UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 20-F

                  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2001

                         Commission file number: 0-31052

                           Gemplus International S.A.
             (Exact name of registrant as specified in its charter)

                                 Not Applicable
                 (Translation of registrant's name into English)

                            Grand Duchy of Luxembourg
                 (Jurisdiction of incorporation or organization)

                                 Aerogolf Center
                                   1 Hohenhof
                              L-2633 Senningerberg
                            Grand Duchy of Luxembourg
                    (Address of principal executive offices)

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

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

<TABLE>
                                                                          Name of Each Exchange
Title of Each Class                                                        on Which Registered
-------------------                                           ------------------------------------------
<S>                                                            <C>
American Depositary Shares ("ADSs"), each representing        Nasdaq National Market of the Nasdaq Stock
    2 Ordinary Shares, without par value....................  Market Inc.

Ordinary Shares, without par value..........................  Premier Marche of Euronext Paris
</TABLE>

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

The number of outstanding shares of each class of capital or common stock as of
December 31, 2001 was:

       635,282,297        Ordinary Shares, without par value

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

               [X] Yes                    [ ] No


Indicate by check mark which financial statement item the registrant has elected
to follow.

               [ ] Item 17                [X] Item 18

================================================================================

<PAGE>

                                TABLE OF CONTENTS
                                                                            Page
Summary........................................................................4
PART I.........................................................................6

       Item 1.  Identity of Directors, Senior Management and Advisors..........6

       Item 2.  Offer Statistics and Expected Timetable........................6

       Item 3.  Key Information................................................6

           Selected Consolidated Financial Data................................6

           Exchange Rate Information And The European Monetary System..........9

           Risk Factors.......................................................11

           Special Note Regarding Forward-Looking Statements..................20

       Item 4.  Information on the Company....................................21

           History and Development of the Company.............................22

           Business Overview..................................................22

       Item 5.  Operating and Financial Review and Prospects..................51

       Item 6.  Directors, Senior Management and Employees....................69

       Item 7.  Major Shareholders and Related Party Transactions.............84

           Major Shareholders.................................................84

           Related Party Transactions.........................................85

       Item 8.  Financial Information.........................................87

           Audited Consolidated Financial Statements..........................87

           Other Financial Information........................................87

           Significant Changes................................................88

       Item 9.  The Offer and Listing.........................................89

           Nature of Trading Market...........................................89

       Item 10.  Additional Information.......................................92

           Articles of Incorporation..........................................92

           Material Contracts.................................................97

           Taxation...........................................................98

           Documents On Display..............................................101

       Item 11.  Quantitative and Qualitative Disclosures About Market Risk..102

       Item 12.  Description of Securities Other than Equity Securities......105

PART II......................................................................105

       Item 13.  Defaults, Dividend Arrearages and Delinquencies.............105

       Item 14.  Material Modifications to the Rights of Security
                 Holders and Use of Proceeds.................................105

           Use Of Proceeds...................................................105

       Item 15.  [Reserved]..................................................105

       Item 16.  [Reserved]..................................................105

PART III.....................................................................105

       Item 17.  Financial Statements........................................105

       Item 18.  Financial Statements........................................105

       Item 19.  Exhibits....................................................106

<PAGE>

                                     SUMMARY

         The following summary should be read together with the more detailed
information regarding Gemplus International S.A. and our financial statements
and notes thereto appearing elsewhere in this Annual Report.

Our Business

         We are a leading provider of technology, products and services that
enable wireless network operators to offer their customers secure communications
and transactions through mobile phones, and that enable companies, financial
institutions and public entities to provide customized services to their
customers and employees through a range of network systems, including financial
card networks, bonus point programs, identification systems and Internet
security networks.

         We currently have two main business segments:

          o    Telecommunications, which includes our wireless products and
               services, as well as prepaid telephone cards and other products;
               and

          o    Network systems, which includes chip card products and services
               in areas such as financial services, Internet security,
               identification and security, health care and loyalty programs.

         Our wireless products and services are used in the Global System for
Mobile Communications standard, or GSM, which is the mobile phone transmission
standard that is dominant in Europe and the most widely used in the world. Our
wireless products consist primarily of subscriber identity modules, or SIM
cards, which are small plastic modules with embedded microprocessor chips that
are inserted in mobile phones. The microprocessor chips are capable of storing
and processing data like a miniature computer, transferring processed data to a
network reader and running miniature software programs or applets that interact
remotely with server-based applications.

         The wireless communication market is entering a new phase in which
mobile telephone operators increasingly use their wireless networks for data
transmission in addition to voice transmission services. We believe that this
shift in the wireless communication market will accelerate as mobile operators
construct and develop networks that use the new wireless transmission standards
that were licensed around the world in 1999, 2000 and 2001. These third
generation networks will allow wireless operators to provide data transmission
services that go well beyond what existing mobile telephones provide, including
high speed Internet access and mobile commerce. Because of its security,
portability and flexibility, identification module technology has been included
in the specifications for the new wireless transmission standards in many
regions, including Europe and most of Asia, and we anticipate that wireless
operators in other regions, including the United States and other parts of Asia,
will also choose to adopt this technology for their new wireless networks.

         Our chip card technology is also an ideal platform for a variety of
service applications over other network systems. In the financial services
market, for example, banks can issue credit and debit cards with embedded chips
to reduce fraud and to provide their customers with premium value services,
including e-purse applications (meaning applications that store cash values that
can be used to make purchases) and mobile banking services. In the
identification systems and security networks markets, plastic cards with
embedded chips can be used to provide secure access to restricted facilities or
computer networks and to increase the effectiveness of identification and
security systems.

         In our core telecommunications and network systems activities, we also
provide a broad range of software and services that allow our customers to
implement and manage sophisticated systems to take advantage of our technology.
Our software includes card management systems that our customers can use to
manage card issuance, update data, download applications and obtain customer
information, which allows our customers to manage their customer base and to
continuously provide new premium value services over their networks, including
mobile commerce and banking. Our services include customization, technical
support, consulting, system design and integration and system operation.

         We also provide non-chip card products and services in other areas
related to our main telecommunications and network systems segments, such as
magnetic stripe credit cards for banks and card-based transportation access
products.

         Our revenues amounted to (euro)1,023 million ($993 million) in 2001.
Sales of wireless products and services represented 48% of our overall revenues
in 2001, while sales of our chip card products and services in our network
systems segment represented 22%. Based on the 2001 worldwide chip card vendor
shipments ranking of Gartner Dataquest, an industry analyst, we are the leading
provider of chip cards with a global market share of approximately 30.4% in
terms of units sold. Eurosmart, a European industry association, confirmed our
global leadership in its 2001 report, and, based on information published by
Eurosmart, we estimate that our global market share was approximately 34% in
terms of units sold in 2001.

Our Strategy

         We are pursuing a vision of expanding the markets for safe electronic
services, which include a broad set of potential services delivered online
through wireless or wired networks, while intensifying the role of high-volume,
secure, personalizable devices. This vision demands that we continue to grow
beyond world leadership in chip cards and SIM cards, leveraging our distinctive
competencies, technologies, and partner network to deliver a broad array of
solutions for the financial services, wireless, retail, and security markets.
The strategy for attaining this vision includes these key elements:

          o    Driving the expansion of the wireless data services markets by
               providing hardware, software, and services that facilitate secure
               wireless data transmission and transactions, creation and
               management of relationships between service providers and
               end-users, secure lifecycle management of applications, and
               secure and trusted roaming of users between networks.

          o    Expanding the electronic financial services and retail markets
               through systems to promote electronic customer relationships,
               wireless transactions and fraud reduction.

          o    Enabling rapid growth of Internet-based government, and
               electronic services markets through our identity, privacy,
               access, and content protection solutions.

          o    Leveraging distinctive technical competencies and investing in
               research and development as a key source of ongoing
               differentiation and competitive advantage.

          o    Achieving higher levels of operational efficiency through
               economies of scale, tighter organization, and more efficient
               manufacturing operations.o

          o    Expanding business in high-growth geographic markets such as the
               United States, China, Japan, Brazil and Russia.o

                                  ------------

         We are registered with the Registrar of Commerce in Luxembourg under RC
No. B73145. Our registered office is located at Aerogolf Center, 1 Hohenhof,
L-2633 Senningerberg, Grand Duchy of Luxembourg and our telephone number is
+352-2634-6100. Our World Wide Web site address is www.gemplus.com. The
information in the Web site is not incorporated by reference into this Annual
Report.

                                     PART I

Item 1.  Identity of Directors, Senior Management and Advisors

         Not applicable.

Item 2.  Offer Statistics and Expected Timetable

         Not applicable.

Item 3.  Key Information

                      Selected Consolidated Financial Data

         The selected consolidated financial information set forth below has
been derived from, and is qualified in its entirety by reference to our audited
consolidated financial statements and notes thereto, which have been prepared in
accordance with international accounting standards, commonly referred to as IAS,
which differ in certain significant respects from U.S. generally accepted
accounting principles, commonly referred to as U.S. GAAP. Note 32 to our audited
consolidated financial statements describes the principal differences between
IAS and U.S. GAAP as they relate to us, and reconciles our net income and
shareholders' equity to U.S. GAAP.

<PAGE>

<TABLE>

                                                                            Year ended
                                                                      and as at December 31,
                                                      1997       1998      1999     2000       2001
                                                     (euro)     (euro)    (euro)   (euro)     (euro)      $(1)
                                                     ------     ------    ------   ------     ------    ------
INCOME STATEMENT DATA:
<S>                                                  <C>        <C>       <C>       <C>       <C>       <C>
Net sales.........................................    527        583       767      1,205     1,023       993
Cost of sales.....................................   (359)      (383)     (487)      (751)     (716)     (695)
                                                     ----       ----      ----       ----      ----      ----
Gross profit......................................    168        200       280        454       307       298
                                                     ----       ----      ----       ----      ----      ----
Research and development expenses.................    (35)       (45)      (62)       (91)     (113)     (109)
Reversal of research credit allowance.............     --         --        --         12        --        --
Selling and marketing expenses....................    (68)       (78)      (97)      (159)     (165)     (160)
General and administrative expenses...............    (44)       (48)      (64)       (90)     (111)     (107)
Litigation expenses                                    --         --        --         --       (18)      (18)
Management severance expenses                          --         --        --         --       (26)      (25)
Restructuring expenses                                 --         --        --         --       (28)      (28)
Goodwill amortization.............................     (5)        (5)       (7)       (11)      (27)      (26)
Legal reorganization expense......................     --         --       (65)        --        --        --
                                                     ----       ----      ----       ----      ----      ----
Operating income (loss)...........................     16         24       (15)       116      (181)     (175)
Interest income...................................      1          0         1         21        28        27
Interest expense..................................     (7)        (5)       (5)        (9)       (8)       (7)
Other income (expense), net.......................     (5)        12        (1)         0        46        44
                                                     ----       ----      ----       ----      ----      ----
Income (loss) before taxes........................      5         31       (20)       129      (114)     (111)
Provision for income taxes........................     (3)        (7)      (12)       (30)       14        14
                                                     ----       ----      ----       ----      ----      ----
Net income (loss).................................      2         24       (32)        99      (100)      (97)
                                                     ----       ----      ----       ----      ----      ----
Net income (loss) per share (2)...................
   - Basic........................................   0.01       0.08     (0.10)      0.20     (0.16)    (0.15)
   - Diluted......................................   0.01       0.08     (0.10)      0.18     (0.16)    (0.15)

</TABLE>

<PAGE>

<TABLE>
                                                                            Year ended
                                                                      and as at December 31,
                                                      1997       1998      1999     2000       2001
                                                     (euro)     (euro)    (euro)   (euro)     (euro)      $(1)
                                                     ------     ------    ------   ------     ------    ------
<S>                                                   <C>        <C>       <C>      <C>        <C>         <C>
Amount in accordance with US GAAP
   - Net income (loss) per US GAAP................      1         23       (44)      (123)      (49)      (48)
   - Net income (loss) per share (2)..............
     - Basic......................................   0.00       0.08     (0.14)     (0.25)    (0.08)    (0.08)
     - Diluted....................................   0.00       0.07     (0.14)     (0.23)    (0.08)    (0.08)

OTHER DATA:
Adjusted EBITDA(3)................................     44         69       104        195       (60)      (59)
Net cash from (used for) operating activities.....     32         85        75         69       (23)      (23)
Net cash (used for) investing activities..........    (93)       (41)      (74)     (266)       (65)      (63)
Net cash from (used for) financing activities          82        (61)       29        818       (35)      (34)

BALANCE SHEET DATA:
Cash and cash equivalents.........................     30         18        27        636       491       476
Trade accounts receivable, net....................    150        151       201        311       189       183
Other current assets..............................     43         29        46         97       104       101
Inventory, net....................................     72         56        96        174       140       136
Total assets......................................    550        495       667      1,909     1,531     1,486
Long-term debt, less current portion..............     76         10         8          6        --        --
Minority interest.................................      3          5         9         17        17        17
Shareholders' equity..............................    213        260       294      1,385     1,168     1,133
Total assets under US GAAP........................               500       671      1,767     1,441     1,399
Shareholders' equity under US GAAP................               265       298      1,243     1,078     1,046

</TABLE>

(1)  Dollar amounts have been translated for convenience at the Noon Buying Rate
     on June 21, 2002, of USD1.00 =(euro)1.030.

(2)  Basic net income per share under IAS and U.S. GAAP is calculated by
     dividing net income by the weighted average number of our ordinary shares
     outstanding during each period, in each case adjusted for a fifty-for-one
     share split that took place on June 21, 2000. The weighted average number
     of shares used in calculating the basic net income per share was
     268,683,650, 298,523,800, 313,120,400,497,523,946 and 636,992,392 for the
     years ended December 31, 1997, 1998, 1999, 2000 and 2001. Diluted net
     income per share under IAS and U.S. GAAP is calculated in the same manner
     as basic net income per share, except that dilutive effect of the exercise
     of our outstanding share options and warrants is included in the
     determination of the weighted average number of shares outstanding for each
     period. The weighted average number of shares used in calculating the
     diluted net income per share was 281,932,050, 307,274,750, 313,120,400,
     539,256,206 and 636,992,392 for the years ended December 31, 1997, 1998,
     1999, 2000 and 2001.

(3)  Adjusted EBITDA is defined as earnings before interest expense (net of
     interest income), provision for income taxes and depreciation and
     amortization expense and legal reorganization expense. We believe that
     Adjusted EBITDA is a key indicator of operational strength and performance
     of our business. However, Adjusted EBITDA is not a measurement of operating
     performance calculated in accordance with IAS or U.S. GAAP, and should not
     be considered a substitute for operating income or net income as a measure
     of profitability, or a substitute for cash flows from operating activities
     as a measure of liquidity, in each case determined in accordance with IAS
     or U.S. GAAP. Because all companies do not calculate EBITDA identically,
     and because our adjustments relate to a legal reorganization that is unique
     to our company, the presentation of Adjusted EBITDA contained herein may
     not be comparable to similarly entitled measures of other companies.

<PAGE>


           EXCHANGE RATE INFORMATION AND THE EUROPEAN MONETARY SYSTEM

The European Monetary System

         The French franc is a constituent currency of the euro. Its rate of
exchange against the euro has been fixed at (euro)1 = FF 6.55957. Against
currencies other than its constituent currencies, the euro has free-floating
exchange rates, although central banks sometimes try to confine short-term
exchange rate fluctuations by intervening in foreign exchange markets.

         The French franc was previously part of the European Monetary System
exchange rate mechanism. Within the European Monetary System, exchange rates
fluctuated within permitted margins, fixed by central bank intervention. Under
the Treaty on European Union negotiated at Maastricht, The Netherlands, in 1991
and signed by the then twelve European Union Member States in early 1992, the
European Monetary Union, with a single European currency under the monetary
control of the European Central Bank, superseded the European Monetary System.
On January 1, 1999, the last stage of the European Monetary Union came into
effect, with the adoption of fixed exchange rates between national currencies
and the euro. The currencies of the following twelve member states are
constituents of the euro: Austria, Belgium, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain. We have adopted
the euro as our reporting currency.

Exchange Rates

         The following table sets forth, for the periods and dates indicated,
certain information concerning the exchange rates for the French franc from 1997
through 1998, expressed in French francs per U.S. dollar, and for the euro for
1999, 2000, 2001 and for 2002 through June 21, 2002 expressed in euros per U.S.
dollar. The information concerning the U.S. dollar exchange rate is based on the
noon buying rate in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rate"). We provide the exchange rates below solely for your
convenience. We do not represent that French francs or euros were, could have
been, or could be, converted into U.S. dollars at these rates or at any other
rate. The Federal Reserve Bank of New York has ceased publishing the Noon Buying
Rates for French francs and other constituent currencies of the euro.
<TABLE>
<CAPTION>

                                                     French francs                              Euros
                                         -----------------------------------    -----------------------------------
                                         Period-     Average                    Period-    Average
                                         end Rate    Rate(1)   High      Low    end Rate   Rate      High      Low
                                         --------    -------   ----      ---    --------   ----      ----      ---
<S>                                        <C>       <C>       <C>      <C>       <C>      <C>       <C>      <C>
                                           Rate     Rate(1)    High      Low      Rate     Rate      High      Low
1997..................................     6.02      5.85      6.35     5.19        --       --        --       --
1998..................................     5.59      5.90      6.21     5.39        --       --        --       --
1999(2)...............................     6.51      6.16      6.56     5.49      1.00     0.94      1.00     0.84
2000(2)...............................     6.99      7.11      7.93     6.35      1.07     1.08      1.21     0.97
2001(2)...............................     7.37      7.33      7.84     6.88      1.12     1.12      1.19     1.05
   December...........................       --        --      7.48     7.25        --       --      1.14     1.11
2002
   January............................       --        --      7.63     7.26        --       --      1.16     1.11
   February...........................       --        --      7.62     7.47        --       --      1.16     1.14
   March..............................       --        --      7.58     7.43        --       --      1.16     1.13
   April..............................       --        --      7.50     7.27        --       --      1.14     1.11
   May................................       --        --      7.27     7.00        --       --      1.11     1.07
   June (through June 21, 2002).......       --        --      6.99     6.76        --       --      1.07     1.03


</TABLE>

(1)  The average of the Noon Buying Rates on the last business day of each month
     (or portion thereof) during the relevant period. (2) The Federal Reserve
     Bank of New York stopped publishing Noon Buying Rates for the French franc
     on January 15, 1999. Noon Buying Rates for French francs for periods
     subsequent to January 15, 1999 have been calculated by applying the fixed
     exchange rate of FF 6.55957 per (euro)1.00 to the Noon Buying Rate for
     euros.

         Solely for the convenience of the reader, this Annual Report contains
translations of certain euro amounts into U.S. dollars. These translations
should not be construed as representations that the converted amounts actually
represent such U.S. dollar amounts or could have been or will be converted into
U.S. dollars at the rate indicated or at all. The translations from euros to
U.S. dollars in this Annual Report are based on (euro)1.030 per U.S. dollar, the
Noon Buying Rate in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York on June
21, 2002. On June 27, 2002, the Noon Buying Rate was (euro)1.012 per U.S.
dollar.

<PAGE>

                                  Risk Factors

                          Risks Related to Our Business

If the recent significant downturn in the wireless communications industry
continues, our business might not grow as much or as profitably as we hope.

         Our business is significantly affected by trends in the wireless
communications industry, because a substantial portion of our revenues is
derived from sales of wireless products and services, which accounted for
approximately 48% of our revenues in 2001. Although the wireless communications
industry experienced tremendous growth through 2000, demand for wireless
products and services fell abruptly in 2001, particularly in Europe and the
United States, resulting in a 15% decline in our revenues in 2001 compared to
2000. Because we typically earn our highest margins from sales of wireless
products, reduced demand for wireless products also affected our profitability,
resulting in an operating loss of (euro)181 million in 2001. In addition, the
slowdown in the wireless industry has led wireless operators to delay making the
necessary investments for the introduction of new wireless standards and
technologies, which may limit our ability to return to or increase our
profitability through the introduction of new products and services. If the
slowdown in the wireless industry continues, our business may not grow as much
or as profitably as we have projected.

The markets that we target for a substantial part of our future growth are in
very early stages of development, and if they do not develop our business might
not grow as much or as profitably as we hope.

         Many of the markets that we target for our future growth are currently
small or non-existent and need to develop if we are to achieve our growth
objectives. If some or all of these markets do not develop, or if they develop
more slowly than we anticipate, then we will not grow as quickly or profitably
as we hope. For example:

          o    We are seeking to take advantage of the development of new
               markets for wireless communications products and services,
               including mobile commerce, mobile banking and mobile Internet
               services. These markets are only just starting to develop. Since
               early 2001, these markets have experienced a significant slowdown
               in investment levels, and companies in these markets have had
               limited access to capital.

          o    We are also developing chip card products and services for the
               financial services market. Except in France, chip card technology
               has not been widely adopted by the financial services industry,
               largely due to the cost of the necessary infrastructure, the lack
               of internationally compatible standards and the relatively
               limited capabilities of all but the newest chips.

          o    We are investing in identification and security networks products
               and services, but so far we have not deployed our systems on a
               widespread basis. Our businesses in all of these markets
               currently represent start-up operations, and we do not know
               whether these operations will be profitable. The development of
               these markets will depend on many factors that are beyond our
               control, including the factors that are discussed below.

Several members of our senior management have recently resigned and if new
members of senior management are unable to integrate themselves rapidly into our
business or work together as a management team, we may experience difficulties
managing our business.

         Several members of our board of directors and senior management have
recently resigned from their positions, including the Chairman of our Board of
Directors, our Chief Executive Officer, our Chief Operating Officer, our Chief
Financial Officer and our Chief Technology Officer. We appointed an interim
Chief Executive Officer in December 2001 and an interim Chief Financial Officer
in March 2002 and we are currently in the process of selecting permanent
successors to these positions. In January 2002, we appointed our permanent Chief
Technology Officer. If the individuals that we appoint as permanent members of
our senior management are unable to integrate themselves rapidly and effectively
into our business or work together as a management team, we may not be able to
manage our business effectively.

If our restructuring and repositioning strategies fail to provide the results we
expect or are not implemented adequately, we may continue to experience
difficulties in growing our business as much or as profitably as we hope.

         We commenced implementing a restructuring plan in the second quarter of
2001 to address the effects on our business of the global slowdown in the
wireless communications industry, which led to a decline in sales of our
wireless products and an increase in our operating costs. Pursuant to this
policy, we restructured our manufacturing operations worldwide in 2001 through
the closure of our plant in Seebach, Germany and a reallocation of our
production requirements among our manufacturing facilities around the world, and
reduced the number of our employees by 497. We have also recently implemented a
new restructuring policy in 2002 through the rationalization of our production
and sourcing strategy, which includes further reductions in the number of our
employees by approximately 1,140. If we are not able to reduce our operating
costs and increase our productivity because our restructuring policy does not
provide the results that we expect or is not implemented adequately, we may
continue to experience difficulties in growing our business as profitably as we
hope.

         We also intend to complement our wireless business increasingly and
limit our exposure to future downturns in the wireless communications industry
by implementing a strategy to take advantage of potential growth in our network
systems markets to increase the share of our revenues corresponding to our
network systems businesses, particularly the financial services market. The
success of this strategy depends on a number of factors outside of our control,
including the widespread adoption of our technology in the financial services
market and growth in demand for our products and services in the identification
and security networks markets. If these markets do not grow as much as we hope
or we are not able to take advantage of any increases in demand for our products
and services in these markets, we may be unable to reduce our exposure to the
slowdown in the wireless communications industry.

If chip card technology is not adopted in new wireless transmission standards
and infrastructure and in the financial services industry, we may lose some of
our existing customers and our business might not grow as much or as profitably
as we hope.

         Our ability to grow depends significantly on whether government and
industry organizations adopt chip card technology as part of their new
standards. If these organizations do not adopt chip card technology, then we
might not be able to penetrate some of the new markets we are targeting, or we
might lose some of our existing customer base.

         In order for us to achieve our growth objectives, chip card technology
must be adopted in a variety of areas, including:

          o    wireless communication devices, which currently are not equipped
               with external readers that would allow credit and debit chip
               cards to be used for mobile commerce payments;

          o    bank credit and debit card systems, which in most countries have
               traditionally relied on magnetic stripe cards as their principal
               technology;

          o    computer equipment, which must include chip card readers as
               standard equipment if the use of chip cards for Internet and
               other applications is to become common;

          o    widely used digital signature information technology security
               systems; and

          o    national identity card programs, which are considering chip cards
               with biometric technology.

         The decisions of the standard setting bodies that will decide whether
to adopt chip card technology are likely to be based on factors such as:

          o    the cost of adopting chip card technology relative to alternative
               systems,

          o    the degree of security provided by chip card technology,

          o    the development of competing technology to provide security and
               premium value services,

          o    the relative ease or difficulty of implementing chip card
               technology, and

          o    whether chip card technology becomes generally accepted by
               businesses and consumers.

We need to develop our position as a provider of software and services to earn
high margins from our technology.

         The increasing sophistication of chip card technology places a premium
on providing innovative software, systems and services to customers, in addition
to manufacturing and supplying chip cards. While we have had some early success
positioning ourselves as a provider of services and systems, we cannot be sure
that we will continue to be successful with this strategy, or that we will be
able to capture a significant share of the market for the sophisticated services
and systems that we believe are likely to produce attractive margins in the
future. A significant portion of the value of chip card technology lies in the
development of operating systems and applications that will permit the use of
chip cards in new markets. In contrast, the margins involved in manufacturing
and selling chip cards can be relatively small, and might not be sufficient to
permit us to earn an attractive return on our development investments.

If we fail to manage our inventories of microprocessor chips, a key component in
our technology, we will not be able to develop our business as profitably as we
hope.

         Our technology is based principally on microprocessor chips, on which
we load software that we sell to our customers. Because the wireless
communications industry has proven volatile in the past few years, experiencing
rapid growth in 2000 and a sudden downturn in 2001, we have had difficulty
managing our inventory levels of microprocessor chips. During 2000, the
increasing demand for microprocessor chips outpaced the capacity of the industry
to produce chips, resulting in shortages and price increases. Based on
projections of continued growth in the wireless industry, we entered into
substantial commitments in 2000 to buy microprocessor chips to meet projected
demand for our products in 2001. However, the unexpected industry downturn in
early 2001 led to reduced demand and lower prices for our wireless products,
which resulted in our inventory levels being higher than optimal. Although we
have since reduced our inventory levels to more acceptable levels, we can
provide no assurance that we will succeed in managing our inventory supply in
the future, particularly if the industry undergoes tremendous and rapid change.

         In addition, if the wireless communications industry experiences a
sudden upturn with significant levels of growth in the near future, we will need
to secure adequate supplies of chips to expand our production. If we are not
able to secure these supplies, or experience supply problems with the newest
generation of chips that generate our highest margins, we may record lower
revenues and profits than expected and lose market share to competitors that
have secured adequate chip supplies. In the past we have relied on a limited
number of chip suppliers to meet our demands, which increased our exposure to
supply shortfalls due to production constraints of our suppliers and worldwide
chip shortages. In 2001, we purchased approximately 70% of our microprocessor
chips from two suppliers, Infineon and Philips. Although we continue to seek to
diversify our chip suppliers, we cannot be certain that all of our chip
suppliers will be able to meet our quality or timely delivery standards,
particularly if there is an industry-wide chip shortage. In some cases, we may
also decide to provide financing for the expansion of a chip supplier's capacity
by pre-purchasing chips, exposing us to the supplier's credit risk, if we
consider the pre-purchase of chips necessary to secure an adequate supply of
chips in the future.

If we are unable to keep up with rapid changes in chip card technology, our
existing products and services could become obsolete.

         The market for our products and services is marked by rapid
technological change, frequent new product introductions and chip card
technology enhancements, uncertain product life cycles, changes in client
demands and evolving industry standards. New products and services based on new
or improved technologies or new industry standards can render existing products
and services obsolete and unmarketable. To succeed, we will need to enhance our
current products and service offerings and develop new products and services on
a timely basis to keep pace with developments related to chip card technology
and to satisfy the increasingly sophisticated requirements of our clients. Any
delays in developing and releasing enhanced or new products and services or in
keeping pace with continuous technological change may cause us to lose our
existing customer base.

         The process of developing our products and services is extremely
complex and requires significant continuing development efforts. Our investments
in research and development have been considerable and may increase. In order to
earn an adequate return on these investments, we need to expand our sales
significantly.

Our quarterly financial results fluctuate and are difficult to predict, and if
our future results are below the expectations of investors, the price of our
shares and ADSs may decline.

         Our quarterly operating results have varied substantially from quarter
to quarter, and we anticipate that this pattern will continue, particularly as
we develop our products and services in new markets. This variability makes it
difficult to use our quarterly results of operations as an indicator of possible
trends.

         Although these quarterly variations are a historical part of our
business, they could affect the market price of our shares or ADSs. In
particular, if our results of operations in any quarter are below the
expectations of investors, the trading price of our shares or ADSs will likely
decrease materially.

         In addition to general economic factors and factors that affect
companies generally, a number of factors specific to us are likely to cause
quarterly variations, including:

          o    the mix of products and services that we are able to provide,
               including in particular whether we are able to increase our
               higher margin product and services, such as those we provide in
               the wireless communications market, as a percentage of our sales;

          o    the geographical mix of our sales, including the relative extent
               of our growth in countries where our products and services are
               sold at the most attractive prices;

          o    costs related to possible acquisitions of technology or
               businesses, including costs related to the integration of
               acquired businesses into our operations; and

          o    success in maintaining and enhancing existing relationships and
               developing new relationships with strategic partners, including
               operating systems developers, systems integrators and other
               implementation partners.

Because we have typically recorded the highest portion of our revenues in the
fourth quarter of each year, factors that have an impact on the fourth quarter
could disproportionately affect our results of operations.

         We have typically recorded the greatest share of our revenues in the
fourth quarter of each year, principally because wireless communications
operators conduct promotions for the Christmas season, and because our sales
force often is motivated to accelerate sales at the end of the year to meet
targets on which their bonuses are determined. In contrast, the first quarter is
typically the slowest quarter for us, and in many previous years we have
incurred operating losses in the first quarter, even when the year as a whole
was profitable. In 1999 and 2000, 34% and 32%, respectively, of our net sales
were recorded in the fourth quarter. In 2001, however, because sales of our
wireless products gradually declined over the course of the year, particularly
after the first quarter of 2001, due to the continuing slowdown in the wireless
industry, we generated only 25% of our net sales in the fourth quarter in 2001.
If the wireless industry grows in 2002, we could record an even greater share of
our revenues in the fourth quarter of 2002 than in past years as demand for
wireless products grows over the course of the remaining months of 2002.

The time from our initial contact with a customer to a sale is long and subject
to delays, which could result in the postponement of our receipt of revenues
from one accounting period to the next, increasing the variability of our
results of operations.

         The period between our initial contact with a potential customer and
the purchase of our products and services is often long and subject to delays
associated with the budgeting, approval and competitive evaluation processes
that frequently accompany significant capital expenditures. A lengthy sales
cycle may have an impact on the timing of our revenue, which may cause our
quarterly operating results to fall below investor expectations. We believe that
a customer's decision to purchase our products and services is discretionary,
involves a significant commitment of resources, and is influenced by customer
budgetary cycles. To successfully sell our products and services, we generally
must educate our potential customers regarding their use and benefits, which can
require significant time and resources. We cannot assure you that this
significant expenditure of time and resources will result in actual sales of our
software and services.

If our products contain defects or if we make errors in providing services, we
could lose customers and revenue and become subject to costly claims.

         Complex chip card based products such as ours can contain errors and
defects, particularly when first introduced or when new versions or enhancements
are released. Similarly, our services involve sophisticated decisions that
result in our customers making significant investments and changes to their
business organizations. Serious defects or errors in our products or services
could result in lost revenues or a delay in market acceptance and would be
detrimental to our reputation, which would harm our business, operating results
and financial condition.

         Defects or other performance problems in our products and services
could also result in financial or other losses to our customers, in which case
our customers could seek compensation for losses from us. If these kinds of
claims were to occur, they could be time consuming and costly to defend and
could harm our reputation, which could result in a loss of our customers and a
decrease in our revenues. Although our sales and services agreements typically
contain provisions designed to limit our exposure to product liability claims,
existing or future laws or unfavorable judicial decisions could potentially
limit the effectiveness of these limitation of liability provisions.

If our strategic relationships terminate, we may lose important sales and
marketing opportunities.

         We have established strategic relationships with telecommunications
carriers, operating systems and security software developers, financial
institutions and several government agencies and organizations. These
organizations are not obligated to continue their relations with us, and could
terminate those relations at any time to work instead with our competitors or if
they terminate their programs that use our products and technology. If our
strategic relationships were terminated, we might lose important sales and
marketing opportunities. These relationships expose our products and services to
many potential customers to which we may not otherwise have access. In addition,
these relationships provide us with insights into new technology and with access
to third-party service providers that our customers can use for implementation
assistance.

Challenges to our intellectual property rights could cause us to incur costly
litigation and, if we are not successful, could result in our losing a valuable
asset and market share.

         Our success depends, in part, upon our proprietary technology and other
intellectual property rights. If we are not able to defend successfully our
industrial or intellectual property rights, we might lose rights to technology
that we need to develop our business, which may cause us to lose market share,
or we might be required to pay significant license fees for the use of such
technology. To date, we have relied primarily on a combination of patent, trade
secret and copyright laws, as well as nondisclosure and other contractual
restrictions on copying, reverse engineering and distribution to protect our
proprietary technology. We regularly prepare patent applications for technology
related to our chip cards, but we cannot assure you that these applications will
be successful. Litigation to enforce our intellectual property rights or protect
our trade secrets could result in substantial costs and may not be successful.
Any inability to protect intellectual property rights in our technology could
seriously harm our business, operating results and financial condition. In
addition, the laws of certain foreign countries may not protect our intellectual
property rights to the same extent as do the laws of France or the United
States. Our means of protecting our intellectual property rights in France, the
United States or any other country in which we operate may not be adequate to
fully protect our intellectual property rights. Similarly, if third parties
claim that we infringe on their intellectual property rights, we might be
required to incur significant costs and to devote substantial resources to the
defense of such claims.

We might be forced to change our product and service offerings or to pay higher
costs if the third-party technology that we use in our products changes or if
the price of such technology increases.

         Most of our products integrate third-party technology that we license
or otherwise obtain the right to use, including:

          o    operating systems, such as JavaCard systems,

          o    security and cryptography technology for card operating systems,
               which prevents unauthorized parties from tampering with our
               cards,

          o    dual interface technology, which enables cards to operate in both
               contact and contactless mode, and

          o    public key infrastructure technology that is used in Internet and
               corporate security networks.

         Technology providers frequently change their products and stop
supporting old versions of their products. We do not know whether we will be
able to adapt our products and services to accommodate changes in the third
party technology that we use. If not, we might have to change the features of
our products and services or to discontinue some or all of them. Sometimes
changes in technology are accompanied by significant price increases, which
would increase our costs if they were to occur.

We have multinational operations that are subject to risks inherent in
international operations, including currency exchange rate fluctuations.

         We conduct our business throughout the world, including in many
countries outside the United States and the European Union. As a result, we are
subject to a number of political, regulatory and commercial risks inherent in
international operations, including the risk of currency exchange rate
fluctuations, particularly in relation to the U.S. dollar, the British pound,
the Chinese renminbi and the Singapore dollar.

         In 2001, we earned 17% of our revenues in the People's Republic of
China, and we expect to continue to earn a material portion of our revenues in
the People's Republic of China. Conducting business and manufacturing activities
in the People's Republic of China is subject to special risks that do not arise
in other countries, including:

          o    the failure to adopt, or the adoption of inconsistent or
               ineffectual, market-oriented economic reforms by the government;

          o    uncertainties regarding the interpretation and enforcement of
               laws and regulations; and

          o    the devaluation of the local currency or the imposition of
               restrictions on currency conversion.

Future acquisitions may adversely affect our business.

         Our strategy to achieve growth may lead us to make significant
acquisitions of businesses that are complementary to our own. Future
acquisitions may require us to use significant financial resources, to make
potentially dilutive issuances of equity securities, to incur debt and to incur
amortization expenses related to goodwill and other intangible assets.
Acquisitions involve numerous other risks, including difficulties in integrating
the operations, technologies and products acquired and the employees of the
acquired businesses, the diversion of management's attention from other business
concerns, the risk of entering geographic markets in which we have no prior
experience, and the potential loss of key employees.

                          Risks Related to Our Industry

Our markets are highly competitive and competition could harm our ability to
sell products and services and could reduce our market share.

         The market for chip card products and services is rapidly changing and
intensely competitive. We expect competition to increase as the industry grows
and as chip card technology begins to converge with the wireless communications
and information technology industries. Recently, intense competition among
suppliers of SIM cards has led to increased pricing pressures on these products.
We may not be able to compete successfully against current or future
competitors. The competitive pressures facing us may harm our business,
operating results and financial condition.

         Our current principal competitors include, among others, chip card
product and service providers such as SchlumbergerSema, Giesecke & Devrient,
Oberthur and Orga. As the market for chip card products and services in the
wireless, financial services and Internet security industries grows, and as
these markets converge, we may experience competition from companies that are
currently our suppliers, customers and strategic partners, including:

          o    operating system developers, such as Microsoft, Sun Microsystems
               and Multos;

          o    electronic security product and service providers, such as
               Baltimore Technologies, Entrust, RSA, Certicom and Verisign;

          o    wireless device manufacturers such as Nokia, Ericsson and
               Motorola;

          o    systems integrators such as IBM and EDS;

          o    electronic chip manufacturers, such as STMicroelectronics,
               Infineon, Philips and Atmel; and

          o    wireless infrastructure software providers, such as Sonera
               SmarTrust and Aether Systems.

         Some of our competitors and potential competitors have larger technical
staffs, larger customer bases, more established distribution channels, greater
brand recognition and greater financial, marketing and other resources than we
do. Our competitors may be able to develop products and services that are
superior to our products and services, that achieve greater customer acceptance
or that have significantly improved functionality as compared to our existing
and future chip card products and services. In addition, our competitors may be
able to negotiate strategic relationships on more favorable terms than we are
able to negotiate. Many of our competitors may also have well-established
relationships with our existing and prospective customers. Increased competition
may result in reduced margins, loss of sales or decreased market shares which in
turn could harm our business, operating results and financial condition.

If the Internet and other communications networks do not expand as a commerce
and business medium, then our business might not grow as much or as profitably
as we hope.

         Our growth will suffer if the use of the Internet for commercial
transactions does not grow, or if wireless devices do not become an accepted
method of accessing the Internet for commercial transactions.

         The acceptance and use of the Internet and wireless communications
networks for Internet commerce, mobile banking and mobile commerce could be
limited by a number of factors, including:

          o    inadequate development of network infrastructure,

          o    inconsistent quality of service,

          o    lack of cost-effective, high-speed service,

          o    concerns about transaction security and fraud or theft of stored
               data and information communicated on the Internet and wireless
               communications networks,

          o    increased governmental regulation and taxation of transactions
               conducted over the Internet and wireless communications networks,
               and

          o    delays in development or adoption of new standards or protocols
               to handle increased levels of activity.

         In addition, companies and government agencies that have already
invested substantial resources in other methods of conducting business may be
reluctant to adopt new Internet-based or wireless-based methods.

Future regulations could be enacted that either directly restrict our business
or indirectly affect our business by limiting the growth of Internet and mobile
commerce.

         Our products and services are sold in numerous markets around the
world, each of which imposes regulations affecting our operations, including
product controls, trade restrictions, tariffs and charges, and labor and other
social controls. Many countries impose regulatory restrictions or bans on the
use or transfer of cryptography, which is an essential part of our chip card
products and services. Regulation of the Internet in general and of e-commerce
and mobile commerce in particular is largely unsettled. As Internet and mobile
commerce evolves, we expect that various governmental entities will adopt
regulations covering issues such as user privacy, consumer fraud, pricing,
content and quality of products and services and the use of cryptography. If
enacted, such laws, rules or regulations could increase the costs or
administrative burdens of doing business using the Internet and wireless
communications networks and cause companies to seek an alternative means of
transacting business. The limitations on the use and transfer of cryptography
and the enactment of laws increasing the cost or burdens of using the Internet
or wireless communications would limit the market for our products and services.

New developments may render chip card encryption technology inadequate or
ineffective.

         Chip cards use cryptographic technology to secure transactions and
exchange of confidential information. Each chip card is equipped with its own
private key that is required to encrypt and decode messages through the
application of algorithms. The security afforded by this technology depends on
the integrity of a user's private key and the complexity of the algorithms used
to encrypt and decode information. Any significant advance in techniques for
attacking cryptographic systems, including the successful decoding of
cryptographic messages or the misappropriation of private keys, could result in
a decline in the security of our technology and affect the market's acceptance
of or demand for our products.

                 Risks Related To Trading of Our Shares and ADSs

Technology-related stock prices are especially volatile, and this volatility may
depress our stock price.

         Irrespective of the continued volatility of the stock market overall,
the market price of our shares and ADSs is likely to continue to be highly
volatile, as the market for technology companies has recently been highly
volatile and many have recorded lows well below their historical highs.
Investors may not be able to resell their shares or ADSs following periods of
high volatility in the event that trading of our shares or ADSs were to be
suspended by the exchanges on which they trade.

Because several existing stockholders own a large percentage of our voting
stock, other stockholders' voting power may be limited.

         As at April 16, 2002, our executive officers, directors and their
affiliates beneficially own or control approximately 19.4% of our shares
(excluding shares held by Texas Pacific Group and its affiliates) and have
options to acquire an additional 2.3% of our shares. In addition, Texas Pacific
Group and the Quandt family own or control 25.0% and 18.2% of our shares,
respectively, or 23.3% and 16.9% on a fully diluted basis, respectively. If some
or all of such persons act together, they will have the ability to control
matters submitted to our shareholders for approval, including the election and
removal of directors and the approval of any merger, consolidation or sale of
all or substantially all of our assets.

Passive Foreign Investment Company Considerations.

         Due to the decline in our market capitalization, comparatively minor
changes in our assets or share price could result in our becoming a "passive
foreign investment company" or "PFIC" for U.S. tax purposes for reasons outside
our control. Certain unfavorable U.S. tax rules apply to shareholders in
companies that are PFICs in respect of even a single year. See "Item 10.
Additional Information--Taxation--United States Federal Income Tax
Considerations--Passive Foreign Investment Company Considerations".



                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Some of the statements in this Annual Report constitute forward-looking
statements. These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties, and other
factors that may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activities, performance, or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "predicts," "potential," or
"continue" or the negative of such terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.

         Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Factors that could cause actual
results to differ materially from those estimated by the forward-looking
statements contained in this Annual Report include, but are not limited to, the
risk factors set forth under "Item 3. Key Information--Risk Factors" and
elsewhere in this Annual Report.

         You are cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date of this Annual Report. We are not
under any obligation, and we expressly disclaim any obligation, to update or
alter any forward looking statements, whether as a result of new information,
future events or otherwise, except to the extent that as a result of fulfilling
our disclosure obligations under the U.S. securities laws and regulations, we
determine that such an update is necessary.

Item 4.  Information on the Company

                     History and Development of the Company

         Our business was founded in 1988 by Dr. Marc Lassus, a current director
and our former Chairman, who pioneered chip card technology while working for
Motorola and SGS-Thompson in the early 1980s. We started our chip card
operations in 1988 as a major supplier of pre-paid phonecards in France and
abroad. Because of our leading position in the phonecard market during the
1990s, we developed strong ties with the telecommunications industry and, as a
result, pioneered the development of chip card technology for wireless
communications. We actively participated in industry-wide efforts to develop new
digital wireless communications standards and technologies, particularly the GSM
transmission standard.

         Our business was originally conducted through a French limited
partnership known as Gemplus SCA. In December 1999, we merged Gemplus
Associates, the general partner of Gemplus SCA, into Gemplus SCA and transformed
the surviving entity into a French corporation, Gemplus S.A. In February 2000,
we reorganized our corporate structure through the contribution of all of our
operations into a new holding company, Gemplus International S.A., a Luxembourg
corporation created in December 1999. The shareholders of Gemplus S.A.
contributed to Gemplus International S.A. substantially all of the shares of
Gemplus S.A. in exchange for shares of our capital stock. As a result of these
transactions, as at December 31, 2001, our company held 97.3% of the outstanding
shares of Gemplus S.A., which is our main operating subsidiary. Texas Pacific
Group became a shareholder of our company at the time of its equity contribution
in February 2000. We completed an initial public offering of our ordinary
shares, in the form of ordinary shares and ADSs, in December 2000.

         Our company is organized under the laws of the Grand Duchy of
Luxembourg. Our company's registered office is located at Aerogolf Center, 1
Hohenhof, L-2633 Senningerberg, Grand Duchy of Luxembourg. Our agent for U.S.
federal securities law purposes is Gemplus America Inc., located at 3 Lagoon
Dr., Suite 300, Redwood City, CA 94065.

                                Business Overview

Overview

         We are a leading provider of technology, products and services that
enable wireless network operators to offer their customers secure communications
and transactions through mobile phones, and that enable companies, financial
institutions and public entities to provide customized services to their
customers and employees through a range of network systems, including financial
card networks, loyalty and bonus point programs, identification systems and
Internet security networks.

         We currently have two main business segments:

          o    Telecommunications, which includes our SIM products, software and
               services, as well as prepaid telephone cards; and

          o    Network systems, which includes chip card products and services
               in areas such as financial services, identification and security
               networks, health care and loyalty programs.

         Our wireless products and services are used in the Global System for
Mobile Communications standard, or GSM, which is the mobile phone transmission
standard that is dominant in Europe and the most widely used in the world. Our
wireless offering consists of:

          o    Identification modules, which are small plastic modules with
               embedded microprocessor chips that are inserted in mobile phones,
               including subscriber identification modules (SIM cards) used in
               the GSM standard and Universal Identification Modules (UIM cards)
               and Universal Subscriber Identification Modules (U-SIM cards)
               that will be used in third-generation wireless transmission
               standards. The chips allow wireless operators to identify mobile
               phone users and to provide premium value services to their
               customers through server-based applications that interact
               remotely with miniature software programs, known as applets, that
               run on the microprocessor chip; and

          o    Related software and services that enables wireless operators to
               manage end-user relationships, enable content delivery and secure
               payment.

