanced products and systems for our customers, and possess a unique expertise in systems integration and through-life maintenance and service. We believe the power and transport markets in which we operate are sound, offering: solid long-term growth prospects based on customers need to expand essential infrastructure systems in developing economies and to replace or modernise them in the developed world; and attractive opportunities in service and systems. We believe we can capitalise on our long-standing expertise in these two markets to achieve competitive differentiation. We are strategically well positioned for the following reasons: we are one of the top players in all major market segments; we benefit from one of the largest installed bases of equipment in power generation and rolling stock, which enable us to develop our service Business; we are a recognised technology leader in most of our fields of activity, providing best-in-class technology; and we have global reach, with a presence in around 70 countries worldwide. STATUS OF OUR ACTION PLAN AND MAIN EVENTS OF FISCAL YEAR 2005/06 On 12 March 2003, we presented our new strategy and action plan to overcome an insufficient level of profitability and cash generation which comprised three elements: disposing of some of our Businesses to focus our activities on the Power and Transport markets; improving operational performance and adapting our industrial base to market conditions; and strengthening our financial base. In fiscal year 2005/06, we achieved very significant progress in these three directions. Our disposal programme is almost completed, the problems experienced with the GT24/GT26 are now resolved, our restructuring programme is in its final stage of implementation and our new organisation has enabled us to better manage and control our projects. The results of these actions are translated into our operational performance as we have achieved or exceeded all the targets we had set for ourselves: on a comparable basis our order intake at 15,290 million has increased by 8%; sales stand at 13,413 million or a 8% increase on a comparable basis; operating margin, which does not take into account Marine as this activity is treated as a discontinued operation, stands at 5.6% versus 3.6% last year, above our objective of 5.0% in IFRS and significantly above our original target of 6% in French GAAP. If Marine had not been treated as a discontinued operation, the operating margin would have stood at 5.3% versus 2.5% last year, still above our stated target; and free cash flow (as defined in p 16 below) has improved from 77 million to 525 million ( (136) million and 410 million respectively if including the free cash flow of Marine). 6

1MANAGEMENT DISCUSSION AND ANALYSIS Overview Our financial situation has been strengthened further. Our gearing has reduced from 104% as of 1 April 2005 to 68% as of 31 March 2006 and a new bonding programme has been put in place to cover our needs until July 2008. Disposal programme > Fiscal year 2003/04 Disposal of our Industrial Turbines Businesses On 26 April 2003, we signed binding agreements to sell our small gas turbines Business and medium-sized gas turbines and industrial steam turbines Businesses in two transactions to Siemens AG. In the fiscal year ended 31 March 2003, the Industrial Turbines Businesses generated sales of approximately 1.25 billion and had an operating margin of approximately 7%. At 31 March 2003, these Businesses employed around 6,500 people. Disposal of our Transmission & Distribution (T&D) activities On 25 September 2003, we signed a binding agreement to sell our T&D activities (our T&D Sector excluding the Power Conversion Business) to Areva. This transaction closed on 9 January 2004, except for some minor Businesses located in jurisdictions where transfer procedures were mostly completed during fiscal year 2004/05, and for a T&D publicly-listed company in India for which Areva had launched a public offer in April 2005, with ALSTOM s agreement. This operation was closed in August 2005. > Fiscal year 2004/05 Disposal of our Transport activities in Valencia, Spain On 29 November 2004, we signed a binding agreement to sell our Transport activities based in Valencia, Spain, to Vossloh. It employs 420 people and specialises in the manufacturing of locomotives and bogies as well as nonmodular trains for the regional market. This transaction was closed on 31 March 2005. Disposal of various non-core activities in Australia We sold our Information Technology and Industrial Products activities in Australia during fiscal year 2004/05 in a management buy-out. These non-core activities, reported under Corporate and other employed around 130 people and recorded 90 million of sales in fiscal year 2003/04, a significant portion of which derived from the distribution in Australia of IT servers and software. > Fiscal year 2005/06 Disposal of our FlowSystems Business On 24 May 2005, we signed an agreement to sell our FlowSystems Business to LØGSTØR RØR. The sale took place on 18 August 2005. The FlowSystems Business is headquartered in Fredericia, Denmark, and operates in Northern and Central Europe. It manufactures and sells insulated pipe systems for district heating to approximately 40 countries and recorded sales of 150 million in 2004/05. It employs approximately 600 employees. Disposal of our Transport activities in Australia and New Zealand We signed on 2 June 2005 an agreement for the sale of ALSTOM s transport operations in Australia and New Zealand to United Group Ltd. The sale effectively took place on 16 September 2005. This activity includes engineering and maintenance support, road and rail infrastructure projects, and the provision of professional services and systems to the transport industry throughout Australia and New Zealand, and recorded sales of 282 million in fiscal year 2004/05. This Business employs approximately 2,000 employees and operates in both countries. Disposal of our Power Conversion Business On 30 September 2005, we signed a binding agreement to sell our Power Conversion Business to Barclays Private Equity. The sale effectively took place on 10 November 2005. The Business sold to Barclays Private Equity provides the energy and control for industrial processes and marine applications worldwide. Power Conversion Business operates in five main markets (offshore, marine, metal industries, oil and gas and power generation), plus numerous niche markets. This Business recorded sales of 506 million in fiscal year 2004/05 and employs approximately 3,145 employees. Disposal of our Industrial Boilers Business On 24 October 2005, ALSTOM and Austrian Energy & Environment AG signed binding agreements for the sale of the bulk of our Industrial Boilers Business. The Business to be sold to Austrian Energy & Environment AG includes ALSTOM s German, Czech and Australian industrial boiler activities in those countries. These Businesses recorded aggregate sales of around 350 million in 2004/05 and employ approximately 450 employees. 7

Overview The sale of our Australian activities took place on November 2005. The closing of the disposal of the German and Czech activities is subject to the clearance by the German antitrust Authorities. Disposal of Marine Sector On 4 January 2006, we announced our plan to sell a 75% stake in our Marine Sector to Aker Yards. At 31 March 2006, the effective disposal was still subject to some conditions which are expected to be fulfilled within a short period of time after that date. In the fiscal year ended 31 March 2006, the Marine Sector generated sales of 439 million and had an operating margin of (3)%. At 31 March 2006, this Sector employs around 3,140 people. Upon closing, we will receive proceeds of 50 million from Aker. A further amount of up to 125 million will be paid to us in March 2010, depending on the performance of the combined shipbuilding activities. The new company would be adequately funded to ensure the ability to independently finance its future growth. An estimated amount of 350 million would be injected by ALSTOM into the newly formed company. In addition, it should be noted that the transaction is structured as an asset sale and that we will be retaining certain assets, liabilities and contracts, notably relating to ships delivered prior to the closing of the transaction and the LNG tankers currently under construction. In fiscal years 2004/05 and 2005/06, we have treated our Marine Sector as a discontinued operation in our financial statements and have accrued for the estimated loss resulting from the transaction. Operational performance > GT24/GT26 heavy-duty gas turbines As a consequence of the technical improvements implemented on our GT24/GT26 gas turbines, we are now back in the large gas turbine market. The successful re-marketing of the GT26 machine was demonstrated by the securing of a significant contract for three GT26 turbines in Spain for Gas Natural in January 2004. This project was successfully executed and the three units went into commercial operation in January 2006 ahead of the contractual schedule. A new order for four GT26 units in Thailand was booked during fiscal year 2004/05, and three more units were booked in fiscal year 2005/06 (one in Spain and two in Italy). Furthermore, the Group has recently been selected for a further five projects in Europe comprising of seven GT26 units. We believe that these contracts signal that both technology and performance are now fully in line with customer expectations. The commercial situation with respect to the 80 GT24/GT26 gas turbines sold more than five years ago continues to improve: as of today, 76 units are in commercial operation and contracts related to four units have been cancelled. Today, we have reached commercial settlements for all of the 76 units sold. Under all agreements where ALSTOM had an obligation or the opportunity to improve the performance levels, such upgrades have been installed and satisfactory final settlement agreements with the clients have been reached and executed (as of 31 March 2005, nine units were pending). All of the cases of client litigation or arbitration are now resolved via satisfactory commercial settlements. The 79 machines today in service (76 as of 30 September 2005) have accumulated approximately 1,760,000 operating hours at high-reliability levels. Cash outflow related to the GT24/GT26 gas turbines over fiscal year 2005/06 at 115 million has decreased as compared with 366 million in fiscal year 2004/05. As of 31 March 2006, we retain 263 million of related provisions and accrued contract costs compared with 379 million as of 31 March 2005. 8

1MANAGEMENT DISCUSSION AND ANALYSIS Overview > Restructuring Restructuring plans launched in fiscal year 2003/04 and 2004/05 are progressing according to schedule and we are now in a final stage of implementation, with more than 90% of the total planned headcount reduction of 11,500 achieved. In addition, during fiscal year 2005/06, we launched new initiatives in order to further improve our operational performance and optimise our cost base. As a result, we have recorded 80 million of expenses for restructuring in fiscal year 2005/06 in addition to the 350 million recorded in fiscal year 2004/05. In total, the cash outflow for restructuring for the fiscal year 2005/06 was 239 million, compared to 281 million for fiscal year 2004/05. > Project and risk management organisation Due to the very nature of its Business, ALSTOM is exposed to a variety of risks (operational, legal and financial) as described in the Risk Factors section of the financial report of the Annual Report for fiscal year 2005/06. Risk management is therefore a key priority of ALSTOM in our actions to improve operational performance. More specifically, strict controls throughout the life of projects have been put in place and an organisation focused on project management has been set up. At the tender stage, strict reviews and approval processes are in place within the Sectors. For large projects and the ones which include specific characteristics (cash profile, technical commitments, specific terms and conditions ), the project is subject to corporate review and approval. Strong focus is put on project executions, and specifically on the selection of trained and competent project managers and on the implementation of efficient processes. Project offices have been created in the different Sectors to manage this population of key managers and to implement best practices throughout the organisation. All projects are reviewed monthly or quarterly at Sector level. The Corporate Risk Committee chaired by the Chief Executive Officer reviews monthly the evolution of the major ongoing projects portfolio. Strengthening our financial base In order to reduce our debt, increase our equity and secure our access to contract bonding to support our commercial activity, we implemented during the summer of 2004 a financial package covering the following items: a bonding programme aimed at covering our needs for 18 to 24 months; a total capital increase of 1,748 million subscribed either in cash or by set-off against certain of our outstanding debt. As part of this financing package, we re-negotiated our financial covenants as described in Note 22 B to our Consolidated Financial Statements. During the fiscal year 2005/06, we have continued to strengthen our financial base in: extending and smoothing our debt maturities through several debt refinancing operations; negotiating a new bonding programme to cover our needs till July 2008. > Share capital modification Share capital increases in fiscal year 2004/05 We completed in fiscal year 2004/05 a global offering of new shares by way of transferable preferential subscription rights allocated to holders of our existing shares. The 3,655,265,768 new shares issued have been subscribed to as follows: 3,192,826,907 shares subscribed in cash at 0.40 representing an amount of 1,277 million, including 459,610,902 new shares subscribed by the French State representing an amount of 183.8 million; and 462,438,861 shares subscribed by set-off against debt from the French State and CFDI (Caisse Française de Développement Industriel), an entity guaranteed by the French State, at 0.50 per share representing a total amount of 231.2 million; 200 million subscribed by set-off against the TSDD subscribed by the French State as part of our summer 2003 financing package; and 31.2 million subscribed by set-off against part of the CFDI s holding in the PSDD. 9

Overview We implemented a concurrent debt-for-equity exchange offering to holders of certain of our outstanding debt instruments through which we issued a further 480,000,000 new shares at the price of 0.50 per share representing an amount of 240 million subscribed by set-off against: 212 million from the part of PSDD held by our banks; 18 million from our multi-currency Revolving Credit Agreement due 2006 of 722 million; and 10 million from committed bilaterals. Following the automatic reimbursement with 240,000,000 new shares of the 300 million TSDDRA on 7 July 2004 upon the European Commission approval and its participation in the abovedescribed capital increases, the French State s participation reached 21.4% of the outstanding share capital of ALSTOM. The French State has committed to remaining a shareholder during the recovery of ALSTOM. It has committed to sell its shares at the latest 12 months following ALSTOM obtaining an investment grade rating and, or in any event, prior to July 2008. Finally, on 6 December 2004, we completed a share capital increase reserved for our employees consisting of 49,814,644 new shares. Share capital modification in fiscal year 2005/06 On 3 August 2005, the ALSTOM consolidation of shares was completed through the exchange of 40 existing shares for one new share. The number of ALSTOM shares was consequently reduced from 5,497,601,720 shares with a nominal value of 0.35 to 137,440,043 shares with a nominal value of 14. of the July 2006 bonds out of 650 million of existing bonds, and 245 million out of the 250 million of September 2006 ARN) leading after application of the exchange ratio to 695 million in principal amount of new 2010 bonds. In addition, we issued 305 million additional bonds with the same terms and conditions. In total, the new 6.25% bonds due March 2010 are for an amount of 1,000 million. In fiscal year 2005/06 During the fiscal year 2005/06, we have continued the process of debt refinancing in order to extend our debt maturity profile and reduce our financial expenses. In September 2005, we issued 600 million of floating rate notes bearing a 2.20% above the 3-month Euribor coupon and redeemable at par in March 2009. In January 2006, we issued 400 million of floating rate notes bearing a 0.85% above the 3-month Euribor coupon and redeemable at par in July 2008. In February 2006, we signed a 5-year Revolving Credit Facility with a syndicate of banks for an amount of 700 million. The amount of 700 million was fully available for drawdown as at 31 March 2006. During fiscal year 2005/06, we have reimbursed 1,062 million and cancelled undrawn credit lines for 1,202 million of syndicated and bilateral loans. > Debt refinancing In fiscal year 2004/05 In February 2005, we launched an exchange offer for 650 million of bonds due July 2006 and 250 million of Euribor-indexed Auction Rate Notes (ARN) due September 2006, to be exchanged for new 6.25% fixed-rate bonds due March 2010. A total of 668 million in principal amount of bonds were submitted in the exchange offer out of a total of 900 million principal amount of eligible bonds (respectively 422 million > Bonding Programme In fiscal year 2004/05 We have put in place an up to 8 billion committed bonding guarantee facility programme, with an initial commitment of our banks for 6.6 billion. This programme includes the bonds issued under the bonding line of 3.5 billion provided during the summer of 2003 and new bonds to be issued over a twoyear period up to 27 July 2006. 10

1MANAGEMENT DISCUSSION AND ANALYSIS Overview Bonds under this bonding programme benefit from a 2 billion security package consisting of: a first-loss guarantee in the form of cash collateral provided by ALSTOM for 700 million (out of the proceeds of the capital increases described above); and a second-rank security for a total amount of 1,300 million covering second losses in excess of the cash collateral, in the form of guarantees, given on a pari passu basis by a French State-guaranteed institution for an amount of 1,250 million, and by a group of banks for the remaining amount of 50 million. This programme is revolving; any bond expiring releases capacity to issue new bonds within the 8 billion limit and the two-year period. The issuance of new bonds under the bonding programme mentioned above is subject to the financial covenants disclosed in the Note 22 B to our Consolidated Financial Statements. The commitment of the banks in July 2004 was for an initial volume of up to 6.6 billion and was later extended to 7.3 billion, thus covering our needs up to July 2006. In fiscal year 2005/06 During the first half of the fiscal year 2005/06, the Group initiated the renegotiation of its bonding programme for an extended period of two years, up to July 2008. This extension was signed on 4 November 2005 and made effective on 15 November 2005. To date, our banks have made available up to 9.4 billion. This amount together with bilateral agreements already obtained for 1.5 billion is expected to be sufficient to cover ALSTOM needs up to July 2008. Approval by the European Commission and commitments The formal investigation launched by the European Commission in September 2003 concluded on 7 July 2004 with the positive approval by the European Commission of our financing packages. As part of this approval, we committed that acquisitions in the Transport Sector within the European Economic Area over the next four years should not exceed a certain level and that we planned to dispose of Businesses representing approximately 1.5 billion in sales. All the activities identified for disposal as part of the commitments towards the European Commission in connection with its approval of our 2004 financing package, representing approximately 1.5 billion in sales, are now either sold or in the closing phase of sale. We also agreed to enter into a 50-50 joint venture in our Hydro Business which we intend to implement in the near future. Finally, we committed to conclude industrial partnerships during a period of four years concerning a significant part of our activities to ensure our future development. We have concluded partnerships in the boiler activity with BHEL in India and EMAlliance in Russia. We have also agreed to develop with Ansaldo a new generation of single deck very high-speed trains. Under the extended programme, all bonds issued before July 2006, will continue to benefit from the initial 2 billion security package which includes 700 million cash collateral, a 1,250 million French State Guarantee and 50 million of guarantee granted by ALSTOM banks. All bonds issued beyond the initial issuing period of July 2006 and up until July 2008 will benefit from an additional security of 175 million cash collateral. This cash collateral may be increased in the event that operating margin and headroom levels through 31 March 2008 do not reach targeted levels. It is expected that the initial 700 million cash collateral would be released before September 2008. 11

Overview RECENT DEVELOPMENTS On 26 April 2006, ALSTOM and Bouygues signed a memorandum of understanding for operational and commercial cooperation. Bouygues also agreed with the French State to purchase the 21.03% stake the French State owns in ALSTOM s equity. The purchase of shares by Bouygues, which is subject to merger control clearance by the European Commission and the closing of the Marine Sector disposal, is expected to occur within a short period. At a commercial level, the two companies are planning cooperation of their sales networks to maximise their strengths on the markets and develop together integrated projects as opportunities arise. Bouygues and ALSTOM can provide a joint response to market demands by offering solutions that combine Bouygues civil engineering with ALSTOM s equipment. It has been agreed that the cooperation between Bouygues and ALSTOM would not be exclusive; in the interest of their customers, the two companies will continue to work with the most suitable partners and suppliers for each project. Exchanges at the operational level would involve the improvement of project execution by sharing best practices in organisation and project management, setting up joint training programmes for project Directors and optimising costs on common projects. Bouygues also intends to take a 50% equity share in ALSTOM s hydropower equipment Business; the corresponding terms are under discussion. 12

1MANAGEMENT DISCUSSION AND ANALYSIS General comments on activity and results GENERAL COMMENTS ON ACTIVITY AND RESULTS CONSOLIDATED KEY FINANCIAL FIGURES Following the announcement of the sale agreement between ALSTOM and Aker Yards on 4 January 2006, (see page 8), our Marine Sector has been classified as a discontinued operation and is presented separately in the Consolidated Financial Statements. The following tables set out, on a consolidated basis, some of our key financial and operating figures: Total Group actual figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Order backlog 26,944 25,937 4% Orders received 15,290 14,737 4% Sales 13,413 12,920 4% Income from operations 746 471 58% Operating margin 5.6% 3.6% Discontinued operations (198) (32) n.a. Net profit/(loss) Group share 178 (628) n.a. Free cash flow 525 77 582% Total Group comparable figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Order backlog 26,944 24,783 9% Orders received 15,290 14,114 8% Sales 13,413 12,429 8% Income from operations 746 430 73% Operating margin 5.6% 3.5% Transition to IFRS The Consolidated Financial Statements for fiscal year 2005/06 have been prepared in accordance with International Financial Reporting Standards (IFRS) as required by the European Union regulations. Comparative figures for the fiscal year 2004/05 have been restated on the same basis excluding application of IAS 32-39 and IFRS 5 applied from 1 April 2005. The differences in accounting treatment compared with French GAAP are presented and explained in Notes 4 and 34 to the Consolidated Financial Statements. In the following discussion, actual and comparative information presented is prepared on the basis of IFRS accounting policies. General comments on activity The power market for new equipment overall is increasing, with Asia as the dominant market and a contrasted situation elsewhere. Demand in Europe is up after the low level over the previous years while activity remains slow in the USA. The market is picking up in Latin America and remains strong in the Middle East. High oil and gas prices have favoured coalbased projects including clean combustion equipment and further strengthened the hydro market. Ambitious nuclear programmes have resumed in several countries. Pushed by the need to comply with regulations, the demand for environmental upgrades of existing power plants is growing sharply. More generally, the power service market has been strong. 13

General comments on activity and results The Transport market was contrasted with opportunities in France, Italy, Spain and overall growth in Asia, while the German, UK and US markets were slower. Orders received and backlog Our order intake rebounded during fiscal year 2004/05, after the low level of fiscal year 2003/04. The order intake during fiscal year 2005/06 continued to increase up by 4% on an actual basis and 8% on a comparable basis adjusting notably for the disposal of our Power Conversion Business, our Transport activities in Australia and New Zealand, our FlowSystems Business, our Transport plant in Valencia (Spain) and of miscellaneous activities in Australia. We booked 15,290 million of orders for fiscal year 2005/06 compared with 14,114 million for fiscal year 2004/05 on a comparable basis. This growth is explained by the performance of our Power Sectors. Power Turbo-Systems / Power Environment orders intake increased by 16% on a comparable basis and represented 40% of ALSTOM orders received for fiscal year 2005/06 compared to 37% in fiscal year 2004/05. The most significant orders booked for Power Turbo-Systems / Power Environment included two GT13 in Oman, three GT13 in Australia, two GT26 in Italy, one GT26 in Spain, a hydro contract in India, a contract for a 750MW supercritical boiler in the United States and another for a lignite fired power plant with a net capacity of 2,100 MW in Germany. Power Service orders intake increased by 10% on a comparable basis, notably as a result of a number of operation and maintenance contracts related to gas fired power plant orders. Transport order intake decreased slightly by 2% on a comparable basis between fiscal year 2004/05 and fiscal year 2005/06. In fiscal year 2005/06, Transport booked orders for TGV Duplex in France, locomotive for freight in China, variable gauge trains in Spain. Metro and tramway orders in Europe and South America were also recorded. At the end of March 2006, our total backlog was 26,944 million, representing approximately two years of sales. Sales Sales were 13,413 million for fiscal year 2005/06, compared to 12,920 million for fiscal year 2004/05, an increase of 4% on an actual basis. On a comparable basis, the increase amounted to 8%. On a comparable basis, the main increase was in Power Turbo-Systems / Power Environment which improved its sales from 4,352 million for the last fiscal year to 5,079 million as at 31 March 2006, a 17% increase, while Power Service and Transport also grew by 3% and 4% respectively. Income from operations On an actual basis, our income from operations for fiscal year 2005/06 was 746 million or 5.6% of sales, as compared with income from operations of 471 million and operating margin of 3.6% for fiscal year 2004/05. On a comparable basis, our income from operations for fiscal year 2004/05 amounted to 430 million or 3.5% of sales. This strong improvement of our operating margin is notably due to selectivity in our order intake, a more efficient cost base and better execution of our projects. Net income On an actual basis, net income improved from a loss of 628 million to a positive 178 million. This improvement stems from an improvement of our income from operations coupled with lower restructuring, financial and tax charges. Capital gains and other non-operational expenses amounted to 122 million while loss from discontinued activities amounted to (198) million for fiscal year 2005/06. 14

1MANAGEMENT DISCUSSION AND ANALYSIS General comments on activity and results Free cash flow Our free cash flow as defined in page 16 was positive at 525 million for fiscal year 2005/06 as compared to 77 million for fiscal year 2004/05. It resulted mainly from: a strong increase in cash flow due to the improvement of our profitability; limited cash outflows on the GT24/GT26 gas turbines representing 115 million in 2005/06, versus 366 million the previous year; restructuring cash outflow of 239 million, as compared to 281 million for fiscal year 2004/05; improvement of our working capital; strong reduction in our cash outflow for financial and tax expenses, down from 473 million for fiscal year 2004/05 to 292 million for fiscal year 2005/06. Net debt Net debt, as defined in the Consolidated Financial Statements as at 31 March 2006, was 1,248 million at 31 March 2006, including 233 million of capital leases, compared with the amount of 1,651 million at 1 April 2005. This reduction of debt is mainly the consequence of the positive free cash flow and the proceeds from disposals received during the period. As total equity increased from 1,583 million at 1 April 2005 to 1,840 million at 31 March 2006, gearing improved significantly, down from 104% to 68%. CHANGE IN BUSINESS COMPOSITION AND PRESENTATION OF OUR ACCOUNTS, NON-GAAP MEASURES Change in Business composition Our income from operations for the two years ended 31 March 2005 and 2006 have been significantly impacted by the disposals described below; we did not perform any significant acquisition during fiscal years 2004/05 and 2005/06. The table below sets out our main disposals during the periods indicated. Sales are presented for the fiscal year preceding disposal. Country/ % of shares Sales Number of Companies/Assets sold Sectors Region sold (in million) employees Fiscal year 2005/06 Power Conversion - Worldwide Assets 506 3,145 Industrial Boilers Power Turbo-Systems / Australia Assets 73 224 Power Environment Transport Australia/ N. Z. Transport Oceania 100% 282 2,073 FlowSystems Power Service Europe Assets 145 579 Easton Power Service USA 100% 18 110 Fiscal year 2004/05 Valencia plant Transport Spain 100% 58 420 Information Technology Corporate Australia Assets 90 130 See Disposal programme section on page 7 for further information. 15

General comments on activity and results Use and reconciliation of non-gaap financial measures In this section, we present figures, which are non-gaap financial indicators. Under the rules of the Autorité des Marchés Financiers ( AMF ), a non-gaap financial indicator is a numerical measurement of our historical or future financial performance, financial position or cash flow that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measurement calculated and presented in accordance with GAAP in our consolidated income statement, consolidated balance sheet or consolidated statement of cash flows ; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measurement so calculated and presented. In this regard, GAAP refers to International Financial Reporting Standards. > Free cash flow We define free cash flow to mean net cash provided by (used in) operating activities less capital expenditure, net of proceeds from disposals of property, plant and equipment, and increase (decrease) in existing receivables considered as a source of funding of our activity. In particular, free cash flow does not include the proceeds from disposals of activity. Free cash flow does not represent net cash provided by (used in) operating activities, as calculated under IFRS. The most directly comparable financial measure to free cash flows calculated and presented in accordance with IFRS is net cash provided by (used in) operating activities, and a reconciliation of free cash flows and net cash provided by (used in) operating activities is presented below. Total Group actual figures Year ended 31 March (in million) 2006 2005 Net cash provided by (used in) operating activities 785 194 Elimination of variation in sale of existing receivables (26) 87 Capital expenditures (294) (255) Proceeds from disposals of property 60 51 Free cash flow 525 77 We use the free cash flow measure both for internal analysis purposes as well as for external communications, as we believe it provides more accurate insight into the actual amount of cash generated or used by our operations. > Capital employed We define capital employed as the closing position of goodwill, intangible assets, net, property, plant and equipment, net, other non-current assets (excluding pension assets) and current assets (excluding trading investments, available-for-sale investments, held-to-maturity investments and cash and cash equivalents) minus current and non-current provisions and current liabilities (excluding current financial debt). 16

1MANAGEMENT DISCUSSION AND ANALYSIS General comments on activity and results Total Group actual figures Year ended 31 March (in million) 2006 2005 Non-current assets (excl. Deferred tax) 7,230 8,399 Current assets (excl. Cash & cash equ.) 7,484 8,071 Financial current assets (22) (15) Pension assets (387) (374) Current liabilities (excl. Provisions & financial debt) (9,903) (10,510) Current and non-current provisions (2,120) (2,322) Capital employed* 2,282 3,249 * The decrease in capital employed from 31 March 2005 to 31 March 2006 is partly explained by the reclassification of assets and liabilities attributable to leases of trains for 637 million to assets and liabilities held for sale. Capital employed by Sector and for the Group as a whole are also presented in Note 25 to our Consolidated Financial Statements. We use the capital employed measure both for internal analysis purposes as well as for external communications, as we believe they provide insight into the amount of financial resources employed by a Sector or the Group as a whole and the profitability of a Sector or the Group as a whole in regard to the resources employed. > Net debt trading investments (from 1 April 2005) and short-term investments (before 1 April 2005) included in other current assets, net of financial debt. The difference between the net debt at the beginning of the period ended 31 March 2006 ( 1,651 million) and the net debt at the end of the year ended 31 March 2005 ( 2,348 million) is due to the changes in accounting policies at 1 April 2005 following the application of the IAS 32-39 and IFRS 5 standards. We define net debt as cash and cash equivalents and the sum of available-for-sale investments, held-to-maturity securities, (in million) 31 March 2006 1 April 2005 31 March 2005 Cash and cash equivalents 1,301 1,404 1,404 Available-for-sale investments 16 13 - Held-to-maturity securities 6 13 - Short-term investments - - 15 Current financial debt (360) (483) (486) Non-current financial debt (2,211) (2,598) (3,281) Net debt/(cash) 1,248 1,651 2,348 > Comparable basis The figures presented in this section include performance indicators presented on an actual basis and on a comparable basis. Figures have been given on a comparable basis in order to eliminate the impact of changes in Business composition and changes resulting from the translation of our accounts into Euro following the variation of foreign currencies against the Euro. We use figures prepared on a comparable basis both for our internal analysis and for our external communications, as we believe they provide means by which to analyse and explain variations from one period to another. However, these figures provided on a comparable basis are not measurements of performance under IFRS. To prepare figures on a comparable basis, we have performed the following adjustments to the corresponding figures presented on an actual basis: restatement of the actual figures for fiscal year 2004/05 using 31 March 2006 exchange rates for orders backlog, orders received, sales and income from operations; and adjustments due to changes in Business composition to the same line items for fiscal year 2004/05. More particularly contributions of material activities sold since 1 April 2004 have been excluded from the comparable figures, in particular our Power Conversion Business, our Transport activities in Australia and New Zealand and our FlowSystems Business. 17

General comments on activity and results The following table sets out the estimated impact of changes in exchange rates and in Business composition ( Scope impact ) for all indicators disclosed in this document both on an actual basis and on a comparable basis for fiscal year 2004/05. No adjustment has been made on figures disclosed for fiscal year 2005/06. March 2005 March 2006 % Comparable Actual Exchange Scope Comp. Actual variations Year ended 31 March (in million) figures rate impact figures figures 2005/06 Power Turbo-Systems / Power Environment 7,139 191 (83) 7,247 8,447 17% Power Service 3,669 80 (57) 3,692 4,336 17% Transport 14,489 254 (907) 13,836 14,141 2% Power Conversion 529 - (529) - - n.a. Corporate & others 111 3 (106) 8 20 150% Orders backlog 25,937 528 (1,682) 24,783 26,944 9% Power Turbo-Systems / Power Environment 5,181 72 (12) 5,241 6,076 16% Power Service 3,228 30 (79) 3,179 3,491 10% Transport 5,490 28 (223) 5,295 5,184 (2%) Power Conversion 579 - (281) 298 398 34% Corporate & others 259 4 (162) 101 141 40% Orders received 14,737 134 (757) 14,114 15,290 8% Power Turbo-Systems / Power Environment 4,190 104 58 4,352 5,079 17% Power Service 2,832 72 (124) 2,780 2,853 3% Transport 5,100 70 (216) 4,954 5,128 4% Power Conversion 536 - (301) 235 261 11% Corporate & others 262 (4) (150) 108 92 (15%) Sales 12,920 242 (733) 12,429 13,413 8% Power Turbo-Systems / Power Environment (107) - 5 (102) 101 (199%) Power Service 412 3 (3) 412 442 7% Transport 218 - (22) 196 324 65% Power Conversion 30 - (18) 12 16 33% Corporate & others (82) - (6) (88) (137) 56% Income from operations 471 3 (44) 430 746 73% Power Turbo-Systems / Power Environment (2.6%) n.a. 8.6% (2.3%) 2.0% Power Service 14.5% 4.2% 2.4% 14.8% 15.5% Transport 4.3% n.a. 10.2% 4.0% 6.3% Power Conversion 5.6% n.a. 6.0% 5.1% 6.1% Corporate & others n.a. n.a. n.a. n.a. n.a. Operating margin 3.6% 1.2% 6.0% 3.5% 5.6% Sales 12,920 242 (733) 12,429 13,413 8% Cost of revenues (10,886) (219) 614 (10,491) (11,080) 6% R & D expenses (405) (1) 9 (397) (364) (8%) Selling expenses (535) (10) 37 (508) (569) 12% Administrative expenses (623) (9) 29 (603) (654) 8% Income from operations 471 3 (44) 430 746 73% A significant part of our sales and expenditures are realised and incurred in currencies other than the Euro. The principal currencies to which we had significant exposures in the fiscal year 2005/06 were the US Dollar, British Pound, Swiss Franc, Mexican Peso and Brazilian Real. Our orders received and sales have been impacted by the translation of our accounts into Euros resulting from changes in value of the Euro against other currencies in fiscal year 2005/06. The impact is an increase for orders received and sales by 0.9% and 1.9% respectively compared with the fiscal year 2004/2005. 18

1MANAGEMENT DISCUSSION AND ANALYSIS General comments on activity and results Key geographical figures for fiscal year 2004/05 and fiscal year 2005/06 > Geographical analysis of orders The table below sets out, on actual and comparable basis, the geographic breakdown of orders received by region of destination. Actual figures Comparable figures Actual figures Year ended 31 March (in million) 2006 % of contrib. 2005 % of contrib. 2005 % of contrib. Europe 7,832 51% 6,090 43% 6,333 43% North America 2,010 13% 2,191 15% 2,193 15% South and Central America 1,039 7% 494 4% 471 3% Asia/Pacific 2,810 18% 3,899 28% 4,270 29% Middle East/Africa 1,599 11% 1,440 10% 1,470 10% Orders received by destination 15,290 100% 14,114 100% 14,737 100% Europe remained the largest market in terms of orders received, its share increased from 43% in fiscal year 2004/05 to 51%. This evolution was mainly due to the performance of our Power Turbo-Systems / Power Environment Sector. Its orders intake in Europe increased from 958 million in fiscal year 2004/05 to 2,485 million in fiscal year 2005/06 on a comparable basis. Order intake slightly decreased in North America due to a decline in orders for Power Turbo-Systems / Power Environment Sector. Activity in South and Central America increased substantially as a result of Transport booking orders in Chile and in Venezuela and Power Turbo-Systems / Power Environment booking a large hydro project in Venezuela. The decrease in the Asia/Pacific region, compared to fiscal year 2004/05 was mainly due to the reduction of orders in China in our Transport Sector, after the record high level registered in 2004/05, as well as in our Power Turbo-Systems / Power Environment Sector which benefited in 2004/05 from a large number of Hydro projects. The share of the Middle East/Africa region remained stable, as the increase of Transport orders in the region was offset by the decrease in orders received by Power Turbo-Systems / Power Environment Sector. 19

General comments on activity and results > Geographical analysis of sales by region of destination The table below sets out, on actual and comparable basis, the geographic breakdown of sales by region of destination. Actual figures Comparable figures Actual figures Year ended 31 March (in million) 2006 % of contrib. 2005 % of contrib. 2005 % of contrib. Europe 6,301 47% 6,563 53% 6,786 53% North America 2,172 16% 1,993 16% 1,945 15% South and Central America 891 7% 612 5% 534 4% Asia/Pacific 2,747 20% 2,117 17% 2,465 19% Middle East/Africa 1,302 10% 1,144 9% 1,190 9% Sales by destination 13,413 100% 12,429 100% 12,920 100% While European sales slightly decreased in fiscal year 2005/06 compared to fiscal year 2004/05 on a comparable basis, all other geographical areas experienced growing sales and in particular Asia/Pacific with strong outlets in China, India and a number of other countries in the area. > Geographical analysis of sales by region of origin The table below sets out, on actual and comparable basis, the geographical breakdown of sales by region of origin. Actual figures Comparable figures Actual figures Year ended 31 March (in million) 2006 % of contrib. 2005 % of contrib. 2005 % of contrib. Europe 9,057 68% 8,918 72% 9,244 71% North America 2,152 16% 1,941 15% 1,890 15% South and Central America 585 4% 454 4% 372 3% Asia/Pacific 1,482 11% 994 8% 1,297 10% Middle East/Africa 137 1% 122 1% 117 1% Sales by origin 13,413 100% 12,429 100% 12,920 100% Europe s share of total sales by origin decreased by 4% in fiscal year 2005/06. North America increased slightly while Asia/Pacific region increased its share by 3%, on a comparable basis, representing 11% of our sales by region of origin, a higher level supported by the strong development of the markets in this area. 20

1MANAGEMENT DISCUSSION AND ANALYSIS General comments on activity and results SECTOR REVIEW Power Turbo-Systems / Power Environment The following table sets forth certain key financial data for the Power Turbo-Systems / Power Environment Sector: Power Turbo-Systems / Power Environment actual figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Order backlog 8,447 7,139 18% Orders received 6,076 5,181 17% Sales 5,079 4,190 21% Income from operations 101 (107) n.a. Operating margin 2.0% (2.6%) EBIT 75 (331) n.a. Capital employed (439) (439) 0% Power Turbo-Systems / Power Environment comparable figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Order backlog 8,447 7,247 17% Orders received 6,076 5,241 16 % Sales 5,079 4,352 17% Income from operations 101 (102) n.a. Operating margin 2.0% (2.3%) > Orders received After the US gas bubble in 2000/01 and the Chinese boom in 2003/04, the market for new equipment is expected to stand at around 100-120 GW/annum in the coming years. Pushed by the need to comply with regulations, the demand for environmental upgrade of existing power plants is increasing sharply. Asia is the dominant market with more than half of the world demand for new equipment. Coal and hydro are and will remain the leading energy sources in China and India, while gas prevails in the rest of Asia and Australia. The recognition of environment as a key issue has led to a fast growing market in China for environmental control equipment. Both China and India have relaunched ambitious nuclear programmes. In Europe, after a low point in 2004, the market for new equipment has rebounded during fiscal year 2005/06 due to the demand for gas plants mainly in Southern Europe. New coal projects are emerging in Central Europe, requiring more efficient clean coal combustion technologies. The environmental retrofit of existing coal power plants in this area is also experiencing sharp growth due to the need for operators to meet the 2008 deadline fixed by the European Union. In the USA, the demand for new equipment is re-starting essentially with new coal plants, mainly constituted by high efficiency coal projects like the Comanche 750 MW supercritical boiler contracted by Power Turbo-Systems / Power Environment. The market for environmental retrofit of coal power plants was growing in 2005 and is expected to grow further in the coming years. 21

General comments on activity and results After a low point in 2003/2004, the market for new equipment in Latin America is taking off again pushed by hydro projects Power Turbo-Systems / Power Environment contracted the La Vueltosa project in Venezuela but also some gas projects in Argentina, Chile, Venezuela and Mexico. In Middle East and Africa, the market is essentially a gas market, with some large oil projects in Saudi Arabia. In 2005, the demand for gas power plants has remained high, pushed by the strong electricity demand and desalination plants projects. On an actual basis, orders received by the Sector for fiscal year 2005/06 were 17% higher than in fiscal year 2004/05 (+16% on a comparable basis). On a regional basis, in fiscal year 2005/06, Asia represented 22% of the total order intake, North America 14% while Europe accounted for 41% of the order intake. Compared to fiscal year 2004/05, orders decreased during fiscal year 2005/06 by 38% in Asia, and by 20% in North America. These decreases were mainly due to China in Asia where a number of Hydro projects were booked in 2004/05 and to the USA in North America. Conversely, in comparison to fiscal year 2004/05, orders sharply increased in South America and did represent 10% of total orders received compared to 4% in fiscal year 2004/05, and Europe increased by 163% as a result of a number gas fired power plant projects in Spain and Italy as well as coal fired power plants in Germany. > Sales In fiscal year 2005/06, sales in Power Turbo-Systems / Power Environment stood at 5,079 million, 17% higher than the fiscal year 2004/05 on a comparable basis, as a consequence of the rebound of order intake during fiscal year 2004/05. All regions except Europe contributed to the increase in sales compared to fiscal year 2004/05. Sales in Europe have decreased and thus represented 24% of total sales compared to 35% for fiscal year 2004/05. The increase of sales in North America reflected the growth in the environmental control business, and represented 19% of the total sales. The South and Central America share increased sharply while Asia/Pacific increased its share from 22% to 30% on a comparable basis, reflecting progress in Japan and Australia. Finally, Middle East/Africa has stabilised its contribution at around 20%. The following table sets out, on actual and comparable basis, the geographic breakdown of sales by destination: Power Turbo-Systems / Power Environment Actual figures Comparable figures Actual figures Year ended 31 March (in million) 2006 % of contrib. 2005 % of contrib. 2005 % of contrib. Europe 1,218 24% 1,559 36% 1,487 35% North America 997 19% 739 17% 706 17% South and Central America 398 8% 256 6% 206 5% Asia/Pacific 1,513 30% 974 22% 966 23% Middle East/Africa 953 19% 824 19% 825 20% Sales by destination 5,079 100% 4,352 100% 4,190 100% > Income from operations and operating margin Power Turbo-Systems / Power Environment income from operations was 101 million for fiscal year 2005/06, compared with an income from operations of (107) million for fiscal year 2004/05 on an actual basis. The operating margin improved from (2.6%) to 2.0% on an actual basis. This strong improvement results from the increased sales coupled with the impact of the restructuring programme implemented over the last two years and a better performance in project execution. 22

1MANAGEMENT DISCUSSION AND ANALYSIS General comments on activity and results Power Service The following table sets forth some key financial data for the Power Service Sector: Power Service actual figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Order backlog 4,336 3,669 18% Orders received 3,491 3,228 8% Sales 2,853 2,832 1% Income from operations 442 412 7% Operating margin 15.5% 14.5% EBIT 407 365 12% Capital employed 1,812 1,875 (3%) Power Service comparable figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Order backlog 4,336 3,692 17% Orders received 3,491 3,179 10% Sales 2,853 2,780 3% Income from operations 442 412 7% Operating margin 15.5% 14.8% > Orders received The Power Service market remained robust in fiscal year 2005/06. We have developed customer-focused strategies for each of our main product ranges that are designed to increase market penetration. The changing market conditions caused by energy price increases and further liberalisation of markets have led us to adopt different approaches to our customers, particularly with respect to upgrading existing equipment. Growth in Europe is mainly due to ongoing power plant modernisation needs generated by requests for efficiency improvements and environmental compliance requirements. In North America, the power demand was stable but the aging power plant installed base will lead to increased demand for services. In a context of increased gas price, operators are optimising their fleet utilisation, triggering increased demand for boiler, steam turbine and generator services. In Asia, demand is growing due to existing plants upgrade needs, increasing installed capacities, ongoing market liberalisation and need for compliance with tougher environmental regulations. Orders received were 3,491 million for fiscal year 2005/06, 10% higher than in fiscal year 2004/05 on a comparable basis. The order intake includes a number of long-term operation and maintenance contracts related to gas fired plant contracts. There is also strong activity in the small to medium size service projects. On a regional basis, in fiscal year 2005/06, Europe represented 42% of the total order intake, North America 26%, Asia 16% while Africa and the Middle East accounted for 14% of the order intake. Compared to fiscal year 2004/05, orders increased during fiscal year 2005/06 by 16% in Europe, by 14% in North America and by 42% in Africa and the Middle East, as a result of a number of O&M contracts booked in that region. Conversely orders received in Asia decreased by 20% as a result of large O&M contracts booked during fiscal year 2004/05. 23

General comments on activity and results > Sales Sales booked by Power Service in fiscal year 2005/06 stood at 2,853 million, a 3% increase as compared with fiscal year 2004/05 on a comparable basis (1% on an actual basis). On a geographical basis, sales increased in Europe on a comparable basis and decreased in North America and represent respectively 41% and 27% of total sales. The situation in the Americas was due to the reduced order intake last year in the construction and erection market in the USA and to an increased customer selectivity in Mexico. Sales slightly decreased in Asia/Pacific and represents 18% of total sales as compared with 20% in fiscal year 2004/05. The following table sets out, on actual and comparable basis, the geographic breakdown of sales by destination: Power Service Actual figures Comparable figures Actual figures Year ended 31 March (in million) 2006 % of contrib. 2005 % of contrib. 2005 % of contrib. Europe 1,167 41% 1,064 38% 1,149 40% North America 785 27% 818 29% 784 28% South and Central America 102 4% 102 4% 93 3% Asia/Pacific 522 18% 541 20% 555 20% Middle East/Africa 277 10% 255 9% 251 9% Sales by destination 2,853 100% 2,780 100% 2,832 100% > Income from operations and operating margin Power Service s income from operations was 442 million or 15.5% of sales in fiscal year 2005/06 compared with 412 million or 14.8% of sales for fiscal year 2004/05 on a comparable basis. Operating margin increased due to an improved mix of activities, the positive evolution of several operation and maintenance contracts, as well as cost reductions. 24

1MANAGEMENT DISCUSSION AND ANALYSIS General comments on activity and results Transport The following table sets forth some key financial data for the Transport Sector: Transport actual figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Order backlog 14,141 14,489 (2%) Orders received 5,184 5,490 (6%) Sales 5,128 5,100 1% Income from operations 324 218 49% Operating margin 6.3% 4.3% EBIT 256 145 77% Capital employed* 125 932 (87%) Transport comparable figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Order backlog 14,141 13,836 2% Orders received 5,184 5,295 (2%) Sales 5,128 4,954 4% Income from operations 324 196 65% Operating margin 6.3% 4.0% * The decrease in capital employed from 31 March 2005 to 31 March 2006 is partly explained by the reclassification of assets and liabilities attributable to leases of trains for 637 million to assets and liabilities held for sale. > Orders received During fiscal year 2005/06, the global Transport market continued to show modest growth at high level. In Europe, the market remained contrasted with continuous sound demand in Southern Europe, while Germany and the UK were slow. The market in Spain was buoyant as the country continued the expansion of its high-speed network whilst supplementing its regional and commuter train fleets. Equally, the Italian market was very active, both in respect of rolling stock and railway infrastructure. Strong demand was also recorded in France for Very High-Speed and regional train fleets, and a new demand for locomotives has started to emerge as the market opens for private freight operators. Transport is well placed in these countries and has recorded several major contracts including variable gauge trains in Spain and Minuetto regional trains in Italy. Significant orders for very high-speed trains were placed during the year in France. The market in China continued its rapid development, both in terms of main line and mass transit. The contract signed in October 2004 for freight locomotives came into force during the first half of fiscal year 2005/06. The market in Latin America, although small in relation to the global market, showed significant growth and provided Transport with a number of important contracts. In contrast, however, the market in North America declined as the placement of several contracts was postponed. Globally in the mass transit area, the tramway market remained active. ALSTOM was awarded contracts for tramways for the cities of Darmstadt, Braunschweig and Gera (Germany), Tunis (Tunisia), Dublin (Eire) and Florence (Italy). Meanwhile, in a globally stable market, metro contracts for the cities of Buenos Aires (Argentina), Santiago (Chile), Caracas (Venezuela), Sao Paulo (Brazil) and Milan (Italy) were awarded. 25

General comments on activity and results The High-Speed and Very High-Speed markets continued to live up to their growth potential. Orders of particular note, which were won by Transport, include double-deck TGVs for SNCF in France, Lanzaderas High Speed trains together with variable gauge High-Speed trains for RENFE in Spain, electrification of High-Speed lines around Bologna (Italy) and sub-stations for part of the Madrid-Barcelona line in Spain. In the area of Information Solutions, the most important orders came from the expansion of ERTMS in Europe both for onboard and wayside equipment. The emerging market for signalling and control systems for low-density freight lines was evidenced by an important contract from MRS in Brazil. Orders received by Transport in fiscal year 2005/06 amounted to 5,184 million compared with 5,490 million for fiscal year 2004/05, on an actual basis and to 5,295 million on a comparable basis. The actual variation is mainly due to the disposal of activities in Australia, in New Zealand and in Valencia, Spain ( 161 million in fiscal year 2005/06 prior to their disposal versus 375 million in fiscal year 2004/05). As a percentage of total orders received, Europe continued to represent the biggest share of Transport Sector s order intake with 71% of the total orders received while Asia/Pacific and the Americas represented 13% and 10%, compared with 19% and 7% respectively last year. The decrease in Asia is due to the exceptional level of orders in China recorded in 2004/05. > Sales Sales in Transport increased by 1% in fiscal year 2005/06 compared with fiscal year 2004/05 on an actual basis and by 4% on a comparable basis. In fiscal year 2005/06, Europe continued to be the main contributor to the sales of the Sector (including major contributions from France, Italy and the United Kingdom) with a share of 73%. Asia s share slightly increased on a comparable basis. South and Central America have increased in volume by 52% on a comparable basis and increased their share from 5% to 7% as a result of the Santiago metro contracts being delivered and the Caracas metro. The following table sets out, on actual and comparable basis, the geographic breakdown of sales by destination: Transport Actual figures Comparable figures Actual figures Year ended 31 March (in million) 2006 % of contrib. 2005 % of contrib. 2005 % of contrib. Europe 3,756 73% 3,774 76% 3,789 74% North America 358 7% 397 8% 377 7% South and Central America 369 7% 242 5% 214 4 % Asia/Pacific 590 12% 486 10% 638 13% Middle East/Africa 55 1% 55 1 % 82 2% Sales by destination 5,128 100% 4,954 100% 5,100 100% > Income from operations and operating margin The income from operations of Transport for fiscal year 2005/06 amounted to 324 million or 6.3% of sales significantly above the 218 million and 4.3% recorded last year on an actual basis. This improvement came primarily from improved project management, as well as increased sales, better mix and further cost reduction. 26

1MANAGEMENT DISCUSSION AND ANALYSIS General comments on activity and results Marine This Sector is in the process of being sold of to Aker Yards. In restated fiscal year 2004/05 and in 2005/06, Marine Sector is treated in the Consolidated Financial Statements as a discontinued operation. The following information highlights what would have been Marine s contribution if the Sector was not treated as a discontinued operation (Please refer to page 8 Disposal programme for further details). Marine actual figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Order backlog 1,950 1,266 54% Orders received 1,143 1,104 4% Sales 439 607 (28%) Income from operations (15) (104) n.a. Operating margin (3.4%) (17.1%) EBIT (202) (15) n.a. Capital employed n.a. (293) n.a. Marine comparable figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Order backlog 1,950 1,266 54% Orders received 1,143 1,104 4% Sales 439 607 (28%) Income from operations (15) (104) n.a. Operating margin (3.4%) (17.1%) > Orders received In the cruise ship market where our Marine Sector was the most active, eleven new cruise ships were ordered in 2005, the same number as in 2004. Three cruise vessels were ordered during the first quarter of 2006. The letter of intent for two 1,650 cabin cruise ships signed with MSC in June 2005 was converted into an order in December 2005. A further contract was signed in March 2006 for one 1,275 cabin cruise ship, sistership to the MSC Opera. It will enter into force as soon as MSC has finalised its financing. At the end of March 2006, the Marine backlog included two 1,275 cabin cruise ships and two 1,650 cabin cruise ships for MSC, two LNG tankers for Gaz de France, one LNG tanker for NYK, one yacht, one roll in roll out ferry and one small tanker for Conseil général du Morbihan. 27

General comments on activity and results > Sales Sales amounted to 439 million in the fiscal year 2005/06 compared to 607 million in the fiscal year 2004/05. This 28% decrease is mainly linked to the low level of orders obtained in the three previous years. Marine delivered in April 2005 the front part of an assault ship built for the French Navy in association with DCN and an oceanographic ship in July 2005. The following table sets out, on actual and comparable basis, the geographic breakdown of sales by destination: Marine Actual figures Comparable figures Actual figures Year ended 31 March (in million) 2006 % of contrib. 2005 % of contrib. 2005 % of contrib. Europe 417 95% 583 96% 583 96% North America - 0% 1 0% 1 0% South and Central America 17 4% 14 2% 14 2% Asia/Pacific 5 1% 9 2% 9 2% Middle East/Africa - 0% - 0% - 0% Sales by destination 439 100% 607 100% 607 100% > Income from operations and operating margin As regards the three LNG tankers under construction, technical solutions for the problems encountered in 2005 were agreed upon by the stakeholders in July 2005. These technical solutions are currently being implemented, although uncertainties remain, notably due to the concurrent ramp up of workload of the three ships which are scheduled for delivery in the course of the fiscal year 2006/07. The operating loss was (15) million in the fiscal year 2005/06, compared with a loss of (104) million in the fiscal year 2004/05. Last year result was impacted by a 50 million provision related to technical problems encountered on the containment system on the GDF LNG tankers under construction. 28

1MANAGEMENT DISCUSSION AND ANALYSIS General comments on activity and results Power Conversion This Business was sold to Barclays Private Equity in September 2005. Since 1 November 2005, this Business is deconsolidated. (Please refer to page 7 Disposal programme for further details). The following table sets out some key financial data for our Power Conversion Business: Power Conversion actual figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Order backlog - 529 n.a. Orders received 398 579 n.a. Sales 261 536 n.a. Income from operations 16 30 n.a. Operating margin 6.1% 5.6% EBIT 14 16 n.a. Capital employed n.a. 42 n.a. Power Conversion comparable figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Order backlog - - n.a. Orders received 398 298 34% Sales 261 235 11% Income from operations 16 12 33% Operating margin 6.1% 5.1% On a comparable basis, orders received for fiscal year 2005/06 increased by 34% compared with fiscal year 2004/05. This increase mainly came from Asia and Russia. On a comparable basis, sales in fiscal year 2005/06 increased by 11% compared with fiscal year 2004/05 as a result of the good performances in Germany. The income from operations for fiscal year 2005/06 increased from 12 million to 16 million on a comparable basis. 29

General comments on activity and results Corporate and other Corporate and other comprises all units accounting for corporate costs, the International Network and the overseas entities in Australia, New Zealand, and India which are not reported by Sectors. The following table sets out some key financial data for our Corporate and other organisation: Corporate and other actual figures % Variation March 05/ Year ended 31 March (in millions) 2006 2005 March 06 Order backlog 20 111 n.a. Orders received 141 259 n.a. Sales 92 262 n.a. Income from operations (137) (82) n.a. EBIT (25) (246) n.a. Capital employed 784 1,132 (31%) Corporate and other comparable figures % Variation March 05/ Year ended 31 March (in millions) 2006 2005 March 06 Order backlog 20 8 n.a. Orders received 141 101 n.a. Sales 92 108 n.a. Income from operations (137) (88) n.a. Income from operations was (137) million for fiscal year 2005/06, compared with (82) million for fiscal year 2004/05. The variation is mainly due to one off items such as the cost of the free shares programme which has been fully accounted for and represented 40 million in fiscal year 2005/06 and to additional efforts in the Group sales network. 30

1MANAGEMENT DISCUSSION AND ANALYSIS Operating and financial review OPERATING AND FINANCIAL REVIEW INCOME STATEMENT Total Group actual figures % Variation March 05/ Year ended 31 March (in million) 2006) 2005 March 06 Sales 13,413 12,920 4% Cost of sales (11,080) (10,886) 2 % R&D expenses (364) (405) (10%) Selling expenses (569) (535) 6 % Administrative expenses (654) (623) 5% Income from operations 746 471 58% Operating margin 5.6% 3.6% Total Group comparable figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Sales 13,413 12,429 8% Cost of sales (11,080) (10,491) 6% R&D expenses (364) (397) (8%) Selling expenses (569) (508) 12% Administrative expenses (654) (603) 8% Income from operations 746 430 73% Operating margin 5.6% 3.5% > Sales Sales were 13,413 million for fiscal year 2005/06, compared to 12,920 million for fiscal year 2004/05, an increase of 4% on an actual basis. On a comparable basis adjusting notably for the disposal of our Power Conversion Business, our Transport activities in Australia, New Zealand, our FlowSystems Business, our Transport plant in Valencia (Spain) and of miscellaneous activities in Australia the increase amounted to 8%. On a comparable basis, the main increase in sales was in Power Turbo-Systems / Power Environment which grew from 4,352 million in fiscal year 2004/05 to 5,079 million in fiscal year 2005/06, a 17% increase, while Power Service and Transport sales also grew by 3% and 4% respectively. > Selling and administrative expenses Selling and administrative expenses were 1,223 million in fiscal year 2005/06 compared to 1,158 million in fiscal year 2004/05. On a comparable basis, selling expenses increased by 12% from fiscal year 2004/05 to fiscal year 2005/06 as a result of intense tender activity and the implementation of stronger commercial organisations in all Sectors. Administrative expenses increased by 8% on a comparable basis between fiscal year 2004/05 and fiscal year 2005/06 31

Operating and financial review mainly due to development costs of specific projects aiming at improving future performance such as the Sourcing and Standardisation programmes in Transport or the Customer Relationship Management tool in Power Service. Administrative expenses remained stable as a percentage of sales. Turbo-Systems / Power Environment Research and Development expense level remained stable, the reduction of expenses related to the GT24/GT26 gas turbines development programme as the technology has now been stabilised being offset by new programmes in several key areas such as clean combustion. > Research and Development expenses Research and Development expenses were 364 million in fiscal year 2005/06, as compared to 405 million in fiscal year 2004/05. Before impact of capitalisation and depreciation, the Research and Development expenses, increased from 333 million in fiscal year 2004/05 to 349 million in fiscal year 2005/06 on an actual basis. This 5 % growth is mainly due to an increase in Transport notably related to the AGV and the ERTMS programme. Power > Income from operations On an actual basis, our income from operations for fiscal year 2005/06 was 746 million or 5.6% of sales, as compared with income from operations of 471 million and operating margin of 3.6% for fiscal year 2004/05. On a comparable basis, our income from operations amounted to 430 million or 3.5% of sales for fiscal year 2004/05. This strong improvement of our operating margin is notably due to selectivity in our order intake, an improved cost base and better execution of our projects. Total Group actual figures % Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Income from operations 746 471 58% Restructuring costs (80) (350) (77%) Pension costs (61) (47) 30% Other non-operating income (expense) 122 (125) n.a. Earnings Before Interest and Tax 727 (51) n.a. Financial income (expense) (222) (381) (42%) Income tax charge (125) (163) (23%) Discontinued operations (198) (32) n.a. Minority interest and other (4) (1) n.a. Net income 178 (628) n.a. 32

1MANAGEMENT DISCUSSION AND ANALYSIS Operating and financial review > Earnings Before Interest and Tax (EBIT) EBIT was 727 million in fiscal year 2005/06, compared with (51) million in fiscal year 2004/05. The improvement in EBIT in fiscal year 2005/06 was mainly due to: the improvement of our income from operations; the decrease of restructuring costs amounting to (80) million in fiscal year 2005/06, compared with (350) million in fiscal year 2004/05; the net capital gain on disposal of activities at 132 million in fiscal year 2005/06, compared with a loss of (42) million in fiscal year 2004/05; partly offset by the increase in pension costs at (61) million in fiscal year 2005/06, compared with (47) million in fiscal year 2004/05. > Financial income (expenses) net The reduction of our net financial expenses at (222) million in fiscal year 2005/06 compared with (381) million in fiscal year 2004/05 was due to the decrease in net interest expenses as a consequence of the reduction in our debt level and in our average interest rate. The financial charges included fees paid for bonding and other financing facilities, which amounted to (75) million in fiscal year 2005/06 compared with (105) million in 2004/05. > Income tax charge The income tax charge for the fiscal year 2005/06 was (125) million compared with (163) million in fiscal year 2004/05. The fiscal year 2005/06 income tax charge included a current income tax charge of (155) million and a deferred income tax of 30 million. > Discontinued operations Discontinued operations include our Marine activities. At 31 March 2006, the discontinued operations contribution amounted to (198) million including: (15) million of loss from operations; (87) million of impairment on assets; (96) million of losses related to the disposal of the activity. As at 31 March 2005, the discontinued operations contribution included (32) million of net losses including an operating loss of (104) million. > Net profit/(loss) Group share As a result of improved EBIT, lower financial expenses and lower tax charges, net profit amounted to 178 million for the Group share compared with a net loss of (628) million for fiscal year 2004/05. 33

Operating and financial review BALANCE SHEET Total Group actual figures Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Goodwill 3,323 3,417 (94) Intangible assets, net 1,197 1,222 (25) Tangible assets, net 1,361 1,707 (346) Equity method investments and other investments, net 99 118 (19) Other non-current assets, net 1,250 1,935 (685) Deferred tax 1,249 1,207 42 Non-current assets 8,479 9,606 (1,127) Working capital assets 7,484 8,071 (587) Cash and cash equivalents 1,301 1,404 (103) Current assets 8,785 9,475 (690) Assets held for sale 1,144-1 144 Assets 18,408 19,081 (673) Total Group actual figures Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Equity 1,840 1,466 374 Bonds reimbursable with shares - 133 (133) Non-current and current provisions 2,120 2,322 (202) Accrued pension and retirement benefits 792 824 (32) Financial debt current and non-current 2,571 3,767 (1,196) Deferred tax 39 59 (20) Other current liabilities 9,903 10,510 (607) Liabilities directly associated with assets held for sale 1,143-1,143 Liabilities 18,408 19,081 (673) > Goodwill and intangible assets, net Net Goodwill decreased to 3,323 million at 31 March 2006 compared to 3,417 million at 31 March 2005 mainly due to the disposals of the period. We requested an independent third party evaluation as part of our annual impairment tests of goodwill. The valuation as at 31 March 2006 supported our opinion that our goodwill were not impaired. Net intangible assets decreased to 1,197 million at 31 March 2006 compared to 1,222 million at 31 March 2005. They include acquired intangible assets and capitalised development costs. Acquired intangible assets mainly result from the allocation of the purchase price following the acquisition of ABB s 50% shareholding in Power. Development costs represent expenses fulfilling criteria defined by IAS 38, as described in our Consolidated Financial Statements Note 12 B, and capitalised. These costs are amortised on a straight-line basis over the estimated useful life of the development asset. Transport and Power Turbo-Systems / Power Environment are the main Sectors capitalising development expenses. 34

1MANAGEMENT DISCUSSION AND ANALYSIS Operating and financial review > Tangible assets, net Net tangible assets decreased to 1,361 million at 31 March 2006 compared to 1,707 million at 31 March 2005 mainly due to the disposals of the period and to the fact that depreciation exceeded capital expenditures during fiscal year 2005/06. Capital expenditures increased to 294 million at 31 March 2006 compared to 255 million at 31 March 2005. Capital expenditures excluding capitalised Research and Development expenses also increased in fiscal year 2005/06 at 207 million compared to 185 million in fiscal year 2004/05. Power-Turbo Systems / Power Environment contributed to this increase with capital expenditures growing from 51 million in fiscal year 2004/05 to 70 million in fiscal year 2005/06, mainly in China and in India. Transport also increased its capital expenditures from 52 million in fiscal year 2004/05 to 71 million in fiscal year 2005/06. > Other non-current assets, net Other non-current assets net decreased to 1,250 million at 31 March 2006 compared to 1,935 million at 31 March 2005 mainly due to the reclassification of the long-term rental related to leases of train to assets held for sale. At 31 March 2006, other non-current assets mainly include the 700 million deposit securing the Bonding Guarantee Facility. > Working capital Working capital (defined as current assets excluding cash and cash equivalent less current liabilities excluding current financial liabilities and including non-current provisions) at 31 March 2006 was (4,539) million compared with (4,761) million at 31 March 2005. This improvement reflected the results of stronger working capital management. > Assets/liabilities held for sale Non-current assets and disposal groups are classified as held for sale as their carrying amount will be recovered through a sale transaction rather than through continuing use. We regard the sale as highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Assets and liabilities classified as held for sale correspond to the Marine Sector and to assets and liabilities attributable to leases of trains. > Net deferred tax assets Net deferred tax assets amounted to 1,210 million at 31 March 2006 compared with 1,148 million at 31 March 2005. At 31 March 2006, we reviewed by jurisdiction the recoverability of these deferred tax assets on the basis of our Business plan, extrapolated when needed. This review led to a cumulative valuation allowance on deferred tax assets of 919 million at 31 March 2006 compared with 920 million at 31 March 2005. At 31 March 2006, we are satisfied as to the recoverability of our net deferred tax assets. > Current and non-current provisions At 31 March 2006, the current and non-current provisions were 2,120 million compared with 2,322 million at 31 March 2005. This net decrease was accounted for mainly by the following movements: changes in the scope of our activities; a decrease in provisions on contracts for 103 million, mainly resulting from 116 million of application of the GT24/GT26 gas turbines provisions; a decrease in restructuring provisions of 178 million. > Shareholders equity and minority interests Total equity at 31 March 2006 was 1,840 million, including minority interests, compared with 1,583 million at 1 April 2005. This variation is due to: the net income of the period for 181 million; a cumulative translation adjustment of 55 million; and other effects for 21 million. > Financial debt Our gross financial debt was 2,571 million at 31 March 2006, compared with 3,081 million at 1 April 2005, pursuant to the first application of IAS 32-39 and IFRS 5 standards. 35

Operating and financial review Borrowings decreased by 299 million, securitisation of future receivables by 49 million and, other facilities by 139 million. At 31 March 2006, we were in compliance with our covenants as follows: ratio of EBITDA, as defined in the Consolidated Financial Statement Note 22, to consolidated net financial expense (interest expense including securitisation expenses less interest income but excluding interest related to obligation under finance lease, pension interest cost and the consolidated net financial expense of special purpose entities which were not consolidated subsidiaries as of 31 March 2004). The interest cover at 31 March 2006 amounts to 8.7 to compare with a covenant of 3.0; sum of shareholders equity (excluding the cumulative impact of any deferred tax asset impairments arising after 31 March 2004 and including Bonds Reimbursable with Shares ORA not yet reimbursed) and minority interests (this covenant will not apply if and for so long as ALSTOM s rating is Investment Grade). After excluding the impact of the impairment of deferred tax assets recorded since 31 March 2004 of 189 million, the consolidated net worth at 31 March 2006 to compare with the covenant above is 2,029 million to compare with a covenant of 1,360 million; ratio of total net debt (total financial debt less short-term investments or trading investments and cash and cash equivalents) to EBITDA. The net debt leverage as at 31 March 2006 is of 1.0 to compare with a covenant of 4.0. LIQUIDITY AND CAPITAL RESOURCES > Consolidated statement of cash flows The following table sets out selected figures concerning our consolidated statement of cash flows: Total Group actual figures Year ended 31 March (In million) 2006 2005 Net income after elimination of non-cash items 627 5 Changes in net working capital 158 189 Net cash provided by (used in) operating activities 785 194 Net cash provided by (used in) investing activities 32 363 Net cash provided by (used in) financing activities (409) (353) Net cash provided by (used in) discontinued operations (215) (198) Transfer to assets and liabilities held for sale (317) - Net effect of exchange rate 24 15 Other changes and reclassifications ( 3) 34 Increase (decrease) in cash and cash equivalents (103) 55 36

1MANAGEMENT DISCUSSION AND ANALYSIS Operating and financial review Net cash provided by (used in) operating activities Net cash provided by (used in) operating activities is defined as the net income after elimination of non-cash items plus working capital movements. Net cash provided by operating activities was 785 million in fiscal year 2005/06 compared to 194 million in fiscal year 2004/05. Net income after the elimination of non-cash items was 627 million in fiscal year 2005/06. This amount represented the cash generated by net income before working capital movements. As provisions are included in the definition of our working capital, provisions are not part of the elimination of noncash items. Change in net working capital was 158 million. Working capital was improved by: a decrease of 61 million in trade receivables and other current assets; a decrease of 70 million in contract-related provisions mainly due to the application of GT24/GT26 provisions; an increase of 439 million in contract construction following a continuing rebound in orders received and the resulting increase of our backlog; a decrease of 272 million in trade payables and other payables related. The net cash provided by operating activities of 194 million in fiscal year 2004/05 was mainly due to the favourable change in working capital. Net cash provided by investing activities was 363 million in fiscal year 2004/05. This positive variation of the net cash was mainly due to the cash proceeds from the sales of the T&D Sector ( 207 million) and to the sale of a Special Purpose Entity in the Transport Sector and to the deconsolidation of two Special Purpose Entities in the Marine Sector for a total effect of 627 million. This increase in net cash was partially offset by the variation in other fixed assets, which included the 700 million of cash collateral securing the Bonding programme and the monetisation of other financial items. Net cash provided by (used in) financing activities Net cash (used)/provided by financing activities in fiscal year 2005/06 was (409) million, compared to (353) million in fiscal year 2004/05. This amount included the full reimbursement of the securitisation of future trade receivables for (49) million, the repayments of borrowings for (320) million and capital lease obligations for (42) million. In fiscal year 2004/05, the net cash used by financing activities included the capital increase detailed in page 9 for 2,022 million and the reduction of borrowings for (2,310) million. Net cash provided by (used in) discontinued operations Net cash used in discontinued operations in fiscal year 2005/06 was (215) million, compared to (198) million in fiscal year 2004/05. This amount included the Marine free cash flow of (115) million in fiscal year 2005/06 and (213) million in fiscal year 2004/05. Net cash provided by (used in) investing activities Net cash provided by investing activities was 32 million in fiscal year 2005/06. This amount comprised of: proceeds of 60 million from disposals of property, plant and equipment; capital expenditures for 294 million, including Research and Development capitalisation of 87 million; variation in other non-current assets of 22 million; and cash proceeds from the sale of investments, net of net cash sold, for 257 million. 37

Operating and financial review Decrease (increase) in net debt As a result of the above, our cash and cash equivalent decreased by 103 million in fiscal year 2005/06 after an increase of 55 million in fiscal year 2004/05. Our net debt decreased by 403 million in fiscal year 2005/06 after a decrease of 2,370 million in fiscal year 2004/05 as described below: Total Group actual figures Year ended 31 March (In million) 2006 2005 Net debt at the beginning of the period (1,651) (4,718) Increase (decrease) in cash and cash equivalents (103) 55 Increase (decrease) in short-term investments (2) (24) Issuance (payment) of short-term and long-term borrowings 369 2 310 Issuance (payment) of obligation under finance lease 42 41 Net cash used in financing activities discontinued operations 103 (13) Effect of exchange rate (6) 1 Net debt at the end of the period (1,248) (2,348) IFRS restatement as at 1 April 2005 n.a. 697 Net debt as at 1 April 2005 - (1,651) MATURITY AND LIQUIDITY We have a variety of sources of liquidity in order to finance our operations, including principally borrowings under revolving credit facilities, the issuance of commercial paper and asset disposals. Additional sources include customer deposits and advances and proceeds from the sale of trade receivables, including future trade receivables. In the past, we have also used the issuance of securities, including debt securities and preferred shares, as a source of liquidity. The following table sets forth the list of our drawn and undrawn lines of credit and financial debt obligations (including future receivables securitised) and as part of these, the available lines of credit as of 31 March 2006: Total Group nominal values Within Over Year ended 31 March (In million) 2005 2006 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 year Redeemable preference shares 205 - - - - - - - ORA - 5 - - 5 - - - Subordinated notes 5 5 5 - - - - - Bonds 1,202 2,224 224-1,000 1,000 - - Syndicated loans 1,039 - - - - - - - Bilateral loans 33 - - - - - - - Commercial paper 14 - - - - - - - Other facilities 252 106 55 12 3 3 21 12 Borrowings under finance lease 918 233 40 22 20 18 17 116 Accrued interest 50 33 33 - - - - - Future receivables securitised 49 - - - - - - - Financial debt 3,767 2,606 357 34 1,028 1,021 38 128 Undrawn credit lines 1,202 700 - - - - 700 - Total lines of credit 4,969 3,306 357 34 1,028 1,021 738 128 38

1MANAGEMENT DISCUSSION AND ANALYSIS Operating and financial review Instrument (in million) Maturity Nominal amount Rate Bonds July 2006 224 5,0% Bonds July 2008 400 Euribor 3M + 0.85% Bonds March 2009 600 Euribor 3M + 2.2% Bonds March 2010 1 000 6,25% Revolving credit facility July 2011 700 Undrawn Total available unused credit lines together with cash and cash equivalent available at parent company amounted to 1,650 million at 31 March 2006, compared to 1,998 million at 31 March 2005. These amounts consisted of: available credit lines at Group level for 700 million compared with 1,202 million at 31 March 2005; cash available at parent company level of 950 million at 31 March 2006, compared with 796 million at 31 March 2005. ALSTOM, the Group parent company, can access some cash held by wholly-owned subsidiaries through the payment of dividends or pursuant to intercompany loan arrangements. Local constraints can delay or restrict this access, however. Furthermore, while we have the power to control decisions of subsidiaries of which we are the majority owner, our subsidiaries are distinct legal entities and the payment of dividends and the granting of loans, advances and other payments to us by them may be subject to legal or contractual restrictions, be contingent upon their earnings or be subject to Business or other constraints. These limitations include local financial assistance rules, corporate benefit laws and other legal restrictions. Our policy is to centralise liquidity of subsidiaries at the parent company level when possible, and to continue to progress towards this goal. The cash and cash equivalents available at subsidiary level were 608 million and 351 million respectively in March 2005 and 2006. IMPACT OF EXCHANGE RATE AND INTEREST RATE FLUCTUATIONS Our policy is to use derivatives, such as forward foreign exchange contracts, in order to hedge exchange rate fluctuations and interest rate fluctuations. Our policy does not permit any speculative market position. We have implemented a centralised treasury policy in order to better control the Company s financial risks and to optimise cash management by pooling our available cash, thereby reducing the amount of external debt required and permitting us to obtain better terms under our various financing arrangements. The Senior Vice President funding and treasury (who reports to the Chief Financial Officer) has global responsibility for foreign exchange risk, interest rate management, and cash management. He manages a team of more than 20 people located in the Levallois Headquarters which forms the Corporate Treasury and is organised with a Front-Office, a Middle-Office and a Back-Office to ensure segregation of duties. A network of Country Treasurers supports Corporate Treasury in the countries where we have a significant presence. Corporate Treasury acts as an in-house bank for subsidiaries by providing hedging and funding, maintaining internal current accounts and managing an intercompany payments netting system. We have implemented cash pooling structures to centralise cash on a daily basis in the countries where local regulations permit. Corporate Treasury uses the Reuters Cash Flow KTP Treasury Management System for straight-through processing of treasury transactions from dealing to settlement and management of in- 39

Operating and financial review house banking activity. Our Treasury Management System is interfaced with SAP for automatic generation of accounting entries. The Front Office is equipped with a Reuters Information System for real-time market data and uses a professional telephone dealing system provided by Etrali to tape all exchanges with bank s dealing rooms. A dedicated Information Technology team administers Treasury systems and guarantees back-up and contingency plans. The Middle Office monitors the Dealing Room activity, guarantees that no open positions are maintained, and produces regular risk reporting. > Exchange rate risks In the course of our operations, we are exposed to currency risk arising from tenders for contracts to be paid in foreign currency, and from awarded contracts or firm commitments under which revenues are denominated in foreign currency. The principal currencies to which we had significant exposure in fiscal year 2005/06 were the US dollar, British pound and Swiss franc. We hedge risks related to firm commitments and tenders as follows: by using forward contracts for firm commitments; by using foreign exchange derivative instruments for tenders, usually pursuant to strategies involving combinations of purchased and written options; or by entering into specific insurance policies, such as with Coface in France or Hermes in Germany. The purpose of these hedging activities is to protect us against any adverse currency movements which may affect contract revenues should the tender be successful, and to minimise the cost of having to unwind the strategy in the event of an unsuccessful tender. The decision whether to hedge tender volumes is based on the probability of the transaction being awarded to us, expected payment terms and our assessment of market conditions. Under our policy, only senior management may make such decisions. When a tender results in the award of a contract, we hedge the resulting net cash flows mainly in the forward markets or, in some exceptional cases, by means of insurance policies. Due to the long-term nature of our business, the average duration of these forward contracts is approximately 12-14 months. We do not hedge our net assets invested in foreign operations. We monitor our market positions closely and regularly analyse market valuations. We also have in place counter-party risk management guidelines. All derivative transactions, including forward exchange contracts, are designed and executed by our central corporate treasury department, except in some specific countries where restrictive regulations prevent centralised execution. 40

1MANAGEMENT DISCUSSION AND ANALYSIS Operating and financial review > Interest rate risks See Note 28 B to the Consolidated Financial Statements for discussion of our interest rate risks and of sensitivity to interest rate variation. > Value of financial instruments At 31 March 2006 and 31 March 2005, the nominal and fair value of foreign exchange instruments are detailed as follows: Derivative instruments qualifying for hedge accounting (forward contracts and currency swaps) Year ended 31 March 2006 Year ended 31 march 2005 Purchased Sold Purchased Sold Fair Fair Fair Fair (in million) Nominal value Nominal value Nominal value Nominal value British pound 2-375 1 77-307 (7) Brazilian real 33 (8) 29 1 - - 10 (1) Polish zloti 149-252 (2) 126 5 26 - Swedish kroner 227 (3) 279 2 285 (1) 87 - US dollar 713 (64) 2,462 104 557 (92) 1,995 130 Australian dollar 163 (4) 150 3 108-60 (2) Singapore dollar 16-39 - 13-89 12 Swiss franc 1,889 (21) 2,139 31 1,340 (5) 1,857 10 Other 345 3 297 2 269 2 328 4 Total 3,537 (97) 6,022 142 2,775 (91) 4,759 146 Derivative instruments not qualifying for hedge accounting (forwards contracts, currency options contracts and insurance contracts) Year ended 31 March 2006 Year ended 31 march 2005 Purchased Sold Purchased Sold Fair Fair Fair Fair (in million) Nominal value Nominal value Nominal value Nominal value Foreign exchange instruments Currency option contracts - JPY - - - - 20 2 - - Currency option contracts - USD 1-34 - 110 17 75 (1) Currency option contracts - other currencies - - 19 - - - - - Forward contracts - USD 112 (1) 95 - - - - - Forward contract - CHF 95 2 9 - - - - - Forward contract - SEK 71 1 1 - - - - - Forward contract - Other currencies 56 (1) 41 - - - - - Insurance contracts 34 (2) 105 4 3-193 (2) Total 369 (1) 304 4 133 19 268 (3) 41

Operating and financial review At 31 March 2006, the nominal value of derivative instruments by maturity is as follows: Derivative instruments qualifying for hedge accounting (forward contracts and currency swaps) (in million) Total < 1 year 1-5 years > 5 years British pound 377 299 78 - Brazilian real 62 58 4 - Polish zloti 401 286 115 - Swedish kroner 506 365 136 5 US dollar 3,175 2,021 1,153 1 Australian dollar 313 170 143 - Singapore dollar 55 55 - - Swiss franc 4,028 3,745 283 - Other 642 561 81 - Total 9,559 7,560 1,993 6 Derivative instruments not qualifying for hedge accounting (forwards contracts, currency options contracts and insurance contracts) (in million) Total < 1 year 1-5 years > 5 years Foreign exchange instruments Currency option contracts - USD 35 35 - - Currency option contracts - other currencies 19 19 - - Forward contracts - USD 207 104 103 - Forward contracts - CHF 104 60 44 - Forward contracts - SEK 72 20 52 - Forward contracts - other currencies 97 68 27 2 Insurance contracts 139 47 92 - Total 673 353 318 2 42

1MANAGEMENT DISCUSSION AND ANALYSIS Operating and financial review PENSION ACCOUNTING The Group provides various types of retirement, termination and post-retirement benefits to our employees. The type of benefits offered to an individual employee is related to local legal requirements as well as operating practices of the specific subsidiaries and involves us in the operation of, or participation in, various retirement plans. These plans are either definedcontribution, defined-benefit or multi-employer plans. > Defined contribution plans For the defined-contribution plans, we pay contributions to independently administered funds at a fixed percentage of employees pay. The pension costs in respect of definedcontribution plans are charged in the income statement as operating expenses and represent the contributions paid by the Company to these funds. > Defined benefit plans These plans mainly cover retirement and termination benefits and post-retirement medical benefits. For the defined benefit plans, which we operate, benefits are normally based on an employee s pensionable remuneration and length of service. These plans are either funded through independently administered pension funds or unfunded. Pension liabilities are assessed annually by external professionally qualified actuaries. These actuarial assessments are carried out for each plan using the Projected Unit Credit method with generally a measurement date of 31 March. The financial and demographic assumptions used are determined at the measurement date as being appropriate for the plan and the country in which it is situated. The main assumptions made are listed below: discount rate; inflation rate; rate of salary increases; long-term rate of return on plan assets; mortality rates; and employees turnover rates. Certain assumptions used are discussed in Note 21 to the Consolidated Financial Statements. The assets of externally administrated defined-benefit plans are invested mainly in equity and debt securities. The components of these assets are disclosed in Note 21 to the Consolidated Financial Statements. The expected costs of providing retirement pensions under defined benefit plans, as well as the costs of other postretirement benefit plans, are charged to the profit and loss account over the periods benefiting from the employees services. Valuation of the Defined Benefit Obligation The actuarial value of the future obligations of the employer estimated with the Projected Unit Credit method (Defined Benefit Obligation DBO ) fluctuates annually, depending upon the following: increases related to the acquisition by the employees of one additional year of benefit rights ( service cost ); increases in the present value of the DBO which arises because the benefits are one year closer to their payment dates ( interest cost ); decreases related to the benefits paid during the year; actuarial gains and losses during the year as explained below; changes in obligations related to plan amendments; changes due to curtailments or settlements applied on the plans; and changes in scope ( Business combinations/disposals ). The change in the DBO is disclosed in Note 21 to the Consolidated Financial Statements. Valuation of plan assets The fair value of the assets held by each plan is the amount that the plan could reasonably expect to receive in a current sale of the assets between a willing buyer and a willing seller. This is compared with the DBO and the difference is referred to as the funded status of the plan. The changes in the fair value of assets and the funded status are disclosed in Note 21 to the Consolidated Financial Statements. Actuarial gains and losses and past year service costs A number of factors can trigger actuarial gains and losses: differences between the assumptions used and the actual experience (for instance, an actual return on assets differing from the expected rate of return at the beginning of the year) and changes in the long-term actuarial assumptions (inflation rate, discount rate, rate of salary escalation, mortality table etc.). 43

Operating and financial review The unrecognised actuarial gains/losses at the year-end is compared on a plan-by-plan basis with the higher of the DBO and the fair value of the assets held. If the unrecognised actuarial gains/losses exceeds 10% of this amount, the excess above the 10% level is amortise over the remaining working lives of the employees of the respective plan. As of 31 March 2006, the actuarial losses unrecognised in the balance sheet were 1,050 million, an increase of 41 million since March 2005. The portion above a 10% corridor calculated scheme by scheme is amortised over the average remaining working lives of participants in these plans. The introduction of a defined benefit plan or changes resulting from plan amendments may increase/decrease the obligations. Such event triggers a past service cost which is recognised immediately in the case of vested benefits, or amortised on a straight-line basis over the average period until the benefits become vested in case of non-vested benefits. The unrecognised past service costs amounted to 24 million at 31 March 2006. In respect of other long-term employee benefits as defined under paragraph 126 of IAS 19, actuarial gains and losses and past service cost are recognised immediately and no corridor is applied. > Pension cost The following table shows the composition of the total benefit expense for the fiscal year 2004/05 and 2005/06: Total Group actual values Variation March 05/ Year ended 31 March (in million) 2006 2005 March 06 Service Cost (85) (80) (5) Multi-employer contributions and and defined contributions (90) (89) (1) Income from operations (175) (169) (6) Amortisation of actuarial net loss (gain) (68) (57) (11) Amortisation of unrecognised past service cost 3 5 (2) Other 4 4 - Other income (expense) (61) (48) (13) Interest cost (215) (217) 2 Expected return on plan assets 200 200 - Financial income (expense) (15) (17) 2 Benefit expense (251) (234) (17) 44

1MANAGEMENT DISCUSSION AND ANALYSIS Operating and financial review OFF-BALANCE SHEET COMMITMENTS AND CONTRACTUAL OBLIGATIONS The following table sets forth our off-balance sheet commitments, which are discussed further at Note 26 to the Consolidated Financial Statements: Total Group actual values Year ended 31 March (in million) 2006 2005 Guarantees related to contracts 7,572 7,526 Guarantees related to Vendor financing 432 429 Discounted notes receivables - 5 Commitments to purchase fixed assets 8 1 Other guarantees 242 114 Off-balance sheet commitments 8,254 8,075 > Guarantees related to contracts The overall amount given as guarantees on contracts decreased from 7,572 million in March 2006 to 7,526 million in March 2005, stable over the period due to the disposal of some activities and the orders intake increase. > Vendor financing exposure In some instances, we have in the past years provided financial support to institutions which finance some of our customers and also, in some cases, directly to our customers for their purchases of our products. We refer to this financial support as Vendor financing. We have not committed to provide any Vendor financing guarantees to our customers since fiscal year 1998/99. The following table set forth our Vendor financing exposure, which are discussed further at Note 26 to the Consolidated Financial Statements: Total Group actual values Year ended 31 March (in million) 2006 2005 Marine 126 120 Transport 306 309 Vendor financing exposure 432 429 45

Outlook OUTLOOK We believe the power generation market will continue to grow in the coming years, mainly pushed by the service market and the demand for environmental upgrade of existing power plants. We expect the market for new equipments to stand around 100-120 GW/annum in the coming years. In the coming years, we foresee a growth in the overall market for rail transportation with a continuing strong market in Europe and opportunities in Asia and Latin America. In this context, ALSTOM should continue to grow its sales and improve its profitability both in the combined power Sectors and in the Transport Sector. For internal planning purposes, we have set a target for fiscal year 2007/08, following our current accounting methods, of a 7% operating margin for the Group, which assumes reaching a 8% operating margin for the combined Power Sectors and a 7% operating margin for Transport. Power Service: we aim to develop our services based on our field presence, manufacturing and technical capabilities. We intend to maintain our operating margins notably through cost base improvement; Transport: our objective is to reach the targeted operating margin through growing sales, improvements in contract execution and further cost reduction based upon standardisation, sourcing and cost adjustments. We plan to keep our technological edge thanks to new high-tech products under development. The foregoing are forward-looking statements, and as a result they are subject to uncertainties. The success of our strategy and action plan, our sales, operating margin and financial position could differ materially from the goals and targets expressed above if any of the risks we describe in the Risk Factors section of the financial report of the Annual Report for fiscal year 2005/06, or other unknown risks, materialise. These targets are based on a number of assumptions and actions, including the correct execution of the contracts in our backlog, the intake of profitable orders and the optimisation of our cost base. More particularly, for each of the Sectors, we took the following assumptions: Power Turbo-Systems / Power Environment: we aim to increase the profitability of our order through selective bidding combined with product cost reductions while we would continue to improve project execution. Our plan also includes seizing profit opportunities on certain targeted markets, such as environmental-related projects. We plan to differentiate ourselves through plant integration capabilities; 46

2 FINANCIAL INFORMATION CONSOLIDATED FINANCIAL STATEMENTS 48 Consolidated income statements 48 Consolidated balance sheets 49 Consolidated statements of cash flows 50 Consolidated statement of changes in shareholders equity and minority interests 52 Notes to the consolidated financial statements 54 Appendices to the French GAAP/ IFRS reconciliation 120 Auditors report on the consolidated financial statements 128 Report of the auditors on the profit forecasts 130 STATUTORY ACCOUNTS 131 Income statement 131 Balance sheet 132 Notes to the financial statements 134 Auditors report on statutory financial statements 146 Special report of the auditors on certain related party transactions 148 Five-year summary 149 Appropriation of the net income of fiscal year 2005/06 150 47

Consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statements Year ended 31 March (in million) Note 2006 2005* Sales (25) 13,413 12,920 Of which products 9,773 9,127 Of which services 3,640 3,793 Cost of sales (11,080) (10,886) Selling expenses (569) (535) Research and development expenses (6) (364) (405) Administrative expenses (654) (623) Income from operations (25) 746 471 Other income (7) 233 67 Other expenses (7) (252) (589) Earnings (loss) before interest and taxes (25) 727 (51) Financial income (expenses), net (8) (222) (381) Pre-tax income (loss) 505 (432) Income tax charge (9) (125) (163) Share in net income (loss) of equity investments (1) - Net profit (loss) from continuing operations 379 (595) Net profit (loss) from discontinued operations (10) (198) (32) Net profit (loss) 181 (627) Attributable to: - Group share 178 (628) - Minority interests 3 1 Earnings per share in - Basic (11) 1.27 (5.76) - Diluted (11) 1.26 (5.76) Earnings per share in - from continuing operations - Basic (11) 2.68 (5.47) - Diluted (11) 2.65 (5.47) Earnings per share in - from discontinued operations - Basic (11) (1.41) (0.29) - Diluted (11) (1.39) (0.29) * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. The accompanying notes are an integral part of these consolidated financial statements. 48

Consolidated financial statements Consolidated balance sheets At 31 March At 1 April At 31 March (in million ) Note 2006 2005** 2005* Assets Goodwill (12) 3,323 3,417 3,417 Intangible assets, net (12) 1,197 1,222 1,222 Property, plant and equipment, net (13) 1,361 1,707 1,707 Equity method investments and other investments, net (14) 99 118 118 Other non-current assets, net (15) 1,250 1,290 1,935 Deferred taxes (9) 1,249 1,204 1,207 Total non-current assets 8,479 8,958 9,606 Inventories, net (16) 1,488 1,654 1,654 Construction contracts in progress, assets (17) 2,229 2,601 2,601 Trade receivables, net (18) 2,291 2,323 2,392 Other current assets, net (19) 1,476 1,645 1,424 Cash and cash equivalents 1,301 1,404 1,404 2 FINANCIAL INFORMATION Total current assets 8,785 9,627 9,475 Assets held for sale (24) 1,144 637 - Total assets 18,408 19,222 19,081 Liabilities Shareholders equity 1,782 1,515 1,398 Minority interests 58 68 68 Total equity 1,840 1,583 1,466 Bonds reimbursable with shares - - 133 Non-current provisions (20) 581 680 680 Accrued pension and retirement benefits (21) 792 824 824 Non-current financial debt (22) 2,211 2,598 3,281 Deferred taxes (9) 39 59 59 Total non-current liabilities 3,623 4,161 4,844 Current provisions (20) 1,539 1,642 1,642 Current financial debt (22) 360 483 486 Construction contracts in progress, liabilities (17) 5,401 5,520 5,484 Trade payables 2,872 3,316 3,437 Other current liabilities (23) 1,630 1,880 1,589 Total current liabilities 11,802 12,841 12,638 Liabilities directly associated with assets held for sale (24) 1,143 637 - Total liabilities 18,408 19,222 19,081 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. ** Amended balance sheet at 1 April 2005 pursuant to the first time application of IAS 32-39 and IFRS 5 standards (see Note 4 B). The accompanying notes are an integral part of these consolidated financial statements. 49

Consolidated financial statements Consolidated statements of cash flows Year ended 31 March (in million) 2006 2005* Net profit (loss) from continuing operations 379 (595) Depreciation and amortisation 424 497 Changes in pension assets and accrued pension and retirement benefits, net - 9 Net (gain) loss on disposal of non-current assets and investments ❶ (147) (51) Share in net income (loss) of equity investees (net of dividends received) 1 - Changes in deferred tax (30) 145 Net income after elimination of non-cash items 627 5 Changes in net working capital ❷ 158 189 Net cash provided by operating activities - continuing operations 785 194 Proceeds from disposals of property, plant and equipment 60 51 Capital expenditure (a) (294) (255) Decrease (increase) in other non-current assets ❸ 22 (361) Cash expenditure for acquisition of investments, net of net cash acquired (13) - Cash proceeds from sale of investments, net of net cash sold ❹ 257 928 Net cash provided by investing activities - continuing operations 32 363 Capital increase 6 2,022 Issuance (conversion) of bonds reimbursable with shares - (19) Issuance (repayment) of short-term and long-term borrowings (b) ❹ (369) (2,310) Issuance (repayment) of obligation under finance lease (42) (41) Dividends paid including minorities (4) (5) Net cash used in financing activities - continuing operations (409) (353) Decrease in cash and cash equivalents - discontinued operations ➎ (215) (198) Transfer to assets held for sale ❻ (317) - Net effect of exchange rate 24 15 Other changes (c) (3) 34 Increase (decrease) in cash and cash equivalents (103) 55 Cash and cash equivalents at the beginning of the period 1,404 1,349 Cash and cash equivalents at the end of the period 1,301 1,404 Cash paid for income taxes 85 92 Cash paid for net interest (d) 171 204 Net debt variation analysis Increase (decrease) in cash and cash equivalents (103) 55 Increase (decrease) in short-term investments (c) (2) (24) (Issuance) repayment of short-term and long-term borrowings (b) 369 2,310 (Issuance) repayment of obligation under finance lease 42 41 Net cash used in financing activities - discontinued operations 103 (13) Effect of exchange rate (6) 1 Decrease (increase) in net debt 403 2,370 Net debt at the beginning of the period (e) (1,651) (4,718) Net debt at the end of the period (e) (1,248) (2,348) * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. The accompanying notes are an integral part of these consolidated financial statements. 50

Consolidated financial statements (a) Including capitalisation of development costs (see Note 6). (b) Including issuance (repayment) of securitisation of future receivables. (c) Include 2 million and 24 million of change in short-term investments as of 31 March 2006 and 31 March 2005, respectively. From 1 April 2005, short-term investments correspond to available-for-sale investments, held-to-maturity securities and trading investments included in other current assets, net (see Note 19). (d) Including cash paid related to interest on securitisation of future receivables. (e) The net debt corresponds to cash and cash equivalents and the sum of available-for-sale investments, held-to-maturity securities, trading investments (from 1 April 2005) and short-term investments (before 1 April 2005) included in other current assets (see Note 19), net of financial debt (see Note 22). The difference between the net debt at the beginning of the year ended 31 March 2006 ( 1,651 million) and the net debt at the end of the year ended 31 March 2005 ( 2,348 million) is due to the first time application of IAS 32-39 and IFRS 5 standards at 1 April 2005. 2 Cash flow movements for the year ended 31 March 2006 ❶ Of which 132 million of capital gains and losses on disposal of investments/activities and 12 million of capital gain on disposal of fixed assets (see Note 7). ❷ For the year ended 31 March 2006, changes in net working capital consist of 439 million changes in construction contracts, net, (70) million changes in provisions, (2) million changes in inventories, 63 million changes in trade receivables and other current assets and (272) million changes in trade payables and other current liabilities. ❹ The 257 million of proceeds (net of 66 million of net cash sold) mainly consist of 150 million proceeds (net of 32 million of net cash sold) related to the disposal of Transport activities in Australia and New Zealand, 34 million of proceeds (net of 18 million of net cash sold) from the disposal of Power Conversion activities and 63 million of reimbursement of the escrow account related to the former Industrial Turbines Business retained at 31 March 2005. ➎ See Note 10. ❻ See Note 24. Cash flow movements for the year ended 31 March 2005 ❸ In the year ended 31 March 2005, the outflow relating to other non-current assets was mainly due to the 700 million cash deposit made to secure the new Bonding Guarantee Facility Programme (see Note 15) partially offset by the repayment of other long-term deposits. ❹ In the year ended 31 March 2005, the net proceeds of 928 million were made of: proceeds of 207 million related to the completion of the disposal of certain non-significant entities of the former T&D Sector not yet sold at 31 March 2004 and partial reimbursement of the receivables retained at 31 March 2004; proceeds of 59 million related to the completion of the disposal of US entities of the former Industrial Turbines Business and partial reimbursement of the escrow accounts retained at 31 March 2004; other proceeds net of net cash sold of 35 million including the disposal of the freight locomotive Business in Spain; net debt of 627 million sold as part of the disposal of one special purpose entity in the Transport Sector and the deconsolidation of two special purpose entities in the Marine Sector. This disposal has generated a 627 million decrease in short-term and long-term borrowings. ➎ See Note 10. FINANCIAL INFORMATION 51

Consolidated financial statements Consolidated statement of changes in shareholders equity and minority interests Number of Additional Share- Cumulative Share- (in million) outstanding paid-in Retained based translation holders' Minority Total Except for number of shares shares Capital capital earnings payments adjustment equity interests equity At 1 April 2004 1,056,657,572 1,321 64 (1,383) - - 2 66 68 Conversion of ORA ❹ 15,473,425 14 5 - - - 19-19 Conversion of TSDDRA ➎ 240,000,000 300 - - - - 300-300 Capital decrease ❻ - (1,175) (64) 1,239 - - - - - Capital increase ❼ 4,185,080,412 1,464 261 - - - 1,725-1,725 Changes in cumulative translation adjustments - - - - - (20) (20) 1 (19) Net profit (loss) - - - (628) - - (628) 1 (627) At 31 March 2005 5,497,211,409 1,924 266 (772) - (20) 1,398 68 1,466 Impact application IAS 32/39-112 5 - - 117-117 At 1 April 2005 5,497,211,409 1,924 378 (767) - (20) 1,515 68 1,583 Conversion of ORA ❶ 1,121,044 10 (10) - - - - - - Consolidation of shares ❷ (5,360,161,677) - - - - - - - - Changes in cumulative translation adjustments - - - - - 52 52 3 55 Change in scope - - - - - - - (16) (16) Share-based payments ❸ - - - - 40 (3) 37-37 Net profit - - - 178 - - 178 3 181 At 31 March 2006 138,170,776 1,934 368 (589) 40 29 1,782 58 1,840 Shareholders equity movement between 1 April 2005 and 31 March 2006 ❶ During the year ended 31 March 2006, 23,573,581 bonds reimbursable with shares Obligation Remboursables en Actions were converted into shares, resulting in the issuance of 390,311 shares before the consolidation of shares (see below) at a par value of 0.35 and 730,733 shares after the consolidation of shares at a par value of 14. At 31 March 2006, 71,045,334 bonds reimbursable with shares are outstanding for an amount of 99 million, representing 2,230,823 shares to be issued. ❸ See Note 30 Share-based payments. At 31 March 2006, the share capital amounts to 1,934,390,864 consisting of 138,170,776 shares with a nominal value of 14 per share. All shares are fully paid up. Shareholders equity movement between 31 March 2005 and 1 April 2005 See Note 4 B First time application of IAS 32-39 and IFRS 5 standards at 1 April 2005. ❷ On 3 August 2005, ALSTOM consolidation of shares was completed through the exchange of 40 existing shares for one new share. The number of ALSTOM shares has consequently been reduced from 5,497,601,720 shares with a nominal value of 0.35 to 137,440,043 shares with a nominal value of 14. 52

Consolidated financial statements Net equity movement between 1 April 2004 and 31 March 2005 ❹ During the year ended 31 March 2005, 14,112,541 bonds reimbursable into shares Obligation Remboursables en Actions were converted into shares initially on the basis of one share for one bond and as from 16 August 2004 following completion of the capital increase with preferential subscription rights, on the basis of the adjusted ratio of 1.2559 share for one bond, resulting in the issue of 15,473,425 new shares. At 31 March 2005, 94,618,915 bonds reimbursable with shares were outstanding for an amount of 133 million. ➎ On 7 July 2004, following the European Commission s approval, the subordinated bonds reimbursable with shares Titres Subordonnés à Durée Déterminée Remboursables en Actions held by the French Republic were repaid into 240,000,000 new shares at a par value of 1.25. On 6 December 2004, the Group completed a share capital increase reserved for its employees consisting of 49,814,644 new shares issued at a par value of 0.35. Related costs of 40 million (net of tax of 22 million) were charged against additional paid in capital of 301 million. At 31 March 2005, the share capital amounted to 1,924,023,993.15 consisting of 5,497,211,409 shares with a nominal value of 0.35 per share. All shares were fully paid up. 2 FINANCIAL INFORMATION ❻ The ALSTOM shareholders equity at 31 March 2004 constituted less than 50% of its share capital. Therefore, in accordance with article L. 225-248 of the French Code de commerce, the shareholders were requested and agreed, at the Extraordinary General Shareholders Meeting held on 9 July 2004, not to liquidate the Company by anticipation. Further, it was decided to reduce ALSTOM s share capital, due to losses, from 1,631,815,076.25 to 456,908,221.35. This reduction in the share capital was implemented through the reduction in the nominal value of one ALSTOM ordinary share from 1.25 per share to 0.35 per share. ❼ On 12 and 13 August 2004, the Group completed two simultaneous capital increases: a capital increase with preferential subscription rights to be subscribed either in cash or by set-off against certain of our outstanding debt was subscribed for a total gross amount of 1,508 million as follows: 1,277 million gross amount consisting of 3,192,826,907 new shares issued at 0.40 having a par value of 0.35 subscribed in cash. 231 million gross amount consisting of 462,438,861 new shares issued at 0.50 having a par value of 0.35, subscribed by set-off against debt; a second capital increase which was reserved for certain Group s creditors to be subscribed by set-off against certain of our outstanding debts was subscribed for a total gross amount of 240 million consisting of 480,000,000 new shares issued at 0.50 having a par value of 0.35. 53

Consolidated financial statements Notes to the consolidated financial statements NOTE 1. DESCRIPTION OF BUSINESS ALSTOM (the Group) serves the power generation market through its Power Turbo-Systems / Power Environment Sector and its Power Service Sector, and the rail transport market through its Transport Sector. The Group designs, supplies, and services a complete range of technologically advanced products and systems for its customers, and possesses a unique expertise in systems integration and through-life maintenance and service. The principal activities of the Group are described in Note 25. NOTE 2. BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS Following the coming into force of European Reporting Regulation n 1606/2002, companies listed in the European Union are required to adopt International Financial Reporting Standards (IFRS/IAS) as endorsed by the European Union in the preparation of their consolidated financial statements covering periods beginning on or after 1 January 2005. Unlike the consolidated financial statements for the year ended 31 March 2005 which were prepared on the basis of the accounting principles generally accepted in France ( French GAAP ), ALSTOM s consolidated financial statements covering periods beginning 1 April 2005 are presented according to IFRS, together with comparative information related to the previous period converted to the same standards. In compliance with IFRS 1 on first-time adoption of IFRS, the opening balance sheet at 1 April 2004 and the consolidated financial statements for the fiscal year ended 31 March 2005 have been restated in accordance with IFRS standards endorsed by the European Union at the date of preparation of the consolidated financial statements for the year ended 31 March 2006, with the exception of IAS 32-39 and IFRS 5 standards applied from 1 April 2005. The effects of the transition to IFRS are described in Note 34. The income statement and the cash flow statement for the year ended 31 March 2005 presented as comparative information are different from the ones presented in Note 34 and in the interim consolidated financial statements at 30 September 2005 following the retrospective application of IFRS 5 standard (see Note 10). ALSTOM consolidated financial statements for the year ended 31 March 2006 have been prepared using: the IAS/IFRS standards and interpretations applicable for annual periods beginning on or prior to 1 April 2005; the accounting policies and methods of computation as set out in Note 3; the historical cost convention, with the exception of certain assets and liabilities in accordance with applicable IFRS standards. Categories of assets and liabilities concerned are mentioned in Note 3. 54

Consolidated financial statements NOTE 3. SUMMARY OF ACCOUNTING POLICIES A. Consolidation methods Subsidiaries Entities, over which the Group exercises effective control, are fully consolidated. Control exists where the Group has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities, whether it holds shares or not. Intercompany balances and transactions are eliminated on consolidation. Results of operations of subsidiaries acquired or disposed of during the year are recognised in the consolidated income statements as from the date of acquisition or up to the date of disposal, respectively. Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority s interest in the subsidiary s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. Interests in joint ventures Joint ventures are companies over which the Group has joint control. They are consolidated by the proportionate method with the Group s share of the joint ventures results, assets and liabilities recorded in the consolidated financial statements. Investments in associates Entities in which the Group exercises significant influence, but not control, are accounted for under the equity method. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for postacquisition changes in the Group s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group s interest in that associate are not recognised, except if the Group has a legal or implicit obligation. Any excess of the cost of acquisition over the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. A list of the Group s major consolidated subsidiaries, joint ventures and associates and the applicable method of consolidation is provided in Note 33. B. Use of estimates The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, sales and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements. Management reviews estimates on an ongoing basis using currently available information. Total expected revenue and costs on a contract reflect management s current best estimate of the probable future benefits and obligations associated with the contract. The assumptions to calculate present and future obligations take into account current technology as well as the commercial and contractual positions, assessed on a contractby-contract basis. The introduction of technologically advanced products exposes the Group to risks of product failure significantly beyond the terms of standard contractual warranties applying to suppliers of equipment only. Significant items subject to such estimates and assumptions include revenue and margin recognition on long-term contracts, provisions related to warranties and litigations, pension assets and liabilities, impairment of non-current assets and deferred taxes. Actual results may differ from those estimates, due to changes in facts and circumstances. 2 FINANCIAL INFORMATION 55

Consolidated financial statements C. Sales and costs generated by operating activities Measurement of sales and costs The amount of revenue arising from a transaction is usually determined by the contractual agreement with the customer. In case of construction contracts, claims are considered in the determination of contract revenue when it is highly probable that the claim will result in additional revenue and the amount can be reliably estimated. Conversely, penalties are taken into account in reduction of contract revenue as soon as they are probable. Production costs include direct (such as material and labour) and indirect costs, including warranty costs. Warranty costs are estimated on the basis of contractual agreement, available statistical data and weighting of all possible outcomes against their associated probabilities. Warranty periods may extend up to five years. Selling and administrative expenses are excluded from production costs. Recognition of sales and costs Whatever the type of contracts, sales are recognised only when the outcome of the transaction can be assessed reliably. Revenue on sale of manufactured products and service contracts which are of less than one year duration is recognised when the significant risks and rewards of ownership are transferred to the customer, which generally occurs on delivery and performance of service activities. All production costs incurred or to be incurred in respect of the sale are charged to cost of sales at the date of recognition of sales. Revenue on construction contracts and long-term service agreements is recognised on the percentage of completion method: the stage of completion is assessed by milestones which ascertain the completion of a physical proportion of the contract work or the performance of services prescribed by the agreement. The excess of revenue measured at percentage of completion over the revenue recognised in prior periods is the revenue for the period. Cost of sales on construction contracts and long-term service agreements is computed on the same basis. The excess of cost to be recognised over the cost of sales recognised in prior periods is the cost of sales for the period. As a consequence, adjustments to contract estimates resulting from job conditions and performance are recognised in cost of sales as soon as they occur, pro rata to the stage of completion. Selling and administrative expenses are expensed as incurred. Research expenses are expensed as incurred. Development costs are expensed as incurred unless the project they relate to meets the criteria for capitalisation (see Note 3 J). When it is probable that contract costs at completion will exceed total contract revenue, the expected loss is recognised as an expense immediately. With respect to construction contracts and long-term service agreements, the aggregate amount of costs incurred to date plus recognised margin less progress billings is determined on a contract-by-contract basis. If the amount is positive, it is included as an asset designated as Construction contracts in progress, assets. If the amount is negative, it is included as a liability designated as Construction contracts in progress, liabilities. The caption Construction contracts in progress, liabilities also includes advances received from customers. D. Income (loss) from operations Income (loss) from operations includes gross margin, administrative and selling expenses and research and development expenses. It includes in particular the service cost of pensions, cost of share-based payments, employee profitsharing, foreign exchange gains or losses associated with operating transactions, including hedge accounting impacts, and capital gains (losses) on disposal of intangible and tangible assets arising from ordinary activities. E. Other income and other expenses Other income includes capital gains on disposal of investments or activities and capital gains on disposal of tangible assets arising from activities disposed of or facing restructuring plans as well as any income associated to past disposals. Other expenses include capital losses on disposal of investments or activities and capital losses on disposal of tangible assets arising from activities disposed of or facing restructuring plans as well as any costs associated to past disposals, restructuring costs, a portion of pension costs (amortisation of actuarial gains and losses, unrecognised prior service cost and impacts of curtailments and settlements) and major impairments of assets. 56

Consolidated financial statements F. Financial income and expenses Financial income and expenses include: interest charges and income relating to the net consolidated debt which consists of bonds, the liability component of compound instruments, other borrowings including leasefinancing liabilities and cash and cash equivalents; other expenses paid to financial institutions for financing operations; interest charges and bank fees relating to securitisation of receivables; the financial component of the pension cost (interest cost and expected return on assets); dividends received from non-consolidated investments; foreign exchange gains and losses including hedge accounting impacts associated to financing transactions. G. Translation of financial statements denominated in foreign currencies The individual financial statements of each Group s foreign subsidiaries, joint ventures and associates are presented in the primary economic environment in which the entity operates. Therefore the functional currency of the Group s foreign subsidiaries is the applicable local currency. For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in euro, which is the functional currency of the Group and the presentation currency for the consolidated financial statements. Assets and liabilities of foreign subsidiaries located outside the euro zone are translated into euros at the period end rate of exchange, and their income statements and cash flow statements are converted at the average rate of exchange for the period. The resulting translation adjustment is included as a component of shareholders equity. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. H. Foreign currency transactions Foreign currency transactions are initially recognised by applying to the foreign currency amount the spot exchange rate between the functional currency of the reporting unit and the foreign currency at the date of the transaction. Units of currency held and assets and liabilities to be received or paid resulting from those transactions are remeasured at closing exchange rates at the end of each reporting period. Realised exchange gains or losses at date of payment as well as unrealised gains or losses deriving from remeasurement are recorded in the income statement, within income from operations when they relate to operating activities or within financial income or expense when they relate to financing activities. Since the Group is exposed to foreign currency volatility, it takes significant levels of forward cover relating to this exposure. These derivatives are recognised on the balance sheet at fair value at the closing date. Providing that the relationships between the foreign currency exposure and the related derivatives are qualifying relationships, the Group uses the specific accounting treatments designated as hedge accounting. A relationship qualifies for hedge accounting if, at the inception of the hedge, it is formally designated and documented and if it proves to be highly effective throughout the financial reporting periods for which the hedge was initially designated. Hedging relationships could be of three types: cash flow hedges in case of hedge of the exposure to variability of cash flows attributable to highly probable forecast transactions; fair value hedge in case of hedge of the exposure attributable to recognised assets, liabilities or firm commitments; hedge of net investment in foreign subsidiaries. Cash flow hedge Due to the strict criteria defined by the IFRS, cash flow hedge is only adopted by the Group for a very limited number of relationships, which are expected to turn into firm orders in a very short-term period. 2 FINANCIAL INFORMATION 57

Consolidated financial statements When cash flow hedge accounting applies, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the forecast transaction results in the recognition of a monetary item, the amounts previously recognised directly in equity are reclassified to the income statement. Fair value hedge The Group applies fair value hedge accounting to all effective hedge relationships where the exposure is attributable to recognised assets, liabilities or firm commitments. When fair value hedge accounting applies, changes in the fair value of derivatives and changes in the fair value of hedged items are both recognised in the income statement and offset each other, up to the effective portion of the gain or loss on the hedging instrument. Hedge of net investment in foreign subsidiaries In this situation, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity as foreign currency translation adjustment. This amount is reclassified to the income statement on disposal of the investment. Whatever the type of hedge, the ineffective portion of the hedging instrument is recognised in the income statement. Realised and unrealised exchange gains and losses on hedged items and hedging instruments are recorded within income from operations when they relate to operating activities or within financial income or expense when they relate to financing activities. Sales and costs resulting from commercial contracts are recognised at spot rate at inception of hedge throughout the life of the related commercial contracts, provided that the correspondent hedging relationships keep on qualifying for hedge accounting. The Group also uses export insurance contracts to hedge its currency exposure on certain long-term contracts during the open bid as well as after the award of the contracts. During the bid period, such insurance contracts are not remeasured on the balance sheet. If the commercial contract is awarded, insurance contracts are accounted for, using a similar treatment as forward foreign currency exchange contracts. I. Goodwill Goodwill represents the excess of the cost of acquisition over the interest in the fair values of assets, liabilities and contingent liabilities acquired in a business combination. Initial estimates of fair values are finalised within twelve months after the date of acquisition and any adjustments in these fair values are accounted for as retroactive adjustments to goodwill. Beyond this twelve-month period, any adjustment is directly recognised in the income statement. Goodwill is not amortised but tested for impairment at least annually during the second half of the year (see Note 3 L). J. Intangible assets Intangible assets include acquired intangible assets (such as technology, licensing agreements) and internally generated intangible assets (mainly development costs). Acquired intangible assets Acquired intangible assets are measured initially at cost and are amortised on a straight-line basis over their estimated useful lives. These acquired intangible assets are amortised on the straight-line basis over a period of twenty years in all Sectors due to the long-term nature of the contracts and activities involved. The amortisation charge is reported in research and development expenses or cost of sales depending on the nature of the asset. Internally generated intangible assets Research expenses are expensed as incurred. Development costs are expensed as incurred unless the project they relate to meets the following criteria for capitalisation: the project is clearly defined and its related costs are separately identified and reliably measured, the technical feasibility of the project is demonstrated, the intention exists to complete the project and to use or sell it, adequate financial resources are available to complete the project, it is probable that the future economic benefits attributable to the project will flow to the Group. Development costs capitalised are amortised on a straight-line basis over the estimated useful life of the development asset. The amortisation charge is reported in research and development expenses. 58

Consolidated financial statements K. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. The amount initially recognised in respect of an item of property, plant and equipment is allocated to its significant parts. Each part represents a component with a specific useful life. Depreciation is computed using the straight-line method over the estimated useful lives of each component. The useful lives most commonly used are the following: Estimated useful life (in years) Buildings 20-25 Machinery and equipment 7-12 Tools, furniture, fixtures and others 3-7 Useful lives are reviewed on a regular basis and changes in estimates, when relevant, are accounted for on a prospective basis. The depreciation expense is recorded in cost of sales, selling expenses or administrative expenses, based on the function of the underlying assets. Property, plant and equipment acquired through finance lease arrangements or long-term rental arrangements that transfer substantially all the risks and rewards incidental to ownership are capitalised. They are recognised at their fair value at the inception of the lease, or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a financing obligation. Lease payments are apportioned between finance charges and reduction in the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. Leases that do not transfer substantially all risks and rewards incidental to ownership are classified as operating leases. Rentals payable are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. L. Impairment of goodwill, tangible and intangible assets Goodwill, intangible assets having an indefinite useful life and intangible assets not yet available for use are tested for impairment annually or when there exist indications that they may be impaired. Tangible and intangible assets having a definite useful life are tested for impairment only if there exist indications of impairment. The impairment test methodology is based on a comparison between the recoverable value of each of the asset with its net carrying value. The recoverable amount is the higher of fair value less costs to sell and value in use. The recoverable value of an asset is individually assessed unless the asset does not generate cash inflows independent of those from other assets or groups of assets. These groups of assets are designated as cash-generating units. With respect to goodwill and internally generated or acquired technology, the identified cash-generating units are the reportable segments as detailed in Note 25. The valuation performed is based upon the Group s internal three-year business plan prepared as part of its annual budget exercise at Sector level. Cash flows beyond this period are estimated using a steady or declining growth rate for the subsequent years. The recoverable amount is the sum of the discounted cash flows and of the discounted terminal residual value. Discount rates are determined using the weighted average cost of capital of each Sector. Recoverable values are significantly impacted by estimates of future prices of products and services, the evolution of costs, economic trends in the local and international sector, the expectations on long-term development of emerging markets and other factors. They also depend on the discount rates and perpetual growth rates used. 2 FINANCIAL INFORMATION 59