         Our chip card technology is also an ideal platform for a variety of
service applications over other network systems. Our chip card products and
services enable our financial services, retail, governmental and other customers
to provide a wide array of services over their networks and to customize the
management of their customer relationships and databases. In the financial
services market, for example, banks can issue credit and debit cards with
embedded chips to reduce fraud and to provide their customers with premium value
services, including e-purse applications (meaning applications that store cash
values that can be used to make purchases) and mobile banking services. In the
identification systems and security networks markets, plastic cards with
embedded chips can be used to provide secure access to restricted facilities or
computer networks and to increase the effectiveness of identification and
security systems.

         In our core telecommunications and network systems activities, we also
provide a broad range of software and services that allow our customers to
implement and manage sophisticated systems to take advantage of our technology.
Our software includes card management systems that our customers can use to
manage card issuance, update data, download applications and obtain customer
information, which allows our customers to manage their customer base and to
continuously provide new premium value services over their networks, including
mobile commerce and banking. Our services include customization, technical
support, consulting, system design and integration and system operation.

         We also provide non-chip card products and services in other areas
related to our main telecommunications and network systems segments, such as
magnetic stripe credit cards for banks and card-based transportation access
products.

         Our revenues amounted to (euro)1,023 million ($993 million) in 2001.
Sales of wireless products and services represented 48% of our overall revenues
in 2001, while sales of our chip card products and services in our network
systems segment represented 22%. Based on the 2001 worldwide chip card vendor
shipments ranking of Gartner Dataquest, an industry analyst, we are the leading
provider of chip cards with a global market share of approximately 30.4% in
terms of units sold. Eurosmart, a European industry association, confirmed our
global leadership in its 2001 report, and, based on information published by
Eurosmart, we estimate that our global market share was approximately 34% in
terms of units sold in 2001.



Our Strategy

We are pursuing a vision of expanding the markets for safe electronic services,
which include a broad set of potential services delivered online through
wireless or wired networks, while intensifying the role of high-volume, secure,
personalizable devices. This vision demands that we continue to grow beyond
world leadership in chip cards and SIM cards, leveraging our distinctive
competencies, technologies, and partner network to deliver a broad array of
solutions for the financial services, wireless, retail, and security markets.
The strategy for attaining this vision includes these key elements:

-    Driving the expansion of the wireless data services markets by providing
     hardware, software, and services that facilitate:
     o    Secure wireless data transmission and transactions,
     o    Creation and management of relationships between service providers and
          end-users,
     o    Secure lifecycle management of applications delivered to wireless
          devices,
     o    Trusted roaming of users between network operators, across devices,
          and between disparate wireless environments.
We believe that secure tokens, such as chip cards and SIM cards, have proven to
be the most effective building blocks of trust at the network edge, and we have
enjoyed great success in deploying these devices for identification and
subscription management in GSM networks. Our SIM cards enable wireless network
operators to control end-user access and entitlement to services, reduce fraud,
and provide personalized service delivery for existing GSM networks. We intend
to expand the role of this technology, providing generalized identity services,
user, device and application authentication, data encryption, privacy services,
and non-repudiation of transactions across a variety of network devices, and in
a wide variety of wireless environments.

-    Expanding the electronic financial services and retail markets through
     systems to promote electronic customer relationships, wireless transactions
     and fraud reduction.
We will build upon our strength and experience in the financial services
industry to deliver bundled solutions for chip card issuance, lifecycle
management, personalization, and fraud detection and prevention. We will also
leverage expertise in secure operating systems to deliver multi-application
cards, software, and services to enable businesses to deliver and manage a
variety of dynamic card applications and online services safely. These
applications and services may be used to improve customer loyalty, facilitate
electronic service delivery, enhance convenience, and personalize a customer's
service experience.

-    Enabling rapid growth of Internet-based government and electronic services
     markets through our identity, privacy, access, and content protection
     solutions.
We are augmenting our secure microprocessor cards with software and services
that enable deployment of solutions ranging from mid-sized business employee
identity programs to a national identity infrastructure. These solutions will
support a variety of applications, including management of issuer's
endorsements, such as driver's licenses, federated identity services, privacy
management control, network access, and secure information exchange.
We will harness our customer and partner network to expand solution offerings in
this area and will drive relevant industry standards to ensure safe
interoperability between these applications and with relevant technologies.

-    Leveraging distinctive technical competencies and investing in research and
     development as a key source of ongoing differentiation and competitive
     advantage.
We have a reputation for innovation within the chip card industry and have led
the industry in the generation of ground-breaking technologies and pace-setting
standards. We will continue to invest in research and development and build upon
our distinctive competencies in hardware and software security, trusted
architectures and infrastructure, embedded secure operating system platforms,
and personalization technologies to extend our leadership and to penetrate new
markets for value-added software and services. Research and development will
place increased emphasis on software and service technologies, with a particular
emphasis on the development and deployment of trust-building components in
support of identity, privacy, and content protection software and services.
Research and development efforts will also emphasize smart service technologies
which will increase the ability of a business or an individual to delegate
service tasks to trusted agents that are enabled and protected by smart card
technologies. These technologies will dramatically increase convenience for
users and should enhance the adoption of electronic services, while increasing
the value of secure devices at the edge of the network. Finally, research and
development will be used to drive the convergence of technologies, to promote
mobility, safety, and access to electronic services and to generate new products
that exploit the capabilities generated by this convergence.

-    Achieving higher levels of operational efficiency through economies of
     scale, organizational improvements, architectural enhancements, and
     manufacturing changes.
We have embarked on a comprehensive program of changes that should result in a
much leaner and more flexible organization, designed to compete on the merits of
products and services, while improving profitability. Our primary strategies to
support this approach include:
     o    Architectural consolidation across product platforms to reduce the
          number of chip designs (or "masks") that must be maintained, and allow
          product components to be targeted at multiple markets and
          applications,
     o    Flattening of the organization to improve responsiveness and
          decision-making, and
     o    Re-organization of manufacturing processes and resources, including
          key initiatives for inter-site coordination, higher equipment
          utilization, reduced manufacturing variances, lower-cost centers of
          manufacturing, flexible manufacturing, and improved supply chain
          management.

Operational efficiency has become a key goal that enhances our ability to
compete with existing products, while fueling our investments in new products
and services.

-        Expanding business in high-growth geographic markets.
We intend to capitalize on our global reach in both telecommunications and
financial services to introduce solutions in markets poised for very strong
growth in the near to mid-term. Examples include the United States, China,
Japan, Brazil, and Russia. Each of these regions presents specific conditions
for growth, reflecting specific characteristics and needs. Thus, we will develop
geographic-specific strategies for penetrating these markets that are consistent
with the overall product and technology roadmaps for our company.

Technology Overview

         Chip Card Technology

         Our products and services are part of a class of technology that
involves small modules or cards known as chip cards or smart cards. Chip card
technology has evolved significantly since chip cards were first introduced in
France in the 1970s. Our founder, Dr. Marc Lassus, was instrumental to the
initial development of chip cards, and since our inception in 1988 we have
played and continue to play an important role in the evolution of chip cards and
related applications.

         Chip cards are small plastic cards that contain embedded electronic
chips. There are two major categories of chip cards:

          o    Memory cards, which contain chips that provide only secure
               storage of data and values, which can be modified at a special
               reading terminal. Memory cards are used for single applications
               that do not require sophisticated data processing functions, such
               as prepaid phone cards and loyalty cards.

          o    Microprocessor cards, which contain chips that are capable of
               storing and processing data like a miniature computer,
               transferring processed data to a network reader and running
               miniature software programs or applets that interact remotely
               with server-based applications. The most sophisticated new chip
               cards, such as identification modules used in wireless
               communications, are all microprocessor cards.

         Chip card technology is developing rapidly, with the capability of
chips to conduct sophisticated operations continually expanding. Some of the
most important recent technological developments in chip card technology
include:

          o    The development of operating systems for microprocessor chips
               that allow customers to load multiple applets on a single card,
               allowing them to offer their customers several functions on the
               same card. For example, a single multi-application card can be
               used to access facilities or computer networks, to make payments
               as a debit or credit card, to store bonus points that can be used
               to make purchases and to authenticate Internet transactions.

          o    The development of open standards for chip card operating
               systems. These operating systems contain an embedded virtual
               machine or interpreter, which interacts with the operating system
               and an Application Programming Interface to execute applets. The
               Application Programming Interface allows software programmers to
               design new applets in a standardized format, without reference to
               the technical specifications of the virtual machine, improving
               ease of use and programming time. Microprocessor chips based on
               open operating systems are interoperable, meaning that software
               programmers can create new applications based on a standard
               language or protocol, which can be used to provide services
               through the chip cards of any manufacturer. The most widely used
               open standards today are Java Card(TM), an operating system for
               chip cards developed by Sun Microsystems, and Multos, developed
               by a consortium of financial and other institutions led by
               MasterCard International.

          o    The development of sophisticated card management software for
               chip cards, which helps customers use new chip card capabilities
               by enabling them to manage their cards remotely, and to update,
               download and install new information or applets as they become
               available without replacing the card. The new software
               capabilities have also created a demand for system design,
               integration and management services that allow card technology
               companies to develop closer ties with their customers.

          o    Significant advances in the memory structure and capacity of
               microprocessor chips with the development of silicon-based flash
               technology. Such chips are able to store vastly more information,
               conduct more sophisticated operations and load a higher number of
               applets. In addition to greater memory capacity, the flash chips
               give card manufacturers increased flexibility to modify the chip
               operating system.

          o    The development of chip cards designed to work with the most
               advanced security technologies, such as public key infrastructure
               systems and secure downloadable applets. Cards with public key
               infrastructure capability can be offered to customers requiring
               the highest level of security, such as individuals or companies
               that conduct transactions or business over the Internet, and
               banks implementing mobile payment systems.

         We believe that chip card products and services include features that
are highly attractive in the market for sophisticated wireless, financial,
Internet business security and other services. The features we believe are most
significant include:

          o    Security. Chip cards are capable of storing complex algorithms
               that can be used to identify a user or to encrypt information,
               such as a digital certificate. Because a user needs both a card
               and an activation mechanism, such as a PIN, to use a card,
               security is not compromised by either the loss of a card or the
               communication of a PIN. As a result, chip cards can be used to
               authenticate mobile and electronic commerce transactions,
               significantly reducing the incidence of fraud. In addition,
               microprocessor chips contain sophisticated cryptographic
               algorithms and functions that prevent unauthorized parties from
               tampering with the contents of the card.

          o    Portability. Chip cards can be easily transferred from one device
               to another. As a result, a mobile phone subscriber can purchase a
               new phone without changing his service subscription, a feature
               that mobile phone operators find attractive as it reduces
               customer churn. Similarly, a chip card used to authenticate the
               user of a company's computer network can be inserted into any
               computer equipped with a reader, so the user is not limited to a
               particular computer.

          o    Flexibility. The newest chip cards can carry and run multiple
               applets that can be updated remotely without the need to replace
               the card. This increases the flexibility of banks and
               corporations to use chip cards as customer management tools by
               changing applications in response to changes in product offerings
               or customer preferences and to offer multiple services on a
               single platform, such as wireless, banking, payment and loyalty
               applications.

         Despite these advantages, chip card technology has not been widely
deployed in some areas, particularly financial services. This is primarily
because chip card systems can be costly to install and implement because of the
large number of chip card readers that need to be deployed to enable the
widespread use of chip cards. See "Item 3. Key Information--Risk Factors--Risks
Related to Our Business--The markets that we target for a substantial part of
our future growth are in very early stages of development, and if they do not
develop our business might not grow as much or as profitably as we hope."

         Use of Chip Card Technology in Wireless Communications

         Currently, one of the largest uses for chip card technology is in
wireless communications. Because of the security and flexibility provided by
chip cards, wireless network operators that use chip cards are able to offer
secure communications and transactions over mobile phones to their customers.

         Wireless communications networks use several technological standards to
transmit voice and data signals. Identification module technology is currently
used in the most widely used transmission standard, which is known as the Global
System for Mobile Communications, or GSM. The GSM standard is dominant in Europe
and widely used in Asia, but less prevalent in the United States.

         The identification modules used in GSM mobile telephones are known as
subscriber identification modules, or SIM cards. The SIM card, which is the size
of a small coin and includes a microprocessor chip, is placed in a slot inside
the mobile telephone. According to Eurosmart, a European industry association,
approximately 390 million SIM cards were sold in 2001, as compared to 370
million in 2000.

         The wireless industry is in the process of adopting new standards that
will provide better data transmission capacity to accommodate new services such
as Internet access. The new standards are commonly referred to as third
generation standards, because they represent the third major type of technology
used for wireless communications. All of the third generation standards include
identification module technology similar to that used in SIM cards, but with
significantly greater processing capacity and enhanced security features. In the
third generation standard adopted in Europe and much of Asia, the identification
module technology will be incorporated in a removable card, just as it is under
the GSM standard.

         In the United States and some other countries, the third generation
identification module technology can be incorporated in either a removable card
or in the telephone handset. The CDMA Development Group (CDG) has recommended
that U.S. wireless operators include a removable identification module to be
used in third generation standards starting in January 2003. In addition, some
U.S. wireless operators have announced that they are considering migrating their
networks to the European standard, which uses removable cards.

         Because it will take several years to deploy the necessary
infrastructure for third generation wireless standards, the wireless industry
has adopted interim standards that support higher transmission capacity based on
existing second generation technology. The interim standards, which are known as
2.5G standards, will incorporate identification module technology. Like the
third generation standards, the identification module technology can be included
in a removable card or in the telephone handset. The 2.5G standard adopted in
Europe, China and South Korea will use removable card identification module
technology, while in the United States the decision is made by each individual
operator.

         The following table summarizes the principal second generation, 2.5G
and third generation transmission standards, indicating the principal
geographical regions where they are used or will be used, and whether they
incorporate removable identification module technology. Some countries use more
than one standard, and thus are listed in more than one place in the table.
<TABLE>
<CAPTION>

                                                                             Use of Removable Card Identification
Transmission Standard                 Principal Regions                      Modules
------------------------------------- -------------------------------------- --------------------------------------
<S>                                  <C>                                     <C>

Second Generation
GSM                                   Europe, Asia (including China),
                                      several regions in the United States   Yes

CDMA                                  United States, China                   No

TDMA                                  United States                          No

2.5G
GPRS (based on GSM)                   Europe, most of Asia                   Yes

CDMA-One (based on CDMA)              United States, China, South Korea      Yes in China and South Korea;
                                                                             Operator-specific in United States

Third Generation
W- CDMA (based on GSM)                Europe, Asia (including Japan),
                                      United States                          Yes
CDMA2000 (based on CDMA)              United States, Asia                    Operator-specific

Market Overview
</TABLE>

         The market for chip card technology, products and services is
developing rapidly, both in terms of size and sophistication. According to
Eurosmart, 1,751 million chip cards - including microprocessor cards and memory
cards - were sold worldwide in 2001 and we believe that we are the world's
largest chip card provider, with 34% of the global market in terms of volume in
2001.

         As the market has grown, the capability of chip cards for carrying out
sophisticated functions has also increased. As a result, a new market is
developing for designing and implementing integrated systems and services based
on microprocessor chip technology and software, and for providing services to
assist users in taking advantage of the enhanced capabilities of chip cards.

         Wireless Communications Market

         One of the largest current uses for chip card technology is in the
wireless communications market. Based on information published by Eurosmart, we
calculate that our global market share for SIM cards was approximately 30.5% in
2001 in terms of units sold. Based on information from other sources, including
figures published by our competitors and industry analysts, we estimate that our
market share in 2001 was in fact between 33% and 34% in terms of units sold.

         The wireless communications market, particularly the GSM wireless
market, recorded strong growth prior to 2001 primarily as a result of a
significant increase in the use of mobile phones around the world for voice
transmission. Growth in the wireless communications market has recently slowed
significantly as, among other things, the market and the technology for wireless
voice transmission services have matured, while demand for wireless data
transmission services has begun to increase significantly. Because the market
for wireless voice transmission services is no longer in its development stage,
wireless operators have seen their average revenues per user decline
significantly and are seeking to enhance their offering with new premium value
services. For example, wireless network operators are increasingly providing
Short Message Service (SMS) capabilities which allow their customers to transmit
text messages through mobile phones. We believe that the recent success of
wireless "messaging" services reflected by the growing use of SMS-enabled mobile
phones will accelerate the current evolution of the mature wireless "voice"
market into a growing wireless "data" market. The growing demand for wireless
data services, including the provision of streaming video, pictures, audio and
high-speed Internet access through mobile phones, and the significant growth
opportunities in the wireless data market has led mobile operators to invest
heavily in third-generation licenses and to make significant commitments to
upgrade their wireless infrastructures.

         We believe that the growth of the wireless data market will be an
important driver for the growth of the chip card market, and that demand for new
wireless data services will drive demand for more sophisticated chip cards. In
addition to mobile phones, manufacturers of personal digital assistants are
incorporating wireless communications technology in their devices to permit
their use for enhanced wireless Internet services, which also will rely on
wireless data transmission capacity. We anticipate that the emergence of the new
broader wireless data market will lead to growth for secure wireless
infrastructure products and services. Because identification module technology
allows wireless operators to control the access to wireless subscribers by
content providers, we believe that our chip card products, software and services
represent a core technology for our wireless customers to address this new
market.

         Financial Services Market

         According to Eurosmart, approximately 140 million chip cards were sold
in the financial services industry in 2001 and we believe that we are one of the
largest providers of financial chip cards with 22.3% of the market in terms of
units sold, which represents a gain in market share of over 8% compared to 2000.
We believe that demand for chip card products and services in the financial
services market will continue to grow due to increasing concerns regarding
security and fraud and growth in the use of e-commerce and e-banking services,
which allow end-users to conduct commercial and banking transactions over the
Internet.

Our Products and Services

The following table sets forth our revenues for the year ended December 31,
2001:

                                        Revenues -Year ended December 31, 2001
                                        --------------------------------------
                                           (millions of      (as a % of total
                                              euros)             revenues)
Telecommunications.......................
    Wireless.............................     491.7                  48%
    Other telecommunications.............     190.2                  19%
    Total................................     681.9                  67%
Network systems
    Continuing businesses................     188.7                  18%
    SkiData..............................      40.6                   4%
    Total................................     229.3                  22%
                                              -----                  ---
Other
    Continuing businesses................     108.1                  11%
    Tag..................................       3.7                   -
    Total................................     111.8                  11%
                                              -----                  ---

Total....................................   1,023.0                 100%
                                            =======                 ====


         We had two significant divestitures of non-core businesses in 2001. In
August 2001, we sold our SkiData unit, which provides electronic access-control
solutions and formerly constituted part of our network systems segment. In
addition, we sold our Tag subsidiary, a provider of electronic smart labels
solutions included in our other activities segment, in July 2001.

         See "Item 5. Operating and Financial Review and Prospects" for a
discussion of our total revenues, broken down by category of activity and
geographic market, for each of the last three financial years.

Telecommunications Products and Services

         Our telecommunications products and services consist mostly of
SIM-based products, software and services for wireless communications operators.
SIM cards are identification modules that are the size of a small coin and
include a microprocessor chip. Based on information published by Eurosmart, we
believe that we are the largest provider of SIM-based products and services for
mobile phones in terms of units sold in 2001, and we calculate a 30.5% market
share. Based on information from other sources, including figures published by
our competitors and industry analysts, we estimate that our market share in 2001
was in fact between 33% and 34%, in terms of units sold. In addition to SIM
cards, we provide chip-based prepaid telephone cards for public pay telephone
operators.

         Wireless Products, Software  and Services

         We have been a major provider of SIM technology in the wireless
communications market since the introduction of the GSM standard. Since then, we
have been a leader in developing improvements in SIM technology and exploiting
the commercial potential of those improvements. Currently, we are taking
advantage of the enhanced capabilities of the latest generation of SIM
technology that enable wireless operators to provide their network subscribers
with an increasingly wider variety of premium value services.

         The SIM market is characterized by a continuous demand for more
powerful and more sophisticated SIM cards. The two key elements in the
continuous evolution in demand for SIM technology are larger memory capacity,
which permits a larger number of functions and software programs to be stored on
the SIM card, and greater processing capacity, which allows more complex applets
and security programs to be run by the SIM card. To maintain our leadership in
this market, we constantly upgrade the capabilities of our SIM products and
continuously develop new, more sophisticated and powerful SIM-based applications
and services.

         Our current principal SIM products are the GemXplore'98 line of SIM
cards, which contain an operating system specifically designed for the GSM
transmission standard and several memory configurations ranging from 8KB to 64KB
depending on the number of applets to be loaded on the card. Our GemXplore'98
cards also contain cryptographic algorithms to ensure the integrity or
tamper-proof nature of the SIM cards, which may include public key
infrastructure (PKI) technology. Our GemXplore'98 cards have been designed to
include the SIM ToolKit standard authoring platform that enables wireless
operators to install new applications required to provide a wide range of
premium value services. Because the SIM ToolKit defines how the SIM card should
interact with the mobile phone through a series of interactive menus, it also
allows the user to use the premium value applications contained on the SIM card.

         An increasingly important factor for growth in demand for SIM
technology is the availability of a broad range of applications that may be
implemented through a SIM-based network. Because our current generation of SIM
products can only support applications specifically designed for the
GemXplore'98 operating system, we have developed a new generation of SIM
products, our GemXplore'Xpresso product line, that uses an open operating system
based on Java technology, which allows software developers to create
applications using the Java programming language for use with any Java-based
chip card system. We believe that this interoperability between chip cards of
different manufacturers will be a key element in the deployment of an increasing
number of card-based applications, which in turn will contribute to growth in
demand for chip card platforms that enable wireless operators to provide a
broadening range of premium value services.

         Most applications that run on a SIM-card platform are based on a
client-server model, which means that the applets on the card, known as clients,
interact remotely with the wireless operator's server using a specific
"Over-the-Air" channel. Both the GemXplore operating system and the Java-based
GemXplore'Xpresso operating system provide Over-the-Air channel support, which
allows wireless network operators to manage network subscriptions and
administrate the SIM card's memory remotely, including by loading new premium
value applets onto the SIM card without having to issue new cards or require
users to upgrade existing cards at designated sales points. We have developed a
number of enabling software applications that take advantage of the Over-the-Air
capabilities of our SIM cards to allow wireless network operations to improve
their average revenues per user. Our principal software solutions are designed
to provide the following capabilities:

          o    End-user relationship: Our line of client-server applications
               allows wireless operators to reduce call center costs, enables
               users to self manage their subscription, creates one-to-one
               marketing channels and enhances the performance of customer
               relationship management (CRM) campaigns. Our churn management
               solutions, including our predictive customer relationship
               management (P-CRM) offering, have recently been enhanced with "@t
               customer," a new product that uses on-board SIM "cookies," which
               are small files that contain user-specific data, and "agents,"
               which are small programs that run within the SIM card, to provide
               real-time monitoring capability that allow faster response time
               critical to the management of end-user churn.

          o    Enabling infrastructure: Our principal enabling software product
               is GemXplore Suite, an open, scalable, modular platform for the
               deployment and management of mobile premium value services.
               GemXplore Suite is composed of a set of common administration
               tools and services, such as the GemXplore Card Manager, which
               offers Over-the-Air management services for a portfolio of SIM
               cards, and the GemXplore Applet Manager, which handles the
               downloading of applets onto SIM cards, as well as service
               monitoring and billing functions that are specific to these
               applets. GemXplore Suite allows the loading of additional modules
               such as GemXplore On-line or GemXplore S@T, which are SIM-based
               --- browsers that enable wireless Internet access.

          o    Secure payment : Our products target primarily the prepaid mobile
               phone market and include a comprehensive set of solutions ranging
               from our GemScratch recharge vouchers to our Gem-Reload advanced
               mobile reload solution, which enables the end-user to recharge
               mobile airtime from his mobile phone.

         Our software products take advantage of the synergies generated by the
client-server model used by our SIM cards through the Over-the-Air channel.
Because the Over-the-Air channel uses the Short Messaging Service (SMS) channel,
which is used to send and receive short data messages over wireless networks,
its transmission capacity has been limited in the past. We expect to be able to
enhance the synergies of the client-server model through the increases in size
and speed of data transmissions resulting from improvements in bandwidth
capacity of 2.5 generation (though the Packet-Based Data Channel) and third
generation wireless networks.

         We are also currently developing a third generation of our SIM product
line that will contain chips based on a new architecture with 32-bit processing
capacity, which will provide more computing power to run new and increasingly
complex types of applications.

         Phonecards

         Based on information published by Eurosmart, we believe we are the
world's leading manufacturer of smart phonecards and phonecard security products
with a 38.2% share of the worldwide phonecard market. We have produced over 3
billion phonecards since our creation in 1988. Our main customers include more
than 20 major telecommunications operators, including China Telecom, Telmex,
France Telecom, CANTV and Deutsche Telekom.

         We have also developed smart phonecards that can perform multiple
functions. For example, CANTV, the Venezuelan national telecommunications
carrier, currently uses a line of Gemplus smart phonecards that allow public
telephony customers to use the phonecard to pay for other consumer products,
such as soft drinks and snacks, at designated points of sale. The
multi-application platform of our smart phonecards also enable
telecommunications service providers to open public-telephone networks to
card-based premium value services, such as remote banking, loyalty and ticketing
applications.

         Scratch-Off Cards

         Our other telecommunications products are GemScratch cards, which are
laminated PVC cards that incorporate a scratch-off panel revealing personal
numbers to be used by the end-user of the card. We sell our GemScratch cards
primarily to our wireless customers, who use the scratch-off card to provide
prepaid telephony services to wireless subscribers when they are outside of the
wireless network coverage area. To access the service, the subscriber would
scratch off the panel, dial a designated local number and enter the secret
individualized registration code into any mobile handset. Our GSM Prepaid Kit
includes a SIM card and a Scratch card in a single package, allowing wireless
operators to offer their subscribers an integrated communications package. Our
scratch-off products are also used by fixed-line telecommunications operators to
provide calling card services to their customers.

         Network Systems

         Our network systems segment includes chip card products and services
for a variety of applications, including financial services, loyalty and bonus
point programs for retail and other companies and governmental identification
and security networks.

         Financial Services

         Secure chip card technology is an ideal platform for a variety of
financial and banking service applications, such as credit and debit cards and
e-purse cards (meaning cards that store cash values that can be used to make
purchases), multi-application services and mobile banking services. Credit and
debit cards and e-purse cards contain an embedded microprocessor chip that
processes transaction information received at the point of sale and carries
information that allows a card reader to accept or reject a transaction up to a
specified amount without on-line authorization. Because the smart card is
inserted into a reader at a point of sale such as a retail store or restaurant
and the cardholder enters a PIN code in the reader rather than signing a printed
card receipt, chip cards reduce fraud associated with existing magnetic
stripe-card based systems by preventing, among other things, the use of stolen
cards to make unauthorized purchases. In addition, microprocessor chips contain
sophisticated cryptographic algorithms and functions that prevent unauthorized
parties from tampering with the contents of the chip card, in contrast to the
limited security safeguards of magnetic stripe cards against fraudulent
reproduction of the codes contained on the magnetic stripes.

         Microprocessor chips were first embedded in credit and debit cards in
France, where microprocessor chip technology was introduced as a standard for
credit/debit cards in the early 1990s, and the technology has expanded into
other countries. According to Eurosmart, approximately 140 million chip cards
were sold in the financial services industry in 2001, and we believe that we are
one of the largest providers of financial chip cards with 22.3% of the market in
terms of units sold, which represents a gain in market share of over 8% compared
to 2000.

         Several large bank and financial card systems, including American
Express, Visa International and MasterCard International, have introduced chip
cards in their financial card systems. Banking and credit card associations in
countries around the world, such as Australia, Austria, Brazil, China, Denmark,
Taiwan, Korea, Finland, Spain, Switzerland and the United Kingdom, have recently
announced their plans to adopt chip cards to replace magnetic stripe cards. The
adoption of microprocessor chip technology in these countries represents a new
phase in the financial services industry, which has been slow to adopt the
technology outside France and a few other countries, in large part due to the
infrastructure costs associated with the technology. We believe that new
developments have the potential to accelerate the adoption of this technology in
the financial services industry, including:

          o    Interoperability. An obstacle to the widespread adoption of
               microprocessor chip technology in the financial services market
               has been the fact that card specifications have been adopted by
               each country on an individual basis, which prevents the
               interoperability of credit/debit chip cards issued in different
               countries. To address this problem, the major global credit card
               payment associations, Europay International, MasterCard
               International and Visa International (together known as EMV),
               adopted in 1996 standard specifications for credit/debit chip
               cards, which enables interoperability between different payment
               systems.

          o    New Services. The capabilities of microprocessor chip technology
               can permit banks to offer their customers new services that did
               not exist when they initially studied the technology. Areas in
               which banks can offer their customers new services include online
               authentication, instant rewards and more advanced loyalty
               programs, mobile banking, mobile commerce and other services
               available with the development of multi-application cards, such
               as multiple payment options and loyalty programs on a single
               card.

         Single Application Cards

         We design and develop chip card products and services that enable
financial card issuers to offer a wide range of single-application services to
their clients. Our financial services products are designed to meet the
requirements and specifications of the most important industry standards, such
as the Europay-Mastercard-Visa (EMV) specifications for credit and debit cards.
In addition, our chip card products have been individually certified by the
major financial and banking organizations and bodies, such as Visa
International, Europay International, MasterCard International, Cartes Bancaires
(France), Banksys (Belgium) and APACS (UK). Our main product offerings include:

          o    GemVision, a range of credit/debit cards developed for banks that
               are members of Visa International, and

          o    GemShare, a range of credit/debit cards developed for members of
               Europay International and MasterCard International.

         We also develop and market a full range of chip cards for e-purse
systems, which involve cards that store cash values that can be used to make
payments. Our e-purse products have been individually certified by the major
e-purse system operators, such as CEPS, Zentral Kredit Auschuss (Germany),
Proton World International, Visa International and Mondex. Our main product
offerings include Geldkarte, an e-purse card developed for German e-purse
systems, and Mondex E-Purse, which is an e-purse application developed for the
Multos multi-application card and mainly used in the United Kingdom, Latin
America, South Korea, Australia and the Philippines.

         Multi-Application Cards

         One of our main multi-application cards for financial services is based
on MPCOS, a multi-application standard, prevalent in Asia. This card contains
credit/debit and e-purse applications, loyalty programs and transportation
ticketing and is also available in contact / contactless mode under the
designation "GemCombi". We have also developed a line of multi-application
Java-based cards that provide our customers the flexibility to quickly develop
and bring to market new financial and other services. The line of Java-based
financial cards, GemXpresso Lite is also targeted to retail banking and
e-commerce payment applications.

         In 2001, we believe that we were the leader in providing major banking
institutions and retailers in the U.S. with multi-application card products,
based on our GemXpresso line of products. These products support debit/credit,
e-purse, web authentication as well as loyalty applications. Several major U.S.
banks, including Providian, Fleet and First USA, as well as a major retailer,
Target, have already launched programs that use smart cards with our
multi-application products. We expect that demand for our multi-application
products in this industry may grow as banks and retailers focus on increasing
customers' use of these products.

         Identity and Security

         We also design and integrate chip card systems for a wide range of
public and private sector identity and security applications, such as corporate
identity, driver's licenses and visas. We have developed microprocessor
chip-based vehicle registration and driver's license systems for our
governmental customers that enable authorities to keep a closer track of vehicle
ownership and driving habits, and to control on-the-spot fines and offenses. For
example, we have been providing chip card-based driver's licenses in El Salvador
and several regions of Argentina since 1998. We have also developed a chip card
system for accurate identification of travelers at borders and other ports of
entry into a country, enabling authorities to facilitate entry to millions of
foreign travelers or workers while ensuring compliance with national immigration
regulations. With our Automated Border Clearance system, an electronic visa is
stored on a microprocessor chip embedded in an immigration card, which interacts
with a secure automated access-control reader at a country's ports of entry
using contactless technology. In Singapore, for example, the Ministry of Home
Affairs is using our Automated Border Clearance system to facilitate entry to
cross-border workers from Malaysia. In addition, as governments heighten their
focus on security issues, particularly in light of the events of September 11,
2001, we expect that demand for chip card-based products that provide secure
access to government computer networks will grow. We also expect that the
continued development of biometrics, which allows identification through
physical traits that are stored on chip cards, such as fingerprints, hand
geometry and retina scans, has potential to lead to growth in this market.

         Loyalty and Retail

         We have developed chip card products for a wide variety of loyalty and
retail programs, including bonus point and reward programs, such as our
microprocessor chip-based system for Boots, a U.K. retailer, Shell U.K. and Esso
Netherlands. Our loyalty applications can also be combined with other
applications, such as credit/debit cards and e-purse applications, by using our
multi-application chip cards. We believe that smart cards are driving the next
generation of loyalty programs because they enable retailers to set up
card-based programs to offer customers a combination of in-store and
Internet-based benefits, such as instant rewards, online coupons, privileged
access to websites and points systems.

         Security Networks

         The security and portability of chip cards make them well-suited as
security products and services, particularly for the developing market for
business conducted over the Internet, which we call e-business security.
According to the International Data Corporation, the success of the e-business
market depends on the development of secure identification, encryption and
transaction systems. Chip card technology allows users to access corporate and
external networks, identify themselves, send encrypted messages and digitally
sign transactions and documents.

         The latest generation of chip cards has been designed to work with the
most sophisticated emerging security technologies, such as public key
infrastructure systems, which are used to control access to computer networks
and to secure e-business transactions. Chip cards can store digital certificates
that identify users of computer networks and parties to e-business transactions,
as well as keys or mathematical algorithms that are used to facilitate secure
information exchange between trading partners over the Internet and to
authenticate transactions. Microprocessor chip technology also permits
certificate authorities to revoke certificates and change authorization levels
remotely without issuing new cards.

         We are working actively with our corporate customers to design security
software and services based on microprocessor chip technology to control access
to corporate computer networks and to permit the secure exchange of information.

         Corporate Network Security

         Our corporate security platform, GemSAFE Enterprise, allows corporate
networks to use any of our multi-application chip cards, such as our GPK line of
cards, to provide a secure corporate network environment. GemSAFE Enterprise
uses passwords or public key infrastructure (PKI) based digital certificates
stored on GPK cards to enable secure access by authorized users to corporate
intranets, extranets and websites. Our GemSAFE Enterprise software provides
corporate networks with a flexible security platform that enables network
operators to grant different access or authorization parameters to designated
groups of individual employees. In addition, the use of chip cards in our
security platform enables secure access to the corporate network from any
computer terminal, while at the same time ensuring that use of a different
terminal or device does not grant unauthorized access to the user.

         Electronic Transaction Security

         We develop customized certification products and services jointly with
trusted third parties to provide authentication and identification services that
enable customers of trusted third parties to conduct business or exchange
information over an open or public network such as the Internet. For example, in
partnership with Identrus we recently developed GemSAFE IS, a security system
based on public key infrastructure (PKI) technology. Identrus was created in
1999 by a group of global banking institutions to manage a global e-commerce
network that enables business-to-business transactions over the Internet, and
has developed a worldwide network of major financial institutions that certify
their corporate customers as trusted trading partners on the Identrus network.
To enable these trusted trading partners to access and use the Identrus global
network, we provide each of them with our GemSAFE IS security package, which
includes PKI-enabled chip cards and readers and related software. We also offer
GemSAFE system design services and card management systems and services to users
of the Identrus network.

         Health Care

         We provide systems integration services that allow health care and
insurance providers to use our chip cards for on-site access to and management
of medical and insurance information. We sell our health care products primarily
in Europe, particularly France, Germany, Belgium and Slovenia. Our health card
systems enable a paperless, fully automated and secure insurance claim system
that allows the electronic transfer of claims from the point of care to
insurance providers, generating significant administrative cost savings and
reduced paperwork for health care providers and insurers.

Other Activities

         Our other activities include various products and services that are not
part of our core telecommunications and network systems segments. The
manufacture and sale to banks of plastic cards with magnetic stripes makes up
the largest share of our other activities.

         Bank Plastic Cards

         Our plastic card operations were launched in 1995 with our acquisition
of the U.S. and European magnetic-stripe and personalization operations of
DataCard, a plastic card manufacturer with substantial sales in the U.S. and
Europe. We decided to enter the plastic card market to strengthen our position
both in the financial services market and in several geographic markets in which
plastic cards are the principal product in the card-based industry, such as the
United States. We hope to leverage our position in the plastic card market to
assume a prominent role in the transition of these plastic card markets to chip
card network systems.

         We offer a wide range of magnetic stripe and encoding options to meet
the demands of our different customers. We delivered 109 million magnetic-stripe
cards to our customers in the banking sector in 2001. We also provide
MasterCard-, Visa- and American Express-certified card personalization and
production and disaster recovery services to card issuers around the world.

         Other Businesses

         In addition to plastic cards for banks, the businesses that we conduct
within our other activities segment include:

          o    Transportation access, which includes contactless chip systems
               that are used for highway tolls and access to metros and other
               transportation facilities;

          o    Pay television smart cards, which are used to give pay television
               subscribers access to programs and services over cable and
               satellite television systems; and

          o    Plastic cards used for various other purposes, such as corporate
               loyalty and identification programs that do not use embedded chip
               technology.

Software and Services

         We provide a range of software and services to our customers for the
implementation of our microprocessor chip-based products and services. The
complexity of developing a chip card system and the constant interaction between
the applets stored on our chip cards and the card operator's central computer
enables us to provide systems and services to our customers for the
implementation and operation of their microprocessor chip card systems.

         Software

         We design and develop software that enables our customers to manage
their card systems, the data and applications contained in the cards, and their
customer base.

         Card Management Systems

         Our customized card management systems enable our customers to track
their issued cards and verify and manage information stored on the card. Because
each customer's needs are different, we develop customized management software
applications and generate card information databases for each of our customer's
card programs. Our card management systems allow our customers to manage card
issuance and personalization, keep track of card history and reissue cards at
expiration. It also allows our customers to update data and download applets
remotely through network channels and maintain and update card information
databases. Currently, our principal card management software is GemXplore Suite,
a customized card management system for wireless operators.

         Digital Signature Solutions

         We provide the server software that manages verification, time stamping
and logging of all operations performed with digital signatures, as well as
client software for high-level transactions. These products enable trusted
parties such as post offices, government agencies or major financial
institutions to provide the security levels necessary to support secure,
non-repudiable delivery of on-line documents and transactions.

         Applications and Customer Relationship Management

         Our applications management software provides development tools that
allow operators to create new applications and, through our card management
system, to install them on the cards of their target customers. The software we
are developing can be used for customer relationship management applications
such as churn management, where the network operator uses information that is
collected and processed with the software to predict the customers most likely
to cancel their subscriptions, allowing them to target special offers at those
customers.

         Services

         The provision of chip card-related services is a developing market
driven by new, sophisticated applications that we are developing for
multi-application chip cards. We provide our customers with customization and
technical support services, as well as system design, integration and operation.

         Customization and Personalization

         Our customization and personalization services involve the loading of
information relating to a particular customer on our chip cards and the
development of customized software applets to be loaded on the chips embedded in
the cards. We also provide personalization services relating to the preparation
and distribution of our products directly to the end-users on behalf of our
customers. Our principal personalization service involves the complex process of
loading personal data and/or premium value applications onto the memory or
microprocessor chips embedded in our cards. In addition, we also emboss and
print customized card bodies for our customers, as well as customizing the card
carriers, which are the packages used to deliver cards to end-users, and
matching cards with carriers for delivery.

         Technical Support

         We provide our customers with a full range of maintenance and technical
support or help desk services for their card management systems. Our system
maintenance services require us to monitor, periodically inspect and correct any
technical problems in the software and databases of our customers. Our regional
Gemplus Services centers are responsible for our help desk services in the
region, with several subregional or local technical support staffs as needed.

         Consulting, System Design and Integration

         Our consulting services focus on covering all the key topics and issues
in the development and implementation of a chip card system, including marketing
and commercial analysis and recommendations, feasibility studies and possible
implementation scenarios, and training in chip card technology and applications.
Our system design services provide our customers with an overall design of chip
card systems, including security parameters and detailed system component
design. Once the system design has been completed, we provide system integration
services to deliver a complete system through a project management approach,
which includes coordinating with contractors to obtain and integrate the
required system components, including customized software applications and
operational system support during acceptance testing, pilot programs and the
roll-out of the final, customized card system. Examples of areas in which we
provide system design and integration are our government and other
identification systems and our health care systems.

         Outsourced Operations

         We also provide our customers with the flexibility to outsource to us a
wide variety of operations associated with the administration of a card
management system, including network management, server management and data
archiving. We also provide other operational services for chip card system
managers, such as certificate authority and management services for trusted
third party systems and certification authorities.

GemVentures

         To further promote the widespread use of chip card technology and
applications in a broad range of markets, we have created GemVentures, a
wholly-owned venture capital company. GemVentures has invested in start-up or
developing companies that create and market innovative technologies,
applications and services in our core markets, such as wireless communications
and computer security infrastructure and service providers. GemVentures
leverages our network and our management's expertise in the chip card industry
to provide target companies with strategic advice and support in the development
of new chip card technologies, applications and services.

Seasonality

         We have typically recorded the greatest share of our revenues in the
fourth quarter of each year and the lowest share of our revenues in the first
quarter of each year. See "Item 5. Operating and Financial Review and
Prospects--Overview--Seasonality" for a discussion of the reasons for these
results.

Geographic Organization

         We are a global company, with headquarters located in Luxembourg, our
principal operating subsidiary located in France and operations and facilities
located throughout Europe, North and South America and Asia. We have organized
our global operations into three world regions:

          o    EMEA, which consists of Europe, the Middle East and Africa;

          o    Americas, which consists of North, Central and South America and
               the Caribbean; and

          o    Asia, which consists of two subregions: PACAS, which consists of
               South Asia, the Pacific and Japan, and Greater China, which
               consists of China, Hong Kong and Taiwan.

         Our manufacturing and research and development activities are organized
on a global basis, while our sales and marketing activities are organized on a
regional basis. As of December 31, 2001, we operated 49 sales offices in over 26
countries, 17 personalization centers and 19 manufacturing centers in 14
countries worldwide and 8 research and development centers in 6 countries
worldwide. We own most of our properties. We implemented in the second quarter
of 2001 a plan to restructure our operations, including the closure of our
factory in Seebach, Germany. In 2002, we have also begun to implement a further
restructuring and rationalization program, which we announced in February 2002.
This plan includes the rationalization of office facilities on a worldwide
basis.

Customers

         We have a broad base of customers, including most of the largest
wireless operators in each of the markets where we operate, as well as major
banking and financial institutions around the world. Our principal customers in
each of our major business lines include:

          o    Telecommunications - France Telecom (including Orange), China
               Telecom, , Telefonica, Vodafone, Turkcell, Mmo2, Cegetel,
               Bouygues Telecom and Telmex.

          o    Network Systems -

          o    BNP Paribas, Societe Generale, Banques Populaires, Barclays,
               First USA, Fleet, Providian, MBNA America, DSV and Target, for
               financial service systems;

          o    Royal Dutch/Shell Group, EADS, Exxon and Boots, for loyalty and
               retail programs;

          o    Argentina, El Salvador, Malaysia, Singapore and the United
               States, for government identification programs; and

          o    Germany, France, Belgium and Slovenia, for national health care
               systems.

         In 2001, our top fifteen customers together represented approximately
32% of our total revenues. No single customer accounted for more than 10% of our
revenues in 2001.

Manufacturing Activities

         Our manufacturing operations are organized on a global basis with a
view to achieving timely and cost-efficient production and delivery of our
products in each of our world regions. We have developed a high degree of
sophistication in the manufacturing of chip cards. Our expertise in chip card
manufacturing includes:

          o    Chip Design: We work with our main suppliers to design chips that
               meet our customer's requirements, including chip geometry, speed
               and circuit and architecture design. We have dedicated a part of
               our research and development activities to the conception of chip
               designs, which we seek to protect with the relevant industrial
               property authorities.

          o    Micro-electronics: We receive memory and microprocessor chips
               from our suppliers in wafer form. In clean rooms that have a high
               level of dust filtration, we proceed to assemble our chip
               micromodules, each of which consists of a chip and a printed
               circuit board, using microelectronic technologies.

          o    Embedding: The printed card body is prepared for the assembled
               chip micromodule, which is then embedded onto the card body using
               various techniques, including double-sided adhesive.

         Our chip cards are subject to in-process visual inspections to ensure
that each card meets the customer's physical specifications. We perform a series
of electric tests on our micromodules prior to embedding onto the card body to
ensure the electrical functionality of our chip cards. We also perform a final
visual inspection of our chip cards to ensure quality control and compliance
with our chip card specifications.

         As of December 31, 2001, we operated 19 card manufacturing centers,
with a global annual production capacity of over 1.3 billion cards, located in
twelve countries around the world. Our main chip card manufacturing centers are
currently located in France, Germany, China, Singapore, Mexico and the United
States. All of these centers have microprocessor and memory card manufacturing
capabilities. Our main plastic card manufacturing centers are located in China,
Germany, Singapore, the United Kingdom and the United States.

         We constantly seek to enhance the efficiency of our global
manufacturing operations to increase production capacity, to reduce production
and delivery time and to lower operational costs through upgrades in our chip
card manufacturing technology, outsourcing of non-critical manufacturing
processes and the construction of new manufacturing capacity in lower-cost
regions. To further these goals, we implemented in the second quarter of 2001 a
plan to restructure our manufacturing operations. This restructuring included
the closure of a factory in Seebach, Germany and a reallocation of our
production requirements among our manufacturing and other facilities around the
world. In February 2002, we announced that we intend to implement a further
restructuring program to rationalize our production and sourcing strategy. We
believe these plans will reduce manufacturing variances and enable us to
allocate our resources more efficiently.

Suppliers

         We rely on a number of different suppliers of materials and components
that we use to manufacture our products. The three basic components of our
products are electronic chips, plastic cards and other materials used in the
manufacturing process, such as lamination film and inks. Substantial growth in
the wireless market drove increasing demand for microprocessor chips, which in
turn led to scarce chip supply and higher chip prices.

         Although this trend of shortages in chip supply has not continued in
the short term, we have restructured our chip-sourcing strategy to diversify our
supplier base and to obtain an adequate supply of chips over the medium-to-long
term to reduce our exposure to chip supply problems that may affect our industry
in the future. Our main chip suppliers are currently Infineon Technologies
(formerly known as Siemens Semiconductors), STMicroelectronics (formerly known
as SGS-Thomson), Philips Semiconductors and Atmel.