Consolidated financial statements If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount is reduced to its recoverable amount and the impairment loss is recognised immediately in the income statement. In case of impairment loss attributable to a cash-generating unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other non-current assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. The impairment loss is immediately recognised in the income statement. An impairment loss recognised for goodwill is not reversed in a subsequent period. When an impairment loss not allocated to goodwill subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined, had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the income statement. M. Financial assets Financial assets include loans and deposits, investments, debt securities, derivative financial instruments with a positive marked to market and receivables. Loans and deposits Loans are initially measured at their fair value, plus directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method. Deposits are reported as financial assets when their initial maturity is more than three months and as cash and cash equivalents in case of demand deposits or when the initial maturity is less than three months. If there is any indication that those assets may be impaired, they are reviewed for impairment. Any difference between the carrying value and the impaired value (net realisable value) is recorded as a financial expense. The impairment loss can be reversed if the value is recovered in the future. In that case, the reversal of the impairment loss is reported as a financial income. Investments and debt securities Investments in non-consolidated companies are designated as available-for-sale financial assets under IAS 39 classification. They are initially measured at their fair value, plus directly attributable transaction costs and subsequently measured at fair value. The fair value of listed securities corresponds to the market value at the balance sheet date. A valuation model is used in case of unlisted securities. Changes in fair value are directly recognised in shareholders equity until the security is disposed of or is determined to be impaired. On disposal or in case of significant or prolonged decline in the fair value, the cumulative gain or loss previously recognised in equity is included in the profit or loss for the period. Impairment losses recognised in profit and loss for an investment in an equity instrument are not reversed through profit and loss. Conversely, if, in a subsequent period, the fair value of an investment in a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss is recognised in profit or loss, the impairment loss is reversed with the amount of the reversal recognised in profit or loss. Investments in non-consolidated companies, whose fair value cannot be determined reliably, are measured at cost. Any impairment loss recognised for such investment is not reversed in a subsequent period, except when disposed of. All debt securities that the Group has the expressed intention and ability to hold to maturity are designated as held-to-maturity financial assets under IAS 39 classification. They are therefore measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect amounts expected not to be recoverable. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired and is measured as the difference between the investment s carrying value and the present value of the estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed through profit and loss in subsequent periods when an increase in the investment s recoverable amount can be related objectively to an event occurring after the impairment was recognised. Marketable securities are securities held for trading which cannot be considered as cash and cash equivalents (see Note 3 O). 60

Consolidated financial statements They are designated as financial asset at fair value through profit or loss under IAS 39 classification. Changes in fair value are therefore reported as financial income or expense. Derivative financial instruments Derivative financial instruments are recognised and remeasured at fair value (see Note 3 H for foreign currency hedging instruments and Note 3 S for interest rate hedging instruments). Receivables Receivables are initially recognised at fair value, which in most cases is represented by the nominal value. If there is any indication that those assets may be impaired, they are reviewed for impairment. Any difference between the carrying value and the impaired value (net realisable value) is recorded within income from operations. The impairment loss can be reversed if the value is recovered in the future. In that case, the reversal of the impairment loss is reported within income from operations. N. Inventories Raw materials and supplies, work in progress and finished products are stated at the lower of cost, using the weighted average cost method, or net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Inventory cost comprises direct material and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their existing location and condition. O. Cash and cash equivalents Cash and cash equivalents consist of cash and highly liquid investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value. Bank overdrafts, which are repayable on demand, form an integral part of the cash management and are therefore included as a component of cash and cash equivalents. P. Taxation Deferred taxes are calculated for each taxable entity for temporary differences arising between the tax value and book value of assets and liabilities and are accounted for using the balance sheet method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and investments in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Q. Provisions As long as a construction contract or a long-term service agreement is in progress, obligations attributable to such a contract are taken into account in the assessment of the margin to be recognised and are therefore reported within the accounts Construction contracts in progress, assets or Construction contracts in progress, liabilities. At completion date, such obligations are recognised as distinct liabilities when they satisfy the following criteria: the Group has a present legal or constructive obligation as a result of a past event; it is probable that an outflow of economic resources will be required to settle the obligation; and such outflow can be reliably estimated. These liabilities are presented as provisions when they are of uncertain timing or amount. When this uncertainty is dispelled, they are presented as trade payables or other current liabilities. 2 FINANCIAL INFORMATION 61

Consolidated financial statements Obligations resulting from transactions other than construction contracts and long-term service agreements are directly recognised as provisions as soon as the criteria above described are met. Where the effect of the time value of money is material, provisions are measured at their present value. Restructuring costs are accrued when reduction or closure of facilities, or a programme to reduce the workforce is announced and when management is committed with the concerned employees and when related costs are determined. Such costs include employees severance and termination benefits, estimated facility closing costs and write-off of assets. R. Financial liabilities Financial liabilities include bonds and borrowings, derivative financial instruments with a negative marked to market and payables. Bonds and borrowings Bonds and interest-bearing bank loans are initially recognised at fair value, less any transaction costs directly attributable to the issuance of the liability. Bond issuance costs and premiums are not included in the initial cost, but are taken into account in calculating amortised cost under the effective interest rate method. These financial liabilities are subsequently measured at amortised cost, using the effective interest rate method. Renegotiations of the terms of borrowings and similar operations are recorded as an extinction of the former liability with recognition of a new liability only if there are substantial differences between the old and new terms. When this is the case, the costs borne for renegotiation are included in the financial expenses for the period when the negotiation took place, as a component of the gain or loss on extinction of the former liability. Certain financial instruments (such as bonds reimbursable with shares) include both a financial debt component and a shareholders equity component. Those components are classified separately as financial debt and equity instruments. The measurement of the debt component at date of issuance is represented by the present value of future cash flows for a similar instrument with the same conditions (maturity, cash flows), but without an option or an obligation for conversion or redemption in shares. This liability is subsequently remeasured at amortised cost, using the effective interest rate. The equity component is the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component. Derivative financial instruments Derivative financial instruments are recognised and remeasured at fair value (see Note 3 H for foreign currency hedging instruments and Note 3 S for interest rate hedging instruments). Payables Payables are initially recognised at fair value, which in most cases is represented by the nominal value. S. Interest rate derivatives The Group may enter into hedges for the purposes of managing its exposure to movements in interest rates. Derivatives are recognised on the balance sheet at fair value at the closing date. Providing that the relationships between the interest rate exposure and the related derivatives are qualifying relationships, the group uses the specific accounting treatments designated as hedge accounting. Fair value or cash flow hedge accounting is applied to fixed and floating rate borrowings respectively. In the case of fair value hedge relationships, the remeasurement of the fixed rate borrowing is offset in the income statement by the movement in the fair value of the derivative. In the case of cash flow hedge relationships, the change in fair value of the derivative is recognised directly in equity. When the forecast transaction results in the recognition of a monetary item, the amounts previously recognised directly in equity are reclassified to the income statement. 62

Consolidated financial statements T. Share-based payments The Group issues equity-settled and cash-settled share-based payments to certain employees. Equity-settled share-based payments Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is based on Group s estimate of the shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. It is expensed in income from operations with a counterpart in equity. Fair value is measured using the binomial pricing model. In accordance with IFRS 2, only options granted after 7 November 2002 and not fully vested at 1 January 2005 are measured and accounted for as employee costs. Cash-settled share-based payments For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each balance sheet date. The Group may also provide employees with the ability to purchase the Group s ordinary shares at a discount to the current market value. In that case, the Group records an expense, based on its estimate of the discount related to shares expected to vest. U. Employee benefits The Group provides various types of post-employment and other long-term benefits to its employees. The type of benefits offered to an individual employee is related to local legal requirements as well as operating practices of the specific subsidiaries. Termination benefits are generally lump sum payments based upon an individual s years of credited service and annualised salary at retirement or termination of employment. Defined benefit plans For single employer defined benefit plans, the fair value of plan assets is assessed annually. The Group uses the Projected Unit Credit Method to determine the present value of its defined benefit obligations and the related current and past service costs. This method considers best estimate actuarial assumptions including the probable future length of the employees service, the employees final pay, the expected average life span and probable turnover of beneficiaries. Most defined benefit pension liabilities are funded through separate pension funds. Pension plan assets related to funded plans are invested mainly in equity and debt securities. Other supplemental defined benefit pension plans sponsored by the Group for certain employees are funded from the Group s assets as they become due. The Group also participates in multi-employer defined benefit plans, which are accounted for as defined contribution plans (see below), mainly in the United States and in Canada. In addition, the Group provides post-retirement benefits (mainly post-retirement medical benefits plans) to a number of retired employees in certain countries principally in the United States under plans which are predominantly unfunded. The Group reviews annually for each year-end plan assets and obligations. Differences between actual and expected returns on assets together with the effects of any change in actuarial assumptions are assessed. If this cumulative difference exceeds 10% of the greater of the defined benefit obligations or the market value of plan assets, the resulting unrecognised gains/losses are amortised over the average remaining service life of active employees. Defined contribution plans For defined contribution plans, the Group pays contributions to independently administered funds at a fixed percentage of employees pay. The related pension cost, recorded as incurred in the income from operations, represents the contributions paid by the Group to these funds. Other long-term benefits The Group also provides employee benefits that are considered as other long-term employee benefits such as jubilee awards and deferred compensation schemes. The accounting method is similar to the method used for defined benefits, except that prior service cost and actuarial gains/losses are recognised immediately and no corridor is applied. The estimated cost of providing benefits to employees is accrued during the years in which the employees render services. In the income statement, the service cost element of pension benefit costs is included in the income from operations. The amortisation of actuarial net loss (gain) as well as unrecognised prior service cost and the impacts of curtailments and settlements are recognised in other expenses. Financial elements of the pension benefit cost such as interest cost and asset returns are included in financial income (expenses). 2 FINANCIAL INFORMATION 63

Consolidated financial statements V. Assets held for sale and discontinued operations Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets previous carrying amount and fair value less costs to sell and are not amortised or depreciated anymore. A discontinued operation is a component of the Group that either has been disposed of, or is classified as held for sale, and: represents a separate major line of business or geographical area of operations; is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or is a subsidiary acquired exclusively with a view to resale. Amounts included in the income statement and cash flow statement related to these discontinued operations are presented separately for the current year and all prior years presented in the financial statements if they are material. W. Earnings per share Basic earnings per share are computed by dividing the period net profit (loss) by the weighted average number of outstanding shares during the period. Diluted earnings per share are computed by dividing the period net profit (loss), adjusted by the financial cost (net of tax) of dilutive instruments, by the weighted average number of shares outstanding plus the effect of any dilutive instruments. X. Accounting standards, amendments and interpretations published but not yet come into force/endorsed by the European Union The Group has not opted for an early application of the standards and interpretations issued by the IASB, not yet operative for the preparation of the financial statements for the year ended 31 March 2006: Standards and interpretation becoming effective for annual periods beginning on or after 1 January 2006 Amendment to IAS 19 Employee benefits: actuarial gains and losses, group plans and disclosures. The Group has not yet decided whether or not to use the option providing for the elimination of the corridor method and for the recognition of actuarial gains and losses directly in equity. Additional requirements regarding disclosures will be fulfilled. IAS 21 revised: Effect of changes in foreign exchange rates. This revision clarifies the requirements of IAS 21 regarding an entity s investment in a foreign operation. An earlier application of this revision would have had no significant impact on the consolidated financial statements. Amendment to IAS 39 on fair value option. According to this amendment, in limited circumstances, an entity may designate a financial asset or liability as being at fair value through the income statement on initial recognition. The group does not expect any significant impact due to the enforcement of this amendment. IFRIC 4 Determining whether an arrangement contains a lease. IFRIC 4 gives guidance on determining whether arrangements that do not take the legal form of a lease should, nonetheless, be accounted for in accordance with IAS 17 Leases. To date, the Group has not assessed the possible impacts of this interpretation. 64

Consolidated financial statements Interpretation becoming effective for annual periods beginning on or after 1 March 2006 IFRIC 7 Applying the restatement approach under IAS 29 Financial Reporting in Hyperinflationary Economies. The Group does not expect the implementation of this interpretation to have a material impact. Interpretation becoming effective for annual periods beginning on or after 1 May 2006 The following standards and interpretations effective for annual periods beginning on or after 1 January 2006 are not applicable to the Group s activities: IFRS 4 revised Insurance contracts. Amendment of IAS 39 related to financial guarantee contracts. IFRS 6 Exploration for and evaluation of mineral resources. IFRIC 5 Rights to interests arising from decommissioning. Restoration and environmental rehabilitation funds. IFRIC 6 Liabilities arising from participating in a specific market Waste electrical and electronic equipment. 2 IFRIC 8 Scope of IFRS 2 Share-based payments. The Group does not anticipate any material impact from clarifications made with respect to the scope of IFRS 2. Standards becoming effective for annual periods beginning on or after 1 January 2007 FINANCIAL INFORMATION IFRS 7 Financial instruments disclosures. Amendment to IAS 1 Capital disclosures. The Group has not yet decided whether it will apply these new disclosure requirements in the financial statements for the financial year ended 31 March 2007 or in the financial statements for the following financial year. Y. Exchange rates used for the translation of main currencies At 31 March 2006 At 31 March 2005 ( for 1 monetary unit) Average Closing Average Closing British pound 1.465784 1.435956 1.463325 1.452433 Swiss franc 0.643819 0.632871 0.650036 0.645745 US dollar 0.825792 0.826173 0.791901 0.771367 Brazilian real 0.360145 0.377223 0.278889 0.287584 Canadian dollar 0.694713 0.710026 0.621966 0.635445 Australian dollar 0.618726 0.588339 0.585581 0.596552 65

Consolidated financial statements NOTE 4. IMPACTS OF FIRST-TIME ADOPTION OF IFRS A. Options taken at first-time adoption of IFRS at 1 April 2004 (transition date) The 2004/05 consolidated financial statements have been restated in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, based on the IAS/IFRS applicable for annual periods beginning on or prior to 1 April 2005. To prepare the opening IFRS balance sheet at 1 April 2004 and the 2004/05 restated closing balance sheet and income statement, the Group has applied the following options/exemptions as authorised by IFRS 1: Employee benefits The Group has elected to adopt the complete retrospective application of IAS 19. Business combinations The Group has elected not to apply IFRS 3 retrospectively to past business combinations. Financial instruments The Group has elected not to restate comparative information for IAS 32-39 standards. Comparative information does not comply with these standards in the first year of transition 2004/05. Fair value or revaluation at deemed cost of property, plant and equipment net and other intangible assets net The Group has decided not to apply the exemption provided for in IFRS 1, allowing fair value of property, plant and equipment and intangible assets to be used as their deemed cost in the IFRS opening balance sheet at 1 April 2004. Therefore, the option chosen by the Group has no impact on equity in the IFRS opening balance sheet at 1 April 2004. Cumulative translation differences The cumulative translation difference at 1 April 2004 has been set to zero through the consolidated reserves, leaving the shareholder s equity unchanged. The gain or loss on a subsequent disposal of any foreign operation will therefore exclude translation differences that arose before 1 April 2004 and include later translation differences. Share-based payments The Group has elected to apply IFRS 2 standard from 1 April 2004 for all plans granted after 7 November 2002 and not fully vested at 1 January 2005. The effects of the transition to IFRS are described in Note 34. B. First-time application of IAS 32-39 and IFRS 5 standards at 1 April 2005 As permitted by IFRS 1, the comparative information related to the year ended 31 March 2005 have been prepared in accordance with all IFRS standards and interpretations effective and endorsed by the European Union for annual periods beginning on or prior to 1 April 2005, with the exception of: IFRS 5 Non current assets held for sale and discontinued operations. IAS 32 Financial instruments: disclosure and presentation. IAS 39 Financial instruments: recognition and measurement. 66

Consolidated financial statements These three standards have been adopted from 1 April 2005 and their impact on the balance sheet is presented below: At 31 March At 1 April (in million) 2005 IAS 32/39 IFRS 5 2005 Assets Total non-current assets 9,606 2 (650) 8,958 Out of which - Other non-current assets, net 1,935 5 (650) 1,290 - Deferred taxes 1,207 (3) - 1,204 Total current assets 9,475 139 13 9,627 Out of which - Trade receivables, net 2,392 (69) - 2,323 - Other current assets, net 1,424 208 13 1,645 Assets held for sale - - 637 637 Total assets 19,081 141-19,222 2 FINANCIAL INFORMATION Liabilities Shareholders equity and minority interests 1,466 117-1,583 Bonds reimbursable with shares 133 (133) - - Total non-current liabilities 4,844 (46) (637) 4,161 Out of which - Non-current financial debt 3,281 (46) (637) 2,598 Total current liabilities 12,638 203-12,841 Out of which - Current financial debt 486 (3) - 483 - Construction contracts in progress, liabilities 5,484 36-5,520 - Trade payables 3,437 (121) - 3,316 - Other current liabilities 1,589 291-1,880 Liabilities directly associated with assets held for sale - - 637 637 Total liabilities 19,081 141-19,222 67

Consolidated financial statements Impact of application of IAS 32-39 The impact of the application of the IAS 32-39 standards is detailed as follows: Immediate Recognition Remeasurement recognition of equity of financial in equity and debt debt using of transaction Adoption Reclassicomponents effective costs on equity of hedge fication of (in million) of ORA interest rate instruments accounting investments IAS 32/39 Assets Total non-current assets (1) - 3 (5) 5 2 Out of which - Other non-current assets, net - - - - 5 5 - Deferred taxes (1) - 3 (5) - (3) Total current assets (3) (60) (8) 215 (5) 139 Out of which - Trade receivables, net - - - (69) - (69) - Other current assets, net (3) (60) (8) 284 (5) 208 Total assets (4) (60) (5) 210-141 Liabilities Capital Paid-in capital 117 - (5) - - 112 Retained earnings 4 (1) - 2-5 Shareholders equity and minority interests 121 (1) (5) 2-117 Bonds reimbursable with shares (133) - - - - (133) Total non-current liabilities 10 (56) - - - (46) Out of which - Non-current financial debt 10 (56) - - - (46) Total current liabilities (2) (3) - 208-203 Out of which - Current financial debt (2) (1) - - - (3) - Construction contracts in progress, liabilities - - - 36-36 - Trade payables - - - (121) - (121) - Other current liabilities - (2) - 293-291 Total liabilities (4) (60) (5) 210-141 Recognition of equity and debt components of bonds reimbursable with shares ORA Bonds reimbursable with shares issued by the Group during the year ended 31 March 2004 constitute a compound financial instrument, which, in accordance with IAS 32 must be broken down between its equity component and its debt component. Remeasurement of financial debt using effective interest rate Under French GAAP, bank fees related to debt issues were booked as an asset in the balance sheet and amortised on a straight-line basis through financial result over the life of the debt instrument. Under IFRS, such fees are booked as a reduction of financial debt and amortised over the life of the debt instrument by the effective interest method. 68

Consolidated financial statements Immediate recognition in equity of transaction costs on equity instruments Under French GAAP, transaction costs related to equity instruments were booked as an asset in the balance sheet and amortised on a straight-line basis over five years. Under IFRS, such costs are debited directly to equity. The negative impact on equity represents the portion of costs not yet amortised under French GAAP at 31 March 2005. Adoption of hedge accounting Hedge accounting rules elected by the Group are described in Note 3 H of the present notes. Following the adoption of fair value hedge accounting for foreign currency hedging relationships, current assets and liabilities existing under French GAAP have been remeasured in accordance with the new rules and the following new items have been recognised: derivative instruments: additional other current assets and liabilities amounting to 264 million and 192 million respectively; changes in the fair value of unrecognised firm commitments: additional other current assets and liabilities amounting to 40 million and 148 million respectively. Reclassification of investments A portion of securities previously classified as short-term investments under French GAAP has been reclassified to non-current assets. Impact of application of IFRS 5 At 1 April 2005, assets and liabilities attributable to leases of trains and associated equipment of the Transport Sector have been classified as group of assets held for sale and were presented separately in the balance sheet as they were expected to be sold within twelve months. These leases relate to a 1995 agreement with a major European metro operator following which the Group leases trains and associated equipment for a period of 30 years starting 1997 and makes them available to this operator. The proceeds of disposal are expected to exceed the net carrying amount of the relevant assets and liabilities and, accordingly, no impairment loss has been recognised on the classification of these operations as held for sale. 2 FINANCIAL INFORMATION NOTE 5. CHANGES IN CONSOLIDATED COMPANIES The main changes in the scope of consolidated companies for the years ended 31 March 2005 and 31 March 2006 are the following: During the year ended 31 March 2005, following the obtaining of local regulatory approvals, an agreement for the disposal of certain non-significant entities of the former T&D Sector (disposed of during the year ended 31 March 2004) was signed. On 8 August 2005, the sale of the former T&D Indian units was completed after the signature of a share purchase agreement, which occurred in April 2005. These units have been deconsolidated from 1 August 2005. On 24 May 2005, a sale agreement related to the Flow- Systems Business was signed. On 18 August 2005, the Group completed the sale and the Business has been deconsolidated from that date. On 2 June 2005, the Group signed a binding agreement for the sale of its transport operations in Australia and New Zealand. On 16 September 2005, the sale was completed and this Business has been deconsolidated from 1 September 2005. On 30 September 2005, the Group signed a binding agreement to sell its Power Conversion activities to Barclays Private Equity. On 10 November 2005, the Group completed the sale and these activities have been deconsolidated from 1 November 2005. On 24 October 2005, ALSTOM and Austrian Energy and Environment AG have signed binding agreements for the sale of the Industrial Boilers Business, part of the Power Turbo- Systems / Power Environment Sector. On 30 November 2005, the sale of this Business in Australia and Thailand was completed and these activities have been deconsolidated from that date. 69

Consolidated financial statements NOTE 6. RESEARCH AND DEVELOPMENT EXPENSES Year ended 31 March (in million) 2006 2005* Research and development expenses (364) (405) Of which - Capitalisation of developments costs (see Note 12) 87 70 - Amortisation of development costs (see Note 12) (43) (83) - Amortisation of acquired technology (59) (59) Research and development expenses before capitalisation and amortisation (349) (333) * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. NOTE 7. OTHER INCOME AND OTHER EXPENSES Year ended 31 March (in million) 2006 2005* Capital gain on disposal of investments/activities (1) 221 59 Capital gain on disposal of fixed assets 12 8 Other income 233 67 Capital loss on disposal of investments/activities (1) (89) (101) Restructuring costs (2) (80) (350) Pension costs (3) (61) (47) Other (4) (22) (91) Other expenses (252) (589) * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. (1) In the year ended 31 March 2006, the capital gain mainly relates to the disposal of Transport activities in Australia and New Zealand, the sale of the Power Conversion activities and the sale of the Industrial Boilers Business in Australia. The capital loss relates to the disposal of former T&D Indian units and the FlowSystems Business. It also includes costs incurred or accruals and claim adjustments on past disposals. In the year ended 31 March 2005, capital gains include the gain on disposal of activities including the freight locomotive Business in Spain. Losses on disposal include costs and provisions on guarantees, claims and price adjustments on past disposals. (2) In the year ended 31 March 2006, restructuring costs relate to minor plans and include 7 million of write-off of assets. In the year ended 31 March 2005, it corresponds to additional plans accrued for a net amount of 335 million relating to the downsizing of activities including closure of plants or activities and reduction in employees mainly in the Power Turbo-Systems / Power Environment and Transport Sectors, and to 15 million of write-off of assets. (3) Amortisation of actuarial gains and losses and unrecognised prior service cost, plus curtailments and settlements see Note 21 Retirement, termination and post-retirement benefits. (4) In the year ended 31 March 2005, the other expenses include costs incurred on Marine vendor financing which were covered by a release of provision in the Marine Sector, treated as discontinued operations retrospectively at 31 March 2005 (see Note 10). 70

Consolidated financial statements NOTE 8. FINANCIAL INCOME (EXPENSES) Year ended 31 March (in million) 2006 2005* Net interest expenses (1) (122) (198) Securitisation expenses (7) (19) Foreign currency gain (loss) 30 (23) Pension costs (see Note 21) (15) (16) Other financial income (expenses) (2) (108) (125) 2 Financial income (expenses) (222) (381) * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. (1) Of which interests related to obligation under finance lease of 14 million and 13 million for the years ended 31 March 2006 and 31 March 2005, respectively. (2) Other financial income (expenses), net included fees and commitment fees paid on guarantees, syndicated loans and other financing facilities of 75 million and 105 million for the years ended 31 March 2006 and 31 March 2005, respectively. FINANCIAL INFORMATION NOTE 9. TAXATION A. Analysis by nature Year ended 31 March (in million) 2006 2005* Current income tax charge (155) (18) Deferred income tax (charge) credit 30 (145) Income tax charge (125) (163) Effective tax rate 40.7% - * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. B. Effective income tax rate The effective income tax rate can be analysed as follows: Year ended 31 March (in million) 2006 % 2005* % Pre-tax income (loss) from continuing operations 505 (432) Pre-tax loss from discontinued operations (198) (32) Statutory income tax rate of the parent company 34.43% 34.93% Expected tax (charge) credit (106) 162 Impact of: - difference in rate of taxation 45 (14.7) 13 2.8 - reduce taxation of capital gain (non-recognised losses on disposals) - - (23) (5.0) - non-recognition of deferred tax assets and change in estimate of tax assets and liabilities (18) 5.9 (228) (49.1) - tax rate change impact on deferred tax balance (14) 4.6 - - - other permanent differences (32) 10.4 (87) (18.8) Income tax charge (125) (163) Effective tax rate 40.7% - * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. The Group consolidates most of its country operations for tax purposes, including France, the United Kingdom, the United States and Germany. 71

Consolidated financial statements C. Deferred taxation The deferred tax assets and liabilities are made up as follows: Deferred Changes Translation income tax in scope adjustments At 31 March At 1 April (charge) of and other At 31 March (in million) 2005* 2005** credit consolidation changes 2006 Accelerated depreciation 78 78 4 (2) 2 82 Intangible assets 343 343 (20) - (9) 314 Profit-sharing, annual leave and pension accrual not yet deductible 109 109 (6) (5) 4 102 Provisions and other expenses not currently deductible 482 482 95 (6) (5) 566 Contract provisions taxed in advance 55 55 (8) - 3 50 Tax loss carry forwards 1,504 1,504 70 (38) (61) 1,475 Other 112 121 61 (1) 26 207 Total gross deferred tax assets 2,683 2,692 196 (52) (40) 2,796 Unrecognised deferred tax assets (920) (920) (117) 39 79 (919) Netting by tax grouping or by legal entity (556) (568) (60) - - (628) Deferred tax assets 1,207 1,204 19 (13) 39 1,249 Gross deferred tax liabilities (615) (627) (49) 4 5 (667) Netting by tax grouping or by legal entity 556 568 60 - - 628 Deferred tax liabilities (59) (59) 11 4 5 (39) Net deferred assets 1,148 1,145 30 (9) 44 1,210 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. ** Amended balance sheet at 1 April 2005 pursuant to the first-time application of IAS 32-39 and IFRS 5 standards (see Note 4 B). The Group is satisfied as to the recoverability of the deferred tax assets, net at 31 March 2006 of 1,210 million, on the basis of an extrapolation of the three-year business plan, approved by the Board of Directors, which shows a capacity to generate a sufficient level of taxable profits to recover its net tax loss carry forward and other net timing differences over a period of four to twelve years, this reflecting the long-term nature of the Group s operations. The basis of tax loss carry forward by maturity is as follows: At 31 March (in million) 2006 2005 Expiring within 1 year 24 36 2 years 33 26 3 years 184 34 4 years 218 182 5 years and more 1,080 1,532 Not subject to expiry 2,730 2,679 Total 4,269 4,489 The basis of tax losses carry forward after valuation allowance amounts to 1,720 million; of this amount, 783 million expire within 15 years and 937 million are not subject to expiry. The aggregate losses incurred over the last four years have led to a detailed review by jurisdiction of the deferred tax assets. This review took into account current and past performance, length of carry back, carry forward and expiry periods, existing contracts in the order book, budget and three-year plan. This review led to a valuation allowance on deferred tax assets of 919 million at 31 March 2006 ( 920 million at 31 March 2005). Most of the deferred tax assets currently subject to valuation allowance remain available to be utilised in the future. 72

Consolidated financial statements NOTE 10. DISCONTINUED OPERATIONS The operations of the Marine Sector have been classified as discontinued operations in the year ended 31 March 2006 and retrospectively in the year ended 31 March 2005. They are analysed as follows: 2 Year ended 31 March (in million) 2006 2005* Sales 439 607 Cost of sales (434) (680) Selling expenses (10) (13) Research and development expenses (3) (3) Administrative expenses (7) (15) Loss from operations (15) (104) Other income (expenses) (187) 89 Loss before interest and taxes (202) (15) Financial income (expenses), net 4 (17) FINANCIAL INFORMATION Pre-tax loss (198) (32) Income tax charge (1) - - Net loss (198) (32) * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. (1) Related income tax effects have not been presented as discontinued operations since companies included in the Marine Sector are part of the French tax grouping. The cash flow statement of the discontinued operations is detailed as follows: Year ended 31 March (in million) 2006 2005* Net cash used in operating activities (199) (204) Net cash provided by (used in) investing activities 84 (10) Net cash provided by (used in) financing activities (103) 13 Net effect of exchange rate (2) 3 Other changes 5 - Decrease in cash and cash equivalents (215) (198) * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. 73

Consolidated financial statements NOTE 11. EARNINGS PER SHARE A. Earnings per share from continuing and discontinued operations The calculation of the basic and diluted earnings per share attributable to Group share is based on the following data: Earnings Year ended 31 March (in million) 2006 2005* Earnings for the purposes of basic earnings per share 178 (628) Effect of dilutive potential ordinary shares: - Financial interests related to bonds reimbursable with shares, net of tax 1 - Earnings for the purposes of diluted earnings per share 179 (628) Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 140,401,599 108,978,200 Effect of dilutive potential ordinary shares: - Stock options (1) 1,434,534 - - Free shares 225,000 - Weighted average number of ordinary shares for the purposes of diluted earnings per share 142,061,133 108,978,200 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. (1) Stock options taken into account for the calculation of the dilutive earnings per share only relate to plan 7 (see Note 30), the other plans being out of the money. B. Earnings per share from continuing operations Year ended 31 March (in million) 2006 2005* Earnings for the purposes of basic earnings per share 178 (628) Less: loss for the year from discontinued operations 198 32 Earnings for the purposes of basic earnings per share from continuing operations 376 (596) Effect of dilutive potential ordinary shares: - Financial interests related to bonds reimbursable with shares, net of tax 1 - Earnings for the purposes of diluted earnings per share from continuing operations 377 (596) * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. The denominators used are the same as those detailed above for both basic and diluted earnings per share. C. Earnings per share from discontinued operations For the year ended 31 March 2006, basic earnings per share for the discontinued operations is (1,41) per share ( (0,29) per share for the year ended 31 March 2005) and diluted earnings per share for the discontinued operations is (1,39) per share ( (0,29) per share for the year ended 31 March 2005), based on the loss from discontinued operations of 198 million ( 32 million for the year ended 31 March 2005) and the denominators detailed above for the basic and diluted earnings per share. 74

Consolidated financial statements NOTE 12. GOODWILL AND INTANGIBLE ASSETS, NET A. Goodwill Translation Net value adjustments Transfer to Net value at 31 March Acquisitions/ and other assets held at 31 March (in million) 2005* Disposals Impairment changes for sale 2006 Power Turbo-Systems / Power Environment 818 (14) - - - 804 Power Service 1,991 1 - - - 1,992 Transport 526 (3) - 4-527 Marine 2 - (2) - - - Power Conversion 80 (80) - - - - Goodwill 3,417 (96) (2) 4-3,323 Of which Gross value 3,417 (96) - 4 (2) 3,323 Impairment - - (2) - 2-2 FINANCIAL INFORMATION * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. At 31 March 2006, the Group requested a third party expert to provide an independent report as part of its annual impairment test for goodwill. This test compares the fair value of each Sector to its carrying amount. The main assumptions used to assess the recoverable amounts of goodwill are as follows: Power Turbo-Systems / Power Environment Power Service Transport Net carrying amount of goodwill at 31 March 2006 (in million) 804 1,992 527 Value elected as representative of the recoverable value of the CGU fair value fair value fair value Number of years over which cash flow estimates are used 3 years 3 years 3 years Extrapolation period of cash flow estimates 7 years 7 years 7 years Long-term growth rate at 31 March 2006 2.00% 2.00% 2.00% Long-term growth rate at 31 March 2005 1.50% 1.50% 1.50% After-tax discount rate at 31 March 2006 (1) 8.50% 8.50% 8.50% After-tax discount rate at 31 March 2005 (1) 9.50% 9.50% 9.50% (1) The application of pre-tax discount rates to pre-tax cash flows leads to the same valuation of cash-generating units. The valuation supports the Group s opinion that goodwill is not impaired. Had the assessment of the fair value been made with the same growth rates and discount rates as at 31 March 2005, no impairment loss would have had to be recognised. At 30 September 2005, an assessment of the value of the Marine Sector under the prevailing market conditions has been performed, incorporating more conservative assumptions on terms and conditions of future contracts. This assessment led to an impairment of goodwill for an amount of 2 million and the residual fixed assets for an amount of 85 million. At 31 March 2006, all assets of the Marine Sector have been classified as assets held for sale (see Note 24). 75

Consolidated financial statements B. Intangible assets, net Capitalised Acquired development intangible (in million) costs assets Total Cost At 31 March 2005* 436 1,219 1,655 Additions/Disposals 87 6 93 Translation adjustments and other changes (13) 2 (11) Transfer to assets held for sale - (6) (6) At 31 March 2006 510 1,221 1,731 Amortisation At 31 March 2005* (135) (298) (433) Additions/Reductions (43) (66) (109) Translation adjustments and other changes 3-3 Transfer to assets held for sale - 5 5 At 31 March 2006 (175) (359) (534) Carrying amount At 31 March 2005* 301 921 1,222 At 31 March 2006 335 862 1,197 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. Acquired intangible assets mainly result from the allocation of the purchase price following the acquisition of ABB s 50% shareholding in Power. They are representative of technology and licensing agreements. NOTE 13. PROPERTY, PLANT AND EQUIPMENT, NET Translation Transfer At 31 Acquisitions/ Changes in adjustments to assets At 31 March Depreciation/ scope of and other held for March (in million) 2005* Impairments Disposals consolidation changes sale (2) 2006 Land 146 - (20) (7) - (6) 113 Buildings 1,390 23 (53) (47) 8 (148) 1,173 Machinery and equipment 2,248 99 (237) (89) (22) (101) 1,898 Tools, furniture, fixtures and other 695 90 (177) (47) 13 (23) 551 Gross value 4,479 212 (487) (190) (1) (278) 3,735 Land (9) (10) 1-7 6 (5) Buildings (599) (119) 37 18 (7) 143 (527) Machinery and equipment (1,718) (170) 228 72 31 97 (1,460) Tools, furniture, fixtures and other (446) (58) 82 36 (17) 21 (382) Accumulated depreciation and impairment (1) (2,772) (357) 348 126 14 267 (2,374) Land 137 (10) (19) (7) 7-108 Buildings 791 (96) (16) (29) 1 (5) 646 Machinery and equipment 530 (71) (9) (17) 9 (4) 438 Tools, furniture, fixtures and other 249 32 (95) (11) (4) (2) 169 Net value 1,707 (145) (139) (64) 13 (11) 1,361 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. (1) The 357 million depreciation includes 85 million impairment of fixed assets attributable to the Marine Sector which have then been transferred to assets held for sale (see Note 12 A). (2) See Note 24. 76

Consolidated financial statements At 31 March 2006 and 31 March 2005, finance leases by nature are as follows: At 31 March (in million) 2006 2005* Land - 2 Buildings 169 199 Machinery and equipment 22 36 Tools, furniture, fixtures and other 18 24 Net value of finance leases 209 261 2 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. NOTE 14. EQUITY METHOD INVESTMENTS AND OTHER INVESTMENTS, NET FINANCIAL INFORMATION A. Equity method investments Share in net At 31 March (in million) 2006 2005 % interest income Termoeléctrica del Golfo and Termoeléctrica Peñoles 66 66 49.5 - Other 4 4 - (1) Total 70 70 - (1) B. Other investments, net 2006 2005 2006 At 31 March (in million) Gross Impairment Net Net % interest Ballard Power Systems Inc (1) - - - 7 - Birecik Baraj ve Hidroelektrik Santrali Tesis ve Isletme AS (2) - - - 15 - Tramvia Metropolita SA (3) 8-8 8 25.35% Tramvia Metropolita del Besos (3) 8-8 8 25.35% Other (4) 24 (11) 13 10 - Total 40 (11) 29 48 - (1) During the fiscal year ended 31 March 2006, the Group disposed of its 1.8% shareholding in Ballard. At 31 March 2005, the interests in Ballard Power Systems Inc were depreciated to align with the stock price at 31 March 2005 on the Toronto Stock Exchange. (2) During the fiscal year ended 31 March 2005, the Group signed a sale agreement for its 13.6% shareholding in Birecik Baraj ve Hidroelektrik Santrali Tesis ve Isletme AS for a consideration close to the net book value but subject to the obtaining of approvals from external parties. These approvals have been obtained subsequent to 31 March 2005. (3) The remaining 74.65% of interest in these two entities are held by a pool of construction companies having direct control over the companies. (4) No other investments net value exceeds 5 million. Information on the main other investments at 31 March 2006 is based on the most recent financial statements available and is the following: Share in (in million) Net income net Equity Tramvia Metropolita SA 4 9 Tramvia Metropolita del Besos 1 8 77

Consolidated financial statements NOTE 15. OTHER NON-CURRENT ASSETS, NET At 31 March At 1 April At 31 March (in million) 2006 2005** 2005* Deposits securing the Bonding Guarantee Facility (1) 700 700 700 Other long-term loans and deposits 91 129 129 Long-term rental (2) - - 650 Pension assets (see Note 21) 387 374 374 Held-to-maturity securities - 5 - Other 72 82 82 Other non-current assets, net 1,250 1,290 1,935 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. ** Amended balance sheet at 1 April 2005 pursuant to the first-time application of IAS 32-39 and IFRS 5 standards (see Note 4 B). (1) It corresponds to a cash deposit made by the Group with a third party Trustee to secure in the form of remunerated collateral the new Bonding Guarantee Facility Programme of up to 8 billion implemented during the year ended 31 March 2005 (see Note 26 A (1)) and invested by the Trustee into euro government bonds and/or central bank securities with a residual maturity of less than 12 months. The release of this collateral will depend on the release of the bonds and guarantees issued under the programme. (2) At 31 March 2005, this non-current asset related to leases of trains and associated equipment to a European metro operator. From 1 April 2005, it is considered as a group of assets held for sale and is therefore reclassified in non-current assets held for sale (see Notes 4 B and 24). NOTE 16. INVENTORIES, NET At 31 March (in million) 2006 2005* Raw materials and supplies 582 629 Work in progress 1,134 1,154 Finished products 47 69 Inventories, gross 1,763 1,852 Valuation allowance (275) (198) Inventories, net 1,488 1,654 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. 78

Consolidated financial statements NOTE 17. CONSTRUCTION CONTRACTS IN PROGRESS, NET At 31 March At 1 April At 31 March (in million) 2006 2005** 2005* Construction contracts in progress, assets 2,229 2,601 2,601 Construction contracts in progress, liabilities (5,401) (5,520) (5,484) Construction contracts in progress, net (3,172) (2,919) (2,883) Contract costs incurred plus recognised profits less recognised losses to date 32,593 33,968 33,968 Less progress billings (33,640) (34,994) (34,953) Construction contracts in progress before advances received from customers (1,047) (1,026) (985) Advances received from customers (2,125) (1,893) (1,898) Construction contracts in progress, net (3,172) (2,919) (2,883) * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. ** Amended balance sheet at 1 April 2005 pursuant to the first-time application of IAS 32-39 and IFRS 5 standards (see Note 4 B). 2 FINANCIAL INFORMATION NOTE 18. TRADE RECEIVABLES, NET At 31 March At 1 April At 31 March (in million) 2006 2005** 2005* Trade receivables, gross 2,369 2,463 2,532 Valuation allowance (78) (140) (140) Trade receivables, net 2,291 2,323 2,392 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. ** Amended balance sheet at 1 April 2005 pursuant to the first-time application of IAS 32-39 and IFRS 5 standards (see Note 4 B). Included in trade receivables are retentions for an amount of 163 million as at 31 March 2006. NOTE 19. OTHER CURRENT ASSETS, NET At 31 March At 1 April At 31 March (in million) 2006 2005** 2005* Advances paid to suppliers 360 339 345 Corporate income tax 122 108 108 Other tax 335 298 298 Prepaid expenses 127 171 193 Other receivables 312 399 465 Derivatives 135 264 - Remeasurement of off-balance sheet commitments 63 40 - Available-for-sale investments 16 13 - Held-to-maturity securities 6 13 - Short-term investments - - 15 Other current assets, net 1,476 1,645 1,424 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. ** Amended balance sheet at 1 April 2005 pursuant to the first-time application of IAS 32-39 and IFRS 5 standards (see Note 4 B). 79

Consolidated financial statements NOTE 20. PROVISIONS At Translation At 31 March adjustments 31 March (in million) 2005* Addition Releases Applied and other Transfer (1) 2006 Warranties 602 293 (126) (184) (43) (4) 538 Litigation and claims 633 157 (95) (112) (70) (12) 501 Other risks on contracts 407 403 (201) (100) (8) (1) 500 Current provisions 1,642 853 (422) (396) (121) (17) 1,539 Tax risks and litigation 28 14 (5) (1) 7 (2) 41 Restructuring 440 91 (52) (198) (19) 0 262 Other provisions non-current 212 150 (54) (27) 14 (17) 278 Non-current provisions 680 255 (111) (226) 2 (19) 581 Total provisions 2,322 1,108 (533) (622) (119) (36) 2,120 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. (1) Transfer to liabilities directly associated with assets held for sale. Current provisions Provisions on contracts Non-current provisions GT24/GT26 heavy-duty gas turbines During the year ended 31 March 2006, the Group utilised 115 million provisions and retained 263 million provisions in respect of these turbines at 31 March 2006. Restructuring At 31 March 2006, restructuring provisions amount to 262 million after a net addition of 39 million and an utilisation of 198 million during the year. During the year ended 31 March 2005, the Group utilised 359 million of provisions and retained at 31 March 2005, after exchange rate effects, 379 million provisions in respect of these turbines. The mitigation plan related to formerly identified potential risks which were not covered by provisions has been completed during the fiscal year ended 31 March 2005.. During the year ended 31 March 2005, restructuring plans were adopted for an amount of 363 million mainly in Power Turbo-Systems / Power Environment and Transport Sectors. At 31 March 2005, provisions of 440 million were retained after an utilisation in the year of 289 million. 80

Consolidated financial statements NOTE 21. RETIREMENT, TERMINATION AND POST-RETIREMENT BENEFITS Change in benefit obligations 2 At 31 March (in million) 2006 2005* Benefit obligations at beginning of year (4,256) (4,137) Service cost (85) (80) Plan participant contributions (27) (29) Interest cost (215) (217) Plan amendments - (5) Business combinations/disposals (3) (17) Curtailment 27 17 Settlements 30 102 Actuarial loss (294) (274) Benefits paid 225 283 Foreign currency translation (3) 101 FINANCIAL INFORMATION Benefit obligations at end of year (4,601) (4,256) Of which: Funded schemes (3,702) (3,362) Unfunded schemes (899) (894) * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. Change in plan assets At 31 March (in million) 2006 2005* Fair value of plan assets at beginning of year 2,827 2,800 Expected return on assets 200 200 Actuarial gain 193 86 Company contributions 112 99 Plan participant contributions 26 28 Business combinations/disposals 7 19 Settlements (27) (115) Benefits paid from plan assets (166) (210) Foreign currency translation (4) (80) Fair value of plan assets at end of year 3,168 2,827 Funded status of the plan (1,433) (1,429) Unrecognised actuarial loss (gain) 1,050 1,009 Unrecognised past service cost (24) (30) Impact of asset ceiling (2) - Transfer to liabilities associated with assets held for sale 4 - (Accrued) prepaid benefit cost after asset ceiling (405) (450) Of which: Accrued pension and retirement benefits (792) (824) Pension assets (see Note 15) 387 374 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. 81

Consolidated financial statements Components of plan assets 2006 2005* At 31 March (in million) (%) (in million) (%) Equities 1,597 50.4 1,430 50.6 Bonds 1,175 37.1 1,032 36.5 Properties 257 8.1 246 8.7 Other 139 4.4 119 4.2 Total 3,168 100 2,827 100 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. Assumptions (weighted average rates) The actuarial assumptions used vary by business unit and country, based upon local considerations. At 31 March (%) 2006 2005 Discount rate 4.72 5.09 Rate of compensation increase 2.68 2.97 Expected return on plan assets 6.46 7.07 Regarding the Expected return of plan assets, the same basis has been applied in all countries where the Group has assets covering its pension liabilities. The Expected return on plan assets is based on long-term market expectations taking into account the asset allocation of each fund. The Group s health care plans are generally contributory with participants contributions adjusted annually. The healthcare trend rate is assumed to be 9% in the year ended 31 March 2006 and reducing thereafter to an ultimate rate of 5.5% from 2010 onwards. A 100 basis point increase in assumed healthcare cost trend rates would lead to a 6% increase of the service cost and a 4.6% increase of the benefit obligation for post-employment medical schemes. On the contrary, a 100 basis point decrease would lead to a 5% decrease of the service cost and a 4.6% decrease of the benefit obligation for such schemes. The following table shows the amounts of total benefit expense for each of the two years ended 31 March 2005 and 2006. Year ended 31 March (in million) 2006 2005* Service cost (85) (80) Interest cost (215) (217) Expected return on plan assets 200 200 Amortisation of actuarial net loss (68) (57) Amortisation of unrecognised past service cost 3 5 Impact of asset ceiling (2) - Curtailments/Settlements (1) 6 4 Net benefit expense (161) (145) Multi-employer contributions and defined contributions (2) (90) (89) Total benefit expense (251) (234) * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. (1) Exclude 19 million of curtailment relating to the disposal of Power Conversion activities, classified in capital gain on disposal of investments/activities (see Note 7). (2) At 31 March 2005, the defined contribution expense of 68 million was not disclosed in the French GAAP/IFRS reconciliation. 82

Consolidated financial statements The total cash spent in the year ended 31 March 2006 for defined benefits and defined contributions plans was 261 million. The breakdown of the benefit expense in the consolidated income statement is as follows: The Company s best estimate of defined benefits and defined contributions expected to be paid in the year ended 31 March 2007 is approximately 258 million, of which 112 million of employer contributions with respect to defined benefits plans. 2 Year ended 31 March (in million) 2006 2005* Service cost (85) (80) Multi-employer contributions and defined contributions (90) (89) Income from operations (175) (169) Amortisation of actuarial net loss (68) (57) Amortisation of unrecognised past service cost 3 5 Impact of asset ceiling (2) - Curtailments/Settlements 6 4 Other income (expenses) (1) (61) (48) Interest cost (215) (217) Expected return on plan assets 200 200 FINANCIAL INFORMATION Financial income (expenses) (1) (15) (17) Total benefit expense (251) (234) * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. (1) Differences with pension costs included in other expenses (see Note 7) and pension costs included in financial expenses (see Note 8) relate to Marine activities, classified in discontinued operations. NOTE 22. FINANCIAL DEBT A. Analysis by nature At 31 March At 1 April At 31 March (in million) 2006 2005** 2005* Redeemable preference shares ❶ - 205 205 ORA (debt component) ❷ 5 10 - Subordinated notes ❸ 5 5 5 Bonds ❸ 2,189 1,194 1,228 Bonds exchange premium ❸ - - (26) Syndicated loans ❹ - 998 1,039 Bilateral loans - 33 33 Commercial paper ➎ - 14 14 Future receivables securitised, net - 49 49 Other borrowings facilities ❻ 106 245 252 Obligations under finance leases 217 268 268 Obligations under long-term rental ❼ 16 13 650 Accrued interests 33 47 50 Financial debt 2,571 3,081 3,767 Non-current 2,211 2,598 3,281 Current 360 483 486 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. ** Amended balance sheet at 1 April 2005 pursuant to the first time application of IAS 32-39 and IFRS 5 standards (see Note 4 B). 83

Consolidated financial statements ❶ On 30 March 2001, a wholly-owned subsidiary of ALSTOM Holdings issued perpetual, cumulative, non-voting, preference shares for a total amount of 205 million. ❸ The preference shares had no voting rights. They were not redeemable, except at the exclusive option of the issuer, in whole but not in part, on or after the 5th anniversary of the issue date or on the 5th anniversary in case of certain limited specific pre-identified events. Included in these specified events are changes in tax laws and the issuance of new share capital. ❸ In July 2002, a new share capital was issued triggering the contractual redemption of the preferred shares at 31 March 2006 at a price equal to their par value together with dividends accrued, but not yet paid. ❸ At 31 March 2006, the 205 million of preferred shares are redeemed. ❷ Following the application of the IAS 32 and 39 standards from 1 April 2005, the debt component of the bonds reimbursable with shares ORA amounts to 5 million and 10 million at 31 March 2006 and 1 April 2005 respectively (See Note 4 B). ❸ At 31 March 2005, the Group had: 5 million of Auction Rate Notes redeemable in September 2006, 228 million of bonds bearing a 5% coupon and redeemable at par on 26 July 2006, 1,000 million of bonds bearing a 6.25 % coupon redeemable at par on 3 March 2010, (26) million of bonds exchange premium. ❸ At 1 April 2005, the application of IAS 32-39 standards has resulted in a remeasurement of these bonds using the effective interest rate (see Note 4 B). After remeasurement, the amounts are as follows: 5 million of Auction Rate Notes redeemable in September 2006, 231 million of bonds redeemable on 26 July 2006, 963 million of bonds redeemable on 3 March 2010, including the bonds exchange premium. ❸ During the year ended 31 March 2006, the Group issued: 600 million of floating rate notes bearing a 2.20% above the 3-month Euribor coupon and redeemable at par in March 2009; 400 million of floating rates notes bearing 0.85% above the 3-month Euribor coupon redeemable at par in July 2008. ❸ At 31 March 2006, the Group has: 5 million of Auction Rate Notes redeemable in September 2006, 226 million of bonds redeemable on 26 July 2006, 969 million of bonds redeemable on 3 March 2010, including the bonds exchange premium, 595 million of bonds redeemable on 13 March 2009, 399 million of bonds redeemable on 28 July 2008. ❹ In March 2006, two swaps of 100 million each that exchange fixed rate to floating rate have been undertaken by the Group (see Note 28 B). ❹ At 31 March 2005, the syndicated loans included: A 2008 Subordinated Debt Facility signed on 30 September 2003 with a syndicate of banks and financial institutions for an initial amount up to 1,563 million (the PSDD ), and comprising a Term Loan Tranche A for 1,200 million (fully drawn until maturity or redemption), and a Revolving Facility Tranche B for 363 million. A 2006 Multicurrency Revolving Credit Agreement initially signed for an amount up to 1,110 million which was available for drawdown up to 704 million. At 31 March 2006, the subordinated debt facility and the multicurrency revolving facility are fully repaid and cancelled. On 28 February 2006, a 2010 Revolving Credit Facility has been signed. The full amount of 700 million is available for drawdown as at 31 March 2006. This revolving credit facility is subject to financial covenants described in Note 22 B. ➎ The total authorised commercial paper programme was 2,500 million, availability being subject to market conditions. ❹ At 31 March 2005, 14 million of commercial paper was outstanding from this programme. At 31 March 2006, there is no outstanding amount from this programme. ❻ Other borrowings facilities included 94 million of borrowings borne by one special purpose entity at 31 March 2005, which has been reimbursed in March 2006. 84

Consolidated financial statements ❼ At 31 March 2005, the financial debt included the obligation under long-term rental relating to leases of trains and associated equipment. At 1 April 2005, following the application of IFRS 5 standard, the non-current portion of this financial obligation of 637 million ( 630 million as at 31 March 2006) is considered as a liability directly associated to a non-current asset held for sale, presented separately in the balance sheet and therefore excluded from the financial debt (see Note 4 B). The current portion of this obligation remains included in the financial debt for an amount of 16 million at 31 March 2006 and 13 million at 1 April 2005. 2 Analysis of the fair value by nature The fair value of the financial debt is estimated based on either quoted market prices for traded instruments or current rates offered to the Group for debt of the same maturity. At 31 March (in million) 2006 2005 Redeemable preference shares - 210 ORA (debt component) 5 10 Subordinated notes 5 5 Bonds 2,299 1,244 Syndicated loans - 1,044 Bilateral loans - 33 Commercial paper - 14 Future receivables securitised, net - 49 Other borrowings facilities 106 245 Accrued interests 33 47 Fair value of financial debt, excluding fair value of finance leases* 2,448 2,901 FINANCIAL INFORMATION * No fair value calculated given the number of different leases. B. Financial covenants At 31 March 2006, the 700 million revolving credit facility is subject to the following financial covenants: Minimum Minimum consolidated Maximum net interest cover net worth debt leverage (a) (b) (c) Covenants (in million) March 2006 3 1,360 4.0 September 2006 3 1,360 3.6 March 2007 3 1,360 3.6 September 2007 3 1,360 3.6 March 2008 3 1,360 3.6 September 2008 3 1,360 3.6 March 2009 3 1,360 3.6 September 2009 3 1,360 3.6 March 2010 3 1,360 3.6 September 2010 3 1,360 3.6 (a) Ratio of EBITDA (see (d) below) to consolidated net financial expense (interest expenses including securitisation expenses less interest income but excluding interest related to obligations under finance lease, pension interest cost and the consolidated net financial expense of special purpose entities which were not consolidated subsidiaries as of 31 March 2004). The interest cover at 31 March 2006 amounts to 8.7. (b) Sum of shareholders equity (excluding the cumulative impact of any deferred tax asset impairments arising after 31 March 2004 and including Bonds Reimbursable with Shares ORA not yet reimbursed) and minority interests (this covenant will not apply if and for so long as ALSTOM s rating is Investment Grade). After excluding the impact of the impairment of deferred tax assets recorded since 31 March 2004 of 189 million, the consolidated net worth at 31 March 2006 to compare with the covenant above is 2,029 million. (c) Ratio of total net debt (total financial debt excluding the finance lease obligations less short-term investments or trading investments and cash and cash equivalents) to EBITDA (see (d) below). The net debt leverage as at 31 March 2006 is 1.0. (d) Earnings Before Interest and Tax plus Depreciation and Amortisation, less capital gains and losses on disposal of investments, as set out in Consolidated Statements of Cash Flows. 85

Consolidated financial statements C. Analysis by maturity and interest rate Amounts presented below are based on the nominal values. Short term Long term within 1 Over At 31 March 2006 (in million) Total year 1-2 years 2-3 years 3-4 years 4-5 years 5 years ORA (debt component) 5 - - 5 - - - Subordinated notes 5 5 - - - - - Bonds 2,224 224-1,000 1,000 - - Other facilities 106 55 12 3 3 21 12 Borrowings under finance leases 233 40 22 20 18 17 116 Accrued interests 33 33 - - - - - Financial debt 2,606 357 34 1,028 1,021 38 128 The nominal and effective rates of interest are as follows: At 31 March 2006 Nominal interest rate Effective interest rate Subordinated notes Euribor 3M + 4.9% * Bonds July 2006 5.0% 3.9% July 2008 Euribor 3M + 0.9% 4.5% March 2009 Euribor 3M + 2.2% 5.9% March 2010 6.3% 7.2% * No effective rate of interest is calculated for floating rate notes. The financial debt before swaps is broken down between fixed rate and floating rate as follows: At 31 March At 1 April At 31 March (in million) 2006 2005** 2005* Financial debt at fixed rate 1,565 1,656 2,293 Financial debt at floating rate 1,041 1,474 1,474 Financial debt 2,606 3,130 3,767 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. ** Amended balance sheet at 1 April 2005 pursuant to the first time application of IAS 32-39 and IFRS 5 standards (see Note 4 B). D. Analysis by currency Amounts presented below are based on the nominal values. At 31 March At 1 April At 31 March (in million) 2006 2005** 2005* Euro 2,415 2,820 2,820 US dollar 31 132 132 British pound 43 47 684 Other currencies 117 131 131 Financial debt 2,606 3,130 3,767 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. ** Amended balance sheet at 1 April 2005 pursuant to the first time application of IAS 32-39 and IFRS 5 standards (see Note 4 B). 86