         Our main plastic card supplier is Bayer, which produces several types
of flexible plastic cards in Europe, Asia and the United States. We also have
supply arrangements for specific types of plastic cards with BASF, General
Electric and several other plastic card manufacturers. We have diverse supply
arrangements for our other materials, including lamination film and inks, for
each of which we have at least three supply sources.

Partnerships and Alliances

         We actively participate in the principal industry groups that develop
wireless communications transmission standards, with a particular focus on the
industry-wide implementation of chip card systems for access, security and
payment requirements arising with the development of new wireless communication
applications. We also participate in the development of new chip card standards
designed to facilitate the expansion of the market for premium value
microprocessor chip-based products and services. Standards are documented
agreements containing technical specifications or other precise criteria to be
used consistently as rules, guidelines, or definitions of characteristics, to
ensure that materials, products, processes and services are fit for their
purpose and are able to function in the same manner around the world.

         We believe that our participation in these industry groups allows us to
display the evolving capabilities of our technology and the continuous
development of enhanced products and services for a variety of applications,
which facilitates the inclusion of chip cards in the standard technical
specifications for wireless transmissions, financial services and e-business
security, among others.

         We are currently a member of the following industry groups and
standard-setting bodies:

          o    Third Generation Partnership Project, which determines the
               technical specifications for third generation wireless
               transmission standards based on the evolution of GSM-enabled
               wireless networks;

          o    CDMA Development Group, which encourages the adoption and
               evolution of open CDMA wireless systems;

          o    WAP Forum, which is an industry association with over 500 members
               that has developed the Wireless Application Protocol (WAP) for
               wireless Internet services on mobile phones and other wireless
               terminals;

          o    SIM@lliance, which was founded by four of the largest SIM card
               manufacturers, and currently chaired by our company, to promote
               SIM interoperability between manufacturers;

          o    Raddichio, a global initiative to develop a framework for Trusted
               Transaction Roaming and Identity services, which includes Sonera,
               EDS, Ericsson, Vodafone, MTN and Certicom;

          o    JavaCard Forum, an association founded by Sun Microsystems,
               SchlumbergerSema and our company to implement the Java
               programming language in multiple-application chip cards to enable
               the quick development and deployment of new software applications
               for chip cards; and

          o    Global Platform, a multi-industry organization that includes
               financial institutions, governments, telecommunications
               providers, technology companies and other enterprises, which is
               dedicated to developing and advancing interoperability for chip
               card technologies to promote worldwide acceptance and enable
               constituents to capitalize on the multi-application model.

Competition

         The chip card market is highly competitive. We face competition in all
of our market segments from chip card manufacturers, software developers,
security product and service providers and chip manufacturers. In addition, our
customers and companies with whom we currently have strategic relationships may
become competitors in the future.

         Chip card manufacturers are currently our main source of competition in
all of our markets. According to Gartner Dataquest, our overall share of the
global chip card market was approximately 30.4% in terms of chip card units sold
on a worldwide basis in 2001, followed by SchlumbergerSema with 30.2%, Giesecke
& Devrient with 12.2%, Oberthur Card Systems with 7%, Incard with 3.5% and Orga
with 3.2%. The relative strengths and market shares of each of our competitors,
however, vary in each of the chip card markets, depending on the core
competencies and strategic alliances and partnerships of our competitors.

         Telecommunications Markets
         Wireless Products and Services

         The market for wireless infrastructure products and services is
characterized by intense competition and rapidly changing technology. We are the
leading provider of SIM-based products, software and services in this market.
Based on information published by Eurosmart, we calculate that our global market
share for SIM cards was 30.5% in 2001 in terms of units sold. Based on
information from other sources, including figures published by our competitors
and industry analysts, we estimate that our market share in 2001 was in fact
between 33% and 34%, in terms of units sold. Our main competitors in this market
include SchlumbergerSema, Giesecke & Devrient, Oberthur Card Systems and Orga.

         Competition in the market for wireless infrastructure products and
services is determined by the ability to consistently provide products and
software at attractive prices that enable our customers to provide premium value
services to their clients. We believe that our extensive research and
development activities allow us to position ourselves as an innovator in SIM
technology, and our global manufacturing capacity provides us with production
volumes that enable us to provide competitive prices to our customers. Because
wireless infrastructure providers work closely with wireless operators to design
and implement customized SIM-based systems, the development of strong customer
relationships and the joint creation of product roadmaps are also important
elements in the level of competition we face in this market.

         Because of the enhanced capabilities of microprocessor chip technology,
we will also face new competition from operating system and software application
developers. The development of open operating systems or platforms will lead to
the creation of a new market for application development tools, in which
software development providers create and market premium value applications
either as generic packages or customized software for specific customers. The
enhanced capabilities of chip cards will create the potential for a variety of
products and services that may attract a number of new entrants into software,
services and infrastructure markets, including:

          o    operating system developers, such as Microsoft, Sun Microsystems
               and Multos;

          o    electronic security product and service providers, such as
               Baltimore Technologies, Entrust, RSA, Certicom and Verisign;

          o    wireless device manufacturers such as Nokia, Ericsson and
               Motorola;

          o    systems integrators such as IBM and EDS;

          o    electronic chip manufacturers, such as STMicroelectronics,
               Infineon, Phillips and Atmel; and

          o    wireless infrastructure software providers, such as OpenWave,
               Sonera SmarTrust and Aether Systems.

         Phonecards

         Although public telephony is a mature market, the phonecard market
remains highly competitive. Our strong and constant presence in this market
since its origins in the late 1980s has allowed us to become the leading
provider of phonecards on a worldwide basis. According to Eurosmart,
approximately 1,050 million phonecards were sold worldwide in 2001. Our main
competitor in this market is SchlumbergerSema, followed by other chip card
manufacturers such as Giesecke & Devrient and Oberthur Card Systems. The ability
to deliver large volumes of phonecards at competitive prices, as well as the
capability of meeting changing customer demands, such as increased requirements,
in the short term are key competitive factors in this market. We believe that
our global manufacturing capacity has enabled us to meet our customers'
requirements in the past, which has allowed us to develop strong ties with the
public telephony industry.

         Network Systems Markets

         Financial Services

         The financial services network systems market is currently a fragmented
market subject to intense competition. Many of the companies that provide chip
card products and services to banks also manufacture plastic bank cards with
magnetic stripes. Our competitors include Giesecke & Devrient, Oberthur Card
Systems and SchlumbergerSema. The financial chip card market is currently
focused in Europe, where competitors such as Oberthur Card Systems have a strong
presence in the banking industry. The financial chip card market in the United
States is beginning to emerge due to the deployment of multi-application cards,
and we believe that Oberthur Card Systems will be among our competitors in this
market. We expect that our worldwide presence in this financial chip card market
will allow us to take a more prominent position with the migration to chip cards
in the global financial services industry.

         Identity and Security

         The market for identification and security products is currently in its
development stage. There are a number of nationwide contracts for government
identification and security chip card-based systems that are currently being
offered through public tender procedures. We and our competitors compete in
these tenders in association with major system integrators to provide the chip
card products used in these systems.

Research & Development

         We maintain a longstanding commitment to investing in a broad range of
research and development initiatives to strengthen our leadership in the
development of chip card technology and software, such as open operating
systems, cryptographic processes and application development and remote
management tools. The focus of our research and development is to develop new
software and integrated systems based on our microprocessor chip technology and
reduce the time required to bring new products and applications to market.

         We carry out our research and development activities through two main
groups:

          o    Gemplus Software, which coordinates our research and development
               of enabling software and software-related technology, such as
               operating systems, server software applications and applets, and

          o    Gemplus Labs, which coordinates our long-term research and
               development of advanced silicon chip and hardware technology.

         Our research and development activities are organized on a global
basis, with our main research and development centers located in France,
Singapore, Germany and the United States. We have one of the largest research
and development teams in the chip card industry, despite the downsizing of a
research and development center in Canada in 2001 as part of our restructuring
plan that included the dismissal of 123 employees. As of December 31, 2001, we
had 760 engineers working in our research and development centers around the
world, compared to 924 engineers as of December 31, 2000 and 578 engineers as of
December 31, 1999.

         In 2001, our gross research and development expenditures were
(euro)124.6 million, or approximately 12.2 % of our net sales, compared to
research and development expenses of (euro) 104.3 million, or approximately 8.7%
of our net sales in 2000, and of (euro)67.4 million, or approximately 8.8% of
our net sales in 1999. A portion of these expenditures was financed through
research tax credits available under certain government programs, which amounted
to (euro)9.6 million in 2001, (euro)6.7 million in 2000 and (euro)1.1 million in
1999.

Capital Expenditures

         The following table sets forth our capital expenditures, before
retirements and disposals, for each year in the three-year period ended December
31, 2001.

                                                 Year ended December 31,
                                            -----------------------------------
                                             1999        2000           2001
                                            ------      -------        ------
                                                   (millions of euros)
   Research and development equipment        6.1          4.7           5.2
   Manufacturing                            41.4         57.7          18.1
   Buildings                                 6.1         16.8          63.0
   Other                                    15.0         23.3          16.3
        Total capital expenditures          68.6        102.5         102.6


         Because of the tremendous growth in our business until 2001, our
capital expenditures have been substantial, principally due to the expansion of
manufacturing facilities. Beginning in 2001, we began to experience negative
manufacturing variances because some of our higher cost manufacturing facilities
were running at less than full capacity. To reduce these manufacturing
variances, we implemented in the second quarter of 2001 a plan to restructure
our manufacturing operations worldwide, including the closure of our plant in
Seebach, Germany and a reallocation of our production requirements among our
manufacturing and other facilities around the world. As a result, our capital
expenditures related to manufacturing facilities declined in 2001. In 2002, we
have also begun to implement a further restructuring and rationalization
program, which we announced in February 2002. This plan includes the
rationalization of office facilities on a worldwide basis.

         We have budgeted limited capital expenditures of approximately (euro)53
million for the year ended December 31, 2002, including (euro)25 million related
to a research and development and office building located in La Ciotat, France,
financed through a sales-leaseback transaction, and (euro)20 million related to
equipment for our manufacturing and research and development activities.

         See "Item 5. Operating and Financial Review and Prospects--Liquidity
and Capital Resources" for a description of our sources of financing for our
budgeted capital expenditures.

Intellectual Property

         We seek to take appropriate and reasonable measures under the
intellectual property laws of all applicable jurisdictions to protect our rights
to our chip card technology. Performance in the chip card industry depends,
among other factors, on patent protection. Our policy is to regularly identify
patentable subject matter developed within our company and systematically seek
to acquire patent rights upon such technologies. We currently file an average of
100 patent applications per year and have been granted patent rights or have
patent applications pending with respect to approximately 608 inventions to
date. Among our issued patents, we have been granted 283 patents in France, 105
patents in other European countries and 118 patents in the United States. Our
current patents expire between 2008 and 2021. We mainly develop and patent
technology in the fields of card body manufacturing, chip operating software,
card readers, chip design and cryptographic processes. We seek to obtain a
reasonably broad territorial protection for our patented technologies. We
usually file initial patent applications in France, and subsequently extend such
protection to European countries, the United States, Canada and Japan, as well
as China and other foreign countries in specific instances. We also hold
co-ownership rights in patents developed through joint venture companies set up
with our business partners. We have entered in such ventures with ADE (the
German Corporation "Angewandte Digital Elektronik GmbH") for the exploitation
and development of dual interface cards, which can operate both in contact and
contactless modes, and related applications, and through the CertPlus venture in
the field of security and authentication of electronic business transactions.
Proprietary rights in technologies developed through such joint ventures usually
vest in the jointly owned companies.

         We have acquired non-exclusive patent licenses from third parties for
technologies relevant to our business, in particular from Sun Microsystems with
respect to the Java technology, from IBM with respect to IBM mask data for Java
chip cards and from Bull CP8 with respect to Bull mask data for banking chip
cards. See "Risk Factors - We include third party technology in our products,
and our business would be harmed if we were not able to continue using this
third party technology." We have licensed out some of our patented technologies
to third parties, in particular to Molex and SCM.

         Our research and development activities also involve the conception of
micromodule designs, which we file with relevant industrial property authorities
to obtain specific design protection or design patents, depending on the
jurisdiction. We have acquired proprietary rights on approximately a dozen
micromodule designs, as well as for several card reader designs, which are
protected in France and the United States, as well as in a number of European
and Asian countries. We have been involved in a litigation with Inside over the
ownership of a number of rights in chip designs, which we have claimed were
misappropriated by Inside. A settlement agreement was signed with Inside in
November 2001.

         We have developed a number of software applications, upon which we
claim copyright protection. We have granted software licenses to third parties,
under which we usually communicate our software to our licensee in object code
format only.

         The Gemplus and Gemplus Card International names and logos are
registered trademarks in the name of our company. Our trademarks are commonly
registered for electronic chips, microcircuits, electronic components and
software, equipment for the connection to telephone networks, the transmission
of data and images through means of telecommunication and advice in the field of
software and electronic chip customization. Our trademarks are protected in
France, as well as in a number of European, North American and Asian countries.

         We have registered a number of domain names in the name of our company,
including the gemplus.com, gemplus.fr, gemxplore.com, gemxpresso.com,
gemplusventures.com, gemventures.com and certplus.com domain names.

         Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. Policing unauthorized use of our
products is difficult, and while we are sometimes unable to determine the extent
to which piracy of our patented products exists, patent piracy can be expected
to be a persistent problem. In addition, the laws of some foreign countries do
not protect our proprietary rights to as great an extent as do the laws of
France and the United States. Our means of protecting our proprietary rights may
not be adequate and our competitors may independently develop similar
technology, duplicate our products or design around patents issued to us or our
other intellectual property.

         Due to the importance of patented technology in the chip card industry,
our business involves a substantial risk of overlaps with third party patents
and subsequent litigation with competitors or patent-holders. Any claims, with
or without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require us to enter into royalty or licensing
agreements. Such disputes are usually resolved by entering into settlement
co-existence or cross license agreements with third party patent owners. We have
thus entered into a limited patent cross-license agreement with Gieseke &
Devrient covering a number of our patents with respect to several types of chip
cards and assembly processes for integrated circuits. We have also entered into
a patent co-existence and technology partnership agreement with Welcome Real
Time with respect to a system or method for the processing ofencrypted data with
chip cards. We have also entered into a patent cross-license agreement with
Toshiba, with respect to patents related to smart cards. Royalty or licensing
agreements, if required, may not be available on terms acceptable to us or at
all, which could seriously harm our business.

Regulation

         Although our chip card products and services are not directly subject
to any regulations, our secure enabling technology could be affected by laws and
regulations imposing controls on the development and transfer of encryption
technology, while our manufacturing and personalization activities could be
subject to environmental laws and regulations.

         Encryption Technology Controls

         Our security products and services rely on the ability of our chip
cards to perform cryptographic functions, such as the encryption and decryption
of information sent by chip card users over the Internet. The domestic use and
transfer and the export of systems and equipment with encryption capabilities,
including hardware, software, modules and cards, have been subject recently to
increasing national regulation and international controls. As a result, the
domestic use and transfer and the export of cryptographic products are subject
in many countries to strict controls and governmental scrutiny, usually
requiring the user or transferor to obtain special licenses.

         To attempt to avoid suffering or reduce delays in the development and
delivery of our chip card-based secure technology, in 2000 we created a
centralized organization within our company to coordinate all of our operations
that involve the transfer of our cryptographic-enabled products and services and
ensure compliance with all relevant laws and regulations.

         Environmental Matters

         Our manufacturing and personalization operations may be subject to
extensive, evolving and increasingly stringent environmental and occupational
health and safety laws and regulations in a number of jurisdictions, including
regulations governing the management, use and release or discharge of hazardous
and toxic materials into the environment. Compliance with current and future
environmental, health and safety laws and regulations could result in
significant costs and could restrict our ability to modify or expand our
facilities or continue production.

         To avoid incurring liability under applicable environmental, health and
safety laws and regulations, we have adopted global Environment, Health and
Safety Guidelines for the layout, construction and operation of our facilities.
These guidelines have been defined to comply with current French and European
laws and regulations and are to be completed or modified by our local
Environment, Health and Safety officers to ensure compliance with local laws and
regulations. If there are no local environmental, health and safety laws or
regulations, or if our guidelines contain environmental, health and safety rules
that are stricter than local laws or regulations, our guidelines will be applied
in those localities.

Significant Subsidiaries

         As a global company, we have subsidiaries located throughout the world.
The following table sets forth all of our direct and indirect significant
subsidiaries:
<TABLE>
<CAPTION>

Name of Company                                                                                  Percentage Owned
---------------                                                                                  ----------------
<S>                                                                                                 <C>
Gemplus S.A., a French corporation.....................................................                97.3%(1)
Gemplus GmbH, a German corporation.....................................................               100.0%
Gemplus Limited, a British corporation.................................................               100.0%
Gemplus Microelectronics S.A., a French corporation....................................               100.0%
Gemplus Technologies Asia Limited, a Singapore corporation.............................               100.0%
Gemplus Microelectronics Asia Limited, a Singapore corporation.........................               100.0%
Tianjin Gemplus Smart Card Company Limited, a Chinese corporation......................                51.0%
Gemplus Tianjin New Technologies Company Limited, a Chinese corporation................               100.0%
Gemplus Corporation, a Delaware corporation............................................               100.0%
Gemplus Card International de Mexico S.A. de C.V., a Mexican corporation...............               100.0%
Gemplus Finance S.A., a Luxembourg corporation.........................................               100.0%
Zenzus Holdings Limited, a Gibraltar corporation.......................................               100.0%
--------------------------
</TABLE>

(1)      The remaining shares are mainly held by our employees pursuant to the
         exercise of stock options, who may contribute, from time to time, to
         our company the shares of Gemplus S.A. received upon exercise of these
         options in exchange for shares of our company.


Marketing and Advertising

         We develop and increase market awareness of our products and services
through our marketing and promotion efforts, which focus primarily on press
relations and Internet and direct marketing tools. We also seek to increase our
customers' loyalty to our products and services through our high-quality
customer care efforts.

         We target a broad range of customers, including major wireless
operators and banking and financial institutions, which are located throughout
the world. Our marketing resources are deployed on a global scale to each of our
operating regions to attract and retain customers in each of our market
segments.

Item 5.  Operating and Financial Review and Prospects

Overview

         The financial information included in the discussion below as at
December 31, 2001 and 2000 and for the three years ended December 31, 2001 is
derived from the audited consolidated financial statements included in this
annual report. You should read the following discussion together with the
audited consolidated financial statements and related notes. Our audited
consolidated financial statements have been prepared in accordance with IAS,
which differs from U.S. GAAP. Note 32 to our audited consolidated financial
statements describes the principal differences between IAS and U.S. GAAP as they
relate to our company, and reconcile our net income and shareholders' equity to
U.S. GAAP.

         The year 2001 was disappointing for our company, as we generated
significantly lower revenues than in 2000 and recorded a net loss for the year.
This contrasts sharply with our financial results in 2000 when we experienced
strong growth and recorded a net profit.

         Our revenues decreased by 15% in 2001, from (euro)1,204.6 million in
net sales in 2000 to (euro)1,023.0 million in 2001. Revenues declined primarily
due to decreased demand for wireless products, reflecting the abrupt downturn in
the global telecommunications industry starting in early 2001. In contrast, our
financial services business within our network systems segment achieved strong
growth, primarily due to increased sales of chip cards in the retail and banking
sector in the United States. The combination of these two factors resulted in
our telecommunications sales representing a significantly lower percentage of
our overall sales in 2001 than in 2000, although telecommunications remained our
largest segment.

         Our operating income declined as well in 2001, as we recorded an
operating loss of (euro)180.7 million in 2001 after recording operating income
of (euro)116.2 million in 2000. Both operational and non-recurring factors
impacted our operating loss in 2001. The operational factors were primarily:

          o    variances resulting from volume shortfalls,

          o    pricing pressures, particularly in the second half of the year,
               and

          o    shipment of high cost inventory that was purchased or committed
               to in the year 2000 during the chip shortage period.

         The principal non-recurring factors that contributed to our operating
loss in 2001 were the following:

          o    costs associated with the restructuring of our operations that we
               began in the second quarter of 2001 ((euro)28.5 million);

          o    severance costs in connection with changes in management
               ((euro)25.7 million);

          o    charges relating to the loss of a significant litigation matter
               ((euro)18.1 million).

         These non-recurring factors were only partially offset by a one-time
favorable adjustment of (euro) 10.6 million resulting from the partial reversal
of a provision for a patent claim that was settled in 2001.

         We had two significant divestitures of non-core businesses in 2001. In
August 2001, we sold our SkiData unit, which provides electronic access-control
solutions and formerly constituted part of our network systems segment. In
addition, we sold our Tag subsidiary, a provider of electronic smart labels
solutions included in our other activities segment, in July 2001. Although these
divestitures resulted in a significant capital gain and reduced our net loss,
this gain is not reflected in our operating income but in our other income,
unlike the other non-recurring items discussed above.

         Our operations generated negative cash flow in 2001, reflecting
primarily the impact of our net loss and our use of cash to pay amounts owed to
suppliers. Our capital expenditures were approximately the same as in 2000,
driven in 2001 by facility expansion, while we realized a significant cash
inflow from the divestitures of our SkiData and Tag businesses. As of December
31, 2001, we had a net cash position of approximately (euro)449.5 million, equal
to our cash and cash equivalents less financial debt, short-term overdrafts and
capital lease obligations, as compared to (euro)568.9 million as of December 31,
2000.

         Factors Affecting Revenues

         Most of our historical revenues have been earned from sales of our
products, which are typically invoiced to customers on the basis of the number
of cards supplied. We generally record revenues from our product sales when we
transfer title and risk of loss to the customer. Although we have increasingly
provided wireless customers with software and services in addition to our sales
of wireless products, we have generally not invoiced software and services
separately from our product sales, as we sell our software and services
primarily on an integrated basis with our wireless products. We have recently
begun to provide systems design and integration services, for which we recognize
revenues as the services are completed.

         Our sales of wireless products continue to represent a large percentage
of our sales, although this proportion declined in 2001. Our prices for our most
sophisticated wireless identification modules are higher than our prices for our
earlier generation wireless identification modules. When we introduce a new
card, it can initially have the effect of decreasing our average prices, because
our prices decline for our earlier generation cards before our sales volumes
migrate to the new cards.

         In our network systems segment, which includes customized chip card
systems for financial services, health care and identification, our sales grew
in 2001, particularly in the financial services industry, due to increased sales
of chip cards in the retail and banking sector. Our revenues in this segment can
vary over the life of our contracts to design, develop and implement chip card
based systems. We typically record a larger share of our revenues early in the
life of a contract, when we receive progress and completion revenues for the
implementation of a system, and card sale revenues to supply the initial needs
of a customer. As a contract matures, our revenues consist more of sales of
cards as new cardholders join the system and replace cards that expire or are
lost. We also provide ongoing services such as technical support, which we bill
separately.

         Our revenues in our other activities segment reflect mainly our sales
of plastic cards with magnetic stripes to banks, a business that we entered in
1995 to build relationships with banking customers. Like our network systems
revenues, our revenues in this segment can vary over the life of our contracts,
with high early card sales in connection with a new contract, and sales based on
the requirements for new cardholders and card replacements as the contract
progresses.

         Factors Affecting Operating Income

         Our operating income is affected by a number of factors. Until 2001,
the most significant factor in recent years has been our product mix, as our
wireless products and services generated margins that were higher than many of
our other products and services, particularly our magnetic stripe bank cards.
Historically, as our sales of wireless products and services have grown, our
gross margin and operating margin have also grown. In 2001, however, the overall
market decline led us to reduce our prices on wireless communications products,
which reduced our gross margin. While margins are still higher in our
telecommunications segment than in other segments, the difference has become
smaller.

         Our cost of sales consists principally of the cost of our
microprocessor chips, the plastic that is used in our cards, tools and equipment
used to manufacture and personalize our chip cards and personnel related to
manufacturing, supply, logistics and management of production. Our margins are
significantly impacted by the extent to which we are able to match our inventory
and production capacity with demand for our products. Our operating income is
also affected by our selling and marketing, research and development and
administrative expenses, all of which are typically a function of planning that
is based on projected capacity needs and business demand.

         When we initiate a major card program or open a new manufacturing
facility, we typically incur costs in connection with the establishment of the
program or the facility, including the cost of manufacturing tools and equipment
and personnel who are trained to implement the program or hired to operate the
new facility. Depending on when the start up phase occurs in relation to our
accounting periods, we may incur significant startup costs in a period before we
earn substantial revenues. When this happens, our operating income is negatively
affected during the startup period. In contrast, once the program begins to
generate revenues or the new manufacturing facility begins to run, in each case
at full capacity, our operating income typically increases.

         Impact of Exchange Rates

         We report our financial statements in euros. Because we earn a
significant portion of revenues in countries where the euro is not the local
currency, results of operations can be significantly impacted by exchange rate
movements between the euro and other currencies, primarily the Chinese renminbi,
the US dollar, the Singapore dollar and the British pound. In 2001, we earned
17% of our revenues in China, 13% in the United States, 10% in Asia outside
China, and 6% in the United Kingdom. A substantial portion of sales to the rest
of Asia, other than China, is denominated in Singapore dollars and in US
dollars. The following table sets forth information relating to the average
exchange rates between the euro and the British pound, the Chinese renminbi, the
US dollar and the Singapore dollar since January 1, 1999, calculated based on
the daily exchange rates published by Natexis Banques Populaires.

                                       Year ended December 31,
                             -------------------------------------------------
                               2001                2000               1999
                             --------           ----------         -----------
                                (in euros per unit of foreign currency)
British Pound .............  1.60836             1.64133             1.51841
Chinese Renminbi...........  0.13502             0.13116             0.11338
US Dollar..................  1.11735             1.08742             0.93858
Singapore Dollar...........  0.62351             0.62903             0.55391


         Seasonality

         We have typically recorded the greatest share of our revenues in the
fourth quarter of each year, principally because wireless communications
operators conduct promotions for the Christmas season, and because our sales
force often is motivated to accelerate sales at the end of the year to meet
targets on which their bonuses are determined. In 1999 and 2000, 34% and 32%,
respectively, of our net sales were recorded in the fourth quarter. Due to a
market that declined substantially over the course of the year , and especially
after the first three months, we generated only 25% of our net sales in the
fourth quarter in 2001.

Results of Operations

Recent Developments

         In addition to the restructuring program that was put into place in the
second quarter of 2001, we announced on February 6, 2002 a further planned
restructuring and rationalization program. This new program involves a planned
reduction of our workforce by approximately 1,140 employees and includes
rationalization of our production and sourcing strategy. Under this new program,
we expect to save approximately (euro)60 million a year in expenses and to cut
production costs by approximately (euro)40 million a year through rationalizing
some of our production lines and examining our sourcing options. We expect that
we will realize some of the savings in the second half of 2002 with the full
effect being felt in 2003. We started the implementation of such program and
recorded a pre-tax restructuring charge of (euro)19 million in the consolidated
statement of income for the first quarter of 2002. We expect to record
additional restructuring charges of approximately (euro)40-45 million during the
second quarter of 2002. In total, we estimate that the restructuring charge for
2002 will be approximately (euro)60-65 million. We believe that we will be able
to achieve the costs savings objectives associated with this restructuring
program, and believe that the savings may even exceed the announced (euro)100
million in annualized cost savings. We are expecting a loss for the first half
of 2002, but we expect to return to operating profitability during the final
quarter of 2002, with a positive operating result before taxes and goodwill
amortization.

         We have filed press releases that include our announcement of our
results of operations for the first quarter of 2002. See "Item 10. Additional
Information--Documents on Display" for instructions on how to obtain copies of
our Forms 6-K.

         As of January 1, 2002, we elected to change the reporting of our
business segments. All the activities formerly reported as part of our Network
Systems segment and our Other operating segment have been transferred to our
Financial Services and Security segment, except the access control systems
activities of our former subsidiary Skidata and the electronic smart labels
solutions activities of our former Tag subsidiary, which have been reported
separately under "Disposed Operations", as they were sold during the third
quarter of 2001. Consequently, the Financial Services and Security segment
includes systems and services based on chip card technology in areas such as
financial services, identification, health care, corporate security, loyalty
programs, transportation access, pay-television applications as well as magnetic
stripe cards for banking applications. Our activities in this segment also
include the sales of smart card readers to our customers as well as smart card
interfacing technologies to device manufacturers. There is no change with
respect to the telecommunications segment, which includes our wireless
solutions, as well as prepaid telephone cards and other products. This change in
business segment reporting is consistent with the changes in our financial
reporting structure incorporated in our management reporting.




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

         Net Sales

         Net sales for the year ended December 31, 2001 amounted to
(euro)1,023.0 million, a 15% decrease compared with net sales of (euro)1,204.6
million for the year ended December 31, 2000. Excluding SkiData and Tag
activities, net sales decreased 12%, from (euro)1,117.0 million in 2000 to
(euro)978.7 million in 2001.

         The following table shows the breakdown of our net sales in 2001 and
2000 by market segment:


                 Years ended December 31      2001          2000      % change
                                              ----          ----      --------
                                             (millions of euros)
Telecommunications.......................    681.9         883.7        (23%)
                                             -----         -----        -----
Network systems
    Continuing businesses................    188.7         115.3         64%
    SkiData..............................     40.6          81.1        (50%)
    Total................................    229.3         196.4         17%
                                             -----         -----         ---
Other
    Continuing businesses................    108.1         118.0         (8%)
    Tag..................................      3.7           6.5        (43%)
    Total................................    111.8         124.5        (10%)
                                             -----         -----        -----

Total....................................  1,023.0       1,204.6        (15%)
                                           =======      ========       =====


         Net sales in our telecommunications segment declined 23%, from
(euro)883.7 million in 2000 to (euro)681.9 million in 2001, primarily due to a
30% decline in sales of wireless products, from (euro)698.5 million in 2000 to
(euro)491.7 million in 2001, including sales of our next generation network
products for (euro) 9.5 million and (euro) 32.0 million, in 2000 and 2001,
respectively. The decrease in net sales in 2001 resulted primarily from the
decrease in wireless product sales and declining sales prices, both of which
were the result of a dramatic drop in mobile telephone sales and high levels of
SIM card inventories accumulated by mobile telecommunications operators in 2000.
While there was a shift to high-end wireless products in 2001, the impact was
not sufficient to overcome the overall condition of the market. Phone card sales
remained stable in 2001 compared to 2000, although we experienced a shift
between regions, as growth in Latin America offset weaker demand in Asia.
Excluding SkiData and Tag activities, the telecommunications segment represented
70% of our revenues in 2001 as compared to 79% in 2000.

         Net sales in our network systems segment grew by 17%, from (euro)196.4
million in 2000 to (euro)229.3 million in 2001, or by 64% excluding sales from
SkiData. Growth in our network systems segment resulted mainly from a
significant increase in sales of chip cards to the banking sector in the United
States and Germany and to retailers in the United States. As a result of strong
sales in our network systems segment and decreased sales in our
telecommunications segment, our network systems segment generated 19% of our
revenues in 2001, as compared to 10% in 2000, in each case excluding SkiData and
Tag activities.

         Net sales in our other segment decreased 10% in 2001 from 2000,
reflecting weaker demand for magnetic stripe cards and a shift in our
pay-television chip card activities, where in 2001 we embedded chips in cards
that were consigned to us by some of our customers, rather than producing and
selling the cards to them. Net sales in this segment represented 11% of our
revenues in 2001, as compared to 10% in 2000, in each case excluding sales from
our Tag and Skidata units.

         Our revenue decline was most pronounced in Europe and Asia, where the
dominant mobile telephone systems incorporate our SIM card technology to a much
greater degree than in the Americas. Our sales increased in the Americas in 2001
due to the network systems segment. The following table breaks down our net
sales among our three regions:



               Years ended December 31     2001           2000        % change
                                         ----------  ------------   -----------
                                            (millions of euros)
Europe, Middle East and Africa......       518.3          701.3         (26%)
Asia................................       273.1          317.9         (14%)
Americas............................       231.6          185.4          25%
                                           -----          -----          ---
Total...............................     1,023.0        1,204.6         (15%)
                                         =======        =======         =====


         The decline in net sales in the Europe, Middle East and Africa region,
which represented 51% of our revenues in 2001, resulted primarily from the
slowdown in the wireless industry and the sale of SkiData, which were only
partially offset by growth in financial services smart card sales in Central and
Eastern Europe. In Asia, decreased sales primarily reflected a decline in
wireless product sales and a deterioration of pricing conditions throughout the
region, as Asian wireless network operators, particularly those in China, reduce
their SIM card inventories to better match lower demand for wireless products.
An increase in sales in the network systems segment in Asia partially offset
decreased sales in our telecommunications segment. The increase in net sales in
the Americas region resulted primarily from the significant growth in our
financial services chip card sales to US banks and retailers and from increased
sales of phone cards in Latin America.

         Gross profit

         Gross profit decreased 32%, from (euro)453.9 million in 2000 to
(euro)307.5 million in 2001. Our gross margin decreased from 37.7% in 2000 to
30.1% in 2001, resulting both from declining gross margins in our
telecommunications segment and the shift in our business mix between our
telecommunications and network systems segments. Because network systems gross
margins remain lower than gross margins of wireless products and services,
decreased sales in our telecommunications segment adversely affected our gross
margins. Excluding a one-time favorable adjustment of a (euro)10.6 million
royalty expense resulting from the partial reversal of a provision for a patent
claim that was settled in 2001, our gross margin would have been 29% in 2001.

         The following table breaks down our gross profit and gross margin by
segment.
<TABLE>
<CAPTION>

        Years ended December 31                       2001                           2000
                                                      ----                           ----
                                       (millions of                    (millions of                  % change in
                                          euros)       (% of sales)       euros)      (% of sales)  gross profit
                                          ------       ------------       ------      ------------  ------------

<S>                                        <C>              <C>            <C>              <C>         <C>

Telecommunications ...................... 228.8            33.6%          378.9            42.9%       (40%)
                                          -----            ------         -----            -----       -----
Network systems
       Continuing businesses ............  50.5            26.7%           31.5            27.3%        60%
       SkiData...........................  16.6            40.9%           30.5            37.6%       (45%)
                                           ----            -----           ----            -----       -----
          Total..........................  67.1            29.3%           62.0            31.6%         8%
Other
       Continuing businesses.............  12.2            11.3%           12.2            10.3%         0%
       Tag...............................  (0.6)            n.s.            0.8            12.3%         n.s.
                                           -----            ----            ---            -----         ----
          Total..........................  11.6            10.4%           13.0            10.4%       (11%)
Total.................................... 307.5            30.1%          453.9            37.7%       (32%)
                                          =====            =====          =====            =====       =====

</TABLE>

         The gross margin of our telecommunications segment decreased from 42.9%
in 2000 to 33.6% in 2001. This decrease resulted primarily from unfavorable
manufacturing variances reflecting overcapacity, primarily in our European-based
factories, overcapacity of high cost inventory that we purchased or ordered in
2000 and declining prices of wireless products due to the downturn in the
telecommunications market. This decrease was only partially offset by the
favorable impact of the one-time royalty expense adjustment described above.

         The decrease in our network systems gross margin, from 31.6% in 2000 to
29.3% in 2001, resulted primarily from the disposal of our SkiData unit, where
we typically generated higher margins. Excluding SkiData, the gross margin of
the network systems segment remained stable, representing 26.7% in 2001, as
compared to 27.3% in 2000.

         In our other activities segment, gross margins remained essentially
stable from 2000 to 2001.

         Operating income (loss)

         We recorded an operating loss of (euro)180.8 million in 2001 compared
to operating income of (euro)116.2 million in 2000. Before goodwill
amortization, the operating loss amounted to (euro)153.6 million in 2001
compared to operating income of (euro)127.4 million in 2000. The 2001 operating
loss resulted from declining gross margins in our telecommunications segment and
from several non-recurring charges, described below, which were only partially
offset by the (euro)10.6 million one-time royalty expense adjustment described
above. Excluding these one-time factors, our operating loss was (euro)119.1
million in 2001. Our operating income in 2000 benefited from a one-time
recognition of a (euro)12.5 million credit corresponding to French research tax
credits from previous years.

         Our operating loss resulted from a combination of our lower sales and
gross margins, as well as the expansion of our operating structure during the
second half of 2000 in anticipation of continued growth. The costs associated
with our operating structure were reduced in the second half of 2001 after we
began to implement our restructuring plan. For the year as a whole, research and
development expenses grew by 24%, from (euro)90.8 million in 2000 (excluding the
impact of the research tax credit) to (euro)112.9 million in 2001, while general
and administrative expenses increased by 23%, from (euro)89.7 million in 2000 to
(euro)110.7 million in 2001 excluding one-time charges described below. Selling
and marketing expenses also grew, but more modestly on a percentage basis.

         Our operating loss reflected the impact of three non-recurring factors.
First, we implemented a major restructuring program in 2001. Second, we incurred
costs in connection with a change in our management at the end of 2001. Third,
we recorded costs in connection with the loss of a significant litigation
matter. We also recorded a euro 10.6 million one-time favorable royalty expense
adjustment, which only partially offset these three unfavorable factors,
impacting our gross margin, as described above.

         Restructuring expenses

         In 2001, we responded to the rapidly changing telecommunications market
by implementing a program to control costs and restructure our activities. The
program, announced on May 2, 2001, involved the closure of a manufacturing
facility, the downsizing of a research and development facility, a reduction of
our workforce following the combination of our financial services and Internet
security activities, and the rationalization of office operations on a worldwide
basis. We recorded a restructuring charge of (euro)28.5 million in the second
quarter of 2001 as a result of the restructuring plan. The goal of the program
was to achieve (euro)40 million in annualized cost savings, an objective that we
continue to maintain. We believe that this goal will be maintained during 2002.
Our ability to achieve this objective will depend on a number of factors,
including the actual expenses that we incur as we continue to fully implement
the program and the impact of market conditions.

         Management severance expenses

         On December 19, 2001, we announced changes in our management, as our
Chief Executive Officer, Mr. Antonio Perez, and our Chairman of the Board, Dr.
Marc Lassus, ceased their functions as Chief Executive Officer and Chairman of
the Board, respectively, and our current management was appointed. In connection
with these changes, we recorded a (euro)25.7 million charge in the fourth
quarter of 2001. The charge reflected several factors. First, we recorded a
charge of (euro)6.8 million in connection with the cancellation of a portion of
certain loans made to Mr. Perez by one of our indirect subsidiaries, Zenzus
Holdings Ltd., to permit Mr. Perez to exercise stock options and pay taxes
relating to his receipt of a grant of free shares in 2000. The charge reflects
the difference between the loan balance at the time Mr. Perez resigned and the
fair market value of the shares that Mr. Perez transferred to the indirect
subsidiary of our company. Those shares were transferred to the indirect finance
subsidiary pursuant to two agreements, the first signed in October and the
second at the time of Mr. Perez's resignation in December. Second, we recorded a
charge of (euro)6.5 million in respect of a payment to Mr. Perez to compensate
for the tax consequences of the loan forgiveness. Third, we recorded a (euro)1.2
million charge with respect to a severance payment due to Mr. Perez. Fourth, we
recorded a charge of (euro)11.2 million with respect to Dr. Lassus, representing
the fulfillment of an agreement signed in 2000 that required us to make such
payment upon the replacement of Dr. Lassus as our board chairman.

         Litigation Expense

         In October 2001, the United States Court of Appeals for the Ninth
Circuit affirmed a district court judgment against us in favor of Humetrix Inc.
based on a claim by Humetrix that we had breached an agreement to jointly market
several products in the U.S. health care sector. The judgment was in the amount
of US$15.0 million plus interest. Our petition seeking a rehearing was denied in
November 2001. As a result of this decision, we recorded a charge of (euro)18.1
million in 2001. No further action is possible with respect to this litigation.

         Goodwill amortization

         Goodwill amortization amounted to (euro)27.2 million in 2001, compared
to (euro)11.2 million in 2000, as a result of acquisitions in 2000, particularly
the acquisitions of Celocom Limited and SLP InfoWare S.A., which were completed
during the last quarter of 2000. In addition, goodwill amortization recorded in
2001 included a one-time (euro)1.1 million charge resulting from a write-off of
goodwill previously recorded from the acquisition of a 21% equity interest in
Softcard due to Softcard's decision to cease its operations.

         Net interest income and expense

         We recorded net interest income of (euro)20.7 million in 2001 compared
to (euro)12.6 million in 2000. The increase reflected principally interest
earned on the proceeds of the initial public offering of our ordinary shares in
December 2000 and other capital contributions from the exercise of warrants and
stock options by our shareholders and employees, as well as substantial equity
investments by the Texas Pacific Group in February and May 2000.

         Other income and expense, net

         We recorded net other income of (euro)45.7 million in 2001 compared to
net other expense of (euro)28 thousand in 2000. This increase resulted primarily
from a one-time (euro)68.3 million gain generated from our SkiData and Tag
divestitures, which was only partially offset by foreign exchange losses and
minority interests. Net other expense in 2000 was primarily attributable to
minority interests and gains on investments.

         Income tax

         We recorded an income tax credit of (euro)14.2 million in 2001,
reflecting an effective tax rate of 16.3%. In 2000, we recorded an income tax
expense of (euro)29.6 million, which reflected an effective tax rate of 21.2%.
Our effective tax rate in 2001 declined mainly due to the management severance
expenses which created losses in certain countries with low effective tax rates.

         Net income (loss)

         We recorded a net loss of (euro)100.2 million in 2001, or (euro)0.16
per share, as compared to net income of (euro)99.1 million in 2000, or
(euro)0.18 per diluted share. The net loss primarily reflected the decline in
our operating income, which was only partially offset by the one-time gain from
the SkiData and Tag divestitures.



Year ended December 31, 2000 compared to year ended December 31, 1999

         Net Sales

         Our net sales for the year ended December 31, 2000 amounted to
(euro)1,024.6 million, a 57% increase compared with net sales of (euro)766.6
million for the year ended December 31, 1999. Approximately 9% of this increase
was due to the impact of currency exchange rate movements, as all four of the
major non-euro currencies in which we recorded sales strengthened against the
euro.

         Telecommunications sales increased by 83% from 1999 to 2000. Net sales
from telecommunications were 74% of our total in 2000, after standing at 63% in
1999. The following table shows the growth in our net sales between 1999 and
2000 by market segment.


                                           Year ended December 31,
                                           -----------------------
                                           1999             2000       % change
                                           ----             ----       --------
                                            (millions of euros)
Telecommunications...................     482.2            883.7          83%
Network systems .....................     160.5            196.4          22%
Other................................     123.9            124.5           1%
                                          ------      -----------         ---
Total................................     766.6          1,204.6          57%
                                          ======      ===========         ===

         Wireless products and services were responsible for most of the
increase in our telecommunications net sales. We recorded net sales of wireless
infrastructure products and services of (euro)689 million in 2000, representing
nearly twice the amount recorded in 1999, which was (euro)355 million. The
increase reflected primarily growth in volume, as we sold approximately 91% more
units in 2000 compared with 1999, as well as a slight appreciation in average
selling prices of approximately 9%, which was due to the impact of currency
exchange rates. Excluding the effect of changes in exchange rates, an
improvement in product mix and increased sales in targeted high growth regional
markets were largely offset by a decline in prices for lower capacity chip cards
due to intense competition. Further improvements in product mix were constrained
despite sustained demand due to the global shortage of the high-capacity
microprocessor chips used in our most advanced wireless products. Phone card
sales increased 21% in 2000 compared with 1999 due to an 18% increase in volume,
principally in Latin America and southern Europe, and a slight increase in
average sales prices as a result of favorable currency exchange rates.

         The increase in network systems revenues was realized primarily in
financial services, as well as growth in our sales of loyalty chip cards,
Internet business security products, particularly chip card readers for
corporate networks, and SkiData's access control systems. Financial services
chip card sales increased in 2000 compared to 1999, largely due to an increase
in sales in the United States, Europe and Asia, other than China, as banks in
these regions launched new chip card programs in the second half of 2000, as
well as sustained growth in the Geldkarte e-purse program in Germany and the
development of several new e-purse programs in Asia, particularly South Asia and
the Pacific. The growth at SkiData and in loyalty programs, Internet business
security products and financial services was partly offset by a decrease in
health care systems sales in 2000 compared to 1999, which was due to the fact
that we recorded peak sales in 1999 as a result of the implementation of a new
French health care program.

         In our other activities segment, revenues remained stable in 2000
compared to 1999, as an increase in sales of our smart cards for pay-television
applications was offset by a decrease in sales of magnetic stripe bank cards due
to the adoption of new chip card programs by several U.S., European and Asian
banks in 2000 to gradually replace existing magnetic stripe bank card programs
and to the fact that we recorded peak sales in 1999 as a result of a one-time
increase in the issuance of magnetic stripe bank cards in preparation for the
year 2000.

         Although our net sales grew significantly in all of our geographical
regions, the largest increase in absolute terms was in our Europe, Middle East
and Africa region, closely followed by our net sales in Asia. The largest
percentage increase of our net sales was in Asia, where net sales increased by
122% from 1999 to 2000. The following table breaks down our net sales among our
three regions.


                                         Year ended December 31,
                                         -----------------------
                                         1999               2000        % change
                                         ----               ----        --------
                                           (millions of euros)
Europe, Middle East and Africa.......   506.0              701.3          39%
Asia.................................   142.8              317.9         122%
Americas.............................   117.8              185.4          57%
                                        -----            --------       -----
Total................................   766.6             1,204.6          57%
                                        =====            ========       =====

         In our Europe, Middle East and Africa region, sales in the European
Union, Switzerland, Turkey and South Africa accounted for more than 80% of our
revenues in both 1999 and 2000. In Europe, the increase in revenues resulted
mainly from our wireless products and services activity, reflecting the growth
of the mobile phone market throughout the region. The increase in Asia was
partly due to the fact that the 1999 recovery from the Asian financial crisis
did not occur significantly until the second half of 1999. This increase
reflected primarily growth in wireless, bank card and scratch-off card sales
throughout the region, particularly in China, Singapore, Thailand, and the
Philippines. In North America, we significantly increased our wireless sales, as
the subscriber base of the main operator that uses identification module
technology grew substantially, as well as our financial services sales. We also
increased our sales of phone cards in Latin America. Although currency exchange
rates affected our revenues in all non-euro regions, the impact was not
significantly different from one region to another.