Consolidated financial statements NOTE 23. OTHER CURRENT LIABILITIES At 31 March At 1 April At 31 March (in million) 2006 2005** 2005* Staff and associated costs 602 663 663 Corporate income tax 146 107 107 Other taxes 169 213 213 Derivatives 87 192 - Remeasurement of off-balance sheet commitments 159 148 - Other 467 557 606 Other current liabilities 1,630 1,880 1,589 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. ** Amended balance sheet at 1 April 2005 pursuant to the first time application of IAS 32-39 and IFRS 5 standards (see Note 4 B). 2 FINANCIAL INFORMATION NOTE 24. ASSETS HELD FOR SALE AND LIABILITIES DIRECTLY ASSOCIATED At 1 April 2005, assets and liabilities attributable to leases of trains and associated equipment have been classified as assets held for sale and liabilities directly associated and are presented separately in the balance sheet as they were expected to be sold within twelve months. Assets held for sale and liabilities directly associated amount to 613 million at 31 March 2006 and 637 million at 1 April 2005. The whole amount represents a non-current asset attributable to a long-term rental on the asset side of the balance sheet and a financial obligation on the liabilities side, respectively. At 31 March 2006, these assets remain classified as assets held for sale: although some circumstances beyond the Group s control have generated an extension of the period to complete the sale, the Group remains fully committed to sell the asset. The proceeds of disposal are still expected to exceed the net carrying amount of the relevant assets and liabilities and, accordingly, no impairment loss has been recognised. Other groups of assets held for sale as of 31 March 2006 consist of the Marine Sector following the commitment of the Company to sell to Aker Yards 75% stake in the Marine Sector. The sale goes through the creation of a new company consisting of the shipyards in Saint-Nazaire and Lorient to be 75% owned by Aker Yards and 25% by ALSTOM. Aker Yards will pay 50 million for the 75% stake in the new company. The remaining stake will be sold to Aker Yards by 2010 for up to 125 million depending on the financial performance. At 31 March 2006, the effective disposal was still subject to conditions expected to be fulfilled within a short period of time after this date. Assets and liabilities attributable to these activities have been classified as a disposal group held for sale and are presented separately in the balance sheet. The proceeds of disposal of all ALSTOM s interests in the disposal group are expected to be lower than the net carrying amount of the relevant assets and liabilities and, accordingly, a loss of 96 million has been recorded, of which a 12 million impairment on the classification of these operations as held for sale and 84 million of additional provisions. The valuation of the proceeds from the disposal is based on ALSTOM best estimate of the value of the earn-out included in the agreement. 87

Consolidated financial statements At 31 March 2006, the major classes of assets and liabilities comprising the disposal group classified as held for sale are as follows: Leases of trains Marine (in million) and equipment activities Total Property, plant and equipment, net - 11 11 Non-current assets, net 613 5 618 Construction contracts in progress, assets - 172 172 Inventories, trade receivables and other current assets, net - 38 38 Cash and cash equivalents - 317 317 Assets classified as held for sale 613 543 1,156 Assets held for sale, impairment - (12) (12) Assets classified as held for sale, net 613 531 1,144 Provisions - 124 124 Financial debt 613 2 615 Construction contracts in progress, liabilities - 154 154 Trade payables and other current liabilities - 250 250 Liabilities associated with assets classified as held for sale 613 530 1,143 The operations of the Marine Sector have been classified as discontinued operations for the year ended 31 March 2006 and retrospectively for the year ended 31 March 2005 (see Note 10). Since the transaction is structured as an asset sale, the progressive extinction of remaining assets and liabilities retained by the Group will be shown as assets held for sale and discontinued operations during the next financial year. NOTE 25. SECTOR AND GEOGRAPHIC DATA A. Sector data The Group is managed through Sectors of activity and has determined its reportable segments accordingly. At 31 March 2006, the Group is organised in four Sectors, following the sale of the Power Conversion Business during the year. Power Turbo-Systems / Power Environment Sector Power Turbo-Systems / Power Environment provides steam turbines, gas turbines, generators and power plant engineering, including hydro. It also focuses on boilers and emissions control equipment in the power generation, petrochemical and industrial markets. Finally, it serves demand for upgrades and modernisation of existing power plants. Power Service Sector Power Service promotes the service activities relating to the Power Turbo Systems / Environment Sector and services to customers in all geographic markets. Transport Sector Transport provides equipment, systems, and customer support for rail transportation including passenger trains, locomotives, signalling equipment, rail components and service. Marine Sector Marine designs and manufactures cruise and other speciality ships. At 31 March 2006, the Marine Sector is excluded from the Sector and geographic information following the classification of its operations as discontinued operations and the classification of its assets and liabilities as disposal group held for sale. 88

Consolidated financial statements Power Conversion Business Power Conversion provides solutions for manufacturing processes and supplies high-performance products including motors, generators, propulsion systems for marine applications and drives for a variety of industrial applications. This Business has been sold during the year. Some units, not material to the Sector presentation, have been transferred between Sectors. The revised Sector composition has not been reflected on a retroactive basis. 2 At 31 March 2006 Power Turbo-Systems / Power Power Corporate (in million) Power Environment Service Transport Conversion & other (1) Elimination Total Sales 5,396 3,062 5,129 276 100 (550) 13,413 Inter-sector elimination (317) (209) (1) (15) (8) 550 - Total sales 5,079 2,853 5,128 261 92-13,413 Income from operations 101 442 324 16 (137) - 746 Earnings before interest and taxes 75 407 256 14 (25) - 727 Financial income (expenses), net (222) Income tax (125) Share in net loss of equity investments (1) Net profit from continuing operations 379 Net loss from discontinued operations (198) Net profit 181 Segmental assets (2) 4,633 3,890 4,224-1,558-14,305 Deferred taxes (assets) 1,249 Pension assets 387 Current financial assets, net 1,323 Assets held for sale, net 1,144 Total assets 18,408 Segmental liabilities (3) 5,072 2,078 4,099-774 - 12,023 Deferred taxes (liabilities) 39 Accrued pension and retirement benefits 792 Financial debt 2,571 Total equity 1,840 Liabilities associated with assets held for sale 1,143 Total liabilities 18,408 Capital employed (4) (439) 1,812 125-784 - 2,282 Capital expenditure 103 35 125 3 28-294 Depreciation and amortisation in EBIT 125 61 116 5 106-413 FINANCIAL INFORMATION (1) Corporate & other includes all units accounting for Corporate costs, the International Network and the overseas entities in Australia, New Zealand and India that are not allocated to Sectors. (2) Segmental assets are defined as the closing position of goodwill, intangible assets, net, property, plant and equipment, net, other non-current assets, net (excluding pension assets) and current assets, net (excluding trading investments, available-for-sale investments, held-to-maturity investments and cash and cash equivalents). (3) Segmental liabilities are defined as the closing position of current and non-current provisions and current liabilities (excluding current financial debt). (4) Capital employed corresponds to segmental assets minus segmental liabilities. The decrease in the capital employed from 31 March 2005 to 31 March 2006 is partly explained by the reclassification in the Transport Sector of assets and liabilities attributable to leases of trains and associated equipment from other non-current assets at 31 March 2005 (included in the definition of capital employed) to assets held for sale and liabilities associated at 31 March 2006 (excluded from the definition of capital employed). 89

Consolidated financial statements At 31 March 2005 Power Turbo-Systems / Power Power Corporate (in million) Power Environment Service Transport Conversion Marine (4) & other (1) Elimination Total Sales 4,777 3,116 5,124 555-273 (925) 12,920 Inter-sector elimination (587) (284) (24) (19) - (11) 925 - Total sales 4,190 2,832 5,100 536-262 - 12,920 Income from operations (107) 412 218 30 - (82) - 471 Loss before interest and taxes (331) 365 145 16 - (246) - (51) Financial income (expenses), net (381) Income tax (163) Share in net income of equity investments - Net loss from continuing operations (595) Net loss from discontinued operations (32) Net loss (627) Segmental assets (2) 4,727 4,028 4,900 410 209 1,807-16,081 Deferred taxes (assets) 1,207 Pension assets 374 Current financial assets, net 1,419 Total assets 19,081 Segmental liabilities (3) 5,166 2,153 3,968 368 502 675-12,832 Deferred taxes (liabilities) 59 Accrued pension and retirement benefits 824 Financial debt 3,767 Total equity 1,466 Bonds reimbursable with shares 133 Total liabilities 19,081 Capital employed (439) 1,875 932 42 (293) 1,132-3,249 Capital expenditure 88 24 85 5-53 - 255 Depreciation and amortisation in EBIT 135 69 172 12-64 - 452 (1) Corporate & other includes all units accounting for Corporate costs, the International Network and the overseas entities in Australia, New Zealand and India that are not allocated to Sectors. (2) Segmental assets are defined as the closing position of goodwill, intangible assets, net, property, plant and equipment, net, other non-current assets, net (excluding pension assets) and current assets, net (excluding trading investments, available-for-sale investments, held-to-maturity investments and cash and cash equivalents). (3) Segmental liabilities are defined as the closing position of current and non-current provisions and current liabilities (excluding current financial debt). (4) In accordance with IFRS 5, Marine operations have been retrospectively classified as discontinued operations in the income statement for the year ended 31 March 2005, whereas the presentation of the associated assets and liabilities in the balance sheet at 31 March 2005 remains unchanged. 90

Consolidated financial statements B. Geographic data Sales and capital expenditure by country of destination: At 31 March 2006 Sales by country Capital (in million) of destination Expenditure Euro zone (1) 4,221 123 Rest of Europe 2,080 71 North America 2,172 22 South & Central America 891 6 Asia & Pacific 2,747 69 Middle East & Africa 1,302 3 Total Group 13,413 294 At 31 March 2005 Sales by country Capital (in million) of destination Expenditure Euro zone (1) 4,559 117 Rest of Europe 2,227 99 North America 1,945 14 South & Central America 534 3 Asia & Pacific 2,465 19 Middle East & Africa 1,190 3 Total Group 12,920 255 2 FINANCIAL INFORMATION (1) Euro zone includes Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Spain and Portugal. 91

Consolidated financial statements NOTE 26. OFF-BALANCE SHEET COMMITMENTS AND OTHER OBLIGATIONS A. Off-balance sheet commitments At 31 March (in million) 2006 2005 Guarantees related to contracts ❶ 7,572 7,526 Guarantees related to vendor financing ❷ 432 429 Discounted notes receivable - 5 Commitments to purchase fixed assets 8 1 Other guarantees* 242 114 Total 8,254 8,075 * Other guarantees include off-balance sheet commitments relating to financial obligations such as VAT payments, rentals, customs, and insurance deductibles. These are materialised by independent undertakings but support mainly existing liabilities included in the consolidated accounts. ❶ Guarantees related to contracts In accordance with industry practice, the above instruments can, in the normal course, extend from the tender period until the final acceptance by the customer, up to the end of the warranty period and may include guarantees on project completion, contract-specific defined performance criteria or availability. The guarantees are provided by banks or surety companies by way of bank guarantees, surety bonds and stand by letters of credit and are normally for defined amounts and periods and are issued in favour of the customer with whom the commercial contracts have been signed. The Group provides a counter-indemnity to the bank or surety company which issues the said instrument. The above figures exclude: 4.3 billion at 31 March 2006 ( 3.8 billion at 31 March 2005) of advance and progress payment related guarantees which payments have been included over time in the balance sheet in the line Construction contracts in progress, assets or liabilities. 2.3 billion at 31 March 2006 ( 2.1 billion at 31 March 2005) of surety and conditional bonds where the likelihood of the commitments becoming obligations is considered to be remote. Guarantees given by parent or group companies relating to liabilities included in the consolidated accounts. The bonding guarantees relating to contracts, issued by banks or surety companies, amount to 11.4 billion at 31 March 2006 ( 10.7 billion at 31 March 2005). The projects for which the guarantees are given are regularly reviewed by management and should payments become probable pursuant to guarantees, the necessary accruals will be made and recorded in the Consolidated Financial Statements at that time. In the context of the Share Purchase and Settlement Agreement signed with ABB Ltd in March 2000, pursuant to which the Group purchased ABB's 50% share of the joint venture ABB ALSTOM POWER, the Group has agreed to indemnify ABB with respect to parent company guarantees that it had previously issued with respect to certain power contracts, the total outstanding amount of such ABB guarantees being 2.7 billion at 31 March 2006 ( 2.7 billion at 31 March 2005). These parent company guarantees are included in the above figures but are relating to liabilities already included in the consolidated accounts. The Group put in place in August 2004 an up to 8 billion committed bonding guarantee facility programme, with an initial commitment of its banks for 6.6 billion increased to 7.4 billion since by enlarging the programme from 7 to 17 Banks and thus covering Group s needs until July 2006. This programme includes the bonds issued under the bonding line of 3.5 billion provided during the summer 2003 and new bonds to be issued over a two-year period up to 27 July 2006. 92

Consolidated financial statements The bonds issued under this programme until 27 July 2006 benefit from a 2 billion security package consisting of: a first-loss guarantee in the form of cash collateral provided by the Group for 700 million (see Note 15); and a second-rank security for a total amount of 1,300 million covering second losses in excess of the cash collateral, in the form of guarantees, given on a pari passu basis by a French State guaranteed institution (Caisse Française de Développement Industriel - CFDI) for an amount of 1,250 million, and the remainder ( 50 million) by a group of banks consisting of the initial banks of the programme. This programme is revolving: any bond expiring releases capacity to issue new bonds within the 8 billion limit and the two-year period. The bonds and guarantees issued in the syndicated facility under that programme are covered by counter-indemnities from ALSTOM Holdings and from the Group subsidiaries performing the contractual obligations pertaining to the guarantee. The banks can make a claim under the security package if, and only if, a bond issued under the programme has been called by a customer, paid by the bank to the beneficiary and neither the Group subsidiaries nor ALSTOM Holdings have been in a position to indemnify the banks. On 15 November 2005, the Group amended its bonding programme for a further 2 years for an enlarged amount of up to 10.5 billion of which 9.4 billion are available to date. All bonds issued beyond the initial issuing period ending in July 2006 and up and until July 2008 will benefit from a reduced security package consisting of 175 million worth of collateral. the cash collateral will be increased if necessary to equal at any time at least 10% of the total outstanding amount of bonds issued after July 2006 if (i) ALSTOM s operating margin failed to reach on a 12-month rolling basis: 3.75% at 31 March 2006, 4.125% at 30 September 2006, 4.5% at 31 March 2007, 4.875% at 30 September 2007, and 5.25% at 31 March 2008; or (ii) if on any such testing date or as at the date falling six months after such testing date, ALSTOM s consolidated cash headroom is not at least 800 million. The two collaterals will merge whenever the guarantee of the French State and of ALSTOM s principal banks expires, which is expected to happen between June and September 2008, and in any case at 30 June 2009 at the latest. At that time, the global amount of cash collateral will be adjusted to: 175 million if ALSTOM s operating margin at 31 March 2008 is above 6.25%; 5% of the global amount outstanding if this margin is comprised between 5.25% and 6.25%; and 10% of the global amount of outstanding bonds if this margin is below 5.25%. The issuance of new bonds under the bonding programme mentioned above is also subject to the financial covenants disclosed in the Note 22 B. At 31 March 2006, 88 million of bonds and guarantees relating to units sold as part of disposals were still held by the Group. 2 FINANCIAL INFORMATION This additional collateral may be increased in the event that operating margin and headroom levels through 31 March 2008 do not reach targeted levels according to the following rules: the cash collateral will be increased if necessary to equal at any time at least 5% of the total outstanding amount of bonds issued after July 2006 if ALSTOM s operating margin failed to reach on a 12-month rolling basis: 4.75% at 31 March 2006, 5.125% at 30 September 2006, 5.5% at 31 March 2007, 5.875% at 30 September 2007, and 6.25% at 31 March 2008; ❷ Vendor financing The Group has provided financial support, referred to as vendor financing, to financial institutions and granted financing to certain purchasers of its cruise-ships for ship-building contracts signed up to fiscal year 1999 and other equipment. The offbalance sheet vendor financing is 432 million at 31 March 2006. 93

Consolidated financial statements The table below sets forth the breakdown of the outstanding off-balance sheet vendor financing by sector at 31 March 2006 and 31 March 2005: At 31 March (in million) 2006 2005 Marine 126 120 Renaissance/Festival 41 38 Other 85 82 Transport 306 309 European metro operator (2) 254 257 Other 52 52 Total vendor financing commitments (1) 432 429 (1) Off-balance sheet figures correspond to the total guarantees and commitments, net of related cash deposits, which are shown as balance sheet item. (2) Guarantees given include the requirement to deposit funds in escrow in the event of non-respect of certain covenants. Marine Renaissance/Festival At 31 March 2006, it corresponds to the undrawn guarantees of the financing of one subsidiary of Cruiseinvest LLC for USD13 million ( 11 million) and to the undrawn portions of the credit lines formerly granted for the repossession and maintenance costs of the former Renaissance and Festival ships for 30 million. Other At 31 March 2006, it mainly corresponds to the guarantees provided by the Group on the financing arrangements of one cruise-ship and two high-speed ferries delivered to two customers for a total amount of 85 million. Based on known facts and on assumptions as to leases renewal and ship sales for the former Renaissance and other cruiseships, the Group considers that the provision in respect of Marine vendor financing of 12 million at 31 March 2006 remains adequate to cover the probable risk. Transport At 31 March 2006, guarantees given as part of vendor financing arrangements in Transport Sector amount to 306 million. Included in this amount are guarantees totalling USD63 million ( 52 million and 49 million at 31 March 2006 and 31 March 2005 respectively) given with respect to equipment sold to Amtrak, and also guarantees given as part of a leasing scheme involving a major European metro operator. Were the metro operator to decide in 2017 not to extend the initial period, the Group has guaranteed to the lessors that the value of the trains and associated equipment at the option date should not be less than GBP177 million ( 254 million and 257 million at 31 March 2006 and 31 March 2005, respectively). B. Lease obligations Within 1 to Over (in million) Total 1 year 5 years 5 years Long-term rental (1) 650 13 86 551 Capital leases 335 46 118 171 Operating leases 403 57 183 163 Total at 31 March 2005 1,388 116 387 885 Long-term rental (1) 629 16 100 513 Capital leases 291 36 112 143 Operating leases 300 44 134 122 Total at 31 March 2006 1,220 96 346 778 (1) Asset related to leases of trains and associated equipment to a European metro operator (see Notes 15 and 24). 94

Consolidated financial statements NOTE 27. CONTINGENCIES Litigation The Group is engaged in several legal proceedings, mostly contract related disputes that have arisen in the ordinary course of business. Contract related disputes, often involving claims for contract delays or additional work, are common in the areas in which the Group operates, particularly for large, long-term projects. In some cases, the amounts claimed against the Group, sometimes jointly with its consortium partners, in these proceedings and disputes are significant, ranging up to around 390 million in one particular dispute. Some proceedings against the Group are without a specified amount. Amounts retained in respect of litigation, considered as reliable estimates of probable liabilities are included in provisions and other current liabilities. Actual costs incurred may exceed the amount of provisions for litigation because of a number of factors including the inherent uncertainties of the outcome of litigation. Asbestos The Group is subject to regulations in many countries in which it operates, regarding the control and removal of asbestoscontaining material and identification of potential exposure of employees to asbestos. It has been the Group s policy for many years to abandon definitively the use of products containing asbestos by all of its operating units worldwide and to promote the application of this principle to all of its suppliers, including in those countries where the use of asbestos is permitted. In the past, however, the Group has used and sold some products containing asbestos, particularly in France in its Marine Sector and to a lesser extent in its other Sectors. The Group is subject to asbestos-related legal proceedings or claims including in France, the United States and the United Kingdom. Some of the Group s subsidiaries are the subject in France of judicial proceedings instituted by certain employees or former employees with the aim of obtaining a court decision holding these subsidiaries liable for an inexcusable fault (faute inexcusable) which would allow them to obtain a supplementary compensation above the payments made by the French Social Security funds of related medical costs. Although the courts of competent jurisdiction have made findings of inexcusable fault, the damages in most of these proceedings have been borne to date by the general French Social Security (medical) funds. One of the Group s subsidiaries is also the subject of a criminal action for violation of the legislation for the protection of workers against asbestos dust. Although no assurance can be given, the Group believes that those cases where it may be required to bear certain financial consequences do not represent a material exposure and therefore, no provisions have been recorded. In addition to the foregoing, in the United States, the Group is subject to asbestos-related personal injury lawsuits which have their origin solely in the Company s purchase of certain former Power Generation Businesses of ABB Ltd ( ABB ) and its subsidiaries, for which the Group is indemnified by ABB. ALSTOM believes that, as of 31 March 2006, all but two of these cases involved Combustion Engineering, Inc. ( CE ) (a United States ABB subsidiary) or CE s former subsidiaries. The Group is also subject in the United States to two putative class action lawsuits asserting fraudulent conveyance claims against various ALSTOM and ABB entities in relation to CE, for which it has asserted indemnification against ABB. CE filed a pre-packaged plan of reorganisation in United States Bankruptcy Court in January 2003 and a modified plan of reorganisation in June 2005. The modified plan was confirmed by the Bankruptcy Court on 19 December 2005 and by the United States Federal District Court on 28 February 2006, and became effective on 21 April 2006. ALSTOM believes that under the terms of the CE plan of reorganisation, it is protected against pending and future personal injury asbestos claims, or fraudulent conveyance claims, arising out of the past operations of CE. As of 31 March 2006, the Group is subject to approximately 22 other asbestos-related personal injury lawsuits in the United States involving approximately 477 claimants that, in whole or in part, assert claims against ALSTOM which are not related to the Power Generation Business purchased from ABB or as to which the complaint does not provide details sufficient to permit to determine whether the ABB indemnity applies. Most of these lawsuits are in the preliminary stages of the litigation process and they each involve multiple defendants. The allegations in these lawsuits are often very general and difficult to evaluate at preliminary stages in the litigation process. In those cases where ALSTOM s defence has not been assumed by a third party and meaningful evaluation is practicable, the Group believes that it has valid defences and, with respect to a number of lawsuits, the Group is asserting rights to indemnification against a third party. For purposes of the foregoing discussion, the Group considers a claim to no longer be pending against it if the plaintiff s attorneys have executed a notice or stipulation of dismissal or non-suit, or other similar document. 2 FINANCIAL INFORMATION 95

Consolidated financial statements While the outcome of the existing asbestos-related cases described above is not predictable, the Group believes that those cases will not have a material adverse effect on its financial condition. It can give no assurances, however, that asbestos-related cases against it will not grow in number or that those it has at present, or may face in the future, may not have a material adverse impact on its financial condition. Product liability The Group designs, manufactures, and sells several products of large individual value that are used in major infrastructure projects. In this environment, product-related defects have the potential to create liabilities that could be material. If potential product defects become known, a technical assessment occurs whereby products of the affected type are quantified and studied. If the results of the study indicate that a product liability exists, provisions are recorded. The Group believes that it has made adequate provisions to cover currently known productrelated liabilities, and regularly revises its estimates using currently available information. Neither the Group nor any of its Businesses are aware of product-related liabilities which are expected to exceed the amounts already recognised and believes it has provided sufficient amounts to satisfy its litigation, environmental and product liability obligations to the extent they can be estimated. SEC investigation The Group, certain of its subsidiaries and certain current and former officers, employees and members of its Board of Directors have been involved in US regulatory investigations regarding potential securities law violations, and have been named as defendants in a putative class action lawsuit in the United States that alleges violations of the US federal securities laws. On 30 June 2003, the Group announced that it was conducting an internal review, assisted by external lawyers and accountants, following receipt of anonymous letters alleging accounting improprieties on a railcar contract being executed at the New York facility of ALSTOM Transportation Inc. ( ATI ), one of its US subsidiaries. Following receipt of these letters, the United States Securities and Exchange Commission ( SEC ) and the United States Federal Bureau of Investigation ( FBI ) began informal inquiries. The Group also announced that its internal review had identified that losses had been significantly understated in the ATI accounts, in substantial part due to accounting improprieties. As a result, an additional charge of 73 million was recorded in ATI s accounts for the year ended 31 March 2003 and was recorded in the Group s Consolidated Financial Statements approved by the General Meeting of Shareholders on 2 July 2003. On 11 August 2003, the Group announced that it had been advised that the SEC had issued a formal order of investigation in connection with its earlier review. United States putative class action lawsuit The Group, certain of its subsidiaries and certain of its current and former Officers and Directors have been named as defendants in a number of putative shareholder class action lawsuits filed on behalf of various alleged purchasers of American Depositary Receipts and other ALSTOM securities between 3 August 1999 and 6 August 2003. These lawsuits which have been consolidated in one complaint filed on 18 June 2004, alleged violations of United States federal securities laws arising from alleged untrue statements of material facts, and/or omissions to state material facts necessary to make the statements made not misleading in various ALSTOM public communications regarding its Business, operations and prospects (in the areas of the performance of its GT24/GT26 turbines, certain vendor financing arrangements for cruise-ship customers, and its US Transport Business, including but not limited to the matter described above), causing the allegedly affected shareholders to purchase ALSTOM securities at artificially inflated prices. On 22 December 2005, the United States Federal District Court dismissed large portions of the consolidated complaint, including all claims relating to its GT24/GT26 turbines, all claims against the Group s current Officers and Directors, all claims against ALSTOM (but not ATI) relating to its US Transport Business, and all claims brought by non US investors who purchased ALSTOM securities on non-us stock exchanges except for those relating to its US Transport Business. On 14 March 2006, the plaintiffs filed a second amended consolidated complaint which re-asserts, among other things, claims against ALSTOM relating to its US Transport Business. The Group s Management has spent and may in the future be required to spend considerable time and effort dealing with these matters. While the Group has cooperated and intend to continue to cooperate with the governmental authorities in connection with the ATI matter and to vigorously defend the putative class action lawsuit, the Group cannot ensure that there will be no adverse outcome which could have a material adverse effect on its Business, results of operations and financial condition. 96

Consolidated financial statements Environmental, health and safety The Group is subject to a broad range of environmental laws and regulations in each of the jurisdictions in which it operates. These laws and regulations impose increasingly stringent environmental protection standards on the Group regarding, among other things, air emissions, wastewater discharges, the use and handling of hazardous waste or materials, waste disposal practices and the remediation of environmental contamination. These standards expose the Group to the risk of substantial environmental costs and liabilities, including liabilities associated with divested assets and past activities. In most of the jurisdictions in which the Group operates, its industrial activities are subject to obtaining permits, licences and/or authorisations, or to prior notification. Most of its facilities must comply with these permits, licences or authorisations and are subject to regular administrative inspections. The Group invests significant amounts to ensure that it conducts its activities in order to reduce the risks of impacting the environment and regularly incurs capital expenditure in connection with environmental compliance requirements. Although the Group is involved in the remediation of contamination of certain properties and other sites, it believes that its facilities are in compliance with their operating permits and that its operations are generally in compliance with environmental laws and regulations. The Group has put in place a global policy covering the management of environmental, health and safety risks. The procedures for ensuring compliance with environmental, health and safety regulations are decentralised and monitored at each plant. The costs linked to environmental health and safety issues are budgeted at plant or unit level and included in the profit and loss account of the local subsidiaries of the Group. The outcome of environmental, health and safety matters cannot be predicted with certainty and there can be no assurance that the Group will not incur any environmental, health and safety liabilities in the future and the Group cannot guarantee that the amount that it has budgeted or provided for remediation and capital expenditure for environmental or health and safety related projects will be sufficient to cover the intended loss or expenditure. In addition, the discovery of new facts or conditions or future changes in environmental laws, regulations or case law may result in increased liabilities that could have a material effect on its financial condition or results of operations. Claims relating to disposals From time to time, the Group disposes of certain Businesses or Business segments. As it is usual, certain acquirers make claims against the Group as a result of price adjustment mechanisms and warranties generally foreseen in the sale agreements. At 31 March 2006, the Group has outstanding warranties and has received claims in connection with the disposals of certain of its activities including its former T&D Sector (excluding Power Conversion), the Small and Medium Industrial Turbines and Industrial Steam Turbine Businesses, the former Contracting Sector and part of the former Industrial Sector. The Group has received a number of demands from the acquirer following the disposal of the T&D Sector, including with respect to investigation by a number of national authorities and the European Commission of alleged anti-competitive arrangements among suppliers in certain T&D activities and an administrative procedure in Mexico concerning the alleged payments by an agent that could result in an entity sold as part of the T&D Sector being prevented from bidding for government contracts for a two-year period. Alleged violation of laws Many of the Group s Businesses operate in sectors where a relatively small number of participants can materially affect the market dynamics. Although these markets are frequently fiercely competitive, there are at times allegations of anti-competitive activity. For example, the Group has been informed of investigations by various governmental authorities, including the European Commission, relating to alleged anti-competitive arrangements among suppliers of certain products of the T&D Business sold to Areva on 9 January 2004. In April 2006, the European Commission commenced proceedings against ALSTOM, along with a number of other companies, based on allegations of anti-competitive practices in the sale of gasinsulated switchgears, a product of its former T&D Business, following investigations that began in 2004. The competition authorities in Hungary have ordered fines against both the ALSTOM and the Areva groups with respect to alleged anticompetitive practices in the gas-insulated business in that country. The Group conducts a significant proportion of its business with governmental agencies and public-sector entities, including those in countries known to experience corruption, which creates the risk of prohibited payments by its employees and agents. The Group actively strives to ensure compliance with the laws and regulations relating to illegal or other prohibited payments and 2 FINANCIAL INFORMATION 97

Consolidated financial statements has established internal compliance programmes to control the risk of such illegal activities and appropriately address any problems that may arise. However, a limited number of current and former employees and agents of the Group have been or are currently being investigated with respect to alleged illegal payments in various countries. Certain of these procedures, including pending procedures in Mexico and Italy, may result in fines and the exclusion of its subsidiaries from public tenders in the relevant country for a defined period. The Group considers that there are no matters outstanding and unprovided that are capable of estimation that are likely to have a material adverse impact on the consolidated financial statements. NOTE 28. MARKET RELATED EXPOSURES A. Currency risk In the course of its operations, the Group is exposed to currency risk arising from tenders for business remitted in foreign currency, and from awarded contracts or firm commitments under which revenues are denominated in foreign currency. The principal currencies to which the Group had significant exposure in fiscal year ended 31 March 2006 were the US dollar and Swiss franc. Due to these exposures, numerous cash flows of the Group are denominated in foreign currencies. The Group acquires financial instruments with off-balance sheet risk solely to hedge such exposure on anticipated transactions and notably firm commitments. The instruments used are exchange rate guarantees obtained through export insurance companies, forward exchange contracts and options. As an exception to the policy described above and subject to management approval, it may be decided in specific circumstances not to fully hedge identified exposures. With respect to anticipated transactions: During the tender period, depending on the probability of obtaining the project and market conditions, the Group generally hedges a portion of its tenders using options or export insurance contracts when possible. The guarantees granted by these contracts become firm if and when the underlying tender is accepted. Once the contract is signed, forward exchange contracts or currency swaps are used to adjust the hedging position to the actual exposure during the life of the contract (either as the only hedging instruments or as a complement to existing export insurance contracts). 98

Consolidated financial statements At 31 March 2006 and 31 March 2005, the nominal and fair value of foreign exchange instruments are detailed as follows: Derivative instruments qualifying for hedge accounting (forward contracts and currency swaps) At 31 March 2006 At 31 March 2005 2 Purchased Sold Purchased Sold (in million) Nominal Fair value Nominal Fair value Nominal Fair value Nominal Fair value British pound 2-375 1 77-307 (7) Brazilian real 33 (8) 29 1 - - 10 (1) Polish zloti 149-252 (2) 126 5 26 - Swedish kroner 227 (3) 279 2 285 (1) 87 - US dollar 713 (64) 2,462 104 557 (92) 1,995 130 Australian dollar 163 (4) 150 3 108-60 (2) Singapore dollar 16-39 - 13-89 12 Swiss franc 1,889 (21) 2,139 31 1,340 (5) 1,857 10 Other 345 3 297 2 269 2 328 4 FINANCIAL INFORMATION Total 3,537 (97) 6,022 142 2,775 (91) 4,759 146 Derivative instruments not qualifying for hedge accounting (forwards contracts, currency options contracts and insurance contracts) At 31 March 2006 At 31 March 2005 Purchased Sold Purchased Sold (in million) Nominal Fair value Nominal Fair value Nominal Fair value Nominal Fair value Currency option contracts - Yen - - - - 20 2 - - Currency option contracts - US dollar 1-34 - 110 17 75 (1) Currency option contracts - other currencies - - 19 - - - - - Forward contracts - US dollar 112 (1) 95 - - - - - Forward contracts - Swiss franc 95 2 9 - - - - - Forward contracts - Swedish kroner 71 1 1 - - - - - Forward contracts - Other currencies 56 (1) 41 - - - - - Insurance contracts 34 (2) 105 4 3-193 (2) Total 369 (1) 304 4 133 19 268 (3) The fair value of these instruments is the estimated amount that the Group would receive or pay to settle the related agreements, valued upon relevant yield curves and foreign exchange rates as at 31 March 2006 and 31 March 2005. Export insurance contracts related to tenders are insurance contracts that are not marked to market. Export insurance contracts that hedge firm commitments are considered as acting as derivatives and were marked to market for the purpose of the disclosure. The fair value of forward exchange contracts was computed by applying the difference between the contract rate and the market forward rate at closing date to the nominal amount. 99

Consolidated financial statements At 31 March 2006, the nominal value of derivative instruments by maturity is as follows: Derivative instruments qualifying for hedge accounting (forward contracts and currency swaps) (in million) Total < 1 year 1-5 years > 5 years British pound 377 299 78 - Brazilian real 62 58 4 - Polish zloti 401 286 115 - Swedish kroner 506 365 136 5 US dollar 3,175 2,021 1,153 1 Australian dollar 313 170 143 - Singapore dollar 55 55 - - Swiss franc 4,028 3,745 283 - Other 642 561 81 - Total 9,559 7,560 1,993 6 Derivative instruments not qualifying for hedge accounting (forwards contracts, currency options contracts and insurance contracts) (in million) Total < 1 year 1-5 years > 5 years Currency option contracts - US dollar 35 35 - - Currency option contracts - other currencies 19 19 - - Forward contracts - US dollar 207 104 103 - Forward contracts - Swiss franc 104 60 44 - Forward contracts - Swedish kroner 72 20 52 - Forward contracts - Other currencies 97 68 27 2 Insurance contracts 139 47 92 - Total 673 353 318 2 100

Consolidated financial statements B. Interest rate risk The Group does not have a dynamic interest rate risk management policy. However, it may enter into transactions in order to hedge its interest rate risk on a case-by-case basis according to market opportunities, under the supervision of the Executive Committee. Sensitivity to interest rates At 31 March (in million) 2006 < 1 year 1-5 years > 5 years 2 Financial assets at floating rate 2,082 1,328 700 54 Financial assets at fixed rate 68 40 28 - Financial assets not bearing interests 36 21 8 7 Financial assets 2,186 1,389 736 61 Financial debt at floating rate (1,034) (22) (1,012) - Financial debt at fixed rate (1,537) (338) (1,071) (128) Financial debt (2,571) (360) (2,083) (128) Net position at floating rate before swaps* 1,048 1,306 (312) 54 Net position at fixed rate before swaps* (1,469) (298) (1,043) (128) Net position not bearing interests 36 21 8 7 FINANCIAL INFORMATION Net position before hedging (385) 1,029 (1,347) (67) Net position at floating rate after swaps* 848 1,306 (512) 54 Net position at fixed rate after swaps* (1,269) (298) (843) (128) Net position not bearing interests 36 21 8 7 Net position after hedging (385) 1,029 (1,347) (67) * At 31 March 2006, the Group holds swaps from fixed rate to floating rate with a nominal value of 200 million and a fair value of (1) million. At 31 March 2005, the Group held a swap from fixed rate to floating rate with a nominal value of 94 million and a fair value of 3 million. The net short-term loan position at floating rate after swaps amounts to 1,306 million. A 1% increase in market rates would have decreased the net interest expense by 10 million, representing 8.2% of the net interest expense for the year ended 31 March 2006. A 1% increase in market rates would have decreased the net interest expense after swaps by 8 million, representing 6.6% of the net interest expense for the year ended 31 March 2006. C. Credit risk Risk related to customers The Group hedges up to 90% of the credit risk on certain contracts using export credit insurance contracts. The Group believes the risk of counterparty failure to perform as contracted, which could have a significant impact on the Group s financial statements or results of operations, is limited due to the Group seeking to ensure that customers generally have strong credit profiles or adequate financing to meet their project obligations. Risk related to cash and cash equivalents As part of the central treasury management, 71% of cash and cash equivalents at 31 March 2006 is invested with a bank counterpart of first rank noted Investment Grade. 101

Consolidated financial statements D. Liquidity risk The analysis by maturity and interest rate of the Group s debt is set out in Note 22 C. Details of short-term liquidity are set out below. The Group available liquidity within one year at 31 March 2006 and 31 March 2005 is as follows: At 31 March (in million) 2006 2005* Available credit line 700 1,202 Cash available at parent company 950 796 Cash equivalents at subsidiary level (1) 351 608 Available liquidity 2,001 2,606 Financial debt to be reimbursed within one year (2) (360) (444) Available credit line to be reimbursed within one year - (27) Available liquidity for the coming year 1,641 2,135 * Restated in accordance with IFRS, with the exception of IAS 32, IAS 39 and IFRS 5 applied from 1 April 2005. (1) At 31 March 2006, this amount includes 229 million of cash and cash equivalents held in countries subject to legal or statutory restrictions. Such restrictions can limit the use of such cash and cash equivalents by the parent company and the other Group s subsidiaries. (2) See Note 22 A. NOTE 29. EMPLOYEE BENEFIT EXPENSE AND NUMBER OF EMPLOYEES Year ended 31 March (in million except number of employees) 2006 2005 Total wages and salaries 2,668 2,723 Of which Executive Officers 8 6 Social charges 642 744 Pension benefit expense (see Note 21) 251 234 Share-based payments expense (see Note 30) 54 3 Total employee benefit expense 3,615 3,704 Staff of consolidated companies Managers, Engineers and professionals 22,548 23,691 Other employees 42,690 45,903 Approximate number of employees 65,238 69,594 The information above includes the Marine Sector. 102

Consolidated financial statements NOTE 30. SHARE-BASED PAYMENTS A. Detail of stock option plans Plan n 3 Plan n 5 Plan n 6 Plan n 7 Plan n 8 Date of shareholders meeting 24 July 2001 24 July 2001 24 July 2001 9 July 2004 9 July 2004 Grant date 24 July 2001 8 January 2002 7 January 2003 17 September 2004 27 September 2005 Exercise price (1) 1,320 523.60 240 17.20 35.75 Adjusted exercice price (2) 819.20 325.20 154.40 - - Beginning of exercise period 24 July 2002 8 January 2003 7 January 2004 17 September 2007 27 September 2008 Expiration date 23 July 2009 7 January 2010 6 January 2011 16 September 2014 26 September 2015 Number of beneficiaries 1,703 1,653 5 1,007 1,030 Number of options initially granted 105,000 105,000 30,500 2,783,000 1,401,500 Number of options exercised since the origin - - - - - Number of options cancelled 45,394 42,955-68,000 38,000 Adjusted number of remaining options at 31 March 2006 (2) 119,400 124,554 47,489 2,715,000 1,363,500 Number of shares that may be subscribed by the actual members of the Executive Committee 3,105 4,229 46,709 610,000 312,500 2 FINANCIAL INFORMATION (1) Subscription price, restated following the consolidation of shares, corresponding to the average opening price of the shares during the twenty trading days preceding the day on which the options were granted by the Board (no discount or surcharge) or the nominal value of the share when the average share price is lower. (2) Plans n 3, 5 and 6 have been adjusted in compliance with French law as a result of the completion of the operations which impacted the share capital in 2002, 2003 and August 2004. Stock option plans 3 to 6, granted between 2001 and 2003, gradually vest by one-third a year during the first three years following the grant. Stock option plans 7 and 8, granted between 2004 and 2005, become vested after a period of three years. The exercise period then covers seven years for each plan. Plan 7 is also subject to the following conditions of exercise: 50% of options granted to each beneficiary are subject to exercise conditions relating to the Group s free cash flow and operating margin for fiscal year 2006. The conditional options are exercised entirely only if, at the closing of fiscal year ended 31 March 2006, the Group s free cash flow is positive and the Group s operating margin is superior or equal to 5% (percentage applicable to free cash flow and operating margin under IFRS standards). Below these thresholds the options would be partially exercisable. They would be forfeited if the free cash flow is negative at more than 500 million or if the operating margin is below 5%. At 31 March 2006, these exercise conditions have been fulfilled. 103

Consolidated financial statements B. Detail of stock appreciation rights ( SARs ) plans SARs n 7 SARs n 8 Notional SARs Grant date 1 December 2004 18 November 2005 16 December 2005 Exercise price (1) 17.20 44.90 35.75 Vesting date 17 September 2007 27 September 2008 27 September 2008 Expiration date 1 April 2010 18 November 2015 1 April 2011 Number of beneficiaries 114 120 120 Number of SARs initially granted 233,000 116,000 116,000 Additional grants 6,000 - - Number of SARs exercised since the origin 2,000 - - Number of SARs cancelled 28,000 2,500 2,500 Number of remaining SARs at 31 March 2006 209,000 113,500 113,500 Terms and conditions of exercise Exercise period: SARs exercisable 1/3 of SARs settled 1 April 2008 as from automatically as from 1 April 2009 27 September 2008 1 April 2009 1 April 2010 1/3 of SARs settled automatically as from 1 April 2010 1/3 of SARs settled automatically as from 1 April 2011 (1) Subscription price, restated following the consolidation of shares, corresponding to the average opening price of the shares during the twenty trading days preceding the day on which the options were granted by the Board (no discount or surcharge) or the nominal value of the share when the average share price is lower. SARs plan 7 will be settled partially or fully to the extent vested as selected by the beneficiary on any of the following exercise dates: 1 April 2008, 1 April 2009 and 1 April 2010. In the absence of an effective election, on each of the exercise date, one third, one half and all of the outstanding beneficiary s vested SARs will be settled on each date respectively. One third of the participant s vested Notional SARs plan will be automatically settled on 1 April 2009, 1 April 2010 and 1 April 2011. C. Movements in stock option plans and stock appreciation rights plans Stock option plans Number of options Weighted average exercise price per share Outstanding at 1 April 2004 321,389 506.00 Granted 2,783,000 17.20 Exercised - - Cancelled (59,040) 286.80 Outstanding at 31 March 2005 3,045,349 63.60 Granted 1,401,500 35.75 Exercised - - Cancelled (76,906) 32.78 Outstanding at 31 March 2006 4,369,943 55.17 104

Consolidated financial statements SARs plans Number of SARs Weighted average exercise price per share Outstanding at 1 April 2004 - - Granted 239,000 17.20 Exercised - - Cancelled (5,000) 17.20 Outstanding at 31 March 2005 234,000 17.20 Granted 232,000 35.75 Exercised (2,000) 17.20 Cancelled (28,000) 21.15 Outstanding at 31 March 2006 436,000 29.24 D. Valuation of stock option plans In compliance with the transitional measures of IFRS 2 standard, only stock option plans granted after 7 November 2002 and not fully vested at 1 January 2005 are subject to a valuation, i.e. plans 6, 7 and 8 only. Employees expenses recorded in that respect amount to 10 million for the year ended 31 March 2006 ( 3 million for the year ended 31 March 2005). The option valuation method follows a binomial mathematical model, with exercise of the options anticipated and spread over the exercise period on a straight-line basis. The volatility factor applied is an average of CAC 40 comparable companies volatility at the grant date, which represents a value consistent with market practices and is considered more relevant given the significant volatility of the Group s share price over the last few years. 2 FINANCIAL INFORMATION Plan n 6 Plan n 7 Plan n 8 Grant date 7 January 2003 17 September 2004 27 September 2005 End of vesting period 7 January 2006 17 September 2007 27 September 2008 Expected life of options 4 years 4 years 4 years Exercise price ( ) 154.40 17.20 35.75 Share price at grant date ( ) 150.97 17.60 36.80 Volatility 51% 51% 34% Risk-free interest rate 3.2% 3.0% 2.5% Average dividend yield (%) 0% 0.67% 1.33% Weighted average fair value ( ) 63.76 7.32 10.33 Expense for the year ended 31 March 2006 (in million) 1 7 2 105

Consolidated financial statements E. Valuation of stock appreciation rights (SARs) plans The value of SARs plans is measured at the grant date using a binomial model taking into account the terms and conditions upon which the instruments were granted. The liability is recognised over the expected vesting period. Until the liability is settled, it is measured at each reporting date with changes in fair value recognised in profit and loss. Employees expenses recorded in that respect amount to 5 million for the year ended 31 March 2006 ( 0.3 million for the year ended 31 March 2005). At 31 March 2006, liabilities related to these three SARs plans are recorded in the balance sheet for an amount of 5 million. SARs n 7 SARs n 8 Notional SARs (1) Grant date 1 December 2004 18 November 2005 16 December 2005 End of vesting period 17 September 2007 27 September 2008 27 September 2008 Exercise price ( ) 17.20 44.90 35.75 Share price at 31 March 2006 ( ) 69.20 69.20 69.20 Volatility 34% 34% 34% Risk-free interest rate 3.4% 3.4% 3.4% Average dividend yield (%) 1.50% 1.33% 1.50% Weighted average fair value ( ) 50.67 30.22 5.74 Expense for the year ended 31 March 2006 (in million) 5 - - (1) SARs of the Notional plan have been granted at an exercise price of 35.75 and are capped to 44.90. F. Free shares On 17 November 2005, the Group announced the attribution of twelve free shares to all employees, or the equivalent in cash (SARs) depending on the conditions in each country. This attribution was subject to two conditions: a Group s operating margin of at least 5% and a positive free cash flow. These conditions have been fulfilled at 31 March 2006 and this attribution confirmed by the Board of Directors. For the year ended 31 March 2006, an expense of 40 million has therefore been recorded on the following basis: Grant date 17 November 2005 Share price at grant date ( ) 44.92 Share price at 31 March 2006 ( ) 69.20 Number of free shares to be granted 600,000 Number of free SARs to be granted 120,000 Expense for the year ended 31 March 2006 (in million): 40 Of which: Free shares 27 Free SARs 8 Social charges on free shares 4 Social charges on free SARs 1 At 31 March 2006, the portion to be settled in shares of 27 million has been recorded through equity. The remaining portion to be settled in cash and the social charges for the whole attribution of 13 million have been recorded in liabilities in the balance sheet. 106

Consolidated financial statements NOTE 31. RELATED PARTIES The consideration and related benefits of the CEO and Chairman of the Board of Directors amounts to 2.2 million for the year ended 31 March 2006 ( 1.6 million for the year ended 31 March 2005). The consideration and related benefits comprise a fixed and a variable portion, employer social security levies and charges related to retirement compensation and the complementary pension scheme. Directors fees amount to 342,500 for the year ended 31 March 2006 ( 326,250 for the year ended 31 March 2005) of which 0 for the CEO and Chairman of the Board of Directors for the year ended 31 March 2006 ( 52,500 for the year ended 31 March 2005). 2 NOTE 32. SUBSEQUENT EVENTS FINANCIAL INFORMATION On 26 April 2006, ALSTOM and Bouygues signed a memorandum of understanding for operational and commercial cooperation, which is to accompany the purchase by Bouygues of the 21.03% stake of the French State in ALSTOM. The purchase of shares by Bouygues, which is subject to merger control clearance by the European Commission and the closing of the ALSTOM Marine disposal, is expected to occur within a short period. Bouygues also intends to take a 50% equity share in ALSTOM's Hydro Power Equipment Business; the corresponding terms are under discussion. This operation would allow ALSTOM to fulfil the commitment made to the European Commission to set up a joint venture in this sector. 107

Consolidated financial statements NOTE 33. MAJOR COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION The major companies of the Group are listed below and selected according to one of the following criteria: holding companies, sales above 50 million at 31 March 2006. Consolidation Companies Country Ownership % Method ALSTOM SA France Parent company ALSTOM (Switzerland) Ltd Switzerland 100.0 Full consolidation ALSTOM Espana IB SL (holding) Spain 100.0 Full consolidation ALSTOM Gmbh (holding) Germany 100.0 Full consolidation ALSTOM Hydro Holding (1) France 100.0 Full consolidation ALSTOM Holdings France 100.0 Full consolidation ALSTOM Inc (holding) United States 100.0 Full consolidation ALSTOM Mexico SA de CV (holding) Mexico 100.0 Full consolidation ALSTOM NV (holding) Netherlands 100.0 Full consolidation ALSTOM Power Holdings SA France 100.0 Full consolidation ALSTOM Transport Holding (1) France 100.0 Full consolidation ALSTOM UK Holding Ltd United Kingdom 100.0 Full consolidation ALSTOM Australia Ltd Australia 100.0 Full consolidation ALSTOM Belgium SA Belgium 100.0 Full consolidation ALSTOM Brasil Ltda Brazil 100.0 Full consolidation ALSTOM Canada Inc Canada 100.0 Full consolidation ALSTOM Controls Ltd United Kingdom 100.0 Full consolidation ALSTOM Ferroviaria Spa (2) Italy 100.0 Full consolidation ALSTOM K.K. Japan 100.0 Full consolidation ALSTOM LHB GmbH Germany 100.0 Full consolidation ALSTOM Ltd (3) India 100.0 Full consolidation ALSTOM Ltd United Kingdom 100.0 Full consolidation ALSTOM NL Service Provision Ltd United Kingdom 100.0 Full consolidation ALSTOM Power Asia Pacific Sdn Bhd Malaysia 100.0 Full consolidation ALSTOM Power Boiler GmbH Germany 100.0 Full consolidation ALSTOM Power Centrales France 100.0 Full consolidation ALSTOM Power Conversion GmbH Germany 100.0 Full consolidation ALSTOM Power Energy Recovery GmbH Germany 100.0 Full consolidation ALSTOM Power Environment France 100.0 Full consolidation ALSTOM Power Generation AG Germany 100.0 Full consolidation ALSTOM Power Hydraulique France 100.0 Full consolidation ALSTOM Power Hydro France 100.0 Full consolidation ALSTOM Power Inc United States 100.0 Full consolidation ALSTOM Power Italia Spa Italy 100.0 Full consolidation ALSTOM Power Ltd Australia 100.0 Full consolidation ALSTOM Power Norway AS Norway 100.0 Full consolidation ALSTOM Power O&M AG Switzerland 100.0 Full consolidation ALSTOM Power SA Spain 100.0 Full consolidation ALSTOM Power Service GmbH Germany 100.0 Full consolidation ALSTOM Power Service Ltd United Arab Emirates 100.0 Full consolidation 108

Consolidated financial statements Consolidation Companies Country Ownership % Method ALSTOM Power Service France 100.0 Full consolidation ALSTOM Power Sp Zoo Poland 100.0 Full consolidation ALSTOM Power Sweden AB Sweden 100.0 Full consolidation ALSTOM Power (Thailand) Ltd Thailand 100.0 Full consolidation ALSTOM Power Turbomachines France 100.0 Full consolidation ALSTOM Projects India Ltd India 68.5 Full consolidation ALSTOM Signalling Inc. United States 100.0 Full consolidation ALSTOM Transport BV Netherlands 100.0 Full consolidation ALSTOM Transport SA France 100.0 Full consolidation ALSTOM Transport Systems SpA (2) Italy 100.0 Full consolidation ALSTOM Transportation Inc United States 100.0 Full consolidation ALSTOM Transporte Spain 100.0 Full consolidation APC Power Conversion GmbH (4) Germany 100.0 Full consolidation APC Power Conversion SAS (4) France 100.0 Full consolidation Chantiers de l Atlantique France 100.0 Full consolidation Eukorail South Korea 100.0 Full consolidation PT ALSTOM Power Energy Systems Indonesia 87.0 Full consolidation Tianjin ALSTOM Hydro Co Ltd China 99.0 Full consolidation West Coast Traincare United Kingdom 100.0 Full consolidation 2 FINANCIAL INFORMATION (1) Created during the year. (2) ALSTOM Transport Systems SpA merged into ALSTOM Ferrovaria SpA at 31 March 2006. (3) Sold during the year.. (4) Created and sold during the year. Companies included in the list of major companies at 31 March 2005 for which sales are below 50 million at 31 March 2006: ALSTOM Leroux Naval France 100.0 Full consolidation ALSTOM Power Boilers France 100.0 Full consolidation ALSTOM Power FlowSystems A/S Denmark 100.0 Full consolidation ALSTOM Power Conversion SA France 100.0 Full consolidation ALSTOM Power Conversion Inc United States 100.0 Full consolidation Companies included in the list of major companies at 31 March 2006 for which sales were below 50 million at 31 March 2005: ALSTOM Signalling Inc. United States 100.0 Full consolidation ALSTOM Power (Thailand) Ltd Thailand 100.0 Full consolidation ALSTOM Power Environment France 100.0 Full consolidation ALSTOM Transport Systems SpA Italy 100.0 Full consolidation Eukorail South Korea 100.0 Full consolidation PT ALSTOM Power Energy Systems Indonesia 87.0 Full consolidation Tianjin ALSTOM Hydro Co Ltd China 99.0 Full consolidation ALSTOM Power Turbomachines France 100.0 Full consolidation A list of all consolidated companies is available upon request at the head office of the Group. 109

Consolidated financial statements NOTE 34. FRENCH GAAP/IFRS RECONCILIATION This note describes the principles applied to prepare the IFRS opening balance sheet as at 1 April 2004, the transition date, as well as the differences compared with French generally accepted principles ( French GAAP ) applied in prior years and their impact on the 2004/05 opening and closing balance sheets and income statement. A. Background Following the coming into force of European Reporting Regulation n 1606/2002 as of 19 July 2002, consolidated financial statements of the Group for the year ended 31 March 2006 are prepared in accordance with International Financial Reporting Standards (IAS/IFRS) as approved by the European Union. These first published financial statements under IAS/IFRS standards are presented with comparative information related to the previous period converted to the same standards, except the IAS 32, IAS 39 and IFRS 5 standards which are applied from 1 April 2005. Therefore, the preparation of the 2005/06 IFRS consolidated financial statements includes the restatement from French GAAP to IFRS of: the balance sheet at the transition date (1 April 2004); the balance sheet as at 31 March 2005, the income statement, the cash flow statement and the changes in equity for the year ended 31 March 2005. The 2004/05 financial information on the financial impact of the transition to IFRS has been prepared by applying to 2004/05 French GAAP financial data the IAS/IFRS standards and interpretations applicable for the preparation of its comparative consolidated financial statements as at 31 March 2006. The basis of this preparation results from: IAS/IFRS standards and interpretations applicable for annual periods beginning on or prior to 1 April 2005; the options and exemptions that the Group has applied for the preparation of the 2005/06 consolidated financial statements. This information has been reviewed by the Board of Directors and the Audit Committee. B. Options taken at first-time adoption of IFRS at 1 April 2004 (transition date) The 2004/05 consolidated financial statements have been restated in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, based on the IAS/IFRS applicable for annual periods beginning on or prior to 1 April 2005. To prepare the opening IFRS balance sheet at 1 April 2004 and the restated consolidated financial statements for the year ended 31 March 2005, the Group has applied the following options/exemptions as authorised by IFRS 1: Employee benefits The Group has elected to adopt the complete retrospective application of IAS 19. The complete retrospective application has been made possible, due to the short existence of certain present pension plans: plans recently carved out from multi-employer schemes (mainly in the United Kingdom), plans included in recent business combinations (mainly acquisition of ABB ALSTOM POWER in 1999 and 2000). With the support of its actuaries, the Group has restated to IFRS the obligations and the related assets of all significant plans and split the cumulative actuarial gains and losses from the inception of the plans until 1 April 2004 into a recognised portion and an unrecognised portion. The Group has elected to maintain the corridor method already adopted under French GAAP which leaves a portion of actuarial gains or losses unrecognised: the corridor method is therefore used for the restatement of pension assets and accrued pension liabilities at the date of transition to IFRS (1 April 2004), as well as for their subsequent remeasurements at 31 March 2005. Business combinations The Group has elected not to apply IFRS 3 retrospectively to past business combinations prior to 1 April 2004. 110