         Gross profit

         Our gross profit increased from (euro)279.8 million in 1999 to
(euro)453.9 million in 2000, representing growth of 62%. Our gross margin
increased from 36.5% in 1999 to 37.7% in 2000.

         Our increase in gross margin resulted from the strong growth in sales
in the telecommunications market segment, where we typically record our highest
margins. The following table breaks down our gross profit and gross margin by
segment.


                                        Year ended December 31,
                                        -----------------------
                                      1999            2000         % change
                                      ----            ----         --------
                                     (millions of euros)

Telecommunications ...............    207.1           378.9            83%
   Gross margin ..................     42.9%           42.9%
Network systems...................     51.2            62.0            21%
   Gross margin ..................     31.9%           31.6%
Other ............................     21.5            13.0           (39)%
   Gross margin ..................     17.4%           10.4%
Total.............................    279.8           453.9            62%
                                     ======           =====
Total gross margin................     36.5%           37.7%

         Telecommunications gross margin was essentially stable from 1999 to
2000. Although the proportion of our wireless sales in this segment increased,
our wireless margins declined modestly as a result of a global shortage of
high-end microprocessor chips, which hindered the planned migration of many of
our customers to high-end wireless identification modules, and investments in
services and software activities with lower than average margin rates in their
initial stage. We also recorded an increase in our phone card sales and our
scratch-off card sales, which generate lower margins than most of our other
telecommunications products.

         In network systems, our gross margin slightly decreased from 1999 to
2000, as improved margins in our health care and Internet security businesses
were offset by a deterioration in the gross margin in SkiData's access control
systems due to an increase in sales of SkiData's ski resort access control
systems, which generate lower margins than SkiData's other access control
systems.

         In our other activities, our gross margin was adversely affected by
manufacturing overcapacity for magnetic stripe cards bank cards. The
overcapacity was principally due to costs associated with the expansion of our
manufacturing capacity in anticipation of a large multiple-year order for a
magnetic stripe bank card program that did not materialize, as well as the
expansion of our capacity in 1999 to serve pre-Year 2000 demand. Although most
of the underutilized capacity has since been redeployed to other uses, our
ability to fully utilize our manufacturing capacity has been constrained as a
result of the decrease in sales of magnetic stripe bank cards and other plastic
cards in 2000.

         Operating income (loss)

         We recorded (euro)116.2 million of operating income in 2000, compared
to an operating loss of (euro)15.1 million in 1999 attributable to a one-time
charge of (euro)65.4 million related to the legal reorganization of our
corporate structure in 1999. Excluding the impact of the legal reorganization
expense, we would have recorded operating income of (euro)50.3 million in 1999.
The 2000 figure reflected a one-time recognition of (euro)12.5 million in French
research credits from prior years. We deduct research credits from our net
research and development expenses, although we do not do so until we are certain
that the French tax authorities will allow us to fully use the credit. In June
2000 we obtained a ruling allowing several research tax credits from 1993
through 1999, resulting in the one-time recognition.

         Excluding the impact of the research credit in 2000 and the impact of
the legal reorganization expense in 1999, our operating income represented 9.6%
of our net sales in 2000, up from 6.6% in 1999. Selling and marketing expenses
increased by 63%, from (euro)97.2 million in 1999 to (euro)158.5 million in
2000, reflecting primarily an increase in marketing efforts to promote new
products, as well as an increase in regional selling expenses.

         Net research and development expenses (before deduction of the credit)
rose to (euro)90.8 million in 2000 from (euro)62.2 million recorded in 1999, an
increase of 45.8% that resulted principally from our hiring of new software
engineers. Net research and development expenses do not include spending funded
by government research credits, or deferred research and development
expenditures, which are our capitalized research and development expenditures
net of related provisions. Our gross research and development expenditures were
(euro)67.4 million in 1999 and (euro)104.3 million in 2000, representing 8.8%
and 8.7%, respectively, of our net sales. See "Item 4. Information on the
Company--Business Overview--Research and Development" for a description of our
research and development activities.

         General and administrative expenses increased by 40.8%, increasing from
(euro)63.7 million in 1999 to (euro)89.7 million in 2000. Excluding costs
associated with the initial public offering of our ordinary shares in December
2000, which amounted to (euro)3.8 million, our general and administrative
expenses increased by 35.0% from 1999 to 2000.

         Net interest expense

         We recorded interest income of (euro)12.6 million in 2000, compared to
net interest expense of (euro)4.5 million in 1999. Interest expense in 2000
resulted from new capital leases on our Gemenos, France facilities that we
signed in 1999. Interest income in 2000 increased primarily due to significant
equity investments by the Texas Pacific Group in February and May 2000, the
proceeds of the initial public offering of our shares in December 2000 and other
capital injections from the exercise of warrants and stock options by our
shareholders and employees.

         Other income and expense, net

         Other net expense decreased from (euro)458 thousand in 1999 to (euro)28
thousand in 2000, principally as a result of an increase in income attributable
to gains on investments, which was partially offset by an increase in minority
interests in 2000.

         Income tax

         Income tax expense amounted to (euro)29.6 million in 2000, a
substantial increase from the (euro)12.1 million of income tax expense in 1999.
The increase was due principally to overall growth in operating profit, which
was partially offset by a slight decrease in our effective tax rate from 23% in
1999 to 21% in 2000.

         Net income (loss)

         Our net income in 2000 was (euro)99.1 million, compared to our net loss
in 1999 of (euro)32.1 million. The net loss resulted from a one-time charge of
(euro)65.4 million in connection with the legal reorganization of our corporate
structure in 1999. Excluding the impact of the legal reorganization expense, our
net income would have amounted to (euro)33.3 million in 1999. The difference was
due principally to the substantial operating income recorded in 2000.

Liquidity and Capital Resources

         Our financial position remained strong in 2001. Cash and cash
equivalents were (euro)490.7 million at December 31, 2001 as compared to
(euro)636.3 million at December 31, 2000. During 2001, we used cash to fund
payments of accounts payable and made capital expenditures at a level
approximately equal to 2000.

         Operating activities used (euro)23.3 million of cash in 2001, compared
to (euro)69.2 million of cash generated by operating activities during 2000.
Cash from operating activities declined in 2001 due to the decrease in our
operating income and increased working capital needs, primarily resulting from
payments on accounts payable, which were approximately (euro)27 million more
than payments received in respect of accounts receivables. Accounts receivable
in days of sales outstanding improved by 4 days, representing 57 days as at
December 31, 2001. During 2001, we used (euro)15.5 million to fund our
restructuring plan implemented in the second quarter of 2001. As of December 31,
2001, inventory levels declined by (euro)34.3 million as compared to December
31, 2000, (euro)27 million of which was associated with the SkiData and Tag
transactions, and the remainder of which was due to our efforts to manage
purchases more tightly in light of market conditions.

         Net cash used in investing activities in 2001 was (euro)65.3 million
compared to (euro)266.3 million in 2000. The decrease in cash used in investing
activities primarily resulted from the divestiture of our SkiData and Tag
businesses, which provided a cash inflow of (euro)109 million net of fees.
Investments included a (euro)13 million cash disbursement for the purchase of
the 20% minority interest in SkiData in anticipation of the sale of SkiData, and
investments made by GemVentures, our wholly-owned venture capital subsidiary,
primarily in two technology companies in the wireless communications market. In
addition, in March 2001, we extended a (euro)14 million loan to Mr. Perez to
fund tax liabilities relating to his receipt of a grant of free shares in 2000.
Capital expenditures during 2001 were made primarily to acquire property, plant
and equipment to expand our facilities, principally in Asia and in Europe.
Capital expenditures amounted to (euro)102.6 million in 2001, as compared to
(euro)102.5 million in 2000. In addition, the change in non-trade accounts
payable and other current assets resulted in the use of (euro)10 million,
including primarily cash paid to non-trade suppliers.

         Financing activities used (euro)34.7 million of cash during 2001,
compared to (euro)817.9 million of positive cash flow generated by our financing
activities in 2000. The 2000 cash flow figure primarily reflects an investment
in our ordinary shares of (euro)531.8 million, most of which was made by Texas
Pacific Group in February and May 2000, proceeds of (euro)210 million from the
exercise of warrants and stock options, and proceeds of (euro)82.6 million from
the sale of ordinary shares to the public in connection with the initial public
offering in December 2000. Negative cash flow from financing activities in 2001
principally resulted from the initial implementation of our share repurchase
program, pursuant to which we repurchased shares of our outstanding common stock
for (euro)15.1 million, the purchase at fair market value of shares of Gemplus
SA held by two of our former executive officers for (euro)14.5 million the
payment of (euro)8.1 million for expenses incurred in 2000 in connection with
sales of equity securities to Texas Pacific Group and our initial public
offering, and the payment of (euro)4.3 million in dividends to minority
shareholders of one of our Asian subsidiaries. Cash flow used for financing
activities in 2001 also included a (euro)5.7 million cash inflow with respect to
the proceeds from a sale-leaseback transaction relating to a research and
development and office building located in La Ciotat, France, and was favorably
impacted by proceeds of (euro)7.8 million from the exercise of stock options and
by the increase in bank overdrafts for (euro)4.5 million.

         We entered into a (euro)150 million revolving credit facility in 1999
with a syndicate of international banking institutions that bears interest at a
floating rate. In July 2000, (euro)52.5 million of loan commitments under the
revolving credit facility expired without being used. Out of the remaining
(euro)97.5 million, (euro)24.4 million expires in July 2002, (euro)24.4 million
in July 2003 and (euro)48.7 million in July 2004. As of December 31, 2001, we
had not drawn any amounts under the revolving credit facility.

         We believe that our existing cash resources, our anticipated cash flow
from operations and amounts available for drawdowns under our working capital
facility are sufficient to provide for our foreseeable near term and medium term
liquidity needs. At December 31, 2001, cash and cash equivalents amounted to
(euro)490.7 million. Our off balance sheet commitments at December 31, 2001 were
not significant.

Outlook

         We anticipate that 2002 will be a transition year, as we implement a
strategy to restore profitable growth. We believe that there are signs of
increasing demand for higher margin, high-end chip cards and premium value
applications. SIM card inventory levels at mobile telecommunications operators
decreased during 2001, and we believe that a significant part of the existing
SIM card base will require replacement in the near future. Coupled with
encouraging trends in the financial services business of our network systems
segment, we believe there is room for optimism in the medium term, although we
have no reason to believe that the market will recover until at least the end of
2002 at the earliest.

         We have taken considerable steps to adapt our company to the new market
environment. The initial step was the restructuring program that was put into
place in the second quarter of 2001. In February 2002, we announced that we also
intend to implement a further restructuring and rationalization program with an
objective of generating (euro)100 million in annual savings, in addition to the
(euro)40 million from the initial 2001 program. The new program will involve a
planned reduction of our workforce by approximately 1,140 employees, and include
rationalization of our production and sourcing strategy. We have had productive
discussions with our employees and their representatives regarding the social
implications of the restructuring. While we cannot be sure that we will achieve
our cost savings targets, we believe that our program will allow us to correct
our business economics and accelerate our move towards premium value products
and services.

Critical accounting policies

         The significant accounting policies that we believe are the most
critical to aid in fully understanding and evaluating our reported financial
results include the following:


Revenue Recognition

         Revenues from product sales are recorded upon transfer of title and
risk of loss provided that no significant obligations of the company remain and
collection of the resulting receivable is probable. We record deferred revenue
for sales invoiced which are delayed at the buyer's request where transfer of
title and risk of loss have not occurred. Procedures exist which are regularly
reviewed to ensure that the policy is consistently applied throughout our
subsidiaries worldwide.

Goodwill

         Goodwill is reviewed for impairment based on expectations of future
cash flows, which by definition are uncertain, at each balance sheet date, or
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. We consider significant underperformance relative to
expected historical or projected future operating results, significant change in
the manner of our use of the acquired assets or the strategy for our overall
business, and significant negative industry or economic trends. Under the
current assumptions we believe that no material impairment of goodwill exists.

Loans and receivables

         According to International Accounting standards, we adjust the carrying
amount of loans and receivables to their estimated recoverable amount when it is
probable that we will not be able to collect all amounts due - principal and
interest - according to the contractual terms of such loans and receivables.

Inventory

         Our industry is highly competitive and characterized by rapid
technological change, frequent new product development, and rapid product
obsolescence. We regularly review inventory quantities on hand and record
provisions for excess and obsolete inventory based primarily on our estimated
forecast of product demand and production requirements.

         Inventories are carried at the lower of cost or market, with cost being
determined principally on the weighted-average cost basis. Cost elements
included in inventories are raw materials, labor and manufacturing overhead
excluding the impact of low activity, if any. A significant component of the
cost of production relates to the acquisition of microprocessor chips. The cost
of microprocessor chips decreased significantly in the last few months. Our
provision for microprocessor chips inventory is determined based on the
anticipated net realizable value of finished products which includes cost of
production, raw materials, labor and manufacturing overheads.

Research and Development

         Development costs are recognized as an expense when incurred, except
for development costs incurred from the time technological feasibility is
established until the product under development will be produced and future
profitability is demonstrated. Judgement is exercised in determining
technological feasibility and future profitability, the capitalization of such
costs being reviewed on a quarterly basis. In addition, we continually evaluate
the recoverability of capitalized costs and make write-downs when necessary.

Restructuring

         As required by International Accounting standards, we record
restructuring expenses only when prior to the date of the financial statements,
the enterprise is committed to the plan of termination, the benefits that
current employees will receive upon termination are established and the benefit
arrangements are communicated. The new plan which has been announced in February
2002 has thus not been provided for in the 2001 financial statements.

Special Purpose Entities

         We have not had any transactions including special purpose entities as
an investment vehicle. We do not intend to enter into transactions which such
entities.


Market Risk

         In the conduct of our business, we are exposed to a number of market
risks, including currency exchange risks, interest rate risks and credit risks.
To hedge our market risk exposures, we use several types of derivative
instruments. We discuss our exposure to market risks and our hedging activities
in "Item 11.
Quantitative and Qualitative Disclosures About Market Risk."

U.S. GAAP Reconciliation

         We prepare our audited consolidated financial statements in accordance
with IAS, which differ in several respects from U.S. GAAP. As a result, our net
income and shareholders' equity are different under U.S. GAAP and under IAS.

         The following table sets forth our net income under IAS and under U.S.
GAAP for the periods indicated.

                                              Year ended December 31,
                                              -----------------------
                                            1999        2000        2001
                                            ----        ----        ----
                                                (millions of euros)
    IAS net income (loss)................  (32.1)         99.1     (100.2)
    U.S. GAAP net income (loss)..........  (44.4)       (123.2)     (49.5)


         The principal differences affecting the determination of our net income
under U.S. GAAP compared with IAS result from the granting of share options to
our executive officers and employees. In accordance with IAS, the issuance of
share options do not have any impact on net income at the time of grant or of
exercise of the options. Under IAS, upon exercise of the options, the price paid
for the underlying shares is allocated to share capital and paid-in-capital.
Under U.S. GAAP the difference between the exercise price and the fair market
value of our shares at the time the options are granted generates compensation
expense. In addition, in connection with the issuance of stock options to our
former Chief Executive Officer and our former Chairman in the second half of
2000, we made several non-recourse loans to these individuals for the exercise
of these options, as described under "Item 7. Major Shareholders and Related
Party Transactions--Related Party Transactions." Because these loans may be
prepaid prior to maturity, the amount of interest to be paid on the loans was
uncertain and, as a result, the ultimate option price was also uncertain. Under
U.S. GAAP, the issuance of stock options with an unknown exercise price must be
accounted for as a variable plan, which requires us to measure compensation in
each period based on the difference between the exercise price and the fair
market value of the shares. A compensation expense of (euro)94.1 million was
recorded in 2000 with respect to the options granted to these individuals, which
was reversed in 2001 when the fair market value of the stock went below the
exercise price of the options.

         Consequently, the accounting for share options in accordance with U.S.
GAAP resulted in a net total benefit of (euro)69.3 million for the year ended
December 31, 2001, as compared to compensation expenses of (euro)229.7 million
and (euro)10.6 million for the years ended December 31, 2000 and 1999,
respectively.

         The principal differences affecting the determination of our
shareholders' equity under U.S. GAAP are the impact of several non-recourse
loans made to our former Chief Executive Officer and our former Chairman for the
exercise of the stock options granted in the second half of 2000, which, in
aggregate, amounted to (euro)71.9 million and (euro)143.7 million and are
recorded as a decrease in shareholders' equity under U.S. GAAP as at December
31, 2001 and 2000, respectively.

         The following table sets forth our shareholders' equity under IAS and
U.S. GAAP as of the dates indicated.

                                              Year ended December 31,
                                              -----------------------
                                      1999             2000               2001
                                      ----             ----               ----
                                                (millions of euros)
IAS shareholders' equity ...........  294.2         1,385.0             1,167.8
U.S. GAAP shareholders' equity......  297.7         1,242.8             1,078.3


         For a discussion of the differences between IAS and U.S. GAAP as they
relate to our consolidated net income and shareholders' equity, see Note 32 to
our audited consolidated financial statements.

Item 6.  Directors, Senior Management and Employees

Board of Directors

         Under Luxembourg law, the board of directors is vested with the
broadest powers to perform all acts of administration and disposition in our
interests. All powers not expressly reserved by law or by the articles of
incorporation to the general meeting of shareholders fall within the competence
of the board of directors.

         Our board of directors currently has thirteen members. Members of the
board are appointed by the shareholders to serve terms not to exceed three years
and may be re-appointed for consecutive terms. They may resign at any time and
their functions as members of the board may be terminated at any time by a
simple majority of the votes of the shareholders voting at a general meeting.
Under Luxembourg law, a director may be an individual or a corporation. Our
board of directors met 17 times during 2001.

         On December 19, 2001, the following members resigned from our board of
directors: Dr. Bertrand Cambou, Mr. Andrew Dechet, Mr. Ronald Mackintosh and Mr.
Antonio Perez. In addition, Dr. Lassus resigned from his position as Chairman
and Mr. Halpern from his position as Vice Chairman, although both remain
directors of our company.

         Following these resignations, Dr.-Ing. Hasso Freiherr von Falkenhausen
was appointed as director on December 19, 2001, and, effective as of January 10,
2002, as Chairman of the board. On December 19, 2001, Mr. David Bonderman was
appointed as director and Vice-Chairman of the board.

         At our annual general shareholders meeting on April 17, 2002, our
shareholders approved a resolution to increase the number of board members to
thirteen, and elected Dr. von Falkenhaussen, Mr. David Bonderman, Mr. Thierry
Dassault, Dr. Peter Kraljic, Mr. Daniel Le Gal, Mr. Gilles Lisimaque, Mr. Ronald
W. Mackintosh and Mr. Ziad Takieddine to the board of directors. The resolutions
to increase the number of board members and to elect Mr. Bonderman were ratified
by a large majority at a further extraordinary general meeting of shareholders
on May 15, 2002.

         Following the board of directors meeting held on June 21, 2002, Mr.
Dominique Vignon was appointed as Chairman of the Board with immediate effect,
succeeding Hasso von Falkenhausen who resigned as Chairman but who continues to
serve as a director of our company. Following the board of directors meeting on
June 21, 2002, Mr. Gilles Lisimaque also resigned from our board of directors.


         The following table sets forth the name, age, date appointed and
occupation of each of our directors as of June 22, 2002.

<TABLE>
                                                                    Expiration
      Name                               Age   Date Appointed         of Term               Occupation
      ----                               ---   --------------       ----------              ----------
<S>                                      <C>  <C>                   <C>              <C>
Dominique Vignon.......................  54    June 21, 2002        April 2004       Chairman of our Board of Directors

Hasso Freiherr von Falkenhausen........  69    December 19, 2001    April 2004       Chairman of our Board of
                                                                                     Directors up to June 21, 2002;
                                                                                     Managing Director of Polytechnos

David Bonderman........................  59    December 19, 2001    April 2004       Vice-Chairman of our Board of
                                                                                     Directors; Managing Director
                                                                                     Texas Pacific Group

Randy L.Christofferson.................  44    November 13, 2000    April 2004       Managing Director
                                                                                     MIOGA Ventures,L.L.C.

Thierry Dassault.......................  45    April 17, 2002       April 2004       Chairman and Chief Executive
                                                                                     Officer of Dassault Mutlimedia.

Abel G. Halpern........................  33    February 1, 2000     April 2004       Managing Director Texas Pacific Group

Peter Kraljic..........................  63    April 17, 2002       April 2004       Senior Director, McKinsey & Company

Marc Lassus............................  63    February 1, 2000     April 2004       Director of Gemplus International SA

Daniel Le Gal..........................  51    April 17, 2002       April 2004       Partner and Managing Director, Finadvance

Kheng Nam Lee..........................  53    October 12, 2000     April 2004       Chairman, Vertex Group

Ronald W. Mackintosh...................  54    April 17, 2002       April 2004       Chief Executive Officer, Gemplus
                                                                                     International S.A.

William S. Price, III..................  45    February 1, 2000     April 2004       Managing Director Texas Pacific Group

Ziad Takieddine........................  51    April 17, 2002       April 2004       President, Middle East and Gulf Resources
</TABLE>


Board Committees

         Our board of directors has the following committees:

(i)  Audit Committee, which consists of Mr. William S. Price III (Chairman), Mr.
     Randy L.  Christofferson  and Mr. Kheng Nam Lee. This committee was created
     by the board of directors on October 12, 2000, and met 4 times during 2001.
     This  committee  reviews  our  budgets  and  financial  statements  and any
     potential conflicts of interests with a director or other related party;

(ii) Compensation  and  Search  Committee,  which  consists  of  Dr.-Ing.  Hasso
     Freiherr von Falkenhausen (Chairman), Mr. David Bonderman and Mr. Kheng Nam
     Lee.  This  committee  was created by the board of directors on October 12,
     2000, and met 2 times during 2001, in February and December. This committee
     makes  recommendations  on  the  compensation  of  executive  officers  and
     directors and supervises the  administration  of stock option plans for our
     employees.  The committee also evaluates and recommends  candidates for new
     board  members and for the  selection of our  Chairman and Chief  Executive
     Officer.

Executive Officers

         Our board of directors has, with the authorization of a general meeting
of our shareholders, delegated the day-to-day management of our company,
including the power to act on behalf of our company, to the Chief Executive
Officer except for any matters that exceed (euro)30 million, subject to powers
expressly reserved by law to the board of directors or our shareholders.

         During 2001 and at the beginning of 2002, some of our executive
officers resigned, some of whom have not been replaced. In July 2001, Mr.
Bertrand Cambou resigned from his position as Executive Vice President, Chief
Operating Officer. He was not replaced, although he remained a director of our
company until December 2001. In July 2001, Mr. Remy de Tonnac resigned from his
position as Executive Vice President in charge of business development. He was
replaced by Mr. Frederic Spagnou who resigned in March 2002, without being
replaced. In December 2001, Mr. Antonio Perez resigned from his position as
Chief Executive Officer and was replaced by Mr. Ronald W. Mackintosh, as interim
Chief Executive Officer. In February 2002, M. William Lloyd resigned from his
position as Chief Technology Officer and was replaced by Mr. Tony Engberg. In
February 2002, M. Phil Faraci resigned from his position as Executive Vice
President, General Manager of the telecommunications business unit. In March
2002, Mr. Steven Gomo resigned from his position as Chief Financial Officer and
was replaced by Mr. Yves Guillaumot, as interim Chief Financial Officer.

         The following table sets forth the name, age and current position of
each of our executive officers as of June 22, 2002:
<TABLE>
<CAPTION>

                    Name                   Age             Position
                    ----                   ---             --------

<S>                                        <C>       <C>
Ronald W. Mackintosh...................    54        Chief Executive Officer

Tony Engberg...........................    52        Senior Vice President, Chief Technology Officer

Yves Guillaumot........................    44        Executive Vice President, Chief Financial Officer

Stephen Juge...........................    48        Executive Vice President, General
                                                     Counsel

Didier Lachaud.........................    42        Executive Vice President, Human Resources

Dr. Gilles Michel......................    50        Executive Vice President, General Manager Financial
                                                     and Security Services Business Unit

Jacques Seneca.........................    42        Executive Vice President, General Manager
                                                     Gemventures Services Unit

Philippe Vallee........................    37        Executive Vice President, General Manager Telecom
                                                     Business Unit

Jacques Villieres......................    56        Executive Vice President, Corporate Manufacturing
</TABLE>


Director and Executive Officer Biographies

         Ronald W Mackintosh has served as Chief Executive Officer since
December 2001 and as Director from April 2001 to December 2001. He was
re-elected Director at the annual general meeting of shareholders held on April
17, 2002.Mr. Mackintosh was the Chief Executive Officer of Differentis, an
e-business integrator, from July 2000 through December 2001, when he resigned
from the position. Prior to joining Differentis, Mr. Mackintosh served as Chief
Executive Officer of Computer Sciences Corporation, European Business since
October 1992. From June 1990 to September 1992, Mr. Mackintosh served as Chief
Executive, CSC UK. From November 1987 to June 1990, Mr. Mackintosh served as
Chief Executive Officer at Index Group Europe. Prior to October 1987, Mr.
Mackintosh was a Partner at Nolan Norton & Co. Europe. Mr. Mackintosh serves on
the Board of Directors of Differentis. Mr. Mackintosh graduated from Arbroath
High School, Scotland.

         Dominique Vignon has served as Chairman of the Board of Directors
since June 21, 2002. Mr. Vignon served as Chairman of the Board of Directors and
Chief Executive Officer of the Framatome group from 1996 to the end of 2001,
where he also developed this group's connector business. From the end of 2000 to
the end of 2001, he served as President of Framatome ANP and led the merger of
the Framatome and Siemens corresponding activities. From 1990 to 2001, Mr.
Vignon held various management positions within the Framatome group. From 1995
to 1996, he was President of Framatome's nuclear business. From 1993 to 1995, he
was Chairman of Jeumont Industrie. From 1990 to 1993, was General Manager of
Nuclear Power International (NPI), the joint venture of Framatome and Siemens.
From 1975 to 1990, he worked at Electricite de France, where he was in charge of
major new generation projects in France and abroad. Mr. Vignon is a graduate of
France's Ecole Polytechnique, and of the leading French Engineering School, the
Ecole Nationale des Ponts et Chaussees. He also holds a Bachelors degree in
Economics.

         Dr.-Ing. Hasso Freiherr von Falkenhausen has served as a Director since
December 2001 and as Chairman of the Board of Directors from January 10, 2002 to
June 21, 2002. Mr. von Falkenhausen is a founder and has been Managing Director
since 1998 of Polytechnos Venture-Partners GmbH, Munich, Germany. Prior to
founding Polytechnos Venture-Partners, Mr. von Falkenhausen held the position of
CEO of World Card International, a holding and management services company for
the Dr. Herbert Quandt family in Bad Homburg, Germany. In this capacity, he
served as Chairman of the Board of Directors of DataCard Corporation,
Minneapolis, MN, U.S.A., until 2000, as member of the board of directors of
Gemplus Associates SA from 1993 to 1997, and as Chairman of the supervisory
board of Gemplus SCA from 1997 to 1999. Prior to 1986, Mr. von Falkenhausen held
an executive position with Robert Bosh GmbH, Stuttgart, Germany. Until 1980, he
served as a director and senior partner of McKinsey & Co., a management
consulting company, in Dusseldorf, Germany. Mr. von Falkenhausen received a
Mechanical and Industrial Engineering degree from Berlin Technical University,
Germany, and a Masters of Industrial Engineering degree from Cornell University,
Ithaca, NY, U.S.A. He holds a Doctorate in Applied Mathematics from Darmstadt
Technical University, Germany. Mr. von Falkenhausen serves on the boards of KERO
Private Equity, Dieburg, Germany and Stylepark AG, Frankfurt, Germany, as well
as on the European and German Advisory Boards of INVESCO.

         David Bonderman has served as Vice-Chairman of the Board of Directors
since December 2001. He is a principal, general partner and one of the founders
of Texas Pacific Group ("TPG"). Prior to forming Texas Pacific Group, Mr.
Bonderman was Chief Operating Officer of the Robert M. Bass Group, Inc. (now
doing business as Keystone, Inc.) in Fort Worth, Texas. Prior to joining RMBG in
1983, Mr. Bonderman was a partner in the law firm of Arnold & Porter in
Washington, DC where he specialized in corporate, securities, bankruptcy, and
antitrust litigation. From 1969 to 1970, Mr. Bonderman was a Fellow in Foreign
and Comparative Law in conjunction with Harvard University and from 1968 to
1969, he was Special Assistant to the U. S. Attorney General in the Civil Rights
Division. From 1967 to 1968, Mr. Bonderman was Assistant Professor at Tulane
University School of Law in New Orleans. Mr. Bonderman graduated Magna Cum Laude
from Harvard Law School in 1966. He was a member of the Harvard Law Review and a
Sheldon Fellow. He is a 1963 Phi Beta Kappa graduate of the University of
Washington in Seattle. Mr. Bonderman serves on the Boards of Continental
Airlines, Inc.; Bell & Howell Company; Ducati Motorcycles S.p.A.; Co-Star Realty
Information Group; Denbury Resources, Inc.; Ryanair, plc; Washington Mutual,
Inc.; Oxford Health Plans, Inc.; ON Semiconductors; Magellan Health Services,
Inc., Paradyne Networks, Inc., and Korea First Bank. He also serves on the
Boards of The Wilderness Society, the Grand Canyon Trust, and the American
Himalayan Foundation. In addition, he serves on the Board of Directors of the
University of Washington Foundation as well as the Harvard Law School Dean's
Advisory Board.

         Randy L. Christofferson has served as a Director since November 2000.
Mr. Christofferson is the Managing Director of MIOGA Ventures since 1999. From
August 1999 to September 2000, Mr. Christofferson served as Chief Executive
Officer of Walker Digital. From 1995 to 1999, Mr. Christofferson served as
President of First USA Bank. From 1990 to 1995, Mr. Christofferson held several
senior management positions at the American Express Company, including President
of Amex Relationship Services, Senior Vice President of Worldwide Quality and
Reengineering and Senior Vice President of Corporate Strategy and Advanced
Technology. Prior to 1990, Mr. Christofferson was a partner of Bain & Company.
Mr. Christofferson received his M.B.A. from Harvard University and graduated
with highest honors from Michigan State University, where he earned a B.S. in
Chemical Engineering. Mr. Christofferson serves on the Boards of Directors of
IntelliRisk Management Corporation, FineStationery.com, Alliance Consulting,
Monogram Credit Services and Delaware Art Museum.

         Thierry Dassault has served as a Director since April 2002. He
currently serves as the Chairman and Chief Executive Officer of Dassault
Multimedia, a venture capital company that holds investments in companies such
as Infogrames, Hi-Media, Net2one and Welcome Real-time, in which Mr. Dassault
also serves as Director. Prior to that, from 1985 to 1993, he was Producer
Partner at Claude Delon Productions company. From 1982 to 1984, he was General
Manager in an alarm systems Company, and from 1979 to 1981, he was Director of
the Equipements Civils pour l'Electronique Serge Dassault company in Brazil. Mr
Dassault serves on the supervisory board of Gemplus SA since 1998 and as
Chairman of the supervisory board of Gemplus SA since March 2001. He serves on
the boards of different companies, including Cdandco, Chapitre.com, Dassault
Multimedia, FCC and SERF (BFM), Gaumont, Groupe Industriel Marcel Dassault and
IXO. He also serves on the supervisory board of Societe du Journal des Finances.

         Tony Engberg has served as our Senior Vice President, Chief Technology
Officer for Research and Development since January 2002. Mr. Engberg joined
Gemplus in October 2000. Prior to joining our company, Mr. Engberg worked for 23
years at Hewlett-Packard, where he held a number of positions, including
software engineer, R&D Laboratory Manager, Group R&D Manager, and General
Manager. Mr. Engberg holds a Bachelor of Arts and a Master in Business and
Administration from the University of Chicago, Illinois.

         Yves Guillaumot has served as our Vice President, Interim Chief
Financial Officer since March 2002. Mr. Guillaumot joined our company in July
1998 as Corporate Controller. He was promoted to Vice President in March 2001.
Prior to joining Gemplus, from 1987 to 1998, Mr. Guillaumot held various
financial management positions with Digital Equipment, including as Director of
Finance for Southern Europe, Middle East and Africa from 1997 to 1998 and
Controller of the PC division from 1996 to 1997. Prior to 1996, Mr. Guillaumot
held positions with Arthur Andersen and Arthur Young. Mr. Guillaumot graduated
from the Ecole de Hautes Etudes Commerciales du Nord in France.

         Abel G. Halpern has served as a Director since December 2001 and served
as Vice-Chairman of the Board of Directors from February 2000 to December 2001.
Mr. Halpern is a Partner and Managing Director with Texas Pacific Group. Based
in London since 1996, Mr. Halpern is Co-Head of TPG's European private equity
and investment activities and heads the European Technology and European Branded
Consumer Goods practices. Prior to London, Mr. Halpern was based in Mexico City,
focusing on Latin American investments. Prior to joining TPG, Mr. Halpern was a
management and strategy consultant with Bain & Company, an international
strategic consultancy firm. Mr. Halpern received a Masters of Business
Administration from Harvard University and a Bachelor of Arts degree magna cum
laude and with distinction from Yale University. Mr. Halpern's serves as
Chairman of the Board of Directors of Bally International and serves on the
Executive Committee of the Boards of Directors of Ducati Motor Holding and on
the Board of Directors of Piaggio, Landis & Gyr Communications and Yazam.com

         Stephen Juge has served as our Executive Vice President, General
Counsel since November 2000. Prior to joining Gemplus, Mr. Juge served from
January to October 2000 as Senior Vice President and General Counsel of Walt
Disney Europe. From April 1996 to January 2000, Mr. Juge served as Senior Vice
President and European Legal Counsel of The Walt Disney Company (Europe) S.A.
From November 1987 to March 1996, Mr. Juge served as Vice President and General
Counsel of Disneyland Paris (Euro Disney S.C.A.). Prior to joining Disneyland
Paris, Mr. Juge was an associate at the international law firm of Coudert Freres
in Paris between 1981 and 1987. Mr. Juge attended Louisiana State University,
received a Juris Doctor degree from the Tulane University School of Law and
studied comparative law at the University of Oxford on a Marshall Foundation
Fellowship.

         Kheng Nam Lee has served as a Director since October 2000. Mr. Lee is
the President of Vertex Group and of Vickers Capital. Prior to serving as
President of the Vertex Group, Mr. Lee managed several venture capital funds of
the Vertex Group since 1988. Prior to joining the Vertex Group, Mr. Lee served
as head of strategic and venture capital investments at the Singapore
Technologies Group. He holds a Bachelor of Science degree in Mechanical
Engineering (with First Class honors) from Queen's University, Canada, and a
Master of Science in Operations Research and Systems Analysis (with distinction)
from the U.S. Naval Postgraduate School. Mr. Lee serves on the Boards of
Directors of Creative Technology Ltd., GRIC Communications Inc., Activcard S.A.,
ENBA Public Limited Company and Innomedia Pte. Ltd.

         Dr. Peter Kraljic has served as a Director since April 2002. He
currently serves as a senior director with McKinsey & Company, Inc., Dusseldorf,
Germany. Dr. Kraljic joined McKinsey in 1970 and has worked extensively on
strategic, organizational, operational and restructuring programs for industrial
companies in Germany, Austria, France as well as in Central and Eastern Europe.
From 1993 to 1998, he was responsible for McKinsey's activities in France as
Directeur General. Prior to joining McKinsey, Dr. Kraljic worked as researcher
in La Continentale Nucleaire, Luxembourg, as well as for the Welding Institute
Ljubljana, Slovenia. Dr. Kraljic holds a degree in metallurgy from the
University of Ljubljana, a Doctorate from the Technical University Hanover and a
Masters in Business Administration from INSEAD, Fontainebleau, France. Dr.
Kraljic serves on the supervisory board of the Wolfsburg AG association and of
the IEDC Bled Management School.

         Didier Lachaud has served as our Executive Vice President, Human
Resources since September 1997. Prior to joining Gemplus, Mr. Lachaud served as
Corporate Human Resources Manager at Fives-Lille from September 1995 to August
1997. Prior to August 1997, Mr. Lachaud held several senior management positions
at Air Liquide from September 1990 and served as Personnel Manager at
Schlumberger (now SchlumbergerSema) from 1985. Mr. Lachaud holds a Degree from
the Institut d'Etudes Politiques de Paris.

         Dr. Marc Lassus, one of our founders, has served as a Director since
February 2000 and as Chairman of the Board of Directors from February 2000 to
December 2001. Dr. Lassus was a member of the supervisory board of Gemplus S.A.
from 1996 to January 2002, and served as Chairman of the supervisory board of
Gemplus S.A. from April 1999 to January 2002. Prior to founding Gemplus, Dr.
Lassus served as General Manager of the Microcomputers and Memories Division at
Thomson Semiconductors from 1985 to 1988. From 1980 to 1985, Dr. Lassus served
as General Manager of Matra-Harris Semiconductors in Nantes, France. Prior to
1980, Dr. Lassus held various management positions at Motorola Semiconductors in
the US , Scotland and France, in the Integrated Circuits Division. Dr. Lassus
holds a Bachelors Degree in Physics from Lyon's Institute of Applied Sciences,
France, and a Ph.D. in Solid State Physics from Lyon's University. Dr. Lassus
serves on the Board of Directors of Ingenico, among other board positions.

         Daniel Le Gal has served as a Director since April 2002. He currently
serves as a partner and Managing Director of Finadvance. One of our co-founders
in 1988, Mr. Le Gal served as our Chief Executive Officer from 1997 to 1999,
prior to which he held several management positions in Sales, Marketing and
Strategic Planning for our company. Prior to founding our company, From 1982 to
1987, Mr. Le Gal served as Marketing Manager in the Telecommunication Unit of
Thomson Semiconductors. From 1975 to 1982, he held various positions at France
Telecom. Daniel Le Gal holds an Engineering Degree from Supelec, in Paris,
France.

         Gilles Lisimaque has served as a director since April 2002. One of our
co-founders, Mr. Lisimaque currently serves as a Senior Vice President in our
company in our U.S. operations. From 1985 until 1988, he held a position in
technical marketing at Thomson Semiconductors. Prior to joining Thomson, Mr.
Lisimaque held information management positions with Saint Gobain Pont a Mousson
and Rousset S.A. Mr. Lisimaque holds an engineering degree from L'Ecole des Arts
et Metiers in Lille. Mr. Lisimaque is the managing member of GemAussi LLC and is
the trustee of G&M Charitable Remaining Unitrust.

         Dr. Gilles Michel has served as President and General Manager of our
Financial and Security Services Business Unit since May 2001. Prior to May 2001,
Dr. Michel served as Executive Vice President, Financial Services from November
2000 and as Senior Vice President, Strategy, Mergers and Acquisitions from
February 2000. Prior to joining Gemplus, Dr. Michel served as Vice President,
Regional Business Segment (North and South America) at Schlumberger (now
SchlumbergerSema) from September 1999 to January 2000. Prior to September 1999,
Dr. Michel held various senior management positions at Schlumberger, including
Vice President, Marketing and Vice President, Engineering and Manufacturing. Dr.
Michel holds a Degree in Physics from the Ecole Superieure de Physique et de
Chimie, Paris, France, and a Ph.D. in Computer Science from the University of
Paris VI.

         William S. Price III has served as a Director since February 2000. Mr.
Price was a founding partner of TPG in 1992. Prior to forming TPG, Mr. Price was
Vice President of Strategic Planning and Business Development for General
Electric Capital Corporation. From 1985 to 1991, Mr. Price was employed by the
management consulting firm of Bain & Company, attaining partnership status and
acting as co-head of the Financial Services Practice. Prior to 1985, Mr. Price
was employed as an associate specializing in corporate securities transactions
with the law firm of Gibson, Dunn & Crutcher LLP. Mr. Price is a member of the
California Bar and graduated with honors in 1981 from the Boalt Hall School of
Law at the University of California, Berkeley. He is a 1978 Phi Beta Kappa
graduate of Stanford University. Mr. Price serves on the Boards of Directors of
Continental Airlines, Del Monte Foods, Denbury Resources, Belden & Blake, Zilog,
Verado Holdings, Advanced Telecom Group, Bally, Dovebid, Petco Animal Supplies
and Findexa.

         Jacques Seneca has served as our Executive Vice President, General
Manager GemVentures Services Unit since September 1, 2001. Mr Seneca joined
Gemplus in 1989 as Project Manager. He has held several management positions as
Products Department Manager, General Manager for Sales and Manufacturing
Operations in Germany, General Manager for the Telecom Business Division, and as
Executive Vice President for Gemplus Marketing & Technology. Prior to joining
our company, he worked with ST-Microelectronics where he moved from
Manufacturing to Marketing positions and then led the business development for
discrete components in Asia. Mr Seneca holds a Bachelors degree from ENSAM and a
Business Administration degree from IAE of Aix-en-Provence in France.

         Ziad Takieddine has served as a Director since April 2002. He currently
serves as the President of Middle East and Gulf Resources, an international
consulting firm he founded to provide assistance to European industrial groups
in their export operations to the Middle East and Gulf States. Prior to founding
this firm, Mr. Takieddine headed SAPSI Sa, a company established to build and
develop a ski resort, Isola 2000, in the South of France pursuant to a
concession from the French Government. Mr.Takieddine received a Bachelors in
Economics from the American University of Beirut and a Masters in Economics from
Reading University in the United Kingdom.

         Philippe Vallee has served as our Executive Vice President, General
Manager of our Telecom Business Unit since February 2002. Prior to that date, he
was Vice-President of the Marketing Telecom Business Unit from May 2001 to
February 2002. He was previously based in Singapore as Executive Vice-President
of Gemplus Technologies Asia, and headed the marketing and development
activities and professional services operations of Gemplus Asia Pacific. Mr.
Vallee has 10 years of experience in the smart card industry and has served in
various marketing, product management and sales capacities in our company. Prior
to joining our company, Mr. Vallee served as product manager on the first
generation of GSM mobile phones for Matra Communications (now Lagardere Group)
in France. Mr. Vallee has a Bachelor's degree in Electronics and
Telecommunications Engineering and a Masters of Science in Marketing Management
from ESSEC.

         Jacques Villieres has served as our Executive Vice President, Corporate
Manufacturing since 1999. From 1996 to 1999, Mr. Jacques Villieres served as
Gemplus Cuernavaca Plant Manager in Mexico. Prior to joining Gemplus, Mr.
Villieres was the General Manager of Microelectronics Techway from 1990 to 1996.
From 1972 to 1990, Mr. Villieres held several management positions as General
Manager at Cartier System, General Manager of a production unit at Thomson SCA,
Technical Director at Matra Harris Semiconductors and Production Manager at
Motorola. Mr. Villieres holds a Degree in Engineering and a Masters Degree in
Industrial Electronics from INSA of Toulouse in France.


Compensation of Directors and Principal Executive Officers

         Aggregate compensation paid by us to our directors and executive
officers as a group, consisting of thirteen persons, for the fiscal year ended
December 31, 2001 was approximately (euro)7.4 million. This 2001 compensation
expense includes compensation paid to Antonio Perez, our former Chief Executive
Officer who resigned in December 2001, to Dr. Lassus who ceased serving as our
Chairman of the Board in December 2001 and who remains a Director of our
company, to Bertrand Cambou and Remy de Tonnac, who resigned in July 2001, and
to Steven Gomo, Phil Faraci, William Lloyd and Frederic Spagnou, all of whom
resigned in February and March 2002. Total compensation excludes amounts related
to the forgiveness of loans we made to certain of our executive officers in 2000
and 2001. For a discussion of these loans, see "Item 7. Major Shareholders and
Related Party Transactions--Related Party Transactions." A portion of the total
compensation paid in fiscal year 2001, in the amount of (euro)814,000, reflects
compensation that was paid with respect to services rendered by officers and
directors in fiscal year 2000.

         The following table presents the compensation paid in 2001 to our
mandataires sociaux, which include our Chief Executive Officer and certain
directors of our company:

       Name                                  Total amount in
                                                  euros
                                          --------------------


Antonio Perez                                      1,188,083
Bertrand Cambou                                      692,361
Kheng Nam Lee                                         81,250
Marc Lassus                                        1,147,221
Randy Christofferson                                  81,250
Ronald Mackintosh                                     50,000

                                          --------------------

Total                                              3,240,166


         Beginning in 2002, all of our directors will receive (euro)40,000per
year as compensation in connection with services performed in their capacity as
members of our Board and each chairman of a board committee will receive an
additional one-time payment of (euro)10,000 for their services in that capacity.
Our current Chairman of the board, Dr. Von Falkenhausen, will receive annual
compensation of (euro)300,000 to be paid on a pro rata basis beginning January
10, 2002, as well as (euro)75,000 annually to be paid on a pro rata basis for
services rendered as interim Chairman of the board from December 19, 2001
through January 9, 2002.

         During 2001, our company issued to one of our employees who later
became one of our executive officers 50,000 options to subscribe our ordinary
shares, all of which were still outstanding as of March 31, 2002. None of our
other directors or executive officers received compensation in the form of stock
options in 2001. In 2000, our company issued to our directors and executive
officers a total of 23,050,000 options to subscribe our ordinary shares. As of
December 31, 2001, 25,422,500 options were outstanding, out of which 6,387,500
options were exercisable.

         In addition, since its formation, Gemplus SCA, which was transformed
into Gemplus S.A., our main French subsidiary, has issued to our directors and
executive officers options to purchase Gemplus S.A. ordinary shares pursuant to
its stock option plans, of which 221,203 were outstanding as of December 31,
2001. We are currently offering to the officers and directors who hold the stock
options or the ordinary shares purchased pursuant to these options the
possibility to contribute these options or shares to our capital in exchange for
11,060,150 stock options or shares of our capital stock (after giving effect to
our fifty-to-one share split).

         In 2000, we granted a total of 20,495,786 free shares and 40,991,572
stock options to Mr. Antonio Perez, our former Chief Executive Officer, and Dr.
Marc Lassus, our former Chairman of the Board. All of the stock options have
since been exercised. See "Item 7. Major Shareholders and Related Party
Transactions--Related Party Transactions." Our stock compensation benefit of
(euro)69.3 million in 2001 compared to stock compensation expense of (euro)229.7
million in 2000 under U.S. GAAP was mainly attributable to these issuances. See
"Item 5. Operating and Financial Review and Prospects--U.S. GAAP
Reconciliation."

         The aggregate amount we accrued on a consolidated basis during the year
ended December 31, 2001 to provide pension, retirement and similar benefits for
our executive officers was (euro)78,000.

Stock Options

In General

         On July 27, 2000, we adopted a stock option plan that provides for the
grant of stock options to any employees who are employed by our company or its
affiliates. The term of the options granted under the plan will be determined by
the notice of grant, but will not exceed ten years from the date of the grant of
the option. No options may be granted under the plan after May 31, 2003 .

         The maximum number of shares of common stock that may be issued under
the stock option plan is 50,000,000. As of December 31, 2001, 44,508,691 stock
options had been granted under our stock option plan and 35,987,358 stock
options were outstanding. Our employees are also currently beneficiaries under
the stock option plans previously adopted for Gemplus S.A., our main operating
subsidiary. Our employees may contribute, from time to time, to our company the
stock options or the shares of Gemplus S.A. received upon exercise of these
options in exchange for options or shares of our company. As of December 31,
2001, 661,005 shares of Gemplus S.A. subject to options are currently
outstanding under the old plans. Certain employees of Gemplus S.A. have elected
to receive stock options of our company in exchange for their Gemplus S.A. stock
options. As of December 31, 2001, 5,558,350 options resulting from the
conversion of Gemplus S.A. stock options were outstanding. If all the Gemplus
S.A. stock options outstanding as of December 31, 2001were exercised or
exchanged for options of our company and if all the shares resulting from the
exercise of these options were contributed to our company, the beneficiaries
would be the holders of 33,050,250 of our shares.

         The terms and conditions of Gemplus S.A.'s stock option plans are
mostly consistent with those of our stock option plan as described below, except
for the method of determination of the option exercise price and the vesting
period. The exercise price is determined at the time of issuance of the options
based on the latest known transactions effected by the shareholders of Gemplus
S.A. One-third of the options vest each year over a three-year term for French
beneficiaries under the Gemplus S.A. stock option plan, while twenty-five
percent of the options vest each year over a four-year term for non-French
beneficiaries, except for the Gemplus S.A. 1999 Stock Option Plan, in which
fifty percent of the options vest each year over a two-year period. Our
employees may contribute, from time to time, to our company the stock options or
the shares of Gemplus S.A. received upon exercise of these options in exchange
for options or shares of our company.

Plan Administration

         The stock option plans are administered by the Stock Administration
Committee that reports plan activities to the Compensation Committee of our
board of directors on a quarterly basis. Under the option plan, the Stock
Administration Committee has the authority to determine, in its discretion, the
persons to whom options are granted; the number of shares of common stock
underlying each option; the vesting schedule and conditions under which the
options may be exercised, including any lockup periods; and any other matter
necessary or desirable for the administration of the option plan.

Vesting Period

         Unless otherwise decided by the Stock Administration Committee, the
vesting period to options granted under the option plan will be four years, with
25% of the granted options vesting in each year, exercisable upon each
anniversary of the date of grant.

Option Exercise Price

         The plan requires that the exercise price for the options be 100% of
the fair market value of the underlying share of common stock on the date of
grant as determined by the Compensation Committee. Because our shares are listed
on a stock exchange, the exercise price may not be less than 100% of the value
of the underlying shares on the relevant stock exchange on the date of grant,
subject to certain exceptions pursuant to local regulations.

         On April 17, 2002, our board of directors voted to approve a plan
whereby our employees will be offered an option to cancel stock options
previously granted under plans adopted in 2000 and receive reissued options at a
new exercise price. The new options will be granted at least six months and one
day after the date of cancellation. The new exercise price will be the market
price of our shares on the date the new options are granted. Employees may opt
to cancel all or half of their stock options under this plan. This plan was
launched on May 23, 2002.

General Plan Provisions

         Share Counting. If any outstanding option expires, terminates or is
canceled for any reason, the shares of common stock subject to the unexercised
portion of such option will become available for future grants under the option
plan.

         Effect of Termination of Employment. If an option holder's employment
is terminated:

         (i)      for any reason other than the option holder's death or
                  disability, he or she may exercise options which were
                  exercisable at the time of the option holder's termination
                  within three months after such termination, and all other
                  options will expire at such time;

         (ii)     on account of the option holder's disability, he or she may
                  exercise options which were exercisable at the time of the
                  option holder's termination within twelve months after such
                  termination, and all other options will expire at such time;

         (iii)    on account of the death of the option holder, his or her
                  designated beneficiary may exercise options which were
                  exercisable at the time of the option holder's death within
                  six months following the option holder's death, and all other
                  options will expire at such time.

         In no case may an option be exercised after the expiration date
provided in an option holder's option grant agreement.

         Adjustments upon Changes in Capitalization. The option plan provides
for an adjustment in the number of shares of common stock available to be issued
under the plan, the number of shares subject to options and the exercise prices
of options upon changes in the capitalization of our company, including stock
subdivisions and reclassifications and stock splits or dividend payments.

         No Assignment or Transfer. During an option holder's lifetime, each
option granted to an option holder is exercisable only by him or her. No option
is transferable or assignable other than by will or the laws of descent and
distribution.

         Amendment. The Stock Administration Committee may at any time, with the
approval of the Compensation Committee, adapt the stock option plans to adjust
to or comply with applicable local legal, tax and accounting requirements.
However, any modification or adaptation that would impair the rights of an
option holder requires the prior consent of that option holder.

Senior Management Stock Option Plan

         In addition, on November 10, 2000 our shareholders authorized our board
of directors to increase our share capital and issue up to 60,000,000 shares to
directors and executive officers of our company (including any of its
subsidiaries or affiliates) in the form of stock options or, except in the case
of directors, in the form of free shares, in each case on terms and conditions
determined by our board of directors in its sole discretion. Our board of
directors may issue these stock options and free shares from time to time over a
five-year period from the date of publication of the shareholder resolution in
accordance with Luxembourg law. As of December 31, 2001, 26,110,000 stock
options had been granted to our directors and executive officers by our board of
directors pursuant to this shareholder authorization, and 25,422,500 stock
options were outstanding. The stock options issued by our board of directors
pursuant to this shareholder resolution are not subject to the terms and
conditions of our stock option plans.

         On April 17, 2002, our board of directors voted to approve a plan
whereby our senior management will be offered an option to cancel stock options
previously granted under plans adopted in 2000 and receive reissued options at a
new exercise price. The new options will be granted at least six months and one
day after the date of cancellation. The new exercise price will be the market
price of our shares on the date the new options are granted. Senior management
may opt to cancel all or half of their stock options under this plan. This plan
was launched on May 23, 2002.

Share Ownership

         As of December 31, 2001, Dr. Marc Lassus and members of his family may
be deemed to have beneficial ownership of 99,825,131 shares, which constitutes
approximately 15.7% of the shares outstanding. As of December 31, 2001,
beneficial ownership of 10,308,174 shares held by Vertex Investment
International (III) Inc. representing 1.6% of the shares outstanding may be
attributed to Mr. Kheng Nam Lee, who disclaims beneficial ownership of such
shares, and beneficial ownership of 159,305,600 shares held by Texas Pacific
Group representing 25.0% of the shares outstanding may be attributed to Messrs.
Bonderman, Halpern and Price, who disclaim beneficial ownership of such shares.
In addition, beneficial ownership of 28,300,000 shares, which constitutes
approximately 4.4% of the shares outstanding, held by the Group Dassault may be
attributed to Mr. Thierry Dassault, who disclaims beneficial ownership of such
shares. None of the other officers or directors is the beneficial owner of more
than 1% of our capital stock. See also "Item 7. Major Shareholders and Related
Party Transactions--Major Shareholders."

Employees

         The following table sets forth the number of employees and a breakdown
of employees by main category of activity and geographic location as of the end
of each year in the three-year period ended December 31, 2001:

                                                           December 31,
                                                 -------------------------------
                                                  1999         2000        2001
                                                  ----         ----        ----
Number of employees(1)........................   5,877        7,870       6,721
Category of activity
     Manufacturing............................   3,491        4,312       3,745
     Research and Development.................     660         993         819
     Sales and Marketing......................     920        1,353        897
     Services.................................     152         270         309
     General and Administrative...............     654         942         951

Geographic location
     France...................................   2,413        2,922       2,778
     Rest of Europe...........................   1,464        2,067       1,340
     Asia.....................................   1,022        1,617       1,562
     Americas.................................     978        1,264       1,041



(1)  Includes the average number of temporary employees in each period, which
     amounted to approximately 512 employees in 1999, 528 employees in 2000 and
     596 in 2001.


         Following the announcement of our restructuring program on May 2, 2001,
the workers committee of our main operating subsidiary, Gemplus S.A., commenced
an "alert" procedure under French labor law based upon alleged concerns about
the financial situation of Gemplus S.A. An accounting firm appointed by the
workers committee issued a report about these alleged concerns. Management of
Gemplus S.A. believes that these alleged concerns were unfounded and that
management provided sufficient answers to them. The "alert" procedure was
completed with a review of the report at a Gemplus S.A. shareholders meeting on
May 28, 2002.

         On February 6, 2002, we announced plans for a further restructuring of
our operations and production and procurement processes in order to improve our
financial competitiveness. These plans call for targeted savings of (euro)100
million per year and a one-time restructuring charge of (euro)65 million and
include proposed staff reductions of approximately 1,140 positions worldwide in
connection with this restructuring. This restructuring program affects all areas
within the company (Manufacturing, Selling, Marketing, Research and Development
and General and Administrative functions). The overall reduction of the
workforce is broken down as follows: (i) manufacturing organization: 550
employees, (ii) general and administrative functions: 245 employees, (iii)
selling and marketing organization: 215 employees, and (iv) research and
development organization: 130 employees. The majority of employees terminated
are located in France, Germany, the USA and the UK. As of March 31, 2002, 250
employees were terminated on a worldwide basis, with primarily the exception of
France and Germany, in which we must carry out consultations with employee
representatives before implementing workforce reductions. See "Item 5. Operating
and Financial Review and Prospects--Results of Operations--Recent Developments."
In connection with this plan, on February 14, 2002, Gemplus S.A. initiated the
process of consultation with its workers committee and union representatives
regarding a plan for the reduction of approximately 416 positions in France. The
first phase of this consultation process was completed on March 22, 2002, and
the second phase began on May 6, 2002 and was completed on June 5, 2002, in
accordance with French procedures. Following the end of the second phase, the
content of the plan will be determined precisely and communicated to the
employees. Management of Gemplus S.A. believes that this consultation process
with its employee representatives is continuing in a satisfactory and
constructive manner and expects that it will be completed by the fourth quarter
of this year.

         We believe that our relations with our employees and employee
representatives are satisfactory.

         Under French law, all employers of more than 20 employees in France are
required to implement a 35-hour work week. In February 1999, we entered into an
agreement to implement the 35-hour work week mandated by the French law.
Although the work week is shorter on average and we have not reduced salaries,
the agreement allows us greater flexibility than before to organize the use of
employee time. For example, employees can work more than 35 hours in some weeks,
but in exchange we are required to reduce the number of hours worked in other
weeks to ensure that they do not work more than 35 hours per week on an annual
basis. We believe this added flexibility partly compensates for the reduction in
hours and that the 35-hour week should not have a material adverse effect on our
financial condition.

Item 7.  Major Shareholders and Related Party Transactions

                               MAJOR SHAREHOLDERS

         The capital stock of our company consists of ordinary shares, no par
value, which are issued in registered form. Under our articles of incorporation,
each ordinary share represents one vote, except with respect to the election of
Board members, for which a system of cumulative voting is initiated. See "Item
10 - Additional Information Articles of Incorporation - Voting rights". Major
shareholders do not have different voting rights.

         The following table sets forth information with respect to the
beneficial ownership of our shares as of December 31, 2001 by each person who is
known by us to own beneficially more than 5% of our outstanding shares.

         Beneficial ownership is determined in accordance with the rules of the
U.S. Securities and Exchange Commission, based on factors including voting and
investment power with respect to the shares. Shares subject to options currently
exercisable, or exercisable within 60 days of the date of this Annual Report,
are deemed outstanding for purposes of computing the percentage of shares owned
by the person holding such options, but are not deemed outstanding for purposes
of computing the percentage of shares owned by any other person. Unless
otherwise indicated in the footnotes to the table, the following people have
sole voting and sole investment control with respect to the shares they
beneficially own.

         The percent of beneficial ownership for each shareholder is based on
635,282,297 (1) shares outstanding as of December 31, 2001.

                                                    Beneficial Ownership
                                                    --------------------



                    Name of Beneficial Owner         Number         Percentage
         ----------------------------------------   -----------     ----------
         Dr. Marc Lassus(2)......................   99,825,131       15.7%
         Quandt family(3)........................   115,508,200      18.2%
         Texas Pacific Group(4)..................   159,305,600      25.1%
         Treasury shares(5)......................   35,524,586        5.6%

------------------
(1)  Excludes 6,114,200 ordinary shares issuable upon the contribution of shares
     of Gemplus S.A. held by our employees.

(2)  Includes 17,114,000 shares held of record by Sormiou Holdings and 650
     shares held of record by Gilles Lassus. Dr. Marc Lassus has served as a
     member of the board of directors of Gemplus S.A. from 1996 to January 2002,
     and served as Chairman of the board of directors of Gemplus S.A. from April
     1999 to January 2002. He served as Chairman of our board of directors from
     February 2000 to December 2001, and remains a director of our company.

(3)  Includes 8,756,000 shares held of record by Johanna Quandt, 4,750,000
     shares held of record by Stefan Quandt and 102,002,200 shares held of
     record by Acton GMBH & Co. Vermogensverwaltungs KG, a company controlled by
     individual members of the Quandt family. Mr. Stefan Quandt was a member of
     the board of directors of Gemplus S.A. from July 1999 to February 2000, and
     of our board of directors from February to November 2000. On May 2, 2002,
     the Quandt family reorganized their holdings of our shares. As of that
     date, 100 shares were held of record by Stefan Quandt and 100 shares were
     held of record by Johanna Quandt. In addition, 33,236,428 shares were held
     by Acton 1. Beteiligungs GmbH, 35,700,770 shares by Acton 2. Beteiligungs
     GmbH and 46,570,802 shares by Acton 3. Beteiligungs GmbH, all companies
     controlled by members of the Quandt family.

(4)  Texas Pacific Group is a group of investment funds founded by Messrs. David
     Bonderman, James G. Coulter and William S. Price III to pursue public and
     private investment opportunities through a variety of methods, including
     leveraged buyouts, recapitalizations, joint ventures, restructurings and
     strategic public securities investments. Messrs. Bonderman, Coulter and
     Price are the shareholders of the general partner of the Texas Pacific
     Group funds. Each of Messrs. Bonderman, Coulter and Price disclaims
     beneficial ownership of the shares of our company held by Texas Pacific
     Group. Messrs. Bonderman and Price are also directors of our company. Mr.
     Abel Halpern, a managing director of Texas Pacific Group, is also a
     director of our company.

(5)  Including 30,743,679 shares held by an indirect subsidiary of the Company,
     Zenzus Holdings Ltd., following the transfer of shares made by our former
     Chief executive officer in 2001, and 4,780,907 shares purchased by the
     Company, pursuant to the stock repurchase program implemented in 2001.



         As of May 15, 2002, there were 2,931,392 of our ADSs outstanding,
representing 5,862,784 ordinary shares, or less than 1%, of our total shares
outstanding. There are currently 25 record holders of our ADSs of which 24 have
registered addresses in the United States. In addition, as of May 15, 2002,
159,385,019, or approximately 25%, of our ordinary shares were held by 10 record
holders with registered addresses in the United States.

         See also "Item 6. Directors, Senior Management and Employees--Share
Ownership."

                           RELATED PARTY TRANSACTIONS

         We have engaged in the following transactions with our directors,
senior executives and shareholders.

         During 2000, we entered into loan agreements with certain of our senior
executives. One of our indirect subsidiaries, Zenzus Holdings Ltd., extended
these loans to Mr. Antonio Perez, our former Chief Executive Officer, and Dr.
Marc Lassus, our former Chairman of the Board of Directors, to allow them to
exercise stock options granted to them in 2000 and to allow Mr. Perez to pay
taxes due in connection with the grant to him of free shares. We granted to each
of Mr. Perez and Dr. Lassus 10,247,893 free shares and 20,495,786 stock options
with an exercise price of (euro)3.51 per share in 2000. These loans were
partially reimbursed in 2001, as discussed in Note 31 to our audited
consolidated financial statements. In December 2001, we recorded severance
expenses in the amount of (euro)25,691,000 relating to Mr. Perez and to Dr.
Lassus in connection with their resignation as Chief Executive Officer and
cessation as Chairman of the Board of Directors, respectively, as described in
Note 31 to our audited consolidated financial statements.

         Pursuant to the terms of the loans granted to Messrs. Perez and Lassus
in 2000, our relevant indirect subsidiary agreed in 2001 to arrange for the
interest on these loans to be forgiven starting July 1, 2001, and to assume any
income tax resulting from this forgiveness. As described in Note 13 to our
audited consolidated financial statements, we recorded in 2001 a compensation
expense of (euro)3,585,000 corresponding to the income tax resulting from the
forgiveness of interest.

         During 2001, we entered into an agreement with a service company whose
Chief Executive Officer, Mr. Ronald Mackintosh, also served on our Board of
Directors. Mr. Mackintosh currently serves as our Chief Executive Officer and
has resigned as Chief Executive Officer of the service company. He remains a
member of its board of directors. This company was appointed to provide an
independent review of our management, information, organization and business
systems as well as identification and recommendation of remedial action. The
total cost recorded in our consolidated statement of income in 2001 for this
arrangement amounted to (euro)906,000. We continue to use the services of this
company.

         During 2001, we reimbursed our former Chairman of the Board, Dr.
Lassus, funds that he had advanced in a project involving a number of
consultants who provided smart card and related business services, including
services linked to card operating systems and card management systems. The
funds, in the amount of (euro)160,000 (GBP 100,000), were reimbursed to Dr.
Lassus in November 2001.

         During 2000, we granted loans to Steven Gomo and Phil Faraci, two of
our former executive officers. Pursuant to their employment agreements, each
obtained a $300,000 interest-free loan to be forgiven in 24 monthly installments
effective from the date of their employment. Upon their resignation in 2002, we
forgave the entire loan balances that were still outstanding at the time they
left our company. As a result, we recorded (euro) 6,000 in compensation expense
in 2000, (euro) 150,000 in compensation expense in 2001 and (euro) 144,000 in
compensation expense in 2002.

         In 2001, we provided an interest bearing loan in the amount of
(euro)122,000 to Didier Lachaud, one of our executive officers, to cover certain
advance income tax payments he was required to make in France by acceleration
upon his relocation from our offices in France to those in Switzerland, in
accordance with our policy regarding expatriation assignments. As of March 31,
2002, no repayment has occurred and the outstanding balance is recorded in our
consolidated balance sheet for (euro)61,000 under current assets and
(euro)61,000 under non-current assets.

         In 2001, we provided an interest bearing loan in the amount of
(euro)43,000 to Philippe Vallee, one of our executive officers, to cover certain
advance income tax payments he was required to make in Singapore by acceleration
upon his relocation from our offices in Singapore to those in France, in
accordance with our policy regarding expatriation assignments. This loan was
repaid in the amount of (euro)25,000 in January 2002, the outstanding balance
being expected to be repaid in July 2002.

Item 8.  Financial Information

                    AUDITED CONSOLIDATED FINANCIAL STATEMENTS

         See "Item 18.  Financial Statements" and pages F-1 through F-54.

                           OTHER FINANCIAL INFORMATION

Legal Proceedings

         We are involved in litigation from time to time in the ordinary course
of business. We believe that none of the ordinary course litigations in which we
are currently involved will have a material adverse effect on our results of
operations, liquidity or financial condition.

         In February 1996, Humetrix Inc. brought an action against our company,
among others, in the United States District Court in San Diego, California,
relating to an alleged agreement to jointly market several products in the US
health care market. The complaint alleged that we had breached the alleged
agreement and had intentionally interfered with third party contractual
relations. In February 1999, the District Court rendered a decision in favor of
Humetrix and ordered us to pay US$ 15 million ((euro)17.0 million) and another
individual defendant to pay US$ 2.5 million ((euro)2.8 million). The decision
against the individual defendant was later vacated and further proceedings were
ordered by the court. We appealed the judgment. In March 2000, the District
Court dismissed the claim against the individual defendant with prejudice. Oral
arguments on the appeal were heard on March 6, 2001 before the United States
Court of Appeals for the Ninth Circuit. On October 4, 2001, the Court of Appeals
rendered its decision, affirming the judgment of the District Court against us
in the amount of US$ 15.0 million, with interest to be determined. As a result
of this judgment, we recorded a charge of (euro)18.1 million, adversely
impacting our 2001 operating results and resulting in a total current liability
(including a previously existing provision) of (euro)19.4 million in the balance
sheet as at December 31, 2001. Our petition seeking a rehearing before the Court
of Appeals was denied on November 20, 2001 and therefore the judgement is final.

Dividend Policy

         We have not declared any dividends on our ordinary shares since our
inception, and do not anticipate paying dividends in the foreseeable future. We
currently expect to retain all future earnings, if any, for use in the operation
and expansion of our business.

         We may declare dividends out of funds or reserves legally available for
distributions upon the recommendation of our board of directors and the approval
of our shareholders at their annual general meeting. In general, under
Luxembourg law, only realized profits or distributable reserves (including
profits that are carried forward) determined in accordance with Luxembourg
accounting principles are available for distribution as dividends. Luxembourg
law requires us to allocate 5% of our annual net profits to a legal reserve. We
must make this annual allocation until the legal reserve reaches 10% of our
subscribed capital.

         We discuss certain aspects of Luxembourg and U.S. taxation of dividends
in "Item 10. Additional Information--Taxation" in this Annual Report.


                               SIGNIFICANT CHANGES

         For a discussion of recent developments, see "Item 5. Operating and
Financial Review and Prospects--Results of Operations--Recent Developments."

Item 9.  The Offer and Listing

                            NATURE OF TRADING MARKET

         ADRs representing the ADSs have been issued by Citibank N.A. (the
"Depositary"), as depositary for the ADSs. Our ADSs have been traded on the
Nasdaq National Market and our ordinary shares have been traded on the Premier
Marche of Euronext Paris since December 11, 2000.

         The following table sets forth, for the periods indicated, the reported
high and low sales prices for the ordinary shares and ADSs from December 11,
2000, the first day on which our ordinary shares traded on the Premier Marche
and our ADSs traded on the Nasdaq National Market. See "Item 3--Key
Information--Exchange Rate Information" with respect to rates of exchange
between the dollar and the euro applicable during the periods set forth below.

<TABLE>
<CAPTION>


        Monthly Highs and Lows               Euronext Paris                     Nasdaq National Market
                                          (euro) per share                           U.S.$ per ADS
                                ---------------------------------           --------------------------------
                                        High                Low                High                Low
                                ---------------------------------           --------------------------------
<S>                              <C>                 <C>                    <C>                <C>
2000                                      High                Low                High                Low
     From December 11, 2000      (euro)   9.99       (euro)   6.55           $   18.88          $      12.00
2001
     First Quarter               (euro)   9.90       (euro)   5.13           $   17.88          $      9.25
     Second Quarter                       6.00                3.20               10.19                 5.80
     Third Quarter                        3.60                2.42               6.18                  4.35
     Fourth Quarter                       3.86                1.93               6.90                  3.60
     December                             3.50                2.70               6.22                  4.60
2002
     January                     (euro)   3.08       (euro)   2.48           $   5.47           $      4.30
     February                             2.60                1.75               4.50                  3.25
     March                                2.27                1.78               3.92                  3.15
     April                                2.16                1.65               3.88                  2.97
     May                                  1.71                1.40               3.18                  2.63

</TABLE>


Trading on the Premier Marche

         General

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

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

         Premier Marche

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

         Euronext Paris places securities listed on the Premier Marche in one of
the two categories, depending on their trading volume. Our shares have been
placed in the category known as Continu, which includes the most actively traded
securities. The minimum yearly trading volume required for a security to be in
Continu is 2,500 trades.

         Euronext Paris automatically restricts trading in a security traded in
Continu on the Premier Marche if the quoted price of the security increases or
decreases beyond the specific price limits defined by its regulations. Trading
in a security is automatically restricted upon entry in the central order book
of an order likely to result in a trade being executed at a price varying by
more than 10 % from the last price determined in an auction or by more than 2 %
from the last traded price is automatically restricted. If the order that has
caused the restriction is not confirmed within the following minute, the trading
of this security resumes. If the order is cancelled, an auction is organized
after a call phase of four minutes, during which orders are entered in the
central order book but not executed. Euronext Paris may also suspend trading of
a security listed on the Premier Marche in other limited circumstances
(suspension de la cotation), in particular to prevent or halt disorderly market
conditions. In addition, in exceptional cases including, for example, in the
context of a takeover bid, the Conseil de Marches Financiers may also suspend
trading of the security concerned.

         Trades of securities listed on the Premier Marche are settled on a cash
basis on the third day following the trade. Market intermediaries are also
permitted to offer investors a deferred settlement service (service de reglement
differe) for a fee. The deferred settlement service is only available for trades
in securities that either (1) are a component of the SBF 120 Index or (2) have
both a total market capitalization of at least (euro)1 billion and a daily
average volume of trades of at least (euro)1 million. Investors can elect on the
determination date (date de liquidation), which is the fifth trading day before
the end of the month, either to settle by the last trading day of the month or
to pay an additional fee and postpone the settlement decision to the
determination date of the following month. Our shares are eligible for the
deferred settlement service.

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

Trading by our company in our own shares

         Under Luxembourg law, our company may not issue shares to itself, but
we may purchase our shares in limited cases. See "Item 10. Additional
Information. Articles of Incorporation."

Item 10.  Additional Information

                            ARTICLES OF INCORPORATION

         The following description summarizes several aspects of our articles of
incorporation and our share capital, which consists of ordinary shares only. A
copy of our articles of incorporation has been filed as an exhibit to this
Annual Report.

Organization and Register

         Gemplus International S.A. is a stock corporation organized under the
laws of the Grand Duchy of Luxembourg. It is registered with the Registrar of
Commerce in Luxembourg under RC No. B73145.

Objects and Purposes

         Article 3 of our articles of incorporation states that our objects are
to manufacture, purchase, sell and trade in all types of electrical, electronic,
or mechanical products and software and software services and all products,
components and materials that may be used in connection with such activities, as
well as to provide all services and act as general contractor for all projects
relating to or in connection with these activities. The articles further
authorize us to perform research and apply for, acquire, develop and license
patents, licenses, inventions, processes, brands and models related to our
purposes.

         The articles also authorize us to carry out all transactions pertaining
directly or indirectly to the acquiring of participating interests in any
enterprises in whatever form and the administration, management, control and
development of those participating interests, and in particular, we may use our
funds for the establishment, management, development and disposal of a portfolio
consisting of any securities and other financial investments and patents and
other intellectual property rights of whatever origin, and participate in the
creation, development and control of any enterprise, the acquisition, by way of
investment, subscription, underwriting or option, of securities and other
financial investments and patents and other intellectual property rights. We may
also sell, transfer, exchange or otherwise develop such securities and other
financial investments and patents and other intellectual property rights and
grant to other companies or individuals any support, loans, advances or
guarantees.

         Finally, we are authorized to carry out any commercial, industrial or
financial operations or any transactions in respect of real estate or movable
property, which we may deem useful to accomplish our purposes.

Directors

         Our articles of incorporation provide that in the case of a conflict of
interest of a director, the director must inform the board of directors of the
conflict, have a record of his statement included in the minutes of the meeting,
and refrain from deliberating and voting on the matter. At the following general
meeting, a special report shall be made on any transactions in which any of the
directors has had an interest conflicting with our own. Our articles of
incorporation provide that the age limit of directors is seventy (70) years.
There is no share ownership requirement for directors. See "Item 6. Directors,
Senior Management and Employees--Board of Directors" for additional information
about our board of directors.


Share Capital

         As of April 16, 2002, our authorized share capital is (euro)400
million, consisting of 2.0 billion shares with no par value. As of December 31,
2001, our subscribed capital was fixed at (euro)127,056,459 consisting of
635,282,297 shares with no par value. As of April 16, 2002, our subscribed
capital was fixed at (euro)127,268,389 consisting of 636,341,947 shares with no
par value.

         Our authorized share capital may be increased or reduced by resolution
passed with a two-thirds majority vote at a meeting of shareholders. Luxembourg
law provides that shareholders have preemptive rights to subscribe for any new
share issued by us for cash consideration.

         On November 10, 2000 our shareholders authorized our board of directors
to increase our share capital by a maximum amount of (euro)394 million and issue
up to 1.97 billion new shares on terms and conditions and at such times as it
deems appropriate, during a three-year period from the date of publication of
the minutes of the extraordinary general meeting, except for issues of shares
for any of the purposes listed below, which may occur within five years of this
date:

          (i)  the issuance of a maximum of 20 million shares in exchange for
               shares of Gemplus S.A. at a ratio of 50 shares of our company for
               1 share of Gemplus S.A.;

          (ii) the issuance of a maximum of 56,845,700 shares in exchange for
               shares of Gemplus S.A. to be issued under any of Gemplus S.A.'s
               stock option plans in existence on or prior to February 1, 2000
               at a ratio of 50 shares of our company for 1 share of Gemplus
               S.A., or with respect to options to be issued by us to subscribe
               for shares in our company on terms identical to those existing
               for options issued under any of these stock option plans against
               surrender or exchange of, or renunciation to, these stock options
               in the same amounts on an adjusted basis (subject to the
               applicable ratio);

         (iii) the issuance of a maximum of 50 million shares with respect to
               the options granted to the employees or officers of our company
               (including any of its subsidiaries or affiliates) in accordance
               with the stock option plans as from time to time adopted by the
               board of directors, subject to such further conditions as may be
               imposed by a general meeting of our shareholders; and

          (iv) the issuance of a maximum of 60 million shares without nominal
               value to senior management, board members and/or executives of
               our company (including any of its subsidiaries or affiliates) in
               the form of stock options or, except in the case of board
               members, in the form of free shares, on terms and conditions
               determined by the board of directors in its sole discretion. Upon
               any issues of free shares, we will be required to record an
               amount equal to the accounting par value of these shares in our
               shareholders' equity and deduct an equivalent amount from our
               realized profits or distributable reserves, which may limit our
               ability to pay dividends or make other distributions to our
               shareholders.

         Our shareholders have waived their preemptive subscription rights with
respect to any issuance of these authorized new shares.

         On December 5, 2000, our shareholders authorized our board of directors
to issue a maximum of 30 million shares to be sold in connection with our
initial public offering, with no pre-emptive subscription rights for existing
shareholders. On December 7, 2000, our board of directors resolved that up to 15
million shares be issued in connection with our initial public offering with no
pre-emptive subscription rights for existing shareholders. These 15 million
shares were subsequently issued in our initial public offering on December 13,
2000.

Form, Ownership and Transfer

         Our shares are issued only in registered form. Pursuant to Luxembourg
law, we keep a register of all of the holders of our registered shares.
Ownership of registered shares will be established by inscription in the
register and confirmations of these inscriptions are issued to our shareholders
upon request. We may appoint registrars in different jurisdictions, each of whom
will maintain a separate register for the shares entered in each of these
registers. Holders of our shares may elect to be entered into one of these
registers and to transfer their shares from one register to another. We
currently have no separate registers other than our Luxembourg share register.

         The transfer of our shares is governed by Luxembourg law and our
articles of incorporation. Transfers of our shares are carried out by means of a
declaration of transfer entered into the register, dated and signed by the
transferor and the transferee or by their duly authorized representatives.
Transfers will be accepted and entered into the register by presentation of
correspondence or other documents recording the agreement between the transferor
and the transferee.

Disclosure of Interests

         Under Luxembourg law, a shareholder of a Luxembourg company, the shares
of which are listed on an European Union stock exchange, is required to disclose
the percentage of votes it holds to the company and the Commission de
Surveillance du Secteur Financier within seven calendar days from the date the
shareholder knows, or should have known, that its percentage of votes equals,
exceeds or falls below 10%, 20%, 33.33%, 50% or 66.66% of the total number of
votes of the company. The shareholder must include in its calculation all voting
rights held directly or indirectly, or controlled by it. Failure to comply with
these rules may subject the shareholder to criminal sanctions and suspension of
voting rights until this disclosure is made.

         In addition, under our articles of incorporation, any person that
acquires or disposes of a number of shares (or other securities representing our
shares, including ADSs) that results in this person holding voting rights that
reach or exceed 2% or any multiple of 2% of the total number of votes of our
company is required to notify us of this transaction within eight calendar days
from the date of such acquisition. The shareholder must include in its
calculation all voting rights held directly or indirectly, or controlled by it.
Failure to comply with these rules may subject the shareholder to suspension of
voting and other rights until this disclosure is made or satisfactory evidence
is provided that this disclosure is not required.

Indivisibility

         Only one holder per share will be recognized. If a share is held by
more than one person, the persons claiming ownership of the share will be
required to designate a single person as the shareholder. We have the right to
suspend the exercise of all rights attached to the share until one person has
been so appointed.



General Meetings of Shareholders

         A general meeting of shareholders must be held each year to consider
our financial accounts and the annual reports of our directors and auditors and
to declare dividends, if any. The annual general meeting of shareholders will be
held on the last Tuesday of April at 11.00 a.m. of each year. In addition, our
board of directors may call any number of general meetings of shareholders,
which may be held in Luxembourg or elsewhere. General meetings may also be
convened at the request of shareholders representing at least 20% of our share
capital. Notices of general meetings are sent to shareholders by mail at least
twenty days prior to the date of the general meeting and may be published as
mandated by applicable law and the rules of any relevant stock exchanges.

Voting Rights

         Each share is entitled to one vote, except with respect to the election
of members of the board of directors, in which each shareholder will be entitled
to the number of votes equal to the number of voting shares held by it
multiplied by the number of directors to be elected. Each shareholder may cast
all of its votes for a single candidate or may distribute its votes among any
two or more of candidates at its own discretion. The candidates who receive the
highest number of votes shall be elected to the board of directors, within the
limit of the total number of directors to be appointed, as determined by the
shareholders. To the extent that at the shareholders meeting it is decided to
fill additional seats or less seats than proposed, the votes cast by those
shareholders voting by proxy shall be increased or decreased, respectively, on a
pro rata basis among those candidates for which they have voted. If less than
the number of directors as determined by the proposed resolution presented to
the shareholders are elected, or, in case of equality of votes given to
candidates for one seat, one or more new rounds of elections pursuant to the
above principles shall be organized as determined by the board of directors
subject to the final decision by the shareholders. A shareholder may appear and
act at any general meeting of shareholders by appointing a proxy in writing,
cable, telegram, telex or telefax sent to our registered office. The board of
directors may establish other conditions that must be fulfilled by shareholders
to take part in any general meeting of shareholders, including the determination
of the record date on which a shareholder needs to be registered to be convened
to a shareholders' meeting.

         Shareholder resolutions at an annual general meeting are approved by a
simple majority of the shares represented at the meeting in person or by proxy.
There are no quorum requirements applicable to annual general meetings.
Amendments to our articles of incorporation require approval at an extraordinary
general meeting, at which at least 50% of the voting shares must be present or
represented, by shareholders present in person or by proxy, holding at least two
thirds of the voting shares present or represented. If the quorum requirement
for an extraordinary shareholders' meeting is not met, the resolution to amend
the articles may be passed at a second extraordinary shareholders' meeting with
no quorum requirement. Amendments to change our jurisdiction or to impose
additional financial obligations on the shareholders may only be approved with
the unanimous consent of all shareholders.

Dividend Rights

         Our shares will be entitled to any dividends declared by a general
shareholders' meeting or by our board of directors out of funds or reserves
legally available for distributions. In general, under Luxembourg law, only
realized profits or distributable reserves (including profits that are carried
forward) determined in accordance with Luxembourg accounting principles are
available for distribution as dividends. Interim dividends can be declared by
our board of directors up to two times in any fiscal year if a financial
statement prepared for the declaration of interim dividends shows that there are
sufficient funds available for distribution.

         Luxembourg law requires us to allocate 5% of our annual net profits to
a legal reserve. We must make this annual allocation until the legal reserve
reaches 10% of our subscribed capital. If we issue new shares, we will be
required to continue making this annual allocation until the legal reserve
reaches 10% of our subscribed capital once more. The legal reserve is not
available for dividends.

Purchase of and Trading in our Own Shares

         In accordance with Luxembourg law, we may repurchase our own shares
subject to certain limits and conditions, including, in several cases, the prior
approval of a general meeting of shareholders. At a general meeting held on
April 17, 2002, our shareholders authorized us to repurchase our shares from
time to time through October 18, 2003, in an aggregate amount of up to 10% of
our issued shares of capital stock. These shares can be purchased at prices
ranging from (euro)1 to (euro)20 per share. Under Luxembourg law, we cannot lend
or grant security for, or give financial assistance in the purchase of, our own
shares, except for any loans, guarantees or other financial assistance provided
to our employees.

         During the third quarter of 2001, we began to implement our share
repurchase program, as approved by the annual general meeting held on April 18,
2001. During 2001, we repurchased 4,900,534 shares of our outstanding common
stock, at an average price of (euro)3.17 per share. In addition, as described in
Note 31 to our audited consolidated financial statements, our former Chief
Executive Officer, Mr. Antonio Perez, returned all of the 30,743,679 shares that
he had received in August and September 2000 to an indirect subsidiary of our
company, Zenzus Holdings Ltd., in reimbursement of the loans that the indirect
subsidiary had made to him in 2000 and 2001. As at December 31, 2001, we held
directly 4,780,907 shares of our outstanding common stock and indirectly
30,925,029 shares of our outstanding common stock. The extraordinary general
meeting of shareholders held on April 17, 2002 cancelled 4,634,859 shares, and
authorized the cancellation of the 30,743,679 shares held by our indirect
subsidiary upon their transfer to our company.

Liquidation

         Under our articles of incorporation, in the event of a liquidation,
dissolution or winding up of Gemplus International, our assets will be used
first to pay or discharge all of our liabilities and obligations, and any
surplus will be distributed to our shareholders.

Preferential Subscription Rights

         Our shareholders have preferential subscription rights to subscribe for
any shares to be issued against cash contributions, except to the extent waived
within the limits of the authorized share capital. Our board of directors, with
the prior authorization of the two thirds of our shareholders meeting, may be
granted the power to cancel or limit our shareholders' preferential subscription
rights. The right to subscribe may be exercised within a period determined by
the board of directors, which may not be less than thirty (30) days before the
date of the subscription, which shall be notified by registered letter. The
right to subscribe is transferable throughout the subscription period, and no
restrictions may be imposed on such transferability other than those applicable
to the shares in respect of which the right arises.

No Limitation on Foreign Ownership

         There are no limitations under Luxembourg law or in our articles of
incorporation on the right of persons who are not citizens or residents of
Luxembourg to hold or vote ordinary shares.

Change in Control

         There are no provisions in our articles of incorporation that would
have an effect of delaying, deferring or preventing a change in control of our
Company and that would only operate with respect to a merger, acquisition or
corporate restructuring involving it or any of its subsidiaries.



                               MATERIAL CONTRACTS

         On July 17, 2000, we entered into an employment agreement (as amended
on September 1, 2000 and July 11, 2001) with Antonio Perez, our Chief Executive
Officer at the time, who resigned from his position as our CEO on December 19,
2001. Pursuant to this agreement, we granted Mr. Perez free shares and options
to purchase shares and one of our indirect finance subsidiaries, Zenzus Holdings
Ltd., granted him several loans to exercise these stock options.

         On October 20, 2001, we entered into a loan repayment agreement with
Mr. Perez, and on December 19, 2001, we entered into an additional agreement
with Mr. Perez. Pursuant to these agreements, Mr. Perez returned all of the free
shares and shares purchased upon the exercise of options as satisfaction in full
of the loans extended to him by one of our indirect finance subsidiaries.

         We signed a letter agreement, dated December 19, 2001, with Dr. Lassus
in connection with his cessation as our Chairman of the Board. Pursuant to the
agreement, we agreed to pay him US $12 million, which we were obligated to pay
under certain circumstances pursuant to the terms of an agreement in connection
with his appointment as Chairman, and Dr. Lassus agreed to regularize the
arrangements for his existing option loans, which one of our indirect finance
subsidiaries had granted to him in connection with the grant of options to him
in 2000.

         See also "Item 5. Operating and Financial Review and Prospects--
Operating Income (Loss)--Management severance expenses" and "Item 7. Major
Shareholders and Related Party Transactions--Related Party Transactions."


                                    TAXATION

         The following is a summary of the principal Luxembourg and U.S. federal
income tax considerations that are likely to be material to the ownership and
disposition of ordinary shares or ADSs. The summary does not purport to be a
comprehensive description of all of the tax considerations that may be relevant
to the ownership and disposition of ordinary shares or ADSs. This summary
applies to you only if you hold ordinary shares or ADSs as capital assets for
tax purposes, and does not apply to you if you are a member of a class of
holders subject to special rules, such as:

          o    a dealer in securities or currencies;

          o    a trader in securities that elects to use a mark-to-market method
               of accounting for your securities holdings;

          o    a bank;

          o    a life insurance company;

          o    a tax-exempt organization;

          o    a person that holds ordinary shares or ADSs that are a hedge or
               that are hedged against interest rate or currency risks;

          o    a person that holds ordinary shares or ADSs as part of a straddle
               or conversion transaction for tax purposes;

          o    a person whose functional currency for tax purposes is not the
               U.S. dollar; or

          o    a person that holds ordinary shares or ADSs and owns or is deemed
               to own ten percent or more of any class of our stock.

         The summary is based on laws, treaties, and regulatory interpretations
in effect on the date hereof, all of which are subject to change. You should
consult your own advisers regarding the tax consequences of owning or disposing
of the ordinary shares or ADSs in the light of your particular circumstances,
including the effect of any state, local, or other national laws.

                          Luxembourg Tax Considerations

         The following is a summary of the principal Luxembourg tax
considerations that are likely to be material to the ownership and disposition
of ordinary shares or ADSs by you if you are not domiciled, resident, or
formerly resident in Luxembourg and do not hold ordinary shares or ADSs in
connection with a permanent establishment or fixed base in Luxembourg.

Dividends on Ordinary Shares or ADSs

         Dividends paid by us to you are generally subject to Luxembourg
withholding tax at a 20 percent rate. You may, however, qualify for a reduced
rate of withholding under an applicable income tax treaty. If you so qualify,
you may be able to claim a refund of the difference between the amount initially
withheld and the amount determined by applying the applicable treaty rate. The
income tax treaty between Luxembourg and the United States (the "Treaty")
generally provides for Luxembourg withholding tax at a reduced rate of 15
percent. You should consult your own tax advisers regarding the specific
procedures for claiming a refund of Luxembourg withholding tax.

Sale or other Disposition of Ordinary Shares or ADSs

         Holders of ordinary shares or ADSs that (i) are not Luxembourg
residents, (ii) have not formerly been Luxembourg residents, and (iii) have
never owned (alone or together with a spouse or any children under age, directly
or indirectly) more than 10% of our ordinary shares or ADSs, will not be subject
to Luxembourg tax on capital gains on a disposal of such ordinary shares or
ADSs.



                 United States Federal Income Tax Considerations

      The following is a summary of the principal U.S. federal income tax
considerations that are likely to be material to the ownership and disposition
of ordinary shares or ADSs by you if you are a U.S. holder. You will be a U.S.
holder if you are a resident of the United States for the purposes of, and fully
eligible for benefits under, the Treaty. You will generally be entitled to
Treaty benefits in respect of ordinary shares or ADSs if you are:

          o    the beneficial owner of the ordinary shares or ADSs (and the
               dividends paid with respect thereto);

          o    (i) an individual citizen or resident of the United States that
               has a substantial presence, permanent home, or habitual abode in
               the United States, or (ii) a U.S. corporation;

          o    not also a resident of Luxembourg for Luxembourg tax purposes;
               and

          o    not subject to an anti-treaty shopping article that applies under
               limited circumstances.

         The treaty benefits discussed herein generally are not available to
holders that hold ordinary shares or ADSs in connection with the conduct of a
business through a permanent establishment, or the performance of personal
services through a fixed base, in Luxembourg. This summary does not discuss the
treatment of such holders.

         Comparatively minor changes in our assets or share price could result
in our becoming a passive foreign investment company. See "--Passive Foreign
Investment Company Considerations".

         In general, if you hold ADSs, you will be treated as the holder of the
ordinary shares represented by those ADSs for U.S. federal income tax purposes.

Dividends on Ordinary Shares or ADSs

         The gross amount of any dividends distributed by us with respect to
ordinary shares or ADSs (including amounts withheld in respect of Luxembourg
tax) generally will be subject to U.S. federal income taxation as foreign source
dividend income. You will include dividends paid in a currency other than the
U.S. dollar in income in a dollar amount calculated by reference to the exchange
rate in effect on the date you receive the dividends (or, in the case of ADSs,
the date the depositary receives them). If dividends paid in a foreign currency
are converted into dollars on the date of receipt, you generally should not be
required to recognize foreign currency gain or loss in respect of the dividend
income. You may be required to recognize foreign currency gain or loss on the
receipt of a refund of Luxembourg withholding tax pursuant to the Treaty to the
extent the dollar value of the refund differs from the dollar equivalent of that
amount on the date of receipt of the underlying dividend.

         Subject to generally applicable limitations under U.S. law, Luxembourg
withholding tax at the rate provided under the Treaty will constitute a foreign
income tax that is eligible for credit against your U.S. federal income tax
liability or, at your election, may be deducted in computing taxable income.
Foreign tax credits will not be allowed for withholding taxes imposed in respect
of certain short-term or hedged positions and arrangements in which your
expected economic profit is insubstantial.

Sale or other Disposition of Ordinary Shares or ADSs

         Subject to the discussion below under "--Passive Foreign Investment
Company Considerations", for U.S. federal income tax purposes, gain or loss you
realize on the sale or other disposition of ordinary shares or ADSs will be
capital gain or loss, and will be long-term capital gain or loss if the ordinary
shares or ADSs were held for more than one year. The net amount of long-term
capital gain recognized by an individual holder generally is subject to taxation
at a maximum rate of 20%. Your ability to use capital losses to offset ordinary
income is limited.