Consolidated financial statements Financial instruments The Group has elected not to restate comparative information for IAS 32-39 standards. Comparative information does not comply with these standards in the first year of transition 2004-2005. Fair value or revaluation at deemed cost of property, plant and equipment net and other intangible assets net The Group has decided not to apply the exemption provided for in IFRS 1, allowing fair value of property, plant and equipment and other intangible assets to be used as their deemed cost in the IFRS opening balance sheet at 1 April 2004. Therefore, the option chosen by the Group has no impact on equity in the IFRS opening balance sheet at 1 April 2004. Cumulative translation differences The cumulative translation differences at 1 April 2004 have been set to zero through the consolidated reserves, leaving the shareholders equity unchanged. The gain or loss on a subsequent disposal of any foreign operation will therefore exclude translation differences that arose before 1 April 2004 and include later translation differences. Share-based payments The Group has elected to apply IFRS 2 standard from 1 April 2004 for all plans granted after 7 November 2002 and not fully vested at 1 January 2005. The IAS 32 and IAS 39 standards relating to financial instruments as well as the IFRS 5 standard relating to assets held for sale and discontinued operations have been applied from 1 April 2005. 2 FINANCIAL INFORMATION C. Description of the IFRS restatements and reclassifications The reconciliation of movements in equity between French GAAP and IFRS for the year ended 31 March 2005 is as follows: Conversion of Net profit ORA/TSDDRA year ended increase/ Dividends Cumulative At 1 April 31 March decrease paid translation At 31 March (in million) 2004 2005 in capital & other adjustments 2005 Shareholders' equity 29 (865) 2,044 - (26) 1,182 Minority interests 68 1-8 (3) 74 Equity French GAAP 97 (864) 2,044 8 (29) 1,256 Employee benefits 28 1 29 Capitalisation of development costs 151 13 164 Deferred tax liabilities on intangible assets (188) 12 (176) Amortisation of goodwill - 223 223 Finance leases and other (20) (12) 2 (30) Total IFRS restatements, net of tax effects (29) 237 - - 2 210 Equity IFRS 68 (627) 2,044 8 (27) 1,466 Shareholders' equity 2 (628) 2,044 4 (24) 1,398 Minority interests 66 1-4 (3) 68 A reconciliation between French GAAP and IFRS is presented at the end of the document on the following statements: balance sheets as at 1 April 2004 and 31 March 2005; income statement for the year ended 31 March 2005; cash flow statement for the year ended 31 March 2005. 111

Consolidated financial statements 1. IFRS restatements Leases - IAS 17 Under French GAAP, in accordance with an option given by the Accounting Principles and Règlement 99-02 of the Comité de Réglementation Comptable, the Group had elected not to capitalise finance lease arrangements and a long-term rental. Under IAS 17, finance leases, i.e. that transfer substantially all risks and rewards incidental to ownership of an asset, have to be recognised as assets and liabilities in the balance sheet. The finance leases of the Group have been capitalised in the balance sheet as follows: in property, plant and equipment, net for the finance leases, in other non-current assets, net for the long-term rental. Finance leases The capitalisation of finance leases has the following effects on the consolidated balance sheets: At 1 April At 31 March (in million) 2004 2005 Land 2 2 Buildings 267 266 Machinery and equipment 85 72 Tools, furniture, fixtures and others 65 85 Gross value 419 425 Land Buildings (52) (67) Machinery and equipment (31) (36) Tools, furniture, fixtures and others (40) (61) Accumulated depreciation (123) (164) Land 2 2 Buildings 215 199 Machinery and equipment 54 36 Tools, furniture, fixtures and others 25 24 Net value 296 261 Non-current financial debt (257) (230) Current financial debt (45) (38) Obligation under finance leases (302) (268) Net deferred tax 3 3 Impact on equity (3) (4) The financial component of rents related to finance leases, previously included in cost of sales ( 6 million as at 31 March 2005) and in administrative expenses ( 6 million as at 31 March 2005) under French GAAP, has been transferred to financial expenses under IFRS. The portion of rents remaining in cost of sales and administrative expenses under IFRS corresponds to the depreciation of the leased assets. 112

Consolidated financial statements Long-term rental Pursuant to a contract signed in 1995 with a major European metro operator, the Group has sold 103 trains and associated equipment to two leasing entities. These entities have entered into an agreement by which the Group leases back the trains and associated equipment from the lessors for a period of 30 years. The trains are made available for use by the metro operator for an initial period of 20 years, extendable at the option of the operator for a further ten-year period. The trains are being maintained and serviced by the Group. 2 The capitalisation of long-term rental has the following effects on the consolidated balance sheets: At 1 April At 31 March (in million) 2004 2005 Other non-current assets 683 650 Non-current financial debt (672) (637) Current financial debt (11) (13) Obligation under finance leases (683) (650) Impact on equity - - FINANCIAL INFORMATION Development costs IAS 38 Under French GAAP, the Group had elected to expense research and development costs as incurred. Under IFRS, in accordance with IAS 38 standard, development costs meeting the following criteria are capitalised: the project is clearly defined and its related costs are separately identified and reliably measured, the technical feasibility of the project is demonstrated, the intention exists to complete the project and to use or sell it, adequate financial resources are available to complete the project, it is probable that the future economic benefits attributable to the project will flow to the Group. Capitalised development costs are amortised on a straight-line basis over the estimated useful life of the development asset. In the IFRS opening balance sheet as at 1 April 2004, 315 million development costs net have been capitalised ( 368 million of cumulated development costs less 53 million of cumulative amortisation). As part of these costs ( 108 million) were previously recorded in work in progress, the impact on the opening equity amounts to 151 million after a deferred tax effect of 53 million attached to the capitalisation. In the year ended 31 March 2005, the capitalisation of development costs has a negative impact of 3 million on the income from operations and a positive impact of 13 million on the net income. The 16 million tax credit includes the reduction by 28 million of the deferred tax valuation allowance recorded under French GAAP as a result of the recognition for the same amount of a deferred tax liability on development costs capitalised. In the balance sheet as at 31 March 2005, 301 million development costs net have been capitalised ( 436 million of cumulated development costs less 135 million of cumulative amortisation and depreciation). As part of these costs ( 97 million) were previously recorded in work in progress, the impact on the equity as at 31 March 2005 amounts to 164 million after a deferred tax effect of 37 million attached to the capitalisation. Employee benefits IAS 19 According to IFRS 1, which governs the preparation of the balance sheet at the transition date, two alternative treatments of unrecognised actuarial gains or losses could be considered: immediate recognition in the balance sheet of all actuarial gains or losses related to pension benefits existing at the date of transition, measured according to IAS 19 (Employees benefits) or, complete retrospective application of IAS 19 since inception of all plans with cumulative amortisation of actuarial gains and losses, as if the standard had been applied in the previous years. The Group has elected to adopt the complete retrospective application of IAS 19. 113

Consolidated financial statements A limited number of discrepancies have been identified between IAS 19 and the valuation method used by the Group under French GAAP and the impact of the restatement of pension assets and accrued liabilities is marginal. The main differences relate to the following items: Measurement date: The measurement date for liabilities and dedicated plan assets is required at year-end date by IAS 19 while it was performed three months before year-end date under French GAAP. Asset ceiling: In case of overfunding, IAS 19 prescribes a limitation to pension assets to be recognised. Such limitation did not exist under French GAAP. Plan amendments and curtailments due to restructuring events: The treatment of impacts (immediate recognition or deferral) differs between IAS 19 and French GAAP. The impact on the equity position is the following: At 1 April 2004 (in million) French GAAP Restatement IFRS Pension assets 357 32 389 Accrued pensions and retirement benefits (842) (2) (844) Net pension liability (485) 30 (455) Other payables (18) 9 (9) Net deferred tax (11) Impact on equity 28 At 31 March 2005 (in million) French GAAP Restatement IFRS Pension assets 353 21 374 Accrued pensions and retirement benefits (826) 2 (824) Net pension liability (473) 23 (450) Other payables (9) 9 Net deferred tax (3) Impact on equity 29 114

Consolidated financial statements The net periodic cost under IFRS compared with the net periodic cost under French GAAP for the year ended 31 March 2005 is the following: (in million) French GAAP Variation IFRS Service cost (82) 2 (80) Interest cost (218) 1 (217) Expected return on plan assets 198 2 200 Amortisation of unrecognised past service cost - 5 5 Amortisation of actuarial net loss (gain) (55) (2) (57) Curtailments/Settlements 3 1 4 Net benefit expense (154) 9 (145) Multi-employer contributions (21) - (21) Total benefit expense (175) 9 (166) As a result, the total benefit expense under IFRS is broken down as follows in the consolidated income statement for the year ended 31 March 2005: (in million) Service cost (80) Multi-employer contributions (21) Income from operations (101) Amortisation of unrecognised past service cost 5 Amortisation of actuarial net (loss) gain (57) Curtailments/Settlements 4 Other income (expense) (48) Interest cost (217) Expected return on plan assets 200 Financial income (expense) (17) Total benefit expense (166) At 31 March 2005, the full pension disclosure under IFRS is as follows: Change in benefit obligations (in million) Benefit obligations at beginning of year (4,137) Service cost (80) Plan participants contributions (29) Interest cost (217) Plan amendments (5) Business combinations/disposals (17) Curtailments 17 Settlements 102 Actuarial loss (274) Benefits paid 283 Foreign currency translation 101 Benefit obligations at end of year (4,256) 2 FINANCIAL INFORMATION The impact on the income statement for the year ended 31 March 2005 is composed of the following: a remeasurement of the benefit expense according to the IAS 19 standard resulting in a positive impact of 2 million in the income from operations, a negative impact of 5 million on the pre-tax income; a reclassification of a portion of the benefit expense: under French GAAP, the total amount of the benefit expense was classified below operating income as other expense. Under IFRS, the service cost is included in the income from operations. The amortisation of actuarial net loss (gain) as well as unrecognised prior service cost and the impacts of curtailments and settlements remain recognised in other income (expenses). The financial elements of the benefit expense such as interest cost and asset returns are included in financial income (expenses). Change in plan assets (in million) Fair value of plan assets at beginning of year 2,800 Actual return on plan assets 286 Company contributions 99 Plan participant contributions 28 Business combinations/disposals 19 Settlements (115) Benefits paid (210) Foreign currency translation (80) Fair value of plan assets at end of year 2,827 Funded status of the plan (1,429) Unrecognised actuarial loss (gain) 1,009 Unrecognised past service cost (30) (Accrued) prepaid benefit cost (450) Of which: Accrued pensions and retirement benefits (824) Pension assets 374 115

Consolidated financial statements Amortisation of goodwill IFRS 3 Under French GAAP, the Group amortised goodwill on the straight-line basis over a period of twenty years in all Sectors. An impairment test is performed annually. In accordance with IFRS 3 standard, goodwill is no longer amortised. Cash-generating units to which goodwill has been allocated are tested for impairment annually or more frequently when there is an indication that the unit may be impaired. The impact of the cessation of the goodwill amortisation on the 2004/05 income statement and on the equity as at 31 March 2005 is positive by 223 million. Income taxes IAS 12 Changes in deferred taxes assets and liabilities result from both IAS 12 implementation and tax effects triggered by other IFRS restatements. (1) Under French GAAP, deferred tax liabilities were not raised on intangible assets which were recognised when accounting for a business combination and which were not able to be sold separately from the acquired entity. According to the IAS 12 standard, deferred tax liabilities are recognised on all intangible assets acquired in business combination. Therefore, a deferred tax liability has been recognised on the other intangible assets resulting from the allocation of the purchase price following the acquisition of ABB ALSTOM POWER, leading to an increase in the deferred tax liabilities of 176 million at 31 March 2005 ( 188 million at 1 April 2004). (2) The other tax effects mainly result from the following IFRS restatements: in accordance with IAS 38 Intangible assets, capitalisation of development costs led to the recognition of a net deferred tax liability of 37 million at 31 March 2005 ( 53 million at 1 April 2004). In the year ended 31 March 2005, the deferred tax liability recognised on the capitalised development costs in France ( 28 million) triggered a reduction of the same amount of the valuation allowance that was recorded under French GAAP; in accordance with IAS 19 Employee benefits, the restatement of the pension schemes following the application of the retrospective method led to the recognition of a net deferred tax liability of 3 million at 31 March 2005 ( 11 million at 1 April 2004). At 1 April At 31 March (in million) 2004 Variation 2005 Net deferred tax asset under French GAAP 1,531 (182) 1,349 Deferred tax on intangible assets (188) 12 (176) Capitalisation of development costs (53) 16 (37) Employee benefits (11) 8 (3) Other 10 5 15 Net deferred tax asset under IFRS 1,289 (141) 1,148 Under French GAAP, the Group was satisfied as to the recoverability of the deferred tax assets, net at 31 March 2005 and 1 April 2004. Under IFRS, the assessment remains unchanged. As under French GAAP, IAS 12 revised permits to offset deferred tax assets and liabilities if the entity has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority. Following the change in gross deferred tax assets and deferred tax liabilities, the tax netting was recalculated leading to the recognition of an additional netting of 228 million at 31 March 2005 ( 232 million at 1 April 2004). In accordance with IAS 1 Presentation of financial statements, all deferred tax assets and liabilities are reflected as non-current assets and non-current liabilities in the consolidated financial statement and are presented separately on the face of the balance sheet. 116

Consolidated financial statements Other IFRS restatements The other restatements mainly relate to the following: under French GAAP, start-up costs of certain activities and costs related to bonding programmes were recognised in fixed assets and deferred charges respectively, and amortised. Under IFRS, these costs are expensed as incurred, as they do not satisfy the definition and recognition criteria requested to be maintained in assets. Consequently, 24 million costs less 7 million related deferred taxes have been written off against the opening equity at 1 April 2004. In the balance sheet as at 31 March 2005, 38 million costs less 12 million related net deferred taxes have been written off against equity. The impact on the 2004/05 income statement is a decrease of 10 million on the net income; under French GAAP, no charge is recorded with respect to stock options. In accordance with IFRS 2 standard, stock option compensation should be accounted for. As the Group has elected not to adopt the full retrospective application option, IFRS 2 is only applicable to stock option plans granted after 7 November 2002 and not fully vested at 1 January 2005, i.e. plan 6 and plan 7 as well as any future plans. The impact on the 2004/05 income statement is a charge of 2 million in the income from operations. 2. IFRS reclassifications IAS 11 Construction contracts/ias 18 Revenue recognition Under IFRS, penalties are deducted from contract sales whereas they were recorded in cost of sales under French GAAP. This difference results in a 135 million reclassification in the income statement as at 31 March 2005 reducing sales and cost of sales by the same amount with no effect on either the opening equity as at 1 April 2004 or the income from operations in the year ended 31 March 2005. In accordance with IAS 11, the aggregate amount of costs incurred to date plus recognised margin less progress billings is determined on a contract-by-contract basis. If the amount is positive, it is included as an asset under Construction contracts in progress, assets. If the amount is negative, it is included as a liability under Construction contracts in progress, liabilities. Down payments received represent the amounts received from customers before work starts. Any subsequent payment requested from customers is recorded as progress billings. When a contract is completed, residual obligations are recorded in current provisions or in payables depending on the certainty of the timing and the amount. The application of this standard results in several reclassifications within current assets and liabilities as well as provisions with no impact on the net working capital. Other reclassifications The other reclassifications on the face of the balance sheet mainly relate to the following: in accordance with IAS 1 Presentation of financial statements, current and non-current assets and liabilities are presented separately. The application of this standard has therefore resulted in a breakdown of the provisions and financial debt between current and non-current. Provisions on contracts are considered as current whereas other provisions including restructuring provisions are considered as non-current. Financial debt with a maturity of less than one year is considered as current when the financial debt with maturity over one year is considered as non-current; in accordance with IAS 7 Cash flow statements, bank overdrafts, which are repayable on demand, form an integral part of the cash management and are therefore included as a component of cash and cash equivalent. Bank overdrafts have been reclassified from financial debt to cash and cash equivalents, resulting in a reduction of these two captions in the balance sheet at 1 April 2004 and 31 March 2005 by 78 million and 58 million, respectively. These reclassifications have no impact on the net financial debt. The other reclassifications on the face of income statement mainly relate to the following: in accordance with IAS 38 Intangible assets, the amortisation expense of other intangible assets, which was presented below operating income under French GAAP, has been reclassified in the income from operations for an amount of 59 million for the year ended 31 March 2005; in addition, certain costs relating to exiting and reorganising activities ( 23 million) as well as employee profit-sharing ( 8 million), which were classified below income from operations under French GAAP, have been reclassified within cost of sales under IFRS. 2 FINANCIAL INFORMATION 117

Consolidated financial statements 3. Changes in key indicators Reconciliation Operating income/income from operations for the year ended 31 March 2005 Under French GAAP, operating income (loss) included gross margin, administrative and selling expenses and research and development expenses. It was measured before restructuring costs, goodwill and amortisation of intangible assets, and other items including foreign exchange gains and losses, gains and losses on sale of assets, pension costs and employee profit-sharing and before taxes, interest income and expenses. Under IFRS, income (loss) from operations includes gross margin, administrative and selling expenses and research and development expenses. It includes, in particular, the service cost of pensions, cost of share-based payments transactions, employee profit-sharing, fair value changes of derivative instruments associated with operating transactions (from 1 April 2005) and capital gains (losses) on disposal of intangible and tangible assets arising from ordinary activities. For the year ended 31 March 2005, the reconciliation of the operating income under French GAAP with the income from operations under IFRS is as follows: (in million) Operating income French GAAP 550 Pension service cost and multi-employer contributions (103) Amortisation of intangible assets (59) Employee profit-sharing (8) Other (23) IFRS reclassifications (193) Operating income after IFRS reclassifications 357 Pension costs 2 Finance leases 12 Capitalisation of development costs (3) Share-based payments and other (1) IFRS restatements 10 Income from operations 367 118

Consolidated financial statements Reconciliation sales and income from operations by Sector for the year ended 31 March 2005 Year ended Power Turbo-Systems / Power Power Corporate 31 March (in million) Power Environment Service Transport Marine Conversion & Other 2005 Sales French GAAP 4,256 2,844 5,134 630 539 259 13,662 2 Sales IFRS 4,190 2,832 5,100 607 536 262 13,527 Operating income (French GAAP) (35) 473 260 (103) 36 (81) 550 Employee benefits (32) (41) (20) (1) (5) (2) (101) Amortisation of intangible assets (35) (24) (59) Capitalisation of development costs 21 (24) (3) Finance leases 1 5 4 1 1 12 Employee profit-sharing (5) (1) (2) (8) Other (22) 1 (2) (1) (24) IFRS impacts (72) (61) (42) - (6) (2) (183) Income from operations (IFRS) (107) 412 218 (103) 30 (83) 367 FINANCIAL INFORMATION 119

Consolidated financial statements Appendices to the French GAAP/IFRS reconciliation CONSOLIDATED BALANCE SHEET AT 1 APRIL 2004 At 1 April Finance Development 2004* leases costs (in million) French GAAP IAS 17 IAS 38 Assets Goodwill 3,424 Intangible assets, net 956 315 Property, plant and equipment, net 2,262 296 Investments in equity method investees and other investments, net 160 Other non-current assets, net 1,102 683 Deferred taxes 1,561 4 Total non-current assets 9,465 983 315 Inventories, net 2,997 (108) Construction contracts in progress, assets 0 Trade receivables, net 3,462 Other current assets, net 2,160 Short-term investments 39 Cash and cash equivalents 1,427 Total current assets 10,085 0 (108) Total assets 19,550 983 207 Liabilities Shareholders equity and minority interests 97 (3) 151 Bonds reimbursable with shares 152 Non-current provisions 3,484 Accrued pension and retirement benefits 842 Non-current financial debt 5,199 929 Deferred taxes 30 1 53 Total non-current liabilities 9,555 930 53 Current provisions 0 Current financial debt 0 56 Customers deposits and advances 2,714 Construction contracts in progress, liabilities 0 Trade payables 3,130 Other current liabilities 3,902 3 Total current liabilities 9,746 56 3 Total liabilities 19,550 983 207 * Amended opening balance sheet at 1 April 2004 pursuant to the first application of the Règlement CRC 2004-03. 120

Consolidated financial statements 2 Employee Income Construction At 1 April benefits taxes Other IFRS contracts Other IFRS 2004 IAS 19 IAS 12 restatements restatements IAS 11 reclassifications reclassifications IFRS 0 0 3,424 315 13 13 1,284 (18) 278 (13) (13) 2,527 0 0 160 32 715 0 1,817 24 (232) 7 (197) 0 1 364 FINANCIAL INFORMATION 56 (232) (11) 1,111 0 0 0 10,576 (108) (1,153) (1,153) 1,736 0 3,394 3,394 3,394 0 (850) (850) 2,612 (6) (6) (222) 39 (183) 1,971 0 (39) (39) 0 0 (78) (78) 1,349 0 0 (6) (114) 1,169 (78) 1,091 11,062 56 (232) (17) 997 1,169 (78) 1,091 21,638 28 (188) (17) (29) 0 68 0 0 152 0 (875) (1,821) (2,696) 788 2 2 0 844 929 (543) (543) 5,585 35 (44) 45 0 75 37 (44) 0 976 (875) (2,364) (3,239) 7,292 0 1,821 1,821 1,821 56 465 465 521 0 (2,714) (2,714) 0 0 6,193 6,193 6,193 0 686 686 3,816 (9) (6) (2,121) (2,121) 1,775 (9) 0 0 50 2,044 2,286 4,330 14,126 56 (232) (17) 997 1,169 (78) 1,091 21,638 121

Consolidated financial statements CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2005 Year ended Finance Development Employee 31 March 2005 leases costs benefits (in million) French GAAP IAS 17 IAS 38 IAS 19 Sales 13,662 Cost of sales (11,601) 6 8 2 Selling expenses (545) Research and development expenses (336) (11) Administrative expenses (630) 6 Income from operations 550 12 (3) 2 Other income (expense), net (583) (10) Other intangible assets amortisation (59) Earnings (loss) before interest and taxes (92) 12 (3) (8) Financial income (expense), net (346) (13) 3 Pre-tax income (loss) (438) (1) (3) (5) Income tax (charge) credit (203) 16 6 Goodwill amortisation (223) Net profit (loss) (864) (1) 13 1 Attributable to: - Group share (865) (1) 13 1 - Minority interests 1 122

Consolidated financial statements 2 Year ended Amortisation Income Employee Construction 31 March of goodwill taxes Other IFRS benefits contracts Other IFRS 2005 IFRS 3 IAS 12 restatements restatements IAS 19 IAS 11 reclassifications reclassifications IFRS 0 (135) (135) 13,527 (2) 14 (87) 135 (27) 21 (11,566) 0 (3) (3) (548) (11) (61) (61) (408) 6 (13) (1) (14) (638) 0 0 (2) 9 (103) 0 (89) (192) 367 7 (3) 123 30 153 (433) 0 59 59 0 0 0 5 6 20 0 0 20 (66) (22) (32) (20) (20) (398) 0 0 (17) (26) 0 0 0 0 (464) 12 6 40 0 (163) 223 223 0 0 223 12 (11) 237 0 0 0 0 (627) FINANCIAL INFORMATION 223 12 (11) 237 (628) 1 123

Consolidated financial statements CONSOLIDATED BALANCE SHEET AT 31 MARCH 2005 At 31 March Finance Development 2005 leases costs (in million) French GAAP IAS 17 IAS 38 Assets Goodwill 3,194 Other intangible assets, net 909 301 Property, plant and equipment, net 1,468 261 Investments in equity method investees and other investments, net 118 Other non-current assets, net 1,264 650 Deferred taxes 1,370 4 28 Total non-current assets 8,323 915 329 Inventories, net 2,760 (97) Construction contracts in progress, assets 0 Trade receivables, net 3,446 Other current assets, net 1,661 Short-term investments 15 Cash and cash equivalents 1,462 Total current assets 9,344 0 (97) Total assets 17,667 915 232 Liabilities Shareholders equity and minority interests 1,256 (4) 164 Bonds reimbursable with shares 133 Non-current provisions 3,156 Accrued pension and retirement benefits 826 Non-current financial debt 2,907 867 Deferred taxes 21 1 65 Total non-current liabilities 6,910 868 65 Current provisions 0 Current financial debt 0 51 Customers' deposits and advances 3,150 Construction contracts in progress, liabilities 0 Trade payables 2,992 Other current liabilities 3,226 3 Total current liabilities 9,368 51 3 Total liabilities 17,667 915 232 124

Consolidated financial statements At Employee Amortisation of Income Construction 31 March benefits goodwill taxes Other IFRS contracts Other IFRS 2005 IAS 19 IFRS 3 IAS 12 restatements restatements IAS 11 reclassifications reclassifications IFRS 2 223 223 0 3,417 301 12 12 1,222 (10) 251 (12) (12) 1,707 0 0 118 21 671 0 1,935 20 (228) 13 (163) 0 1,207 41 223 (228) 3 1,283 0 0 0 9,606 (97) (1,009) (1,009) 1,654 0 2,601 2,601 2,601 0 (1,054) (1,054) 2,392 (28) (28) (224) 15 (209) 1,424 0 (15) (15) 0 0 (58) (58) 1,404 FINANCIAL INFORMATION 0 0 0 (28) (125) 314 (58) 256 9,475 41 223 (228) (25) 1,158 314 (58) 256 19,081 29 223 (176) (26) 210 0 1,466 0 0 133 0 (834) (1,642) (2,476) 680 (2) (2) 0 824 867 (493) (493) 3,281 23 (52) 1 38 0 59 21 0 (52) 1 903 (834) (2,135) (2,969) 4,844 0 1,642 1,642 1,642 51 435 435 486 0 (3,150) (3,150) 0 0 5,484 5,484 5,484 0 445 445 3,437 (9) (6) (1,631) (1,631) 1,589 (9) 0 0 0 45 1,148 2,077 3,225 12,638 41 223 (228) (25) 1,158 314 (58) 256 19,081 125

Consolidated financial statements CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2005 Year ended 31 March 2005 Impact (in million) French GAAP opening* Net profit (loss) - Group share (865) Minority interests 1 Depreciation and amortisation 639 Changes in pension assets and accrued pension/retirement benefits and pension assets, net 0 Net (gain) loss on disposal of fixed assets and investments (51) Share in net income (loss) of equity investees (net of dividends received) 0 Changes in deferred tax 185 Net income after elimination of non-cash items (91) Changes in net working capital (36) Net cash provided by (used in) operating activities (127) 0 Proceeds from disposals of property, plant and equipment 52 Capital expenditure (182) Decrease (increase) in other non-current assets (372) Cash expenditure for acquisition of investments, net of net cash acquired 0 Cash proceeds from sale of investments, net of net cash sold 928 Net cash provided by (used in) investing activities 426 0 Capital increase 2,022 Issuance (conversion) of bonds reimbursable with shares (19) Dividends paid including minorities (5) Net cash provided by (used in) financing activities 1,998 0 Net effect of exchange rate 48 Net effect of new accounting pronouncement (827) 827 Other changes (42) Decrease (increase) in net debt 1,476 827 Net debt at the beginning of the period (2,906) (1,812) Net debt at the end of the period (1,430) (985) Cash paid for income taxes 92 Cash paid for net interest 204 * Impact at 1 April 2004 of the consolidation of SPEs under French GAAP ( 827 million) and the obligations under finance leases ( 985 million). 126

Consolidated financial statements 2 Year ended Finance Development Employee Amortisation of Income 31 March leases costs benefits goodwill taxes 2005 IAS 17 IAS 38 IAS 19 IFRS 3 IAS 12 Other IFRS (1) 13 1 223 12 (11) (628) 1 48 83 (223) 547 5 5 (51) 0 (16) (6) (12) (6) 145 47 80 0 0 0 (17) 19 (10) 17 (29) 47 70 0 0 0 0 (10) 52 (13) (70) (265) 10 (362) 0 928 (3) (70) 0 0 0 0 353 2,022 (19) (5) 0 0 0 0 0 0 1,998 23 71 0 (42) 67 0 0 0 0 0 2,370 (4,718) 67 0 0 0 0 0 (2,348) 92 204 FINANCIAL INFORMATION 127

Consolidated financial statements Auditors report on the consolidated financial statements Year ended 31 March 2006 This is a free translation into English of the auditors report signed and issued in the French language and is provided solely for the convenience of English speaking readers. Accounting principles and auditing standards and their application in practice vary from one country to another. The accompanying consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted other than IFRS as endorsed by the European Union. In addition, the procedures and practices followed by the auditors in France with respect to such consolidated financial statements included in a prospectus may differ from those generally accepted and applied by auditors in other countries. Accordingly, the French consolidated financial statements and the auditor s report, of which a translation is presented in this document for convenience only, are for use by those knowledgeable about IFRS accounting procedures, French auditing standards and their application in practice. The auditors report includes for the information of the reader, as required under French law in any auditor s report, whether qualified or not, an explanatory paragraph separate from and presented below the audit opinion discussing the auditors assessment of certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the consolidated financial statements taken as a whole and not to provide separate assurance on individual account caption or on information taken outside of the consolidated financial statements. Such report should be read in conjunction and construed in accordance with French law and French auditing professional standards. To the Shareholders of ALSTOM, > I. Opinion on the consolidated financial statements In accordance with our appointment as auditors by your Annual General Meeting, we hereby report to you, for the year ended 31 March 2006 on the audit of the accompanying consolidated financial statements of ALSTOM. The consolidated financial statements have been closed by your Board of Directors. Our role is to express an opinion on these financial statements based on our audit. These financial statements have been prepared for the first time in accordance with IFRSs as adopted by the European Union. They include comparative information restated in accordance with the same standards in respect of financial year 2004/2005, except for standards IAS 32 and IAS 39 which, in conformity with the option of IFRS 1, have been applied as from 1 April 2005. We conducted our audit in accordance with professional standards applicable in France. Those standards require that we plan and perform our 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 statement presentation. We believe that our audit provides a reasonable basis for our opinion as expressed below. In our opinion, the consolidated financial statements give a true and fair view of the financial position and the assets and liabilities of the Group as at 31 March 2006 and the results of its operations for the year then ended in accordance with IFRS as adopted by the European Union. 128

Consolidated financial statements > II. Justification of our assessments In accordance with the requirements of Article L. 823-9 of the French Commercial Code relating to the justification of our assessments, we bring to your attention the following matters: II.1. As indicated in Note 12 of the consolidated financial statements, ALSTOM has requested a third party valuer to review the value of goodwill by using the discounted cash flows methodology, the cash flows being derived from the strategic plans prepared by all Sectors and approved by the management of the Group. We have examined the report prepared by the third party valuer which describes the assumptions made, the tests performed and the valuations which justify the fact that goodwill is not impaired as at 31 March 2006. In addition, we have compared the data used by the valuer with the forecasts prepared by ALSTOM. II.2. As indicated in Note 9, ALSTOM recorded as at 31 March 2006 net deferred tax assets of 1,210 million resulting from tax losses carried forward and other timing differences and supported by the capacity of the Group to generate sufficient taxable income. We have examined the assumptions used by ALSTOM, which support the recognition of deferred tax assets in the Group s consolidated balance sheet. II.3. ALSTOM records provisions for retirement, termination and post-retirement benefit obligations according to the principles described in Note 21 and in Note 34 B which lead to the recognition in the consolidated income statements of the costs related to those obligations during the working life of the employees, in conformity with IAS 19 and its retrospective application according to IFRS 1. As at 31 March 2006, the application of this method generates a partial recognition of these total obligations due to unrecognised actuarial losses amounting to 1,050 million. Most of these obligations have been subject to external actuarial valuations that we have examined. II.4. As described in Notes 3 B, 3 C, 20, 26, and 27 of the consolidated financial statements, ALSTOM makes significant estimates, notably when determining the margin at completion on each contract, determined on the basis of the latest information available. Those estimates are reflected in the balance sheet under Construction contracts in progress, assets, Construction contracts in progress, liabilities and for contracts completed in Current provisions. We have examined the processes used by ALSTOM in this respect and have considered the data and assumptions on which these estimates are based. All the points mentioned in the paragraphs above are based on forecasts which are, by nature, uncertain and that the final outcome can, as a consequence, materially differ from the initial forecasts. The assessments were made in the context of our audit of the consolidated financial statements as at 31 March 2006, taken as a whole, and therefore contributed to the formation of the opinion expressed in the first part of this report. > III. Specific procedures We have also performed procedures in accordance with the professional standards applicable in France on the information given in the Group management report of the Board of Directors. We have no comment to make as to the fair presentation of this information, nor its consistency with the consolidated financial statements. Neuilly-sur-Seine, 17 May 2006 DELOITTE & ASSOCIES Dominique Descours The auditors BARBIER FRINAULT & AUTRES ERNST & YOUNG Gilles Puissochet 2 FINANCIAL INFORMATION 129

Consolidated financial statements Report of the auditors on the profit forecasts This is a free translation into English of the auditors reports signed and issued in the French language and is provided solely for the convenience of English speaking readers. Such report should be read in conjunction and construed in accordance with French law and French auditing professional standards. To the Chairman of the Board, In our capacity as auditors of ALSTOM ( the Company ) and in accordance with EU Regulation N 809/2004, we hereby report on the profit forecasts for the Company, which are included in Section 1 Management discussion and analysis on consolidated financial statements as at 31 March 2006 of its "Document de Référence" dated 2 June 2006. In accordance with the requirements of EU Regulation 809/2004 and relevant CESR guidance, management is responsible for the preparation of these forecasts together with the material assumptions on which they are based. It should be noted that actual profits are likely to differ from the profit forecasts since anticipated events frequently do not occur as expected and the variations could be material. Consequently, we do not express any opinion on the possibility that such events will occur. In our opinion: the profit forecasts have been properly prepared on the basis stated; the basis of accounting applied in the preparation of these profit forecasts is consistent with the accounting policies used by the Company for the preparation of the consolidated financial statements as at 31 March 2006. It is our responsibility to provide an opinion on these forecasts, in terms defined by Appendix 1, Paragraph 13.3 of EU Regulation N 809/2004. We conducted our work in accordance with French professional standards. This work consisted in assessing the procedures implemented by management for the preparation of the profit forecasts and performing such procedures as to enable us to assess whether the basis of accounting applied are consistent with the accounting policies used for the preparation of the Company s consolidated financial statements. Our work also consisted in collecting information and making the necessary enquiries in order to obtain reasonable assurance that the profit forecasts have been properly prepared on the basis of the assumptions stated. This report is intended for the sole purpose of the registration of the "Document de Référence" with the French Stock Exchange Regulatory Body (AMF), and may not be used for any other purpose. DELOITTE & ASSOCIÉS Dominique Descours Neuilly-sur-Seine, 2 June 2006 The auditors BARBIER FRINAULT & AUTRES ERNST & YOUNG Gilles Puissochet 130

Statutory accounts STATUTORY ACCOUNTS Income Statement 2 Year ended 31 March (in million) Note 2006 2005 2004 Total sales - - Reversal of provisions and valuation allowances 1.1 2.0 - Other operating income 63.0 59.7 68.5 Total operating income (I) 64.1 61.7 68.5 Other supplies purchased and external expenses 34.6 37.7 73.9 Taxes and duties 0.4 2.7 0.4 Addition in provisions and valuation allowances 2.5 2.0 2.6 Other operating expenses 0.4 0.3 0.4 FINANCIAL INFORMATION Total operating expenses (II) 37.9 42.7 77.3 Net operating income (loss) (I - II) 26.2 19.0 (8.8) Dividends - - - Reversal of provisions and valuation allowances 6,198.0 2,420.2 - Interest income and related income 195.6 261.4 330.0 Foreign exchange gains - - 0.1 Total financial income (III) 6,393.6 2,681.6 330.1 Addition in provisions and valuation allowances 45.6 2,270.8 1,445.3 Interest expenses and related expenses 144.7 190.4 282.1 Foreign exchange losses 0.1-0.1 Total financial expenses (IV) 190.4 2,461.2 1,727.5 Net financial income (loss) (III - IV) 6,203.2 220.4 (1,397.4) Current income (loss) (I - II + III - IV) (1) 6,229.4 239.4 (1,406.2) Net exceptional income (loss) (V) (2) 132.8 (145.9) 28.5 Income tax (VI) (3) 35.8 10.1 (36.6) Total income (I + III + V) 6,590.5 2,597.4 427.1 Total expenses (II + IV + VI) 192.5 2,514.0 (1,768.2) Net profit (loss) 6,398.0 83.4 (1,341.1) 131

Statutory accounts Balance Sheet Net value at 31 March (in million) Note 2006 2005 2004 Assets Fixed assets Intangible fixed assets (1) 7.2 9.5 7.2 Financial assets (2) Investments (net) 6,608.6 410.6 0.0 Advances to subsidiary (net) 4,270.4 4,326.3 3,674.4 Total fixed assets (I) 10,886.2 4,746.4 3,681.6 Current assets Other receivables (3) 31.6 5.2 50.2 Cash - 8.1 - Deferred charges (4) 51.5 96.3 80.0 Total current assets (II) 83.1 109.6 130.2 Total assets (I + II) 10,969.3 4,856.0 3,811.8 132

Statutory accounts 2 Net value at 31 March (in million) Note 2006 2005 2004 Shareholders equity, provisions and liabilities Shareholders equity Share capital (5) 1,934.4 1,924.0 1,320.8 Capital surplus 267.2 245.0 55.2 Legal reserves - - - Retained earnings (31.8) (115.0) (4.0) Net profit (loss) 6,398.0 83.4 (1,341.1) FINANCIAL INFORMATION Net shareholders equity (I) 8,567.8 2,137.4 30.9 Other shareholders equity Bonds reimbursable with shares (6) 100.0 135.9 153.2 Total other shareholders equity (II) 100.0 135.9 153.2 Provision for risks and charges Provision for risks and charges (7) 35.4 167.8 1.9 Total provision (III) 35.4 167.8 1.9 Liabilities (8) (9) Bonds issued 2,240.6 1,240.3 672.1 Borrowings 5.3 1,122.1 2,920.6 Trade payables 14.9 32.3 32.6 Tax, social security debts 0.3 0.5 0.5 Other payables and accrued expenses 5.0 19.7 - Total liabilities (IV) 2,266.1 2,414.9 3,625.8 Total shareholders equity, provisions and liabilities (I + II + III + IV) 10,969.3 4,856.0 3,811.8 133

Statutory accounts Notes to the financial statements NOTE 1. BASIS OF PREPARATION ALSTOM (the Company), the parent company of ALSTOM Group, is a société anonyme organised under the laws of France and prepares its financial statements using accounting principles generally accepted in France: going concern; cut-off between accounting periods; and, consistency of accounting methods. NOTE 2. SUMMARY OF ACCOUNTING POLICIES A. Summary of accounting policies The accounts as of 31 March 2006 have been prepared in accordance with the provisions of the following body of rules applicable in France: the Parliament Act dated 30 April 1983 and its relating Decree dated 29 November 1983; the 1999 French Chart of Accounts as described by the Regulation 1999-03 issued by the Comité de la Réglementation Comptable (CRC) and completed by other subsequent regulations which amend the Chart of Accounts. For the first time, accounts have been prepared using the below French regulations applicable to annual periods beginning on or after 1 January 2005: CRC n 2002-10 and 2003-07 related to depreciation and impairment of assets; and CRC n 2004-06 related to the definition, recognition and measurement of assets. The application of these new rules constitutes a change in accounting principles, and has no impact on the 1 April 2005 opening net equity. The Company has also elected to recognise post-employment benefits according to the French Conseil National de la Comptabilité (CNC) recommendation 2003-R-01. This change in accounting principles has a negative impact on the 1 April 2005 opening net equity of 184,408. B. Investments and advances Investments are recorded at direct acquisition cost. Transaction costs, if any, are recorded as expenses. When the recoverable value of the investment is lower than the book value, an allowance is made to cover the difference. The year-end valuation is made on the basis of current use value defined as the value of the investment to the Company employing a number of valuation methods, including return on assets, fair value and other methods, as appropriate. C. Capital increase Share capital is recorded at the nominal share price. If a difference exists with the effective cash received, this difference is recorded in Capital surplus line (shares premium minus costs). In the absence of share premium, costs are recorded as intangible fixed assets which are amortised over a period of five years. D. Provisions Provisions are raised according to provisions of the CRC regulation 2000-06 and include post-employment benefits. E. Borrowings Borrowings are recorded at the nominal value. Borrowings costs are recorded as expenses to be amortised over the duration of the borrowings (limited to five years maximum). F. Exchange operations There were no specific foreign exchange operations during fiscal year 2005-2006 other than in the ordinary course of business. 134

Statutory accounts G. Financial instrument Financial instruments (swaps) are used to cover interest rate risks on bonds. H. Tax consolidation The Company is the leader of a French tax group. Each company calculates its income tax charge on the basis of its own tax results for the year. The recommendation n 2005-G dated 12 October 2005 of the French Comité d Urgence du Conseil National de la Comptabilité, which cancelled and replaced the recommendation n 2005-B dated 2 March 2005, is applied by the Company. 2 NOTE 3. MAIN EVENTS A 6.2 billion reversal of an impairment loss recognised in previous financial years for ALSTOM Holdings, has been recorded. FINANCIAL INFORMATION NOTE 4. SUBSEQUENT EVENTS On 26 April 2006, ALSTOM and Bouygues signed a memorandum of understanding for operational and commercial cooperation which is to accompany the purchase by Bouygues of the 21.03% stake of the French State in ALSTOM. The purchase of shares by Bouygues, which is subject to merger control clearance by the European Commission and the closing of the ALSTOM Marine disposal, is expected to occur within a short period. Bouygues also intends to take a 50% equity share in ALSTOM s Hydro Power Equipment Business; the corresponding terms are under discussion. This operation would allow ALSTOM to fulfil the commitment made to the European Commission to set up a joint venture in this sector. 135

Statutory accounts Notes to the income statement The net profit of the year ended 31 March 2006 amounted to 6,398.0 million. NOTE 1. CURRENT INCOME A. Net operating income Operating income is mainly represented by 62.6 million management fees invoiced to the companies of the ALSTOM Group for the use of the ALSTOM name. Operating expenses are made up with management fees invoiced by ALSTOM Holdings and other current purchases and expenses amounting to 36.4 million. The gross remuneration of the Chairman and Chief Executive Officer ( 1,251,324 for the financial year ended 31 March 2006) and Directors fees ( 342,500) are included in operating expenses. B. Net financial income The net financial income amounts to 6,203.2 million and includes: 195.6 million interest income out of which 187.4 million from ALSTOM Holdings; 6,198.0 million reversal of valuation allowance on ALSTOM Holdings investments; 99.1 million interest expenses on bonds and borrowings; and 45.6 million on amortisation of premiums and transaction costs related to bonds and borrowings. NOTE 2. EXCEPTIONAL INCOME The 132.8 million exceptional income is the net effect of the 167.8 million reversal of the provision related to tax group savings (see Notes to the financial statements Note 2 H) and a 35.0 million addition in provisions for risks and charges. NOTE 3. INCOME TAX ALSTOM is the leader of a French tax group. The tax credit of 35.8 million is made up as follows: 18.2 million profit from the current year tax grouping; 1.9 million loss from withholding taxes; and 19.5 million profit from prior-year tax credits. In absence of tax grouping, ALSTOM would have paid an income tax amounting to 10.8 million. 136

Statutory accounts Notes to the balance sheet NOTE 1. INTANGIBLE FIXED ASSETS At 31 March Acquisitions/ Valuation At 31 March (in million) 2005 disposals allowance 2006 Trademark registration fees 2 Gross value 1.7 1.7 Valuation allowance - - Net value 1.7 1.7 Costs related to capital increase Gross value 11.2 11.2 Valuation allowance (3.4) (2.3) (5.7) Net value 7.8 (2.3) 5.5 FINANCIAL INFORMATION Total intangible fixed assets 9.5 (2.3) 7.2 Costs related to capital increases made at the nominal share price are amortised over a period of five years. Amortisation is recorded within operating expenses. NOTE 2. FINANCIAL ASSETS ALSTOM Holdings is the only subsidiary of ALSTOM. It owns all operating entities of the Group. Gross financial assets include the shares of ALSTOM Holdings for 9,216.5 million and ALSTOM Holdings advances for 4,270.4 million, including 17.1 million as accrued interests. The cumulated allowance on investments recorded during the previous years amounted to 8,805.9 million. At 31 March 2006, the Group requested a third party valuer to provide an independent report as part of the valuation of shares owned by ALSTOM. The valuation was determined primarily by focusing on the discounted cash flow methodology which captured the potential of the asset base to generate future profits and cash flow and was based on the following factors: the Group s internal three-year Business Plan prepared as part of its annual budget exercise at Sector level and reviewed by external experts; extrapolation of the three-year Business Plan by up to 10 years; and the Group s Weighted Average Cost of Capital, post-tax, of 8.5% reflecting the different risks profiles of each Sector of the Group. The valuation was also determined taking into account the consolidated financial debt and other assets and liabilities which were not recognised through the above discounted cash flows. The valuation supports ALSTOM s opinion that the valuation allowance needs to be reduced by 6,198 million. 137

Statutory accounts At 31 March Valuation Other At 31 March (in million) 2005 allowance movements 2006 Investments Gross value 9,216.5 9,216.5 Valuation allowance (8,805.9) 6,198.0 (2,607.9) Net value 410.6 6,198.0 6,608.6 Advances to ALSTOM Holdings Gross value 4,326.3 (55.9) 4,270.4 Valuation allowance - - Net value 4,326.3 (55.9) 4,270.4 NOTE 3. OTHER RECEIVABLES Other receivables are due within one year: At 31 March Out of which (in million) 2006 2006 affiliated corporations Trade receivables - - Other receivables 31.6 6.8 Total 31.6 6.8 Significant amounts in Other receivables correspond to: 22.9 million due from French State for Research tax credit ; and 5.3 million due by French entities members of the tax group. NOTE 4. DEFERRED CHARGES Amortisation Net value at (in million) during the year 31 March 2006 Deferred charges to be amortised Transaction costs and premiums related to: - Bonds and borrowings issued in prior periods 44.0 34.2 - Bonds reimbursable with shares 0.6 1.9 - Bonds issued during the current period 1.0 10.0 Prepaid expenses Insurance 3.3 Other 2.1 Total 51.5 27.3 million have been written-off during the year following the anticipated reimbursement of syndicated loans. The amortisation charge for the year ended March 2007 is estimated to 12.4 million. 138

Statutory accounts NOTE 5. SHAREHOLDERS EQUITY Share Capital As of 31 March 2005, ALSTOM s share capital amounted to 1,924,023,993.15 consisting of 5,497,211,409 shares of the same class and fully paid, with a nominal value of 0.35 per share. As of 31 March 2006, ALSTOM s share capital amounts to 1,934,390,864 consisting of 138,170,776 shares of the same class and fully paid of 14 par value each, following the operations described below: the reimbursement in shares, before the consolidation of the shares comprising the share capital described below, of 310,780 subordinated bonds 2% December 2008 redeemable in Company s shares ( ORA ), which resulted in the issue of 390,311 shares of 0.35 par value each; the consolidation of the 5,497,601,720 shares of 0.35 par value each comprising the share capital into 137,440,043 shares of 14 per value each, by delivering one new share of 14 par value each for each 40 shares of 0.35 par value each. The consolidation was implemented on 3 August 2005; and the reimbursement in shares of 23,262,801 ORA since the consolidation, when 730,733 shares of 14 par value each were issued. 2 FINANCIAL INFORMATION Number Par value Existing shares at beginning of year 5,497,211,409 0.35 Shares issued - Capital increase - - Reimbursement of bonds 390,311 0.35 Consolidation of the shares (1 new share for 40 old shares) (5,360,161,677) Existing shares after consolidation 137,440,043 14.00 Shares issues - Capital increase - - Reimbursement of bonds 730,733 14.00 Existing shares at year-end 138,170,776 14.00 Changes in shareholders equity Shareholders At 31 March meeting held Other At 31 March (in million) 2005 12 July 2005 entries 2006 Capital 1,924.0 10.4 1,934.4 Capital surplus 245.0 22.2 267.2 Legal reserves - - Retained earnings (115.0) 83.4 (0.2) (31.8) Net profit 83.4 (83.4) 6,398.0 6,398.0 Net equity 2,137.4-6,430.4 8,567.8 Other entries relate to: the equity increase, net of transaction costs, resulting from the conversion of bonds reimbursable with shares of 32.6 million; the net profit of the period of 6,398.0 million; and the 0.2 million negative impact due to the first application of the CNC recommendation related to post-employment benefits (see Note 2 A). No dividend has been distributed for this fiscal year. 139

Statutory accounts NOTE 6. BONDS REIMBURSABLE WITH SHARES 643,795,472 bonds reimbursable with shares were created in December 2003 having a nominal value of 1.40. Interest rate is 2%. As of 31 March 2006, 572,750,138 bonds were converted into 550,927,752 shares having a par value of 0.35 before the consolidation of shares and into 730,733 shares having a par value of 14 after the consolidation of shares. Share premium minus costs are recorded as capital surplus. Bonds reimbursable with shares amount to 100.0 million: 99.4 million corresponding to 71,045,334 bonds having a par value of 1.40; and 0.6 million as accrued interests payable as of December 31, 2006. NOTE 7. PROVISIONS FOR RISKS AND CHARGES At 31 March At 31 March (in million) 2005 Additions Reversal 2006 Group tax savings 167.8 167.8 Other provisions 35.4 35.4 Total 167.8 35.4 167.8 35.4 The provision related to the Group tax savings has been reversed in application of the new recommendation 2005-G (see above General policies). Due to the decision to apply the recommendation of the CNC related to post-employment benefits, other provisions include, for the first time, the Chairman and Chief Executive Officer benefits from a complementary pension scheme based on the part of his salary not taken into account through the legal pension schemes, which purpose is to give rights equivalent to approximately 1.2% of the fraction of salary in excess of 248.544. This scheme, within the framework of the French Fillon Law, is composed of a defined contribution plan and of a defined benefits scheme. The sums paid in the framework of the defined contribution plan for 2005 amount to 19,323, wholly financed by ALSTOM; the total obligation resulting from the defined benefits scheme and the retirement indemnities amounts to 447,334, totally recognised as a provision, out of which 184,408 is recognised against retained earnings and 262,926 as operating expenses. 140

Statutory accounts NOTE 8. LIABILITIES At 31 March Within One to More than (in million) 2006 one year five years five years Financial debt Bonds issued 2,240.6 240.6 2,000.0 - Borrowings 5.3 5.3 - - 2 Trade creditors and related accounts 14.9 14.9 - - Tax, social security debts 0.3 0.3 - - Other liabilities 5.0 5.0 - - Total 2,266.1 266.1 2,000.0 - A. Bonds On 26 July 1999, the Company issued bonds for a principal amount of 650 million with a 7-year maturity, listed on the Paris and Luxembourg Stock Exchange, bearing a 5% coupon and to be redeemed at par on 26 July 2006. On 3 March 2005, the Company issued bonds for a principal amount of 1,000 million, listed on the Paris and Luxembourg Stock Exchange bearing a 6.25% coupon with a 5-year maturity, payable by cash or by exchange of the previous bond of 650 million or the 250 million subordinated loan. 422.4 million of the 650 million bond and 245.3 million of the 250 million subordinated loan were tendered to the offer, leading after application the exchange ratio to 695.3 million of new 2010 bonds. In addition to which, the Group issued 304.7 million of additional bonds with same terms and conditions. During the year ended 31 March 2006, the Company issued: 600 million of floating rate notes bearing a 2.20% above the 3-month Euribor coupon and redeemable at par in March 2009, listed on Luxembourg Stock Exchange; and 400 million of floating rate notes bearing a 0.85% above the 3-month Euribor coupon and redeemable at par in July 2008, listed on Luxembourg Stock Exchange. As a result of the above, at 31 March 2006, the Company has: 1,000 million of bonds bearing a 6.25% coupon redeemable at par on 3 March 2010; 600 million of bonds bearing a E3M + 2.20% coupon redeemable at par on 16 March 2009; 400 million of bonds bearing a E3M + 0.85% coupon redeemable at par on 28 July 2008; 224 million of bonds bearing a 5% coupon redeemable at par on 26 July 2006; and 16.6 million as accrued interests. FINANCIAL INFORMATION These bonds are partially hedged by 200 million swaps from fixed rate (3.50%) to floating rate 3 months Euribor. 141

Statutory accounts B. Borrowings Borrowings of 5.3 million include: At 31 March At 31 March Average (in million) 2006 2005 interest rate Syndicated loans - 1,038.7 JP Morgan - 33.2 Subordinated notes 4.7 4.7 E3M + 4.99% Commercial paper - 13.5 Accrued interests 0.6 32.0 Total 5.3 1,122.1 A 2010 Revolving Credit Facility has been signed on 28 February 2006 for an amount up to 700 million subject to the following financial covenants: Covenants Minimum Minimum Maximum interest cover consolidated net worth net debt leverage (a) (b) (c) (in million) March 2006 3 1,360 4.0 September 2006 3 1,360 3.6 March 2007 3 1,360 3.6 September 2007 3 1,360 3.6 March 2008 3 1,360 3.6 September 2008 3 1,360 3.6 March 2009 3 1,360 3.6 September 2009 3 1,360 3.6 March 2010 3 1,360 3.6 September 2010 3 1,360 3.6 (a) Ratio of EBITDA (see (d) below) to consolidated net financial expense (interest expense including securitisation expenses less interest income but excluding interest related to obligations under finance lease, pension interest cost and the consolidation net financial expense of special purpose entities which were not consolidated subsidiaries as of 31 March 2004). The interest cover at 31 March 2006 amounts to 8.7. (b) Sum of shareholders equity (excluding the cumulative impact of any deferred tax assets impairments arising after 31 March 2004 and including Bonds Reimbursable with Shares ORA not yet reimbursed) and minority interests (this covenant will not apply if and for as long as ALSTOM s rating is Investment Grade). After excluding the impact of the impairment of deferred tax assets recorded since 31 March 2004 of 189 million, the consolidated net worth at 31 March 2006 to compare with the covenant above is 2,029 million. (c) Ratio of total net debt (total financial debt excluding the finance lease obligation less short-term investments or trading investments and cash and cash equivalents) to EBITDA (see (d) below). The net debt leverage as at 31 March 2006 is 1.0. (d) Earnings Before Interest and Tax plus Depreciation and Amortisation as set out in Consolidated Statements of Cash Flows, less capital gains and losses on disposal of investments. The full amount of 700 million is available for drawn down as at 31 March 2006. C. Trade payable and related accounts Trade payable and related accounts amounted to 14.9 million including 5.4 million due to banks and 3.7 million due to ALSTOM Holdings. 142

Statutory accounts NOTE 9. ACCRUED EXPENSES Accrued expenses are included in the following captions. Au At 31 March (in million)2006 2006 Bonds reimbursable with shares (Note 6) 0.5 Bonds issued (Note 8 A) 16.6 Borrowings (Note 8 B) 0.6 Trade payable and related accounts 8.5 Other accruals 0.2 Total 26.4 2 FINANCIAL INFORMATION 143

Statutory accounts Other information A. Commitments ALSTOM, as parent company, has issued 433.8 million of guarantees made up of: USD 30 million as guarantees of leases; and 409 million on Transport contracts. B. Financial instruments Two swaps of 100 million each that exchange fixed to floating rate have been undertaken with banks. They were issued at the end of March 2006. The fair values of these swaps are negative by 1.3 million. Total available credit line at 31 March 2006 amounts to 700 million and corresponds to the 2010 Revolving Credit Facility signed on 28 February 2006. Simultaneously, two swaps of 100 million each that exchange floating to fixed rate have been undertaken with ALSTOM Holdings. The fair values of these two swaps with ALSTOM Holdings are positive by 1.3 million. C. Stock options Plan n 3 Plan n 5 Plan n 6 Plan n 7 Plan n 8 Date of shareholders meeting 24 July 2001 24 July 2001 24 July 2001 9 July 2004 9 July 2004 Grant date 24 July 2001 8 January 2002 7 January 2003 17 September 2004 27 September 2005 Exercise price (1) 1,320 523.60 240 17.20 35.75 Adjusted exercise price (2) 819.20 325.20 154.40 - - Beginning of exercise period 24 July 2002 8 January 2003 7 January 2004 17 September 2007 27 September 2008 Expiration date 23 July 2009 7 January 2010 6 January 2011 16 September 2014 26 September 2015 Number of beneficiaries 1,703 1,653 5 1,007 1,030 Number of options initially granted 105,000 105,000 30,500 2,783,000 1,401,500 Number of options exercised since the origin 0 0 0 0 0 Number of options cancelled 45,394 42,955 0 68,000 38,000 Adjusted number of remaining options at 31 March 2006 (2) 119,400 124,554 47,489 2,715,000 1,363,500 Number of shares that may be subscribed by the members of the Executive Committee 3,105 4,229 46,709 610,000 312,500 (1) Subscription price, restated following the consolidation of shares, corresponding to the average opening price of the shares during the twenty trading days preceding the day on which the options were granted by the Board (no discount or surcharge) or the nominal value of the share when the average share price is lower. (2) Plans n 3, 5 and 6 have been adjusted in compliance with French law as a result of the completion of the operations which impacted the share capital in 2002, 2003 and August 2004. 144