Passive Foreign Investment Company Considerations

         Unfavorable U.S. tax rules apply to companies that are considered
passive foreign investment companies ("PFICs"). We will be classified as a PFIC
in a particular taxable year if either:

          o    75% or more of our gross income is treated as passive income for
               purposes of the PFIC rules; or

          o    the average percentage of the value of our assets that produce or
               are held for the production of passive income is at least 50%.

         The decline in our market capitalization has increased the relative
proportion of our assets that would be considered to produce passive income for
purposes of the PFIC rules. Comparatively minor changes in our assets or share
price could result in our becoming a PFIC for reasons outside our control.
Although we continue to believe that we should not be classified as a PFIC in
the current year, investors should consult their own tax advisers regarding the
advisability of making a mark-to-market election, as described below.

         If we are a PFIC in respect of any year, then a U.S. holder who holds
shares during that year and does not make a mark-to-market election will be
subject to a special tax at ordinary income tax rates on certain dividends
received from us and on gains realized on a sale of ordinary shares or ADSs
("excess distributions") in all subsequent years, without regard to whether we
were a PFIC in the year an excess distribution was received. The amount of this
tax will be increased by an interest charge to compensate for tax deferral,
calculated as if the excess distribution had been earned ratably over the period
the U.S. holder held its ordinary shares or ADSs. Classification as a PFIC may
also have other adverse tax consequences, including the denial of a step-up in
the basis of ordinary shares and ADSs at death.

         You can avoid the unfavorable rules described above by electing to mark
your ordinary shares or ADSs to market. For any year in which we are a PFIC, a
U.S. holder who makes a mark-to-market election would include as ordinary income
the excess of the fair market value of the ordinary shares or ADSs at year-end
over the holder's basis in those ordinary shares or ADSs. In addition, any gain
recognized upon a sale of ordinary shares or ADSs would be taxed as ordinary
income in the year of sale.

         We do not intend to furnish holders with the information necessary to
make a qualified electing fund ("QEF") election.

         You should consult your own tax advisers regarding the U.S. federal
income tax considerations discussed above and should carefully consider whether
to make a mark-to-market election.

U.S. Information Reporting and Backup Withholding Rules

         Payments in respect of the ordinary shares or ADSs that are made in the
United States or by a U.S.related financial intermediary will be subject to
information reporting and may be subject to a backup withholding unless you:

          o    are a corporation or other exempt recipient; or

          o    provide a taxpayer identification number and certify that no loss
               of exemption from backup withholding has occurred.

If you are not a U.S. person, you generally are not subject to these rules, but
may be required to provide certification of non-U.S. status in order to
establish that you are exempt.

                              DOCUMENTS ON DISPLAY

         We are subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended. In accordance with these requirements, we file reports
and other information with the U.S. Securities and Exchange Commission. These
materials, including this Annual Report and the exhibits thereto, may be
inspected and copied at the SEC's public reference room at 450 Fifth Street,
N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more
information on the public reference room and their copy charges. Our SEC filings
are also available on the Internet at the SEC's website at http://www.sec.gov.

Item 11.  Quantitative and Qualitative Disclosures About Market Risk

         We develop products in our worldwide manufacturing centers and sell
these products and provide related services around the world. Generally, our
sales are made in the local currency of the place of delivery or where the
service is rendered, and part of our manufacturing costs are incurred in the
local currency of the place of each of our manufacturing sites. As a result, our
results of operations are affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets. To
minimize the impact of these factors on the profitability of our business and
our overall financial performance, we seek to provide cost efficient funding to
our business and our subsidiaries and to identify, evaluate and hedge financial
risks in cooperation with our subsidiaries around the world.

         Our policy is to hedge against adverse changes in foreign currency
rates. The management of our hedging activity is carried out centrally by our
corporate treasury in accordance with the objectives and procedures established
by management and approved by our Audit Committee. Our operating policies cover
specific areas such as foreign exchange risk (including the use of derivative
financial instruments), interest rate risk and credit risk. Affiliated companies
are not permitted to enter into derivative contracts other than with our
corporate treasury. Derivative instruments are used for hedging purposes only.

         Foreign exchange risk

         We measure our foreign exchange exposure based on anticipated and
identified transactions, both on purchases and sales. Each of our subsidiaries
regularly measures its exposure and reports it to our corporate treasury. Our
corporate treasury department seeks to hedge our foreign currency exposure on
most of our firm and anticipated purchases and sales commitments denominated in
currencies other than its subsidiaries functional currencies for periods
commensurate with its known or forecasted transactions. Our foreign currency
hedging contracts generally mature within twelve months. Our corporate treasury
uses currency derivative instruments such as foreign exchange forward contracts
and foreign exchange option contracts. These derivative instruments are
generally traded over-the-counter with major financial institutions. From its
trade date, each hedging operation is allocated to an underlying exposure.

         The financing of most of our subsidiaries is managed by our corporate
treasury through inter-company current accounts, using foreign exchange spot and
forward transactions to convert our cash denominated in euros into the
subsidiary's functional currency. We place any excess liquidity in money market
investments with not more than three-month maturity dates. Our money market
investments are placed with major financial institutions in order to reduce our
credit risk exposure.

         The following table sets forth our estimated positions in millions of
euros from all existing currency hedging instruments as of December 31, 2001 by
type of instrument. Forward contracts are valued at the forward rate and option
contracts at the strike rate.

Hedging Transactions
                                                      ((euro) in millions)
                                                      --------------------
Forward Purchases:
     Singapore Dollar.............................           2.4
     Other........................................           0.3
                                                             ---
Total.............................................           2.7
                                                             ===

Forward Sales:
     US Dollar....................................          45.4
     British Pound................................           8.0
     Other........................................           7.8
                                                             ---
Total.............................................          61.2
                                                            ====

Purchases of Options:
     US Dollar....................................           6.8
     Singapore Dollar.............................           9.3
     Other........................................           1.3
                                                             ---
Total.............................................          17.4
                                                            ====

Sales of Options:
     US Dollar....................................          49.6
     British Pound................................           3.2
                                                             ---
Total.............................................          52.8
                                                            ====


Other Transactions

Forward Purchases:
     British Pound.................................          2.8
     Singapore Dollar..............................         73.9
     US Dollar.....................................         59.1
     Other.........................................         21.1
                                                            ----
Total..............................................        156.9
                                                           =====

Forward Sales:
     British Pound.................................         11.3
     US Dollar.....................................        293.0
     Singapore Dollar..............................         61.2
     Other.........................................         31.8
                                                            ----
Total..............................................        397.3
                                                           =====


         In addition, because we have subsidiaries located outside the euro-zone
who present their financial statements in a currency different from euro, the
euro-denominated value of our consolidated equity is exposed to fluctuations in
exchange rates. All exchange differences resulting from translating those
financial statements into our reporting currency, the euro, are classified as
translation difference in our consolidated equity. We do not hedge our equity
exposure arising from net investments in foreign entities.

         Interest rate risk

         We are not materially exposed to interest rates fluctuations. Our
indebtedness was significantly reduced during 2000 with the proceeds of our
capital increases and we have few fixed rate borrowings. Cash and cash
equivalents are invested in money market accounts that pay interest at a
floating rate. Debts and cash are mostly denominated in euros. As of December
31, 2001, we had not entered into any interest rate risk hedging transactions.

         Equity risk in minority investments

         We have several minority equity investments in publicly traded
companies. The book value of our minority equity investments in publicly traded
companies was totally provided for, as of December 31, 2001. Because these
investments are relatively small, we currently do not have any outstanding
derivative financial instruments to hedge fluctuations in these marketable
equity investments.

Item 12.  Description of Securities Other than Equity Securities

         Not applicable.

                                     PART II

Item 13.  Defaults, Dividend Arrearages and Delinquencies

         None.

Item 14. Material Modifications to the Rights of Security Holders and Use of
         Proceeds

                                 USE OF PROCEEDS

         On December 13, 2000, we completed an initial public offering of
15,000,000 ordinary shares. These shares were sold in a single global offering
of 71,684,248 ordinary shares, of which 15,000,000 ordinary shares were offered
by us and 56,684,248 ordinary shares were offered by certain existing
shareholders. The U.S. offering, comprised of 20,000,000 shares in the form of
ordinary shares and ADSs, was part of this global offering. Each ADS represents
two ordinary shares. In addition, on December 21, 2000, the underwriters
exercised their over-allotment option whereby the selling shareholders sold an
additional 9,717,197 ordinary shares. Credit Suisse First Boston acted as lead
underwriter for the offering.

         Our net proceeds from the sale of the 15,000,000 shares we offered were
(euro)82,590,000 ($72,597,000) after deducting underwriting discounts and
expenses of (euro)7,410,000. We have not received any of the proceeds from the
sale of our shares by the selling shareholders. The offering price and the
underwriting discounts and commissions for the shares sold by us and those sold
by the selling shareholders were identical.

         The primary purposes of this offering were to create a public market
for our ordinary shares and facilitate future access to public markets. We
intend to use the proceeds we have received from this offering for general
corporate purposes. We continuously evaluate and consider acquisitions and
strategic investments, including possibly material acquisitions and investments.
We may use a portion of the net proceeds to acquire technology or businesses, or
to make strategic investments in businesses that are complementary to our
business. Pending such uses, we plan to invest the net proceeds in short-term,
interest-bearing, investment grade securities.

Item 15.  [Reserved].

Item 16.  [Reserved].

                                    PART III

Item 17.  Financial Statements

         Not applicable.

Item 18.  Financial Statements

         See pages F-1 through F-54, incorporated herein by reference.

Item 19.  Exhibits


(a)      List of Financial Statements

Report of Independent Accountants........................................  F-1

Consolidated Statements of Income
   for the Years Ended December 31, 2001, 2000, and 1999.................  F-2

Consolidated Balance Sheets as of December 31, 2001, 2000 and 1999.......  F-3

Consolidated Statements of Cash Flows
   for the Years Ended December 31, 2001, 2000 and 1999..................  F-4

Consolidated Statements of Changes in Shareholders' Equity
   for the Years Ended December 31, 2001, 2000 and 1999..................  F-5

Notes to the Consolidated Financial Statements...........................  F-6


(b)  List of Exhibits

1.1  Form of the bylaws (Statuts) of Gemplus International S.A. as amended to
     date (English translation included).

4.1  Second Amended and Restated Employment Agreement dated as of July 11, 2001
     among Gemplus Americas, Inc., Gemplus International S.A. and Antonio Perez.

4.2  Loan Repayment Agreement between Antonio Perez and Zenzus Holdings Limited,
     dated October 20, 2001, and Letter Agreement by Antonio Perez, dated
     December 19, 2001.

4.3  Agreement between Gemplus International S.A., Zenzus Holdings Limited and
     Marc Lassus, dated December 19, 2001.

8.1  Significant subsidiaries as of the end of the year covered by this report.

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors and Shareholders,

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the financial position of
Gemplus International S.A. and its subsidiaries at December 31, 2001, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in accordance with
International Accounting Standards. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with International Auditing Standards.
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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for derivative financial instruments.

International Accounting Standards vary in certain respects from accounting
principles generally accepted in the United States of America. The application
of the latter would have affected the determination of consolidated net income
for each of the three years in the period ended December 31, 2001, and the
determination of shareholders' equity at December 31, 2001, 2000 and 1999 to the
extent summarized in Note 32 to the consolidated financial statements.



PricewaterhouseCoopers

/s/ PricewaterhouseCoopers

Paris, France


February 27, 2002

<PAGE>

                           Gemplus International S.A.


<TABLE>
Consolidated statements of income
---------------------------------------------------------------------------------------------------------

                                                (in thousands of euros, except shares and per share amounts)
                                                                  Years ended December 31,
                                                      Notes         2001           2000          1999
                                                     ------ -----------------  ------------  -----------
<S>                                                  <C>    <C>                <C>           <C>
Net sales                                                        1,022,986      1,204,600       766,604
Cost of sales                                                     (715,516)      (750,714)     (486,805)

Gross profit                                                       307,470        453,886       279,799


Research and development expenses                       10        (112,885)       (90,778)      (62,248)
Reversal of research credit allowance                   10               -         12,486             -
Selling and marketing expenses                                    (165,276)      (158,545)      (97,155)
General and administrative expenses                               (110,657)       (89,666)      (63,677)
Litigation expenses                                     26         (18,120)             -             -
Management severance expenses                           31         (25,691)             -             -
Restructuring expenses                                  19         (28,466)             -             -
Goodwill amortization                                    8         (27,162)       (11,204)      (71,812)

Operating income (loss)                                           (180,787)       116,179       (15,093)

Interest income                                                     28,234         21,427           287
Interest expense                                                    (7,532)        (8,869)       (4,798)
Other income (expense), net                             17          45,681            (28)         (458)

Income (loss) before taxes                                        (114,404)       128,709       (20,062)

Income taxes benefit (provision)                        18          14,184        (29,631)      (12,071)

---------------------------------------------------------------------------------------------------------
Net income (loss)                                                 (100,220)        99,078       (32,133)
---------------------------------------------------------------------------------------------------------

Net income (loss) per share                             21
Basic                                                                (0.16)          0.20         (0.10)
Diluted                                                              (0.16)          0.18         (0.10)

Shares used in net income (loss) per share calculation  21
Basic                                                          636,992,392    497,523,946   313,120,400
Diluted                                                        636,992,392    539,256,206   313,120,400
</TABLE>




Note : In filings with Commission des Operations de Bourse and its annual report
to shareholders, the Company has included goodwill amortization and legal
reorganization expense below operating income. See Note 33



   The accompanying notes are an integral part of the consolidated financial
 statements (Amounts reported in French francs (FF) in 1999 have been restated
 and are now reported in Euro using the irrevocable fixed conversion rate of FF
           6.55957 = Euro 1 that became effective on January 1, 1999)



                           Gemplus International S.A.

<TABLE>
 Consolidated Balance Sheets                                                       (in thousands of euros)
                                                    ----------------------------------------------------------------------------
                                                                                   December 31,
 Assets                                             Notes                     2001                   2000                  1999
                                                    ----------------------------------------------------------------------------
<S>                                                        <C>             <C>                    <C>                   <C>
 Current assets :
 Cash and cash equivalents                                                 490,652                636,284                27,106
 Trade accounts receivable, net                            4               188,635                311,276               200,955
 Inventory, net                                            5               139,794                174,101                95,821
 Other current assets                                      6               103,733                 97,377                45,631

 Total current assets                                                      922,814              1,219,038               369,513

 Non-current assets :
 Property, plant and equipment, net                        7               268,784                249,916               191,019
 Goodwill, net                                             8               116,580                155,809                63,979
 Other non-current assets                                  9               150,472                234,043                23,196
 Deferred development costs, net                          10                28,470                 26,349                 7,698
 Deferred tax assets                                      18                22,148                  7,120                 8,034
 Investments                                              11                21,424                 16,734                 3,799

 Total non-current assets                                                  607,878                689,971               297,725

 -------------------------------------------------------------------------------------------------------------------------------
 Total assets                                                            1,530,692              1,909,009               667,238
 -------------------------------------------------------------------------------------------------------------------------------

 Liabilities

 Current liabilities :
 Accounts payable                                         12               109,661                261,047               145,436
 Salaries, wages and related items                                          55,967                 70,738                42,592
 Other current liabilities                                13                86,411                 54,867                48,655
 Accrued taxes                                                              26,527                 31,005                33,129
 Current portion of long-term debt                        14                     -                  1,867                 3,256
 Current obligations under capital leases                 15                 3,734                  3,414                 3,049

 Total current liabilities                                                 282,300                422,938               276,117

 Non-current liabilities :
 Long-term obligations under capital leases               15                32,581                 31,885                35,444
 Long-term debt, less current portion                     14                    14                  5,865                 8,103
 Deferred tax liabilities                                 18                     -                  2,296                 5,834
 Other non-current liabilities                            16                30,859                 43,717                38,359

 Total non-current liabilities                                              63,454                 83,763                87,740

 Minority interest                                                          17,176                 17,313                 9,228

 Shareholders' equity :
 Ordinary shares no legal par value,
 2,000,000,000 shares authorized, 641,396,497,
 636,256,258 and 334,135,600 shares  issued at
 December 31, 2001,2000 and 1999 respectively            20                127,056                124,263                10,188
 Additional paid-in capital                                              1,027,850              1,026,063               145,825
 Retained earnings                                                         125,016                235,972               137,090
 Other comprehensive income                              22                 (3,968)                   376                 2,814
 Less, cost of treasury shares                                            (108,192)                (1,679)               (1,764)

 Total shareholders' equity                                              1,167,762              1,384,995               294,153

 -------------------------------------------------------------------------------------------------------------------------------
 Total liabilities and shareholders' equity                              1,530,692              1,909,009               667,238
 -------------------------------------------------------------------------------------------------------------------------------
</TABLE>


   The accompanying notes are an integral part of the consolidated financial
 statements (Amounts reported in French francs (FF) in 1999 and 1998 have been
  restated and are now reported in Euro using the irrevocable fixed conversion
     rate of FF 6.55957 = Euro 1 that became effective on January 1, 1999)

<TABLE>
                                                                                              (in thousands of euros)
Consolidated Statements of Cash Flows                                                         Years ended December 31,
                                                                                    2001                 2000               1999
                                                                                ---------------------------------------------------
<S>                                                                                <C>                   <C>              <C>
Cash flow from operating activities :
Net income (loss)                                                                  (100,220)             99,078           (32,133)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
   Depreciation and amortization                                                    120,409              79,080           118,671
   Changes in other non-current liabilities                                          (3,387)            (10,244)            3,621
   Provision for deferred income taxes                                              (15,976)              1,045              (632)
   Gain on assets sold                                                              (65,996)             (9,311)           (7,612)
   Other, net                                                                         1,594               4,886            (3,936)
Changes in operating assets and liabilities:
   Trade accounts receivable and related current liabilities                        100,063             (88,840)          (35,571)
   Trade accounts payable and related current assets                               (126,920)             92,596            47,141
   Inventories                                                                       11,509             (76,140)          (35,160)
   Value-Added and Income Taxes                                                      (9,232)            (20,374)           11,270
   Other, net                                                                        14,850              (2,557)            9,561
   Restructuring reserve payable                                                      6,177                   -                 -
   Litigation expenses payable                                                       18,120                   -                 -
   Management severance expenses, non cash portion and payable                       25,691                   -                 -

----------------------------------------------------------------------------------------------------------------------------------
Net cash (used for) from operating activities                                       (23,318)             69,219            75,220
----------------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
Sale / Purchase of activities net of cash disposed / acquired                       108,731             (99,040)           (8,888)
Absorption of Gemplus Associates net of cash acquired                                     -                   -               704
Other investments                                                                   (42,035)            (51,021)           10,282
Purchase of property, plant and equipment                                          (102,555)           (102,453)          (68,604)
Purchase of other assets                                                            (19,623)            (17,630)           (3,532)
Change in non-trade accounts payable and other current assets                        (9,843)              3,810            (3,852)

----------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities                                              (65,325)           (266,334)          (73,890)
----------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
Proceeds from conversion of debentures and exercise of warrants                           -             191,753                 -
Price adjustment on shares issued pursuant to conversion of debentures                    -                   -            (1,348)
Proceeds from shareholders contribution                                                   -             613,267                 -
Proceeds from exercise of share options                                               7,762              18,237             2,116
Purchase of Gemplus SA shares                                                       (14,544)                  -                 -
Proceeds from long-term borrowings                                                        -                   -             1,597
Payments on long-term borrowings                                                     (2,301)             (3,589)           (3,485)
Proceeds from sales-leaseback operations                                              5,711                   -            28,270
Principal payments on obligations under capital leases                               (3,373)             (3,195)           (2,413)
Increase (decrease) in bank overdrafts                                                4,462                 832             5,390
Dividends paid by subsidiaries to minority shareholders                              (4,256)             (3,826)                -
Change in treasury shares                                                           (15,117)                 85              (981)
Interests receivable on loans to senior management                                   (4,877)             (3,139)                -
Change in non-trade accounts payables on financing activities                        (8,114)              7,495                 -

----------------------------------------------------------------------------------------------------------------------------------
Net cash (used for) from financing activites                                        (34,647)            817,920            29,146
----------------------------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash                                             (22,342)            (11,627)          (21,626)
Net increase (decrease) in cash and cash equivalents                               (123,290)            620,805            30,476
Cash and cash equivalents, beginning of year                                        636,284              27,106            18,256

----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                                            490,652             636,284            27,106
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>




   The accompanying notes are an integral part of the consolidated financial
 statements (Amounts reported in French francs (FF) in 1999 and 1998 have been
  restated and are now reported in Euro using the irrevocable fixed conversion
     rate of FF 6.55957 = Euro 1 that became effective on January 1, 1999)



<TABLE>

Consolidated Statements of Changes in Shareholders' Equity         (in thousands of euros, except number of shares)

                                                                                                        Other
                                                                        Additional              Net    compre-
                                                     Number      Share   paid-in   Retained   income   hensive   Treasury
                                                   of shares     value   capital   earnings   (loss)   income     shares    Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>     <C>         <C>       <C>      <C>       <C>        <C>
Balance at December 31, 1998                      311,666,500    9,502    145,037    79,349    24,473    2,456      (782)   260,035
------------------------------------------------------------------------------------------------------------------------------------

Allocation of prior year earnings                           -        -          -    24,473   (24,473)       -         -          -
Net income (loss)                                           -        -          -         -   (32,133)       -         -    (32,133)
Price adjustment on conversion of debentures                -        -     (1,348)        -         -        -         -     (1,348)
Absorption of Gemplus Associates                   20,625,000      630         76    65,401         -        -         -     66,107
Shares issued pursuant to share options exercised   1,844,100       56      2,060         -         -        -         -      2,116
Sale of 792,500 shares of treasury shares                   -        -          -         -         -        -       604        604
Purchase of 693,800 shares of treasury shares               -        -          -         -         -        -    (1,586)    (1,586)
Change in other comprehensive income                        -        -          -         -         -      358         -        358
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999                      334,135,600   10,188    145,825   169,223   (32,133)   2,814    (1,764)   294,153
------------------------------------------------------------------------------------------------------------------------------------
Allocation of prior year earnings                           -        -          -   (32,133)   32,133        -         -          -
Net income                                                  -        -          -         -    99,078        -         -     99,078
Contribution of Gemplus S.A. shares to
Gemplus International S.A.                                  -   56,323    (67,728)        -         -        -         -    (11,405)
Gemplus S.A. shares to be contributed                       -        -     11,405         -         -        -         -     11,405
Shares issued by Gemplus S.A. pursuant
to share options exercised to be contributed       13,360,000        -     18,237         -         -        -         -     18,237
Shares issued pursuant to capital
contribution, net of issuance costs Euro 14,747   155,873,300   31,174    500,616         -         -        -         -    531,790
0ptions and free shares issued, net of
issuance costs Euro 1,102                          61,487,358   12,298    130,317         -         -        -         -    142,615
Shares issued following exercice of warrants,
net of issuance cost Euro 6,002                    56,400,000   11,280    180,473         -         -        -         -    191,753
Shares issued following Gemplus IPO,
net of issuance costs Euro 7,410                   15,000,000    3,000     79,590         -         -        -         -     82,590
Shares to be issued following acquisitions
of Celocom Ltd and SLP InfoWare SA                          -        -     27,328         -         -        -         -     27,328
Purchase of 149,550 shares of treasury shares               -        -          -         -         -        -      (425)      (425)
Sale of 378,550 shares of treasury shares                   -        -          -      (196)        -        -       510        314
Change in other comprehensive income                        -        -          -         -         -   (2,438)        -     (2,438)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                      636,256,258  124,263  1,026,063   136,894    99,078      376    (1,679) 1,384,995
------------------------------------------------------------------------------------------------------------------------------------
Allocation of prior year earnings                           -        -          -    99,078   (99,078)       -         -          -
Net income (loss)                                           -        -          -         -  (100,220)       -         -   (100,220)
Effect of adopting IAS 39                                   -        -          -    (5,003)        -    9,093         -      4,090
Shares issued following acquisitions
of Celocom Ltd and SLP InfoWare SA                  4,554,639      911       (911)        -         -        -         -          -
Contribution of Gemplus S.A. shares to
Gemplus International S.A.                                  -    1,460     (1,460)        -         -        -         -          -
Shares issued by Gemplus S.A. pursuant to
share options exercised to be contributed           2,498,100               4,167         -         -        -         -      4,167
Purchase of Gemplus SA shares
by Gemplus International                           (4,029,350)             (9,450)   (5,094)        -        -         -    (14,544)
Shares issued by Gemplus International SA
pursuant to share options exercised                 2,116,850      422      3,311         -         -        -         -      3,733
Treasury shares held  following transfer
of shares by senior management                              -        -      6,130         -         -        -   (92,756)   (86,626)
Purchase of 4,900,534 shares of treasury shares             -        -          -         -         -        -   (15,522)   (15,522)
Sale of 636,527 shares of treasury shares                   -        -          -      (639)        -        -     1,765      1,126
Change in other comprehensive income                        -        -          -         -         -  (13,437)        -    (13,437)

------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001                      641,396,497  127,056  1,027,850   225,236  (100,220)  (3,968) (108,192) 1,167,762
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


   The accompanying notes are an integral part of the consolidated financial
 statements (Amounts reported in French francs (FF) in 1999 and 1998 have been
  restated and are now reported in Euro using the irrevocable fixed conversion
     rate of FF 6.55957 = Euro 1 that became effective on January 1, 1999)



                           Gemplus International S.A.
                 Notes to the Consolidated Financial Statements

Notes to the Consolidated Financial Statements
                                                                            Page
1.   The Company............................................................F-7
2.   Summary of Significant Accounting Policies.............................F-7
3.   Public Offering, Common Control Transactions,
     Treasury Shares, Reorganization, Acquired and Disposed Operations......F-13
4.   Trade Accounts receivable..............................................F-18
5.   Inventory..............................................................F-18
6.   Other Current Assets...................................................F-19
7.   Property, Plant and Equipment..........................................F-20
8.   Goodwill...............................................................F-21
9.   Other Non-Current Assets...............................................F-22
10.  Research and Development Costs.........................................F-23
11.  Investments............................................................F-24
12.  Accounts Payable.......................................................F-24
13.  Other Current liabilities..............................................F-25
14.  Long-term debt.........................................................F-26
15.  Capital leases.........................................................F-27
16.  Other Non-Current Liabilities..........................................F-27
17.  Other Income (Expense) Net.............................................F-28
18.  Income Taxes...........................................................F-29
19.  Restructuring..........................................................F-31
20.  Ordinary Shares........................................................F-31
21.  Net Income Per Share Calculation.......................................F-34
22.  Comprehensive Income...................................................F-34
23.  Pension Plans..........................................................F-35
24.  Share Option Plans.....................................................F-36
25.  Financial Instruments and Market Related Exposures.....................F-39
26.  Commitments and Contingencies..........................................F-42
27.  Supplemental Disclosure of Cash Flow Information.......................F-44
28.  Wages, Benefits and Number of Employees (unaudited)....................F-44
29.  Related Party Transactions.............................................F-44
30.  Segment Information....................................................F-45
31.  Management Severance Expenses..........................................F-47
32.  Differences Between International Accounting Standards
     and US Generally Accepted Accounting Principles........................F-48
33.  Other Required US GAAP Disclosures.....................................F-52
34.  Subsequent Events......................................................F-54



1/       The Company

Gemplus International S.A., including its consolidated subsidiaries, (the
"Company") is a leading provider of enabling technology products and services
for secure wireless communications and transactions. The Company designs,
develops, manufactures and markets microprocessor solutions and non-chip-based
products for customers in the telecommunications, network systems and other
service industries. The Company is incorporated in the Grand Duchy of
Luxembourg.



2/       Summary of significant accounting policies

Basis of presentation

The annual consolidated financial statements of the Company have been prepared
in accordance with International Accounting Standards (IAS). As of January 1,
2001, the Company has adopted the new standard applicable for the first time to
financial statements for periods beginning after January 1, 2001, relating to
Financial Instruments (IAS 39). The IAS financial statements are in compliance
with French GAAP and in accordance with Luxembourg Regulation, to the exception
of IAS 39 implementation impact. A reconciliation of net income and
shareholders' equity between IAS and the accounting principles generally
accepted in the United States (U.S. GAAP) is included in Note 32.


Principles of consolidation

The consolidated financial statements include the accounts of Gemplus
International S.A. and its majority owned subsidiaries. Investments in
associated undertakings are accounted for under the equity method of accounting.
These are undertakings in which the Company has between 20% and 50% of the
voting rights, and in which the Company exercises significant influence, but
which it does not control. All intercompany balances and transactions are
eliminated.

Non-marketable equity investments in which the Company has less than 20% of the
investee's outstanding voting stock are accounted for under the cost method,
because the Company does not have the ability to significantly influence the
operating and financial policies of the investee. Gains or losses recognized on
sale of equity securities are recorded in the income statement. Any loss
resulting from impairment in the value of investments which represents an other
than temporary decline is recorded in the period in which the loss occurs.

Euro conversion

Historically, the consolidated financial statements of the Company were prepared
using the French franc as the reporting currency. From January 1, 2000, the
Company's consolidated financial statements are reported in euros. The 1999
presented financial statements denominated in French francs have been translated
into euros using the irrevocably fixed conversion rate applicable since January
1, 1999 (1 euro = 6.55957 French francs). Accordingly, the consolidated
financial statements depict the same trends that would have been presented had
they been presented in French francs. However, because the financial statements
were originally prepared in French francs, they are not necessarily comparable
to financial statements of a company which originally prepared its financial
statements in a currency other than the French franc and converted them to
euros.



Foreign currency

Substantially all of the Company's international subsidiaries use their local
currency as their functional currency. For those subsidiaries using their
non-euro local currency as their functional currency, assets and liabilities are
translated into euro at exchange rates in effect at the balance sheet date, and
income and expense accounts at average exchange rates during the year.
Translation adjustments arising upon the consolidation of such subsidiary
financial statements are not included in determining net income for the period,
but are included in shareholders' equity as other comprehensive income. For all
transactions involving a currency other than the functional currency, the
Company's subsidiaries record the resulting transaction gains and losses
directly to the Statement of Income.


Change in accounting policies

As at January 1,2001, the Company adopted IAS 39 "Financial Instruments:
Recognition and Measurement".

IAS 39 establishes principles for recognizing, measuring and disclosing
information about financial assets and financial liabilities. IAS 39 defines
several categories of financial assets and liabilities. It requires the Company
to measure at fair value assets and liabilities qualified as trading or
available-for-sale. It requires also that changes in fair value of trading
assets and liabilities be recognized through income, while changes in fair value
of available-for-sale assets recorded either in equity or through income.

IAS 39 requires the Company to recognize all derivative instruments on the
balance sheet at fair value. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative will either be
offset against the change in fair value of the hedged assets and liabilities
through earnings or recognized directly in equity until the hedged item is
recognized in earnings. Any ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings and any derivatives that do not
qualify as hedges will be adjusted to fair value through income.

Adoption of this new standard resulted in a cumulative after tax increase of
shareholders' equity as of January 1, 2001 of euro 4,090 thousand. The impact on
shareholders' equity at January 1, 2001 of the adoption of IAS 39 is presented
in Note 25 "Financial instruments and market related exposures". In accordance
with IAS 39, the comparative financial statements for the year ended December
31, 2000 were not restated.


Use of estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Estimates are used for, but not limited to, the accounting of doubtful
accounts, depreciation and amortization, sales returns, warranty costs, taxes,
and contingencies. Actual results could differ from these estimates.

Revenue recognition

Revenues from product sales are recorded upon transfer of title and risk of loss
provided that no significant obligations of the Company remain and collection of
the resulting receivable is probable. The Company records deferred revenue for
sales invoiced which are delayed at the buyer's request where transfer of title
and risk of loss has not occurred.

The Company has recently begun to provide systems design and integration
services. Revenues are recognized when delivery has occurred, contractual
obligations have been met, collection is probable and the fee is fixed or
determinable.

Inventory

Inventories are carried at the lower of cost or market, with cost being
determined principally on the weighted-average cost basis. Cost elements
included in inventories are raw materials, labor and manufacturing overhead.
Allowances for obsolescence, scrap and slow-moving inventory are provided based
upon the Company's periodic review of inventory.

Property, plant and equipment

Property, plant and equipment are carried at cost. Major renewals and
improvements are capitalized while repairs and maintenance are expensed as
incurred. Depreciation is computed over the estimated useful lives of
depreciable assets using the straight-line method. Leasehold improvements are
amortized over the shorter of the life of the improvement or the remaining lease
term.

                   The estimated useful lives are as follows:

        -----------------------------------------------------------------
        Buildings                                             20 years
        Equipment and machinery                                5 years
        Furniture and fixtures                            5 - 10 years
        Leasehold improvements                            8 - 12 years
        -----------------------------------------------------------------

When the Company leases assets under the terms of a long-term contract or other
arrangement that transfers substantially all the benefits and risks of ownership
to the Company, the fair market value of the leased property is capitalized and
depreciated (as described above) and the corresponding obligation is recorded as
a liability.

Goodwill

The excess of the purchase price over the fair market value of net assets
acquired is recorded as goodwill. The Company's rationale behind its
acquisitions generally relates to (i) acquiring market share or (ii) acquiring
conventional technology or (iii) acquiring technology in the Company's core
business.

Goodwill amounts are amortized over a maximum period of twenty years on a
straight-line basis (20 years, 10 years, and 5 years, respectively, for
acquisitions of type (i), (ii) and (iii)). At the balance sheet date, the
Company evaluates the realizability of goodwill based on expectations of
discounted cash flows. Based on its most recent analysis, the Company believes
that no material impairment of goodwill exists at December 31, 2001.

Patents

Patents and patent rights are stated at cost and are amortized using the
straight-line method over their economic useful life, which does not exceed the
shorter of 3 years or the legal life.

Impairment of long-lived assets

The Company assesses at each balance sheet date whether events or changes in
circumstances that would indicate that the carrying amount of long-lived assets
such as property, plant and equipment, licenses, goodwill and research and
development have been impaired. If the total of the expected discounted cash
flows or sales price, whichever is higher, is less than the carrying amount of
the asset, a loss is recognized for the difference between the greater of the
value in use or sales price and the carrying value of the asset.

Research and development

Costs associated with developing software to be sold are recognized as an
expense as incurred, except for development costs incurred from the time
technological feasibility is established until the software to be sold is ready
to provide service to customers which are capitalized. The capitalized costs
related to software are included in deferred development costs and are amortized
based on the greater of (a) the ratio of current gross revenues for that product
to the total of current and estimated gross revenues for that product, or (b)
the straight-line basis over their estimated useful life, which normally does
not exceed three years.

Certain direct development costs associated with internal-use software including
external direct costs of material and services and payroll costs for employees
devoting time to the software products are included in other non current assets
and are amortized over a period not to exceed 3 years beginning when the asset
is substantially ready for use. Costs incurred during the preliminary project
stage, as well as maintenance and training costs, are expensed as incurred.

Research and development costs other than software are expensed as incurred,
except for development cost where it is expected that the product under
development will be produced and will be profitable, and technical feasibility
has been demonstrated. Costs are capitalized and amortized on a straight-line
basis over the period of expected future benefit. The period of amortization
normally does not exceed three years.

Development costs of a project are written down to the extent that the
unamortized balance is no longer capable of being recovered from the expected
future economic benefits and when the criteria for recognition of the
development costs as an asset ceases to be met. The write-down or write-off is
recognized as an expense in the period in which such determination is made.


<PAGE>


Cash and cash equivalents

The Company considers all highly liquid investments purchased with an original
or remaining maturity of three months or less at the date of purchase to be cash
equivalents.

During 2000, the Company increased its capital through various capital
infusions. The cash received has been invested during 2000 and 2001 in money
market fixed term deposits and mutual funds, all of which are liquid
investments.

Income taxes

The Company accounts for income taxes using the liability method, which requires
the recognition of deferred tax assets and liabilities based on differences
between financial reporting and tax basis of assets and liabilities, and
measures these differences using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to amounts expected to
be realized and are reviewed and adjusted accordingly when there is a change in
circumstances that causes a change in judgement about the realizability of the
related deferred tax asset.

Research credit

Research credits are provided by the French government to give incentives for
companies to perform technical and scientific research. Companies that have
qualifying expenses can receive such grants in the form of a tax credit
irrespective of taxes ever paid or ever to be paid, therefore these research
credits are presented as a reduction of research and development expenses. The
Company records the benefit of this grant only when all qualifying research has
been performed and the Company has obtained sufficient evidence from the
relevant French government authority that the credit will be granted.

Earnings per share

Basic earnings per share are computed by dividing net income by the weighted
average number of shares outstanding. Diluted earnings per share are computed by
dividing net income by the weighted average number of shares outstanding plus
dilutive potential ordinary shares outstanding, i.e., additional share
equivalents, using the treasury stock method assuming the exercise of warrants
and share options. Dilutive potential ordinary shares are additional ordinary
shares to be issued. The effects of anti-dilutive potential ordinary shares are
ignored in calculating diluted earnings per share. When net losses are reported,
the dilutive potential ordinary shares outstanding are excluded from the net
loss per share calculation.

Treasury shares

From time to time the Company, with the approval of the Board of Directors,
repurchases a portion of its outstanding ordinary shares. Shares repurchased by
the Company could be used to fulfill its obligations under the stock option
plans or are intended for cancellation. Treasury shares are recorded at cost and
reported as a reduction of shareholders' equity.

Derivative financial instruments

Foreign currency risk

The Company operates both its selling and manufacturing activities on a
worldwide basis. In most cases, the Company's sales are denominated in the
domestic currency of customers. As manufacturing sites are located in different
countries, parts of their costs are also denominated in various currencies.
Therefore, the Company is exposed to foreign exchange risk on its operating
transactions, whether anticipated or firm.

The policy of the Company is to hedge its foreign currency exposure on most of
its firm and anticipated purchases and sales commitments denominated in
currencies other than its subsidiaries functional currencies for periods
commensurate with its known or forecasted transactions. The contracts generally
mature within twelve months. In order to achieve this objective, the Company
uses foreign currency derivative instruments, entering into foreign exchange
forward contracts and purchasing or selling foreign exchange option contracts.
Written options are only used as part of combination strategies. The derivative
instruments are traded "over the counter" with major financial institutions. The
Company does not enter into any derivative contracts for purposes other than
hedging.

The Company uses foreign exchange swaps to monitor its cash-flows, mainly to
finance its affiliates in their functional currency, through inter-company
current accounts. The foreign exchange swaps are combinations of spot purchase
and forward sales in the same currency and traded at the same time.

The Company has written risk management policies and guidelines which set out
its tolerance for risk, its general risk management philosophy and has
established processes to determine the group exposure to foreign exchange risk,
to monitor and control hedging transactions in a timely and accurate manner.
Such written policies are approved by the Audit Committee and reviewed annually.

All hedging instruments are allocated to underlying transactions.

Derivative financial instruments used to hedge the Company's foreign exchange
exposure qualify as cash flow hedges as they reduce variability in cash flows
attributable forecasted transactions. For those hedges associated with forecast
transactions which meet special hedge accounting criteria, the portion of their
change in fair value that is determined to be an effective hedge is recognized
directly in equity through the Statement of Changes in Equity and the
ineffective portion is recognized in the net profit and loss in the foreign
exchange gains and losses. The gains or losses which are recognized in equity
are transferred to the net profit and loss in the same period in which the
hedged forecasted transaction affects the foreign exchange gains and losses
(e.g., when the forecasted purchase actually occurs), as part of the cost of
sales.

For hedges that do not qualify for special hedge accounting, such as foreign
exchange swaps, any gains or losses arising from changes in the fair value of
the hedged item and the hedging instrument are recorded as foreign exchange
gains and losses for the period, except for gains and losses generated by swaps
used to finance the group affiliates which are recorded as an adjustment of the
interest expense.

Conventional way purchases and sales of financial assets are accounted for at
trade date.

Hedge accounting is discontinued when the hedging instrument expires or is sold,
terminated or exercised, or no longer qualifies for special hedge accounting. At
that point in time, any cumulative gain or loss on the hedging instrument
recognized in equity is kept in equity until the forecasted transaction occurs.
Where the hedged transaction is no longer expected to occur, the net cumulative
gain or loss recognized in equity is transferred to the net profit and loss for
the period. Such transactions had no significant impact on the 2001 foreign
exchange result.

Interest rate exposure

Following the 2000 capital increases, the Company has reached a low level of
indebtedness. As a result, the Company is not significantly exposed to interest
rate risk fluctuations. Consequently, it has not entered into any derivative
contracts to hedge interest rate risk.

Financial counterparty risk

Derivatives and all significant cash deposits are undertaken with major
financial institutions having an investment grade rating. Regarding cash
deposits, a few exceptions exist in certain countries for operational reasons
when individual amounts are not significant.


Fair Value of derivatives

Derivatives financial instruments' fair value is calculated at inception and
over the life of the derivative.

Forward exchange contracts' fair value at inception is zero.
Valuation during and at expiration of the forward contract term is calculated
according to the following parameters communicated by the Company's banks
counterparts:
- Spot foreign exchange rate when valuation is performed,
- Interest rate differential between the two foreign countries,
- Time to expiration,
- Notional amount of the contract.
Fair value is then obtained by discounting, for the remaining maturity, the
difference between the contract rate and the market forward rate multiplied by
the nominal amount.

Option contracts' value, at origination, is the initial premium paid or
received.
Over the life of the option and at expiration, fair value is determined using
standard option pricing methodology (Black and Scholes model), based on market
parameters obtained from official information providers or indicative central
banks fixings, and using the following basic variables:
- Market value of the underlying,
- Option strike,
- Volatility "at the money forward", communicated by the Company's banks
  counterparts,
- Risk-free interest rate,
- Expiration date of the option.



Concentration of credit risk

Financial instruments that could potentially subject the Company to
concentrations of credit risk are limited due to its broad geographic and
customer distribution. The Company maintains adequate allowances for potential
credit losses and performs ongoing credit evaluations. As of December 31, 2001,
the Company did not have any significant concentration of business transacted
with a particular customer or lender that could, if suddenly eliminated,
severely impact our operations. Cash and cash equivalents are invested with
several major financial institutions.

Advertising and promotional costs

The Company expenses the costs of advertising and promotional costs when such
costs are incurred. Advertising and promotional expense was euro 6,995 thousand,
euro 9,331 thousand and euro 4,758 thousand, for the years ended December 31,
2001, 2000, and 1999, respectively.


3/   Public offering, common control transactions, treasury shares,
     reorganization acquired and disposed operations

Public offering

On December 8, 2000 the Company completed a public offering of 15,000,000 new
ordinary shares. These shares were sold in a single global offering totaling
81,401,445 shares of which 15,000,000 new ordinary shares where offered by the
Company and 66,401,445 shares were offered by certain existing shareholders of
the Company. Total proceeds from the global offering, before underwriting
discounts, commissions and fees of euro 37,068 thousand, were euro 488,409
thousand which resulted in an allocation of proceeds of euro 90,000 thousand to
the Company and euro 398,409 thousand to selling shareholders. The Company's net
proceeds from the offering, after underwriting discounts, commissions and fees
of euro 7,410 thousand, were euro 82,590 thousand.

Common control transactions

In February 2000, 95.1 percent of the shareholdings of Gemplus S.A., a French
corporation and former holding company of the Group, exchanged their shares of
Gemplus S.A. for shares in Gemplus International S.A., a newly formed Luxembourg
corporation on a one for one basis. This transaction has been accounted for
using historical cost basis accounting.

As at December 31, 2001, certain shares held by employees or former employees
had not yet been contributed. Shares still to be contributed correspond to the
equivalent of 6,114,200 Gemplus International S.A. shares representing 0.95 % of
the shareholdings of Gemplus International S.A, which in total was represented
by 641,396,497 shares as at December 31, 2001. Since the shares of Gemplus S.A.
are not available for sale to the general public but can be converted into
shares of Gemplus International S.A. upon request, it has been considered
certain that the shares will be converted. They have thus been included in both
the basic and diluted earnings per share calculations. As of December 31, 2001,
certain options held by employees under the Gemplus S.A. share option plans had
not been exercised. Following exercise of these options, the corresponding
Gemplus S.A. shares will be contributed by their holders to Gemplus
International S.A.

Treasury shares

During the third quarter of 2001, the Company started the implementation of its
share repurchase program, as approved by the Annual General Meeting held on
April 18, 2001 and authorized by the Commission des Operations de Bourse on May
4, 2001. During 2001, the Company repurchased 4,900,534 shares of its
outstanding common stock, at an average price of euro 3.17 per share. In
addition, as described in Note 31, the Company's former Chief Executive Officer,
Mr. Perez, returned all of the 30,743,679 Gemplus International S.A. shares that
he had received in August and September 2000 to an indirect subsidiary of the
Company, in reimbursement of the loans that such indirect subsidiary had made to
him in 2000 and in 2001. As at December 31, 2001, the Company held 35,705,936
shares of its outstanding common stock. Treasury shares variation is as follows:

                                                       Number of treasury shares
--------------------------------------------------------------------------------
As at December 31, 2000                                                 698,250
--------------------------------------------------------------------------------
Purchase of shares pursuant to the
Company's share repurchase program                                    4,900,534
Shares held by the Company's indirect subsidiary
following transfer of shares by
senior management                                                    30,743,679
Sale of treasury shares                                                (636,527)
--------------------------------------------------------------------------------
As at December 31, 2001                                              35,705,936
--------------------------------------------------------------------------------


Legal Reorganization

In December 1999, Gemplus SCA, a French limited partnership and Gemplus S.A.'s
predecessor, issued 412,500 shares (equivalent to 20,625,000 shares of Gemplus
International SA after the 50 for 1 stock split) to the owners of Gemplus
Associates, the general partner of Gemplus SCA as a result of the merger between
the two companies. Following the transaction, Gemplus SCA was legally
reorganized into Gemplus S.A., a French corporation. The consideration of shares
issued, net of euro 700 thousand of cash held by Gemplus Associates, totaled
euro 65.4 million. The Company treated the transaction consistent with its form
as a business combination and recorded goodwill for the difference between the
fair value of the shares issued and the cash acquired. This transaction was
entered into to enable the Company to terminate Gemplus Associates' general
partner status and management contract. The goodwill of euro 65.4 million that
resulted from this legal reorganization was immediately written off and included
as part of amortization expense in 1999.