Statutory accounts Stock option plans 3 to 6, granted between 2001 and 2003, gradually vest by one-third a year during the first three years following the grant. Stock option plans 7 and 8, granted between 2004 and 2005, become vested after a period of three years. The exercise period then covers seven years for each plan. Plan 7 is also subject to the following conditions of exercise: 50% of options granted to each beneficiary are subject to exercise conditions relating to the Group s free cash flow and operating margin for fiscal year 2006. The conditional options are exercised entirely only if, at the closing of fiscal year ended 31 March 2006, the Group s free cash flow is positive and the Group s operating margin is superior or equal to 5% (percentage applicable to free cash flow and operating margin under IFRS standards). Below these thresholds, the options shall be partially exercisable. They will be forfeited if the free cash flow is negative at more than 500 million or if the operating margin is below 5%. At 31 March 2006, these exercise conditions have been fulfilled. Number Weighted average of options exercise price per share Outstanding at 1 April 2004 321,389 506.00 Granted 2,783,000 17.20 Exercised - - Cancelled (59,040) 286.80 2 FINANCIAL INFORMATION Outstanding at 31 March 2005 3,045,349 63.60 Granted 1,401,500 35.75 Exercised - - Cancelled (76,906) 32.78 Outstanding at 31 March 2006 4,369,943 55.17 D. Other information The Chairman and Chief Executive Officer, in the event of termination of his mandate at the Board of Directors initiative, and unless in the event of grave misconduct, would benefit from an indemnity equal to twice his latest gross annual remuneration, including the annual bonus and the loss of various benefits (complementary pension, company car, etc.) and keep all stock options granted. The same benefit would apply in case the Chairman and Chief Executive Officer decides to resign further to a takeover of ALSTOM. E. List of subsidiaries ALSTOM Holdings is the only subsidiary of ALSTOM (100.00%). Investments (gross value) Investments (net value) Loans and advances (gross value) Loans and advances (net value) 9.2 billion 6.7 billion 4.3 billion 4.3 billion Bonds and guarantees Dividends paid Net equity as of 31 March 2005 Net equity as of 31 March 2006 0) million 0) million (19) million 1,566) million 145

Statutory accounts Auditors report on statutory financial statements Year ended 31 March 2006 This is a free translation into English of the auditors report on the statutory financial statements signed and issued in the French language and is provided solely for the convenience of English speaking readers. Accounting principles and auditing standards and their application in practice vary from one country to another. The accompanying financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries other than France. In addition, the procedures and practices followed by the statutory auditors in France with respect to such financial statements included in a prospectus may differ from those generally accepted and applied by auditors in other countries. Accordingly, the French financial statements and the auditor s report, of which a translation is presented in this document for convenience only, are for use by those knowledgeable about French accounting procedures, auditing standards and their application in practice. The auditors report includes for the information of the reader, as required under French law in any auditor s report, whether qualified or not, an explanatory paragraph separate from and presented below the audit opinion discussing the auditors assessment of certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the statutory financial statements taken as a whole and not to provide separate assurance on individual account caption or on information taken outside of the statutory financial statements. Such report should be read in conjunction and construed in accordance with French law and French auditing professional standards. To the Shareholders of ALSTOM, In compliance with the assignment entrusted to us by your Annual General Meeting, we hereby report to you, for the year ended 31 March 2006, on: the audit of the accompanying annual financial statements of ALSTOM, the justification of our assessments, the specific verifications and information required by law. These annual financial statements have been closed by the Board of Directors. Our role is to express an opinion on these financial statements based on our audit. > I. Opinion on the financial statements We conducted our audit in accordance with the professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the 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 financial statements present fairly, in all material respects, the financial position of the Company at 31 March 2006 and the results of its operations for the year then ended, in accordance with the accounting rules and principles applicable in France. 146

Statutory accounts Without qualifying our opinion, we draw attention to the matter discussed in Note 2 A Summary of accounting policies to the financial statements relating to: the changes in accounting policies following the first adoption, on 1 April 2005, of regulation CRC n 2002-10 and 2003-07 related to depreciation and impairment of assets, and regulation CRC n 2004-06 related to the definition, recognition and measurement of assets, the change in accounting policies following the first adoption, on 1 April 2005, of the French "Conseil National de la Comptabilité" (CNC) recommendation 2003-R-01 related to post-employment benefits. > II. Justification of assessments > III. Specific verifications and information We have also performed the specific verifications required by law in accordance with professional standards applicable in France. We have no matters to report regarding the fair presentation and the conformity with the financial statements of the information given in management report of the Board of Directors and in the documents addressed to the shareholders with respect to the financial position and the financial statements. In accordance with French law, we have ensured that the required information concerning the names of the principal shareholders has been properly disclosed in the Directors report. 2 FINANCIAL INFORMATION In accordance with the requirements of Article L. 823-9 of the French Commercial Code relating to the justification of our assessments, we bring to your attention the following matters: As indicated in the notes to the financial statements, the valuation of investments and related advances can lead to the recognition of a provision, when the value in use, determined through a number of valuation methods, is lower than the book value, or as a result of an impairment test that may be necessary under certain circumstances (Note 2 B Summary of accounting policies Investments and advances ). Neuilly-sur-Seine, 17 May 2006 The auditors We have examined the assumptions and the methodology used to perform the impairment test as described in Note 2 Balance sheet "Financial assets" and the report prepared by a third party valuer and used by the Company to assess the enterprise value of the ALSTOM Group, as well as the value in use of investments and related accounts held by ALSTOM Holdings, since ALSTOM Holdings holds directly or indirectly all the subsidiaries within the Group. In addition, we have compared the data used by the valuer with forecasts prepared by ALSTOM. DELOITTE & ASSOCIÉS Dominique Descours BARBIER FRINAULT & AUTRES ERNST & YOUNG Gilles Puissochet The assessments were thus made in the context of the performance of our audit of the financial statements of ALSTOM as at 31 March 2006, taken as a whole and therefore contributed to the formation of our audit opinion expressed in the first part of this report. 147

Statutory accounts Special report of the auditors on certain related party transactions Year ended 31 March 2006 This is a free translation into English of the special auditors reports signed and issued in the French language and is provided solely for the convenience of English speaking readers. Accounting principles and auditing standards and their application in practice vary from one country to another. The accompanying financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries other than France. In addition, the procedures and practices followed by the auditors in France with respect to such financial statements included in a prospectus may differ from those generally accepted and applied by auditors in other countries. Accordingly, the French financial statements and the auditor s report, of which a translation is presented in this document for convenience only, are for use by those knowledgeable about French accounting procedures, auditing standards and their application in practice. Such report should be read in conjunction and construed in accordance with French law and French auditing professional standards. To the Shareholders of ALSTOM, In our capacity as auditors of your Company, we are required to report on certain contractual agreements with certain related parties of which we have been advised. We are not required to ascertain whether such agreements exist. We hereby inform you that we have not been advised of any agreements covered by Article L. 225-38 of the French Commercial Code. Neuilly-sur-Seine, 17 May 2006 The auditors DELOITTE & ASSOCIÉS Dominique Descours BARBIER FRINAULT & AUTRES ERNST & YOUNG Gilles Puissochet 148

Statutory accounts Five-year summary Year ended 31 March 2002 2003 2004 2005 2006 1. Capital at year-end 2 a) Share capital (in thousand) 1,292,325 1,689,963 1,320,822 1,924,024 1,934,391 b) Number of outstanding issued shares 215,387,459 281,660,523 1,056,657,572 5,497,211,409 138,170,776 2. Operations and income for the year (in million) a) Dividend received 0.3 - - - - b) Income before tax, profit-sharing, provisions and valuation allowances 59.4 79.1 70.3 90.0 78.4 c) Income tax 36.9 26.8 36.6 (10.1) 35.8 d) French legal profit-sharing - - - - - e) Net income after tax, profit-sharing, provisions and valuation allowances 90.8 (7,474.1) (1,341.1) 83,4 6,398.0 f) Dividends - - - - - FINANCIAL INFORMATION 3. Earnings per share (in ) a) Net earning after tax, profit-sharing, but before provisions and valuation allowances 0.45 0.38 0.10 0.02 0.82 b) Net earning after tax, profit-sharing, provisions and valuation allowances 0.42 (26.54) (1.27) 0.02 46.10 c) Net dividend per share - - - - - 4. Personnel a) Number of personnel employed during the year - - - - - b) Amount of gross wages and salaries for the year (in thousand) - 155 661 1,143 1,251 c) Amount of social charges for the year (Social security and other welfare benefits) (in thousand) - 52 198 421 357 149

Statutory accounts Appropriation of the net income of fiscal year 2005/06 Taking into account the profit for the fiscal year ended 31 March 2006 which amounts to 6,397,943,319.34, the following appropriation of net income will be proposed to the Ordinary General Meeting convened on 28 June 2006: Profit of the period 6,397,943,319.34 Retained earnings* (31,769,576.70) Legal reserves 193,439,086.40 General reserves 5,500,000,000.00 Net retained earnings 672,734,656.24 * After a change in accounting principles directly booked in retained earnings of (184,408). Therefore, no dividend will be paid to the shareholders for the fiscal year ended on 31 March 2006. During the three preceding fiscal years, no dividends were distributed. 150

3 RISKS RISK FACTORS 152 CERTAIN LEGAL RISKS 155 ENVIRONMENTAL, HEALTH AND SAFETY RISKS (EHS) 156 INSURANCE 157 151

Risk factors RISKS RISK FACTORS If we do not achieve our forecast income or cash flow, we may be led to review the evaluation of certain assets and we may have to take an impairment charge. The value of goodwill and of other net intangible assets in our consolidated balance sheet as of 31 March 2006 and 31 March 2005 are 4,520 million and 4,639 million, respectively. See Note 12 to the consolidated financial statements for the fiscal year ended 31 March 2006. If in the future our own evaluations (or those which could be led by an independent expert) conclude that the net book value of goodwill and other intangible assets is greater than the estimated recoverable value of these assets (this concept is presented in Note 3 I to the consolidated financial statements for the fiscal year ended 31 March 2006), we would be obliged to impair these assets, which could have a material adverse effect on our balance sheet and on our results. Our deferred tax assets net amounted to 1,210 million as of 31 March 2006 and to 1,148 million as of 31 March 2005. These evaluations have been established on the basis of our Business Plan for each Country. If our income per country were below our forecasts and consequently we had to revise our forecasts and did not have enough taxable income in certain countries to allow tax losses carried forward to be used before expiry, we would be obliged to review the evaluation of these assets and, as appropriate, to depreciate them. Combined depreciation of these assets was 919 million as of 31 March 2006 and 920 million as of 31 March 2005. See Note 9 C to the consolidated financial statements for the fiscal year ended 31 March 2006. Our products often incorporate advanced and complex technologies and sometimes require modifications after they have been delivered. We design, manufacture and sell several products of large individual value that are used in major infrastructure projects. We are sometimes required to introduce new, highly sophisticated and technologically complex products on increasingly short time scales. This necessarily limits the time available for testing and increases the risk of product defects and their financial consequences. We occasionally discover the need to fine tune or modify products after we begin manufacturing them or after our customers begin operating them. Because we produce some of our products in series, we may need to make such modifications to a large number of products. At the same time, when we sell our products or enter into maintenance contracts, we are increasingly required to accept onerous contractual penalties, in particular related to performance, availability and delay in delivering our products, as well as after-sales warranties. Our contracts may also include clauses allowing the customer to terminate the contract or return the equipment if performance specifications or delivery schedules are not met. As a result of these contractual provisions and the pressures of accelerated new product development, design and manufacturing, problems encountered with our products may result in material unanticipated expenditures, including without limitation additional costs related to securing replacement parts and raw materials, delays and cost overruns in manufacturing, delivering and implementing modified products and the related negotiations or litigation with affected clients. For example, a discussion of the GT24/GT26 gas turbine problems and the Liquid Natural Gas (LNG) tanker issues are provided in Management discussion and analysis on consolidated financial statements as at 31 March 2006 Operational performance GT24/GT26 heavy-duty gas turbines and Sector Review Marine and also in Note 20 to the consolidated financial statements as at 31 March 2006 for GT24/GT26 gas turbine issues. In instances where such problems occur, we cannot ensure that the total costs that we ultimately incur will not exceed the amount that we have provisioned. Further, given the technical sophistication of many of our products, we can give no assurance that we will not encounter new problems or delays in spite of the technical validation processes implemented within the Group. Any such problems or delays could be affected by a number of factors, could be costly, could harm our Business reputation or affect our ability to sell other products and could have a material adverse impact on our financial condition or results of operations 152

Risk factors or cause our products to be less competitive than those of our competitors. The development of our Businesses will require increasing our base of skilled and experienced managers and specialists, which may be difficult to achieve. There is significant competition in the employment market with respect to the highly qualified managers and specialists, which are needed by our Businesses. The success of our development plans will depend in part on our ability to retain our employee base and recruit and integrate additional engineers and other skilled employees. We can give no assurance that we will be successful in developing our employee base as needed to accompany our Business development. The European Commission s approval of our financing plans implemented in 2003 and 2004 is subject to conditions to be fulfilled by the French State and the Company. On 7 July 2004, the European Commission approved our Financial Plans for 2003 and 2004, subject to certain commitments made by the French State on behalf of ALSTOM. (See Management discussion and analysis on consolidated financial statements as at 31 March 2006 Approval by the European Commission and commitments ). If we fail to fulfil these conditions, the Commission may modify its decision and require the French State to recover all or part of the aid paid as part of the financial plans. The Company has already fulfilled a number of these conditions and does not anticipate any failure to comply with the requirements of the Commission, but it can give no assurances as to their ultimate fulfilment. If we are unable to manage our working capital effectively, or if we apply existing provisions more quickly than expected, our cash flow may vary greatly. The structure of our projects may result in payment of expenses before realisation of revenue. As a result, the structure of customer deposits and advances is particularly important in our long-term project activity, which represents approximately 50% of our sales. Taking customer advances serves in part to provide us with working capital to finance the execution of our projects. For more information regarding customer deposits and advances, (see Notes 17 and 18 to the consolidated financial statements for the fiscal year ended 31 March 2006). Our ability to negotiate and collect customer advances is therefore an important element of our strategy, as it provides us with cash flow and allows us to manage our working capital. If we are not successful, significantly increased cash flow variations may require us to materially increase our debt. The Business and asset disposals that we make are generally subject to pricing adjustments, warranties and exclusions that may delay payments due to us, result in increased costs related to excluded liabilities, reduce the net proceeds that we receive or require us to pay indemnities to the acquirer. We have disposed of or are in a process of disposing of a number of Businesses and assets, notably our T&D Sector, Marine Sector and our Industrial Turbines Businesses. As is customary, the terms of these disposals have provided for price adjustment mechanisms and we have made and will make certain warranties regarding the Business or assets being sold. In some cases we have retained certain contracts and liabilities. As a result, the net proceeds that we receive may be delayed or subject to adjustments and we may be required to bear increased costs on retained liabilities or to pay indemnities to the acquirer, which could have a material adverse effect on our results and financial position. With respect to the Marine Sector notably, we will retain contracts related to three Liquid Natural Gas (LNG) tankers, which are not yet delivered, as well as contracts for ships that were delivered prior to the sale. These retained contracts may result in costs in excess of the amounts provisioned for completion and warranty services (See Management discussion and analysis on consolidated financial statements for the fiscal year ended 31 March 2006 Sector review Marine with respect to issues that have arisen in connection with the LNG tankers). We have outstanding warranties and have received claims in connection with the disposals of certain of our activities including our former T&D Sector, the Small and Medium Industrial Turbines and Industrial Steam Turbine Businesses, the former Contracting Sector and the Transport Business in Australia. For a description of certain of our disposals, see Management discussion and analysis on consolidated financial statements as at 31 March 2006 Disposal programme. In particular, we have received a number of demands from Areva, some of which involve significant amounts, following its acquisition of the T&D Sector, including with respect to alleged anti-competitive arrangements among suppliers in certain T&D activities, and arbitration proceedings are in course with Cegelec in connection with the disposal of the Contracting Sector. 3 RISKS 153

Risk factors We operate in competitive markets. We face strong competition in our markets, both from large international competitors and, in a number of markets, from smaller niche players. Industry consolidation is increasing globally and the main players are adopting a strategy of global expansion. This competition has generally resulted in lower selling prices and a deterioration of terms of payment in favour of our customers. In response, we have adopted several ongoing programmes to cut costs and improve efficiency. Although we believe we compete effectively in most of our major markets, there can be no assurance that we will be able to continue to do so. Our Businesses require a significant level of bonding capacity which may be difficult to sustain and our bonding facility, lines of credit and certain of our other financing agreements contain covenants. We have put into place a bonding programme to provide for the issuance of bonds through 27 July 2008 (the Bonding Facility ) as well as additional bilateral agreements which we anticipate should be sufficient to cover our needs through that date. We can give no assurance, however, that we will be able to raise sufficient bonding capacity allowing us to cover our bonding needs adequately once the Bonding Facility is no longer available, or in the long term. Our inability to secure new sources of bonding could seriously jeopardize our ability to win new contracts or sustain our commercial operations and could have a material adverse impact on our results of operations and financial condition. Our line of bank credit, our Bonding Facility and some of our other financing agreements contain covenants requiring us to maintain compliance with pre-established financial ratios ( covenants ). (See Note 22 to the consolidated financial statements as at 31 March 2006). As of 31 March 2006, we were in compliance with our covenants in effect at the time and we expect to remain within these criteria at the end of the current financial year. (See Management discussion and analysis on consolidated financial statements as at 31 March 2006 Operating and financial review Balance sheet Financial debt ). However, our ability to continue to meet our financial covenants depends on our ability to continue developing our level of sales and margins, manage our indebtedness and maintain sufficient net worth, each of which could be adversely affected by events beyond our control. A failure to respect financial covenants may result in our Bonding Facility being suspended and our credit line becoming immediately repayable and no longer available for drawings. A significant part of our other debt may also at such point become immediately repayable as a result of their crossdefault or cross-acceleration provisions, and we might not have the funds required to immediately repay this debt nor have the means to ensure bonding availability. Although we would attempt to negotiate with our financial partners to seek a waiver of such default or an amendment to the relevant agreement, such negotiations might not be successful. Our financial performance could be adversely impacted by a limited number of contracts and various factors affecting contract execution, some of which are beyond our control. Each year, approximately one-third of our Business is conducted under a limited number of major long-term contracts. At 31 March 2006, our ten largest projects in terms of order backlog represented approximately 16.7% of our total order backlog and our ten largest customers accounted for 22% of our sales. Generally, our revenue and cash flow from and profitability of a project may vary significantly in accordance with the progress of that project and depending on a variety of factors, some of which are beyond our control, such as unanticipated technical problems with equipment being supplied, postponement or delays in contract implementation, financial difficulties of customers, withholding of payment by customers, performance defaults by or financial difficulties of suppliers, subcontractors or consortium partners with whom we are jointly liable, and unanticipated costs due to project modifications. Profit margins realised on certain of our contracts may vary from our original estimates as a result of changes in costs and productivity over their term. As a result of this variability, the profitability of certain of our contracts may significantly impact our income and cash flows in any given period. While we have established risk control procedures for tenders and contracts in progress, we can give no assurance that these and other initiatives will be sufficient to avoid problems in the future, and certain of our projects may be subject to delays, cost overruns, or performance shortfalls which may lead to the payment of penalties or damages. (See notably Management discussion and analysis on consolidated financial statements as at 31 March 2006 Sector Review Marine with respect to the technical issues that have arisen with respect to the Marine Sector s Liquid Natural Gas (LNG) tanker contracts). There can be no assurance that we can profitably complete our fixed price contracts. 154

Certain legal risks We are exposed to a variety of market risks, including currency exchange risk, interest rate risk and credit risk, in the course of our Business. Detailed information regarding this exposure is provided in Management discussion and analysis on consolidated financial statements as at 31 March 2006 Impact of exchange rate and interest rate fluctuations and in Note 28 to the consolidated financial statements for the fiscal year ended 31 March 2006. Changes in the cost of and conditions of our access to raw materials can affect our operating margins. In manufacturing products for our projects, we use raw materials in amounts which vary according to the project and which may represent up to 15% of the contract price. Given the significant increases in overall prices of raw materials that have occurred in the past, we cannot ensure that all these cost increases will necessarily be passed on through an increase in contract prices and that they will not adversely affect our competitiveness and profitability for new contracts. In addition, any demand in excess of the amounts offered on raw materials markets may result in late deliveries by our suppliers, which in turn may cause delays in the execution of our contracts. These factors could create a negative pressure on margins and adversely affect our financial results. We have unfunded liabilities with respect to our pension plans and other post-retirement benefits. We have obligations to our employees and former employees relating to retirement and other post-retirement indemnities in the majority of the countries where we operate. In France, retirement indemnities arise pursuant to labour agreements, specific conventions and applicable local legal requirements. Retirement indemnities in France are funded from current cash flows, and there is no legal requirement to maintain assets to fund these liabilities. In the United States, the United Kingdom and elsewhere, liabilities arise pursuant to labour agreements, pension schemes and plans and other employee benefit plans, some of which are required to maintain assets in off-balance sheet trusts to fund their liabilities. The market value of assets held in these funds is currently significantly below the related projected benefit obligations in a number of cases. Pursuant to certain of our defined benefit schemes, we are committed to providing cash to cover any differences between the market value of the plan s assets and required levels for such schemes over a defined period. Our projected benefit obligations are based on certain actuarial assumptions that vary from country to country, including, in particular, discount rates, long-term rates of return on invested plan assets, rates of increase in compensation levels and rates of mortality. If actual results were to differ from these assumptions our pension, retirement and other post-employment costs would be higher or lower. Our results and cash flows may, therefore, be unfavourably or favourably impacted by these obligations. Further details on the methodology used to assess pension assets and liabilities together with the annual pension costs are included in Note 21 to the consolidated financial statements for the fiscal year ended 31 March 2006. 3 RISKS CERTAIN LEGAL RISKS Many of our Businesses operate in Sectors where a relatively small number of participants can materially affect the market dynamics. To date, we have not experienced a material adverse impact on our reputation, operations, or financial condition or results relating to competition and antitrust laws; however, there can be no assurance that the application of such laws will not in the future have such a material adverse effect. Although we operate in markets that are frequently fiercely competitive, there are at times allegations of anticompetitive activity. For example, we have been informed of investigations by various governmental authorities, including the European Commission, relating to alleged anti-competitive arrangements among suppliers of certain products of the T&D Business we sold to Areva on 9 January 2004. In April 2006, the European Commission commenced proceedings against ALSTOM, along with a number of other companies, based on allegations of anticompetitive practices in the sale of gas-insulated switchgears, a product of our former T&D Business, following investigations that began in 2004. The competition authorities in Hungary have ordered fines against both the ALSTOM and the Areva 155

Environmental, health and safety risks (EHS) groups with respect to alleged anticompetitive practices in this business in that country. Because of the products we sell, we conduct a significant proportion of our Business with governmental agencies and public-sector entities, including those in countries known to experience corruption, which creates the risk of prohibited payments by our employees and agents. We actively strive to ensure compliance with the laws and regulations relating to illegal or other prohibited payments and have established internal compliance programmes to control the risk of such illegal activities and appropriately address any problems that may arise. However, given the extent of our operations worldwide, we cannot be assured that problems will not arise in the future or that such problems will not materially affect our reputation, operations, or financial condition or results. A limited number of current and former employees and agents of our Group have been or are currently being investigated with respect to alleged illegal payments in various countries. Certain of these procedures, including pending procedures in Mexico and Italy, may result in fines and the exclusion of our subsidiaries from public tenders in the relevant country for a defined period. We can give no assurance that these procedures will not have a material adverse commercial effect on the subsidiaries or the Group as a whole or that they will not lead to other civil or criminal proceedings. With respect to other Legal Risks, see Note 27 to the consolidated financial statements for the fiscal year ended 31 March 2006. ENVIRONMENTAL, HEALTH AND SAFETY RISKS (EHS) We are subject to a broad range of environmental laws and regulations in each of the jurisdictions in which we operate. These laws and regulations impose increasingly stringent environmental protection standards on us regarding, among other things, air emissions, wastewater discharges, the use and handling of hazardous waste or materials, waste disposal practices and the remediation of environmental contamination. These standards expose us to the risk of substantial environmental costs and liabilities, including liabilities associated with divested assets and past activities. In most of the jurisdictions in which we operate, our industrial activities are subject to obtaining permits, licences and/or authorisations, or to prior notification. Most of our facilities must comply with these permits, licences or authorisations and are subject to regular administrative inspections. We invest significant amounts to ensure that we conduct our activities in order to reduce the risks of impacting the environment and regularly incur capital expenditures in connection with environmental compliance requirements. Although we are involved in the remediation of contamination of certain properties and other sites, we believe that our facilities are in compliance with their operating permits and that our operations are generally in compliance with environmental laws and regulations. We have put in place a global policy covering the management of environmental, health and safety risks. Detailed information regarding this policy is provided in Environmental, Health and Safety management policy (EHS) below. The procedures ensuring compliance with environmental, health and safety regulations are decentralised and monitored at each plant. The costs linked to environmental health and safety issues are budgeted at plant or unit level and included in the profit and loss accounts of our local subsidiaries. The outcome of environmental, health and safety matters cannot be predicted with certainty and there can be no assurance that we will not incur any environmental, health and safety liabilities in the future and we cannot guarantee that the amount that we have budgeted or provided for remediation and capital expenditures for environmental or health and safety related projects will be sufficient to cover the intended loss or expenditure. In addition, the discovery of new conditions or facts or future changes in environmental laws, regulations or case law may result in increased liabilities that could have a material effect on our financial condition or results of operations. We have booked provisions of 12 million to cover environmental risks. Environmental, Health & Safety management policy (EHS). We recognise our obligation to our stakeholders, employees, customers, suppliers and the communities at large in which we operate, to provide a safe workplace and safe products, to minimise the impact of our operations on the environment and to protect our industrial and commercial assets. To this end, we have put in place a global policy covering the Management of Environment, Health and Safety risks at an 156

Insurance individual operating unit level, to achieve a high level of performance including strict compliance of local norms and regulations. The global policy is designed and co-ordinated at corporate level and is adapted and implemented locally. We rely on independent specialists on risk analysis, ALLIANZ and URS, to carry out the Corporate EHS annual audit programme of our manufacturing sites around the world. In addition to this, and in order to spread our EHS risk control system, we have started an internal auditors accreditation programme. Both internal and external auditors support the operating units in the creation of specific action and improvement plans. The completion of the action plan is measured and followed up through a monthly corporate reporting process. Through our environmental management programme, we seek primarily to: develop products and services that have an acceptable impact on the environment along the product life cycle from manufacturing through product use and at the end of their useful lives; evaluate the environmental impact of new industrial processes prior to their implementation as well as the discontinuation of existing processes or the disposal of existing sites; improve technology in order to reduce the consumption of energy and natural resources and to minimise waste and pollution; and promote the application of our environmental management principles to our sub-contractors and suppliers. Additional Health and Safety Programmes are implemented at each of our operating units. Such programmes typically cover health and safety issues, both at the design stage of the workplace and product equipment through to their implementation and use, as well as Accident and Occupational Illness Prevention Programmes. Our Asset and Business Interruption Management Programmes are designed to minimise exposure to loss or damage to our assets and to ensure Business continuity. This includes exposure to fire, breakdown and natural catastrophes as well as theft or deliberate damage. The Environmental, Health and Safety coordination guarantees the consistency of the prevention programmes at a central level. The Environmental, Health and Safety performance indicators are gathered on a monthly basis by our reporting system covering all the Business and operational centres in view of guiding the risk management approach. During fiscal year 2005/06, 60 EHS audits were carried out by ALLIANZ and URS as well as by ALSTOM accredited internal auditors. They have been reviewed by the local Managing Directors in order to validate the suggested areas of improvement. The cost of these external audits amounted to 190,000 in fiscal year 2005/06. 3 RISKS INSURANCE Our policy is to purchase insurance policies covering risks of a catastrophic nature from insurers presenting excellent solvency criteria. The amount of insurance purchased varies according to our estimation of the maximum foreseeable loss, both for property damage and liability insurance. This estimate is made within the framework of Industrial Risk Management Audits that we conduct for property damage and depends on the evaluation of the maximum legal risk considering the various activities of our Group for our civil liability. We have put in place a global policy covering the Management of Environmental, Health and Safety risks described above, as well as internal control procedures for the review of tenders and contracts in progress. The main risks covered by our main insurance policies are the following: Property damage and Business interruption caused by fire, explosion, natural events or other named perils as well as machinery breakdown; Liability incurred because of damage caused to third parties by our operations, products and services, with customary exclusions and limits; Transit, covering transportation risks from start to discharge of goods at warehouse, construction site or final destination, with customary limits and exclusions; and Construction and Installation, covering risks during execution of contracts, subject to certain customary conditions and declarations. In addition to Group policies, we purchase, in the various countries where we are present, policies of insurance of a mandatory nature or designed to cover specific risks such as automobile, worker s compensation or employer s liability. Our main Group Insurance Policies, including limits on coverage and premiums, are described in greater detail below. This presentation is a summary of the policies in effect as of 157

Insurance March 31, 2006, and does not reflect all restrictions and limits applicable to our policies. The scope and terms of our policies are determined on an annual basis. For reasons of confidentiality and protection of the interests of the Company, it is not possible to describe exhaustively all policies. Property damage and Business interruption: The insurance programme covers accidental damage and consequent Business interruption caused by fire, explosions, smoke, impact of vehicles and aircraft, storm, hail, snow, riot, civil commotion, water damage and natural events to industrial, commercial and administrative sites of the Group named in the policies. the programme has an overall limit of 410 million per event; sub-limits apply in particular for natural events (these sub-limits vary according to the insured sites and the type of events) for machinery breakdown and accidental events other than those named in the policy; coverage is subject to usual limitations and exclusions, in particular: war, civil war, terrorism, nuclear reaction, and certain natural events normally insured in national pools. Civil liability resulting from operations or products and services: the Group Insurance Programme covers the financial consequences of liability caused to third parties because of our operations or products and services; the programme has 4 layers of insurance for an overall limit of 600 million per event and in annual aggregate. Sublimits are applicable; the policy is subject to usual limitations and exclusions of policies of this type, in particular, war, nuclear reactions, work accidents, Directors and Officers liability, automobile liability, consequences of contractual obligations more onerous than trade practice, as well as damages caused by products such as asbestos, formaldehyde, lead, organic pollutants as well as those caused by toxic mould, magnetic fields and electronic viruses. Transport insurance: the policy covers damages to transported goods irrespective of the mode of transportation: sea, land or air, anywhere in the world; coverage is extended to war risks (however, some territories are excluded); the policy limit is 70 million; sub-limits are applicable notably during storage at packers or sub-contractors; the policy is subject to limitations and exclusions generally applicable to policies of this type. The total amount of premiums paid for calendar year 2006 for the 3 types of insurance listed above was approximately 46 million. Damage during installation and construction: a Construction and Installation Policy covers damage to equipment being installed by the Company for contracts having values of less than 100 million; this policy applies differently according to the Sectors of the Group and according to the countries involved; the insurance limit is 100 million; sub-limits apply; the policy is subject to customary limitations and exclusions; in particular it excludes war, radioactive contamination and terrorism (except France); the provisional premium for calendar year 2006 is approximately 5 million; this premium will be adjustable in 2007 according to the actual level of activity 2006; and specific policies are put in place for contracts exceeding 100 million in value or to cover contracts not covered in the above-described policy. This is the case for insurance of vessels under construction at Chantiers de l Atlantique. We benefit from a re-insurance vehicle (through a captive cell of an insurance company) which we used in previous years to self-insure property damage and liability risks. This vehicle was not used since calendar year 2004. All risks previously self-insured through this captive cell have been transferred to insurers or retained through deductibles. 158

4 CORPORATE GOVERNANCE THE BOARD OF DIRECTORS AND ITS COMMITTEES 161 The Board of Directors 161 The Audit Committee 168 The Nominations and Remuneration Committee 168 THE EXECUTIVE COMMITTEE 169 THE DISCLOSURE COMMITTEE 169 CHAIRMAN S REPORT PURSUANT TO ARTICLE L. 225-37 OF THE FRENCH COMMERCIAL CODE 170 Conditions of preparation and organisation of the work of the Board of Directors 170 Limitations to the Chairman and Chief Executive Officer s powers 176 Internal control procedures 177 AUDITORS REPORT PREPARED IN ACCORDANCE WITH ARTICLE L. 225-235 OF THE FRENCH COMMERCIAL CODE 183 COMPENSATION OF EXECUTIVE AND NON-EXECUTIVE DIRECTORS AND MEMBERS OF THE EXECUTIVE COMMITTEE 184 Executive and non-executive Directors 184 Members of the Executive Committee 188 INTERESTS OF THE OFFICERS AND EMPLOYEES IN THE SHARE CAPITAL 189 Stock options plans 189 Main characteristics of ALSTOM stock options plans 190 Free allocation of shares 191 Employee profit-sharing 192 159

Corporate governance The Company is implementing the fundamentals of corporate governance such as they result from the report published in October 2003 (the AFEP/MEDEF Report ), consolidating Viénot reports (issued in 1995 and 1999) and the Bouton report (issued in 2002). As the Company is no longer listed on the New York Stock Exchange ( NYSE ) since August 2004, the US corporate governance rules are no longer applicable to it. In addition, on 14 June 2005, the Company filed a Form F 15 with the United States Securities and Exchange Commission ( SEC ) thereby terminating its registration under the United States Exchange Act of 1934, effective 90 days thereafter. This process results in suspension of the Company s obligations to file periodic reports with the SEC (notably reports under form 20-F or under form 6-K) and the corporate governance requirements of the Sarbanes-Oxley Act. The Board of Directors and the two Board Committees created in 1998 (the Audit Committee and the Nominations and Remuneration Committee) work on Internal Rules and Regulations incorporating most of the recommendations of the AFEP/MEDEF Report. Annexed to the Internal Rules and Regulations of the Board is the Director s Chart, defining the Director s rights and obligations. These Internal Rules and Regulations are regularly amended following the evaluations of the functioning of the Board and the Board Committees, or any changes of the regulations. The Company adopted, at the time of its flotation, an instruction relative to insider information and to prevent insider trading which defines the situations in which certain individuals must refrain from carrying out transactions involving the Company s shares. This instruction applies to the Directors, officers and employees of the Group and has been amended during the fiscal year. For several years now, the Company adopted a Code of Ethics, which applies to every ALSTOM Director, officer and employee worldwide. This Code, a summary of ALSTOM s main rules of ethics, is designed to promote ethical conduct; every Director, officer and employee of the Company is expected to know the Code of Ethics and comply with it. In 2003, a Disclosure Committee (Comité de l information) was created on the initiative of the Chairman and Chief Executive Officer and the Chief Financial Officer. The members of this Committee, which is not a Board Committee, consist of top Company executives and a representative of each Group Sector. Its general role is to review the content of the Company s financial information documents before they are disclosed to the shareholders and the markets, and to ensure that controls and other procedures are in place to allow financial information to be recorded and reported on a timely basis and that adequate and appropriate information is collected and communicated to the Chairman and Chief Executive Officer, the Chief Financial Officer and other Management members, to ensure on the reliability of the Group s financial information. The Internal Rules and Regulations of this Committee were ratified by the Audit Committee and, pursuant to these Internal Rules and Regulations, similar Committees have been set up in each Group Sector. These rules are reviewed every fiscal year. The Internal Rules and Regulations of the Board of Directors and the Board s Committees, the Directors Charter and the Code of Ethics are available on the ALSTOM Internet site. 160

The Board of Directors and its Committees THE BOARD OF DIRECTORS AND ITS COMMITTEES THE BOARD OF DIRECTORS The Board of Directors is composed of ten members, of whom three are non-french nationals and six are independent. Since 2002, the Directors are appointed for a four-year period, except for the Director representing the French State who is appointed for 3 years. As of 16 May 2006, 3,502 shares were held by the Directors altogether. Composition as of 31 May 2006 > Patrick KRON Chairman & Chief Executive Officer Born on 26 September 1953 in Paris, France. Nationality: French. Professional address (1) : ALSTOM - 3 avenue André Malraux - 92300 Levallois-Perret. Appointed on 24 July 2001 as a Director. Directorship will expire at the end of the General Meeting to be called in 2007 to consider the accounts for the fiscal year 2006/07. Number of ALSTOM shares held: 358. Other current directorships and positions: In France: Member of the Supervisory Board of Vivendi Universal; Director of Imerys; Director of the choral Society Les arts florissants. In foreign countries: Within the ALSTOM Group: Director of ALSTOM UK Holdings Ltd and of ALSTOM Ltd. Past directorships (held during the past 5 years): Chief Executive Officer of Imerys; Member of the Supervisory Board of Imerys. of Industry from 1979 to 1984 before joining the Pechiney Group. From 1984 to 1988, Patrick Kron held operational responsibilities in one of the Group s most important factories in Greece, becoming manager of this Greek subsidiary. From 1988 to 1993, he occupied several senior operational and financial positions within Pechiney, first managing a group of activities in the processing of aluminium and eventually as President of the Electrometallurgy Division. In 1993, he became a member of the Executive Committee of the Pechiney Group and was appointed Chairman of the Board of the Carbone Lorraine Company from 1993 to 1997. From 1995 to 1997, he ran the Food and Health Care Packaging Sector of Pechiney and held the position of Chief Operating Officer of the American National Can Company in Chicago (USA). From 1998 to 2002, Patrick Kron was Chief Executive Officer of Imerys before joining ALSTOM. He has been Chief Executive Officer of ALSTOM since 1 January 2003 and Chairman & Chief Executive Officer since 11 March 2003. Mr Patrick Kron was awarded the Légion d honneur on 30 September 2004. > Jean-Paul BÉCHAT * Born on 2 September 1942 in Montlhéry, France. Nationality: French. Professional address: SAFRAN - 2 boulevard du Général Martial Valin - 75724 Paris Cedex 15. Appointment as a Director renewed on 9 July 2004, and will expire at the end of the General Meeting to be called in 2008 to consider the accounts for the fiscal year 2007/08. First mandate: 14 May 2001 9 July 2004. Number of ALSTOM shares held: 1,450. Other current directorships and positions: In France: Chief Executive Officer of Safran; Director of Sogepa. 4 CORPORATE GOVERNANCE Biography: Mr Patrick Kron is a graduate from École Polytechnique and the Paris École des Mines. He started his career in the French Ministry Mr Béchat has also been appointed by the French Government as a member of the General Council for Armaments. He is also a member of ASD and GIFAS Councils. (1) The professional address is only mentioned for active Directors. * Independent Director. 161

The Board of Directors and its Committees In foreign countries: Past directorships and positions (held during the past five years): In France: Chairman and Chief Executive Officer of Snecma (4 June 1996 11 May 2004); Chief Executive Officer of Sagem (18 March 2005 11 May 2005); Director of France Télécom (22 May 1998 25 February 2003); Director of Natexis Banques Populaires (18 November 1998 27 May 2004); Director of Aéroports de Paris (9 July 2004 26 June 2005); Director of CEA (3 March 2000 12 November 2001). In foreign countries: Biography: Mr Jean-Paul Béchat is a graduate from École Polytechnique and has a Master degree in Science from Stanford University (USA). In 1965, Mr Béchat started his career at SNECMA and, from June 1996 till March 2005, he was Chairman and Chief Executive Officer of the Group. Since May 2005, Mr Béchat is the honorary Chairman of and a member of the Board of ASD; he is also member of the Advisory Board of Banque de France, of the General Board of Weaponry, of MEDEF Executive Committee and of the Boards of ALSTOM and SOGEPA. Mr Béchat is Honorary Fellow of the Royal Aeronautical Society, member of the Association Aéronautique et Astronautique de France (AAAF) and member of the International Academy of Astronautics (IAA). He is also officer of the Légion d honneur and of the National Order of Merit. > Candace BEINECKE Born on 26 November 1946 in the United States. Nationality: American. Professional address: Hughes Hubbard & Reed LLP One Battery Park Plaza, New York, NY 10004-1482 USA. Appointed on 24 July 2001 as a Director. Directorship will expire at the end of the General Meeting to be called in 2007 to consider the accounts for the fiscal year 2006/07. Number of ALSTOM shares held: 88. Other current directorships and positions : In France: In foreign countries: Chair of Hughes Hubbard & Reed LLP, New York, USA since 1999; Chairperson of the Board of Arnhold & S. Bleichroeder Advisors First Eagle Funds, Inc., a public mutual fund family; Member of the Board of Directors of Rockefeller Financial Services, Inc. and Rockefeller & Co., Inc.; Director Vice-Chair and member of the Executive Committee of the Partnership for New York City. Past directorships and positions (held during the last five years): In France: In foreign countries: Director of First Eagle SoGen, Inc., USA; Director of First Eagle SoGen Variables Funds, Inc., USA; Trustee of First Eagle Funds, USA. Biography: Candace K. Beinecke, Chair of Hughes & Reed LLP, was named to her current position in 1999, the first woman to chair a major New York law firm. Ms Beinecke is also a practicing partner in Hughes Hubbard s Corporate Department. Ms Beinecke serves as Chairperson of Arnhold & S. Bleichroeder Advisors LLC First Eagle Funds, Inc., ranked among the leading US public mutual fund families, and as a Board member of ALSTOM. Candace is a member of the Board of Directors of Rockefeller Financial Services, Inc. and Rockefeller & Co., Inc. She also serves as a Director, Vice-Chair and Executive Committee member of the Partnership for New York City, as a member of the Board of Advisors, Yale Law School Center for the Study of Corporate Law, and as a Director of the Merce Cunningham Dance Foundation and the Jacob s Pillow Dance Festival (1989-2005). She has been included in the 2006 edition of The best Lawyers in America, is a member of the Women s Forum and received a Women in Power and Influence award from NYC NOW in 2000. > Georges CHODRON DE COURCEL Born on 20 May 1950 in Amiens, France. Nationality: French. Professional address: BNP Paribas - 3 rue d Antin - 75002 Paris. 162

The Board of Directors and its Committees Appointed on 3 July 2002 as a Director. Directorship will expire at the end of the General Meeting to be called in 2006 to consider the accounts for the fiscal year 2005/06. Renewal of directorship for another 4-year period has been proposed to this General Meeting. Number of ALSTOM shares held: 491. Other current directorships and positions: In France: Chief Operating Officer of BNP Paribas; Director of Bouygues; Director of Société Foncière, Financière et de Participations; Director of Nexans; Member of the Supervisory Board of Lagardère. Non-voting Director of Safran, Scor and Scor Vie. Within BNP Paribas group: Chairman of BNP Paribas Emergis SAS; Chairman of Compagnie d Investissement de Paris SAS; Chairman of Financière BNP Paribas SAS; Director of Verner Investissements SAS; Non-voting Director of Exane (a subsidiary of Verner). In foreign countries: Director of Erbé SA (Belgium). Within BNP Paribas group: Chairman of BNP Paribas (Switzerland) SA; Chairman of BNP Paribas UK Holdings Ltd. Past directorships and positions (held during the past five years): In France: Permanent representative of CIP at FFP (Société Foncière, Financière et de Participations) and Sommer SA. Within BNP Paribas group: Director of Capstar Partner SAS. In foreign countries: Within BNP Paribas group: Chairman of BNP Paribas Bank Polska; Chairman and Director of BNP US Funding; Director of BNP Paribas Canada; Director of BNP Paribas Peregrine Limited (Malaysia); Director of BNP Paribas Prime Peregrine Holdings Limited (Malaysia); Director of BNP Paribas Securities Corp (United States); Director of BNP Paribas UK Holdings Limited. Biography: Mr Georges Chodron de Courcel graduated in 1971 from École Centrale de Paris and had a degree in Economics in 1972. He began his career with Banque Nationale de Paris where he has had a succession of responsibilities. After having spent 6 years in Corporate Banking, he was named Head of Equity Research ant then Head of Asset Management. In 1989, he was appointed Director of Corporate Finance and Chief Executive Officer of Banexi. In January 1991, he became Head of Capital Markets and in September 1996, was appointed Chief Executive International and Finance of BNP. After the merger with Paribas in 1999, he has been named Head of Corporate and Investment Banking and was Member of the Executive Committee. > Pascal COLOMBANI * Born on 14 October 1945 in Neuilly-sur-Seine, France. Nationality: French. Professional address: AT Kearney - 7 place d Iéna - 75016 Paris. Appointed as a Director on 9 July 2004. Directorship will expire at the end of the General Meeting to be called in 2008 to consider the accounts for the fiscal year 2007/08. Number of ALSTOM shares held: 95. Other current directorships and positions: In France: Associate Director of A.T. Kearney; Non-executive Director of Rhodia; Non-executive Director of the French Institute of Petroleum (IFP). Member of the French Academy of Technologies. In foreign countries: Non-executive Director of British Energy Group plc. Past directorships and positions (held during the past five years): In France: Chairman of the Supervisory Board of Areva (2001-2003); Director of EDF (2000-2003); Director of Cogema (2000-2003); Chairman and Chief Executive Officer of CEA (2000-2002) Director of Framatome (2000-2001); Chairman of the Board of École Normale Supérieure de Cachan (2001-2003); Chairman of the Board of the French Association for the Advancement of Science (AFAS) (2003-2006); 4 CORPORATE GOVERNANCE * Independent Director. 163

The Board of Directors and its Committees In foreign countries: Biography: Mr Pascal Colombani is a graduate of École Normale Supérieure and holds a doctorate in Nuclear Physics. His career has been balanced between research and industry: he started as a research associate at the French Centre for National Research (CNRS) before joining Schlumberger where he spent almost twenty years in various management positions in Europe, the USA, and Japan. In this last position, while President of Schlumberger KK in Tokyo, he also initiated the implantation of an R&D centre in Beijing. Director of Technology at the French Ministry of Research from 1997 to 1999, he became Chairman and Chief Executive Officer of the French Atomic Energy Commission (CEA) in 2000, where he initiated new programmes in nuclear, defence, and microelectronics and the restructuring of the CEA industrial holdings, resulting in the creation of Areva, the nuclear engineering conglomerate. He chaired the Board of Areva until 2003. Pascal Colombani is an Associate Director and Senior Advisor on Innovation, High Technology and Energy at ATKearney, the management consultancy. He is also member of the Boards of Rhodia, British Energy Group plc, and of the French Institute of Petroleum. He is a member of the French Academy of Technologies. > James B. CRONIN * Born on 14 October 1937 in Greenford, United Kingdom. Nationality: British. Appointment as Director renewed on 3 July 2002. Directorship will expire at the end of the General Meeting to be called in 2006 to consider the accounts for the fiscal year 2005/06. Renewal of directorship for another 4-year period has been proposed to this General Meeting. First mandate: 14 May 2001 3 July 2002. Number of ALSTOM shares held: 446. Other current directorships and positions: In France: In foreign countries: Director of ALSTOM SA (Proprietary) Limited. Past directorships and positions (held during the past five years): In France: In foreign countries: Non-executive Director of AWG plc. Biography: Mr James B. Cronin was appointed Managing Director and member of the Board of GEC ALSTHOM N.V. in 1989 and has been ALSTOM Deputy Chief Executive Officer until June 2000. > Gérard HAUSER * Born on 29 October 1941 in Paris, France. Nationality: French. Professional address: Nexans - 16 rue de Monceau - 75008 Paris. Appointment as a Director renewed on 9 July 2004. Directorship will expire at the end of the General Meeting to be called in 2008 to consider the accounts for the fiscal year 2007/08. First mandate: 11 March 2003 9 July 2004. Number of ALSTOM shares held: 424. Other current directorships and positions: In France: Chairman and Chief Executive Officer of Nexans; Director of Aplix; Director of Ipsen; Director of Faurecia. In foreign countries: Past directorships and positions (held during the past five years): In France: Chairman and Chief Executive Officer of Alcatel Câble France; Chairman of Alcatel Cables & Components; Director of Saft; Director of Framatome; Director of Electro Banque. In foreign countries: Director of Liban Cables; Member of the Supervisory Board of Alcatel Deutschland GmbH; Director of Alcatel Maroc. Biography: From 1965 till 1975, Mr Hauser covered several high-duty positions in the Philips Group. From 1975 till 1996, he worked for the Pechiney Group, as Chairman and Chief Financial Officer of Pechiney World Trade first and of Pechiney Rhénalu later; he was later appointed Senior Executive Vice President of American * Independent Director. 164

The Board of Directors and its Committees National Can and member of the Group Executive Board. Mr Hauser joined Alcatel Câble France in 1996 and became President of its Cable and Component Sector in 1997. In 2000, he was appointed Chairman and Chief Executive Officer of Nexans. > James William LENG * Born on 19 November 1945 in Sunderland, England Nationality: British. Professional address: Second Floor, 30 Millbank London SW1P 4WY England. Appointed on 18 November 2003 as a Director. Directorship will expire at the end of the General Meeting called in 2007 to consider the accounts for the fiscal year 2006/07. Number of ALSTOM shares held: 25. Biography: Mr Jim Leng was appointed as a non-executive Director of the Company in November 2003. He is also Chairman of Corus Group plc, a non-executive Director of Pilkington plc and Hanson plc where he is Senior Independent Director. He was the Chief Executive of Laporte plc from 1995 until June 2001. In May 2005, he retired as a Director and Chairman of IMI plc. > Francis MER * Born on 25 May 1939 in Pau, France. Nationality: French. Appointed as a Director with effect on 1 April 2005. Directorship will expire at the end of the General Meeting to be called in 2008 to consider the accounts for the fiscal year 2007/08. Number of ALSTOM shares held: 125. 4 Other current directorships and positions: In France: Other current directorships and positions: In France: Director of Rhodia. In foreign countries: Chairman of Corus Group plc; Chairman of Laporte Group Pension Trustees Ltd; Non-executive Director of Pilkington plc; Non-executive Director of Hanson plc; Member of the Supervisory Board of CFS Holdings B.V.; Director of Pregis Holding I Corporation; Director of Pregis Holding II Corporation. Governor of the National Institute of Economic and Social Research. Fellow of the Institute of Marketing. In foreign countries: Director of Adecco (Zurich); Director of Inco (Canada). Past directorships and positions (held during the past five years): In France: Co-Chairman of Arcelor (until April 2002); French Minister of the Economy, Finance and Industry (from May 2002 up to March 2004). In foreign countries: CORPORATE GOVERNANCE Past directorships and positions (held during the past five years): In France: In foreign countries: Director of JP Morgan Fleming Mid Cap Investment Trust plc (27-01-03/30-04-04); Non-executive Chairman of IMI plc (01-01-05/13-05-05); Vice President of Chemical Industries Association Limited (19-11-98/30-06-01); Chairman of Doncasters Group Limited (03-08-01/09-06-03); Chief Executive Officer of Laporte plc (01-10-95/30-06-01); Non-executive Director of Lennox Managements Limited (06-04-04/19-01-06). Biography: Mr Francis Mer is a graduate of the École Polytechnique and the Paris École des Mines. He started his career in the Saint- Gobain Group in October 1970, he was Managing Director of Saint-Gobain Industries from 1974 till 1978 and in September 1978 he was appointed Deputy General Manager of Saint-Gobain Group, in charge of the Industrial Policy. In July 1982, Mr Mer became Chairman and Chief Executive Officer of Pont-à-Mousson SA and Manager of the Waterways & Mechanics business of Saint-Gobain Group. In September 1986, the French State, shareholder of the Group, decided to merge Usinor and Sacilor and appointed Mr Mer Chairman of the new steel group. In July 1995, Usinor Sacilor was privatised and the Board of Directors appointed Mr Mer * Independent Director. 165

The Board of Directors and its Committees Chairman on 10 October 1995. He was Chairman of Cockerill Sambre from 1999 to 2002. From 1988 till 2002, Mr Mer was President of the French Steel Federation (FFA), he was also Chairman of Eurofer (the European steel manufacturer association) from 1990 till 1997, of International Iron and Steel Institute (IISI) from October 1997 till October 1998, of the Technical Research National Association (ANRT) from 1991 till 2002, of Enterprise for the Environment (EPE) and the Industry Club. He was Co- Chairman of the Arcelor Group, which resulted from the merger of Arbed, Aceralia and Usinor. Mr Mer was Minister of the Economy, Finance and Industry from May 7, 2002 till 31 March 2004. He was also Chairman of the Evaluation Committee of the Ministerial Reform Strategies, and Chairman of the Foundation for political innovation until June 2005. > Denis SAMUEL-LAJEUNESSE Born on 14 March 1948 in Paris, France. Nationality: French. Professional address: Agence des participations de l État 139 rue de Bercy - 75572 Paris Cedex 12. Appointed on 8 July 2004 for a three-year period as Director representing the French State. Other current directorships and positions: In France: Director of Thalès; Director of France Télécom; Director of Gaz de France; Member of the Supervisory Board of Caisse Nationale de Prévoyance CNP Assurances ; Denis Samuel-Lajeunesse is also Managing Director of the French Government Shareholding Agency at the French Ministry of the Economy, Finance and Industry. In foreign countries: Past directorships and positions (held during the past five years): In France: Director of Air France. In foreign countries: Biography: Since 2003, Mr Denis Samuel-Lajeunesse is Managing Director of the French Government Shareholding Agency at the French Ministry of the Economy, Finance and Industry. Mr Samuel-Lajeunesse is also Director of ALSTOM, Gaz de France and Thalès, and a member of the CNP Supervisory Board. From 1973 till 1983, Mr Samuel-Lajeunesse was notably in charge of supervision of the management of the State treasury, and financial and exchange markets at the Treasury Department and Alternate Executive Director for France at the International Monetary Fund in Washington (from 1977 till 1979). Mr Samuel-Lajeunesse was Deputy-Assistant Secretary of International Affairs at the Treasury Department from 1983 till 1985, and Deputy-Assistant Secretary of the Financial Market from 1985 till 1986. In 1986, Mr Samuel-Lajeunesse was appointed Foreign Affairs Assistant Secretary at the Treasury Department and was appointed member of the EEC Monetary Committee and co-president of the Club of Paris. In 1992, Mr Samuel-Lajeunesse was appointed Chairman and Chief Executive Officer of Lyonnaise de Banque, a commercial bank and subsidiary of CIC; at the same time, he was Chairman and Chief Executive Officer of Banque de Vizille, a subsidiary of Lyonnaise de Banque. In 2003, Mr Samuel-Lajeunesse was appointed Managing Director of the French Government Shareholding Agency newly created at the Ministry of Economy, Finance and Industry. Mr Samuel-Lajeunesse is a graduate of Institut d Études Politiques de Paris and he has a Master in Economics at Université de Paris-Assas. He is also a former graduate of the École Nationale d Administration. * * * To the Company s knowledge, no member of the Board of Directors: has been involved in any conviction in relation to fraudulent offences for the last five years and/or has been the subject of any official public incrimination and/or sanctions by statutory or regulatory authorities; has been associated in his/her capacity of manager in any bankruptcies, receiverships or liquidations for the past five years; has been disqualified by a court from acting as a member of an administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the business of any issuer for the past five years. To the Company s knowledge, there is no family relationship among the members of the Company s Board of Directors. Furthermore, to the Company s knowledge there is no conflict of interest between any duty of the members of the Board of Directors and their private interests and/or other duties. Mr Denis Samuel-Lajeunesse is General Manager of the Agency of State Participations (APE) whose mission is to act as the State shareholder, protecting the State s capital interests when managing its financial interests. In this respect, APE manages 166

The Board of Directors and its Committees the participations in companies having commercial relations with ALSTOM or having potentially competing businesses (EDF, GDF, Areva, SNCF, RATP). The representatives of the State shareholder to the corporate bodies of these companies see to perform their functions regardless of any other State participations elsewhere. Therefore, they do not allow themselves to participate in resolutions on any matter that may put them in a situation of conflict of interest. In case of conflict of interests, according to the Director s Chart annexed to the Board of Directors Internal Rules and Regulations, any Director must inform the Board as soon as he/she is aware of any conflict of interests albeit potential and he/she must abstain from participating to discussions on the conflicting subject matter and from voting the resolution thereby. In case of permanent conflict of interest, the Director must resign. To the Company s knowledge, no settlement or agreement has been reached with shareholders, clients, suppliers or others to appoint a member of the Board of Directors. The French government has appointed Mr Denis Samuel-Lajeunesse, pursuant to the 30 October 1935 French law decree, regulating the French State representation in the Boards of Directors of those companies where the French State holds at least 10% of capital. To the Company s knowledge, there is no service contract linking any members of the Board of Directors to the Company or to any of its subsidiaries and granting them any benefits. Changes in the membership of the Board of Directors during the fiscal year Following Mr George Simpson s decision to retire from the Board at the end of the past fiscal year, the Board of Directors co-opted Mr Francis Mer as a Director, effective as of 1 April 2005, for the remaining term of the mandate of his predecessor. This nomination has been approved by the shareholders meeting of 12 July 2005. As announced, the French State has agreed to sell its entire stake in the Company capital to Bouygues in the near future. As Bouygues will become the largest shareholder of the Company, it is appropriate that Bouygues be represented at the Board of Directors. As of the date of the convening of the General Shareholders Meeting, the date on which the French State will sell its stake to Bouygues is not yet known, since the transaction is subject to conditions as described in Management discussion and analysis on consolidated financial statements as at 31 March 2006 Overview Recent Developments. For this reason, it is proposed to the Ordinary Shareholders Meeting convened on 28 June 2006 to appoint Messrs Olivier Bouygues and Olivier Poupart-Lafarge, of Bouygues, as Directors of the Company, conditional upon the effective purchase by Bouygues of the stake held by the French State. Mr Denis Samuel-Lajeunesse has announced to the Company that he will resign from the Board upon completion of the purchase by Bouygues of the stake held by the French State. Mr Francis Mer has also indicated to the Company that he will retire from the Board upon completion of such purchase. Evaluation of the Directors independence According to the AFEP/MEDEF report and as set forth in the Board of Directors Internal Rules and Regulations, the Board meeting of 16 May 2006 re-examined the criteria for the Directors independence approved last year and reviewed the situation of each Director in the light of these criteria based on those proposals made by the Nominations and Remuneration Committee which the Board had accepted. Like the year before, the Board considered that a Director is independent when he or she has no relationship of any kind with the Company or its Management, or with any of its consolidated affiliates, that could compromise the independence of his or her judgement; the Board restated the following criteria: a Director is not an employee or a Corporate Officer ( mandataire social ) of the Company or of one of its consolidated subsidiaries; a Director is not a Corporate Officer ( mandataire social ) of a company in which the Company holds, either directly or indirectly, a directorship, or in which a directorship is held by an employee or a Corporate Officer ( mandataire social ) of the Company; a Director is none of the following (whether directly or indirectly): a customer, supplier, investment banker or commercial banker in each case, which is material for the Company or its Group, or for which the Company or its Group represents a material proportion of the entity s activity; a Director does not have any close family ties with a Corporate Officer ( mandataire social ) of the Company; a Director has not been an auditor of the Company for the past five years; a Director has not been a Director of the Company for more than twelve years; a Director does not hold, control, or represent a shareholder who holds alone or in concert more than 10% of the Company s share capital or voting rights. 4 CORPORATE GOVERNANCE 167

The Board of Directors and its Committees These criteria are largely inspired by the AFEP/MEDEF report criteria, but are not strictly identical. Based on these criteria, the Board of Directors determined that six members should be considered as independent Directors (Mr Jean Paul Béchat, Mr Pascal Colombani, Mr James B. Cronin, Mr Gérard Hauser, Mr James William Leng and Mr Francis Mer) out of the ten members of the Board of Directors. As was the case last year, the Board s determination that James B. Cronin should be considered as independent took into account the Board s view that his directorship in a company in which the Company holds only 5% of capital, had not compromised, and were not likely to compromise, the independence of his judgement in the exercise of this directorship. The Board s view that Mr Gérard Hauser should be considered to be independent took into account the commercial relationship between Nexans and ALSTOM Group, which in the Board s view is not material, and that a Director of the Company is also Director of Nexans, as neither of these facts were likely to compromise the independence of his judgement. After having taken into account the commercial relationship between the companies in which he holds a position and the Group, which in the Board s view is not material, the Board s opinion is that Mr Pascal Colombani should be considered to be independent. The Board also determined that Mr Francis Mer should be considered to be independent. In addition to Mr Patrick Kron, Chairman & Chief Executive Officer of the Company, Ms Candace Beinecke who is Chair of Hughes Hubbard & Reed LLP, one of the Company s principal legal advisors, Mr Denis Samuel-Lajeunesse, representative of the French State holding approximately 21% of the Company s share capital, and Mr Georges Chodron de Courcel who is Delegated Chief Executive Officer of BNP Paribas, one of the core banks and financial advisors of the Company and party to the refinancing packages signed in September 2003 and May 2004 with various banks and the French State, are not independent Directors. In the event that Messrs Olivier Bouygues and Olivier Poupart-Lafarge become members of the Board, they will not be considered independent Directors. Thereby, the Board of Directors qualified six members as independent, which is proportionally more than half of the Board members as recommended by the AFEP/MEDEF report for those companies with a widely spread share capital and without any controlling shareholders and which has been approved by the Board, as it is part of its Internal Rules. To the extent that Messrs Samuel-Lajeunesse and Mer are replaced by Messrs Olivier Bouygues and Olivier Poupart-Lafarge, five members of the Board will be qualified as independent THE AUDIT COMMITTEE The Audit Committee was formed in 1998 and is currently composed of Mr Jean-Paul Béchat, Chairman of the Committee since 1 January 2004 and of Mr James B. Cronin, Mr Denis Samuel-Lajeunesse and Mr Francis Mer. Three-quarters of the members of the Audit Committee are independent, including the Chairman. This corresponds to a proportion that is higher than the two-thirds of Directors recommended by the AFEP/MEDEF report. THE NOMINATIONS AND REMUNERATION COMMITTEE The Nominations and Remuneration Committee was formed in 1998 and is currently composed of Mr James William Leng, Chairman of the Committee since 18 November 2003, Ms Candace Beinecke, Mr Georges Chodron de Courcel, Mr Pascal Colombani and Mr Gérard Hauser. A majority of the members of the Committee are independent, including the Chairman of the Committee complying with the AFEP/MEDEF report recommending that there be a majority of independent members on Remuneration Committees. For more information on the organisation, functioning and activity of each Committee during the previous fiscal year, please see the enclosed Report of the Chairman of the Board of Directors as per Article L. 225-37 of the French Commercial Code. 168

The Executive Committee THE EXECUTIVE COMMITTEE As of 16 May 2006, the Executive Committee is composed of the following persons: > Patrick KRON Chairman of the Board and Chief Executive Officer. > Philippe JOUBERT Executive Vice President; President, Power Turbo-Systems / Power Environment Sector (1). > Philippe MELLIER Executive Vice President; President, Transport Sector. > Philippe JAFFRÉ Executive Vice President. > Walter GRAENICHER President, Power Service Sector. > Patrick DUBERT Senior Vice President, Human Resources. > Henri POUPART-LAFARGE Chief Financial Officer. > Donna VITTER General Counsel. > Patrick BOISSIER President, Marine Sector. The Executive Committee met 11 times during the fiscal year. 4 THE DISCLOSURE COMMITTEE In 2003, the Chairman and Chief Executive Officer and the Chief Financial Officer set up a Disclosure Committee, which is not a Committee of the Board of Directors. The members of the Corporate Disclosure Committee are: the Chief Financial Officer, the General Counsel, the Chief Accounting Officer, the Vice President of Management Control, the Vice President of Tenders & Projects Control, the Vice President Internal Audit and a member of the Senior Management of each of the Sectors. The Corporate Disclosure Committee meets at least twice a year. The Disclosure Committee assists the Chairman and Chief Executive Officer and the Chief Financial Officer in complying with their obligations of prompt and correct disclosure of sixmonth and yearly financial information as well as in evaluating the effectiveness of ALSTOM s Disclosure Controls and Procedures (as defined below). To pursue its goal, the Committee has to: make sure that the Group is provided with the controls and procedures ensuring (i) that information required by ALSTOM to be disclosed to investors and the French Stock Market Authority ( AMF ), Euronext Paris and any other Stock Market Authority as the case may be, is verified and reported on a timely basis, and (ii) that adequate and appropriate information is accumulated and communicated to management, including the Chairman and Chief Executive Officer and Chief Financial Officer, to allow timely decisions to be made regarding such disclosure ( Disclosure Controls and Procedures ); at least twice a fiscal year, review the Disclosure Controls and Procedures and recommend the Chairman and Chief Executive Officer and the Chief Financial Officer the amendments as it deems appropriate; review the content of ALSTOM s Document de référence and of any other required document to be filed with the AMF (or with any other stock market authority) containing material financial and other information as well as any other information which could have an impact on ALSTOM s share price ( ALSTOM Disclosures ); evaluate the effectiveness of ALSTOM s Disclosure Controls and Procedures as of the last day of each fiscal year and report to the Chairman and Chief Executive Officer and to the Chief Financial Officer, disclosing any material shortcomings thereto; report to the Chairman and Chief Executive Officer and Chief Financial Officer any fraud, whether or not material, that comes to the attention of the Committee involving management CORPORATE GOVERNANCE (1) Philippe JOUBERT continues to ensure the coordination of the Power-related Sectors and the supervision of the International Network. 169

The Disclosure Committee or other employees who have a significant role in ALSTOM s internal controls; review its charter annually and make such recommendations to the Chairman and Chief Executive Officer and Chief Financial Officer regarding any changes as it deems appropriate; and take charge of any other responsibilities as assigned by the Chairman and Chief Executive Officer and Chief Financial Officer. Each of ALSTOM s Sectors has established a Sector Disclosure Committee, which reviews drafts of all portions of ALSTOM Disclosures (as defined above) that relate to its Sector s activities and operations (financial and otherwise), and evaluates the effectiveness of the operation of the Disclosure Controls and Procedures within its Sector. Each Sector Disclosure Committee shall report to the Disclosure Committee, either directly or through its representative on the Disclosure Committee, as to the results of its review of ALSTOM Disclosures applicable to its Sector, and as to its evaluation of the effectiveness of the operation of the Disclosure Controls and Procedures within its Sector. CHAIRMAN S REPORT PURSUANT TO ARTICLE L. 225-37 OF THE FRENCH COMMERCIAL CODE Pursuant to Article L. 225-37 of the French Commercial Code, the Chairman of the Board of Directors presents in this report drafted with respect to fiscal year ended on 31 March 2006, the conditions of preparation and organisation of the work of the Board of Directors, the limitations to the Chief Executive Officer s powers and the internal control procedures implemented by the Company within the Group. This report has been reviewed by the Board of Directors held on 16 May 2006, after the Nominations and Remuneration Committee had reviewed the section relating to the functioning of the Board of Directors and its Committees, and after the Audit Committee had reviewed the section relating to the internal control procedures. In a report attached to their general report, the external Auditors will present their observations on this report, limited to the internal control procedures in respect with the preparation and the processing of accounting and financial information. CONDITIONS OF PREPARATION AND ORGANISATION OF THE WORK OF THE BOARD OF DIRECTORS Organisation and functioning of the Board of Directors > Internal Rules and Regulations The methods of organisation and functioning of the Board of Directors are defined by the Internal Rules and Regulations of the Board in addition to applicable laws and regulations. The rules are reviewed every year by the Board in order to decide whether its provisions need amending to better comply to the current rules or to improve the efficiency and the performance of the Board and its Committees. These rules notably state that the Board of Directors: shall, to the extent practicable, be comprised of at least half of independent members as determined and reviewed annually by the Board on the basis of a proposal to be made by the Nominations and Remuneration Committee; shall define, upon the proposal of the Chief Executive Officer, the Group s strategy, and shall regularly review the Group s strategic options as previously defined, supervise management and verify the quality of information supplied to shareholders and the financial markets; shall consider prior to implementation, any operation that is not part of the Group s announced strategy or that could significantly affect or materially modify the financial structure or results of the Group; 170

Chairman s report shall examine and approve any plans for major acquisitions or divestitures, the annual budget and the medium-term plan; shall be kept regularly informed of developments in the Group s Business activities and results, its financial position, indebtedness, cash position and, more generally, any Group commitments, and may request information about the foregoing at any time; shall create one or more specialised Committees and shall define their composition and responsibilities; shall approve the composition of the Group s Executive Committee; shall set the remuneration of the Corporate Officers ( mandataires sociaux ). The Board must examine its functioning at least once a year and implement a formal assessment every three years. At least four meetings are scheduled each year. Information to be supplied to the Board of Directors Before each Board meeting, the Directors shall receive, sufficiently in advance and with proper notice, a file on the matters on the agenda requiring prior examination and consideration. In addition to Board meetings, the Chairman systematically informs the Directors of any event or development that may have a material impact on operations or on any information previously communicated to the Board or on any matters discussed during the meetings; the Chairman also regularly forwards to the Directors any material information regarding the Company. The Directors receive copies of any press releases issued by the Company which have not been specifically approved by the Board, as well as the main articles appearing in the press and reports by financial analysts. At any time, the Directors may request further information from the Chairman of the Board, who shall assess whether the documents requested are pertinent. Any Director is entitled to meet with the Group s Senior Executives even without the Corporate Officers ( mandataires sociaux ) of the Company. Board Committees Since the Company s listing in 1998, the Board of Directors has created two Committees, the Audit Committee and the Nominations and Remuneration Committee, each with the role of studying and preparing the Board s main deliberations. Each Board meeting is generally preceded by a meeting of one or of the two Committees depending on the items on the Board meeting agenda. The Committees report to the Board on their work and observations, and submit their opinions, proposals or recommendations. The composition, the powers and the procedures of each Committee are also defined by Internal Rules and Regulations put forward by each Committee involved and approved by the Board of Directors. Each Committee reviews every year its Internal Rules and Regulations and can submit any modifications that it considers appropriate to the Board. The participation of any Director to the Committees is decided according to the Directors experience and skills. According to the Audit Committee Internal Rules and Regulations, at least two-thirds of the Committee must be independent Directors. As for the Nominations and Remuneration Committee, the Rules recommend that half of its members are independent. In the context of its work, each Committee can meet any Group executive it wishes, resort to the services of experts on its own initiative and ask for any information useful for it to perform effectively. Moreover, each member of a Committee may propose that a meeting be held if he or she considers this necessary in order to discuss a particular issue. Each Committee prepares a report presenting its work during the past fiscal year; this report is included in the Annual Report (see hereinafter). Evaluation of the functioning of the Board and of the Committees The Board carried out the first formal self-assessment of its functioning in May 2004 pursuant to its rules and regulations. 4 CORPORATE GOVERNANCE The Directors can also be asked to join workgroups organised by the Company whose subject matters will then be presented to the Board. This evaluation was based on a questionnaire prepared by the Nominations and Remuneration Committee addressed to each Director. The Board of Directors discussed a summary of 171

Chairman s report the individual assessments collected by the Committee on an anonymous basis. A similar procedure was set in place to evaluate the workings of each Committee in May 2004. The Board s evaluation mainly covered the composition of the Board, the frequency and length of the meetings, the issues discussed, the information provided to the members and the interaction with the Group s executives. Generally, the Directors had a positive opinion of the quality of the information made available to them, whose continuous improvement they appreciated, and of the preparation of the Board decisions. To continue on the same line, the following principles were agreed: organisation of specific meetings focused on strategy, human resources, risk management or any other subjects according to priorities and needs; increased participation to Board meetings by Group executives, in particular by the Sectors Presidents; possibility for the non-executive Directors to meet without the executive Directors presence, like in the past fiscal year, when a full Board session was followed by a non-executive session. These principles were set up in September 2004 with a Board meeting dedicated to the human resources and social policy of the Group presented to the Board by the Senior Vice President of human resources. These principles were also implemented in March 2005 (and then in March 2006), when the Sector Presidents attended the Board meeting discussing the budget for the next fiscal year and the three-year plan, and when Directors met without the Chairman and Chief Executive Officer to discuss the evaluation of his performance. The outcome of May 2004 assessments led the Board to amend some Internal Rules and Regulations as well as the Director s Chart (proportion of independent Directors in the Board raised from one-third to half the members, reduction to three of the minimum number of Committee members to allow greater flexibility, holding of at least 1,000 shares per Director since then reduced to 25 shares as a result of the consolidation of the shares comprising the share capital). In May 2005 and then in May 2006, in compliance with their internal rules, the Board and each Committee reviewed their performance during the past fiscal year on the basis of questionnaires prepared by the Nominations and Remuneration Committee, and reviewed their internal rules. The reviews confirmed that the performance of the Board and its Committees was satisfactory and identified a few proposals to further improve the Board s performance and efficiency (see Activity report of the Board for fiscal year 2005/06 below). Activity report of the Board for fiscal year 2005/06 The Board of Directors met seven times during the fiscal year (eight times during the previous fiscal year) out of which two times on exceptional convening. The average attendance was 88.3% (including telephone and videoconference participation) whereas it was 86.5% in 2004/05. As recommended in the first formal evaluation of the Board s performance in May 2004, the participation of the top managers of the Group to the Board s meetings has increased. The Board discussed and passed its resolutions on all main topics regarding the Group. The Board reviewed and approved the Company and the consolidated accounts and profit and loss statements for the fiscal year 2004/05 as well as the consolidated accounts for the first half of the fiscal year 2005/06 and the management reports. For the first time, the Board also reviewed the financial information on the transition to the IAS/IFRS rules. The Board approved the terms of the transfer of the Marine Sector for which it has debated on every material step and it regularly followed and discussed the development of the sale files and any other actions relating to its obligations with the European Commission. The Board kept on reviewing the financial situation of the Group, the evolution of the cash flow and of the debt situation. The Board discussed and approved the terms of the renewal of the bonding programme, it renewed the financial delegation of powers to the Chairman and Chief Executive Officer for the issue of bonds and it approved the debt-refinancing programme carried out during the fiscal year. According to the conclusions of the May 2005 performance review, a Board meeting was held on one of the main industrial sites related to the Power Business, in order to arrange a visit of the site and a thorough presentation of the Business and of the strategic plan of Power Turbo-Systems / Power Environment, with the participation of the Sectors Presidents. 172

Chairman s report During the annual meeting attended by the Sector s Presidents, the Board reviewed and approved the 2006/07 budget and the three-year forecast; it also discussed the Group s strategy in the different lines of Business during its annual session attended by each Sector s President. During the financial year, the Board of Directors also: was kept regularly informed and discussed the main legal proceedings and investigations involving the Group; discussed and approved the description of the main risks faced by the Group and included in the Company s Annual Report; adopted the resolutions and the documents required by law concerning the annual Shareholders General Meeting and proposed to consolidate the Company s shares; discussed and approved the results of the annual performance evaluation of the Board and its Committees as submitted by the Nominations and Remuneration Committee, of the Chairman s report attached to the Management report, the update of the Internal Rules and Regulations of the Board, the Directors independence and the new rules of abstention and intervention on the Company s shares; reviewed the Chairman and Chief Executive Officer s performance during its annual meeting without him attending such meeting; upon the Nominations and Remuneration Committee s proposal, the Board resolved on the terms of remuneration of the Company s Corporate Officers ( mandataires sociaux ), a stock option plan and the principle of setting up a plan of free distribution of shares to the Group s employees upon condition that the operational margin objectives and the free cash flow of the Group are met in fiscal year 2005/06; the Committees Chairmen have submitted their Committee work reports to the Board. The external Auditors were invited to two of the Board meetings. Audit Committee The general purpose of the Committee is to assist the Board of Directors with ensuring the following: (i) the completeness, quality, accuracy and truthfulness of the financial statements of the Group and other related financial information or reports provided to the shareholders, the public and Stock Exchanges Authorities; (ii) the Company s compliance with legal and regulatory requirements; (iii) the performance of the Company s internal audit function; (iv) a system of internal controls and accounting and financial reporting processes in general. In fulfilling its role, the Committee is in charge of: reviewing the scope of consolidation and examine all draft financial statements and related reports which will be submitted to the Board of Directors for approval and to discuss them with Management and the external Auditors; reviewing with the Management and the external Auditors the generally accepted accounting principles and methods used in the preparation of the accounts, as well as the alternative applications of accounting principles, their relevance, and also any change in accounting principles, methods or rules; reviewing the report on the critical accounting policies and other key issues and decisions related to financial statements and related reports, and other material written communications between the external Auditors and Management; reviewing the report on the applied main financial principles, any other matter and material choice relating to the financials and to the reports thereto, as well as reviewing all material written communications between the external Auditors and the General Management; reviewing the Management s report on risks exposure (including litigation risks) and significant off-balance sheet commitments; reviewing with the external Auditors the nature, scope and results of their audit and work performed, any comments and suggestions they may have relating notably to internal controls, accounting practices and the internal audit programme; reviewing and evaluating at least annually the internal control procedures including for financial reporting contributing to the preparation of the accounts, including the system of risk assessment and risk management and the organisation and functioning of internal audit; reviewing and controlling the external Auditor selection process and making recommendations to the Board of Directors on their appointment or renewal, to expressing an opinion on the amount of fees proposed to be paid to the external auditors by the Company, giving prior authorisation of any non-audit services directly complementary to the audit of the accounts as well as the related fees and ensuring the external Auditors independence. The Committee may also perform any other activities as the Committee or the Board of Directors deems necessary or appropriate. The Committee is entitled to seek any external assistance it may deem necessary. Unless the Committee has resolved against it, the external Auditors will assist to all its meetings. 4 CORPORATE GOVERNANCE 173

Chairman s report Activity report for fiscal year 2005/06 The Audit Committee met three times during fiscal year 2005/06 (four times during fiscal year 2004/05). The attendance level was 92% (79% for fiscal year 2004/05). The Chief Financial Officer, the Head of Corporate Accounting and at least one representative of the two independent audit firms were in attendance at all three meetings. The General Counsel and the Vice President internal audit participated in all meetings. Other Senior Management including the Transport President, the Senior Vice President internal control, the Vice President of Tenders and Projects Control, and several Chief Financial Officers of Sectors attended as required by the Committee. The Committee reviewed the statutory and consolidated financial statements and Document de Référence for the fiscal year ended 31 March 2005 prior to its filing with the French Stock Market Authority ( Autorité des marchés financiers ). The IFRS consolidated interim financial statements as of 30 September 2005 were also reviewed. As part of this analysis, the Committee reviewed the restated consolidated financial statements as of 31 March 2005 in accordance with IFRS with the accompanying notes reconciling the primary accounts set up in French Gaap with IFRS opening balance sheet and consolidated financial statements. As part of its work, the Committee considered major risk contracts and significant accounting policies. Business risks including contracts execution risks were reviewed, as were the main legal risks. The Committee also noted the work performed by the Disclosure Committee. Work undertaken to improve internal control and risk control was considered. It also reviewed the results of internal control questionnaires set up in 2005 with the aim of improving internal controls, eliminating weaknesses and ensuring compliance with applicable regulations. A new computer-based tool was acquired to ensure that progress is monitored at all levels on a regular basis. The methodology used involved scoping the Group and understanding the importance of each unit, to document and evaluate the controls, to identify weaknesses then to remediate, to test and solve issues and to report and provide evidence supporting conclusions reached. During fiscal year 2005/06 specific operational matters were also reviewed by the Audit Committee. The Head of Treasury presented the ALSTOM foreign exchange policy and details were given on definition and principles for tenders and contract execution. The Head of Treasury also went through the presentation of his department and gave details on a new computer-based tool implemented worldwide for foreign exchange management. The Chief Financial Officer made a specific presentation on pensions explaining assets and liabilities management as well as benefit policy. The Committee also evaluated its functioning and its internal rules, the Disclosure Committee Charter and Disclosure controls and procedures determined by it, as well as the External Auditors Charter. The Chief internal auditor presented the internal audit activity report for 2005 and indicated that there is increasing attention to internal control matters including at the Corporate Risk Committee through the internal control self-assessment questionnaire. The proposed internal audit programme for each of the next four years was tabled and approved. The External Auditor Charter includes listing of pre-approved services that can be performed within defined limits by the External Auditors. The Committee, at all its meetings, approved both the work to be performed by the external Auditors within its laid down guidelines and the fees involved. The External Auditors Charter also includes restricted non-audit services, which are not to be performed by the independent Auditors for any company in ALSTOM. The budgets for 2006/07 were received. The Committee reported on its work, provided comments and gave proposals to the Board. Nominations and Remuneration Committee The Committee reviews and makes proposals or gives its opinion to the Board of Directors on the following subjects: the separation or combining of the functions of Chairman of the Board and Chief Executive Officer of the Company; the nomination (or revocation) of the Chairman of the Board and of the Chief Executive Officer; the nomination of new Directors including in case of unforeseeable vacancy; in particular, the Committee organises an appropriate procedure for selecting future independent Directors and makes its own independent research on potential candidates prior to their being approached; 174

Chairman s report the nomination (or revocation), upon proposal of the Chief Executive Officer, of any other Corporate Officers ( mandataires sociaux ) and members of the Executive Committee; the succession plans for the Company s Corporate Officers; the application by the Company of corporate governance practices and the Board and Committees composition and functioning (including the Nominations and Remuneration Committee); the Company s definition of an independent Director and the list of independent Directors to be inserted in the Company s Annual Report; the compensation (fixed and variable) to be paid to each of the Corporate Officers, including compensation and benefits of any kind (including pensions and termination benefits) also paid to them by the companies belonging to the Group. The Committee notably reviews and defines the rules for determining the variable part of such compensation, ensures their coherence with the annual performance evaluation and the strategy of the Company, and thereafter controls the implementation of these rules; the Company s general policy relating to stock option plans including the granting, timing and frequency of allocations, and any proposed stock option plans including the proposed beneficiaries; the Company s general policy relating to employee share purchase schemes and any proposed schemes; the Directors fees and the conditions for their award. The Committee decides whether it will define, upon proposal of the Chief Executive Officer, the compensation and benefits of all or some of the members of the Executive Committee, including the principles and criteria used for their annual performance evaluation, in particular those for determining the variable part of their remuneration, or whether it will just be informed of these. The Committee also develops and recommends to the Board for its approval, a formal process for evaluating the functioning of the Board and its Committees to be implemented at least every three years and, without the presence of the Directors concerned, prepares the annual performance evaluation of the Chairman of the Board and of the Corporate Officers based on the principles applied to other Senior Corporate Executives. The Committee performs any other related activities as the Committee or the Board deems necessary or appropriate. Activity report for the fiscal year 2005/06 The Nominations and Remuneration Committee met three times during fiscal year 2005/06 (versus twice during fiscal year 2004/05), each time with a 100% attendance rate. The Nominations and Remuneration Committee discussed and proposed to the Board of Directors the terms and conditions to apply to the variable remuneration of the Chairman and Chief Executive Officer, including the pay-out for 2004/05, the detailed economic objectives for 2005/06 (operating margin, free cash flow, and gross margin in backlog all three objectives measured via two indicators: half-year results at September 2005, and fullyear results at March 2006), and the personal objectives. Taking into consideration the results of the survey on the Chief Executive Officers compensation conducted by its external advisor and after taking into account the Chairman and Chief Executive Officer s decision to waive any attendance allowance, the Committee recommended to the Board for the fiscal year 2005/06: to increase the Chief Executive Officer's base salary; to define his variable remuneration with a target at 100% (instead of 75%) and a maximum at 160% (instead of 120%). The Nominations and Remuneration Committee decided to carry out another comprehensive benchmark test of Chief Executive Officers remunerations at end 2005. The Nominations and Remuneration Committee also decided to carry out a benchmark test of Director fees, with the help of an external advisor. Following this study, the Nominations and Remuneration Committee recommended to the Board an increase of the Director fees, taking into consideration the fact that ALSTOM s position was below average and that the fees had not been increased for many years. Concerning shares and stock options, the Nominations and Remuneration Committee discussed the possibility of granting free shares to all employees, as a reward linked to the achievement of the two key economic indicators for 2005/06 (operating margin, free cash flow). The Nominations and Remuneration Committee examined in detail the characteristics of Stock Option Plan n 8 and of the Stock Appreciation Rights (designed for US managers), for 2005. 4 CORPORATE GOVERNANCE 175

Chairman s report The Nominations and Remuneration Committee also discussed the granting of stock options to the Chief Executive Officer, and decided to recommend it to the Board. As far as the People Review is concerned, the Nominations and Remuneration Committee was informed of the new People Review process, which assesses internal resources and possible promotions, and which is now deployed throughout the Group. The Nominations and Remuneration Committee discussed this topic with respect to the Executive Committee positions. Finally, regarding the Board s internal rules, the Nominations and Remuneration Committee reviewed an amendment and decided to recommend it to the Board. The Nominations and Remuneration Committee reported to the Board on all these matters, works and recommendations. Rules of conduct > The Director s Chart Attached to the Board of Directors Internal Rules and Regulations is the Director s Chart, defining the Directors rights and obligations, according to the Bouton report s recommendations. Before accepting his/her appointment, all Directors shall take cognisance of the legal and regulatory texts relating to his office, as well as of the Company by-laws, the internal procedures for the Board of Directors and this Chart. Any Director can refer to the Secretary of the Board at any time, regarding the application of these rules and the rights and obligations of his role. Any Director shall dedicate to his/her function all the required time and attention and shall attend unless truly prevented to do so all meetings of the Board of Directors and of the Committees which he is a member of, as well as all shareholders general Meetings. Pursuant to the Chart, each Director has a duty to inform the Board as soon as he/she is aware of a conflict of interest, even a potential one, and to abstain from attending discussions and from voting the resolution thereby. In case of permanent conflict of interest, the Director must resign. The Director s Chart reminds the Directors duty to comply with the Group s internal rules and, more generally, with the applicable legal or regulatory provisions regarding the Directors abstention from dealing on the Company s shares. Pursuant to the Group s internal rules as modified during the fiscal year with the Board s approval the purchase and sale of the Company s shares are not allowed: during the 30 calendar days before ALSTOM first six-month and annual results are disclosed to the public and until the second business day included after the date when the information has been disclosed to the public; during the 15 calendar days before the public disclosure of the sales and orders for the first and third quarters of the financial year and until the second business day included after the date when the information has been disclosed to the public, and in any case; when inside information is held and until the second business day included after the date when this information has been disclosed to the public. Pursuant to the Chart, each Director except for the French State representative shall hold the minimum number of shares set by the by-laws that is twenty-five shares since the Company s shares were consolidated at the rate of one new share for 40 existing shares. LIMITATIONS TO THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER S POWERS At the 11 March 2003 meeting, the Board of Directors voted for combining the roles of Chairman and Chief Executive Officer without any further limitations of power other than those provided by the law or by the Internal Rules and Regulations. The Internal Rules and Regulations of the Board indicate that the Board of Directors prior approval is required for any operation: that is not part of the Group s announced strategy or that could significantly affect it; that could materially modify the financial structure or results of the Group. The Board of Directors also examines and approves any plans for major acquisitions or divestitures. It examines and approves the annual budget and the medium-term plan. 176

Chairman s report INTERNAL CONTROL PROCEDURES The internal control procedures put into place by the Company at Group level are based on control guidelines prepared by a recognised body COSO (Committee of Sponsoring Organisations of the Treadway Commission). The system provides reasonable assurance that: operations are completed in an optimal manner; financial information and data are reliable; applicable laws and regulations are complied with at all times. Objectives The objectives of the internal control system are: primarily to monitor that there exists no material items that call into question the reliability of either the consolidated financial statements or the statutory financial statements; to control the risks resulting from the operations as well as to prevent the risk of error or fraud particularly in the accounting and finance areas. By essence, it cannot provide a guarantee that such risks have been totally eliminated. It must bring them down to an acceptable level. Definition of internal control Internal control consists of five inter-related components, which are all being implemented within the Group: control environment covering integrity, ethics, competencies, authorities, responsibilities and staff developments; risk assessment, i.e. the identification, analysis and minimising of relevant risks; control activities, namely policies and procedures that ensure that Management s instructions are applied; information and reporting: relevant information must be identified, captured and communicated in a format and timeframe to enable the relevant persons to carry out their responsibilities; and monitoring including internal check and internal control procedures as well as internal audit: a process that assesses the quality of the systems performance over time. > 1. Organisation of internal control procedures A. Key participants Senior Management The Chairman and Chief Executive Officer is directly responsible for the internal control system and for ensuring that internal control procedures are designed and operated effectively within the Group. Management at all levels is responsible for developing, operating and monitoring the systems of internal control and for providing necessary assurance that it has done so. Audit Committee The Audit Committee assists the Board of Directors in its oversight of: the completeness, quality and accuracy of the financial statements and related financial information; the Group s internal control procedures including in respect of accounting and financial reporting processes generally; and the performance of the audit function. In fulfilling its role, the Audit Committee reviews and evaluates at least once a year the internal control procedures including those relating to financial information, contributing to the preparation of the accounts. This includes the review and evaluation of the system of risk assessment and risk management (including contract and legal risks) and the organisation and functioning of internal audit. Within the Audit Committee, the scope of planned internal audit activities is reviewed in advance and the internal audit Department develops an annual plan taking account of the perceived risk and determines the allocation of resources. Internal audit Department The Vice President internal audit, who is in charge of the 20-member internal audit Department reports to the Chairman and Chief Executive Officer and works in close co-operation with the Chief Financial Officer and the General Counsel. The main role of the internal audit Department is to advise the Chairman and Chief Executive Officer and the Audit Committee on the adequacy and effectiveness of the systems of internal control in all phases of the Group s Business. 4 CORPORATE GOVERNANCE 177

Chairman s report It operates in accordance with the internal audit Charter approved by the Audit Committee and has the authority to examine any and all aspects of operations. In particular, the internal audit Department evaluates controls that promote: compliance with applicable laws and with internal policies and procedures; physical safeguarding of tangible and intangible assets including risk identification; availability, reliability, integrity, confidentiality of information and reporting; efficiency of Business processes, functions, and activities, assisted by risk assessment procedures. An additional role is to recommend improvement in Group s procedures and whenever possible promote best practices. The effectiveness and adequacy of internal controls and compliance with accounting policies and procedures are reviewed regularly by the internal audit Department. After each internal audit a report is issued setting out the audit findings and recommendations. Copies of the report are given to the Managing Director and the Finance Director of the audited units and to Senior Management and are summarised in an annual internal audit Report, which is presented to the Audit Committee on the overall results of the internal audits conducted, as well as on any other matter, which affects internal control. This report provides the basis for the Audit Committee to review the effectiveness of the internal audit work including internal controls and risks assessment. Management must take adequate actions within a reasonable timeframe to correct deficiencies reported by the internal audit Department and to respond in a timely and appropriate manner to findings and recommendations of both internal audit and of the independent auditors regarding internal control and policies and procedures of the Company. An external review of internal audit has been performed in 2005 to compare ALSTOM internal audit with best practices and with the Institute internal auditors Standards. Finance Department The Finance Function controls Business, operations and projects to optimise the Group s profitability and cash generation whilst providing internal and external stakeholders with reliable information. In particular, the Finance Department defines the Group s principles and financial policies in terms of tenders and projects control, funding, treasury, internal control, accounting, tax and management control, designs and leads key financial processes (three-year plan, budget, business reviews) as well as reporting tools to determine and appraise Sectors performance, and analyses the Group s performance and produces consolidated financial statements. More specifically: the function of Management s Control defines the formats, indicators, processes and timing for three-year plans, budgets and forecasts for the Group s purposes, analyses the Group s actual and forecasted performance and manages the corporate budget; the Group Accounting Department is responsible for designing and issuing the relevant accounting procedures in the Group, ensuring that they are in compliance with accounting laws and standards and producing consolidated and parent company financial statements, as well as financial information for external stakeholders; In particular: it defines the Group s accounting procedures in compliance with IFRS ; it provides Sectors with instructions on accounting principles; it controls and investigates data consistency and compliance with the Group s accounting principles. the Reporting Function makes information available to allow Management to better control the Sectors/Businesses, to take relevant decisions on a continuous basis, and to allow the Accounting Function to produce financial statements. The Reporting Function is responsible for managing the reporting structure, processes and tools to ensure that Sectors are able to accurately analyse and report on their performance; the Treasury Function defines rules and procedures regarding cash management, currency risk hedging as well as bonds and guarantees. In addition, it manages the related risks (market, liquidity, foreign exchange and interest rate), the relationships with subsidiaries, the cash pooling structure and the netting process; the Tax Function defines the overall tax policy and planning for the Group and ensures proper compliance with regard to tax returns and payments. Disclosure Committee The Chairman and Chief Executive Officer and the Chief Financial Officer have established Disclosure Committees at Corporate and Sector levels in order to assist them in evaluating the effectiveness of the Group s disclosure controls and procedures that are designed to ensure that the material financial and other information required to be disclosed is recorded, processed, summarised and reported on a timely basis and 178

Chairman s report that appropriate information is communicated to Management including the Chairman and Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding such disclosure. The Corporate Disclosure Committee is composed of the Chief Financial Officer, the General Counsel, the Chief Accounting Officer, the Vice President of Management Control, the Vice President of Tenders & Projects Control, the Vice President internal audit and a member of the Senior Management of each of the Sectors. A member of the Disclosure Committee reports at least once a year to the Audit Committee on the preparation of the annual report, any material weaknesses or any significant changes in internal controls and any fraud that involves Management or other employees who have a significant role in the Group s internal controls. Each Sector has established its own Disclosure Committee, which shall report to the Group s Disclosure Committee as to the results of its review of the Group s disclosure controls and procedures and as to its evaluation of its effectiveness within its Sector. The Corporate Disclosure Committee met two times during the year ended 31 March 2006 under the Chairmanship of the Chief Financial Officer. The consolidated financial statements on 31 March 2005 and Management discussion and analysis were reviewed. The interim consolidated financial statements for the 6 months period to 30 September 2005 were reviewed. Reports from the Sector Disclosure Committees were received at each meeting. In the reviews of the consolidated financial statements the Committee considered the disclosures made to determine any, confirm their relevance, accuracy, completeness and presentations. Corporate Risk Committee The Risk Committee chaired by the Chairman and Chief Executive Officer reviews the risks taken in the tender of offers and the execution of contracts. The Committee is composed of the Chairman and Chief Executive Officer, the Sectors Presidents, the Chief Financial Officer, the General Counsel, the Vice President Internal Audit, the Senior Vice President of International Network, the Senior Vice President of Project and Export Finance and the Vice President of Tenders and Projects Control, and meets on a monthly basis in order to: review risks from major tenders exceeding 50 million or deviating from defined criteria. The tenders reviewed by the Tenders and Projects Control Department are required to be approved by either the Chairman and Chief Executive Officer or the Chief Financial Officer before the bid date; be briefed on the project reviews particularly those attended by the Tenders and Projects Control Department during the preceding month; review matters reported by internal audit and/or the International Network; and be briefed on specific concerns, which may arise from time to time and have an impact on the Sectors. Following the Committee s meetings, minutes of meeting record the required actions decided on the session. In a similar way, each Sector has established risk review procedures, which are consistent with the Group s principles. In particular, the relevant Sector s Management must be advised: of important changes in original tender assumptions and of the related impact on the assessment of relevant risks; of material changes within a contract which could impinge significantly on its result. Finally, the internal control Manual specifies that project reviews, which must be minuted, must be held every three months for contracts, which could have a major effect on the relevant unit s financial performance, or every six months in other circumstances. B. Formal Procedures or Guidelines The Company has established a set of corporate instructions that constitute the body of internal rules (the Corporate Instructions ) and are posted on the Company s Intranet website. The Corporate Instructions deal with issues of importance throughout the Group and are mandatory for the whole of the Group including Sectors, Businesses, units, countries and functions. Once a Corporate Instruction is issued, all units must ensure that any pre-existing procedures, policies, directives or other communications at any level is revised to comply with the said Corporate Instruction. Certain of the Corporate Instructions are recognised to form a part of, or be directly related in whole or part to, the Group s disclosure controls and procedures. These Corporate Instructions include or require compliance with, notably, the Code of Ethics; the internal control Manual; ALSTOM Organisation Delegation of Authority and Appointment of Directors; Finance Function; Corporate Treasury; Accounting Principles & Reporting; Legal Function; Litigation and Settlements; Communications with the Media; Press Releases and Crisis Management; Selection, Use of and Payments to Agents, Consultants and Representatives for Business Transactions; and International Network. 4 CORPORATE GOVERNANCE 179

Chairman s report Code of Ethics The Company has a Code of Ethics, which applies to every ALSTOM Director, officer and employee wherever they work in the Group. This Code provides the fundamental values of the Company such as transparency, integrity, loyalty and compliance with treaties, and laws and rules in force in the countries where the Company operates. It provides an easy reference for proper conduct in our day-today Business and is designed to promote honest and ethical conduct in Business conduct and with clients, suppliers, competitors, shareholders, employees, governments, regulatory authorities and the public. Every officer and employee of the Company is accountable for complying with the Code of Ethics. The Code covers and prescribes rules of conduct on various topics such as compliance with laws, protection of the Group s assets, dissemination of information, confidentiality, human resources, internal controls, conflicts of interest, insider trading, dealing with third parties, bribery and corruption, politics and charities, protection of the environment and natural resources and communications. The Code comprehensively includes the Group Instructions which treat in more detail the defined rules and procedures put into place to ensure the compliance with these fundamental principles and values. For example, the development of projects in certain countries requires the support of an agent: a representative for a long-term relationship with one or more Sectors of the Group, or a consultant appointed for a specific project. In addition to the Code of Ethics, a Group Instruction requires, in all cases, that this support is subject to a written contract in conformity with the rules of ethics and the Company s corporate governance. To such effect, in February 2001 the function Representation and Compliance (Ethics and Compliance since January 2006) was instituted in order to examine all the relationships between the agents and ALSTOM, and to ensure the strict compliance with the rules of ethics, instructions and procedures put into place within the Group relative to the special care involved in the selection of Agents. Internal control Manual The Internal control Manual defines the requirements, instructions and best practices necessary to create and maintain a satisfactory control environment, and covers internal controls over financial reporting. The internal control Manual summarises the elements of internal control covering most of the Business processes in the Group and is posted on ALSTOM s Intranet site. The Manual contains a number of principles that are to be complied with at all times, including segregation of duties and delegation of authorities, which are mandatory for all business units. The management of the respective entity, unit, Business, Sector, country or Corporate is responsible for developing, implementing, operating and monitoring systems of internal control in compliance with the internal control Manual and for providing assurance that it has done so. During the course of the work undertaken over the last year the internal control Manual has been redrafted and reissued in line with a redesigned internal control questionnaire. > 2. Internal control initiative A. Objectives of the initiative In the early months of 2005, the Group launched an initiative to create a continuous improvement environment to reinforce internal control. The project had a number of objectives. In the short term to: i) tackle immediately any weaknesses already identified, whether through external or internal audit or through self-assessment questionnaires on internal control; ii) provide improved assessments of internal control at 30 September 2005, and 31 March 2006 differentiating the requirements based on contribution to the Group financial statements, including dealing with delegation of authority and involving non-finance people. The foundation of any system of internal control is to make sure that responsibilities and authorities are defined and understood. Segregation of duties involving internal check is practiced at all times with one person required to check and approve the work of another. Separate people are responsible for initiating, authorising, recording, processing and reporting transactions. These authorisations should be within the relevant delegations of authority. Recording is undertaken promptly and information is processed and reported in a timely manner. 180

Chairman s report Documentation exists and is retained to confirm that amounts are promptly recorded at the correct amount in the appropriate accounts and in the proper accounting period. In the medium term to: i) ensure continuing compliance with French legislation, ii) continue to tackle weaknesses identified; and iii) continuously reinforce the internal control culture, beyond the Finance Community. In the longer term, the project is required to assist in the development of a continuous improvement environment which will reinforce internal controls and make such controls part of the day-to-day activities within the Group. In addition, the project is focusing on ensuring links with other initiatives that are being undertaken to: i) ensure adequate systems of internal controls over financial reporting, ii) assist in streamlining processes, iii) improve performance and effectiveness. C. Main actions undertaken and progress made Over the last 12 months a number of actions have been undertaken to improve internal control: a new assessment questionnaire and tracking tool has been deployed; extensive training and communication efforts have been undertaken. Deployment of a new assessment questionnaire and tracking tool This redesigned questionnaire differentiates requirements to units based on their contribution to the Group s financial statements and requires units with the most contribution to provide more detailed information than those with less contribution and in particular to document their supporting evidence to confirm answers to questions in the Self-Assessment Questionnaire. The questionnaire is based on 12 cycles, which include the general control environment, and the various activities undertaken. 4 B. Organisation From the launch of the project a Steering Committee chaired by the Chief Financial Officer was set up with a core team involving both Corporate and Sectors. This team was given objectives to: define the objectives and the approach at Group level, prepare and support implementation of the initiative, report to the Audit Committee. The initiative within the Sectors is driven by the Sector Senior Vice Presidents Finance whose teams are responsible for the completion of the self-assessment questionnaires, monitoring of results, identification of control deficiencies and the following up of action plans as well as performing quality assurance reviews of process documentation and evidential files. The core team is functionally managing information on the internal control database to make sure the Group is progressing. They are responsible for updating the internal control Manual, are a focus in the sharing of best practice within the Group and for liaison with Sectors and central functions including Treasury, Tax and internal audit. They are working with the Information Technology Centre to ensure optimum performance. They are also responsible for ensuring that the internal control aspects of all group initiatives are progressed within the continuous improvement environment. A strong involvement of Managing Directors, Finance Directors, the financial community and people outside the financial community is required to ensure improvements in internal control within the Group. Extensive training and communication effort A detailed training programme involving both conventional and web-based training has been undertaken with over 1,200 people trained and up to 2,500 people participating to the self, assessment exercises. As part of the training programme written guidance was provided by way of responses to Frequently Asked Questions on preparation of documentation and Evidential Files including a Glossary of terms used. The training sessions were organised to gather individuals from all Sectors thus allowing a sharing of best practices and detailed feedbacks. > 3. Internal control over financial reporting Internal control over financial reporting deals more specifically with internal control procedures in respect of the preparation and the processing of accounting and financial information. The Group s principle rules and procedures in relation to financial reporting and accounting are set out in the internal controls Manual and the Reporting and Accounting Manual. Application and compliance with these principles, rules and procedures are under the direct responsibility of each unit Finance Director. All Finance Directors report directly to the financial officers of the relevant Business and Sector and ultimately to the Group Chief Financial Officer. CORPORATE GOVERNANCE 181

Chairman s report Unit Finance Directors must ensure that information that is provided via the Carat reporting packages fully reflects required disclosures, the results of the period in question and the financial position at the end of the period in question and they must send a written confirmation thereof. More precisely, annual return is to be sent to the Corporate Accounting Department along with checklist, which must be individually signed off by the responsible Finance Director and Managing Director. This checklist covers in particular, but is not limited to, cash and bank reconciliations, project reviews, provision movements, inter-company balances, hedging instruments, bonds and guarantees and significant accounting estimates and entries. In addition, a similar checklist must also be signed off by each Sector Senior Vice President of Finance. Estimates of future costs reflect Management s current best estimate of the probable outflow of financial resources that will be required to settle contractual obligations. The estimates are therefore subject to change, due to changes in circumstances surrounding the execution of contracts. Management reviews the effectiveness of internal control over financial reporting regularly, in particular to ensure the timeliness and accuracy of accounting for transactions and assets. In addition, it verifies that transactions have been recorded consistently in accordance with IFRS as applied by the Company and as set out in the Reporting and Accounting Manual in which the Group s accounting policies and procedures are defined. The Company is involved in long-term contracts, which require Management to make estimates, and assumptions that may effect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates are reviewed on a regular basis using currently available information. Paris, 16 May 2006 The Chairman of the Board 182

Auditors report AUDITORS REPORT PREPARED IN ACCORDANCE WITH ARTICLE L. 225-235 OF THE FRENCH COMMERCIAL CODE on the report prepared by the Chairman of the Board of ALSTOM Company, on the internal control procedures relating to the preparation and processing of financial and accounting information Year ended 31 March 2006 Free translation into English of a French language original report prepared for convenience purpose only. Accounting principles and auditing standards and their application in practice vary from one country to another. The accompanying Financial Statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries other than France. In addition, the procedures and practices followed by the independent auditors in France with respect to such Financial Statements included in a prospectus may differ from those generally accepted and applied by auditors in other countries. Accordingly, the French Financial Statements and the auditors report of which a translation is presented in this document for convenience only are for use by those knowledgeable about French accounting procedures, auditing standards and their application in practice. 4 To the Shareholders of ALSTOM, In our capacity as auditors of ALSTOM Company, and in accordance with Article L. 225 235 of the French Commercial Code, we report to you on the report prepared by the President of the Board of Directors of your Company in accordance with Article L. 225-37 of the French Commercial Code for the year ended 31 March 2006. It is for the President of the Board of Directors to give an account, in his report, notably of the conditions in which the tasks of the Board of Directors are prepared and organised and the internal control procedures in place within the Company. It is our responsibility to report to you our observations on the information set out in the President s report regarding the internal control procedures relating to the preparation and processing of financial and accounting information. obtaining an understanding of the objectives and general organisation of internal control, as well as the internal control procedures relating to the preparation and processing of financial and accounting information, as set out in the President s report; obtaining an understanding of the work performed to support the information given in the report. On the basis of these procedures, we have no matters to report in connection with the information given on the internal control procedures relating to the preparation and processing of financial and accounting information, contained in the President of the Board of Director s report, prepared in accordance with Article L. 225-37 of the French Commercial Code. Neuilly-sur-Seine, 17 May 2006 CORPORATE GOVERNANCE We performed our procedures in accordance with professional guidelines applicable in France. These require us to perform procedures to assess the fairness of the information set out in the President s report on the internal control procedures relating to the preparation and processing of financial and accounting information. These procedures notably consisted of: DELOITTE & ASSOCIÉS Dominique Descours The auditors BARBIER FRINAULT & AUTRES ERNST & YOUNG Gilles Puissochet 183

Compensation of executive and non-executive Directors COMPENSATION OF EXECUTIVE AND NON-EXECUTIVE DIRECTORS ( MANDATAIRES SOCIAUX ) AND MEMBERS OF THE EXECUTIVE COMMITTEE EXECUTIVE AND NON-EXECUTIVE DIRECTORS ( MANDATAIRES SOCIAUX ) ALSTOM s executive and non-executive Directors are its ten members of the Board, including the Chairman and Chief Executive Officer, who is the only managing executive Director of ALSTOM. The remuneration of the Chairman and Chief Executive Officer The remuneration of the Chairman and Chief Executive Officer is fixed by the Board of Directors upon the Nominations and Remuneration Committee s proposal and comprised of a variable and a fix part. The variable part of the remuneration varies along with reaching the objectives for the fiscal year set forth by the Board of Directors upon proposal of the Nominations and Remuneration Committee. For fiscal year 2005/06 the objectives are, on one side, the Group s financial objectives free cash flow, operational margin, and level of margin in the backlog and on the other hand, the specific objectives linked to the action plan and to the fiscal year s priorities. In case the set objectives are met, the financial objectives represent 60% while the specific objectives represent 40% of the annual base salary. The financial objectives can vary between 0% and 120% and the specific objectives between 0% and 40%, depending on results. Hence, the variable salary s range is between 0% and 160% of the base annual salary. For fiscal year 2005/06, the fixed gross salary paid to the Chairman and Chief Executive Officer amounted to 935,000 ( 880,000 the previous year). His variable gross salary was 1,300,000 ( 750,000 the previous year), that is 139% of his fixed gross salary. He did not receive any Director s fees in respect of this fiscal year ( 52,500 in respect of fiscal year 2004/05). The Chairman and Chief Executive Officer benefits from a Company s car representing a benefit in kind of 5,010.12 per year. He also benefits from a complementary pension scheme based on the part of his salary not taken into account through the legal pension schemes, which purpose is as for the other individuals with the same remuneration level, to give rights equivalent to approximately 1.2% of the fraction of salary in excess of 241,536 (for calendar year 2005) and 248,544 (for calendar year 2006). This scheme, operating in the framework of the French Fillon Law, is composed of a defined contribution plan and of a scheme with defined benefits. The sums paid according to the contribution plan for 2005 amount to 19,322.88, wholly financed by ALSTOM; for the defined benefits scheme on 31 March 2006, the undertakings financed by the Group as per the Chairman and Chief Executive Officer s pension plan commitments amount to 447,334, including retirement indemnities obligation of 44,644. The Chairman and Chief Executive Officer benefits from the group insurance policy covering the subscribers aged less than 65 (60 for the disablement guarantee) in case of death or disablement, upon a reference salary limited to 16 Social Security annual caps (PASS) or 497,088 for 2006. The insurance is based on the annual reference salary and on the family situation. As an example, in case of natural death of a person married with one child in his/her care, the capital amount will be 375% of the annual reference salary; in case of disablement of at least 2/3, the benefit is 85% of the annual reference salary. For 2006, the contribution for this policy are 1.05% (fully covered by the Company) on Tranche A, 1.82% (half covered by the Company and half by the beneficiary) on tranches B and C and 4.5% of the annual reference salary (for the part between 8 and 16 PASS), half covered by the Company half by the beneficiary. 184

Compensation of executive and non-executive Directors In the event of termination of his mandate at the Board of Directors' initiative, and unless in the event of grave misconduct, the Chairman and Chief Executive Officer would benefit from an indemnity equal to twice his latest gross annual global remuneration, including the annual bonus and the loss of various benefits (complementary pension, company car, etc.) and keep all stock options granted to him. The same benefit would apply in case the Chairman and Chief Executive Officer decided to resign further to a takeover of ALSTOM. Directors fees paid to the Directors The Directors do not receive any compensation other than an attendance allowance ( Directors fees ). Since 1 April 2005, the Chairman of the Board of Directors waived his Directors fees. The Ordinary and Extraordinary General Meeting of 24 July 2001 fixed at 400,000 the maximum annual amount of Directors fees, which can be distributed among the members of the Board of Directors, until a different resolution is passed. The Board of Directors sets the terms of granting the Directors fees upon the Nominations and Remuneration Committee s proposal. According to the terms of granting applied for fiscal year 2005/06, the Directors fees are made of a fixed part worth 15,000 paid to each Director. Each Chairman of the Audit Committee and of the Nominations and Remuneration Committee receive an additional amount of 7,500 per year. In addition, each Director is paid 2,500 for attending the meetings of the Board or of the Committees of which she or he is a member. Based on these terms, the total Directors fees in respect of fiscal year 2005/06 are 342,500, representing 85% of the maximum annual amount authorised. Half of the fixed and variable parts were paid in fiscal year 2005/06, while the balance was paid the following fiscal year. Further to the market practice review performed by an external specialised consultancy firm, upon the Nominations and Remuneration Committee s suggestion, at its 22 March 2006 meeting, the Board of Directors resolved to increase the individual fees which had remained unchanged since 1999 and to set forth the following terms of distribution applying from fiscal year 2006/07: the fixed part is raised to 17,500 for each Director; each Committee Chairman is paid an additional 10,000; the variable part will remain 2,500 for each attendance of the Board and the Committee s meetings. 4 CORPORATE GOVERNANCE 185

Compensation of executive and non-executive Directors Compensation and benefits paid to executive and non-executive Directors ( mandataires sociaux ) The whole gross compensation and benefits of any kind paid (or due) for fiscal year 2005/06 and the two previous years by the Company and the companies controlled by the Company to the Corporate Officers ( mandataires sociaux ) pursuant to Article L. 233-16 of the French Commercial Code, are listed in the table below: Paid in respect Paid in respect Paid in respect of fiscal year 2003/04 (1) of fiscal year 2004/05 (2) of fiscal year 2005/06 (3) Gross Gross Gross compensation compensation compensation and benefits Directors and benefits Directors and benefits Directors (in ) or any kind fees or any kind fees or any kind fees Patrick Kron Fixed part 880,000.00 880,000.00 935,000.00 Variable part 660,000.00 750,000.00 1,300,000.00 Benefits in kind 3,811.90 5,010.12 5,010.12 Total 1,543,811.90 57,680.00 1,635,010.12 52,500.00 2,240,010.12 - Jean-Paul Béchat - 44,415.00-42,500.00-42,500.00 Candace Beinecke - 44,160.00-32,500.00-37,500.00 Georges Chodron de Courcel - 40,920.00-35,000.00-37,500.00 Pascal Colombani (4) - - - 26,250.00-37,500.00 James B. Cronin - 44,160.00-42,500.00-37,500.00 Gérard Hauser - 47,400.00-32,500.00-37,500.00 James W. Leng (5) - 20,970.00-40,000.00-42,500.00 Francis Mer (6) - - - - - 32,500.00 Denis Samuel-Lajeunesse (7) - - - 22,500.00-37,500.00 (1) Includes 2003/04 variable salary and Director s fees related to fiscal year 2003/04 paid in fiscal year 2004/05. (2) Includes 2004/05 variable salary and Director s fees related to fiscal year 2004/05 paid in fiscal year 2005/06. (3) Includes 2005/06 variable salary and Director s fees related to fiscal year 2005/06 paid (or to be paid) in fiscal year 2006/07. (4) Director as of 9 July 2004. (5) Director and Chair of Nominations and Remuneration Committee as of 18 November 2003. (6) Director as of 1 April 2005. (7) Amount paid to the French State s general budget. 186

Compensation of executive and non-executive Directors Amount of compensations actually paid to executive and non-executive Directors in fiscal year 2005/06 (as per Article L. 225-102-1 of the French Commercial Code) The following chart shows the gross amount actually paid to executive and non-executive Directors in fiscal year 2005/06, as per Article L. 225-102-1 of the French Commercial Code. For the Chairman and Chief Executive Officer, the variable salary in respect of fiscal year 2004/05 indicated, was paid the following fiscal year, and the Director s fees for the second half of 2004/05 paid during the following fiscal year. Amounts paid during fiscal year 2005/06 Directors fees Directors fees Fixed Variable (2 nd half of fiscal (1 st half of fiscal (in ) gross salary gross salary Benefits in kind year 2004/05) year 2005/06) Patrick Kron 935,000.00 750,000.00 5,010.12 25,000.00 - Jean-Paul Béchat - - - 21,250.00 18,750.00 Candace Beinecke - - - 12,500.00 20,000.00 Georges Chodron de Courcel - - - 15,000.00 20,000.00 Pascal Colombani - - - 13,125.00 20,000.00 James B. Cronin - - - 20,000.00 17,500.00 Gérard Hauser - - - 15,000.00 20,000.00 James W. Leng - - - 18,750.00 23,750.00 Francis Mer - - - - 15,000.00 Denis Samuel-Lajeunesse - - - 22,500.00 )(1) 17,500.00 Past Director: Lord Simpson (2) - - - 15,000.00 - (1) Means the whole Director s fees for fiscal year 2004/05. (2) Directorship expired 31 March 2005. 4 CORPORATE GOVERNANCE 187