Acquired operations

In November 2000, the Company completed its acquisition of Celocom Limited
("Celo"), an electronic transaction security business. The total purchase
consideration of euro 55,725 thousand was comprised of cash of euro 30,574
thousand and 4,191,776 ordinary shares amounting to euro 25,151 thousand. The
acquisition was recorded under the purchase method of accounting, and
accordingly, the assets acquired and liabilities assumed were recorded at
estimated fair values. Incremental fair value adjustments included euro 3,387
thousand for developed software. Such intangible asset is being amortized using
the straight-line method over its estimated useful lives of 3 years. The excess
of the purchase price over the fair market value of net assets acquired
generated goodwill of euro 54,385 thousand. Such goodwill is being amortized
using the straight-line method over five years.

In October 2000, the Company completed its acquisition of SLP InfoWare S.A.
("SLP"), a software developer in the wireless services business. The total
purchase price paid for SLP was euro 51,177 thousand, comprised of cash of euro
49,000 thousand and 362,863 in ordinary shares amounting to euro 2,177 thousand.
The acquisition was recorded under the purchase method of accounting, and
accordingly, the assets acquired and liabilities assumed were recorded at
estimated fair values. Incremental fair value adjustments included euro 8,400
thousand for developed software and euro 1,700 thousand for patents. Developed
software and patents are being amortized using the straight-line method over
their estimated useful lives of 3 years. The excess of the purchase price over
the fair market value of net assets acquired generated goodwill of euro 37,153
thousand. Such goodwill is being amortized over five years.

On a pro-forma basis, as if Celo and SLP had been acquired at the beginning of
fiscal 2000 and 1999, respectively, revenue and expenses with the exception of
goodwill amortization would not differ materially from the amounts reported in
the Company's accompanying consolidated financial statements for each of the
years ended December 31, 2000 and 1999. On a pro-forma basis, amortization of
related goodwill would have reduced net income by euro 15,586 thousand and euro
18,308 thousand in 2000 and 1999, respectively. On a pro-forma basis, basic
earnings per share and diluted earnings per share would have been reduced by
0.03 and 0.03, respectively, for the year ended December 31, 2000 (0.06 and
0.06, respectively, for the year ended December 31, 1999).

In April 2000, the Company completed its acquisition of ODS (Oldenbourg Daten
System), a German manufacturer of memory chip phone and bank cards as well as
microprocessor pay-TV cards. The final purchase consideration was euro 21,713
thousand. The excess of the purchase price over the fair market value of net
assets acquired generated goodwill of euro 8,138 thousand.

During 2001, 2000 and 1999, the Company acquired various other companies, mainly
with activities in the field of research and development. The impact of these
acquisitions on the consolidated financial statements was not material.

In 2000, purchase of activities net of cash acquired and corresponding goodwill
can be analyzed as follows (in thousand euros):

<TABLE>
                                                            Celo                SLP          ODS and others      Total
<S>                                                         <C>                 <C>          <C>                 <C>
Cash payments                                                    30,574             49,000          19,801          99,375
Cash acquired                                                      (325)               (10)              -            (335)
                                                      ------------------ ------------------ ---------------  --------------
Purchase of activities net of cash acquired                      30,249             48,990          19,801          99,040
                                                      ------------------ ------------------ ---------------  --------------

Advance payments made during 1999                                     -                  -           3,990           3,990
Consideration paid in shares                                     25,151              2,177               -          27,328
                                                      ------------------ ------------------ ---------------  --------------

Acquisition costs net of cash acquired                           55,400             51,167          23,791         130,358

Developed software                                                3,387              8,400               -          11,787
Patents                                                               -              1,700               -           1,700
Property, plant and equipment                                       466                144          11,344          11,954
Accounts receivable and other current assets                        965              5,549           9,470          15,984
Deferred tax assets (liabilities) net                              (102)             1,165           2,795           3,858
Bank overdrafts                                                  (3,173)              (135)              -          (3,308)
Accounts payable and other current liabilities                     (528)            (2,809)         (9,680)        (13,017)

                                                      ------------------ ------------------ ---------------  --------------
Fair value of net assets acquired                                 1,015             14,014          13,929          28,958
                                                      ------------------ ------------------ ---------------  --------------
                                                      ------------------ ------------------ ---------------  --------------
Goodwill                                                         54,385             37,153           9,862         101,400
                                                      ================== ================== ===============  ==============
</TABLE>

Disposed operations

On August 23, 2001, the Company completed the sale of its subsidiary Skidata
A.G. ("Skidata"), the Company's electronic access-control solutions business
unit, to Kudelski S.A., for euro 117,500 thousand, of which euro 33,500 thousand
was received in cash and euro 84,000 thousand was received in shares, which the
Company immediately resold for euro 84,000 thousand to a designee of Kudelski.
As a result of the transaction, the Company's 2001 Consolidated Statement of
Income only includes Skidata's operational results up to August 23, 2001.

In connection with the agreement that was reached between the Company and
Kudelski S.A. to sell SkiData, the Company entered into an agreement with
Meridiana-Werzalit B.V. ("Meridiana") to purchase the remaining shares of
Skidata held by Meridiana, a minority shareholder. Pursuant to this agreement
signed on June 23, 2001, the Company purchased 700,000 shares of Skidata,
representing 20% of Skidata's issued share capital, for a total purchase
consideration of euro 13,081 thousand. This consideration was negotiated on the
basis of an amendment to the purchase agreement dated March 1997 pursuant to
which the Company had purchased the first 80% of Skidata's shares.

In addition, on June 23, 2001, the Company entered into an agreement with
Meridiana, pursuant to which Meridiana transferred to Gemplus in exchange for a
payment of euro 1 all of its rights concerning a loan of euro 3,634 thousand
granted to Skidata. This loan had been granted to Skidata in 1996 by Constantia,
an Austrian corporation, subsidiary of Meridiana and former principal
shareholder of Skidata, and was repayable under specific conditions, none of
which had been met as at June 23, 2001. This transaction was recorded by the
Company as a reduction of the euro 13,081 thousand consideration paid to
Meridiana to acquire the remaining 20% of Skidata's shares.

The acquisition of the remaining 20% of Skidata's shares was recorded under the
purchase method of accounting. The excess of the net purchase price of euro
9,446 thousand over the fair market value of the shares acquired generated a
goodwill of euro 7,530 thousand.


On July 31, 2001, the Company completed the sale of its Tag electronic smart
labels solutions business to Axa Private Equity, for euro 3,007 thousand. As a
result of the transaction, the Company's 2001 consolidated statement of income
only includes Tag activities' operational results up to July 31, 2001.

In 2001, disposal of activities net of cash disposed can be analyzed as follows
(in thousand euros):

                                                                 SkiData and Tag

Consideration received in cash                                          36,507
Consideration received in shares immediately resold                     84,000
                                                                      --------
Proceeds from sale of activities                                       120,507
                                                                      --------

Cash disposed                                                           (3,506)

                                                                      --------
Proceeds from sale of activities, net of cash disposed                 117,001
                                                                      --------

Fees                                                                    (8,270)

                                                                      --------
Proceeds from sale of activities, net of fees                          108,731
                                                                      --------


Intangible assets                                                        1,010
Property, plant and equipment                                            5,972
Financial assets                                                         2,335
Accounts receivable and other current assets                            60,485
Bank overdrafts                                                        (25,538)
Accounts payable and other current liabilities                         (26,504)
Long-term liabilities                                                     (895)
Currency translation adjustment                                            577

                                                                      --------
Net assets sold                                                         17,442
                                                                      --------
Goodwill disposed                                                       22,975

                                                                      --------
Net gain on disposal of activities                                      68,314
                                                                      ========


4/   Trade accounts receivable

Trade accounts receivable consist of the following:
                                                         (in thousands of euros)
-------------------------------------------------------------------------------
                                                        December 31,
                                               2001         2000        1999
-------------------------------------------------------------------------------
Trade accounts receivable, gross             201,481      323,987      210,390
Less, allowances for doubtful accounts       (12,846)     (12,711)      (9,435)

-------------------------------------------------------------------------------
Trade accounts receivable, net               188,635      311,276      200,955
-------------------------------------------------------------------------------

5/   Inventory

Inventory consists of the following:

                                                        (in thousands of euros)
-------------------------------------------------------------------------------
                                                   December 31,
                                    2001               2000              1999

-------------------------------------------------------------------------------
Raw materials and supplies         63,621             60,540            35,304
Work-in-process                    79,394             79,103            42,133
Finished goods                     14,738             45,586            29,960
-------------------------------------------------------------------------------
Inventory, gross                  157,753            185,229           107,397
-------------------------------------------------------------------------------
Less, inventory allowance         (17,959)           (11,128)          (11,576)

-------------------------------------------------------------------------------
Inventory, net                    139,794            174,101            95,821
-------------------------------------------------------------------------------

6/  Other current assets

Other current assets include the following:
                                                         (in thousands of euros)
--------------------------------------------------------------------------------

                                                        December 31,
                                              2001          2000          1999

--------------------------------------------------------------------------------
Value added tax receivable                    36,209        36,205       18,371
Other taxes receivable                        13,870           596          591
Foreign currency hedges                            -        23,284            -
Advance facility to supplier                  21,539        10,747            -
Advance payments to non-trade suppliers        7,816         7,328        8,407
Prepaid expenses                               9,646         9,293       10,743
Advance payments to trade suppliers            4,572         2,049        2,091
Prepaid pension cost                             982         1,032          626
Equity investee loans                              -             -          440
Other current assets                           9,099         6,843        4,362

--------------------------------------------------------------------------------
Total other current assets                   103,733        97,377       45,631
--------------------------------------------------------------------------------

During the fourth quarter 2000, to reduce supply risk associated with obtaining
microprocessor chips, the Company entered into a long-term supply agreement with
a major microprocessor manufacturer. In connection with this supply agreement,
the Company financed enhancements of this supplier's production capacity with an
unsecured advance facility for euro 37.6 million. The advance facility matures
over a period of three years and earns rebates at a rate of 7.5% per annum, such
rebate being deemed to include interest receivable on the loan. Following the
economic downturn in the wireless market, the Company has reduced its purchases
of microprocessor chips and therefore could not earn enough rebates to cover the
interest receivable on the loan. As a result, the advance facility was
remeasured at amortized cost, resulting in a euro 2,022 thousand financial
expense in the 2001 consolidated statement of income. As of December 31, 2001,
no repayment has yet occurred and the outstanding balance of the advance
facility was euro 37,694 thousand, of which euro 21,539 thousand is recorded
under other current assets and euro 16,154 under other non current assets.

Fair values of hedging instruments on foreign currency contracts are recorded in
other current assets or liabilities. The corresponding changes in fair value are
recognized in earnings or in equity. -


7/   Property, plant and equipment

Property, plant and equipment includes the following:

<TABLE>
                                                                                               (in thousands of euros)
-----------------------------------------------------------------------------------------------------------------------
                                                                                           December 31,
                                                                               2001           2000             1999
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>            <C>               <C>
Land                                                                            7,169          5,204             4,174
Buildings                                                                     136,570        104,023            89,077
Machinery and equipment                                                       346,267        334,620           240,396
Construction in progress                                                       36,807         18,187            10,418
-----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, gross amount                                   526,813        462,034           344,065
-----------------------------------------------------------------------------------------------------------------------
Buildings, accumulated depreciation                                           (44,606)       (35,072)          (24,791)
Machinery and equipment, accumulated depreciation                            (213,423)      (177,046)         (128,255)
-----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, accumulated depreciation                      (258,029)      (212,118)         (153,046)
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net                                            268,784        249,916           191,019
-----------------------------------------------------------------------------------------------------------------------
</TABLE>



Interest is capitalized during the new construction or upgrade of qualifying
assets. No interest was capitalized in 2001, 2000 and 1999, due to the low level
of the Company's borrowings.

Property, plant and equipment variation analysis is as follows:

                                                        (in thousands of euros)
-------------------------------------------------------------------------------

                                                   Gross amount    Amortization
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
Opening December 31, 2000                            462,034          (212,118)
-------------------------------------------------------------------------------
Additions and amortization expense                   102,555           (84,160)
Disposals and retirements                            (26,770)           26,498
Effect of change for acquisitions / dispositions     (19,071)           13,099
Exchange rate differences                              8,065            (1,348)

-------------------------------------------------------------------------------
Closing December 31, 2001                            526,813          (258,029)
-------------------------------------------------------------------------------

Included below are amounts related to assets subject to capital leases, which
have been included in the balance of property, plant and equipment.

<TABLE>
                                                                                          (in thousands of euros)
-----------------------------------------------------------------------------------------------------------------
                                                                                          December 31,
                                                                               2001           2000          1999
-----------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>           <C>          <C>
Land                                                                            3,459         2,756        2,970
Buildings                                                                      42,672        45,937       46,913
Construction in progress                                                        5,711             -            -
-----------------------------------------------------------------------------------------------------------------
Property, plant and equipment under capital lease, gross                       51,842        48,693       49,883
-----------------------------------------------------------------------------------------------------------------
Less, accumulated depreciation                                                (15,887)      (14,779)     (11,789)
-----------------------------------------------------------------------------------------------------------------
Property, plant and equipment under capital lease, net                         35,955        33,914       38,094
-----------------------------------------------------------------------------------------------------------------
</TABLE>


8/   Goodwill

Goodwill consists of the following:

                                                        (in thousands of euros)
--------------------------------------------------------------------------------

                                                     December 31,
                                         2001            2000          1999
-------------------------------------------------------------------------------
Goodwill                                  163,402        186,080        83,838
Goodwill, accumulated amortization        (46,822)       (30,271)      (19,859)

-------------------------------------------------------------------------------
Goodwill, net                             116,580        155,809        63,979
-------------------------------------------------------------------------------

Goodwill variation analysis is as follows:

                                                       (in thousands of euros)
--------------------------------------------------------------------------------

                                                  Gross amount   Amortization
------------------------------------------------------------------------------

------------------------------------------------------------------------------
Opening December 31, 2000                              186,080        (30,271)
------------------------------------------------------------------------------
Additions and amortization expense                      10,824        (27,162)
Effect of change for acquisitions / dispositions       (33,631)        10,656
Other disposals and retirements                         (1,330)           250
Exchange rate differences                                1,459           (295)

------------------------------------------------------------------------------
Closing December 31, 2001                              163,402        (46,822)
------------------------------------------------------------------------------

Goodwill is being amortized on a straight-line basis over periods of 5 to 20
years. The Company reviews the carrying value of goodwill for impairment
whenever events or circumstances indicate that the carrying amount may not be
recoverable.


9/       Other non-current assets

Other non-current assets consist of the following:

<TABLE>
                                                                                      (in thousands of euros)
--------------------------------------------------------------------------------------------------------------
                                                                                     December 31,
                                                                           2001         2000           1999
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>          <C>             <C>
Loans receivable from senior management                                  75,317       150,324               -
Software, net of accumulated amortization
(12,381 in 2001, 12,549 in 2000 and 8,630 in 1999)                       31,347        21,961          11,424

Long-term portion of advance facility to supplier (note 6)               16,154        26,867               -
Research tax credits                                                     12,144        18,877           4,732

Patents and patent rights, net of accumulated amortization
(4,865 in 2001, 5,046 in 2000 and  3,628 in 1999)                         6,150         5,798           2,344
Rental deposits                                                           1,622         1,978           1,319
Employee loans and other related loans                                      850         1,778           1,726
Other loans and assets                                                    6,888         6,460           1,651

--------------------------------------------------------------------------------------------------------------
Total other non-current assets                                          150,472       234,043          23,196
--------------------------------------------------------------------------------------------------------------
</TABLE>



As described in Note 31, loans were granted in 2000 to Mr. Perez and to Dr.
Lassus pursuant to the terms of their employment. During 2001, Mr. Perez
partially reimbursed the loans that were granted to him and the unreimbursed
portion of the loans was charged to the Company's Consolidated Statement of
Income. As at December 31, 2001, the outstanding balance of these loans was euro
75,317 thousand, including accrued interest in the amount of euro 3,459
thousand, and concerned exclusively Dr. Lassus.

Capitalized software includes software developed and acquired for internal
corporate use, primarily in enterprise resource planning and customer
relationship management.

10/   Research and development costs

Deferred development costs can be analyzed as follows:

<TABLE>
                                                                    (in thousands of euros)
-------------------------------------------------------------------------------------------

                                                                       December 31,
                                                              2001         2000       1999
-------------------------------------------------------------------------------------------
<S>                                                         <C>           <C>        <C>
Gross amount at beginning of year                           34,846        9,074      8,104
Accumulated amortization at beginning of year               (8,497)      (1,376)    (4,426)
-------------------------------------------------------------------------------------------
Balance of beginning of year                                26,349        7,698      3,678
-------------------------------------------------------------------------------------------
Deferred during the year                                     6,511       13,984      7,507
Less, allowances                                            (4,390)      (7,120)    (3,487)
-------------------------------------------------------------------------------------------
Impact for the year on income before tax                     2,121        6,864      4,020
-------------------------------------------------------------------------------------------
Software development arising from acquisition                    -       11,787          -
-------------------------------------------------------------------------------------------
Balance at end of year                                      28,470       26,349      7,698
-------------------------------------------------------------------------------------------
Gross amount at end of year                                 41,357       34,846     15,611
Accumulated amortization                                   (12,887)      (8,497)    (7,913)
-------------------------------------------------------------------------------------------
Balance at end of year                                      28,470       26,349      7,698
-------------------------------------------------------------------------------------------
</TABLE>

Capitalized development costs comprise software to be sold including software
development arising from acquisitions (See Note 3).

Research and development expenses incurred during the year consist of the
following:

                                                         (in thousands of euros)
--------------------------------------------------------------------------------
                                                     Years ended December 31,
                                                    2001       2000      1999
--------------------------------------------------------------------------------
Research and development expenditures             124,567    104,344    67,383
Deferred development costs, net                    (2,121)    (6,864)   (4,020)
Grants received including research tax credit      (9,561)    (6,702)   (1,115)

-------------------------------------------------------------------------------
Total research and development                    112,885     90,778    62,248
-------------------------------------------------------------------------------

Due to the special tax status of the Company until 1999, the Company's
eligibility for certain research tax credits was legally uncertain. For this
reason, the Company recorded an allowance against certain research tax credits
arising between 1993 and 1999 that were included as a component of other
non-current assets. In 2000, the Company obtained formal confirmation that these
research tax credits will be received and reversed the allowance accordingly.
The reversal amounting to euro 12,486 thousand has been included as a separate
line item of operating income in 2000.


11/ Investments

Investments consist of the following:

                                                         (in thousands of euros)
--------------------------------------------------------------------------------
                                                           December 31,
                                                   2001        2000      1999
--------------------------------------------------------------------------------
Equity affiliates                                 4,358       5,551     2,509
Investments in non-marketable
equity securities
(net of valuation allowance of 14,107
in 2001, 11,684 in 2000 and 11,395 in 1999)      17,066      11,183     1,290

--------------------------------------------------------------------------------
Investments                                      21,424      16,734     3,799
--------------------------------------------------------------------------------

As at December 31, 2000, investments in equity securities included one public
company, SCM, listed on the Nasdaq, which has a reasonable sized public float.
Such shares were sold during 2001.

The Company has minority shareholdings in numerous non-public start-up
companies. These shareholdings are recorded at cost. An allowance is recorded
when there is reason to believe that an impairment in value has occurred, i.e.,
that the business model is questioned and / or that the business plan is not
met.


12/  Accounts payable

Accounts payable consist of the following:

                                                 (in thousands of euros)
-------------------------------------------------------------------------------

                                                 December 31,
                                  2001               2000               1999

-------------------------------------------------------------------------------
Trade accounts payable          102,566            235,982             135,759
Non-trade accounts payable        7,095             25,065               9,677

-------------------------------------------------------------------------------
Total accounts payable          109,661            261,047             145,436
-------------------------------------------------------------------------------


13/      Other current liabilities

Other current liabilities consist of the following:

<TABLE>
                                                                                          (in thousands of euros)
-----------------------------------------------------------------------------------------------------------------
                                                                                           December 31,
                                                                                   2001        2000        1999
-----------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>      <C>            <C>
Management severance liability                                                    21,113           -           -
Litigation expenses                                                               19,411           -           -
Customer deposits                                                                  8,897      10,344       5,650
Restructuring - provision for reduction of workforce and other cash outlays        6,177           -           -
Allowances for customer claims                                                     5,848       2,821       3,526
Deferred revenue                                                                   5,662       9,688       7,262
Foreign currency hedges                                                            5,178           -       5,876
Short-term debt                                                                    4,840      24,307      23,160
Tax reimbursement liability on interest forgiven on loans to senior management     3,585           -           -
Provision for employee terminations                                                    -         338         495
Other purchase acquisition liability                                                   -       2,755           -
Other accrued liabilities                                                          5,700       4,614       2,686

-----------------------------------------------------------------------------------------------------------------
Total other current liabilities                                                   86,411      54,867      48,655
-----------------------------------------------------------------------------------------------------------------
</TABLE>


As at December 31, 2001, the liability relating to management severance expenses
described in Note 31 amounted to euro 21,113 thousand. This liability was
analyzed between a tax payable on the portion of the loan that has been forgiven
for euro 6,502 thousand and termination benefits payable in cash for euro 14,611
thousand.

As described in note 26, the Company recorded a charge of euro 18,120 thousand
in its 2001 Consolidated Statement of Income with respect to the judgment on
appeal rendered in October 2001 concerning the Humetrix litigation. This charge
resulted in a total current liability (including a previously existing
provision) of euro 19,411 thousand in the balance sheet as at December 31, 2001.

Pursuant to the terms of the loans granted to Messrs. Perez and Lassus in 2000,
one of the Company's indirect subsidiaries has agreed to arrange for the
interest on these loans to be forgiven starting July 1, 2001, and to assume any
income tax resulting from this forgiveness. Interest related to the loans were
accrued in the Consolidated Statement of income, totaling euro 3,139 thousand in
2000 and euro 4,877 thousand in 2001. Income tax resulting from the forgiveness
of interest starting July 1st, 2001 was accrued in the 2001 Consolidated
Statement of Income, resulting in a compensation expense of euros 3,585 thousand
reflected under general and administrative expenses.


Fair values of hedging instruments on foreign currency contracts are recorded in
other current assets or liabilities. The corresponding changes in fair value are
recognized in earnings or in equity.

Short-term debt consists of overdrafts that either result from the daily usage
of cash in some of the Company's foreign locations or from subsidiaries that are
not wholly owned and that do not benefit from the Company's treasury management.

14/      Long-term debt

Long-term debt consists of the following:

                                                      (in thousands of euros)
------------------------------------------------------------------------------
                                                        December 31,
                                                2001        2000         1999
------------------------------------------------------------------------------
Long-term debt                                     -       3,688        3,634
Use of medium and long-term credit lines          14       4,044        7,725
------------------------------------------------------------------------------
Total long-term debt                              14       7,732       11,359
------------------------------------------------------------------------------
Less, current portion                              -      (1,867)      (3,256)

------------------------------------------------------------------------------
Total long-term debt, less current portion        14       5,865        8,103
------------------------------------------------------------------------------



As at December 31, 2000, long-term debt included a loan of euro 3,634 thousand,
granted in 1996 to SkiData by the former shareholder of SkiData, Meridiana. As
described in Note 3, in connection with the sale of its Skidata subsidiary, the
Company entered in June 2001 into an agreement with Meridiana, pursuant to which
Meridiana transferred to Gemplus in exchange for a payment of euro 1 all of its
rights concerning this loan. -

The Company maintains confirmed credit facilities with a number of lending
institutions, amounting to euro 107,500 thousand at December 31, 2001, almost
entirely unused as at December 31, 2001. These euro 107,500 thousand included
euro 97,500 thousand corresponding to a revolving credit facility entered into
in 1999, as described below. Borrowing rates on these credit facilities if used
range from EURIBOR/LIBOR +0.325% to EURIBOR/LIBOR +0.400%, if unused cost ranges
from 0.100% to 0.175%. Marginal costs range from EURIBOR/LIBOR +0.175% to
EURIBOR/LIBOR +0.300%. In 2001, 2000, and 1999 the average EURIBOR/LIBOR rate
were 4.329%, 4.237%, and 2.862%, respectively.

The Company entered into a euro 150,000 thousand revolving credit facility in
1999 with a syndicate of international banking institutions that bears interest
at a floating rate. In July 2000, euro 52,500 thousand of loan commitments under
the revolving credit facility expired without being used. Out of the remaining
euro 97,500 thousand, euro 24,400 thousand expires in July 2002, euro 24,400
thousand in July 2003 and euro 48,700 thousand in July 2004. As of December 31,
2001, the Company had not drawn any amounts under the revolving credit facility.


Convertible debentures

In 1993, the Company issued convertible debentures bearing interest annually at
6% with a face value of euro 7,623 thousand. In December 1997, each debenture
was converted into one share of the Company's ordinary shares at a conversion
price of euro 1.94. The euro 25,310 thousand capital increase was carried out in
part through the conversion of convertible debentures with a nominal value of
euro 7,623 thousand and in part for cash in an amount of euro 17,687 thousand.
In 1999, the shareholders of the Company adjusted the conversion price of the
convertible debt. As a result of such adjustment, a payment of euro 1,348
thousand has been remitted to former holders of the convertible debentures.
Since the payment corresponded to a reduction in the price of the shares, it was
charged against the paid-in capital recorded in connection with the original
conversion transaction.



15/  Capital leases

Capital leases obligations outstanding as at December 31, 2001 are analyzed as
follows:

                                                 (in thousands of euros)
------------------------------------------------------------------------

2002                                                              6,039
2003                                                              7,537
2004                                                              5,498
2005                                                              5,390
2006                                                              4,767
Thereafter                                                       15,177
------------------------------------------------------------------------
Total minimum lease payments                                     44,408
------------------------------------------------------------------------
Less, amount representing interest                               (8,093)
------------------------------------------------------------------------
Present value of minimum obligations under capital leases        36,315
------------------------------------------------------------------------
Less, current portion of obligations under capital leases        (3,734)
------------------------------------------------------------------------
Long-term obligations under capital leases                       32,581
------------------------------------------------------------------------


In 1999, the Company entered into a sale-leaseback transaction with two major
financial institutions for a duration of 11 years ending on December 31, 2010.
The proceeds received amounted to euro 28,270 thousand and relate to land and an
industrial and office building located in Gemenos, France. This sale-leaseback
transaction resulted in no gain or loss in the Consolidated Statement of Income.

In 2001, the Company entered into a sale-leaseback transaction with a major
financial institution related to land and a research and development and office
building located in La Ciotat, France, under construction as at December 31,
2001. The capital lease will have a duration of 12 years after the completion of
the building. The proceeds received in 2001 amounted to euro 5,711 thousand.
This sale-leaseback transaction resulted in no gain or loss in the Consolidated
Statement of Income.

16/      Other non-current liabilities

Other non-current liabilities consist of the following:

                                                        (in thousands of euros)
-------------------------------------------------------------------------------

                                                         December 31,
                                             2001         2000          1999

-------------------------------------------------------------------------------
Non-current liabilities                      29,989      42,184         37,406
Equity investments commitments                  870       1,533            953

-------------------------------------------------------------------------------
Total other non-current liabilities          30,859      43,717         38,359
-------------------------------------------------------------------------------




Long-term liabilities variation analysis is as follows:

<TABLE>

                                                                                                        (in thousands of euros)
---------------------------------------------------------------------------------------------------------------------------------
                                              Effect of                 Effect of       Amounts
                                              exchange    Increase in   change for      unused          Amounts
                                December 31,    rate       long-term   acquisitions/  during the      used during    December 31,
                                   2000        changes    liabilities  dispositions     period        the period         2001
---------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>           <C>        <C>            <C>             <C>            <C>
Provision for patents claims      19,564           -          1,601            -        (10,600)        (1,565)          9,000
Provision for tax claims          13,010          (1)         3,579            -         (2,832)           (29)         13,727
Provision for litigation claims    2,502           -          2,300       (1,282)             -         (1,220)          2,300
Provision for pension costs        1,584          10            552            -           (266)           (27)          1,853
Other provisions                   3,655          42          1,449            -         (1,160)        (1,274)          2,712
Govermnent loans received          1,869          15              -            -         (1,100)          (387)            397

---------------------------------------------------------------------------------------------------------------------------------
Total                             42,184          66          9,481       (1,282)       (15,958)        (4,502)         29,989
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>


The Company pays royalties for the use of certain patents. In certain cases, due
to the nature of the technology involved, the portion covered and the timing
during which royalties are paid under the patent agreements may be questioned.
Based on past experience and known facts and circumstances as of the balance
sheet date, the Company records a provision for potential claims. The Company
partially reversed in 2001 a provision for a patent claim, resulting in a
favorable euro 10,600 thousand royalty expense adjustment recorded in cost of
sales. This provision had been recorded following allegations by a claimant that
the Company was infringing one or more patents owned by such claimant. In June
2001, the Company reached an agreement with such claimant and the risk of loss
and outflow of resources was no longer probable.

In the ordinary course of business, the Company and its subsidiaries are
occasionally challenged by local tax authorities. The Company records a
provision for these tax risks based on its most available information on the tax
claim in each tax jurisdiction and past experience in settling these claims.
Based on certain confirmations and a ruling obtained from the tax authorities in
2001, provisions for tax claims amounting to euro 2,832 thousand have been
reversed to net income.

Certain entities of the group are eligible to receive government loans. These
loans are only repayable when financed projects are commercially successful. For
unsuccessful projects, the funds received do not have to be repaid and as
appropriate the Company reverses the recorded liability.


17/      Other income (expense) net

Other income (expense) net consists of the following:

<TABLE>
                                                                        (in thousands of euros)
------------------------------------------------------------------------------------
                                                    For the years ended December 31,
                                                     2001         2000       1999
------------------------------------------------------------------------------------
<S>                                                 <C>          <C>         <C>
Gain (loss) on investments                          66,425       14,035      5,829
Gain (loss) on equity investments                   (3,505)      (4,542)      (961)
Foreign exchange gain (loss)                       (12,618)        (889)    (1,208)
Gain (loss) on sale and disposal of fixed assets      (189)         169        447
Minority interests                                  (4,432)      (8,801)    (4,565)

------------------------------------------------------------------------------------
Total other income (expense) net                    45,681          (28)      (458)
------------------------------------------------------------------------------------
</TABLE>


As indicated in Note 11, the Company may hold minority shareholdings in various
related high technology companies. In 1999, the sale of shares of SCM generated
a profit of euro 3,708 thousand and the sale of Verisign shares generated a
profit of euro 5,032 thousand. In 2000, the sale of Intercall shares generated a
profit of euro 11,765 thousand. Prior to these sales of shares, the Company
owned approximately 6% in both Intercall and SCM and less than 2% in Verisign.
Subsequent to these share sales the Company owned less than 2% interest in each
of these respective companies. As at December 31, 2001, the Company had no more
interests in these companies.

The euro 66,425 thousand net gain on investments recorded in 2001 primarily
included a euro 68,314 thousand one-time gain generated from our Skidata and Tag
divestitures (See Note 3).



18/    Income taxes

Gemplus S.A. and certain of its French subsidiaries operate in a tax exempt
enterprise zone and accordingly the income related to their manufacturing
activities in such a zone are exempt from income taxes for a ten-year period
expiring between the fiscal years 1999 to 2002. The tax-free status for some of
the major French entities expired during 1999. The Company was has benefited
from new temporary tax exemptions in 2000 and 2001, in Asian countries.

The contribution of shares of Gemplus S.A. to Gemplus International S.A., a
Luxembourg company, has no effect on deferred tax assets and liabilities
previously recognized.

The components of income taxes benefit (provision)are as follows:

                                                  (in thousands of euros)
--------------------------------------------------------------------------
                                                Years ended December 31,
                                              2001       2000        1999
--------------------------------------------------------------------------
Current taxes                               (4,074)   (28,044)    (13,016)
Deferred taxes                              18,258     (1,587)        945

--------------------------------------------------------------------------
Total taxes benefit (provision)             14,184    (29,631)    (12,071)
--------------------------------------------------------------------------



A reconciliation between the reported income tax expense and the theoretical
amount that would arise using a standard tax rate is as follows:

<TABLE>
---------------------------------------------------------------------------------------------------
                                                                   Years ended December 31,
                                                                  2001        2000         1999
<S>                                                             <C>          <C>          <C>
-------------------------------------------------------------------------------------------------
Income before taxes                                             (114,404)    128,709     (20,062)
-------------------------------------------------------------------------------------------------
Income tax calculated at corporate tax rate (*)                   42,845     (48,202)      8,024
Effect of tax exemption                                           15,144      12,496      (2,395)
Effect of different tax rates                                       (916)     17,180       1,493
Effect of release of valuation allowance                           4,154          _           _
Effect of unrecognized tax assets                                (40,533)     (9,367)      6,842
Effect of expenses non deductible and revenues non taxable           353       2,458       2,690
Effect of goodwill amortization resulting from mergers
and acquisitions (note 3)                                         (6,863)     (4,196)    (28,725)
-------------------------------------------------------------------------------------------------
Income tax expense for the year                                   14,184     (29,631)    (12,071)
-------------------------------------------------------------------------------------------------
</TABLE>

(*) Luxembourg tax rate of 37.45% in 2001 and 2000, respectively, France tax
rate of 40.00% in 1999



The components of the net deferred tax asset recorded at December 31, 2001, 1999
and 1998 are:

<TABLE>
                                                              (in thousands of euros)
--------------------------------------------------------------------------------------
                                                                  December 31,
                                                          2001        2000       1999
--------------------------------------------------------------------------------------
<S>                                                     <C>         <C>        <C>
ASSETS
Loss carryforward                                       82,978      39,806     25,726
Excess book over tax depreciation and amortization       2,646       2,957      5,665
Other temporary differences                             32,674      21,961     19,427
Valuation allowance                                    (82,048)    (48,358)   (42,784)
--------------------------------------------------------------------------------------
LIABILITIES
Excess tax over book depreciation and amortization      (4,349)     (2,296)    (2,706)
Other temporary differences                             (9,753)     (9,246)    (3,128)
--------------------------------------------------------------------------------------
Net deferred tax asset                                  22,148       4,824      2,200
--------------------------------------------------------------------------------------
Deferred tax asset                                      22,148       7,120      8,034
Deferred tax liability                                       -      (2,296)    (5,834)
--------------------------------------------------------------------------------------
Not deferred tax asset                                  22,148       4,824      2,200
--------------------------------------------------------------------------------------
</TABLE>


At December 31, 2001, the Company had net operating loss carryforwards totaling
223,485 euro thousand of which 29,628 euro thousand, 7,381euro thousand, 10,633
euro thousand and 74,489 euro thousand is limited to five years, ten years,
fifteen years and twenty years, respectively, and 101,354 euro thousand may be
used indefinitely. In those situations where tax loss carryforwards and other
net deferred tax assets have been generated by start-up companies or by
companies without a recent history of profitable operations, management has
provided a valuation allowance to reduce net deferred tax asset to the estimated
realizable value.

The valuation allowance has been partially released in 2001 following favorable
outcomes on certain tax investigations by tax authorities.

Deferred income taxes on the undistributed earnings of the Company's foreign
subsidiaries are not provided for as it is intended that the vast majority of
these earnings will be indefinitely reinvested in these entities.


19/  Restructuring

Pursuant to the Company's announcement on May 2, 2001 of a plan to restructure
its operations worldwide, the Company recorded a pre-tax restructuring charge of
euro 28,466 thousand in the statement of income during the second quarter of
2001. This restructuring charge was in connection with the closure of a
manufacturing facility, the downsizing of a research and development and
services center in Canada, a reduction of the workforce following the
combination of the Company's financial services and e-business activities, and
the rationalization of office facilities on a worldwide basis.

The euro 28,466 thousand charge consisted of euro 15,386 thousand for headcount
reductions, euro 11,977 thousand for consolidation of facilities and related
fixed assets and euro 1,103 thousand for inventory write-offs.

The restructuring actions were taken to reduce manufacturing capacity, and, from
a business standpoint, to better integrate resources, leverage technology
trends, and minimize overlapping market requirements and partnerships in the
financial services and e-business sectors.

The plan included the termination benefits of 497 employees representing 7% of
the Company's global workforce. Employee reductions occurred in the following
areas: manufacturing organization 200 employees, research and development 123
employees, selling and marketing organizations 100 employees, system integration
and consulting services 34 employees, and support functions 40 employees.

The majority of employee terminations were located in Germany (214 persons), due
principally to the closure of the Seebach manufacturing facility (198 persons),
and Canada (167 persons), due to the downsizing of the research and development
and services center in Montreal. The remaining 116 terminations of employment
were located in different countries of the world.

Total cash outlays for the restructuring program are expected to amount to euro
22,022 thousand, including euro 15,386 thousand for termination of employment,
and euro 6,636 thousand for other related exit costs. Non-cash related actions,
primarily consisting of assets and inventory write-offs, amounted to euro 6,444
thousand.

Restructuring activity -for the year ended December 31, 2001 was as follows:

<TABLE>
                                                                                     (in thousand euros)
                                            Reduction of workforce    Non-cash write-offs of     Total
                                           and other cash outflows            assets
--------------------------------------------------------------------------------------------------------
<S>                                        <C>                       <C>                        <C>
2001 restructuring charge                            22,022                  6,444              28,466
--------------------------------------------------------------------------------------------------------
Amounts utilized in 2001:                           (15,466)
Exchange rate differences                              (379)
Restructuring reserve as at December 31,              6,177
2001
--------------------------------------------------------------------------------------------------------
</TABLE>


20/   Ordinary shares

Gemplus International S.A. is a corporation incorporated in the Grand Duchy of
Luxembourg. The authorized share capital of the Company is currently four
hundred million euro consisting of two billion shares with no legal par value.

On February 18, 2000, the Company issued 94,000,000 shares to Texas Pacific
Group at Euro 3.51 per ordinary share, the fair value determined by the Board of
Directors on February 2, 2000. Net proceeds from the issuance were Euro 319,704
thousand. In connection with this capital increase, the Company entered into a
warrant agreement with Texas Pacific Group, a Company shareholder, and Dr.
Lassus, the Company's former chairman of the Board of Directors. Under this
agreement, the Company granted the right to purchase another 56,400,000 shares
at euro 3.51 per share. These warrants were exercised on September 28, 2000,
resulting in net additional proceeds of euro 191,753 thousand (see Note 24).

In connection with the February 18, 2000 capital increase, the Company entered
into an agreement, granting Texas Pacific Group, a Company shareholder, and Dr.
Lassus the right to acquire additional shares at euro 3.51 per share. On May 29
and 31, 2000, pursuant to this agreement, the Company increased its capital by
issuing 61,873,300 new shares, which generated net proceeds of Euro 212,088
thousand.

On June 21, 2000, a general meeting of shareholders approved a fifty-for-one
stock split of the Company's ordinary shares held by shareholders of record as
of the close of business on June 20, 2000. All references to the number of
common shares and per share amounts elsewhere in the consolidated financial
statements and related footnotes have been restated as appropriate to reflect
the effect of the split for all periods presented.

On August 25, 2000 and September 28, 2000, the Company issued 61,487,358 shares
pursuant to employment arrangements with Mr. Perez and with Dr. Lassus (see Note
31). These shares included 20,495,786 free shares and 40,991,572 shares
resulting from the exercise of stock options at an exercise price of euro 3.51
per share. The corresponding capital increase net of issuance costs was euro
142,615.

On December 8, 2000 the Company completed a public offering resulting in the
issuance of 15,000,000 new ordinary shares. The Company's net proceeds from the
offering were euro 82,590 thousand (see Note 3).

As part of the purchase price related to the acquisition of Celocom Limited in
November 2000, the Company issued on February 20, 2001, 4,191,776 shares
representing a value of euro 25,151 thousand. Out of these euro 25,151 thousand
recorded in paid-in-capital as at December 31, 2000, an amount of euro 838
thousand was allocated to share capital, as the corresponding shares were
issued. Pursuant to the acquisition agreement, the shares issued have been
transferred to a financial institution and put in escrow with such institution
until release of such shares in accordance with the terms of the agreement. At
December 31, 2001, 1,713,181 shares had not been released and were still in
escrow.

As part of the purchase price related to the acquisition of SLP InfoWare S.A. in
October 2000, the Company issued on March 13, 2001, 362,863 shares representing
a value of euro 2,177 thousand. Out of these euro 2,177 thousand recorded in
paid-in-capital as at December 31, 2000, an amount of euro 73 thousand was
allocated to share capital, as the corresponding shares were issued.

During 2001, the Company issued 7,296,500 shares following the contribution of
145,930 shares of Gemplus S.A. held mainly by employees. For accounting
purposes, these shares were already assumed to be a component of the
shareholder's equity.

During 2001, the Company issued 2,116,850 shares following the exercise of
Gemplus International SA stock options held by employees.

In addition, in 2001, the Company purchased at fair market value 80,587 shares
of Gemplus S.A., equivalent to 4,029,350 shares of Gemplus International S.A.,
held by two former executive officers of the Company, thus reducing the
Company's shareholders' equity.

During the third quarter of 2001, the Company started the implementation of its
share repurchase program, as approved by the Annual General Meeting held on
April 18, 2001 and authorized by the Commission des Operations de Bourse on May
4, 2001. During 2001, the Company repurchased 4,900,534 shares of its
outstanding common stock, at an average price of euro 3.17 per share. In
addition, as described in Note 32, the Company's former Chief Executive Officer,
Mr. Perez, returned all of the 30,743,679 Gemplus International S.A. shares that
he had received in August and September 2000 to an indirect subsidiary of the
Company, in reimbursement of the loans that such indirect subsidiary made to him
in 2000 and in 2001. As described in Note 3, as at December 31, 2001, the
Company held 35,705,936 shares of its outstanding common stock.


As mentioned in Note 3, the total amount of shares to be issued by Gemplus
International S.A. upon the contribution of Gemplus S.A. shares amounted to
6,114,200 shares, representing 0.95% of the shareholdings of Gemplus
International S.A., which in total was represented by 641,396,497 shares
outstanding as at December 31, 2001.

The number of shares as of December 31, 2001 can be analyzed as follows:

<TABLE>
<S>                                                                             <C>
Number of shares outstanding                                                    635,282,297
Gemplus SA shares to be contributed                                               6,114,200
--------------------------------------------------------------------------------------------
Number of shares outstanding including shares to be contributed                 641,396,497

Treasury shares (including 30,743,679 shares held by an indirect subsidiary)    (35,705,936)
Options outstanding                                                              94,460,108
Warrants outstanding                                                              2,561,973

--------------------------------------------------------------------------------------------
Number of shares on a fully diluted basis                                       702,712,642
--------------------------------------------------------------------------------------------
</TABLE>


The number of shares on a fully diluted basis is not representative of the
number of shares used in computing net income per share. Net income per share is
calculated using the weighted average number of shares and dilutive equivalent
shares from stock options and warrants using the treasury stock method (see Note
21).

As at December 31, 2001, 51,790,242 shares are reserved for shares issuable
under the different share options plans (see Note 24)

21/  Net income (loss) per share calculation

A reconciliation of the numerator and denominator of basic and diluted net
income per share is provided as follows. As net losses have been reported in
2001 and in 1999, the dilutive effects of stock options, warrants and shares to
be issued following acquisitions in 2000 of Celocom Limited and SLP InfoWare SA
were excluded of net loss per share calculation in these periods.

<TABLE>
                    (in thousands of euros, except shares and per share data)
---------------------------------------------------------------------------------------------------------------
                                                                          Years ended December 31,
                                                                      2001              2000            1999
---------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                <C>            <C>
Net income / (loss) (numerator)                                     (100,220)          99,078         (32,133)
---------------------------------------------------------------------------------------------------------------

Shares used in basic net income per-share calculation (denominator):

---------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding             636,992,392      497,523,946     313,120,400
---------------------------------------------------------------------------------------------------------------
Dilutive effect of stock options                                  24,661,319       33,981,118      16,861,650
Dilutive effect of warrants                                        1,006,546        7,672,160               -
Dilutive effect of shares to be issued following acquisitions
of Celo and SLP                                                      167,936           78,982               -
---------------------------------------------------------------------------------------------------------------
Weighted average diluted number of shares outstanding            662,828,193      539,256,206     329,982,050
---------------------------------------------------------------------------------------------------------------

Shares used in diluted net income per share (denominator)        636,992,392      539,256,206     313,120,400
---------------------------------------------------------------------------------------------------------------
</TABLE>


22/  Comprehensive income

Certain items defined as other comprehensive income, such as foreign currency
translation adjustments, are reported separately from retained earnings and
additional paid-in capital in the shareholders' equity section of the balance
sheets.

The components of cumulative other comprehensive income in the shareholders'
equity section of the balance sheets as at December 31, 2001, 2000 and 1999,
respectively, were as follows:


                                                        (in thousands of euros)
-------------------------------------------------------------------------------
                                                         December 31,
                                                2001         2000         1999
-------------------------------------------------------------------------------
Cumulative translation adjustment              (3,567)        376        2,814
Net unrealized loss on hedging instruments
qualifying as effective                          (401)          -            -

-------------------------------------------------------------------------------
Cumulative other comprehensive income          (3,968)        376        2,814
-------------------------------------------------------------------------------


The components of comprehensive income for the year ended December 31, 2001,
2000 and 1999, respectively, were as follows:

<TABLE>
                                                                        (in thousands of euros)
-----------------------------------------------------------------------------------------------
                                                                    Year ended December 31,
                                                                 2001        2000        1999

Net income (loss)                                             (100,220)     99,078     (32,133)
-----------------------------------------------------------------------------------------------
<S>                                                             <C>         <C>            <C>
Change in cumulative translation adjustment                     (3,943)     (2,438)        358
Effect of adopting IAS 39 as at January 1, 2001                  9,093           -           -
Change in fair value of available-for-sale financial assets       (286)          -           -
Change in fair value of derivatives qualifying as
 effective hedging instruments                                  (9,208)          -           -
-----------------------------------------------------------------------------------------------
Change in cumulative other comprehensive income                 (4,344)     (2,438)        358
-----------------------------------------------------------------------------------------------
Comprehensive net income (loss)                               (104,564)     96,640     (31,775)
-----------------------------------------------------------------------------------------------
</TABLE>


23/  Pension plans


Pensions

In France, the Company contributes to the national pension system and its
obligations to employees in terms of pensions are restricted to a lump-sum
length of service award payable at the date that the employee reaches retirement
age, such award being determined for each individual based upon years of service
provided and projected final salary. The current evaluation of the future length
of service award liability is recorded as a long-term liability in the balance
sheet, together with pension liabilities. The pension obligation in France
amounts to euro 1,295 thousand, 1,079 thousand and euro 891 thousand at December
31, 2001, 2000 and 1999, respectively.

The Company operates pension plans in other countries. The Company's principal
plan is a contributory defined benefit plan open to all employees in the United
Kingdom. The Company also offers an Employee Investment Plan (EIP) to all United
States employees under section 401 (k) of the United States Internal Revenue
Code. Company contributions to the EIP plan amounted to approximately euro 1,903
thousand, euro 1,749 thousand and euro 1,259 thousand in 2001, 2000 and 1999,
respectively.

Net periodic pension costs for the principal defined benefit plan for the years
ended December 31, 2001, 2000 and 1999, comprise the following elements:

                                             (in thousands of euros)
----------------------------------------------------------------------
                                               December 31,
----------------------------------------------------------------------
                                            2001      2000       1999
----------------------------------------------------------------------
Current year service cost                  1,640     1,088        788
Interest accrued on pension obligations    1,275     1,109      1,029
Actual loss (return) on plan assets        2,621       477     (2,022)
Net deferral                              (4,261)   (1,974)       782

----------------------------------------------------------------------
Total pension costs                        1,275       700        577
----------------------------------------------------------------------



The following table sets forth the funded status of pension plans:

                                                         (in thousands of euros)
--------------------------------------------------------------------------------
                                                             December 31,
--------------------------------------------------------------------------------
                                                        2001     2000     1999
--------------------------------------------------------------------------------
Accumulated benefit obligation                         23,880   20,683   18,153
Projected benefit obligation                           25,287   21,873   18,715
Plan assets at fair value                              18,110   19,043   18,327
--------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets  (7,177)  (2,830)    (388)
--------------------------------------------------------------------------------
Unrecognized net loss                                   8,138    3,846    1,014
--------------------------------------------------------------------------------
Net prepaid pension cost                                  961    1,016      626
--------------------------------------------------------------------------------




The following weighted average rates were used in the calculation of projected
benefit obligation:

-----------------------------------------------------------------------------
December 31                                 2001        2000       1999
-----------------------------------------------------------------------------
Discount rate                                 6%          6%         6%
Expected rate of return on plan assets        8%          8%         8%
Assumed rate of compensation increase         4%          4%         4%
-----------------------------------------------------------------------------


Post-retirement benefits other than pensions

Substantially all of the Company's employees are covered under
Government-sponsored post-retirement health and life insurance benefit plans.
Accordingly, the Company has no significant liability to its employees in terms
of post-retirement benefits other than pensions and therefore no provision is
made.


24/ Share option plans

The Company may grant, under various employee share option plans (the "Plans"),
options to purchase or subscribe ordinary shares to its employees and officers.
Under the various plans, the exercise price of options granted may be less than
the fair market value of the ordinary common shares at the date of grant. The
options must be exercised within seven to ten years of the date of grant and
typically vest equally over a period of three to four years.

Share option activity was as follows:

<TABLE>
                                     Number of
                                      options
                                     authorized     Number of
                                      not yet       options                              Average Price
                                      granted       outstanding      Price per share       per share
------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>            <C>                   <C>
Balances, December 31, 1998          3,636,350      28,201,900     Euro 0.37 - Euro 1.71   Euro 1.47
------------------------------------------------------------------------------------------------------
Options exercised                            -      (1,933,200)    Euro 0.37 - Euro 1.71   Euro 0.93
Options granted                    (21,355,250)     21,355,250     Euro 1.35 - Euro 2.29   Euro 2.17
Options authorized                  27,500,000               -
------------------------------------------------------------------------------------------------------
Balances, December 31, 1999          9,781,100      47,623,950     Euro 0.47 - Euro 2.29   Euro 1.80
------------------------------------------------------------------------------------------------------
Options exercised                            -     (54,730,122)    Euro 0.47 - Euro 3.51   Euro 2.99
Options granted                   (115,636,673)    115,636,673     Euro 2.29 - Euro 6.00   Euro 4.26
Options authorized                 150,991,572
------------------------------------------------------------------------------------------------------
Balances, December 31, 2000         45,135,999     108,530,501     Euro 0.77 - Euro 6.00   Euro 3.82
------------------------------------------------------------------------------------------------------
Options exercised                            -      (5,114,850)    Euro 0.77 - Euro 3.51   Euro 1.62
Options granted                     (2,554,590)      2,554,590     Euro 2.80 - Euro 7.96   Euro 2.97
Options terminated unexercised       9,208,833     (11,510,133)    Euro 0.77 - Euro 7.96   Euro 4.66
Options authorized                           -               -                                     -
------------------------------------------------------------------------------------------------------
Balances, December 31, 2001         51,790,242      94,460,108     Euro 0.77 - Euro 7.96   Euro 3.82
------------------------------------------------------------------------------------------------------
</TABLE>


The following table summarizes information with respect to share options
outstanding and exercisable at December 31, 2001:
                                          Weighted
                     Number of            average              Number of
   Exercise           options            remaining              options
    prices           outstanding      contractual life        exercisable
------------------------------------------------------------------------------
  (in euros)                              (years)
          0.83        1,101,750               2.0               1,101,750
          1.35          986,900               3.0                 986,900
          1.52          500,250               3.6                 500,250
          1.71        7,746,900               6.0               4,076,050
          2.29       21,110,700               7.3              11,371,450
          2.80           84,000               9.6                       -
          2.87          139,380               9.8                       -
          2.90          855,900               9.7                       -
          3.17          110,000               9.9                       -
          3.18           50,000               9.9                       -
          3.51       25,429,375               8.5               6,890,775
          3.79        1,515,261               9.5                       -
          4.14          253,400               9.5                       -
          4.80        9,500,000               8.9               2,375,000
          6.00       24,813,008               8.9               6,099,363
          7.96          263,284               9.1                       -

------------------------------------------------------------------------------
                     94,460,108               6.8              33,401,538
------------------------------------------------------------------------------
Weighted average
exercise price
(in euros)                3.82                                       3.24




Warrants

In connection with the issuance of ordinary shares on February 18, 2000 (see
Note 20), the Company issued 1,880,000 warrants. The warrants were granted at a
value of euro 3.51 on the date of issuance, resulting in an underlying per share
value of euro 3.20 using the Black and Scholes option pricing model with the
following assumptions: dividend yield of 0%, expected volatility of 45%, risk
free interest rate of 4.09% and an expected life of 10 months. Each warrant
provides the holder the right to purchase 300 ordinary shares in exchange for 10
warrants. The warrants were exercised in full on September 28, 2000 resulting in
the issue of 56,400,000 shares.

In July 2000, in connection with the hiring of its former CEO, Mr. Perez, the
Company entered into a warrant agreement with an executive search firm. Under
this agreement, the Company granted the right to purchase 2,561,973 ordinary
shares at a purchase price of euro 2.3375 per share, resulting in an underlying
per share value of euro 3.51 using the Black and Scholes option pricing model
with the following assumptions: dividend yield of 0%, expected volatility of
45%, risk free interest rate of 4.00% and an expected life of 12 months. The
warrants are exercisable at any time for seven years after the grant date. As at
December 31, 2001, no warrant had been exercised.

25/ Financial instruments and market related exposures

Adoption of IAS 39

As indicated in Note 2, the Company adopted IAS 39 "Financial Instruments:
Recognition and Measurement".

The adoption of IAS 39 resulted in a cumulative after tax increase of
shareholders' equity as of January 1, 2001 of euro 4,090 thousand. The impact on
shareholders' equity at January 1, 2001 of the adoption of IAS 39 is shown
below. In accordance with IAS 39, the comparative financial statements for the
year ended December 31, 2000 were not restated.


Summary of impact of adopting IAS 39 at January 1, 2001:

<TABLE>
                                                                            (in thousands of euros)
---------------------------------------------------------------------------------------------------
                                                                               Other
                                                                Retained    comprehensive
                                                                earnings        income       Total
---------------------------------------------------------------------------------------------------
<S>                                                             <C>         <C>             <C>
Hedges not qualifying as effective                               (5,003)              -     (5,003)
Hedges qualifying as effective                                        -           8,807      8,807
Unrealized gains and losses on available-for-sale financial assets    -             286        286
---------------------------------------------------------------------------------------------------
Impact as at January 1, 2001 on shareholders'
equity, net of deferred income taxes                             (5,003)         9,093      4,090
---------------------------------------------------------------------------------------------------
</TABLE>



In accordance with the transitional requirements of IAS 39, the Company recorded
a net loss of euro 5,003 thousand in retained earnings to recognize at fair
value all derivatives not qualifying as effective hedging instruments. The
Company also recorded a net gain of euro 8,807 thousand in other comprehensive
income to recognize at fair value all derivatives qualifying as effective
hedging instruments. These amounts were net of deferred income taxes. The
Company also recorded a net gain of euro 286 thousand in other comprehensive
income to recognize at fair value its available-for-sale financial assets.
Consequently, comprehensive income was impacted by euro 9,093 thousand as at
January 1, 2001. This amount was recorded in foreign exchange result during
2001.


Foreign exchange exposure

As indicated in Note 2, the Company uses financial instruments to manage its
foreign currency exposure incurred in the normal course of business.

The policy of the Company is to hedge its currency risk exposure. In order to
achieve this objective, the Company uses foreign currency derivative
instruments, entering into foreign exchange forward contracts and purchasing or
selling foreign exchange option contracts. Written options are only used as part
of combination strategies. The derivative instruments are traded "over the
counter" with major financial institutions. The Company does not enter into any
derivative contracts for purposes other than hedging.

All derivative instruments that the Company uses to manage its foreign exchange
risk exposure qualify as cash flow hedges under IAS 39. However, foreign
exchange swaps entered into by the Company to meet the Group affiliates
financing requirements do not qualify for special hedge accounting as they are
monitored on a global basis.

Outstanding forward contracts described below are at closing dates. As at
December 31, 2001, such contracts are broken down into two categories: (i) those
meeting hedging qualification criteria under IAS 39 and (ii) others that do not
meet hedge accounting criteria :

<TABLE>
                                                                            (in thousands of euros)
---------------------------------------------------------------------------------------------------
                           December 31, 2001        December 31, 2000         December 31, 1999
                          Purchased      Sold       Purchased     Sold       Purchased     Sold
                            Items        Items        Items       Items        Items       Items
---------------------------------------------------------------------------------------------------
<S>                        <C>           <C>        <C>           <C>        <C>           <C>
Hedging transactions
GBP                             -         8,017       36,774      35,418       11,865     23,839
SGD                         2,450             -      123,121     122,414        8,793     49,713
USD                             -        45,404       40,034     328,420        9,918    152,368
ZAR                             -         6,364            -       4,713            -      3,722
Other                         309         1,429       15,368      25,021       11,327     18,116

Other transactions
GBP                         2,787        11,309            -           -            -          -
SGD                        73,952        61,241            -           -            -          -
USD                        59,051       292,951            -           -            -          -
ZAR                           588         1,838            -           -            -          -
Other                      20,528        29,937            -           -            -          -

---------------------------------------------------------------------------------------------------
Total forwards            159,665       458,490      215,297     515,986       41,903    247,758
---------------------------------------------------------------------------------------------------
</TABLE>


Forward contracts are valued at forward rate.

Outstanding optional contracts at closing date are as follows. As at December
31, 2001, all these contracts meet hedge accounting criteria:

<TABLE>
                                                                                                  (in thousands of euros)
-------------------------------------------------------------------------------------------------------------------------
                             December 31, 2001                  December 31, 2000                  December 31, 1999
-------------------------------------------------------------------------------------------------------------------------
                      Purchased items    Sold items      Purchased items    Sold items      Purchased items    Sold items
-------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                <C>             <C>                <C>             <C>                <C>
GBP                              -          3,205             37,076           8,330             20,926              -
USD                          6,794         49,615            164,563          22,606             95,947          4,804
SGD                          9,259              -             74,060          20,182                  -              -
Other                        1,371              -              8,185           2,817                  -              -

-------------------------------------------------------------------------------------------------------------------------
Total options               17,424         52,820            283,884          53,935            116,873          4,804
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

All option contracts are valued at the strike rate and hedge long exposure
(currency put, euro call). In some cases, purchased and sold options are used as
combinations (strategies).

All the foreign derivatives financial instruments outstanding as of December 31,
2001 have been entered into as a hedge of highly probable cash flows denominated
in various currencies as described above, and according to the identified
forecasted commercial transactions data collection. Derivatives allow the
Company to sell or purchase at a predetermined rate with settlement date that
range from one month up to one year, according to the hedging relationship
allocation performed by year and by quarter. The euro value of derivatives are
presented in the following table with a valuation at the contract' strike.


<TABLE>
                                                                                       (in thousands of euros)
--------------------------------------------------------------------------------------------------------------
                                                 GBP sales      SGD purchases      USD sales      Other sales
--------------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>                <C>            <C>
Hedging transactions
Classification by allocation
Three-month period ending March 31, 2002             3,154            11,709         47,428             5,436
Three-month period ending June 30, 2002              4,815                 -         11,251               677
Three-month period ending September 30, 2002         1,628                 -         16,859                 -
Three-month period ending December 31, 2002          1,625                 -         12,687                 -

Other transactions
Classification by allocation
Three-month period ending March 31, 2002             8,522            12,711        205,652            10,659
Three-month period ending June 30, 2002                  -                 -              -                 -
Three-month period ending September 30, 2002             -                 -              -                 -
Three-month period ending December 31, 2002              -                 -         28,248                 -

--------------------------------------------------------------------------------------------------------------
Total                                               19,744            24,420        322,125            16,772
--------------------------------------------------------------------------------------------------------------
</TABLE>

Net unrealized loss on hedging instruments qualifying as effective

As of December 31, 2001, unrealized losses of 401 Euro thousand net of taxes
were recognized in equity, under comprehensive income, as being the effective
portion of hedging instruments fair value changes associated with forecasted
transactions (see Note 22).

Interest rate exposure

As the Company is not significantly exposed to risk associated with interest
rates fluctuations, it has not entered into any derivative contracts to hedge
interest rate risk.

Financial counterparty risk

Derivatives and all significant cash deposits are undertaken with major
financial institutions having an investment grade rating. Regarding cash
deposits, a few exceptions exist in certain countries for operational reasons
when individual amounts are not significant.

Fair value of financial instruments

The following table provides information about the carrying amounts and
estimated fair values of certain of the Company's financial instruments,
excluding cash and cash equivalents, cash deposits, accounts receivable,
accounts payable and accrued expenses.

Following the adoption of IAS 39 in January 2001, the Company measures at fair
value assets and liabilities qualified as trading or available-for-sale.
Therefore, there is no difference between the carrying amounts and the estimated
fair values of these assets and liabilities as at December 31, 2001.

The fair value of investments in equity securities is determined based on quoted
market prices if companies are publicly listed. It the companies are not
publicly listed, the fair value of investments in equity securities is
determined by valuation techniques appropriate for the nature of the security.
The fair market value of loans, deposits and other non-current assets is
determined by discounting the nominal amount using appropriate interest rates.

The fair value of the Company's fixed rate long-term debt, including capital
leases, is determined by discounting estimated future cash flows using borrowing
rates prevailing at year-end for similar maturities and contracts. The book
values of the Company's long-term floating-rate borrowings approximate fair
value.

The fair value of forward exchange contracts and of currency options contracts
is determined as described in Note 2 "Summary of significant accounting
policies".

<TABLE>
                                                                                                             (in thousands of euros)
------------------------------------------------------------------------------------------------------------------------------------
                                                December 31, 2001             December 31, 2000               December 31, 1999
                                          Net book value    Fair value   Net book value   Fair value    Net book value    Fair value
------------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>               <C>          <C>              <C>           <C>               <C>
Balance sheet
Assets
Investments in equity securities                17,066         17,066         11,183         11,626          1,290          10,909
Loan, deposits and other non-current assets     99,701         99,701        187,405        186,898          4,696           4,486

------------------------------------------------------------------------------------------------------------------------------------
Total assets                                   116,767        116,767        198,588        198,524          5,986          15,395
------------------------------------------------------------------------------------------------------------------------------------

Liabilities
(Long-term debt including current
portion and capital lease)
Fixed rates                                          -              -         18,100         18,000         18,722          20,770
Floating rates                                  36,329         36,329         24,931         24,900         31,130          31,130

------------------------------------------------------------------------------------------------------------------------------------
Total liabilities                               36,329         36,329         43,031         42,900         49,852          51,900
------------------------------------------------------------------------------------------------------------------------------------

Hedging instruments on
foreign currency contracts
(in other current assets or
other current liabilities)                       5,178         5,178        (23,284)       (25,340)         5,876           4,220
Options contracts (in cash
and cash equivalent)                            (2,187)       (2,187)        (8,909)       (10,943)        (5,133)         (6,789)

------------------------------------------------------------------------------------------------------------------------------------
Total  (off-balance sheet
(1) in 2000 and 1999)                            2,991          2,991        (32,193)       (36,283)           743          (2,569)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1) The net book value and fair value of forward foreign exchange contracts and
currency option contracts include unrealized gains and losses relating to hedges
of firm and anticipated commitments, which have been deferred. Unrealized gains
are recorded in the line item "Other current liabilities" and unrealized losses
in the line item "Other current assets."



26/ Commitments and contingencies

Guarantees

As of December 31, 2001, the amount of guarantees delivered by the Company
reached euro 12,857 thousand.

Purchase agreements

As of December 31, 2001, the Company had purchase commitments for microprocessor
chips with various suppliers aggregating approximately euro 25 million.

Legal proceedings

In February 1996, Humetrix Inc. brought an action against the Company, among
others, in the United States District Court in San Diego, California, relating
to an alleged agreement to jointly market several products in the US health care
market. The complaint alleged that the Company had breached the alleged
agreement and had intentionally interfered with third party contractual
relations. In February 1999, the District Court rendered a decision in favor of
Humetrix and ordered the Company to pay US$ 15 million (euro 17 million) and
another individual defendant to pay US$ 2.5 million (euro 2.8 million). The
decision against the individual defendant was later vacated and further
proceedings were ordered by the court. The Company appealed the judgment. In
March 2000, the District Court dismissed the claim against the individual
defendant with prejudice. Oral arguments in the appeal were heard on March 6,
2001 before the United States Court of Appeals for the Ninth Circuit. . On
October 4, 2001, the Court of Appeals rendered its decision, affirming the
judgment of the District Court against the Company in the amount of US$ 15
million, with interest to be determined. As a result of this judgment, the
Company recorded a charge of euro 18.1 million, adversely impacting its 2001
operating result and resulting in a total current liability (including a
previously existing provision) of euro 19.4 million in the balance sheet as at
December 31, 2001. The Company's petition seeking a rehearing before the Court
of Appeals was denied on November 20, 2001 and therefore the judgement is final.

As described in Note 16, the Company partially reversed in 2001 a provision for
a patent claim, resulting in a favorable euro 10,600 thousand royalty expense
adjustment recorded in cost of sales.

In addition to the litigation mentioned above, the Company is subject to legal
proceedings, claims, and litigation arising in the ordinary course of business.
The Company's management does not expect that the ultimate costs to resolve
these matters will have a material adverse effect on the Company's consolidated
financial position, results of operations, or cash flows.

Lease commitments

The Company leases some of its manufacturing and office space under
non-cancelable operating leases. These leases contain various expiration dates
and renewal options.

Future minimum annual lease payments under all non-cancelable operating leases
as of December 31, 2001 are as follows :


                                                    (in thousands of euros)
December 31:
2002                                                               10,737
2003                                                                7,994
2004                                                                7,166
2005                                                                5,948
2006                                                                4,218
Thereafter                                                          6,910


Total rental expenses for all operating leases except those with terms of one
month that were not renewed were euro 12,499 thousand, euro 14,242 thousand,
euro 3,372 thousand for the years ended December 31, 2001, 2000 and 1999,
respectively.



27/ Supplemental disclosure of cash flow information

Cash paid for interest and income taxes were as follows:

                                                 (in thousands of euros)
-----------------------------------------------------------------------
                                   Years ended December 31,
                             2001            2000           1999
-----------------------------------------------------------------------

Cash paid for:
Interest                          2,928          3,061           1,089
Income taxes                     14,338         22,308           3,087



During 1999 and 2001, as mentioned in Note 15, the Company refinanced property,
plant and equipment under sale-leaseback agreements for a total of euro 28,270
thousand and euro 5,711 thousand, in 1999 and 2001 respectively.


28/ Wages, benefits and number of employees (unaudited)

Wages and benefits including social security taxes amounted to approximately
euro 339 million, euro 291 million, and euro 216 million for the years ended
December 31, 2001, 2000 and 1999, respectively.

Headcount was 6,721, 7,870 and 5,877 as of December 31, 2001, 2000 and 1999,
respectively.


29/ Related party transactions


During 2000, the Company entered into loan agreements with certain senior
executives of the Company. These loans were partially reimbursed in 2001,as
discussed further below in Note 31. In December 2001, the Company recorded
severance expenses in the amount of euro 25,691 thousand due to Mr. Perez and to
Dr. Lassus in connection with their resignation as Chief Executive Officer of
the Company and cessation as Chairman of the Board of Directors, respectively,
as described further below in Note 31.

Pursuant to the terms of the loans granted to Messrs. Perez and Lassus in 2000,
one of the Company's indirect subsidiaries agreed in 2001 to arrange for the
interest on these loans to be forgiven starting July 1, 2001, and to assume any
income tax resulting from this forgiveness. As described in Note 13, the Company
recorded in 2001 a compensation expense of euros 3,585 thousand corresponding to
the income tax resulting from the forgiveness of interest.

During the years 2001, 2000 and 1999, the Company had a financial consulting
agreement with a firm that included an individual who served on the Company's
Board of Directors. The consulting services primarily related to investment and
business opportunity advice for the Company. The Company recognized euro 20,785
thousand in the year 2000 for such advice (euro 308 thousand in the year 1999).
Effective in September 2000, this consultant no longer serves on the Board.
During 2001, the Company recognized euro 319 thousand according to this
consulting agreement, which was terminated December 31, 2001.

During 2001, the Company entered into an agreement with a service company whose
Chief Executive Officer, Mr. Mackintosh, also served on the Company's Board of
Directors. This company was appointed to provide an independent review of the
Group's management, information, organization and business systems as well as
identification and recommendation of remedial action. The total cost recorded in
the Company's Consolidated Statement of Income in 2001 for this arrangement
amounted to euro 906 thousand.

During 2001, the Company reimbursed its former Chairman of the Board of
Directors, Dr. Lassus, funds that he had advanced in a project involving a
number of consultants who provided smart card and related business services,
including services linked to card operating systems and card management systems.
The funds, in the amount of euro 160 thousand (GBP 100 thousand), were
reimbursed to Dr. Lassus in November 2001.


30/ Segment information

The Company operates in primarily two operating segments which are based on the
Company's customer base and for which separate financial information is
available and that is evaluated regularly by the Chief Operating Decision Maker
("CODM") in deciding how to allocate resources and in assessing performance. The
CODM makes decisions about resources to be allocated to the segments and
assesses their performance using revenues and gross margins. The Company does
not identify or allocate assets to the operating or geographic segments nor does
the CODM evaluate the segments on this criterion on a regular basis.

The accounting policies of the segments are substantially the same as those
described in the summary of significant accounting policies as discussed in Note
2.

Telecommunications

The telecommunications segment includes the Company's wireless solutions, as
well as prepaid telephone cards and other products.

Network systems

The network systems segment includes systems and services based on chip card
technology in areas such as financial services, access control, identification,
health care and corporate loyalty programs. The Company's e-business security
activities, which are new, are also included in this segment. The access control
systems activities of our former subsidiary Skidata are reported under the
network systems segment and have been identified separately, as the Company has
completed the sale of this activity in August 2001 (see Note 3 - Disposed
operations).


Other operating segments

Other operating segments include applications such as magnetic stripe plastic
cards for banks, card-based transportation access and inventory tracking
products. Following the sale of our Tag activities in July 2001, the Tag
electronic smart labels solutions activities are reported under the other
operating segment and have been identified separately (see Note 3 - Disposed
operations).

The following tables present selected data for the years ended December 31,
2001, 2000 and 1999:

                                                         (in thousands of euros)
--------------------------------------------------------------------------------
                                                 Years ended December 31,
                                             2001          2000          1999
--------------------------------------------------------------------------------
Net sales
Telecommunications                          681,933       883,695       482,249
Network systems                             229,318       196,369       160,450
    Skidata                                  40,566        81,155        72,669
Other operating segments                    111,735       124,536       123,905
    Tag                                       3,712         6,533         6,250

--------------------------------------------------------------------------------
Net sales                                 1,022,986     1,204,600       766,604
--------------------------------------------------------------------------------

Gross profit
Telecommunications                          228,814       378,874       207,067
Network systems                              67,124        62,015        51,182
    Skidata                                  16,635        30,495        28,123
Other operating segments                     11,532        12,997        21,550
    Tag                                        (573)          881         1,067

--------------------------------------------------------------------------------
Gross profit                                307,470       453,886       279,799
--------------------------------------------------------------------------------

Research and development expenses          (112,885)      (90,778)      (62,248)
Reversal of research credit allowance             -        12,486             -
Selling and marketing expenses             (165,276)     (158,545)      (97,155)
General and administrative expenses        (110,657)      (89,666)      (63,677)
Litigation expenses                         (18,120)            -             -
Management severance expenses               (25,691)            -             -
Restructuring expenses                      (28,466)            -             -
Goodwill amortization                       (27,162)      (11,204)      (71,812)
--------------------------------------------------------------------------------
Operating income (loss)                    (180,787)      116,179       (15,093)
--------------------------------------------------------------------------------


The following is a summary of sales to external customers by geographic area for
the years ended 2001, 2000 and 1999:

                                                       (in thousands of euros)
------------------------------------------------------------------------------
                                          Years ended December 31,
                                   2001            2000             1999

-----------------------------------------------------------------------------
Americas                         231,606          185,400          117,844
Europe, Middle-East, Africa      518,274          701,300          505,990
Asia                             273,106          317,900          142,770
-----------------------------------------------------------------------------
Net sales                      1,022,986        1,204,600          766,604
-----------------------------------------------------------------------------


Revenues from external customers are based on the customers' billing location.
Accordingly, there are no sales transactions between operating segments. The
Company does not allocate long-lived assets by location for each geographic
area. The Company's country of domicile is Luxembourg in which sales to
customers are insignificant.

No single customer accounted for more than 10% of the Company's sales during the
years ended December 31, 2001, 2000 and 1999.


31/ Management severance expenses

During 2000, the Company entered into an employment agreement with Mr. Perez,
its former CEO, whereby he was granted 10,247,893 free shares, 10,247,893
service options and 10,247,893 performance options. The stock options had an
exercise price of euro 3.51 per share. In addition, one of the Company's
indirect finance subsidiaries made loans to Mr. Perez between September 2000 and
March 2001 in an aggregate amount of euro 88.9 million. Each loan bore interest
at the rate provided in Section 1274 (b)(2)(b) of the U.S. Internal Revenue Code
of 1986, which is based on the U.S. Federal short-term rate. Therefore interest
rates ranged from 5.58% to 6.4% per annum. These loans were made to allow Mr.
Perez to exercise the stock options and pay the exercise price (for an aggregate
amount of euro 71.9 million) and taxes related to the free shares (for an
aggregate amount of euro 17 million) and were secured by the shares purchased by
Mr. Perez upon exercise of the options.

Concurrently with the issuance of free shares and options to Mr. Perez, the
Company issued 10,247,893 free shares and 20,495,786 shares to Dr. Lassus, the
founder of the Company and former Chairman of the Board of Directors. The stock
options had an exercise price of euro 3.51 per share. In addition, one of the
Company's indirect finance subsidiaries has made loans to Dr. Lassus in an
aggregate amount of euro 71.9 million on the same terms as the loans to Mr.
Perez. Dr. Lassus used the loan proceeds to exercise the stock options that were
granted to him at the same time as the stock options granted to Mr. Perez.

On November 2, 2001, the Company announced that its Chief Executive Officer, Mr.
Perez, had signed an agreement with one of its indirect subsidiaries pursuant to
which he committed to return all of the Gemplus International S.A. shares that
he received in August and September 2000 to such indirect subsidiary of the
Company, in reimbursement of the loans that such indirect subsidiary made to him
in 2000 and in 2001.

Mr. Perez transferred these shares pursuant to two agreements. The first
agreement was signed on October 20, 2001. Mr. Perez transferred 18,574,306
shares to the Company's indirect subsidiary, at a price of euro 2.79 per share,
representing euro 51,822 thousand that were recorded in reimbursement of a
portion of the loans in the same amount. The difference between the value of the
shares pursuant to the agreement (euro 2.79 per share) and the market closing
price of the Company's shares as at the time of the effective transfer of the
shares(euro 3.12 per share) was reflected in the stockholders' equity, resulting
in an increase of euro 6,130 thousand of the caption "paid-in capital".

The second agreement was signed on December 19, 2001, at the time Mr. Perez
resigned his position as President and Chief Executive Officer of the Company.
Mr. Perez transferred 12,169,373 shares to the Company's indirect subsidiary, at
a price of euro 2.86 per share, representing the market closing price of the
Company's shares as at December 19, 2001, totaling euro 34,804 thousand. The
difference between the fair value of the shares and the remaining loan
outstanding was recorded in the Company's Consolidated Statement of Income,
resulting in a charge of euro 6,838 thousand.

Mr. Perez was also entitled to a tax reimbursement on the portion of the loan
that has been forgiven. Such reimbursement was accrued in the 2001 Company's
Consolidated Statement of Income and represented an amount of euro 6,502
thousand. In addition, Mr. Perez is entitled, pursuant to his employment
agreement, to receive a severance payment, that was recorded in the 2001
Company's Consolidated Statement of Income in the amount of euro 1,161 thousand.
Consequently, the total charges associated with Mr. Perez resignation amounted
to euro 14,501 thousand.

On December 19, 2001, the Company's Board of Directors accepted the cessation of
Dr. Lassus as its Chairman, effective January 10, 2002. In accordance with an
agreement signed with Dr. Lassus in 2000, the replacement of Dr. Lassus as
Chairman of the Board requires the Company to make a payment to Dr. Lassus in
the amount of US dollars 12 million (euro 13,450 thousand), such payment
representing partly a severance payment (euro 11,190 thousand) and partly the
cost of the pledge of Dr. Lassus' 20,495,786 option shares in guarantee of the
loans (euro 2,260 thousand). The cost of the pledge was deferred in the balance
sheet as at December 31, 2001, and will be recorded in the Company's
Consolidated Statement of Income on a prorata basis over the loan period (ending
no later than December 31, 2003 pursuant to the agreement signed on December 19,
2001 with Dr. Lassus). An amount of euro 1,130 thousand corresponding to the
cost of the pledge relating to fiscal year 2002 was recorded as prepaid expenses
in "other current assets", the cost of the pledge relating to fiscal year 2003,
representing euro 1,130 thousand, was recorded in "other non-current assets".
Consequently, the total charges for the fiscal year ended December 31, 2001
associated with Dr. Lassus' cessation as Chairman amounted to euro 11,190
thousand.

Consequently, the Company recorded a total euro 25,691 thousand charge in its
2001 Consolidated Statement of Income with respect to the changes in its
management decided at its Board meeting of December 19, 2001.


32/ Differences between International Accounting Standards and U.S. Generally
     Accepted Accounting Principles

The Company's consolidated financial statements are prepared in accordance with
IAS, which differ in certain respects from generally accepted accounting
principles in the United States (U.S. GAAP).

The principal differences between IAS and U.S. GAAP are presented below together
with explanations of certain adjustments that affect consolidated net income and
total shareholders' equity:

<TABLE>
                                                               (in thousands of euros, except shares and per share amounts)
---------------------------------------------------------------------------------------------------------------------------
                                                                                         Years ended December 31,
                                                                                 2001             2000             1999
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                <C>             <C>
Net income (loss) in accordance with I.A.S.                                   (100,220)          99,078          (32,133)
-------------------------------------------------------------------------------------------------------------------------
Capitalized development costs                                                   (3,227)          (2,291)           3,678
Hedge accounting                                                                     -            8,030           (3,252)
Share options accounting                                                        69,262         (229,724)         (10,596)
Purchase consideration                                                          (8,104)               -                -
Other differences                                                                  564            1,256              396
Deferred tax effect of U.S. GAAP adjustments                                     1,057              408                -
-------------------------------------------------------------------------------------------------------------------------
Total differences between U.S. GAAP and I.A.S.                                  59,552         (222,321)          (9,774)
-------------------------------------------------------------------------------------------------------------------------
Net income (loss) per U.S. GAAP before change in accounting principle          (40,668)        (123,243)         (41,907)
-------------------------------------------------------------------------------------------------------------------------

Changes in accounting principles:
Start-up costs                                                                       -                -           (2,526)
Hedge accounting                                                                (8,807)               -                -

-------------------------------------------------------------------------------------------------------------------------
Net income (loss) per U.S. GAAP                                                (49,475)        (123,243)         (44,433)
-------------------------------------------------------------------------------------------------------------------------
Change in cumulative other comprehensive income in accordance with I.A.S.       (4,344)          (2,438)             358
Change in effect of IAS/US GAAP adjustements on other comprehensive income      (5,054)          (9,476)             363

-------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax                                   (9,398)         (11,914)             721
-------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                                                    (58,873)        (135,157)         (43,712)
-------------------------------------------------------------------------------------------------------------------------

Net income (loss) per share before changes in accounting principles:
   Basic                                                                         (0.06)           (0.25)           (0.13)
   Diluted                                                                       (0.06)           (0.25)           (0.13)

Changes in accounting principles:
   Basic                                                                         (0.01)               -            (0.01)
   Diluted                                                                       (0.01)               -            (0.01)

Net income (loss) per share:
   Basic                                                                         (0.08)           (0.25)           (0.14)
   Diluted                                                                       (0.08)           (0.25)           (0.14)

Number of shares:
   Basic                                                                   636,992,392      497,523,946       313,120,400
   Diluted                                                                 636,992,392      497,523,946       313,120,400
</TABLE>


<TABLE>
                                                                             (in thousands of euros)
----------------------------------------------------------------------------------------------------
                                                                        December 31,
                                                         2001               2000             1999
----------------------------------------------------------------------------------------------------

<S>                                                    <C>               <C>                <C>
Shareholders' equity in accordance with I.A.S.         1,167,762         1,384,995          294,153
----------------------------------------------------------------------------------------------------

Capitalized development costs                             (5,518)           (2,291)               -
Hedge accounting                                               -             4,090           (3,940)
Non recourse loans                                       (71,856)         (143,712)
Purchase consideration                                    (8,104)                -                -
Effect of IAS/US GAAP on other comprehensive income       (4,911)              143            9,619
Other differences                                           (310)             (874)          (2,129)
Deferred tax effect of U.S. GAAP adjustments               1,224               408                -

----------------------------------------------------------------------------------------------------
Total difference between U.S. GAAP and I.A.S.            (89,475)         (142,236)           3,550
----------------------------------------------------------------------------------------------------

Shareholders' equity in accordance with U.S. GAAP      1,078,287         1,242,759          297,703
----------------------------------------------------------------------------------------------------
</TABLE>


Capitalized development costs

The Company capitalizes certain research and development costs other than for
software development where it is expected that the product under development
will be produced and will be profitable. Such capitalized research and
development costs are amortized over a period no longer than three years. Under
U.S. GAAP, research and development costs other than for software development
are expensed as incurred.

Hedge accounting and financial instruments

Until the adoption of IAS 39, the Company allocated certain instruments designed
as hedge to the underlying transactions and therefore the gains and losses
arising from the performance of the instruments on forecasted transactions were
deferred to future periods. Hedge accounting on forecasted transactions was not
allowed by U.S. accounting standards and contracts were marked to market under
U.S. GAAP with changes in fair value recorded in the Statement of Income in the
current period.

Commencing January 1, 2001 new standards are effective for the Company under
both IAS and U.S. GAAP with respect to accounting policies of financial
instruments; IAS 39 "Accounting for Financial Instruments and SFAS No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities", as amended
by SFAS No. 137 and SFAS No. 138.

After implementation of IAS 39, there is no reconciling items between IAS and US
GAAP related to hedge accounting when reporting net income.

Share options accounting

Certain of the Company's share option plans (Note 24) are treated as
compensatory plans under U.S. GAAP.

For the purpose of this reconciliation, the Company has adopted Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its employees share options.

Under APB 25, unearned compensation is recognized as a reduction in
shareholders' equity when the exercise price of share options is below the fair
value of the underlying shares on the grant date. Unearned compensation is
amortized to compensation expense over the vesting period of the applicable
options. From 1989 to December 31, 2001, the Company granted share options to
employees, which generally vest over four years, with exercise prices at or
below the fair value of the underlying shares.

For purposes of financial reporting under U.S. GAAP, the Company is required to
follow the disclosure provisions of Statement of Financial Accounting Standards
No. 123 (FAS 123), "Accounting for Stock-Based Compensation", which requires
that the Company disclose pro forma net income and earnings per share as if the
Company's compensation expense had been calculated using the minimum value
method prescribed by FAS 123. Had compensation expense for the Plans been
determined based upon the estimated grant date fair value using the fair value
method as provided by FAS 123, the Company's net income and earnings per share
for the years ended December 31, 2001, 2000 and 1999, would have been as
follows:

<TABLE>

                             (in thousands of euros, except for net income per share)
-------------------------------------------------------------------------------------
                                                             Years ended
                                                             December 31,
                                                     2001        2000        1999
-------------------------------------------------------------------------------------
<S>                                               <C>        <C>         <C>
Net income per US GAAP:
   As reported                                     (49,475)   (123,243)   (44,433)
   Pro forma                                      (139,700)   (134,770)   (48,358)

Net income per share per US GAAP - Proforma:
   Basic                                             (0.22)      (0.27)     (0.15)
   Diluted                                           (0.22)      (0.27)     (0.15)
</TABLE>




The fair value of each option grant is estimated on the date of grant using the
Black and Scholes option pricing model, with the following assumptions for
grants made during 2001, 2000 and 1999: dividend yields of 0% for all periods;
annual risk-free interest rate of 4.1%, 5% and 4% for 2001, 2000 and 1999,
respectively; expected volatility of 79%, 30% and 0% for 2001, 2000 and 1999,
respectively; and the expected option vesting period of 4 years for all periods.

In 2000, the Company entered into employment arrangements with Mr. Perez and Dr.
Lassus, whereby each was granted a certain number of free shares and a certain
number of service and performance options (see Note 31). Each of the option
agreements included loan provisions whereby the two individuals could obtain
loans representing 100% of the option exercise price. The loan agreements
included certain prepayment features and, as a result, the related amount of
interest to be paid on the loans was uncertain and, therefore, the ultimate
option price was uncertain. Under U.S. GAAP, when the number of shares and the
option price are unknown, variable plan accounting must be followed. Under
variable plan accounting, compensation cost is re-measured each period based on
the difference between the exercise price and the fair market value of the
stock. This re-measurement occurs up until there is a measurement date (i.e. the
date at which both the number of shares and the option or award prices are
known). Both the service options and performance options granted to these
individuals are accounted for under variable plan accounting when determining
employee compensation expense under U.S. GAAP. A compensation expense of euro
94,080 thousand was recorded in 2000 with respect to the service options and
performance options granted to these individuals, which was reversed in 2001
when the fair market value of the stock went below the exercise price of the
options. Under U.S. GAAP, pursuant to EITF 95-16 "Accounting for Stock
Compensation Arrangements with Loan Features", the loans are presented as a
reduction to shareholders' equity, and the interests on the loans are presented
as a reduction of compensation expense. The Company recorded interest with
respect to these loans in the amount of euro 4,877 thousand. They were reflected
in the Consolidated Statement of Income in interest income under IAS and in
general and administrative expenses under US GAAP.

Purchase consideration

Under US GAAP, certain considerations exchanged in a business combination that
requires continued employment of the selling shareholders are treated as
compensation expenses. Under IAS, the considerations are treated as part of the
purchase price allocation.

Other comprehensive income

For the purpose of this reconciliation, the Company has adopted the accounting
treatment prescribed by SFAS No. 130, "Reporting Comprehensive Income" (FAS
130). FAS 130 establishes standards for reporting comprehensive income (loss)
and its components in financial statements. Comprehensive income (loss), which
includes all changes in equity during a period from non-owner sources, is
composed primarily of the unrealized gains and losses on marketable equity
investments, net of tax, and foreign currency translation adjustments, not
recorded in the consolidated statements of income. After implementation of IAS
39, there are no reconciling items between IAS and U.S. GAAP related to other
comprehensive income, except for the accounting for pension (euro 4,712 thousand
in 2001) and for the foreign currency translation adjustment effect of U.S. GAAP
adjustments (euro 199 thousand in 2001).

FASB Statement No. 87, "Employers' Accounting for Pension", requires the Company
to recognize a minimum pension liability equal to the amount by which the
actuarial present value of the accumulated benefit obligations exceeds the fair
value of plan's assets, i.e. the unfunded amount. This liability is recorded,
net of tax, within other comprehensive income.

33/ Other required U.S. GAAP disclosures

Revenue Recognition

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101) and has amended it in March 2000. The Company has assessed that its revenue
recognition as described in Note 2 complies with the principles identified in
SAB 101.

The Company has considered SOP 97-2, "Software Revenue Recognition". As at
December 31, 2001, the Company has assessed that its revenue recognition related
to licensing, selling, leasing, or otherwise marketing computer software
complies with the principles identified in SOP 97-2 and SOP 98-9, "Modification
of SOP 97.2 Software Revenue Recognition with Respect to Certain Transactions".




New accounting pronouncements under US GAAP

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141, "Business Combinations", and Statement No. 142, "Goodwill and Other
Intangible Assets". Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method business combinations completed after June 30,
2001. Statement 141 also specifies criteria that must be met in order for
intangible assets acquired in a purchase method business combination to be
recognized and reported apart from goodwill, noting that any purchase price
allocable to an assembled workforce may not be accounted for separately.
Statement 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but will instead be tested for impairment
at least annually in accordance with the provisions of Statement 142. Statement
142 will also require that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values and reviewed for impairment in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of".

The Company is required to adopt the provisions of Statement 141 immediately and
Statement 142 effective January 1, 2002 for the presentation of its consolidated
net income and total shareholders' equity under US GAAP.

Amortization expense related to goodwill was euro 11.2 million and euro 27.2
million for the years ended December 31, 2000 and December 31, 2001,
respectively.

The Company estimates that the adoption of SFAS 142 will decrease amortization
expense in 2002 by approximately euro 24 million net of taxes as a result of no
longer amortizing goodwill. In accordance with SFAS 142, the Company has six
months from the date of adoption to complete its initial impairment testing. In
the event an impairment loss is determined in the initial phase, the Company has
until December 31, 2002 to finalize the calculation or effectively until June
30, 2003, the date 20-F is due (six months after year-end).

However, the Company does not expect material changes to the carrying value of
goodwill as a result of the adoption of SFAS 142.

On October 3, 2001, the FASB issued SFAS No. 144 (SFAS 144), Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", it retains many
of the fundamental provisions of that Statement. SFAS No. 144 also supersedes
the accounting and reporting provisions of APB 30, Reporting the Results of
Operations-Discontinued Events and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, to broaden the definition of what constitutes
a discontinued operation and it amends ARB 51, Consolidated Financial Statements
to eliminate the exception to consolidation for a temporarily controlled
subsidiary. SFAS 144 is effective for fiscal years beginning after December 31,
2001. The Company does not expect any material impact on its consolidated net
income and total shareholders' equity under US GAAP resulting from the
implementation of SFAS 144.

Income taxes

The components of income (loss) before income tax are as follows:

                                                 (in thousands of euros)
--------------------------------------------------------------------------

                                                Years ended December 31,
                                          2001         2000          1999
--------------------------------------------------------------------------
Domestic (*)                            (1,436)     (51,630)      (57,591)
Foreign                               (112,968)     180,339        37,529

--------------------------------------------------------------------------
Income before tax                     (114,404)     128,709       (20,062)
--------------------------------------------------------------------------
(*) Luxembourg in 2001 and 2000, France in 1999

Presentation of the Consolidated Statement of Income

Under U.S. GAAP, the consolidated statements of income should be restated to
present goodwill amortization above operating income (loss).

Under IAS, the Company treated the transaction between Gemplus SCA and Gemplus
Associates (see Note 3) consistent with its form as a business combination and
recorded goodwill for the difference between the fair value of the shares issued
and the cash acquired. This transaction was entered into to enable the Company
to terminate Gemplus Associates' general partner status and management contract.
The goodwill of euro 65.4 million that resulted was immediately written off and
included as part of amortization expense in 1999. Under U.S. GAAP, this
transaction to terminate the general partner status and management contract
should be recognized as a legal reorganization expense within operating income.

The operating income would have been as follows under U.S. GAAP:

<TABLE>
                                                                      (in thousands of euros)
---------------------------------------------------------------------------------------------
                                                              Years ended December 31,
                                                           2001          2000          1999
---------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>            <C>
Operating income (loss) per I.A.S.                      (153,625)      127,383        56,719
---------------------------------------------------------------------------------------------
Goodwill amortization                                    (27,162)      (11,204)       (6,411)
Legal reorganization expense                                   -             -       (65,401)
---------------------------------------------------------------------------------------------
Operating income (loss) - US presentation               (180,787)      116,179       (15,093)
---------------------------------------------------------------------------------------------
Capitalized development costs                             (3,227)       (2,291)        3,678
Share options accounting                                  69,262      (229,724)      (10,596)
Purchase consideratons                                    (8,104)            -             -
Interests accrued on loans related to share options        4,877         3,139             -
Other differences                                            564         1,256           396

---------------------------------------------------------------------------------------------
Operating income per U.S. GAAP                          (117,415)     (111,441)      (21,615)
---------------------------------------------------------------------------------------------
</TABLE>

34/ Subsequent events

On February 6, 2002, the Company announced a further restructuring and
rationalization program. This new program involves a planned reduction of its
workforce by approximately 1,140 employees and includes rationalization of its
production and sourcing strategy. As required by International Accounting
Standards, no provision was recorded in the 2001 financial statements with
respect to this restructuring plan, as the plan was not established with
sufficient details nor communicated at the closing date.

<PAGE>

                                    SIGNATURE

         Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date:  June 28, 2002

                                             GEMPLUS INTERNATIONAL S.A.


                                             By: /s/ Yves Guillaumot
                                                 -------------------
                                                 Yves Guillaumot
                                                 Chief Financial Officer