Compensation of executive and non-executive Directors MEMBERS OF THE EXECUTIVE COMMITTEE The compensation of the Executive Committee members, excluding the Chairman and Chief Executive Officer, is decided annually by the Chairman and Chief Executive Officer and reviewed by the Nominations and Remuneration Committee. It consists of a fixed component and a variable component tied to the realisation of objectives determined at the beginning of the fiscal year. For fiscal year 2005/06, the variable compensation is tied on the one hand, to the realisation of Group objectives related to free cash flow, operational margin and the level of margin in the backlog and also to the same objectives related to their only sector for Sectors Presidents, and on the other hand, to the realisation of specific objectives for each Sector or function. These specific objectives refer to the programmes of priority actions included in the budgets and strategic plans, and are evaluated by the Nominations and Remuneration Committee. If the set objectives are met, the financial objectives represent 30% and the specific objectives 20% of the annual base salary. The financial objectives can vary in a 0-60% range, and the specific objectives can vary in a 0-20% range, depending on performance. Therefore, the variable salary varies in a 0-80% range of the annual fixed salary. Total compensation packages are tied to both the Company s financial performance and individual and team contributions. They are based on best practices within the industry, compensation surveys and advice from specialised international counsels. The overall amount of the gross compensation due to the members of the Executive Committee, excluding the Chairman and Chief Executive Officer s remuneration detailed on page 184, by the Company and the companies controlled by the Company within the meaning of Article L. 233-16 of the French Commercial Code in respect of fiscal year 2005/06 amounted to 5,209,028. The fixed component represents 3,148,667 (8 members of the Executive Committee concerned as of 31 March 2006, excluding the Chairman and Chief Executive Officer) and the variable component linked to the results of fiscal year 2005/06 represents 2,060,361 (8 members of the Executive Committee concerned as of 31 March 2006, excluding the Chairman and Chief Executive Officer). The total corresponding amount paid in respect of fiscal year 2004/05 to the members of the Executive Committee (8 members of the Executive Committee concerned as of 31 March 2005, excluding the Chairman and Chief Executive Officer) was 4,448,922. The members of the Executive Committee benefit from a complementary pension scheme. The total amount of pension commitments funded in the budget as of 31 March 2006 for the members of the Executive Committee s benefit (except for the Chairman and Chief Executive Officer) is 2,250,669 of which 437,774 of retirement indemnities obligations. 188

Interests of the officers and employees in the share capital INTERESTS OF THE OFFICERS AND EMPLOYEES IN THE SHARE CAPITAL STOCK OPTIONS PLANS Granting policy Generally every year the Company sets up a stock options plan within the framework of the authorisation granted by the General Shareholders Meeting. The Board of Directors grants stock options plans upon the proposal of the Nominations and Remuneration Committee, which reviews all terms of these plans, including the granting criteria. Beneficiaries of stock options are generally selected among the executives of profit centres, functional executives, country presidents, managers of large projects and, more generally, holders of key salaried positions in the Company and its subsidiaries, which have made a significant contribution to the Company s results. The choice of beneficiaries and the number of options granted are based on the position, job performance and the potential of each person. For each plan, the options subscription price corresponds to the average price of the shares during the twenty trading days preceding the day when the Board of Directors grants the options, though this subscription price cannot be lower than the nominal value of the share. The exercise of options is subject to the condition that the employment contract or the mandate of the beneficiary is still in force as of the date the options are exercised, with some exceptions. Generally, the options cannot be exercised for three years since their grant date. However, plans set up since fiscal year 2003/04 allow the exercise in certain circumstances among which in case of a public offering to buy and/or exchange the Company s shares. On September 27, 2005, the Board of Directors upon the Nominations and Remuneration Committee s proposal has granted Options plan n 8 upon the authorisation of the Ordinary and Extraordinary General Meeting of 9 July 2004. The plan granted a total number of 1,401,500 options, representing around 1% of capital as of the allocation day. The main characteristics of all stocks option plans implemented by the Company and outstanding are summarised below. No other company of the Group has implemented stocks option plans giving right to the Company s shares. According to the plans above, a total of 4,361,442 options can be exercised, corresponding to 3.2% of the share capital as of 31 March 2006. Since the fiscal year 2004/05, managers in the USA do not receive stock options; they get Stock Appreciation Rights, instead, which are similar to stock options plans set up simultaneously but granting the managers the right to be paid in cash the value of ALSTOM share at the time of the exercise. 4 CORPORATE GOVERNANCE 189

Interests of the officers and employees in the share capital MAIN CHARACTERISTICS OF ALSTOM STOCK OPTIONS PLANS Plan n 3 Plan n 5 Plan n 6 Plan n 7 Plan n 8 Date of Shareholders meeting 24 July 2001 24 July 2001 24 July 2001 9 July 2004 9 July 2004 Date of Board meeting 24 July 2001 8 January 2002 7 January 2003 17 Sept. 2004 27 Sept. 2005 Exercise price (1) 1,320 523.60 240 17.20 35.75 Adjusted price (2) (3) 819.20 325.20 154.40 17.20 35.75 Beginning of stock options exercise period 24 July 2002 8 January 2003 7 January 2004 17 Sept. 2007 27 Sept. 2008 Expiry date 23 July 2009 7 January 2010 6 January 2011 16 Sept. 2014 26 Sept. 2015 Number of beneficiaries 1,703 1,653 5 1,007 1,030 Total number of options adjusted (3) 105,000 105,000 30,500 2,783,000 1,401,500 Total number of exercised options 0 0 0 0 0 Total number of cancelled options (3) 45,394 42,955 0 68,000 38,000 Number of remaining options to be exercised as of 31 March 2006 (2) (3) 119,400 124,554 47,489 2,715,000 1,363,500 Percentage of capital as of 31 March 2006 that may be created 0.086% 0.090% 0.034% 1.96% 0.99% Number of shares that may be subscribed by the actual members of the Executive Committee (2) (3) 3,105 4,229 46,709 610,000 312,500 Terms of exercise 1/3 of options 1/3 of options 1/3 of options 100% of options 100% of options can be exercised can be exercised can be exercised can be exercised can be exercised from 24/07/02 from 08/01/03 from 07/01/04 from 17/09/07, from 27/09/08 2/3 of options 2/3 of options 2/3 of options upon the following can be exercised can be exercised can be exercised conditions being from 24/07/03 from 08/01/04 from 07/01/05 met: the exercise all options can all options can all options can of 50% of options be exercised be exercised be exercised granted beneficiary from 24/07/04 from 08/01/05 from 07/01/06 was conditional to 2 targets being met at the 2005/06 financial year closing; the targets have been met: a positive free cash flow of the Group and a Group operational margin above or equal to 5% as per IFRS rules. (1) Subscription price corresponding to the average opening price of the shares during the 20 trading days preceding the day on which the options were granted by the Board (no discount), or the par value of the shares when the average share price is lower. For plans n 3, 5 and 6, the original exercise prices have been multiplied by 40 to take account of the Company s share consolidation of 3 August 2005. (2) Option plans n 3, 5 and 6 have been adjusted in accordance with French law as a result of the consummation of transactions that had an impact on the share capital in 2002, 2003 and August 2004. (3) Option plans n 3, 5, 6 and 7 have been adjusted to consider the Company s share consolidation of 3 August 2005: a new share with a nominal value of 14 for 40 old shares with a nominal value of 0.35. 190

Interests of the officers and employees in the share capital Stock options granted to the Corporate Officers ( mandataires sociaux ) during fiscal year 2005/06 A total of 95,000 options was granted to Mr Patrick Kron, Chairman and Chief Executive Officer of the Company and the only managing executive ( mandataire social dirigeant ) of the Company, under stock options Plan n 8. Stock options granted during fiscal year 2005/06 to the ten employees who are not Corporate Officers and who received the largest number of options A total of 225,500 options was granted to the ten employees who received the greatest numbers of options (other than mandataires sociaux ) under stock options Plan n 8. The Company has granted no options to any other Directors during fiscal year 2005/06 or under plans previously implemented by the Company. Stock options exercised during fiscal year 2005/06 The beneficiaries exercised no option during the past fiscal year or the previous years. FREE ALLOCATION OF SHARES 4 With the authorisation from the shareholders general meeting of 12 July 2005 (12 th resolution) and upon the Nominations and Remuneration Committee s proposal, the Board of Directors meeting on 16 November 2005 approved in principle the implementation of an egalitarian allocation of twelve shares to each and every employee of the Group with at least 6 months seniority at the attribution date. Such allocation was meant to reward the collective efforts, which had brought ALSTOM back up and was subject to the condition that two main targets were met by the end of the 2005/06 fiscal year: a 5% operational margin (as per IFRS rules) and a positive free cash flow. In those countries where fiscal and/or legal grounds would make the assignment of free shares hard or impossible, a decision was also made to pay the equivalent in cash of these twelve shares to the employees. In accordance to the statutory legal provisions, the shares will be definitely created and allocated after 2 years, i.e. on 19 May 2008, after which they cannot be transferred for a 2-year period, expiring on 19 May 2010. In total, 51,000 people of the Group in 20 countries are involved in this free distribution of a maximum of 612,000 shares, representing around 0.5% of the share capital as of 31 March 2006. These are new shares to be issued at the moment of their final allocation by deduction from the reserves. Around 12,000 people in 42 countries will receive the cash equivalent of the twelve shares evaluated and paid at the end of a 4 years period (representing as an example about 900 as of 5 May 2006). The cost of this free allocation of shares has totally been provided for in the accounts of fiscal year 2005/06. CORPORATE GOVERNANCE In its meeting of 16 May 2006, the Board of Directors noted that this condition had been met and it therefore assigned the free shares on this basis. 191

Interests of the officers and employees in the share capital EMPLOYEE PROFIT-SHARING All the French subsidiaries of the Group to which the French law of 7 November 1990 applies have entered into employee profit sharing agreements. The amounts paid in respect of the French statutory employee profit sharing agreements over the last three years are as follows: Fiscal year ended 31 March (in million) 2004 2005 2006 Statutory employee profit sharing agreements 2 1 9.1 As of today, approximately ten French subsidiaries have entered into a specific profit sharing plan ( Accord d intéressement ). The amounts paid in respect of fiscal year 2005/06 are not yet known to date, because they depend on a series of criteria defined in profit sharing plans applicable for each subsidiary, the final result of which are known within six months as from the end of fiscal year, i.e. 30 September of each year. The amounts paid in respect of profit sharing plans for the past three fiscal years are as follows: Fiscal year ended 31 March (in million) 2003 2004 2005 Specific employee profit sharing plans 15 9 9.5 Since its initial public offering and first listing, the Company implemented three share capital increases reserved for the employees participating in the Company s savings plan. For the first one realised concurrently with the first listing in 1998, a total of 2,941,869 shares were issued at a price of FRF 167 per share (corresponding, after the share consolidation of 3 August 2005, to the equivalent of 73,546 new shares issued at the price of 1,018.36 per share). In August 2000, a capital increase reserved for employees of the Company and its subsidiaries participating in the Company s savings plan was approved for fiscal year 2000/01. As a result of this share capital increase, 1,689,056 new shares, with a nominal value of 6 per share, were issued at 24 per share (i.e., after consolidation, 42,226 new shares at 960 per share). These two operations have been directly subscribed by the employees. In November 2004, a new capital increase was offered to the Company s employees (as well as to its former employees) according to the plan called Two for One, in eight countries including France. Around 13,000 employees have subscribed this capital increase through a mutual fund in France and directly in the other countries. The capital increase brought in the subscription of 49,814,644 shares at a nominal value of 0.35 each and issued at 0.35 per share (corresponding, after consolidation, to 1,245,366 new shares at 14 per share); the shares were offered with a Company match (for employees only) of 0.135 per old share with a maximum amount of 810 per subscriber. During fiscal year 2005/06, no capital increase has been proposed. As of 31 March 2006, the Group s employees and former employees, totalling approximately 42,100 persons, hold approximately 0.89% of the Company s share capital, either directly or through a fund ( FCPE ). 192

5 ADDITIONAL INFORMATION SHARE CAPITAL 194 Consolidation of the shares 194 Authorisations to increase the share capital 194 Changes in share capital over the last three fiscal years 196 Ownership of ALSTOM shares over the last three fiscal years 197 SIMPLIFIED ORGANISATION CHART AS OF 31 MARCH 2006 209 INFORMATION ON THE DOCUMENT DE RÉFÉRENCE 210 Statement by the person responsible for the Document de Référence 210 Table of reconciliation 211 INFORMATION ON THE COMPANY 200 Historical information 200 Identity of the Company 200 Summary of key provisions of the Articles of Association 201 Documents accessible to the public 203 Auditors 203 Activity of the holding Company 204 Environmental and social information 205 OTHER INFORMATION 207 Material contracts 207 Significant change in the financial or commercial condition 207 Intellectual property 207 Property 207 Information included by reference 208 193

Share capital SHARE CAPITAL As of 31 March 2005, ALSTOM s share capital amounted to 1,924,023,993.15 consisting of 5,497,211,409 shares of the same class and fully paid, with a nominal value of 0.35 per share. As of 31 March 2006, ALSTOM s share capital amounts to 1,934,390,864 consisting of 138,170,776 shares of the same class and fully paid of 14 par value each, following the operations described below: the reimbursement in shares, before the consolidation of the shares comprising the share capital described below, of 310,780 subordinated bonds 2% December 2008 redeemable in Company s shares ( ORA ), which resulted in the issue of 390,311 shares of 0.35 par value each; the consolidation of the 5,497,601,720 shares of 0.35 par value each comprising the share capital into 137,440,043 shares of 14 par value each, by delivering one new share of 14 par value each for each 40 shares of 0.35 par value each. The consolidation was implemented on 3 August 2005; the reimbursement in shares of 23,262,801 ORA since the consolidation, when 730,733 shares of 14 par value each were issued. There are no double voting rights or voting rights restrictions attached to the shares comprising the share capital. To the knowledge of the Company, there is to date no pledge on the shares of the Company or of its significant subsidiaries. CONSOLIDATION OF THE SHARES Since the consolidation completed on 3 August 2005, 778,099 shares of 14 par value (consolidated shares) have not been requested by shareholders, as of 5 May 2006. The shareholders have two years after the start of consolidation operations to claim the consolidated shares. During this two-year period, in shareholders meetings, each non-consolidated share of 0.35 par value shall give right to one vote and each consolidated share of 14 par value to 40 votes, so that the number of votes attached to the shares is proportionate to the fraction of the share capital they represent. On expiry of this two-year period, i.e. on 4 August 2007, the consolidated shares not claimed by their beneficiaries will be sold on the stock exchange and the net proceeds of the sale will be held at their disposal for a period of ten years on a blocked account opened with the financial institution appointed by the Company to hold the Company s share registry. AUTHORISATIONS TO INCREASE THE SHARE CAPITAL The table below sets forth the authorisations (i) to increase the share capital and (ii) to grant stock options to subscribe or purchase shares and (iii) to repurchase shares that are in force as of 16 May 2006 and their use during the fiscal year: 194

Share capital Nature of the authorisation Delegation of competence to issue shares or securities giving access to the share capital with preferential subscription right and/or by capitalisation of reserves (Ordinary and Extraordinary Shareholders Meeting of 12 July 2005, Resolution n 9) Delegation of competence to issue shares or securities giving access to the share capital with cancellation of the preferential subscription right (Ordinary and Extraordinary Shareholders Meeting of 12 July 2005, Resolution n 10) Maximum nominal amount authorised Nominal amount used during the fiscal year Available amount 600 million (1) None Maximum nominal amount authorised 600 million (1) None Maximum nominal amount authorised Expiry/ Duration 12 September 2007 (26 months starting from 12 July 2005) 12 September 2007 (26 months starting from 12 July 2005) Authorisation to increase the share capital by up to 10% of the share capital to remunerate contributions in kind (Ordinary and Extraordinary Shareholders Meeting of 12 July 2005, Resolution n 11) Free allocation of existing or new shares (Ordinary and Extraordinary Shareholders Meeting of 12 July 2005, Resolution n 12) 10% of the share capital at the date of shareholders meeting of 12 July 2005 2.5% of the share capital at the date of shareholders meeting of 12 July 2005 None Maximum nominal amount authorised 12 September 2007 (26 months starting from 12 July 2005) 612,000 (2) 2,823,943 shares (3) 12 September 2008 (38 months starting from 12 July 2005) 5 Issuance of shares or other securities granting rights to the share capital reserved for members of a Group savings plan (Ordinary and Extraordinary Shareholders Meeting of 12 July 2005, Resolution n 13) Authorisation to grant stock options to subscribe or purchase shares (Ordinary and Extraordinary Shareholders Meeting of 9 July 2004, Resolution n 18) 2.5% of the share capital at the date of shareholders meeting of 12 July 2005 Increase in share capital: 5% of the share capital at the date the options are granted by the Board of Directors None 1,401,500 shares (corresponding approximately to 1% of the share capital on the day of grant) Maximum nominal amount authorised 12 September 2007 (26 months starting from 12 July 2005) 2,830,038 shares (3) 9 September 2007 (38 months starting from 9 July 2004) ADDITIONAL INFORMATION Authorisation to repurchase shares (Ordinary and Extraordinary Shareholders Meeting of 12 July 2005, Resolution n 7) 13,743,028 shares of 14 nominal value None 13,743,028 shares with a 14 nominal value Until the date of the Shareholders Meeting held to approve the financial statements for the fiscal year 2005/06 (1) Global amount applicable to both delegations. (2) Authorisation used on 16 May 2006. (3) On the basis of the share capital as of 31 March 2006.. It will be proposed to the next Ordinary General Meeting scheduled on 28 June 2006 on first call to renew the authorisation to purchase shares by a maximum of 10% of the share capital as of 31 March 2006. 195

Share capital CHANGES IN SHARE CAPITAL OVER THE LAST THREE FISCAL YEARS Nominal amount or share Paid-in Resulting Total amount Number of shares capital reduction capital amount total number of share capital issued in in of shares in 31 March 2003 281,660,523 1,689,963,138 Decrease in share capital realised by reduction of the nominal value of the shares from 6 to 1.25 (2 July 2003) (1) 1,337,887,484.25 281,660,523 352,075,653.75 Increase in share capital reserved to banks (20 November 2003) 239,933,033 299,916,291.25 521,593,556 651,991,945.00 Increase in share capital resulting from the exercise of ORA (2) 535,064,016 668,830,020.00 80,259,602.40 1,056,657,572 1,320,821,965.00 31 March 2004 1,056,657,572 1,320,821,965.00 Increase in share capital resulting from the redemption of TSDDRA (7 July 2004) 240,000,000 300,000,000.00 1,296,657,572 1,620,821,965.00 Increase in share capital resulting from the exercise of ORA (2) 8,794,489 10,993,111.25 1,319,173.35 1,305,452,061 1,631,815,076.25 Reduction in share capital by way of reduction in the par value of the shares from 1.25 to 0.35 (9 July 2004) (1) 1,174,906,854.90 1,305,452,061 456,908,221.35 Increase in share capital reserved for certain lenders (12 August 2004) 480,000,000 168,000,000.00 72,000,000.00 1,785,452,061 624,908,221.35 Increase in share capital with preferential subscription rights (13 August 2004) 3,655,265,768 1,279,343,018.80 229,007,174.50 5,440,717,829 1,904,251,240.15 Increase in share capital reserved for employees (20 December 2004) 49,814,644 17,435,125.40 5,490,532,473 1,921,686,365.55 Increase in share capital resulting from the exercise of ORA (2) 6,678,936 2,337,627.60 5,107,643.00 5,497,211,409 1,924,023,993.15 31 March 2005 5 497,211,409 1,924,023,993.15 Increase in share capital resulting from exercise of ORA before the consolidation of shares (2), 390,311 136,608.85 298,484.25 5,497,601,720 1,924,160,602.00 Consolidation of the shares (3) (3 August 2005) 137,440,043 137,440,043 1,924,160,602.00 Increase in share capital resulting from the exercise of ORA (2) 730,733 10,230,262.00 22,347,066.40 138,170,776 1,934,390,864.00 31 March 2006 138,170,776 1,934,390,864.00 (1) Number of shares unchanged. (2) Subordinated bonds reimbursable into shares issued with maintenance of the subscription rights on 23 December 2003, reimbursable into shares originally with one bond giving right to one share of 14 par value, then since 16 August 2004, with one bond giving right to 1.2559 shares of 0.35 par value and since 3 August 2005, with one bond giving right to 0.0314 share of 14 par value. (3) Consolidation in the ratio of one new share of 14 par value for each 40 shares of 0.35 par value. 196

Share capital OWNERSHIP OF ALSTOM SHARES OVER THE LAST THREE FISCAL YEARS To the Company s knowledge based on notifications received until 10 May 2006 included, the table below shows the voting rights and the shares held by shareholders with more than 0.50% of our share capital as of 31 March 2006: Share capital as of 31 March 2006 (1) Share capital as of 31 March 2005 Share capital as of 31 March 2004 % of the % of the % of the share capital share capital share capital and voting and voting and voting Shares rights (2) Shares rights (2) Shares rights (2) Public 100,218,025 72.53% 3,937,000,326 71.61% 967,649,243 91.56% French State 29,051,244 21.03% 1,162,049,763 21.14% - - Caisse des Dépôts et Consignations 3,325,658 2.41% 120,155,011 2.19% 15,516,886 1.46% BNP PAM Group 1,410,922 1.02% 35,835,366 0.65% - - Employee (3) 1,226,977 0.89% 54,626,768 0.99% 4,746,207 0.49% Morgan Stanley & Co international Ltd 774,572 0.56% 30,982,864 0.56% - - Crédit Agricole Asset Management 737,533 0.53% - - - - Crédit Agricole Group 717,711 0.52% 78,235,951 1.42% 10,358,905 0.98% Groupama Asset Management 708,134 0.51% 28,325,360 0.52% - - Société Générale Group (4) - - - - 11,640,278 1.10% Fradim Group (4) - - 50,000,000 0.92% Natexis Bleichroeder (4) - - - - 19,194,642 1.81% CIC Group (4) - - - - 13,916,815 1.31% Deutsche Bank Group (4) - - - - 13,634,596 1.29% Total 138,170,776 100% 5,497,211,409 100% 1,056,657,572 100% (1) On 3 August 2005, the 5,497,601,720 shares of 0.35 par value comprising the Company s share capital have been consolidated into 137,440,043 shares of 14 par value. The number of shares notified to the Company prior to the consolidation and not notified again since 3 August 2005, have been adjusted here to take into account this consolidation. This table does not take into account the 778,099 consolidated shares, which have not been claimed by shareholders as of 5 May 2006. (2) % calculated based on the share capital as of 31 March 2006 and not based on the share capital on the date of the declaration. (3) Shares held by employees and former employees of the ALSTOM Group savings plan, which corresponds to approximately 0.55% held directly and approximately 0.34% held through FCPE. (4) Holds less than 0.50% of the share capital. 5 ADDITIONAL INFORMATION 197

Share capital To the knowledge of ALSTOM, on the basis of declarations of threshold crossing received, excluding notifications received from registered brokers, no other shareholder holds, directly or indirectly, more than 0.50% of the share capital or voting rights of the Company as of 31 March 2006. The French State and Bouygues have signed an agreement for the sale of the whole stake held by the French State to Bouygues. This sale is subject to the approval of the European Commission antitrust authority and to the closing of the ALSTOM Marine disposal. As part of this agreement, Bouygues gave an undertaking to the French State to retain the shares for at least 3 years. To the knowledge of ALSTOM, no shareholders agreement concerning its share capital is in place. The Company has received no notification of any operation as per Art. L. 621-18-2 of the French Currency and Financial Code. As of 16 May 2006, 3,502 shares are held by the Directors of the Company and 4,438 shares are held by the members of the Executive Committee, representing in total approximately 0,006% of ALSTOM s share capital as of 31 March 2006. ALSTOM does not hold, directly or indirectly through companies it controls, any of its own shares and each Director holds at least the number of shares required by the by-laws. According to April 2006 partial enquiry, the Group believes to have 250,000 shareholders. Securities or rights giving access to the share capital Within the framework of the implementation of the financing agreement signed with the French State and the main banks of the Group in September 2003, the Chairman and Chief Executive Officer, using the powers delegated to him by the Board of Directors, acting pursuant to the authorisation given by the General Shareholders Meeting of 18 November 2003, proceeded in December 2003 with: the issue of subordinated bonds for a nominal amount of 300 million with a fixed duration and reimbursable into shares of the Company ( TSDD RA ), whose subscription has been reserved to the French State and which were automatically reimbursed into Company s shares on 7 July 2004 following the approval of this reimbursement by the European Commission; the issue of subordinated 2% bonds due December 2008 for 901,313,660.80 and reimbursable in Company s shares ( ORA ) with preferential subscription rights which may lead to the issue of a maximum of 643,795,472 new shares (before consolidation) with a ratio of one new share for one bond (before adjustments). The redemption ratio of the ORA was changed in August 2004 to take into account the share capital increase with preferential subscription rights of 13 August 2004, and then in August 2005 following the consolidation of the shares comprising the share capital. As a result, since 3 August 2005, each ORA entitles the holder to subscribe 0.0314 ALSTOM share of 14 par value. As of 31 March 2006, 572,750,138 ORA were reimbursed in shares totalling 89% of the issue, while 71,045,334 ORA were outstanding. In addition, based on the total number of outstanding stock options as of 31 March 2006 (being 4,369, 943 options), the increase in share capital that could result from the exercise of all of these options would amount to 61,179,202 (see paragraph Main characteristics of ALSTOM stock option plans ). The redemption of these outstanding ORA as of 31 March 2006 and the exercise of these options could result in a dilution of approximately 4.8% to the Company s share capital as of 31 March 2006. In addition, for any information regarding the free allocation of shares decided by the Board of Directors held on 16 May 2006, see the section Corporate Governance, page 191. We do not have any other securities granting rights to the share capital. 198

Share capital Repurchase of shares Acting pursuant to Article L. 225-209 of the French Commercial Code, the Ordinary and Extraordinary Shareholders Meeting held on 12 July 2005 authorised the Board of Directors, for a one year period, to purchase on a stock exchange or otherwise, and by any means, ALSTOM s shares within the limit of a number of shares representing 10% of ALSTOM s share capital as of 31 March 2005, i.e. a theoretical number of 13,743,028 shares (after consolidation). This share purchase programme has not been used by ALSTOM. It will be proposed to the shareholders at the next Ordinary Shareholders Meeting to be held on 28 June 2006 on first call, to grant the Board of Directors a new authorisation for a one-year period. The number of shares to be purchased under this authorisation would not exceed 10% of the share capital as of 31 March 2006, i.e. theoretically maximum 13,817,077 shares. The maximum purchase price proposed is 90. Issue of debt securities On 30 May 2005, the Board of Directors gave full power to the Chairman and Chief Executive Officer, for a one-year period, to issue, in one or more times, bonds within a maximum nominal amount of 2.5 billion. This authorisation has been used as follows during the past fiscal year: issue at par on 15 September 2005 of a 600 million bonds variable rate Euribor three months plus 2.20%, redeemable at par on 13 March 2009; and issue at par, on 27 January 2006, of a 400 million bonds variable rate Euribor three months plus 0.85%, redeemable at par on 28 July 2008. This delegation of authority from the Board, which was due to expire on 30 May 2006, has been cancelled for its remaining unused portion and renewed by the Board held on 16 May 2006 for a new one-year period and for a maximum nominal amount of 1.5 billion. Furthermore, the delegations of competence to the Board of Directors approved by the Extraordinary General Meeting held on 12 July 2005, authorise the Board of Directors to decide upon the issuance of securities giving access to securities representatives of debt in accordance with the provisions of Article L. 228-92 of the French Commercial Code. To date, this authorisation has not been used. Dividends paid over the last three fiscal years No dividends were paid over the last three fiscal years. It will not be proposed to the Ordinary Shareholders Meeting convened on 28 June 2006 to pay a dividend in respect of the fiscal year ended on 31 March 2006. Listing of the shares The ALSTOM shares are listed on Eurolist of Euronext Paris (Euroclear France code 12019). The ALSTOM shares are no longer listed on the New York Stock Exchange since 10 August 2004 nor on the London Stock Exchange since 17 November 2003. 5 ADDITIONAL INFORMATION These two bonds issues were listed on the Luxembourg Stock Exchange. 199

Information on the Company INFORMATION ON THE COMPANY HISTORICAL INFORMATION The Group was created in 1989, when the parent company GEC ALSTHOM NV was a holding company incorporated under the laws of the Netherlands, by The General Electric Company plc ( GEC ) and Alcatel, its 50-50 shareholders, in order to consolidate in one single group the Businesses since then carried out by certain of their respective subsidiaries. This joint venture realised during a time of consolidation in the energy sector, aimed at benefiting from certain complementary products and markets of Alcatel and GEC respectively. At the end of 1997, the two shareholders decided to list the company on the Paris, New York and London Stock Exchanges and to put part of their shares on the market. They chose Paris as the main listing exchange and they decided to transfer to a French public limited company (société anonyme), renamed ALSTOM (previously Jotelec), the whole of the activities till then carried out by GEC ALSTHOM NV. Before the IPO and listing on the Stock Exchange, almost the whole of the assets directly or indirectly held by GEC ALSTHOM NV was transferred to a French subsidiary of GEC ALSTHOM NV, ALSTOM France SA, 100% owned by ALSTOM. This company, since then renamed ALSTOM Holdings, is still the only interest held by ALSTOM, which owns almost all assets of the Group (see below the Simplified organisation chart of the Group at 31 March 2006 ). Since its quotation in 1998, ALSTOM s scope was deeply changed a few times. The most significant operation was the acquisition of ABB power generation activities in two phases: first, in July 1999, a joint venture was set up and then in May 2000, ALSTOM bought ABB share in the above-mentioned joint venture. At the same time, ALSTOM tried to re-focus on its core Business, notably by selling its Contracting Sector in July 2001. Facing a hard financial crisis in 2003, ALSTOM launched an action plan to solve the specific issues related mainly to GT24/GT26 gas turbines, to re-focus the Company (sale of the Transmission & Distribution Business in January 2004), to improve operational performance and strengthen its financial structure. The objective of the plan was to achieve a 5% operating margin according to IFRS rules and a positive free cash flow during fiscal year 2005/06. These targets have been exceeded and new objectives of performance have been set for fiscal year 2007/08. Today, ALSTOM is refocused on three Sectors: Power Turbo-Systems / Power Environment, Power Service and Transport, after the disposals of its Transmission & Distribution, Industrial Turbines and Power Conversion Businesses and the process of sale of its Marine Sector well engaged. IDENTITY OF THE COMPANY Company name and registered office ALSTOM 3, avenue André Malraux - 92300 Levallois-Perret Tel.: 01 41 49 20 00 Legal form, applicable legislation, and competent jurisdictions Limited liability company (French société anonyme à conseil d administration ) incorporated under the laws of France and regulated notably by the French Commercial Code. Duration ALSTOM was incorporated under the name JOTELEC on 17 November 1992 and its existence will expire on 17 November 2091, unless it is earlier dissolved or its life is extended. Registration number 389 058 447 Nanterre Code APE 625 E 200

Information on the Company SUMMARY OF KEY PROVISIONS OF THE ARTICLES OF ASSOCIATION Purpose of the Company (Article 3 of the Articles of Association) convened in accordance with the rules and the terms laid down by law. The purposes of ALSTOM are directly or indirectly: the conduct of all industrial, commercial, shipping, financial, real property and asset transactions in France and abroad, notably in the following fields: energy; transmission and distribution of energy; transport; industrial equipment; naval construction and repair work; engineering and consultancy, design and/or production studies and general contracting associated with public or private works and construction; and more generally, activities related or incidental to the above; participation, by every means, directly or indirectly, in any operations which may be associated with its purpose, by the creation of new companies, capital contributions, subscription or purchase of stocks or rights, merger with such companies or otherwise; the creation, acquisition, lease or take over of business goodwill or businesses; the adoption, acquisition, operation or sale of any processes and patents relating to such activities; and generally undertaking all industrial, commercial, financial and civil operations and real property and asset transactions that may be directly or indirectly associated with ALSTOM purposes or with any similar or related. Furthermore, ALSTOM may acquire an interest, of whatever form, in any French or foreign business or organisation. Fiscal year (Article 18 of the Articles of Association) From 1 April to 31 March. Shareholders meetings (Article 15 of the Articles of Association) > Convening and proceedings Agenda Ordinary and Extraordinary General Meetings, satisfying the legal conditions for quorum and majority voting, exercise the powers respectively attributed to them by the law. They are Meetings are held at the registered office of ALSTOM or at any other place determined by the Board, either within the département in which the registered office is located or in any other French territory. The agenda of the meeting is drawn up by the Board of Directors if the Board has called the meeting and, if not, by the person calling the meeting. However, one or more shareholders satisfying the conditions laid down by law may request the inclusion of draft resolutions on the agenda. Questions not appearing on the agenda may not be considered. > Admission and representation Ordinary and Extraordinary General Meetings are made up of all shareholders without distinction between the class of shares which they hold. In all shareholders meetings, holders of registered shares will not be entitled to vote unless their shares are registered under their names at the latest two days before the meeting and remain so registered until the end of such meeting. Holders of bearer shares must, two days at the latest before the date of such meeting, provide evidence that they have deposited their securities under French legal conditions or produce one of the certificates described in Article 136 of the French decree of 23 March 1967. These time periods may be changed by the Board of Directors. Any shareholder who has voted by correspondence or designated a proxy by presenting a certificate of immobilisation delivered by the share depositary, may nevertheless sell all or part of the shares by which he has cast his vote or his designation, provided that he notifies the elements allowing his vote or proxy to be cancelled or to modify the number of shares and corresponding votes, no later than 3.00 pm on the day prior to the meeting pursuant to Article 136 of the Decree of 23 March 1967. A shareholder may arrange to be represented by another shareholder or by his or her spouse. 5 ADDITIONAL INFORMATION 201

Information on the Company However, holders of shares listed in the 3rd paragraph of Article L. 228-1 of the French Commercial Code can be represented by a registered intermediary at the conditions set down by law. Shareholders may vote by proxy or by postal vote at General Meetings under the conditions laid down by law. The Board of Directors shall have the power to organise, within the limits of the law, the participation and voting of the shareholders by videoconference or any other telecommunication means permitting the identification of such shareholders. Where relevant, this decision of the Board shall be communicated in the notice of the meeting and/or the invitation to attend. The shareholders who participate by videoconference or by any of such other telecommunication means shall be deemed present for purposes of the calculation of the quorum and majority. > Voting rights Each member of the meeting is entitled to one vote for each share held. At all Ordinary, Extraordinary or Special General Meetings, the voting right on shares shall, in cases where such shares are subject to usufruct (life interest), be exercisable by the usufructuary. There are no double voting rights. For a period of two years starting from the share consolidation voted by the Ordinary and Extraordinary General Meeting of 12 July 2005, any share which is not consolidated will be entitled to one vote and any consolidated share to 40 votes, so that the number of votes attached to the shares is proportional to the percentage of share capital they represent. Notification of holdings exceeding certain percentages (Article 7 of the Articles of Association) In addition to the legal obligation to notify ALSTOM of certain shareholding levels set forth in Articles L. 233-7 to L. 233-11 of the French Commercial Code, any individual or legal entity acquiring a number of ALSTOM shares giving a shareholding in excess of 0.5% of the total number of shares issued must notify ALSTOM by letter, fax or telex of the total number of shares that he possesses within five trading days of this threshold being exceeded. Notification is to be repeated under the same conditions whenever an additional 0.5% threshold is exceeded, up to and including a threshold of 50%. To determine these thresholds, both indirectly held shares and shares classified with shares owned (as defined by the provisions of Articles L. 233-7 et seq. of the French Commercial Code) should also be taken into account. In each of the above-mentioned notifications, the declaring person must certify that the notification includes all shares held or owned in the sense of the preceding paragraph. Such notification must also indicate the acquisition date(s). In the event of non-observance of the above provisions and in accordance with the conditions and levels established by law, a shareholder shall lose the voting rights relating to the shares in excess of the thresholds which should have been notified, if one or more shareholders holding at least 3% of the share capital so require(s). Any shareholder whose shareholding falls below one of the above-mentioned thresholds is also under an obligation to notify ALSTOM within the same length of time (i.e. five trading days) and by the same means. Identification of holders of bearer shares (Article 7 of the Articles of Association) ALSTOM may, under the conditions laid down by the legal and regulatory provisions in force, request any officially authorised organisation or intermediary to pass on all information concerning its shareholders or holders of its stock conferring an immediate or subsequent right to vote, their identity and the number of shares that they hold. Appropriation of income (Article 20 of this Articles of Association) The profits for fiscal year consist of the revenues relating to the preceding fiscal year, less overheads and other company expenditure including provisions and depreciation allowances. At least 5% is set aside from the profits less any previous losses if appropriate to form the legal reserve fund. This provision ceases to be mandatory once the value of the fund reaches one-tenth of the share capital. 202

Information on the Company The remainder (less the above deductions) of the retained earnings and withdrawals from the reserves which the General Meeting has at its disposal shall, if the General Meeting so desires, be distributed among the shares, once the sums carried forward by the said Meeting or transferred by it to one or more reserve funds have been deducted. After the General meeting has approved the accounts, any losses are carried forward and imputed to the profits of future fiscal years until they are discharged. Each shareholder may be granted, at the General Meeting, for all or part of the dividend or interim dividend to be distributed, an option to be paid the dividend or interim dividends in cash or in shares of ALSTOM, under the current legal and regulatory conditions. Dividends not claimed at the expiration of a five-year period are paid to the French Tax Entity Trésor Public. The Articles of Association do not contain any provision, which may delay, postpone or prevent a change of control. DOCUMENTS ACCESSIBLE TO THE PUBLIC The Company s legal documents required to be accessible by the shareholders according to the applicable law are available for inspection at the Company s registered office and some of them are available on the Company s website (www.alstom.com). ALSTOM annual reports for the last four fiscal years are also available on the Company s website, section Investors/Annual reports. AUDITORS 5 Statutory Auditors Barbier, Frinault & Autres, Ernst & Young represented by Mr Gilles Puissochet 41, rue Ybry 92576 Neuilly-sur-Seine Cedex Deloitte & Associés (previously Deloitte Touche Tohmatsu) represented by Mr Dominique Descours BP 136 185, avenue Charles-de-Gaulle 92203 Neuilly-sur-Seine Cedex The Statutory Auditors were appointed by the Ordinary General Meeting on 26 March 1998; their term of office has been renewed by the Ordinary General Meeting of 2 July 2003 for six fiscal years and it will expire when the Ordinary General Meeting will be called to review the accounts for fiscal year 2008/09. Deputy Auditors Mr Pascal Macioce 41, rue Ybry 92576 Neuilly-sur-Seine BEAS (SARL) 7-9, villa Houssay 92954 Neuilly-sur-Seine The Deputy Auditors were appointed by the Ordinary General Meeting of 2 July 2003 for six fiscal years expiring when the Ordinary General Meeting will be called to review the accounts for fiscal year 2008/09. ADDITIONAL INFORMATION 203

Information on the Company Statutory auditors fees Fiscal year 2004/05 Fiscal year 2005/06 Barbier Frinault Deloitte Barbier Frinault Deloitte & Autres & Associés & Autres & Associés Ernst & Young Ernst & Young (in million) Amount % Amount % Amount % Amount % Audit Statutory auditors diligence, certification, review of individual and consolidated accounts 7.0 52 7.0 61 8.4 68 7.6 86 Performances directly related to the auditors assignments 5.7 43 3.5 31 3.4 28 0.6 7 Sub-total 12.7 95 10.5 92 11.8 96 8.3 93 Other services - - - - - - - - Legal, tax, social * 0.7 5 0.9 8 0.5 4 0.6 7 Information technology Sub-total 0.7 5 0.9 8 0.5 4 0.6 7 TOTAL 13.4 100 11.4 100 12.3 100 8.9 100 * Principally outside France. Audit charter In June 2003, ALSTOM and its Audit Committee outlined and formalised with ALSTOM s external Auditors an audit charter to be applied until 31 March 2009 when the current Auditors engagement comes to an end. This charter defines the Group s external audit process under the various applicable laws and rules. By signing it, the parties officially commit themselves to respecting the said charter and to aiming for more transparency and efficiency. The main rules defined apply to the following topics: assignment split on par between both auditing firms; fee split aiming for a par between both firms; relationship and restitution between ALSTOM s external auditors and the Audit Committee; relationship between the external and the Group s internal auditors; defining the assignment process of other project to be potentially handled by the auditors; reminder of prohibited assignments. This charter is regularly updated especially in case of changes of legal and regulatory provisions. ACTIVITY OF THE HOLDING COMPANY ALSTOM is the holding Company of the ALSTOM Group. ALSTOM investments consist exclusively of the shares of ALSTOM Holdings. ALSTOM centralises a large part of the external financing of the Group and directs the funds so obtained to its subsidiary ALSTOM Holdings through loans and current account. Fees from its indirect subsidiaries for the use of the ALSTOM name are ALSTOM s main other source of revenue. For more information, see Statutory accounts. 204

Information on the Company ENVIRONMENTAL AND SOCIAL INFORMATION Information given pursuant to Article L. 225-102-1 of the French Commercial Code: ALSTOM, the parent company of the ALSTOM Group, has no employees and no industrial or commercial activity. Fundamental conventions of the international labour organisation ALSTOM seeks to ensure compliance by its French and overseas subsidiaries of the fundamental conventions of the International Labour Organisation (ILO), understood as: equal opportunities and non-discrimination in the workplace (conventions 110 and 111); freedom of association freedom to form unions or to adhere to unions and freedom to bargain collectively with employers (conventions 97 and 98); child labour ban on employment of children under 15 years of age and under 18 years of age for high risk jobs (conventions 138 and 182); forced labour ban on use of forced labour, slavery and use of imprisoned workers (conventions 29 and 105). Our Code of Ethics is incorporated in the collection of the Group s policies and instructions (known as the e-book ) which is available through the Group s intranet to all employees worldwide. The Code of Ethics stipulates that all employees must comply with the laws, regulations and requirements relating to their job, location and environment and must avoid activities which would involve the Company in any unlawful practice. Compliance with the policies and instructions contained in the e-book is obligatory. An internal audit team routinely checks our units throughout the world for compliance with the Corporate Instructions contained therein. We believe that in almost all countries in which the Group operates, the countries labour law complies with fundamental ILO conventions, and that we respect these laws. In addition, the e-book stipulates a policy of equal opportunity and nondiscrimination in the workplace. For any of our operations, we do not employ child or forced labour of any kind. However, some of the Group s operations may be run under jurisdictions which do not respect all ILO conventions, such as freedom of association (conventions 97 and 98). So far, we have not introduced measures to ensure systematic monitoring of our suppliers compliance with the fundamental ILO conventions listed above. Impact of foreign subsidiaries operations on regional development and local populations Our foreign subsidiaries take into account the impact of their operations on regional development and local populations principally through observance of the Group s environmental health and safety policy, which is monitored on a site-by-site basis. Impact on regional development in terms of employment is monitored and reported by our human resources network. Foreign subsidiaries environmental objectives With respect to environmental objectives assigned to our foreign subsidiaries, all sites in principle monitor and measure performance on a wide range of such issues. Our Environment, Health and Safety (EHS) function has elaborated a road-map methodology, which is used by internal and external assessors to grade each site in terms of its performance. Our environmental management plan requires each site to measure its water and energy consumption as well as its discharge and waste production. A centralised environmental reporting system has been implemented in January 2006. We assign target improvements in each of these areas as necessary. We do not assign explicit objectives in respect of biological stability, natural environments or protected species of animals and wildlife considering the diversity of situations in which we operate, though some of our sites are involved in local initiatives to preserve local wildlife. Moreover, we do not assign objectives in respect of environmental certification even though a great number of units are certified. On the other hand, we define the targets which all our units have to meet with respect to the management levels as set by the road map. Each site complying with ALSTOM criteria can request and obtain external certification if it is necessary for its activity. This fiscal year we pursued our technical assessment of the historic and actual environmental impact of the Company s main manufacturing sites (notably soil pollution) and the corresponding action plans have been reviewed by each Sector to ensure follow-up on progress. 5 ADDITIONAL INFORMATION 205

Information on the Company In most jurisdictions in which we operate, our industrial activities are subject to operating permits, licenses or/and authorisations. Most facilities comply with these permits, licences or authorisations and are subject to regular administrative inspections. Through our internal methodology, which is externally assessed, we control each site s compliance with the local requirements, including the operating units of our foreign subsidiaries. We do not currently consolidate our expenditure on environmental impact prevention, but we consider that all our sites have adequate environmental management systems in place. On each site a Director is responsible for allocating resources to the reduction of environmental risk. He is assisted by an environmental, health and safety manager in charge of reporting on and managing any environmental-damaging accidents as the case may be. These Managers as well as the Group s Unit Managing Directors are trained on a regular basis. 206

Other information OTHER INFORMATION MATERIAL CONTRACTS In the past two years immediately before the issue of this report ALSTOM and/or companies of the Group have entered into the following material agreements (other than the agreements entered into during the ordinary course of business): on 4 November 2005, ALSTOM Holdings signed the extension of its bonding programme up to July 2008 and for an enlarged amount. (see Management discussion and analysis on consolidated financial statements as at 31 March 2006 Bonding programme); on 8 April 2006, we signed an agreement to sell a 75% stake in our Marine Sector. (See Management Discussion and Analysis on Consolidated Financial Statements as at 31 March 2006 Overview Disposal programme). This transaction has been completed on 31 May 2006; on 26 April 2006, ALSTOM and Bouygues signed a memorandum of understanding for commercial and operational cooperation (see Management discussion and analysis on consolidated financial statements as at 31 March 2006 Recent developments). SIGNIFICANT CHANGE IN THE FINANCIAL OR COMMERCIAL CONDITION To the Company s knowledge, no significant change in the financial or commercial condition of the Group has occurred since 16 May 2006, date of approval of the latest accounts published. 5 INTELLECTUAL PROPERTY The Group owns or benefits from licenses for the use of several trade names, patents and other intellectual property rights. All these rights contribute to the good performance of the business, but none of the licenses alone currently has a material relevance for the activities of the Group. ADDITIONAL INFORMATION PROPERTY The Group carries out its activities on some sites upon which it has rights of different nature. The Group has full ownership of most of its main industrial sites. The gross value of land and buildings fully owned and leased (financial leases) as of 31 March 2006 is 1,286 million. The depreciation booked for the above is 532 million. These amounts do not include operating leases. The Group set up a leasing strategy for its offices buildings, which applies notably to the Headquarters of the Group and of the Sectors. The Group s tangible assets are subject to costs for general maintenance and repairs required for their good functioning, to meet with legal and quality requirements, including environmental, health and safety matters. 207

Other information > Main industrial sites held in full property (non exhaustive list) : PT/PE = Power Turbo-Systems / Power Environment Main businesses Belgium Marchienne au Pont Power Service Charleroi Transport Brasil Cabo de Santo Agostinho PT/PE Lapa Transport Taubaté PT/PE Czech Republic Brno - Olomoucka PT/PE & Power Service France Aytré/La Rochelle Transport Belfort PT/PE & Power Service &Transport Grenoble PT/PE Le Creusot Transport Ornans Transport Reichshoffen Transport Valenciennes Transport Germany Berlin (Lessingstrasse) Power Service Bexbach PT/PE Kassel PT/PE Mannheim PT/PE & Power Service Salzgitter Transport India Durgapur PT/PE Shahabad PT/PE Vadodara PT/PE & Power Service Italia Colleferro Transport Savigliano Transport Switzerland Birr PT/PE & Power Service USA Chattanooga (TN) PT/PE Concordia (KS) PT/PE Richmond (Virginia) Power Service Wellsville (NY) PT/PE INFORMATION INCLUDED BY REFERENCE Pursuant to article 28 of EC Regulation N 809-2004 of the Commission of 29 April 2004 regarding prospectuses, the following information is included by reference in this Document de Référence: the consolidated and statutory financial statements for the fiscal year ended 31 March 2005, the auditors reports thereto and the Group s management report, as shown at pages 76 to 123, 144 to 158, 74 to 75,142 to 143 and 29 to 72 respectively, of the report n D.05-0905 filed with the French Financial Markets Authority (Autorité des marchés financiers) on 17 June 2005; the consolidated and statutory financial statements for the fiscal year ended 31 March 2004, the auditors reports thereto and the Group s management, as shown at pages 85 to 133, 155 to 167, 83 to 84, 152 to 153 and 28 to 81 respectively, of the report n D.04-0947 filed with the Financial Markets Authority (Autorité des marchés financiers) on 17 June 2004. The sections of these documents not included here are either not relevant for the investor, or covered in another part of this Document de Référence. 208

Simplified organisation chart as of 31 March 2006 SIMPLIFIED ORGANISATION CHART AS OF 31 MARCH 2006 ALSTOM (France) ALSTOM Holdings (France) 1 ALSTOM GmbH (Holding - Germany) 6 ALSTOM SpA (Holding - Italy) 2 3 ALSTOM UK Holdings Ltd (Holding - UK) ALSTOM Espana IB (Holding - Spain) 7 8 ALSTOM (China) Investment Co. Ltd (Holding - China) ALSTOM Transport Holding US (Holding - USA) 4 ALSTOM NV (Holding - Netherlands) 9 ALSTOM Sweden AB (Holding - Sweden) 5 ALSTOM Inc. (Holding - USA) 10 ALSTOM Australia Holdings Ltd (Holding - Australia) ALSTOM Power Turbomachines (France) ALSTOM Transport SA (France) Chantiers de l Atlantique (France) ALSTOM Power Hydraulique (France) 3 ALSTOM Transporte S.A. (Spain) ALSTOM Leroux Naval (France) ALSTOM Power Centrales (France) 1 ALSTOM LHB GmbH (Germany) A. M. R. (France) ALSTOM Canada Inc. (Canada) ALSTOM Power Holdings (France) 3 2 ALSTOM Brasil Ltda (Brazil) ALSTOM Transport (UK) 5 4 10 4 4 6 4 ALSTOM Technology Ltd (Switzerland) ALSTOM Power Ltd (Australia) ALSTOM Power Generation AG (Germany) ALSTOM Power Boiler GmbH (Germany) ALSTOM Power Italia SpA (Italy) ALSTOM Power Sp Zoo (Poland) 4 4 5 ALSTOM Power Boilers SA (France) ALSTOM Power Hydro (France) ALSTOM Power Service (France) ALSTOM Power Services GmbH (Germany) ALSTOM Power sro (Czech Republic) ALSTOM Power Inc. (USA) 8 8 6 4 4 ALSTOM Signaling Inc. (USA) ALSTOM Transportation Inc. (USA) ALSTOM Ferroviaria SpA (Italy) ALSTOM Belgium (Belgium) ALSTOM Transport (s) Pte Ltd (Singapore) ALSTOM Transport AB (Sweden) ALSTOM Transport BV (Netherlands) ADDITIONAL INFORMATION 9 4 ALSTOM Power Sweden AB (Sweden) ALSTOM Switzerland Ltd (Switzerland) 2 ALSTOM Power UK Holdings Ltd (UK) 4 ALSTOM Power Asia Pacific Sdn Bhd (Malaysia) 7 ALSTOM Technical Services (Shanghai) Co Ltd (China) ALSTOM O&M Ltd (Switzerland) 4 ALSTOM K.K. (Japon) Power* Transport Marine * Power Sectors are organised in two sectors: Power Turbo-Systems / Power Environment and Power Service. Note : Companies are wholly-owned. Each number in a box indicates the ultimate holding company with the same number that holds its shares. 209

Information on the Document de Référence INFORMATION ON THE DOCUMENT DE RÉFÉRENCE STATEMENT BY THE PERSON RESPONSIBLE FOR THE DOCUMENT DE RÉFÉRENCE After taking all reasonable measures, I state that, to my knowledge, the information contained in this Document de Référence is accurate; it contains all information necessary to an investor to evaluate the assets, the activities, the financial situation, the results of operations and the prospects of ALSTOM. There is no other information the omission of which would alter the scope thereof. I have obtained from the auditors, Deloitte & Associés and Barbier Frinault & Autres, Ernst & Young, a letter of completion of work in which they indicate that they have verified the information relating to the financial situation and financial statements given in this Document de Référence and have read the whole Document de Référence. The historical financial information presented or included by reference in the Document de Référence has been the subject of reports by the auditors included on pages 128 to 129 and 146 to 147 for the year ended 31 March 2006, and included by reference in this Document de Référence for the year ending 31 March 2004 and 31 March 2005. These reports have been issued without qualification and contain emphasis of matter paragraphs relating to the year ended 31 March 2004 and 31 March 2005. Levallois-Perret, 2 June 2006 The Chairman and Chief Executive Officer Patrick Kron 210

Information on the Document de Référence TABLE OF RECONCILIATION The ALSTOM Document de Référence 2005/06 is comprised of two parts: the Activity report 2005/06 and this document (the Financial report 2005/06 ). It may be used in connection with an offering of securities if it is accompanied by a prospectus ( note d opération ) for which the AMF has issued a visa. The Document de Référence in French language was filed with the French Autorité des marchés financiers ( AMF ) on 2 June 2006 in accordance with article 212-13 of its Règlement général. Section of Annexe 1 Pages of the Document de Référence to European Regulation n 809/2004 Activity report Financial report 1. Persons responsible 210 2. Statutory Auditors 203 3. Selected financial information 3.1 Historical information 0 208 3.2 Interim information NA NA 4. Risk factors 39 to 42, 95 to 98, 98 to 102, 151 to 158 5. Information about the issuer 5.1 History and development of the issuer 6 to 8, 200 5.2 Investments 35,37 5 6. Business overview 6.1 Principal activities 1, 10 to 11, 18 to 41 6.2 Principal markets 10 to 13, 22 to 25, 28 to 30, 32, 34 to 37 19,20 6.3 Exceptional events NA NA 6.4 Potential dependence 154, 155, 207 6.5 Basis of any statement made by the issuer regarding its competitive position 1, 28 155 ADDITIONAL INFORMATION 7. Organizational structure 7.1 Brief description 209 7.2 List of significant subsidiaries 108, 109,137, 145 8. Property, plants and equipment 8.1 Existing or planned material tangible fixed assets 42, 43 211, 212 8.2 Environmental issues that may affect the use of tangible fixed assets NA NA 9. Operating and financial review 9.1 Financial condition 6 to 45 9.2 Operating results 6 to 45 211

Information on the Document de Référence Section of Annexe 1 Pages of the Document de Référence to European Regulation n 809/2004 Activity report Financial report 10. Capital resources 10.1 Issuer s capital resources 9 to 10, 52 to 53, 139 10.2 Cash flows sources and amounts 36 to 37, 50 to 51 10.3 Borrowing requirements and funding structure 83 to 86, 38 to 39, 141 to 142 10.4 Information regarding any restrictions on the use of capital resources that have materially affected or could materially affect the issuer s operations 85, 142 10.5 Anticipated sources of funds NA NA 11. Research and development, patents and licences 30 to 33, 36 to 41 32, 207 12. Trend information 24 to 26, 30 to 32 46 13. Profit forecasts or estimates 13 46, 130 14. Administrative, management and supervisory bodies and senior management 14.1 Administrative and management bodies 5 161 to 166 14.2 Administrative and management bodies conflicts of interest 166 to 167 15. Remuneration and benefits 15.1 Amount of the remuneration paid and benefits in kind 184 to 188 15.2 Total amount set aside or accrued by the issuer or its subsidiaries to provide pension, retirement or similar benefits 184, 188 16. Board practices 16.1 Date of expiration of current term of offices 161 to 166 16.2 Service contracts of members of the Board 167 16.3 Information about the Audit Committee and the Remunerations Committee 168, 173 to 176, 177 16.4 Corporate governance in force in the issuer s country of origin 160, 167 to168 17. Employees 17.1 Number of employees 15 102 17.2 Shareholdings and stock options 189 to 192, 103 to 105 17.3 Description of any arrangements for involving the employees in the issuer s capital 15 191, 192 18. Major shareholders 18.1 Shareholders with more than 5% interest in the share capital or voting rights 197 to 198 18.2 Different voting rights 194 18.3 Control of the issuer NA NA 18.4 Agreement known to the issuer, the operation of which may at a subsequent date result in a change of control of the issuer NA NA 212

Information on the Document de Référence Section of Annexe 1 Pages of the Document de Référence to European Regulation n 809/2004 Activity report Financial report 19. Related party transactions 148 20. Financial information concerning the issuer s assets and liabilities, financial position and profit and losses 20.1 Historical financial information 0 208 20.2 Pro forma financial information NA NA 20.3 Financial statements 48 to 127, 131 to 145 20.4 Auditing of historical financial information 208 20.5 Age of latest financial information 48 20.6 Interim and other financial information NA NA 20.7 Dividend policy 150, 199 20.8 Legal and arbitration proceedings 95 to 98, 155 to 156 20.9 Significant change in the issuer s financial or commercial condition 207 21. Additional information 21.1 Share capital 139, 194 to 199 21.2 Memorandum and Articles of Association 200 to 203 22. Material contracts 207 23. Third party information and statement by experts and declarations of interest 28 24. Documents on display 203 5 25. Information on holdings 108 to 109, 137, 145 ADDITIONAL INFORMATION 213

Société anonyme with share capital of 1,934,390,864 3, avenue André Malraux 92300 Levallois-Perret www.alstom.com RCS : 389 058 447 Nanterre ALSTOM 2006 - ALSTOM, the logo and any alternative thereof are trademarks and service marks of ALSTOM. The other names mentioned, registered or not, are property of their respective companies. Design and layout: Franklin Partners